Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014

OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File No. 001-07511
STATE STREET CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts
 
04-2456637
(State or other jurisdiction of incorporation)
 
(I.R.S. Employer Identification No.)
One Lincoln Street
Boston, Massachusetts
 
02111
(Address of principal executive office)
 
(Zip Code)
617-786-3000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
(Title of Each Class)
 
(Name of each exchange on which registered)
Common Stock, $1 par value per share
 
New York Stock Exchange
Depositary Shares, each representing a 1/4,000th ownership interest in a share of Non-Cumulative Perpetual Preferred Stock, Series C, without par value per share
 
New York Stock Exchange
Depositary Shares, each representing a 1/4,000th ownership interest in a share of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series D, without par value per share
 
New York Stock Exchange
Depositary Shares, each representing a 1/4,000th ownership interest in a share of Non-Cumulative Perpetual Preferred Stock, Series E, without par value per share
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  x   No   ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes  ¨  No  x 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes  x   No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  x  No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
    Large accelerated filer  x
 
Accelerated filer  ¨
 
Non-accelerated filer  ¨
 
Smaller reporting company  ¨
 
 
 
 
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes  ¨  No  x
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the per share price ($67.26) at which the common equity was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter (June 30, 2014) was approximately $28.43 billion .
The number of shares of the registrant’s common stock outstanding as of January 31, 2015 was 412,280,622 .
Portions of the following documents are incorporated by reference into Parts of this Report on Form 10-K, to the extent noted in such Parts, as indicated below:
(1) The registrant’s definitive Proxy Statement for the 2015 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A on or before April 30, 2015 (Part III).
 


STATE STREET CORPORATION
Table Of Contents
 
 
 
PART I
 
 
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
 
 
 
 
 
 
 
PART II
 
 
Item 5
Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B
 
 
 
PART III
 
 
Item 10
Item 11
Item 12
Item 13
Item 14
 
 
 
PART IV
 
 
Item 15
 
 
 
 
 



Table of Contents

PART I
ITEM 1. BUSINESS
GENERAL
State Street Corporation, the parent company, is a financial holding company organized in 1969 under the laws of the Commonwealth of Massachusetts. For purposes of this Form 10-K, unless the context requires otherwise, references to “State Street,” “we,” “us,” “our” or similar terms mean State Street Corporation and its subsidiaries on a consolidated basis. The parent company provides financial and managerial support to our legal and operating subsidiaries. Through our subsidiaries, including our principal banking subsidiary, State Street Bank and Trust Company, referred to as State Street Bank, we provide a broad range of financial products and services to institutional investors worldwide.
As of December 31, 2014 , we had consolidated total assets of $274.12 billion , consolidated total deposits of $209.04 billion , consolidated total shareholders' equity of $21.47 billion and 29,970 employees. Our executive offices are located at One Lincoln Street, Boston, Massachusetts 02111 (telephone (617) 786-3000). We operate in more than 100 geographic markets worldwide, including the U.S., Canada, Europe, the Middle East and Asia.
We make available on the “Investor Relations” section of our corporate website at www.statestreet.com\stockholder , free of charge, all reports we electronically file with, or furnish to, the Securities and Exchange Commission, or SEC, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as any amendments to those reports, as soon as reasonably practicable after those documents have been filed with, or furnished to, the SEC. These documents are also accessible on the SEC’s website at www.sec.gov . We have included the website addresses of State Street and the SEC in this report as inactive textual references only. Information on those websites is not part of this Form 10-K.
We have Corporate Governance Guidelines, as well as written charters for the Examining and Audit Committee, the Executive Committee, the Executive Compensation Committee, the Nominating and Corporate Governance Committee, the Risk Committee and the Technology Committee of our Board of Directors, or Board, and a Code of Ethics for senior financial officers, a Standard of Conduct for Directors and a Standard of Conduct for our employees. Each of these documents is posted on the "Investor Relations" section of our website under "Corporate Governance."
 
We provide additional disclosures required by applicable bank regulatory standards, including supplemental qualitative and quantitative information with respect to regulatory capital (including market risk associated with our trading activities), and summary results of semi-annual State Street-run stress tests which we conduct under the Dodd-Frank Wall Street Reform and Consumer Protection Act, or Dodd-Frank Act, on the “Investor Relations” section of our website under "Filings and Reports."
BUSINESS DESCRIPTION
Overview
We are a leader in providing financial services and products to meet the needs of institutional investors worldwide, with $28.19 trillion of assets under custody and administration and $2.45 trillion of assets under management as of December 31, 2014 . Our clients include mutual funds, collective investment funds and other investment pools, corporate and public retirement plans, insurance companies, foundations, endowments and investment managers.
We conduct our business primarily through State Street Bank, which traces its beginnings to the founding of the Union Bank in 1792. State Street Bank's current charter was authorized by a special Act of the Massachusetts Legislature in 1891, and its present name was adopted in 1960. State Street Bank operates as a specialized bank, referred to as a trust and custody bank, that services and manages assets on behalf of its institutional clients.
Additional Information
Additional information about our business activities is provided in the sections that follow. For information about our management of credit and counterparty risk; liquidity risk; operational risk; market risk associated with our trading activities; market risk associated with our non-trading, or asset-and-liability management, activities, primarily composed of interest-rate risk; and capital, as well as other risks inherent in our businesses, refer to “Risk Factors” included under Item 1A, the “Financial Condition” section of Management's Discussion and Analysis of Financial Condition and Results of Operations, or Management's Discussion and Analysis, included under Item 7, and our consolidated financial statements and accompanying notes included under Item 8, of this Form 10-K.
LINES OF BUSINESS
We have two lines of business: Investment Servicing and Investment Management.
Investment Servicing
Our Investment Servicing line of business performs core custody and related value-added


3

Table of Contents

functions, such as providing institutional investors with clearing, payment and settlement services. Our financial services and products allow our large institutional investor clients to execute financial transactions on a daily basis in markets across the globe. As most institutional investors cannot economically or efficiently build their own technology and operational processes necessary to facilitate their global securities settlement needs, our role as a global trust and custody bank is generally to aid our clients to efficiently perform services associated with the clearing, settlement and execution of securities transactions and related payments.
Our investment servicing products and services include: custody; product- and participant-level accounting; daily pricing and administration; master trust and master custody; record-keeping; cash management; foreign exchange, brokerage and other trading services; securities finance; deposit and short-term investment facilities; loans and lease financing; investment manager and alternative investment manager operations outsourcing; and performance, risk and compliance analytics.
We provide mutual fund custody and accounting services in the U.S. We offer clients a broad range of integrated products and services, including accounting, daily pricing and fund administration. We service U.S. tax-exempt assets for corporate and public pension funds, and we provide trust and valuation services for daily-priced portfolios.
We are a service provider outside of the U.S. as well. In Germany, Italy, France and Luxembourg, we provide depotbank services (a fund oversight role created by regulation) for retail and institutional fund assets, as well as custody and other services to pension plans and other institutional clients. In the U.K., we provide custody services for pension fund assets and administration services for mutual fund assets. As of December 31, 2014 , we serviced approximately $1.43 trillion of offshore assets in funds located primarily in Luxembourg, Ireland and the Cayman Islands. As of December 31, 2014 , we serviced $1.34 trillion of assets under administration in the Asia/Pacific region, and in Japan, we serviced approximately 94% of the trust assets serviced by non-domestic trust banks.
We are an alternative asset servicing provider worldwide, servicing hedge, private equity and real estate funds. As of December 31, 2014 , we had approximately $1.32 trillion of alternative assets under administration.
 
Investment Management
We provide our Investment Management services through State Street Global Advisors, or SSGA. SSGA provides a broad array of investment management, investment research and investment advisory services to corporations, public funds and other sophisticated investors. SSGA offers active and passive asset management strategies across equity, fixed-income and cash asset classes. Products are distributed directly and through intermediaries using a variety of investment vehicles, including exchange-traded funds, or ETFs, such as the SPDR ® ETF brand.
Additional information about our lines of business is provided under “Line of Business Information” in Management's Discussion and Analysis included under Item 7, and in note 24 to the consolidated financial statements included under Item 8, of this Form 10-K.
COMPETITION
We operate in a highly competitive environment and face global competition in all areas of our business. Our competitors include a broad range of financial institutions and servicing companies, including other custodial banks, deposit-taking institutions, investment management firms, insurance companies, mutual funds, broker/dealers, investment banks, benefits consultants, business service and software companies and information services firms. As our businesses grow and markets evolve, we may encounter increasing and new forms of competition around the world.
We believe that many key factors drive competition in the markets for our business. For Investment Servicing, quality of service, economies of scale, technological expertise, quality and scope of sales and marketing, required levels of capital and price drive competition, and are critical to our servicing business. For Investment Management, key competitive factors include expertise, experience, availability of related service offerings, quality of service and performance, and price.
Our competitive success may depend on our ability to develop and market new and innovative services, to adopt or develop new technologies, to bring new services to market in a timely fashion at competitive prices, to continue and expand our relationships with existing clients, and to attract new clients.
SUPERVISION AND REGULATION
State Street is registered with the Board of Governors of the Federal Reserve System, which we refer to as the Federal Reserve, as a bank holding company pursuant to the Bank Holding Company Act


4

Table of Contents

of 1956. The Bank Holding Company Act limits the activities in which we and our non-banking subsidiaries may engage to those that the Federal Reserve considers to be closely related to banking, or to managing or controlling banks. These limits also apply to non-banking entities that we are deemed to “control” for purposes of the Bank Holding Company Act, which may include companies of which we own or control more than 5% of a class of voting shares. The Federal Reserve may order a bank holding company to terminate any activity, or its ownership or control of a non-banking subsidiary, if the Federal Reserve finds that the activity, ownership or control constitutes a serious risk to the financial safety, soundness or stability of a banking subsidiary or is inconsistent with sound banking principles or statutory purposes. The Bank Holding Company Act also requires a bank holding company to obtain prior approval of the Federal Reserve before it acquires substantially all the assets of any bank, or ownership or control of more than 5% of the voting shares of any bank.
The parent company is qualified as, and has elected to become, a financial holding company, which increases to some extent the scope of activities in which it may engage. A financial holding company and the entities under its control are permitted to engage in activities considered “financial in nature” as defined by the Bank Holding Company Act and the Federal Reserve’s implementing rules and interpretations, and therefore State Street may engage in a broader range of activities than permitted for bank holding companies and their subsidiaries that have not elected to become financial holding companies. Financial holding companies may engage directly or indirectly in activities that are defined to be financial in nature, either de novo or by acquisition, provided that the financial holding company gives the Federal Reserve after-the-fact notice of the new activities. Activities defined to be financial in nature include, but are not limited to, the following: providing financial or investment advice; underwriting; dealing in or making markets in securities; making merchant banking investments, subject to significant limitations; and any activities previously found by the Federal Reserve to be closely related to banking. In order to maintain our status as a financial holding company, we and each of our depository institution subsidiaries must be well capitalized and well managed, as defined in applicable regulations and determined in part by the results of regulatory examinations, and must comply with Community Reinvestment Act obligations. Failure to maintain these standards may ultimately permit the Federal Reserve to take enforcement actions against us and restrict our ability to engage in activities defined to be financial in nature. Currently,
 
under the Bank Holding Company Act, we may not be able to engage in new activities or acquire shares or control of other businesses.
The Dodd-Frank Act, which became law in July 2010, has had, and will continue to have, a significant effect on the regulatory structure of the financial markets and supervision of bank holding companies, banks and other financial institutions. The Dodd-Frank Act, among other things: established the Financial Stability Oversight Council, or FSOC, to monitor systemic risk posed by financial institutions; enacted new restrictions on proprietary trading and private-fund investment activities by banks and their affiliates, commonly known as the “Volcker rule” (refer to our discussion of the Volcker rule provided below under “Regulatory Capital Adequacy and Liquidity Standards” in this “Supervision and Regulation” section); created a new framework for the regulation of derivatives and the entities that engage in derivatives trading; altered the regulatory capital treatment of trust preferred and other hybrid capital securities; revised the assessment base that is used by the Federal Deposit Insurance Corporation, or FDIC, to calculate deposit insurance premiums; and required large financial institutions to develop plans for their resolution under the U.S. Bankruptcy Code (or other specifically applicable insolvency regime) in the event of material financial distress or failure.
Another aspect of the Dodd-Frank Act is its adoption of capital planning and stress test requirements for large bank holding companies, including us. We are required by the Federal Reserve to conduct periodic stress testing of our business operations and to develop an annual capital plan as part of the Federal Reserve’s Comprehensive Capital Analysis and Review process. That process is used by the Federal Reserve to evaluate our management of capital, the adequacy of our regulatory capital and the potential requirement for us to maintain capital levels above regulatory minimums. Before making any capital distribution, including stock purchases and dividends, we must receive no objection to our capital plan from the Federal Reserve. This could require us to revise our stress-testing or capital management approaches, resubmit our capital plan or postpone, cancel or alter our planned capital actions. In addition, changes in our strategy, merger or acquisition activity or unanticipated uses of capital could result in a change in our capital plan and its associated capital actions, and may require resubmission of the capital plan to the Federal Reserve for its non-objection. For additional information regarding capital planning and stress test requirements and restrictions on dividends, refer to “”Capital Planning, Stress Tests and Dividends” in this “Supervision and Regulation” section and “Item 5. Market for Registrant’s Common


5

Table of Contents

Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities” in Part II of this Form 10-K.
In addition, regulatory change is being implemented internationally with respect to financial institutions, including, but not limited to, the implementation of the Basel III final rule (refer to “Regulatory Capital Adequacy and Liquidity Standards” below in this “Supervision and Regulation” section and “Financial Condition - Capital” in Management's Discussion and Analysis included under Item 7 of this Form 10-K for a discussion of Basel III) and the Alternative Investment Fund Managers Directive, or AIFMD, the European Market Infrastructure Resolution, or EMIR, revisions to the European collective investment fund, or UCITS, directive, revisions to the Markets in Financial Instruments Directive, or MIFID, and ongoing review of European Union data protection regulation.
Many aspects of our business are subject to regulation by other U.S. federal and state governmental and regulatory agencies and self-regulatory organizations (including securities exchanges), and by non-U.S. governmental and regulatory agencies and self-regulatory organizations. Some aspects of our public disclosure, corporate governance principles and internal control systems are subject to the Sarbanes-Oxley Act of 2002, the Dodd-Frank Act and regulations and rules of the SEC and the New York Stock Exchange.
Regulatory Capital Adequacy and Liquidity Standards
Like other U.S. bank holding companies, we and our depository institution subsidiaries are subject to the current U.S. minimum risk-based capital and leverage ratio guidelines, referred to as Basel III. As noted above, the status of our parent company as a financial holding company also requires that we and our depository institution subsidiaries maintain specified regulatory capital ratio levels. As of December 31, 2014 , our regulatory capital levels on a consolidated basis, and the regulatory capital levels of State Street Bank, our principal banking subsidiary, exceeded the currently applicable minimum capital requirements under Basel III and the requirements we must meet for the parent company to qualify as a financial holding company.
The U.S. Basel III final rule replaced the Basel I- and Basel II-based capital regulations in the United States. As an “advanced approaches” banking organization (refer to the “Financial Condition - Capital” section of Management's Discussion and Analysis included under Item 7 of this Form 10-K for a discussion of advanced approaches), State Street became subject to the U.S. Basel III final rule beginning on January 1, 2014. However, certain
 
aspects of the U.S. Basel III final rule, including the new minimum risk-based and leverage capital ratios, capital buffers, regulatory adjustments and deductions and revisions to the calculation of risk-weighted assets under the so-called “standardized approach,” will commence at a later date or be phased in over several years.
Among other things, the U.S. Basel III final rule introduces a minimum common equity tier 1 risk-based capital ratio of 4.5%, raises the minimum tier 1 risk-based capital ratio from 4% to 6%, and, for advanced approaches banking organizations such as State Street, imposes a minimum supplementary tier 1 leverage ratio of 3%, the numerator of which is tier 1 capital and the denominator of which includes both on-balance sheet assets and certain off-balance sheet exposures. In addition to the supplementary leverage ratio, State Street is subject to a minimum tier 1 leverage ratio of 4%, which differs from the supplementary leverage ratio primarily in that the denominator of the tier 1 leverage ratio is quarterly average on-balance sheet assets.
The U.S. Basel III final rule also introduces a capital conservation buffer and a countercyclical capital buffer that add to the minimum risk-based capital ratios. Specifically, the final rule limits a banking organization’s ability to make capital distributions and discretionary bonus payments to executive officers if it fails to maintain a common equity tier 1 capital conservation buffer of more than 2.5% of total risk-weighted assets and, if deployed during periods of excessive credit growth, a common equity tier 1 countercyclical capital buffer of up to 2.5% of total risk-weighted assets, above each of the minimum common equity tier 1, and tier 1 and total risk-based capital ratios. Banking regulators have initially set the countercyclical capital buffer at zero.
To maintain the status of our parent company as a financial holding company, we and our insured depository institution subsidiaries are required to be “well-capitalized” by maintaining capital ratios above the minimum requirements. Effective on January 1, 2015, the “well-capitalized” standard for our banking subsidiaries was revised to reflect the higher capital requirements in the U.S. Basel III final rule.
In addition to introducing new capital ratios and buffers, the U.S. Basel III final rule revises the eligibility criteria for regulatory capital instruments and provides for the phase-out of existing capital instruments that do not satisfy the new criteria. For example, existing trust preferred capital securities are being phased out from tier 1 capital over a two-year period beginning on January 1, 2014 and ending on January 1, 2016, and subsequently, the qualification of these securities as tier 2 capital will be phased out over a multi-year transition period beginning on


6

Table of Contents

January 1, 2016 and ending on January 1, 2022. We had trust preferred capital securities of $475 million outstanding as of December 31, 2014 .
Under the U.S. Basel III final rule, certain new items are deducted from common equity tier 1 capital and certain regulatory capital deductions were modified as compared to the previously applicable capital regulations. Among other things, the final rule requires significant investments in the common stock of unconsolidated financial institutions, as defined, and certain deferred tax assets that exceed specified individual and aggregate thresholds to be deducted from common equity tier 1 capital. As an advanced approaches banking organization, after-tax unrealized gains and losses on investment securities classified as available for sale, which are excluded from tier 1 capital under Basel I and Basel II, flow through to and affect State Street’s and State Street Bank's common equity tier 1 capital, subject to a phase-in schedule.
On January 1, 2015, the U.S. Basel III final rule replaced the existing Basel I-based approach for calculating risk-weighted assets with the U.S. Basel III standardized approach that, among other things, modifies certain existing risk weights and introduces new methods for calculating risk-weighted assets for certain types of assets and exposures. The final rule also revised the Basel II-based advanced approaches capital rules to implement Basel III and certain provisions of the Dodd-Frank Act.
On February 21, 2014, we were notified by the Federal Reserve that we had completed our parallel run period. Consequently, since the second quarter of 2014, we are required to use the advanced approaches framework as provided in the Federal Reserve's July 2013 Basel III final rule in the determination of our risk-based capital requirements. The Dodd-Frank Act applies a "capital floor" to advanced approaches banking organizations, such as State Street and State Street Bank. As of January 1, 2015, the Basel III standardized approach acts as that capital floor. As a result, we are required to calculate our risk-based capital ratios under both the Basel III advanced approach and the Basel III standardized approach, and we are subject to the more stringent of the risk-based capital ratios calculated under the standardized approach and those calculated under the advanced approach in the assessment of our capital adequacy under the prompt corrective action framework.
In addition to the U.S. Basel III final rule, the Dodd-Frank Act requires the Federal Reserve to establish more stringent capital requirements for large bank holding companies, including State Street. The Federal Reserve has addressed this requirement by, among other things, proposing to implement the Basel Committee’s capital surcharge for “global
 
systemically important banks,” or G-SIBs. Specifically, on December 9, 2014, the Federal Reserve issued a proposed rulemaking to establish a risk-based capital surcharge for U.S. G-SIBs, such as State Street. Under the proposed rule, a G-SIB’s capital conservation buffer would be increased by the amount of the capital surcharge, using the higher surcharge as determined under two proposed methods. The first proposed method would consider a G-SIB’s size, interconnectedness, cross-jurisdictional activity, substitutability, and complexity, whereas the second proposed method would replace substitutability with use of short-term wholesale funding. If the rulemaking is finalized as proposed,
the capital surcharge could be higher for U.S. G-SIB's than the capital surcharge as determined under the framework proposed by the Basel Committee. Under the proposed rule, the capital surcharge would be phased in beginning in 2016 and would become fully effective on January 1, 2019. State Street is assessing the impact of the capital surcharge that would result if the proposed rule were implemented and the effects of maintaining capital levels necessary to meet the surcharge could be material.
In November 2014, the Financial Stability Board, or FSB, published a consultative document with a proposal to enhance the total loss-absorbing capacity, or TLAC, of G-SIBs in resolution. The proposal calls for G-SIBs to maintain TLAC in excess of prescribed minimum thresholds. TLAC would include regulatory capital and liabilities that can be written down or converted into equity during resolution. At a minimum, each G-SIB would need to hold TLAC in an amount equivalent to between 16% and 20% of its risk-weighted assets (plus applicable regulatory buffers) or at least twice the relevant Basel III tier 1 leverage ratio requirement. The proposal states that G-SIBs will not be expected to meet TLAC requirements before January 1, 2019. The FSB is expected to finalize its proposal in late 2015. U.S. banking regulators have not yet issued a proposal to implement TLAC requirements.
Supplementary Leverage Ratio Framework
On April 8, 2014, U.S. banking regulators issued a final rule enhancing the supplementary leverage ratio, or SLR, standards for U.S. G-SIB’s, such as State Street, and their insured depository institution subsidiaries, such as State Street Bank. We refer to this final rule as the eSLR final rule. Under the eSLR final rule, upon implementation on January 1, 2018, State Street Bank must maintain an SLR of at least 6% to be well capitalized under the U.S. banking regulators’ prompt corrective action provisions. The eSLR final rule also provides that if State Street maintains an SLR greater than 5%, it is not subject to limitations on distributions and discretionary bonus


7

Table of Contents

payments under the eSLR final rule, but could continue to be under other provisions of the Basel III final rule, including risk-based capital ratio requirements.
On September 3, 2014, U.S. banking regulators issued a final rule modifying the definition of the denominator of the SLR in a manner consistent with recent changes agreed to by the Basel Committee. The revisions to the SLR apply to all banking organizations subject to the advanced approaches provisions of the Basel III final rule, such as State Street. Specifically, the SLR final rule modifies the methodology for including off-balance
sheet assets, including credit derivatives, repo-style transactions, and commitments and guarantees, in the denominator of the SLR, and requires banking organizations to calculate their total leverage exposure using daily averages for on-balance sheet assets and the average of three month-end calculations for off-balance sheet exposures. Certain public disclosures required by the SLR final rule must be provided beginning with the first quarter of 2015, and the minimum SLR requirement using the SLR final rule’s denominator calculations is effective beginning on January 1, 2018.
Liquidity Coverage Ratio and Net Stable Funding Ratio
In addition to capital standards, the Basel III final rule introduced two quantitative liquidity standards: the liquidity coverage ratio, or LCR, and the net stable funding ratio, or NSFR.
The LCR requires banking organizations to maintain a minimum amount of liquid assets to withstand a short-term liquidity stress period of thirty days. It is intended to promote the short-term resilience of the liquidity risk profile of internationally active banking organizations, improve the banking industry's ability to absorb shocks arising from financial and economic stress, and improve the measurement and management of liquidity risk. On September 3, 2014, U.S. banking regulators issued a final rule to implement the Basel Committee's LCR in the U.S.
The LCR measures an institution's high-quality liquid assets, or HQLA, against its net cash outflows. The LCR will be phased in, as originally proposed, beginning on January 1, 2015, at 80%, with full implementation beginning on January 1, 2017.
Beginning with January 2015, State Street is required to report its LCR to the Federal Reserve on a monthly basis. Daily reporting of the LCR to the Federal Reserve will be required beginning with July 2015.
The LCR final rule is largely similar to the proposed rule issued by U.S. banking regulators in
 
October 2013; however, the final rule contains several changes and clarifications, including revisions to the definition of operational deposits and more favorable foreign exchange netting treatment, both of which we expect to benefit our LCR ratio, and the exclusion as operational deposits of deposits from non-regulated funds, which we expect to negatively affect our LCR ratio.
Compliance with the LCR has required that we maintain an investment portfolio that contains an adequate amount of HQLA. In general, HQLA investments generate a lower investment return than other the types of investments, resulting in a negative impact on our net interest revenue and our net interest margin.  In addition, the level of HQLA we are required to maintain under the LCR is dependent upon our client relationships and the nature of services we provide, which may change over time.  For example, if the percentage of our operational deposits relative to non-operational deposits increases, we would expect to require less HQLA in order to maintain our LCR.  Conversely, if the percentage of non-operational deposits increases relative to our operational deposits, we would expect to require additional HQLA in order to maintain our LCR.
In October 2014, the Basel Committee issued final guidance with respect to the NSFR. The NSFR will require banking organizations to maintain a stable funding profile relative to the composition of their assets and off-balance sheet activities. The NSFR limits over-reliance on short-term wholesale funding, encourages better assessment of funding risk across all on- and off-balance sheet exposures, and promotes funding stability. The final guidance establishes a one-year liquidity standard representing the proportion of long-term assets funded by long-term stable funding, with the NSFR scheduled to become a minimum standard beginning on January 1, 2018.
We are reviewing the specifics of the final guidance and will evaluate the U.S. implementation of this standard to analyze its impact and develop strategies for compliance. U.S. banking regulators have not yet issued a proposal to implement the NSFR.
Failure to meet current and future regulatory capital requirements could subject us to a variety of enforcement actions, including the termination of State Street Bank's deposit insurance by the FDIC, and to certain restrictions on our business, including those that are described above in this “Supervision and Regulation” section.
For additional information about our regulatory capital position and our regulatory capital adequacy, as well as current and future regulatory capital


8

Table of Contents

requirements, refer to “Financial Condition - Capital” in Management's Discussion and Analysis included under Item 7, and note 15 to the consolidated financial statements included under Item 8, of this Form 10-K.
Capital Planning, Stress Tests and Dividends
Pursuant to the Dodd-Frank Act, the Federal Reserve has adopted capital planning and stress test requirements for large bank holding companies, including us, which form part of the Federal Reserve’s annual Comprehensive Capital Analysis and Review, or CCAR, framework. Under the Federal Reserve’s capital plan final rule, we must submit an annual capital plan to the Federal Reserve, taking into account the results of separate stress tests designed by us and by the Federal Reserve.
The capital plan must include a description of all of our planned capital actions over a nine-quarter planning horizon, including any issuance of debt or equity capital instruments, any capital distribution, such as payments of dividends on, or purchases of, our stock, and any similar action that the Federal Reserve determines could affect our consolidated capital. The capital plan must include a discussion of how we will maintain capital above the minimum regulatory capital ratios, including the minimum ratios under the U.S. Basel III final rule that are phased in over the planning horizon, and serve as a source of strength to our U.S. depository institution subsidiaries under supervisory stress scenarios. The capital plan requirements mandate that we receive no objection to our plan from the Federal Reserve before making a capital distribution. In addition, even with a capital plan for which we have received no objection from the Federal Reserve, we must seek the approval of the Federal Reserve before making a capital distribution if, among other reasons, we would not meet our regulatory capital requirements after making the proposed capital distribution.
In addition to its capital planning requirements, the Federal Reserve has the authority to prohibit or to limit the payment of dividends by the banking organizations it supervises, including us and State Street Bank, if, in the Federal Reserve’s opinion, the payment of a dividend would constitute an unsafe or unsound practice in light of the financial condition of the banking organization. All of these policies and other requirements could affect our ability to pay dividends and purchase our stock, or require us to provide capital assistance to State Street Bank and any other banking subsidiary.
We expect that, by March 31, 2015, the Federal Reserve will either provide a notice of non-objection or object to our 2015 capital plan, which we submitted to the Federal Reserve in January 2015.
 
In October 2012, the Federal Reserve issued a final rule to implement its capital stress-testing requirements under the Dodd-Frank Act that require us to conduct semi-annual State Street-run stress tests. Under this rule, we are required to publicly disclose the summary results of our State Street-run stress tests under the severely adverse economic scenario. In September 2014, we provided summary results of our 2014 semi-annual State Street-run stress tests on the “Investor Relations” section of our corporate website. The rule also subjects us to an annual supervisory stress test conducted by the Federal Reserve.
The Dodd-Frank Act also requires State Street Bank to conduct an annual stress test. State Street Bank submitted its 2015 annual State Street Bank-run stress test to the Federal Reserve in January 2015.
The Volcker Rule
In December 2013, U.S. regulators issued final regulations to implement the Volcker rule. The Volcker rule will, over time, prohibit banking entities, including us and our affiliates, from engaging in certain prohibited proprietary trading activities, as defined in the final Volcker rule regulations, subject to exemptions for market making-related activities, risk-mitigating hedging, underwriting and certain other activities. The Volcker rule will also require banking entities to either restructure or divest certain ownership interests in, and relationships with, covered funds (as such terms are defined in the final Volcker rule regulations).
The Volcker rule became effective on July 21, 2012, and the final implementing regulations became effective on April 1, 2014. In the absence of an applicable extension of the Volcker rule’s general conformance period, a banking entity must bring its activities and investments into conformance with the Volcker rule and its final implementing regulations by July 21, 2015. In December 2014, the Federal Reserve issued an order, the 2016 conformance period extension, extending the Volcker rule’s general conformance period until July 21, 2016 for investments in and relationships with covered funds and certain foreign funds that were in place on or prior to December 31, 2013, referred to as legacy covered funds. Under the 2016 conformance period extension, all investments in and relationships related to investments in a covered fund made or entered into after that date by a banking entity and its affiliates, and all proprietary trading activities of those entities, must be in conformance with the Volcker rule and its final implementing regulations by July 21, 2015. The Federal Reserve stated in the 2016 conformance period extension that it intends to grant a final one-year extension of the general conformance period, to July 21, 2017, for banking


9

Table of Contents

entities to conform ownership interests in and relationships with legacy covered funds.
Whether certain types of investment securities or structures, such as collateralized loan obligations, or CLOs, constitute covered funds, as defined in the final Volcker rule regulations, and do not benefit from the exemptions provided in the Volcker rule, and whether a banking organization's investments therein constitute ownership interests remain subject to (1) market, and ultimately regulatory, interpretation, and (2) the specific terms and other characteristics relevant to such investment securities and structures.
As of December 31, 2014 , we held approximately $4.54 billion of investments in CLOs. As of the same date, these investments had an aggregate pre-tax net unrealized gain of approximately $97 million , composed of gross unrealized gains of $105 million and gross unrealized losses of $8 million . In the event that we or our banking regulators conclude that such investments in CLOs, or other investments, are covered funds, we may be required to divest of such investments. If other banking entities reach similar conclusions with respect to similar investments held by them, the prices of such investments could decline significantly, and we may be required to divest of such investments at a significant discount compared to the investments' book value. This could result in a material adverse effect on our consolidated results of operations in the period in which such a divestment occurs or on our consolidated financial condition.
We are reviewing our activities that are affected by the final Volcker rule regulations and are taking steps to bring those activities into conformity with the Volcker rule. The final Volcker rule regulations also require banking entities to establish extensive programs designed to ensure compliance with the restrictions of the Volcker rule. We are in the process of establishing the necessary compliance program to comply with the final Volcker rule regulations. Such compliance program will restrict our ability in the future to service certain types of funds, in particular covered funds for which SSGA acts as an advisor and certain types of trustee relationships. Consequently, Volcker rule compliance will entail both the cost of a compliance program and loss of certain revenue and future opportunities.
Enhanced Prudential Standards
The Dodd-Frank Act established a new regulatory framework to regulate banking organizations designated as “systemically important financial institutions,” or SIFIs, and has subjected them to heightened prudential standards, including heightened capital, leverage, liquidity and risk management requirements, single-counterparty credit limits and early remediation requirements. Bank
 
holding companies with $50 billion or more in consolidated assets, which includes us, became automatically subject to the systemic-risk regime in July 2010.
The FSOC, established by the Dodd-Frank Act as discussed earlier, can recommend prudential standards, reporting and disclosure requirements to the Federal Reserve for SIFIs, and must approve any finding by the Federal Reserve that a financial institution poses a grave threat to financial stability and must undertake mitigating actions. The FSOC is also empowered to designate systemically important payment, clearing and settlement activities of financial institutions, subjecting them to prudential supervision and regulation, and, assisted by the new Office of Financial Research within the U.S. Department of the Treasury, also established by the Dodd-Frank Act, can gather data and reports from financial institutions, including us.
In February 2014, the Federal Reserve approved a final rule implementing certain of the Dodd-Frank Act’s enhanced prudential standards for large bank holding companies such as State Street. Under the final rule, we will have to comply with various liquidity-related risk management standards and maintain a liquidity buffer of unencumbered highly liquid assets based on the results of internal liquidity stress testing. This liquidity buffer is in addition to other liquidity requirements, such as the LCR and, when implemented, the NSFR. The final rule also establishes requirements and responsibilities for our risk committee and mandates risk management standards. We became subject to these new standards on January 1, 2015. Final rules on single counterparty credit limits and an early termination framework have not yet been promulgated. Refer to the risk factor titled “We assume significant credit risk to counterparties, many of which are major financial institutions. These financial institutions and other counterparties may also have substantial financial dependencies with other financial institutions and sovereign entities. This credit exposure and concentration could expose us to financial loss” included under "Risk Factors" under Item 1A of this Form 10-K. In addition, the proposed rules would create a new early-remediation regime to address financial distress or material management weaknesses determined with reference to four levels of early remediation, including heightened supervisory review, initial remediation, recovery, and resolution assessment, with specific limitations and requirements tied to each level.
The systemic-risk regime also provides that, for institutions deemed to pose a grave threat to U.S. financial stability, the Federal Reserve, upon an FSOC vote, must limit that institution’s ability to


10

Table of Contents

merge, restrict its ability to offer financial products, require it to terminate activities, impose conditions on activities or, as a last resort, require it to dispose of assets. Upon a grave-threat determination by the FSOC, the Federal Reserve must issue rules that require financial institutions subject to the systemic-risk regime to maintain a debt-to-equity ratio of no more than 15 to 1 if the FSOC considers it necessary to mitigate the risk of the grave threat. The Federal Reserve also has the ability to establish further standards, including those regarding contingent capital, enhanced public disclosures, and limits on short-term debt, including off-balance sheet exposures.
Resolution Planning
As required by the Dodd-Frank Act, the FDIC and the Federal Reserve jointly issued a final rule pursuant to which we are required to submit annually to the Federal Reserve and the FDIC a plan for our rapid and orderly resolution under the Bankruptcy Code (or other specifically applicable insolvency regime) in the event of material financial distress or failure, referred to as a resolution plan. The FDIC also issued a final rule pursuant to which State Street Bank is required to submit annually to the FDIC a plan for resolution in the event of its failure. We and State Street Bank submitted our most recent annual resolution plans to the Federal Reserve and the FDIC on July 1, 2014. In August 2014, the Federal Reserve and the FDIC announced the completion of their reviews of resolution plans submitted in 2013 by 11 large, complex banking organizations, including State Street, under the requirements of the Dodd-Frank Act, and informed each of these organizations of specific shortcomings with their respective 2013 resolution plans. If we fail to meet regulatory expectations to the satisfaction of the Federal Reserve and the FDIC in the submission of our 2015 resolution plan, we could be subject to more stringent capital, leverage or liquidity requirements, restrictions on our growth, activities or operations, or be required to divest certain of our assets or operations.
Orderly Liquidation Authority
Under the Dodd-Frank Act, certain financial companies, including bank holding companies such as State Street, and certain covered subsidiaries, can be subjected to a new orderly liquidation authority. The U.S. Treasury Secretary, in consultation with the President, must first make certain extraordinary financial distress and systemic risk determinations, and action must be recommended by two-thirds of the FDIC Board and two-thirds of the Federal Reserve Board. Absent such actions, we, as a bank holding company, would remain subject to the U.S. Bankruptcy Code.
 
The orderly liquidation authority went into effect in July 2010, and rulemaking is proceeding in stages, with some regulations now finalized and others planned but not yet proposed. If we were subject to the orderly liquidation authority, the FDIC would be appointed as our receiver, which would give the FDIC considerable powers to resolve us, including: (1) the power to remove officers and directors responsible for our failure and to appoint new directors and officers; (2) the power to assign assets and liabilities to a third party or bridge financial company without the need for creditor consent or prior court review; (3) the ability to differentiate among creditors, including by treating junior creditors better than senior creditors, subject to a minimum recovery right to receive at least what they would have received in bankruptcy liquidation; and (4) broad powers to administer the claims process to determine distributions from the assets of the receivership to creditors not transferred to a third party or bridge financial institution.
In December 2013, the FDIC released its proposed single-point-of-entry strategy for resolution of a SIFI under the orderly liquidation authority. The FDIC’s release outlines how it would use its powers under the orderly liquidation authority to resolve a SIFI by placing its top-tier U.S. holding company in receivership and keeping its operating subsidiaries open and out of insolvency proceedings by transferring the operating subsidiaries to a new bridge holding company, recapitalizing the operating subsidiaries and imposing losses on the shareholders and creditors of the holding company in receivership according to their statutory order of priority.
Derivatives
Title VII of the Dodd-Frank Act imposes a new regulatory structure on the over-the-counter derivatives market, including requirements for clearing, exchange trading, capital, margin, reporting and record-keeping. In addition, certain derivative activities are required to be pushed out of insured depository institutions and conducted in separately capitalized non-bank affiliates. Title VII also requires certain persons to register as a major swap participant, a swap dealer or a securities-based swap dealer. The Commodity Futures Trading Commission, or CFTC, the SEC and other U.S. regulators have adopted and are still in the process of adopting regulations to implement Title VII. Through this rulemaking process, these regulators collectively have adopted or proposed, among other things, regulations relating to reporting and record-keeping obligations, margin and capital requirements, the scope of registration and the central clearing and exchange trading requirements for certain over-the-counter derivatives. The CFTC has also issued rules to enhance the oversight of clearing and trading


11

Table of Contents

entities. The CFTC, along with other regulators, including the Federal Reserve, are also in the process of proposing and finalizing additional rules, such as with respect to margin requirements for uncleared derivatives transactions.
State Street Bank has registered provisionally with the CFTC as a swap dealer. As a provisionally registered swap dealer, State Street Bank is subject to significant regulatory obligations regarding its swap activity and the supervision, examination and enforcement powers of the CFTC and other regulators. In December 2013, the CFTC granted State Street Bank a limited-purpose swap dealer designation. Under this limited-purpose designation, interest-rate swap activity engaged in by State Street Bank’s Global Treasury group is not subject to certain of the swap regulatory requirements otherwise applicable to swaps entered into by a registered swap dealer, subject to a number of conditions. For all other swap transactions, our swap activities remain subject to all applicable swap dealer regulations.
Money Market Funds
In July 2014, the SEC adopted amendments to the regulations governing money market funds to address potential systemic risks and improve transparency for money market fund investors. Among other things, the amendments require a floating net asset value for institutional prime money market funds (i.e., money market funds that are either not restricted to natural person investors or not restricted to investing primarily in U.S. government securities) and permit (and in some cases require) all money market funds to impose redemption fees and gates under certain circumstances. As a result of these reforms, money market funds may be required to take certain steps that will affect their structure and/or operations, which could in turn affect the liquidity, marketability and return potential of such funds. Full conformance with these amendments is required by October 14, 2016.
Money market reforms are also being considered in Europe. The timing and content of those regulations remains uncertain. The SEC's July 2014 amended regulations, and the potential reforms in Europe, could alter the business models of money market fund sponsors and asset managers, including many of our servicing clients and SSGA, and may result in reduced levels of investment in money market funds. As a result, these requirements may have an adverse impact on our business, our operations or our consolidated results of operations.
Subsidiaries
The Federal Reserve is the primary federal banking agency responsible for regulating us and our
 
subsidiaries, including State Street Bank, with respect to both our U.S. and non-U.S. operations.
Our banking subsidiaries are subject to supervision and examination by various regulatory authorities. State Street Bank is a member of the Federal Reserve System, its deposits are insured by the FDIC and it is subject to applicable federal and state banking laws and to supervision and examination by the Federal Reserve, as well as by the Massachusetts Commissioner of Banks, the FDIC, and the regulatory authorities of those states and countries in which State Street Bank operates a branch. Our other subsidiary trust companies are subject to supervision and examination by the Office of the Comptroller of the Currency, the Federal Reserve or by the appropriate state banking regulatory authorities of the states in which they are organized and operate. Our non-U.S. banking subsidiaries are subject to regulation by the regulatory authorities of the countries in which they operate. As of December 31, 2014 , the capital of each of these banking subsidiaries exceeded the minimum legal capital requirements set by those regulatory authorities.
We and our subsidiaries that are not subsidiaries of State Street Bank are affiliates of State Street Bank under federal banking laws, which impose restrictions on various types of transactions, including loans, extensions of credit, investments or asset purchases by or from State Street Bank, on the one hand, to us and those of our subsidiaries, on the other. Transactions of this kind between State Street Bank and its affiliates are limited with respect to each affiliate to 10% of State Street Bank’s capital and surplus, as defined by the aforementioned banking laws, and to 20% in the aggregate for all affiliates, and in some cases are also subject to strict collateral requirements. Under the Dodd-Frank Act, effective in July 2012, derivatives, securities borrowing and securities lending transactions between State Street Bank and its affiliates became subject to these restrictions. The Dodd-Frank Act also expanded the scope of transactions required to be collateralized. In addition, the Volcker rule generally prohibits similar transactions between the parent company or any of its affiliates and covered funds for which we or any of our affiliates serve as the investment manager, investment adviser, commodity trading advisor or sponsor and other covered funds organized and offered pursuant to specific exemptions in the final Volcker rule regulations.


12

Table of Contents

Federal law also requires that certain transactions with affiliates be on terms and under circumstances, including credit standards, that are substantially the same, or at least as favorable to the institution, as those prevailing at the time for comparable transactions involving other non-affiliated companies. Alternatively, in the absence of comparable transactions, the transactions must be on terms and under circumstances, including credit standards, that in good faith would be offered to, or would apply to, non-affiliated companies. State Street Bank is also prohibited from engaging in certain tie-in arrangements in connection with any extension of credit or lease or sale of property or furnishing of services. Federal law provides as well for a depositor preference on amounts realized from the liquidation or other resolution of any depository institution insured by the FDIC.
Our subsidiaries, SSGA Funds Management, Inc., or SSGA FM, and State Street Global Advisors Limited, or SSGA Ltd., act as investment advisers to investment companies registered under the Investment Company Act of 1940. SSGA FM, incorporated in Massachusetts in 2001 and headquartered in Boston, Massachusetts, is registered with the SEC as an investment adviser under the Investment Advisers Act of 1940 and is registered with the CFTC as a commodity trading adviser and pool operator. SSGA Ltd., incorporated in 1990 as a U.K. limited company and domiciled in the U.K., is also registered with the SEC as an investment adviser under the Investment Advisers Act of 1940. SSGA Ltd. is also authorized and regulated by the U.K. Financial Conduct Authority, or FCA, and is an investment firm under the Markets in Financial Instruments Directive. SSGA FM and SSGA Ltd. each offer a variety of investment management solutions, including active, enhanced and passive equity, active and passive fixed-income, cash management, multi-asset class solutions and real estate. In addition, a major portion of our investment management activities are conducted by State Street Bank, which is subject to supervision primarily by the Federal Reserve with respect to these activities.
Our U.S. broker/dealer subsidiary is registered as a broker/dealer with the SEC, is subject to regulation by the SEC (including the SEC’s net capital rule) and is a member of the Financial Industry Regulatory Authority, a self-regulatory organization. The U.K. broker/dealer business operates through our subsidiary, State Street Global Markets International Limited, which is registered in the U.K. as a regulated securities broker, is authorized and regulated by the FCA and is an investment firm under the Market in Financial Instruments Directive. It is also a member of the London Stock Exchange. In accordance with the rules of the FCA, the U.K.
 
broker/dealer publishes information on its risk management objectives and on policies associated with its regulatory capital requirements and resources. Many aspects of our investment management activities are subject to federal and state laws and regulations primarily intended to benefit the investment holder, rather than our shareholders.
Our activities as a futures commission merchant are subject to regulation by the CFTC in the U.S. and various regulatory authorities internationally, as well as the membership requirements of the applicable clearinghouses. In addition, we have a subsidiary registered with the CFTC as a swap execution facility, and our U.S. broker/dealer subsidiary also offers a U.S. equities alternative trading system registered with the SEC.
These laws and regulations generally grant supervisory agencies and bodies broad administrative powers, including the power to limit or restrict us from conducting our investment management activities in the event that we fail to comply with such laws and regulations, and examination authority. Our business related to investment management and trusteeship of collective trust funds and separate accounts offered to employee benefit plans is subject to the Employee Retirement Income Security Act, or ERISA, and is regulated by the U.S. Department of Labor.
Our businesses, including our investment management and securities and futures businesses, are also regulated extensively by non-U.S. governments, securities exchanges, self-regulatory organizations, central banks and regulatory bodies, especially in those jurisdictions in which we maintain an office. For instance, among others, the FCA, the Prudential Regulatory Authority and the Bank of England regulate our activities in the U.K.; the Central Bank of Ireland regulates our activities in Ireland; the Commission de Surveillance du Secteur Financier regulates our activities in Luxembourg; the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission regulate our activities in Australia; and the Financial Services Agency and the Bank of Japan regulate our activities in Japan. We have established policies, procedures, and systems designed to comply with the requirements of these organizations. However, as a global financial services institution, we face complexity and costs related to regulation.
The majority of our non-U.S. asset servicing operations are conducted pursuant to the Federal Reserve's Regulation K through State Street Bank’s Edge Act subsidiary or through international branches of State Street Bank. An Edge Act corporation is a corporation organized under federal law that conducts foreign business activities. In general, banks may not


13

Table of Contents

make investments in their Edge Act corporations (and similar state law corporations) that exceed 20% of their capital and surplus, as defined, and the investment of any amount in excess of 10% of capital and surplus requires the prior approval of the Federal Reserve.
In addition to our non-U.S. operations conducted pursuant to Regulation K, we also make new investments abroad directly (through us or through our non-banking subsidiaries) pursuant to the Federal Reserve's Regulation Y, or through international bank branch expansion, which are not subject to the investment limitations applicable to Edge Act subsidiaries.
Additionally, Massachusetts has its own bank holding company statute, under which State Street, among other things, may be required to obtain prior approval by the Massachusetts Board of Bank Incorporation for an acquisition of more than 5% of any additional bank's voting shares, or for other forms of bank acquisitions.
Anti-Money Laundering and Financial Transparency
We and certain of our subsidiaries are subject to the Bank Secrecy Act of 1970, as amended by the USA PATRIOT Act of 2001, which contains anti-money laundering, or AML, and financial transparency provisions and requires implementation of regulations applicable to financial services companies, including standards for verifying client identification and monitoring client transactions and detecting and reporting suspicious activities. AML laws outside the U.S. contain similar requirements. We have implemented policies, procedures and internal controls that are designed to comply with all applicable AML laws and regulations. Compliance with applicable AML and related requirements is a common area of review for financial regulators, and our level of compliance with these requirements could result in fines, penalties, lawsuits, regulatory sanctions or difficulties in obtaining approvals, restrictions on our business activities or harm to our reputation.
Deposit Insurance
FDIC-insured depository institutions are required to pay deposit insurance assessments to the FDIC. The Dodd-Frank Act made permanent the general $250,000 deposit insurance limit for insured deposits.
The FDIC’s Deposit Insurance Fund, or DIF, is funded by assessments on insured depository institutions. The FDIC assesses DIF premiums based on an insured depository institution's average consolidated total assets, less the average tangible equity of the insured depository institution during the
 
assessment period. For larger institutions, such as State Street Bank, assessments are determined based on regulatory ratings and forward-looking financial measures to calculate the assessment rate, which is subject to adjustments by the FDIC, and the assessment base.
The Dodd-Frank Act also directed the FDIC to determine whether and to what exten t adjustments to the assessment base are appropriate for “custody banks.” The FDIC has concluded that certain liquid assets could be excluded from the deposit insurance assessment base of custody banks that satisfy specified institutional eligibility criteria. This has the effect of reducing the amount of DIF insurance premiums due from custody banks. State Street Bank is a custody bank for this purpose. The custody bank assessment adjustment may not exceed total transaction account deposits identified by the institution as being directly linked to a fiduciary or custody and safekeeping asset.
Prompt Corrective Action
The FDIC Improvement Act of 1991 requires the appropriate federal banking regulator to take “prompt corrective action” with respect to a depository institution if that institution does not meet certain capital adequacy standards. While these regulations apply only to banks, such as State Street Bank, the Federal Reserve is authorized to take appropriate action against a parent bank holding company, such as our parent company, based on the under-capitalized status of any banking subsidiary. In certain instances, we would be required to guarantee the performance of the capital restoration plan for our under-capitalized banking subsidiary.
Support of Subsidiary Banks
Under Federal Reserve regulations, a bank holding company such as our parent company is required to act as a source of financial and managerial strength to its banking subsidiaries. This requirement was added to the Federal Deposit Insurance Act by the Dodd-Frank Act and means that we are expected to commit resources to State Street Bank and any other banking subsidiary in circumstances in which we otherwise might not do so absent such a requirement. In the event of bankruptcy, any commitment by us to a federal bank regulatory agency to maintain the capital of a banking subsidiary will be assumed by the bankruptcy trustee and will be entitled to a priority payment.
Insolvency of an Insured U.S. Subsidiary Depository Institution
If the FDIC is appointed the conservator or receiver of an FDIC-insured U.S. subsidiary depository institution, such as State Street Bank, upon its insolvency or certain other events, the FDIC


14

Table of Contents

has the ability to transfer any of the depository institution’s assets and liabilities to a new obligor without the approval of the depository institution’s creditors, enforce the terms of the depository institution’s contracts pursuant to their terms or repudiate or disaffirm contracts or leases to which the depository institution is a party. Additionally, the claims of holders of deposit liabilities and certain claims for administrative expenses against an insured depository institution would be afforded priority over other general unsecured claims against such an institution, including claims of debt holders of the institution and, under current interpretation, depositors in non-U.S. offices, in the liquidation or other resolution of such an institution by any receiver. As a result, such persons would be treated differently from and could receive, if anything, substantially less than the depositors in U.S. offices of the depository institution.
ECONOMIC CONDITIONS AND GOVERNMENT POLICIES
Economic policies of the U.S. government and its agencies influence our operating environment. Monetary policy conducted by the Federal Reserve directly affects the level of interest rates, which may affect overall credit conditions of the economy. Monetary policy is applied by the Federal Reserve through open market operations in U.S. government securities, changes in reserve requirements for depository institutions, and changes in the discount rate and availability of borrowing from the Federal Reserve. Government regulation of banks and bank holding companies is intended primarily for the protection of depositors of the banks, rather than for the shareholders of the institutions and therefore may, in some cases, be adverse to the interests of those shareholders. We are similarly affected by the economic policies of non-U.S. government agencies, such as the European Central Bank, or ECB.
STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES
The following information, included under Items 6, 7 and 8 of this Form 10-K, is incorporated by reference herein:
“Selected Financial Data” table (Item 6) - presents return on average common equity, return on average assets, common dividend payout and equity-to-assets ratios.
“Distribution of Average Assets, Liabilities and Shareholders’ Equity; Interest Rates and Interest Differential” table (Item 8) - presents consolidated average balance sheet amounts, related fully taxable-equivalent interest earned and paid, related average yields and rates paid and changes in fully taxable-equivalent interest revenue and interest expense for
 
each major category of interest-earning assets and interest-bearing liabilities.
“Investment Securities” section included in Management's Discussion and Analysis (Item 7) and note 3 , “Investment Securities,” to the consolidated financial statements (Item 8) - disclose information regarding book values, market values, maturities and weighted-average yields of securities (by category).
Note 4 , “Loans and Leases,” to the consolidated financial statements (Item 8) - discloses our policy for placing loans and leases on non-accrual status.
“Loans and Leases” section included in Management’s Discussion and Analysis (Item 7) and note 4 , “Loans and Leases,” to the consolidated financial statements (Item 8) - discloses distribution of loans, loan maturities and sensitivities of loans to changes in interest rates.
“Loans and Leases” and “Cross-Border Outstandings” sections of Management’s Discussion and Analysis (Item 7) - discloses information regarding cross-border outstandings and other loan concentrations of State Street.
“Credit Risk Management” section included in Management’s Discussion and Analysis (Item 7) and note 4 , “Loans and Leases,” to the consolidated financial statements (Item 8) - present the allocation of the allowance for loan losses, and a description of factors which influenced management’s judgment in determining amounts of additions or reductions to the allowance, if any, charged or credited to results of operations.
“Distribution of Average Assets, Liabilities and Shareholders’ Equity; Interest Rates and Interest Differential” table (Item 8) - discloses deposit information.
Note 8 , “Short-Term Borrowings,” to the consolidated financial statements (Item 8) - discloses information regarding short-term borrowings of State Street.
ITEM 1A. RISK FACTORS  
Forward-Looking Statements
This Form 10-K, as well as other reports submitted by us under the Securities Exchange Act of 1934, registration statements filed by us under the Securities Act of 1933, our annual report to shareholders and other public statements we may make, contain statements (including statements in the Management's Discussion and Analysis included under Item 7 of this Form 10-K) that are considered “forward-looking statements” within the meaning of U.S. securities laws, including statements about our goals and expectations regarding our business, financial and capital condition, results of operations,


15

Table of Contents

strategies, financial portfolio performance, dividend and stock purchase programs, expected outcomes of legal proceedings, market growth, acquisitions, joint ventures and divestitures and new technologies, services and opportunities, as well as regarding industry, regulatory, economic and market trends, initiatives and developments, the business environment and other matters that do not relate strictly to historical facts.
Terminology such as “plan,” “expect,” “intend,” “objective,” “forecast,” “outlook,” “believe,” “anticipate,” “estimate,” “seek,” “may,” “will,” “trend,” “target,” “strategy” and “goal,” or similar statements or variations of such terms, are intended to identify forward-looking statements, although not all forward-looking statements contain such terms.
Forward-looking statements are subject to various risks and uncertainties, which change over time, are based on management's expectations and assumptions at the time the statements are made, and are not guarantees of future results. Management's expectations and assumptions, and the continued validity of the forward-looking statements, are subject to change due to a broad range of factors affecting the national and global economies, regulatory environment and the equity, debt, currency and other financial markets, as well as factors specific to State Street and its subsidiaries, including State Street Bank. Factors that could cause changes in the expectations or assumptions on which forward-looking statements are based cannot be foreseen with certainty and include, but are not limited to:
•
the financial strength and continuing viability of the counterparties with which we or our clients do business and to which we have investment, credit or financial exposure, including, for example, the direct and indirect effects on counterparties of the sovereign-debt risks in the U.S., Europe and other regions;
•
increases in the volatility of, or declines in the level of, our net interest revenue, changes in the composition or valuation of the assets recorded in our consolidated statement of condition (and our ability to measure the fair value of investment securities) and the possibility that we may change the manner in which we fund those assets;
•
the liquidity of the U.S. and international securities markets, particularly the markets for fixed-income securities and inter-bank credits, and the liquidity requirements of our clients;
 
•
the level and volatility of interest rates, the valuation of the U.S. dollar relative to other currencies in which we record revenue or accrue expenses and the performance and volatility of securities, credit, currency and other markets in the U.S. and internationally;
•
the credit quality, credit-agency ratings and fair values of the securities in our investment securities portfolio, a deterioration or downgrade of which could lead to other-than-temporary impairment of the respective securities and the recognition of an impairment loss in our consolidated statement of income;
•
our ability to attract deposits and other low-cost, short-term funding, the relative portion of our deposits that are determined to be operational under regulatory guidelines and our ability to deploy deposits in a profitable manner consistent with our liquidity requirements and risk profile;
•
the manner and timing with which the Federal Reserve and other U.S. and foreign regulators implement changes to the regulatory framework applicable to our operations, including implementation of the Dodd-Frank Act, the Basel III final rule and European legislation (such as the Alternative Investment Fund Managers Directive and Undertakings for Collective Investment in Transferable Securities Directives); among other consequences, these regulatory changes impact the levels of regulatory capital we must maintain, acceptable levels of credit exposure to third parties, margin requirements applicable to derivatives, and restrictions on banking and financial activities. In addition, our regulatory posture and related expenses have been and will continue to be affected by changes in regulatory expectations for global systemically important financial institutions applicable to, among other things, risk management, capital planning and compliance programs, and changes in governmental enforcement approaches to perceived failures to comply with regulatory or legal obligations;
•
adverse changes in the regulatory ratios that we are required or will be required to meet, whether arising under the Dodd-Frank Act or the Basel III final rule, or due to changes in regulatory positions, practices or regulations in jurisdictions in which we engage in banking activities, including changes in internal or external data, formulae, models, assumptions


16

Table of Contents

or other advanced systems used in the calculation of our capital ratios that cause changes in those ratios as they are measured from period to period;
•
increasing requirements to obtain the prior approval of the Federal Reserve or our other U.S. and non-U.S. regulators for the use, allocation or distribution of our capital or other specific capital actions or programs, including acquisitions, dividends and stock purchases, without which our growth plans, distributions to shareholders, share repurchase programs or other capital initiatives may be restricted;
•
changes in law or regulation, or the enforcement of law or regulation, that may adversely affect our business activities or those of our clients or our counterparties, and the products or services that we sell, including additional or increased taxes or assessments thereon, capital adequacy requirements, margin requirements and changes that expose us to risks related to the adequacy of our controls or compliance programs;
•
financial market disruptions or economic recession, whether in the U.S., Europe, Asia or other regions;
•
our ability to promote a strong culture of risk management, operating controls, compliance oversight and governance that meet our expectations and those of our clients and our regulators;
•
the results of, and costs associated with, governmental or regulatory inquiries and investigations, litigation and similar claims, disputes, or proceedings;
•
the potential for losses arising from our investments in sponsored investment funds;
•
the possibility that our clients will incur substantial losses in investment pools for which we act as agent, and the possibility of significant reductions in the liquidity or valuation of assets underlying those pools;
•
our ability to anticipate and manage the level and timing of redemptions and withdrawals from our collateral pools and other collective investment products;
•
the credit agency ratings of our debt and depository obligations and investor and client perceptions of our financial strength;
•
adverse publicity, whether specific to State Street or regarding other industry participants or industry-wide factors, or other reputational harm;
 
•
our ability to control operational risks, data security breach risks and outsourcing risks, our ability to protect our intellectual property rights, the possibility of errors in the quantitative models we use to manage our business and the possibility that our controls will prove insufficient, fail or be circumvented;
•
our ability to expand our use of technology to enhance the efficiency, accuracy and reliability of our operations and our dependencies on information technology and our ability to control related risks, including cyber-crime and other threats to our information technology infrastructure and systems and their effective operation both independently and with external systems, and complexities and costs of protecting the security of our systems and data;
•
our ability to grow revenue, manage expenses, attract and retain highly skilled people and raise the capital necessary to achieve our business goals and comply with regulatory requirements and expectations;
•
changes or potential changes to the competitive environment, including changes due to regulatory and technological changes, the effects of industry consolidation and perceptions of State Street as a suitable service provider or counterparty;
•
changes or potential changes in the amount of compensation we receive from clients for our services, and the mix of services provided by us that clients choose;
•
our ability to complete acquisitions, joint ventures and divestitures, including the ability to obtain regulatory approvals, the ability to arrange financing as required and the ability to satisfy closing conditions;
•
the risks that our acquired businesses and joint ventures will not achieve their anticipated financial and operational benefits or will not be integrated successfully, or that the integration will take longer than anticipated, that expected synergies will not be achieved or unexpected negative synergies or liabilities will be experienced, that client and deposit retention goals will not be met, that other regulatory or operational challenges will be experienced, and that disruptions from the transaction will harm our relationships with our clients, our employees or regulators;
•
our ability to recognize emerging needs of our clients and to develop products that are responsive to such trends and profitable to


17

Table of Contents

us, the performance of and demand for the products and services we offer, and the potential for new products and services to impose additional costs on us and expose us to increased operational risk;
•
changes in accounting standards and practices; and
•
changes in tax legislation and in the interpretation of existing tax laws by U.S. and non-U.S. tax authorities that affect the amount of taxes due.
Actual outcomes and results may differ materially from what is expressed in our forward-looking statements and from our historical financial results due to the factors discussed in this Item 1A Risk Factors and elsewhere in this Form 10-K (including in the Management's Discussion and Analysis included under Item 7 of this Form 10-K) or disclosed in our SEC filings. Forward-looking statements should not be relied on as representing our expectations or beliefs as of any date subsequent to the time this Form 10-K is filed with the SEC. We undertake no obligation to revise our forward-looking statements after the time they are made. The factors discussed in this Item 1A are not intended to be a complete statement of all risks and uncertainties that may affect our businesses. We cannot anticipate all developments that may adversely affect our business or operations or our consolidated results of operations or financial condition.
Forward-looking statements should not be viewed as predictions, and should not be the primary basis on which investors evaluate State Street. Any investor in State Street should consider all risks and uncertainties disclosed in our SEC filings, including our filings under the Securities Exchange Act of 1934, in particular our reports on Forms 10-K, 10-Q and 8-K, or registration statements filed under the Securities Act of 1933, all of which are accessible on the SEC's website at www.sec.gov or on the “Investor Relations” section of our corporate website at www.statestreet.com .
 
Risk Factors
In the normal course of our business activities, we are exposed to a variety of risks. The following is a discussion of various risk factors applicable to State Street. Additional information about our risk management framework is included under “Risk Management” in Management’s Discussion and Analysis included under Item 7 of this Form 10-K. Additional risks beyond those described in Management's Discussion and Analysis or in the following discussion may be inherent in our activities or operations as currently conducted, or as we may conduct them in the future, or in the markets in which we operate or may in the future operate.
Credit and Counterparty, Liquidity and Market Risks
We assume significant credit risk to counterparties, many of which are major financial institutions. These financial institutions and other counterparties may also have substantial financial dependencies with other financial institutions and sovereign entities. This credit exposure and concentration could expose us to financial loss.
The financial markets are characterized by extensive interdependencies among numerous parties, including banks, central banks, broker/dealers, insurance companies and other financial institutions. These financial institutions also include collective investment funds, such as mutual funds, UCITs and hedge funds that share these interdependencies. Many financial institutions, including collective investment funds also hold, or are exposed to, loans, sovereign debt, fixed-income securities, derivatives, counterparty and other forms of credit risk in amounts that are material to their financial condition. As a result of our own business practices and these interdependencies, we and many of our clients have concentrated counterparty exposure to other financial institutions and collective investment funds, particularly large and complex institutions, sovereign issuers, mutual funds and UCITs and hedge funds. Although we have procedures for monitoring both individual and aggregate counterparty risk, significant individual and aggregate counterparty exposure is inherent in our business, as our focus is on servicing large institutional investors .
In the normal course of our business, we assume concentrated credit risk at the individual obligor, counterparty or group level. Such concentrations may be material and can often exceed 10% of our consolidated total shareholders' equity. Our material counterparty exposures change daily, and the counterparties or groups of related counterparties to which our risk exposure exceeds


18

Table of Contents

10% of our consolidated total shareholders' equity are also variable during any reported period; however, our largest exposures tend to be to other financial institutions.
Concentration of counterparty exposure presents significant risks to us and to our clients because the failure or perceived weakness of our counterparties (or in some cases of our clients' counterparties) has the potential to expose us to risk of financial loss. Changes in market perception of the financial strength of particular financial institutions or sovereign issuers can occur rapidly, are often based on a variety of factors and are difficult to predict.
Since mid-2007, a variety of economic, market and other factors have contributed to many financial institutions becoming significantly less creditworthy, as reflected in the credit downgrades of numerous large U.S. and non-U.S. financial institutions in recent years. Also, credit downgrades to several sovereign issuers (including the U.S., Austria, France, Greece, Italy, the Netherlands, Portugal and Spain) and other issuers have stressed the perceived creditworthiness of financial institutions, many of which invest in, accept collateral in the form of, or value other transactions based on the debt or other securities issued by sovereign or other issuers. Unemployment levels and deflationary and recessionary pressures in key global economies, while other economies including the U.S. and U.K. appear to be experiencing improving economic conditions, have resulted in substantial easing of monetary policy in Europe and Japan which contributed to economic and market uncertainty, low interest rates and pressures on currency exchange rates in 2014 and will likely have similar impacts in 2015. Substantial changes in commodity prices, particularly oil, and a slowing of demand in China, are also contributing to economic and market risks. Further economic, political or market turmoil or developments may lead to stress on sovereign issuers, and increase the potential for sovereign defaults or restructurings, additional credit-rating downgrades or the departure of sovereign issuers from common currencies or economic unions. These same factors may contribute to increased risk of default or downgrading for financial and corporate issuers or other market risk associated with excess levels of liquidity. As a result, we may be exposed to increased counterparty risks, either resulting from our role as principal or because of commitments we make in our capacity as agent for some of our clients.
The degree of client demand for short-term credit tends to increase during periods of market turbulence, which may expose us to further counterparty-related risks. For example, investors in collective investment vehicles for which we act as custodian may experience significant redemption
 
activity due to adverse market or economic news. Our relationship with our clients and the nature of the settlement process for some types of payments may result in the extension of short-term credit in such circumstances. For some types of clients, we provide credit to allow them to leverage their portfolios, which may expose us to potential loss if the client experiences investment losses or other credit difficulties.
In addition to our exposure to financial institutions, we are from time to time exposed to concentrated credit risk at an industry or country level, potentially exposing us to a single market or political event or a correlated set of events. This concentration risk also applies to groups of unrelated counterparties that may have similar investment strategies involving one or more particular industries, regions, or other characteristics. These unrelated counterparties may concurrently experience adverse effects to their performance, liquidity or reputation due to events or other factors affecting such investment strategies. Though potentially not material individually (relative to any one such counterparty), our aggregated credit exposures to such a group of counterparties could similarly expose us to a single market or political event or a correlated set of events.
We are also generally not able to net exposures across counterparties that are affiliated entities and may not be able in all circumstances to net exposures to the same legal entity across multiple products. As a consequence, we may incur a loss in relation to one entity or product even though our exposure to an entity's affiliates or across product types is over-collateralized.
Our use of unaffiliated subcustodians also exposes us to operational risk, credit risk and risks of the legal systems of the jurisdictions in which the subcustodians operate, each of which may be material. These risks are amplified due to changing regulatory requirements with respect to our financial exposures in the event those subcustodians are unable to return a client’s assets. We are also exposed to settlement risks, particularly in our payments and foreign exchange activities. Those activities may lead to losses in the event of a counterparty breach. Due to our membership in several industry clearing or settlement exchanges, we may be required to guarantee obligations and liabilities, or provide financial support, in the event that other members do not honor their obligations or default. Moreover, not all of our counterparty exposure is secured, and when our exposure is secured, the realizable value of the collateral may have declined by the time we exercise our rights against that collateral. This risk may be particularly


19

Table of Contents

acute if we are required to sell the collateral into an illiquid or temporarily-impaired market.
On behalf of clients enrolled in our securities lending program, we lend securities to banks, broker/dealers and other institutions. In most circumstances, we indemnify our clients for the fair market value of those securities against a failure of the borrower to return such securities. Borrowers are generally required to provide collateral equal to a contractually-agreed percentage equal to or in excess of the fair value of the loaned securities. As the fair value of the loaned securities changes, additional collateral is provided by the borrower or collateral is returned to the borrower. In addition, our clients often purchase securities or other financial instruments from financial counterparties, including broker/dealers, under repurchase arrangements, frequently as a method of reinvesting the cash collateral they receive from lending their securities. Under these arrangements, the counterparty is obligated to repurchase these securities or financial instruments from the client at the same price (plus an agreed rate of return) at some point in the future. The value of the collateral is intended to exceed the counterparty's payment obligation, and collateral is adjusted daily to account for shortfall under, or excess over, the agreed-upon collateralization level. As with the securities lending program, we agree to indemnify our clients from any loss that would arise on a default by the counterparty under these repurchase arrangements if the proceeds from the disposition of the securities or other financial assets held as collateral are less than the amount of the repayment obligation by the client's counterparty. In such instances of counterparty default, for both securities lending and repurchase agreements, we, rather than our client, are exposed to the risks associated with collateral value.
We also engage in certain off-balance sheet activities that involve risks. For example, we provide benefit-responsive contracts, known as wraps, to defined contribution plans that offer a stable value option to their participants. During the financial crisis, the book value of obligations under many of these contracts exceeded the market value of the underlying portfolio holdings. Concerns regarding the portfolio of investments protected by such contracts, or regarding the investment manager overseeing such an investment option, may result in redemption demands from stable value products covered by benefit-responsive contracts at a time when the portfolio's market value is less than its book value, potentially exposing us to risk of loss. Similarly, we provide credit facilities in connection with the remarketing of U.S. municipal obligations, potentially exposing us to credit exposure to the municipalities issuing such bonds and to their increased liquidity demands. In the current economic environment,
 
where municipalities are subject to increased investor concern, the risks associated with such businesses increase. Further, our off-balance sheet activities also include our agreement, described above, to indemnify our clients for the fair market value of those securities against a failure of the borrower to return such securities.
Under evolving regulatory restrictions on credit exposure, which are anticipated to include broader or more prescriptive measures of credit exposure, we may be required to limit our exposures to specific issuers or groups, including financial institutions and sovereign issuers, to levels that we may currently exceed. These credit exposure restrictions under such evolving regulations may adversely affect our businesses, may require that we expand our credit exposure to a broader range of issuers, including issuers that represent increased credit risk and may require that we modify our operating models or the policies and practices we use to manage our consolidated statement of condition. Although our overall business is subject to these interdependencies, several of our business units are particularly sensitive to them, including our Global Treasury group, that, among other responsibilities, manages our investment portfolio, our currency trading business, our securities finance business, and our investment management business. Given the limited number of strong counterparties in the current market, we are not able to mitigate all of our and our clients' counterparty credit risk.
Our investment securities portfolio, consolidated financial condition and consolidated results of operations could be adversely affected by changes in interest rate, market and credit risks.
Our investment securities portfolio represented approximately 41% of our consolidated total assets as of December 31, 2014 , and the gross interest revenue associated with our investment portfolio represented approximately 20% of our consolidated total gross revenue for the year ended December 31, 2014 and has represented as much as 30% of our consolidated gross revenue in the fiscal years since 2007. As such, our consolidated financial condition and results of operations are materially exposed to the risks associated with our investment portfolio, including, without limitation, changes in interest rates, credit spreads, credit performance, credit ratings, our access to liquidity, foreign exchange markets, mark-to-market valuations, and our ability to profitably reinvest repayments of principal with respect to these securities. The low interest-rate environment that has persisted since the financial crisis began in mid-2007, and may continue in 2015 and beyond, limits our ability to achieve a net interest margin consistent with our historical averages.


20

Table of Contents

Our investment securities portfolio represents a greater proportion of our consolidated statement of condition and our loan and lease portfolios represent a smaller proportion (approximately 7% of our consolidated total assets as of December 31, 2014 ), in comparison to many other major financial institutions. In some respects, the accounting and regulatory treatment of our investment securities portfolio may be less favorable to us than a more traditional held-for-investment lending portfolio. For example, under the U.S. Basel III final rule issued in July 2013, after-tax changes in the fair value of investment securities classified as available for sale are included in tier 1 capital. Since loans held for investment are not subject to a fair-value accounting framework, changes in the fair value of loans (other than incurred credit losses) are not similarly included in the determination of tier 1 capital under the U.S. Basel III final rule. Due to this differing treatment, we may experience increased variability in our tier 1 capital relative to other major financial institutions whose loan-and-lease portfolios represent a larger proportion of their consolidated total assets than ours.
Our investment portfolio continues to have significant concentrations in certain classes of securities, including agency and non-agency residential mortgage-backed securities, commercial mortgage-backed securities and other asset-backed securities, and securities with concentrated exposure to consumers. These classes and types of securities experienced significant liquidity, valuation and credit quality deterioration during the financial disruption that began in mid-2007. We also hold non-U.S. mortgage-backed and asset-backed securities with exposures to European countries, whose sovereign-debt markets have experienced increased stress since 2011 and may continue to experience stress in the future. For further information, refer to the risk factor titled “Our businesses have significant European operations, and disruptions in European economies could have a material adverse effect on our consolidated results of operations or financial condition.”
Further, we hold a portfolio of U.S. state and municipal bonds. In view of the budget deficits that a number of states and municipalities currently face, the risks associated with this portfolio are significant.
If market conditions similar to those experienced in 2007 and 2008 were to recur, our investment portfolio could experience a decline in liquidity and market value, regardless of our credit view of our portfolio holdings. For example, we recorded significant losses not related to credit in connection with the consolidation of our off-balance sheet asset-backed commercial paper conduits in 2009 and the repositioning of our investment portfolio in 2010 with
 
respect to these asset classes. In addition, in general, deterioration in credit quality, or changes in management's expectations regarding repayment timing or in management's investment intent to hold securities to maturity, in each case with respect to our portfolio holdings, could result in other-than-temporary impairment. Similarly, if a material portion of our investment portfolio were to experience credit deterioration below investment grade, our capital ratios as calculated pursuant to the Basel III final rule could be adversely affected. This risk is greater with portfolios of investment securities than with loans or holdings of U.S. Treasury securities .
Our investment portfolio is further subject to changes in both U.S. and non-U.S. (primarily in Europe) interest rates, and could be negatively affected by changes in those rates, whether or not expected, particularly by a quicker-than-anticipated increase in interest rates or by monetary policy that results in persistently low or negative rates of interest. This has been the case, for example, with respect to recent ECB monetary policy, including negative interest rates in some jurisdictions, with associated negative effects on our net interest revenue and net interest margin. The effect on our net interest revenue has been exacerbated by the effects of the recent strong U.S. dollar relative to other currencies, particularly the Euro. If ECB monetary policy continues to pressure European interest rates downward and the U.S. dollar remains strong or strengthens, the negative effects on our net interest revenue likely will continue or increase.
Our business activities expose us to interest-rate risk.
In our business activities, we assume interest-rate risk by investing short-term deposits received from our clients in our investment portfolio of longer- and intermediate-term assets. Our net interest revenue and net interest margin are affected by the levels of interest rates in global markets, changes in the relationship between short- and long-term interest rates, the direction and speed of interest-rate changes, and the asset and liability spreads relative to the currency and geographic mix of our interest-earning assets and interest-bearing liabilities. These factors are influenced, among other things, by a variety of economic and market forces and expectations, including monetary and other policies and activities of central banks, such as the Federal Reserve, that we do not control. Our ability to anticipate changes in these factors or to hedge the related on- and off-balance sheet exposures can significantly influence the success of our asset-and-liability management activities and the resulting level of our net interest revenue and net interest margin. The impact of changes in interest rates and related factors will depend on the relative duration and fixed-


21

Table of Contents

or floating-rate nature of our assets and liabilities. Sustained lower interest rates, a flat or inverted yield curve and narrow interest-rate spreads generally have a constraining effect on our net interest revenue. For additional information about the effects on interest rates on our business, refer to “Financial Condition - Market Risk Management - Asset-and-Liability Management Activities” in Management's Discussion and Analysis included under Item 7 of this Form 10-K .
If we are unable to continuously attract deposits and other short-term funding, our consolidated financial condition, including our regulatory capital ratios, our consolidated results of operations and our business prospects, could be adversely affected.
Liquidity management, including on an intra-day basis, is critical to the management of our consolidated statement of condition and to our ability to service our client base. We generally use our liquidity to:
•
meet clients' demands for return of their deposits;
•
extend credit to our clients in connection with our custody business; and
•
fund the pool of long- and intermediate-term assets that are included in the investment securities carried in our consolidated statement of condition.
Because the demand for credit by our clients is difficult to predict and control, and may be at its peak at times of disruption in the securities markets, and because the average maturity of our investment securities portfolio is longer than the contractual maturity of our client deposit base, we need to continuously attract, and are dependent on access to, various sources of short-term funding. During periods of market disruption, the level of client deposits held by us has in recent years tended to increase; however, since such deposits are considered to be transitory, we have historically deposited so-called excess deposits with U.S. and non-U.S. central banks and in other highly liquid but low-yielding instruments. These levels of excess client deposits, as a consequence, have increased our net interest revenue but have adversely affected our net interest margin.
In managing our liquidity, our primary source of short-term funding is client deposits, which are predominantly transaction-based deposits by institutional investors. Our ability to continue to attract these deposits, and other short-term funding sources such as certificates of deposit and commercial paper, is subject to variability based on a number of factors, including volume and volatility in global financial markets, the relative interest rates
 
that we are prepared to pay for these deposits and the perception of safety of these deposits or short-term obligations relative to alternative short-term investments available to our clients, including the capital markets.
In addition, we may be exposed to liquidity or other risks in managing asset pools for third parties that are funded on a short-term basis, or for which the clients participating in these products have a right to the return of cash or assets on limited notice. These business activities include, among others, securities finance collateral pools, money market and other short-term investment funds and liquidity facilities utilized in connection with municipal bond programs. If clients demand a return of their cash or assets, particularly on limited notice, and these investment pools do not have the liquidity to support those demands, we could be forced to sell investment securities at unfavorable prices, damaging our reputation as an asset manager and potentially exposing us to claims related to our management of the pools.
The availability and cost of credit in short-term markets are highly dependent on the markets' perception of our liquidity and creditworthiness. Our efforts to monitor and manage our liquidity risk, including on an intra-day basis, may not be successful or sufficient to deal with dramatic or unanticipated changes in the global securities markets or other event-driven reductions in liquidity. As a result of such events, among other things, our cost of funds may increase, thereby reducing our net interest revenue, or we may need to dispose of a portion of our investment securities portfolio, which, depending on market conditions, could result in a loss from such sales of investment securities being recorded in our consolidated statement of income.
Our business and capital-related activities, including our ability to return capital to shareholders and purchase our capital stock, may be adversely affected by our implementation of the revised regulatory capital and liquidity standards that we must meet under the Basel III final rule, the Dodd-Frank Act and other regulatory initiatives, or in the event our capital plan or post-stress capital ratios are determined to be insufficient as a result of regulatory capital stress testing.
The U.S. Basel III final rule replaced the Basel I- and Basel II-based capital regulations. As a so-called “advanced approaches” banking organization, we became subject to the U.S. Basel III final rule on January 1, 2014.
On January 1, 2015, the U.S. Basel III final rule replaced the existing Basel I-based approach for calculating risk-weighted assets with the U.S. Basel


22

Table of Contents

III standardized approach that, among other things, modifies certain existing risk weights and introduces new methods for calculating risk-weighted assets for certain types of assets and exposures. The final rule also revised the Basel II-based advanced approaches capital rules to implement Basel III and certain provisions of the Dodd-Frank Act.
On February 21, 2014, we were notified by the Federal Reserve that we had completed our parallel run period. Consequently, since the second quarter of 2014, we are required to use the advanced approaches framework as provided in the Federal Reserve's July 2013 Basel III final rule in the determination of our risk-based capital requirements. The Dodd-Frank Act applies a "capital floor" to advanced approaches banking organizations, such as State Street and State Street Bank. As of January 1, 2015, the Basel III standardized approach acts as that capital floor. As a result, we are required to calculate our risk-based capital ratios under both the Basel III advanced approach and the Basel III standardized approach, and we are subject to the more stringent of the risk-based capital ratios calculated under the standardized approach and those calculated under the advanced approach in the assessment of our capital adequacy under the prompt corrective action framework.
In implementing certain aspects of these capital regulations, we are making interpretations of the regulatory intent. The Federal Reserve may determine that we are not in compliance with certain aspects of the advanced approaches capital rules and may require us to take certain actions to come into compliance that could adversely affect our business operations, our regulatory capital structure, our capital ratios or our financial performance, or otherwise restrict our growth plans or strategies. In addition, banking regulators could change the Basel III final rule or their interpretations as they apply to us, including changes to these standards or interpretations made in regulations implementing provisions of the Dodd-Frank Act, which could adversely affect us and our ability to comply with the Basel III final rule.
The U.S. Basel III final rule also contains additional new requirements, such as the SLR and LCR, and further capital and liquidity requirements are under consideration by U.S. and international banking regulators, such as an NSFR, each of which has the potential to have significant effects on our capital and liquidity planning and activities.
For example, the specification of the various elements of the U.S. LCR in the final rule, such as the eligibility of assets as high-quality liquid assets, the calculation of net outflows, including the treatment of operational deposits, and the timing of indeterminate
 
maturities, could have a material effect on our business activities, including the management and composition of our investment securities portfolio and our ability to extend committed contingent credit facilities to our clients. The full effects of the Basel III final rule, and of other regulatory initiatives related to capital or liquidity, on State Street and State Street Bank are therefore subject to further evaluation and also to further regulatory guidance, action or rule-making.
As a G-SIB, we generally expect to be held to the most stringent provisions under the U.S. Basel III final rule. For example, on December 9, 2014, the Federal Reserve issued a proposed rulemaking to establish a risk-based capital surcharge for U.S. G-SIBs, such as State Street. Under the proposed rule, a G-SIB’s capital conservation buffer would be increased by the amount of the capital surcharge, using the higher surcharge as determined under two proposed methods. The first proposed method would consider a G-SIB’s size, interconnectedness, cross-jurisdictional activity, substitutability, and complexity, whereas the second proposed method would replace substitutability with the use of short-term wholesale funding. If the rulemaking is finalized as proposed, the capital surcharge could be higher than the capital surcharge as determined under the framework proposed by the Basel Committee. Under the proposed rule, the capital surcharge would be phased in beginning in 2016 and would become fully effective on January 1, 2019. State Street is assessing the impact of the capital surcharge that would result if the proposed rule were implemented, and the effects of maintaining capital levels necessary to meet the surcharge could be material.
In addition, in November 2014, the FSB published a consultative document with a proposal to enhance the TLAC of G-SIBs in resolution. The proposal calls for G-SIBs to maintain TLAC in excess of prescribed minimum thresholds. TLAC would include regulatory capital and liabilities that can be written down or converted into equity during resolution. At a minimum, each G-SIB would need to hold TLAC in an amount equivalent to between 16% and 20% of its risk-weighted assets (plus applicable regulatory buffers) or at least twice the relevant Basel III tier 1 leverage ratio requirement. The proposal states that G-SIBs will not be expected to meet TLAC requirements before January 1, 2019. The FSB is expected to finalize its proposal in late 2015. U.S. banking regulators have not yet issued a proposal to implement TLAC requirements.
We are also required by the Federal Reserve to conduct periodic stress testing of our business operations and to develop an annual capital plan as part of the Federal Reserve's Comprehensive Capital


23

Table of Contents

Analysis and Review process. That process is used by the Federal Reserve to evaluate our management of capital, the adequacy of our regulatory capital and the potential requirement for us to maintain capital levels above regulatory minimums. The planned capital actions in our capital plan, including stock purchases and dividends, may be objected to by the Federal Reserve, potentially requiring us to revise our stress-testing or capital management approaches, resubmit our capital plan or postpone, cancel or alter our planned capital actions. In addition, changes in our business strategy, merger or acquisition activity or unanticipated uses of capital could result in a change in our capital plan and its associated capital actions, and may require resubmission of the capital plan to the Federal Reserve for its non-objection. We are also subject to asset quality reviews and stress testing by the ECB and may in the future to be subject to similar reviews and testing by other regulators.
Our implementation of the new capital and liquidity requirements, including our capital plan, may not be approved or may be objected to by the Federal Reserve, and the Federal Reserve may impose capital requirements in excess of our expectations or require us to maintain levels of liquidity that are higher than we may expect, and which may adversely affect our consolidated revenues. In the event that our implementation of new capital and liquidity requirements under the Basel III final rule, the Dodd-Frank Act or other regulatory initiatives or our current capital structure are determined not to conform with current and future capital requirements, our ability to deploy capital in the operation of our business or our ability to distribute capital to shareholders or to purchase our capital stock may be constrained, and our business may be adversely affected. Likewise, in the event that regulators in other jurisdictions in which we have banking subsidiaries determine that our capital or liquidity levels do not conform with current and future regulatory requirements, our ability to deploy capital, our levels of liquidity or our business operations in those jurisdictions may be adversely affected.
For additional information about the above matters, refer to “Business - Supervision and Regulation - Regulatory Capital Adequacy and Liquidity Standards” included under Item 1, and “Financial Condition - Capital” in Management's Discussion and Analysis included under Item 7, of this Form 10-K.
Fee revenue represents a significant majority of our consolidated revenue and is subject to decline, among other things, in the event of a reduction in, or changes to, the level or type of investment activity by our clients.
 
We rely primarily on fee-based services to derive our revenue. This contrasts with commercial banks that may rely more heavily on interest-based sources of revenue, such as loans. During 2014, total fee revenue represented approximately 78% of our total consolidated revenue. Fee revenue generated by our investment servicing and investment management businesses is augmented by trading services, securities finance and processing fees and other revenue.
The level of these fees is influenced by several factors, including the mix and volume of our assets under custody and administration and our assets under management, the value and type of securities positions held (with respect to assets under custody) and the volume of portfolio transactions, and the types of products and services used by our clients. For example, reductions in the level of economic and capital markets activity tend to have a negative effect on our fee revenue, as these often result in reduced asset valuations and transaction volumes. They may also result in investor preference trends towards asset classes and markets deemed more secure, such as cash or non-emerging markets, with respect to which our fee rates are often lower.
In addition, our clients include institutional investors, such as mutual funds, collective investment funds, hedge funds and other investment pools, corporate and public retirement plans, insurance companies, foundations, endowments and investment managers. Economic, market or other factors that reduce the level or rates of savings in or with those institutions, either through reductions in financial asset valuations or through changes in investor preferences, could materially reduce our fee revenue and have a material adverse effect on our consolidated results of operations.
Our businesses have significant European operations, and disruptions in European economies could have an adverse effect on our consolidated results of operations or financial condition.
Since 2011, Greece, Ireland, Italy, Portugal, Spain and other European economies have experienced, and in the future may experience, difficulties in financing their deficits and servicing their outstanding debt. Eurozone instability and sovereign debt concerns, and the downgraded credit ratings of associated sovereign debt and European financial institutions, have contributed to the volatility in the financial markets. This reduced confidence has led to support for Greece, Ireland, Portugal, and Spain by Eurozone countries and the International Monetary Fund. The ECB has purchased European sovereign debt to support these markets and to weaken the Euro relative to the currencies of significant trading


24

Table of Contents

partners of the Eurozone economy and, in the second half of 2014 , announced operational details of possible asset-backed securities and covered bond purchase programs. Numerous European governments, have adopted austerity and other measures in an attempt to contain the spread of sovereign-debt concerns and overall slow economic growth. Current political attitudes towards such economic support and the European Union in these and other European countries appear to be diverging, creating the potential for an increasingly complex political environment in which actions to support European economies need to be resolved. In mid-2014 geopolitical pressure also rose due to the conflict between the Ukraine and Russia, with governments globally imposing trade restrictions which affected the global and European economy, the Russian currency and Russian financial markets and financial institutions.
These political disagreements, along with the interdependencies among European economies and financial institutions and the substantial refinancing requirements of European sovereign issuers create ongoing concern regarding deflationary pressures in Europe, persistent high levels of unemployment in certain countries and the stability of the Euro, European financial markets generally and certain institutions in particular. Given the scope of our European operations, clients and counterparties, disruptions in the European financial markets, the failure to resolve fully and contain sovereign-debt concerns, continued recession in significant European economies, the possible attempt of a country to abandon the Euro, the failure of a significant European financial institution, even if not an immediate counterparty to us, or persistent weakness in the Euro and the consequences of prolonged negative interest rates, could have a material adverse impact on our consolidated results of operations or financial condition.
Recent conditions in the global economy and financial markets have adversely affected us, and they have increased the uncertainty and unpredictability we face in managing our businesses.
Global credit and other financial markets have recently suffered from substantial volatility, illiquidity and disruption. The resulting economic pressure and lack of confidence in the financial stability of certain countries, and in the financial markets generally, have adversely affected our business, as well as the businesses of our clients and our significant counterparties. This environment, the potential for continuing or additional disruptions, and the regulatory and enforcement environment that has subsequently arisen have also affected overall
 
confidence in financial institutions, have further exacerbated liquidity and pricing issues within the securities markets, have increased the uncertainty and unpredictability we face in managing our businesses, and have had an adverse effect on our consolidated results of operations and financial condition.
While global economies and financial markets showed some signs of stabilizing during 2013 and 2014, numerous global financial services firms and the sovereign debt of some nations experienced credit downgrades and recessionary issues. The occurrence of additional disruptions in global markets, continued uncertainty with respect to federal budget and federal debt-ceiling concerns in the U.S., continued economic or political uncertainty in Europe, or the worsening of economic conditions, could further adversely affect our businesses and the financial services industry in general, and also increase the difficulty and unpredictability of aligning our business strategies, our infrastructure and our operating costs in light of current and future market and economic conditions.
Market disruptions can adversely affect our consolidated results of operations if the value of assets under custody, administration or management decline, while the costs of providing the related services remain constant due to the high fixed costs associated with this business. These factors can reduce the profitability of our asset-based fee revenue and could also adversely affect our transaction-based revenue, such as revenues from securities finance and foreign exchange activities, and the volume of transactions that we execute for or with our clients. Further, the degree of volatility in foreign exchange rates can affect our foreign exchange trading revenue. In general, increased currency volatility tends to increase our market risk but also increases our foreign exchange revenue. Conversely, periods of lower currency volatility tend to decrease our market risk but also decrease our foreign exchange revenue.
In addition, as our business grows globally and a significant percentage of our revenue is earned (and of our expenses paid) in currencies other than U.S. dollars, our exposure to foreign currency volatility could affect our levels of consolidated revenue, our consolidated expenses and our consolidated results of operations, as well as the value of our investment in our non-U.S. operations and our investment portfolio holdings. For example, during the second half of 2014, the effects of a stronger U.S. dollar, particularly relative to the Euro, reduced our servicing fee and management fee revenue and also reduced our expenses. The extent to which changes in the strength of the U.S. dollar relative to other currencies


25

Table of Contents

affects our consolidated results of operations, including the degree of any offset between increases or decreases to both revenue and expenses, will depend upon the nature and scope of our operations and activities in the relevant jurisdictions during the relevant periods, which may vary from period to period.
As our product offerings expand, in part as we seek to take advantage of perceived opportunities arising under various regulatory reforms and resulting market changes, the degree of our exposure to various market and credit risks will evolve, potentially resulting in greater revenue volatility. We also will need to make additional investments to develop the operational infrastructure and to enhance our compliance and risk management capabilities to support these businesses, which may increase the operating expenses of such businesses or, if our risk management resources fail to keep pace with product expansion, result in increased risk of loss from such businesses.
We may need to raise additional capital in the future, which may not be available to us or may only be available on unfavorable terms.
We may need to raise additional capital in order to maintain our credit ratings in response to regulatory changes, including capital rules, or for other purposes, including financing acquisitions and joint ventures. However, our ability to access the capital markets, if needed, will depend on a number of factors, including the state of the financial markets. In the event of rising interest rates, disruptions in financial markets, negative perceptions of our business or our financial strength, or other factors that would increase our cost of borrowing, we cannot be sure of our ability to raise additional capital, if needed, on terms acceptable to us. Any diminished ability to raise additional capital, if needed, could adversely affect our business and our ability to implement our business plan, capital plan and strategic goals, including the financing of acquisitions and joint ventures.
Any downgrades in our credit ratings, or an actual or perceived reduction in our financial strength, could adversely affect our borrowing costs, capital costs and liquidity and cause reputational harm.
Major independent rating agencies publish credit ratings for our debt obligations based on their evaluation of a number of factors, some of which relate to our performance and other corporate developments, including financings, acquisitions and joint ventures, and some of which relate to general industry conditions. We anticipate that the rating agencies will review our ratings regularly based on our consolidated results of operations and
 
developments in our businesses. One or more of the major independent credit rating agencies have in the past downgraded, and may in the future downgrade, our credit ratings, or have negatively revised their outlook for our credit ratings. In November 2013, Moody’s Investors Service downgraded the long-term senior and subordinated debt ratings for State Street Bank.
The current market environment and our exposure to financial institutions and other counterparties, including sovereign entities, increase the risk that we may not maintain our current ratings, and we cannot provide assurance that we will continue to maintain our current credit ratings. Downgrades in our credit ratings may adversely affect our borrowing costs, our capital costs and our ability to raise capital and, in turn, our liquidity. A failure to maintain an acceptable credit rating may also preclude us from being competitive in various products.
Additionally, our counterparties, as well as our clients, rely on our financial strength and stability and evaluate the risks of doing business with us. If we experience diminished financial strength or stability, actual or perceived, including the effects of market or regulatory developments, our announced or rumored business developments or consolidated results of operations, a decline in our stock price or a reduced credit rating, our counterparties may be less willing to enter into transactions, secured or unsecured, with us; our clients may reduce or place limits on the level of services we provide them or seek other service providers; or our prospective clients may select other service providers, all of which may have other adverse effects on our reputation.
The risk that we may be perceived as less creditworthy relative to other market participants is higher in the current market environment, in which the consolidation, and in some instances failure, of financial institutions, including major global financial institutions, have resulted in a smaller number of much larger counterparties and competitors. If our counterparties perceive us to be a less viable counterparty, our ability to enter into financial transactions on terms acceptable to us or our clients, on our or our clients' behalf, will be materially compromised. If our clients reduce their deposits with us or select other service providers for all or a portion of the services we provide to them, our revenues will decrease accordingly.
Operational, Business and Reputational Risks
We face extensive and changing government regulation in the U.S. and in foreign jurisdictions in which we operate, which may increase our costs and expose us to risks related to compliance.


26

Table of Contents

Most of our businesses are subject to extensive regulation by multiple regulatory bodies, and many of the clients to which we provide services are themselves subject to a broad range of regulatory requirements. These regulations may affect the scope of, and the manner and terms of delivery of, our services. As a financial institution with substantial international operations, we are subject to extensive regulation and supervisory oversight, both in and outside of the U.S. This regulation and supervisory oversight affects, among other things, the scope of our activities and client services, our capital and organizational structure, our ability to fund the operations of our subsidiaries, our lending practices, our dividend policy, our common stock purchase actions, the manner in which we market our services, and our interactions with foreign regulatory agencies and officials.
In particular, State Street is registered with the Federal Reserve as a bank holding company pursuant to the Bank Holding Company Act of 1956. The Bank Holding Company Act limits the activities in which we (and non-banking entities that we are deemed to control under that Act) may engage in activities the Federal Reserve considers to be closely related to banking or to managing or controlling banks. Financial holding company status expands the activities permissible for a bank holding company to those that are deemed to be “financial in nature” by the Federal Reserve. State Street elected to become a financial holding company under the Bank Holding Company Act. Financial holding company status requires State Street and its banking subsidiaries to remain well capitalized and well managed and to comply with Community Reinvestment Act obligations. Currently, under the Bank Holding Company Act, we may not be able to engage in new activities or acquire shares or control of other businesses.
Several other aspects of the regulatory environment in which we operate, and related risks, are discussed below. Additional information is provided in “Business - Supervision and Regulation” included under Item 1 of this Form 10-K.
The Dodd-Frank Act, which became law in July 2010, has had, and will continue to have, a significant impact on the regulatory structure of the global financial markets and has imposed, and is expected to continue to impose, significant additional costs on us. While U.S. banking regulators have finalized many regulations to implement various provisions of the Dodd-Frank Act, they plan to propose or finalize additional implementing regulations in the future. In light of the further rule-making required to fully implement the Dodd-Frank Act, as well as the discretion afforded to federal regulators, the full
 
impact of this legislation on us, our business strategies and financial performance is not known at this time and may not be known for a number of years. Several elements of the Dodd-Frank Act, such as the Volcker rule and enhanced prudential standards for financial institutions designated as SIFIs, impose or are expected to impose significant additional operational, compliance and risk management costs both in the near-term, as we develop and integrate appropriate systems and procedures, and on a recurring basis thereafter, as we monitor, support and refine those systems and procedures.
A number of regulations implementing the Dodd-Frank Act that are not yet final are anticipated to be finalized in 2015 or 2016, with compliance dates soon thereafter, and, as a result of and together with regulatory change in Europe, the costs and impact on our operations of the post-financial crisis regulatory reform are accelerating. We may not anticipate completely all areas in which the Dodd-Frank Act or other regulatory initiatives could affect our business or influence our future activities or the full effects or extent of related operational, compliance, risk management or other costs.
The FDIC and the Federal Reserve jointly issued a final rule under the Dodd-Frank Act pursuant to which we are required to submit annually to the Federal Reserve and the FDIC a plan, known as a resolution plan, for our rapid and orderly resolution under the Bankruptcy Code (or other specifically applicable insolvency regime) in the event of material financial distress or failure. The FDIC also issued a final rule pursuant to which State Street Bank is required to submit annually to the FDIC a plan for resolution in the event of its failure. We and State Street Bank submitted our most recent annual resolution plan to the Federal Reserve and the FDIC on July 1, 2014. Subsequently, in August 2014, the Federal Reserve and the FDIC announced the completion of their reviews of resolution plans submitted in 2013 by 11 large, complex banking organizations, including State Street, under the requirements of the Dodd-Frank Act, and informed each of these organizations of specific shortcomings with their respective 2013 resolution plans. If the FDIC and the Federal Reserve should determine that one or more of our 2014, 2015 or any subsequent resolution plan is not credible or would not facilitate an orderly resolution under the Bankruptcy Code, or we otherwise fail to meet regulatory expectations to the satisfaction of the Federal Reserve or the FDIC with respect to one or more of such resolution plans, we could be subject to more stringent capital, leverage or liquidity requirements, restrictions on our growth, activities or operations, or be required to divest certain of our assets or operations.


27

Table of Contents

Other provisions of the Dodd-Frank Act and its implementing regulations, such as new rules for swap market participants, additional regulation of financial system utilities, the designation of non-bank institutions as SIFIs, and further requirements to facilitate orderly liquidation of large institutions, could adversely affect our business operations and our competitive position, and could also negatively affect the operational and competitive positions of our clients. The final effects of the Dodd-Frank Act on our business will depend largely on the scope and timing of the implementation of the Dodd-Frank Act by regulatory bodies, which in many cases have been delayed, and the exercise of discretion by these regulatory bodies.
The breadth of our business activities, together with the scope of our global operations and varying business practices in relevant jurisdictions, increase the complexity and costs of meeting our regulatory compliance obligations, including in areas that are receiving significant regulatory scrutiny. We are, therefore, subject to related risks of non-compliance, including fines, penalties, lawsuits, regulatory sanctions or difficulties in obtaining approvals, limitations on our business activities, or reputational harm, any of which may be significant. For example, the global nature of our client base requires us to comply with complex regulations relating to money laundering and anti-terrorist monitoring of our clients. The same applies with respect to anti-corruption laws and related requirements. Regulatory scrutiny of compliance with these and other regulations is increasing and our operations are subject to regulations from multiple jurisdictions. The overall evolving regulatory landscape in each jurisdiction in which we operate, including requirements or restrictions on our service offerings or opportunities for new service offerings, particularly when applied on a cross-border basis, is not necessarily consistent with the requirements or regulatory objectives of other jurisdictions in which we have clients or operations. This evolving regulatory landscape may interfere with our ability to conduct our operations, with our pursuit of a common global operating model or with our ability to compete effectively with other financial institutions operating in those jurisdictions or which may be subject to different regulatory requirements than apply to us. In particular, non-U.S. regulation and initiatives may be inconsistent or conflict with current or proposed regulations in the U.S., which could create increased compliance and other costs that would adversely affect business, operations or profitability.
Our designation under the Dodd-Frank Act in the U.S. as a SIFI, and our identification by the FSB as a G-SIB, to which certain regulatory capital surcharges may apply, will subject us to incrementally higher
 
capital and prudential requirements, increased scrutiny of our activities and potential further regulatory requirements or increased regulatory expectations than those applicable to some of the financial institutions with which we compete as a custodian or asset manager. This increased scrutiny also has significantly increased, and may continue to increase, our expenses associated with regulatory compliance, including personnel and systems, as well as implementation and related costs to enhance our programs.
We are further affected by other regulatory initiatives, including, but not limited to, the implementation of the Basel III final rule, including the proposed NSFR and Basel III SLR, the implemented Alternative Investment Fund Managers Directive, or AIFMD, the European Market Infrastructure Resolution, or EMIR, which is currently in an implementation phase, proposed revisions to the European collective investment fund, or UCITS, proposed revisions to the Markets in Financial Instruments Directive and anticipated revisions to the European Union data protection regulation. Recent, proposed or potential regulations in the U.S. and Europe with respect to money market funds, short-term wholesale funding, such as repurchase agreements or securities lending, or other “shadow banking” activities, could also adversely affect not only our own operations but also the operations of the clients to which we provide services. In Europe, the AIFMD increases the responsibilities and potential liabilities of custodians to certain of their clients for asset losses, and proposed revisions to the regulations affecting UCITS are anticipated to incorporate similar, potentially more strict, standards.
EMIR requires the reporting of all derivatives to a trade repository, the mandatory clearing of certain derivatives trades via a central counterparty and risk mitigation techniques for derivatives not cleared via a central counterparty. EMIR will impact our business activities, and increase costs, in various ways, some of which may be adverse. Further, the European Commission's proposal to introduce a proposed financial transaction tax or similar proposals elsewhere, if adopted, could materially affect the location and volume of financial transactions or otherwise alter the conduct of financial activities, any of which could have a material adverse effect on our business and on our consolidated results of operations or financial condition.
The Dodd-Frank Act and these other international regulatory changes could limit our ability to pursue certain business opportunities, increase our regulatory capital requirements, alter the risk profile of certain of our core activities and impose additional costs on us, otherwise adversely affect our business,


28

Table of Contents

our consolidated results of operations or financial condition and have other negative consequences, including a reduction of our credit ratings. Different countries may respond to the market and economic environment in different and potentially conflicting manners, which could increase the cost of compliance for us.
The evolving regulatory environment, including changes to existing regulations and the introduction of new regulations, may also contribute to decisions we may make to suspend, reduce or withdraw from existing businesses, activities or initiatives. In addition to potential lost revenue associated with any such suspensions, reductions or withdrawals, any such suspensions, reductions or withdrawals may result in significant restructuring or related costs or exposures.
If we do not comply with governmental regulations, we may be subject to fines, penalties, lawsuits, delays, or difficulties in obtaining regulatory approvals or restrictions on our business activities or harm to our reputation, which may significantly and adversely affect our business operations and, in turn, our consolidated results of operations. The willingness of regulatory authorities to impose meaningful sanctions, and the level of fines and penalties imposed in connection with regulatory violations, have increased substantially since the financial crisis. Regulatory agencies may, at times, limit our ability to disclose their findings, related actions or remedial measures. Similarly, many of our clients are subject to significant regulatory requirements and retain our services in order for us to assist them in complying with those legal requirements. Changes in these regulations can significantly affect the services that we are asked to provide, as well as our costs.
In addition, adverse publicity and damage to our reputation arising from the failure or perceived failure to comply with legal, regulatory or contractual requirements could affect our ability to attract and retain clients. If we cause clients to fail to comply with these regulatory requirements, we may be liable to them for losses and expenses that they incur. In recent years, regulatory oversight and enforcement have increased substantially, imposing additional costs and increasing the potential risks associated with our operations. If this regulatory trend continues, it could adversely affect our operations and, in turn, our consolidated results of operations and financial condition.
Our calculations of credit, market and operational risk exposures, total risk-weighted assets and capital ratios for regulatory purposes depend on data inputs, formulae, models, correlations, and assumptions that are subject to changes over
 
time, which changes, in addition to our consolidated financial results, could materially change our risk exposures, our total risk-weighted assets and our capital ratios from period to period.
To calculate our credit, market and operational risk exposures, our total risk-weighted assets and our capital ratios for regulatory purposes, the Basel III final rule involves the use of current and historical data, including our own loss data and claims experience and similar information from other industry participants, market volatility measures, interest rates and spreads, asset valuations, credit exposures, and the creditworthiness of our counterparties. These calculations also involve the use of quantitative formulae, statistical models, historical correlations and significant assumptions. We refer to the data, formulae, models, correlations, and assumptions, as well as our related internal processes, as our “advanced systems.” While our advanced systems are generally quantitative in nature, significant components involve the exercise of judgment based, among other factors, on our and the financial services industry's evolving experience. Any of these judgments or other elements of our advanced systems may not, individually or collectively, precisely represent or calculate the scenarios, circumstances, outputs or other results for which they are designed or intended.
In addition, our advanced systems are subject to update and periodic revalidation in response to changes in our business activities and our historical experiences, forces and events experienced by the market broadly or by individual financial institutions, changes in regulations and regulatory interpretations and other factors, and are also subject to continuing regulatory review and approval. For example, a significant operational loss experienced by another financial institution, even if we do not experience a related loss, could result in a material change in our advanced systems and a corresponding material change in our risk exposures, our total risk-weighted assets and our capital ratios compared to prior periods. Due to the influence of changes in our advanced systems, whether resulting from changes in data inputs, regulation or regulatory supervision or interpretation, State Street-specific or more general market, or individual financial institution-specific, activities or experiences, or other updates or factors, we expect that our advanced systems and our credit, market and operational risk exposures, our total risk-weighted assets and our capital ratios calculated under the Basel III final rule will change, and may be volatile, over time, and that those latter changes or volatility could be material as calculated and measured from period to period.


29

Table of Contents

Our businesses may be adversely affected by regulatory enforcement and litigation.
In the ordinary course of our business, we are subject to various regulatory, governmental and law enforcement inquiries, investigations and subpoenas. These may be directed generally to participants in the businesses or markets in which we are involved or may be specifically directed at us. In regulatory enforcement matters, claims for disgorgement, the imposition of penalties and the imposition of other remedial sanctions are possible.
From time to time, our clients, or the government on their or its own behalf, make claims and take legal action relating to, among other things, our performance of our fiduciary or contractual responsibilities. Often, the announcement or other publication of such a claim or action, or of any related settlement, may spur the initiation of similar claims by other clients or governmental parties. In any such claims or actions, demands for substantial monetary damages may be asserted against us and may result in financial liability, changes in our business practices or an adverse effect on our reputation or on client demand for our products and services. In regulatory settlements since the financial crisis, the fines imposed by regulators have increased substantially and may exceed in some cases the profit earned or harm caused by the regulatory or other breach.
We are currently subject to both regulatory inquiries and civil litigation with respect to the provision of foreign exchange execution services to institutional investors that are also custody clients. We recorded total accruals of $185 million for 2014 with respect to certain of these matters, and these regulatory matters and litigation have the potential to have a material adverse effect on our consolidated results of operations for any future period in which the relevant matter is resolved or any additional accrual is determined to be required, on our consolidated financial condition or on our reputation. The potential exposure from such matters is difficult to estimate because the basis on which some claims may be brought remains uncertain or the legal theories being applied are untested in the courts. For additional information concerning these matters, refer to the risk factor titled “ We face litigation and governmental and client inquiries in connection with our execution of indirect foreign exchange trades with custody clients; these issues have adversely affected our revenue from such trading and may cause our revenue from such trading to decline in the future.”
In many cases, we are required to self-report inappropriate or non-compliant conduct to the authorities, and our failure to do so may represent an independent regulatory violation. Even when we promptly bring the matter to the attention of the
 
appropriate authorities, we may nonetheless experience regulatory fines, liabilities to clients, harm to our reputation or other adverse effects in connection with self-reported matters.
Our operations are subject to regular and ongoing inspection by our bank and other financial market regulators in the U.S. and internationally. As a result of such inspections, regulators may identify areas in which we may need to take actions, which may be significant, to enhance our regulatory compliance or risk management practices. Such remedial actions may entail significant cost, management attention, and systems development and such efforts may affect our ability to expand our business until such remedial actions are completed. Our failure to implement enhanced compliance and risk management procedures in a manner and in a timeframe deemed to be responsive by the applicable regulatory authority could adversely impact our relationship with such regulatory authority and could lead to restrictions on our activities or other sanctions.
Further, we may become subject to regulatory scrutiny, inquiries or investigations associated with broad, industry-wide concerns, and potentially client-related inquiries or claims, whether or not we engaged in the relevant activities, and could experience associated increased costs or harm to our reputation. For example, we are a major foreign exchange dealer and also publish a commonly used foreign exchange benchmark. Many participants in the foreign exchange industry have settled governmental allegations of manipulation in foreign exchange markets, particularly with respect to published benchmarks, and others are expected to be facing similar inquiries or related civil litigation. We are enhancing our monitoring with respect to foreign exchange transactions and communications by foreign exchange traders. We are also undertaking an internal review of communications and have been advising certain U.S. and non-U.S. government agencies of the results of such review. Our business may become subject to material governmental review, proceedings or actions or the assertion of material claims, and the industry may become subject to increased regulation, any of which could decrease the volume and profitability of our foreign exchange trading activities. Our revenue worldwide from direct foreign exchange sales and trading totaled $361 million in 2014, $304 million in 2013 and $263 million in 2012.
Separately, we are responding to subpoenas from the Department of Justice and the SEC for information regarding our solicitation of asset servicing business of public retirement plans. We have retained counsel to conduct a review of these matters, including our use of consultants and


30

Table of Contents

lobbyists in our solicitation of business of public retirement plans and, in at least one instance, political contributions by one of our consultants during and after a public bidding process.
In view of the inherent difficulty of predicting the outcome of legal and regulatory matters, we cannot provide assurance as to the outcome of any pending or potential matter or, if determined adversely against us, the costs associated with any such matter, particularly where the claimant seeks very large or indeterminate damages or where the matter presents novel legal theories, involves a large number of parties or is at a preliminary stage. We may be unable to accurately estimate our exposure to litigation risk when we record reserves for probable and estimable loss contingencies. As a result, any reserves we establish to cover any settlements, judgments or regulatory fines may not be sufficient to cover our actual financial exposure. The resolution of certain pending or potential legal or regulatory matters could have a material adverse effect on our consolidated results of operations for the period in which the relevant matter is resolved or an accrual is determined to be required, on our consolidated financial condition or on our reputation.
We face litigation and governmental and client inquiries in connection with our execution of indirect foreign exchange trades with custody clients; these issues have adversely affected our revenue from such trading and may cause our revenue from such trading to decline in the future.
Our custody clients are not required to execute foreign exchange transactions with us. To the extent they execute foreign exchange trades with us, they generally execute a greater volume using our direct methods of execution at negotiated rates or spreads than they execute using our “indirect” methods at rates we establish. Where our clients or their investment managers choose to use our indirect foreign exchange execution methods, generally they elect that service for trades of smaller size or for currencies where regulatory or operational requirements cause trading in such currencies to present greater operational risk and costs for them. Given the nature of these trades and other features of the indirect foreign exchange trading in which we engage, we generally charge higher rates for indirect execution than we charge for other trades, including trades in the interbank currency market.
In October 2009, the Attorney General of the State of California commenced an action under the California False Claims Act and California Business and Professional Code related to services State Street provides to certain California state pension plans. The California Attorney General asserts that
 
the pricing of certain foreign exchange transactions for these pension plans was governed by the custody contracts for these plans and that our pricing was not consistent with the terms of those contracts and related disclosures to the plans, and that, as a result, State Street made false claims and engaged in unfair competition. The Attorney General asserts actual damages of approximately $100 million for periods from 2001 to 2009 and seeks additional penalties, including treble damages. This action is in the discovery phase.
We provide custody services to and engage in principal foreign exchange trading with government pension plans in other jurisdictions. Since the commencement of the litigation in California, attorneys general and other governmental authorities from a number of jurisdictions, as well as U.S. Attorney's offices, the U.S. Department of Labor and the SEC, have requested information or issued subpoenas in connection with inquiries into the pricing of our indirect foreign exchange trading. We continue to respond to such inquiries and subpoenas. Given that many of these inquiries are ongoing, we can provide no assurance that litigation or regulatory proceedings or actions will not be brought against us or as to the nature of the claims that might be alleged. Such litigation, proceedings or actions may be brought on theories similar to those advanced in California or on alternative theories of liability.
We engage in indirect foreign exchange trading with a broad range of custody clients in the U.S. and internationally. We have responded and are responding to information requests from a number of clients concerning our indirect foreign exchange rates. In February 2011, a putative class action was filed in federal court in Boston seeking unspecified damages, including treble damages, on behalf of all custodial clients that executed certain foreign exchange transactions with State Street from 1998 to 2009. The putative class action alleges, among other things, that the rates at which State Street executed foreign currency trades constituted an unfair and deceptive practice under Massachusetts law and a breach of the duty of loyalty. Two other putative class actions are currently pending in federal court in Boston alleging various violations of ERISA on behalf of all ERISA plans custodied with us that executed indirect foreign exchange trades with State Street from 1998 onward. The complaints allege that State Street caused class members to pay unfair and unreasonable rates for indirect foreign exchange trades with State Street. The complaints seek unspecified damages, disgorgement of profits, and other equitable relief. Other claims may be asserted in the future, including in response to developments in the actions discussed above or governmental proceedings.


31

Table of Contents

We cannot provide any assurance as to the outcome of the pending proceedings, or whether other proceedings might be commenced against us by clients or government authorities. For example, the New York Attorney General and the United States Attorney for the Southern District of New York, each of which has brought indirect foreign exchange-related legal proceedings against one of our competitors, have made inquiries to us about our indirect foreign exchange execution methods. We expect that plaintiffs will seek to recover their share of all or a portion of the revenue that we have recorded from providing indirect foreign exchange trades.
The following table summarizes our estimated total revenue worldwide from indirect foreign exchange trading for the years ended December 31:
(In millions)
 
Revenue from indirect foreign exchange trading
2008
 
$
462

2009
 
369

2010
 
336

2011
 
331

2012
 
248

2013
 
285

2014
 
246

We believe that the amount of our revenue from such trading has been of a similar or lesser order of magnitude for many years prior to 2008. Our revenue calculations related to indirect foreign exchange trading reflect a judgment concerning the relationship between the rates we charge for indirect foreign exchange execution and indicative interbank market rates near in time to execution. Our revenue from foreign exchange trading generally depends on the difference between the rates we set for those indirect trades and indicative interbank market rates at the time of settlement of the trade.
We cannot predict the outcome of any pending matters or whether a court, in the event of an adverse resolution, would consider our revenue to be the appropriate measure of damages. In each of the third and fourth quarters of 2014, we announced charges (due to legal accruals recorded in those quarters) reflecting our intention to seek to resolve some, but not all, of the outstanding and potential claims arising out of our indirect foreign exchange client activities. With respect to those legal accruals: (1) we are engaged in discussions with some, but not all, of the governmental agencies and civil litigants that we have described in connection with these matters regarding potential settlements of their outstanding or potential claims; (2) there can be no assurance that we will
 
reach a settlement in any of these matters, that the cost of such settlements would not materially exceed such accruals, or that other claims will not be asserted; and (3) we do not currently intend to seek to negotiate settlements with respect to all outstanding and potential claims, and our current efforts, even if successful, will not address all of our potential material legal exposure arising out of our indirect foreign exchange client activities. The resolution of pending matters or the resolution of any that may be initiated, filed or threatened could have a material adverse effect on our consolidated results of operations, our consolidated financial condition and our reputation.
The heightened regulatory and media scrutiny on indirect foreign exchange services has resulted in clients reducing the volume of indirect foreign exchange trades, which has had and is anticipated to continue to have an adverse impact on our revenue from, and the profitability of, our indirect foreign exchange trading. Some custody clients or their investment managers have elected to change the manner in which they execute foreign exchange with us or have decided not to use our foreign exchange execution methods. We do not expect the market, regulatory and other pressures on our indirect foreign exchange services to decrease in 2015. We intend to continue to offer our custody clients a range of execution options for their foreign exchange needs; however, the range of services, costs and profitability vary by execution option. We cannot provide assurance that clients or investment managers who choose to use less or none of our indirect foreign exchange trading, or to use alternatives to our existing indirect foreign exchange trading, will choose the alternatives offered by us. Accordingly, our revenue earned from providing these foreign exchange trading services may decline further.
We may incur losses arising from our investments in sponsored investment funds, which could be material to our consolidated results of operations in the periods incurred.
In the normal course of business, we manage various types of sponsored investment funds through SSGA. The services we provide to these sponsored investment funds generate management fee revenue, as well as servicing fees from our other businesses. From time to time, we may invest cash in the funds, which we refer to as seed capital, in order for the funds to establish a performance history for newly launched strategies. These funds may meet the definition of variable interest entities, as defined by GAAP, and if we are deemed to be the primary beneficiary of these funds, we may be required to consolidate these funds in our financial statements under GAAP. The funds follow specialized


32

Table of Contents

investment company accounting rules which prescribe fair value for the underlying investment securities held by the funds.
In the aggregate, we expect any financial losses that we realize over time from these seed investments to be limited to the actual fair value of the amount invested in the consolidated fund, which is based on the fair value of the underlying investment securities held by the funds. However, in the event of a fund wind-down, gross gains and losses of the fund may be recognized for financial accounting purposes in different periods during the time the fund is consolidated but not wholly owned. Although we expect the actual economic loss to be limited to the amount invested, our losses in any period for financial accounting purposes could exceed the value of our economic interests in the fund and could exceed the value of our initial seed capital investment.
The net assets of any consolidated fund are solely available to settle the liabilities of the fund and to settle any investors’ ownership redemption requests, including any seed capital invested in the fund by State Street. We are not contractually required to provide financial or any other support to any of our sponsored investment funds and are subject to regulations that prohibit or limit our ability to do so. In addition, neither creditors nor equity investors in the sponsored investment funds have any recourse to State Street’s general credit.
In instances where we are not deemed to be the primary beneficiary of the sponsored investment fund, we do not include the funds in our consolidated financial statements. Our risk of loss associated with these unconsolidated funds primarily represents our seed capital investment, which could become realized as a result of poor investment performance. However, the amount of loss we may recognize during any period would be limited to the carrying amount of our investment.
Our reputation and business prospects may be damaged if our clients incur substantial losses in investment pools in which we act as agent or are restricted in redeeming their interests in these investment pools.
We manage assets on behalf of clients in several forms, including in collective investment pools, money market funds, securities finance collateral pools, cash collateral and other cash products and short-term investment funds. In addition to the impact on the market value of client portfolios, at various times since 2007, the illiquidity and volatility of both the global fixed-income and equity markets have negatively affected the investment performance of certain of our products and our ability to manage client inflows and outflows from our pooled investment vehicles.
 
Our management of collective investment pools on behalf of clients exposes us to reputational risk and operational losses. If our clients incur substantial investment losses in these pools, receive redemptions as in-kind distributions rather than in cash, or experience significant under-performance relative to the market or our competitors' products, our reputation could be significantly harmed, which harm could significantly and adversely affect the prospects of our associated business units. Because we often implement investment and operational decisions and actions over multiple investment pools to achieve scale, we face the risk that losses, even small losses, may have a significant effect in the aggregate.
Within our investment management business, we manage investment pools, such as mutual funds and collective investment funds that generally offer our clients the ability to withdraw their investments on short notice, generally daily or monthly. This feature requires that we manage those pools in a manner that takes into account both maximizing the long-term return on the investment pool and retaining sufficient liquidity to meet reasonably anticipated liquidity requirements of our clients. The importance of maintaining liquidity varies by product type, but it is a particularly important feature in money market funds and other products designed to maintain a constant net asset value of $1.00.
During the market disruption that accelerated following the bankruptcy of Lehman Brothers, the liquidity in many asset classes, particularly short- and long-term fixed-income securities, declined dramatically, and providing liquidity to meet all client demands in these investment pools without adversely affecting the return to non-withdrawing clients became more difficult. In 2008, we imposed restrictions on cash redemptions from the agency lending collateral pools, as the per-unit market value of those funds' assets had declined below the constant $1.00 the funds employ to effect purchase and redemption transactions. Both the decline of the funds' net asset value below $1.00 and the imposition of restrictions on redemptions had a significant client, reputational and regulatory impact on us, and the recurrence of such or similar circumstances in the future could adversely impact our consolidated results of operations and financial condition. During this period, we also continued to process purchase and redemption of units of the collateral pools at $1.00 although the fair market value of the collateral pools' assets were less than $1.00. Our willingness in the future to continue to process purchases and redemptions from collateral pools at $1.00 when the fair market value of our collateral pools' assets is less than $1.00 could expose us to significant liability. Our unwillingness in the future to continue to process


33

Table of Contents

purchases and redemptions from collateral pools at $1.00 when the fair market value of the collateral pools' assets are less than $1.00 could similarly expose us to significant liability.
In the case of SSGA funds that engage in securities lending, we implemented limitations, which were terminated in 2010, on the portion of an investor's interest in such fund that may be withdrawn during any month.
If higher than normal demands for liquidity from our clients were to return to post-Lehman-Brothers-bankruptcy levels or increase, managing the liquidity requirements of our collective investment pools could become more difficult. If such liquidity problems were to recur, our relationships with our clients may be adversely affected, and, we could, in certain circumstances, be required to consolidate the investment pools into our consolidated statement of condition; levels of redemption activity could increase; and our consolidated results of operations and business prospects could be adversely affected. In addition, if a money market fund that we manage were to have unexpected liquidity demands from investors in the fund that exceeded available liquidity, the fund could be required to sell assets to meet those redemption requirements, and selling the assets held by the fund at a reasonable price, if at all, may then be difficult.
While it is currently not our intention, and we do not have contractual or other obligations to do so, we have in the past guaranteed, and may in the future guarantee, liquidity to investors desiring to make withdrawals from a fund or otherwise take actions to mitigate the impact of market conditions on our clients and if permitted by applicable laws. Making a significant amount of such guarantees could adversely affect our own consolidated liquidity and financial condition. Because of the size of the investment pools that we manage, we may not have the financial ability or regulatory authority to support the liquidity or other demands of our clients. The extreme volatility in the equity markets has led to the potential for the return on passive and quantitative products to deviate from their target returns.
Any decision by us to provide financial support to an investment pool to support our reputation in circumstances where we are not statutorily or contractually obligated to do so could result in the recognition of significant losses, could adversely affect the regulatory view of our capital levels or plans and could, in certain situations, require us to consolidate the investment pools into our consolidated statement of condition. Any failure of the pools to meet redemption requests, or under-performance of our pools relative to similar products
 
offered by our competitors, could harm our business and our reputation.
The potential reputational impact from any decision to support or not to support a fund, and from restrictions on redemptions, is most acute in connection with money market funds and other cash products that employ a constant net asset value of $1.00 for purposes of effecting subscriptions and redemptions. To some degree investors in such cash products rely upon an implicit assumption that the sponsors of the investment vehicle will support the $1.00 valuation of a cash fund. While there can be no assurance that we will not change our policy in the future, we have disclosed in the offering documents for such cash products that we do not intend to support the $1.00 valuation of such products. If such cash funds were in the future to have valuations of less than $1.00, such occurrence could have a material adverse effect on our reputation and our clients that invested in such funds.
Our businesses may be negatively affected by adverse publicity or other reputational harm.
Our relationship with many of our clients is predicated on our reputation as a fiduciary and a service provider that adheres to the highest standards of ethics, service quality and regulatory compliance. Adverse publicity, regulatory actions or fines, litigation, operational failures or the failure to meet client expectations or fiduciary or other obligations could materially and adversely affect our reputation, our ability to attract and retain clients or our sources of funding for the same or other businesses. For example, as discussed earlier in this “Risk Factors” section, we have experienced adverse publicity with respect to our indirect foreign exchange trading, and this adverse publicity has contributed to a shift of client volume to other foreign exchange execution methods. Similarly, regulatory and reputational issues in our transition management business in the U.K. in 2010 and 2011 adversely affected our revenue from that business in 2012, 2013 and 2014. Preserving and enhancing our reputation also depends on maintaining systems, procedures and controls that address known risks and regulatory requirements, as well as our ability to timely identify, understand and mitigate additional risks that arise due to changes in our businesses and the marketplaces in which we operate, the regulatory environment and client expectations.
Our controls and procedures may fail or be circumvented, our risk management policies and procedures may be inadequate, and operational risk could adversely affect our consolidated results of operations.
We may fail to identify and manage risks related to a variety of aspects of our business, including, but


34

Table of Contents

not limited to, operational risk, interest-rate risk, foreign exchange risk, trading risk, fiduciary risk, legal and compliance risk, liquidity risk and credit risk. We have adopted various controls, procedures, policies and systems to monitor and manage risk. While we currently believe that our risk management process is effective, we cannot provide assurance that those controls, procedures, policies and systems will always be adequate to identify and manage the internal and external, including service provider, risks in our various businesses. Risks that individuals, either employees or contractors, consciously circumvent established control mechanisms to, for example, exceed trading or investment management limitations, or commit fraud, are particularly challenging to manage through a control framework. The financial and reputational impact of control failures can be significant. Persistent or repeated issues with respect to controls may raise concerns among regulators regarding our culture, governance and control environment. While we seek to contractually limit our financial exposure to operational risk, the degree of protection that we are able to achieve varies, and our potential exposure may be greater than the revenue we anticipate that we will earn from the client relationship.
In addition, our businesses and the markets in which we operate are continuously evolving. We may fail to identify or fully understand the implications of changes in our businesses or the financial markets and fail to adequately or timely enhance our risk framework to address those changes. If our risk framework is ineffective, either because it fails to keep pace with changes in the financial markets, regulatory or industry requirements, our businesses, our counterparties, clients or service providers or for other reasons, we could incur losses, suffer reputational damage or find ourselves out of compliance with applicable regulatory or contractual mandates or expectations.
Operational risk is inherent in all of our business activities. As a leading provider of services to institutional investors, we provide a broad array of services, including research, investment management, trading services and investment servicing that expose us to operational risk. In addition, these services generate a broad array of complex and specialized servicing, confidentiality and fiduciary requirements, many of which involve the opportunity for human, systems or process errors. We face the risk that the control policies, procedures and systems we have established to comply with our operational requirements will fail, will be inadequate or will become outdated. We also face the potential for loss resulting from inadequate or failed internal processes, employee supervision or monitoring mechanisms, service-provider processes or other
 
systems or controls, which could materially affect our future consolidated results of operations. Given the volume and magnitude of transactions we process on a daily basis, operational losses represent a potentially significant financial risk for our business. Operational errors that result in us remitting funds to a failing or bankrupt entity may be irreversible, and may subject us to losses.
We may also be subject to disruptions from external events that are wholly or partially beyond our control, which could cause delays or disruptions to operational functions, including information processing and financial market settlement functions. In addition, our clients, vendors and counterparties could suffer from such events. Should these events affect us, or the clients, vendors or counterparties with which we conduct business, our consolidated results of operations could be negatively affected. When we record balance sheet accruals for probable and estimable loss contingencies related to operational losses, we may be unable to accurately estimate our potential exposure, and any accruals we establish to cover operational losses may not be sufficient to cover our actual financial exposure, which could have a material adverse effect on our consolidated results of operations.
The quantitative models we use to manage our business may contain errors that result in inadequate risk assessments, inaccurate valuations or poor business decisions, and lapses in disclosure controls and procedures or internal control over financial reporting could occur, any of which could result in material harm .
We use quantitative models to help manage many different aspects of our businesses. As an input to our overall assessment of capital adequacy, we use models to measure the amount of credit risk, market risk, operational risk, interest-rate risk and business risk we face. During the preparation of our consolidated financial statements, we sometimes use models to measure the value of asset and liability positions for which reliable market prices are not available. We also use models to support many different types of business decisions including trading activities, hedging, asset-and-liability management and whether to change business strategy. In all of these uses, the underlying model or model assumptions, or inadequate model assumptions, could result in unanticipated and adverse consequences, including material loss and material non-compliance with regulatory requirements or expectations. Because of our widespread usage of models, potential limitations in models pose an ongoing risk to us.
We also may fail to accurately quantify the magnitude of the risks we face. Our measurement


35

Table of Contents

methodologies rely on many assumptions and historical analyses and correlations. These assumptions may be incorrect, and the historical correlations on which we rely may not continue to be relevant. Consequently, the measurements that we make for regulatory purposes may not adequately capture or express the true risk profiles of our businesses. Moreover, as businesses and markets evolve, our measurements may not accurately reflect this evolution. While our risk measures may indicate sufficient capitalization, they may underestimate the level of capital necessary to conduct our businesses.
Additionally, our disclosure controls and procedures may not be effective in every circumstance, and, similarly, it is possible we may identify a material weakness or significant deficiency in internal control over financial reporting. Any such lapses or deficiencies may materially and adversely affect our business and consolidated results of operations or consolidated financial condition, restrict our ability to access the capital markets, require us to expend significant resources to correct the lapses or deficiencies, expose us to regulatory or legal proceedings, subject us to fines, penalties or judgments or harm our reputation.
Cost shifting to non-U.S. jurisdictions may expose us to increased operational risk and reputational harm and may not result in expected cost savings.
We actively strive to achieve cost savings by shifting certain business processes and business support functions to lower-cost geographic locations, such as Poland, India and China. We may accomplish this shift by establishing operations in lower-cost locations, by outsourcing to vendors in various jurisdictions or through joint ventures. This effort exposes us to the risk that we may not maintain service quality, control or effective management within these operations. In addition, we are exposed to the relevant macroeconomic, political and similar risks generally involved in doing business in those jurisdictions. The increased elements of risk that arise from conducting certain operating processes in some jurisdictions could lead to an increase in reputational risk. During periods of transition, greater operational risk and client concern exist with respect to maintaining a high level of service delivery. The extent and pace at which we are able to move functions to lower-cost locations may also be affected by regulatory and client acceptance issues. Such relocation of functions also entails costs, such as technology, real estate and restructuring expenses, that may offset or exceed the expected financial benefits of the lower-cost locations. In addition, the financial benefits of lower-cost locations may diminish over time.
 
Development of new products and services may impose additional costs on us and may expose us to increased operational risk.
Our financial performance depends, in part, on our ability to develop and market new and innovative services and to adopt or develop new technologies that differentiate our products or provide cost efficiencies, while avoiding increased related expenses. The introduction of new products and services can entail significant time and resources, including regulatory approvals. Substantial risks and uncertainties are associated with the introduction of new products and services, including technical and control requirements that may need to be developed and implemented, rapid technological change in the industry, our ability to access technical and other information from our clients and the significant and ongoing investments required to bring new products and services to market in a timely manner at competitive prices. Our failure to manage these risks and uncertainties also exposes us to enhanced risk of operational lapses which may result in the recognition of financial statement liabilities. Regulatory and internal control requirements, capital requirements, competitive alternatives, vendor relationships and shifting market preferences may also determine if such initiatives can be brought to market in a manner that is timely and attractive to our clients. Failure to successfully manage these risks in the development and implementation of new products or services could have a material adverse effect on our business and reputation, as well as on our consolidated results of operations and financial condition.
We depend on information technology, and any failures of or damage to, attack on or unauthorized access to our information technology systems or facilities, or those of third parties with which we do business, including as a result of cyber-attacks, could result in significant limits on our ability to conduct our operations and activities, costs and reputational damage.
Our businesses depend on information technology infrastructure, both internal and external, to, among other things, record and process a large volume of increasingly complex transactions and other data, in many currencies, on a daily basis, across numerous and diverse markets and jurisdictions. Since 2012, several financial services firms have suffered successful cyber-attacks launched both domestically and from abroad, resulting in the disruption of services to clients, loss or misappropriation of sensitive or private data and reputational harm. We also have been subjected to cyber-attack, and although we have not suffered a material breach of our systems, it is possible that we could suffer such a breach in the future. We may not


36

Table of Contents

implement effective systems and other measures to effectively prevent or mitigate the full diversity of cyber-threats or improve and adapt such systems and measures as such threats evolve and advance.
Our computer, communications, data processing, networks, backup, business continuity or other operating, information or technology systems and facilities, including those that we outsource to other providers, may fail to operate properly or become disabled, overloaded or damaged as a result of a number of factors, including events that are wholly or partially beyond our control, which could adversely affect our ability to process transactions, provide services or maintain systems availability, maintain compliance and internal controls or otherwise appropriately conduct our business activities. For example, there could be sudden increases in transaction or data volumes, electrical or telecommunications outages, cyber-attacks or employee or contractor error or malfeasance.
The third parties with which we do business, which facilitate our business activities or with whom we otherwise engage or interact, including financial intermediaries and technology infrastructure and service providers, are also susceptible to the foregoing risks (including regarding the third parties with which they are similarly interconnected or on which they otherwise rely), and our or their business operations and activities may therefore be adversely affected, perhaps materially, by failures, terminations, errors or malfeasance by, or attacks or constraints on, one or more financial, technology, infrastructure or government institutions or intermediaries with whom we or they are interconnected or conduct business.
In particular, we, like other financial services firms, will continue to face increasing cyber threats, including computer viruses, malicious code, distributed denial of service attacks, phishing attacks, information security breaches or employee or contractor error or malfeasance that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of our, our clients' or other parties' confidential, personal, proprietary or other information or otherwise disrupt, compromise or damage our or our clients' or other parties' business assets, operations and activities. Our status as a global systemically important financial institution may enhance the risk that we are targeted by such cyber-security threats. We therefore could experience significant related costs and exposures, including lost or constrained ability to provide our services or maintain systems availability to clients, regulatory inquiries, enforcements, actions and fines, litigation, damage to our reputation or property and enhanced competition.
 
Due to our dependence on technology and the important role it plays in our business operations, we must persist in improving and updating our information technology infrastructure. Updating these systems and facilities can require significant resources and often involves implementation, integration and security risks that could cause financial, reputational and operational harm. However, failing to properly respond to and invest in changes and advancements in technology can limit our ability to attract and retain clients, prevent us from offering similar products and services as those offered by our competitors and inhibit our ability to meet regulatory requirements.
Any theft, loss or other misappropriation of the confidential information we possess could have an adverse impact on our business and could subject us to regulatory actions, litigation and other adverse effects.
Our businesses and relationships with clients are dependent on our ability to maintain the confidentiality of our and our clients' trade secrets and confidential information (including client transactional data and personal data about our employees, our clients and our clients' clients). Unauthorized access to such information may occur, resulting in its theft, loss or other misappropriation. Any theft, loss or other misappropriation of confidential information could have a material adverse impact on our competitive position, our relationships with our clients and our reputation and could subject us to regulatory inquiries, enforcement and fines, civil litigation and possible financial liability or costs.
We may not be able to protect our intellectual property, and we are subject to claims of third-party intellectual property rights.
Our potential inability to protect our intellectual property and proprietary technology effectively may allow competitors to duplicate our technology and products and may adversely affect our ability to compete with them. To the extent that we do not protect our intellectual property effectively through patents or other means, other parties, including former employees, with knowledge of our intellectual property may leave and seek to exploit our intellectual property for their own or others' advantage. In addition, we may infringe on claims of third-party patents, and we may face intellectual property challenges from other parties. We may not be successful in defending against any such challenges or in obtaining licenses to avoid or resolve any intellectual property disputes. Third-party intellectual rights, valid or not, may also impede our deployment of the full scope of our products and service capabilities in all jurisdictions in which we operate or


37

Table of Contents

market our products and services. The intellectual property of an acquired business may be an important component of the value that we agree to pay for such a business. However, such acquisitions are subject to the risks that the acquired business may not own the intellectual property that we believe we are acquiring, that the intellectual property is dependent on licenses from third parties, that the acquired business infringes on the intellectual property rights of others, or that the technology does not have the acceptance in the marketplace that we anticipated.
Competition for our employees is intense, and we may not be able to attract and retain the highly skilled people we need to support our business.
Our success depends, in large part, on our ability to attract and retain key people. Competition for the best people in most activities in which we engage can be intense, and we may not be able to hire people or retain them, particularly in light of challenges associated with evolving compensation restrictions applicable, or which may become applicable, to banks and some asset managers and that potentially are not applicable to other financial services firms in all jurisdictions. The unexpected loss of services of key personnel, both in business units and control functions, could have a material adverse impact on our business because of their skills, their knowledge of our markets, operations and clients, their years of industry experience and, in some cases, the difficulty of promptly finding qualified replacement personnel. Similarly, the loss of key employees, either individually or as a group, could adversely affect our clients' perception of our ability to continue to manage certain types of investment management mandates or to provide other services to them.
We are subject to intense competition in all aspects of our business, which could negatively affect our ability to maintain or increase our profitability.
The markets in which we operate across all facets of our business are both highly competitive and global. These markets are changing as a result of new and evolving laws and regulations applicable to financial services institutions. Regulatory-driven market changes cannot always be anticipated, and may adversely affect the demand for, and profitability of, the products and services that we offer. In addition, new market entrants and competitors may address changes in the markets more rapidly than we do, or may provide clients with a more attractive offering of products and services, adversely affecting our business. We have also experienced, and anticipate that we will continue to experience, pricing pressure in many of our core businesses, particularly
 
our custodial and investment management services. Many of our businesses compete with other domestic and international banks and financial services companies, such as custody banks, investment advisors, broker/dealers, outsourcing companies and data processing companies. Further consolidation within the financial services industry could also pose challenges to us in the markets we serve, including potentially increased downward pricing pressure across our businesses.
Some of our competitors, including our competitors in core services, have substantially greater capital resources than we do or are not subject to as stringent capital or other regulatory requirements as are we. In some of our businesses, we are service providers to significant competitors. These competitors are in some instances significant clients, and the retention of these clients involves additional risks, such as the avoidance of actual or perceived conflicts of interest and the maintenance of high levels of service quality and intra-company confidentiality. The ability of a competitor to offer comparable or improved products or services at a lower price would likely negatively affect our ability to maintain or increase our profitability. Many of our core services are subject to contracts that have relatively short terms or may be terminated by our client after a short notice period. In addition, pricing pressures as a result of the activities of competitors, client pricing reviews, and rebids, as well as the introduction of new products, may result in a reduction in the prices we can charge for our products and services.
Acquisitions, strategic alliances, joint ventures and divestitures pose risks for our business.
As part of our business strategy, we acquire complementary businesses and technologies, enter into strategic alliances and joint ventures and divest portions of our business. We undertake transactions of varying sizes to, among other reasons, expand our geographic footprint, access new clients, technologies or services, develop closer or more collaborative relationships with our business partners, efficiently deploy capital or leverage cost savings or other business or financial opportunities. We may not achieve the expected benefits of these transactions, which could result in increased costs, lowered revenues, ineffective deployment of capital, regulatory concerns, exit costs or diminished competitive position or reputation.
Transactions of this nature also involve a number of risks and financial, accounting, tax, regulatory, managerial, operational, cultural and employment challenges, which could adversely affect our consolidated results of operations and financial condition. For example, the businesses that we


38

Table of Contents

acquire or our strategic alliances or joint ventures may under-perform relative to the price paid or the resources committed by us; we may not achieve anticipated cost savings; or we may otherwise be adversely affected by acquisition-related charges. Further, past acquisitions have resulted in the recognition of goodwill and other significant intangible assets in our consolidated statement of condition. These assets are not eligible for inclusion in regulatory capital under applicable requirements. In addition, we may be required to record impairment in our consolidated statement of income in future periods if we determine that the value of these assets has declined. In the fourth quarter of 2014, we recorded a $9 million impairment for that reason.
Through our acquisitions or joint ventures, we may also assume unknown or undisclosed business, operational, tax, regulatory and other liabilities, fail to properly assess known contingent liabilities or assume businesses with internal control deficiencies. While in most of our transactions we seek to mitigate these risks through, among other things, due diligence and indemnification provisions, these or other risk-mitigating provisions we put in place may not be sufficient to address these liabilities and contingencies.
Various regulatory approvals or consents are generally required prior to closing of these transactions, which may include approvals of the Federal Reserve and other domestic and non-U.S. regulatory authorities. These regulatory authorities may impose conditions on the completion of the acquisition or require changes to its terms that materially affect the terms of the transaction or our ability to capture some of the opportunities presented by the transaction. Any such conditions, or any associated regulatory delays, could limit the benefits of the transaction. Acquisitions or joint ventures we announce may not be completed if we do not receive the required regulatory approvals, if regulatory approvals are significantly delayed or if other closing conditions are not satisfied.
The integration of our acquisitions results in risks to our business and other uncertainties.
The integration of acquisitions presents risks that differ from the risks associated with our ongoing operations. Integration activities are complicated and time consuming and can involve significant unforeseen costs. We may not be able to effectively assimilate services, technologies, key personnel or businesses of acquired companies into our business or service offerings as anticipated, alliances may not be successful, and we may not achieve related revenue growth or cost savings. We also face the risk of being unable to retain, or cross-sell our products or services to, the clients of acquired
 
companies or joint ventures. Acquisitions of investment servicing businesses entail information technology systems conversions, which involve operational risks and may result in client dissatisfaction and defection. Clients of investment servicing businesses that we have acquired may be competitors of our non-custody businesses. The loss of some of these clients or a significant reduction in the revenues generated from them, for competitive or other reasons, could adversely affect the benefits that we expect to achieve from these acquisitions or cause impairment to goodwill and other intangibles.
With any acquisition, the integration of the operations and resources of the businesses could result in the loss of key employees, the disruption of our and the acquired company's ongoing businesses or inconsistencies in standards, controls, procedures or policies that could adversely affect our ability to maintain relationships with clients or employees or to achieve the anticipated benefits of the acquisition. Integration efforts may also divert management attention and resources.
Long-term contracts expose us to pricing and performance risk.
We enter into long-term contracts to provide middle office or investment manager and alternative investment manager operations outsourcing services to clients, primarily for conversions, including services related but not limited to certain trading activities, cash reporting, settlement and reconciliation activities, collateral management and information technology development. We also enter into longer-term arrangements with respect to custody, fund administration and depository services. These arrangements generally set forth our fee schedule for the term of the contract and, absent a change in service requirements, do not permit us to re-price the contract for changes in our costs or for market pricing. The long-term contracts for these relationships require, in some cases, considerable up-front investment by us, including technology and conversion costs, and carry the risk that pricing for the products and services we provide might not prove adequate to generate expected operating margins over the term of the contracts.
The profitability of these contracts is largely a function of our ability to accurately calculate pricing for our services, efficiently assume our contractual responsibilities in a timely manner, control our costs and maintain the relationship with the client for an adequate period of time to recover our up-front investment. Our estimate of the profitability of these arrangements can be adversely affected by declines in the assets under the clients' management, whether due to general declines in the securities markets or client-specific issues. In addition, the profitability of


39

Table of Contents

these arrangements may be based on our ability to cross-sell additional services to these clients, and we may be unable to do so.
Performance risk exists in each contract, given our dependence on successful conversion and implementation onto our own operating platforms of the service activities provided. Our failure to meet specified service levels or implementation timelines may also adversely affect our revenue from such arrangements, or permit early termination of the contracts by the client. If the demand for these types of services were to decline, we could see our revenue decline.
Changes in accounting standards may be difficult to predict and may adversely affect our consolidated financial statements.
New accounting standards, or changes to existing accounting standards, resulting both from initiatives of the Financial Accounting Standards Board, or FASB, or their convergence efforts with the International Accounting Standards Board, as well as changes in the interpretation of existing accounting standards, by the FASB or the SEC or otherwise reflected in GAAP, potentially could affect our consolidated results of operations, cash flows and financial condition. These changes are difficult to predict, and can materially affect how we record and report our consolidated results of operations, cash flows, financial condition and other financial information. In some cases, we could be required to apply a new or revised standard retroactively, resulting in the revised treatment of certain transactions or activities, and, in some cases, the restatement of our consolidated financial statements for prior periods.
Changes in tax laws, rules or regulations, challenges to our tax positions with respect to historical transactions, and changes in the composition of our pre-tax earnings may increase our effective tax rate and thus adversely affect our consolidated financial statements.
Our businesses can be directly or indirectly affected by new tax legislation, the expiration of existing tax laws or the interpretation of existing tax laws worldwide. The U.S. federal government, state governments, including Massachusetts, and jurisdictions around the world continue to review proposals to amend tax laws, rules and regulations applicable to our business that could have a negative impact on our after-tax earnings. For example, the expiration at the end of 2014 of provisions of the U.S. tax laws that favorably affected the taxation of our non-U.S. operations could negatively affect our effective tax rate beginning in 2015. Although these U.S. tax laws have previously expired and been re-
 
enacted, it is uncertain whether they will be re-enacted again.
In the normal course of our business, we are subject to review by U.S. and non-U.S. tax authorities. A review by any such authority could result in an increase in our recorded tax liability. In addition to the aforementioned risks, our effective tax rate is dependent on the nature and geographic composition of our pre-tax earnings and could be negatively affected by changes in these factors.
We may incur losses as a result of unforeseen events, including terrorist attacks, natural disasters, the emergence of a pandemic or acts of embezzlement.
Acts of terrorism, natural disasters or the emergence of a pandemic could significantly affect our business. We have instituted disaster recovery and continuity plans to address risks from terrorism, natural disasters and pandemic; however, anticipating or addressing all potential contingencies is not possible for events of this nature. Acts of terrorism, either targeted or broad in scope, or natural disasters could damage our physical facilities, harm our employees and disrupt our operations. A pandemic, or concern about a possible pandemic, could lead to operational difficulties and impair our ability to manage our business. Acts of terrorism, natural disasters and pandemics could also negatively affect our clients, counterparties and service providers, as well as result in disruptions in general economic activity and the financial markets.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We occupy a total of approximately 7.8 million square feet of office space and related facilities worldwide, of which approximately 6.9 million square feet are leased. Of the total leased space, approximately 2.7 million square feet are located in eastern Massachusetts. An additional 1.7 million square feet are located elsewhere throughout the U.S. and in Canada. We lease approximately 1.8 million square feet in the U.K. and elsewhere in Europe, and approximately 700,000 square feet in the Asia/Pacific region.
Our headquarters is located at State Street Financial Center, One Lincoln Street, Boston, Massachusetts, a 36-story office building. Various divisions of our two lines of business, as well as support functions, occupy space in this building. We lease the entire 1,025,000 square feet of the building, and a related underground parking garage, at One Lincoln Street, under 20-year non-cancellable capital leases expiring in 2023. A portion of the lease


40

Table of Contents

payments is offset by subleases for approximately 127,000 square feet of the building.
In 2014, construction completed on the Channel Center, a build-to-suit office building located in Boston, designed to consolidate our staff from various eastern Massachusetts locations. We began leasing space in February and the entire 500,000 square feet of this building was leased by mid September. We occupy three buildings located in Quincy, Massachusetts, one of which we own and two of which we lease. The buildings, containing a total of approximately 1.1 million square feet (720,000 square feet owned and 380,000 square feet leased), function as State Street Bank's principal operations facilities.
We occupy other principal properties located in Missouri, New Jersey, New York, California and Ontario, composed of five leased buildings containing a total of approximately 1.0 million square feet, under leases expiring from June 2015 to August 2025. Significant properties in the U.K. and Europe include eight buildings located in England, Scotland, Poland, Ireland, Luxembourg, Germany, and Italy, containing approximately 1.2 million square feet under leases expiring from January 2019 through August 2034.
 
Principal properties located in China and Australia consist of three buildings containing approximately 379,000 square feet under leases expiring from September 2020 through May 2021.
We believe that our owned and leased facilities are suitable and adequate for our business needs. Additional information about our occupancy costs, including our commitments under non-cancelable leases, is provided in note  20 to the consolidated financial statements included under Item 8 of this Form 10-K.

ITEM 3.    LEGAL PROCEEDINGS
The information required by this Item is provided under "Legal and Regulatory Matters" in note 11 to the consolidated financial statements included under Item 8 of this Form 10-K, and is incorporated herein by reference.
ITEM 4.    MINE SAFETY DISCLOSURES
Not applicable.

EXECUTIVE OFFICERS OF THE REGISTRANT
The following table presents certain information with respect to each of our executive officers as of February 20, 2015 .
Name
 
Age
 
Position
Joseph L. Hooley
 
57

 
Chairman and Chief Executive Officer
Joseph C. Antonellis
 
60

 
Vice Chairman
Michael W. Bell
 
51

 
Executive Vice President and Chief Financial Officer
Jeffrey N. Carp
 
58

 
Executive Vice President, Chief Legal Officer and Secretary
Gunjan Kedia
 
44

 
Executive Vice President
John L. Klinck, Jr.
 
51

 
Executive Vice President
Andrew Kuritzkes
 
54

 
Executive Vice President and Chief Risk Officer
Sean P. Newth
 
39

 
Senior Vice President, Chief Accounting Officer and Controller
Peter O'Neill
 
56

 
Executive Vice President
Christopher Perretta
 
57

 
Executive Vice President
James S. Phalen
 
64

 
Vice Chairman
Scott F. Powers
 
55

 
President and Chief Executive Officer of State Street Global Advisors
Alison A. Quirk
 
53

 
Executive Vice President
Michael F. Rogers
 
57

 
President and Chief Operating Officer
Wai-Kwong Seck
 
59

 
Executive Vice President
All executive officers are appointed by the Board and hold office at the discretion of the Board. No family relationships exist among any of our directors and executive officers.
Mr. Hooley joined State Street in 1986 and currently serves as Chairman and Chief Executive Officer. He was appointed Chief Executive Officer in March 2010 and Chairman of the Board in January
 
2011. He served as our President and Chief Operating Officer from April 2008 until December 2014. From 2002 to April 2008, Mr. Hooley served as Executive Vice President and head of Investor Services and, in 2006, was appointed Vice Chairman and Global Head of Investment Servicing and Investment Research and Trading. Mr. Hooley was elected to serve on the Board of Directors effective October 22, 2009.


41

Table of Contents

Mr. Antonellis joined State Street in 1991 and has served as head of all Europe and Asia/Pacific Global Services and Global Markets businesses since March 2010. Prior to this, in 2003, he was named head of Information Technology and Global Securities Services. In 2006, he was appointed Vice Chairman with additional responsibility as head of Investor Services in North America and Global Investment Manager Outsourcing Services.
Mr. Bell joined State Street in 2013 as Executive Vice President and Chief Financial Officer. Prior to joining State Street, Mr. Bell served as executive vice president and chief financial officer of Manulife Financial Corporation, a leading Canada-based financial services group with principal operations in Asia, Canada and the U.S., from 2009 to 2012. From 2002 to 2009, he served as executive vice president and chief financial officer at Cigna Corporation, a global health services organization where he had previously served in several senior management positions, including as President of Cigna Group Insurance.
Mr. Carp joined State Street in 2006 as Executive Vice President and Chief Legal Officer. Later in 2006, he was also appointed Secretary. From 2004 to 2005, Mr. Carp served as executive vice president and general counsel of Massachusetts Financial Services, an investment management and research company. From 1989 until 2004, Mr. Carp was a senior partner at the law firm of Hale and Dorr LLP, where he was an attorney since 1982. Mr. Carp served as State Street's interim Chief Risk Officer from February 2010 until September 2010.
Ms. Kedia joined State Street in 2008 as an executive vice president and is responsible for the Investment Servicing business in the Americas for mutual funds, insurance and institutional clients. Prior to joining State Street, Ms. Kedia previously was an executive vice president, global product management at Bank of New York Mellon. Additionally, Ms. Kedia was a partner with McKinsey & Company focusing on financial institutions and an associate with PriceWaterhouseCoopers.
Mr. Klinck joined State Street in 2006 and has served as Executive Vice President and global head of Corporate Development and Global Relationship Management since March 2010, prior to which he served as Executive Vice President and global head of Alternative Investment Solutions. Prior to joining State Street, Mr. Klinck was with Mellon Financial Corporation, a global financial services company, from 1997 to 2006. During that time, he served as vice chairman and president of its Investment Manager Solutions group and before that as chairman for Mellon Europe, where he was
 
responsible for the company’s investor services business in the region.
Mr. Kuritzkes joined State Street in 2010 as Executive Vice President and Chief Risk Officer. Prior to joining State Street, Mr. Kuritzkes was a partner at Oliver, Wyman & Company, an international management consulting firm, and led the firm’s Public Policy practice in North America. He joined Oliver, Wyman & Company in 1988, was a managing director in the firm’s London office from 1993 to 1997, and served as vice chairman of Oliver, Wyman & Company globally from 2000 until the firm’s acquisition by MMC in 2003. From 1986 to 1988, he worked as an economist and lawyer for the Federal Reserve Bank of New York.
Mr. Newth joined State Street in 2005 and has served as Senior Vice President, Chief Accounting Officer and Corporate Controller since October 2014. Prior to that, he held several senior positions in State Street's Accounting Department, including Director of Accounting Policy from 2009 to 2014 and Deputy Controller beginning in April 2014. Before joining State Street, Mr. Newth served in various transaction services, accounting advisory and assurance roles at KPMG, from 1997 to 2005.
Mr. O'Neill has served as Executive Vice President and head of Global Markets and Global Services in Europe, the Middle East and Africa since November 2012 and prior to that he served as head of Global Markets and Global Services in the Asia/Pacific region. He joined State Street in 1985 and has held several senior positions during his tenure, including his appointment in January 2000 as managing director of State Street Global Markets in Europe. This role was expanded in June 2006 to include responsibility for Investor Services for the U.K., Middle East and Africa.
Mr. Perretta joined State Street in 2007 as Executive Vice President and Chief Information Officer. Prior to joining State Street, from 2002 to 2007, Mr. Perretta was the chief information officer for General Electric Commercial Finance, where he had previously served in several senior management positions. Prior to that, Mr. Perretta was an associate partner at Arthur Anderson Consulting (now Accenture).
Mr. Phalen joined State Street in 1992 and in 2014 began serving as head of the Office of Regulatory Initiatives. He was appointed Vice Chairman in March 2014. Mr. Phalen served as Executive Vice President and head of Global Operations, Technology and Product Development from 2010 to 2014. Prior to that, starting in 2000, he served as Chairman and Chief Executive Officer of CitiStreet, a global benefits provider and retirement plan record keeper. In February 2005, he was


42

Table of Contents

appointed head of Investor Services in North America. In 2006, he was appointed head of international operations for Investment Servicing and Investment Research and Trading, based in Europe. From January 2008 until May 2008, he served on an interim basis as President and Chief Executive Officer of SSGA, following which he returned to his role as head of international operations for Investment Servicing and Investment Research and Trading.
Mr. Powers joined State Street in 2008 as President and Chief Executive Officer of State Street Global Advisors. Prior to joining State Street, Mr. Powers served as Chief Executive Officer of Old Mutual US, the U.S. operating unit of London-based Old Mutual plc, an international savings and wealth management company, from 2001 through 2008.
Ms. Quirk joined State Street in 2002, and since January 2012 has served as Chief Human Resources and Citizenship Officer. She has served as Executive Vice President and head of Global Human Resources since March 2010. Prior to that, Ms. Quirk served as Executive Vice President in Global Human Resources and held various senior roles in that group.
Mr. Rogers joined State Street in 2007 as part of our acquisition of Investors Financial Services Corp., and was appointed President and Chief Operating Officer in December 2014. In that role, he is responsible for State Street Global Markets, State Street Global Services Americas, Information Technology, Global Operations, and Global Exchange, State Street’s data and analytics business. Prior to that, Mr. Rogers served as head of Global Markets and Global Services - Americas since November 2011 and served as head of Global Services, including alternative investment solutions, for all of the Americas since March 2010. Mr. Rogers was previously head of the Relationship Management group, a role which he held beginning in 2009. From State Street's acquisition of Investors Financial Services Corp. in July 2007 to 2009, Mr. Rogers headed the post-acquisition Investors Financial
 
Services Corp. business and its integration into State Street. Before joining State Street at the time of the acquisition, Mr. Rogers spent 27 years at Investors Financial Services Corp. and its predecessors in various capacities, most recently as President beginning in 2001.
Mr. Seck joined State Street in 2011 as executive vice president and head of Global Markets and Global Services across Asia Pacific. Prior to joining State Street, Mr. Seck was chief financial officer of the Singapore Exchange for eight years. Previously he held senior-level positions in the Monetary Authority of Singapore, the Government of Singapore Investment Corporation, Lehman Brothers and DBS Bank.
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
MARKET FOR REGISTRANT'S COMMON EQUITY
Our common stock is listed on the New York Stock Exchange under the ticker symbol STT. There were 3,049 shareholders of record as of January 31, 2015 . The information required by this item concerning the market prices of, and dividends on, our common stock during the past two years is provided under “Quarterly Summarized Financial Information (Unaudited)” included under Item 8 of this Form 10-K, and is incorporated herein by reference.
In March 2014 , our Board of Directors approved a new common stock purchase program authorizing the purchase by us of up to $1.70 billion of our common stock from April 1, 2014 through March 31, 2015. As of December 31, 2014 , we had approximately $470 million remaining under that program.


43

Table of Contents

The following table presents purchases of our common stock and related information for each of the months in the quarter ended December 31, 2014 . All shares of our common stock purchased during the quarter ended December 31, 2014 were purchased under the above-described Board-approved program. We may employ third-party broker/dealers to acquire shares on the open market in connection with our common stock purchase programs.
(Dollars in millions, except per share amounts, shares in thousands)
 
Total Number of Shares Purchased Under Publicly Announced Program
 
Average Price Paid Per Share
 
Approximate Dollar Value of Shares Purchased Under Publicly Announced Program
 
Approximate Dollar Value of Shares Yet to be Purchased Under Publicly Announced Program
Period:
 
 
 
 
 
 
 
 
October 1 - October 31, 2014
 
2,786

 
$
70.35

 
$
196

 
$
684

November 1 - November 30, 2014
 
2,108

 
76.64

 
162

 
522

December 1 - December 31, 2014
 
668

 
78.48

 
52

 
470

Total
 
5,562

 
$
73.71

 
$
410

 
$
470

Additional information about our common stock, including Board authorization with respect to purchases by us of our common stock, is provided under “Capital” in Management's Discussion and Analysis included under Item 7, and in note 13 to the consolidated financial statements included under Item 8, of this Form 10-K, and is incorporated herein by reference.
RELATED STOCKHOLDER MATTERS
As a bank holding company, our parent company is a legal entity separate and distinct from its principal banking subsidiary, State Street Bank, and its non-banking subsidiaries. The right of the parent company to participate as a shareholder in any distribution of assets of State Street Bank upon its liquidation, reorganization or otherwise is subject to the prior claims by creditors of State Street Bank, including obligations for federal funds purchased and securities sold under repurchase agreements and deposit liabilities.
Payment of dividends by State Street Bank is subject to the provisions of the Massachusetts banking law, which provide that State Street Bank's Board of Directors may declare, from State Street Bank's "net profits," as defined below, cash dividends annually, semi-annually or quarterly (but not more frequently) and can declare non-cash dividends at any time. Under Massachusetts banking law, for purposes of determining the amount of cash dividends that are payable by State Street Bank, “net profits” is defined as an amount equal to the remainder of all earnings from current operations plus actual recoveries on loans and investments and other assets, after deducting from the total thereof all current operating expenses, actual losses, accrued dividends on preferred stock, if any, and all federal and state taxes.
No dividends may be declared, credited or paid so long as there is any impairment of State Street
 
Bank's capital stock. The approval of the Massachusetts Commissioner of Banks is required if the total of all dividends declared by State Street Bank in any calendar year would exceed the total of its net profits for that year combined with its retained net profits for the preceding two years, less any required transfer to surplus or to a fund for the retirement of any preferred stock.
Under the Federal Reserve Act's Regulation H: Membership of State Banking Institutions in the Federal Reserve System, the approval of the Federal Reserve would be required for the payment of dividends by State Street Bank if the total amount of all dividends declared by State Street Bank in any calendar year, including any proposed dividend, would exceed the total of its net income for such calendar year as reported in State Street Bank's Consolidated Reports of Condition and Income for a Bank with Domestic and Foreign Offices Only - FFIEC 031 , commonly referred to as the “Call Report,” as submitted through the Federal Financial Institutions Examination Council and provided to the Federal Reserve, plus its “retained net income” for the preceding two calendar years. For these purposes, “retained net income,” as of any date of determination, is defined as an amount equal to State Street Bank's net income (as reported in its Call Reports for the calendar year in which retained net income is being determined) less any dividends declared during such year. In determining the amount of dividends that are payable, the total of State Street Bank's net income for the current year and its retained net income for the preceding two calendar years is reduced by any net losses incurred in the current or preceding two-year period and by any required transfers to surplus or to a fund for the retirement of preferred stock.
Prior Federal Reserve approval also must be obtained if a proposed dividend would exceed State Street Bank's “undivided profits” (retained earnings) as reported in its Call Reports. State Street Bank may


44

Table of Contents

include in its undivided profits amounts contained in its surplus account, if the amounts reflect transfers of undivided profits made in prior periods and if the Federal Reserve's approval for the transfer back to undivided profits has been obtained.
Under the prompt corrective action, or PCA, provisions adopted pursuant to the FDIC Improvement Act of 1991, State Street Bank may not pay a dividend when it is deemed, under the PCA framework, to be under-capitalized, or when the payment of the dividend would cause State Street Bank to be under-capitalized. If State Street Bank is under-capitalized for purposes of the PCA framework, it must cease paying dividends for so long as it is deemed to be under-capitalized. Once earnings have begun to improve and an adequate capital position has been restored, dividend payments may resume in accordance with federal and state statutory limitations and guidelines.
In 2014 , our parent company declared aggregate quarterly common stock dividends to its shareholders of $1.16 per share, totaling approximately $490 million . In 2013 , our parent company declared aggregate quarterly common stock dividends to its shareholders of $1.04 per share, totaling approximately $463 million . Currently, any payment of future common stock dividends by our parent company to its shareholders is subject to the review of our capital plan by the Federal Reserve in connection with its CCAR process. Information about dividends declared by our parent company and dividends from our subsidiary banks is provided under “Capital” in Management's Discussion and Analysis included under Item 7, and in note 15 to the consolidated financial statements included under Item 8, of this Form 10-K, and is incorporated herein by reference. Future dividend payments of State Street Bank and our non-banking subsidiaries cannot be determined at this time. In addition, refer to “Business - Supervision and Regulation - Capital
 
Planning, Stress Tests and Dividends” included under Item 1 of this Form 10-K and the risk factor titled “ Our business and capital-related activities, including our ability to return capital to shareholders and purchase our capital stock, may be adversely affected by our implementation of the revised regulatory capital and liquidity standards that we must meet under the Basel III final rule, the Dodd-Frank Act and other regulatory initiatives, or in the event our capital plan or post-stress capital ratios are determined to be insufficient as a result of regulatory capital stress testing ” included under Item 1A of this Form 10-K.
Information about our equity compensation plans is included under Item 12, and in note 14 to the consolidated financial statements included under Item 8, of this Form 10-K, and is incorporated herein by reference.
SHAREHOLDER RETURN PERFORMANCE PRESENTATION
The graph presented below compares the cumulative total shareholder return on State Street's common stock to the cumulative total return of the S&P 500 Index, the S&P Financial Index and the KBW Bank Index over a five-year period. The cumulative total shareholder return assumes the investment of $100 in State Street common stock and in each index on December 31, 2009 at the closing price on the last trading day of 2009, and also assumes reinvestment of common stock dividends. The S&P Financial Index is a publicly available measure of 85 of the Standard & Poor's 500 companies, representing 25 diversified financial services companies, 21 insurance companies, 22 real estate companies and 17 banking companies. The KBW Bank Index seeks to reflect the performance of banks and thrifts that are publicly traded in the U.S., and is composed of 24 leading national money center and regional banks and thrifts.


45

Table of Contents



 
2009
 
2010
 
2011
 
2012
 
2013
 
2014
State Street Corporation
$
100

 
$
107

 
$
114

 
$
101

 
$
120

 
$
190

S&P 500 Index
100

 
115

 
132

 
135

 
157

 
208

S&P Financial Index
100

 
112

 
126

 
104

 
135

 
183

KBW Bank Index
100

 
123

 
152

 
117

 
153

 
211


46

Table of Contents

ITEM 6. SELECTED FINANCIAL DATA

(Dollars in millions, except per share amounts or where otherwise noted)
FOR THE YEAR ENDED DECEMBER 31:
2014
 
2013
 
2012
 
2011
 
2010
Total fee revenue
$
8,031

 
$
7,590

 
$
7,088

 
$
7,194

 
$
6,540

Net interest revenue
2,260

 
2,303

 
2,538

 
2,333

 
2,699

Gains (losses) related to investment securities, net (1)
4

 
(9
)
 
23

 
67

 
(286
)
Total revenue
10,295

 
9,884

 
9,649

 
9,594

 
8,953

Provision for loan losses
10

 
6

 
(3
)
 
—

 
25

Expenses:
 
 
 
 
 
 
 
 
 
Compensation and employee benefits
4,060

 
3,800

 
3,837

 
3,820

 
3,524

Information systems and communications
976

 
935

 
844

 
776

 
713

Transaction processing services
784

 
733

 
702

 
732

 
653

Occupancy
461

 
467

 
470

 
455

 
463

Claims resolution
—

 
—

 
(362
)
 
—

 
—

Securities lending charge
—

 
—

 
—

 
—

 
414

Acquisition and restructuring costs, net (2)
133

 
104

 
225

 
269

 
252

Other
1,413

 
1,153

 
1,170

 
1,006

 
823

Total expenses
7,827

 
7,192

 
6,886

 
7,058

 
6,842

Income before income tax expense
2,458

 
2,686

 
2,766

 
2,536

 
2,086

Income tax expense (3)
421

 
550

 
705

 
616

 
530

Net income
$
2,037

 
$
2,136

 
$
2,061

 
$
1,920

 
$
1,556

Adjustments to net income (4)
(64
)
 
(34
)
 
(42
)
 
(38
)
 
(16
)
Net income available to common shareholders
$
1,973

 
$
2,102

 
$
2,019

 
$
1,882

 
$
1,540

PER COMMON SHARE:
 
 
 
 
 
 
 
 
 
Earnings per common share:
 
 
 
 
 
 
 
 
 
Basic
$
4.65

 
$
4.71

 
$
4.25

 
$
3.82

 
$
3.11

Diluted
4.57

 
4.62

 
4.20

 
3.79

 
3.09

Cash dividends declared
1.16

 
1.04

 
.96

 
.72

 
.04

Closing market price (at year end)
$
78.50

 
$
73.39

 
$
47.01

 
$
40.31

 
$
46.34

AT YEAR END:
 
 
 
 
 
 
 
 
 
Investment securities
$
112,636

 
$
116,914

 
$
121,061

 
$
109,153

 
$
94,130

Average total interest-earning assets
209,054

 
178,101

 
167,615

 
147,657

 
126,256

Total assets
274,119

 
243,291

 
222,582

 
216,827

 
160,505

Deposits
209,040

 
182,268

 
164,181

 
157,287

 
98,345

Long-term debt
10,042

 
9,699

 
7,429

 
8,131

 
8,550

Total shareholders' equity
21,473

 
20,378

 
20,869

 
19,398

 
17,787

Assets under custody and administration (in billions)
28,188

 
27,427

 
24,371

 
21,807

 
21,527

Assets under management (in billions)
2,448

 
2,345

 
2,086

 
1,845

 
2,010

Number of employees
29,970

 
29,430

 
29,650

 
29,740

 
28,670

RATIOS:
 
 
 
 
 
 
 
 
 
Return on average common shareholders' equity
9.8
%
 
10.5
%
 
10.3
%
 
10.0
%
 
9.5
%
Return on average assets
0.86

 
1.03

 
1.06

 
1.10

 
1.02

Common dividend payout
24.83

 
21.97

 
22.43

 
18.83

 
1.29

Average common equity to average total assets
8.5

 
9.7

 
10.1

 
10.9

 
10.8

Net interest margin, fully taxable-equivalent basis
1.16

 
1.37

 
1.59

 
1.67

 
2.24

Common equity tier 1 ratio (5)
12.5

 
15.5

 
17.1

 
16.8

 
18.1

Tier 1 capital ratio (5)
14.6

 
17.3

 
19.1

 
18.8

 
20.5

Total capital ratio (5)
16.6

 
19.7

 
20.6

 
20.5

 
22.0

Tier 1 leverage ratio (5)
6.4

 
6.9

 
7.1

 
7.3

 
8.2

 
 
 
 
(1) Amount for 2012 reflected a $46 million loss from the sale of our Greek investment securities; amount for 2010 included a net loss of $344 million related to a repositioning of our investment portfolio.
(2) Amounts for 2012 and 2011 reflected acquisition costs of $66 million and $71 million, respectively, offset by indemnification benefits of $40 million and $55 million, respectively, for the assumption of income tax liabilities related to the 2010 acquisition of the Intesa securities services business.
(3) Amount for 2013 included a $71 million out-of-period benefit to adjust deferred taxes. Amounts for 2012 and 2011 reflected the net effects of certain tax matters ( $7 million benefit and $55 million expense, respectively) associated with the 2010 Intesa acquisition. Amounts for 2011 and 2010 reflected discrete tax benefits of $103 million and $180 million, respectively, attributable to costs incurred in terminating former conduit asset structures.
(4) Amounts for 2014 , 2013 , 2012 and 2011 represented preferred stock dividends and the allocation of earnings to participating securities using the two-class method. Amount for 2010 represented the allocation of earnings to participating securities using the two-class method.
(5) Ratios for 2014 were calculated in conformity with the advanced approaches provisions of the Basel III final rule. Ratios for 2013 , 2012 , 2011 and 2010 were calculated in conformity with the provisions of Basel I. Ratios for 2014 are not directly comparable to ratios for prior years. Refer to note 15 to the consolidated financial statements included under Item 8 of this Form 10-K.

47


STATE STREET CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Table Of Contents

48


ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
State Street Corporation, or the parent company, is a financial holding company headquartered in Boston, Massachusetts. Unless otherwise indicated or unless the context requires otherwise, all references in this Management's Discussion and Analysis to “State Street,” “we,” “us,” “our” or similar terms mean State Street Corporation and its subsidiaries on a consolidated basis. Our principal banking subsidiary is State Street Bank and Trust Company, or State Street Bank. As of December 31, 2014 , we had consolidated total assets of $274.12 billion , consolidated total deposits of $209.04 billion , consolidated total shareholders' equity of $21.47 billion and 29,970 employees. With $28.19 trillion of assets under custody and administration and $2.45 trillion of assets under management as of December 31, 2014 , we are a leading specialist in meeting the needs of institutional investors worldwide.
We have two lines of business:
Investment Servicing provides services for mutual funds, collective investment funds and other investment pools, corporate and public retirement plans, insurance companies, foundations and endowments worldwide. Products include custody; product- and participant-level accounting; daily pricing and administration; master trust and master custody; record-keeping; cash management; foreign exchange, brokerage and other trading services; securities finance; deposit and short-term investment facilities; loans and lease financing; investment manager and alternative investment manager operations outsourcing; and performance, risk and compliance analytics to support institutional investors.
Investment Management , through State Street Global Advisors, or SSGA, provides a broad array of investment management, investment research and investment advisory services to corporations, public funds and other sophisticated investors. SSGA offers active and passive asset management strategies across equity, fixed-income and cash asset classes. Products are distributed directly and through intermediaries using a variety of investment vehicles, including exchange-traded funds, or ETFs, such as the SPDR ® ETF brand.
For financial and other information about our lines of business, refer to “Line of Business Information” included in this Management's Discussion and Analysis and note  24 to the consolidated financial statements included under Item 8 of this Form 10-K.
 
This Management's Discussion and Analysis should be read in conjunction with the consolidated financial statements and accompanying notes to consolidated financial statements included under Item 8 of this Form 10-K. Certain previously reported amounts presented in this Form 10-K have been reclassified to conform to current-year presentation.
We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the U.S., referred to as GAAP. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions in its application of certain accounting policies that materially affect the reported amounts of assets, liabilities, equity, revenue and expenses.
The significant accounting policies that require us to make judgments, estimates and assumptions that are difficult, subjective or complex about matters that are uncertain and may change in subsequent periods consist of accounting for fair value measurements; other-than-temporary impairment of investment securities; impairment of goodwill and other intangible assets; and contingencies. These significant accounting policies require the most subjective or complex judgments, and underlying estimates and assumptions could be subject to revision as new information becomes available. Additional information about these significant accounting policies is included under “Significant Accounting Estimates” in this Management's Discussion and Analysis.
Certain financial information provided in this Form 10-K, including this Management's Discussion and Analysis, is prepared on both a GAAP, or reported basis, and a non-GAAP, or operating basis, including certain non-GAAP measures used in the calculation of identified regulatory capital ratios. We measure and compare certain financial information on an operating basis, as we believe that this presentation supports meaningful comparisons from period to period and the analysis of comparable financial trends with respect to State Street's normal ongoing business operations. We believe that operating-basis financial information, which reports non-taxable revenue, such as interest revenue associated with tax-exempt investment securities, on a fully taxable-equivalent basis, facilitates an investor's understanding and analysis of State Street's underlying financial performance and trends in addition to financial information prepared and reported in conformity with GAAP.
We also believe that the use of certain non-GAAP measures in the calculation of identified regulatory capital ratios is useful in understanding State Street's capital position and is of interest to


49

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

investors. Operating-basis financial information should be considered in addition to, not as a substitute for or superior to, financial information prepared in conformity with GAAP. Any non-GAAP, or operating-basis, financial information presented in this Form 10-K, including this Management’s Discussion and Analysis, is reconciled to its most directly comparable GAAP-basis measure.
This Management's Discussion and Analysis contains statements that are considered “forward-looking statements” within the meaning of U.S. securities laws. Forward-looking statements are based on our current expectations about financial performance, capital, market growth, acquisitions, joint ventures and divestitures, new technologies, services and opportunities and earnings, management's confidence in our strategies and other matters that do not relate strictly to historical facts. These forward-looking statements involve certain risks and uncertainties which could cause actual results to differ materially. We undertake no obligation to revise the forward-looking statements contained in this Management's Discussion and Analysis to reflect events after the time we file this Form 10-K with the SEC. Additional information about forward-looking statements and related risks and uncertainties is provided in “Risk Factors” included under Item 1A of this Form 10-K.
We provide additional disclosures required by applicable bank regulatory standards, including supplemental qualitative and quantitative information with respect to regulatory capital (including market risk associated with our trading activities), and summary results of semi-annual State Street-run stress tests which we conduct under the Dodd-Frank Wall Street Reform and Consumer Protection Act, or Dodd-Frank Act. These additional disclosures are accessible under "Filings and Reports" on the “Investor Relations” section of our corporate website at www.statestreet.com/stockholder . We have included our website address in this report as an inactive textual reference only. Information on our website is not incorporated by reference into this Form 10-K.
 
TABLE 1: OVERVIEW OF FINANCIAL RESULTS
Years Ended December 31,
2014
 
2013
 
2012
(Dollars in millions, except per share amounts)
 
 
 
 
 
Total fee revenue
$
8,031

 
$
7,590

 
$
7,088

Net interest revenue
2,260

 
2,303

 
2,538

Gains (losses) related to investment securities, net
4

 
(9
)
 
23

Total revenue
10,295

 
9,884

 
9,649

Provision for loan losses
10

 
6

 
(3
)
Total expenses
7,827

 
7,192

 
6,886

Income before income tax expense
2,458

 
2,686

 
2,766

Income tax expense (1)
421

 
550

 
705

Net income
$
2,037

 
$
2,136

 
$
2,061

Adjustments to net income:
 
 
 
 
 
Dividends on preferred stock (2)
(61
)
 
(26
)
 
(29
)
Earnings allocated to participating securities (3)
(3
)
 
(8
)
 
(13
)
Net income available to common shareholders
$
1,973

 
$
2,102

 
$
2,019

Earnings per common share:
 
 
 
 
 
Basic
$
4.65

 
$
4.71

 
$
4.25

Diluted
4.57

 
4.62

 
4.20

Average common shares outstanding (in thousands):
 
 
 
 
 
Basic
424,223

 
446,245

 
474,458

Diluted
432,007

 
455,155

 
481,129

Cash dividends declared per common share
$
1.16

 
$
1.04

 
$
.96

Return on average common equity
9.8
%
 
10.5
%
 
10.3
%
 
 
 
(1) 2013 included an out-of-period income tax benefit of $71 million to adjust deferred taxes. Amount for 2012 reflected the net effect of certain tax matters ($7 million benefit) associated with the 2010 Intesa acquisition.
(2) 2014 included $35 million and $26 million related to Series D and Series C preferred stock, respectively. Amount for 2013 included $26 million related to Series C preferred stock. Amount for 2012 included $8 million related to Series C preferred stock and $21 million related to Series A preferred stock. Refer to note 13 to the consolidated financial statements included under Item 8 of this Form 10-K for additional information regarding our preferred stock dividends.
(3) Refer to note 23 to the consolidated financial statements included under Item 8 of this Form 10-K.
The following “Highlights” and “Financial Results” sections provide information related to significant events, as well as highlights of our consolidated financial results for 2014 presented in Table 1: Overview of Financial Results . More detailed information about our consolidated financial results, including comparisons of our financial results for 2014 to those for 2013 , is provided under “Consolidated Results of Operations,” which follows these sections.


50

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

Highlights
•
Total asset servicing and asset management fees increased 6% and 9% , respectively, in 2014 compared to 2013 , mainly the result of net new business installed and stronger global equity markets.
•
Diluted earnings per common share, EPS, decreased 1% to $4.57 in 2014 from $4.62 in 2013 , primarily driven by increased fee revenue.
•
In 2014 , we purchased approximately 23.8 million shares of our common stock at an average per-share cost of $69.48 and an aggregate cost of approximately $1.65 billion . We have approximately $470 million under our current $1.70 billion common stock purchase program effective through March 2015.
Additional information with respect to our common stock purchase program is provided under "Financial Condition - Capital" in this Management's Discussion and Analysis.
•
We completed our Business Operations and Information Technology Transformation program at the end of 2014 , achieving, over the course of the program, greater than $625 million of total pre-tax savings on an annual basis with full effect in 2015, based on projected improvement from our total 2010 expenses from operations, all else being equal.
Additional information with respect to the program is provided under "Consolidated Results of Operations - Expenses" in this Management's Discussion and Analysis.
•
For the fourth quarter of 2014, we recorded a pre-tax charge of $115 million to increase our legal accrual associated with indirect foreign exchange matters. This accrual reflects a $65 million additional accrual that we announced on February 20, 2015 . The effects of the additional accrual are reflected in the financial and other information reported in this Form 10-K. The additional accrual announced on February 20, 2015 reflects continued negotiations in connection with our intention to seek to resolve some, but not all, of the outstanding and potential claims arising out of our indirect foreign exchange client activities. The total legal accrual associated with these matters as of the time of the filing of this Form 10-K is $185 million , all of which is included in the consolidated statement of income for the year ended December 31, 2014 .
 
Financial Results
•
Total revenue increased 4% in 2014 compared to 2013 , primarily due to the increase in fee revenue of 6% compared to 2013 , partially offset by a decline in processing fees and other revenue and net interest revenue.
•
Total expenses in 2014 increased 9% compared to 2013 , primarily driven by increases in other expenses, compensation and employee benefit expenses and transaction processing services.
•
In 2014 , we secured an estimated $1.14 trillion of new business in assets to be serviced; of that total, approximately $767 billion was installed prior to December 31, 2014 , with the remaining balance expected to be installed in 2015 .
The new business not installed, totaling $406 billion by December 31, 2014 , which consisted of $371 billion from 2014 and $35 billion from 2013, was not included in our assets under custody and administration as of that date, and had no impact on our servicing fee revenue in 2014 , as the assets are not included until their installation is complete and we begin to service them. Once installed, the assets generate servicing fee revenue in subsequent periods in which the assets are serviced.
•
We achieved net new assets to be managed of approximately $28 billion in 2014 , including approximately $15 billion of new asset management business, that was awarded to SSGA but not installed as of December 31, 2014 . This new business had no impact on our management fee revenue in 2014, but will be reflected in assets under management in future periods after installation and will generate management fee revenue in subsequent periods.
•
Return on average common shareholders' equity in 2014 decreased to 9.8% from 10.5% in 2013 . The decrease was primarily driven by an increase in preferred stock dividends in 2014 compared to 2013 as well as a decrease in net income in 2014 compared to 2013.
•
Our effective tax rate in 2014 was 17.2% compared to 20.5% in 2013 , which included the impact of an out-of-period income tax benefit. In addition to that out-of-period benefit, the decline was also attributable to the expansion of our tax-exempt investment securities portfolio, an increase in renewable


51

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

energy investments and a greater benefit from our non-U.S. operations.
CONSOLIDATED RESULTS OF OPERATIONS
This section discusses our consolidated results of operations for 2014 compared to 2013 , as well as 2013 compared to 2012 , and should be read in conjunction with the consolidated financial statements and accompanying notes included under Item 8 of this Form 10-K.
Total Revenue
TABLE 2: TOTAL REVENUE
Years Ended December 31,
2014
 
2013
 
2012
 
% Change 2014 vs. 2013
 
% Change 2013 vs. 2012
(Dollars in millions)
 
 
 
 
 
 
 
 
 
Fee revenue:
 
 
 
 
 
 
 
 
 
Servicing fees
$
5,129

 
$
4,819

 
$
4,414

 
6
 %
 
9
 %
Management fees
1,207

 
1,106

 
993

 
9

 
11

Trading services:
 
 
 
 
 
 


 
 
Foreign exchange trading
607

 
589

 
511

 
3

 
15

Brokerage and other trading services
477

 
505

 
525

 
(6
)
 
(4
)
Total trading services
1,084

 
1,094

 
1,036

 
(1
)
 
6

Securities finance
437

 
359

 
405

 
22

 
(11
)
Processing fees and other
174

 
212

 
240

 
(18
)
 
(12
)
Total fee revenue
8,031

 
7,590

 
7,088

 
6

 
7

Net interest revenue:
 
 
 
 
 
 

 
 
   Interest revenue
2,652

 
2,714

 
3,014

 
(2
)
 
(10
)
   Interest expense
392

 
411

 
476

 
(5
)
 
(14
)
Net interest revenue
2,260

 
2,303

 
2,538

 
(2
)
 
(9
)
Gains (losses) related to investment securities, net
4

 
(9
)
 
23

 
 
 
 
Total revenue
$
10,295

 
$
9,884

 
$
9,649

 
4

 
2

Fee Revenue
Servicing and management fees collectively composed approximately 79% of our total fee revenue in 2014 , compared to approximately 78% in 2013 . The level of these fees is influenced by several factors, including the mix and volume of our assets under custody and administration and our assets under management, the value and type of securities positions held (with respect to assets under custody) and the volume of portfolio transactions, and the types of products and services used by our clients, and is generally affected by changes in worldwide equity and fixed-income security valuations and trends in market asset class preferences.
 Generally, servicing fees are affected by changes in daily average valuations of assets under custody
 
and administration. Additional factors, such as the relative mix of assets serviced, the level of transaction volumes, changes in service level, the nature of services provided, balance credits, client minimum balances, pricing concessions, the geographical location in which services are provided and other factors, may have a significant effect on our servicing fee revenue.
Generally, management fees are affected by changes in month-end valuations of assets under management. Management fees for certain components of managed assets, such as ETFs, are affected by daily average valuations of assets under management. Management fee revenue is more sensitive to market valuations than servicing fee revenue, since a higher proportion of the underlying services provided, and the associated management fees earned, are dependent on equity and fixed-income security valuations. Additional factors, such as the relative mix of assets managed and other factors, may have a significant effect on our management fee revenue. While certain management fees are directly determined by the values of assets under management and the investment strategies employed, management fees may reflect other factors as well, including performance fee arrangements, discussed later in this section, as well as our relationship pricing for clients using multiple services.
Asset-based management fees for actively-managed products are generally charged at a higher percentage of assets under management than for passive products. Actively-managed products may also include performance fee arrangements which are recorded when the performance period is complete. Performance fees are generated when the performance of certain managed portfolios exceeds benchmarks specified in the management agreements. Generally, we experience more volatility with performance fees than with more traditional management fees.
In light of the above, we estimate, using relevant information as of December 31, 2014 and assuming that all other factors remain constant, that: (1) a 10% increase or decrease in worldwide equity valuations, over the relevant periods on which our servicing and management fees are calculated, would result in a corresponding change in our total revenue of approximately 2% ; and (2) a 10% increase or decrease in worldwide fixed income security valuations, over the relevant periods for or on which our servicing and management fees are calculated, would result in a corresponding change in our total revenue of approximately 1% .
See Table 3: Daily, Month-end and Year-end Indices for selected equity market indices. While the specific indices presented are indicative of general market trends, the asset types and classes relevant to


52

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

individual client portfolios can and do differ, and the performance of associated relevant indices can therefore differ from the performance of the indices presented.
Daily averages and the averages of month-end indices demonstrate worldwide changes in equity
 
markets that affect our servicing and management fee revenue. Year-end indices affect the values of assets under custody and administration and assets under management as of those dates. The index names listed in the table are service marks of their respective owners.

TABLE 3: DAILY, MONTH-END AND YEAR-END INDICES
 
Daily Averages of Indices
 
Averages of Month-End Indices
 
Year-End Indices
 
2014
 
2013
 
% Change
 
2014
 
2013
 
% Change
 
2014
 
2013
 
% Change
S&P 500 ®
1,931

 
1,644

 
17
%
 
1,944

 
1,652

 
18
%
 
2,059

 
1,848

 
11
 %
NASDAQ ®
4,375

 
3,541

 
24

 
4,415

 
3,575

 
23

 
4,736

 
4,177

 
13

MSCI EAFE ®
1,888

 
1,746

 
8

 
1,891

 
1,754

 
8

 
1,775

 
1,916

 
(7
)
FEE REVENUE
Table 2: Total Revenue provides the breakout of fee revenue for the years ended December 31, 2014 , 2013 and 2012 .
Servicing Fees
Servicing fees increased 6% in 2014 compared to 2013 primarily as a result of stronger global equity markets and the positive revenue impact of net new business (revenue added from new servicing business installed less revenue lost from the removal of assets serviced) .
Servicing fees in 2013 increased 9% from 2012 , mainly due to stronger equity markets, the impact of net new business and revenue added from acquired businesses, partially offset by the impacts of the weaker euro and client de-risking.
Servicing fees generated outside the U.S. were approximately 42% of total servicing fees in 2014 , 2013 and 2012 .
The increases in total assets under custody and administration for year-end 2014 compared to year-end 2013 resulted primarily from stronger global equity markets and net shareholder subscriptions
 
experienced by our custody clients, partially offset by losses of assets serviced. Asset levels as of December 31, 2014 did not reflect the estimated $406 billion of new business in assets to be serviced awarded to us in 2014 and prior periods but not installed prior to December 31, 2014 . This new business will be reflected in assets under custody and administration in future periods after installation and will generate servicing fee revenue in subsequent periods.
With respect to these new assets, we will provide various services, including accounting, bank loan servicing, compliance reporting and monitoring, custody, depository banking services, foreign exchange, fund administration, hedge fund servicing, middle-office outsourcing, performance and analytics, private equity administration, real estate administration, securities finance, transfer agency, and wealth management services.
The value of assets under custody and administration is a broad measure of the relative size of various markets served. Changes in the values of assets under custody and administration from period to period do not necessarily result in proportional changes in our servicing fee revenue.

TABLE 4: COMPONENTS OF ASSETS UNDER CUSTODY AND ADMINISTRATION
As of December 31,
 
2014
 
2013
 
2012
 
2011
 
2010
 
2013-2014 Annual Growth Rate
 
2010-2014 Compound Annual Growth Rate
(Dollars in billions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mutual funds
 
$
6,992

 
$
6,811

 
$
5,852

 
$
5,265

 
$
5,540

 
3
 %
 
6
%
Collective funds
 
6,949

 
6,428

 
5,363

 
4,437

 
4,350

 
8

 
12

Pension products
 
5,746

 
5,851

 
5,339

 
4,837

 
4,726

 
(2
)
 
5

Insurance and other products
 
8,501

 
8,337

 
7,817

 
7,268

 
6,911

 
2

 
5

Total
 
$
28,188

 
$
27,427

 
$
24,371

 
$
21,807

 
$
21,527

 
3

 
7


53

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

TABLE 5: COMPOSITION OF ASSETS UNDER CUSTODY AND ADMINISTRATION
As of December 31,
 
2014
 
2013
 
2012
 
2011
 
2010
 
2013-2014 Annual Growth Rate
 
2010-2014 Compound Annual Growth Rate
(Dollars in billions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equities
 
$
15,876

 
$
15,050

 
$
12,276

 
$
10,849

 
$
11,000

 
5
 %
 
10
%
Fixed-income
 
8,739

 
9,072

 
8,885

 
8,317

 
7,875

 
(4
)
 
3

Short-term and other investments
 
3,573

 
3,305

 
3,210

 
2,641

 
2,652

 
8

 
8

Total
 
$
28,188

 
$
27,427

 
$
24,371

 
$
21,807

 
$
21,527

 
3

 
7

TABLE 6: GEORGRAPHIC MIX OF ASSETS UNDER CUSTODY AND ADMINISTRATION (1)  
As of December 31,
 
2014
 
2013
 
2012
 
2011
 
2010
(In billions)
 
 
 
 
 
 
 
 
 
 
North America
 
$
21,217

 
$
20,764

 
$
18,463

 
$
16,368

 
$
16,486

Europe/Middle East/Africa
 
5,633

 
5,511

 
4,801

 
4,400

 
4,069

Asia/Pacific
 
1,338

 
1,152

 
1,107

 
1,039

 
972

Total
 
$
28,188

 
$
27,427

 
$
24,371

 
$
21,807

 
$
21,527

 
 
(1) Geographic mix is based on the location in which the assets are serviced.
Management Fees
Through SSGA, we provide a broad range of investment management strategies, specialized investment management advisory services and other financial services for corporations, public funds, and other sophisticated investors. SSGA offers a broad array of investment management strategies, including passive and active, such as enhanced indexing, using quantitative and fundamental methods for both U.S. and global equity and fixed-income securities. SSGA also offers ETFs, such as the SPDR ® ETF brand. While certain management fees are directly determined by the values of assets under management and the investment strategies employed, management fees reflect other factors as well, including our relationship pricing for clients who use multiple services, and the benchmarks specified


 

in the respective management agreements related to performance fees.
Management fees increased in 2014 compared to 2013 primarily as a result of stronger global equity markets, net inflows and the positive revenue impact of the excess of revenue added from newly installed assets to be managed over the revenue lost from liquidations of managed assets.
Management fees increased in 2013 compared to 2012 , primarily due to the impact of stronger equity markets, net new business and higher performance fees.
Management fees generated outside the U.S. were approximately 37% of total management fees in 2014 , 2013 and 2012 .
 


54

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

TABLE 7: ASSETS UNDER MANAGEMENT BY ASSET CLASS AND INVESTMENT APPROACH (1)  
As of December 31,
 
2014
 
2013
 
2012
 
2011
 
2010
 
2013-2014 Annual Growth Rate
 
2010-2014 Compound Annual Growth Rate
(Dollars in billions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Active
 
$
39

 
$
42

 
$
45

 
$
46

 
$
54

 
(7
)%
 
(8
)%
   Passive
 
1,436

 
1,334

 
1,047

 
893

 
912

 
8

 
12

Total Equity
 
1,475

 
1,376

 
1,092

 
939

 
966

 
7

 
11

Fixed-Income:
 
 
 
 
 
 
 
 
 
 
 
 
 

   Active
 
17

 
16

 
17

 
16

 
14

 
6

 
4

   Passive
 
302

 
311

 
325

 
271

 
373

 
(3
)
 
(5
)
Total Fixed-Income
 
319

 
327

 
342

 
287

 
387

 
(2
)
 
(5
)
Cash (2)
 
399

 
385

 
369

 
380

 
422

 
4

 
(1
)
Multi-Asset-Class Solutions:
 
 
 
 
 
 
 
 
 
 
 
 
 

   Active
 
30

 
23

 
23

 
15

 
16

 
30

 
17

   Passive
 
97

 
110

 
94

 
70

 
70

 
(12
)
 
8

Total Multi-Asset-Class Solutions
 
127

 
133

 
117

 
85

 
86

 
(5
)
 
10

Alternative Investments (3) :
 
 
 
 
 
 
 
 
 
 
 
 
 

   Active
 
17

 
14

 
18

 
17

 
12

 
21

 
8

   Passive
 
111

 
110

 
148

 
137

 
137

 
1

 
(5
)
Total Alternative Investments
 
128

 
124

 
166

 
154

 
149

 
3

 
(4
)
Total
 
$
2,448

 
$
2,345

 
$
2,086

 
$
1,845

 
$
2,010

 
4

 
5

 
 
(1) As of December 31, 2013 , the presentation was changed to align with the reporting of core businesses, which were revised for comparative purposes for 2012 , 2011 and 2010 .
(2) Includes both floating- and constant-net-asset-value portfolios held in commingled structures or separate accounts.
(3) Includes real estate investment trusts, currency and commodities, including SPDR ® Gold Fund, for which State Street is not the investment manager, but acts as distribution agent.
TABLE 8: EXCHANGE-TRADED FUNDS BY ASSET CLASS (1)(2)  
As of December 31,
 
2014
 
2013
 
2012
 
2011
 
2010
 
2013-2014 Annual Growth Rate
 
2010-2014 Compound Annual Growth Rate
(Dollars in billions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Alternative Investments (3)
 
$
38

 
$
39

 
$
79

 
$
68

 
$
61

 
(3
)%
 
(11
)%
Cash
 
1

 
1

 
1

 
2

 
1

 
—

 
—

Equity
 
388

 
325

 
227

 
184

 
175

 
19

 
22

Fixed-income
 
39

 
34

 
30

 
20

 
15

 
15

 
27

Total Exchange-Traded Funds
 
$
466

 
$
399

 
$
337

 
$
274

 
$
252

 
17

 
17

 
 
(1) Exchange-traded funds are a component of assets under management presented in the preceding table .
(2) Includes SPDR ® Gold Fund, for which State Street is not the investment manager, but acts as distribution agent.
(3) Decline in alternative investments from 2012 to 2013 was mainly attributable to Gold exchange-traded fund outflows and market impact.
TABLE 9: GEOGRAPHIC MIX OF ASSETS UNDER MANAGEMENT (1)  
As of December 31,
 
2014
 
2013
 
2012
 
2011
 
2010
(In billions)
 
 
 
 
 
 
 
 
 
 
North America
 
$
1,568

 
$
1,456

 
$
1,288

 
$
1,190

 
$
1,332

Europe/Middle East/Africa
 
559

 
560

 
480

 
428

 
452

Asia/Pacific
 
321

 
329

 
318

 
227

 
226

Total
 
$
2,448

 
$
2,345

 
$
2,086

 
$
1,845

 
$
2,010

 
 
(1) Geographic mix is based on client location or fund management location. As of December 31, 2013 , the presentation was changed to align with the reporting of core businesses, which were revised for comparative purposes for 2012 , 2011 and 2010 .

55

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

The increase in total assets under management as of December 31, 2014 compared to December 31, 2013 resulted primarily from net market appreciation in the values of the assets managed and net new business of approximately $28 billion , partially offset by the impact of the stronger U.S. dollar. The net new business of approximately $28 billion was primarily
 
composed of approximately $34 billion from ETFs and approximately $19 billion of net inflows into money market funds, primarily offset by net outflows of approximately $25 billion from long-term institutional portfolios.


TABLE 10: ACTIVITY IN ASSETS UNDER MANAGEMENT BY PRODUCT CATEGORY
(In billions)
Equity
 
Fixed-Income
 
Cash
 
Multi-Asset-Class Solutions
 
Alternative Investments
 
Total
Balance as of December 31, 2011
$
939

 
$
287

 
$
380

 
$
85

 
$
154

 
$
1,845

Long-term institutional inflows (1)
226

 
144

 
—

 
26

 
15

 
411

Long-term institutional outflows (1)
(216
)
 
(102
)
 
—

 
(31
)
 
(20
)
 
(369
)
Long-term institutional flows, net
10

 
42

 
—

 
(5
)
 
(5
)
 
42

ETF flows, net
22

 
9

 
—

 
—

 
10

 
41

Cash fund flows, net
—

 
—

 
(3
)
 
—

 
—

 
(3
)
Total flows, net
32

 
51

 
(3
)
 
(5
)
 
5

 
80

Market appreciation (2)
123

 
11

 
(9
)
 
36

 
6

 
167

Foreign exchange impact (2)
(2
)
 
(7
)
 
1

 
1

 
1

 
(6
)
Total market/foreign exchange impact
121

 
4

 
(8
)
 
37

 
7

 
161

Balance as of December 31, 2012
1,092

 
342

 
369

 
117

 
166

 
2,086

Long-term institutional inflows (1)
256

 
70

 
—

 
32

 
13

 
371

Long-term institutional outflows (1)
(283
)
 
(71
)
 
—

 
(28
)
 
(21
)
 
(403
)
Long-term institutional flows, net
(27
)
 
(1
)
 
—

 
4

 
(8
)
 
(32
)
ETF flows, net
33

 
4

 
—

 
—

 
(25
)
 
12

Cash fund flows, net
—

 
—

 
17

 
—

 
—

 
17

Total flows, net
6

 
3

 
17

 
4

 
(33
)
 
(3
)
Market appreciation (2)
291

 
(4
)
 
(1
)
 
12

 
(5
)
 
293

Foreign exchange impact (2)
(13
)
 
(14
)
 
—

 
—

 
(4
)
 
(31
)
Total market/foreign exchange impact
278

 
(18
)
 
(1
)
 
12

 
(9
)
 
262

Balance as of December 31, 2013
1,376

 
327

 
385

 
133

 
124

 
2,345

Long-term institutional inflows (1)
285

 
80

 
—

 
43

 
13

 
421

Long-term institutional outflows (1)
(297
)
 
(103
)
 
—

 
(35
)
 
(11
)
 
(446
)
Long-term institutional flows, net
(12
)
 
(23
)
 
—

 
8

 
2

 
(25
)
ETF flows, net
31

 
5

 
—

 
—

 
(2
)
 
34

Cash fund flows, net
—

 
—

 
19

 
—

 
—

 
19

Total flows, net
19

 
(18
)
 
19

 
8

 
—

 
28

Market appreciation (2)
113

 
27

 
—

 
(9
)
 
11

 
142

Foreign exchange impact (2)
(33
)
 
(17
)
 
(5
)
 
(5
)
 
(7
)
 
(67
)
Total market/foreign exchange impact
80

 
10

 
(5
)
 
(14
)
 
4

 
75

Balance as of December 31, 2014
$
1,475

 
$
319

 
$
399

 
$
127

 
$
128

 
$
2,448

 
 
(1) Amounts represent long-term portfolios, excluding ETFs.
(2) Amounts represent aggregate impact on each product category for the period.
The net new business of approximately $28 billion for 2014 presented in the preceding table did not include approximately $15 billion of new asset management business, which was awarded to SSGA, but not installed as of December 31, 2014 . This new business will be reflected in assets under management
 
in future periods after installation, and will generate management fee revenue in subsequent periods.
Total assets under management as of December 31, 2014 included managed assets lost but not yet liquidated. Lost business occurs from time to time and it is difficult to predict the timing of client


56

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

behavior in transitioning these assets. This timing can vary significantly.
Trading Services
TABLE 11: TRADING SERVICES REVENUE
 
 
Years Ended December 31,
2014
 
2013
 
2012
 
% Change 2014 vs. 2013
 
% Change 2013 vs. 2012
(Dollars in millions)
 
 
 
 
 
 
 
 
 
Foreign exchange trading:
 
 
 
 
 
 
 
 
 
Direct sales and trading
$
361

 
$
304

 
$
263

 
19
 %
 
16
 %
Indirect foreign exchange trading
246

 
285

 
248

 
(14
)
 
15

Total foreign exchange trading
607

 
589

 
511

 
3

 
15

Brokerage and other trading services:
 
 
 
 
 
 
 
 
 
Electronic foreign exchange services
181

 
218

 
196

 
(17
)
 
11

Other trading, transition management and brokerage
296

 
287

 
329

 
3

 
(13
)
Total brokerage and other trading services
477

 
505

 
525

 
(6
)
 
(4
)
Total trading services revenue
$
1,084

 
$
1,094

 
$
1,036

 
(1
)
 
6

Trading services revenue is composed of revenue generated by foreign exchange, or FX, trading, as well as revenue generated by brokerage and other trading services. We primarily earn FX trading revenue by acting as a principal market maker. We offer a range of FX products, services and execution models. Most of our FX products and execution services can be grouped into three broad categories, which are further explained below: “direct sales and trading,” “indirect FX trading” and “electronic FX services.” With respect to electronic FX services, we provide an execution venue, but do not act as agent or principal.
We also offer a range of brokerage and other trading products tailored specifically to meet the needs of the global pension community, including transition management and commission recapture. In addition, we act as distribution agent for the SPDR ® Gold ETF. These products and services are generally differentiated by our role as an agent of the institutional investor. Revenue earned from these services is recorded in other trading, transition management and brokerage revenue within brokerage and other trading services revenue.
FX trading revenue is influenced by three principal factors: the volume and type of client FX transactions and related spreads; currency volatility; and the management of market risk associated with currencies and interest rates. Revenue earned from direct sales and trading and indirect FX trading is recorded in FX trading revenue.
 
Total FX trading revenue increased 3% compared to 2013 , primarily the result of higher client volumes. Total FX trading revenue increased 15% in 2013 compared to 2012 , primarily the result of higher client volumes, currency volatility and spreads.
We enter into FX transactions with clients and investment managers that contact our trading desk directly. These trades are all executed at negotiated rates. We refer to this activity, and our principal market-making activities, as “direct sales and trading” and it includes many transactions for funds serviced by third party custodians or prime brokers, as well as those funds under custody at State Street.
Alternatively, clients or their investment managers may elect to route FX transactions to our FX desk through our asset-servicing operation; we refer to this activity as “indirect FX trading,” and, in all cases, State Street is the fund's custodian. We execute indirect FX trades as a principal at rates disclosed to our clients. We calculate revenue for indirect FX trading using an attribution methodology. This methodology takes into consideration estimated mark-ups/downs and observed client volumes. Direct sales and trading revenue is all other FX trading revenue other than the revenue attributed to indirect FX trading.
Our clients that utilize indirect FX trading can, in addition to executing their FX transactions through dealers not affiliated with us, transition from indirect FX trading to either direct sales and trading execution, including our “Street FX” service, or to one of our electronic trading platforms. Street FX, in which State Street continues to act as a principal market maker, enables our clients to define their FX execution strategy and automate the FX trade execution process, both for funds under custody at State Street as well as those under custody at another bank.
Our direct sales and trading revenue increased 19% in 2014 compared to 2013 . The increase primarily resulted from higher client volumes, partially offset by lower currency volatility and spreads. Our estimated indirect FX trading revenue decreased 14% in 2014 , compared to 2013 . The decline mainly resulted from lower client volumes and spreads.
We continue to expect that some clients may choose, over time, to reduce their level of indirect FX trading transactions in favor of other execution methods, including either direct sales and trading transactions or electronic FX services which we provide. To the extent that clients shift to other execution methods that we provide, our FX trading revenue may decrease, even if volumes remain consistent.


57

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

Total brokerage and other trading services revenue declined 6% for 2014 compared to 2013 . Our clients may choose to execute FX transactions through one of our electronic trading platforms. These transactions generate revenue through a “click” fee. Revenue from such electronic FX services declined 17% in 2014 compared to 2013 , mainly due to declines in client volumes.
The 3% increase in other trading, transition management and brokerage revenue for 2014 compared to 2013 was primarily due to an increase in currency management revenue, partially offset by declines in distribution fees associated with the SPDR ® Gold ETF, which resulted from outflows as average gold prices declined during the period. With respect to the SPDR ® Gold ETF, fees earned by us as distribution agent are recorded in other trading, transition management and brokerage revenue within brokerage and other trading services revenue, and not in management fee revenue.
Our revenue from transition management and related expenses in 2014 and 2013 were adversely affected by compliance issues in our U.K. business, the reputational and regulatory impact of which may continue to adversely affect our transition management revenue in future periods.
Trading services revenue increased 6% in 2013 compared to 2012 , primarily the result of higher client volumes, currency volatility and spreads.
Securities Finance
Our securities finance business consists of three components: (1) an agency lending program for SSGA-managed investment funds with a broad range of investment objectives, which we refer to as the SSGA lending funds, (2) an agency lending program for third-party investment managers and asset owners, which we refer to as the agency lending funds and (3) security lending transactions which we enter into as principal, which we refer to as our enhanced custody business.
See Table 2: Total Revenue , for the comparison of securities finance revenue for the years ended December 31, 2014 , 2013 and 2012 .
Securities finance revenue earned from our agency lending activities, which is composed of our split of both the spreads related to cash collateral and the fees related to non-cash collateral, is principally a function of the volume of securities on loan, the interest-rate spreads and fees earned on the underlying collateral, and our share of the fee split.
 As principal, our enhanced custody business borrows securities from the lending client and then lends such securities to the subsequent borrower, either a State Street client or a broker/dealer. Our involvement as principal is utilized when the lending
 
client is unable to, or elects not to, transact directly with the market and requires us to execute the transaction and furnish the securities. In our role as principal, we provide support to the transaction through our credit rating. While we source a significant proportion of the securities furnished by us in our role as principal from third parties, we have the ability to source securities through our assets under custody and administration, from clients who have designated State Street as an eligible borrower.
Securities finance revenue increased 22% in 2014 compared to 2013 . The increase was mainly the result of growth in our enhanced custody business and the impact of higher lending volumes associated with our agency lending program. Revenues from our enhanced custody business totaled approximately $121 million and $61 million , respectively, in 2014 and 2013 .
Securities finance revenue declined 11% in 2013 from 2012 mainly a result of lower spreads and a slight decline in average lending volumes.
Market influences may continue to affect client demand for securities finance, and as a result our revenue from, and the profitability of, our securities lending activities in future periods. In addition, recently effective regulatory changes may affect the volume of our securities lending activity and related revenue and profitability in future periods.
Processing Fees and Other
Processing fees and other revenue includes diverse types of fees and revenue, including fees from our structured products business, fees from software licensing and maintenance, equity income from our joint venture investments, gains and losses on sales of leased equipment and other assets, and amortization of our tax-advantaged investments.
Processing fees and other revenue declined 18% in 2014 compared to 2013 , as shown in Table 2: Total Revenue . The decrease was mainly due to higher amortization of tax-advantaged investments, partially offset by higher revenue from our investment in bank-owned life insurance.
Processing fees and other revenue declined 12% in 2013 compared to 2012 . The decline was primarily due to both the fair-value adjustments related to our withdrawal from our fixed-income trading initiative and the gain from the sale of a Lehman Brothers-related asset, both recorded in 2012 , as well as hedge ineffectiveness recorded in 2013 . The decline in processing fees and other revenue was partially offset by an increase in revenue associated with our investment in bank-owned life insurance for 2013 compared to 2012 .


58

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

Net Interest Revenue
See Table 2: Total Revenue , for the breakout of interest revenue and interest expense for the years ended December 31, 2014, 2013 and 2012.
Net interest revenue is defined as interest revenue earned on interest-earning assets less interest expense incurred on interest-bearing liabilities. Interest-earning assets, which principally consist of investment securities, interest-bearing deposits with banks, repurchase agreements, loans and leases and other liquid assets, are financed

 

primarily by client deposits, short-term borrowings and long-term debt. Net interest margin represents the relationship between annualized fully taxable-equivalent net interest revenue and average total interest-earning assets for the period. Revenue that is exempt from income taxes, mainly that earned from certain investment securities (state and political subdivisions), is adjusted to a fully taxable-equivalent basis using a federal statutory income tax rate of 35%, adjusted for applicable state income taxes, net of the related federal tax benefit.

TABLE 12: AVERAGE BALANCES AND INTEREST RATES - FULLY TAXABLE-EQUIVALENT BASIS
Years Ended December 31,
2014
 
2013
 
2012
 
Average
Balance
 
Interest
Revenue/
Expense
 
Rate
 
Average
Balance
 
Interest
Revenue/
Expense
 
Rate
 
Average
Balance
 
Interest
Revenue/
Expense
 
Rate
(Dollars in millions; fully taxable-equivalent basis)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposits with banks
$
55,353

 
$
196

 
.35
%
 
$
28,946

 
$
125

 
.43
%
 
$
26,823

 
$
141

 
.53
%
Securities purchased under resale agreements
4,077

 
38

 
.94

 
5,766

 
45

 
.77

 
7,243

 
51

 
.71

Trading account assets
959

 
1

 
.13

 
748

 
—

 
—

 
651

 
—

 
—

Investment securities
116,809

 
2,317

 
1.98

 
117,696

 
2,429

 
2.06

 
113,910

 
2,689

 
2.36

Loans and leases
15,912

 
266

 
1.67

 
13,781

 
253

 
1.84

 
11,610

 
254

 
2.19

Other interest-earning assets
15,944

 
7

 
.05

 
11,164

 
4

 
.04

 
7,378

 
3

 
.04

Average total interest-earning assets
$
209,054

 
$
2,825

 
1.36

 
$
178,101

 
$
2,856

 
1.60

 
$
167,615

 
$
3,138

 
1.88

Interest-bearing deposits:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S.
$
21,296

 
$
21

 
.10
%
 
$
8,862

 
$
10

 
.12
%
 
$
9,333

 
$
19

 
.20
%
Non-U.S.
109,003

 
78

 
.07

 
100,391

 
83

 
.08

 
89,059

 
147

 
.16

Securities sold under repurchase agreements
8,817

 
—

 
—

 
8,436

 
1

 
.01

 
7,697

 
1

 
.01

Federal funds purchased
20

 
—

 
—

 
298

 
—

 
—

 
784

 
1

 
.09

Other short-term borrowings
4,177

 
5

 
.12

 
3,785

 
59

 
1.57

 
4,676

 
71

 
1.52

Long-term debt
9,309

 
245

 
2.63

 
8,415

 
232

 
2.75

 
7,008

 
222

 
3.17

Other interest-bearing liabilities
7,351

 
43

 
.59

 
6,457

 
26

 
.40

 
5,898

 
15

 
.26

Average total interest-bearing liabilities
$
159,973

 
$
392

 
.25

 
$
136,644

 
$
411

 
.30

 
$
124,455

 
$
476

 
.39

Interest-rate spread
 
 
 
 
1.11
%
 
 
 
 
 
1.30
%
 
 
 
 
 
1.49
%
Net interest revenue—fully taxable-equivalent basis
 
 
$
2,433

 
 
 
 
 
$
2,445

 
 
 
 
 
$
2,662

 
 
Net interest margin—fully taxable-equivalent basis
 
 
 
 
1.16
%
 
 
 
 
 
1.37
%
 
 
 
 
 
1.59
%
Tax-equivalent adjustment
 
 
(173
)
 
 
 
 
 
(142
)
 
 
 
 
 
(124
)
 
 
Net interest revenue—GAAP basis
 
 
$
2,260

 
 
 
 
 
$
2,303

 
 
 
 
 
$
2,538

 
 
Net interest revenue decreased 2% , and on a fully taxable-equivalent basis remained relatively flat , in 2014 compared to 2013 . The comparisons were generally the result of lower yields on interest-earning assets, as lower global interest rates affected our revenue from floating-rate assets, partially offset by the benefit of higher levels of interest-earning assets and lower rates on interest paid.
 
Net interest revenue declined 9% in 2013 compared to 2012 . The overall decrease was primarily due to the impact of lower yields on interest-earning assets related to lower global interest rates, partially offset by lower funding costs.
Changes in the components of interest-earning assets and interest-bearing liabilities are discussed in more detail below. Additional detail about the components of interest revenue and interest expense


59

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

is provided in note 18 to the consolidated financial statements included under Item 8 of this Form 10-K.
Average total interest-earning assets were higher for 2014 compared to 2013 , the result of our investment of elevated levels of client deposits invested in interest-bearing deposits with banks, higher levels of cash collateral (included in other interest-earning assets in Table 12: Average Balances and Interest Rates - Fully Taxable-Equivalent Basis ) provided in connection with our enhanced custody business, and higher average loans and leases.
The higher level of investment in interest-bearing deposits with banks resulted from continued higher levels of client deposits, discussed further below, while the increase in average loans and leases resulted from growth in mutual fund lending and our continued investment in senior secured bank loans.
During the past year, our clients have continued to place elevated levels of deposits with us, as low global interest rates have made deposits attractive relative to other investment options. The portion of these client deposits characterized by us as transient in nature has generally been placed with various central banks globally, while deposits we characterize as more stable have generally been invested in our investment securities portfolio and used to support growth in other client-related activities.
A portion of the increase in client deposits in 2014 was driven by higher levels of Euro denominated deposits, as clients placed these deposits with us due to the negative interest rate environment in Europe.  We have characterized these additional deposits as transient in nature and, accordingly, have generally invested these deposits with central banks. The effects of the recent stronger U.S. dollar relative to other currencies, particularly the Euro, has exacerbated the associated negative effect on our net interest revenue.  If European Central Bank, or ECB, monetary policy continues to pressure European interest rates downward and the U.S. dollar remains strong or strengthens, the negative effects on our net interest revenue likely will continue or increase.
Our average other interest-earning assets, largely associated with the enhanced custody business, composed approximately 8% of our average total interest-earning assets for 2014 , compared to approximately 6% of our average total interest-earning assets for 2013 , as this business continued to grow. While the enhanced custody business supports our overall profitability by generating securities finance fee revenue, it puts downward pressure on our net interest margin, as interest on the cash collateral we provide is earned at a lower rate compared to our investment securities portfolio.
 
Subsequent to the commercial paper conduit consolidation in 2009 , we have recorded aggregate discount accretion in interest revenue of $2.02 billion ( $119 million in 2014 , $137 million in 2013 , $215 million in 2012 , $220 million in 2011 , $712 million in 2010 , and $621 million in 2009 ). The timing and ultimate recognition of any applicable discount accretion depends, in part, on factors that are outside of our control, including anticipated prepayment speeds and credit quality. The impact of these factors is uncertain and can be significantly influenced by general economic and financial market conditions. The timing and recognition of any applicable discount accretion can also be influenced by our ongoing management of the risks and other characteristics associated with our investment securities portfolio, including sales of securities which would otherwise generate interest revenue through accretion.
Depending on the factors discussed above, among others, we anticipate that, until the former conduit securities remaining in our investment portfolio mature or are sold, discount accretion will continue to contribute, though generally in declining amounts, to our net interest revenue. Assuming that we hold the remaining former conduit securities to maturity, all else being equal, we expect the remaining former conduit securities carried in our investment portfolio as of December 31, 2014 to generate discount accretion in future periods of approximately $387 million over their remaining terms, with approximately half of this discount accretion to be recorded over the next four years.
Interest-bearing deposits with banks averaged $55.35 billion for the year ended December 31, 2014 , compared to $28.95 billion for the year ended December 31, 2013 . While these deposits reflected our maintenance of cash balances at the Federal Reserve, the ECB and other non-U.S. central banks to satisfy regulatory reserve requirements, the above-described amounts also reflect the additional impact of continued elevated levels of client deposits and our investment of the excess deposits with central banks.
Certain client deposits were characterized as transient in nature and were placed with various central banks globally. If client deposits remain at or close to current elevated levels, we expect to continue to invest them in either money market assets, including central bank deposits, or in investment securities, depending on our assessment of the underlying characteristics of the deposits.
 Average investment securities decreased to $116.81 billion for the year ended December 31, 2014 compared to $117.70 billion for 2013 as we continue to reposition our investment portfolio in light of the liquidity requirements of the liquidity coverage ratio.


60

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

Detail with respect to our investment portfolio as of December 31, 2014 and 2013 is provided in note 3 to the consolidated financial statements included under Item 8 of this Form 10-K.
Loans and leases averaged $15.91 billion for the year ended 2014 , up from $13.78 billion in 2013 . The increase was mainly related to mutual fund lending and our continued investment in senior secured bank loans. Mutual fund lending and senior secured bank loans averaged approximately $9.12 billion and $1.40 billion , respectively, for the year ended December 31, 2014 compared to $8.16 billion and $170 million for the year ended December 31, 2013 , respectively.
Average loans and leases also include short-duration advances.
TABLE 13: U.S. AND NON-U.S. SHORT-DURATION ADVANCES
Years Ended December 31,
 
(In millions)
2014
 
2013
 
2012
Average U.S. short-duration advances
$
2,355

 
$
2,356

 
$
1,972

Average non-U.S. short-duration advances
1,512

 
1,393

 
1,393

Average total short-duration advances
$
3,867

 
$
3,749

 
$
3,365

 
 
 
 
 
 
Average short-durance advances to average loans and leases
24
%
 
27
%
 
29
%
The decline in proportion of the average daily short-duration advances to average loans and leases is primarily due to growth in the other segments of the loan and lease portfolio. Short-duration advances provide liquidity to clients in support of their investment activities.
Although average short-duration advances for the year ended December 31, 2014 increased compared to the year ended December 31, 2013 , such average advances remained low relative to historical levels, mainly the result of clients continuing to hold higher levels of liquidity.
Average other interest-earning assets increased to $15.94 billion for the year ended December 31, 2014 from $11.16 billion for the year ended December 31, 2013 . The increased levels were primarily the result of higher levels of cash collateral provided in connection with our enhanced custody business.
Aggregate average interest-bearing deposits increased to $130.30 billion for the year ended December 31, 2014 from $109.25 billion for year ended 2013 . The higher levels were primarily the result of increases in both U.S. and non-U.S. transaction accounts and time deposits. Future transaction account levels will be influenced by the underlying asset servicing business, as well as
 
market conditions, including the general levels of U.S. and non-U.S. interest rates.
Average other short-term borrowings increased to $4.18 billion for the year ended December 31, 2014 from $3.79 billion for the year ended 2013 . The increase was the result of a higher level of client demand for our commercial paper. The decline in rates paid from 1.6% in 2013 to 0.1% in 2014 resulted from a reclassification of certain derivative contracts that hedge our interest-rate risk on certain assets and liabilities, which reduced interest revenue and interest expense.
Average long-term debt increased to $9.31 billion for the year ended December 31, 2014 from $8.42 billion for the year ended December 31, 2013 . The increase primarily reflected the issuance of $1.5 billion of senior and subordinated debt in May 2013, $1.0 billion of senior debt issued in November 2013, and $1.0 billion of senior debt issued in December 2014. This is partially offset by the maturities of $500 million of senior debt in May 2014 and $250 million of senior debt in March 2014.
  Average other interest-bearing liabilities increased to $7.35 billion for the year ended December 31, 2014 from $6.46 billion for the year ended December 31, 2013 , primarily the result of higher levels of cash collateral received from clients in connection with our enhanced custody business.
Several factors could affect future levels of our net interest revenue and margin, including the mix of client liabilities; actions of various central banks; changes in U.S. and non-U.S. interest rates; changes in the various yield curves around the world; revised or proposed regulatory capital or liquidity standards, or interpretations of those standards; the amount of discount accretion generated by the former conduit securities that remain in our investment securities portfolio; and the yields earned on securities purchased compared to the yields earned on securities sold or matured.
Based on market conditions and other factors, we continue to reinvest the majority of the proceeds from pay-downs and maturities of investment securities in highly-rated securities, such as U.S. Treasury and agency securities, municipal securities, federal agency mortgage-backed securities and U.S. and non-U.S. mortgage- and asset-backed securities. The pace at which we continue to reinvest and the types of investment securities purchased will depend on the impact of market conditions and other factors over time. We expect these factors and the levels of global interest rates to influence what effect our reinvestment program will have on future levels of our net interest revenue and net interest margin.


61

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

Gains (Losses) Related to Investment Securities, Net
We regularly review our investment securities portfolio to identify other-than-temporary impairment of individual securities. Additional information about investment securities, the gross gains and losses that compose the net gains from sales of securities and other-than-temporary impairment is provided in note 3 to the consolidated financial statements under Item 8 of this Form 10-K.
TABLE 14: INVESTMENT SECURITIES GAINS (LOSSES), NET
Years Ended December 31,
2014
 
2013
 
2012
(In millions)
 
 
 
 
 
Net realized gains from sales of available-for-sale securities
$
15

 
$
14

 
$
55

Net impairment losses:
 
 
 
 
 
Gross losses from other-than-temporary impairment
(1
)
 
(21
)
 
(53
)
Losses reclassified (from) to other comprehensive income
(10
)
 
(2
)
 
21

Net impairment losses (1)
(11
)
 
(23
)
 
(32
)
Gains (losses) related to investment securities, net
$
4

 
$
(9
)
 
$
23

 
 
 
 
 
 
(1)  Net impairment losses, recognized in our consolidated statement of income, were composed of the following:
 
 
 
 
 
Impairment associated with expected credit losses
$
(10
)
 
$
(11
)
 
$
(16
)
Impairment associated with management’s intent to sell impaired securities prior to recovery in value
—

 
(6
)
 
—

Impairment associated with adverse changes in timing of expected future cash flows
(1
)
 
(6
)
 
(16
)
Net impairment losses
$
(11
)
 
$
(23
)
 
$
(32
)
From time to time, in connection with our ongoing management of our investment securities portfolio, we sell available-for-sale securities to manage risk, to take advantage of favorable market conditions, or for other reasons. In 2014 , we sold approximately $9.77 billion of such investment securities, compared to approximately $10.26 billion in 2013 , and recorded net realized gains of $15 million and $14 million , respectively, as presented in the preceding table.
PROVISION FOR LOAN LOSSES
We recorded a provision for loan losses of $10 million in 2014 , compared to $6 million in 2013 and a negative provision of $3 million in 2012 . The provisions in 2014 and 2013 were recorded in connection with our exposure to non-investment-grade borrowers composed of senior secured bank loans, which we purchased in connection with our participation in loan syndications in the non-investment-grade lending market. The increase in the provision in the year-to-year comparison reflected growth of the portfolio. Additional information about these senior secured bank loans is provided under
 
“Financial Condition - Loans and Leases” in this Management's Discussion and Analysis, and in note 4 to the consolidated financial statements included under Item 8 of this Form 10-K.
EXPENSES
TABLE 15: EXPENSES
 
 
Years Ended December 31,
2014
 
2013
 
2012
 
%  Change 2014 vs. 2013
 
%  Change 2013 vs. 2012
(Dollars in millions)
 
 
 
 
 
 
 
 
 
Compensation and employee benefits
$
4,060

 
$
3,800

 
$
3,837

 
7
 %
 
(1
)%
Information systems and communications
976

 
935

 
844

 
4

 
11

Transaction processing services
784

 
733

 
702

 
7

 
4

Occupancy
461

 
467

 
470

 
(1
)
 
(1
)
Claims resolution
—

 
—

 
(362
)
 
 
 
 
Acquisition costs
58

 
76

 
26

 


 
 
Restructuring charges, net
75

 
28

 
199

 


 
 
Other:
 
 
 
 
 
 

 
 
Professional services
440

 
392

 
381

 
12

 
3

Amortization of other intangible assets
222

 
214

 
198

 
4

 
8

Securities processing costs
68

 
52

 
24

 


 
 
Regulatory fees and assessments
74

 
72

 
61

 


 
 
Other (1)
609

 
423

 
506

 
44

 
(16
)
Total other
1,413

 
1,153

 
1,170

 
23

 
(1
)
Total expenses
$
7,827

 
$
7,192

 
$
6,886

 
9

 
4

Number of employees at year-end
29,970

 
29,430

 
29,660

 
 
 
 
 
 
 
(1) Included in other for the year ended December 31, 2014 was a $185 million legal accrual in connection with management's intention to seek to resolve some, but not all, of the outstanding and potential claims arising out of our indirect FX client activities. For additional information, refer to note  21 to the consolidated financial statements included under Item 8 of this Form 10-K.
Compensation and employee benefits expenses increased 7% in 2014 compared to 2013 . The increase was primarily the result of costs for additional staffing to support new business, higher incentive compensation, the impact of merit increases and promotions, and higher regulatory compliance costs, partially offset by savings generated from the completion of our Business Operations and Information Technology Transformation program.
Compensation and employee benefits expenses in 2014 included approximately $53 million of costs related to our Business Operations and Information


62

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

Technology Transformation program, which was completed at the end of 2014, compared to approximately $84 million in 2013 . The 2014 expenses also included $84 million of net severance costs associated with staffing realignment.
Compensation and employee benefits expenses declined 1% in 2013 compared to 2012 , primarily the result of lower staffing levels, including savings related to the implementation of our Business Operations and Information Technology Transformation program, and lower benefit costs, partially offset by expenses to support new business and acquisitions and higher incentive compensation.
Information systems and communications expenses increased 4% in 2014 compared to 2013 . The increase was mainly associated with higher infrastructure costs related to the completion of our Business Operations and Information Technology Transformation program.
Additional information with respect to the impact of the Business Operations and Information Technology Transformation program on future compensation and employee benefits and information systems and communications expenses is provided in the following “Restructuring Charges” section.
Expenses for transaction processing services increased 7% in 2014 compared to 2013 . The increase primarily reflected higher equity market values and higher transaction volumes in the investment servicing business.
Transaction processing services expenses increased 4% in 2013 compared to 2012 primarily as a result of higher equity market values and higher transaction volumes in the asset servicing business.
Other expenses increased 23% in 2014 compared to 2013 , primarily due to a legal accrual of $185 million in connection with management's intention to seek to resolve some, but not all, of the outstanding and potential claims arising out of our indirect FX client activities, higher levels of professional services associated with regulatory compliance requirements, a charitable contribution to the State Street Foundation, as well as the impact of the Lehman Brothers-related gains and recoveries recorded in 2013 . The legal accrual is more fully discussed under "Legal and Regulatory Matters" in note 11 to the consolidated financial statements included under Item 8 of this Form 10-K.
The decline in other expenses for 2013 compared to 2012 was mainly the result of credits of $85 million related to gains and recoveries associated with Lehman Brothers-related assets in 2013 .
Excluding these recoveries from other expenses for 2013 , and excluding the credits of $14 million from
 
other expenses for 2012 , other expenses for 2013 of $1.24 billion ( $1.15 billion plus $85 million ) increased 5% compared to other expenses of $1.18 billion ( $1.17 billion plus $14 million ) for 2012 .
Our compliance obligations have increased significantly due to new regulations in the U.S. and internationally that have been adopted or proposed in response to the financial crisis. As a systemically important financial institution, we are subject to enhanced supervision and prudential standards. Our status as a G-SIB has also resulted in heightened prudential and conduct expectations of our U.S. and international regulators with respect to our capital and liquidity management and our compliance and risk oversight programs. These heightened expectations have increased our regulatory compliance costs, including personnel and systems, as well as significant additional implementation and related costs to enhance our programs. We anticipate that these evolving and increasing regulatory compliance requirements and expectations will continue to affect our expenses. Our employee compensation and benefits, information systems and other expenses could increase, as we further adjust our operations in response to new or proposed requirements and heightened expectations.
Claims Resolution
As a result of the 2008 Lehman Brothers bankruptcy, we had various claims against Lehman Brothers entities in bankruptcy proceedings in the U.S. and the U.K. We also had amounts asserted as owed, or return obligations, to Lehman Brothers entities. The various claims and amounts owed arose from transactions that existed at the time Lehman Brothers entered bankruptcy, including prime brokerage arrangements, foreign exchange transactions, securities lending arrangements and repurchase agreements.
In 2014 , we received distributions totaling approximately $21 million from the Lehman Brothers estates, compared to approximately $186 million from the Lehman Brothers estates in 2013 . Of the distributions received in both 2014 and 2013 , approximately $11 million and $101 million , respectively, was related to recoveries of specific claims and applied to reduce remaining Lehman Brothers-related assets, primarily prime brokerage claim-related receivables, recorded in our consolidated statement of condition; the remaining $10 million and $85 million received in 2014 and 2013 , respectively, was recorded as a credit to other expenses in our consolidated statement of income.


63

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

Restructuring Charges
Information with respect to our Business Operations and Information Technology Transformation program and our 2012 expense control measures, including charges, employee reductions and related accruals, is provided in the following sections.
Business Operations and Information Technology Transformation Program
In November 2010 , we announced a global multi-year Business Operations and Information Technology Transformation program. The program included operational, information technology and targeted cost initiatives, including plans related to reductions in both staff and occupancy costs.
We completed our Business Operations and Information Technology Transformation program at the end of 2014 , achieving, over the course of the program, greater than $625 million of total pre-tax savings on an annual basis with full effect in 2015, based on projected improvement from our total 2010 expenses from operations, all else being equal.
The majority of the annual savings have affected compensation and employee benefits
 

expenses. These savings have been modestly offset by increases in information systems and communications expenses.
With respect to our business operations, we standardized certain core business processes, primarily through our execution of the State Street Lean methodology, and we drove automation of these business processes. We created a new technology platform, including transferring certain core software applications to a private cloud, and we expanded our use of third-party service providers associated with components of our information technology infrastructure and application maintenance and support.
We incurred aggregate pre-tax restructuring charges of approximately $440 million over the four-year period ending December 31, 2014 and we have recorded these restructuring charges in our consolidated statement of income.

TABLE 16: PRE-TAX AGGREGATE RESTRUCTURING CHARGES - BUSINESS OPERATIONS AND INFORMATION TECHNOLOGY TRANSFORMATION PROGRAM
(In millions)
Employee-Related
Costs
 
Real Estate
Consolidation
 
Information
Technology Costs
 
Total
2010
$
105

 
$
51

 
$
—

 
$
156

2011
85

 
7

 
41

 
133

2012
27

 
20

 
20

 
67

2013
13

 
13

 
(1
)
 
25

2014
38

 
21

 
—

 
59

Total
$
268

 
$
112

 
$
60

 
$
440

Employee-related costs included severance, benefits and outplacement services. Real estate
consolidation costs resulted from actions taken to reduce our occupancy costs through the consolidation of leases and properties. Information technology costs included transition fees related to the above-described expansion of our use of third-party service providers.
We originally identified a total of 1,574 positions as part of this initiative. As of December 31, 2014 , we substantially completed these reductions.
2012 Expense Control Measures
In December 2011, in connection with expense control measures designed to better align our expenses to our business strategy and related outlook for 2013 , we identified additional targeted staff reductions. As a result of these actions, we have
 
recorded aggregate pre-tax restructuring charges of $133 million in 2012 , $3 million in 2013 and $16 million in 2014 in our consolidated statement of income. Employee-related costs included severance, benefits and outplacement services. Costs for asset and other write-offs were primarily related to contract terminations. We originally identified involuntary terminations of 960 employees (630 positions after replacements).  As of March 31, 2014, we substantially completed these reductions.
The restructuring charge accrual associated with the Business Operations and Information Technology Transformation program and the 2012 expense control measures as of December 31, 2014 and 2013 was $71 million and $106 million , respectively.




64

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

Income Tax Expense
Income tax expense was $421 million in 2014 compared to $550 million in 2013 . Our effective tax rate for 2014 was 17.2% compared to 20.5% in 2013 , which included the impact of an out-of-period income tax benefit. The decline in the 2014 effective tax rate was primarily attributable to an expansion of our municipal securities portfolio, increased investments in alternative energy projects and greater benefits from our non-U.S. operations, net of the 2013 out-of-period benefit.
Additional information regarding income tax expense, including unrecognized tax benefits, and tax contingencies are provided in notes 22 and 11 , to the consolidated financial statements under Item 8 of this Form 10-K.
LINE OF BUSINESS INFORMATION
We have two lines of business: Investment Servicing and Investment Management. Given our services and management organization, the results of operations for these lines of business are not necessarily comparable with those of other companies, including companies in the financial services industry. Information about our two lines of business, as well as the revenues, expenses and capital allocation methodologies associated with them, is provided in note 24 to the consolidated financial statements included under Item 8 of this Form 10-K.
The amounts in the “Other” columns were not allocated to our business lines. The “Other” column for 2014 included net costs of $219 million composed of the following -
•
Net acquisition and restructuring costs of $133 million ;
 
•
Net severance costs associated with staffing realignment of $84 million ; and
•
Net provisions for litigation exposure and other costs of $2 million .
The “Other” column for 2013 included costs of $180 million composed of the following -
•
Net acquisition and restructuring costs of $104 million ;
•
Net provisions for litigation exposure and other costs of $65 million ; and
•
Net severance costs associated with staffing realignment of $11 million .
The “Other” column for 2012 included net losses of $27 million composed of the following -
•
Net realized loss from the sale of all of our Greek investment securities of $46 million ;
•
A benefit related to claims associated with the 2008 Lehman Brothers bankruptcy of $362 million ;
•
Net acquisition and restructuring costs of $225 million ; and
•
Net provisions for litigation exposure and other costs of $118 million .
Prior reported results reflect reclassifications, for comparative purposes, related to management changes in methodologies associated with allocations of revenue and expenses reflected in line-of-business results for 2014 .



65

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

TABLE 17: INVESTMENT SERVICING LINE OF BUSINESS RESULTS
 
Investment
Servicing
Years Ended December 31,
2014
 
2013
 
2012
 
% Change 2014 vs. 2013
(Dollars in millions, except where otherwise noted)
 
 
 
 
 
 
 
Servicing fees
$
5,129

 
$
4,819

 
$
4,414

 
6%
Trading services
1,039

 
1,027

 
938

 
1
Securities finance
437

 
359

 
405

 
22
Processing fees and other
179

 
206

 
235

 
(13)
Total fee revenue
6,784

 
6,411

 
5,992

 
6
Net interest revenue
2,188

 
2,221

 
2,464

 
(1)
Gains (losses) related to investment securities, net
4

 
(9
)
 
69

 
 
Total revenue
8,976

 
8,623

 
8,525

 
4
Provision for loan losses
10

 
6

 
(3
)
 
 
Total expenses
6,648

 
6,190

 
6,058

 
7
Income before income tax expense
$
2,318

 
$
2,427

 
$
2,470

 
(4)
Pre-tax margin
26
%
 
28
%
 
29
%
 
 
Average assets (in billions)
$
234.2

 
$
203.2

 
$
190.1

 
 
Investment Servicing
Total revenue and total fee revenue in 2014 for our Investment Servicing line of business, presented in Table 17: Investment Servicing Line of Business Results , increased 4% and 6% , respectively, compared to 2013 . The increase in total fee revenue primarily resulted from increases in servicing fees, securities finance revenue and trading services revenue, partially offset by a decline in processing fees and other revenue.
Servicing fees increased 6% in 2014 compared to 2013 , primarily the result of stronger global equity markets and the positive revenue impact of net new business (revenue added from new servicing business installed less revenue lost from the removal of assets serviced).
Trading services revenue increased 1% in 2014 compared to 2013 , primarily as a result of higher client volumes in direct sales and trading, partially offset by a decline in client volumes in electronic foreign exchange trading services.
Securities finance revenue increased 22% in 2014 compared to 2013 , mainly the result of growth in our enhanced custody business and higher volumes.
Processing fees and other revenue decreased 13% in 2014 compared to 2013 , primarily due to higher amortization of tax-advantaged investments, partially offset by higher loan service fees due to higher average loan volumes and higher revenue from our investment in bank-owned life insurance.
Servicing fees, securities finance revenue and net gains (losses) related to investment securities for our Investment Servicing business line are consistent
 
with the respective consolidated results. Refer to “Servicing Fees,” "Securities Finance" and “Gains (Losses) Related to Investment Securities, Net” under “Total Revenue” in this Management’s Discussion and Analysis for a more in-depth discussion. A discussion of trading services revenue and processing fees and other revenue is provided under “Trading Services” and “Processing Fees and Other” in “Total Revenue.”
Net interest revenue decreased 1% in 2014 compared to 2013 generally the result of lower yields on interest earning assets, as lower global interest rates affected our revenue from floating-rate assets, partially offset by the benefit of higher levels of interest-earning assets and lower rates on interest paid. A discussion of net interest revenue is provided under “Net Interest Revenue” in “Total Revenue.”
Total expenses increased 7% in 2014 compared to 2013 , primarily driven by increases in other expenses, compensation and employee benefit expenses and transaction processing services.
TABLE 18: INVESTMENT MANAGEMENT LINE OF BUSINESS RESULTS
 
Investment
Management
Years Ended December 31,
2014
 
2013
 
2012
 
% Change 2014 vs. 2013
(Dollars in millions, except where otherwise noted)
 
 
 
 
 
 
 
Management fees
$
1,207

 
$
1,106

 
$
993

 
9%
Trading services
45

 
67

 
98

 
(33)
Processing fees and other
(5
)
 
6

 
5

 
 
Total fee revenue
1,247

 
1,179

 
1,096

 
6
Net interest revenue
72

 
82

 
74

 
(12)
Total revenue
1,319

 
1,261

 
1,170

 
5
Total expenses
960

 
822

 
847

 
17
Income before income tax expense
$
359

 
$
439

 
$
323

 
(18)
Pre-tax margin
27
%
 
35
%
 
28
%
 
 
Average assets (in billions)
$
3.9

 
$
3.8

 
$
3.7

 
 
Investment Management
Total revenue for our Investment Management line of business, presented in Table 18: Investment Management Line of Business Results , increased 5% in 2014 compared to 2013 . Total fee revenue increased 6% compared to 2013 , primarily the result of increases in management fees, partially offset by decreases in trading services revenue.
Management fees increased 9% in 2014 compared to 2013 , primarily the result of stronger global equity markets and net inflows. Trading services revenue declined 33% in 2014 compared to 2013 , mainly due to lower distribution fees associated with the SPDR ® Gold ETF, which resulted from outflows and a lower average gold price during the period.
Management fees for the Investment Management business line are consistent with the


66

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

respective consolidated results. Refer to “Management Fees” in “Total Revenue” in this Management's Discussion and Analysis for a more in-depth discussion. A discussion of trading services revenue is provided under “Trading Services” in “Total Revenue.”
Total expenses increased 17% in 2014 compared to 2013 . The increase primarily reflected the impact of gains and recoveries associated with Lehman Brothers-related assets recorded in 2013 , as well as higher incentive compensation.
Pre-tax margin for Investment Management declined in 2014 compared to 2013 . The higher margin for the prior-year was mainly the result of the gains and recoveries associated with Lehman Brothers-related assets recorded in total expenses in 2013 .
FINANCIAL CONDITION
The structure of our consolidated statement of condition is primarily driven by the liabilities generated by our Investment Servicing and Investment Management lines of business. Our clients' needs and our operating objectives determine balance sheet volume, mix, and currency
 
denomination. As our clients execute their worldwide cash management and investment activities, they utilize deposits and short-term investments that constitute the majority of our liabilities. These liabilities are generally in the form of interest-bearing transaction account deposits, which are denominated in a variety of currencies; non-interest-bearing demand deposits; and repurchase agreements, which generally serve as short-term investment alternatives for our clients.
Deposits and other liabilities resulting from client initiated transactions are invested in assets that generally match the liquidity and interest-rate characteristics of the liabilities, although the weighted-average maturities of our assets are significantly longer than the contractual maturities of our liabilities. Our assets consist primarily of securities held in our available-for-sale or held-to-maturity portfolios and short-duration financial instruments, such as interest-bearing deposits with banks and securities purchased under resale agreements. The actual mix of assets is determined by the characteristics of the client liabilities and our desire to maintain a well-diversified portfolio of high-quality assets.


67

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

TABLE 19: AVERAGE STATEMENT OF CONDITION (1)  
Years Ended December 31,
2014
 
2013
(In millions)
Average Balance
 
Average Balance
Assets:
 
 
 
Interest-bearing deposits with banks
$
55,353

 
$
28,946

Securities purchased under resale agreements
4,077

 
5,766

Trading account assets
959

 
748

Investment securities
116,809

 
117,696

Loans and leases
15,912

 
13,781

Other interest-earning assets
15,944

 
11,164

Average total interest-earning assets
209,054

 
178,101

Cash and due from banks
4,139

 
3,747

Other noninterest-earning assets
24,935

 
25,182

Average total assets
$
238,128

 
$
207,030

Liabilities and shareholders’ equity:
 
 
 
Interest-bearing deposits:
 
 
 
U.S.
$
21,296

 
$
8,862

Non-U.S.
109,003

 
100,391

Total interest-bearing deposits
130,299

 
109,253

Securities sold under repurchase agreements
8,817

 
8,436

Federal funds purchased
20

 
298

Other short-term borrowings
4,177

 
3,785

Long-term debt
9,309

 
8,415

Other interest-bearing liabilities
7,351

 
6,457

Average total interest-bearing liabilities
159,973

 
136,644

Noninterest-bearing deposits
44,041

 
36,294

Other noninterest-bearing liabilities
12,797

 
13,561

Preferred shareholders’ equity
1,181

 
490

Common shareholders’ equity
20,136

 
20,041

Average total liabilities and shareholders’ equity
$
238,128

 
$
207,030

 
 
 
 
(1) Additional information about our average statement of condition, primarily our interest-earning assets and interest-bearing liabilities, is included under “Consolidated Results of Operations - Total Revenue - Net Interest Revenue” in this Management's Discussion and Analysis.


68

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

Investment Securities
TABLE 20: CARRYING VALUES OF INVESTMENT SECURITIES
 
As of December 31,
(In millions)
2014
 
2013
 
2012
Available for sale:
 
 
 
 
 
U.S. Treasury and federal agencies:
Direct obligations
$
10,655

 
$
709

 
$
841

Mortgage-backed securities
20,714

 
23,563

 
32,212

Asset-backed securities:
 
 
 
 
 
Student loans (1)  
12,460

 
14,542

 
16,421

Credit cards
3,053

 
8,210

 
9,986

Sub-prime
951

 
1,203

 
1,399

Other
4,145

 
5,064

 
4,677

Total asset-backed securities
20,609

 
29,019

 
32,483

Non-U.S. debt securities:
 
 
 
 
 
Mortgage-backed securities
9,606

 
11,029

 
11,405

Asset-backed securities
3,226

 
5,390

 
6,218

Government securities
3,909

 
3,761

 
3,199

Other
5,428

 
4,727

 
4,306

Total non-U.S. debt securities
22,169

 
24,907

 
25,128

State and political subdivisions
10,820

 
10,263

 
7,551

Collateralized mortgage obligations
5,339

 
5,269

 
4,954

Other U.S. debt securities
4,109

 
4,980

 
5,298

U.S. equity securities
39

 
34

 
31

Non-U.S. equity securities
2

 
1

 
1

U.S. money-market mutual funds
449

 
422

 
1,062

Non-U.S. money-market mutual funds
8

 
7

 
121

Total
$
94,913

 
$
99,174

 
$
109,682

 
 
 
 
 
 
Held to Maturity:
 
 
 
 
 
U.S. Treasury and federal agencies:
Direct obligations
$
5,114

 
$
5,041

 
$
5,000

Mortgage-backed securities
62

 
91

 
153

Asset-backed securities:
 
 
 
 
 
Student loans (1)  
1,814

 
1,627

 
—

Credit cards
897

 
762

 
—

Other
577

 
782

 
16

Total asset-backed securities
3,288

 
3,171

 
16

Non-U.S. debt securities:
 
 
 
 
 
Mortgage-backed securities
3,787

 
4,211

 
3,122

Asset-backed securities
2,868

 
2,202

 
434

Government securities
154

 
2

 
3

Other
72

 
192

 
167

Total non-U.S. debt securities
6,881

 
6,607

 
3,726

State and political subdivisions
9

 
24

 
74

Collateralized mortgage obligations
2,369

 
2,806

 
2,410

Total
$
17,723

 
$
17,740

 
$
11,379

 
 
(1) Primarily composed of securities guaranteed by the federal government with respect to at least 97% of defaulted principal and accrued interest on the underlying loans.
The increase in U.S. Treasury direct obligations as of December 31, 2014 compared to December 31,
 
2013 , as well as decreases in certain of the mortgage- and asset-backed securities for the same periods, presented in Table 20: Carrying Values of Investment Securities , were associated with our repositioning of the portfolio in light of the liquidity requirements of the liquidity coverage ratio, or LCR.
Additional information about our investment securities portfolio is provided in note 3 to the consolidated financial statements included under Item 8 of this Form 10-K.
We manage our investment securities portfolio to align with the interest-rate and duration characteristics of our client liabilities and in the context of the overall structure of our consolidated statement of condition, in consideration of the global interest-rate environment. We consider a well-diversified, high-credit quality investment securities portfolio to be an important element in the management of our consolidated statement of condition.
Approximately 90% of the carrying value of the portfolio rated “AAA” or “AA” as of December 31, 2014 and 89% as of December 31, 2013 .
TABLE 21: INVESTMENT PORTFOLIO BY EXTENAL CREDIT RATING
 
As of December 31,
 
2014
 
2013
AAA (1)
73
%
 
70
%
AA
17

 
19

A
6

 
6

BBB
2

 
3

Below BBB
2

 
2

 
100
%
 
100
%
 
 
(1) Includes U.S. Treasury and federal agency securities that are split-rated, “AAA” by Moody’s Investors Service and “AA+” by Standard & Poor’s.
As of December 31, 2014 , the investment portfolio of 16,915 securities was diversified with respect to asset class. Approximately 64% of the aggregate carrying value of the portfolio as of that date was composed of mortgage-backed and asset-backed securities, compared to 74% as of December 31, 2013 . The asset-backed securities portfolio, of which approximately 96% and 97% of the carrying value as of December 31, 2014 and 2013 , respectively, was floating-rate, consisted primarily of student loan-backed and credit card-backed securities. Mortgage-backed securities were composed of securities issued by the Federal National Mortgage Association and Federal Home


69

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

Loan Mortgage Corporation, as well as U.S. and non-U.S. large-issuer collateralized mortgage obligations.
In December 2013, U.S. regulators issued final regulations to implement the Volcker rule. The Volcker rule will, over time, prohibit banking entities, including us and our affiliates, from engaging in certain prohibited proprietary trading activities, as defined in the final Volcker rule regulations, subject to exemptions for market making-related activities, risk-mitigating hedging, underwriting and certain other activities. The Volcker rule will also require banking entities to either restructure or divest certain ownership interests in, and relationships with, covered funds (as such terms are defined in the final Volcker rule regulations).
The Volcker rule became effective on July 21, 2012, and the final implementing regulations became effective on April 1, 2014. In the absence of an applicable extension of the Volcker rule’s general conformance period, a banking entity must bring its activities and investments into conformance with the Volcker rule and its final Volcker rule regulations by July 21, 2015. In December 2014, the Federal Reserve issued an order, the 2016 conformance period extension, extending the Volcker rule’s general conformance period until July 21, 2016 for investments in and relationships with covered funds and certain foreign funds that were in place on or prior to December 31, 2013, referred to as legacy covered funds. Under the 2016 conformance period extension, all investments in and relationships related to investments in a covered fund made or entered into after that date by a banking entity and its affiliates, and all proprietary trading activities of those entities, must be in conformance with the Volcker rule and its final implementing regulations by July 21, 2015. The Federal Reserve stated in the 2016 conformance period extension that it intends to grant a final one-year extension of the general conformance period, to July 21, 2017, for banking entities to conform ownership interests in and relationships with legacy covered funds.
Whether certain types of investment securities or structures, such as collateralized loan obligations, or CLOs, constitute covered funds, as defined in the final Volcker rule regulations, and do not benefit from the exemptions provided in the Volcker rule, and whether a banking organization's investments therein constitute ownership interests remain subject to (1) market, and ultimately regulatory, interpretation, and (2) the specific terms and other characteristics relevant to such investment securities and structures.
As of December 31, 2014 , we held approximately $4.54 billion of investments in CLOs. As of the same date, these investments had an aggregate pre-tax net unrealized gain of
 
approximately $97 million , composed of gross unrealized gains of $105 million and gross unrealized losses of $8 million . In the event that we or our banking regulators conclude that such investments in CLOs, or other investments, are covered funds, we may be required to divest of such investments. If other banking entities reach similar conclusions with respect to similar investments held by them, the prices of such investments could decline significantly, and we may be required to divest of such investments at a significant discount compared to the investments' book value. This could result in a material adverse effect on our consolidated results of operations in the period in which such a divestment occurs or on our consolidated financial condition.
We are reviewing our activities that are affected by the final Volcker rule regulations and are taking steps to bring those activities into conformity with the Volcker rule. The final Volcker rule regulations also require banking entities to establish extensive programs designed to ensure compliance with the restrictions of the Volcker rule. We are in the process of establishing the necessary compliance program to comply with the final Volcker rule regulations. Such compliance program will restrict our ability in the future to service certain types of funds, in particular covered funds for which SSGA acts as an advisor and certain types of trustee relationships. Consequently, Volcker rule compliance will entail both the cost of a compliance program and loss of certain revenue and future opportunities.
Non-U.S. Debt Securities
Approximately 26% of the aggregate carrying value of our investment securities portfolio was composed of non-U.S. debt securities as of December 31, 2014 compared to approximately 27% in 2013 .


70

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

TABLE 22: NON-U.S. DEBT SECURITIES
 
As of December 31,
(In millions)
2014
 
2013
Available for Sale:
 
 
 
United Kingdom
$
6,925

 
$
9,357

Australia
3,401

 
3,551

Netherlands
3,219

 
3,471

Canada
2,711

 
2,549

France
1,407

 
1,581

South Korea
920

 
744

Japan
860

 
971

Germany
810

 
1,410

Finland
513

 
397

Italy
464

 
—

Norway
438

 
369

Belgium
120

 
—

Sweden
103

 
142

Austria
73

 
83

Other (1)
205

 
282

Total
$
22,169

 
$
24,907

Held to Maturity:
 
 
 
United Kingdom
$
1,779

 
$
1,474

Australia
1,712

 
2,216

Germany
1,651

 
1,263

Netherlands
1,128

 
934

Spain
155

 
206

Italy
79

 
270

Ireland
68

 
86

Other (2)
309

 
158

Total
$
6,881

 
$
6,607

 
 
(1) Included approximately $66 and $133 million as of December 31, 2014 and 2013 , respectively, related to Portugal, Ireland and Spain, all of which were mortgage-backed securities.
(2) Included approximately $36 and $44 million as of December 31, 2014 and 2013 , respectively, of securities related to Portugal, all of which were mortgage-backed securities.
Approximately 88% and 89% of the aggregate carrying value of these non-U.S. debt securities was rated “AAA” or “AA” as of December 31, 2014 and 2013 , respectively. The majority of these securities comprise senior positions within the security structures; these positions have a level of protection provided through subordination and other forms of credit protection. As of December 31, 2014 and 2013 , approximately 74% and 72% , respectively, of the aggregate carrying value of these non-U.S. debt securities was floating-rate, and accordingly, the securities are considered to have minimal interest-rate risk.
As of December 31, 2014 , these non-U.S. debt securities had an average market-to-book ratio of 101.4% , and an aggregate pre-tax net unrealized gain of approximately $397 million , composed of
 
gross unrealized gains of $432 million and gross unrealized losses of $35 million . These unrealized amounts included a pre-tax net unrealized gain of $229 million , composed of gross unrealized gains of $241 million and gross unrealized losses of $12 million , associated with non-U.S. debt securities available for sale.
As of December 31, 2014 , the underlying collateral for non-U.S. mortgage- and asset-backed securities primarily included U.K. prime mortgages, Australian and Dutch mortgages and German automobile loans. The securities listed under “Canada” were composed of Canadian government securities and corporate debt and covered bonds. The securities listed under “France” were composed of automobile loans and corporate debt and covered bonds. The securities listed under “Japan” were substantially composed of Japanese government securities. The securities listed under “South Korea” were composed of South Korean government securities.
Additional information on our exposures relating to Spain, Italy, Ireland and Portugal as of December 31, 2014 is provided under "Financial Condition - Cross-Border Outstandings" in this Management's Discussion and Analysis.
Municipal Securities
We carried approximately $10.83 billion of municipal securities classified as state and political subdivisions in our investment securities portfolio as of December 31, 2014 as shown in Table 20: Carrying Values of Investment Securities . Substantially all of these securities were classified as available for sale, with the remainder classified as held to maturity. As of the same date, we also provided approximately $7.61 billion of credit and liquidity facilities to municipal issuers as a form of credit enhancement.


71

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

TABLE 23: STATE AND MUNICIPAL OBLIGORS (1)
(Dollars in millions)
Total  Municipal
Securities
 
Credit and
Liquidity 
Facilities
 
Total
 
% of Total Municipal
Exposure
December 31, 2014
 
 
 
 
 
 
State of Issuer:
 
 
 
 
 
 
 
Texas
$
1,326

 
$
1,405

 
$
2,731

 
15
%
California
458

 
1,837

 
2,295

 
12

New York
920

 
996

 
1,916

 
10

Massachusetts
989

 
847

 
1,836

 
10

Maryland
446

 
416

 
862

 
5

Total
$
4,139

 
$
5,501

 
$
9,640

 
 
 
 
 
 
 
 
 
 
December 31, 2013
 
 
 
 
 
 
State of Issuer:
 
 
 
 
 
 
 
Texas
$
1,233

 
$
1,628

 
$
2,861

 
16
%
New York
919

 
1,000

 
1,919

 
10

Massachusetts
967

 
759

 
1,726

 
9

California
373

 
1,266

 
1,639

 
9

Maryland
327

 
643

 
970

 
5

Total
$
3,819

 
$
5,296

 
$
9,115

 
 
 
 
 
 
(1) Represented 5% or more of our aggregate municipal credit exposure of approximately $18.44 billion and $18.45 billion across our businesses as of December 31, 2014 and 2013 , respectively.
 
Our aggregate municipal securities exposure presented in Table 23: State and Municipal Obligors , was concentrated primarily with highly-rated counterparties, with approximately 89% of the obligors rated “AAA” or “AA” as of December 31, 2014 . As of that date, approximately 60% and 38% of our aggregate exposure was associated with general obligation and revenue bonds, respectively. In addition, we had no exposures associated with industrial development or land development bonds. The portfolios are also diversified geographically, with the states that represent our largest exposures widely dispersed across the U.S.
Additional information with respect to our assessment of other-than-temporary impairment of our municipal securities is provided in note 3 to the consolidated financial statements included under Item 8 of this Form 10-K.


72

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

TABLE 24: CONTRACTUAL MATURITIES AND YIELDS
As of December 31, 2014
Under 1 Year
 
1 to 5 Years
 
6 to 10 Years
 
Over 10 Years
(Dollars in millions)
Amount
 
Yield
 
Amount
 
Yield
 
Amount
 
Yield
 
Amount
 
Yield
Available for sale (1) :
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and federal agencies:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Direct obligations
$
—

 
—
%
 
$
6,841

 
1.11
%
 
$
3,287

 
2.61
%
 
$
527

 
2.04
%
Mortgage-backed securities
107

 
2.75

 
2,389

 
3.20

 
4,421

 
3.07

 
13,797

 
3.01

Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Student loans
515

 
.90

 
6,100

 
.54

 
3,823

 
.66

 
2,022

 
.68

Credit cards
381

 
.80

 
1,562

 
.76

 
1,110

 
1.65

 
—

 
—

Sub-prime
3

 
4.86

 
13

 
1.30

 
1

 
6.15

 
934

 
.76

Other
244

 
.51

 
961

 
.69

 
1,268

 
1.21

 
1,672

 
1.36

Total asset-backed
1,143

 
 
 
8,636

 
 
 
6,202

 
 
 
4,628

 
 
Non-U.S. debt securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
2,315

 
1.52

 
3,463

 
1.54

 
576

 
1.19

 
3,252

 
2.93

Asset-backed securities
272

 
1.01

 
2,698

 
.87

 
166

 
2.13

 
90

 
1.47

Government securities
2,321

 
.48

 
1,588

 
1.41

 
—

 
—

 
—

 
—

Other
1,757

 
2.81

 
2,801

 
1.80

 
870

 
.74

 
—

 
—

Total non-U.S. debt securities
6,665

 
 
 
10,550

 
 
 
1,612

 
 
 
3,342

 
 
State and political subdivisions (2)
699

 
4.96

 
3,003

 
4.90

 
4,715

 
5.98

 
2,403

 
6.04

Collateralized mortgage obligations
227

 
4.56

 
1,149

 
2.98

 
1,072

 
2.66

 
2,891

 
2.91

Other U.S. debt securities
814

 
4.02

 
2,967

 
3.93

 
294

 
3.94

 
34

 
.78

Total
$
9,655

 
 
 
$
35,535

 
 
 
$
21,603

 
 
 
$
27,622

 
 
Held to maturity (1) :
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and federal agencies:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Direct Obligations
$
—

 
—
%
 
$
—

 
—
%
 
$
5,000

 
2.09
%
 
$
114

 
.59
%
Mortgage-backed securities
1

 
5.00

 
11

 
5.00

 
12

 
5.00

 
38

 
5.35

Asset-backed securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Student loans
6

 
1.26

 
182

 
.81

 
375

 
.98

 
1,251

 
.73

Credit cards
—

 
—

 
375

 
.61

 
522

 
.57

 
—

 
—

Other
15

 
.57

 
367

 
.47

 
191

 
.62

 
4

 
.61

Total asset-backed
21

 
 
 
924

 
 
 
1,088

 
 
 
1,255

 
 
Non-U.S. debt securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
503

 
1.30

 
1,102

 
1.06

 
157

 
3.74

 
2,025

 
1.59

Asset-backed securities
105

 
1.58

 
2,567

 
.69

 
196

 
.97

 
—

 
—

Government securities
154

 
.64

 
—

 
—

 
—

 
—

 
—

 
—

Other
—

 
—

 
72

 
.44

 
—

 
—

 
—

 
—

Total non-U.S. debt securities
762

 
 
 
3,741

 
 
 
353

 
 
 
2,025

 
 
State and political subdivisions (2)
7

 
5.78

 
2

 
6.38

 
—

 
—

 
—

 
—

Collateralized mortgage obligations
574

 
2.62

 
460

 
3.72

 
498

 
1.41

 
837

 
2.08

Total
$
1,365

 
 
 
$
5,138

 
 
 
$
6,951

 
 
 
$
4,269

 
 
 
 
 
 
(1) The maturities of mortgage-backed securities, asset-backed securities and collateralized mortgage obligations are based on expected principal payments.
(2) Yields were calculated on a fully taxable-equivalent basis, using applicable federal and state income tax rates.
Impairment
Impairment exists when the fair value of an individual security is below its amortized cost basis. Impairment of a security is further assessed to determine whether such impairment is other-than-temporary. When the impairment is deemed to be other-than-temporary, we record the loss in our consolidated statement of income. In addition, for debt securities available for sale and held to maturity,
 

we record impairment in our consolidated statement of income when management intends to sell (or may be required to sell) the securities before they recover in value, or when management expects the present value of cash flows expected to be collected from the securities to be less than the amortized cost of the impaired security (a credit loss).


73

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

The improvement to a net unrealized gain position as of December 31, 2014 from a net unrealized loss position as of December 31, 2013 , presented in Table 25: Amortized Cost, Fair Value and Net Unrealized Gains (Losses) of Investment Securities , was primarily attributable to narrowing spreads in 2014 .
TABLE 25: AMORTIZED COST, FAIR VALUE AND NET UNREALIZED GAINS (LOSSES) OF INVESTMENT SECURITIES
 
As of December 31,
 
2014
 
2013
(In millions)
Amortized Cost
 
Net Unrealized Gains(Losses)
 
Fair Value
 
Amortized Cost
 
Net Unrealized Gains(Losses)
 
Fair Value
Available for sale (1)
$
94,108

 
$
805

 
$
94,913

 
$
99,159

 
$
15

 
$
99,174

Held to maturity (1)
17,723

 
119

 
17,842

 
17,740

 
(180
)
 
17,560

Total investment securities
$
111,831

 
$
924

 
$
112,755

 
$
116,899

 
$
(165
)
 
$
116,734

Net after-tax unrealized gain (loss)
 
 
$
554

 
 
 
 
 
$
(96
)
 
 
 
 
 
 
(1) Securities available for sale are carried at fair value, with after-tax net unrealized gains and losses recorded in AOCI. Securities held to maturity are carried at cost, and unrealized gains and losses are not recorded in our consolidated financial statements.
We conduct periodic reviews of individual securities to assess whether other-than-temporary impairment exists. Our assessment of other-than-temporary impairment involves an evaluation of economic and security-specific factors. Such factors are based on estimates, derived by management, which contemplate current market conditions and security-specific performance. To the extent that market conditions are worse than management's expectations, other-than-temporary impairment could increase, in particular the credit-related component that would be recorded in our consolidated statement of income.
In the aggregate, we recorded net losses from other-than-temporary impairment of $11 million and $23 million in 2014 and 2013 , respectively. Additional information with respect to other-than-temporary impairments and net impairment losses, as well as information about our assessment of impairment, is provided in note 3 to the consolidated financial statements included under Item 8 of this Form 10-K.
Given our mortgage-backed securities exposure, our assessment of other-than-temporary impairment relies, in part, on our estimates of trends in the U.S. housing market in addition to trends in unemployment rates, interest rates and the timing of defaults. Overall, our evaluation of other-than-temporary impairment as of December 31, 2014 continued to include an expectation of a U.S. housing recovery characterized by relatively modest growth in national housing prices over the next few years. The other-than-temporary impairment of our investment securities portfolio continues to be sensitive to our estimates of future cumulative losses. However, given our positive outlook for U.S. national housing
prices, our sensitivity analysis indicated, as of December 31, 2014 , that our investment securities
 
portfolio was less exposed to the U.S. housing market outlook relative to other factors, including unemployment rates, interest rates and timing of default. The timeline to liquidate distressed loans continues to extend, but to a lesser degree as a result of strengthening in the national housing market. The timing of default may affect, among other things, the timing of cash flows or the credit quality associated with the mortgages collateralizing certain of our residential mortgage-backed securities which, accordingly, could result in the recognition of additional other-than-temporary impairment in future periods.
Our evaluation of potential other-than-temporary impairment of mortgage-backed securities with collateral in countries with slow economic growth and government austerity measures takes into account government intervention in the corresponding mortgage markets and assumes a conservative baseline macroeconomic environment. Our baseline view assumes a recessionary period characterized by high unemployment and by additional declines in housing prices of between 5% and 15% . Our evaluation of other-than-temporary impairment in our base case does not assume a disorderly sovereign debt restructuring or a break-up of the Eurozone.
In addition, we perform stress testing and sensitivity analyses in order to assess the impact of more severe assumptions on potential other-than-temporary impairment. For example, we estimate, using relevant information as of December 31, 2014 and assuming that all other factors remain constant, that in more stressful scenarios in which unemployment, gross domestic product and housing prices deteriorate over the relevant periods more than we expected as of December 31, 2014 , other-than-temporary impairment could increase by a range of zero to $24 million. This sensitivity estimate is based


74

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

on a number of factors, including, but not limited to, the level of housing prices and the timing of defaults. To the extent that such factors differ significantly from management's current expectations, resulting loss estimates may differ materially from those stated.
Excluding other-than-temporary impairment recorded in 2014 , management considers the aggregate decline in fair value of the remaining investment securities and the resulting gross unrealized losses as of December 31, 2014 to be temporary and not the result of any material changes in the credit characteristics of the securities. Additional information about these gross unrealized losses is provided in note 3 to the consolidated financial statements included under Item 8 of this Form 10-K.
Loans and Leases
TABLE 26: U.S. AND NON- U.S. LOANS AND LEASES
 
As of December 31,
(In millions)
2014
 
2013
 
2012
 
2011
 
2010
Institutional:
 
 
 
 
 
 
 
 
 
U.S.
$
14,908

 
$
10,623

 
$
9,645

 
$
7,115

 
$
7,001

Non-U.S.
3,263

 
2,654

 
2,251

 
2,478

 
4,192

Commercial real estate:
 
 
 
 
 
 
 
 
 
U.S.
28

 
209

 
411

 
460

 
764

Total loans and leases
$
18,199

 
$
13,486

 
$
12,307

 
$
10,053

 
$
11,957

Average loans and leases
$
15,912

 
$
13,781

 
$
11,610

 
$
12,180

 
$
12,094

The increase in loans in the institutional segment as of December 31, 2014 as compared to December 31, 2013 was primarily driven by higher levels of short-duration advances and increased investment in the non-investment-grade lending market through participations in loan syndications, specifically senior secured bank loans.
Short-duration advances to our clients included in the institutional segment were $3.54 billion and $2.45 billion as of December 31, 2014 and 2013 , respectively. These short-duration advances provide liquidity to fund clients in support of their transaction flows associated with securities settlement activities.
As of December 31, 2014 and 2013 , our investment in senior secured bank loans totaled approximately $2.07 billion and $724 million , respectively. In addition, we had binding unfunded commitments as of December 31, 2014 totaling $337 million to participate in such syndications.
 
These senior secured bank loans, which we have rated “speculative” under our internal risk-rating framework (refer to note 4 to the consolidated financial statements included under Item 8 of this Form 10-K), are externally rated “BBB,” “BB” or “B,” with approximately 95% of the loans rated “BB” or “B” as of December 31, 2014 , compared to 94% as of December 31, 2013 . Our investment strategy involves limiting our investment to larger, more liquid credits underwritten by major global financial institutions, applying our internal credit analysis process to each potential investment, and diversifying our exposure by counterparty and industry segment. However, these loans have significant exposure to credit losses relative to higher-rated loans. As of December 31, 2014 , our allowance for loan losses included approximately $26 million related to these senior secured bank loans. As this portfolio grows and becomes more seasoned, our allowance for loan losses related to these loans may increase through additional provisions for credit losses.
As of December 31, 2014 and 2013 , unearned income deducted from our investment in leveraged lease financing was $109 million and $121 million , respectively, for U.S. leases and $261 million and $298 million , respectively, for non-U.S. leases.
The commercial real estate, or CRE, loans are composed of the loans acquired in 2008 pursuant to indemnified repurchase agreements with an affiliate of Lehman as a result of the Lehman Brothers bankruptcy. Additional information about all of our loan-and-lease segments, as well as underlying classes, is provided in note  4 to the consolidated financial statements included under Item 8 of this Form 10-K.
The decrease in the CRE loans as of December 31, 2014 compared to December 31, 2013 resulted from one of the loans, acquired in 2008 pursuant to indemnified repurchase agreement with an affiliate of Lehman as a result of the Lehman Brothers bankruptcy being repaid.
As of December 31, 2014 no CRE loans were modified in troubled debt restructurings. As of December 31, 2013 , we held a CRE loan for approximately $130 million which had previously been modified in a troubled debt restructuring. No loans were modified in troubled debt restructurings in 2014 or 2013 .  


75

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

TABLE 27: CONTRACTUAL MATURITIES FOR LOANS AND LEASES
 
 
 
 
 
 
 
 
As of December 31, 2014
(In millions)
Total
 
Under 1 Year
 
1 to 5 Years
 
Over 5 Years
Institutional:
 
 
 
 
 
 
 
Investment funds:
 
 
 
 
 
 
 
U.S.
$
11,388

 
$
9,045

 
$
2,326

 
$
17

Non-U.S.
2,333

 
1,836

 
497

 
—

Commercial and financial:
 
 
 
 
 
 
 
U.S.
3,061

 
819

 
839

 
1,403

Non-U.S.
256

 
171

 
66

 
19

Purchased receivables:
 
 
 
 
 
 
 
U.S.
124

 
—

 
77

 
47

Non-U.S.
6

 
—

 
6

 
—

Lease financing:
 
 
 
 
 
 
 
U.S.
335

 
—

 
—

 
335

Non-U.S.
668

 
88

 
225

 
355

Total institutional
18,171

 
11,959

 
4,036

 
2,176

Commercial real estate:
 
 
 
 
 
 
 
U.S.
28

 
—

 
28

 
—

Total loans and leases
$
18,199

 
$
11,959

 
$
4,064

 
$
2,176

TABLE 28: CLASSIFICATION OF LOAN AND LEASE BALANCES DUE AFTER ONE YEAR
 
 
As of December 31, 2014
(In millions)
 
Loans and leases with predetermined interest rates
$
3,045

Loans and leases with floating or adjustable interest rates
3,195

Total
$
6,240

TABLE 29: ALLOWANCE FOR LOAN LOSSES
 
 
 
 
 
 
 
 
 
 
For the Years ended December 31,
 
2014
 
2013
 
2012
 
2011
 
2010
(In millions)
 
 
 
 
 
 
 
 
 
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
Beginning balance
$
28

 
$
22

 
$
22

 
$
100

 
$
79

Provision for loan losses:
 
 
 
 
 
 
 
 
 
Commercial real estate
—

 
—

 
(3
)
 
9

 
22

Institutional
10

 
6

 
—

 
(9
)
 
3

Charge-offs:
 
 
 
 
 
 
 
 
 
Commercial real estate
—

 
—

 
—

 
(78
)
 
(4
)
Recoveries:
 
 
 
 
 
 
 
 
 
Commercial real estate
—

 
—

 
3

 
—

 
—

Ending balance
$
38

 
$
28

 
$
22

 
$
22

 
$
100

The provision of $10 million recorded in 2014 was composed of a provision of $20 million associated with senior secured bank loans, offset by a negative provision of $10 million associated with the pay-down of an unrelated commercial and financial loan with speculative-rated credit quality.

 
As of December 31, 2014 , approximately $26 million of our allowance for loan losses was related to senior secured bank loans included in the institutional
segment; the remaining $12 million was related to other commercial and financial loans in the institutional segment.


76

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

Cross-Border Outstandings
Cross-border outstandings are amounts payable to us by non-U.S. counterparties which are denominated in U.S. dollars or other non-local currency, as well as non-U.S. local currency claims not funded by local currency liabilities. Our cross-border outstandings consist primarily of deposits with banks; loans and lease financing, including short-duration advances; investment securities; amounts related to foreign exchange and interest-rate contracts; and securities finance.   In addition to credit risk, cross-border outstandings have the risk that, as a result of political or economic conditions in a country, borrowers may be unable to meet their contractual repayment obligations of principal and/or interest when due because of the unavailability of, or restrictions on, foreign exchange needed by borrowers to repay their obligations.
We place deposits with non-U.S. counterparties that have strong internal State Street risk ratings. Counterparties are approved and monitored by our Country Risk Committee. This process includes financial analysis of non-U.S. counterparties and the use of an internal risk-rating system. Each counterparty is reviewed at least annually and potentially more frequently based on deteriorating credit fundamentals or general market conditions. We also utilize risk mitigation and other facilities that may reduce our exposure through the use of cash collateral and/or balance sheet netting where we deem appropriate. In addition, the Country Risk Committee performs a country-risk analysis and monitors limits on country exposure.
The aggregate of the total cross-border outstandings presented in Table 30: Cross-border Outstandings represented approximately 17% , 19% , and 22% of our consolidated total assets as of December 31, 2014 , 2013 and 2012 respectively.
 
TABLE 30: CROSS-BORDER OUTSTANDINGS (1)
(In millions)
Investment Securities and Other Assets  
 
Derivatives and Securities on Loan
 
Total Cross-Border Outstandings
December 31, 2014
 
 
 
 
 
United Kingdom
$
15,288

 
$
1,769

 
$
17,057

Japan
9,465

 
644

 
10,109

Australia
5,981

 
1,039

 
7,020

Netherlands
4,425

 
330

 
4,755

Canada
3,227

 
974

 
4,201

Germany
3,075

 
792

 
3,867

December 31, 2013
 

 
 

 
 

United Kingdom
$
15,422

 
$
1,697

 
$
17,119

Australia
7,309

 
672

 
7,981

Netherlands
4,542

 
277

 
4,819

Canada
3,675

 
620

 
4,295

Germany
4,062

 
147

 
4,209

France
2,887

 
735

 
3,622

Japan
2,445

 
605

 
3,050

December 31, 2012
 
 
 
 
 
United Kingdom
$
18,046

 
$
1,033

 
$
19,079

Australia
7,585

 
328

 
7,913

Japan
6,625

 
1,041

 
7,666

Germany
7,426

 
220

 
7,646

Netherlands
3,130

 
188

 
3,318

Canada
2,730

 
500

 
3,230

 
 
(1) Cross-border outstandings included countries in which we do business, and which amounted to at least 1% of our consolidated total assets as of the dates indicated.
As of December 31, 2014 there were no countries whose aggregate cross-border outstandings amounted to between 0.75% and 1% of our consolidated total assets. As of December 31, 2013 , aggregate cross-border outstandings in countries which amounted to between 0.75% and 1% of our total consolidated assets totaled approximately $1.85 billion to China. As of December 31, 2012 , aggregate cross-border outstandings in countries which amounted to between 0.75% and 1% of our total consolidated assets totaled approximately $1.81 billion to France.


77

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

TABLE 31: CROSS-BORDER OUTSTANDINGS (ITALY, IRELAND, SPAIN AND PORTUGAL)
(In millions)
Investment
Securities and
Other Assets 
 
Derivatives and Securities on Loan
 
Total Cross-Border Outstandings
December 31, 2014
 
 
 
 
 
Ireland
$
510

 
$
1,253

 
$
1,763

Italy
907

 
11

 
918

Spain
155

 
71

 
226

Portugal
69

 
—

 
69

December 31, 2013
 

 
 

 
 

Italy
$
763

 
$
2

 
$
765

Ireland
369

 
304

 
673

Spain
271

 
11

 
282

Portugal
78

 
—

 
78

December 31, 2012
 
 
 
 
 
Italy
$
937

 
$
1

 
$
938

Ireland
342

 
277

 
619

Spain
277

 
16

 
293

Portugal
76

 
—

 
76

The aggregate cross-border exposures presented in Table 31: Cross-Border Outstandings (Italy, Ireland, Spain and Portugal) , consisted primarily of interest-bearing deposits, investment securities, loans, including short-duration advances, and foreign exchange contracts. We had not recorded any provisions for loan losses with respect to any of our exposure in these countries as of December 31, 2014 .
Our aggregate exposure to Spain, Italy, Ireland and Portugal as of December 31, 2014 did not include any direct sovereign debt exposure to any of these countries. Our indirect exposure to these countries totaled approximately $860 million of mortgage- and asset-backed securities composed of $146 million in Spain, $543 million in Italy, $102 million in Ireland and $69 million in Portugal as of December 31, 2014 . These mortgage- and asset-backed securities had an aggregate pre-tax net unrealized gain of approximately $118 million , composed of gross unrealized gains of $119 million and gross unrealized losses of $1 million as of December 31, 2014 . We recorded no other-than-temporary impairment on these mortgage- and asset-backed securities in our consolidated statement of income in 2014 . We recorded other-than-temporary impairment of $6 million on one of these securities in our consolidated statement of income in 2013 , all of which was associated with management's intent to sell an impaired security prior to its recovery in value.
Throughout the sovereign debt crisis, the major independent credit rating agencies have downgraded U.S. and non-U.S. financial institutions and sovereign issuers which have been, and may in the future be, significant counterparties to us, or whose financial
 
instruments serve as collateral on which we rely for credit risk mitigation purposes, and may do so again in the future. As a result, we may be exposed to increased counterparty risk, leading to negative ratings volatility.
Risk Management
General
In the normal course of our global business activities, we are exposed to a variety of risks, some inherent in the financial services industry, others more specific to our business activities. Our risk management framework focuses on material risks, which include the following:
•
credit and counterparty risk;
•
liquidity risk, funding and management;
•
operational risk;
•
market risk associated with our trading activities;
•
market risk associated with our non-trading activities, which we refer to as asset-and-
liability management, and which consists primarily of interest-rate risk; and
•
business risk, including reputational, fiduciary and business conduct risk.
Many of these risks, as well as certain of the factors underlying each of these risks that could affect our businesses and our consolidated financial statements, are discussed in detail under Item 1A, “Risk Factors,” included in this Form 10-K.
The scope of our business requires that we balance these risks with a comprehensive and well-integrated risk management function. The identification, assessment, monitoring, mitigation and reporting of risks are essential to our financial performance and successful management of our businesses. These risks, if not effectively managed, can result in losses to State Street as well as erosion of our capital and damage to our reputation. Our systematic approach allows for an assessment of risks within a framework for evaluating opportunities for the prudent use of capital that appropriately balances risk and return.
Our objective is to optimize our return while operating at a prudent level of risk. In support of this objective, we have instituted a risk appetite framework that aligns our business strategy and financial objectives with the level of risk that we are willing to incur.
Our risk management is based on the following major goals:
▪
A culture of risk awareness that extends across all of our business activities;
▪
The identification, classification and quantification of State Street's material risks;


78

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

▪
The establishment of our risk appetite and associated limits and policies, and our compliance with these limits;
▪
The establishment of a risk management structure at the “top of the house” that
enables the control and coordination of risk-taking across the business lines;
▪
The implementation of stress testing practices and a dynamic risk-assessment capability; and
▪
The overall flexibility to adapt to the ever-changing business and market conditions.
Our risk appetite framework outlines the quantitative limits and qualitative goals that define our risk appetite, as well as the responsibilities for measuring and monitoring risk against limits, and for reporting, escalating, approving and addressing exceptions. Our risk appetite framework is established by management with the guidance of Enterprise Risk Management, or ERM, a corporate risk oversight group, in conjunction with our Board of Directors. The Board formally reviews and approves our risk appetite statement annually.
The risk appetite framework describes the level and types of risk that we are willing to accommodate in executing our business strategy, and also serves as a guide in setting risk limits across our business units. In addition to our risk appetite framework, we use stress testing as another important tool in our risk management practice. Additional information with respect to our stress testing process and practices is provided under “Capital” in Management's Discussion and Analysis included under Item 7 in this Form 10-K.
Disclosures about our management of significant risks can be found on the following pages within this Form 10-K.
 
Governance and Structure
We have an approach to risk management that involves all levels of management, from the Board and its committees, including its Risk Committee, referred to as the RC, its Examining and Audit Committee, referred to as the E&A Committee, the Executive Compensation Committee, or ECC, and its Technology Committee, to each business unit and each employee. We allocate responsibility for risk oversight so that risk/return decisions are made at an appropriate level, and are subject to robust and effective review and challenge. Risk management is the responsibility of each employee, and is implemented through three lines of defense: the business units, which own and manage the risks inherent in their business, are considered the first line of defense; ERM and other support functions, such as Legal, Compliance, Finance and Vendor Management, provide the second line of defense; and Corporate Audit, which assesses the effectiveness of the first two lines of defense.
The responsibilities for effective review and challenge reside with senior managers, management oversight committees, Corporate Audit and, ultimately, the Board and its committees. While we believe that our risk management program is effective in managing the risks in our businesses, internal and external factors may create risks that cannot always be identified or anticipated.
Corporate-level risk committees provide focused oversight, and establish corporate standards and policies for specific risks, including credit, sovereign exposure, market, liquidity, operational information technology as well as new business products, regulatory compliance and ethics, vendor risk and model risks. These committees have been delegated the responsibility to develop recommendations and remediation strategies to address issues that affect or have the potential to affect State Street.
We maintain a risk governance committee structure which serves as the formal governance mechanism through which we seek to undertake the consistent identification, management and mitigation of various risks facing State Street in connection with its business activities. This governance structure is enhanced and integrated through multi-disciplinary involvement, particularly through ERM, as illustrated below.



79

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

 
Management Risk Governance Committee Structure
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Executive Management Committees:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Management Risk and Capital Committee
 
Business Conduct Risk Committee
 
Technology and Operational Risk Committee
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk Committees:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Asset-Liability Committee
 
Credit Risk and Policy Committee
 
Fiduciary Review Committee
 
Operational Risk Committee
 
 
Technology Risk Governance Committee
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Trading and Markets Risk Committee
 
Basel Oversight Committee
 
New Business and Product Committee
 
 
 
 
Executive Continuity Steering Committee
 
Executive Information Steering Committee
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Country Risk Committee
 
Securities Finance Risk Management Committee
 
Compliance and Ethics Committee
 
 
 
 
Vendor Management Steering Committee
 
Access Control Board
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Recovery and Resolution Planning Executive Steering Group
 
Model Risk Committee
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CCAR Steering Committee
 
 
 
 
 
 
 
 
 
 
 
Enterprise Risk Management
The goal of ERM is to ensure that risks are proactively identified, well-understood and prudently managed in support of our business strategy. ERM provides risk oversight, support and coordination to allow for the consistent identification, measurement and management of risks across business units separate from the business units' activities, and is responsible for the formulation and maintenance of corporate-wide risk management policies and guidelines. In addition, ERM establishes and reviews limits and, in collaboration with business unit management, monitors key risks. Ultimately, ERM works to validate that risk-taking occurs within the risk appetite statement approved by the Board and conforms to associated risk policies, limits and guidelines.
The Chief Risk Officer, or CRO, is responsible for State Street’s risk management globally, leads ERM and has a dual reporting line to State Street’s Chief Executive Officer and the Board’s RC. ERM
 
manages its responsibilities globally through a three-dimensional organization structure:
•
“Vertical” business unit-aligned risk groups that support business managers with risk management, measurement and monitoring activities;
•
“Horizontal” risk groups that monitor the risks that cross all of our business units (for example, credit and operational risk); and
•
Risk oversight for international activities, which adds important regional and legal entity perspectives to global vertical and horizontal risk management.
Sitting on top of this three-dimensional organization structure is a centralized group responsible for the aggregation of risk exposures across the vertical, horizontal and regional dimensions, for consolidated reporting, for setting the corporate-level risk appetite framework and


80

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

associated limits and policies, and for dynamic risk assessment across State Street.
Board Committees
The Board of Directors has four committees which assist it in discharging its responsibilities with respect to risk management: the Risk Committee, or RC, the Examining and Audit Committee, or the E&A Committee, the ECC, and the Technology Committee.
The RC is responsible for oversight related to the operation of our global risk management framework, including policies and procedures establishing risk management governance and processes, and risk control infrastructure for our global operations. The RC is responsible for reviewing and discussing with management our assessment and management of all risk applicable to our operations, including credit, market, interest rate, liquidity, operational and business risks, as well as compliance and reputational risk and related policies. In addition, the RC provides oversight on strategic capital governance principles and controls, and monitors capital adequacy in relation to risk. The RC is also responsible for discharging the duties and obligations of the Board under applicable Basel and other regulatory requirements.
The E&A Committee oversees the operation of our system of internal controls covering the integrity of our consolidated financial statements and reports, compliance with laws, regulations and corporate policies. The E&A Committee acts on behalf of the Board in monitoring and overseeing the performance of Corporate Audit and in reviewing certain communications with banking regulators. The E&A Committee has direct responsibility for the appointment, compensation, retention, evaluation and oversight of the work of our independent registered public accounting firm, including sole authority for the establishment of pre-approval policies and procedures for all audit engagements and any non-audit engagements.
The ECC has direct responsibility for the oversight of all compensation plans, policies, and programs of State Street in which executive officers participate and incentive, retirement, welfare as well as equity plans in which certain other employees of State Street participate. In addition, the ECC oversees the alignment of our incentive compensation arrangements with our safety and soundness, including the integration of risk management objectives, and related policies, arrangements and control processes, consistent with applicable related regulatory rules and guidance.
The Technology Committee leads and assists in the Board’s oversight of the role of technology in executing State Street’s strategy and supporting
 
State Street’s global business and operational requirements. The Technology Committee reviews the use of technology in our activities and operations, as well as significant technology and technology-related strategies, investments and policies. In addition, the Technology Committee reviews and approves technology and technology-related risk matters, including information and cyber security.
Executive Management Committees
The Management Risk and Capital Committee, referred to as MRAC, is the senior management decision-making body for risk and capital issues, and oversees our financial risks, our consolidated statement of condition, and our capital adequacy, liquidity and recovery and resolution planning. Its responsibilities include:
•
The approval of our risk appetite framework and top level risk limits and policies;
•
The monitoring and assessment of our capital adequacy based on regulatory requirements and internal policies; and
•
The ongoing monitoring and review of risks undertaken within the businesses, and our senior management oversight and approval of risk strategies and tactics.
MRAC, which is co-chaired by our CRO and CFO, regularly presents a report to the RC outlining developments in the risk environment and performance trends in our key business areas.
The Business Conduct Risk Committee, referred to as the BCRC, provides additional risk governance and leadership, by overseeing our business practices in terms of our compliance with law, regulation and our standards of business conduct, our commitments to clients and others with whom we do business, and potential reputational risks. Management considers adherence to high ethical standards to be critical to the success of our business and to our reputation. The BCRC is co-chaired by our CRO and our Chief Legal Officer.
The Technology and Operational Risk Committee, referred to as TORC, oversees and assesses the effectiveness of corporate-wide technology and operational risk management programs, to manage and control technology and operational risk consistently across the organization. TORC is co-chaired by our Vice Chairman and our Head of Global Operations and Technology. TORC may meet jointly with MRAC periodically to review or approve common areas of interest such as risk frameworks and policies.
Risk Committees
The following risk committees, under the oversight of the respective executive management


81

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

committees, have focused responsibilities for oversight of specific areas of risk management:
MRAC
•
The Asset-Liability Committee, referred to as ALCO, oversees the management of our consolidated statement of condition and the management of our global liquidity, our interest-rate risk, and our non-traded market risk positions, as well as the business activities of our Global Treasury group and the risks associated with the generation of net interest revenue and overall balance sheet management. ALCO’s roles and responsibilities are designed to work complementary to, and be coordinated with, MRAC, which approves our corporate risk appetite and associated balance sheet strategy;
•
The Credit Risk and Policy Committee has primary responsibility for the oversight and review of credit and counterparty risk across business units, as well as oversight, review and approval of the credit risk policies and guidelines; the Committee consists of senior executives within ERM, including the CRO, and reviews policies and guidelines related to all aspects of our business which give rise to credit risk; our business units are also represented on the Credit Risk and Policy Committee; credit risk policies and guidelines are reviewed periodically, but at least annually;
•
The Trading and Markets Risk Committee, referred to as the TMRC, reviews the effectiveness of, and approves, the market risk framework at least annually; it is the senior oversight and decision-making committee for risk management within our global markets and trading-and-clearing businesses; the TMRC is responsible for the formulation of guidelines, strategies and workflows with respect to the measurement, monitoring and control of our trading market risk, and also approves market risk tolerance limits and dealing authorities; the TMRC meets regularly to monitor the management of our trading market risk activities;
•
The Basel Oversight Committee provides oversight and governance over Basel related regulatory requirements, assesses compliance with respect to Basel regulations and approves all material methodologies and changes, policies and reporting;
•
The Country Risk Committee oversees the identification, assessment, monitoring,
 
reporting and mitigation, where necessary, of country risks;
•
The Securities Finance Risk Management Committee oversees the risks in our securities finance business, including collateral and margin policies;
•
The Recovery and Resolution Planning Executive Steering Group oversees the development of recovery and resolution plans as required by banking regulators;
•
The Model Risk Committee, referred to as the MRC, monitors the overall level of model risk and provides oversight of the model governance process pertaining to financial models, including the validation of key models and the ongoing monitoring of model performance. The MRC may also, as appropriate, mandate remedial actions and compensating controls to be applied to models to address modeling deficiencies as well as other issues identified; and
•
The CCAR Steering Committee provides primary supervision of the stress tests performed in conformity with the Federal Reserve's CCAR process and the Dodd-Frank Act, and is responsible for the overall management, review, and approval of all material assumptions, methodologies, and results of each stress scenario.
BCRC
•
The Fiduciary Review Committee reviews and assesses the risk management programs of those units in which we serve in a fiduciary capacity;
•
The New Business and Product Committee provides oversight of the evaluation of the risk inherent in proposed new products or services and new business, and extensions of existing products or services, evaluations including economic justification, material risk, compliance, regulatory and legal considerations, and capital and liquidity analyses; and
•
The Compliance and Ethics Committee provides review and oversight of our compliance programs, including its culture of compliance and high standards of ethical behavior.
TORC
•
The Technology Risk Governance Committee provides regular reporting to TORC and escalates technology risk issues to TORC, as appropriate;


82

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

•
The Executive Continuity Steering Committee reviews overall business continuity program performance, provides for executive accountability for compliance with the business continuity program and standards, and reviews and approves major changes or exceptions to program policy and standards;
•
The Executive Information Steering Committee is responsible for managing the Enterprise Information Security posture and program, provides enterprise-wide oversight of the Information Security Program to provide that controls are measured and managed, and serves as an escalation point for issues identified during the execution of information technology activities and risk mitigation;
•
The Vendor Management Steering Committee provides oversight over the vendor management program, approves policies, and serves as an escalation path for program compliance exceptions;
•
The Access Control Board establishes and provides appropriate governance and controls over our access control security framework; and
•
The Operational Risk Committee, which functions under the oversight of both the BCRC and TORC, provides cross-business oversight of operational risk and reviews and approves operational risk guidelines that implement the corporate operational risk policy; these guidelines and other operational risk methodologies are used to identify, measure, manage and control operational risk in a consistent manner across State Street.
Credit Risk Management
Core Policies and Principles
We define credit risk as the risk of financial loss if a counterparty, borrower or obligor, collectively referred to as counterparty, is either unable or unwilling to repay borrowings or settle a transaction in accordance with underlying contractual terms. We assume credit risk in our traditional non-trading lending activities, such as loans and contingent commitments, in our investment securities portfolio, where recourse to a counterparty exists, and in our direct and indirect trading activities, such as principal securities lending and foreign exchange and indemnified agency securities lending. We also assume credit risk in our day-to-day treasury and securities and other settlement operations, in the form of deposit placements and other cash balances, with central banks or private sector institutions.     
 
We distinguish between three major types of credit risk:
▪
Default risk - the risk that a counterparty fails to meet its contractual payment obligations;
▪
Country risk - the risk that we may suffer a loss, in any given country, due to any of the following reasons: deterioration of economic conditions, political and social upheaval, nationalization and appropriation of assets, government repudiation of indebtedness, exchange controls, and disruptive currency depreciation or devaluation; and
▪
Settlement risk - the risk that the settlement or clearance of transactions will fail, which arises whenever the exchange of cash, securities and/or other assets is not simultaneous.
The acceptance of credit risk is governed by corporate policies and guidelines, which include standardized procedures applied across the entire organization. These policies and guidelines include specific requirements related to each counterparty's risk profile; the markets served; counterparty, industry and country concentrations; and regulatory compliance. These policies and procedures also implement a number of core principles, which include the following:
•
We measure and consolidate all credit risks to each counterparty, or group of counterparties, in accordance with a “one-obligor” principle that aggregates risks across all of our business units;
•
ERM reviews and approves all extensions of credit, or material changes to extensions of credit (such as changes in term, collateral structure or covenants), in accordance with assigned credit-approval authorities;
•
Credit-approval authorities are assigned to individuals according to their qualifications, experience and training, and these authorities are periodically reviewed. Our largest exposures require approval by the Credit Committee, a sub-committee of the Credit Risk and Policy Committee. With respect to small and low-risk extensions of credit to certain types of counterparties, approval authority is granted to individuals outside of ERM;
•
We seek to avoid or limit undue concentrations of risk. Counterparty (or groups of counterparties), industry, country and product-specific concentrations of risk are subject to frequent review and approval in accordance with our risk appetite;


83

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

•
We determine the creditworthiness of all counterparties through a detailed risk assessment, including the use of comprehensive internal risk-rating methodologies;
•
We review all extensions of credit and the creditworthiness of all counterparties at least annually. The nature and extent of these reviews are determined by the size, nature and term of the extensions of credit and the creditworthiness of the counterparty; and
•
We subject all core policies and principles to annual review as an integral part of our periodic assessment of our risk appetite.
Our corporate policies and guidelines require that the business units which engage in activities that give rise to credit and counterparty risk comply with procedures that promote the extension of credit for legitimate business purposes; are consistent with the maintenance of proper credit standards; limit credit-related losses; and are consistent with our goal of maintaining a strong financial condition.
Structure and Organization
The Credit Risk Management group, an integral part of ERM, is responsible for the assessment, approval and monitoring of all types of credit risk across State Street. The group is managed centrally, and has dedicated teams in a number of locations worldwide, across our businesses. The Credit Risk Management group is responsible for all requisite policies and procedures, and for our advanced internal credit-rating systems and methodologies. In addition, the group, in conjunction with the appropriate business units, establishes appropriate measurements and limits to control the amount of credit risk accepted across its various business activities, both at the portfolio level and for each individual counterparty or group of counterparties, to individual industries, and also to counterparties by product and country of risk. These measurements and limits are reviewed periodically, but at least annually.
In conjunction with other groups in ERM, Credit Risk Management is jointly responsible for the design, implementation and oversight of our credit risk measurement and management systems, including data and assessment systems, quantification systems and the reporting framework.
Various key committees within State Street are responsible for the oversight of credit risk and associated credit risk policies, systems and models. All credit-related activities are governed by our risk appetite framework and our credit risk guidelines, which define our general philosophy with respect to
 
credit risk and the manner in which we control, manage and monitor such risks.
The previously described Credit Risk and Policy Committee (refer to "Risk Committees" in this Management's Discussion and Analysis) has primary responsibility for the oversight, review and approval of the credit risk guidelines and policies. Credit risk guidelines and policies are reviewed periodically, but at least annually.
The Credit Committee, a sub-committee of the Credit Risk and Policy Committee, has responsibility for assigning credit authority and approving the largest and higher-risk extensions of credit to individual counterparties or groups of counterparties.
Both the Credit Risk and Policy Committee and the Credit Committee provide periodic updates to MRAC and the Board's RC.
Credit Ratings
We seek to limit credit risk arising from transactions with our counterparties by performing initial and ongoing due diligence on their creditworthiness when conducting any business with them or approving any credit limits.
This due diligence process includes the assignment of an internal credit rating, which is determined by the use of internally developed and validated methodologies, scorecards and a 15-grade rating scale. This risk-rating process incorporates the use of risk-rating tools in conjunction with management judgment; qualitative and quantitative inputs are captured in a replicable manner and, following a formal review and approval process, an internal credit rating based on our rating scale is assigned. All credit ratings are reviewed and approved by the Credit Risk Management group or designees within ERM. To facilitate comparability across the portfolio, counterparties within a given sector are rated using a risk-rating tool developed for that sector.
All risk-rating methodologies are approved by the Credit Risk and Policy Committee, after completion of internal model validation processes, and are subject to an annual review, including re-validation.
We generally rate our counterparties individually, although certain portfolios defined by us as low-risk are rated on a pooled basis. We evaluate and rate the credit risk of our counterparties on an ongoing basis.
Risk Parameter Estimates
Our internal risk-rating system promotes a clear and consistent approach to the determination of appropriate credit risk classifications for all of our credit counterparties and exposures, tracking the


84

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

changes in risk associated with these counterparties and exposures over time. This capability enhances our ability to more accurately calculate both risk exposures and capital, enabling better strategic decision making across the organization.
We use credit risk parameter estimates for the following purposes:
•
The assessment of the creditworthiness of new counterparties and, in conjunction with our risk appetite statement, the development of appropriate credit limits for all products and services, including loans, foreign exchange, securities finance, placements and repurchase agreements;
•
The use of an automated process for limit approvals for certain low-risk counterparties, as defined in our credit risk guidelines, based on the counterparty’s probability-of-default, or PD, rating class;
•
The development of approval authority matrices based on PD; riskier counterparties with higher ratings require higher levels of approval for a comparable PD and limit size compared to less risky counterparties with lower ratings;
•
The analysis of risk concentration trends using historical PD and exposure-at-default, or EAD, data;
•
The standardization of rating integrity testing by the Global Counterparty Review group using rating parameters;
•
The determination of the level of management review of short-duration advances depending on PD; riskier counterparties with higher rating class values generally trigger higher levels of management escalation for comparable short-duration advances compared to less risky counterparties with lower rating-class values;
•
The monitoring of credit facility utilization levels using EAD values and the identification of instances where counterparties have exceeded limits;
•
The aggregation and comparison of counterparty exposures with risk appetite levels to determine if businesses are maintaining appropriate risk levels; and
•
The determination of our regulatory capital requirements for the advanced internal ratings-based approach provided in the Basel framework.
Credit Risk Mitigation
 
We seek to limit our credit exposure and reduce our potential credit losses through various types of risk mitigation. In our day-to-day management of credit risks, we utilize and recognize the following types of risk mitigation.
•
Collateral. In many parts of our business, we regularly require or agree for collateral to be received from or provided to clients and counterparties in connection with contracts that incur credit risk. In our trading businesses, this collateral is typically in the form of cash and securities (government securities and other bonds or equity securities). Credit risks in our non-trading and securities finance businesses are also often secured by bonds and equity securities and by other types of assets. In all instances, collateral serves to reduce the risk of loss inherent in an exposure by improving the prospect of recovery in the event of a counterparty default. While collateral is often an alternative source of repayment, it generally does not replace the requirement within our policies and guidelines for high-quality underwriting standards.
Our credit risk guidelines require that the collateral we accept for risk mitigation purposes is of high quality, can be reliably valued and can be liquidated if or when required. Generally, when collateral is of lower quality, more difficult to value or more challenging to liquidate, higher discounts to market values are applied for the purposes of measuring credit risk. For certain less liquid collateral, longer liquidation periods are assumed when determining the credit exposure.
All types of collateral are assessed regularly by ERM, as is the basis on which the collateral is valued. Our assessment of collateral, including the ability to liquidate collateral in the event of a counterparty default, is an integral component of our assessment of risk and approval of credit limits. We also seek to identify, limit and monitor instances of "wrong-way" risk, where a counterparty’s risk of default is positively correlated with the risk of our collateral eroding in value.
We maintain policies and procedures requiring that all documentation used to collateralize a transaction is legal, valid, binding and enforceable in the relevant jurisdictions. We also conduct legal reviews to assess whether our documentation meets these standards on an ongoing basis.
•
Netting. Netting is a mechanism that allows institutions and counterparties to net offsetting exposures and payment obligations against one another through the


85

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

use of qualifying master netting agreements. A master netting agreement allows the netting of rights and obligations arising under derivative or other transactions that have been entered into under such an agreement upon the counterparty’s default, resulting in a single net claim owed by, or to, the counterparty. This is commonly referred to as "close-out netting,” and is pursued wherever possible. We may also enter into master agreements that allow for the netting of amounts payable on a given day and in the same currency, reducing our settlement risk. This is commonly referred to as “payment netting,” and is widely used in our foreign exchange activities.
As with collateral, we have policies and procedures in place to apply close-out and payment netting only to the extent that we have verified legal validity and enforceability of the master agreement. In the case of payment netting, operational constraints with our counterparties may preclude us from reducing settlement risk, notwithstanding the legal right to require the same under the master netting agreement.
Generally, given the nature of our operations and our risk profile, we do not employ risk mitigation in the form of guarantees and credit derivatives as extensively as traditional commercial and investment banks. Accordingly, while we may benefit from third-party guarantees in some instances, we do not currently recognize the full potential benefit of related risk reduction in our measurement or risk-weighting of our credit exposure. We have established systematic processes to allow only eligible collateral and permitted netting, as defined in the Basel framework, to be recognized in our measurement of credit risk.
Credit Limits
Central to our philosophy for our management of credit risk is the approval and imposition of credit limits, against which we monitor the actual and potential future credit exposure arising from our business activities with counterparties or groups of counterparties. Credit limits are a reflection of our risk appetite, which may be determined by the creditworthiness of the counterparty, the nature of the risk inherent in the business undertaken with the counterparty, or a combination of relevant credit factors. Our risk appetite for certain sectors and certain countries and geographic regions may also influence the level of risk we are willing to assume to certain counterparties.
The analysis and approval of credit limits is undertaken in a consistent manner across all of our businesses, although the nature and extent of the analysis may vary, based on the type, term and
 
magnitude of the risk being assumed. Credit limits and underlying trading-related exposures are assessed and measured on both a gross and net basis, with net exposure determined by deducting the value of collateral. In nearly all instances, credit limit approvals, for all our business units and products, are undertaken by the Credit Risk Management group, by individuals to whom credit authority has been delegated, or by the Credit Committee.
Credit limits are re-evaluated annually, or more frequently as needed, and are revised periodically on prevailing and anticipated market conditions, changes in counterparty or country-specific credit ratings and outlook, changes in our risk appetite for certain counterparties, sectors or countries, and enhancements to the measurement of credit utilization.
Reporting
Ongoing active monitoring and management of our credit risk is an integral part of our credit risk management framework. We maintain management information systems to identify, measure, monitor and report credit risk across businesses and legal entities, enabling ERM and our businesses to have timely access to accurate information on all credit limits and exposures. Monitoring is performed along the dimensions of counterparty, industry, country and product-specific risks to facilitate the identification of concentrations of risk and emerging trends.
Key aspects of this credit risk reporting structure include governance and oversight groups, policies that define standards for the reporting of credit risk, data aggregation and sourcing systems, and separate testing of relevant risk reporting functions by Corporate Audit.
The Credit Portfolio Management group routinely assesses the composition of our overall credit risk portfolio for alignment with our stated risk appetite. This assessment includes routine analysis and reporting of the portfolio, monitoring of market-based indicators, the assessment of industry trends and developments, and regular reviews of concentrated risks. The Credit Portfolio Management group is also responsible, in conjunction with the business units, for defining the appetite for credit risk in the major sectors in which we have a concentration of business activities. These sector-level risk appetite statements, which include counterparty selection criteria and granular underwriting guidelines, are reviewed periodically and approved by the Credit Risk and Policy Committee.
Monitoring
Regular surveillance of credit and counterparty risks is undertaken by our business units, the Credit Risk Management group and designees with ERM,


86

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

allowing for frequent and extensive oversight. This surveillance process includes, but is not limited to, the following components:
•
Annual Reviews. A formal review is conducted at least annually on all counterparties, and includes a thorough review of operating performance, primary risk factors and our internal credit risk rating. This annual review also includes a review of current and proposed credit limits, an assessment of our ongoing risk appetite and verification that supporting legal documentation remains effective.
•
Interim Monitoring. Periodic monitoring of our largest and riskiest counterparties is undertaken more frequently, utilizing financial information, market indicators and other relevant credit and performance measures. The nature and extent of this interim monitoring is individually tailored to certain counterparties and/or industry sectors to identify material changes to the risk profile of a counterparty (or group of counterparties) and assign an updated internal risk rating in a timely manner.
We maintain an active "watch list" for all counterparties where we have identified a concern that the actual or potential risk of default has increased. The watch-list status denotes a concern with some aspect of a counterparty's risk profile that warrants closer monitoring of the counterparty's financial performance and related risk factors. Our ongoing monitoring processes are designed to facilitate the early identification of counterparties whose creditworthiness is deteriorating; any counterparty may be placed on the watch list by ERM at its sole discretion.
Counterparties that receive an internal risk rating within a certain range on our rating scale are eligible for watch list designation. These risk ratings generally correspond with the non-investment grade or near non-investment grade ratings established by the major independent credit-rating agencies, and also include the regulatory classifications of “Special Mention,” “Substandard,” “Doubtful” and “Loss.” Counterparties whose internal ratings are outside this range may also be placed on the watch list.
The Global Credit Review group, referred to as GCR, maintains primary responsibility for our watch list processes, and generates a monthly report of all watch list counterparties. The watch list is reviewed monthly in recurring meetings conducted by GCR with participation from the business units, senior ERM staff, and representatives from our corporate finance and legal groups as appropriate. These meetings include a review of all individual watch list
 
counterparties, together with credit limits and prevailing exposures, and are focused on actions to contain, reduce or eliminate the risk of loss to State Street. Identified actions are documented and monitored.
Controls
GCR provides a separate level of surveillance and oversight over the integrity of our internal risk-rating system, by providing a separate review of all ratings processes. As a critical function, GCR is subject to oversight by the Credit Risk and Policy Committee, and provides periodic updates to the Board’s RC. GCR reviews all counterparty credit ratings for all sectors on an ongoing basis.
Specific activities of GCR include the following:
•
Separate and objective assessments of our credit and counterparty exposures to determine the nature and extent of risk undertaken by the business units;
•
Periodic business unit reviews, focusing on the assessment of credit analysis, policy compliance, prudent transaction structure and underwriting standards, administration and documentation, risk-rating integrity, and relevant trends;
•
Identification and monitoring of developing counterparty, market and/or industry sector trends to limit risk of loss and protect capital;
•
Regular and formal reporting of reviews, including findings and requisite actions to remedy identified deficiencies;
•
Allocation of resources for specialized risk assessments (on an as-needed basis);
•
Assessment of the appropriate level of the allowance for loan and lease losses; and
•
Liaison with auditors and regulatory personnel on matters relating to risk rating, reporting, and measurement.
Reserve for Credit Losses
We maintain an allowance for loan losses to support our on-balance sheet credit exposures. We also maintain a reserve for unfunded commitments and letters of credit to support our off-balance credit exposure. The two components together represent the reserve for credit losses. Review and evaluation of the adequacy of the reserve for credit losses is ongoing throughout the year, but occurs at least quarterly, and is based, among other factors, on our evaluation of the level of risk in the portfolio, the volume of adversely classified loans, previous loss experience, current trends, and economic conditions and their effect on our counterparties. Additional information about the allowance for loan losses is


87

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

provided in note 4 to the consolidated financial statements included under Item 8 of this Form 10-K.
Liquidity Risk Management
Liquidity risk is defined as the potential that our financial condition or overall viability could be adversely affected by an actual or perceived inability to meet cash and collateral obligations. The goal of liquidity risk management is to maintain, even in the event of stress, our ability to meet our cash and collateral obligations.
Liquidity is managed to meet our financial obligations in a timely and cost-effective manner, as well as maintain sufficient flexibility to fund strategic corporate initiatives as they arise. Our effective management of liquidity involves the assessment of the potential mismatch between the future cash demands of our clients and our available sources of cash under both normal and adverse economic and business conditions.
We manage our liquidity on a global, consolidated basis. We also manage liquidity on a stand-alone basis at the parent company, as well as at certain branches and subsidiaries of State Street Bank. State Street Bank generally has access to markets and funding sources limited to banks, such as the federal funds market and the Federal Reserve's discount window. Our parent company is managed to a more conservative liquidity profile, reflecting narrower market access. Our parent company typically holds enough cash, primarily in the form of overnight interest-bearing deposits with its banking subsidiaries, to meet its current debt maturities and cash needs, as well as those projected over the next one-year period. As of December 31, 2014 , the value of the parent company's net liquid assets totaled $6.03 billion , compared with $4.42 billion as of December 31, 2013 .
Based on our level of consolidated liquid assets and our ability to access the capital markets for additional funding when necessary, including our ability to issue debt and equity securities under our current universal shelf registration, management considers our overall liquidity as of December 31, 2014 to be sufficient to meet its current commitments and business needs, including accommodating the transaction and cash management needs of its clients.
Governance
Global Treasury is responsible for our management of liquidity. This includes the day-to-day management of our global liquidity position, the development and monitoring of early warning indicators, key liquidity risk metrics, the creation and execution of stress tests, the evaluation and implementation of regulatory requirements, the
 
maintenance and execution of our liquidity guidelines and contingency funding plan, and routine management reporting to ALCO, MRAC and the Board's RC.
Global Treasury Risk Management, part of ERM, provides separate oversight over the identification, communication, and management of Global Treasury’s risks in support of our business strategy. Global Treasury Risk Management reports to the CRO. Global Treasury Risk Management’s responsibilities relative to liquidity risk management include the development and review of policies and guidelines; the monitoring of limits related to adherence to the liquidity risk guidelines and associated reporting.
Liquidity Framework
Our liquidity framework contemplates areas of potential risk based on our activities, size, and other appropriate risk-related factors. In managing liquidity risk we employ limits, maintain established metrics and early warning indicators, and perform routine stress testing to identify potential liquidity needs. This process involves the evaluation of a combination of internal and external scenarios which assist us in measuring our liquidity position and in identifying potential increases in cash needs or decreases in available sources of cash, as well as the potential impairment of our ability to access the global capital markets.
We manage liquidity according to several principles that are equally important to our overall liquidity risk management framework:
•
Structural liquidity management addresses liquidity by monitoring and directing the composition of our consolidated statement of condition. Structural liquidity is measured by metrics such as the percentage of total wholesale funds to consolidated total assets, and the percentage of non-government investment securities to client deposits. In addition, on a regular basis and as described below, our structural liquidity is evaluated under various stress scenarios.
•
Tactical liquidity management addresses our day-to-day funding requirements and is largely driven by changes in our primary source of funding, which are client deposits. Fluctuations in client deposits may be supplemented with short-term borrowings, which generally include commercial paper and certificates of deposit.
•
Stress testing and contingent funding planning are longer-term strategic liquidity risk management practices. Regular and ad hoc liquidity stress testing are performed


88

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

under various severe but plausible scenarios at the consolidated level and at significant subsidiaries, including State Street Bank. These tests contemplate severe market and State Street-specific events under various time horizons and severities. Tests contemplate the impact of material changes in key funding sources, credit ratings, additional collateral requirements, contingent uses of funding, systemic shocks to the financial markets, and operational failures based on market and State Street-specific assumptions. The stress tests evaluate the required level of funding versus available sources in an adverse environment. As stress testing contemplates potential forward-looking scenarios, results also serve as a trigger to activate specific liquidity stress levels and contingent funding actions.
Contingency Funding Plans, or CFPs, are designed to assist senior management with decision-making associated with any contingency funding response to a possible or actual crisis scenario. The CFPs define roles, responsibilities and management actions to be taken in the event of deterioration of our liquidity profile caused by either a State Street-specific event or a broader disruption in the capital markets. Specific actions are linked to the level of stress indicated by these measures or by management judgment of market conditions.
Liquidity Risk Metrics
In managing our liquidity, we employ early warning indicators and metrics. Early warning indicators are intended to detect situations which may result in a liquidity stress, including changes in our common stock price and the spread on our long-term debt. Additional metrics that are critical to the management of our consolidated statement of condition and monitored as part of our routine liquidity management include measures of our fungible cash position, purchased wholesale funds, unencumbered liquid assets, deposits, and the total of investment securities and loans as a percentage of total client deposits.
Asset Liquidity
Central to the management of our liquidity is asset liquidity, which generally consists of unencumbered highly liquid securities, cash and cash equivalents carried in our consolidated statement of condition. We restrict the eligibility of securities of asset liquidity to U.S. Government and federal agency securities (including mortgage-backed securities), selected non-U.S. Government and supranational securities as well as certain other high- quality securities which generally are more liquid than other types of assets even in times of stress. Our
 
asset liquidity metric is similar to the high-quality liquid assets under the U.S. liquidity coverage ratio, and for comparison purposes our high-quality liquid assets, under the LCR final rule definition, are estimated to be $115.56 billion as of December 31, 2014 .
TABLE 32: COMPONENTS OF ASSET LIQUIDITY
(In millions)
 
December 31, 2014
 
December 31, 2013
Asset Liquidity:
 
 
 
 
Highly liquid short-term investments (1)
 
$
93,523

 
$
64,257

Investment securities
 
26,670

 
22,322

Total
 
$
120,193

 
$
86,579

 
 
 
 
 
 
 
Twelve Months Ended December 31,
(In millions)
 
2014
 
2013
Average Asset Liquidity:
 
 
 
 
Highly liquid short-term investments (1)
 
$
55,229

 
$
28,946

Investment securities
 
23,577

 
22,032

Total
 
$
78,806

 
$
50,978

 
 
 
(1) Composed of interest-bearing deposits with banks.
With respect to highly liquid short-term investments presented in the preceding table, due to the continued elevated level of client deposits as of December 31, 2014 , we maintained cash balances in excess of regulatory requirements governing deposits with the Federal Reserve of approximately $83.40 billion at the Federal Reserve, the ECB and other non-U.S. central banks, compared to $51.03 billion as of December 31, 2013 . The increase in investment securities as of December 31, 2014 compared to December 31, 2013 , presented in the table, was mainly associated with our repositioning of the investment portfolio in light of the liquidity requirements of the LCR.
Liquid securities carried in our asset liquidity include securities pledged without corresponding advances from the Federal Reserve Bank of Boston, or FRB, the Federal Home Loan Bank of Boston, or FHLB, and other non-U.S. central banks. State Street Bank is a member of the FHLB. This membership allows for advances of liquidity in varying terms against high-quality collateral, which helps facilitate asset-and-liability management.
Access to primary, intra-day and contingent liquidity provided by these utilities is an important source of contingent liquidity with utilization subject to underlying conditions. As of December 31, 2014 and 2013 , we had no outstanding primary credit borrowings from the FRB discount window or any other central bank facility, and as of the same dates, no FHLB advances were outstanding.


89

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

In addition to the securities included in our asset liquidity, we have significant amounts of other high-quality, unencumbered investment securities. The aggregate fair value of those securities was $60.06 billion as of December 31, 2014 , compared to $66.16 billion as of December 31, 2013 . These securities are available sources of liquidity, although not as rapidly deployed as those included in our asset liquidity.
Liquidity Coverage Ratio
On September 3, 2014, U.S. banking regulators issued a final rule to implement the Basel Committee's LCR in the U.S. The LCR is intended to promote the short-term resilience of internationally active banking organizations, like State Street, to improve the banking industry's ability to absorb shocks arising from idiosyncratic or market stress, and improve the measurement and management of liquidity risk.
The LCR measures an institution’s high-quality liquid assets, or HQLA, against its net cash outflows. The LCR will be phased in, beginning on January 1, 2015, at 80%, with full implementation beginning on January 1, 2017.
Beginning with January 2015, State Street is required to report its LCR to the Federal Reserve on a monthly basis. Daily reporting of the LCR to the Federal Reserve will be required beginning with July 2015.
The LCR final rule is largely similar to the proposed rule issued by U.S. banking regulators in October 2013; however, the final rule contains several changes and clarifications, including revisions to the definition of operational deposits and more favorable foreign exchange netting treatment, both of which we expect to benefit our LCR ratio, and the exclusion as operational deposits of deposits from non-regulated funds, which we expect to negatively affect our LCR ratio.
Compliance with the LCR has required that we maintain an investment portfolio that contains an adequate amount of HQLA. In general, HQLA investments generate a lower investment return than other the types of investments, resulting in a negative impact on our net interest revenue and our net interest margin.  In addition, the level of HQLA we are required to maintain under the LCR is dependent upon our client relationships and the nature of services we provide, which may change over time.  For example, if the percentage of our operational deposits relative to non-operational deposits increases, we would expect to require less HQLA in order to maintain our LCR.  Conversely, if the percentage of non-operational deposits increases relative to our operational deposits, we would expect
 
to require additional HQLA in order to maintain our LCR.
Net Stable Funding Ratio
In October 2014, the Basel Committee issued final guidance with respect to the Net Stable Funding Ratio, or NSFR. The NSFR will require banking organizations to maintain a stable funding profile relative to the composition of their assets and off-balance sheet activities. The NSFR limits over-reliance on short-term wholesale funding, encourages better assessment of funding risk across all on- and off-balance sheet exposures, and promotes funding stability. The final guidance establishes a one-year liquidity standard representing the proportion of long-term assets funded by long-term stable funding, with the NSFR scheduled to become a minimum standard beginning on January 1, 2018.  
We are reviewing the specifics of the final guidance and will evaluate the U.S. implementation of this standard to analyze the impact and develop strategies for compliance. U.S. banking regulators have not yet issued a proposal to implement the NSFR.
Uses of Liquidity
Significant uses of our liquidity could result from the following: withdrawals of client deposits; draw-downs of unfunded commitments to extend credit or to purchase securities, generally provided through lines of credit; and short-duration advance facilities. Such circumstances would generally arise under stress conditions including deterioration in credit ratings. We had unfunded commitments to extend credit with gross contractual amounts totaling $24.25 billion and $21.30 billion as of December 31, 2014 and 2013 , respectively. These amounts do not reflect the value of any collateral. As of December 31, 2014 , approximately 76% of our unfunded commitments to extend credit expire within one year. Since many of our commitments are expected to expire or renew without being drawn upon, the gross contractual amounts do not necessarily represent our future cash requirements.


90

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

Funding
Deposits:
We provide products and services including custody, accounting, administration, daily pricing, foreign exchange services, cash management, financial asset management, securities finance and investment advisory services. As a provider of these products and services, we generate client deposits, which have generally provided a stable, low-cost source of funds. As a global custodian, clients place deposits with State Street entities in various currencies. We invest these client deposits in a combination of investment securities and short-duration financial instruments whose mix is determined by the characteristics of the deposits.
For the past several years, we have experienced higher client deposit inflows toward the end of the quarter or the end of the year. As a result, we believe average client deposit balances are more reflective of ongoing funding than period-end balances.
TABLE 33: CLIENT DEPOSITS
 
 
 
Average Balance
 
December 31,
 
Year Ended December 31,
(In millions)
2014
 
2013
 
2014
 
2013
Client deposits (1)
$
195,276

 
$
182,268

 
$
167,470

 
$
143,043

 
 
 
 
(1) Balance as of December 31, 2014 excluded term wholesale certificates of deposit, or CDs, of $13.76 billion ; average balances for the year ended December 31, 2014 and 2013 excluded average CDs of $6.87 billion and $2.50 billion , respectively .
Short-Term Funding:
Our corporate commercial paper program, under which we can issue up to $3.0 billion of commercial paper with original maturities of up to 270 days from the date of issuance, had $2.48 billion and $1.82 billion of commercial paper outstanding as of December 31, 2014 and 2013 , respectively.
Our on-balance sheet liquid assets are also an integral component of our liquidity management strategy. These assets provide liquidity through maturities of the assets, but more importantly, they provide us with the ability to raise funds by pledging the securities as collateral for borrowings or through outright sales. In addition, our access to the global capital markets gives us the ability to source incremental funding at reasonable rates of interest from wholesale investors. As discussed earlier under “Asset Liquidity,” State Street Bank's membership in the FHLB allows for advances of liquidity with varying terms against high-quality collateral.
Short-term secured funding also comes in the form of securities lent or sold under agreements to repurchase. These transactions are short-term in
 
nature, generally overnight, and are collateralized by high-quality investment securities. These balances were $8.93 billion and $7.95 billion as of December 31, 2014 and 2013 , respectively.
State Street Bank currently maintains a line of credit with a financial institution of CAD $800 million , or approximately $690 million as of December 31, 2014 , to support its Canadian securities processing operations. The line of credit has no stated termination date and is cancelable by either party with prior notice. As of December 31, 2014 , there was no balance outstanding on this line of credit.
Long-Term Funding:
As of December 31, 2014 , State Street Bank had Board authority to issue unsecured senior debt securities from time to time, provided that the aggregate principal amount of such unsecured senior debt outstanding at any one time does not exceed $5 billion . As of December 31, 2014 , $4.1 billion was available for issuance pursuant to this authority. As of December 31, 2014 , State Street Bank also had Board authority to issue an additional $500 million of subordinated debt.
We maintain an effective universal shelf registration that allows for the public offering and sale of debt securities, capital securities, common stock, depositary shares and preferred stock, and warrants to purchase such securities, including any shares into which the preferred stock and depositary shares may be convertible, or any combination thereof. We have issued in the past, and we may issue in the future, securities pursuant to our shelf registration. The issuance of debt or equity securities will depend on future market conditions, funding needs and other factors.
Agency Credit Ratings
Our ability to maintain consistent access to liquidity is fostered by the maintenance of high investment-grade ratings as measured by the major independent credit rating agencies. Factors essential to maintaining high credit ratings include diverse and stable core earnings; relative market position; strong risk management; strong capital ratios; diverse liquidity sources, including the global capital markets and client deposits; strong liquidity monitoring procedures; and preparedness for current or future regulatory developments. High ratings limit borrowing costs and enhance our liquidity by providing assurance for unsecured funding and depositors, increasing the potential market for our debt and improving our ability to offer products, serve markets, and engage in transactions in which clients value high credit ratings. A downgrade or reduction of our credit ratings could have a material adverse effect on our liquidity by restricting our ability to access the capital


91

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

markets, which could increase the related cost of funds. In turn, this could cause the sudden and large-scale withdrawal of unsecured deposits by our clients, which could lead to draw-downs of unfunded commitments to extend credit or trigger requirements under securities purchase commitments; or require additional collateral or force terminations of certain trading derivative contracts.
A majority of our derivative contracts have been entered into under bilateral agreements with counterparties who may require us to post collateral or terminate the transactions based on changes in our credit ratings. We assess the impact of these arrangements by determining the collateral or termination payments that would be required assuming a downgrade by all rating agencies. The following table presents the additional collateral or termination payments related to our net derivative liabilities under these arrangements that could have been called as of the dates indicated by counterparties in the event of a one-notch or two-notch downgrade in our credit ratings. Other funding sources, such as secured financing transactions and other margin requirements, for which there are no explicit triggers, could also be adversely affected.
TABLE 34: ADDITIONAL COLLATERAL OR TERMINATION PAYMENTS RELATED TO NET DERIVATIVE LIABILITIES
(In millions)
December 31, 2014
 
December 31, 2013
Additional collateral or termination payments for a one- or two-notch downgrade
$
19

 
$
7

 
TABLE 35: CREDIT RATINGS
 
As of February 20, 2015
 
Standard &
Poor’s
 
Moody’s
Investors
Service
 
Fitch
 
Dominion Bond Rating Service
State Street:
 
 
 
 
 
 
Short-term commercial paper
A-1
 
P-1
 
F1+
 
R-1 (Middle)
Senior debt
A+
 
A1
 
AA-
 
AA (Low)
Subordinated debt
A
 
A2
 
A+
 
A (High)
Trust preferred capital securities
BBB
 
A3
 
BBB+
 
A (High)
Preferred stock
BBB
 
Baa2
 
BBB
 
A (Low)
Outlook
Negative
 
Stable
 
Stable
 
Stable
State Street Bank:
 
 
 
 
 
 
Short-term deposits
A-1+
 
P-1
 
F1+
 
R-1 (High)
Short-term letters of credit
-
 
P-1
 
-
 
-
Long-term deposits
AA-
 
Aa3
 
AA
 
AA
Long-term letters of credit
-
 
Aa3
 
-
 
-
Senior debt
AA-
 
Aa3
 
AA-
 
AA
Long-term counterparty/issuer
AA-
 
Aa3
 
AA-
 
-
Subordinated debt
A+
 
A1
 
A+
 
AA (Low)
Financial strength
-
 
B-
 
-
 
-
Outlook
Stable  
 
Stable
 
Stable
 
Stable


















92

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

Contractual Cash Obligations and Other Commitments
The long-term contractual cash obligations included within Table 36: Long-Term Contractual Cash Obligations , and other commercial commitments included in Table 37: Other Commercial Commitments , were recorded in our consolidated statement of condition as of December 31, 2014 , except for operating leases and the interest portions of long-term debt and capital leases.
TABLE 36: LONG-TERM CONTRACTUAL CASH OBLIGATIONS
 
PAYMENTS DUE BY PERIOD
As of December 31, 2014
(In millions)
Total
 
Less than 1
year
 
1-3
years
 
4-5
years
 
Over 5
years
Long-term debt (1) (2)
$
10,763

 
$
454

 
$
3,223

 
$
1,749

 
$
5,337

Operating leases
935

 
179

 
286

 
205

 
265

Capital lease obligations (2)
962

 
105

 
173

 
164

 
520

Total contractual cash obligations
$
12,660

 
$
738

 
$
3,682

 
$
2,118

 
$
6,122

 
 
 
 
(1) Long-term debt excludes capital lease obligations (presented as a separate line item) and the effect of interest-rate swaps. Interest payments were calculated at the stated rate with the exception of floating-rate debt, for which payments were calculated using the indexed rate in effect as of December 31, 2014 .
(2) Additional information about contractual cash obligations related to long-term debt and operating and capital leases is provided in notes 9 and 20 to the consolidated financial statements included under Item 8 of this Form 10-K. Our consolidated statement of cash flows, also included under Item 8 of this Form 10-K, provides additional liquidity information.
Total contractual cash obligations shown in Table 36: Long-Term Contractual Cash Obligations , do not include:
•
Obligations which will be settled in cash, primarily in less than one year, such as client deposits, federal funds purchased, securities sold under repurchase agreements and other short-term borrowings.
Additional information about deposits, federal funds purchased, securities sold under repurchase agreements and other short-term borrowings is provided in notes 8 and 9 to the consolidated financial statements included under Item 8 of this Form 10-K.
•
Obligations related to derivative instruments because the derivative-related amounts
 

recorded in our consolidated statement of condition as of December 31, 2014 did not represent the amounts that may ultimately be paid under the contracts upon settlement.
Additional information about our derivative instruments is provided in note 16 to the consolidated financial statements included under Item 8 of this Form 10-K. We have obligations under pension and other post-retirement benefit plans, more fully described in note 19 to the consolidated financial statements included under Item 8 of this Form 10-K, which are not included in Table 36: Long-Term Contractual Cash Obligations .

TABLE 37: OTHER COMMERCIAL COMMITMENTS
 
 
 
 
 
DURATION OF COMMITMENT
As of December 31, 2014
(In millions)
Total
amounts
committed (1)
 
Less than
1 year
 
1-3
years
 
4-5
years
 
Over 5
years
Indemnified securities financing
$
349,766

 
$
349,766

 
$
—

 
$
—

 
$
—

Unfunded commitments to extend credit
24,247

 
18,529

 
1,852

 
3,351

 
515

Asset purchase agreements
4,107

 
1,385

 
2,212

 
510

 
—

Standby letters of credit
4,720

 
894

 
1,840

 
1,960

 
26

Purchase obligations (2)
285

 
61

 
57

 
46

 
121

Total commercial commitments
$
383,125

 
$
370,635

 
$
5,961

 
$
5,867

 
$
662

 
 
 
 
(1) Total amounts committed reflect participations to independent third parties, if any.
(2) Amounts represent obligations pursuant to legally binding agreements, where we have agreed to purchase products or services with a specific minimum quantity defined at a fixed, minimum or variable price over a specified period of time.
 


93

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

Additional information about the commitments presented in Table 37: Other Commercial Commitments , except for purchase obligations, is provided in note  10 to the consolidated financial statements included under Item 8 of this Form 10-K.
Operational Risk Management
Overview
We consider operational risk to be the risk of loss resulting from inadequate or failed internal processes and systems, human error, or from external events. This encompasses legal risk and fiduciary risk. We consider legal risk to be the risk of loss resulting from failure to comply with laws, contractual obligations or prudent business practices, often in the form of litigation or fines. We consider fiduciary risk to be the failure to properly exercise discretion when acting on behalf of our clients, or not properly monitoring or controlling the exercise of discretion by a third party.
Operational risk is inherent in the performance of investment servicing and investment management activities on behalf of our clients. Whether it be fiduciary risk, risk associated with execution and processing or other types of operational risk, a consistent, transparent and effective operational risk framework is key to identifying, monitoring and managing operational risk.
We have established an operational risk framework that is based on three major goals:
• Strong, active governance;
• Ownership and accountability; and
• Consistency and transparency.
Governance
Our Board is responsible for the approval and oversight of our overall operational risk framework. It does so through its RC, which reviews our operational risk framework and approves our operational risk policy annually.
The policy identifies the responsibilities of individuals and committees charged with oversight of the management of operational risk, and articulates a broad mandate that supports implementation of the operational risk framework.
ERM and other control groups provide the oversight, validation and verification of the management and measurement of operational risk. Our CRO, who leads ERM, manages the day-to-day oversight.
Executive management actively manages and oversees our operational risk framework through membership on various risk management committees, including MRAC, the BCRC, TORC, the Operational Risk Committee and the Fiduciary
 
Review Committee, all of which ultimately report to the RC.
The Operational Risk Committee, chaired by the global head of Operational Risk, provides cross-business oversight of operational risk and reviews and approves operational risk guidelines intended to maintain a consistent implementation of our corporate operational risk policy and framework.
Ownership and Accountability
We have implemented our operational risk framework to support the broad mandate established by our operational risk policy. This framework represents an integrated set of processes and tools that assists us in the management and measurement of operational risk, including our calculation of required capital and risk-weighted assets.
The framework takes a holistic view and integrates the methods and tools used to manage and measure operational risk. The framework utilizes aspects of the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, framework and other industry leading practices, and is designed foremost to address our risk management needs while complying with regulatory requirements. The operational risk framework is intended to provide a number of important benefits, including:
•
A common understanding of operational risk management and its supporting processes;
•
The clarification of responsibilities for the management of operational risk across State Street;
•
The alignment of business priorities with risk management objectives;
•
The active management of risk and early identification of emerging risks;
•
The consistent application of policies and the collection of data for risk management and measurement; and
•
The estimation of our operational risk capital requirement.
The operational risk framework employs a distributed risk management infrastructure executed by ERM groups aligned with the business units, which are responsible for the implementation of the operational risk framework at the business unit level.
As with other risks, senior business unit management is responsible for the day-to-day operational risk management of their respective businesses. It is business unit management's responsibility to provide oversight of the implementation and ongoing execution of the operational risk framework within their respective


94

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

organizations, as well as coordination and communication with ERM.
Consistency and Transparency
A number of corporate control functions are directly responsible for implementing and assessing various aspects of our operational risk framework, with the overarching goal of consistency and transparency to meet the evolving needs of the business:
•
The global head of Operational Risk, a member of the CRO’s executive management team, leads ERM’s corporate Operational Risk Management group, referred to as ORM. ORM is responsible for the strategy, evolution and consistent implementation of our operational risk guidelines, framework and supporting tools across State Street. ORM reviews and analyzes operational key risk information, events, metrics and indicators at the business unit and corporate level for purposes of risk management, reporting and escalation to the CRO, senior management and governance committees;
•
ERM’s Corporate Risk Analytics group develops and maintains operational risk capital estimation models, and ERM's Operations group calculates our required capital for operational risk;
•
ERM’s Model Validation Group, referred to as MVG, separately validates the quantitative models used to measure operational risk, and ORM performs validation checks on the output of the model; and
•
Corporate Audit performs separate reviews of the application of operational risk management practices and methodologies utilized across State Street.
Our operational risk framework consists of five components, each described below, which provide a working structure that integrates distinct risk programs into a continuous process focused on managing and measuring operational risk in a coordinated and consistent manner.
Risk Identification, Assessment and
Measurement
The objective of risk identification, assessment and measurement is to understand business unit strategy, risk profile and potential exposures. It is achieved through a series of risk assessments across State Street using techniques for the identification, assessment and measurement of risk across a spectrum of potential frequency and severity combinations. Three primary risk assessment
 
programs, which occur annually, augmented by other business-specific programs, are the core of this component:
•
The Risk and Control Self-Assessment program, referred to as the RCSA, seeks to understand the risks associated with day-to-day activities, and the effectiveness of controls intended to manage potential exposures arising from these activities. These risks are typically frequent in nature but generally not severe in terms of exposure;
•
The Material Risk Identification process utilizes a bottom-up approach to identify State Street’s most significant risk exposures across all on- and off-balance sheet risk-taking activities. The program is specifically designed to consider risks that could have a material impact irrespective of their likelihood or frequency. This can include risks that may have an impact on longer-term business objectives, such as significant change management activities or long-term strategic initiatives;
•
The Scenario Analysis program focuses on the set of risks with the highest severity and most relevance from a capital perspective. These are generally referred to as “tail risks," and serve as important benchmarks for our loss distribution approach model (see below); they also provide inputs into stress testing; and
•
Business-specific programs to identify, assess and measure risk, including new business and product review and approval, new client screening, and, as deemed appropriate, targeted risk assessments.
The primary measurement tool used is an internally developed loss distribution approach model, referred to as the LDA model. We use the LDA model to quantify required operational risk capital, from which we calculate risk-weighted assets related to operational risk. Such risk-weighted assets totaled $35.87 billion as of December 31, 2014; refer to the "Capital" section of this Management's Discussion and Analysis.
The LDA model incorporates the four required operational risk elements described below:
•
Internal loss event data is collected from across State Street in conformity with our operating loss policy that establishes the requirements for collecting and reporting individual loss events. We categorize the data into seven Basel-defined event types and further subdivide the data by business


95

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

unit, as deemed appropriate. Each of these loss events are represented in a Unit of Measure, referred to as a UOM, which is used to estimate a specific amount of capital required for the types of loss events that fall into each specific category. Some UOMs are measured at the corporate level because they are not “business specific,” such as damage to physical assets, where the cause of an event is not primarily driven by the behavior of a single business unit. Internal losses of $500 or greater are captured, analyzed and included in the modeling approach. Loss event data is collected using a corporate-wide data collection tool, which stores the data in a Loss Event Data Repository, referred to as the LEDR, to support processes related to analysis, management reporting and the calculation of required capital. Internal loss event data provides State Street-specific frequency and severity information to our capital calculation process for historical loss events experienced by State Street.
•
External loss event data provides information with respect to loss event severity from other financial institutions to inform our capital estimation process of events in similar business units at other banking organizations. This information supplements the data pool available for use in our LDA model. Assessments of the sufficiency of internal data and the relevance of external data are completed before pooling the two data sources for use in our LDA model.
•
Scenario analysis workshops are conducted annually across State Street to inform management of the less frequent but most severe, or “tail,” risks that the organization faces. The workshops are attended by senior business unit managers, other support and control partners and business-aligned risk-management staff. The workshops are designed to capture information about the significant risks and to estimate potential exposures for individual risks should a loss event occur. Workshops are aligned with specific UOMs and business units where appropriate. The results of these workshops are used to benchmark our LDA model results to determine that our calculation of required capital considers relevant risk-related information.
•
Business environment and internal control factors, referred to as BEICFs, are gathered as part of our scenario analysis program to
 
inform the scenario analysis workshop participants of internal loss event data and business-relevant metrics, such as RCSA results, along with industry loss event data and case studies where appropriate. BEICFs are those characteristics of a bank’s internal and external operating environment that bear an exposure to operational risk. The use of this information indirectly influences our calculation of required capital by providing additional relevant data to workshop participants when reviewing specific UOM risks.
Monitoring
The objective of risk monitoring is to proactively monitor the changing business environment and corresponding operational risk exposure. It is achieved through a series of quantitative and qualitative monitoring tools that are designed to allow us to understand changes in the business environment, internal control factors, risk metrics, risk assessments, exposures and operating effectiveness, as well as details of loss events and progress on risk initiatives implemented to mitigate potential risk exposures.
Effectiveness and Testing
The objective of effectiveness and testing is to verify that internal controls are designed appropriately, are consistent with corporate and regulatory standards, and are operating effectively. It is achieved through a series of assessments by both internal and external parties, including Corporate Audit, independent registered public accounting firms, business self-assessments and other control function reviews, such as a Sarbanes-Oxley testing program.
Consistent with our standard model validation process, the operational risk LDA model is subject to a detailed review, overseen by the MRC. In addition, the model is subject to a rigorous internal governance process. All changes to the model or input parameters, and the deployment of model updates, are reviewed and approved by the Operational Risk Committee, which has oversight responsibility for the model, with technical input from the MRC.
Reporting
Operational risk reporting is intended to provide transparency, thereby enabling management to manage risk, provide oversight and escalate issues in a timely manner. It is designed to allow the business units, executive management, and the Board's control functions and committees to gain insight into activities that may result in risks and potential exposures. Reports are intended to identify business activities that are experiencing processing issues, whether or not they result in actual loss events. Reporting


96

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

includes results of monitoring activities, internal and external examinations, regulatory reviews, and control assessments. These elements combine in a manner designed to provide a view of potential and emerging risks facing State Street and information that details its progress on managing risks.
Documentation and Guidelines
Documentation and guidelines allow for consistency and repeatability of the various processes that support the operational risk framework across State Street.
Operational risk guidelines document our practices and describe the key elements in a business unit's operational risk management program. The purpose of the guidelines is to set forth and define key operational risk terms, provide further detail on State Street's operational risk programs, and detail the business units' responsibilities to identify, assess, measure, monitor and report operational risk. The guideline supports our operational risk policy.
Data standards have been established to maintain consistent data repositories and systems that are controlled, accurate and available on a timely basis to support operational risk management.
Market Risk Management
Market risk is defined by U.S. banking regulators as the risk of loss that could result from broad market movements, such as changes in the general level of interest rates, credit spreads, foreign exchange rates or commodity prices. We are exposed to market risk in both our trading and certain of our non-trading, or asset-and-liability management, activities.
Information about the market risk associated with our trading activities is provided below under “Trading Activities.” Information about the market risk associated with our non-trading activities, which consists primarily of interest-rate risk, is provided below under “Asset-and-Liability Management Activities.”
Trading Activities
In the conduct of our trading activities, we assume market risk, the level of which is a function of our overall risk appetite, business objectives and liquidity needs, our clients' requirements and market volatility, and our execution against those factors.
We engage in trading activities primarily to support our clients' needs and to contribute to our overall corporate earnings and liquidity. In connection with certain of these trading activities, we enter into a variety of derivative financial instruments to support our clients' needs and to manage our interest-rate and currency risk. These activities are generally intended to generate trading services revenue and to manage potential earnings volatility. In addition, we
 
provide services related to derivatives in our role as both a manager and a servicer of financial assets.
Our clients use derivatives to manage the financial risks associated with their investment goals and business activities. With the growth of cross-border investing, our clients often enter into foreign exchange forward contracts to convert currency for international investments and to manage the currency risk in their international investment portfolios. As an active participant in the foreign exchange markets, we provide foreign exchange forward and option contracts in support of these client needs, and also act as a dealer in the currency markets.  
As part of our trading activities, we assume positions in the foreign exchange and interest-rate markets by buying and selling cash instruments and entering into derivative instruments, including foreign exchange forward contracts, foreign exchange and interest-rate options and interest-rate swaps, interest-rate forward contracts, and interest-rate futures. As of December 31, 2014 , the notional amount of these derivative contracts was $1.24 trillion , of which $1.23 trillion was composed of foreign exchange forward, swap and spot contracts. We seek to match positions closely with the objective of minimizing related currency and interest-rate risk. All foreign exchange contracts are valued daily at current market rates.
Governance
Our assumption of market risk in our trading activities is an integral part of our corporate risk appetite. Our Board reviews and oversees our management of market risk, including the approval of key market risk policies and the receipt and review of regular market risk reporting, as well as periodic updates on selected market risk topics.
The previously described TMRC (refer to "Risk Committees" in this Management's Discussion and Analysis) oversees all market risk-taking activities across State Street associated with trading. The TMRC, which reports to MRAC, is composed of members of ERM, our global markets business and our Global Treasury group, as well as our senior executives who manage our trading businesses and other members of management who possess specialized knowledge and expertise. The TMRC meets regularly to monitor the management of our trading market risk activities.
Our business units identify, actively manage and are responsible for the market risks inherent in their businesses. A dedicated market risk management group within ERM, and other groups within ERM, work with those business units to assist them in the identification, assessment, monitoring, management and control of market risk, and assist business unit managers with their market risk management and


97

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

measurement activities. ERM provides an additional line of oversight, support and coordination designed to promote the consistent identification, measurement and management of market risk across business units, separate from those business units' discrete activities.
The ERM market risk management group is responsible for the management of corporate-wide market risk, the monitoring of key market risks and the development and maintenance of market risk management policies, guidelines, and standards aligned with our corporate risk appetite. This group also establishes and approves market risk tolerance limits and dealing authorities based on, but not limited to, measures of notional amounts, sensitivity, VaR and stress. Such limits and authorities are specified in our trading and market risk guidelines which govern our management of trading market risk.
Covered Positions
Our trading positions are subject to regulatory market risk capital requirements if they meet the regulatory definition of a “covered position.” A covered position is generally defined by U.S. banking regulators as an on- or off-balance sheet position associated with the organization's trading activities that is free of any restrictions on its tradability, including foreign exchange or commodity positions, and excluding intangible assets, certain credit derivatives recognized as guarantees and certain equity positions not publicly traded. The identification of covered positions for inclusion in our market risk capital framework is governed by our covered positions policy, which outlines the standards we use to determine whether a trading position is a covered position.
Our covered positions consist primarily of the trading portfolios held by our global markets business. They also arise from certain positions held by our Global Treasury group. These trading positions include products such as spot foreign exchange, foreign exchange forwards, non-deliverable forwards, foreign exchange options, foreign exchange funding swaps, currency futures, financial futures, and interest rate futures. Any new activities are analyzed to determine if the positions arising from such new activities meet the definition of a covered position and conform to our covered positions policy. This documented analysis, including any decisions with respect to market risk treatments, must receive approval from the TMRC.
Value-at-Risk, Stress Testing and Stressed VaR
As noted above, we use a variety of risk measurement tools and methodologies, including VaR, which is an estimate of potential loss for a given period within a stated statistical confidence interval.
 
We use a risk measurement methodology to measure trading-related VaR daily. We have adopted standards for measuring trading-related VaR, and we maintain regulatory capital for market risk associated with our trading activities in conformity with currently applicable bank regulatory market risk requirements.
We utilize an internal VaR model to calculate our regulatory market risk capital requirements. We use a historical simulation model to calculate daily VaR- and stressed VaR-based measures for our covered positions in conformity with regulatory requirements. Our VaR model seeks to capture identified material risk factors associated with our covered positions, including risks arising from market movements such as changes in foreign exchange rates, interest rates and option-implied volatilities.
We have adopted standards and guidelines to value our covered positions which govern our VaR- and stressed VaR-based measures. Our regulatory VaR-based measure is calculated based on historical volatilities of market risk factors during a two-year observation period calibrated to a one-tail, 99% confidence interval and a ten-business-day holding period. We also use the same platform to calculate a one-tail, 99% confidence interval, one-business-day VaR for internal risk management purposes. A 99% one-tail confidence interval implies that daily trading losses are not expected to exceed the estimated VaR more than 1% of the time, or less than three business days out of a year.
Our market risk models, including our VaR model, are subject to change in connection with the governance, validation and back-testing processes described below. These models can change as a result of changes in our business activities, our historical experiences, market forces and events, regulations and regulatory interpretations and other factors. In addition, the models are subject to continuing regulatory review and approval. Changes in our models may result in changes in our measurements of our market risk exposures, including VaR, and related measures, including regulatory capital. These changes could result in material changes in those risk measurements and related measures as calculated and compared from period to period.
Value-at-Risk
VaR measures are based on the most recent two years of historical price movements for instruments and related risk factors to which we have exposure. The instruments in question are limited to foreign exchange spot, forward and options contracts and interest-rate contracts, including futures and interest-rate swaps. Historically, these instruments have exhibited a higher degree of liquidity relative to other available capital markets instruments. As a result, the


98

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

VaR measures shown reflect our ability to rapidly adjust exposures in highly dynamic markets. For this reason, risk inventory, in the form of net open positions, across all currencies is typically limited. In addition, long and short positions in major, as well as minor, currencies provide risk offsets that limit our potential downside exposure.
Our VaR methodology uses a historical simulation approach based on market-observed changes in foreign exchange rates, U.S. and non-U.S. interest rates and implied volatilities, and incorporates the resulting diversification benefits provided from the mix of our trading positions. Our VaR model incorporates approximately 5,000 risk factors and includes correlations among currency, interest rates, and other market rates.
Stress Testing and Stressed VaR
We have a corporate-wide stress-testing program in place that incorporates an array of techniques to measure the potential loss we could suffer in a hypothetical scenario of adverse economic and financial conditions. We also monitor concentrations of risk such as concentration by branch, risk component, and currency pairs. We conduct stress testing on a daily basis based on selected historical stress events that are relevant to our positions in order to estimate the potential impact to our current portfolio should similar market conditions recur, and we also perform stress testing as part of the Federal Reserve's CCAR process. Stress testing is conducted, analyzed and reported at the corporate, trading desk, division and risk-factor level (for example, exchange risk, interest-rate risk and volatility risk).
We calculate a stressed VaR-based measure using the same model we use to calculate VaR, but with model inputs calibrated to historical data from a range of continuous twelve-month periods that reflect significant financial stress. The stressed VaR model identifies the second-worst outcome occurring in the worst continuous one-year rolling period since July 2007. This stressed VaR meets the regulatory requirement as the rolling ten-day period with an outcome that is worse than 99% of other outcomes during that twelve-month period of financial stress. For each portfolio, the stress period is determined algorithmically by seeking the one-year time horizon that produces the largest ten-business-day VaR from within the available historical data. This historical data set includes the financial crisis of 2008, the highly volatile period surrounding the Eurozone sovereign debt crisis and the Standard & Poor's downgrade of U.S. Treasury debt in August 2011. As the historical data set used to determine the stress period expands over time, future market stress events will be automatically incorporated.
 
The sixty-day moving average of our stressed VaR-based measure was approximately $69 million for the twelve months ended December 31, 2014 , compared to a sixty-day moving average of $28 million for the twelve months ended December 31, 2013 .
The increase in the sixty-day moving average of our stressed VaR-based measure for the twelve months ended December 31, 2014 compared to the twelve months ended December 31, 2013 was primarily the result of an extension of the tenor of FX swaps by Global Treasury designed to improve our liquidity position. The tenor extension gives rise to additional market risk in our stressed VaR calculation.
Stress-testing results and limits are actively monitored on a daily basis by ERM and reported to the TMRC. Limit breaches are addressed by ERM risk managers in conjunction with the business units, escalated as appropriate, and reviewed by the TMRC if material. In addition, we have established several action triggers that prompt immediate review by management and the implementation of a remediation plan.
Validation and Back-Testing
We perform daily back-testing to assess the accuracy of our VaR-based model in estimating loss at the stated confidence level. This back-testing involves the comparison of estimated VaR model outputs to actual Profit-and-Loss outcomes, referred to as P&L, observed from daily market movements. We back-test our VaR model using “clean” P&L, which excludes non-trading revenue such as fees, commissions and net interest revenue, as well as estimated revenue from intra-day trading. Our VaR definition of trading losses excludes items that are not specific to the price movement of the trading assets and liabilities themselves, such as fees, commissions, changes to reserves and gains or losses from intra-day activity.
We experienced no back-testing exceptions in 2014 . We experienced one back-testing exception in 2013, which occurred in the third quarter. The trading P&L that day exceeded the VaR based on the prior day’s closing positions, following larger-than-usual moves in several emerging market currencies and U.S. interest rates.
Our market risk models are governed by our model risk governance guidelines, in conformity with our model risk governance policy, which outline the standards we use to assess the conceptual soundness and effectiveness of our models. Our market risk models are subject to regular review and validation by MVG within ERM and overseen by the MRC. The MRC includes members with expertise in modeling methodologies and has representation from


99

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

the various business units throughout State Street. Additional information about the MRC and MVG is provided under “Model Risk Management” in this Disclosure.
Our model validation process also evaluates the integrity of our VaR models through the use of regular outcome analysis. Such outcome analysis includes back-testing, which compares the VaR model's predictions to actual outcomes using out-of-sample information. MVG examined back-testing results for
 
the market risk regulatory capital model used for 2012. Consistent with regulatory guidance, the back-testing compared “clean” P&L, defined above, with the one-day VaR produced by the model. The back-testing was performed for a time period not used for model development. The number of occurrences where “clean” trading-book P&L exceeded the one-day VaR was within our expected VaR tolerance level.

The following tables present VaR and stressed VaR associated with our trading activities for covered positions held during the years ended and as of December 31, 2014 and 2013 , as measured by our VaR methodology.
TABLE 38: TEN-DAY VaR ASSOCIATED WITH TRADING ACTIVITIES FOR COVERED POSITIONS
 
Year Ended December 31, 2014
 
Year Ended December 31, 2013
 
As of December 31, 2014
 
As of December 31, 2013
(In thousands)
Average
 
Maximum
 
Minimum
 
Average
 
Maximum
 
Minimum
 
VaR
 
VaR
Global Markets
$
6,365

 
$
12,327

 
$
2,273

 
$
6,386

 
$
22,835

 
$
1,626

 
$
4,566

 
$
5,463

Global Treasury
4,027

 
6,467

 
683

 
97

 
559

 
24

 
4,759

 
58

Total VaR
$
8,100

 
$
12,278

 
$
3,244

 
$
6,361

 
$
22,834

 
$
1,641

 
$
8,281

 
$
5,441

TABLE 39: TEN-DAY STRESSED VaR ASSOCIATED WITH TRADING ACTIVITIES FOR COVERED POSITIONS

Year Ended December 31, 2014
 
Year Ended December 31, 2013
 
As of December 31, 2014
 
As of December 31, 2013
(In thousands)
Average
 
Maximum
 
Minimum
 
Average
 
Maximum
 
Minimum
 
Stressed VaR
 
Stressed VaR
Global Markets
$
32,639

 
$
64,510

 
$
15,625

 
$
22,907

 
$
47,531

 
$
4,933

 
$
30,255

 
$
30,338

Global Treasury
36,344

 
59,253

 
10,454

 
291

 
1,075

 
56

 
39,050

 
280

Total Stressed VaR
$
61,874

 
$
89,053

 
$
29,689

 
$
22,815

 
$
47,514

 
$
4,889

 
$
58,945

 
$
30,403

The VaR-based measures presented in the preceding tables are primarily a reflection of the overall level of market volatility and our appetite for trading market risk. Overall levels of volatility have been low both on an absolute basis and relative to the historical information observed at the beginning of the period used for the calculations. Both the ten-day VaR-based measures and the stressed VaR-based measures are based on historical changes observed during rolling ten-day periods for the portfolios as of the close of business each day over the past one-year period.
The decline in the maximum ten-day VaR-based measure for foreign exchange was caused by reduced exposure to certain emerging market currencies ( Table 38: Ten-day VaR Associated with Trading Activities for Covered Positions ). The increase seen in ten-day stressed VaR-based measure for foreign exchange was mainly due to our businesses maintaining slightly larger exposures, as
 
compared to a year ago, in what was a predominantly trending market in 2014 ( Table 39: Ten-day Stressed VaR Associated with Trading Activities for Covered Positions ).
The increases in the average ten-day VaR-based and stressed VaR-based measures for the twelve months ended December 31, 2014 compared to the twelve months ended December 31, 2013 were primarily the result of an extension of the tenor of FX swaps by Global Treasury designed to improve our liquidity position. The tenor extension gives rise to additional market risk in our ten-day VaR-based and stressed VaR-based calculations.
We may in the future modify and adjust our models and methodologies used to calculate VaR and stressed VaR, subject to regulatory review and approval, and these modifications and adjustments may result in changes in our VaR-based and stressed VaR-based measures.


100

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

The following tables present the VaR and stressed VaR associated with our trading activities attributable to foreign exchange risk, interest rate risk and volatility risk as of December 31, 2014 and 2013 . The totals of the VaR-based and stressed VaR-based measures for the three attributes for each VaR and stressed-VaR component exceeded the related total VaR and total stressed VaR presented in the foregoing tables as of each period-end, primarily due to the benefits of diversification across risk types.
TABLE 40: TEN-DAY VaR ASSOCIATED WITH TRADING ACTIVITIES BY RISK FACTOR (1)
 
As of December 31, 2014
 
As of December 31, 2013
(In thousands)
Foreign Exchange Risk
 
Interest Rate Risk
 
Volatility Risk
 
Foreign Exchange Risk
 
Interest Rate Risk
 
Volatility Risk
By component:
 
 
 
 
 
 
 
 
 
 
 
Global Markets
$
5,584

 
$
3,230

 
$
349

 
$
3,492

 
$
4,561

 
$
306

Global Treasury
—

 
4,759

 
—

 
46

 
52

 
—

Total VaR
$
5,584

 
$
5,892

 
$
349

 
$
3,457

 
$
4,577

 
$
306

TABLE 41: TEN-DAY STRESSED VaR ASSOCIATED WITH TRADING ACTIVITIES BY RISK FACTOR (1)
 
As of December 31, 2014
 
As of December 31, 2013
(In thousands)
Foreign Exchange Risk
 
Interest Rate Risk
 
Volatility Risk
 
Foreign Exchange Risk
 
Interest Rate Risk
 
Volatility Risk
By component:
 
 
 
 
 
 
 
 
 
 
 
Global Markets
$
8,305

 
$
39,220

 
$
468

 
$
8,788

 
$
37,030

 
$
345

Global Treasury
—

 
39,050

 
—

 
119

 
299

 
—

Total Stressed VaR
$
8,305

 
$
62,923

 
$
468

 
$
8,845

 
$
36,949

 
$
345

 
 
 
(1) For purposes of risk attribution by component in both Tables 40 and 41 , foreign exchange risk refers only to the risk from market movements in period-end rates.  Forwards, futures, options and swaps with maturities greater than period-end have embedded interest-rate risk that is captured by the measures used for interest-rate risk.  Accordingly, the interest-rate risk embedded in these foreign exchange instruments is included in the interest-rate risk component.
Total stressed VaR as of December 31, 2014 increased compared to December 31, 2013 , as presented in Table 41: Ten-day Stressed VaR Associated with Trading Activities by Risk Factor . The increase was primarily the result of an extension of the tenor of FX swaps by Global Treasury designed to improve our liquidity position. Additionally, the stressed VaR attributable to foreign exchange exposures also increased as we maintained risk positions in a predominantly trending market environment.
Asset-and-Liability Management Activities
The primary objective of asset-and-liability management is to provide sustainable net interest revenue, referred to as NIR, under varying economic conditions, while protecting the economic value of the assets and liabilities carried in our consolidated statement of condition from the adverse effects of changes in interest rates. While many market factors affect the level of NIR and the economic value of our assets and liabilities, one of the most significant factors is our exposure to movements in interest rates. Most of our NIR is earned from the investment of client deposits generated by our businesses. We invest these client deposits in assets that conform generally to the characteristics of our balance sheet liabilities, including the currency composition of our
 
significant non-U.S. dollar denominated client liabilities, but we manage our overall interest-rate risk position in the context of current and anticipated market conditions and within internally-approved risk guidelines.
Our overall interest-rate risk position is maintained within a series of policies approved by the Board and guidelines established and monitored by ALCO. Our Global Treasury group has responsibility for managing our day-to-day interest-rate risk. To effectively manage our consolidated statement of condition and related NIR, Global Treasury has the authority to assume a limited amount of interest-rate risk based on market conditions and its views about the direction of global interest rates over both short-term and long-term time horizons. Global Treasury manages our exposure to changes in interest rates on a consolidated basis organized into three regional treasury units, North America, Europe and Asia/Pacific, to reflect the growing, global nature of our exposures and to capture the impact of changes in regional market environments on our total risk position.
The economic value of our consolidated statement of condition is a metric designed to estimate the fair value of assets and liabilities which could be garnered if those assets and liabilities were


101

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

sold today. The economic values represent discounted cash flows from all financial instruments; therefore, changes in the yield curves, which are used to discount the cash flows, affect the values of these instruments.
Our investment activities and our use of derivative financial instruments are the primary tools used in managing interest-rate risk. We invest in financial instruments with currency, repricing, and maturity characteristics we consider appropriate to manage our overall interest-rate risk position. In addition, we use certain derivative instruments, primarily interest-rate swaps, to alter the interest-rate characteristics of specific balance sheet assets or liabilities.
Because no one individual measure can accurately assess all of our exposures to changes in interest rates, we use several quantitative measures in our assessment of current and potential future exposures to changes in interest rates and their impact on NIR and balance sheet values. NIR simulation is the primary tool used in our evaluation of the potential range of possible NIR results that could occur under a variety of interest-rate environments. We also use market valuation and duration analysis to assess changes in the economic value of balance sheet assets and liabilities caused by assumed changes in interest rates.
To measure, monitor, and report on our interest-rate risk position, we use NIR simulation, referred to as NIR-at-risk, and Economic Value of Equity, referred to as EVE, sensitivity. NIR-at-risk measures the impact on NIR over the next twelve months to immediate, or “rate shock,” and gradual, or “rate ramp,” changes in market interest rates. EVE sensitivity is a total return view of interest-rate risk, which measures the impact on the present value of all NIR-related principal and interest cash flows of an immediate change in interest rates. Although NIR-at-risk and EVE sensitivity measure interest-rate risk over different time horizons, both utilize consistent assumptions when modeling the positions currently held by State Street; however, NIR-at-risk also incorporates future actions planned by management over the time horizons being modeled.
In estimating our NIR-at-risk, we start with a base amount of NIR that is projected over the next twelve months, assuming our forecast yield curve over the period. Our existing balance sheet assets and liabilities are adjusted by the amount and timing of transactions that are forecast to occur over the next twelve months. That yield curve is then “shocked,” or moved immediately, +/-100 basis points in a parallel fashion, or at all points along the yield curve. Two new twelve-month NIR projections are then developed using the same balance sheet and
 
forecast transactions, but with the new yield curves, and compared to the base scenario. We also perform the calculations using interest-rate ramps, which are +/-100-basis-point changes in interest rates that are assumed to occur gradually over the next twelve months, rather than immediately as we do with interest-rate shocks.
EVE is based on the change in the present value of all NIR-related principal and interest cash flows for changes in market rates of interest. The present value of existing cash flows with a then-current yield curve serves as the base case. We then apply an immediate parallel shock to that yield curve of +/-200 basis points and recalculate the cash flows and related present values. A large shock is used to better capture the embedded option risk in our mortgage-backed securities that results from borrowers' prepayment opportunities.
Key assumptions used in the models, described in more detail below, along with changes in market conditions, are inherently uncertain. Actual results necessarily differ from model results as market conditions differ from assumptions. As such, management performs back-testing, stress testing, and model integrity analyses to validate that the modeled results produce predictive NIR-at-risk and EVE sensitivity estimates which can be used in our management of interest-rate risk. Primary factors affecting the actual results are changes in our balance sheet size and mix; the timing, magnitude and frequency of changes in interest rates, including the slope and the relationship between the interest-rate level of U.S. dollar and non-U.S. dollar yield curves; changes in market conditions; and management actions taken in response to the preceding conditions.
Both NIR-at-risk and EVE sensitivity results are managed against ALCO-approved limits and guidelines and are monitored regularly, along with other relevant simulations, scenario analyses and stress tests, by both Global Treasury and ALCO. Our ALCO-approved guidelines are, we believe, in line with industry standards and are periodically examined by the Federal Reserve.
As a result of differences in measurement between NIR-at-risk and EVE with respect to certain assumptions, such as the reinvestment of our interest-earning assets, reported results of NIR-at-risk could present an increase in NIR from an increase in rates while EVE presents a loss. Changes in assumptions may result in different outcomes under both NIR-at-risk and EVE. NIR-at-risk depicts the change in the nominal (un-discounted) dollar net interest flows which are generated from the forecast statement of condition over the next twelve months.  As interest rates increase, the interest expense


102

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

associated with our client deposit liabilities is assumed to increase at a slower pace than the investment returns derived from our current balance sheet or the associated reinvestment of our interest-earning assets, resulting in an overall increase to NIR. EVE, on the other hand, measures the present value change of both principal and interest cash flows based on the current period-end balance sheet. As a result, EVE does not contemplate reinvestment of our assets associated with a change in the interest-rate environment. 
Although NIR in both NIR-at-risk and EVE sensitivity is higher in response to increased interest rates, the future principal flows from fixed-rate investments are discounted at higher rates for EVE, which results in lower asset values and a corresponding reduction or loss in EVE. As noted above, NIR-at-risk does not analyze changes in the value of principal cash flows and therefore does not experience the same reduction experienced by EVE sensitivity associated with discounting principal cash flows at higher rates.
Net Interest Revenue at Risk
NIR-at-risk is designed to estimate the potential impact of changes in global market interest rates on NIR in the short term. The impact of changes in market rates on NIR is measured against a baseline NIR which encompasses management's expectations regarding the evolving balance sheet volumes and interest rates in the near-term. The goal is to achieve an acceptable level of NIR under various interest-rate environments. Assumptions regarding levels of client deposits and our ability to price these deposits under various rate environments have a significant impact on the results of the NIR simulations. Similarly, the timing of cash flows from our investment portfolio, especially option-embedded financial instruments like mortgage-backed securities, and our ability to replace these cash flows in line with management's expectations, can affect the results of NIR simulations.
The following table presents the estimated exposure of our NIR for the next twelve months, calculated as of the dates indicated, due to an immediate +/-100-basis-point shift to our internal forecast of global interest rates. We manage our NIR sensitivity to limit declines to 15% or less from baseline NIR. Estimated incremental exposures presented below are dependent on management's assumptions, and do not reflect any additional actions management may undertake in order to mitigate some of the adverse effects of changes in interest rates on our financial performance.
 
TABLE 42: NIR ESTIMATED EXPOSURE
 
Estimated Exposure to
Net Interest Revenue
(Dollars in millions)
December 31,
2014
 
December 31,
2013
Rate change:
Exposure
 
% of Base NIR
 
Exposure
 
% of Base NIR
+100 bps shock
$
384

 
16.6
%
 
$
334

 
14.0
%
–100 bps shock
(328
)
 
(14.2
)
 
(261
)
 
(10.9
)
+100 bps ramp
149

 
6.5

 
126

 
5.3

–100 bps ramp
(192
)
 
(8.3
)
 
(124
)
 
(5.2
)
As of December 31, 2014 , NIR sensitivity to an upward-100-basis-point shock in global interest rates was higher compared to such sensitivity as of December 31, 2013 , due to a higher level of forecast client deposits. The benefit to NIR of an upward-100-basis-point ramp is less significant than a shock, since interest rates are assumed to increase gradually.
NIR sensitivity to a downward-100-basis-point shock in global interest rates as of December 31, 2014 increased compared to such sensitivity as of December 31, 2013 , due to higher levels of forecast client deposits. Increased levels of forecast client deposits, while beneficial to baseline NIR, do not provide relief in the downward shock scenario, as the deposits have no room to fully re-price from current levels as their pricing basis falls. A downward-100-basis-point shock in global interest rates places pressure on NIR, as deposit rates reach their implicit floors due to the exceptionally low global interest-rate environment, and provide little funding relief on the liability side, while assets re-price into the lower-rate environment. The adverse impact on projected NIR due to a downward-100-basis-point ramp is less significant than a shock since interest rates are assumed to decrease gradually, thereby reducing the level of projected spread compression experienced between assets and liabilities over a twelve-month horizon.
Our baseline NIR incorporates an expectation that short-term interest rates will begin to rise in anticipation of central bank tightening of current monetary policies. While this rise in rates benefits our baseline NIR, it is detrimental to our NIR sensitivity to a downward-100-basis-point shock, as rising short-term interest rates allow asset yields to re-price lower in a downward shock scenario than previously, while deposits are still priced close to natural floors.
Other important factors which affect the levels of NIR are the size and mix of assets carried in our consolidated statement of condition; interest-rate spreads; the slope and interest-rate level of U.S. and non-U.S. dollar yield curves and the relationship between them; the pace of change in global market


103

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

interest rates; and management actions taken in response to the preceding conditions.
Economic Value of Equity
EVE sensitivity measures changes in the market value of equity to quantify potential losses to shareholders due to an immediate +/-200-basis-point rate shock compared to current interest-rate levels if the balance sheet were liquidated immediately. Management compares the change in EVE sensitivity against State Street's aggregate tier 1 and tier 2 risk-based capital, calculated in conformity with currently applicable regulatory requirements, to evaluate whether the magnitude of the exposure to interest rates is acceptable. Generally, a change resulting from a +/-200-basis-point rate shock that is less than 20% of aggregate tier 1 and tier 2 capital is an exposure that management deems acceptable. To
 
the extent that we manage changes in EVE sensitivity within the 20% threshold, we would seek to take action to remain below the threshold if the magnitude of our exposure to interest rates approached that limit.
Similar to NIR-at-risk measures, the timing of cash flows affects EVE sensitivity, as changes in asset and liability values under different rate scenarios are dependent on when interest and principal payments are received. In contrast to NIR simulations, however, EVE sensitivity does not incorporate assumptions regarding reinvestment of these cash flows. In addition, our ability to price client deposits has a much smaller impact on EVE sensitivity, as EVE sensitivity does not consider the ongoing benefit of investing client deposits.


The following table presents estimated EVE exposures, calculated as of the dates indicated, assuming an immediate and prolonged shift in global interest rates, the impact of which would be spread over a number of years.
TABLE 43: ESTIMATED EVE EXPOSURES
 
Estimated Sensitivity of
Economic Value of Equity
(Dollars in millions)
December 31,
2014
 
December 31,
2013
Rate change:
Exposure
 
% of Tier 1/Tier 2 Capital
 
Exposure
 
% of Tier 1/Tier 2 Capital
+200 bps shock
$
(2,291
)
 
(12.8
)%
 
$
(2,359
)
 
(14.9
)%
–200 bps shock
942

 
5.3

 
1,149

 
7.2

The dollar measure of EVE sensitivity to an upward-200-basis-point shock as of December 31, 2014 improved compared to December 31, 2013 , and the dollar measure of EVE sensitivity to a downward-200-basis-point shock as of December 31, 2014 declined compared to December 31, 2013 , with both comparisons due primarily to portfolio decay and lower rates as of December 31, 2014 compared to December 31, 2013 .
EVE sensitivity to an upward-200-basis-point shock as of December 31, 2014 , as a percentage of the total of tier 1 and tier 2 regulatory capital, declined compared to December 31, 2013 . EVE sensitivity to a downward-200-basis-point shock as of December 31, 2014 , as a percentage of the total of tier 1 and tier 2 regulatory capital, declined compared to December 31, 2013 . These improvements were primarily due to the above changes in the dollar measures of EVE sensitivity as well as an increase in the total of tier 1 and tier 2 capital as of December 31, 2014 compared to December 31, 2013 (refer to the "Capital - Regulatory Capital" section of this Management's Discussion and Analysis).
 
Business Risk Management
We define business risk as the risk of adverse changes in our earnings related to business factors, including changes in the competitive environment, changes in the operational economics of our business activities and the potential effect of strategic and reputation risks, not already captured as trading market, interest-rate, credit, operational or liquidity risks. We incorporate business risk into our assessment of our strategic plans and capital management processes. Active management of business risk is an integral component of all aspects of our business, and responsibility for the management of business risk lies with every employee at State Street.
Separating the effects of a potential material adverse event into operational and business risk is sometimes difficult. For instance, the direct financial impact of an unfavorable event in the form of fines or penalties would be classified as an operational risk loss, while the impact on our reputation and consequently the potential loss of clients and corresponding decline in revenue would be classified as a business risk loss. An additional example of business risk is the integration of a major acquisition. Failure to successfully integrate the operations of an


104

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

acquired business, and the resultant inability to retain clients and the associated revenue, would be classified as a loss due to business risk.
Business risk is managed with a long-term focus. Techniques for its assessment and management include the development of business plans and appropriate management oversight. The potential impact of the various elements of business risk is difficult to quantify with any degree of precision. We use a combination of historical earnings volatility, scenario analysis, stress-testing and management judgment to help assess the potential effect on State Street attributable to business risk. Management and control of business risks are generally the responsibility of the business units as part of their overall strategic planning and internal risk management processes.
Model Risk Management
The use of quantitative models is widespread throughout the financial services industry, with large and complex organizations relying on sophisticated models to support numerous aspects of their financial decision making. The models contemporaneously represent both a significant advancement in financial management and a new source of risk. In large banking organizations like ours, model results influence business decisions, and model failure could have a harmful effect on our financial performance. As a result, we manage model risk within a comprehensive model risk management framework.
Our model risk management program has three principal components:
•
A model risk governance program that defines roles and responsibilities, including the authority to restrict model usage, provides policies and guidance, and evaluates the models’ key assumptions, limitations and overall degree of risk;
•
A model development process which focuses on sound design and computational accuracy, and includes ongoing model integrity activities designed to test for robustness, stability, and sensitivity to assumptions; and
•
A separate model validation function designed to verify that models are theoretically sound, performing as expected, and are in line with their design objectives.
Governance
Model risk is overseen at the corporate level by our Board and senior management. Models used in the regulatory capital calculation can only be deployed for use after receiving a satisfactory validation review and being granted approval by the appropriate corporate oversight committee.
 
The MRC, which is composed of senior staff with technical expertise, reports to MRAC, and formally recommends proposed findings with respect to modeling weaknesses or deficiencies. Proposed findings are brought to the MRC by MVG for discussion. MVG is part of Model Risk Management within ERM. The most material findings may preclude a model’s deployment and use; other findings may require resolution by specified deadlines.
ERM’s Model Risk Management group is responsible for defining the corporate-wide model risk governance framework, and maintains policies that achieve the framework’s objectives. The team is responsible for overall model risk governance capabilities, with particular emphasis in the areas of model risk reporting, model performance monitoring, tracking of new model development status, and committee-level review and challenge.
Model Development and Usage
Models are developed under standards governing data sourcing, methodology selection and model integrity testing. Model development includes a clear statement of purpose to align development with intended use. It also includes a comparison of alternative approaches to implement a sound modeling approach.
Model developers conduct an assessment of data quality and relevance. The development teams conduct a variety of tests of the accuracy, robustness and stability of each model.
Model owners monitor model performance, update model reference data and/or functionality as appropriate, and submit models to MVG for validation on a regular basis, as described below.
Model Validation
MVG separately validates models through a review that assesses the soundness and suitability of data inputs, methodologies, assumptions, coding and model outputs. Model validation also encompasses an assessment of a model’s potential limitations given its particular assumptions or deficiencies. MVG maintains a model risk-rating system, which assigns a risk rating to each model based on the severity of review findings. These ratings aid in the understanding and reporting of model risk across the model portfolio, and enable the triaging of needs for remediation.
Although model validation is the primary method of subjecting models to separate review and challenge, in practice, a multi-step governance process provides the opportunity for challenge by multiple parties. First, MVG conducts model validation and prepares findings. These proposed


105

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

findings are then discussed with and formally recommended by the MRC. Finally, model usage decisions, made by the appropriate corporate oversight committee, are influenced by the model findings.
Capital
The management of our capital involves key metrics evaluated by management to assess whether our actual and projected levels of capital are commensurate with our risk profile, are in compliance with all applicable regulatory requirements, and are sufficient to provide us with the financial flexibility to undertake future strategic business initiatives. We assess capital based on relevant regulatory capital adequacy requirements, as well as our own internal capital targets.
Framework
Our objective with respect to management of our capital is to maintain a strong capital base in order to provide financial flexibility for our business needs, including funding corporate growth and supporting clients’ cash management needs, and to provide protection against loss to depositors and creditors. We strive to maintain an appropriate level of capital, commensurate with our risk profile, on which an attractive return to shareholders is expected to be realized over both the short and long term, while protecting our obligations to depositors and creditors and complying with regulatory capital adequacy requirements.
Our capital management process focuses on our risk exposures, the regulatory requirements applicable to us with respect to capital adequacy, the evaluations and resulting credit ratings of the major independent credit rating agencies, our return on capital at both the consolidated and line-of-business level, and our capital position relative to our peers.
Our evaluation of capital includes the comparison of capital sources with capital uses, as well as the consideration of the quality and quantity of the various components of capital, as two of several inputs in our overall assessment of our capital adequacy. The goals of the capital adequacy process are to determine the optimal level of capital and composition of capital instruments to satisfy all constituents of capital, with the lowest overall cost to shareholders. Other factors considered in our capital adequacy process are strategic and contingency planning, stress testing and planned capital actions.
Capital Adequacy Process
Our primary federal banking regulator is the Federal Reserve. Both State Street and State Street Bank are subject to the minimum regulatory capital requirements established by the Federal Reserve and
 
defined in the Federal Deposit Insurance Corporation Improvement Act of 1991, or FDICIA. State Street Bank must exceed the regulatory capital thresholds for “well capitalized” in order for our parent company to maintain its status as a financial holding company. Accordingly, one of our primary goals with respect to capital adequacy is to exceed all applicable minimum regulatory capital requirements and to be “well-capitalized” under the Prompt Corrective Action guidelines established by the FDIC. Our capital management activities include our Capital Adequacy Process, or CAP, and associated Capital Policy and guidelines.
We consider capital adequacy to be a key element of our financial well-being, which affects our ability to attract and maintain client relationships; operate effectively in the global capital markets; and satisfy regulatory, security holder and shareholder needs. Capital is one of several elements that affect our debt ratings and the ratings of our principal subsidiaries.
In conformity with our Capital Policy and guidelines, we strive to maintain adequate capital, not just at a point in time, but over time and during periods of stress, to account for changes in our strategic direction, evolving economic conditions, and financial and market volatility. We have developed and implemented a corporate-wide CAP to assess our overall capital in relation to our risk profile and to provide a comprehensive strategy for maintaining appropriate capital levels. The CAP considers material risks under multiple scenarios, with an emphasis on stress scenarios. The CAP builds on and leverages existing processes and systems used to measure our capital adequacy. Our Capital Policy is reviewed and approved by the Board’s RC.
Capital Contingency Planning
Contingency planning is an integral component of our capital management program. The objective of our contingency planning process is to monitor current and forecast levels of select measures that serve as early indicators of a potentially adverse capital or liquidity adequacy situation. These measures are one of the inputs used to set our capital adequacy level. We review these measures annually for appropriateness and relevance in relation to our financial budget and capital plan.
Stress Testing
We administer a robust State Street-wide stress-testing program that executes multiple stress tests each year to assess the institution’s capital adequacy and/or future performance under adverse conditions. Our stress testing program is structured around what we determine to be the key risks incurred by State Street, as assessed through a recurring material risk


106

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

identification process. The material risk identification process represents a bottom-up approach to identifying the institution’s most significant risk exposures across all on- and off-balance sheet risk-taking activities, including credit, market, liquidity, interest rate, operational, fiduciary, business, reputation, and regulatory risks. These key risks serve as an organizing principle for much of our risk management framework, as well as reporting, including the “risk dashboard” provided to the Board. Over the past few years, stress scenarios have included a deep recession in the U.S., a break-up of the Eurozone, a severe recession in China and an oil shock precipitated by turmoil in the Middle East/North Africa region.
In connection with the focus on our key risks, each stress test incorporates idiosyncratic loss events tailored to State Street‘s unique risk profile and business activities. Due to the nature of our business model and our consolidated statement of condition, our risks differ from those of a traditional commercial bank.
The Federal Reserve requires bank holding companies with total consolidated assets of $50 billion or more, which includes State Street, to submit a capital plan on an annual basis. The Federal Reserve uses its annual CCAR process, which incorporates hypothetical financial and economic stress scenarios, to review those capital plans and assess whether banking organizations have capital planning processes that account for idiosyncratic risks and provide for sufficient capital to continue operations throughout times of economic and financial stress. As part of its CCAR process, the Federal Reserve assesses each organization’s capital adequacy, capital planning process, and plans to distribute capital, such as dividend payments or stock purchase programs. Management and Board risk committees review, challenge, and approve CCAR results and assumptions before submission to the Federal Reserve.
Through the evaluation of State Street’s capital adequacy and/or future performance under adverse conditions, the stress testing processes provide important insights for capital planning, risk management, and strategic decision-making at State Street.
Governance
In order to support integrated decision making, we have identified three management elements to aid in the compatibility and coordination of our capital adequacy strategies and processes:
 
•
Risk Management - identification, measurement, monitoring and forecasting of different types of risk and their combined impact on capital adequacy;
•
Capital Management - determination of optimal capital levels; and
•
Business Management - strategic planning, budgeting, forecasting, and performance management.
We have a hierarchical structure supporting appropriate committee review of relevant risk and capital information. The ongoing responsibility for capital management rests with our Treasurer. The Capital Planning group within Global Treasury is responsible for the Capital Policy and guidelines, development of the Capital Plan, the management of global capital, capital optimization, and business unit capital management.
MRAC provides oversight of our capital management, our capital adequacy, our internal targets and the expectations of the major independent credit rating agencies. In addition, MRAC approves our balance sheet strategy and related activities. The Board’s RC assists the Board in fulfilling its oversight responsibilities related to the assessment and management of risk and capital.
Regulatory Capital
We are subject to risk-based regulatory capital requirements issued by the Federal Reserve. With the adoption of the Basel III rules by U.S. regulators, we became subject to the U.S. Basel III final rule as of January 1, 2014. The Basel III final rule incorporates several multi-year transition provisions for capital components and minimum ratio requirements for common equity tier 1 capital, tier 1 capital and total capital. The transition period started in January 2014 and is completed by January 1, 2019 which is concurrent with the full implementation of the Basel III final rule in the U.S.
The U.S. Basel III final rule replaced the Basel I- and Basel II-based capital regulations in the United States. As an “advanced approaches” banking organization, we became subject to the U.S. Basel III final rule beginning on January 1, 2014. However, certain aspects of the U.S. Basel III final rule, including the new minimum risk-based and leverage capital ratios, capital buffers, regulatory adjustments and deductions and revisions to the calculation of risk-weighted assets under the so-called “standardized approach,” will commence at a later date or be phased in over several years.
Among other things, the U.S. Basel III final rule introduces a minimum common equity tier 1 risk-based capital ratio of 4.5%, raises the minimum tier 1


107

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

risk-based capital ratio from 4% to 6%, and, for advanced approaches banking organizations such as State Street, imposes a minimum supplementary tier 1 leverage ratio of 3%, the numerator of which is tier 1 capital and the denominator of which includes both on-balance sheet assets and certain off-balance sheet exposures. In addition to the supplementary leverage ratio, we are subject to a minimum tier 1 leverage ratio of 4%, which differs from the supplementary leverage ratio primarily in that the denominator of the tier 1 leverage ratio is quarterly average on-balance sheet assets.
To maintain the status of our parent company as a financial holding company, we and our insured depository institution subsidiaries are required to be “well-capitalized” by maintaining capital ratios above the minimum requirements. Effective on January 1, 2015, the “well-capitalized” standard for our banking subsidiaries was revised to reflect the higher capital requirements in the U.S. Basel III final rule.
In addition to introducing new capital ratios and buffers, the U.S. Basel III final rule revises the eligibility criteria for regulatory capital instruments and provides for the phase-out of existing capital instruments that do not satisfy the new criteria. For example, existing trust preferred capital securities are being phased out from tier 1 capital over a two-year period beginning on January 1, 2014 and ending on January 1, 2016, and subsequently, the qualification of these securities as tier 2 capital will be phased out over a multi-year transition period beginning on January 1, 2016 and ending on January 1, 2022. We had trust preferred capital securities of $475 million outstanding as of December 31, 2014 .
Under the U.S. Basel III final rule, certain new items are deducted from common equity tier 1 capital and certain regulatory capital deductions were modified as compared to the previously applicable capital regulations. Among other things, the final rule requires significant investments in the common stock of unconsolidated financial institutions, as defined, and certain deferred tax assets that exceed specified individual and aggregate thresholds to be deducted from common equity tier 1 capital. As an advanced approaches banking organization, after-tax unrealized gains and losses on investment securities classified as available for sale, which are excluded from tier 1 capital under Basel I and Basel II, flow through to and affect State Street’s and State Street Bank's common equity tier 1 capital, subject to a phase-in schedule.
On February 21, 2014, we were notified by the Federal Reserve that we had completed our parallel run period. Beginning with the three months ended June 30, 2014 and ending with December 31, 2014, the lower of our regulatory capital ratios calculated under the advanced approaches provisions of the
 
Basel III final rule and those ratios calculated under the transitional provisions of Basel III (capital calculated in conformity with Basel III and risk-weighted assets calculated in conformity with Basel I) applied in the assessment of our capital adequacy for regulatory purposes.
On January 1, 2015, the U.S. Basel III final rule replaced the existing Basel I-based approach for calculating risk-weighted assets with the U.S. Basel III standardized approach that, among other things, modifies certain existing risk weights and introduces new methods for calculating risk-weighted assets for certain types of assets and exposures. The final rule also revised the Basel II-based advanced approaches capital rules to implement Basel III and certain provisions of the Dodd-Frank Act. The Dodd-Frank Act applies a "capital floor" to advanced approaches banking organizations such as State Street and State Street Bank. Beginning on January 1, 2015, the Basel III standardized approach acts as that capital floor, and we are subject to the more stringent of the risk-based capital ratios calculated under the standardized approach and those calculated under the advanced approaches in the assessment of our capital adequacy under the prompt corrective action framework.
The U.S. Basel III final rule also introduces a capital conservation buffer and a countercyclical capital buffer that add to the minimum risk-based capital ratios. Specifically, the final rule limits a banking organization’s ability to make capital distributions and discretionary bonus payments to executive officers if it fails to maintain a common equity tier 1 capital conservation buffer of more than 2.5% of total risk-weighted assets and, if deployed during periods of excessive credit growth, a common equity tier 1 countercyclical capital buffer of up to 2.5% of total risk-weighted assets, above each of the minimum common equity tier 1, and tier 1 and total risk-based capital ratios. Banking regulators have initially set the countercyclical capital buffer at zero.
The following table sets forth the transition to full implementation and the minimum risk-based capital ratio requirements under the Basel III final rule. This does not include the potential imposition of an additional countercyclical capital buffer discussed above.


108

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

TABLE 44: BASEL III FINAL RULES TRANSITION ARRANGEMENTS AND MINIMUM RISK-BASED CAPITAL RATIOS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2014
 
2015
 
2016
 
2017
 
2018
 
2019
Capital conservation buffer (CET1)
 
—
%
 
—
%
 
0.625
%
 
1.250
%
 
1.875
%
 
2.500
%
Minimum common equity tier 1
 
4.0

 
4.5

 
5.125

 
5.750

 
6.375

 
7.000

Minimum tier 1 capital
 
5.5

 
6.0

 
6.625

 
7.250

 
7.875

 
8.500

Minimum total capital
 
8.0

 
8.0

 
8.625

 
9.250

 
9.875

 
10.500

Note: Minimum ratios described above do not incorporate any proposed G-SIB surcharge, based on the December 9, 2014 Federal Reserve proposal, the surcharge is currently estimated at 1.5% for State Street. Including the 1.5% surcharge, State Street's minimum risk-based capital ratio requirements as of January 1, 2019 would be 8.5% for common equity tier 1 capital, 10.0% for tier 1 capital and 12.0% for total capital.
The specific calculation of State Street's and State Street Bank's risk-based capital ratios will change as the provisions of the Basel III final rule related to the numerator (capital) and denominator (risk-weighted assets) are phased in, and as our risk-weighted assets calculated using the advanced approaches change due to potential changes in methodology. These ongoing methodological changes will result in differences in our reported capital ratios from one reporting period to the next that are independent of applicable changes to our capital base, our asset composition, our off-balance sheet exposures or our risk profile.



109

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

The following table presents the regulatory capital structure and related regulatory capital ratios for State Street and State Street Bank as of the dates indicated. As a result of changes in the methodologies used to calculate our regulatory capital ratios from period to period, as the provisions of the Basel III final rule are phased in, the ratios presented in the table for each period are not directly comparable. Refer to the footnotes following the table.
TABLE 45: REGULATORY CAPITAL STRUCTURE AND RELATED REGULATORY CAPITAL RATIOS
 
 
 
State Street
 
State Street Bank
(Dollars in millions)
 
 
Basel III Advanced Approaches December 31, 2014 (1)
 
Basel III Transitional Approach December 31, 2014 (2)
 
December 31, 2013 (3)
 
Basel III Advanced Approaches December 31, 2014 (1)
 
Basel III Transitional Approach December 31, 2014 (2)
 
December 31, 2013 (3)
  Common shareholders' equity:
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock and related surplus
 
 
$
10,295

 
$
10,295

 
$
10,280

 
$
10,867

 
$
10,867

 
$
10,786

Retained earnings
 
 
14,882

 
14,882

 
13,395

 
9,416

 
9,416

 
9,064

Accumulated other comprehensive income (loss)
 
 
(641
)
 
(641
)
 
215

 
(535
)
 
(535
)
 
209

Treasury stock, at cost
 
 
(5,158
)
 
(5,158
)
 
(3,693
)
 
—

 
—

 
—

Total
 
 
19,378

 
19,378

 
20,197

 
19,748

 
19,748

 
20,059

Regulatory capital adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill and other intangible assets, net of associated deferred tax liabilities (4)  
 
 
(5,869
)
 
(5,869
)
 
(7,743
)
 
(5,577
)
 
(5,577
)
 
(7,341
)
Other adjustments
 
 
(36
)
 
(36
)
 
—

 
(128
)
 
(128
)
 
—

  Common equity tier 1 capital
 
 
13,473

 
13,473

 
12,454

 
14,043

 
14,043

 
12,718

Preferred stock
 
 
1,961

 
1,961

 
491

 
—

 
—

 
—

Trust preferred capital securities subject to phase-out from tier 1 capital
 
 
475

 
475

 
950

 
—

 
—

 
—

Other adjustments
 
 
(145
)
 
(145
)
 
—

 
—

 
—

 
—

  Tier 1 capital
 
 
15,764

 
15,764

 
13,895

 
14,043

 
14,043

 
12,718

Qualifying subordinated long-term debt
 
 
1,618

 
1,618

 
1,918

 
1,634

 
1,634

 
1,936

Trust preferred capital securities phased out of tier 1 capital
 
 
475

 
475

 
NA
 
—

 
—

 
NA
Other adjustments
 
 
4

 
4

 
(26
)
 
—

 
—

 
45

  Total capital
 
 
$
17,861

 
$
17,861

 
$
15,787

 
$
15,677

 
$
15,677

 
$
14,699

  Risk-weighted assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit risk
 
 
$
66,874

 
$
87,502

 
$
78,864

 
$
59,836

 
$
84,433

 
$
76,197

Operational risk
 
 
35,866

 
NA
 
NA
 
35,449

 
NA
 
NA
Market risk (5)
 
 
5,087

 
2,910

 
1,262

 
5,048

 
2,909

 
1,262

Total risk-weighted assets
 
 
$
107,827

 
$
90,412

 
$
80,126

 
$
100,333

 
$
87,342

 
$
77,459

Adjusted quarterly average assets
 
 
$
247,740

 
$
247,740

 
$
202,801

 
$
243,549

 
$
243,549

 
$
199,301

  Capital Ratios:
Minimum Requirements (6)   2014
Minimum Requirements (7)   2013
 
 
 
 
 
 
 
 
 
 
 
Common equity tier 1 capital
4.0
%
NA

12.5
%
 
14.9
%
 
15.5
%
 
14.0
%
 
16.1
%
 
16.4
%
Tier 1 capital
5.5

4.0
%
14.6

 
17.4

 
17.3

 
14.0

 
16.1

 
16.4

Total capital
8.0

8.0

16.6

 
19.8

 
19.7

 
15.6

 
17.9

 
19.0

Tier 1 leverage
4.0

4.0

6.4

 
6.4

 
6.9

 
5.8

 
5.8

 
6.4

 
 
 
 
NA: Not applicable.
(1) Common equity tier 1 capital, tier 1 capital and total capital ratios as of December 31, 2014 were calculated in conformity with the advanced approaches provisions of the Basel III final rule. Tier 1 leverage ratio as of December 31, 2014 was calculated in conformity with the Basel III final rule.
(2) Common equity tier 1 capital, tier 1 capital, total capital and tier 1 leverage ratios as of December 31, 2014 were calculated in conformity with the transitional provisions of the Basel III final rule. Specifically, these ratios reflect common equity tier 1, tier 1 and total capital (the numerator) calculated in conformity with the provisions of the Basel III final rule, and total risk-weighted assets or, with respect to the tier 1 leverage ratio, quarterly average assets (in both cases, the denominator), calculated in conformity with the provisions of Basel I.
(3) Common equity tier 1 capital, tier 1 capital, total capital and tier 1 leverage ratios as of December 31, 2013 were calculated in conformity with the provisions of Basel I.
(4) Amounts for State Street and State Street Bank as of December 31, 2014 consisted of goodwill, net of associated deferred tax liabilities, and 20% of other intangible assets, net of associated deferred tax liabilities, the latter phased in as a deduction from capital, in conformity with the Basel III final rule.
(5) Market risk risk-weighted assets reported in conformity with the Basel III advanced approaches included a credit valuation adjustment, referred to as the CVA, which reflected the risk of potential fair-value adjustments for credit risk reflected in our valuation of over-the-counter derivative contracts.  The CVA was not provided for in the final market risk capital rule; however, it was required by the advanced approaches provisions of the Basel III final rule.  State Street used the simple CVA approach in conformity with the Basel III advanced approaches.
(6) Minimum requirements will be phased in up to full implementation beginning on January 1, 2019; minimum requirements listed are as of December 31, 2014 .
(7) Minimum requirements listed, governed by Basel I, are as of December 31, 2013 .

110

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

The increases in State Street's tier 1 and total capital as of December 31, 2014 compared to December 31, 2013 were the result of the first-quarter 2014 and fourth-quarter 2014 issuances of preferred stock, the impact of the phase-in provisions of the Basel III final rule related to other intangible assets and the positive effect of year-to-date net income, partially offset by declarations of common and preferred stock dividends and purchases by us of our common stock in 2014 . State Street Bank's tier 1 and total capital increased as of December 31, 2014 compared to December 31, 2013 , the result of the previously-described phase-in provisions of the Basel III final rule related to other intangible assets and the positive effect of year-to-date net income, partially offset by the payment of dividends by State Street Bank to its parent company in 2014 .
The increases in State Street's total risk-weighted assets under the transitional approach as of December 31, 2014 compared to December 31, 2013 was primarily associated with higher off-balance sheet and market risk-equivalent assets, mainly associated with an increase in exposure associated with our participation in principal securities finance transactions, an increase in foreign exchange contracts due to an increase in contract volumes as well as an increase in market risk-equivalent risk-weighted assets, primarily due to an increase in the sixty-day moving average of our stressed VaR-based measure. Our stressed VaR-based measure was impacted by the extension of the tenor of FX swaps by Global Treasury designed to improve our liquidity position.
The regulatory capital ratios for State Street and State Street Bank as of December 31, 2014 , presented in Table 45: Regulatory Capital Structure and Related Regulatory Capital Ratios , differ from such ratios as of December 31, 2013 . These differences are independent of applicable changes to our capital base, our asset composition, our off-balance sheet exposures or our risk profile, and resulted from changes in the methodologies, required by applicable regulatory requirements, used to calculate capital and total risk-weighted assets. As a result, the ratios presented in the table for each period are not directly comparable. Beginning with the second quarter of 2014, we used both the advanced approaches provisions in the Basel III final rule, and the provisions of Basel I, to calculate our risk-weighted assets. For 2013 , we used the provisions of Basel I to calculate our risk-weighted assets.
    


 
The table below presents a roll-forward of common equity tier 1 capital, tier 1 capital and total capital for the years ended December 31, 2014 and 2013 .
TABLE 46: CAPITAL ROLL-FORWARD
 
State Street
(Dollars in millions)
Year ended December 31, 2014
 
Year ended December 31, 2013
Common equity tier 1 capital:
 
 
 
Common equity tier 1 capital balance, beginning of period
$
12,454

 
$
12,322

Net income
2,037

 
2,136

Changes in treasury stock, at cost
(1,465
)
 
(1,791
)
Dividends declared
(551
)
 
(489
)
Goodwill and other intangible assets, net of associated deferred tax liabilities
1,874

 
74

Effect of certain items in accumulated other comprehensive income (loss)
(857
)
 
84

Other adjustments
(19
)
 
118

Changes in common equity tier 1 capital
1,019

 
132

Common equity tier 1 capital balance, end of period
13,473

 
12,454

Additional tier 1 capital:
 
 
 
Tier 1 capital balance, beginning of period
13,895

 
13,760

Change in common equity tier 1 capital
1,019

 
132

Net issuance of preferred stock
1,470

 
—

Trust preferred capital securities phased out of tier 1 capital
(475
)
 
—

Other adjustments
(145
)
 
3

Changes in tier 1 capital
1,869

 
135

Tier 1 capital balance, end of period
15,764

 
13,895

Tier 2 capital:
 
 
 
Tier 2 capital balance, beginning of period
1,892

 
1,069

Net issuance and changes in long-term debt qualifying as tier 2
(300
)
 
699

Trust preferred capital securities phased into tier 2 capital
475

 
—

Change in other adjustments
30

 
124

Changes in tier 2 capital
205

 
823

Tier 2 capital balance, end of period
2,097

 
1,892

Total capital:
 
 
 
Total capital balance, beginning of period
15,787

 
14,829

Changes in tier 1 capital
1,869

 
135

Changes in tier 2 capital
205

 
823

Total capital balance, end of period
$
17,861

 
$
15,787

Beginning in the second quarter of 2014 we calculated risk-weighted assets under the advanced approaches provision of the Basel III final rule. The following table presents a roll-forward of the Basel III advanced approaches risk-weighted assets for the three and six months ended December 31, 2014 .




111

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

TABLE 47: RWA ROLL-FORWARD
 
State Street
(Dollars in millions)
Three Months Ended December 31, 2014
 
Six Months Ended December 31, 2014
Total risk-weighted assets, beginning of period
$
108,078

 
$
111,015

Changes in credit risk-weighted assets
 
 
 
Net increase (decrease) in investment securities- wholesale
(209
)
 
(1,082
)
Net increase (decrease) in loans and leases
1,209

 
1,381

Net increase (decrease) in securitization exposures
(1,223
)
 
(5,949
)
Net increase (decrease) in all other (1)
(818
)
 
1,431

Net increase (decrease) in credit risk-weighted assets
(1,041
)
 
(4,219
)
Net increase (decrease) in credit valuation adjustment
(603
)
 
(80
)
Net increase (decrease) in market risk-weighted assets
1,487

 
1,230

Net increase (decrease) in operational risk-weighted assets
(94
)
 
(119
)
Total risk-weighted assets, end of period
$
107,827

 
$
107,827

 
 
 
(1) Includes assets not in a definable category, non-material portfolio, cleared transactions, other wholesale, cash and due from, and interest-bearing deposits with, banks, repo-style exposures, equity exposures, over-the-counter derivative exposures, and 6% credit risk supervisory charge.
For the three and six months ended December 31, 2014 , total risk-weighted assets decreased from beginning of period balances primarily due to lower credit risk-weighted assets, partially offset by an increase in market risk-equivalent risk-weighted assets, primarily due to an increase in the sixty-day moving average of our stressed VaR-based measure. Our stressed VaR-based measure was impacted by the extension of the tenor of FX swaps by Global Treasury designed to improve our liquidity position. The decrease in credit risk-weighted assets primarily related to sales, maturities and pay-downs of both wholesale and securitized investments, partially offset by an increase in loan activity.
The regulatory capital ratios as of December 31, 2014 , presented in Table 45: Regulatory Capital Structure and Related Regulatory Capital Ratios , calculated under the advanced approaches in conformity with the Basel III final rule, reflect calculations and determinations with respect to our
 
capital and related matters as of December 31, 2014 , based on State Street and external data, quantitative formulae, statistical models, historical correlations and assumptions, collectively referred to as “advanced systems,” in effect and used by State Street for those purposes as of the time we filed this Form 10-K. Significant components of these advanced systems involve the exercise of judgment by us and our regulators, and our advanced systems may not accurately represent or calculate the scenarios, circumstances, outputs or other results for which they are designed or intended.
Due to the influence of changes in these advanced systems, whether resulting from changes in data inputs, regulation or regulatory supervision or interpretation, State Street-specific or market activities or experiences or other updates or factors, we expect that our advanced systems and our capital ratios calculated in conformity with the Basel III final rule will change and may be volatile over time, and that those latter changes or volatility could be material as calculated and measured from period to period. Models implemented under the Basel III final rule, particularly those implementing the advanced approaches, remain subject to regulatory review and approval. The full effects of the Basel III final rule on State Street and State Street Bank are therefore subject to further evaluation and also to further regulatory guidance, action or rule-making.
Estimated Basel III Standardized Approach and Fully Phased-in Capital Ratios
Table 48: Regulatory Capital Structure and Related Regulatory Capital Ratios - State Street and Table 49: Regulatory Capital Structure and Related Regulatory Capital Ratios - State Street Bank present our capital ratios for State Street and State Street Bank as of December 31, 2014 , calculated in conformity with the advanced approaches provisions of the Basel III final rule, our estimated ratios as of December 31, 2014 , calculated in conformity with the Basel III standardized approach, and pro-forma estimates of our fully phased-in capital ratios as of December 31, 2014 . The Basel III capital ratios, calculated in conformity with the standardized approach in the Basel III final rule and on a pro-forma fully phased-in basis are preliminary estimates, based on our present interpretations of the Basel III final rule.


112

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

TABLE 48: REGULATORY CAPITAL STRUCTURE AND RELATED REGULATORY CAPITAL RATIOS - STATE STREET
December 31, 2014 (Dollars in millions)
 
 
 
 
Basel III Advanced Approaches (1)
 
Phase-In Provisions
 
Basel III Advanced Approaches Fully Phased-In Pro-Forma Estimate (3)
 
Basel III Standardized Approach Estimate (2)
 
Phase-In Provisions
 
Basel III Standardized Approach Fully Phased-In Pro-Forma Estimate (3)
Total common shareholders' equity
 
 
 
 
$
19,378

 
$
133

 
$
19,511

 
$
19,378

 
$
133

 
$
19,511

Regulatory capital adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill and other intangible assets, net of associated deferred tax liabilities
 
 
 
 
(5,869
)
 
(1,160
)
 
(7,029
)
 
(5,869
)
 
(1,160
)
 
(7,029
)
Other adjustments
 
 
 
 
(36
)
 
(146
)
 
(182
)
 
(36
)
 
(146
)
 
(182
)
Common equity tier 1 capital
 
 
 
 
13,473

 
(1,173
)
 
12,300

 
13,473

 
(1,173
)
 
12,300

Additional tier 1 capital:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
 
 
 
 
1,961

 
—

 
1,961

 
1,961

 
—

 
1,961

Trust preferred capital securities
 
 
 
 
475

 
(475
)
 
—

 
475

 
(475
)
 
—

Other adjustments
 
 
 
 
(145
)
 
145

 
—

 
(145
)
 
145

 
—

Additional tier 1 capital
 
 
 
 
2,291

 
(330
)
 
1,961

 
2,291

 
(330
)
 
1,961

Tier 1 capital
 
 
 
 
15,764

 
(1,503
)
 
14,261

 
15,764

 
(1,503
)
 
14,261

Tier 2 capital:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Qualifying subordinated long-term debt
 
 
 
 
1,618

 
—

 
1,618

 
1,618

 
—

 
1,618

Trust preferred capital securities
 
 
 
 
475

 
370

 
845

 
475

 
370

 
845

Other
 
 
 
 
4

 
(4
)
 
—

 
4

 
(4
)
 
—

Tier 2 capital
 
 
 
 
2,097

 
366

 
2,463

 
2,097

 
366

 
2,463

Total capital
 
 
 
 
$
17,861

 
$
(1,137
)
 
$
16,724

 
$
17,861

 
$
(1,137
)
 
$
16,724

Risk weighted assets (4)
 
 
 
 
$
107,827

 
$
(1,010
)
 
$
106,817

 
$
125,011

 
$
(953
)
 
$
124,058

Adjusted average assets
 
 
 
 
247,740

 
(433
)
 
247,307

 
247,740

 
(433
)
 
247,307

Total assets for SLR
 
 
 
 
278,690

 
(1,161
)
 
277,529

 
278,690

 
(1,161
)
 
277,529

Capital ratios (5) :
Minimum Requirement 2014
Minimum Requirement 2019
Minimum Requirement Including Capital Conservation Buffer of 2.5% 2019
 
 
 
 
 
 
 
 
 
 
 
 
Common equity tier 1 capital
4.0
%
4.5
%
7.0
%
 
12.5
%
 

 
11.5
%
 
10.8
%
 

 
9.9
%
Tier 1 capital
5.5

6.0

8.5

 
14.6

 

 
13.4

 
12.6

 

 
11.5

Total capital
8.0

8.0

10.5

 
16.6

 

 
15.7

 
14.3

 

 
13.5

Tier 1 leverage
4.0

4.0

NA

 
6.4

 

 
5.8

 
6.4

 

 
5.8

Supplementary leverage
NA

5.0

NA

 
5.7

 

 
5.1

 
5.7

 

 
5.1

 
 
 
 
 
NA: Not applicable.
(1) The common equity tier 1 ratio was calculated in conformity with the provisions of the Basel III final rule; refer to Table 45: Regulatory Capital Structure and Related Regulatory Capital Ratios .
(2) As of December 31, 2014 , for purposes of the calculations completed in conformity with the Basel III final rule, total risk-weighted assets under the standardized approach were calculated using State Street's estimates, based on our current interpretations of Basel III final rule.
(3) As of December 31, 2014 , represents State Street's estimates calculated in conformity with the fully phased-in provisions of the Basel III Final rule for both Basel III advanced and standardized approaches, based on our current interpretations of the Basel III final rule.
(4) As of December 31, 2014 , State Street's estimated risk-weighted assets calculated in conformity with the standardized approach of the Basel III final rule exceeded risk-weighted assets calculated in conformity with the advanced approaches provisions of the Basel III final rule by $17.2 million ($125.0 million minus $107.8 million).
(5) Common equity tier 1 ratio is calculated by dividing common equity tier 1 capital (numerator) by risk-weighted assets (denominator); tier 1 capital ratio is calculated by dividing tier 1 capital (numerator) by risk-weighted assets (denominator); total capital ratio is calculated by dividing total capital (numerator) by risk-weighted assets (denominator); tier 1 leverage ratio is calculated by dividing tier 1 capital (numerator) by adjusted average assets (denominator); and supplementary leverage ratio is calculated by dividing tier 1 capital (numerator) by total assets for SLR (denominator).


113

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

TABLE 49: REGULATORY CAPITAL STRUCTURE AND RELATED REGULATORY CAPITAL RATIOS - STATE STREET BANK
December 31, 2014 (Dollars in millions)
 
 
 
 
Basel III Advanced Approaches (1)
 
Phase-In Provisions
 
Basel III Advanced Approaches Fully Phased-In Pro-Forma Estimate (3)
 
Basel III Standardized Approach Estimate (2)
 
Phase-In Provisions
 
Basel III Standardized Approach Fully Phased-In Pro-Forma Estimate (3)
Total common shareholders' equity
 
 
 
 
$
19,748

 
$
144

 
$
19,892

 
$
19,748

 
$
144

 
$
19,892

Regulatory capital adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill and other intangible assets, net of associated deferred tax liabilities
 
 
 
 
(5,577
)
 
(1,085
)
 
(6,662
)
 
(5,577
)
 
(1,085
)
 
(6,662
)
Other adjustments
 
 
 
 
(128
)
 
—

 
(128
)
 
(128
)
 
—

 
(128
)
Common equity tier 1 capital
 
 
 
 
14,043

 
(941
)
 
13,102

 
14,043

 
(941
)
 
13,102

Additional tier 1 capital:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
 
 
 
 
—

 
—

 
—

 
—

 
—

 
—

Trust preferred capital securities
 
 
 
 
—

 
—

 
—

 
—

 
—

 
—

Other adjustments
 
 
 
 
—

 
—

 
—

 
—

 
—

 
—

Additional tier 1 capital
 
 
 
 
—

 
—

 
—

 
—

 
—

 
—

Tier 1 capital
 
 
 
 
14,043

 
(941
)
 
13,102

 
14,043

 
(941
)
 
13,102

Tier 2 capital:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Qualifying subordinated long-term debt
 
 
 
 
1,634

 
—

 
1,634

 
1,634

 
—

 
1,634

Trust preferred capital securities
 
 
 
 
—

 
—

 
—

 
—

 
—

 
—

Other
 
 
 
 
—

 
—

 
—

 
—

 
—

 
—

Tier 2 capital
 
 
 
 
1,634

 
—

 
1,634

 
1,634

 
—

 
1,634

Total capital
 
 
 
 
$
15,677

 
$
(941
)
 
$
14,736

 
$
15,677

 
$
(941
)
 
$
14,736

Risk weighted assets (4)
 
 
 
 
$
100,333

 
$
(1,409
)
 
$
98,924

 
$
118,147

 
$
(1,328
)
 
$
116,819

Adjusted average assets
 
 
 
 
243,549

 
(365
)
 
243,184

 
243,549

 
(365
)
 
243,184

Total assets for SLR
 
 
 
 
274,331

 
(1,085
)
 
273,246

 
274,331

 
(1,085
)
 
273,246

Capital ratios (5) :
Minimum Requirement 2014
Minimum Requirement 2019
Minimum Requirement Including Capital Conservation Buffer of 2.5% 2019
 
 
 
 
 
 
 
 
 
 
 
 
Common equity tier 1 capital
4.0
%
4.5
%
7.0
%
 
14.0
%
 

 
13.2
%
 
11.9
%
 

 
11.2
%
Tier 1 capital
5.5

6.0

8.5

 
14.0

 

 
13.2

 
11.9

 

 
11.2

Total capital
8.0

8.0

10.5

 
15.6

 

 
14.9

 
13.3

 

 
12.6

Tier 1 leverage
4.0

4.0

NA

 
5.8

 

 
5.4

 
5.8

 

 
5.4

Supplementary leverage
NA

5.0

NA

 
5.1

 

 
4.8

 
5.1

 

 
4.8

 
 
 
 
 
NA: Not applicable.
(1) The common equity tier 1 ratio was calculated in conformity with the provisions of the Basel III final rule; refer to Table 45: Regulatory Capital Structure and Related Regulatory Capital Ratios .
(2) As of December 31, 2014 , for purposes of the calculations completed in conformity with the Basel III final rule, total risk-weighted assets under the standardized approach were calculated using State Street Bank's estimates, based on our current interpretations of Basel III final rule.
(3) As of December 31, 2014 , represents State Street Bank's estimates calculated in conformity with the fully phased-in provisions of the Basel III Final rule for both Basel III advanced and standardized approaches, based on our current interpretations of the Basel III final rule.
(4) As of December 31, 2014 , State Street Bank's estimated risk-weighted assets calculated in conformity with the standardized approach of the Basel III final rule exceeded risk-weighted assets calculated in conformity with the advanced approaches provisions of the Basel III final rule by $17.8 million ($118.1 million minus $100.3 million).
(5) Common equity tier 1 ratio is calculated by dividing common equity tier 1 capital (numerator) by risk-weighted assets (denominator); tier 1 capital ratio is calculated by dividing tier 1 capital (numerator) by risk-weighted assets (denominator); total capital ratio is calculated by dividing total capital (numerator) by risk-weighted assets (denominator); tier 1 leverage ratio is calculated by dividing tier 1 capital (numerator) by adjusted average assets (denominator); and supplementary leverage ratio is calculated by dividing tier 1 capital (numerator) by total assets for SLR (denominator).


114

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

Fully phased-in pro-forma estimates of common shareholders' equity include 100% of accumulated other comprehensive income, including accumulated other comprehensive income attributable to available-for-sale securities, cash flow hedges and defined benefit pension plans. Fully phased-in pro-forma estimates of common equity tier 1 capital reflect 100% of applicable deductions, including but not limited to, intangible assets net of deferred tax liabilities. For 2014, tier 1 capital and tier 2 capital each include 50% of trust preferred capital securities. Fully phased-in tier 1 capital reflects the transition of trust preferred capital securities from tier 1 capital to tier 2 capital. For both Basel III advanced and standardized approaches, fully phased-in pro-forma estimates of risk-weighted assets reflect the exclusion of intangible assets, offset by additions related to non-significant equity exposures and deferred tax assets related to temporary differences.
Global Systemically Important Bank
We are designated as a large bank holding company subject to enhanced supervision and prudential standards, commonly referred to as a “systemically important financial institution,” or SIFI, and we are one among a group of 30 institutions worldwide that have been identified by the Financial Stability Board, or FSB, and the Basel Committee as “global systemically important banks,” or G-SIBs. Our designation as a G-SIB will require us to maintain an additional capital buffer above the Basel III final rule minimum common equity tier 1 capital ratio of 4.5%, based on a number of factors, as evaluated by banking regulators. Factors in this evaluation will include our size, interconnectedness, substitutability, complexity and cross-jurisdictional activities. In November 2014, the FSB designated us as a category-1 organization, with a capital surcharge of 1%, although this designation and the associated additional capital buffer are subject to change.
On December 9, 2014, the Federal Reserve released a proposal on the implementation of capital requirements for U.S. G-SIBs. For most firms, the proposal would require a higher G-SIB buffer than would the earlier Basel Committee on Banking Supervision, or BCBS, proposal. The proposal would be phased in beginning on January 1, 2016 and be fully effective on January 1, 2019. The eight U.S. banks deemed to be G-SIBs would be required to calculate the G-SIB buffer according to two methods and be bound by the higher of the two:
•
Method 1: Same methodology as proposed by the BCBS, assessing systemic importance based upon five equally-weighted components: size, interconnectedness, complexity, cross-jurisdictional activity and substitutability
 
•
Method 2: Alters the calculation from method 1 by factoring in a wholesale funding score in place of substitutability and applying a 2x multiplier to the sum of the five components
We preliminarily estimate, based on our relevant metrics as of December 31, 2014, that Method 2 would be the binding methodology for State Street and that our G-SIB buffer may increase from the 1% proposed under the FSB designation to 1.5% under the Federal Reserve's December 2014 proposal. The actual buffer applicable will depend on the final rules implemented by the Federal Reserve, including the treatment of excess deposits we invest with U.S. and non-U.S. central banks. Assuming completion of the phase-in period for the capital conservation buffer, and no countercyclical buffer, the minimum capital ratios as of January 1, 2019, including a capital conservation buffer and an estimated G-SIB capital surcharge of 1.5%, would be 10.0% for tier 1 risk-based capital, 12.0% for total risk-based capital, and 8.5% for common equity tier 1 capital, in order for State Street to make capital distributions and discretionary bonus payments without limitation. Not all of our competitors have similarly been designated as systemically important, and therefore some of our competitors may not be subject to the same additional capital requirements.
Supplementary Leverage Ratio
On April 8, 2014, U.S. banking regulators issued a final rule enhancing the supplementary leverage ratio, or SLR, standards for certain bank holding companies, like State Street, and their insured depository institution subsidiaries, like State Street Bank. We refer to this final rule as the eSLR final rule. Under the eSLR final rule, upon implementation as of January 1, 2018, State Street Bank must maintain a supplementary leverage ratio of at least 6% to be well capitalized under the U.S. banking regulators’ Prompt Corrective Action framework. The eSLR final rule also provides that if State Street maintains an SLR of at least 5%, it is not subject to limitations on distribution and discretionary bonus payments under the eSLR final rule.
On September 3, 2014, U.S. banking regulators issued a final rule modifying the definition of the denominator of the SLR in a manner consistent with the final rule issued by the Basel Committee on Banking Supervision on January 12, 2014. The revisions to the SLR apply to all banking organizations subject to the advanced approaches provisions of the Basel III final rule, like State Street and State Street Bank. Specifically, the SLR final rule modifies the methodology for including off-balance sheet assets, including credit derivatives, repo-style transactions, and lines of credit, in the denominator of the SLR, and requires banking organizations to


115

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

calculate their total leverage exposure using daily averages for on-balance sheet assets and the average of three month-end calculations for off-balance sheet exposures. Certain public disclosures required by the SLR final rule must be provided beginning with the first quarter of 2015, and the minimum SLR requirement using the SLR final rule’s denominator calculations is effective beginning on January 1, 2018.
Estimated pro-forma fully phased-in supplementary leverage ratios as of December 31, 2014 are preliminary estimates by State Street (in each case, fully phased-in as of January 1, 2018, as per the phase-in requirements of the SLR final rule), calculated based on our interpretations of the SLR final rule as of the time this Form 10-K is filed with the SEC and as applied to our businesses and operations as of December 31, 2014.
TABLE 50: SUPPLEMENTARY LEVERAGE RATIO
December 31, 2014
 
Transitional SLR
 
Fully Phased-in SLR
(Dollars in millions)
 
 
State Street:
 
 
 
 
Tier 1 capital
 
$
15,764

 
$
14,261

On- and off-balance sheet leverage exposure
 
284,740

 
284,740

Less: regulatory deductions
 
(6,050
)
 
(7,211
)
Total assets for SLR
 
278,690

 
277,529

Supplementary leverage ratio
 
5.7
%
 
5.1
%
 
 
 
 
 
State Street Bank:
 
 
 
 
Tier 1 capital
 
$
14,043

 
$
13,102

On- and off-balance sheet leverage exposure
 
280,036

 
280,036

Less: regulatory deductions
 
(5,705
)
 
(6,790
)
Total assets for SLR
 
274,331

 
273,246

Supplementary leverage ratio
 
5.1
%
 
4.8
%
Capital Actions
Preferred Stock
In November 2014, we issued 30 million depositary shares, each representing a 1/4,000th ownership interest in a share of State Street’s non-cumulative perpetual preferred stock, Series E, without par value per share, with a liquidation preference of $100,000 per share (equivalent to $25 per depositary share), which we refer to as our Series E preferred stock, in a public offering. The aggregate proceeds from the offering, net of underwriting discounts, commissions and other issuance costs, were approximately $728 million .
In January 2015, we declared dividends on our Series E preferred stock of $1,833 per share, or approximately $0.46 per depositary share, totaling approximately $14 million , which will be paid in March 2015.
 
In February 2014, we issued 30 million depositary shares, each representing a 1/4,000th ownership interest in a share of State Street’s fixed-to-floating-rate non-cumulative perpetual preferred stock, Series D, without par value per share, with a liquidation preference of $100,000 per share (equivalent to $25 per depositary share), which we refer to as our Series D preferred stock, in a public offering. The aggregate proceeds from the offering, net of underwriting discounts, commissions and other issuance costs, were approximately $742 million .
In 2014 , we declared aggregate dividends on our Series D preferred stock of $4,605 per share, or approximately $1.15 per depository share, totaling approximately $35 million . In January 2015, we declared dividends on our Series D preferred stock of $1,475 per share, or approximately $0.37 per depositary share, totaling approximately $11 million , which will be paid in March 2015.
In 2014 , we declared aggregate dividends on our non-cumulative perpetual preferred stock, Series C (represented by depositary shares, each representing a 1/4,000th ownership interest in a share of State Street’s non-cumulative perpetual preferred stock, Series C), or Series C preferred stock, of $5,252 per share, or approximately $1.32 per depositary share, totaling approximately $26 million . In 2013 , dividends on our Series C preferred stock totaled approximately $26 million . In January 2015, we declared dividends on our Series C preferred stock of $1,313 per share, or approximately $0.33 per depositary share, totaling approximately $7 million , which will be paid in March 2015.
Common Stock
In 2014 , under a purchase program approved by our Board of Directors in March 2014 which authorizes us to purchase up to $1.70 billion of our common stock through March 31, 2015 , we purchased approximately 17.7 million shares of our common stock at an average cost of $69.59 per share and an aggregate cost of approximately $1.23 billion under that program. As of December 31, 2014 , approximately $470 million remained available for purchases of our common stock under the March 2014 program.
In the first quarter of 2014 , we completed the $2.10 billion program authorized by the Board in March 2013 by purchasing approximately 6.1 million shares of our common stock, at an average price of $69.14 per share and an aggregate cost of approximately $420 million .
Under both programs, in 2014 , we purchased in the aggregate approximately 23.8 million shares of our common stock at an average per-share cost of $69.48 and an aggregate cost of approximately $1.65


116

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

billion . Shares acquired under the March 2014 common stock purchase program which remained unissued as of December 31, 2014 were recorded as treasury stock in our consolidated statement of condition as of December 31, 2014 .
In 2013, under common stock purchase programs approved by the Board in March 2012 and March 2013, we purchased an aggregate of 31.2 million shares of our common stock at an average price of $65.30 per share and an aggregate cost of $2.04 billion .
In 2014 , we declared aggregate quarterly common stock dividends of $1.16 per share, totaling approximately $490 million , compared to aggregate common stock dividends of $1.04 per share, totaling approximately $463 million , declared in 2013 .
Federal and state banking regulations place certain restrictions on dividends paid by subsidiary banks to the parent holding company. In addition, banking regulators have the authority to prohibit bank holding companies from paying dividends. Information concerning limitations on dividends from our subsidiary banks is provided in “Related Stockholder Matters” included under Item 5, and in note 13 to the consolidated financial statements, included under Item 8 of this Form 10-K.
Economic Capital
We define economic capital as the capital required to protect holders of our senior debt, and obligations higher in priority, against unexpected economic losses over a one-year period. Economic capital is one of several measures used by us to assess the adequacy of our capital levels in relation to our risk profile; the relative importance of this measure to our capital requirements has declined as new regulatory metrics, including the Basel III advanced and standardized ratios; the G-SIB buffer, and the Supplementary Leverage Ratio, have been introduced, and our enterprise-wide stress testing framework has evolved. Due to the evolving nature of quantification techniques, we expect to periodically refine the methodologies, assumptions, and information used to estimate our capital requirements under different scenarios and stress environments, which could result in a different amount of capital needed to support our business activities.
OFF-BALANCE SHEET ARRANGEMENTS
On behalf of clients enrolled in our securities lending program, we lend securities to banks, broker/dealers and other institutions. In most circumstances, we indemnify our clients for the fair market value of those securities against a failure of the borrower to return such securities. Though these transactions are collateralized, the substantial volume of these activities necessitates detailed credit-based
 
underwriting and monitoring processes. The aggregate amount of indemnified securities on loan totaled $349.77 billion as of December 31, 2014 , compared to $320.08 billion as of December 31, 2013 . We require the borrower to provide collateral in an amount in excess of 100% of the fair market value of the securities borrowed. We hold the collateral received in connection with these securities lending services as agent, and the collateral is not recorded in our consolidated statement of condition. We revalue the securities on loan and the collateral daily to determine if additional collateral is necessary or if excess collateral is required to be returned to the borrower. We held, as agent, cash and securities totaling $364.41 billion and $331.73 billion as collateral for indemnified securities on loan as of December 31, 2014 and 2013 , respectively.
The cash collateral held by us as agent is invested on behalf of our clients. In certain cases, the cash collateral is invested in third-party repurchase agreements, for which we indemnify the client against loss of the principal invested. We require the counterparty to the indemnified repurchase agreement to provide collateral in an amount in excess of 100% of the amount of the repurchase agreement. In our role as agent, the indemnified repurchase agreements and the related collateral held by us are not recorded in our consolidated statement of condition. Of the collateral of $364.41 billion and $331.73 billion , referenced above, $85.31 billion and $85.37 billion was invested in indemnified repurchase agreements as of December 31, 2014 and 2013 , respectively. We or our agents held $90.82 billion and $91.10 billion as collateral for indemnified investments in repurchase agreements as of December 31, 2014 and 2013 , respectively.
Additional information about our securities finance activities and other off-balance sheet arrangements is provided in notes 10 and 16 to the consolidated financial statements included under Item 8 of this Form 10-K.
SIGNIFICANT ACCOUNTING ESTIMATES
Our consolidated financial statements are prepared in conformity with GAAP, and we apply accounting policies that affect the determination of amounts reported in these consolidated financial statements. Additional information on our significant accounting policies, including references to applicable footnotes, is provided in note  1 to the consolidated financial statements included under Item 8 of this Form 10-K.
Certain of our accounting policies, by their nature, require management to make judgments, involving significant estimates and assumptions, about the effects of matters that are inherently


117

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

uncertain. These estimates and assumptions are based on information available as of the date of the consolidated financial statements, and changes in this information over time could materially affect the amounts of assets, liabilities, equity, revenue and expenses reported in subsequent consolidated financial statements.
Based on the sensitivity of reported financial statement amounts to the underlying estimates and assumptions, the relatively more significant accounting policies applied by State Street have been identified by management as those associated with recurring fair-value measurements, other-than-temporary impairment of investment securities, impairment of goodwill and other intangible assets, and contingencies. These accounting policies require the most subjective or complex judgments, and underlying estimates and assumptions could be most subject to revision as new information becomes available. An understanding of the judgments, estimates and assumptions underlying these accounting policies is essential in order to understand our reported consolidated results of operations and financial condition.
The following is a brief discussion of the above-mentioned significant accounting estimates. Management has discussed these significant accounting estimates with the E&A Committee of the Board.
Fair-Value Measurements
We carry certain of our financial assets and liabilities at fair value in our consolidated financial statements on a recurring basis, including trading account assets, investment securities available for sale and derivative instruments.
Changes in the fair value of these financial assets and liabilities are recorded either as components of our consolidated statement of income, or as components of other comprehensive income within shareholders' equity in our consolidated statement of condition. In addition to those financial assets and liabilities that we carry at fair value in our consolidated financial statements on a recurring basis, we estimate the fair values of other financial assets and liabilities that we carry at amortized cost in our consolidated statement of condition, and we disclose these fair value estimates in the notes to our consolidated financial statements. We estimate the fair values of these financial assets and liabilities using the definition of fair value described below.
As of December 31, 2014 , approximately $103.77 billion of our financial assets and approximately $6.31 billion of our financial liabilities were carried at fair value on a recurring basis, compared to $105.59 billion and $6.36 billion ,
 
respectively, as of December 31, 2013 . The amounts as of December 31, 2014 represented approximately 38% of our consolidated total assets and approximately 2% of our consolidated total liabilities, compared to 43% and 3% , respectively, as of December 31, 2013 . The decrease in the relative percentage of consolidated total assets as of December 31, 2014 compared to 2013 mainly reflects a decline in the investment securities portfolio, associated with a lower level of purchases in 2014 compared to 2013, and an increase in interest-bearing deposits with banks, the result of the continued elevated level of client deposits. Additional information with respect to the assets and liabilities carried by us at fair value on a recurring basis is provided in note 2 to the consolidated financial statements included under Item 8 of this Form 10-K.
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants on the measurement date. When we measure fair value for our financial assets and liabilities, we consider the principal or the most advantageous market in which we would transact; we also consider assumptions that market participants would use when pricing the asset or liability. When possible, we look to active and observable markets to measure the fair value of identical, or similar, financial assets and liabilities. When identical financial assets and liabilities are not traded in active markets, we look to market-observable data for similar assets and liabilities. In some instances, certain assets and liabilities are not actively traded in observable markets; as a result, we use alternate valuation techniques to measure their fair value.
We categorize the financial assets and liabilities that we carry at fair value in our consolidated statement of condition on a recurring basis based on GAAP's prescribed three-level valuation hierarchy. The hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (level 1) and the lowest priority to valuation methods using significant unobservable inputs (level 3). As of December 31, 2014 , including the effect of netting, we categorized approximately 10% of our financial assets carried at fair value in level 1, approximately 85% of our financial assets carried at fair value in level 2, and approximately 5% of our financial assets carried at fair value in level 3 of the fair value hierarchy. As of December 31, 2013 , including the effect of netting, we categorized less than 1% of our financial assets carried at fair value in level 1, approximately 92% of our financial assets carried at fair value in level 2, and approximately 7% of our financial assets carried at fair value in level 3 of


118

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

the fair value hierarchy. As of December 31, 2014 , on the same basis, we categorized approximately 99% of our financial liabilities carried at fair value in level 2, and approximately 1% of our financial liabilities carried at fair value in level 3 of the fair value hierarchy. As of December 31, 2013 , on the same basis, we categorized approximately 2% of our financial liabilities carried at fair value in level 1, approximately 98% of our financial liabilities carried at fair value in level 2, and less than 1% of our financial liabilities carried at fair value in level 3 of the fair value hierarchy.
The assets categorized in level 1 were substantially composed of trading account assets. Fair value for these securities was measured by management using unadjusted quoted prices in active markets for identical securities.
The assets categorized in level 2 were composed of investment securities available for sale and derivative instruments. Fair value for the investment securities was measured by management primarily using information obtained from independent third parties. Information obtained from third parties is subject to review by management as part of a validation process. Management utilizes a process to verify the information provided, including an understanding of underlying assumptions and the level of market-participant information used to support those assumptions. In addition, management compares significant assumptions used by third parties to available market information. Such information may include known trades or, to the extent that trading activity is limited, comparisons to market research information pertaining to credit expectations, execution prices and the timing of cash flows and, where information is available, back-testing.
The derivative instruments categorized in level 2 predominantly represented foreign exchange and interest-rate contracts used in our trading activities, for which fair value was measured by management using discounted cash flow techniques, with inputs consisting of observable spot and forward points, as well as observable interest rate curves.
The substantial majority of our financial assets categorized in level 3 were composed of asset-backed and mortgage-backed securities available for sale. Level-3 assets also included foreign exchange derivative contracts. The aggregate fair value of our financial assets and liabilities categorized in level 3 as of December 31, 2014 decreased approximately 27% compared to 2013 , primarily the result of transfers out of level 3 and paydowns of asset-backed and non-U.S. debt securities.
With respect to derivative instruments, we evaluated the impact on valuation of the credit risk of
 
our counterparties and of our own credit. We considered such factors as the market-based probability of default by us and our counterparties, and our current and expected potential future net exposures by remaining maturities, in determining the appropriate measurements of fair value. Valuation adjustments associated with derivative instruments were not significant to our consolidated financial performance in 2014 , 2013 or 2012 .
Other-Than-Temporary Impairment of Investment Securities
Our portfolio of fixed-income investment securities constitutes a significant portion of the assets carried in our consolidated statement of condition. GAAP requires the use of expected future cash flows to evaluate other-than-temporary impairment of these investment securities. The amount and timing of these expected future cash flows are significant estimates used in our evaluation of other-than-temporary impairment. An other-than-temporary impairment is triggered if the intent is to sell the security, the security will more likely than not have to be sold before maturity or the amortized cost basis is not expected to be recovered. Additional information with respect to management's assessment of other-than-temporary impairment is provided in note 3 to the consolidated financial statements included under Item 8 of this Form 10-K.
Expectations of defaults and prepayments are the most significant assumptions underlying our estimates of future cash flows. In determining these estimates, management relies on relevant and reliable information, including but not limited to deal structure, including optional and mandatory calls, market interest-rate curves, industry standard asset-class-specific prepayment models, recent prepayment history, independent credit ratings, and recent actual and projected credit losses. Management considers this information based on its relevance and uses its best judgment in order to determine its assumptions for underlying cash-flow expectations and resulting estimates. Management reviews its underlying assumptions and develops expected future cash-flow estimates at least quarterly. Additional detail with respect to the sensitivity of these default and prepayment assumptions is provided under “Financial Condition - Investment Securities” in this Management's Discussion and Analysis.


119

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)

Impairment of Goodwill and Other Intangible Assets
Goodwill represents the excess of the cost of an acquisition over the fair value of the net tangible and other intangible assets acquired. Other intangible assets represent purchased assets that can be distinguished from goodwill because of contractual rights or because the asset can be exchanged on its own or in combination with a related contract, asset or liability. Goodwill is not amortized, while other intangible assets are amortized over their estimated useful lives.
Goodwill is ultimately supported by revenue from our Investment Servicing and Investment Management lines of business. A decline in earnings as a result of a lack of growth, or our inability to deliver cost-effective services over sustained periods, could lead to a perceived impairment of goodwill, which would be evaluated and, if necessary, be recorded as a write-down of the reported amount of goodwill through a charge to other expenses in our consolidated statement of income.
On an annual basis, or more frequently if circumstances arise, management reviews goodwill and evaluates events or other developments that may indicate impairment of the carrying amount. We perform this evaluation at the reporting unit level, which is one level below our two major lines of business. The evaluation methodology for potential impairment is inherently complex and involves significant management judgment in the use of estimates and assumptions.
We evaluate goodwill for impairment using a two-step process. First, we compare the aggregate fair value of the reporting unit to its carrying amount, including goodwill. If the fair value exceeds the carrying amount, no impairment exists. If the carrying amount of the reporting unit exceeds the fair value, then we compare the “implied” fair value of the reporting unit's goodwill to its carrying amount. If the carrying amount of the goodwill exceeds the implied fair value, then goodwill impairment is recognized by writing the goodwill down to the implied fair value. The implied fair value of the goodwill is determined by allocating the fair value of the reporting unit to all of the assets and liabilities of that unit, as if the unit had been acquired in a business combination and the overall fair value of the unit was the purchase price.
To determine the aggregate fair value of the reporting unit being evaluated for goodwill impairment, we use one of two principal methodologies: a market approach, based on a comparison of the reporting unit to publicly-traded companies in similar lines of business; or an income approach, based on the value of the cash flows that
 
the business can be expected to generate in the future.
Events that may indicate impairment include significant or adverse changes in the business, economic or political climate; an adverse action or assessment by a regulator; unanticipated competition; and a more-likely-than-not expectation that we will sell or otherwise dispose of a business to which the goodwill or other intangible assets relate. Additional information about goodwill and other intangible assets, including information by line of business, is provided in note  5 to the consolidated financial statements included under Item 8 of this Form 10-K.
Our evaluation of goodwill and other intangible assets indicated that no significant impairment occurred in 2014 , 2013 or 2012 . Goodwill and other intangible assets recorded in our consolidated statement of condition as of December 31, 2014 totaled approximately $5.83 billion and $2.03 billion , respectively, compared to $6.04 billion and $2.36 billion , respectively, as of December 31, 2013 .
Contingencies
The significant estimates and judgments related with establishing litigation reserves are discussed in note 11 of the consolidated financial statements included under Item 8 of this Form 10-K.

RECENT ACCOUNTING DEVELOPMENTS
Information with respect to recent accounting developments is provided in note 1 to the consolidated financial statements included under Item 8 of this Form 10-K.


120

Table of Contents

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information provided under “Financial Condition - Market Risk Management” in Management’s Discussion and Analysis, included under Item 7 of this Form 10-K, is incorporated by reference herein.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Additional information about restrictions on the transfer of funds from State Street Bank to the parent company is provided under Item 5, and in “Financial Condition - Capital” in Management’s Discussion and Analysis included under Item 7, of this Form 10-K.


121

Table of Contents

Report of Independent Registered Public Accounting Firm

The Shareholders and Board of Directors of
State Street Corporation
We have audited the accompanying consolidated statement of condition of State Street Corporation (the “Corporation”) as of December 31, 2014 and 2013 , and the related consolidated statements of income, comprehensive income, changes in shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2014 . These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of State Street Corporation at December 31, 2014 and 2013 , and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2014 , in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), State Street Corporation’s internal control over financial reporting as of December 31, 2014 , based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 20, 2015 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP
Boston, Massachusetts
February 20, 2015


122


STATE STREET CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statement of Income
Years Ended December 31,
2014
 
2013
 
2012
(Dollars in millions, except per share amounts)
 
 
 
 
 
Fee revenue:
 
 
 
 
 
Servicing fees
$
5,129

 
$
4,819

 
$
4,414

Management fees
1,207

 
1,106

 
993

Trading services
1,084

 
1,094

 
1,036

Securities finance
437

 
359

 
405

Processing fees and other
174

 
212

 
240

Total fee revenue
8,031

 
7,590

 
7,088

Net interest revenue:
 
 
 
 
 
Interest revenue
2,652

 
2,714

 
3,014

Interest expense
392

 
411

 
476

Net interest revenue
2,260

 
2,303

 
2,538

Gains (losses) related to investment securities, net:
 
 
 
 
 
Net gains (losses) from sales of available-for-sale securities
15

 
14

 
55

Losses from other-than-temporary impairment
(1
)
 
(21
)
 
(53
)
Losses reclassified (from) to other comprehensive income
(10
)
 
(2
)
 
21

Gains (losses) related to investment securities, net
4

 
(9
)
 
23

Total revenue
10,295

 
9,884

 
9,649

Provision for loan losses
10

 
6

 
(3
)
Expenses:
 
 
 
 
 
Compensation and employee benefits
4,060

 
3,800

 
3,837

Information systems and communications
976

 
935

 
844

Transaction processing services
784

 
733

 
702

Occupancy
461

 
467

 
470

Claims resolution
—

 
—

 
(362
)
Acquisition and restructuring costs
133

 
104

 
225

Professional services
440

 
392

 
381

Amortization of other intangible assets
222

 
214

 
198

Other
751

 
547

 
591

Total expenses
7,827

 
7,192

 
6,886

Income before income tax expense
2,458

 
2,686

 
2,766

Income tax expense
421

 
550

 
705

Net income
$
2,037

 
$
2,136

 
$
2,061

Net income available to common shareholders
$
1,973

 
$
2,102

 
$
2,019

Earnings per common share:
 
 
 
 
 
Basic
$
4.65

 
$
4.71

 
$
4.25

Diluted
4.57

 
4.62

 
$
4.20

Average common shares outstanding (in thousands):
 
 
 
 
 
Basic
424,223

 
446,245

 
474,458

Diluted
432,007

 
455,155

 
481,129

Cash dividends declared per common share
$
1.16

 
$
1.04

 
$
.96




The accompanying notes are an integral part of these consolidated financial statements.

123


Consolidated Statement Of Comprehensive Income
Years Ended December 31,
2014
 
2013
 
2012
(In millions)
 
 
 
 
 
Net income
$
2,037

 
$
2,136

 
$
2,061

Other comprehensive income (loss), net of related taxes:
 
 
 
 
 
Foreign currency translation, net of related taxes of ($94), ($20) and $45, respectively
(889
)
 
95

 
134

Net unrealized gains (losses) on available-for-sale securities, net of reclassification adjustment and net of related taxes of ($269), ($521) and $469, respectively
437

 
(826
)
 
798

Net unrealized gains (losses) on available-for-sale securities designated in fair value hedges, net of related taxes of ($15), $56 and $17, respectively
(24
)
 
86

 
27

Other-than-temporary impairment on held-to-maturity securities related to factors other than credit, net of related taxes of $12, $11 and $13, respectively
18

 
18

 
21

Net unrealized gains (losses) on cash flow hedges, net of related taxes of $74, $62 and $52, respectively
115

 
92

 
74

Net unrealized gains (losses) on retirement plans, net of related taxes of ($50), $71 and ($36), respectively
(69
)
 
80

 
(35
)
Other comprehensive income (loss)
(412
)
 
(455
)
 
1,019

Total comprehensive income
$
1,625

 
$
1,681

 
$
3,080







































The accompanying notes are an integral part of these consolidated financial statements.

124


Consolidated Statement Of Condition
As of December 31,
2014
 
2013
(Dollars in millions, except per share amounts)
 
 
 
Assets:
 
 
 
Cash and due from banks
$
1,855

 
$
3,220

Interest-bearing deposits with banks
93,523

 
64,257

Securities purchased under resale agreements
2,390

 
6,230

Trading account assets
924

 
843

Investment securities available for sale
94,913

 
99,174

Investment securities held to maturity (fair value of $17,842 and $17,560)
17,723

 
17,740

Loans and leases (less allowance for losses of $38 and $28)
18,161

 
13,458

Premises and equipment (net of accumulated depreciation of $4,599 and $4,417)
1,937

 
1,860

Accrued interest and fees receivable
2,242

 
2,123

Goodwill
5,826

 
6,036

Other intangible assets
2,025

 
2,360

Other assets
32,600

 
25,990

Total assets
$
274,119

 
$
243,291

Liabilities:
 
 
 
Deposits:
 
 
 
Noninterest-bearing
$
70,490

 
$
65,614

Interest-bearing—U.S.
33,012

 
13,392

Interest-bearing—non-U.S.
105,538

 
103,262

Total deposits
209,040

 
182,268

Securities sold under repurchase agreements
8,925

 
7,953

Federal funds purchased
21

 
19

Other short-term borrowings
4,381

 
3,780

Accrued expenses and other liabilities
20,237

 
19,194

Long-term debt
10,042

 
9,699

Total liabilities
252,646

 
222,913

Commitments, guarantees and contingencies (notes 10 and 11)

 

Shareholders’ equity:
 
 
 
Preferred stock, no par, 3,500,000 shares authorized:
 
 
 
Series C, 5,000 shares issued and outstanding
491

 
491

Series D, 7,500 shares issued and outstanding
742

 
—

Series E, 7,500 shares issued and outstanding
728

 
—

Common stock, $1 par, 750,000,000 shares authorized:
 
 
 
503,880,120 and 503,882,841 shares issued
504

 
504

Surplus
9,791

 
9,776

Retained earnings
14,882

 
13,395

Accumulated other comprehensive income (loss)
(507
)
 
(95
)
Treasury stock, at cost (88,684,969 and 69,754,255 shares)
(5,158
)
 
(3,693
)
Total shareholders’ equity
21,473

 
20,378

Total liabilities and shareholders’ equity
$
274,119

 
$
243,291







The accompanying notes are an integral part of these consolidated financial statements.

125


Consolidated Statement Of Changes In Shareholders' Equity
(Dollars in millions, except per share amounts, shares in thousands)
PREFERRED
STOCK
 
COMMON STOCK
 
Surplus
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
TREASURY STOCK
 
Total
Shares
 
Amount
 
Shares
 
Amount
 
Balance as of December 31, 2011
$
500

 
503,966

 
$
504

 
$
9,557

 
$
10,176

 
$
(659
)
 
16,542

 
$
(680
)
 
$
19,398

Net income
 
 
 
 
 
 
 
 
2,061

 
 
 
 
 
 
 
2,061

Other comprehensive income
 
 
 
 
 
 
 
 
 
 
1,019

 
 
 
 
 
1,019

Redemption of preferred stock
(500
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(500
)
Preferred stock issued
488

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
488

Accretion of issuance costs
1

 
 
 
 
 
 
 
(1
)
 
 
 
 
 
 
 
—

Cash dividends declared:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Common stock - $.96 per share
 
 
 
 
 
 
 
 
(456
)
 
 
 
 
 
 
 
(456
)
  Preferred stock
 
 
 
 
 
 
 
 
(29
)
 
 
 
 
 
 
 
(29
)
Common stock acquired
 
 
 
 
 
 
 
 
 
 
 
 
33,408

 
(1,440
)
 
(1,440
)
Common stock awards and options exercised, including related taxes of $(6)
 
 
(66
)
 
 
 
110

 
 
 
 
 
(4,693
)
 
217

 
327

Other
 
 
 
 
 
 
 
 
 
 
 
 
(19
)
 
1

 
1

Balance as of December 31, 2012
489

 
503,900

 
504

 
9,667

 
11,751

 
360

 
45,238

 
(1,902
)
 
20,869

Net income
 
 
 
 
 
 
 
 
2,136

 
 
 
 
 
 
 
2,136

Other comprehensive loss
 
 
 
 
 
 
 
 
 
 
(455
)
 
 
 
 
 
(455
)
Accretion of issuance costs
2

 
 
 
 
 
 
 
(2
)
 
 
 
 
 
 
 
—

Cash dividends declared:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


  Common stock - $1.04 per share
 
 
 
 
 
 
 
 
(463
)
 
 
 
 
 
 
 
(463
)
  Preferred stock
 
 
 
 
 
 
 
 
(26
)
 
 
 
 
 
 
 
(26
)
Common stock acquired
 
 
 
 
 
 
 
 
 
 
 
 
31,237

 
(2,040
)
 
(2,040
)
Common stock awards and options exercised, including income tax benefit of $51
 
 
(17
)
 
 
 
113

 
 
 
 
 
(6,709
)
 
249

 
362

Other
 
 
 
 
 
 
(4
)
 
(1
)
 
 
 
(12
)
 
 
 
(5
)
Balance as of December 31, 2013
491

 
503,883

 
504

 
9,776

 
13,395

 
(95
)
 
69,754

 
(3,693
)
 
20,378

Net income
 
 
 
 
 
 
 
 
2,037

 
 
 
 
 
 
 
2,037

Other comprehensive loss
 
 
 
 
 
 
 
 
 
 
(412
)
 
 
 
 
 
(412
)
Preferred stock issued
1,470

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,470

Cash dividends declared:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Common stock - $1.16 per share
 
 
 
 
 
 
 
 
(490
)
 
 
 
 
 
 
 
(490
)
  Preferred stock
 
 
 
 
 
 
 
 
(61
)
 
 
 
 
 
 
 
(61
)
Common stock acquired
 
 
 
 
 
 
 
 
 
 
 
 
23,749

 
(1,650
)
 
(1,650
)
Common stock awards and options exercised, including income tax benefit of $72
 
 
(3
)
 
 
 
17

 
 
 
 
 
(4,805
)
 
185

 
202

Other
 
 
 
 
 
 
(2
)
 
1

 
 
 
(13
)
 
 
 
(1
)
Balance as of December 31, 2014
$
1,961

 
503,880

 
$
504

 
$
9,791

 
$
14,882

 
$
(507
)
 
88,685

 
$
(5,158
)
 
$
21,473







The accompanying condensed notes are an integral part of these consolidated financial statements.

126


Consolidated Statement Of Cash Flows
Years Ended December 31,
2014
 
2013
 
2012
(In millions)
 
 
 
 
 
Operating Activities:
 
 
 
 
 
Net income
$
2,037

 
$
2,136

 
$
2,061

Adjustments to reconcile net income to net cash (used in) provided by operating activities:
 
 
 
 
 
Deferred income tax expense
79

 
62

 
231

Amortization of other intangible assets
222

 
214

 
198

Other non-cash adjustments for depreciation, amortization and accretion, net
477

 
461

 
291

(Gains) losses related to investment securities, net
(4
)
 
9

 
(23
)
Change in trading account assets, net
(81
)
 
(206
)
 
70

Change in accrued interest and fees receivable, net
(119
)
 
(153
)
 
(148
)
Change in collateral deposits, net
(4,362
)
 
(4,046
)
 
(1,443
)
Change in unrealized (gains) losses on foreign exchange derivatives, net
(2,042
)
 
(128
)
 
982

Change in other assets, net
3,612

 
(819
)
 
(360
)
Change in accrued expenses and other liabilities, net
(669
)
 
113

 
(250
)
Other, net
289

 
333

 
324

Net cash (used in) provided by operating activities
(561
)
 
(2,024
)
 
1,933

Investing Activities:
 
 
 
 
 
Net (increase) decrease in interest-bearing deposits with banks
(29,266
)
 
(13,494
)
 
8,123

Net decrease (increase) in securities purchased under resale agreements
3,840

 
(1,214
)
 
2,029

Proceeds from sales of available-for-sale securities
9,766

 
10,261

 
5,399

Proceeds from maturities of available-for-sale securities
36,120

 
37,529

 
44,375

Purchases of available-for-sale securities
(43,146
)
 
(39,097
)
 
(60,812
)
Proceeds from maturities of held-to-maturity securities
3,217

 
2,080

 
3,176

Purchases of held-to-maturity securities
(3,778
)
 
(8,415
)
 
(3,577
)
Net increase in loans
(4,785
)
 
(1,214
)
 
(2,303
)
Business acquisitions, net of cash acquired
—

 
—

 
(511
)
Purchases of equity investments and other long-term assets
(182
)
 
(272
)
 
(251
)
Purchases of premises and equipment
(427
)
 
(388
)
 
(355
)
Other, net
149

 
139

 
116

Net cash used in investing activities
(28,492
)
 
(14,085
)
 
(4,591
)
Financing Activities:
 
 
 
 
 
Net increase (decrease) in time deposits
54,404

 
(14,507
)
 
7,627

Net (decrease) increase in all other deposits
(27,632
)
 
32,594

 
(733
)
Net increase (decrease) in short-term borrowings
1,575

 
(1,155
)
 
(1,587
)
Proceeds from issuance of long-term debt, net of issuance costs
994

 
2,485

 
998

Payments for long-term debt and obligations under capital leases
(788
)
 
(134
)
 
(1,781
)
Proceeds from issuance of preferred stock
1,470

 
—

 
488

Proceeds from exercises of common stock options
14

 
121

 
53

Purchases of common stock
(1,650
)
 
(2,040
)
 
(1,440
)
Excess tax benefit (expense) related to stock-based compensation
72

 
50

 
(6
)
Repurchases of common stock for employee tax withholding
(232
)
 
(189
)
 
(101
)
Payments for cash dividends
(539
)
 
(486
)
 
(463
)
Net cash provided by financing activities
27,688

 
16,739

 
3,055

Net (decrease) increase
(1,365
)
 
630

 
397

Cash and due from banks at beginning of period
3,220

 
2,590

 
2,193

Cash and due from banks at end of period
$
1,855

 
$
3,220

 
$
2,590

 
 
 
 
 
 
Supplemental disclosure:
 
 
 
 
 
Interest paid
$
398

 
$
416

 
$
516

Income taxes paid (refunded), net
358

 
406

 
(186
)


The accompanying notes are an integral part of these consolidated financial statements.

127


STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 1 .    Summary of Significant Accounting Policies
The accounting and financial reporting policies of State Street Corporation conform to U.S. generally accepted accounting principles, referred to as GAAP. State Street Corporation, the parent company, is a financial holding company headquartered in Boston, Massachusetts. Unless otherwise indicated or unless the context requires otherwise, all references in these notes to consolidated financial statements to “State Street,” “we,” “us,” “our” or similar references mean State Street Corporation and its subsidiaries on a consolidated basis. Our principal banking subsidiary is State Street Bank and Trust Company, or State Street Bank.
We have two lines of business:
Investment Servicing provides services for mutual funds, collective investment funds and other investment pools, corporate and public retirement plans, insurance companies, foundations and endowments worldwide. Products include custody; product- and participant-level accounting; daily pricing and administration; master trust and master custody; record-keeping; cash management; foreign exchange, brokerage and other trading services; securities finance; deposit and short-term investment facilities; loans and lease financing; investment manager and alternative investment manager operations outsourcing; and performance, risk and compliance analytics to support institutional investors.
Investment Management , through State Street Global Advisors, or SSGA, provides a broad array of investment management, investment research and investment advisory services to corporations, public funds and other sophisticated investors. SSGA offers active and passive asset management strategies across equity, fixed-income and cash asset classes. Products are distributed directly and through intermediaries using a variety of investment vehicles, including exchange-traded funds, or ETFs, such as the SPDR ® ETF brand.
Basis of Presentation:
Our consolidated financial statements include the accounts of the parent company and its majority- and wholly-owned and otherwise controlled subsidiaries, including State Street Bank. All material inter-company transactions and balances have been eliminated. Certain previously reported amounts have been reclassified to conform to current-year presentation.
We consolidate subsidiaries in which we exercise control. Investments in unconsolidated
 

subsidiaries, recorded in other assets, generally are accounted for under the equity method of accounting if we have the ability to exercise significant influence over the operations of the investee. For investments accounted for under the equity method, our share of income or loss is recorded in processing fees and other revenue in our consolidated statement of income. Investments not meeting the criteria for equity-method treatment are accounted for under the cost method of accounting.
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions in the application of certain of our significant accounting policies that may materially affect the reported amounts of assets, liabilities, equity, revenue, and expenses. As a result of unanticipated events or circumstances, actual results could differ from those estimates.
Foreign Currency Translation:
The assets and liabilities of our operations with functional currencies other than the U.S. dollar are translated at month-end exchange rates, and revenue and expenses are translated at rates that approximate average monthly exchange rates. Gains or losses from the translation of the net assets of subsidiaries with functional currencies other than the U.S. dollar, net of related taxes, are recorded in accumulated other comprehensive income, or AOCI, a component of shareholders’ equity.
Cash and Cash Equivalents:
For purposes of the consolidated statement of cash flows, cash and cash equivalents are defined as cash and due from banks.
Interest-Bearing Deposits with Banks:
Interest-bearing deposits with banks generally consist of highly liquid, short-term investments maintained at the Federal Reserve Bank and other non-U.S. central banks with original maturities at the time of purchase of one month or less.
Securities Purchased Under Resale Agreements and Securities Sold Under Repurchase Agreements:
Securities purchased under resale agreements and sold under repurchase agreements are treated as collateralized financing transactions, and are recorded in our consolidated statement of condition at the amounts at which the securities will be subsequently resold or repurchased, plus accrued interest. Our policy is to take possession or control of securities underlying resale agreements either


128

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

directly or through agent banks, allowing borrowers the right of collateral substitution and/or short-notice termination. We revalue these securities daily to determine if additional collateral is necessary from the borrower to protect us against credit exposure. We can use these securities as collateral for repurchase agreements.
For securities sold under repurchase agreements collateralized by our investment securities portfolio, the dollar value of the securities remains in investment securities in our consolidated statement of condition. Where a master netting agreement exists or both parties are members of a common clearing organization, resale and repurchase agreements with the same counterparty or clearing house and maturity date are recorded on a net basis.
Fee and Net Interest Revenue:
Fees from investment servicing, investment management, securities finance, trading services and certain types of processing fees and other revenue are recorded in our consolidated statement of income based on estimates or specific contractual terms, including mutually agreed changes to terms, as transactions occur or services are rendered, provided that persuasive evidence exists, the price to the client is fixed or determinable and collectibility is reasonably assured. Amounts accrued at period-end are recorded in accrued interest and fees receivable in our consolidated statement of condition. Performance fees generated by our investment management activities are recorded when earned, based on predetermined benchmarks associated with the applicable fund’s performance.
Interest revenue on interest-earning assets and interest expense on interest-bearing liabilities are recorded in our consolidated statement of income as components of net interest revenue, and are generally based on the effective yield of the related financial asset or liability.
Recent Accounting Developments:
In February 2015, the FASB issued an amendment to GAAP that updates the considerations on whether an entity should consolidate certain legal entities. All legal entities are subject to reevaluation under the revised consolidation model. The amendment is effective for State Street beginning on January 1, 2016, and may be applied retrospectively or via a modified retrospective approach. Early adoption is permitted. We are currently assessing the potential impact of this amendment on our consolidated financial statements.
In November 2014, the FASB issued an amendment to GAAP that allows, but does not
 
require, an acquired entity to apply pushdown accounting in its stand-alone financial statements upon acquisition by a new parent. The decision to apply pushdown accounting may be made independently for each change-in-control event. The new guidance was effective on November 18, 2014 and can be applied retrospectively. We will assess the need to apply pushdown accounting for future acquisitions on an individual basis, when necessary.
In November 2014, the FASB issued an amendment to GAAP that requires entities that issue or invest in hybrid instruments in the form of a share to determine the nature of the host contract by considering all stated and implied substantive terms and features of the hybrid financial instrument, including the potential outcomes of the hybrid financial instrument. Classifying the host contract as equity or debt may result in substantially different answers on whether certain features must be accounted for separately. The new guidance will require a modified retrospective application to all existing hybrid financial instruments in the form of a share, with the option of retrospective application. The amendment is effective for State Street, for the annual and interim period beginning on January 1, 2016. We have not issued and we do not currently hold any hybrid instruments within the scope of this guidance. We will assess its impact in conjunction with new transactions, as applicable.
In August 2014, the FASB issued an amendment to GAAP that requires management to evaluate whether there is substantial doubt about the entity’s ability to continue as a going concern and, if so, disclose that fact. The amendment is effective for our annual consolidated financial statements as of December 31, 2016 and interim periods thereafter. Our adoption of this amendment will not have a material effect on our consolidated financial statements.
In June 2014, the FASB issued an amendment to GAAP for “repo-to-maturity” transactions and repurchase agreements executed as repurchase financings. The amendment requires enhanced disclosure for repurchase agreements and securities lending transactions accounted for as secured borrowings and for certain transfers of financial assets. The amendment is effective for State Street beginning on January 1, 2015. Our adoption of this amendment will not have a material effect on our consolidated financial statements.
In May 2014, the FASB issued an amendment to GAAP that provides for a single comprehensive model to be applied in the accounting for revenue arising from contracts with clients. In applying this


129

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

model, an entity would recognize revenue that represents the transfer of promised goods or services to clients in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendment supersedes most current GAAP related to revenue recognition, including industry-specific guidance. The amendment is effective for State Street beginning on January 1, 2017, and must be applied retrospectively. Early adoption is prohibited. We are currently assessing the potential impact of this amendment on our consolidated financial statements.
In April 2014, the FASB issued an amendment to GAAP that revises the criteria for the treatment and disclosure of discontinued operations. The amendment allows entities to have significant continuing involvement and continuing cash flows with the discontinued operation, but requires additional disclosure for discontinued operations and disclosure for disposals deemed to be material that do not meet the definition of a discontinued operation. The presentation and disclosure requirements are effective for State Street beginning on January 1, 2015, and are required to be applied prospectively to discontinued operations occurring after that date. We did not have any transactions that qualified as discontinued operations during the periods presented in our consolidated financial statements.
In January 2014, the FASB issued an amendment to GAAP that allows an investor in an affordable housing project, if the project meets certain defined conditions, to amortize the cost of their investment in proportion to the tax credits and other tax benefits they receive, and reflect it as part of income tax expense rather than as revenue from operations. The amendment is effective, for State Street, for interim and annual periods beginning January 1, 2015, and will not have a material effect on our consolidated financial statements.
Other Significant Policies:
The following table identifies our other significant accounting policies and the note and page where a detailed description of each policy can be found.
 
Note 2 .    Fair Value
Fair-Value Measurements:
We carry trading account assets, investment securities available for sale and various types of derivative financial instruments at fair value in our consolidated statement of condition on a recurring basis. Changes in the fair values of these financial assets and liabilities are recorded either as components of our consolidated statement of income or as components of accumulated other comprehensive income, or AOCI, within shareholders' equity in our consolidated statement of condition.
We measure fair value for the above-described financial assets and liabilities in conformity with GAAP that governs the measurement of the fair value of financial instruments. Management believes that its valuation techniques and underlying assumptions used to measure fair value conform to the provisions of GAAP. We categorize the financial assets and liabilities that we carry at fair value based on a prescribed three-level valuation hierarchy. The hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (level 1) and the lowest priority to valuation methods using significant unobservable inputs (level 3). If the inputs used to measure a financial asset or liability cross different levels of the hierarchy, categorization is based on the lowest-level input that is significant to the fair-value measurement. Management's assessment of the significance of a particular input to the overall fair-value measurement of a financial asset or liability requires judgment, and considers factors specific to that asset or liability. The three levels of the valuation hierarchy are described below.


130

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Level 1. Financial assets and liabilities with values based on unadjusted quoted prices for identical assets or liabilities in an active market. Our level-1 financial assets and liabilities primarily include positions in U.S. government securities and highly liquid U.S. and non-U.S. government fixed-income securities carried in trading account assets. We may carry U.S. government securities in our available-for-sale portfolio in connection with our asset-and-liability management activities. Our level-1 financial assets also include active exchange-traded equity securities and non-cash collateral received from counterparties in connection with our enhanced custody business.
Level 2. Financial assets and liabilities with values based on quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability. Level-2 inputs include the following:
•
Quoted prices for similar assets or liabilities in active markets;
•
Quoted prices for identical or similar assets or liabilities in non-active markets;
•
Pricing models whose inputs are observable for substantially the full term of the asset or liability; and
•
Pricing models whose inputs are derived principally from, or corroborated by, observable market information through correlation or other means for substantially the full term of the asset or liability.
Our level-2 financial assets and liabilities primarily include non-U.S. debt securities carried in trading account assets and various types of fixed-income investment securities available-for-sale, as well as various types of foreign exchange and interest-rate derivative instruments.
Fair value for our investment securities available-for-sale categorized in level 2 is measured primarily using information obtained from independent third parties. This third-party information is subject to review by management as part of a validation process, which includes obtaining an understanding of the underlying assumptions and the level of market participant information used to support those assumptions. In addition, management compares significant assumptions used by third parties to available market information. Such information may include known trades or, to the extent that trading activity is limited, comparisons to market research information pertaining to credit expectations, execution prices and the timing of cash flows, and where information is available, back-testing.
 
Derivative instruments categorized in level 2 predominantly represent foreign exchange contracts used in our trading activities, for which fair value is measured using discounted cash-flow techniques, with inputs consisting of observable spot and forward points, as well as observable interest-rate curves. With respect to derivative instruments, we evaluate the impact on valuation of the credit risk of our counterparties and our own credit risk. We consider factors such as the likelihood of default by us and our counterparties, our current and potential future net exposures and remaining maturities in determining the fair value. Valuation adjustments associated with derivative instruments were not material to those instruments for the years ended December 31, 2014, 2013 or 2012 .
Level 3. Financial assets and liabilities with values based on prices or valuation techniques that require inputs that are both unobservable in the market and significant to the overall measurement of fair value. These inputs reflect management's judgment about the assumptions that a market participant would use in pricing the financial asset or liability, and are based on the best available information, some of which is internally developed. The following provides a more detailed discussion of our financial assets and liabilities that we may categorize in level 3 and the related valuation methodology.
•
The fair value of our investment securities categorized in level 3 is measured using information obtained from third-party sources, typically non-binding broker or dealer quotes, or through the use of internally-developed pricing models. Management has evaluated its methodologies used to measure fair value, but has considered the level of observable market information to be insufficient to categorize the securities in level 2.
•
The fair value of foreign exchange contracts, primarily options, is measured using an option-pricing model. Because of a limited number of observable transactions, certain model inputs are not observable, such as implied volatility surface, but are derived from observable market information.
•
The fair value of certain interest-rate caps with long-dated maturities is measured using a matrix-pricing approach. Observable market prices are not available for these derivatives, so extrapolation is necessary to value these instruments, since they have a strike and/or maturity outside of the matrix.


131

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Our level-3 financial assets and liabilities are similar in structure and profile to our level-1 and level-2 financial instruments, but they trade in less liquid markets, and the measurement of their fair value is inherently more difficult. As of December 31, 2014 , on a gross basis, we categorized in level 3 approximately 5% of our financial assets carried at fair value on a recurring basis. As of the same date and on the same basis, the percentage of our financial liabilities categorized in level 3 to our financial liabilities carried at fair value on a recurring basis was de minimis. The fair value of investment securities categorized in level 3 that was measured using non-binding quotes and internally-developed pricing-model inputs was approximately 98% and 2% , respectively, of the total fair value of our investment securities categorized in level 3 as of December 31, 2014 .
The process used to measure the fair value of our level-3 financial assets and liabilities is overseen by a valuation group within Corporate Finance, separate from the business units that manage the assets and liabilities. This function, which develops and manages the valuation process, reports to State Street's Valuation Committee. The Valuation Committee comprises senior management from separate business units, Enterprise Risk Management, a corporate risk oversight group, and Corporate Finance, and oversees adherence to State Street's valuation policies.
The valuation group performs validation of the pricing information obtained from third-party sources in order to evaluate reasonableness and consistency with market experience in similar asset classes. Monthly analyses include a review of price changes relative to overall trends, credit analysis and other relevant procedures (discussed below). In addition, prices for level-3 securities carried in our investment portfolio are tested on a sample basis based on unexpected pricing movements. These sample prices are then corroborated through price recalculations, when applicable, using available market information, which is obtained separately from the third-party pricing source. The recalculated prices are compared to market-research information pertaining to credit expectations, execution prices and the timing of cash flows, and where information is available, back-testing. If a difference is identified and it is determined that there is a significant impact requiring an adjustment, the adjustment is presented
 
to the Valuation Committee for review and consideration.
Validation is also performed on fair-value measurements determined using internally-developed pricing models. The pricing models are subject to validation through our Model Assessment Committee, a corporate risk oversight committee that provides technical support and input to the Valuation Committee. This validation process incorporates a review of a diverse set of model and trade parameters across a broad range of values in order to evaluate the model's suitability for valuation of a particular financial instrument type, as well as the model's accuracy in reflecting the characteristics of the related financial asset or liability and its significant risks. Inputs and assumptions, including any price-valuation adjustments, are developed by the business units and separately reviewed by the valuation group. Model valuations are compared to available market information including appropriate proxy instruments and other benchmarks to highlight abnormalities for further investigation.
Measuring fair value requires the exercise of management judgment. The level of subjectivity and the degree of management judgment required is more significant for financial instruments whose fair value is measured using inputs that are not observable. The areas requiring significant judgment are identified, documented and reported to the Valuation Committee as part of the valuation control framework. We believe that our valuation methods are appropriate; however, the use of different methodologies or assumptions, particularly as they apply to level-3 financial assets and liabilities, could materially affect our fair-value measurements as of the reporting date.
The following tables present information with respect to our financial assets and liabilities carried at fair value in our consolidated statement of condition on a recurring basis as of the dates indicated. No transfers of financial assets or liabilities between levels 1 and 2 occurred during 2014 or 2013 .







132

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 
Fair-Value Measurements on a Recurring Basis
 
as of December 31, 2014
(In millions)
Quoted Market
Prices in Active
Markets
(Level 1)
 
Pricing Methods
with Significant
Observable
Market Inputs
(Level 2)
 
Pricing Methods
with Significant
Unobservable
Market Inputs
(Level 3)
 
Impact of Netting (1)
 
Total Net
Carrying Value
in Consolidated
Statement of
Condition
Assets:
 
 
 
 
 
 
 
 
 
Trading account assets:
 
 
 
 
 
 
 
 
 
U.S. government securities
$
20

 
$
—

 
$
—

 
 
 
$
20

Non-U.S. government securities
378

 
—

 
—

 
 
 
378

Other
20

 
506

 
—

 
 
 
526

Total trading account assets
418

 
506

 
—

 
 
 
924

Investment securities available for sale:
 
 
 
 
 
 
 
 
 
U.S. Treasury and federal agencies:
 
 
 
 
 
 
 
 
 
Direct obligations
10,056

 
599

 
—

 
 
 
10,655

Mortgage-backed securities
—

 
20,714

 
—

 
 
 
20,714

Asset-backed securities:
 
 
 
 
 
 
 
 
 
Student loans
—

 
12,201

 
259

 
 
 
12,460

Credit cards
—

 
3,053

 
—

 
 
 
3,053

Sub-prime
—

 
951

 
—

 
 
 
951

Other (2)
—

 
365

 
3,780

 
 
 
4,145

Total asset-backed securities
—

 
16,570

 
4,039

 

 
20,609

Non-U.S. debt securities:
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
—

 
9,606

 
—

 
 
 
9,606

Asset-backed securities
—

 
2,931

 
295

 
 
 
3,226

Government securities
—

 
3,909

 
—

 
 
 
3,909

Other (3)
—

 
5,057

 
371

 
 
 
5,428

Total non-U.S. debt securities
—

 
21,503

 
666

 
 
 
22,169

State and political subdivisions
—

 
10,782

 
38

 
 
 
10,820

Collateralized mortgage obligations
—

 
4,725

 
614

 
 
 
5,339

Other U.S. debt securities
—

 
4,100

 
9

 
 
 
4,109

U.S. equity securities
—

 
39

 
—

 
 
 
39

Non-U.S. equity securities
—

 
2

 
—

 
 
 
2

U.S. money-market mutual funds
—

 
449

 
—

 
 
 
449

Non-U.S. money-market mutual funds
—

 
8

 
—

 
 
 
8

Total investment securities available for sale
10,056

 
79,491

 
5,366

 

 
94,913

Other assets:
 
 
 
 
 
 
 
 
 
Derivative instruments:
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
—

 
15,054

 
81

 
$
(7,211
)
 
7,924

Interest-rate contracts
—

 
77

 
—

 
(68
)
 
9

Other derivative contracts
—

 
2

 
—

 
(1
)
 
1

Total derivative instruments
—

 
15,133

 
81

 
(7,280
)
 
7,934

Total assets carried at fair value
$
10,474

 
$
95,130

 
$
5,447

 
$
(7,280
)
 
$
103,771

Liabilities:
 
 
 
 
 
 
 
 
 
Accrued expenses and other liabilities:
 
 
 
 
 
 
 
 
 
Derivative instruments:
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
—

 
14,851

 
74

 
(8,879
)
 
$
6,046

Interest-rate contracts
—

 
239

 
—

 
(46
)
 
193

Other derivative contracts
—

 
61

 
9

 
(1
)
 
69

Total derivative instruments
—

 
15,151

 
83

 
(8,926
)
 
6,308

Total liabilities carried at fair value
$
—

 
$
15,151

 
$
83

 
$
(8,926
)
 
$
6,308

 
 
 
 
(1) Represents counterparty netting against level-2 financial assets and liabilities, where a legally enforceable master netting agreement exists between State Street and the counterparty. Netting also reflects asset and liability reductions of $983 million and $2.63 billion , respectively, for cash collateral received from and provided to derivative counterparties.
(2) As of December 31, 2014 the fair value of other asset-backed securities was composed primarily of $3.8 billion of collateralized loan obligations and approximately $315 million of automobile loan securities.
(3) As of December 31, 2014 the fair value of other non-U.S. debt securities was composed primarily of $3.3 billion of covered bonds and $1.2 billion of corporate bonds.


133

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 
Fair-Value Measurements on a Recurring Basis
 
as of December 31, 2013
(In millions)
Quoted Market
Prices in Active
Markets
(Level 1)
 
Pricing Methods
with Significant
Observable
Market Inputs
(Level 2)
 
Pricing Methods
with Significant
Unobservable
Market Inputs
(Level 3)
 
Impact of Netting (1)
 
Total Net
Carrying Value
in Consolidated
Statement of
Condition
Assets:
 
 
 
 
 
 
 
 
 
Trading account assets:
 
 
 
 
 
 
 
 
 
U.S. government securities
$
20

 
$
—

 
$
—

 
 
 
$
20

Non-U.S. government securities
399

 
—

 
—

 
 
 
399

Other
67

 
357

 
—

 
 
 
424

Total trading account assets
486

 
357

 
—

 
 
 
843

Investment securities available for sale:
 
 
 
 
 
 
 
 
 
U.S. Treasury and federal agencies:
 
 
 
 
 
 
 
 
 
Direct obligations
—

 
709

 
—

 
 
 
709

Mortgage-backed securities
—

 
22,847

 
716

 
 
 
23,563

Asset-backed securities:
 
 
 
 
 
 
 
 
 
Student loans
—

 
14,119

 
423

 
 
 
14,542

Credit cards
—

 
8,186

 
24

 
 
 
8,210

Sub-prime
—

 
1,203

 
—

 
 
 
1,203

Other (2)
—

 
532

 
4,532

 
 
 
5,064

Total asset-backed securities
—

 
24,040

 
4,979

 
 
 
29,019

Non-U.S. debt securities:
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
—

 
10,654

 
375

 
 
 
11,029

Asset-backed securities
—

 
4,592

 
798

 
 
 
5,390

Government securities
—

 
3,761

 
—

 
 
 
3,761

Other (3)
—

 
4,263

 
464

 
 
 
4,727

Total non-U.S. debt securities
—

 
23,270

 
1,637

 
 
 
24,907

State and political subdivisions
—

 
10,220

 
43

 
 
 
10,263

Collateralized mortgage obligations
—

 
5,107

 
162

 
 
 
5,269

Other U.S. debt securities
—

 
4,972

 
8

 
 
 
4,980

U.S. equity securities
—

 
34

 
—

 
 
 
34

Non-U.S. equity securities
—

 
1

 
—

 
 
 
1

U.S. money-market mutual funds
—

 
422

 
—

 
 
 
422

Non-U.S. money-market mutual funds
—

 
7

 
—

 
 
 
7

Total investment securities available for sale
—

 
91,629

 
7,545

 
 
 
99,174

Other assets:
 
 
 
 
 
 
 
 
 
Derivatives instruments:
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
—

 
11,892

 
19

 
$
(6,442
)
 
5,469

Interest-rate contracts
—

 
65

 
—

 
(59
)
 
6

Other derivative contracts
—

 
1

 
—

 
—

 
1

Total derivative instruments
—

 
11,958

 
19

 
(6,501
)
 
5,476

Other
97

 
—

 
—

 
—

 
97

Total assets carried at fair value
$
583

 
$
103,944

 
$
7,564

 
$
(6,501
)
 
$
105,590

Liabilities:
 
 
 
 
 
 
 
 
 
Accrued expenses and other liabilities:
 
 
 
 
 
 
 
 
 
Derivative instruments:
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
$
—

 
$
11,454

 
$
17

 
$
(5,458
)
 
$
6,013

Interest-rate contracts
—

 
331

 
—

 
(94
)
 
237

Other derivative contracts
—

 
—

 
9

 
—

 
9

Total derivative instruments
—

 
11,785

 
26

 
(5,552
)
 
6,259

Other
97

 
—

 
—

 
—

 
97

Total liabilities carried at fair value
$
97

 
$
11,785

 
$
26

 
$
(5,552
)
 
$
6,356

 
 
 
 
(1) Represents counterparty netting against level-2 financial assets and liabilities, where a legally enforceable master netting agreement exists between State Street and the counterparty. Netting also reflects asset and liability reductions of $1.93 billion and $979 million , respectively, for cash collateral received from and provided to derivative counterparties.
(2) As of December 31, 2013 , the fair value of other asset-backed securities was composed primarily of $4.5 billion of collateralized loan obligations and approximately $470 million of automobile loan securities.
(3) As of December 31, 2013 , the fair value of other non-U.S. debt securities was composed primarily of $2.3 billion of covered bonds and $1.4 billion of corporate bonds.

134

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


The following tables present activity related to our level-3 financial assets and liabilities during the years ended December 31, 2014 and 2013 , respectively. Transfers into and out of level 3 are reported as of the beginning of the period presented. During the years ended December 31, 2014 and 2013 , transfers out of level 3 were mainly related to certain mortgage- and asset-backed securities, including non-U.S. debt securities, for which fair value was measured using prices for which observable market information became available.

 
Fair Value Measurements Using Significant Unobservable Inputs
 
Year Ended December 31, 2014
 
Fair Value  as of
December 31, 2013
 
Total Realized and
Unrealized Gains (Losses)
 
Purchases
 
Sales
 
Settlements
 
Transfers
into
Level 3
 
Transfers
out of
Level 3
 
Fair Value  as of
December 31, 2014
 
Change in
Unrealized
Gains
(Losses)
Related to
Financial
Instruments
Held as of
December 31,
2014
(In millions)
Recorded
in
Revenue
 
Recorded
in Other
Comprehensive
Income
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investment securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and federal agencies, mortgage-backed securities
$
716

 
$
—

 
$
—

 
$
168

 
$
—

 
$
(14
)
 
$
—

 
$
(870
)
 
$
—

 
 
Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Student loans
423

 
2

 
1

 
24

 
(75
)
 
(37
)
 
—

 
(79
)
 
259

 
 
Credit cards
24

 
—

 
—

 
—

 
—

 
(24
)
 
—

 
—

 
—

 
 
Other
4,532

 
65

 
(28
)
 
282

 
—

 
(1,071
)
 
—

 
—

 
3,780

 
 
Total asset-backed securities
4,979

 
67

 
(27
)
 
306

 
(75
)
 
(1,132
)
 
—

 
(79
)
 
4,039

 
 
Non-U.S. debt securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
375

 
—

 
—

 
—

 
—

 
—

 
—

 
(375
)
 
—

 
 
Asset-backed securities
798

 
6

 
(1
)
 
—

 
—

 
(272
)
 
76

 
(312
)
 
295

 
 
Other
464

 
—

 
1

 
55

 
(1
)
 
(41
)
 
85

 
(192
)
 
371

 
 
Total non-U.S. debt securities
1,637

 
6

 
—

 
55

 
(1
)
 
(313
)
 
161

 
(879
)
 
666

 
 
State and political subdivisions
43

 
1

 
(3
)
 
—

 
—

 
(3
)
 
—

 
—

 
38

 
 
Collateralized mortgage obligations
162

 
—

 
1

 
633

 
(6
)
 
(32
)
 
—

 
(144
)
 
614

 
 
Other U.S. debt securities
8

 
—

 
1

 
—

 
—

 
—

 
—

 
—

 
9

 
 
Total investment securities available for sale
7,545

 
74

 
(28
)
 
1,162

 
(82
)
 
(1,494
)
 
161

 
(1,972
)
 
5,366

 
 
Other assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative instruments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative instruments, Foreign exchange contracts
19

 
36

 
—

 
36

 
—

 
(10
)
 
—

 
—

 
81

 
$
44

Total derivative instruments
19

 
36

 
—

 
36

 
—

 
(10
)
 
—

 
—

 
81

 
44

Total assets carried at fair value
$
7,564

 
$
110

 
$
(28
)
 
$
1,198

 
$
(82
)
 
$
(1,504
)
 
$
161

 
$
(1,972
)
 
$
5,447

 
$
44

 
Fair-Value Measurements Using Significant Unobservable Inputs
 
Year Ended December 31, 2014
 
Fair Value  as of
December 31, 2013
 
Total Realized and
Unrealized (Gains) Losses
 
Issuances
 
Settlements
 
Fair Value  as of
December 31, 2014 (1)
 
Change in
Unrealized
(Gains)
Losses Related to
Financial
Instruments
Held as of
December 31,
2014
(In millions)
Recorded
in
Revenue
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Accrued expenses and other liabilities:
 
 
 
 
 
 
 
 
 
 
 
Derivative instruments:
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
$
17

 
$
25

 
$
39

 
$
(7
)
 
$
74

 
$
35

Other
9

 
—

 
—

 
—

 
9

 
—

Total derivative instruments
26

 
25

 
39

 
(7
)
 
83

 
35

Total liabilities carried at fair value
$
26

 
$
25

 
$
39

 
$
(7
)
 
$
83

 
$
35


135

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 
 
 
 
(1) There were no transfers of liabilities into or out of level 3 during the year ended December 31, 2014 .
 
Fair-Value Measurements Using Significant Unobservable Inputs
 
Year Ended December 31, 2013
 
Fair Value  as of December 31,
2012
 
Total Realized and
Unrealized Gains (Losses)
 
Purchases
 
Sales
 
Settlements
 
Transfers
into
Level 3
 
Transfers
out of
Level 3
 
Fair Value  as of
December 31,
2013
 
Change in
Unrealized
Gains
(Losses)
Related to
Financial
Instruments
Held as of
December 31,
2013
(In millions)
Recorded
in
Revenue
 
Recorded
in Other
Comprehensive
Income
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investment securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and federal agencies, mortgage-backed securities
$
825

 
$
—

 
$
—

 
$
92

 
$
—

 
$
(109
)
 
$
—

 
$
(92
)
 
$
716

 
 
Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Student loans
588

 
2

 
12

 
79

 
(26
)
 
(31
)
 
—

 
(201
)
 
423

 
 
Credit cards
67

 
—

 
—

 
—

 
—

 
(43
)
 
—

 
—

 
24

 
 
Other
3,994

 
53

 
9

 
1,721

 
(34
)
 
(1,188
)
 
—

 
(23
)
 
4,532

 
 
Total asset-backed securities
4,649

 
55

 
21

 
1,800

 
(60
)
 
(1,262
)
 
—

 
(224
)
 
4,979

 
 
Non-U.S. debt securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
555

 
—

 
(1
)
 
33

 
—

 
(4
)
 
—

 
(208
)
 
375

 
 
Asset-backed securities
524

 
5

 
3

 
531

 
—

 
(142
)
 
160

 
(283
)
 
798

 
 
Other
140

 
—

 
1

 
397

 
—

 
20

 
—

 
(94
)
 
464

 
 
Total non-U.S. debt securities
1,219

 
5


3


961


—


(126
)

160

 
(585
)
 
1,637

 
 
State and political subdivisions
48

 
1

 
(2
)
 
—

 
—

 
(4
)
 
—

 
—

 
43

 
 
Collateralized mortgage obligations
117

 
1

 
(5
)
 
218

 
—

 
(39
)
 
14

 
(144
)
 
162

 
 
Other U.S. debt securities
9

 
—

 
(1
)
 
—

 
—

 
—

 
—

 
—

 
8

 
 
Total investment securities available for sale
6,867

 
62

 
16

 
3,071

 
(60
)
 
(1,540
)
 
174

 
(1,045
)
 
7,545

 
 
Other assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative instruments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative instruments, Foreign exchange contracts
113

 
103

 
—

 
20

 
—

 
(217
)
 
—

 
—

 
19

 
$
(2
)
Total derivative instruments
113

 
103

 
—

 
20

 
—

 
(217
)
 
—

 
—

 
19

 
(2
)
Total assets carried at fair value
$
6,980

 
$
165

 
$
16

 
$
3,091

 
$
(60
)
 
$
(1,757
)
 
$
174

 
$
(1,045
)
 
$
7,564

 
$
(2
)

 
Fair-Value Measurements Using Significant Unobservable Inputs
 
Year Ended December 31, 2013
 
Fair Value  as of December 31,
2012
 
Total Realized and
Unrealized (Gains) Losses
 
Issuances
 
Settlements
 
Fair Value  as of
December 31, 2013 (1)
 
Change in
Unrealized
(Gains)
Losses
Related to
Financial
Instruments
Held as of
December 31,
2013
(In millions)
Recorded
in
Revenue
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Accrued expenses and other liabilities:
 
 
 
 
 
 
 
 
 
 
 
Derivative instruments:
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
$
106

 
$
40

 
$
18

 
$
(147
)
 
$
17

 
$
(1
)
Other
9

 
—

 
—

 
—

 
9

 
—

Total derivative instruments
115

 
40

 
18

 
(147
)
 
26

 
(1
)
Total liabilities carried at fair value
$
115

 
$
40

 
$
18

 
$
(147
)
 
$
26

 
$
(1
)
 
 
 
 
(1) There were no transfers of liabilities into or out of level 3 during the year ended December 31, 2013 .

The following table presents total realized and unrealized gains and losses for our level-3 financial assets and liabilities and where they are presented in our consolidated statement of income for the years indicated:

136

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 
Years Ended December 31,
 
Total Realized and
Unrealized Gains
(Losses) Recorded
in Revenue
 
Change in
Unrealized Gains
(Losses) Related to
Financial
Instruments Held as of
December 31,
(In millions)
2014
 
2013
 
2012
 
2014
 
2013
 
2012
Fee revenue:
 
 
 
 
 
 
 
 
 
 
 
Trading services
$
11

 
$
63

 
$
9

 
$
9

 
$
(1
)
 
$
3

Total fee revenue
11

 
63

 
9

 
9

 
(1
)
 
3

Net interest revenue
74

 
62

 
420

 
—

 
—

 
—

Total revenue
$
85

 
$
125

 
$
429

 
$
9

 
$
(1
)
 
$
3




137

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table presents quantitative information, as of the dates indicated, about the valuation techniques and significant unobservable inputs used in the valuation of our level-3 financial assets and liabilities measured at fair value on a recurring basis for which we use internally-developed pricing models. The significant unobservable inputs for our level-3 financial assets and liabilities whose fair value is measured using pricing information from non-binding broker or dealer quotes are not included in the table, as the specific inputs applied are not provided by the broker/dealer.


 
 
Quantitative Information about Level-3 Fair-Value Measurements
 
 
Fair Value
 
 
 
 
 
Weighted-Average
(Dollars in millions)
 
As of December 31, 2014
 
As of December 31, 2013
 
Valuation Technique
 
Significant
Unobservable Input (2)
 
As of December 31, 2014
 
As of December 31, 2013
Significant unobservable inputs readily available to State Street:
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Asset-backed securities, student loans
 
$
—

 
$
13

 
Discounted cash flows
 
Credit spread
 
—
%
 
3.5
%
Asset-backed securities, credit cards
 
—

 
24

 
Discounted cash flows
 
Credit spread
 
—

 
2.0

Asset-backed securities, other
 
59

 
92

 
Discounted cash flows
 
Credit spread
 
0.2

 
1.5

State and political subdivisions
 
38

 
43

 
Discounted cash flows
 
Credit spread
 
2.1

 
1.7

Derivative instruments, foreign exchange contracts
 
81

 
19

 
Option model
 
Volatility
 
9.1

 
11.4

Total
 
$
178

 
$
191

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Derivative instruments, foreign exchange contracts
 
$
74

 
$
17

 
Option model
 
Volatility
 
9.0

 
11.2

Derivative instruments, other (1)
 
9

 
9

 
Discounted cash flows
 
Participant redemptions
 
5.2

 
7.5

Total
 
$
83

 
$
26

 
 
 
 
 
 
 
 
 
 
 
 
(1) Relates to stable value wrap contracts; refer to the sensitivity discussion following the tables presented below, and to note 10 .
(2) Significant changes in these unobservable inputs would result in significant changes in fair value measure.
The following tables present information with respect to the composition of our level-3 financial assets and liabilities, by availability of significant unobservable inputs, as of the dates indicated:
December 31, 2014
 
Significant Unobservable Inputs Readily Available to State Street (1)
 
Significant Unobservable Inputs Not Developed by State Street and Not Readily Available (2)
 
Total Assets and Liabilities with Significant Unobservable Inputs
(In millions)
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
Asset-backed securities, student loans
 
$
—

 
$
259

 
$
259

Asset-backed securities, other
 
59

 
3,721

 
3,780

Non-U.S. debt securities, asset-backed securities
 
—

 
295

 
295

Non-U.S. debt securities, other
 
—

 
371

 
371

State and political subdivisions
 
38

 
—

 
38

Collateralized mortgage obligations
 
—

 
614

 
614

Other U.S. debt securities
 
—

 
9

 
9

Derivative instruments, foreign exchange contracts
 
81

 
—

 
81

Total
 
$
178

 
$
5,269

 
$
5,447

Liabilities:
 
 
 
 
 
 
Derivative instruments, foreign exchange contracts
 
$
74

 
$
—

 
$
74

Derivative instruments, other
 
9

 
—

 
9

Total
 
$
83

 
$
—

 
$
83

 
 
 
 
 
(1) Information with respect to these model-priced financial assets and liabilities is provided above in a separate table.
(2) Fair value for these financial assets is measured using non-binding broker or dealer quotes.

138

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2013
 
Significant Unobservable Inputs Readily Available to State Street (1)
 
Significant Unobservable Inputs Not Developed by State Street and Not Readily Available (2)
 
Total Assets and Liabilities with Significant Unobservable Inputs
(In millions)
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
U.S. Treasury and federal agencies, mortgage-backed securities
 
$
—

 
$
716

 
$
716

Asset-backed securities, student loans
 
13

 
410

 
423

Asset-backed securities, credit cards
 
24

 
—

 
24

Asset-backed securities, other
 
92

 
4,440

 
4,532

Non-U.S. debt securities, mortgage-backed securities
 
—

 
375

 
375

Non-U.S. debt securities, asset-backed securities
 
—

 
798

 
798

Non-U.S. debt securities, other
 
—

 
464

 
464

State and political subdivisions
 
43

 
—

 
43

Collateralized mortgage obligations
 
—

 
162

 
162

Other U.S. debt securities
 
—

 
8

 
8

Derivative instruments, foreign exchange contracts
 
19

 
—

 
19

Total
 
$
191

 
$
7,373

 
$
7,564

Liabilities:
 
 
 
 
 
 
Derivative instruments, foreign exchange contracts
 
$
17

 
$
—

 
$
17

Derivative instruments, other
 
9

 
—

 
9

Total
 
$
26

 
$
—

 
$
26

 
 
 
 
 
(1) Information with respect to these model-priced financial assets and liabilities is provided above in a separate table.
(2) Fair value for these financial assets is measured using non-binding broker or dealer quotes.
We use internally-developed pricing models that incorporate discounted cash flow and option model techniques to measure the fair value of our level-3 financial assets and liabilities. Use of these techniques requires the determination of relevant inputs and assumptions, some of which represent significant unobservable inputs as indicated in the preceding table. Accordingly, changes in these unobservable inputs may have a significant impact on fair value.
Certain of these unobservable inputs will, in isolation, have a directionally consistent impact on the fair value of the instrument for a given change in that input. Alternatively, the fair value of the instrument may move in an opposite direction for a given change in another input. Where multiple inputs are used within the valuation technique of an asset or liability, a change in one input in a certain direction may be offset by an opposite change in another input, resulting in a potentially muted impact on the overall fair value of that particular instrument. Additionally, a change in one unobservable input may result in a change to another unobservable input (that is, changes in certain inputs are interrelated to one another), which may counteract or magnify the fair-value impact.

 
Fair Value Estimates:
Estimates of fair value for financial instruments not carried at fair value on a recurring basis in our consolidated statement of condition are generally subjective in nature, and are determined as of a specific point in time based on the characteristics of the financial instruments and relevant market information. Disclosure of fair-value estimates is not required by GAAP for certain items, such as lease financing, equity-method investments, obligations for pension and other post-retirement plans, premises and equipment, other intangible assets and income-tax assets and liabilities. Accordingly, aggregate fair-value estimates presented do not purport to represent, and should not be considered representative of, our underlying “market” or franchise value. In addition, because of potential differences in methodologies and assumptions used to estimate fair values, our estimates of fair value should not be compared to those of other financial institutions.
We use the following methods to estimate the fair values of our financial instruments:
•
For financial instruments that have quoted market prices, those quoted prices are used to estimate fair value.
•
For financial instruments that have no defined maturity, have a remaining maturity of 180 days or less, or reprice frequently to a market rate, we assume that the fair value of these


139

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

instruments approximates their reported value, after taking into consideration any applicable credit risk.
•
For financial instruments for which no quoted market prices are available, fair value is estimated using information obtained from independent third parties, or by discounting the expected cash flows using an estimated current market interest rate for the financial instrument.
The generally short duration of certain of our assets and liabilities results in a significant number of financial instruments for which fair value equals or closely approximates the amount recorded in our consolidated statement of condition. These financial instruments are reported in the following captions in our consolidated statement of condition: cash and due from banks; interest-bearing deposits with banks; securities purchased under resale agreements; accrued interest and fees receivable; deposits; securities sold under repurchase agreements; federal funds purchased; and other short-term borrowings.
 
In addition, due to the relatively short duration of certain of our net loans (excluding leases), we consider fair value for these loans to approximate their reported value. The fair value of other types of loans, such as senior secured bank loans, commercial real estate loans, purchased receivables and municipal loans is estimated using information obtained from independent third parties or by discounting expected future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings for the same remaining maturities. Commitments to lend have no reported value because their terms are at prevailing market rates.
The following tables present the reported amounts and estimated fair values of the financial assets and liabilities not carried at fair value on a recurring basis, as they would be categorized within the fair-value hierarchy, as of the dates indicated.

 
 
 
 
 
 
Fair-Value Hierarchy
December 31, 2014
 
Reported Amount 
 
Estimated Fair Value
 
Quoted Market Prices in Active Markets (Level 1)
 
Pricing Methods with Significant Observable Market Inputs (Level 2) 
 
Pricing Methods with Significant Unobservable Market Inputs (Level 3)
(In millions)
 
 
 
 
 
 
 
 
 
 
Financial Assets:
 
 
 
 
 
 
 
 
 
 
Cash and due from banks
 
$
1,855

 
$
1,855

 
$
1,855

 
$
—

 
$
—

Interest-bearing deposits with banks
 
93,523

 
93,523

 
—

 
93,523

 
—

Securities purchased under resale agreements
 
2,390

 
2,390

 
—

 
2,390

 
—

Investment securities held to maturity
 
17,723

 
17,842

 
—

 
17,842

 
—

Net loans (excluding leases)
 
17,158

 
17,131

 
—

 
16,964

 
167

Financial Liabilities:
 
 
 
 
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
 
 
 
 
     Noninterest-bearing
 
$
70,490

 
$
70,490

 
$
—

 
$
70,490

 
$
—

     Interest-bearing - U.S.
 
33,012

 
33,012

 
—

 
33,012

 
—

     Interest-bearing - non-U.S.
 
105,538

 
105,538

 
—

 
105,538

 
—

Securities sold under repurchase agreements
 
8,925

 
8,925

 
—

 
8,925

 
—

Federal funds purchased
 
21

 
21

 
—

 
21

 
—

Other short-term borrowings
 
4,381

 
4,381

 
—

 
4,381

 
—

Long-term debt
 
10,042

 
10,229

 
—

 
9,382

 
847


140

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 
 
 
 
 
 
Fair-Value Hierarchy
December 31, 2013
 
Reported Amount 
 
Estimated Fair Value
 
Quoted Market Prices in Active Markets (Level 1)
 
Pricing Methods with Significant Observable Market Inputs (Level 2) 
 
Pricing Methods with Significant Unobservable Market Inputs (Level 3)
(In millions)
 
 
 
 
 
 
 
 
 
 
Financial Assets:
 
 
 
 
 
 
 
 
 
 
Cash and due from banks
 
$
3,220

 
$
3,220

 
$
3,220

 
$
—

 
$
—

Interest-bearing deposits with banks
 
64,257

 
64,257

 
—

 
64,257

 
—

Securities purchased under resale agreements
 
6,230

 
6,230

 
—

 
6,230

 
—

Investment securities held to maturity
 
17,740

 
17,560

 
—

 
17,560

 
—

Net loans (excluding leases)
 
12,363

 
12,355

 
—

 
11,908

 
447

Financial Liabilities:
 
 
 
 
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
 
 
 
 
     Noninterest-bearing
 
$
65,614

 
$
65,614

 
$
—

 
$
65,614

 
$
—

     Interest-bearing - U.S.
 
13,392

 
13,392

 
—

 
13,392

 
—

     Interest-bearing - non-U.S.
 
103,262

 
103,262

 
—

 
103,262

 
—

Securities sold under repurchase agreements
 
7,953

 
7,953

 
—

 
7,953

 
—

Federal funds purchased
 
19

 
19

 
—

 
19

 
—

Other short-term borrowings
 
3,780

 
3,780

 
—

 
3,780

 
—

Long-term debt
 
9,699

 
9,809

 
—

 
8,956

 
853



141

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 3 .    Investment Securities
Investment securities held by us are classified as either trading, available-for-sale or held-to-maturity at the time of purchase, based on management’s intent.
Generally, trading assets are debt and equity securities purchased in connection with our trading activities and, as such, are expected to be sold in the near term. Our trading activities typically involve active and frequent buying and selling with the objective of generating profits on short-term movements. Securities available-for-sale are those securities that we intend to hold for an indefinite period of time. Available-for-sale securities include securities utilized as part of our asset-and-liability management activities that may be sold in response to changes in interest rates, prepayment risk, liquidity
 
needs or other factors. Securities held to maturity are debt securities that management has the intent and the ability to hold to maturity.
Trading assets are carried at fair value. Both realized and unrealized gains and losses on trading assets are recorded in trading services revenue in our consolidated statement of income. Debt and marketable equity securities classified as available for sale are carried at fair value, and after-tax net unrealized gains and losses are recorded in AOCI. Gains or losses realized on sales of available-for-sale securities are computed using the specific identification method and are recorded in gains (losses) related to investment securities, net, in our consolidated statement of income. Securities held to maturity are carried at cost, adjusted for amortization of premiums and accretion of discounts.


142

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table presents the amortized cost and fair value, and associated unrealized gains and losses, of investment securities as of the dates indicated:
 
December 31, 2014
 
December 31, 2013
 
Amortized
Cost
 
Gross
Unrealized
 
Fair
Value
 
Amortized
Cost
 
Gross
Unrealized
 
Fair
Value
(In millions)
Gains
 
Losses
 
Gains
 
Losses
 
Available for sale:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and federal agencies:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Direct obligations
$
10,573

 
$
83

 
$
1

 
$
10,655

 
$
702

 
$
9

 
$
2

 
$
709

Mortgage-backed securities
20,648

 
193

 
127

 
20,714

 
23,744

 
211

 
392

 
23,563

Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Student loans (1)
12,478

 
106

 
124

 
12,460

 
14,718

 
92

 
268

 
14,542

Credit cards
3,077

 
10

 
34

 
3,053

 
8,230

 
21

 
41

 
8,210

Sub-prime
1,005

 
2

 
56

 
951

 
1,291

 
3

 
91

 
1,203

Other (2)
4,055

 
100

 
10

 
4,145

 
4,949

 
138

 
23

 
5,064

Total asset-backed securities
20,615

 
218

 
224

 
20,609

 
29,188

 
254

 
423

 
29,019

Non-U.S. debt securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
9,442

 
168

 
4

 
9,606

 
10,808

 
230

 
9

 
11,029

Asset-backed securities
3,215

 
11

 
—

 
3,226

 
5,369

 
23

 
2

 
5,390

Government securities
3,899

 
10

 
—

 
3,909

 
3,759

 
2

 
—

 
3,761

Other (3)
5,383

 
52

 
7

 
5,428

 
4,679

 
59

 
11

 
4,727

Total non-U.S. debt securities
21,939

 
241

 
11

 
22,169

 
24,615

 
314

 
22

 
24,907

State and political subdivisions
10,532

 
325

 
37

 
10,820

 
10,301

 
160

 
198

 
10,263

Collateralized mortgage obligations
5,280

 
71

 
12

 
5,339

 
5,275

 
70

 
76

 
5,269

Other U.S. debt securities
4,033

 
88

 
12

 
4,109

 
4,876

 
138

 
34

 
4,980

U.S. equity securities
29

 
10

 
—

 
39

 
28

 
6

 
—

 
34

Non-U.S. equity securities
2

 
—

 
—

 
2

 
1

 
—

 
—

 
1

U.S. money-market mutual funds
449

 
—

 
—

 
449

 
422

 
—

 
—

 
422

Non-U.S. money-market mutual funds
8

 
—

 
—

 
8

 
7

 
—

 
—

 
7

Total
$
94,108

 
$
1,229

 
$
424

 
$
94,913

 
$
99,159

 
$
1,162

 
$
1,147

 
$
99,174

Held to maturity:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and federal agencies:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Direct obligations
$
5,114

 
$
—

 
$
147

 
$
4,967

 
$
5,041

 
$
—

 
$
448

 
$
4,593

Mortgage-backed securities
62

 
4

 
—

 
66

 
91

 
6

 
—

 
97

Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Student loans (1)
1,814

 
2

 
4

 
1,812

 
1,627

 
—

 
10

 
1,617

Credit cards
897

 
2

 
—

 
899

 
762

 
1

 
—

 
763

Other
577

 
3

 
1

 
579

 
782

 
1

 
2

 
781

Total asset-backed securities
3,288

 
7

 
5

 
3,290

 
3,171

 
2

 
12

 
3,161

Non-U.S. debt securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
3,787

 
177

 
22

 
3,942

 
4,211

 
150

 
48

 
4,313

Asset-backed securities
2,868

 
14

 
1

 
2,881

 
2,202

 
19

 
—

 
2,221

Government securities
154

 
—

 
—

 
154

 
2

 
—

 
—

 
2

Other
72

 
—

 
—

 
72

 
192

 
—

 
—

 
192

Total non-U.S. debt securities
6,881

 
191

 
23

 
7,049

 
6,607

 
169

 
48

 
6,728

State and political subdivisions
9

 
—

 
—

 
9

 
24

 
1

 
—

 
25

Collateralized mortgage obligations
2,369

 
107

 
15

 
2,461

 
2,806

 
176

 
26

 
2,956

Total
$
17,723

 
$
309

 
$
190

 
$
17,842

 
$
17,740

 
$
354

 
$
534

 
$
17,560

 
 
 
 
(1) Substantially composed of securities guaranteed by the federal government with respect to at least 97% of defaulted principal and accrued interest on the underlying loans.
(2) As of December 31, 2014 and 2013 , the fair value of other asset-backed securities was composed primarily of $3.8 billion and $4.5 billion , respectively, of collateralized loan obligations and approximately $315 million and approximately $470 million , respectively, of automobile loan securities.
(3) As of December 31, 2014 and 2013 , the fair value of other non-U.S. debt securities was composed primarily of $3.3 billion and $2.3 billion , respectively, of covered bonds and $1.2 billion and $1.4 billion , respectively, of corporate bonds.


143

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Aggregate investment securities with carrying values of $44.02 billion and $46.99 billion as of December 31, 2014 and 2013 , respectively, were designated as pledged for public and trust deposits,
 
short-term borrowings and for other purposes as provided by law.



The following tables present the aggregate fair values of investment securities that have been in a continuous unrealized loss position for less than 12 months , and those that have been in a continuous unrealized loss position for 12 months or longer, as of the dates indicated:
 
Less than 12 months
 
12 months or longer
 
Total
December 31, 2014
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
(In millions)
 
 
 
 
 
Available for sale:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and federal agencies:
 
 
 
 
 
 
 
 
 
 
 
Direct obligations
$
—

 
$
—

 
$
167

 
$
1

 
$
167

 
$
1

Mortgage-backed securities
2,569

 
9

 
6,466

 
118

 
9,035

 
127

Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Student loans
1,473

 
15

 
5,025

 
109

 
6,498

 
124

Credit cards
344

 
1

 
1,270

 
33

 
1,614

 
34

Sub-prime
—

 
—

 
896

 
56

 
896

 
56

Other
547

 
1

 
791

 
9

 
1,338

 
10

Total asset-backed securities
2,364

 
17

 
7,982

 
207

 
10,346

 
224

Non-U.S. debt securities:
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
1,350

 
2

 
170

 
2

 
1,520

 
4

Other
581

 
4

 
328

 
3

 
909

 
7

Total non-U.S. debt securities
1,931

 
6

 
498

 
5

 
2,429

 
11

State and political subdivisions
610

 
3

 
1,315

 
34

 
1,925

 
37

Collateralized mortgage obligations
731

 
2

 
311

 
10

 
1,042

 
12

Other U.S. debt securities
327

 
2

 
244

 
10

 
571

 
12

Total
$
8,532

 
$
39

 
$
16,983

 
$
385

 
$
25,515

 
$
424

Held to maturity:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and federal agencies:
 
 
 
 
 
 
 
 
 
 
 
Direct obligations
$
76

 
$
1

 
$
4,891

 
$
146

 
$
4,967

 
$
147

Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Student loans
780

 
3

 
192

 
1

 
972

 
4

Other
124

 
1

 
—

 
—

 
124

 
1

Total asset-backed securities
904

 
4

 
192

 
1

 
1,096

 
5

Non-U.S. mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
507

 
3

 
590

 
19

 
1,097

 
22

Asset-backed securities
699

 
1

 
—

 
—

 
699

 
1

Total non-U.S. debt securities
1,206

 
4

 
590

 
19

 
1,796

 
23

Collateralized mortgage obligations
422

 
4

 
547

 
11

 
969

 
15

Total
$
2,608

 
$
13

 
$
6,220

 
$
177

 
$
8,828

 
$
190



144

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 
Less than 12 months
 
12 months or longer
 
Total
December 31, 2013
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
(In millions)
 
 
 
 
 
Available for sale:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and federal agencies:
 
 
 
 
 
 
 
 
 
 
 
Direct obligations
$
182

 
$
1

 
$
113

 
$
1

 
$
295

 
$
2

Mortgage-backed securities
10,562

 
316

 
2,389

 
76

 
12,951

 
392

Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Student loans
1,930

 
16

 
7,252

 
252

 
9,182

 
268

Credit cards
3,714

 
30

 
161

 
11

 
3,875

 
41

Sub-prime
—

 
—

 
1,150

 
91

 
1,150

 
91

Other
1,896

 
12

 
439

 
11

 
2,335

 
23

Total asset-backed securities
7,540

 
58

 
9,002

 
365

 
16,542

 
423

Non-U.S. debt securities:
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
868

 
2

 
258

 
7

 
1,126

 
9

Asset-backed securities
551

 
1

 
16

 
1

 
567

 
2

Other
1,655

 
9

 
150

 
2

 
1,805

 
11

Total non-U.S. debt securities
3,074

 
12

 
424

 
10

 
3,498

 
22

State and political subdivisions
3,242

 
113

 
1,268

 
85

 
4,510

 
198

Collateralized mortgage obligations
1,581

 
55

 
510

 
21

 
2,091

 
76

Other U.S. debt securities
1,039

 
25

 
58

 
9

 
1,097

 
34

Total
$
27,220

 
$
580

 
$
13,764

 
$
567

 
$
40,984

 
$
1,147

Held to maturity:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and federal agencies:
 
 
 
 
 
 
 
 
 
 
 
Direct obligations
$
4,571

 
$
448

 
$
—

 
$
—

 
$
4,571

 
$
448

Asset-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Student Loans
1,352

 
10

 
—

 
—

 
1,352

 
10

Other
297

 
1

 
29

 
1

 
326

 
2

Total asset-backed securities
1,649

 
11

 
29

 
1

 
1,678

 
12

Non-U.S. mortgage-backed securities
834

 
3

 
878

 
45

 
1,712

 
48

Collateralized mortgage obligations
759

 
18

 
161

 
8

 
920

 
26

Total
$
7,813

 
$
480

 
$
1,068

 
$
54

 
$
8,881

 
$
534


145

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)



The following table presents contractual maturities of debt investment securities as of December 31, 2014 :
(In millions)
Under 1
Year
 
1 to 5
Years
 
6 to 10
Years
 
Over 10
Years
Available for sale:
 
 
 
 
 
 
 
U.S. Treasury and federal agencies:
 
 
 
 
 
 
 
Direct obligations
$
—

 
$
6,841

 
$
3,287

 
$
527

Mortgage-backed securities
107

 
2,389

 
4,421

 
13,797

Asset-backed securities:
 
 
 
 
 
 
 
Student loans
515

 
6,100

 
3,823

 
2,022

Credit cards
381

 
1,562

 
1,110

 
—

Sub-prime
3

 
13

 
1

 
934

Other
244

 
961

 
1,268

 
1,672

Total asset-backed securities
1,143

 
8,636

 
6,202

 
4,628

Non-U.S. debt securities:
 
 
 
 
 
 
 
Mortgage-backed securities
2,315

 
3,463

 
576

 
3,252

Asset-backed securities
272

 
2,698

 
166

 
90

Government securities
2,321

 
1,588

 
—

 
—

Other
1,757

 
2,801

 
870

 
—

Total non-U.S. debt securities
6,665

 
10,550

 
1,612

 
3,342

State and political subdivisions
699

 
3,003

 
4,715

 
2,403

Collateralized mortgage obligations
227

 
1,149

 
1,072

 
2,891

Other U.S. debt securities
814

 
2,967

 
294

 
34

Total
$
9,655

 
$
35,535

 
$
21,603

 
$
27,622

Held to maturity:
 
 
 
 
 
 
 
U.S. Treasury and federal agencies:
 
 
 
 
 
 
 
Direct obligations
$
—

 
$
—

 
$
5,000

 
$
114

Mortgage-backed securities
1

 
11

 
12

 
38

Asset-backed securities:
 
 
 
 
 
 
 
Student loans
6

 
182

 
375

 
1,251

Credit cards
—

 
375

 
522

 
—

Other
15

 
367

 
191

 
4

Total asset-backed securities
21

 
924

 
1,088

 
1,255

Non-U.S. debt securities:
 
 
 
 
 
 
 
Mortgage-backed securities
503

 
1,102

 
157

 
2,025

Asset-backed securities
105

 
2,567

 
196

 
—

Government securities
154

 
—

 
—

 
—

Other
—

 
72

 
—

 
—

Total non-U.S. debt securities
762

 
3,741

 
353

 
2,025

State and political subdivisions
7

 
2

 
—

 
—

Collateralized mortgage obligations
574

 
460

 
498

 
837

Total
$
1,365

 
$
5,138

 
$
6,951

 
$
4,269

The maturities of asset-backed securities, mortgage-backed securities, and collateralized mortgage obligations are based on expected principal payments.

146

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following tables present gross realized gains and losses from sales of available-for-sale securities, and the components of net impairment losses included in net gains and losses related to investment securities, for the years ended December 31 :
(In millions)
2014
 
2013
 
2012
Gross realized gains from sales of available-for-sale securities
$
64

 
$
104

 
$
101

Gross realized losses from sales of available-for-sale securities (1)
(49
)
 
(90
)
 
(46
)
Net impairment losses:
 
 
 
 
 
Gross losses from other-than-temporary impairment
(1
)
 
(21
)
 
(53
)
Losses reclassified (from) to other comprehensive income
(10
)
 
(2
)
 
21

Net impairment losses (2)
(11
)
 
(23
)
 
(32
)
Gains related to investment securities, net
$
4

 
$
(9
)
 
$
23

(2)  Net impairment losses, recognized in our consolidated statement of income, were composed of the following:
 
 
 
 
 
Impairment associated with expected credit losses
$
(10
)
 
$
(11
)
 
$
(16
)
Impairment associated with management's intent to sell impaired securities prior to recovery in value


 
(6
)
 
—

Impairment associated with adverse changes in timing of expected future cash flows
(1
)
 
(6
)
 
(16
)
Net impairment losses
$
(11
)
 
$
(23
)
 
$
(32
)
 
 
 
(1) Amount for the year ended December 31, 2012 represented a pre-tax loss from the sale of all of our Greek investment securities, which had an aggregate carrying value of approximately $91 million .
The following table presents a roll-forward with respect to net impairment losses that have been recognized in income for the years ended December 31 :
(In millions)
2014
 
2013
 
2012
Balance, beginning of period
$
122

 
$
124

 
$
113

Additions:
 
 
 
 
 
Losses for which other-than-temporary impairment was not previously recognized
—

 
14

 
4

Losses for which other-than-temporary impairment was previously recognized
11

 
9

 
28

Reductions:
 
 
 
 
 
Previously recognized losses related to securities sold or matured
(12
)
 
(25
)
 
(21
)
Losses related to securities intended or required to be sold
(6
)
 
—

 
—

Balance, end of period
$
115

 
$
122

 
$
124

Interest revenue related to debt securities is recognized in our consolidated statement of income
 
using the interest method, or on a basis approximating a level rate of return over the contractual or estimated life of the security. The level rate of return considers any nonrefundable fees or costs, as well as purchase premiums or discounts, resulting in amortization or accretion, accordingly.
For debt securities acquired for which we consider it probable as of the date of acquisition that we will be unable to collect all contractually required principal, interest and other payments, the excess of our estimate of undiscounted future cash flows from these securities over their initial recorded investment is accreted into interest revenue on a level-yield basis over the securities’ estimated remaining terms. Subsequent decreases in these securities’ expected future cash flows are either recognized prospectively through an adjustment of the yields on the securities over their remaining terms, or are evaluated for other-than-temporary impairment. Increases in expected future cash flows are recognized prospectively over the securities’ estimated remaining terms through the recalculation of their yields.
For certain debt securities acquired which are considered to be beneficial interests in securitized financial assets, the excess of our estimate of undiscounted future cash flows from these securities over their initial recorded investment is accreted into interest revenue on a level-yield basis over the securities’ estimated remaining terms. Subsequent decreases in these securities’ expected future cash flows are either recognized prospectively through an adjustment of the yields on the securities over their remaining terms, or are evaluated for other-than-temporary impairment. Increases in expected future cash flows are recognized prospectively over the securities’ estimated remaining terms through the recalculation of their yields.
Impairment:
We conduct periodic reviews of individual securities to assess whether other-than-temporary impairment exists. Impairment exists when the current fair value of an individual security is below its amortized cost basis. When the decline in the security's fair value is deemed to be other than temporary, the loss is recorded in our consolidated statement of income. In addition, for debt securities available for sale and held to maturity, impairment is recorded in our consolidated statement of income when management intends to sell (or may be required to sell) the securities before they recover in value, or when management expects the present value of cash flows expected to be collected from the securities to be less than the amortized cost of the impaired security (a credit loss).


147

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 Our review of impaired securities generally includes:
•
the identification and evaluation of securities that have indications of potential other-than-temporary impairment, such as issuer-specific concerns, including deteriorating financial condition or bankruptcy;
•
the analysis of expected future cash flows of securities, based on quantitative and qualitative factors;
•
the analysis of the collectibility of those future cash flows, including information about past events, current conditions, and reasonable and supportable forecasts;
•
the analysis of the underlying collateral for mortgage- and asset-backed securities;
•
the analysis of individual impaired securities, including consideration of the length of time the security has been in an unrealized loss position, the anticipated recovery period, and the magnitude of the overall price decline;
•
evaluation of factors or triggers that could cause individual securities to be deemed other-than-temporarily impaired and those that would not support other-than-temporary impairment; and
•
documentation of the results of these analyses.
Factors considered in determining whether impairment is other than temporary include:
•
certain macroeconomic drivers;
•
certain industry-specific drivers;
•
the length of time the security has been impaired;
•
the severity of the impairment;
•
the cause of the impairment and the financial condition and near-term prospects of the issuer;
•
activity in the market with respect to the issuer's securities, which may indicate adverse credit conditions; and
•
our intention not to sell, and the likelihood that we will not be required to sell, the security for a period of time sufficient to allow for its recovery in value.
Substantially all of our investment securities portfolio is composed of debt securities. A critical component of our assessment of other-than-temporary impairment of these debt securities is the identification of credit-impaired securities for which
 
management does not expect to receive cash flows sufficient to recover the entire amortized cost basis of the security.
Debt securities that are not deemed to be credit-impaired are subject to additional management analysis to assess whether management intends to sell, or, more likely than not, would be required to sell, the security before the expected recovery of its amortized cost basis.
The following provides a description of our process for the identification and assessment of other-than-temporary impairment, as well as information about other-than-temporary impairment recorded in the years ended 2014 and 2013 and changes in period-end unrealized losses, for major security types as of December 31, 2014 .
U.S. Agency Securities
Our portfolio of U.S. agency direct obligations and mortgage-backed securities receives the implicit or explicit backing of the U.S. government in conjunction with specified financial support of the U.S. Treasury. We recorded no other-than-temporary impairment on these securities in the years ended 2014 or 2013 . The overall improvement in the unrealized losses on these securities as of December 31, 2014 was primarily attributable to narrowing spreads in 2014 .
Asset-Backed Securities - Student Loans
Asset-backed securities collateralized by student loans are primarily composed of securities collateralized by Federal Family Education Loan Program, or FFELP, loans. FFELP loans benefit from a federal government guarantee of at least 97% of defaulted principal and accrued interest, with additional credit support provided in the form of over-collateralization, subordination and excess spread, which collectively total in excess of 100% . Accordingly, the vast majority of FFELP loan-backed securities are protected from traditional consumer credit risk.
We recorded no other-than-temporary impairment on these securities in 2014 or 2013 . The gross unrealized losses in our FFELP loan-backed securities portfolio as of December 31, 2014 were primarily attributable to the lower spreads on these securities relative to those associated with more current issuances.
Our assessment of other-than-temporary impairment of these securities considers, among many other factors, the strength of the U.S. government guarantee, the performance of the underlying collateral, and the remaining average term


148

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

of the FFELP loan-backed securities portfolio, which was approximately 4.4 years as of December 31, 2014 .
Our total exposure to private student loan-backed securities was less than $700 million as of December 31, 2014 . Our assessment of other-than-temporary impairment of private student loan-backed securities considers, among other factors, the impact of high unemployment rates on the collateral performance of private student loans. We recorded no other-than-temporary impairment on these securities in 2014 or 2013 .
Non-U.S. Mortgage- and Asset-Backed Securities
Non-U.S. mortgage- and asset-backed securities are primarily composed of U.K., Australian and Dutch securities collateralized by residential mortgages and German securities collateralized by automobile loans and leases. Our assessment of impairment with respect to these securities considers the location of the underlying collateral, collateral enhancement and structural features, expected credit losses under base-case and stressed conditions and the macroeconomic outlook for the country in which the collateral is located, including housing prices and unemployment. Where appropriate, any potential loss after consideration of the above-referenced factors is further evaluated to determine whether any other-than-temporary impairment exists.
We recorded other-than-temporary impairment of $1 million and $6 million for the years ended December 31, 2014 and 2013 , respectively, on non-U.S. residential mortgage-backed securities in our consolidated statement of income associated with adverse changes in the timing of expected future cash flows from the securities.
In addition, in the year ended December 31, 2013 , we recorded other-than-temporary impairment of $6 million on these securities in our consolidated statement of income associated with management's intent to sell the impaired security prior to its recovery in value.
Our assessment of other-than-temporary impairment of these securities takes into account government intervention in the corresponding mortgage markets and assumes a conservative baseline macroeconomic environment for this region, factoring in slower economic growth and continued government austerity measures. Our baseline view assumes a recessionary period characterized by high unemployment and by additional housing price declines of between 5% and 15% across these four countries. Our evaluation of other-than-temporary impairment in our base case does not assume a
 
disorderly sovereign-debt restructuring or a break-up of the Eurozone. In addition, we perform stress testing and sensitivity analysis in order to understand the impact of more severe assumptions on potential other-than-temporary impairment.
State and Political Subdivisions and Other U.S. Debt Securities
Our municipal securities portfolio primarily includes securities issued by U.S. states and their municipalities. A portion of this portfolio is held in connection with our tax-exempt investment program, more fully described in note 12 . Our portfolio of other U.S. debt securities is primarily composed of securities issued by U.S. corporations. 
Our assessment of other-than-temporary impairment of these portfolios considers, among other factors, adverse conditions specifically related to the industry, geographic area or financial condition of the issuer; the structure of the security, including collateral, if any, and payment schedule; rating agency changes to the security's credit rating; the volatility of the fair value changes; and our intent and ability to hold the security until its recovery in value.  If the impairment of the security is credit-related, we estimate the future cash flows from the security, tailored to the security and considering the above-described factors, and any resulting impairment deemed to be other-than-temporary is recorded in our consolidated statement of income.  
We recorded no other-than-temporary impairment on these securities in 2014 or 2013 . The decline in the unrealized losses on these securities as of December 31, 2014 was primarily attributable to the narrowing of spreads and U.S. Treasury rates in 2014 .
U.S. Non-Agency Residential Mortgage-Backed Securities
We assess other-than-temporary impairment of our portfolio of U.S. non-agency residential mortgage-backed securities using cash flow models, tailored for each security, that estimate the future cash flows from the underlying mortgages, using the security-specific collateral and transaction structure. Estimates of future cash flows are subject to management judgment. The future cash flows and performance of our portfolio of U.S. non-agency residential mortgage-backed securities are a function of a number of factors, including, but not limited to, the condition of the U.S. economy, the condition of the U.S. residential mortgage markets, and the level of loan defaults, prepayments and loss severities. Management's estimates of future losses for each security also consider the underwriting and historical


149

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

performance of each specific security, the underlying collateral type, vintage, borrower profile, third-party guarantees, current levels of subordination, geography and other factors.
We recorded no other-than-temporary impairment on these securities in 2014 or 2013 .
U.S. Non-Agency Commercial Mortgage-Backed Securities
With respect to our portfolio of U.S. non-agency commercial mortgage-backed securities, other-than-temporary impairment is assessed by considering a number of factors, including, but not limited to, the condition of the U.S. economy and the condition of the U.S. commercial real estate market, as well as capitalization rates. Management estimates of future losses for each security also consider the underlying collateral type, property location, vintage, debt-service coverage ratios, expected property income, servicer advances and estimated property values, as well as current levels of subordination. We recorded $10 million of other-than-temporary impairment on these securities in the year ended December 31, 2014 , all associated with expected credit losses. In the year ended December 31, 2013 , we recorded $11 million of other than temporary impairment on these securities, all associated with expected credit losses.
*****
The estimates, assumptions and other risk factors utilized in our assessment of impairment as described above are used by management to identify securities which are subject to further analysis of potential credit losses. Additional analyses are performed using more stressful assumptions to further evaluate the sensitivity of losses relative to the above-described factors. However, since the assumptions are based on the unique characteristics of each security, management uses a range of estimates for prepayment speeds, default, and loss severity forecasts that reflect the collateral profile of the securities within each asset class. In addition, in measuring expected credit losses, the individual characteristics of each security are examined to determine whether any additional factors would increase or mitigate the expected loss. Once losses are determined, the timing of the loss will also affect the ultimate other-than-temporary impairment, since the loss is ultimately subject to a discount commensurate with the purchase yield of the security.
After a review of the investment portfolio, taking into consideration current economic conditions, adverse situations that might affect our ability to fully collect principal and interest, the timing of future payments, the credit quality and performance of the
 
collateral underlying mortgage- and asset-backed securities and other relevant factors, and excluding other-than-temporary impairment recorded in the year ended December 31, 2014 , management considers the aggregate decline in fair value of the investment securities portfolio and the resulting gross pre-tax unrealized losses of $614 million as of December 31, 2014 , related to 1,482 securities, to be temporary, and not the result of any material changes in the credit characteristics of the securities.
Note  4 .    Loans and Leases
Loans are generally recorded at their principal amount outstanding, net of the allowance for loan losses, unearned income, and any net unamortized deferred loan origination fees. Acquired loans have been initially recorded at fair value based on management’s expectation with respect to future principal and interest collection as of the date of acquisition. Acquired loans are held for investment, and as such their initial fair value is not adjusted subsequent to acquisition.
Interest revenue related to loans is recognized in our consolidated statement of income using the interest method, or on a basis approximating a level rate of return over the term of the loan. Fees received for providing loan commitments and letters of credit that we anticipate will result in loans typically are deferred and amortized to interest revenue over the term of the related loan, beginning with the initial borrowing. Fees on commitments and letters of credit are amortized to processing fees and other revenue over the commitment period when funding is not known or expected.
Leveraged-lease investments are reported at the aggregate of lease payments receivable and estimated residual values, net of non-recourse debt and unearned income. Lease residual values are reviewed regularly for other-than-temporary impairment, with valuation adjustments recorded against processing fees and other revenue. Unearned income is recognized to yield a level rate of return on the net investment in the leases. Gains and losses on residual values of leased equipment sold are recorded in processing fees and other revenue.


150

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table presents our recorded investment in loans and leases, by segment and class, as of December 31 :
(In millions)
2014
 
2013
Institutional:
 
 
 
Investment funds:
 
 
 
U.S.
$
11,388

 
$
8,695

Non-U.S.
2,333

 
1,718

Commercial and financial:
 
 
 
U.S.
3,061

 
1,372

Non-U.S.
256

 
154

Purchased receivables:
 
 
 
U.S.
124

 
217

Non-U.S.
6

 
26

Lease financing:
 
 
 
U.S.
335

 
339

Non-U.S.
668

 
756

Total institutional
18,171

 
13,277

Commercial real estate:
 
 
 
U.S.
28

 
209

Total loans and leases
18,199

 
13,486

Allowance for loan losses
(38
)
 
(28
)
Loans and leases, net of allowance for loan losses
$
18,161

 
$
13,458

The components of our net investment in leveraged lease financing, included in the institutional segment in the preceding table, were as follows as of December 31 :
(In millions)
2014
 
2013
Net rental income receivable
$
1,284

 
$
1,404

Estimated residual values
89

 
110

Unearned income
(370
)
 
(419
)
Investment in leveraged lease financing
1,003

 
1,095

Less related deferred income tax liabilities
(326
)
 
(359
)
Net investment in leveraged lease financing
$
677

 
$
736

We segregate our loans and leases into two segments: institutional and commercial real estate, or CRE. Within the institutional and CRE segments, we further segregate the receivables into classes based on their risk characteristics, their initial measurement attributes and the methods we use to monitor and assess credit risk.
 
The institutional segment is composed of the following classes: investment funds, commercial-and- financial, purchased receivables and lease financing. The investment funds class includes lending to mutual and other collective investment funds. The commercial-and-financial class includes lending to corporate borrowers, including broker/dealers, as well as purchased loans composed of senior secured bank loans. These senior secured bank loans, which are more fully described below, are carried in connection with our participation in loan syndications in the non-investment-grade lending market. The purchased receivables class represents undivided interests in securitized pools of underlying third-party receivables added in connection with the commercial paper conduit consolidation in 2009. The lease financing class includes our investment in leveraged lease financing.
Short-duration advances to our clients included in the institutional segment were $3.54 billion and $2.45 billion as of December 31, 2014 and 2013 , respectively. These short-duration advances provide liquidity to fund clients in support of their transaction flows associated with securities settlement activities.
The commercial-and-financial class in the institutional segment presented in the preceding table included approximately $2.07 billion and $724 million of senior secured bank loans as of December 31, 2014 and 2013 , respectively. These senior secured bank loans are included in the “speculative” category in the credit-quality-indicator tables presented below. As of December 31, 2014 , our allowance for loan losses included approximately $26 million related to these loans.
The CRE segment is composed of the loans acquired in 2008 pursuant to indemnified repurchase agreements with an affiliate of Lehman as a result of the Lehman Brothers bankruptcy. The CRE loans, are primarily collateralized by direct and indirect interests in commercial real estate, were recorded at their then-current fair value, based on management’s expectations with respect to future cash flows from the loans using appropriate market discount rates as of the date of acquisition. These cash flow estimates are updated quarterly to reflect changes in management’s expectations, which consider market conditions and other factors.


151

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following tables present our recorded investment in each class of loans and leases by credit quality indicator as of the dates indicated:
 
Institutional
 
Commercial Real Estate
 
 
December 31, 2014
Investment
Funds
 
Commercial and Financial
 
Purchased
Receivables
 
Lease
Financing
 
Property Development
 
Other
 
Total
Loans and
Leases
(In millions)
 
 
 
 
Investment grade (1)
$
13,304

 
$
1,011

 
$
130

 
$
976

 
$
—

 
$
—

 
$
15,421

Speculative (2)
417

 
2,306

 
—

 
27

 
—

 
28

 
2,778

Total
$
13,721

 
$
3,317

 
$
130

 
$
1,003

 
$
—

 
$
28

 
$
18,199

 
Institutional
 
Commercial Real Estate
 
 
December 31, 2013
Investment
Funds
 
Commercial and Financial
 
Purchased
Receivables
 
Lease
Financing
 
Property Development
 
Other
 
Total
Loans and
Leases
(In millions)
 
 
 
 
 
Investment grade (1)
$
10,282

 
$
740

 
$
243

 
$
1,068

 
$
—

 
$
29

 
$
12,362

Speculative (2)
131

 
770

 
—

 
27

 
180

 
—

 
1,108

Special mention (3)
—

 
16

 
—

 
—

 
—

 
—

 
16

Total
$
10,413

 
$
1,526

 
$
243

 
$
1,095

 
$
180

 
$
29

 
$
13,486

 
 
 
 
(1) Investment-grade loans and leases consist of counterparties with strong credit quality and low expected credit risk and probability of default. Ratings apply to counterparties with a strong capacity to support the timely repayment of any financial commitment.
(2) Speculative loans and leases consist of counterparties that face ongoing uncertainties or exposure to business, financial, or economic downturns. However, these counterparties may have financial flexibility or access to financial alternatives, which allow for financial commitments to be met.
(3) Special mention loans and leases consist of counterparties with potential weaknesses that, if uncorrected, may result in deterioration of repayment prospects.
We use an internal risk-rating system to assess our risk of credit loss for each loan or lease. This risk-rating process incorporates the use of risk-rating tools in conjunction with management judgment. Qualitative and quantitative inputs are captured in a systematic manner, and following a formal review and approval process, an internal credit rating based on our credit scale is assigned.
In assessing the risk rating assigned to each individual loan or lease, among the factors considered are the borrower's debt capacity, collateral coverage, payment history and delinquency
 
experience, financial flexibility and earnings strength, the expected amounts and sources of repayment, the level and nature of contingencies, if any, and the industry and geography in which the borrower operates. These factors are based on an evaluation of historical and current information, and involve subjective assessment and interpretation. Credit counterparties are evaluated and risk-rated on an

individual basis at least annually. Management considers the ratings to be current as of December 31, 2014 .

The following table presents our recorded investment in loans and leases, disaggregated based on our impairment methodology, as of the dates indicated:
 
December 31, 2014
 
December 31, 2013
(In millions)
Institutional
 
Commercial Real Estate
 
Total Loans and Leases
 
Institutional
 
Commercial Real Estate
 
Total Loans and Leases
Loans and leases:
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
—

 
$
—

 
$
—

 
$
26

 
$
180

 
$
206

Collectively evaluated for impairment (1)
18,171

 
28

 
18,199

 
13,251

 
29

 
13,280

Total
$
18,171

 
$
28

 
$
18,199

 
$
13,277

 
$
209

 
$
13,486

 
 
 
 
(1) For those portfolios where there are a small number of loans each with a large balance, we review each loan annually for indicators of impairment. For those loans where no such indicators are identified, the loans are collectively evaluated for impairment. As of December 31, 2014 and 2013 , all of the allowance for loan losses of $38 million and $28 million , respectively, related to institutional loans collectively evaluated for impairment.    

152

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following tables present information related to our recorded investment in impaired loans and leases as of the dates indicated:
 
December 31, 2014
December 31, 2013
(In millions)
Recorded Investment
 
Unpaid
Principal
Balance (1)
 
Recorded Investment
 
Unpaid
Principal
Balance (1)
With no related allowance recorded:
 
 
 
 
 
 
 
CRE—property development (2)
$
—

 
$
—

 
$
130

 
$
143

CRE—property development—acquired credit-impaired
—

 
34

 
—

 
34

CRE—other—acquired credit-impaired
—

 
22

 
—

 
21

Total CRE
$
—

 
$
56

 
$
130

 
$
198

 
 
 
 
(1) As of December 31, 2014 and 2013 , all of the allowance for loan losses of $38 million and $28 million , respectively, related to institutional loans collectively evaluated for impairment.
(2) Represents loans that were previously modified in troubled debt restructurings and that were repaid in 2014.
In certain circumstances, we restructure troubled loans by granting concessions to borrowers experiencing financial difficulty. Once restructured, the loans are generally considered impaired until their maturity, regardless of whether the borrowers perform under the modified terms of the loans. No loans were modified in troubled debt restructurings during the years ended December 31, 2014 and 2013 .
We generally place loans on non-accrual status once principal or interest payments are 60 days contractually past due, or earlier if management determines that full collection is not probable. Loans 60 days past due, but considered both well-secured and in the process of collection, may be excluded from non-accrual status. When we place a loan on non-accrual status, the accrual of interest is
discontinued and previously recorded but unpaid interest is reversed and generally charged against interest revenue. For loans on non-accrual status, revenue is recognized on a cash basis after recovery of principal, if and when interest payments are received. Loans may be removed from non-accrual status when repayment is reasonably assured and performance under the terms of the loan has been demonstrated.
As of December 31, 2014 and 2013 , no institutional loans or leases and no CRE loans were on non-accrual status or 90 days or more contractually past due.
The allowance for loan losses, recorded as a reduction of loans and leases in our consolidated statement of condition, represents management’s estimate of incurred credit losses in our loan-and-lease portfolio as of the balance sheet date. The allowance is evaluated on a regular basis by management. Factors considered in evaluating the appropriate level of the allowance for both the institutional and commercial real estate segments of
 
our loan-and-lease portfolio include loss experience, the probability of default reflected in our internal risk rating of the counterparty's creditworthiness, current economic conditions and adverse situations that may affect the borrower’s ability to repay, the estimated value of the underlying collateral, if any, the performance of individual credits in relation to contract terms, and other relevant factors.
Loans are charged off to the allowance for loan losses in the reporting period in which either an event occurs that confirms the existence of a loss on a loan or a portion of a loan is determined to be uncollectible. In addition, any impaired loan that is determined to be collateral-dependent is reduced to an amount equal to the fair value of the collateral less costs to sell. A loan is identified as collateral-dependent when management determines that it is probable that the underlying collateral will be the sole source of repayment. Recoveries are recorded on a cash basis as adjustments to the allowance.
The reserve for off-balance sheet credit exposures, recorded in accrued expenses and other liabilities in our consolidated statement of condition, represents management’s estimate of probable credit losses in outstanding letters and lines of credit and other credit-enhancement facilities provided to our clients and outstanding as of the balance sheet date. The reserve is evaluated on a regular basis by management. Factors considered in evaluating the appropriate level of this reserve are similar to those considered with respect to the allowance for loan losses. Provisions to maintain the reserve at a level considered by us to be appropriate to absorb estimated incurred credit losses in outstanding facilities are recorded in other expenses in our consolidated statement of income.


153

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following tables present activity in the allowance for loan losses for the periods indicated:
 
Years Ended December 31,
 
2014
 
2013
 
2012
(In millions)
Total Loans and Leases
 
Total Loans and Leases
 
Total Loans and Leases
Allowance for loan losses (1) :
 
 
 
 
 
Beginning balance
$
28

 
$
22

 
$
22

Provisions
10

 
6

 
(3
)
Recoveries
—

 
—

 
3

Ending balance
$
38

 
$
28

 
$
22

 
 
 
 
(1) As of December 31, 2014 , approximately $26 million of our allowance for loan losses was related to senior secured bank loans included in the institutional segment; the remaining $12 million was related to other commercial-and-financial loans in the institutional segment.
The provision of $10 million recorded in the year ended December 31, 2014 was composed of a provision of $20 million associated with the senior
 
secured bank loans, as the portfolio continued to grow and become more seasoned, offset by a negative provision of $10 million associated with the pay-down of an unrelated commercial and financial loan with speculative-rated credit quality. The senior secured bank loans are held in connection with our participation in loan syndications in the non-investment-grade lending market.
The provision of $6 million recorded in the year ended December 31, 2013 resulted from our estimate of credit losses incurred on our portfolio of senior secured bank loans.
Loans and leases are reviewed on a regular basis, and any provisions for loan losses that are recorded reflect management's estimate of the amount necessary to maintain the allowance for loan losses at a level considered appropriate to absorb estimated incurred losses in the loan-and-lease portfolio.

Note  5 .    Goodwill and Other Intangible Assets
Goodwill represents the excess of the cost of an acquisition over the fair value of the net tangible and other intangible assets acquired. Other intangible assets represent purchased assets that can be distinguished from goodwill because of contractual rights or because the asset can be exchanged on its own or in combination with a related contract, asset or liability. Goodwill is not amortized, but is subject to annual evaluation for impairment. Other intangible assets, which are also subject to annual evaluation for impairment, are mainly related to client relationships, which are amortized on a straight-line basis over periods ranging from five to twenty years, and core deposit intangible assets, which are amortized over periods ranging from sixteen to twenty-two years, with such amortization recorded in
 
other expenses in our consolidated statement of income.
Impairment of goodwill is deemed to exist if the carrying value of a reporting unit, including its allocation of goodwill and other intangible assets, exceeds its estimated fair value. Impairment of other intangible assets is deemed to exist if the balance of the other intangible asset exceeds the cumulative expected net cash inflows related to the asset over its remaining estimated useful life. If these reviews determine that goodwill or other intangible assets are impaired, the value of the goodwill or the other intangible asset is written down through a charge to other expenses in our consolidated statement of income.

The following table presents changes in the carrying amount of goodwill during the periods indicated:
 
Years Ended December 31,
 
2014
 
2013
(In millions)
Investment
Servicing
 
Investment
Management
 
Total
 
Investment
Servicing
 
Investment
Management
 
Total
Goodwill:
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
5,999

 
$
37

 
$
6,036

 
$
5,941

 
$
36

 
$
5,977

Foreign currency translation and other, net
(206
)
 
(4
)
 
(210
)
 
58

 
1

 
59

Ending balance
$
5,793

 
$
33

 
$
5,826

 
$
5,999

 
$
37

 
$
6,036


154

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table presents changes in the net carrying amount of other intangible assets during the periods indicated:
 
Years Ended December 31,
 
2014
 
2013
(In millions)
Investment
Servicing
 
Investment
Management
 
Total
 
Investment
Servicing
 
Investment
Management
 
Total
Other intangible assets:
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
2,321

 
$
39

 
$
2,360

 
$
2,492

 
$
47

 
$
2,539

Amortization
(213
)
 
(9
)
 
(222
)
 
(205
)
 
(9
)
 
(214
)
Foreign currency translation and other, net
(110
)
 
(3
)
 
(113
)
 
34

 
1

 
35

Ending balance
$
1,998

 
$
27

 
$
2,025

 
$
2,321

 
$
39

 
$
2,360

The following table presents the gross carrying amount, accumulated amortization and net carrying amount of other intangible assets by type as of the dates indicated:
 
December 31, 2014
 
December 31, 2013
(In millions)
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Client relationships
$
2,569

 
$
(1,088
)
 
$
1,481

 
$
2,706

 
$
(975
)
 
$
1,731

Core deposits
688

 
(219
)
 
469

 
717

 
(191
)
 
526

Other
214

 
(139
)
 
75

 
234

 
(131
)
 
103

Total
$
3,471

 
$
(1,446
)
 
$
2,025

 
$
3,657

 
$
(1,297
)
 
$
2,360

Amortization expense related to other intangible assets was $222 million , $214 million and $198 million for the years ended December 31, 2014 , 2013 and 2012 , respectively. An impairment of approximately $9 million associated with intangible assets was included in amortization expense in 2014. Expected future amortization expense for other intangible assets recorded as of December 31, 2014 is $203 million for 2015, $199 million for 2016, $192 million for 2017, $166 million for 2018 and $151 million for 2019.
 
Note  6 .    Other Assets
The following table presents the components of other assets as of the dates indicated:
(In millions)
December 31, 2014
 
December 31, 2013
Collateral deposits, net
$
18,134

 
$
13,706

Unrealized gains on derivative financial instruments, net
7,934

 
5,476

Bank-owned life insurance
2,402

 
2,343

Investments in joint ventures and other unconsolidated entities
1,798

 
1,644

Accounts receivable
513

 
950

Income taxes receivable
396

 
337

Prepaid expenses
259

 
286

Receivable for securities settlement
218

 
195

Deferred tax assets, net of valuation allowance (1)
214

 
263

Deposits with clearing organizations
197

 
177

Other (2)
535

 
613

Total
$
32,600

 
$
25,990

 
 
(1)  
Deferred tax assets and liabilities recorded in our consolidated statement of condition are netted within the same tax jurisdiction. Gross deferred tax assets and liabilities are presented in note 22 .
(2)  
Includes other real estate owned of approximately $62 million and $59 million as of December 31, 2014 and 2013 , respectively.


155

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 7.
Deposits
As of December 31, 2014 , we had $56.42 billion of time deposits outstanding, of which $660 million were non-U.S. and all of which are scheduled to mature in 2015. As of December 31, 2013 , we had $2.02 billion of time deposits outstanding, all of which were non-U.S. As of December 31, 2014 and 2013 , substantially all U.S. and non-U.S. time deposits were in amounts of $100,000 or more.
Note  8 .
Short-Term Borrowings
Our short-term borrowings include securities sold under repurchase agreements, federal funds
 
purchased and other short-term borrowings; other short-term borrowings include borrowings associated with our tax-exempt investment program, more fully described in note 12 , and commercial paper issued in connection with our corporate program, under which we can issue up to $3 billion of commercial paper with original maturities of up to 270  days from the date of issuance. Collectively, short-term borrowings had weighted-average interest rates of 0.04% and 0.48% for the years ended December 31, 2014 and 2013 , respectively.

The following tables present information with respect to the amounts outstanding and weighted-average interest rates of the primary components of our short-term borrowings as of and for the years ended December 31 :
 
Securities Sold Under
Repurchase Agreements
 
Federal Funds Purchased
(Dollars in millions)
2014
 
2013
 
2012
 
2014
 
2013
 
2012
Balance as of December 31
$
8,925

 
$
7,953

 
$
8,006

 
$
21

 
$
19

 
$
399

Maximum outstanding as of any month-end
10,955

 
11,538

 
9,306

 
29

 
570

 
1,145

Average outstanding during the year
8,817

 
8,436

 
7,697

 
20

 
298

 
784

Weighted-average interest rate as of year-end
.005
%
 
.003
%
 
.06
%
 
.01
%
 
.13
%
 
.13
%
Weighted-average interest rate for the year
—

 
.01

 
.01

 
—

 
—

 
.09

 
 
 
 
 
 
 
 
 
 
 
 
 
Tax-Exempt
Investment Program
 
Corporate Commercial Paper
Program
(Dollars in millions)
2014
 
2013
 
2012
 
2014
 
2013
 
2012
Balance as of December 31
$
1,870

 
$
1,948

 
$
2,148

 
$
2,485

 
$
1,819

 
$
2,318

Maximum outstanding as of any month-end
1,938

 
2,135

 
2,274

 
2,485

 
2,535

 
2,503

Average outstanding during the year
1,903

 
2,030

 
2,214

 
2,136

 
1,632

 
2,382

Weighted-average interest rate as of year-end
.06
%
 
.09
%
 
.17
%
 
.16
%
 
.14
%
 
.22
%
Weighted-average interest rate for the year
.08

 
.13

 
.21

 
.17

 
.18

 
.23

The following table presents the components of securities sold under repurchase agreements by underlying collateral as of December 31, 2014 :
(In millions)
 
Collateralized by securities purchased under resale agreements
$
2

Collateralized by investment securities
8,923

Total
$
8,925

Obligations to repurchase securities sold are recorded as a liability in our consolidated statement of condition. U.S. government securities with a fair value of $9.23 billion underlying the repurchase agreements remained in our investment securities portfolio as of December 31, 2014 . The following table presents information about these U.S. government securities and the related repurchase agreements, including accrued interest, as of December 31, 2014 . The table excludes repurchase agreements collateralized by securities purchased under resale agreements.
 
 
U.S. Government
Securities Sold
 
Repurchase
Agreements
(Dollars in millions)
Amortized
Cost
 
Fair Value
 
Amortized
Cost
 
Rate
Overnight maturity
$
9,316

 
$
9,228

 
$
8,923

 
.004
%
We maintain an agreement with a clearing organization that enables us to net all securities purchased under resale agreements and sold under repurchase agreements with counterparties that are also members of the clearing organization. As a result of this netting, the average balances of securities purchased under resale agreements and securities sold under repurchase agreements were reduced by $28.82 billion for 2014 and by $27.81 billion for 2013 .
State Street Bank currently maintains a line of credit of CAD $800 million , or approximately $690 million as of December 31, 2014 , to support its Canadian securities processing operations. The line of credit has no stated termination date and is cancelable by either party with prior notice. As of


156

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

December 31, 2014 and 2013 , there was no balance outstanding on this line of credit.

Note 9 . Long-Term Debt
As of December 31,
2014
 
2013
(In millions)
 
 
 
Statutory business trusts:
 
 
 
Floating-rate subordinated notes due to State Street Capital Trust IV in 2037
$
800

 
$
800

Floating-rate subordinated notes due to State Street Capital Trust I in 2028
155

 
155

Parent company and non-banking subsidiary issuances:
 
 
 
3.70% notes due in 2023 (1)
1,043

 
974

2.875% notes due 2016
1,005

 
1,010

3.30% notes due 2024 (1)
999

 
—

3.10% subordinated notes due 2023 (1)
983

 
918

Long-term capital leases
769

 
788

4.375% notes due 2021
730

 
727

4.956% junior subordinated debentures due 2018
528

 
537

4.30% notes due 2014
—

 
502

1.35% notes due 2018 (1)
492

 
487

5.375% notes due 2017
450

 
450

Floating-rate notes due 2014
—

 
250

7.35% notes due 2026
150

 
150

State Street Bank issuances:
 
 
 
Floating-rate extendible notes due 2016
900

 
900

5.25% subordinated notes due 2018
433

 
442

5.30% subordinated notes due 2016
405

 
409

Floating-rate subordinated notes due 2015
200

 
200

Total long-term debt
$
10,042

 
$
9,699

 
 
 
 
(1)  
We have entered into interest-rate swap agreements, recorded as fair value hedges, to modify our interest expense on these senior and subordinated notes from a fixed rate to a floating rate. As of December 31, 2014 , the carrying value of long-term debt associated with these fair value hedges increased $76 million . As of December 31, 2013 , the carrying value of long-term debt associated with these fair value hedges decreased $35 million . Refer to note  16 for additional information about fair value hedges.
We maintain an effective universal shelf registration that allows for the offering and sale of debt securities, capital securities, common stock, depositary shares and preferred stock, and warrants to purchase such securities, including any shares into which the preferred stock and depositary shares may be convertible, or any combination thereof.
As of December 31, 2014 , State Street Bank had Board authority to issue unsecured senior debt securities from time to time, provided that the aggregate principal amount of such unsecured senior debt outstanding at any one time does not exceed $5 billion . As of December 31, 2014 , $4.1 billion was available for issuance pursuant to this authority. As of December 31, 2014 , State Street Bank also had Board authority to issue an additional $500 million of subordinated debt.
Statutory Business Trusts:
 
As of December 31, 2014 , we had two statutory business trusts, State Street Capital Trusts I and IV, which as of December 31, 2014 had collectively issued $955 million of trust preferred capital securities. Proceeds received by each of the trusts from their capitalization and from their capital securities issuances are invested in junior subordinated debentures issued by the parent company. The junior subordinated debentures are the sole assets of Capital Trusts I and IV. Each of the trusts is wholly-owned by us; however, in conformity with GAAP, we do not record the trusts in our consolidated financial statements.
Payments made by the trusts to holders of the capital securities are dependent on our payments made to the trusts on the junior subordinated debentures. Our fulfillment of these commitments has the effect of providing a full, irrevocable and unconditional guarantee of the trusts’ obligations


157

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

under the capital securities. While the capital securities issued by the trusts are not recorded in our consolidated statement of condition, the junior subordinated debentures qualify for inclusion in tier 1 regulatory capital under current federal regulatory capital guidelines. Information about restrictions on our ability to obtain funds from our subsidiary banks is provided in note 15 .
Interest paid by the parent company on the debentures is recorded in interest expense. Distributions to holders of the capital securities by the trusts are payable from interest payments received on the debentures and are due quarterly by State Street Capital Trusts I and IV, subject to deferral for up to five years under certain conditions. The capital securities are subject to mandatory redemption in whole at the stated maturity upon repayment of the debentures, with an option by us to redeem the debentures at any time. Such optional redemption is subject to federal regulatory approval.
Parent Company and Non-Banking Subsidiary Issuances:
Interest on the 2.875% senior notes and the 4.375% senior notes is payable semi-annually in arrears on March 7 and September 7 of each year.
In December 2014, we issued $1.0 billion of 3.30% senior notes due December 16, 2024 . Interest on the senior notes is payable semi-annually in arrears on June 16 and December 16 of each year, beginning on June 16, 2015.
Interest on the 3.70% senior notes is payable semi-annually in arrears on May 20 and November 20 of each year.
Interest on the 3.10% subordinated notes is payable semi-annually in arrears on May 15 and November 15 of each year. The 3.10% subordinated notes qualify for inclusion in tier 2 regulatory capital under current federal regulatory capital guidelines.
As of December 31, 2014 and 2013 , long-term capital leases included $336 million and $363 million , respectively, related to our One Lincoln Street headquarters building and related underground parking garage; $241 million and $267 million , respectively, related to an office building in the U.K.; and $191 million and $158 million , respectively, related to obligations associated with the completed construction of the Channel Center, a build-to-suit office building located in Boston, and other premises and equipment. Refer to note  20 for additional information.
Interest on the 4.956% junior subordinated debentures is payable semi-annually in arrears on March 15 and September 15 of each year. The debentures mature on March 15, 2018 , and we do not
 
have the right to redeem the debentures prior to maturity other than upon the occurrence of specified events. Such redemption is subject to federal regulatory approval. The junior subordinated debentures qualify for inclusion in tier 2 regulatory capital under current federal regulatory capital guidelines.
Interest on the 1.35% senior notes is payable semi-annually in arrears on May 15 and November 15 of each year.
Interest on the 5.375% senior notes is payable semi-annually in arrears on April 30 and October 30 of each year.
Interest on the 7.35% senior notes is payable semi-annually in arrears on June 15 and December 15 of each year. We may not redeem the notes prior to their maturity.
State Street Bank Issuances:
Each of the floating-rate extendible notes, issued in 2012, had an initial maturity date of January 13, 2014 ; on the 18th day of each month, holders are entitled to extend the maturity date of their notes for successive one-month periods in accordance with defined procedures. In no event may the maturity of any note be extended beyond January 15, 2016 , the final maturity date. Beginning on January 15, 2015 , State Street Bank may redeem some or all of the notes at 100% of the principal amount of the notes to be redeemed, plus accrued interest to the redemption date, and on February 17, 2015, State Street Bank issued a notice of redemption for 100% of the principal amount of the notes. The redemption will occur on February 26, 2015.
State Street Bank is required to make semi-annual interest payments on the outstanding principal balance of the 5.25% subordinated bank notes on April 15 and October 15 of each year, and the notes qualify for inclusion in tier 2 regulatory capital under current federal regulatory capital guidelines.
State Street Bank is required to make semi-annual interest payments on the outstanding principal balance of the 5.30% subordinated notes on January 15 and July 15 of each year, and quarterly interest payments on the outstanding principal balance of the floating-rate notes on March 8, June 8, September 8 and December 8 of each year. Each of the subordinated notes qualifies for inclusion in tier 2 regulatory capital under current federal regulatory capital guidelines.


158

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note  10 .    Commitments and Guarantees
Commitments:
We had unfunded off-balance sheet commitments to extend credit totaling $24.25 billion and $21.30 billion as of December 31, 2014 and 2013 , respectively. The potential losses associated with these commitments equal the gross contractual amounts, and do not consider the value of any collateral. As of December 31, 2014 , approximately 76% of our unfunded commitments to extend credit expire within one year. Since many of these commitments are expected to expire or renew without being drawn upon, the gross contractual amounts do not necessarily represent our future cash requirements.
Guarantees:
Off-balance sheet guarantees comprise indemnified securities financing, stable value protection, unfunded commitments to purchase assets, and standby letters of credit. The potential losses associated with these guarantees equal the gross contractual amounts, and do not consider the value of any collateral. The following table presents the aggregate gross contractual amounts of our off-balance sheet guarantees as of the dates indicated. Amounts presented do not reflect participations to independent third parties.  
(In millions)
December 31, 2014
 
December 31, 2013
Indemnified securities financing
$
349,766

 
$
320,078

Stable value protection
23,409

 
24,906

Asset purchase agreements
4,107

 
4,685

Standby letters of credit
4,720

 
4,612

Indemnified Securities Financing
On behalf of our clients, we lend their securities, as agent, to brokers and other institutions. In most circumstances, we indemnify our clients for the fair market value of those securities against a failure of the borrower to return such securities. We require the borrowers to maintain collateral in an amount in excess of 100% of the fair market value of the securities borrowed. Securities on loan and the collateral are revalued daily to determine if additional collateral is necessary or if excess collateral is required to be returned to the borrower. Collateral received in connection with our securities lending services is held by us as agent and is not recorded in our consolidated statement of condition.
The cash collateral held by us as agent is invested on behalf of our clients. In certain cases, the cash collateral is invested in third-party repurchase agreements, for which we indemnify the client against
 
loss of the principal invested. We require the counterparty to the indemnified repurchase agreement to provide collateral in an amount in excess of 100% of the amount of the repurchase agreement. In our role as agent, the indemnified repurchase agreements and the related collateral held by us are not recorded in our consolidated statement of condition.
The following table summarizes the aggregate fair values of indemnified securities financing and related collateral, as well as collateral invested in indemnified repurchase agreements, as of the dates indicated:
(In millions)
December 31, 2014
 
December 31, 2013
Fair value of indemnified securities financing
$
349,766

 
$
320,078

Fair value of cash and securities held by us, as agent, as collateral for indemnified securities financing
364,411

 
331,732

Fair value of collateral for indemnified securities financing invested in indemnified repurchase agreements
85,309

 
85,374

Fair value of cash and securities held by us or our agents as collateral for investments in indemnified repurchase agreements
90,819

 
91,097

In certain cases, we participate in securities finance transactions as a principal. As a principal, we borrow securities from the lending client and then lend such securities to the subsequent borrower, either a State Street client or a broker/dealer. Collateral provided and received in connection with such transactions is recorded in other assets and accrued expenses and other liabilities, respectively, in our consolidated statement of condition. As of December 31, 2014 and 2013 , we had approximately $15.94 billion and $11.29 billion , respectively, of collateral provided and approximately $6.48 billion and $6.62 billion , respectively, of collateral received from clients in connection with our participation in principal securities finance transactions.
Stable Value Protection
In the normal course of our business, we offer products that provide book-value protection, primarily to plan participants in stable value funds managed by non-affiliated investment managers of post-retirement defined contribution benefit plans, particularly 401(k) plans. The book-value protection is provided on portfolios of intermediate investment grade fixed-income securities, and is intended to provide safety and stable growth of principal invested. The protection is intended to cover any shortfall in the


159

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

event that a significant number of plan participants withdraw funds when book value exceeds market value and the liquidation of the assets is not sufficient to redeem the participants. The investment parameters of the underlying portfolios, combined with structural protections, are designed to provide cushion and guard against payments even under extreme stress scenarios.
These contingencies are individually accounted for as derivative financial instruments. The notional amounts of the stable value contracts are presented as “derivatives not designated as hedging instruments” in the table of aggregate notional amounts of derivative financial instruments provided in note 16 . We have not made a payment under these contingencies that we consider material to our consolidated financial condition, and management believes that the probability of payment under these contingencies in the future, that we would consider material to our consolidated financial condition, is remote.
Note  11 .    Contingencies
Legal and Regulatory Matters:
In the ordinary course of business, we and our subsidiaries are involved in disputes, litigation, and governmental or regulatory inquiries and investigations, both pending and threatened. These matters, if resolved adversely against us or settled, may result in monetary damages, fines and penalties or require changes in our business practices. The resolution or settlement of these matters is inherently difficult to predict. Based on our assessment of these pending matters, we do not believe that the amount of any judgment, settlement or other action arising from any pending matter is likely to have a material adverse effect on our consolidated financial condition.  However, an adverse outcome in certain of the matters described below could have a material adverse effect on our consolidated results of operations for the period in which such matter is resolved, or an accrual is determined to be required on our consolidated financial condition, or on our reputation.
We evaluate our needs for accruals of loss contingencies related to legal proceedings on a case-by-case basis. When we have a liability that we deem probable and that we deem can be reasonably estimated as of the date of our consolidated financial statements, we accrue for our estimate of the loss. We also consider a loss probable and establish an accrual when we make or intend to make an offer of settlement. Once established, an accrual is subject to subsequent adjustment as a result of additional information. The resolution of proceedings and the
 
reasonably estimable loss (or range thereof) are inherently difficult to predict, especially in the early stages of proceedings. Even if a loss is probable, due to many complex factors, such as speed of discovery and the timing of court decisions or rulings, a loss or range of loss might not be reasonably estimated until the later stages of the proceeding.
As of December 31, 2014 , our aggregate accruals for legal loss contingencies and regulatory matters, net of anticipated insurance recoveries, totaled approximately $224 million . To the extent that we have established accruals in our consolidated statement of condition for probable loss contingencies, such accruals may not be sufficient to cover our ultimate financial exposure associated with any settlements or judgments. We may be subject to proceedings in the future that, if adversely resolved, would have a material adverse effect on our businesses or on our future consolidated financial statements. Except where otherwise noted below, we have not established accruals with respect to the claims discussed and do not believe that potential exposure is probable and can be reasonably estimated.
The following discussion provides information with respect to significant legal and regulatory matters.
Securities Finance
Two related participants in our agency securities lending program have brought suit against us challenging actions taken by us in response to their withdrawal from the program. We believe that certain withdrawals by these participants were inconsistent with the redemption policy applicable to the agency lending collateral pools and, consequently, redeemed their remaining interests through an in-kind distribution that reflected the assets these participants would have received had they acted in accordance with the collateral pools' redemption policy. In taking these actions, we believe that we acted in the best interests of all participants in the collateral pools. The two participants have asserted damages of $125 million , an amount that plaintiffs attribute to alleged deficiencies in the methodology that State Street used to construct the in-kind distribution and alleged errors in the pricing of the securities that plaintiffs received on or about August 2009. While management does not believe that such difference is an appropriate measure of damages, we have been informed that the participants liquidated these securities in June 2013, and we estimate the loss on those sales to be approximately $11 million . Discovery with respect to this matter is expected to be completed in 2015. As of December 31, 2014 , we


160

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

had $10 million accrued in connection with this matter.
Foreign Exchange
We offer our custody clients and their investment managers the option to route foreign exchange transactions to our foreign exchange desk through our asset servicing operation. We record as revenue an amount approximately equal to the difference between the rates we set for those trades and indicative interbank market rates at the time of settlement of the trade.
As discussed more fully below, claims have been asserted on behalf of certain current and former custody clients, and future claims may be asserted, alleging that our indirect foreign exchange rates (including the differences between those rates and indicative interbank market rates at the time we executed the trades) were not adequately disclosed or were otherwise improper, and seeking to recover, among other things, the full amount of the revenue we obtained from our indirect foreign exchange trading with them.
In October 2009, the Attorney General of the State of California commenced an action under the California False Claims Act and California Business and Professional Code related to services State Street provides to California state pension plans. The California Attorney General asserts that the pricing of certain foreign exchange trades for these pension plans was governed by the custody contracts for these plans and that our pricing was not consistent with the terms of those contracts and related disclosures to the plans, and that, as a result, State Street made false claims and engaged in unfair competition. The Attorney General asserts actual damages of approximately $100 million for periods from 2001 to 2009 and seeks additional penalties, including treble damages. This action is in the discovery phase.
We provide custody services to and engage in principal foreign exchange trading with government pension plans in other jurisdictions. Since the commencement of the litigation in California, attorneys general and other government authorities from a number of jurisdictions, as well as U.S. Attorney's offices, the U.S. Department of Labor and the SEC, have requested information or issued subpoenas in connection with inquiries into the pricing of our indirect foreign exchange trading. We continue to respond to such inquiries and subpoenas.
We engage in indirect foreign exchange trading with a broad range of custody clients in the U.S. and internationally. We have responded and are responding to information requests from a number of
 
clients concerning our indirect foreign exchange rates. In February 2011, a putative class action was filed in federal court in Boston seeking unspecified damages, including treble damages, on behalf of all custodial clients that executed certain foreign exchange transactions with State Street from 1998 to 2009. The putative class action alleges, among other things, that the rates at which State Street executed foreign currency trades constituted an unfair and deceptive practice under Massachusetts law and a breach of the duty of loyalty.
Two other putative class actions are currently pending in federal court in Boston alleging various violations of ERISA on behalf of all ERISA plans custodied with us that executed indirect foreign exchange trades with State Street from 1998 onward. The complaints allege that State Street caused class members to pay unfair and unreasonable rates on indirect foreign exchange trades with State Street. The complaints seek unspecified damages, disgorgement of profits, and other equitable relief. Other claims may be asserted in the future, including in response to developments in the actions discussed above or governmental proceedings.
We expect that plaintiffs will seek to recover their share of all or a portion of the revenue that we have recorded from indirect foreign exchange trades. We cannot predict whether a court, in the event of an adverse resolution, would consider our revenue to be the appropriate measure of damages.
The following table summarizes our estimated total revenue worldwide from indirect foreign exchange trading for the years ended December 31:
(In millions)
 
Revenue from indirect foreign exchange trading
2008
 
$
462

2009
 
369

2010
 
336

2011
 
331

2012
 
248

2013
 
285

2014
 
246

We believe that the amount of our revenue from such trading has been of a similar or lesser order of magnitude for many years prior to 2008. Our revenue calculations related to indirect foreign exchange trading reflect a judgment concerning the relationship between the rates we charge for indirect foreign exchange execution and indicative interbank market rates near in time to execution. Our revenue from foreign exchange trading generally depends on the


161

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

difference between the rates we set for those indirect trades and indicative interbank market rates at the time of settlement of the trade.
In the third quarter of 2014, we recorded an accrual of $70 million reflecting our intention to seek to resolve some, but not all, of the outstanding and potential claims arising out of our indirect foreign exchange client activities. We increased this accrual to $185 million as of December 31, 2014 . We are engaged in discussions with some, but not all, of the governmental agencies and civil litigants discussed above regarding potential settlements of their outstanding or potential claims. There can be no assurance that we will reach a settlement in any of these matters, that the cost of such settlements will not materially exceed our accrued reserve, or that other claims will not be asserted. We do not currently intend to seek to negotiate settlements with respect to all outstanding and potential claims, and our current efforts, even if successful, will not address all of our potential material legal exposure arising out of our indirect foreign exchange client activities.
Transition Management
In January 2014, we entered into a settlement with the U.K. Financial Conduct Authority, or FCA, pursuant to which we paid a fine of £22.9 million (approximately $37.8 million ), as a result of our having charged six clients of our U.K. transition management business during 2010 and 2011 amounts in excess of the contractual terms. The SEC and the U.S. Attorney are conducting separate investigations into this matter. As of December 31, 2014 , we had remaining accruals of approximately $3.0 million for indemnification costs associated with this matter.
Investment Servicing
State Street has been named as a defendant in related complaints by investment management clients of TAG Virgin Islands, Inc., or TAG, who hold or held custodial accounts with State Street. The complaints collectively have alleged various claims in connection with certain assets managed by TAG. As of December 31, 2014 , one action remains pending. As of December 31, 2014 , we had $4.3 million accrued with respect to these matters.
Income Taxes:
In determining our provision for income taxes, we make certain judgments and interpretations with respect to tax laws in jurisdictions in which we have business operations. Because of the complex nature of these laws, in the normal course of our business, we are subject to challenges from U.S. and non-U.S. income tax authorities regarding the amount of
 
income taxes due. These challenges may result in adjustments to the timing or amount of taxable income or deductions or the allocation of taxable income among tax jurisdictions. We recognize a tax benefit when it is more likely than not that our position will result in a tax deduction or credit. Additional information with respect to our provision for income taxes and tax benefits, including unrecognized tax benefits, is provided in note 22 .
We are presently under audit by a number of tax authorities. The earliest tax year open to examination in jurisdictions where we have material operations is 2009. The Internal Revenue Service, or IRS, completed their audit field procedures for the current audit related to our U.S. income tax returns for the tax years 2010 and 2011.
Note  12 .    Variable Interest Entities
Asset-Backed Investment Securities:
We are involved, in the normal course of our business, with various types of special purpose entities, some of which meet the definition of variable interest entities, or VIEs. We are required by GAAP to consolidate a VIE when we are deemed to be the primary beneficiary. This determination is evaluated periodically as facts and circumstances change.
We invest in various forms of asset-backed securities, which we carry in our investment securities portfolio. These asset-backed securities meet the GAAP definition of asset securitization entities, which are considered to be VIEs. We are not considered to be the primary beneficiary of these VIEs since we do not have control over their activities. Additional information about our asset-backed securities is provided in note 3 .


162

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Tax-Exempt Investment Program:
In the normal course of our business, we structure and sell certificated interests in pools of tax-exempt investment-grade assets, principally to our mutual fund clients. We structure these pools as partnership trusts, and the assets and liabilities of the trusts are recorded in our consolidated statement of condition as investment securities available for sale and other short-term borrowings. We may also provide liquidity and re-marketing services to the trusts. As of December 31, 2014 and 2013 , we carried investment securities available for sale, composed of securities related to state and political subdivisions, with a fair value of $2.27 billion and $2.33 billion , respectively, and other short-term borrowings of $1.87 billion and $1.95 billion , respectively, in our consolidated statement of condition in connection with these trusts. The interest revenue and interest expense generated by the investments and certificated interests, respectively, are recorded as components of net interest revenue when earned or incurred.
We transfer assets to the trusts from our investment securities portfolio at adjusted book value, and the trusts finance the acquisition of these assets by selling certificated interests issued by the trusts to third-party investors and to State Street as residual holder. These transfers do not meet the de-recognition criteria defined by GAAP , and therefore, the assets continue to be recorded in our consolidated financial statements. The trusts had a weighted-average life of approximately 5.9 years as of December 31, 2014 , compared to approximately 6.5 years as of December 31, 2013 .
Under separate legal agreements, we provide standby bond-purchase agreements to these trusts and, with respect to certain securities, letters of credit. Our commitments to the trusts under these standby bond-purchase agreements and letters of credit totaled $1.91 billion and $674 million , respectively, as of December 31, 2014 , none of which was utilized as of that date. In the event that our obligations under these agreements are triggered, no material impact to our consolidated results of operations or financial condition is expected to occur, because the securities are already recorded at fair value in our consolidated statement of condition.
Interests in Sponsored Investment Funds:
In the normal course of business, we manage various types of sponsored investment funds through SSGA. The services we provide to these sponsored investment funds generate management fee revenue. From time to time, we may invest cash in the funds, which we refer to as seed capital, in order for the
 
funds to establish a performance history for newly-launched strategies.
With respect to our interests in sponsored investment funds that meet the definition of a VIE, a primary beneficiary assessment is performed to determine if our variable interest (or combination of variable interests, including those of related parties) absorbs the majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both. As part of our assessment, we consider all the facts and circumstances regarding the terms and characteristics of the variable interest(s), the design and characteristics of the fund and the other involvements of the enterprise with the fund. Upon consolidation of certain sponsored investment funds, we retain the specialized investment company accounting rules followed by the underlying funds.
All of the underlying investments held by such consolidated sponsored investment funds are carried at fair value, with corresponding changes in the investments’ fair values reflected in trading services revenue in our consolidated statement of income. When we no longer control these funds due to a reduced ownership interest or other reasons, the funds are de-consolidated and accounted for under another accounting method if we continue to maintain an investment in the fund.
As of December 31, 2014 , we were an investor in a sponsored investment fund, considered to be a VIE, which was initially launched on December 31, 2013 . Given the extent of our exposure to the variability of the net assets of the fund, we were deemed to be the fund’s primary beneficiary, and as a result we include the fund in our consolidated financial statements. The fund's activities consist primarily of active trading in various equity, fixed-income, currency, commodity and futures markets. Such activities are included in our consolidated financial statements.
As of December 31, 2014 , the aggregate assets and liabilities of this consolidated sponsored investment fund totaled $65 million and $13 million , respectively. As of December 31, 2013 , the fund’s assets consisted solely of $50 million in cash.
As of December 31, 2014 our potential maximum total exposure associated with the consolidated sponsored investment fund totaled $52 million and represented the value of our economic ownership interest in the fund. We expect any financial losses that we realize over time from these seed investments to be limited to the actual fair value of the amount invested in the consolidated fund, which is based on the fair value of the underlying


163

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

investment securities held by the funds. However, in the event of a fund wind-down, gross gains and losses of the fund may be recognized for financial accounting purposes in different periods during the time the fund is consolidated but not wholly owned. Although we expect the actual economic loss to be limited to the amount invested, our losses in any period could exceed the value of our economic interests in the fund and could exceed the value of our initial seed capital investment.
Our conclusion to consolidate a sponsored investment fund may vary from period to period, most commonly as a result of fluctuation in our ownership interest as a result of changes in the number of fund shares held by either us or by third parties. Given that the funds follow specialized investment company accounting rules which prescribe fair value, a de-consolidation generally would not result in gains or losses for us.
The net assets of any consolidated fund are solely available to settle the liabilities of the fund and to settle any investors’ ownership redemption requests, including any seed capital invested in the fund by State Street. We are not contractually required to provide financial or any other support to any of our sponsored investment funds. In addition, neither creditors nor equity investors in the sponsored investment funds have any recourse to State Street’s general credit.
As of December 31, 2014 and 2013 , we managed certain sponsored investment funds, considered VIEs, in which we held a variable interest but for which we were not deemed to be the primary beneficiary. Our potential maximum loss exposure related to these unconsolidated funds totaled $45 million and $18 million as of December 31, 2014 and 2013 , respectively, and represented the carrying value of our seed capital investment, which is recorded in either investment securities available for sale or other assets in our consolidated statement of condition. The amount of loss we may recognize during any period is limited to the carrying amount of our seed capital investment in the unconsolidated fund.
Note 13 .    Shareholders’ Equity
Preferred Stock:
Preferred Stock, Series E
In November 2014, we issued 30 million depositary shares, each representing a 1/4,000th ownership interest in a share of State Street’s non-cumulative perpetual preferred stock, Series E, without par value per share, with a liquidation preference of $100,000 per share (equivalent to $25
 
per depositary share), which we refer to as our Series E preferred stock, in a public offering. The aggregate proceeds from the offering, net of underwriting discounts, commissions and other issuance costs, were approximately $728 million .
On December 15, 2019, or any dividend payment date thereafter, the Series E preferred stock and corresponding depositary shares may be redeemed by us, in whole or in part, at a redemption price equal to $100,000 per share (equivalent to $25 per depositary share) plus any declared and unpaid dividends, without accumulation of any undeclared dividends. The Series E preferred stock and corresponding depositary shares may be redeemed at our option in whole, but not in part, prior to December 15, 2019, upon the occurrence of a regulatory capital treatment event, as defined in the certificate of designation with respect to the Series E preferred stock, at a redemption price equal to $100,000 per share (equivalent to $25 per depositary share) plus any declared and unpaid dividends, without accumulation of any undeclared dividends.
In January 2015, we declared dividends on our Series E preferred stock of $1,833 per share, or approximately $0.46 per depositary share, totaling approximately $14 million , which will be paid in March 2015.
Preferred Stock, Series D
In February 2014, we issued 30 million depositary shares, each representing a 1/4,000th ownership interest in a share of State Street’s fixed-to-floating-rate non-cumulative perpetual preferred stock, Series D, without par value per share, with a liquidation preference of $100,000 per share (equivalent to $25 per depositary share), which we refer to as our Series D preferred stock, in a public offering. The aggregate proceeds from the offering, net of underwriting discounts, commissions and other issuance costs, were approximately $742 million .
On March 15, 2024 , or any dividend payment date thereafter, the Series D preferred stock and corresponding depositary shares may be redeemed by us, in whole or in part, at a redemption price equal to $100,000 per share (equivalent to $25 per depositary share) plus any declared and unpaid dividends, without accumulation of any undeclared dividends. The Series D preferred stock and corresponding depositary shares may be redeemed at our option in whole, but not in part, prior to March 15, 2024 , upon the occurrence of a regulatory capital treatment event, as defined in the certificate of designation with respect to the Series D preferred stock, at a redemption price equal to $100,000 per share (equivalent to $25 per depositary share) plus


164

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

any declared and unpaid dividends, without accumulation of any undeclared dividends.
In 2014 , we declared aggregate dividends on our Series D preferred stock of $4,605 per share, or approximately $1.15 per depositary share, totaling approximately $35 million . In January 2015, we declared dividends on our Series D preferred stock of $1,475 per share, or approximately $0.37 per depositary share, totaling approximately $11 million , which will be paid in March 2015.
Preferred Stock, Series C
In 2014 , we declared aggregate dividends on our Series C preferred stock of $5,252 per share, or approximately $1.32 per depositary share, totaling approximately $26 million . In 2013 , we declared aggregate dividends on our Series C preferred stock of $5,250 per share, or approximately $1.31 per depositary share, totaling approximately $26 million . In January 2015, we declared dividends on our Series C preferred stock of $1,313 per share, or approximately $0.33 per depositary share, totaling approximately $7 million , which will be paid in March 2015.
On September 15, 2017 , or any dividend payment date thereafter, the Series C preferred stock and corresponding depositary shares may be redeemed by us, in whole or in part, at a redemption price equal to $100,000 per share (equivalent to $25 per depositary share) plus any declared and unpaid dividends, without accumulation of any undeclared dividends. The Series C preferred stock and corresponding depositary shares may be redeemed at our option, in whole but not in part, prior to September 15, 2017 , upon the occurrence of a regulatory capital treatment event, as defined in the certificate of designation with respect to the Series C preferred stock, at a redemption price equal to $100,000 per share (equivalent to $25 per depositary share) plus any declared and unpaid dividends, without accumulation of any undeclared dividends.
Dividends on shares of our Series C, Series D and Series E preferred stock are not mandatory and are not cumulative. If declared, dividends will be payable on the liquidation preference of $100,000 per share quarterly in arrears on March 15, June 15, September 15 or December 15 of each year at annual rates of 5.25% , 5.90% and 6.00% , respectively. If we issue additional shares of our Series C, Series D or Series E preferred stock after the original issue date, dividend rights with respect to such shares will commence from the original issue date of such additional shares. Dividends on our Series C, Series D and Series E preferred stock will not be declared to the extent that such declaration
 
would cause us to fail to comply with applicable laws and regulations, including applicable federal regulatory capital guidelines.
Common Stock:
In March 2014 , our Board of Directors approved a common stock purchase program authorizing the purchase of up to $1.70 billion of our common stock through March 31, 2015 . In 2014 , we purchased approximately 17.7 million shares of our common stock at an average per-share cost of $69.59 and an aggregate cost of approximately $1.23 billion under the program. As of December 31, 2014 , approximately $470 million remained available for purchases of our common stock under the program. Shares acquired under the program which remained unissued as of December 31, 2014 were recorded as treasury stock in our consolidated statement of condition as of December 31, 2014 .
In 2014 , we completed a previous Board-authorized common stock purchase program with the purchase of approximately 6.1 million shares of our common stock at an average cost of $69.14 per share and an aggregate cost of approximately $420 million .
In 2014 , in the aggregate under both programs, we purchased approximately 23.8 million shares of our common stock at an average per-share cost of $69.48 and an aggregate cost of approximately $1.65 billion .
In 2014 , we declared aggregate common stock dividends of $1.16 per share, totaling approximately $490 million , compared to aggregate common stock dividends of $1.04 per share, totaling approximately $463 million , declared in 2013 .
















165

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Accumulated Other Comprehensive Income (Loss):
The following table presents the after-tax components of AOCI as of December 31:
(In millions)
2014
 
2013
 
2012
Net unrealized gains on cash flow hedges
$
276

 
$
161

 
$
69

Net unrealized gains (losses) on available-for-sale securities portfolio
273

 
(56
)
 
815

Net unrealized gains (losses) related to reclassified available-for-sale securities
39

 
(72
)
 
(110
)
Net unrealized gains (losses) on available-for-sale securities
312

 
(128
)
 
705

Net unrealized losses on available-for-sale securities designated in fair value hedges
(121
)
 
(97
)
 
(183
)
Other-than-temporary impairment on available-for-sale securities related to factors other than credit
1

 
4

 
(3
)
Net unrealized losses on hedges of net investments in non-U.S. subsidiaries
(14
)
 
(14
)
 
(14
)
Other-than-temporary impairment on held-to-maturity securities related to factors other than credit
(29
)
 
(47
)
 
(65
)
Net unrealized losses on retirement plans
(272
)
 
(203
)
 
(283
)
Foreign currency translation
(660
)
 
229

 
134

Total
$
(507
)
 
$
(95
)
 
$
360

In the year ended December 31, 2014 , we realized net gains of $15 million , or $9 million net of related taxes from sales of available-for-sale securities. Unrealized pre-tax losses of $43 million were included in AOCI as of December 31, 2013 , net of deferred tax benefits of $17 million , related to these sales. In the year ended December 31, 2013 , we
 
realized net gains of $14 million , or $9 million net of related taxes, from sales of available-for-sale securities. Unrealized pre-tax gains of $25 million were included in AOCI as of December 31, 2012 , net of deferred taxes of $10 million , related to these sales.

The following tables present changes in AOCI by component, net of related taxes, for the periods indicated:
 
Year Ended December 31, 2014
(In millions)
Net Unrealized Gains (Losses) on Cash Flow Hedges
 
Net Unrealized Gains (Losses) on Available-for-Sale Securities
 
Net Unrealized Losses on Hedges of Net Investments in Non-U.S. Subsidiaries
 
Other-Than-Temporary Impairment on Held-to-Maturity Securities
 
Net Unrealized Losses on Retirement Plans
 
Foreign Currency Translation
 
Total
Balance as of December 31, 2012
$
69

 
$
519

 
$
(14
)
 
$
(65
)
 
$
(283
)
 
$
134

 
$
360

Other comprehensive income (loss) before reclassifications
89

 
(735
)
 
—

 
15

 
60

 
96

 
(475
)
Amounts reclassified into earnings
3

 
(5
)
 
—

 
3

 
20

 
(1
)
 
20

Other comprehensive income (loss)
92

 
(740
)
 
—

 
18

 
80

 
95

 
(455
)
Balance as of December 31, 2013
161

 
(221
)
 
(14
)
 
(47
)
 
(203
)
 
229

 
(95
)
Other comprehensive income (loss) before reclassifications
112

 
422

 
—

 
17

 
—

 
(889
)
 
(338
)
Amounts reclassified into earnings
3

 
(9
)
 
—

 
1

 
(69
)
 
—

 
(74
)
Other comprehensive income (loss)
115

 
413

 
—

 
18

 
(69
)
 
(889
)
 
(412
)
Balance as of December 31, 2014
$
276

 
$
192

 
$
(14
)
 
$
(29
)
 
$
(272
)
 
$
(660
)
 
$
(507
)

166

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following tables present after-tax reclassifications into earnings for the periods indicated:
 
Years Ended December 31,
 
 
 
2014
 
2013
 
 
(In millions)
Amounts Reclassified into Earnings
 
Affected Line Item in Consolidated Statement of Income
Cash flow hedges:
 
 
 
 
 
Interest-rate contracts, net of related tax benefit of $2 and $2, respectively
$
3

 
$
3

 
Net interest revenue
Available-for-sale securities:
 
 
 
 
 
Net realized gains from sales of available-for-sale securities, net of related taxes of ($6) and ($5), respectively
(9
)
 
(9
)
 
Net gains (losses) from sales of available-for-sale securities
Other-than-temporary impairment on available-for-sale securities related to factors other than credit, net of related tax benefit of $2
—

 
4

 
Losses reclassified (from) to other comprehensive income
Held-to-maturity securities:
 
 
 
 
 
Other-than-temporary impairment on held-to-maturity securities related to factors other than credit, net of related tax benefit of $3 for 2013
1

 
3

 
Losses reclassified (from) to other comprehensive income
Retirement plans:
 
 
 
 
 
Amortization of actuarial losses, net of related taxes of ($50) and tax benefits of $13, respectively
(69
)
 
20

 
Compensation and employee benefits expenses
Foreign currency translation:
 
 
 
 
 
Sales of non-U.S. entities, net of related taxes of ($1)
—

 
(1
)
 
Processing fees and other revenue
Total reclassifications out of AOCI
$
(74
)
 
$
20

 
 

167

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 14 .    Equity-Based Compensation
We record compensation expense for equity-based awards, such as restricted stock, deferred stock and performance awards, based on the closing price of our common stock on the date of grant, adjusted if appropriate based on the award’s eligibility to receive dividends. The fair value of stock options and stock appreciation rights is determined using the Black-Scholes valuation model.
Compensation expense related to equity-based awards with service-only conditions and terms that provide for a graded vesting schedule is recognized on a straight-line basis over the required service period for the entire award. Compensation expense related to equity-based awards with performance conditions and terms that provide for a graded vesting schedule is recognized over the requisite service period for each separately vesting tranche of the award, and is based on the probable outcome of the performance conditions at each reporting date. Compensation expense is adjusted for assumptions with respect to the estimated amount of awards that will be forfeited prior to vesting, and for employees who have met certain retirement eligibility criteria.
Dividend equivalents for certain equity-based awards are paid on stock units on a current basis prior to vesting and distribution. Compensation expense for common stock awards granted to employees meeting early retirement eligibility criteria is fully expensed and accrued on the grant date.
As of December 31, 2014 , a cumulative total of 56.9 million shares had been awarded under the 2006 Equity Incentive Plan, the 2006 Plan, compared with cumulative totals of 52.4 million shares and 45.3 million shares as of December 31, 2013 and 2012 , respectively. The 2006 Plan allows for shares withheld in payment of the exercise price of an award or in satisfaction of tax withholding requirements, shares forfeited due to employee termination, shares expired under options awards, or shares not delivered when performance conditions have not been met, to be added back to the pool of shares available for awards. As of December 31, 2014 , 17.8 million shares had been awarded under the 2006 Plan but not delivered, and have become available for reissue. A total of 60.5 million shares is available for issuance under the 2006 Plan.
The exercise price of non-qualified and incentive stock options and stock appreciation rights may not be less than the fair value of such shares on the date of grant. Stock options and stock appreciation rights granted under the 1997 Equity Incentive Plan, the 1997 Plan, and the 2006 Plan, collectively the Plans,

 

generally vest over four years and expire no later than ten years from the date of grant. No common stock options or stock appreciation rights have been granted since 2009. For restricted stock awards granted under the Plans, common stock is issued at the time of grant and recipients have dividend and voting rights. In general, these grants vest over three to four years. No restricted stock awards have been granted since 2010.
For deferred stock awards granted under the Plans, no common stock is issued at the time of grant and the stock does not have dividend and voting rights. Generally, these grants vest over one to four years. Performance awards granted are earned over a performance period based on the achievement of defined goals, generally over one to four years. Payment for performance awards is made in shares of our common stock equal to its fair market value per share, based on certain financial ratios, after the conclusion of each performance period.
Beginning with 2012, malus-based forfeiture provisions were included in deferred stock awards granted to employees identified as “material risk-takers,” as defined by management. These malus-based forfeiture provisions provide for the reduction or cancellation of unvested deferred compensation, such as deferred stock awards, if it is determined that a material risk-taker made risk-based decisions that exposed State Street to inappropriate risks that resulted in a material unexpected loss at the business-unit, line-of-business or corporate level.
Compensation expense related to stock options, stock appreciation rights, restricted stock awards, deferred stock awards and performance awards, which we record as a component of compensation and employee benefits expense in our consolidated statement of income, was $329 million , $355 million and $353 million for the years ended December 31, 2014 , 2013 and 2012 , respectively. Such expense for 2014 , 2013 and 2012 excluded $20 million , $3 million and $26 million , respectively, associated with acceleration of expense in connection with the staff reductions discussed in note 21 . This expense was included in the severance-related portion of the associated restructuring charges recorded in each respective year. The aggregate income tax benefit recorded in our consolidated statement of income related to compensation expense recorded as a component of compensation and employee benefits expense was $130 million , $140 million and $139 million for the years ended December 31, 2014 , 2013 and 2012 , respectively.


168

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table presents information about the Plans as of December 31, 2014 , and related activity during the years indicated:
 
Shares
(in thousands)
 
Weighted-Average
Exercise
Price
 
Weighted-Average
Remaining
Contractual
Term
(in years)
 
Total
Intrinsic
Value
(in millions)
Stock Options and Stock Appreciation Rights:
 
 
 
 
 
 
 
Outstanding as of December 31, 2012
5,638

 
$
57.58

 
 
 
 
Exercised
(2,725
)
 
45.93

 
 
 
 
Forfeited or expired
(249
)
 
68.80

 
 
 
 
Outstanding as of December 31, 2013
2,664

 
68.45

 
 
 
 
Exercised
(801
)
 
55.33

 
 
 
 
Forfeited or expired
(2
)
 
52.78

 
 
 
 
Outstanding as of December 31, 2014
1,861

 
$
74.12

 
1.9
 
$
11

Exercisable as of December 31, 2014
1,861

 
$
74.12

 
1.9
 
$
11

The total intrinsic value of options and stock appreciation rights exercised during the years ended December 31, 2014 , 2013 and 2012 was $14 million , $42 million and $8 million , respectively. As of December 31, 2014 , there was no unrecognized compensation cost related to stock options and stock appreciation rights.
The following tables present activity related to other common stock awards during the years indicated:
 
Shares
(in thousands)
 
Weighted-Average
Grant Date Fair
Value
Restricted Stock Awards:
 
 
 
Outstanding as of December 31, 2012
2,602

 
$
43.44

Vested
(1,339
)
 
42.47

Forfeited
(18
)
 
43.98

Outstanding as of December 31, 2013
1,245

 
44.47

Vested
(1,211
)
 
44.56

Forfeited
(3
)
 
42.57

Outstanding as of December 31, 2014
31

 
$
41.27

The total fair value of restricted stock awards vested was $54 million , $57 million , and $64 million for the years ended December 31, 2014 , 2013 and 2012 , respectively. As of December 31, 2014 , total unrecognized compensation cost related to restricted stock, net of estimated forfeitures, was $0.1 million , which is expected to be recognized over a weighted-average period of two months.
 
 
Shares
(in thousands)
 
Weighted-Average
Grant Date Fair
Value
Deferred Stock Awards:
 
 
 
Outstanding as of December 31, 2012
14,814

 
$
39.08

Granted
6,906

 
54.16

Vested
(6,332
)
 
40.97

Forfeited
(294
)
 
44.48

Outstanding as of December 31, 2013
15,094

 
45.07

Granted
4,282

 
65.40

Vested
(6,730
)
 
46.03

Forfeited
(215
)
 
49.87

Outstanding as of December 31, 2014
12,431

 
$
51.47

The weighted-average grant date fair value of deferred stock awards granted in 2012 was $38.48 per share. The total fair value of deferred stock awards vested was $310 million , $259 million and $223 million for the years ended December 31, 2014 , 2013 and 2012 , respectively. As of December 31, 2014 , total unrecognized compensation cost related to deferred stock awards, net of estimated forfeitures, was $360 million , which is expected to be recognized over a weighted-average period of 2.3 years.


169

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 
Shares
(in thousands)
 
Weighted-Average
Grant Date Fair
Value
Performance Awards:
 
 
 
Outstanding as of December 31, 2012
2,547

 
$
40.7

Granted
494

 
53.6

Forfeited
(4
)
 
41.62

Paid out
(813
)
 
41.62

Outstanding as of December 31, 2013
2,224

 
43.24

Granted
437

 
64.56

Forfeited
(1
)
 
53.16

Paid out
(1,033
)
 
42.48

Outstanding as of December 31, 2014
1,627

 
$
49.46

The weighted-average grant date fair value of performance awards granted in 2012 was $37.78 per share. The total fair value of performance awards paid out was $44 million , $34 million and $28 million for the years ended December 31, 2014 , 2013 and 2012 , respectively. As of December 31, 2014 , total unrecognized compensation cost related to performance awards, net of estimated forfeitures, was $5 million , which is expected to be recognized over a weighted-average period of 2.3 years.
We utilize either treasury shares or authorized but unissued shares to satisfy the issuance of common stock under our equity incentive plans. We do not have a specific policy concerning purchases of our common stock to satisfy stock issuances, including exercises of stock options. We have a general policy concerning purchases of our common stock to meet issuances under our employee benefit plans, including option exercises and other corporate purposes. Various factors determine the amount and timing of our purchases of our common stock, including regulatory reviews, our regulatory capital requirements, the number of shares we expect to issue under employee benefit plans, market conditions (including the trading price of our common stock), and legal considerations. These factors can change at any time, and the number of shares of common stock we will purchase or when we will purchase them cannot be assured.
Note 15 .    Regulatory Capital
We are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum regulatory capital requirements can initiate certain mandatory and discretionary actions by regulators that, if undertaken, could have a direct material effect on our consolidated financial condition. Under current regulatory capital adequacy guidelines, we must meet
 
specified capital requirements that involve quantitative measures of our consolidated assets, liabilities and off-balance sheet exposures calculated in conformity with regulatory accounting practices. Our capital components and their classifications are subject to qualitative judgments by regulators about components, risk weightings and other factors.
As of December 31, 2013, we were subject to the generally applicable minimum regulatory capital requirements enforced by U.S. banking regulators, referred to as Basel I. These requirements were based on a 1988 international accord developed by the Basel Committee on Banking Supervision, or Basel Committee.
In July 2013, U.S. banking regulators jointly issued a final rule to implement the Basel III framework in the U.S., referred to as the Basel III final rule, provisions of which become effective under a transition timetable which began on January 1, 2014, with full implementation required beginning on January 1, 2019. As provided in the Basel III final rule, banking organizations in their Basel II qualification period, or parallel run, were required to complete a superseding parallel run under Basel III.
We were notified by the Federal Reserve on February 21, 2014 that we completed our parallel run and would be required to begin using the advanced approaches framework in the Basel III final rule in the determination of our risk-based capital requirements. Pursuant to this notification, we began to use the advanced approaches to calculate and disclose our risk-based capital ratios starting with the three months ended June 30, 2014.
As required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, or Dodd-Frank Act, enacted in 2010, State Street and State Street Bank, as advanced approaches banking organizations, are subject to a permanent "capital floor" in the calculation and assessment of their regulatory capital adequacy by U.S. banking regulators. Beginning on January 1, 2014, this capital floor is based on the provisions of Basel I, as adjusted by the final market risk capital rule issued by U.S. banking regulators in 2012.
Beginning on January 1, 2014, we became subject to the provisions of the Basel III final rule that govern our calculation of regulatory capital, including transitional, or phase-in, provisions. Beginning with the three months ended June 30, 2014 and ending with December 31, 2014, the lower of our regulatory capital ratios calculated under the advanced approaches provisions of the Basel III final rule and those ratios calculated under the transitional provisions of Basel III (capital calculated in conformity with Basel III and risk-weighted assets calculated in conformity with Basel I as described above) applied in


170

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

the assessment of our capital adequacy for regulatory purposes.
As of December 31, 2014 , the minimum required regulatory capital ratios are as follows:
•
common equity tier 1 risk-based capital - 4% ;
•
tier 1 risk-based capital - 5.5% ;
•
total risk-based capital - 8% ; and
•
tier 1 leverage - 4%
The methods for the calculation of our and State Street Bank's risk-based capital ratios will change as the provisions of the Basel III final rule related to the numerator (capital) and denominator (risk-weighted assets) are phased in, and as we begin calculating our risk-weighted assets using the advanced approaches. These ongoing methodological changes
 
will result in differences in our reported capital ratios from one reporting period to the next that are independent of applicable changes to our capital base, our asset composition, our off-balance sheet exposures or our risk profile.
As of December 31, 2014 , State Street and State Street Bank exceeded all regulatory capital adequacy requirements to which they were subject. As of December 31, 2014 , State Street Bank was categorized as “well capitalized” under the applicable regulatory capital adequacy framework, and exceeded all “well capitalized” ratio guidelines to which it was subject. Management believes that no conditions or events have occurred since December 31, 2014 that have changed the capital categorization of State Street Bank.



























171

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table presents the regulatory capital structure, total risk-weighted assets and related regulatory capital ratios for State Street and State Street Bank as of the dates indicated. As a result of changes in the methodologies used to calculate our regulatory capital ratios from period to period as the provisions of the Basel III final rule are phased in, the ratios presented in the table for each period-end are not directly comparable. Refer to the footnotes following the table.
 
 
 
 
State Street
 
State Street Bank
(Dollars in millions)
 
 
 
Basel III Advanced Approaches December 31, 2014 (1)
 
Basel III Transitional Provisions December 31, 2014 (2)
 
Basel I December 31, 2013 (3)
 
Basel III Advanced Approaches December 31, 2014 (1)
 
Basel III Transitional Provisions December 31, 2014 (2)
 
Basel I December 31, 2013 (3)
  Common shareholders' equity:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock and related surplus
 
 
 
$
10,295

 
$
10,295

 
$
10,280

 
$
10,867

 
$
10,867

 
$
10,786

Retained earnings
 
 
 
14,882

 
14,882

 
13,395

 
9,416

 
9,416

 
9,064

Accumulated other comprehensive income (loss)
 
 
 
(641
)
 
(641
)
 
215

 
(535
)
 
(535
)
 
209

Treasury stock, at cost
 
 
 
(5,158
)
 
(5,158
)
 
(3,693
)
 
—

 
—

 
—

Total
 
 
 
19,378

 
19,378

 
20,197

 
19,748

 
19,748

 
20,059

Regulatory capital adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill and other intangible assets, net of associated deferred tax liabilities (4)  
 
 
 
(5,869
)
 
(5,869
)
 
(7,743
)
 
(5,577
)
 
(5,577
)
 
(7,341
)
Other adjustments
 
 
 
(36
)
 
(36
)
 
—

 
(128
)
 
(128
)
 
—

  Common equity tier 1 capital
 
 
 
13,473

 
13,473

 
12,454

 
14,043

 
14,043

 
12,718

Preferred stock
 
 
 
1,961

 
1,961

 
491

 
—

 
—

 
—

Trust preferred capital securities subject to phase-out from tier 1 capital
 
 
 
475

 
475

 
950

 
—

 
—

 
—

Other adjustments
 
 
 
(145
)
 
(145
)
 
—

 
—

 
—

 
—

  Tier 1 capital
 
 
 
15,764

 
15,764

 
13,895

 
14,043

 
14,043

 
12,718

Qualifying subordinated long-term debt
 
 
 
1,618

 
1,618

 
1,918

 
1,634

 
1,634

 
1,936

Trust preferred capital securities phased out of tier 1 capital
 
 
 
475

 
475

 
NA
 
—

 
—

 
NA
Other adjustments
 
 
 
4

 
4

 
(26
)
 
—

 
—

 
45

  Total capital
 
 
 
$
17,861

 
$
17,861

 
$
15,787

 
$
15,677

 
$
15,677

 
$
14,699

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Risk-weighted assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit risk
 
 
 
$
66,874

 
$
87,502

 
$
78,864

 
$
59,836

 
$
84,433

 
$
76,197

Operational risk
 
 
 
35,866

 
NA
 
NA
 
35,449

 
NA
 
NA
Market risk (5)
 
 
 
5,087

 
2,910

 
1,262

 
5,048

 
2,909

 
1,262

Total risk-weighted assets
 
 
 
$
107,827

 
$
90,412

 
$
80,126

 
$
100,333

 
$
87,342

 
$
77,459

Adjusted quarterly average assets
 
 
 
$
247,740

 
$
247,740

 
$
202,801

 
$
243,549

 
$
243,549

 
$
199,301

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Capital Ratios:
 
Minimum Requirements (6) 2014
Minimum Requirements (7) 2013
 
 
 
 
 
 
 
 
 
 
 
Common equity tier 1 capital
 
4.0
%
NA

12.5
%
 
14.9
%
 
15.5
%
 
14.0
%
 
16.1
%
 
16.4
%
Tier 1 capital
 
5.5

4.0
%
14.6

 
17.4

 
17.3

 
14.0

 
16.1

 
16.4

Total capital
 
8.0

8.0

16.6

 
19.8

 
19.7

 
15.6

 
17.9

 
19.0

Tier 1 leverage
 
4.0

4.0

6.4

 
6.4

 
6.9

 
5.8

 
5.8

 
6.4

 
 
 
 
NA: Not applicable.
(1) Common equity tier 1 capital, tier 1 capital and total capital ratios as of December 31, 2014 were calculated in conformity with the advanced approaches provisions of the Basel III final rule. Tier 1 leverage ratio as of December 31, 2014 was calculated in conformity with the Basel III final rule.
(2) Common equity tier 1 capital, tier 1 capital, total capital and tier 1 leverage ratios as of December 31, 2014 were calculated in conformity with the transitional provisions of the Basel III final rule. Specifically, these ratios reflect common equity tier 1, tier 1 and total capital (the numerator) calculated in conformity with the provisions of the Basel III final rule, and total risk-weighted assets or, with respect to the tier 1 leverage ratio, quarterly average assets (in both cases, the denominator), calculated in conformity with the provisions of Basel I.
(3) Common equity tier 1 capital, tier 1 capital, total capital and tier 1 leverage ratios as of December 31, 2013 were calculated in conformity with the provisions of Basel I.
(4) Amounts for State Street and State Street Bank as of December 31, 2014 consisted of goodwill, net of associated deferred tax liabilities, and 20% of other intangible assets, net of associated deferred tax liabilities, the latter phased in as a deduction from capital, in conformity with the Basel III final rule.
(5) Market risk risk-weighted assets reported in conformity with the Basel III advanced approaches included a credit valuation adjustment, referred to as the CVA, which reflected the risk of potential fair-value adjustments for credit risk reflected in our valuation of over-the-counter derivative contracts.  The CVA was not provided for in the final market risk capital rule; however, it was required by the advanced approaches provisions of the Basel III final rule.  State Street used the simple CVA approach in conformity with the Basel III advanced approaches.
(6) Minimum requirements will be phased in up to full implementation beginning on January 1, 2019; minimum requirements listed are as of December 31, 2014 .
(7) Minimum requirements listed, governed by Basel I, were as of December 31, 2013 .

172

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Cash, Dividend, Loan and Other Restrictions:
In 2014 , our banking subsidiaries were required by the Federal Reserve to maintain average aggregate cash balances of approximately $5.72 billion to satisfy reserve requirements. Federal and state banking regulations place certain restrictions on dividends paid by banking subsidiaries to a parent company. For 2015 , aggregate dividend payments by State Street Bank to the parent company without prior regulatory approval are limited to approximately $663 million of its undistributed earnings as of December 31, 2014 , plus an additional amount equal to its net profits, as defined by the aforementioned banking regulations, for 2015 up to the date of any dividend payment. Currently, the payment of future common stock dividends by the parent company to its shareholders is subject to the review of our capital plan by the Federal Reserve in connection with its Comprehensive Capital Analysis and Review process.
The Federal Reserve Act requires that extensions of credit by State Street Bank to certain affiliates, including the parent company, be secured by specific collateral, that the extension of credit to any one affiliate be limited to 10% of State Street Bank’s capital and surplus, as defined, and that extensions of credit to all such affiliates be limited to 20% of State Street Bank’s capital and surplus.
As of December 31, 2014 , our consolidated retained earnings included $492 million representing undistributed earnings of unconsolidated entities that are accounted for under the equity method of accounting.
Note 16 .    Derivative Financial Instruments
A derivative financial instrument is a financial instrument or other contract which has one or more referenced indices and one or more notional amounts, either no initial net investment or a smaller initial net investment than would be expected for similar types of contracts, and which requires or permits net settlement.
We use derivative financial instruments to support our clients' needs and to manage our interest-rate and currency risk. In undertaking these activities, we assume positions in both the foreign exchange and interest-rate markets by buying and selling cash instruments and using derivative financial instruments, including foreign exchange forward contracts, foreign exchange and interest-rate options and interest-rate swaps, interest-rate forward contracts and interest-rate futures. Our derivative positions include derivative contracts held by a consolidated sponsored investment fund (refer to
 
note 12 ). We record derivatives in our consolidated statement of condition at their fair value on a recurring basis.
Interest-rate contracts involve an agreement with a counterparty to exchange cash flows based on the movement of an underlying interest-rate index. An interest-rate swap agreement involves the exchange of a series of interest payments, at either a fixed or variable rate, based on the notional amount without the exchange of the underlying principal amount. An interest-rate option contract provides the purchaser, for a premium, the right, but not the obligation, to receive an interest rate based upon a predetermined notional amount during a specified period. An interest-rate futures contract is a commitment to buy or sell, at a future date, a financial instrument at a contracted price; it may be settled in cash or through the delivery of the contracted instrument.
Foreign exchange contracts involve an agreement to exchange one currency for another currency at an agreed-upon rate and settlement date. Foreign exchange contracts generally consist of foreign exchange forward and spot contracts, option contracts and cross-currency swaps. Future cash requirements, if any, related to foreign exchange contracts are represented by the gross amount of currencies to be exchanged under each contract unless we and the counterparty have agreed to pay or to receive the net contractual settlement amount on the settlement date.
Derivative financial instruments involve the management of interest-rate and foreign currency risk, and involve, to varying degrees, market risk and credit and counterparty risk (risk related to repayment). Market risk is defined by U.S. banking regulators as the risk of loss that could result from broad market movements, such as changes in the general level of interest rates, credit spreads, foreign exchange rates or commodity prices. We use a variety of risk management tools and methodologies to measure, monitor and manage the market risk associated with our trading activities, which include our use of derivative financial instruments. One such risk-management measure is Value-at-Risk, or VaR. VaR is an estimate of potential loss for a given period within a stated statistical confidence interval. We use a risk-measurement system to measure VaR daily. We have adopted standards for measuring VaR, and we maintain regulatory capital for market risk in accordance with currently applicable regulatory market risk requirements.
Derivative financial instruments are also subject to credit and counterparty risk, which is defined as the


173

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

risk of financial loss if a borrower or counterparty is either unable or unwilling to repay borrowings or settle a transaction in accordance with the underlying contractual terms. We manage credit and counterparty risk by performing credit reviews, maintaining individual counterparty limits, entering into netting arrangements and requiring the receipt of collateral. Collateral requirements are determined after a review of the creditworthiness of each counterparty, and these requirements are monitored and adjusted daily. Collateral is generally held in the form of cash or highly liquid U.S. government securities. We may be required to provide collateral to the counterparty in connection with our entry into derivative financial instruments. Cash collateral received from and provided to counterparties in connection with derivative financial instruments is recorded in accrued expenses and other liabilities and other assets, respectively, in our consolidated statement of condition. As of December 31, 2014 and 2013 , we had recorded approximately $1.79 billion and $2.58 billion , respectively, of cash collateral received from counterparties and approximately $4.79 billion and $3.36 billion , respectively, of cash collateral provided to counterparties in connection with derivative financial instruments in our consolidated statement of condition.
We enter into master netting agreements with many of our derivative counterparties, and we have elected to net derivative assets and liabilities, including cash collateral received or deposited, which are subject to those agreements. Certain of these agreements contain credit risk-related contingent features in which the counterparty has the right to declare State Street in default and accelerate cash settlement of our net derivative liabilities with the counterparty in the event that our credit rating falls below specified levels. The aggregate fair value of all derivative instruments with credit risk-related contingent features that were in a net liability position as of December 31, 2014 totaled approximately $2.54 billion , against which we posted aggregate collateral of approximately $105 million . If State Street’s credit rating were downgraded below levels specified in the agreements, the maximum additional amount of payments related to termination events that could have been required pursuant to these contingent features as of December 31, 2014 was approximately $2.43 billion . Such accelerated settlement would not affect our consolidated results of operations.
On the date a derivative contract is entered into, we designate the derivative as: (1) a hedge of the fair value of a recognized fixed-rate asset or liability or of an unrecognized firm commitment (a “fair-value” hedge); (2) a hedge of a forecast transaction or of the variability of cash flows to be received or paid related to a recognized variable-rate asset or liability (a
 
“cash-flow” hedge); (3) a foreign currency fair value or cash flow hedge (a “foreign currency” hedge); (4) a hedge of a net investment in a non-U.S. operation; or (5) a derivative utilized in either our trading activities or in our asset-and-liability management activities that is not designated as a hedge of an asset or liability.
At both the inception of the hedge and on an ongoing basis, we formally assess and document the effectiveness of a derivative designated as a hedge in offsetting changes in the fair value of hedged items and the likelihood that the derivative will be an effective hedge in future periods. We discontinue hedge accounting prospectively when we determine that the derivative is no longer highly effective in offsetting changes in fair value or cash flows of the underlying risk being hedged, the derivative expires, terminates or is sold, or management discontinues the hedge designation.
Unrealized gains and losses on foreign exchange and interest-rate contracts are reported at fair value in our consolidated statement of condition as a component of other assets and accrued expenses and other liabilities, respectively, on a gross basis, except where such gains and losses arise from contracts covered by qualifying master netting agreements.
Derivatives Not Designated as Hedging Instruments:
In connection with our trading activities, we use derivative financial instruments in our role as a financial intermediary and as both a manager and servicer of financial assets, in order to accommodate our clients' investment and risk management needs. In addition, we use derivative financial instruments for risk management purposes as economic hedges, which are not formally designated as accounting hedges, in order to contribute to our overall corporate earnings and liquidity. These activities are designed to generate trading services revenue and to manage volatility in our net interest revenue. The level of market risk that we assume is a function of our overall objectives and liquidity needs, our clients' requirements and market volatility.
With respect to cross-border investing, our clients often enter into foreign exchange forward contracts to convert currency for international investments and to manage the currency risk in their international investment portfolios. As an active participant in the foreign exchange markets, we provide foreign exchange forward contracts and options in support of these client needs, and also act as a dealer in the currency markets. As part of our trading activities, we assume positions in both the foreign exchange and interest-rate markets by buying and selling cash instruments and using derivative


174

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

financial instruments, including foreign exchange forward contracts, foreign exchange and interest-rate options and interest-rate swaps, interest-rate forward contracts, and interest-rate futures. In the aggregate, we seek to match positions closely with the objective of minimizing related currency and interest-rate risk. We also use foreign currency swap contracts to manage the foreign exchange risk associated with certain foreign currency-denominated liabilities. The foreign exchange swap contracts are entered into for periods generally consistent with foreign currency exposure of the underlying transactions.
We offer products that provide book-value protection primarily to plan participants in stable value funds managed by non-affiliated investment managers of post-retirement defined contribution benefit plans, particularly 401(k) plans. We account for the associated contingencies, more fully described in note 10 , individually as derivative financial instruments. These contracts are valued quarterly and unrealized losses, if any, are recorded in other expenses in our consolidated statement of income.
In 2013 and 2014, we granted deferred cash awards to certain of our employees as part of our employee incentive compensation plans. We account for these awards as derivative financial instruments, as the underlying referenced shares are not equity instruments of State Street. The fair value of these derivatives is referenced to the value of units in State Street-sponsored investment funds or funds sponsored by other unrelated entities. We re-measure these derivatives to fair value quarterly, and record the change in value in compensation and employee benefits expenses in our consolidated statement of income.
Derivatives Designated as Hedging Instruments:
In connection with our asset-and-liability management activities, we use derivative financial instruments to manage our interest-rate risk. Interest-rate risk, defined as the sensitivity of income or financial condition to variations in interest rates, is a significant non-trading market risk to which our assets and liabilities are exposed. We manage our interest-rate risk by identifying, quantifying and hedging our exposures, using fixed-rate portfolio securities and a variety of derivative financial instruments, most frequently interest-rate swaps and options (for example, interest-rate caps and floors). Interest-rate swap agreements alter the interest-rate characteristics of specific balance sheet assets or liabilities. When appropriate, forward-rate agreements, options on swaps, and exchange-traded futures and options are also used. Our hedging relationships are formally designated, and qualify for hedge accounting, as fair value or cash flow hedges.
 
  Fair value hedges
Derivatives designated as fair value hedges are utilized to mitigate the risk of changes in the fair values of recognized assets and liabilities. Differences between the gains and losses on fair value hedges and the gains and losses on the asset or liability attributable to the hedged risk represent hedge ineffectiveness. We use interest-rate or foreign exchange contracts in this manner to manage our exposure to changes in the fair value of hedged items caused by changes in interest rates or foreign exchange rates. Changes in the fair value of a derivative that is highly effective, and that is designated and qualifies as a fair-value hedge, are recorded in processing fees and other revenue, along with the changes in fair value of the hedged asset or liability attributable to the hedged risk.
We have entered into interest-rate swap agreements to modify our interest revenue from certain available-for-sale investment securities from a fixed rate to a floating rate. The hedged trusts had a weighted-average life of approximately 5.9 years as of December 31, 2014 , compared to 6.5 years as of December 31, 2013 . These trusts are hedged with interest-rate swap contracts of similar maturity, repricing and fixed-rate coupons. The interest-rate swap contracts convert the interest revenue from a fixed rate to a floating rate indexed to LIBOR, thereby mitigating our exposure to fluctuations in the fair value of the securities attributable to changes in the benchmark interest rate.
We have entered into interest-rate swap agreements to modify our interest expense on three senior notes and one subordinated note from fixed rates to floating rates. The senior notes mature in 2018 , 2023 and 2024 and pay fixed interest at annual rates of 1.35% , 3.70% and 3.30% , respectively. The subordinated note matures in 2023 and pays fixed interest at a 3.10% annual rate. The senior and subordinated notes are hedged with interest-rate swap contracts with notional amounts, maturities and fixed-rate coupon terms that align with the hedged notes. The interest-rate swap contracts convert the fixed-rate coupons to floating rates indexed to LIBOR, thereby mitigating our exposure to fluctuations in the fair values of the senior and subordinated notes stemming from changes in the benchmark interest rates.
We have entered into forward foreign exchange contracts to hedge the change in fair value attributable to foreign exchange movements in the funding of non-functional currency-denominated investment securities. These forward contracts convert the foreign currency risk to U.S. dollars, thereby mitigating our exposure to fluctuations in the fair value of the securities attributable to changes in


175

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

foreign exchange rates. Generally, no ineffectiveness is recorded in earnings, since the notional amount of the hedging instruments is aligned with the carrying value of the hedged securities. The forward points on the hedging instruments are considered to be a hedging cost, and accordingly are excluded from the evaluation of hedge effectiveness and recorded in net interest revenue.
Cash flow hedges
Derivatives categorized as cash flow hedges are utilized to offset the variability of cash flows to be received from or paid on a floating-rate asset or liability. Ineffectiveness of cash flow hedges is defined as the extent to which the changes in fair value of the derivative exceed the variability of cash flows of the forecast transaction.
We had entered into an interest-rate swap agreement to modify our interest revenue from an available-for-sale debt security from a floating rate to a fixed rate. The hedged security matured in October 2014 and had a remaining life of approximately 10 months as of December 31, 2013 . The security was hedged with an interest-rate swap contract of similar maturity, repricing and other characteristics. The interest-rate swap contract converted the interest revenue from a floating rate to a fixed rate, thereby mitigating our exposure to fluctuations in the cash flows of the security attributable to changes in the benchmark interest rate.  
We have entered into foreign exchange contracts to hedge the change in cash flows attributable to foreign exchange movements in the funding of non-functional currency-denominated investment securities. These foreign exchange contracts convert the foreign currency risk to U.S. dollars, thereby mitigating our exposure to fluctuations in the cash flows of the securities attributable to changes in foreign exchange rates. Generally, no ineffectiveness is recorded in earnings, since the critical terms of the hedging instruments and the hedged securities are aligned.
Changes in the fair value of a derivative that are highly effective, and that are designated and qualify as a foreign currency hedge, are recorded either in processing fees and other revenue or in other comprehensive income, net of taxes, depending on whether the hedge transaction meets the criteria for a fair-value or a cash-flow hedge. If, however, a derivative is used as a hedge of a net investment in a non-U.S. operation, its changes in fair value, to the extent effective as a hedge, are recorded, net of taxes, in the foreign currency translation component of other comprehensive income. Lastly, entire changes in the fair value of derivatives utilized in our trading activities are recorded in trading services revenue, and entire changes in the fair value of
 
derivatives utilized in our asset-and-liability management activities are recorded in processing fees and other revenue.
The following table presents the aggregate contractual, or notional, amounts of derivative financial instruments entered into in connection with our trading and asset-and-liability management activities as of the dates indicated:
(In millions)
December 31,
2014
 
December 31,
2013
Derivatives not designated as hedging instruments:
 
 
 
Interest-rate contracts:
 
 
 
Swap agreements and forwards
$
645

 
$
1,023

Options and caps purchased
7

 
27

Options and caps written
7

 
27

Futures
3,939

 
3,282

Foreign exchange contracts:
 
 
 
Forward, swap and spot
1,231,344

 
1,124,355

Options purchased
2,767

 
1,666

Options written
2,404

 
1,423

Credit derivative contracts:
 
 
 
Credit swap agreements
191

 
141

Commodity and equity contracts:
 
 
 
Commodity (1)
26

 
2

Equity (1)
2

 
1

Other:
 
 
 
Stable value contracts
23,409

 
24,906

Deferred value awards (2)
210

 
42

Derivatives designated as hedging instruments:
 
 
 
Interest-rate contracts:
 
 
 
Swap agreements
6,077

 
5,221

Foreign exchange contracts:
 
 
 
Forward and swap
2,705

 
2,783

 
 
(1) Primarily composed of positions held by a consolidated sponsored investment fund, more fully described in note 12 .
(2) Represents grants of deferred value awards to employees; refer to discussion in this note under "Derivatives Not Designated as Hedging Instruments."


176

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In connection with our asset-and-liability management activities, we have entered into interest-rate contracts designated as fair value and cash flow hedges to manage our interest-rate risk. The following table presents the aggregate notional amounts of these interest-rate contracts and the related assets or liabilities being hedged as of the dates indicated:
 
December 31, 2014 (1)
(In millions)
Fair
Value
Hedges
Investment securities available for sale
$
2,577

Long-term debt (2)
3,500

Total
$
6,077

 
December 31, 2013
(In millions)
Fair
Value
Hedges
 
Cash
Flow
Hedges
 
Total
Investment securities available for sale
$
2,589

 
$
132

 
$
2,721

Long-term debt (2)
2,500

 
—

 
2,500

Total
$
5,089

 
$
132

 
$
5,221

 
 
(1) As of December 31, 2014 there were no interest-rate contracts designated as cash flow hedges.
(2) As of December 31, 2014 , these fair value hedges increased the carrying value of long-term debt presented in our consolidated statement of condition by $76 million . As of December 31, 2013 , these fair value hedges decreased the carrying value of long-term debt presented in our consolidated statement of condition by $35 million .
The following tables present the contractual and weighted-average interest rates for long-term debt, which include the effects of the fair value hedges presented in the table above, for the periods indicated:
 
Years Ended December 31,
 
2014
 
2013
 
Contractual
Rates
 
Rate 
Including
Impact of Hedges
 
Contractual
Rates
 
Rate 
Including
Impact of Hedges
Long-term debt
3.44
%
 
2.63
%
 
3.46
%
 
2.75
%
 
The following tables present the fair value of derivative financial instruments, excluding the impact of master netting agreements, recorded in our consolidated statement of condition as of the dates indicated. The impact of master netting agreements is disclosed in note 2 .
Derivative Assets (1)
 
Fair Value
(In millions)
December 31, 2014
 
December 31, 2013
Derivatives not designated as hedging instruments:
 
 
 
Foreign exchange contracts
$
14,626

 
$
11,552

Interest-rate contracts
15

 
29

Other derivative contracts
2

 
1

Total
$
14,643

 
$
11,582

Derivatives designated as hedging instruments:
 
 
 
Foreign exchange contracts
$
509

 
$
359

Interest-rate contracts
62

 
36

Total
$
571

 
$
395

 
 
(1) Derivative assets are included within Other assets in our consolidated statement of condition.
Derivative Liabilities (1)
 
Fair Value
(In millions)
December 31, 2014
 
December 31, 2013
Derivatives not designated as hedging instruments:
 
 
 
Foreign exchange contracts
$
14,922

 
$
11,428

Other derivative contracts
70

 
23

Interest-rate contracts
16

 
29

Total
$
15,008

 
$
11,480

Derivatives designated as hedging instruments:
 
 
 
Interest-rate contracts
$
223

 
$
302

Foreign exchange contracts
3

 
43

Total
$
226

 
$
345

 
 
(1) Derivative liabilities are included within other liabilities in our consolidated statement of condition.





177

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following tables present the impact of our use of derivative financial instruments on our consolidated statement of income for the periods indicated:
 
Location of Gain (Loss) on
Derivative in Consolidated
Statement of Income
 
Amount of Gain (Loss) on Derivative Recognized
in Consolidated Statement of Income
 
 
 
Years Ended December 31,
(In millions)
 
 
2014
 
2013
 
2012
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
Foreign exchange contracts
Trading services revenue
 
$
612

 
$
586

 
$
576

Foreign exchange contracts
Processing fees and other revenue
 
—

 
—

 
(2
)
Interest-rate contracts
Trading services revenue
 
1

 
2

 
(86
)
Interest-rate contracts
Processing fees and other revenue
 
—

 
—

 
6

Credit derivative contracts
Trading services revenue
 
1

 
—

 
—

Credit derivative contracts
Processing fees and other revenue
 
(1
)
 
1

 
—

Other derivative contracts
Trading services revenue
 
(2
)
 
—

 
—

Total
 
 
$
611

 
$
589

 
$
494

 
Location of (Gain) Loss on
Derivative in Consolidated
Statement of Income
 
Amount of (Gain) Loss on Derivative Recognized
in Consolidated Statement of Income
 
 
 
Years Ended December 31,
(In millions)
 
 
2014
 
2013
 
2012
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
Other derivative contracts
Compensation and employee benefits
 
$
106

 
$
14

 
—

Total
 
 
$
106

 
$
14

 
$
—

 
Location of Gain (Loss) on Derivative in Consolidated Statement of Income
 
Amount of Gain
(Loss) on Derivative
Recognized in
Consolidated
Statement of Income
 
Hedged Item in Fair Value Hedging Relationship
 
Location of Gain (Loss) on Hedged Item in Consolidated Statement of Income
 
Amount of Gain
(Loss) on Hedged
Item Recognized in
Consolidated
Statement of Income
 
 
 
Years Ended December 31,
 
 
 
 
 
Years Ended December 31,
(In millions)
 
 
2014
 
2013
 
2012
 
 
 
 
 
2014
 
2013
 
2012
Derivatives designated as fair value hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
Processing fees and
other revenue
 
$
(92
)
 
(183
)
 
34

 
Investment securities
 
Processing fees and
other revenue
 
$
92

 
$
183

 
$
(34
)
Interest-rate contracts
Processing fees and
other revenue
 
(44
)
 
32

 
11

 
Available-for-sale securities
 
Processing fees and
other revenue (1)
 
39

 
(30
)
 
(17
)
Interest-rate contracts
Processing fees and
other revenue
 
150

 
(192
)
 
50

 
Long-term debt
 
Processing fees and
other revenue
 
(138
)
 
175

 
(45
)
Total
 
 
$
14

 
$
(343
)
 
$
95

 
 
 
 
 
$
(7
)
 
$
328

 
$
(96
)
 
 
 
 
 
(1) Represents amounts reclassified out of or into other comprehensive income, or OCI. For the year ended December 31, 2014 , $24 million of unrealized losses on available-for-sale securities designated in fair value hedges were recognized in OCI. For the year ended December 31, 2013 and 2012 , $86 million and $27 million , respectively, of unrealized gains on available-for-sale securities designated in fair value hedges were recognized in OCI.

178

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Differences between the gains (losses) on the derivative and the gains (losses) on the hedged item, excluding any amounts recorded in net interest revenue, represent hedge ineffectiveness.
 
Amount of Gain
(Loss) on Derivative
Recognized in Other
Comprehensive
Income
 
Location of Gain (Loss) Reclassified from OCI to Consolidated Statement of Income
 
Amount of Gain
(Loss) Reclassified
from OCI to
Consolidated
Statement of Income
 
Location of Gain (Loss) on Derivative Recognized in Consolidated Statement of Income
 
Amount of Gain
(Loss) on Derivative
Recognized in
Consolidated
Statement of Income
 
Years Ended December 31,
 
 
 
Years Ended December 31,
 
 
 
Years Ended December 31,
 
2014
 
2013
 
2012
 
 
 
2014
 
2013
 
2012
 
 
 
2014
 
2013
 
2012
(In millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives designated as cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-rate contracts
$
(2
)
 
$
9

 
$
4

 
Net interest revenue
 
$
(4
)
 
$
(4
)
 
$
(5
)
 
Net interest revenue
 
$
3

 
$
3

 
$
3

Foreign exchange contracts
126

 
153

 
122

 
Net interest revenue
 
—

 
—

 
—

 
Net interest revenue
 
6

 
6

 
6

Total
$
124

 
$
162

 
$
126

 
 
 
$
(4
)
 
$
(4
)
 
$
(5
)
 
 
 
$
9

 
$
9

 
$
9

Note 17 . Offsetting Arrangements
 We manage credit and counterparty risk by entering into enforceable netting agreements and other collateral arrangements with counterparties to derivative contracts and secured financing transactions, including resale and repurchase agreements, and principal securities borrowing and lending agreements. These netting agreements mitigate our counterparty credit risk by providing for a single net settlement with a counterparty of all financial transactions covered by the agreement in an event of default as defined under such agreement. In limited cases, a netting agreement may also provide for the periodic netting of settlement payments with respect to multiple different transaction types in the normal course of business.
Certain of our derivative contracts are executed under either standardized netting agreements or, for exchange-traded derivatives, the relevant contracts for a particular exchange which contain enforceable netting provisions. In certain cases, we may have cross-product netting arrangements which allow for netting and set-off of a variety of types of derivatives with a single counterparty. A derivative netting arrangement creates an enforceable right of set-off that becomes effective, and effects the realization or settlement of individual financial assets and liabilities, only following a specified event of default. Collateral requirements associated with our derivative contracts are determined after a review of the creditworthiness of each counterparty, and the requirements are monitored and adjusted daily, typically based on net exposure by counterparty. Collateral is generally in the form of cash or highly liquid U.S. government securities.
In connection with secured financing transactions, we enter into netting agreements and other collateral arrangements with counterparties,
 

which provide for the right to liquidate collateral in the event of default. Collateral is generally required in the form of cash, equity securities or fixed-income securities. Default events may include the failure to make payments or deliver securities timely, material adverse changes in financial condition or insolvency, the breach of minimum regulatory capital requirements, or loss of license, charter or other legal authorization necessary to perform under the contract.
In order for an arrangement to be eligible for netting, we must have a reasonable basis to conclude that such netting arrangements are legally enforceable. The analysis of the legal enforceability of an arrangement differs by jurisdiction, depending on the laws of that jurisdiction. In many jurisdictions, specific legislation exists that provides for the enforceability in bankruptcy of close-out netting under a netting agreement, typically by way of specific exception from more general prohibitions on the exercise of creditor rights.
When we have a basis to conclude that a legally enforceable netting arrangement exists between us and the derivative counterparty and the relevant transaction is the type of transaction that is recorded in our consolidated statement of condition, we offset derivative assets and liabilities, and the related collateral received and provided, in our consolidated statement of condition. We also offset assets and liabilities related to secured financing transactions with the same counterparty or clearinghouse which have the same maturity date and are settled in the normal course of business on a net basis.
Collateral that we receive in the form of securities in connection with secured financing transactions and derivative contracts can be transferred or re-pledged as collateral in many


179

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

instances to enter into repurchase agreements or securities finance or derivative transactions. The securities collateral received in connection with our securities finance activities is recorded at fair value in other assets in our consolidated statement of condition, with a related liability to return the collateral, if we have the right to transfer or re-pledge the collateral. As of December 31, 2014 and 2013 ,
 
the fair value of securities received as collateral where we are permitted to transfer or re-pledge the securities totaled $2.60 billion and $5.64 billion , respectively, and the fair value of the portion that had been transferred or re-pledged as of the same date was $125 million and $1.77 billion , respectively.

The following tables present information about the offsetting of assets related to derivative contracts and secured financing transactions, as of the dates indicated:
Assets:
 
December 31, 2014
 
December 31, 2013
(In millions)
 
Gross Amounts of Recognized Assets (1)
 
Gross Amounts Offset in Statement of Condition (2)
 
Net Amounts of Assets Presented in Statement of Condition
 
Gross Amounts of Recognized Assets (1)
 
Gross Amounts Offset in Statement of Condition (2)
 
Net Amounts of Assets Presented in Statement of Condition
Derivatives:
 
 
 
 
 
 
 
 
Foreign exchange contracts
 
$
15,135

 
$
(6,275
)
 
$
8,860

 
$
11,911

 
$
(4,514
)
 
$
7,397

Interest-rate contracts
 
77

 
(21
)
 
56

 
65

 
(59
)
 
6

Other derivative contracts
 
2

 
(1
)
 
1

 
1

 
—

 
1

Cash collateral netting
 
—

 
(983
)
 
(983
)
 
—

 
(1,928
)
 
(1,928
)
Total derivatives
 
$
15,214

 
$
(7,280
)
 
$
7,934

 
$
11,977

 
$
(6,501
)
 
$
5,476

Other financial instruments:
 
 
 
 
 
 
 
 
Resale agreements and securities borrowing (3)
 
$
47,488

 
$
(29,157
)
 
$
18,331

 
$
48,221

 
$
(30,700
)
 
$
17,521

Total derivatives and other financial instruments
 
$
62,702

 
$
(36,437
)
 
$
26,265

 
$
60,198

 
$
(37,201
)
 
$
22,997

 
 
 
 
 
(1) Amounts include all transactions regardless of whether or not they are subject to an enforceable netting arrangement.
(2) Amounts subject to netting arrangements which have been determined to be legally enforceable.
(3) Included in the $18,331 million as of December 31, 2014 were $2,390 million of resale agreements and $15,941 million of collateral provided related to securities borrowing. Included in the $17,521 million as of December 31, 2013 were $6,230 million of resale agreements and $11,291 million of collateral provided related to securities borrowing. Resale agreements and collateral provided related to securities borrowing were recorded in securities purchased under resale agreements and other assets, respectively, in our consolidated statement of condition. Refer to note 10 for additional information with respect to principal securities finance transactions.
 
 
December 31, 2014
 
December 31, 2013
 
 
 
 
Gross Amounts Not Offset in Statement of Condition (1)
 
 
 
 
 
Gross Amounts Not Offset in Statement of Condition (1)
 
 
(In millions)
 
Net Amount of Assets Presented in Statement of Condition
 
Counterparty Netting
 
Collateral Received
 
Net Amount (2)
 
Net Amount of Assets Presented in Statement of Condition
 
Counterparty Netting
 
Collateral Received
 
Net Amount (2)
Derivatives
 
$
7,934

 
$
—

 
$
(1,490
)
 
$
6,444

 
$
5,476

 
$
—

 
$
(181
)
 
$
5,295

Resale agreements and securities borrowing
 
18,331

 
(128
)
 
(18,157
)
 
46

 
17,521

 
(131
)
 
(14,983
)
 
2,407

Total
 
$
26,265

 
$
(128
)
 
$
(19,647
)
 
$
6,490

 
$
22,997

 
$
(131
)
 
$
(15,164
)
 
$
7,702

 
 
 
 
 
(1) Amounts subject to netting arrangements which have been determined to be legally enforceable.
(2) Includes amounts secured by collateral not determined to be subject to enforceable netting arrangements.

180

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following tables present information about the offsetting of liabilities related to derivative contracts and secured financing transactions, as of the dates indicated:
Liabilities:
 
December 31, 2014
 
December 31, 2013
(In millions)
 
Gross Amounts of Recognized Liabilities (1)
 
Gross Amounts Offset in Statement of Condition (2)
 
Net Amounts of Liabilities Presented in Statement of Condition
 
Gross Amounts of Recognized Liabilities (1)
 
Gross Amounts Offset in Statement of Condition (2)
 
Net Amounts of Liabilities Presented in Statement of Condition
Derivatives:
 
 
 
 
 
 
 
 
Foreign exchange contracts
 
$
14,925

 
$
(6,275
)
 
$
8,650

 
$
11,471

 
$
(4,514
)
 
$
6,957

Interest-rate contracts
 
239

 
(20
)
 
219

 
331

 
(59
)
 
272

Other derivative contracts
 
70

 
(1
)
 
69

 
9

 
—

 
9

Cash collateral netting
 
—

 
(2,630
)
 
(2,630
)
 
—

 
(979
)
 
(979
)
Total derivatives
 
$
15,234

 
$
(8,926
)
 
$
6,308

 
$
11,811

 
$
(5,552
)
 
$
6,259

Other financial instruments:
 
 
 
 
 
 
 
 
Repurchase agreements and securities lending (3)
 
$
44,562

 
$
(29,157
)
 
$
15,405

 
$
45,273

 
$
(30,700
)
 
$
14,573

Total derivatives and other financial instruments
 
$
59,796

 
$
(38,083
)
 
$
21,713

 
$
57,084

 
$
(36,252
)
 
$
20,832

 
 
 
 
 
(1) Amounts include all transactions regardless of whether or not they are subject to an enforceable netting arrangement.
(2) Amounts subject to netting arrangements which have been determined to be legally enforceable.
(3) Included in the $15,405 million as of December 31, 2014 were $8,925 million of repurchase agreements and $6,480 million of collateral received related to securities lending. Included in the $14,573 million as of December 31, 2013 were $7,953 million of repurchase agreements and $6,620 million of collateral received related to securities lending. Repurchase agreements and collateral received related to securities lending were recorded in securities sold under repurchase agreements and accrued expenses and other liabilities, respectively, in our consolidated statement of condition. Refer to note 10 for additional information with respect to principal securities finance transactions.
 
 
December 31, 2014
 
December 31, 2013
 
 
 
 
Gross Amounts Not Offset in Statement of Condition (1)
 
 
 
 
 
Gross Amounts Not Offset in Statement of Condition (1)
 
 
(In millions)
 
Net Amount of Liabilities Presented in Statement of Condition
 
Counterparty Netting
 
Collateral Provided
 
Net Amount (2)
 
Net Amount of Liabilities Presented in Statement of Condition
 
Counterparty Netting
 
Collateral Provided
 
Net Amount (2)
Derivatives
 
$
6,308

 
$
—

 
$
(19
)
 
$
6,289

 
$
6,259

 
$
—

 
$
(6
)
 
$
6,253

Repurchase agreements and securities lending
 
15,405

 
(128
)
 
(13,872
)
 
1,405

 
14,573

 
(131
)
 
(13,036
)
 
1,406

Total
 
$
21,713

 
$
(128
)
 
$
(13,891
)
 
$
7,694

 
$
20,832

 
$
(131
)
 
$
(13,042
)
 
$
7,659

 
 
 
 
 
(1) Amounts subject to netting arrangements which have been determined to be legally enforceable.
(2) Includes amounts secured by collateral not determined to be subject to enforceable netting arrangements.




181

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 18 .    Net Interest Revenue
The following table presents the components of interest revenue and interest expense, and related net interest revenue, for the periods indicated:
 
Twelve Months Ended December 31,
(In millions)
2014
 
2013
 
2012
Interest revenue:
 
 
 
 
 
Deposits with banks
$
196

 
$
125

 
$
141

Investment securities:
 
 
 
 
 
U.S. Treasury and federal agencies
672

 
707

 
799

State and political subdivisions
231

 
249

 
214

Other investments
1,241

 
1,331

 
1,552

Securities purchased under resale agreements
38

 
45

 
51

Trading account assets
1

 
—

 
—

Loans and leases
266

 
253

 
254

Other interest-earning assets
7

 
4

 
3

Total interest revenue
2,652

 
2,714

 
3,014

Interest expense:
 
 
 
 
 
Deposits
99

 
93

 
166

Short-term borrowings
5

 
60

 
73

Long-term debt
245

 
232

 
222

Other interest-bearing liabilities
43

 
26

 
15

Total interest expense
392

 
411

 
476

Net interest revenue
$
2,260

 
$
2,303

 
$
2,538

Note 19 .    Employee Benefits
Defined Benefit Pension and Other Post-Retirement Benefit Plans
State Street Bank and certain of its U.S. subsidiaries participate in a non-contributory, tax-qualified defined benefit pension plan. The U.S. defined benefit pension plan was frozen as of December 31, 2007 and no new employees were eligible to participate after that date. State Street has agreed to contribute sufficient amounts as necessary to meet the benefits paid to plan participants and to fund the plan’s service cost, plus interest. U.S. employee account balances earn annual interest credits until the employee’s retirement. Non-U.S. employees participate in local defined benefit plans which are funded as required in each local jurisdiction. In addition to the defined benefit pension plans, we have non-qualified unfunded supplemental retirement plans, referred to as SERPs, that provide certain officers with defined pension benefits in excess of allowable qualified plan limits. State Street Bank and certain of its U.S. subsidiaries also participate in a post-retirement plan that provides health care and insurance benefits for certain retired employees. The total expense for these tax-qualified and non-qualified plans was $32 million , $42 million
 
and $44 million for the years ended December 31, 2014, 2013 and 2012, respectively.
We recognize the funded status of our defined benefit pension plans and other post-retirement benefit plans, measured as the difference between the fair value of the plan assets and the projected benefit obligation, in the consolidated statement of position. The assets held by the defined benefit pension plans are largely made up of common, collective funds that are liquid and invest principally in U.S. equities and high-quality fixed income investments. The majority of these assets fall within Level 2 of the fair value hierarchy. The benefit obligations associated with our primary U.S. and non-U.S. defined benefit plans, non-qualified unfunded supplemental retirement plans and post-retirement plans were $1.26 billion , $168 million and $120 million , respectively, as of December 31, 2014 and $1.08 billion , $154 million and $108 million , respectively, as of December 31, 2013 . As the primary defined benefit plans are frozen, the benefit obligation will only vary over time as a result of changes in market interest rates, the life expectancy of the plan participants and payments made from the plans. The primary U.S. and non-U.S. defined benefit pension plans were underfunded $50 million at December 31, 2014 and overfunded $40 million at December 31, 2013 . The non-qualified supplemental retirement plans were underfunded by $168 million and $154 million at December 31, 2014 and 2013 , respectively. The other post-retirement benefit plans were underfunded by $120 million and $108 million at December 31, 2014 and 2013 , respectively. The funded status is included in other assets (overfunded) and in other liabilities (underfunded).
Defined Contribution Retirement Plans
We contribute to employer-sponsored U.S. and non-U.S. defined contribution plans. Our contribution to these plans was $147 million for 2014 , $134 million for 2013 and $146 million for 2012 .
Note  20 .    Occupancy Expense and Information Systems and Communications Expense
Occupancy expense and information systems and communications expense include depreciation of buildings, leasehold improvements, computer hardware and software, equipment, and furniture and fixtures. Total depreciation expense for the years ended December 31, 2014 , 2013 and 2012 was $417 million , $401 million and $407 million , respectively.
We lease 1,025,000 square feet at One Lincoln Street, our headquarters building located in Boston, Massachusetts, and a related underground parking garage, under 20 -year, non-cancelable capital leases


182

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

expiring in September 2023 . A portion of the lease payments is offset by subleases for approximately 127,000 square feet of the building. In 2014, we began leasing approximately 500,000 square feet at the Channel Center in Boston, Massachusetts under a 16 -year capital lease expiring in December 2029 . In addition, we lease approximately 362,000 square feet at 20 Churchill Place, an office building located in the U.K., under a 20 -year capital lease expiring in December 2028 . As of December 31, 2014 and 2013 , an aggregate net book value of $624 million and $646 million , respectively, related to the above-described capital leases was recorded in premises and equipment, with the related liability recorded in long-term debt, in our consolidated statement of condition.
Capital lease asset amortization is recorded in occupancy expense in our consolidated statement of income over the respective lease term. Lease payments are recorded as a reduction of the liability, with a portion recorded as imputed interest expense. For the years ended December 31, 2014 , 2013 and
 
2012 , interest expense related to these capital lease obligations, reflected in net interest revenue, was $38 million , $40 million and $42 million , respectively. As of December 31, 2014 and 2013 , accumulated amortization of capital lease assets was $426 million and $369 million , respectively.
We have entered into non-cancelable operating leases for premises and equipment. Nearly all of these leases include renewal options. Costs related to operating leases for office space are recorded in occupancy expense. Costs related to operating leases for equipment are recorded in information systems and communications expense.
Total rental expense, net of sublease revenue, amounted to $204 million , $224 million and $227 million for the years ended December 31, 2014 , 2013 and 2012 , respectively. Total rental expense was reduced by sublease revenue of $6 million for both years ended December 31, 2014 , and 2013 and $4 million for the year ended December 31, 2012 .

The following table presents a summary of future minimum lease payments under non-cancelable capital and operating leases as of December 31, 2014 . Aggregate future minimum rental commitments have been reduced by aggregate sublease rental commitments of $55 million for capital leases and $15 million for operating leases.
(In millions)
Capital
Leases
 
Operating
Leases
 
Total
2015
$
105

 
$
179

 
$
284

2016
91

 
141

 
232

2017
82

 
145

 
227

2018
82

 
119

 
201

2019
82

 
86

 
168

Thereafter
520

 
265

 
785

Total minimum lease payments
962

 
$
935

 
$
1,897

Less amount representing interest payments
(248
)
 
 
 
 
Present value of minimum lease payments
$
714

 
 
 
 
Note 21 .    Expenses
Severance Costs:
We recorded $84 million and $11 million of net severance costs in the years ended December 31, 2014 and 2013 , respectively. These severance costs were the result of staff reductions associated with the realignment of our cost base, and were recorded in compensation and employee benefits expenses in our consolidated statement of income.
 

Acquisition and Restructuring Costs:
The following table presents net acquisition and restructuring costs recorded in the periods indicated:  
 
 
Years Ended December 31,
(In millions)
 
2014
 
2013
 
2012
Acquisition costs
 
$
58

 
$
76

 
$
26

Restructuring charges, net
 
75

 
28

 
199

Total acquisition and restructuring costs
 
$
133

 
$
104

 
$
225





183

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Acquisition Costs
Acquisition costs recorded in the years ended December 31, 2014 , 2013 and 2012 were related to previously disclosed acquisitions.
Restructuring Charges
Information with respect to our Business Operations and Information Technology Transformation program and our 2012 expense control measures, including charges, employee reductions and related accruals, is provided in the following sections.
Business Operations and Information Technology Transformation Program
In November 2010 , we announced a global multi-year Business Operations and Information Technology Transformation program which we completed in the fourth quarter of 2014 . The program included operational, information technology and targeted cost initiatives, including reductions in both staff and occupancy costs.
The majority of the annual savings have affected compensation and employee benefits expenses. These savings have been modestly offset by increases in information systems and communications expenses.
 
We recorded aggregate restructuring charges of $440 million in our consolidated statement of income, composed of $156 million in 2010 , $133 million in 2011 , $67 million in 2012 , $25 million in 2013 and $59 million in 2014 .
The charges related to the program included costs related to severance, benefits and outplacement services, as well as costs which resulted from actions taken to reduce our occupancy costs through the consolidation of leases and properties. The charges also included costs related to information technology, including transition fees associated with the expansion of our use of third-party service providers associated with components of our information technology infrastructure and application maintenance and support.
In 2010 , in connection with the program, we initiated the involuntary termination of 1,400 employees, or approximately 5% of our global workforce, which we completed by the end of 2011 . In addition, in connection with our announcement in 2011 of the expansion of our use of third-party service providers associated with our information technology infrastructure and application maintenance and support, as well as the continued execution of the business operations transformation component of the program, we identified 1,574 additional involuntary terminations. As of December 31, 2014 , we substantially completed these reductions.


Aggregate Restructuring-Related Accrual Activity
The following table presents aggregate activity associated with accruals that resulted from the charges associated with the Business Operations and Information Technology Transformation program and 2012 expense control measures: 
(In millions)
Employee-
Related
Costs
 
Real Estate Consolidation
 
Asset and Other Write-Offs
 
Total
Balance as of December 31, 2013
$
50

 
$
49

 
$
7

 
$
106

Additional accruals for Business Operations and Information Technology Transformation program
38

 
21

 
—

 
59

Additional accruals for 2012 expense control measures
(2
)
 
—

 
18

 
16

Payments and adjustments
(46
)
 
(46
)
 
(18
)
 
(110
)
Balance as of December 31, 2014
$
40

 
$
24

 
$
7

 
$
71



184

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Other Expenses:
Other expenses of $751 million in 2014 included a legal accrual of $185 million in connection with management's intention to seek to resolve some, but not all, of the outstanding and potential claims arising out of our indirect FX client activities. These matters are more fully discussed under "Legal and Regulatory Matters" in note 11 to the consolidated financial statements.
As a result of the 2008 Lehman Brothers bankruptcy, we had various claims against Lehman Brothers entities in bankruptcy proceedings in the U.S. and the U.K. We also had amounts asserted as owed, or return obligations, to Lehman Brothers entities. The various claims and amounts owed arose from transactions that existed at the time Lehman Brothers entered bankruptcy, including prime brokerage arrangements, foreign exchange transactions, securities lending arrangements and repurchase agreements. In 2011, we reached an agreement with certain Lehman Brothers estates in the U.S. to resolve the value of deficiency claims arising out of indemnified repurchase transactions in the U.S., and the bankruptcy court allowed those claims in the amount of $400 million .
In 2012, we reached an agreement to settle the claims against the Lehman Brothers estate in the U.K. related to the close-out of securities lending and repurchase arrangements.
In connection with our resolution of the indemnified repurchase and securities lending claims in the U.S. and the U.K., we recognized a credit of approximately $362 million in our consolidated statement of income in 2012. Both certified claims retained as part of the settlement agreements were subsequently sold at their respective fair values, resulting in an additional gain of approximately $10 million , which was also recorded in our consolidated statement of income in 2012.
In 2014, we received aggregate distributions totaling approximately $21 million from the Lehman Brothers estates, compared to approximately $186 million from the Lehman Brothers estates in 2013. Of the aggregate distributions received in both 2014 and 2013, approximately $11 million and $101 million was applied to reduce remaining Lehman Brothers-related assets, primarily prime brokerage claim-related receivables, recorded in our consolidated statement of condition; the remaining $10 million and $85 million , respectively, was recorded as an aggregate credit to other expenses in our consolidated statement of income.
 
Note  22 .    Income Taxes
We use an asset-and-liability approach to account for income taxes. Our objective is to recognize the amount of taxes payable or refundable for the current year through charges or credits to the current tax provision, and to recognize deferred tax assets and deferred tax liabilities for the future tax consequences resulting from temporary differences between the amounts reported in our consolidated financial statements and their respective tax bases. The measurement of tax assets and liabilities is based on enacted tax laws and applicable tax rates. The effects of a tax position on our consolidated financial statements are recognized when we believe it is more likely than not that the position will be sustained. A deferred-tax-asset valuation allowance is established if it is considered more likely than not that all or a portion of the deferred tax assets will not be realized. Deferred tax assets and deferred tax liabilities recorded in our consolidated statement of condition are netted within the same tax jurisdiction.
The following table presents the components of income tax expense for the years ended December 31 :  
(In millions)
2014
 
2013
 
2012
Current:
 
 
 
 
 
Federal
$
59

 
$
193

 
$
148

State
39

 
47

 
64

Non-U.S.
257

 
248

 
262

Total current expense
355

 
488

 
474

Deferred:
 
 
 
 
 
Federal
42

 
28

 
267

State
11

 
17

 
27

Non-U.S.
13

 
17

 
(63
)
Total deferred expense
66

 
62

 
231

Total income tax expense
$
421

 
$
550

 
$
705

In 2014 we expanded our municipal securities portfolio, increased our investments in alternative energy projects and realized greater benefits from our non-U.S. operations.
In 2013 , we completed a multi-year tax data enhancement process, the final stages of which identified a reconciliation difference in our deferred tax accounts, and we determined that our deferred tax liabilities were overstated by $50 million and our deferred tax assets were understated by $21 million , which resulted in an out-of-period income tax benefit of $71 million . This income tax benefit is reflected in the table above as a reduction of total deferred income tax expense for 2013 .


185

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The amount for 2012 presented in the table included income tax expense of $40 million associated with indemnification benefits, recorded as offsets to acquisition costs, for the assumption of income tax liabilities related to the 2010 Intesa acquisition.
The amount of income tax expense (benefit) related to net gains (losses) from sales of investment securities was $5 million , $6 million and $22 million in 2014 , 2013 and 2012 , respectively. Pre-tax income attributable to our operations located outside the U.S. was approximately $1.33 billion , $1.25 billion and $1.11 billion for 2014 , 2013 and 2012 , respectively.
Pre-tax earnings of our non-U.S. subsidiaries are subject to U.S. income tax when effectively repatriated. As of December 31, 2014 , we have chosen to indefinitely reinvest approximately $4.2 billion of earnings of certain of our non-U.S. subsidiaries. No provision has been recorded for U.S. income taxes that could be incurred upon repatriation. As of December 31, 2014 , if such earnings had been repatriated to the U.S., we would have provided for approximately $876 million of additional income tax expense.
The following table presents significant components of our gross deferred tax assets and gross deferred tax liabilities as of December 31 :
(In millions)
2014
 
2013
Deferred tax assets:
 
 
 
Unrealized losses on investment securities, net
$
—

 
$
421

Deferred compensation (1)
168

 
209

Defined benefit pension plan
193

 
97

Restructuring charges and other reserves
160

 
126

Foreign currency translation
56

 
—

Real estate
9

 
18

Other
68

 
57

Total deferred tax assets  
654

 
928

Valuation allowance for deferred tax assets
(54
)
 
(33
)
Deferred tax assets, net of valuation allowance
$
600

 
$
895

Deferred tax liabilities:
 
 
 
Unrealized gains on securities, net
$
5

 
$
—

Leveraged lease financing
326

 
359

Fixed and intangible assets
1,006

 
1,073

Non-U.S. earnings
167

 
105

Foreign currency translation
—

 
35

Other (2)
83

 
44

Total deferred tax liabilities
$
1,587

 
$
1,616

 
 
 
(1) Amount as of December 31, 2013 includes an increase of $21
 
million associated with an out-of-period income tax benefit recorded in 2013 .
(2) Amount as of December 31, 2013 was adjusted to reflect a decrease of $50 million associated with an out-of-period income tax benefit recorded in 2013 .
Management considers the valuation allowance adequate to reduce the total deferred tax assets to an aggregate amount that will more likely than not be realized. Management has determined that a valuation allowance is not required for the remaining deferred tax assets because it is more likely than not that there is sufficient taxable income of the appropriate nature within the carryback and carryforward periods to realize these assets.
As of December 31, 2014 and 2013 , we had deferred tax assets associated with tax credit carryforwards of $2 million and $3 million , respectively, which are presented in the table. The tax credit carryforwards expire in 2033 . As of December 31, 2014 and 2013 , we had deferred tax assets associated with non-U.S. and state loss carryforwards of $53 million and $50 million , respectively, included in “other” in the table. Of the total loss carryforwards of $53 million as of December 31, 2014 , $41 million do not expire, and the remaining $12 million expire through 2033 . The loss carryforwards have a valuation allowance of $45 million and $30 million for the years ending December 31, 2014 and 2013 .
The following table presents a reconciliation of the U.S. statutory income tax rate to our effective tax rate based on income before income tax expense for the years ended December 31 :
 
2014
 
2013
 
2012
U.S. federal income tax rate
35.0
 %
 
35.0
 %
 
35.0
 %
Changes from statutory rate:
 
 
 
 
 
State taxes, net of federal benefit
1.5

 
1.6

 
1.8

Tax-exempt income
(5.0
)
 
(3.7
)
 
(2.6
)
Tax credits
(6.7
)
 
(3.6
)
 
(2.8
)
Foreign tax differential
(8.5
)
 
(5.9
)
 
(5.5
)
Out-of-period income tax benefit (1)
—

 
(2.7
)
 
—

Other, net
.9

 
(.2
)
 
(.4
)
Effective tax rate
17.2
 %
 
20.5
 %
 
25.5
 %
 
 
 
 
 
(1)  
Excluding the impact of the out-of-period income tax benefit of $71 million described earlier in this note, our effective tax rate for 2013 would have been 23.2% .


186

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table presents activity related to unrecognized tax benefits as of December 31 :
(In millions)
2014
 
2013
Beginning balance
$
158

 
$
95

Decrease related to agreements with tax authorities
(9
)
 
(4
)
Increase related to tax positions taken during current year
8

 
10

Increase related to tax positions taken during prior year
6

 
57

Ending balance
$
163

 
$
158

The amount of unrecognized tax benefits that, if recognized, would reduce income tax expense and our effective tax rate was $96 million as of December 31, 2014 . Unrecognized tax benefits do not include accrued interest of approximately $9 million and $7 million as of December 31, 2014 and 2013 , respectively.
We recorded interest and penalties related to income taxes as a component of income tax expense. Income tax expense included related interest and penalties of approximately $3 million for the years ended December 31, 2014 and 2013 .
It is reasonably possible that the unrecognized tax benefits could decrease by up to $120 million within the next 12 months due to the resolution of an audit, of which $61 million would reduce our income tax expense and our effective tax rate. Management believes that we have sufficient accrued liabilities as of December 31, 2014 for tax exposures and related interest expense.
Note 23 .    Earnings Per Common Share
Basic earnings per share, or EPS, is calculated pursuant to the “two-class” method, by dividing net income available to common shareholders by the weighted-average common shares outstanding during the period. Diluted EPS is calculated pursuant to the two-class method, by dividing net income available to common shareholders by the total weighted-average number of common shares outstanding for the period plus the shares representing the dilutive effect of common stock options and other equity-based awards. The effect of common stock options and other equity-based awards is excluded from the calculation of diluted EPS in periods in which their effect would be anti-dilutive.
The two-class method requires the allocation of undistributed net income between common and participating shareholders. Net income available to common shareholders, presented separately in our consolidated statement of income, is the basis for the calculation of both basic and diluted EPS. Participating securities are composed of unvested restricted stock and fully vested deferred director
 
stock awards, which are equity-based awards that contain non-forfeitable rights to dividends, and are considered to participate with common shareholders in undistributed earnings.
The following tables present the computation of basic and diluted earnings per common share for the years ended December 31 :
(Dollars in millions, except per share amounts)
2014
 
2013
 
2012
Net income
$
2,037

 
$
2,136

 
$
2,061

Less:
 
 
 
 
 
Preferred stock dividends
(61
)
 
(26
)
 
(29
)
Dividends and undistributed earnings allocated to participating securities (1)
(3
)
 
(8
)
 
(13
)
Net income available to common shareholders
$
1,973

 
$
2,102

 
$
2,019

Average common shares outstanding (in thousands):
 
 
 
 
 
Basic average common shares
424,223

 
446,245

 
474,458

Effect of dilutive securities: common stock options and common stock awards
7,784

 
8,910

 
6,671

Diluted average common shares
432,007

 
455,155

 
481,129

Anti-dilutive securities (2)
1,498

 
1,855

 
5,619

Earnings per Common Share:
 
 
 
 
 
Basic
$
4.65

 
$
4.71

 
$
4.25

Diluted (3)
4.57

 
4.62

 
4.20

 
 
(1) Represents the portion of net income available to common equity allocated to participating securities, composed of fully vested deferred director stock and unvested restricted stock that contain non-forfeitable rights to dividends during the vesting period on a basis equivalent to dividends paid to common shareholders.
(2) Represents common stock options and other equity-based awards outstanding but not included in the computation of diluted average common shares, because their effect was anti-dilutive.
(3) Calculations reflect allocation of earnings to participating securities using the two-class method, as this computation is more dilutive than the treasury stock method.
Note 24 .    Line of Business Information
We have two lines of business: Investment Servicing and Investment Management. Given our services and management organization, the results of operations for these lines of business are not necessarily comparable with those of other companies, including companies in the financial services industry.
Investment Servicing provides services for U.S. mutual funds, collective investment funds and other investment pools, corporate and public retirement plans, insurance companies, foundations and endowments worldwide. Products include custody; product- and participant-level accounting; daily pricing and administration; master trust and master custody; record-keeping; cash management; foreign exchange, brokerage and other trading services;


187

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

securities finance; deposit and short-term investment facilities; loans and lease financing; investment manager and alternative investment manager operations outsourcing; and performance, risk and compliance analytics to support institutional investors. We provide shareholder services, which include mutual fund and collective investment fund shareholder accounting, through 50%-owned affiliates, Boston Financial Data Services, Inc. and the International Financial Data Services group of companies.
Investment Management, through SSGA, provides a broad array of investment management, investment research and investment advisory services to corporations, public funds and other sophisticated investors. SSGA offers active and passive asset management strategies across equity, fixed-income and cash asset classes. Products are distributed directly and through intermediaries using a variety of investment vehicles, including exchange-traded funds, or ETFs, such as the SPDR ® ETF brand.
Our investment servicing strategy is to focus on total client relationships and the full integration of our products and services across our client base through cross-selling opportunities. In general, our clients will use a combination of services, depending on their needs, rather than one product or service. For instance, a custody client may purchase securities finance and cash management services from different business units. Products and services that we provide to our clients are parts of an integrated offering to these clients. We price our products and services on the basis of overall client relationships and other factors; as a result, revenue may not necessarily reflect the stand-alone market price of these products and services within the business lines in the same way it would for separate business entities.
Generally, approximately 70% to 75% of our consolidated total revenue (fee revenue from investment servicing and investment management, as well as trading services and securities finance activities) is generated by these two business lines. The remaining 25% to 30% is composed of processing fees and other revenue, net interest revenue, which is largely generated by our investment of client deposits, short-term borrowings and long-term debt in a variety of assets, and net gains (losses) related to investment securities. These other revenue types are generally fully allocated to, or reside in, Investment Servicing and Investment Management.
 
Revenue and expenses are directly charged or allocated to our lines of business through management information systems. Assets and liabilities are allocated according to policies that support management’s strategic and tactical goals. Capital is allocated based on the relative risks and capital requirements inherent in each business line, along with management judgment. Capital allocations may not be representative of the capital that might be required if these lines of business were separate business entities.
The following is a summary of our line-of-business results for the periods indicated.
The “Other” column for the year ended December 31, 2014 included net costs $219 million composed of the following -
•
Net acquisition and restructuring costs of $133 million ;
•
Net severance costs associated with staffing realignment of $84 million ; and
•
Net provisions for litigation exposure and other costs of $2 million .
The “Other” column for the year ended December 31, 2013 included net costs of $180 million composed of the following -
•
Net acquisition and restructuring costs of $104 million ;
•
Net provisions for litigation exposure and other costs of $65 million ; and
•
Net severance costs associated with staffing realignment of $11 million ; and
The “Other” column for the year ended December 31, 2012 included net losses of $27 million composed of the following -
•
Net realized loss from the sale of all of our Greek investment securities of $46 million ;
•
A benefit related to claims associated with the 2008 Lehman Brothers bankruptcy of $362 million ;
•
Net acquisition and restructuring costs of $225 million ; and
•
Net provisions for litigation exposure and other costs of $118 million .
The amounts in the “Other” columns were not allocated to State Street's business lines. Prior reported results reflect reclassifications, for comparative purposes, related to management changes in methodologies associated with allocations of revenue and expenses to lines-of-business in 2014 .


188

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 
Years Ended December 31,
 
Investment
Servicing
 
Investment
Management
 
Other
 
Total
 
2014
 
2013
 
2012
 
2014
 
2013
 
2012
 
2014
 
2013
 
2012
 
2014
 
2013
 
2012
(Dollars in millions,
except where otherwise noted)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Servicing fees
$
5,129

 
$
4,819

 
$
4,414

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
5,129

 
$
4,819

 
$
4,414

Management fees
—

 
—

 
—

 
1,207

 
1,106

 
993

 
—

 
—

 
—

 
1,207

 
1,106

 
993

Trading services
1,039

 
1,027

 
938

 
45

 
67

 
98

 
—

 
—

 
—

 
1,084

 
1,094

 
1,036

Securities finance
437

 
359

 
405

 
—

 
—

 
—

 
—

 
—

 
—

 
437

 
359

 
405

Processing fees and other
179

 
206

 
235

 
(5
)
 
6

 
5

 
—

 
—

 
—

 
174

 
212

 
240

Total fee revenue
6,784

 
6,411

 
5,992

 
1,247

 
1,179

 
1,096

 
—

 
—

 
—

 
8,031

 
7,590

 
7,088

Net interest revenue
2,188

 
2,221

 
2,464

 
72

 
82

 
74

 
—

 
—

 
—

 
2,260

 
2,303

 
2,538

Gains (losses) related to investment securities, net
4

 
(9
)
 
69

 
—

 
—

 
—

 
—

 
—

 
(46
)
 
4

 
(9
)
 
23

Total revenue
8,976

 
8,623

 
8,525

 
1,319

 
1,261

 
1,170

 
—

 
—

 
(46
)
 
10,295

 
9,884

 
9,649

Provision for loan losses
10

 
6

 
(3
)
 
—

 
—

 
—

 
—

 
—

 
—

 
10

 
6

 
(3
)
Total expenses
6,648

 
6,190

 
6,058

 
960

 
822

 
847

 
219

 
180

 
(19
)
 
7,827

 
7,192

 
6,886

Income before income tax expense
$
2,318

 
$
2,427

 
$
2,470

 
$
359

 
$
439

 
$
323

 
$
(219
)
 
$
(180
)
 
$
(27
)
 
$
2,458

 
$
2,686

 
$
2,766

Pre-tax margin
26
%
 
28
%
 
29
%
 
27
%
 
35
%
 
28
%
 
 
 
 
 
 
 
24
%
 
27
%
 
29
%
Average assets (in billions)
$
234.2

 
$
203.2

 
$
190.1

 
$
3.9

 
$
3.8

 
$
3.7

 
 
 
 
 
 
 
$
238.1

 
$
207.0

 
$
193.8

Note 25 .    Non-U.S. Activities
We generally define our non-U.S. activities as those revenue-producing business activities that arise from clients domiciled outside the U.S. Due to the integrated nature of our business, precise segregation of our U.S. and non-U.S. activities is not possible. Subjective estimates and other judgments are applied to quantify the financial results and assets related to our non-U.S. activities, including our application of funds transfer pricing, our asset-and-liability management policies and our allocation of certain indirect corporate expenses. Interest expense allocations are based on our internal funds transfer pricing methodology.
The following table presents our non-U.S. financial results for the years ended December 31 :
(In millions)
2014
 
2013
 
2012
Total fee revenue
$
3,364

 
$
3,119

 
$
2,917

Net interest revenue
1,236

 
1,191

 
953

Gains (losses) related to investment securities, net
6

 
(11
)
 
(40
)
Total revenue
4,606

 
4,299

 
3,830

Expenses
3,272

 
3,130

 
3,013

Income before income taxes
1,334

 
1,169

 
817

Income tax expense
319

 
289

 
204

Net income
$
1,015

 
$
880

 
$
613


 

Gain (losses) related to investment securities, net, for the year ended December 31, 2012 included a loss of $46 million from the sale of all of our Greek investment securities. Non-U.S. revenue for the year ended December 31 , 2014 included $1.02 billion in the U.K., primarily from our London operations.
The following table presents the significant components of our non-U.S. assets as of December 31 , based on the domicile of the underlying counterparties:
(In millions)
2014
 
2013
Interest-bearing deposits with banks
$
17,382

 
$
9,584

Investment securities
29,060

 
31,522

Other assets
13,577

 
16,778

Total non-U.S. assets
$
60,019

 
$
57,884



189

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 26.    Subsequent Event
On February 20, 2015 , we announced an increase from $50 million to $115 million of the fourth-quarter 2014 legal accrual associated with indirect foreign exchange matters that we announced on January 23, 2015 , when we initially reported on our results for the fourth-quarter and year-ended December 31, 2014 . See our Current Report on Form 8-K dated, and filed with the SEC on, February 20, 2015 for additional information regarding this additional accrual. The effects of the additional accrual are reflected in the financial and other information reported in this Form 10-K.

Note 27.
Parent Company Financial Statements
The following tables present the financial statements of the parent company without consolidation of its banking and non-banking subsidiaries, as of and for the years ended December 31 :
STATEMENT OF INCOME - PARENT COMPANY
Years Ended December 31,
2014
 
2013
 
2012
(In millions)
 
 
 
 
 
Cash dividends from consolidated banking subsidiary
$
1,470

 
$
1,694

 
$
1,785

Cash dividends from consolidated non-banking subsidiaries and unconsolidated entities
138

 
250

 
68

Other, net
63

 
35

 
38

Total revenue
1,671

 
1,979

 
1,891

Interest expense
193

 
169

 
163

Other expenses
55

 
88

 
85

Total expenses
248

 
257

 
248

Income tax benefit
(83
)
 
(84
)
 
(63
)
Income (loss) before equity in undistributed income of consolidated subsidiaries and unconsolidated entities
1,506

 
1,806

 
1,706

Equity in undistributed income of consolidated subsidiaries and unconsolidated entities:
 
 
 
 
 
Consolidated banking subsidiary
375

 
237

 
173

Consolidated non-banking subsidiaries and unconsolidated entities
156

 
93

 
182

Net income
$
2,037

 
$
2,136

 
$
2,061


190

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

STATEMENT OF CONDITION - PARENT COMPANY
As of December 31,
2014
 
2013
(In millions)
 
 
 
Assets:
 
 
 
Interest-bearing deposits with consolidated banking subsidiary
$
6,030

 
$
4,419

Trading account assets
279

 
216

Investment securities available for sale
35

 
31

Investments in subsidiaries:
 
 
 
Consolidated banking subsidiary
20,123

 
19,985

Consolidated non-banking subsidiaries
2,739

 
2,617

Unconsolidated entities
288

 
272

Notes and other receivables from:
 
 
 
Consolidated banking subsidiary
1,526

 
1,528

Consolidated non-banking subsidiaries and unconsolidated entities
331

 
256

Other assets
447

 
327

Total assets
$
31,798

 
$
29,651

 
 
 
 
Liabilities:
 
 
 
Commercial paper
$
2,485

 
$
1,819

Accrued expenses and other liabilities
514

 
447

Long-term debt
7,326

 
7,007

Total liabilities
10,325

 
9,273

Shareholders’ equity
21,473

 
20,378

Total liabilities and shareholders’ equity
$
31,798

 
$
29,651



191

Table of Contents
STATE STREET CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

STATEMENT OF CASH FLOWS - PARENT COMPANY
Years Ended December 31,
2014
 
2013
 
2012
(In millions)
 
 
 
 
 
Net cash provided by (used in) operating activities
$
1,767

 
$
2,296

 
$
2,706

Investing Activities:
 
 
 
 
 
Net decrease (increase) in interest-bearing deposits with consolidated banking subsidiary
(1,610
)
 
(620
)
 
1,115

Investments in consolidated banking and non-banking subsidiaries
(1,142
)
 
(1,100
)
 
(68
)
Sale or repayment of investment in consolidated banking and non-banking subsidiaries
1,011

 
32

 
28

Business acquisitions
—

 
—

 
(2
)
Net cash provided by (used in) investing activities
(1,741
)
 
(1,688
)
 
1,073

Financing Activities:
 
 
 
 
 
Net decrease in short-term borrowings
—

 
—

 
(500
)
Net decrease in commercial paper
667

 
(499
)
 
(66
)
Proceeds from issuance of long-term debt, net of issuance costs
994

 
2,485

 
—

Payments for long-term debt
(750
)
 
—

 
(1,750
)
Proceeds from issuance of preferred stock, net of issuance costs
1,470

 
—

 
488

Proceeds from exercises of common stock options
14

 
121

 
53

Purchases of common stock
(1,650
)
 
(2,040
)
 
(1,440
)
Repurchases of common stock for employee tax withholding
(232
)
 
(189
)
 
(101
)
Payments for cash dividends
(539
)
 
(486
)
 
(463
)
Net cash provided by (used in) financing activities
(26
)
 
(608
)
 
(3,779
)
Net change
—

 
—

 
—

Cash and due from banks at beginning of year
—

 
—

 
—

Cash and due from banks at end of year
$
—

 
$
—

 
$
—



192

Table of Contents

STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES
Distribution of Average Assets, Liabilities and Shareholders’ Equity; Interest Rates and Interest Differential (Unaudited)
The following table presents consolidated average statements of condition and net interest revenue for the years indicated.
Years Ended December 31,
2014
 
2013
 
2012
(Dollars in millions; fully
taxable-equivalent basis)
Average
Balance
 
Interest
 
Average
Rate
 
Average
Balance
 
Interest
 
Average
Rate
 
Average
Balance
 
Interest
 
Average
Rate
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposits with U.S. banks
$
45,158

 
$
115

 
.25
%
 
$
15,858

 
$
40

 
.25
%
 
$
9,305

 
$
25

 
.26
%
Interest-bearing deposits with non-U.S. banks
10,195

 
81

 
.80

 
13,088

 
85

 
.65

 
17,518

 
116

 
.66

Securities purchased under resale agreements
4,077

 
38

 
.94

 
5,766

 
45

 
.77

 
7,243

 
51

 
.71

Trading account assets
959

 
1

 
.13

 
748

 
—

 
—

 
651

 
—

 
—

Investment securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and federal agencies (1)
32,481

 
672

 
2.07

 
33,003

 
707

 
2.14

 
34,576

 
799

 
2.31

 State and political subdivisions (1)
10,619

 
404

 
3.81

 
8,637

 
391

 
4.53

 
7,346

 
338

 
4.60

Other investments
73,709

 
1,241

 
1.68

 
76,056

 
1,331

 
1.75

 
71,988

 
1,552

 
2.16

Loans
14,838

 
231

 
1.56

 
12,660

 
215

 
1.70

 
10,404

 
212

 
2.03

Lease financing (1)
1,074

 
35

 
3.26

 
1,121

 
38

 
3.43

 
1,206

 
42

 
3.54

Other interest-earning assets
15,944

 
7

 
.05

 
11,164

 
4

 
.04

 
7,378

 
3

 
.04

Total interest-earning assets (1)
209,054

 
2,825

 
1.36

 
178,101

 
2,856

 
1.60

 
167,615

 
3,138

 
1.88

Cash and due from banks
4,139

 
 
 
 
 
3,747

 
 
 
 
 
3,811

 
 
 
 
Other assets
24,935

 
 
 
 
 
25,182

 
 
 
 
 
22,384

 
 
 
 
Total assets
$
238,128

 
 
 
 
 
$
207,030

 
 
 
 
 
$
193,810

 
 
 
 
Liabilities and shareholders’ equity:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposits:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Time
$
7,254

 
$
15

 
.20
%
 
$
2,504

 
$
6

 
.23
%
 
$
7,245

 
$
16

 
.17
%
Savings
14,042

 
6

 
.04

 
6,358

 
4

 
.07

 
2,088

 
3

 
.15

Non-U.S.
109,003

 
78

 
.07

 
100,391

 
83

 
.08

 
89,059

 
147

 
.16

Total interest-bearing deposits
130,299

 
99

 
.08

 
109,253

 
93

 
.14

 
98,392

 
166

 
.17

Securities sold under repurchase agreements
8,817

 
—

 
—

 
8,436

 
1

 
.01

 
7,697

 
1

 
.01

Federal funds purchased
20

 
—

 
—

 
298

 
—

 
—

 
784

 
1

 
.09

Other short-term borrowings
4,177

 
5

 
.12

 
3,785

 
59

 
1.57

 
4,676

 
71

 
1.52

Long-term debt
9,309

 
245

 
2.63

 
8,415

 
232

 
2.75

 
7,008

 
222

 
3.17

Other interest-bearing liabilities
7,351

 
43

 
.59

 
6,457

 
26

 
.40

 
5,898

 
15

 
.26

Total interest-bearing liabilities
159,973

 
392

 
.25

 
136,644

 
411

 
.30

 
124,455

 
476

 
.39

Noninterest-bearing deposits:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Special time
5,862

 
 
 
 
 
769

 
 
 
 
 
1,203

 
 
 
 
Demand
37,900

 
 
 
 
 
34,725

 
 
 
 
 
34,850

 
 
 
 
Non-U.S. (2)
279

 
 
 
 
 
800

 
 
 
 
 
459

 
 
 
 
Other liabilities
12,797

 
 
 
 
 
13,561

 
 
 
 
 
12,660

 
 
 
 
Shareholders’ equity
21,317

 
 
 
 
 
20,531

 
 
 
 
 
20,183

 
 
 
 
Total liabilities and shareholders’ equity
$
238,128

 
 
 
 
 
$
207,030

 
 
 
 
 
$
193,810

 
 
 
 
Net interest revenue
 
 
$
2,433

 
 
 
 
 
$
2,445

 
 
 
 
 
$
2,662

 
 
Excess of rate earned over rate paid
 
 
 
 
1.11
%
 
 
 
 
 
1.30
%
 
 
 
 
 
1.49
%
Net interest margin (3)
 
 
 
 
1.16

 
 
 
 
 
1.37

 
 
 
 
 
1.59

 
 
 
 
(1)  
Fully taxable-equivalent revenue is a method of presentation in which the tax savings achieved by investing in tax-exempt investment securities and certain leases are included in interest revenue with a corresponding charge to income tax expense. This method facilitates the comparison of the performance of these assets. The adjustments are computed using a federal income tax rate of 35%, adjusted for applicable state income taxes, net of the related federal tax benefit. The fully taxable-equivalent adjustments included in interest revenue presented above were $173 million , $142 million and $124 million for the years ended December 31, 2014 , 2013 and 2012 , respectively, and were substantially related to tax-exempt securities (state and political subdivisions).
(2)  
Non-U.S. noninterest-bearing deposits were $180 million , $714 million and $330 million as of December 31, 2014 , 2013 and 2012 , respectively.
(3)  
Net interest margin is calculated by dividing fully taxable-equivalent net interest revenue by average total interest-earning assets.


193

Table of Contents

The following table summarizes changes in fully taxable-equivalent interest revenue and interest expense due to changes in volume of interest-earning assets and interest-bearing liabilities, and due to changes in interest rates. Changes attributed to both volumes and rates have been allocated based on the proportion of change in each category.
Years Ended December 31,
2014 Compared to 2013
 
2013 Compared to 2012
(In millions; fully
taxable-equivalent basis)
Change in
Volume
 
Change in
Rate
 
Net (Decrease)
Increase
 
Change in
Volume
 
Change in
Rate
 
Net (Decrease)
Increase
Interest revenue related to:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposits with U.S. banks
$
73

 
$
2

 
$
75

 
$
17

 
$
(2
)
 
$
15

Interest-bearing deposits with non-U.S. banks
(19
)
 
15

 
(4
)
 
(29
)
 
(2
)
 
(31
)
Securities purchased under resale agreements
(13
)
 
6

 
(7
)
 
(10
)
 
4

 
(6
)
Trading account assets
—

 
1

 
1

 
—

 
—

 
—

Investment securities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury and federal agencies
(11
)
 
(24
)
 
(35
)
 
(36
)
 
(56
)
 
(92
)
State and political subdivisions
90

 
(77
)
 
13

 
59

 
(6
)
 
53

Other investments
(41
)
 
(49
)
 
(90
)
 
88

 
(309
)
 
(221
)
Loans
37

 
(21
)
 
16

 
46

 
(43
)
 
3

Lease financing
(2
)
 
(1
)
 
(3
)
 
(3
)
 
(1
)
 
(4
)
Other interest-earning assets
2

 
1

 
3

 
2

 
(1
)
 
1

Total interest-earning assets
116

 
(147
)
 
(31
)
 
134

 
(416
)
 
(282
)
Interest expense related to:
 
 
 
 
 
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
 
 
 
 
 
Time
11

 
(2
)
 
9

 
(8
)
 
(2
)
 
(10
)
Savings
5

 
(3
)
 
2

 
6

 
(5
)
 
1

Non-U.S.
7

 
(12
)
 
(5
)
 
18

 
(82
)
 
(64
)
Securities sold under repurchase agreements
—

 
(1
)
 
(1
)
 
—

 
—

 
—

Federal funds purchased
—

 
—

 
—

 
—

 
(1
)
 
(1
)
Other short-term borrowings
6

 
(60
)
 
(54
)
 
(14
)
 
2

 
(12
)
Long-term debt
25

 
(12
)
 
13

 
45

 
(35
)
 
10

Other interest-bearing liabilities
4

 
13

 
17

 
1

 
10

 
11

Total interest-bearing liabilities
58

 
(77
)
 
(19
)
 
48

 
(113
)
 
(65
)
Net interest revenue
$
58

 
$
(70
)
 
$
(12
)
 
$
86

 
$
(303
)
 
$
(217
)


194

Table of Contents

Quarterly Summarized Financial Information (Unaudited)
 
 
2014 Quarters
 
2013 Quarters
(Dollars and shares in millions,
except per share amounts)
Fourth
 
Third
 
Second
 
First
 
Fourth
 
Third
 
Second
 
First
Total fee revenue
$
2,056

 
$
2,012

 
$
2,039

 
$
1,924

 
$
1,879

 
$
1,883

 
$
1,971

 
$
1,857

Interest revenue
676

 
671

 
650

 
655

 
684

 
643

 
700

 
687

Interest expense
102

 
101

 
89

 
100

 
99

 
97

 
104

 
111

Net interest revenue
574

 
570

 
561

 
555

 
585

 
546

 
596

 
576

Gains (losses) related to investment securities, net
—

 
—

 
(2
)
 
6

 
—

 
(4
)
 
(7
)
 
2

Total revenue
2,630

 
2,582

 
2,598

 
2,485

 
2,464

 
2,425

 
2,560

 
2,435

Provision for loan losses
4

 
2

 
2

 
2

 
6

 
—

 
—

 
—

Total expenses
2,057

 
1,892

 
1,850

 
2,028

 
1,846

 
1,722

 
1,798

 
1,826

Income before income tax expense
569

 
688

 
746

 
455

 
612

 
703

 
762

 
609

Income tax expense
77

 
128

 
124

 
92

 
59

 
163

 
183

 
145

Net income
$
492

 
$
560

 
$
622

 
$
363

 
$
553

 
$
540

 
$
579

 
$
464

Net income available to common shareholders
$
473

 
$
542

 
$
602

 
$
356

 
$
545

 
$
531

 
$
571

 
$
455

Earnings per common share (1) :
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     Basic
$
1.14

 
$
1.28

 
$
1.41

 
$
.83

 
$
1.25

 
$
1.20

 
$
1.26

 
$
1.00

     Diluted
1.12

 
1.26

 
1.38

 
.81

 
1.22

 
1.17

 
1.24

 
.98

Average common shares outstanding:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     Basic
417

 
422

 
428

 
431

 
436

 
443

 
452

 
454

     Diluted
424

 
430

 
435

 
439

 
445

 
452

 
461

 
463

     Dividends per common share
$
.30

 
$
.30

 
$
.30

 
$
.26

 
$
.26

 
$
.26

 
$
.26

 
$
.26

Common stock price:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     High
$
80.92

 
$
76.78

 
$
70.20

 
$
76.24

 
$
73.63

 
$
71.27

 
$
68.18

 
$
60.65

     Low
64.21

 
66.42

 
62.67

 
64.21

 
64.25

 
64.92

 
54.57

 
47.71

     Closing
78.50

 
73.61

 
67.26

 
69.55

 
73.39

 
65.75

 
65.21

 
59.09

 
 
 
 
(1)  
Basic earnings per common share for full-year 2014 do not equal the sum of the four quarters for the year. Diluted earnings per common share for full-year 2013 do not equal the sum of the four quarters for the year.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.


ITEM 9A.
CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES; CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
State Street has established and maintains disclosure controls and procedures that are designed to ensure that material information related to State Street and its subsidiaries on a consolidated basis required to be disclosed in its reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to State Street's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. For the quarter ended December 31, 2014 , State Street's management carried out an evaluation, with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of State Street's disclosure controls and procedures. Based on the evaluation of these disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer concluded that State Street's disclosure controls and procedures were effective as of December 31, 2014 .
State Street has also established and maintains internal control over financial reporting as a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated

195

Table of Contents

financial statements for external purposes in conformity with GAAP. In the ordinary course of business, State Street routinely enhances its internal controls and procedures for financial reporting by either upgrading its current systems or implementing new systems. Changes have been made and may be made to State Street's internal controls and procedures for financial reporting as a result of these efforts. During the quarter ended December 31, 2014 , no change occurred in State Street's internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, State Street's internal control over financial reporting.

INTERNAL CONTROL OVER FINANCIAL REPORTING
Management’s Report on Internal Control Over Financial Reporting
The management of State Street is responsible for the preparation and fair presentation of the financial statements and other financial information contained in this Form 10-K. Management is also responsible for establishing and maintaining adequate internal control over financial reporting. Management has designed business processes and internal controls and has also established and is responsible for maintaining a business culture that fosters financial integrity and accurate reporting. To these ends, management maintains a comprehensive system of internal controls intended to provide reasonable assurances regarding the reliability of financial reporting and the preparation of the consolidated financial statements of State Street in conformity with GAAP. State Street's accounting policies and internal control over financial reporting, established and maintained by management, are under the general oversight of State Street's Board of Directors, including the Board's Examining and Audit Committee.
Management has made a comprehensive review, evaluation and assessment of State Street's internal control over financial reporting as of December 31, 2014 . The standard measures adopted by management in making its evaluation are the measures in the Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the “COSO criteria”).
Based on its review and evaluation, management concluded that State Street's internal control over financial reporting was effective as of December 31, 2014 , and that State Street's internal control over financial reporting as of that date had no material weaknesses.
Ernst & Young LLP, an independent registered public accounting firm, which has audited and reported on the consolidated financial statements contained in this Form 10-K, has issued its written attestation report on its assessment of State Street's internal control over financial reporting, which follows this report.


196

Table of Contents

Report of Independent Registered Public Accounting Firm

The Shareholders and Board of Directors of
State Street Corporation

We have audited State Street Corporation’s (the “Corporation”) internal control over financial reporting as of December 31, 2014 , based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the “COSO criteria”). State Street Corporation management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Corporation’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, State Street Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014 , based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statement of condition of State Street Corporation as of December 31, 2014 and 2013 , and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2014 and our report dated February 20, 2015 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP
Boston, Massachusetts
February 20, 2015

197

Table of Contents

ITEM 9B. OTHER INFORMATION
Not applicable.

PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information concerning our directors will appear in our Proxy Statement for the 2015 Annual Meeting of Shareholders, to be filed pursuant to Regulation 14A on or before April 30, 2015, referred to as the 2015 Proxy Statement, under the caption “Election of Directors.” Information concerning compliance with Section 16(a) of the Exchange Act will appear in our 2015 Proxy Statement under the caption “Section 16(a) Beneficial Ownership Reporting Compliance.” Information concerning our Code of Ethics for Senior Financial Officers and our Examining and Audit Committee will appear in our 2015 Proxy Statement under the caption “Corporate Governance at State Street.” Such information is incorporated herein by reference.
Information about our executive officers is included under Part I.
ITEM 11.
EXECUTIVE COMPENSATION
Information in response to this item will appear in our 2015 Proxy Statement under the caption
 
“Executive Compensation.” Such information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information concerning security ownership of certain beneficial owners and management will appear in our 2015 Proxy Statement under the caption “Security Ownership of Certain Beneficial Owners and Management.” Such information is incorporated herein by reference.
RELATED STOCKHOLDER MATTERS
The following table presents the number of outstanding common stock awards, options, warrants and rights granted by State Street to participants in our equity compensation plans, as well as the number of securities available for future issuance under these plans, as of December 31, 2014 . The table provides this information separately for equity compensation plans that have and have not been approved by shareholders. Shares presented in the table and in the footnotes following the table are stated in thousands of shares.

(Shares in thousands)
(a)
Number of securities
to be issued
upon exercise of
outstanding
options,
warrants and rights
 
(b)
Weighted-average
exercise price of
outstanding
options,
warrants and rights (1)
 
(c)
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected
in column (a))
Plan category:
 
 
 
 
 
Equity compensation plans approved by shareholders
15,919

(2)  
$
74.12

 
21,309

Equity compensation plans not approved by shareholders
24

(3)  


 
—

Total
15,943

 


 
21,309

 
 
 
 
 
(1) Excludes deferred stock awards and performance awards for which there is no exercise price.
(2) Consists of 12,431 shares subject to deferred stock awards, 60 shares subject to stock options, 1,801 stock appreciation rights, or SARs, and 1,627 shares subject to performance awards (assuming payout at 100% for all awards regarding which performance is uncertain).
(3) Consists of shares subject to deferred stock awards.
Individual directors who are not our employees have received stock awards and cash retainers, both of which may be deferred. Directors may elect to receive shares of our common stock in place of cash. If payment is in the form of common stock, the number of shares is determined by dividing the approved cash amount by the closing price on the date of the annual shareholders' meeting or date of grant, if different. All deferred shares, whether stock awards or common stock received in place of cash retainers, are increased to reflect dividends paid on the common stock and, for certain directors, may
 
include share amounts in respect of an accrual under a terminated retirement plan. Directors may elect to defer 50% or 100% of cash or stock awards until a date that they specify, usually after termination of service on the Board.  The deferral may also be paid in either a lump sum or in installments over a two- to ten-year period. Stock awards totaling 206,868 shares of common stock were outstanding as of December 31, 2014 ; awards made through June 30, 2003, totaling 23,606 shares outstanding as of December 31, 2014 , have not been approved by shareholders. There are no other equity


198

Table of Contents

compensation plans under which our equity securities are authorized for issuance that have been adopted without shareholder approval. Awards of stock made or retainer shares paid to individual directors after June 30, 2003 have been or will be made under our 1997 or 2006 Equity Incentive Plan, both of which were approved by shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information concerning certain relationships and related transactions and director independence will
 
appear in our 2015 Proxy Statement under the caption “Corporate Governance at State Street.” Such information is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information concerning principal accounting fees and services and the Examining and Audit Committee's pre-approval policies and procedures will appear in our 2015 Proxy Statement under the caption “Examining and Audit Committee Matters.” Such information is incorporated herein by reference.

PART IV
ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(A)(1) FINANCIAL STATEMENTS
The following consolidated financial statements of State Street are included in Item 8 hereof:
Report of Independent Registered Public Accounting Firm
Consolidated Statement of Income - Years ended December 31, 2014 , 2013 and 2012
Consolidated Statement of Comprehensive Income - Years ended December 31, 2014 , 2013 and 2012
Consolidated Statement of Condition - As of December 31, 2014 and 2013
Consolidated Statement of Changes in Shareholders' Equity - Years ended December 31, 2014 , 2013 and 2012
Consolidated Statement of Cash Flows - Years ended December 31, 2014 , 2013 and 2012
Notes to Consolidated Financial Statements
(A)(2) FINANCIAL STATEMENT SCHEDULES
Certain schedules to the consolidated financial statements have been omitted if they were not required by Article 9 of Regulation S-X or if, under the related instructions, they were inapplicable, or the information was contained elsewhere herein.
(A)(3) EXHIBITS
The exhibits listed in the Exhibit Index following the signature page of this Form 10-K are filed herewith or are incorporated herein by reference to other SEC filings.

199


SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, on February 20, 2015 , hereunto duly authorized. 
 
STATE STREET CORPORATION
 
 
 
 
By
/s/ M ICHAEL  W. B ELL
 
 
MICHAEL W. BELL,
 
 
Executive Vice President and
Chief Financial Officer
 
 
 
 
By
/s/ S EAN  P. N EWTH
 
 
SEAN P. NEWTH
 
 
Senior Vice President, Chief Accounting Officer and Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on February 20, 2015 by the following persons on behalf of the registrant and in the capacities indicated.
OFFICERS:
/s/ J OSEPH  L. H OOLEY
 
 
/s/ M ICHAEL  W. B ELL
JOSEPH L. HOOLEY,
 
 
MICHAEL W. BELL,
Chairman and Chief Executive Officer; Director
 
 
Executive Vice President and
Chief Financial Officer
 
 
 
 
 
 
 
/s/ S EAN  P. N EWTH
 
 
 
SEAN P. NEWTH
 
 
 
Senior Vice President, Chief Accounting Officer and Controller

DIRECTORS:
/s/ J OSEPH  L. H OOLEY
 
 
 
JOSEPH L. HOOLEY
 
 
 
 
 
 
 
/s/ J OSE  E. A LMEIDA
 
 
/s/ L INDA  A. H ILL
JOSE E. ALMEIDA
 
 
LINDA A. HILL
 
 
 
 
/s/ K ENNETT  F. B URNES
 
 
/s/ R OBERT  S. K APLAN
KENNETT F. BURNES
 
 
ROBERT S. KAPLAN
 
 
 
 
/s/ P ETER  C OYM
 
 
/s/ R ICHARD  P. S ERGEL
PETER COYM
 
 
RICHARD P. SERGEL
 
 
 
 
/s/ P ATRICK   de  S AINT -A IGNAN
 
 
/s/ R ONALD  L. S KATES
PATRICK de SAINT-AIGNAN
 
 
RONALD L. SKATES
 
 
 
 
/s/ A MELIA  C. F AWCETT
 
 
/s/ G REGORY  L. S UMME
AMELIA C. FAWCETT
 
 
GREGORY L. SUMME
 
 
 
 
/s/ W ILLIAM  C. F REDA
 
 
/s/ T HOMAS  J. W ILSON
WILLIAM C. FREDA
 
 
THOMAS J. WILSON


200

Table of Contents

EXHIBIT INDEX
 
3.1
 
Restated Articles of Organization, as amended
 
 
 
 
3.2
 
By-Laws, as amended
 
 
 
 
4.1
 
The description of State Street’s Common Stock is included in State Street’s Registration Statement on Form 8-A (File No. 001-07511), as filed on January 18, 1995 and March 7, 1995 (filed with the SEC on January 18, 1995 and March 7, 1995 and incorporated herein by reference)
 
 
 
 
 
4.2
 
Deposit Agreement, dated August 21, 2012, among State Street Corporation, American Stock Transfer & Trust Company, LLC (as depositary), and the holders from time to time of depositary receipts (filed as Exhibit 4.1 to State Street's Current Report on Form 8-K (File No. 001-07511) filed with the SEC on August 21, 2012 and incorporated herein by reference)
 
 
 
 
4.3
 
Deposit Agreement, dated March 4, 2014, among State Street Corporation, American Stock Transfer & Trust Company, LLC (as depositary), and the holders from time to time of depositary receipts (filed as Exhibit 4.1 to State Street's Current Report on Form 8-K (File No. 001-07511) dated March 4, 2014 filed with the SEC on March 4, 2014 and incorporated herein by reference)
 
 
 
 
 
4.4
 
Deposit Agreement, dated November 25, 2014, among State Street Corporation, American Stock Transfer & Trust Company, LLC (as depositary) and the holders from time to time of depositary receipts (filed as Exhibit 4.1 to State Street's Current Report on Form 8-K (File No. 001-07511) dated November 25, 2014 filed with the SEC on November 25, 2014 and incorporated herein by reference)
 
 
 
(Note: None of the instruments defining the rights of holders of State Street’s outstanding long-term debt are in respect of indebtedness in excess of 10% of the total assets of State Street and its subsidiaries on a consolidated basis. State Street hereby agrees to furnish to the SEC upon request a copy of any other instrument with respect to long-term debt of State Street and its subsidiaries.)
 
 
 
 
10.1†
 
State Street's Management Supplemental Retirement Plan Amended and Restated, as amended (filed as Exhibit 10.1 to State Street's Annual Report on Form 10-K (File No. 001-07511) for the year ended December 31, 2012 filed with the SEC on February 22, 2013 and incorporated herein by reference)
 
 
 
 
10.2†
 
State Street's Executive Supplemental Retirement Plan (formerly “State Street Supplemental Defined Benefit Pension Plan for Executive Officers”) Amended and Restated, as amended
 
 
 
 
10.3†
 
Supplemental Cash Incentive Plan, as amended, and form of award and agreement thereunder
 
 
 
 
10.4†
 
Form of Amended and Restated Employment Agreement entered into with each of Joseph L. Hooley, Joseph C. Antonellis, James S. Phalen and Michael Rogers (filed as Exhibit 10.3 to State Street's Annual Report on Form 10-K (File No. 001-07511) for the year ended December 31, 2009 filed with the SEC on February 22, 2010 and incorporated herein by reference) and Form of Amendment dated March 26, 2014 to Employment Agreement (filed as Exhibit 99.1 to State Street's Current Report on Form 8-K (File No. 001-07511) dated March 26, 2014 filed with the SEC on March 31, 2014 and incorporated herein by reference)
 
 
 
 
10.5†
 
Employment Agreement entered into with Michael W. Bell dated June 17, 2013 (filed as Exhibit 10.5 to State Street's Annual Report on Form 10-K (File No. 001-07511) for the year ended December 31, 2013 filed with the SEC on February 21, 2014 and incorporated herein by reference) and Form of Amendment dated March 26, 2014 to Employment Agreement (filed as Exhibit 99.1 to State Street's Current Report on Form 8-K (File No. 001-07511) dated March 26, 2014 filed with the SEC on March 31, 2014 and incorporated herein by reference)
 
 
 
 
 
10.6†
 
State Street’s Executive Compensation Trust Agreement dated December 6, 1996 (Rabbi Trust) (filed as Exhibit 10.5 to State Street's Annual Report on Form 10-K (File No. 001-07511) for the year ended December 31, 2008 filed with the SEC on February 27, 2009 and incorporated herein by reference)
 
 
 
 
10.7†
 
State Street’s 1997 Equity Incentive Plan, as amended, and forms of award agreements thereunder (filed as Exhibit 10.6 to State Street's Annual Report on Form 10-K (File No. 001-07511) for the year ended December 31, 2008 filed with the SEC on February 27, 2009 and incorporated herein by reference)
 
 
 
 
10.8†
 
State Street’s 2006 Equity Incentive Plan, as amended, and forms of award agreements thereunder

201

Table of Contents

 
 
 
 
10.9
 
[Reserved]
 
 
 
 
10.10†
 
State Street’s Management Supplemental Savings Plan, Amended and Restated, as amended(filed as Exhibit 10.1 to State Street's Quarterly Report on Form 10-Q (File No. 001-07511) for the quarter ended September 30, 2014 filed with the SEC on November 10, 2014 and incorporated herein by reference)
 
 
 
 
 
10.11†
 
Deferred Compensation Plan for Directors of State Street Corporation, Restated January 1, 2008, as amended (filed as Exhibit 10.11 to State Street's Annual Report on Form 10-K (File No. 001-07511) for the year ended December 31, 2012 filed with the SEC on February 22, 2013 and incorporated herein by reference)
 
 
 
 
 
10.12†
 
Deferred Compensation Plan for Directors of State Street Corporation, Restated January 1, 2007, as amended (filed as Exhibit 10.12 to State Street's Annual Report on Form 10-K (File No. 001-07511) for the year ended December 31, 2011 filed with the SEC on February 27, 2012 and incorporated herein by reference)
 
 
 
 
 
10.13†
 
Description of compensation arrangements for non-employee directors
 
 
 
 
 
10.14
 
[Reserved]
 
 
 
 
 
10.15†
 
Letter Agreement with Joseph C. Antonellis dated April 26, 2010 (filed as Exhibit 10.16 to State Street's Annual Report on Form 10-K (File No. 001-07511) for the year ended December 31, 2010 filed with the SEC on February 28, 2011 and incorporated herein by reference)
 
 
 
 
 
10.16†
 
Letter Agreement with Michael W. Bell dated May 23, 2013 (filed as Exhibit 10.1 to State Street's Quarterly Report on Form 10-Q (File No. 001-07511) for the quarter ended June 30, 2013 filed with the SEC on August 6, 2013 and incorporated herein by reference)
 
 
 
 
 
10.17A†
 
Form of Indemnification Agreement between State Street Corporation and each of its directors (filed as Exhibit 10.18A to State Street's Annual Report on Form 10-K (File No. 001-07511) for the year ended December 31, 2013 filed with the SEC on February 21, 2014 and incorporated herein by reference)
 
 
 
 
 
10.17B†
 
Form of Indemnification Agreement between State Street Corporation and each of its executive officers (filed as Exhibit 10.18B to State Street's Annual Report on Form 10-K (File No. 001-07511) for the year ended December 31, 2013 filed with the SEC on February 21, 2014 and incorporated herein by reference)
 
 
 
 
 
10.17C†
 
Form of Indemnification Agreement between State Street Bank and Trust Company and each of its directors (filed as Exhibit 10.18C to State Street's Annual Report on Form 10-K (File No. 001-07511) for the year ended December 31, 2013 filed with the SEC on February 21, 2014 and incorporated herein by reference)
 
 
 
 
 
10.17D†
 
Form of Indemnification Agreement between State Street Bank and Trust Company and each of its executive officers (filed as Exhibit 10.18D to State Street's Annual Report on Form 10-K (File No. 001-07511) for the year ended December 31, 2013 filed with the SEC on February 21, 2014 and incorporated herein by reference)
 
 
 
 
 
 
 
 
 
10.18†
 
2011 Senior Executive Annual Incentive Plan (filed as Exhibit 99.2 to State Street's Current Report on Form 8-K (File No. 001-07511) filed with the SEC on May 24, 2011 and incorporated herein by reference)
 
 
 
 
 
12
 
Statement of Ratios of Earnings to Fixed Charges
 
 
 
 
 
21
 
Subsidiaries of State Street Corporation
 
 
 
 
 
23
 
Consent of Independent Registered Public Accounting Firm
 
 
 
 
 
31.1
 
Rule 13a-14(a)/15d-14(a) Certification of Chairman, President and Chief Executive Officer
 
 
 
 
 
31.2
 
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
 
 
 
 
 
32
 
Section 1350 Certifications
 
 
 
 
*
101.INS
 
XBRL Instance Document
 
 
 
 
*
101.SCH
 
XBRL Taxonomy Extension Schema Document
 
 
 
 

202

Table of Contents

*
101.CAL
 
XBRL Taxonomy Calculation Linkbase Document
 
 
 
 
*
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
 
*
101.LAB
 
XBRL Taxonomy Label Linkbase Document
 
 
 
 
*
101.PRE
 
XBRL Taxonomy Presentation Linkbase Document
 
 
 
 
†
 
Denotes management contract or compensatory plan or arrangement
*
 
Submitted electronically herewith
Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) consolidated statement of income for the years ended December 31, 2014 , 2013 and 2012, (ii) consolidated statement of comprehensive income for the years ended December 31, 2014 , 2013 and 2012, (iii) consolidated statement of condition as of December 31, 2014 and December 31, 2013 , (iv) consolidated statement of changes in shareholders' equity for the years ended December 31, 2014 , 2013 and 2012, (v) consolidated statement of cash flows for the years ended December 31, 2014 , 2013 and 2012, and (vi) notes to consolidated financial statements.


203



Exhibit 3.1
RESTATED ARTICLES OF ORGANIZATION OF REGISTRANT, AS AMENDED
The Commonwealth of Massachusetts
JOHN F. X. DAVOREN
Secretary of the Commonwealth
STATE HOUSE, BOSTON, MASS.
RESTATED ARTICLES OF ORGANIZATION
General Laws, Chapter 156B, Section 74
This certificate must be submitted to the Secretary of the Commonwealth within sixty days after the date of the vote of stockholders adopting the restated articles of organization. The fee for filing this certificate is prescribed by General Laws, Chapter 156B, Section 114. Make check payable to the Commonwealth of Massachusetts.
 
 
 
We, George B. Rockwell
 
, President/and
Winthrop B. Walker
 
, Clerk of
State Street Boston Financial Corporation
(Name of Corporation)
located at 225 Franklin Street, Boston, Massachusetts 02101 do hereby certify that the following restatement of the articles of organization of the corporation was duly adopted on June 11, 1970, by written consent of the holder of
 
 
 
 
 
 
 
 
 
 
 
100
 
shares of
 
Common Stock
 
out of
 
100
 
shares outstanding,
 
 
 
 
(Class of Stock)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
shares of
 
 
 
out of
 
 
 
shares outstanding, and
 
 
 
 
(Class of Stock)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
shares of
 
 
 
out of
 
 
 
shares outstanding,
 
 
 
 
(Class of Stock)
 
 
 
 
 
 
being all of the stock outstanding and entitled to vote and of each class or series of stock adversely affected thereby:-
1. The name by which the corporation shall be known is:- State Street Boston Financial Corporation
2. The purposes for which the corporation is formed are as follows:- See Continuation Sheet 2A.
Note:
Provisions for which the space provided under articles 2, 4, 5, and 6 is not sufficient should be set out on continuation sheets to be numbered 2A, 2B, etc. Indicate under each article where the provision is set out. Continuation sheets shall be on 8 1 / 2 ” wide × 11” high paper and must have a left-hand margin 1 inch wide for binding. Only one side should be used.
3. The total number of shares and the par value, if any, of each class of stock which the corporation is authorized to issue is as follows:




 
 
 
 
 
 
 
CLASS OF STOCK
 
WITHOUT PAR VALUE
NUMBER OF SHARES
 
WITH PAR VALUE
 
 
NUMBER OF
SHARES
 
PAR VALUE
Preferred
 
700,000

 
0
 
—

 
 
 
 
 
 
Common
 
0

 
3,500,000

 
$
10


*4. If more than one class is authorized, a description of each of the different classes of stock with, if any, the preferences, voting powers, qualifications, special or relative rights or privileges as to each class thereof and any series now established:
See Continuation Sheet 4A
*5. The restrictions, if any, imposed by the articles of organization upon the transfer of shares of stock of any class are as follows:
None
*6. Other lawful provision, if any, for the conduct and regulation of the business and affairs of the corporation, for its voluntary dissolution, or for limiting, defining, or regulating the powers of the corporation, or of its directors or stockholders, or of any class of stockholders:
See Continuation Sheets 6A, 6B, and 6C.
*
If there are no such provisions, state “None”.
CONTINUATION SHEET 2A
To acquire, hold, dispose of and otherwise deal in and with securities (including but not limited to stocks, shares, evidences of beneficial interest, evidences of indebtedness and evidences of any right to subscribe for or purchase or sell any thereof), and any interest therein, issued or created by or evidencing or representing any interest in any one or more banks, trust companies, other corporations, associations, trusts, firms, partnerships, governments, governmental or political units, instrumentalities, subdivisions, agencies or authorities, or other organizations, persons or entities, public or private; and
To engage in any other lawful business or activity in which a corporation organized under the Business Corporation Law of Massachusetts is permitted to engage.
CONTINUATION SHEET 4A
The board of directors is authorized, subject to the limitations prescribed by law and these articles, to divide the Preferred Stock into two or more series and to establish and designate each series and fix and determine the variations in the relative rights and preferences as between the different series, provided that all shares of the Preferred Stock shall be identical except that there may be variations fixed and so determined between different series as to:
(a) The number of shares constituting each series and the distinctive designation of that series;
(b) Whether or not the shares of any series shall be redeemable and, if redeemable, the price (which may vary under different conditions and at different redemption dates), the terms and the manner of redemption, including the date or dates on or after which they shall be redeemable;
(c) The dividend rate on the shares of each series, the conditions and dates upon which dividends thereon shall be payable, the extent, if any, to which dividends thereon shall be cumulative, and the relative rights of preference, if any, of payment of dividends thereon;
(d) The rights of each series on liquidation, voluntary or involuntary, including dissolution or winding up of the corporation;
(e) The sinking fund or purchase fund provisions, if any, applicable to each series, including without limitation the annual amount thereof and the terms relating thereto;




(f) The conversion rights, if any, of each series, including the terms and conditions of conversion, which terms and conditions may contain provisions for adjustment of the conversion rate in such events as the board of directors shall determine; and
(g) The conditions under which each series shall have separate voting rights or no voting rights, in addition to the voting rights provided by law.
CONTINUATION SHEET 6A
By-laws
The board of directors is authorized to make, amend or repeal the by-laws of the corporation in whole or in part, except with respect to any provision thereof which by law, by these articles of organization or by the by-laws requires action by the stockholders.
Place of Meetings of the Stockholders
Meetings of the stockholders may be held anywhere in the United States.
Partnership
The corporation may be a partner in any business enterprise which the corporation would have power to conduct by itself.
Indemnification of Directors, Officers and Others
The corporation shall indemnify each person who is or was a director, officer, employee or other agent of the corporation, and each person who is or was serving at the request of the corporation as a director, trustee, officer, employee or other agent of another organization in which it directly or indirectly owns shares or of which it is directly or indirectly a creditor, against all liabilities, costs and expenses, including but not limited to amounts paid in satisfaction of judgments, in settlement or as fines and penalties, and counsel fees and disbursements, reasonably incurred by him in connection with the defense or disposition of or otherwise in connection with or resulting from any action, suit or other proceeding, whether civil, criminal, administrative or investigative, before any court or administrative or legislative or investigative body, in which he may be or may have been involved as a party or otherwise or with which he may be or may have been threatened, while in office or thereafter, by reason of his being or having been such a director, officer, employee, agent or trustee, or by reason of any action taken or not taken in any such capacity, except with respect to any matter as to which he shall have been finally adjudicated by a court of competent jurisdiction not to have acted in good faith in the reasonable belief that his action
CONTINUATION SHEET 6B
was in the best interests of the corporation. Expenses, including but not limited to counsel fees and disbursements, so incurred by any such person in defending any such action, suit or proceeding, may be paid from time to time by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the person indemnified to repay the amounts so paid if it shall ultimately be determined that indemnification of such expenses is not authorized hereunder.
As to any matter disposed of by settlement by any such person, pursuant to a consent decree or otherwise, no such indemnification either for the amount of such settlement or for any other expenses shall be provided unless such settlement shall be approved as in the best interests of the corporation, after notice that it involves such indemnification, (a) by vote of a majority of the disinterested directors then in office (even though the disinterested directors be less than a quorum), or (b) by any disinterested person or persons to whom the question may be referred by vote of a majority of such disinterested directors, or (c) by vote of the holders of a majority of the outstanding stock at the time entitled to vote for directors, voting as a single class, exclusive of any stock owned by any interested person, or (d) by any disinterested person or persons to whom the question may be referred by vote of the holders of a majority of such stock. No such approval shall prevent the recovery from any such officer, director, employee, agent or trustee of any amounts paid to him or on his behalf as indemnification in accordance by a court of competent jurisdiction not to have acted in good faith in the reasonable belief that his action was in the best interests of the corporation.




The right of indemnification hereby provided shall not be exclusive of or affect any other rights to which any director, officer, employee, agent or trustee may be entitled or which may lawfully be granted to him. As used herein, the terms “director”, “officer”, “employee”, “agent” and “trustee” include their respective executors, administrators and other legal representatives, an “interested” person is one against whom the action, suit or other proceeding in question or another action, suit or other proceeding on the same or similar grounds is then or had been pending or threatened, and a “disinterested” person is a person against whom no such action, suit or other proceeding is then or had been pending or threatened.
By action of the board of directors, notwithstanding any interest of the directors in such action, the corporation may purchase and maintain insurance, in such amounts as the board of directors may from time to time deem appropriate, on behalf of any person who is or was a director, officer, employee or other agent of the
CONTINUATION SHEET 6C
corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee or other agent of another organization in which it directly or indirectly owns shares or of which it is directly or indirectly a creditor, against any liability incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability.
Intercompany Transactions
No contract or transaction between the corporation and one or more of its directors or officers, or between the corporation and any other organization of which one or more of its directors or officers are directors, trustees or officers, or in which any of them has any financial or other interest, shall be void or voidable, or in any way affected, solely for this reason, or solely because the director or officer is present at or participates in the meeting of the board of directors or committee thereof which authorizes, approves or ratifies the contract or transaction, or solely because his or their votes are counted for such purpose, if:
(a) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the board of directors or the committee which authorizes, approves or ratifies the contract or transaction, and the board or committee in good faith authorizes, approves or ratifies the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or
(b) The material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically authorized, approved or ratified in good faith by vote of the stockholders; or
(c) The contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified by the board of directors, a committee thereof, or the stockholders.
Common or interested directors may be counted in determining the presence of a quorum at a meeting of the board of directors or of a committee thereof which authorizes, approves or ratifies the contract or transaction. No director or officer of the corporation shall be liable or accountable to the corporation or to any of its stockholders or creditors or to any other person, either for any loss to the corporation or to any other person or for any gains or profits realized by such director or officer, by reason of any contract or transaction as to which clauses (a), (b) or (c) above are applicable.
*We further certify that the foregoing restated articles of organization effect no amendments to the articles of organization of the corporation as heretofore amended, except amendments to the following articles 3 and 4
(*If there are no such amendments, state “None”.)
Article Three is amended by increasing the authorized capital stock of this corporation by
(a) 3,485,000 shares of Common Stock, $10 par value, to a total of 3,500,000 shares; and
(b) 700,000 shares of Preferred Stock, without par value.
Article Four is amended by the addition of provisions authorizing the Board of Directors to divide the Preferred Stock into two or more series and to establish and designate each series and fix and determine the variations in the relative rights and preferences as between the different series.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have signed our names
this 11th day of June in the year 1970.




 
 
 
 
 
 
 
 
 
 
 
/s/ GEORGE B. ROCKWELL
 
 
 
President
 
 
 
 
 
 
 
 
 
/s/ WINTHROP B. WALKER
 
 
 
Clerk
 
 
THE COMMONWEALTH OF MASSACHUSETTS
RESTATED ARTICLES OF ORGANIZATION
(General Laws, Chapter 156B, Section 74)
I hereby approve the within restated articles of organization and, the filing fee in the amount of $24,550.00 having been paid, said articles are deemed to have been filed with me this 15th day of June, 1970.
 
/s/ JOHN F.X. DAVOREN
Secretary of the Commonwealth
State House, Boston, Mass.
[STAMP]
TO BE FILLED IN BY CORPORATION
PHOTO COPY OF RESTATED ARTICLES OF ORGANIZATION TO BE SENT

TO:
Jerome E. Andrews, Jr., Esq.
Choate, Hall & Stewart
28 State Street
Boston, Massachusetts 02109
Tel: 227-5020
Copy Mailed MON 7.8.70
The Commonwealth of Massachusetts
Secretary of the Commonwealth
STATE HOUSE, BOSTON, MASS.
02133
ARTICLES OF AMENDMENT
General Laws, Chapter 156B, Section 72
This certificate must be submitted to the Secretary of the Commonwealth within sixty days after the date of the vote of stockholders adopting the amendment. The fee for filing this certificate is prescribed by General Laws, Chapter 156B, Section 114. Make check payable to the Commonwealth of Massachusetts.
 
 
 
 
 
 
 
 
We,
 
Peter S. Maher
 
 
 
Senior Vice President, and
 
 
 
Dean W. Harrison
 
 
 
Clerk of
 
STATE STREET BOSTON FINANCIAL CORPORATION




(Name of Corporation)
located at 225 Franklin Street, Boston, Massachusetts 02101 do hereby certify that the following amendment to the articles of organization of the corporation was duly adopted at a meeting held on April 20, 1977, by vote of
 
 
 
 
 
 
 
 
 
 
 
1,664,380
 
shares of
 
Common
 
out of
 
2,280,323
 
shares outstanding,
 
 
 
 
(Class of Stock)
 
 
 
 
 
 
 
 
shares of
 
 
 
out of
 
 
 
shares outstanding, and
 
 
 
 
(Class of Stock)
 
 
 
 
 
 
 
 
shares of
 
 
 
out of
 
 
 
shares outstanding, and
 
 
 
 
(Class of Stock)
 
 
 
 
 
 
being at least a majority of each class outstanding and entitled to vote thereon
For amendments adopted pursuant to Chapter 156B. Section 70
For amendments adopted pursuant to Chapter 156B. Section 71
NOTE: Amendment for which the space provided above is not sufficient should be set out on continuation sheets to be numbered 2A, 2B, etc. Continuation sheets shall be an 8 1 / 2 ” wide × 11” high paper and must have a left-hand margin 1 inch wide for binding. Only one side should be used.
VOTED: to change the name of the STATE STREET BOSTON FINANCIAL CORPORATION to STATE STREET BOSTON CORPORATION.
CONSENT
On April 20, 1977, the stockholders of State Street Boston Financial Corporation voted to change the name of said corporation to State Street Boston Corporation.

The undersigned hereby consent to said corporation’s change of name to State Street Boston Corporation.




 
 
 
 
 
 
 
 
 
 
 
STATE STREET BOSTON LEASING COMPANY, INC. 225 Franklin Street
Boston, Massachusetts 02101
 
 
 
 
Date 4/20/77
 
 
 
By
 
/s/ [ILLEGIBLE] EXECUTIVE VICE PRESIDENT
 
 
 
 
Its
 
SENIOR MANAGER
 
 
 
 
 
 
 
STATE STREET BOSTON CREDIT COMPANY, INC.
225 Franklin Street
Boston, Massachusetts 02101
 
 
 
 
Date 4/20/77
 
 
 
By
 
/s/ PETER S MAHER
 
 
 
 
Its
 
General Manager
 
 
 
 
 
 
 
STATE STREET BOSTON SECURITIES SERVICES CORP.
40 Exchange Place
New York, New York
 
 
 
 
Date 4/20/77
 
 
 
By
 
/s/ [ILLEGIBLE]
 
 
 
 
Its
 
President
The foregoing amendment will become effective when these articles of amendment are filed in accordance with Chapter 156B, Section 6 of the General Laws unless these articles specify, in accordance with the vote adopting the amendment, a later effective date not more than thirty days after such filing, in which event the amendment will become effective on such later date.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our names this twentieth day of April, in the year 1977
 
 
 
/s/ PETER S. MAHER
 
Senior Vice President
 
 
/s/ DEAN W. HARRISON
 
Clerk





THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
I hereby approve the within articles of amendment and, the filing fee in the amount of $50.00 having been paid, said articles are deemed to have been filed with me this 3rd day of May, 1977.
 
 
 
 
 
[STAMP]
 
 
 
/s/ PAUL GUZZI
 
 
 
 
Secretary of the Commonwealth
State House, Boston, Mass.
TO BE FILLED IN BY CORPORATION
PHOTO COPY OF AMENDMENT TO BE SENT
TO:
Paul F. Lorenz
State Street Bank & Trust Co.
225 Franklin Street
Boston, MA 02101
Copy Mailed MAY 6 1977
 
 
 
The Commonwealth of Massachusetts
 
 
 
 
MICHAEL JOSEPH CONNOLLY
Secretary of State
ASHBURTON PLACE, BOSTON, MASS. 02108
ARTICLES OF AMENDMENT
General Laws, Chapter 156B, Section 72
 
FEDERAL INDENTIFICATION
No. 04-2456637
This certificate must be submitted to the Secretary of the Commonwealth within sixty days after the date of the vote of stockholders adopting the amendment. The fee for filing this certificate is prescribed by General Laws, Chapter 156B, Section 114. Make check payable to the Commonwealth of Massachusetts.
 
 
 
 
 
We,
 
Robert J. Malley
 
Senior Vice President, and
 
 
Christoph H. Schmidt
 
Clerk of
State Street Boston Corporation
(Name of Corporation)
located at 225 Franklin Street, Boston, Massachusetts 02110 do hereby certify that the following amendments to the articles of organization of the corporation were duly adopted at a meeting held on April 21, 1982, by vote of




 
 
 
 
 
 
 
 
 
 
 
1,315,382
 
shares of
 
Common Stock
 
out of
 
2,111,476
 
shares outstanding, on Vote 1
 
 
 
 
(Class of Stock)
 
 
 
 
 
 
1,089,224
 
shares of
 
Common Stock
 
out of
 
2,111,476
 
shares outstanding, on Vote 2 and
 
 
 
 
(Class of Stock)
 
 
 
 
 
 
 
 
shares of
 
 
 
out of
 
 
 
shares outstanding.
 
 
 
 
(Class of Stock)
 
 
 
 
 
 
being at least a majority of each class outstanding and entitled to vote thereon:- /1/

 
 
 
(Vote 1)
 
VOTED: That Article 3 of the Articles of Organization of this Corporation is hereby amended to increase the number of authorized shares of Common Stock, $10 par value, of the Corporation from 3,500,000 to 7,000,000; and that the Board of Directors be and it hereby is authorized to issue any and all of the authorized but unissued shares of the Common Stock, $10 par value, of this Corporation at such time or times, to such persons, and for such lawful consideration, including cash, tangible or intangible property, services or expenses, or as stock dividends, as may be determined from time to time by the Board of Directors.
For amendments adopted pursuant to Chapter 156B, Section 70
For amendments adopted pursuant to Chapter 156B, Section 71
Note: If the space provided under any Amendment or item on this form is insufficient, additions shall be set forth on separate 8 1 / 2 × 11 sheets of paper leaving a left hand margin of at least 1 inch for binding. Additions to more than one Amendment may be continued on a single sheet so long as each Amendment requiring each such addition is clearly indicated.
FOR INCREASE IN CAPITAL FILL IN THE FOLLOWING:




 
 
 
 
 
The total amount of capital stock already authorized is
 
 
 
 
 
 
 
 
 
(-0- shares preferred)
 
 
 
 
 
 
with par value
 
 
(3,500,000 shares common)
 
 
 
 
 
 
 
(700,000 shares preferred)
 
 
 
 
 
 
without par value
 
 
(-0- shares common)
 
 
 
 
 
The amount of additional capital stock authorized is
 
 
 
 
 
 
 
 
 
(-0- shares preferred)
 
 
 
 
 
 
with par value
 
 
(3,500,000 shares common)
 
 
 
 
 
 
 
(2,800,000 shares preferred)
 
 
 
 
 
 
without par value
 
 
(-0- shares common)
 
 

 
 
 
(Vote 2)
 
VOTED: That Article 3 of the Articles of Organization of this Corporation is hereby amended to increase the number of authorized shares of Preferred Stock, no par value, of the Corporation from 700,000 to 3,500,000; and that the Board of Directors be and it hereby is authorized to issue any and all of the authorized but unissued shares of the Preferred Stock, no par value, of this Corporation at such time or times, to such persons, and for such lawful consideration, including cash, tangible or intangible property, services or expenses, or as stock dividends, as may be determined from time to time by the Board of Directors.
The foregoing amendments will become effective when these articles of amendment are filed in accordance with Chapter 156B, Section 6 of The General Laws unless these articles specify, in accordance with the vote adopting the amendment, a later effective date not more than thirty days after such filing, in which event the amendment will become effective on such later date.

IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our names this eleventh day of May, in the year 1982
 
 
 
/s/ ROBERT J. MALLEY
 
Senior Vice President
 
 
/s/ CHRISTOPHER H. SCHMIDT
 
Clerk






THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
I hereby approve the within articles of amendment and the filing fee in the amount of $45,500.00 having been paid, said articles are deemed to have been filed with me this 12th day of May, 1982.
 
 
 
 
 
[stamp]
 
/s/ MICHAEL JOSEPH CONNOLLY
 
 
 
 
MICHAEL JOSEPH CONNOLLY
 
 
 
 
Secretary of State
 
 
TO BE FILLED IN BY CORPORATION
PHOTO COPY OF AMENDMENT TO BE SENT
TO
Mr. Robert J. Malley, S.V.P.
State Street Boston Corp.
225 Franklin Street-4th Floor
Boston, MA 02101
Telephone: (617) 786-3104
Copy Mailed MAY 19 1982
 
 
 
The Commonwealth of Massachusetts
MICHAEL JOSEPH CONNOLLY
Secretary of State
ONE ASHBURTON PLACE, BOSTON, MASS. 02108
ARTICLES OF AMENDMENT
General Laws, Chapter 156B, Section 72
 
FEDERAL IDENTIFICATION
NO. 04-2456637
This certificate must be submitted to the Secretary of the Commonwealth within sixty days after the date of the vote of stockholders adopting the amendment. The fee for filing this certificate is prescribed by General Laws, Chapter 156B, Section 114. Make check payable to the Commonwealth of Massachusetts.
 
 
 
 
 
We,
 
William S. Edgerly
 
President, and
 
 
Robert J. Malley
 
Secretary of
State Street Boston Corporation
(Name of Corporation)





located at 225 Franklin Street, Boston, Massachusetts 02110 do hereby certify that the following amendments to the articles of organization of the corporation were duly adopted at a meeting held on April 20, 1983, by vote of Common Stock
 
 
 
 
 
 
 
 
 
 
 
3,223,000
 
shares of
 
$10.00 par value
 
out of
 
4,311,465
 
shares outstanding,
 
 
 
 
(Class of Stock)
 
 
 
 
 
 
 
 
shares of
 
 
 
out of
 
 
 
shares outstanding, and
 
 
 
 
(Class of Stock)
 
 
 
 
 
 
 
 
shares of
 
 
 
out of
 
 
 
shares outstanding.
 
 
 
 
(Class of Stock)
 
 
 
 
 
 
being at least a majority of each class outstanding and entitled to vote thereon:-/1/
VOTED:
That Article 3 of the Corporation’s Articles of Organization be amended to change the authorized common stock from 7,000,000 shares having a par value of $10.00 per share to 14,000,000 shares having a par value of $1.00 per share; and that the Board of Directors be and it hereby is authorized to issue any and all of the authorized but unissued shares of the Common Stock, $1 par value, of this Corporation at such time or times, to such persons, and for such lawful consideration, including cash, tangible or intangible property, services or expenses, or as such stock dividends, as may be determined from time to time by the Board of Directors.”
For amendments adopted pursuant to Chapter 156B, Section 70
For amendments adopted pursuant to Chapter 156B, Section 71
Note: If the space provided under any Amendment or item on this form is insufficient, additions shall be set forth on separate 8 1 / 2 × 11 sheets of paper leaving a left hand margin of at least 1 inch for binding. Additions to more than one Amendment may be continued on a single sheet so long as each Amendment requiring each such addition is clearly indicated.
FOR INCREASE IN CAPITAL FILL IN THE FOLLOWING:




 
 
 
 
 
The total amount of capital stock already authorized is
 
 
 
 
 
 
 
 
 
( shares preferred)
 
 
 
 
 
 
with par value
 
 
( shares common)
 
 
 
 
( shares preferred)
 
 
 
 
 
 
without par value
 
 
( shares common)
 
 
 
 
 
The amount of additional capital stock authorized is
 
 
 
 
 
 
 
 
 
( shares preferred)
 
 
 
 
 
 
with par value
 
 
( shares common)
 
 
 
 
( shares preferred)
 
 
 
 
 
 
without par value
 
 
( shares common)
 
 
 
 
 
 
 

The foregoing amendment will become effective when these articles of amendment are filed in accordance with Chapter 156B, Section 6 of the General Laws unless these articles specify, in accordance with the vote adopting the amendment, a later effective date not more than thirty days after such filing, in which event the amendment will become effective on such later date.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our names this 21 st day of April, in the year 1983.
 
 
 
/s/ WILLIAM S. EDGERLY
 
President
 
 
/s/ ROBERT J. MALLEY
 
Secretary


THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
I hereby approve the within articles of amendment and the filing fee in the amount of $75.00 having been paid, said articles are deemed to have been filed with me this 22 nd day of April, 1983.




 
 
 
 
 
[stamp]
 
/s/ MICHAEL JOSEPH CONNOLLY
 
 
 
 
MICHAEL JOSEPH CONNOLLY
 
 
 
 
Secretary of State
 
 
TO BE FILLED IN BY CORPORATION
PHOTO COPY OF AMENDMENT TO BE SENT
TO
Mr. Robert J. Malley, S.V.P.
State Street Boston Corporation
225 Franklin Street
Boston, MA 02101
Telephone: (617) 786-3104
Copy Mailed APR 28 1983
 
 
 
The Commonwealth of Massachusetts
OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
MICHAEL JOSEPH CONNOLLY, Secretary
ONE ASHBURTON PLACE, BOSTON, MASS. 02108
ARTICLES OF AMENDMENT
General Laws, Chapter 156B, Section 72
 
FEDERAL IDENTIFICATION
No. 04-2456637
This certificate must be submitted to the Secretary of the Commonwealth within sixty days after the date of the vote of stockholders adopting the amendment. The fee for filing this certificate is prescribed by General Laws, Chapter 156B, Section 114. Make check payable to the Commonwealth of Massachusetts.
 
 
 
 
 
We,
 
William S. Edgerly
 
 
 
 
Robert J. Malley
 
 
STATE STREET BOSTON CORPORATION
(Name of Corporation)
located at 225 Franklin Street, Boston, Massachusetts 02101 do hereby certify that the following amendment to the articles of organization of the Corporation was duly adopted at a meeting held on April 17, 1985, by vote of




 
 
 
 
 
 
 
 
 
 
 
6,669,209
 
shares of
 
Common Stock
 
out of
 
8,241,453
 
shares outstanding.
 
 
 
 
$1 par (Class of Stock)
 
 
 
 
 
 
 
 
shares of
 
 
 
out of
 
 
 
shares outstanding, and
 
 
 
 
(Class of Stock)
 
 
 
 
 
 
 
 
shares of
 
 
 
out of
 
 
 
shares outstanding.
 
 
 
 
(Class of Stock)
 
 
 
 
 
 
being at least a majority of each class outstanding and entitled to vote thereon:- /1/
“VOTED: That Article 3 of the Articles of Organization be amended to increase the authorized number of shares of Common Stock of the Corporation, $1 par value, from 14 million to 28 million.”
For amendments adopted pursuant to Chapter 156B, Section 70
For amendments adopted pursuant to Chapter 156B, Section 71
Note: If the space provided under any Amendment or item on this form is insufficient, additions shall be set forth on separate 8 1 / 2 × 11 sheets of paper leaving a left hand margin of at least 1 inch for binding. Additions to more than one Amendment may be continued on a single sheet so long as each Amendment requiring each such addition is clearly indicated.
TO CHANGE the number of shares and the par value, if any, of each class of stock within the corporation fill in the following:
The total presently authorized is:
 
 
 
 
 
 
 
 
KIND OF STOCK
 
NO PAR VALUE
NUMBER OF SHARES
 
WITH PAR VALUE
NUMBER OF SHARES
 
PAR VALUE
 
COMMON
 
0
 
14,000,000

 
$
1

 
PREFERRED
 
3,500,000

 
0

 
 
 
CHANGE the total to:
 
 
 
 
 
 
 
 
KIND OF STOCK
 
NO PAR VALUE
NUMBER OF SHARES
 
WITH PAR VALUE
NUMBER OF SHARES
 
PAR VALUE
 
COMMON
 
0
 
28,000,000

 
$
1

 
PREFERRED
 
3,500,000

 
0
 
 
 
The foregoing amendment will become effective when these articles of amendment are filed in accordance with Chapter 156B, Section 6 of the General Laws unless these articles specify, in accordance with the vote adopting the amendment, a later effective date not more than thirty days after such filing, in which event the amendment will become effective on such later date.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our names this 25 th day of April, in the year 1985.




 
 
 
/s/ WILLIAM S. EDGERLY
 
President
 
 
/s/ ROBERT J. MALLEY
 
Secretary & Clerk


THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
I hereby approve the within articles of amendment and the filing fee in the amount of $7,000.00 having been paid, said articles are deemed to have been filed with me this 29 th day of April, 1985.
 
 
 
[STAMP]
 
/s/ MICHAEL JOSEPH CONNOLLY
 
 
MICHAEL JOSEPH CONNOLLY
 
 
Secretary of State
TO BE FILLED IN BY CORPORATION
PHOTO COPY OF AMENDMENT TO BE SENT
TO:
Robert J. Malley, S.V.P. & General Counsel
State Street Boston Corporation
225 Franklin Street
Boston, MA 02101
Telephone (617) 654-3104
Copy Mailed
 
 
 
The Commonwealth of Massachusetts
OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
MICHAEL JOSEPH CONNOLLY, Secretary
ONE ASHBURTON PLACE, BOSTON, MASS. 02108
ARTICLES OF AMENDMENT
General Laws, Chapter 156B, Section 72
 
FEDERAL IDENTIFICATION
NO. 04-2456637
This certificate must be submitted to the Secretary of the Commonwealth within sixty days after the date of the vote of stockholders adopting the amendment. The fee for filing this certificate is prescribed by General Laws, Chapter 156B, Section 114. Make check payable to the Commonwealth of Massachusetts.
 
 
 
 
 
We,
 
David A. Spina
Robert J. Malley
 
Executive Vice President,
and
Secretary & Clerk of




STATE STREET BOSTON CORPORATION
(Name of Corporation)
located at 225 Franklin Street, Boston, Massachusetts 02101 do hereby certify that the following amendment to the articles of organization of the corporation was duly adopted at a meeting held on April 16, 1986, by vote of
 
 
 
 
 
 
 
 
 
 
 
14,092,857
 
shares of
 
Common Stock
 
out of
 
17,216,198
 
shares outstanding.
 
 
 
 
(Class of Stock)
 
 
 
 
 
 
 
 
shares of
 
 
 
out of
 
 
 
shares outstanding,
and
 
 
 
 
(Class of Stock)
 
 
 
 
 
 
 
 
shares of
 
 
 
out of
 
 
 
shares outstanding.
 
 
 
 
(Class of Stock)
 
 
 
 
 
 
being at least a majority of each class outstanding and entitled to vote thereon:-/1/
“VOTED: That Article 3 of the Articles of Organization be amended to increase the authorized number of shares of Common Stock of the Corporation, $1 par value, from 28 million to 56 million.”

For amendments adopted pursuant to Chapter 156B, Section 70.
For amendments adopted pursuant to Chapter 156B, Section 71.
Note: If the space provided under any Amendment or item on this form is insufficient, additions shall be set forth on separate 8 1 / 2 × 11 sheets of paper leaving a left hand margin of at least 1 inch for binding. Additions to more than one Amendment may be continued on a single sheet so long as each Amendment requiring each such addition is clearly indicated.
TO CHANGE the number of shares and the par value, if any, of each class of stock within the corporation fill in the following:
The total presently authorized is:
 
 
 
 
 
 
 
 
KIND OF STOCK
 
NO PAR VALUE
NUMBER OF SHARES
 
WITH PAR VALUE
NUMBER OF SHARES
 
PAR VALUE
 
COMMON
 
0
 
28,000,000

 
$
1

 
PREFERRED
 
3,500,000

 
0

 
 
 
CHANGE the total to:
 
 
 
 
 
 
 
 
KIND OF STOCK
 
NO PAR VALUE
NUMBER OF SHARES
 
WITH PAR VALUE
NUMBER OF SHARES
 
PAR VALUE
 
COMMON
 
0

 
56,000,000

 
$
1

 
PREFERRED
 
3,500,000

 
0

 
 
 
The foregoing amendment will become effective when these articles of amendment are filed in accordance with Chapter 156B, Section 6 of the General Laws unless these articles specify, in accordance with the vote adopting the amendment, a later effective date not more than thirty days after such filing, in which event the amendment will become effective on such later date.




IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our names this 9 th day of May, in the year 1986.
 
 
 
/s/ David A. Spina
 
Executive Vice President
 
 
/s/ Robert J. Malley
 
Clerk and Secretary


THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
I hereby approve the within articles of amendment and the filing fee in the amount of $14,000.00 having been paid, said articles are deemed to have been filed with me this 9th day of May, 1986.
 
 
 
[stamp]
 
/s/ MICHAEL JOSEPH CONNOLLY
 
 
MICHAEL JOSEPH CONNOLLY
 
 
Secretary of State
 
 
 

TO BE FILLED IN BY CORPORATION PHOTO COPY OF AMENDMENT TO BE SENT
TO
Mr. Robert J. Malley, Secretary & Clerk
State Street Boston Corporation
225 Franklin Street
Boston, MA 02101
Telephone: (617) 654-3104
Copy Mailed
 
 
 
The Commonwealth of Massachusetts
OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
MICHAEL JOSEPH CONNOLLY, Secretary
ONE ASHBURTON PLACE, BOSTON, MASS. 02108
ARTICLES OF AMENDMENT
General Laws, Chapter 156B, Section 72
 
FEDERAL IDENTIFICATION
NO. 04-2456637
This certificate must be submitted to the Secretary of the Commonwealth within sixty days after the date of the vote of stockholders adopting the amendment. The fee for filing this certificate is prescribed by General Laws, Chapter 156B, Section 114. Make check payable to the Commonwealth of Massachusetts.




 
 
 
 
 
We,
 
David A. Spina
Robert J. Malley
 
Executive Vice President,
and
Secretary & Clerk of
STATE STREET BOSTON CORPORATION
(Name of Corporation)
located at 225 Franklin Street, Boston, Massachusetts 02101 do hereby certify that the following amendments to the articles of organization of the corporation were duly adopted at a meeting held on April 15, 1987, by vote of
 
 
 
 
 
 
 
 
 
 
 
27,682,822
 
shares of
 
Common Stock
 
out of
 
35,116,000
 
shares outstanding, Amendment
#1
 
 
 
 
(Class of Stock)
 
 
 
 
 
 
 
 
 
 
 
 
27,501,803
 
shares of
 
Common Stock
 
out of
 
35,116,000
 
shares outstanding, Amendment
#2
 
 
 
 
(Class of Stock)
 
 
 
 
 
 
 
 
shares of
 
 
 
out of
 
 
 
shares outstanding.
 
 
 
 
(Class of Stock)
 
 
 
 
 
 
being at least two-thirds of each class outstanding and entitled to vote thereon and of each class or series of stock whose rights are adversely affected thereby:-/2/
AMENDMENT #1
“VOTED: That Article 6 of the Corporation’s Articles of Organization be amended to add the following new paragraph pursuant to the Business Corporation of Massachusetts:
(See Continuation Sheet 1A, attached)
For amendments adopted pursuant to Chapter 156B, Section 70
For amendments adopted pursuant to Chapter 156B, Section 71
Note: If the space provided under any Amendment or item on this form is insufficient, additions shall be set forth on separate 8 1 / 2 × 11 sheets of paper leaving a left hand margin of at least 1 inch for binding. Additions to more than one Amendment may be continued on a single sheet so long as each Amendment requiring each such addition is clearly indicated.

TO CHANGE the number of shares and the par value, if any, of each class of stock within the corporation fill in the following:
The total presently authorized is:




 
 
 
 
 
 
 
KIND OF STOCK
 
NO PAR VALUE
NUMBER OF SHARES
 
WITH PAR VALUE
NUMBER OF SHARES
 
PAR
VALUE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CHANGE the total to:
 
 
 
 
 
 
 
KIND OF STOCK
 
NO PAR VALUE
NUMBER OF SHARES
 
WITH PAR VALUE
NUMBER OF SHARES
 
PAR
VALUE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


STATE STREET BOSTON CORPORATION
Continuation Sheet 1A
Amendment # 1 (continued)
“Liability of Directors
A director of this corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director notwithstanding any provision of law imposing such liability, provided, however, that this paragraph of Article Six shall not eliminate the liability of a director to the extent such liability is imposed by applicable law (i) for any breach of the director’s duty of loyalty to this corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for any transaction from which the director derived an improper personal benefit, or (iv) for paying a dividend, approving a stock repurchase or making loans which are illegal under certain provisions of Massachusetts law, as the same exists or hereafter may be amended. If Massachusetts law is hereafter amended to authorize the further limitation of the legal liability of the directors of this




corporation, the liability of the directors shall then be deemed to be limited to the fullest extent then permitted by Massachusetts law as so amended. Any repeal or modification of this paragraph of this Article Six which may hereafter be effected by the stockholders of this corporation shall be prospective only, and shall not adversely affect any limitation on the liability of a director for acts or omissions prior to such repeal or modification.”
Continuation Sheet 2A
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
The corporation shall to the fullest extent legally permissible indemnify each person who is or was a director, officer, employee or other agent of the corporation and each person who is or was serving at the request of the corporation as a director, trustee, officer, employee or other agent of another corporation or of any partnership, joint venture, trust, employee benefit plan or other enterprise or organization against all liabilities, costs and expenses, including but not limited to amounts paid in satisfaction of judgments, in settlement or as fines and penalties, and counsel fees and disbursements, reasonably incurred by him in connection with the defense or disposition of or otherwise in connection with or resulting from any action, suit or other proceeding, whether civil, criminal, administrative or investigative, before any court or administrative or legislative or investigative body, in which he may be or may have been involved as a party or otherwise or with which he may be or may have been threatened, while in office or thereafter, by reason of his being or having been such a director, officer, employee, agent or trustee, or by reason of any action taken or not taken in any such capacity, except with respect to any matter as to which he shall have been finally adjudicated by a court of competent jurisdiction not to have acted in good faith in the reasonable belief that his action was in the best interests of the corporation (any person serving another organization in one or more of the indicated capacities at the request of the corporation who shall not have been adjudicated in any proceeding not to have acted in good faith in the reasonable belief that his action was in the best interest of such other organization shall be deemed so to have acted in good faith with respect to the corporation) or to the extent that such matter relates to service with respect to an employee benefit plan, in the best interest of the participants or beneficiaries of such employee benefit plan. Expenses, including but not limited to counsel fees and disbursements, or incurred by any such person in defending any such action, suit or proceeding, shall be paid from time to time by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the person indemnified to repay the amounts so paid if it shall ultimately be determined that indemnification of such expenses is not authorized hereunder.
If, in an action, suit or proceeding brought by or in the name of the corporation, a director of the corporation is held not liable for monetary damages, whether because that director is relieved of personal liability under the provisions of this Article Six of the Articles of Organization, or otherwise, that director shall be deemed to have met the standard of conduct set forth above and to be entitled to indemnification for expenses reasonably incurred in the defense of such action, suit or proceeding.
As to any matter disposed of by settlement by such person, pursuant to a consent decree or otherwise, no such indemnification either for the amount of such settlement or for any other expenses shall be provided unless such settlement shall be approved as in the best interests of the corporation, after notice that it involves such indemnification, (a) by vote of a majority of the disinterested directors then in office (even though the disinterested directors be less than a quorum), or (b) by any disinterested person or persons to whom the question may be referred by vote of a majority of such disinterested directors, or (c) by vote of the holders of a majority of the outstanding stock at the time entitled to vote for directors, voting as a single class, exclusive of any stock owned by any interested person, or (d) by any disinterested person or persons to whom the question may be referred by vote of the holders of a majority of such stock. No such approval shall prevent the recovery from any such director, officer, employee, agent or trustee of any amounts paid to him or on his behalf as indemnification in accordance with the preceding sentence if such person is subsequently adjudicated by a court of competent jurisdiction not to have acted in good faith in the reasonable belief that his action was in the best interests of the corporation.
The right of indemnification hereby provided shall not be exclusive of or affect any other rights to which any director, officer, employee, agent or trustee may be entitled or which may lawfully be granted to him. As used herein, the terms “director”, “officer”, “employee”, “agent”, and “trustee” include their respective executors, administrators and other legal representatives, an “interested” person is one against whom the action, suit or other proceeding in question or another action, suit or other proceeding on the same or similar grounds is then or had been pending or threatened, and a “disinterested” person is a person against whom no such action, suit or other proceeding is then or had been pending or threatened.
By action of the board of directors, notwithstanding any interest of the directors in such action, the corporation may purchase and maintain insurance, in such amounts as the board of directors may from time to time deem appropriate, on behalf of any person who is or was a director, officer, employee or other agent of the corporation, or is or was serving at the request of the corporation as a director, trustee, officer, employee or other agent of another corporation or of any partnership, joint venture, trust, employee benefit plan or other enterprise or organization against any liability incurred by him in any such




capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability.

Amendment #2
VOTED: That Article 6 of the Articles of Organization be further amended and restated with respect to indemnification to read as follows:
(See Continuation Sheet 2A, attached)
The foregoing amendment will become effective when these articles of amendment are filed in accordance with Chapter 156B, Section 6 of The General Laws unless these articles specify, in accordance with the vote adopting the amendment, a later effective date not more than thirty days after such filing, in which event the amendment will become effective on such later date.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our names this twenty-fourth day of April, in the year 1987.
 
 
 
/s/ DAVID A SPINA
 
Executive Vice President
 
 
/s/ ROBERT J. MALLEY
 
Clerk


THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
I hereby approve the within articles of amendment and the filing fee in the amount of $75.00 having been paid, said articles are deemed to have been filed with me this 1 st day of May, 1987.
 
 
 
[stamp]
 
/s/ MICHAEL JOSEPH CONNOLLY
 
 
MICHAEL JOSEPH CONNOLLY
 
 
Secretary of State
TO BE FILLED IN BY CORPORATION
PHOTO COPY OF AMENDMENT TO BE SENT
TO
Mr. Robert J. Malley, Secretary & Clerk
State Street Boston Corporation
225 Franklin Street
Boston, MA 02101
Telephone: (617) 654-3104
Copy Mailed




 
 
 
The Commonwealth of Massachusetts
OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
MICHAEL JOSEPH CONNOLLY, Secretary
ONE ASHBURTON PLACE, BOSTON, MASS.02108
CERTIFICATE OF VOTE OF DIRECTORS ESTABLISHING
A SERIES OF A CLASS OF STOCK
General Laws, Chapter 1568, Section 26
 
FEDERAL IDENTIFICATION
No. 04-2456637

 
 
 
 
 
We,
 
Robert J. Malley,
Robert J. Malley,
 
Vice President, and
Clerk of
 
 
 
 
 

located at 225 Franklin Street, Boston, MA 02110 do hereby certify that a meeting of the directors of the corporation held on September 15,1988, the following vote establishing and designating a series of a class of stock and determining the relative rights and preferences thereof was duly adopted:-
See continuation sheets numbered 2A through 2A-7
NOTE: Votes for which the space provided above is not sufficient should be set out on continuation sheets to be numbered 2A, 2B, etc. Continuation sheets must have a left-hand margin 1 inch wide for binding and shall be 8 1 / 2 ” X 11”. Only one side should be used.
VOTED: That pursuant to the authority to granted and vested in the Board of Directors in accordance with the provisions of the Articles of Organization, as amended to date, the Board of Directors hereby creates a series of Preferred Stock, without par value, of the Corporation and hereby states the designation and number of shares, and fixes the relative rights, preferences and limitations thereof (in addition to the provisions set forth in the Articles of Organization which are applicable to the Preferred Stock of all classes and series), as set forth in the Certificate of Designation, Preferences and Rights comprising Exhibit A to the Rights Agreement, which is attached hereto and incorporated herein by reference; and


Exhibit A
CERTIFICATE OF DESIGNATION,
PREFERENCES AND RIGHTS
of
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
STATE STREET BOSTON CORPORATION
(Pursuant to Section 26 of the
Massachusetts Business Corporation Law)
State Street Boston Corporation, a corporation organized and existing under the Business Corporation Law of the Commonwealth of Massachusetts (hereinafter called the “Corporation”), hereby certifies that the following resolution was adopted by the Board of Directors of the Corporation as required by Section 26 of the Business Corporation Law at a meeting duly called and held on September 15, 1988:




RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of this Corporation (hereinafter called the “Board of Directors” or the “Board”) in accordance with the provisions of the Articles of Organization, the Board of Directors hereby creates a series of Preferred Stock, without par value (the “Preferred Stock”), of the Corporation and hereby states the designation and number of shares, and fixes the relative rights, preferences, and limitations thereof (in addition to any provisions set forth in the Articles of Organization of the Corporation which are applicable to the Preferred Stock of all classes and series) as follows:
Series A Junior Participating Preferred Stock:
Section 1. Designation and Amount. The shares of such series shall be designated as “Series A Junior Participating Preferred Stock” (the “Series A Preferred Stock”) and the number of shares constituting the Series A Preferred Stock shall be 400,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided , that no decrease shall reduce the number of shares of Series A Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation convertible into Series A Preferred Stock.
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of any series of Preferred Stock (or any similar stock) ranking prior and superior to the Series A Preferred Stock with respect to dividends, the holders of shares of Series A Preferred Stock, in preference to the holders of Common Stock, $1 par value (the “Common Stock”), of the Corporation, and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the first day of March, June, September and December in each year (each such date being referred to herein as a “Quarterly Dividend Payment Date”), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1 or (b) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the Series A Preferred Stock as provided in paragraph (A) of this Section immediately after it declared a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1 per share on the Series A Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to received payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A Preferred Stock shall the following voting rights:




(A) Subject to the provision for adjustment hereinafter set forth, each share of Series A Preferred Stock shall entitle the holder thereof to 100 votes on all matters submitted to a vote of the stockholders of the Corporation. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.
(B) Except as otherwise provided herein, in any other Certificate of Designations creating a series of Preferred Stock or any similar stock, or by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation.
(C) Except as set forth herein, or as otherwise provided by law, holders of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred Stock outstanding shall been paid in full, the Corporation shall not:
(i) declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock;
(ii) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except dividends paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled:
(iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity with the Series A Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares will upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth herein, in the Articles of Organization, or in any other Certificate of Designations creating a series of Preferred Stock or any similar stock or as otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made (1) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received $100 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, provided that the holders of shares of Series A Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount to be distributed per share to holders of shares of Common Stock, or (2) to the holders of shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred




Stock, except distributions made ratably on the Series A Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under the proviso in clause (1) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series A Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share, subject to the provision for adjustment herein-after set forth, equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series A Preferred Stock shall not be redeemable.
Section 9. Rank. The Series A Preferred Stock shall rank junior with respect to the payment of dividends and the distribution of assets to all other series of the Corporation’s Preferred Stock.
Section 10. Amendment. The Articles of Organization of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series A Preferred Stock, voting together as a single class.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our names this 31 st day of January, in the year 1992
 
 
 
/s/ ROBERT J. MALLEY
 
Senior Vice President
Robert J. Malley
 
 
 
 
/s/ ROBERT J. MALLEY
 
Clerk
Robert J. Malley
 
 


THE COMMONWEALTH OF MASSACHUSETTS
Certificate of Vote of Directors Establishing
A Series of a Class of Stock
(General Laws, Chapter 156B Section 26)
I hereby approve the within certificate and, the filing fee in the amount of $100 having been paid, said certificate is hereby filed this 6 th day of FEBRUARY 1992.




 
 
 
[STAMP]
 
/s/ MICHAEL JOSEPH CONNOLLY
 
 
Michael Joseph Connolly
 
 
Secretary of State
TO BE FILLED IN BY CORPORATION
PHOTO COPY OF CERTIFICATE TO BE SENT
TO:
Robert J. Malley, Vice President & Clerk
State Street Boston Corporation
225 Franklin Street
Boston, MA 02110
Telephone 617-654-3104
Copy Mailed
 
 
 
The Commonwealth of Massachusetts
OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
MICHAEL JOSEPH CONNOLLY, Secretary
ONE ASHBURTON PLACE, BOSTON, MASS. 02108
ARTICLES OF AMENDMENT
General Laws, Chapter 156B, Section 72
 
FEDERAL IDENTIFICATION
NO. 04-2456637
This certificate must be submitted to the Secretary of the Commonwealth within sixty days after the date of the vote of stockholders adopting the amendment. The fee for filing this certificate is prescribed by General Laws, Chapter 156B, Section 114. Make check payable to the Commonwealth of Massachusetts.
 
 
 
 
 
 
 
 
 
We,
 
Marshall N. Carter
Robert J. Malley
 
 
 
 
 
President, and
Clerk of
5

State Street Boston Corporation
(Name of Corporation)
located at 225 Franklin Street, Boston, Massachusetts 02210 do hereby certify that the following amendment to the articles of organization of the corporation was duly adopted at a meeting held on April 15, 1992, by vote of




 
 
 
 
 
 
 
 
 
 
 
31,180,121
 
shares of
 
Common Stock (Class of Stock)
 
out of
 
37,248,358
 
shares outstanding.
 
 
shares of
 
 
 
out of
 
 
 
shares outstanding, and
 
 
 
 
(Class of Stock)
 
 
 
 
 
 
 
 
shares of
 
 
 
out of
 
 
 
shares outstanding.
 
 
 
 
(Class of Stock)
 
 
 
 
 
 
being at least a majority of each class outstanding and entitled to vote thereon:- /1/
“VOTED: That Article 3 of the Restated Articles of Organization be amended to increase the authorized number of shares of Common Stock $1 par value, from 56 million to 112 million, and to authorize the Board of Directors to issue such shares from time to time for general corporate purposes.”
For amendments adopted pursuant to Chapter 156B, Section 70
For amendments adopted pursuant to Chapter 156B, Section 71
Note: If the space provided under any Amendment or item on this form is insufficient, additions shall be set forth on separate 8 1 / 2 × 11 sheets of paper leaving a left hand margin of at least 1 inch for binding. Additions to more than one Amendment may be continued on a single sheet so long as each Amendment requiring each such addition is clearly indicated.
TO CHANGE the number of shares and the par value, if any, of each class of stock within the corporation fill in the following:
The total presently authorized is:
 
 
 
 
 
 
 
KIND OF STOCK
 
NO PAR VALUE
NUMBER OF SHARES
 
WITH PAR VALUE
NUMBER OF SHARES
 
PAR VALUE
COMMON
 
0

 
56,000,000

 
$
1

PREFERRED
 
3,500,000

 
0

 
 
CHANGE the total to:
 
 
 
 
 
 
 
KIND OF STOCK
 
NO PAR VALUE
NUMBER OF SHARES
 
WITH PAR VALUE
NUMBER OF SHARES
 
PAR VALUE
COMMON
 
0

 
112,000,000

 
$
1

PREFERRED
 
3,500,000

 
0

 
 
The foregoing amendment will become effective when these articles of amendment are filed in accordance with Chapter 156B, Section 6 of the General Laws unless these articles specify, in accordance with the vote adopting the amendment, a later effective date not more than thirty days after such filing, in which event the amendment will become effective on such later date.

IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our names this 22nd day of April, in the year 1992.




 
 
 
/s/ MARSHALL N. CARTER
 
President
Marshall N. Carter
 
 
 
 
/s/ ROBERT J. MALLEY
 
Clerk
Robert J. Malley
 
 


THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
I hereby approve the within articles of amendment and, the filing fee in the amount of $56,000.00 having been paid, said articles are deemed to have been filed with me this 24 th day of April, 1992.
 
 
 
[stamp]
 
/s/ MICHAEL JOSEPH CONNOLLY
 
 
Michael Joseph Connolly
 
 
Secretary of State

TO BE FILLED IN BY CORPORATION
PHOTO COPY OF AMENDMENT TO BE SENT
TO
Mr. Robert J. Malley, Clerk
State Street Boston Corporation
225 Franklin Street-4th Floor
Boston, MA 02101
Telephone: (617) 654-3104

Copy Mailed
[LETTERHEAD OF STATE STREET]
April 16, 1997
BY HAND
Commonwealth of Massachusetts
Division of Corporations
Office of the State Secretary
One Ashburton Place, Room 1710
Boston, Massachusetts 02108
Re:
State Street Boston Corporation
Gentlemen:




State Street Corporation is a wholly-owned subsidiary of State Street Boston Corporation and has no objection and hereby consents to the change of name of State Street Boston Corporation to State Street Corporation.
 
Very truly yours,
 
/s/ Evelyn Lipton Fishbein
Enclosure

FEDERAL IDENTIFICATION
No. 04-2456637
The Commonwealth of Massachusetts
William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
 
 
 
We,
 
David A. Spina
and
 
John R. Towers
of
 
State Street Boston Corporation
(Exact name of corporation)
located at 225 Franklin Street, Boston, MA. 02110
(Street address of corporation in Massachusetts)
certify that these Articles of Amendment affecting articles numbered:
Articles 1 and 3
(Number those articles 1, 2, 3, 4, 5 and/or 6 being amended)

of the Articles of Organization were duly adopted at a meeting held on April 16, 1997. by vote of




 
 
 
 
 
 
 
 
 
 
 
67,456,754
 
shares of
 
Common Stock
 
of
 
80,515,785
 
shares outstanding Vote 1
 
 
 
 
(type, class & series, if any)
 
 
 
 
 
 
 
 
 
 
 
 
66,278,074
 
shares of
 
Common Stock
 
of
 
80,515,785
 
shares outstanding Vote 2 and
 
 
 
 
(type, class & series, if any)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
shares of
 
 
 
of
 
 
 
shares outstanding
 
 
 
 
(type, class & series, if any)
 
 
 
 
 
 

**
being at least a majority of each type, class or series outstanding and entitled to vote thereof
See Continuation Sheet.
*
Delete the inapplicable words.

**
Delete the inapplicable clause

/1/
For amendments adopted pursuant to Chapter 156B, Section 70

/2/
For amendments adopted pursuant to Chapter 156B, Section 71
Note: If the space provided under any article or there on this form is insufficient additions shall be set forth on one side only of separate 8 1 / 2 × 11 sheets of paper with a left margin of at least 1 inch. Additions to more than one article may be made on a single sheet so long as each article requiring each addition is clearly indicated.
To change the number of shares and the par value (if any) of any type, class or series of stock which the corporation is authorized to issue, fill in the following:

The total presently authorized is:
 
 
 
 
 
 
 
 
 
WITHOUT PAR VALUE STOCKS
 
WITH PAR VALUE STOCKS
TYPE
 
NUMBER OF SHARES
 
TYPE
 
NUMBER OF SHARES
 
PAR VALUE
Common
 
0

 
Common
 
112,000,000

 
$
1

 
 
 
 
 
Preferred
 
3,500,000

 
Preferred
 
0

 
 
Change the total authorized to:
 
 
 
 
 
 
 
 
 
WITHOUT PAR VALUE STOCKS
 
WITH PAR VALUE STOCKS
TYPE
 
NUMBER OF SHARES
 
TYPE
 
NUMBER OF SHARES
 
PAR VALUE
Common
 
0

 
Common
 
250,000,000

 
$
1

 
 
 
 
 
Preferred
 
3,500,000

 
Preferred
 
0

 





CONTINUATION SHEET
 
 
 
 
 
(Vote 1)
 
VOTED:
 
That Article 1 of the Restated Articles of Organization be amended to change the name of the Corporation from State Street Boston Corporation to State Street Corporation.
 
 
 
(Vote 2)
 
VOTED:
 
That Article 3 of the Restated Articles of Organization be amended to increase the number of authorized shares of Common Stock, $1 par value, from 112,000,000 to 250,000,000, and to authorize the issuance from time to time of the authorized and unissued shares of the Corporation by the Board of Directors.
The foregoing amendment(s) will become effective when these Articles of Amendment are filed in accordance with General Laws, Chapter 156B, Section 6 unless these articles specify, in accordance with the vote adopting the amendment, a later effective date not more than thirty days after such filing, in which event the amendment will become effective on such later date.

Later effective date:
SIGNED UNDER THE PENALTIES OF PERJURY, this 16th day of April, 1997.
 
 
 
/s/ David A. Spina
 
President
 
 
/s/ John R. Towers
 
Clerk

*
Delete the inapplicable words.


THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
I hereby approve the within Articles of Amendment and, the filing fee in the amount of $138,100.00 having been paid, said articles are deemed to have been filed with me this 16th day of April, 1997.
Effective date:
 
/s/ William Francis Galvin
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
[stamp]
TO BE FILLED IN BY CORPORATION
Photocopy of document to be sent to:
John R. Towers, Clerk




State Street Corporation
225 Franklin Street, M-4
Boston, MA 02101

FEDERAL IDENTIFICATION
NO. 04-2456637
The Commonwealth of Massachusetts
William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
 
 
 
 
We,
 
David A. Spina
 
and
 
Maureen Scannell Bateman
 
of
 
State Street Corporation
 
(Exact name of corporation)
located at 225 Franklin Street, Boston, Massachusetts 02110 ,
(Street address of corporation in Massachusetts)
certify that these Articles of Amendment affecting articles numbered:
Article 3
(Number those articles 1, 2, 3, 4, 5, and/or 6 being amended)

of the Articles of Organization were duly adopted at a meeting held on April 18, 2001, by vote of:
 
 
 
 
 
 
 
 
 
 
 
133,261,123
 
shares of
 
Common Stock
 
of
 
163,006,883
 
shares outstanding
 
 
 
 
(type, class & series, if any)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
shares of
 
 
 
of
 
 
 
shares outstanding, and
 
 
 
 
(type, class & series, if any)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
shares of
 
 
 
of
 
 
 
shares outstanding
 
 
 
 
(type, class & series, if any)
 
 
 
 
 
 

/1/**
being at least a majority of each type, class or series outstanding and entitled to vote thereon:




See Continuation Sheet
*
Delete the inapplicable words

**
Delete the inapplicable clause

/1/
For amendment adapted pursuant to Chapter 156B. Section *0

/2/
For amendment adapted pursuant to Chapter 156B. Section -1
Note: If the space provided under any article or item on this form is insufficient, additions shall be set forth on one side only of separate 8 1 / 2 × 11 sheets of paper with a left margin of at least 1 inch. Additions to more than one article may be made on a single sheet as long as each article requiring each addition is clearly indicated.
To change the number of shares and the par value (if any) of any type, class or series of stock which the corporation is authorized to issue, fill in the following:
The total presently authorized is:
 
 
 
 
 
 
 
 
 
WITHOUT PAR VALUE STOCKS
 
WITH PAR VALUE STOCKS
TYPE
 
NUMBER OF SHARES
 
TYPE
 
NUMBER OF SHARES
 
PAR VALUE
Common
 
0

 
Common
 
250,000,000

 
$
1

 
 
 
 
 
 
 
 
 
Preferred
 
3,500,000

 
Preferred
 
0

 
 


Change the total authorized to:
 
 
 
 
 
 
 
 
 
WITHOUT PAR VALUE STOCKS
 
WITH PAR VALUE STOCKS
TYPE
 
NUMBER OF SHARES
 
TYPE
 
NUMBER OF SHARES
 
PAR VALUE
Common
 
—

 
Common
 
500,000,000

 
$
1

 
 
 
 
 
 
 
 
 
Preferred
 
3,500,000

 
Preferred
 
—

 
 
CONTINUATION SHEET
That Article 3 of the Restated Articles of Organization be amended to increase the number of authorized shares of Common Stock, $1 par value, from 250,000,000 to 500,000,000.
The foregoing amendment(s) will become effective when these Articles of Amendment are filed in accordance with General Laws, Chapter 156B, Section 6 unless these articles specify, in accordance with the vote adopting the amendment, a later effective date not more than thirty days after such filing, in which event the amendment will become effective on such later date.
Later effective date:




SIGNED UNDER THE PENALTIES OF PERJURY, this 18th day of April, 2001.
 
 
 
/s/ David A. Spina
 
President
 
 
/s/ Maureen Scannell Bateman
 
Clerk

*
Delete the inapplicable words.


THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
(General Laws, Chapter 156E, Section 72)
I hereby approve the within Articles of Amendment and, the filing fee in the amount of $250,000 having been paid, said articles are deemed to have been filed with me this 18 th day of April 2001.
Effective date:
 
/s/ William Francis Galvin
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
 
[STAMP]
TO BE FILLED IN BY CORPORATION
Photocopy of document to be sent to:
Maureen Scannell Bateman, Clerk
State Street Corporation
225 Franklin Street
Boston, Massachusetts 02110
Telephone: (617) 786-3000

FEDERAL IDENTIFICATION
NO. 04-2456637
The Commonwealth of Massachusetts
William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
CERTIFICATE OF CORRECTION
(General Laws, Chapter 156B, Section 6A)
1. Exact name of corporation: State Street Corporation
2. Document to be corrected: Articles of Amendment
3. The above mentioned document was filed with the Secretary of the Commonwealth on April 19, 2001




4. Please state the inaccuracy or defect in said document:
The Articles of Amendment were adopted by vote of:
133,261,123 shares of Common Stock of 163,006,883 shares outstanding
5. Please state corrected version of the document:
The Articles of Amendment were adopted by vote of:
133,263,771 shares of Common Stock of 163,006,883 shares outstanding
Note: This correction should be signed by the person(s) required by law to sign the original document.

SIGNED UNDER THE PENALTIES OF PERJURY, this 30 th day of April, 2001.
 
 
 
/s/ David A. Spina
 
*President
 
 
/s/ Maureen Scannell Bateman
 
*Clerk

*
Delete the inapplicable words.
Note: If the inaccuracy or defect to be corrected is not apparent on the face of the document, minutes of the meeting substantiating the error must be filed with the certificate. Additional information may be provided on separate 8 1 / 2 × 11 sheets of white paper with a left margin of at least 1 inch.
Articles of Amendment
(General Laws, Chapter 156D, Section 10.06; 950 CMR 113.34))
State Street Corporation, having a registered office at 101 Federal Street, Boston, Massachusetts 02111, certifies as follows:
FIRST, Article 4 of the Articles of Organization of the corporation, including the Certificate of Vote of Directors Establishing a Series of a Class of Stock, which was filed with the Secretary of State of the Commonwealth of Massachusetts as an amendment to such Article 4 on February 6, 1992, is amended by this Amendment.
SECOND, this Amendment was duly adopted and approved on October 19, 2006 by the board of directors without shareholder approval and shareholder approval was not required.
THIRD, Article 4 is hereby amended by (i) rescinding the designation of $400,000 shares of Preferred Stock as Series A Junior Participating Preferred Stock, (ii) reclassifying such shares as Preferred Stock and (iii) eliminating from the Articles of Organization all references to Series A Junior Participating Preferred Stock and the preferences, limitations and relative rights thereto.

FOURTH:
(a) The total shares authorized prior to this Amendment was (i) 500,000,000 shares of Common Stock, par value $1.00 per share, and (ii) 3,500,000 shares of Preferred Stock, without par value.
(b) The total shares authorized upon the effectiveness of this Amendment is (i) 500,000,000 shares of Common Stock, par value $1.00 per share, and (ii) 3,500,000 shares of Preferred Stock, without par value.
FIFTH, this Amendment will become effective on October 20, 2006 at 5:30 p.m. Boston time.




 
 
 
Signed by
 
/s/ Jeffrey N. Carp
 
 
(signature of authorized individual)
 
 
Jeffrey N. Carp, Esq.
 
 
Executive Vice President
¬
Chairman of the board of directors,
¬
President,
x
Other Officer,
¬
Court-appointed fiduciary,
on this 19 th day of October, 2006.


COMMONWEALTH OF MASSACHUSETTS
William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
Articles of Amendment
(General Laws Chapter 156D, Section 10.06; 950 CMR 113.34)
I hereby certify that upon examination of these articles of amendment, it appears that the General Laws relative thereto have been complied with, and the filing fee in the amount of $100 having been paid, said articles are deemed to have been filed with me this 20 th day of October 20 06 , at 10:30 a.m./p.m. time
Effective date:
 
(must be within 90 days of date submitted)
 
/s/ William Francis Galvin
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
Filing fee: Minimum filing fee $100 per article amended, stock increases $100 per 100,000 shares, plus $100 for each additional 100,000 shares or any fraction thereof.
TO BE FILLED IN BY CORPORATION
[STAMP]
Contact Information:




Jeffrey N. Carp, Esq.
c/o State Street Corporation
State Street Financial Center
One Lincoln Street
Boston, Massachusetts 02111
Telephone: (617) 664-5176
Email: jcarp@statestreet.com


COMMONWEALTH OF MASSACHUSETTS
William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
Articles of Amendment
(General Laws Chapter 156D, Section 10.06; 950 CMR 113.34)
(1) Exact name of corporation: State Street Corporation
(2) Registered office address: 155 Federal Street, Boston, Massachusetts 02111
(number, street, city or town, state, zip code)
(3) These articles of amendment affect article(s): 3
(specify the number(s) of article(s) being amended (I-VI))
(4) Date adopted: April 18, 2007
(month, day, year)
(5) Approved by:
(check appropriate box)
¬
the incorporators.
¬
the board of directors without shareholder approval and shareholder approval was not required.
x
the board of directors and the shareholders in the manner required by law and the articles of organization.
(6) State the article number and the text of the amendment. Unless contained in the text of the amendment, state the provisions for implementing the exchange, reclassification or cancellation of issued shares.
VOTED: That Article 3 of the Restated Articles of Organization be amended to increase the number of authorized shares of common stock, $1 par value, from 500,000,000 to 750,000,000.
To change the number of shares and the par value, *if any, of any type, or to designate a class or series, of stock, or change a designation of class or series of stock, which the corporation is authorized to issue, complete the following:
Total authorized prior to amendment:
 
 
 
 
 
 
 
 
 
WITHOUT PAR VALUE
 
WITH PAR VALUE
TYPE
 
NUMBER OF SHARES
 
TYPE
 
NUMBER OF SHARES
 
PAR VALUE
Common
 
0

 
Common
 
500,000,000

 
$
1

 
 
 
 
 
 
 
 
 
Preferred
 
3,500,000

 
Preferred
 
0

 
 




Total authorized after amendment:
 
 
 
 
 
 
 
 
 
WITHOUT PAR VALUE
 
WITH PAR VALUE
TYPE
 
NUMBER OF SHARES
 
TYPE
 
NUMBER OF SHARES
 
PAR VALUE
Common
 
—

 
Common
 
750,000,000

 
$
1

 
 
 
 
 
 
 
 
 
Preferred
 
3,500,000

 
Preferred
 
—

 
 


(7) The amendment shall be effective at the time and on the date approved by the Division, unless a later effective date not more than 90 days from the date and time of filing is specified:
*
G.L. Chapter 156D eliminates the concept of par value, however a corporation may specify par value in Article III. See G.L. Chapter 156D, Section 6.21, and the comments relative thereto.

 
 
 
Signed by:
 
/s/ Richard P. Jacobson
 
 
(signature of authorized individual)
¬
Chairman of the board of directors,
¬
President,
x
Other officer,
¬
Court-appointed fiduciary,
On this 18 th day of April, 2007

COMMONWEALTH OF MASSACHUSETTS
William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
Articles of Amendment
(General Laws Chapter 156D, Section 10.06; 950 CMR 113.34)
I hereby certify that upon examination of these articles of amendment, it appears that the provisions of the General Laws relative thereto have been complied with, and the filing fee in the amount of $150,000 having been paid, said articles are deemed to have been filed with me this 23rd day of April 2007, at 1:30 a.m./p.m. time
Effective date:




 
(must be within 90 days of date submitted)
 
/s/ William Francis Galvin
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
Filing fee: Minimum filing fee $100 per article amended, stock increases $100 per 100,000 shares, plus $100 for each additional 100,000 shares or any fraction thereof.
TO BE FILLED IN BY CORPORATION
[STAMP]
 
 
 
Examiner
 
Contact Information:
Name Approval
 
Richard Jacobson, Assistant Secretary
State Street Corporation
One Lincoln Street
c
 
Boston, Massachusetts 02111
Telephone: (617) 664-3507
Email: rpjacobson@statestreet.com
m
 
 
Upon filing, a copy of this filing will be available at www.sec.state.ma.us/com. If the document is rejected, a copy of the rejection sheet and rejected document will be available in the rejected queue.


The Commonwealth of Massachusetts
William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
Articles of Amendment
(General Laws Chapter 156D, Section 10.06: 950 CMR 113.34)




 
 
 
 
 
 
 
(1)
 
Exact name of corporation:
 
 
 
 
 
 
State Street Corporation
 
 
 
 
 
(2)
 
Registered office address:
 
 
 
 
 
 
155 Federal Street, Boston, Massachusetts 02110
 
 
 
 
 
 
(number, street, city or town, state, zip code)
 
 
 
 
 
(3)
 
These articles of amendment affect article(s):
 
 
 
 
 
 
Four
 
 
 
 
 
 
(specify the number(s) of articles(s) being amended(I-VI))
 
 
 
 
 
 
(4)
 
Date adopted:
 
January 16, 2008
 
 
 
 
 
 
(month, day, year)
 
 
 
 
 
 
(5)
 
Approved by:
 
 
 
 
 
 
 
 
(check appropriate box)
 
 
 
 
¬
the incorporators.
 
 
 
 
x
the board of directors without shareholder approval and shareholder approval was not required.
 
 
 
 
¬
the board of directors and the shareholders in the manner required by law and the articles of organization.
 
 
(6)
 
State the article number and the text of the amendment. Unless contained in the text of the amendment, state the provisions for implementing the exchange, reclassification or cancellation of issued shares.
That Article 4 of the Restated Articles of Organization be Amended to designate a Series A of preferred stock more particularly described on Exhibit A attached hereto and made a part hereof.
To change the number of shares and the par value, * if any, of any type, or to designate a class or series, of stock, or change a designation of class or series of stock, which the corporation is authorized to issue, complete the following:
Total authorized prior to amendment:
 
 
 
 
 
 
 
 
 
WITHOUT PAR VALUE
 
 
 
WITH PAR VALUE
NUMBER OF SHARES
 
 
TYPE
 
NUMBER OF SHARES
 
TYPE
 
 
PAR VALUE
Total authorized after amendment:




 
 
 
 
 
 
 
 
 
WITHOUT PAR VALUE
 
 
 
WITH PAR VALUE
NUMBER OF SHARES
 
PAR VALUE
TYPE
 
NUMBER OF SHARES
 
TYPE
 
 

(7)
The amendment shall be effective at the time and on the date approved by the Division, unless a letter effective date not more than 90 days from the date and time of filing is specified:

*
G.L. Chapter 156D eliminate the concept of par value, however a corporation may specify par value in Article III. See G.L. Chapter 156D, Section 6.21, and comment relative thereto.

 
 
 
Signed by:
 
/s/ David C. Phelan
 
 
(signature of authorized individual)
¬
Chairman of the board of directors,
¬
President,
x
Other officer,
¬
Court-appointed fiduciary,
on this 24 th day of January, 2008.


COMMONWEALTH OF MASSACHUSETTS
William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
Articles of Amendment
(General Laws Chapter 156D, Section 10.06; 950 CMR 113.34)
I hereby certify that upon examination of these articles of amendment, it appears that the provisions of the General Laws relative thereto have been complied with, and the filing fee in the amount of $ having been paid, said articles are deemed to have been filed with me this day of , January 24, 2008 , at 3:54 p.m.
 
 
 
Effective date:
 
 
 
 
(must be within 90 days of date submitted)




WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
Filing fee: Minimum filing fee $100 per article amended, stock increases $100 per 100,000 shares, plus $100 for each additional 100,000 shares or any fraction thereof.
TO BE FILLED IN BY CORPORATION
Contact Information:
 
David C. Phelan
 
 
State Street Corporation
 
 
One Lincoln Street, Boston, Massachusetts 02111
 

 
 
 
 
Telephone:
 
Email: dcphelan@statestreet.com
Upon filing, a copy of this filing will be available at www.sec.state.ma.us/cor. If the document is rejected, a copy of the rejection sheet and rejected document will be available in the rejected queue.

EXHIBIT A
CERTIFICATE OF DESIGNATION
OF
NON-CUMULATIVE PERPETUAL PREFERRED STOCK, SERIES A
OF
STATE STREET CORPORATION
(Pursuant to Section 6.02 of the Massachusetts Business Corporation Act)
State Street Corporation, a corporation organized and existing under the Massachusetts Business Corporation Act of the Commonwealth of Massachusetts (the “Corporation”), in accordance with the provisions of Section 6.02 thereof, hereby certifies:
The Executive Committee (the “Committee”) of the Board of Directors of the Corporation, in accordance with the resolutions of the Board of Directors dated March 16, 2006, March 15, 2007 and December 13, 2007 and the provisions of the




Articles of Organization, adopted the following resolutions creating a series of 5,001 shares of Preferred Stock of the Corporation designated as “Non-cumulative Perpetual Preferred Stock, Series A”.
RESOLVED, that pursuant to the authority vested in the Committee and in accordance with the resolutions of the Board of Directors dated March 16, 2006, March 15, 2007 and December 13, 2007 and the provisions of the Articles of Organization, a series of Preferred Stock, without par value, of the Corporation be and hereby is created, and that the designation and number of shares, and the preferences, limitations, and relative rights thereof are as follows:
Section 1. Designation and Number, Issue Date. The series will be designated the “Non-cumulative Perpetual Preferred Stock, Series A” (hereinafter called the “Series A”) and will initially consist of 5,001 shares. The number of shares constituting this Series may be increased from time to time in accordance with law up to the maximum number of shares of Preferred Stock authorized to be issued under the Articles of Organization less all shares at the time authorized of any other series of Preferred Stock as of the date hereof. Shares of this Series will be dated the date of issue. Shares of the Series A that are redeemed, purchased or otherwise acquired by the Corporation, or converted into another series of Preferred Stock, shall, after such redemption, purchase or acquisition, have the status of authorized but unissued shares of preferred stock of the Corporation, without designation as to series until such shares are once more designated as part of a particular series by the Board of Directors.
Section 2. Definitions. As used herein with respect to the Series A:
(a) “Articles of Organization” means the Articles of Organization of the Corporation, as may be amended from time to time, and shall include this Certificate of Designation.
(b) “Board of Directors” means the board of directors of the Corporation.
(c) “Bylaws” means the Bylaws of the Corporation, as may be amended from time to time.
(d) “Business Day” means any day other than a Saturday, Sunday or any other day on which banking institutions and trust companies in New York, New York, Boston, Massachusetts or Wilmington, Delaware are permitted or required by any applicable law to close.
(e) “Calculation Agent” means, at any time, the person or entity appointed by the Corporation and serving as such agent at such time. The Corporation may terminate any such appointment and may appoint a successor agent at any time and from time to time, provided that the Corporation shall use its best efforts to ensure that there is, at all relevant times when the Series A is outstanding, a person or entity appointed and serving as such agent. The Calculation Agent may be a person or entity affiliated with the Corporation.
(f) “Certificate of Designation” means this Certificate of Designation relating to the Series A, as it may be amended from time to time.
(g) “Common Stock” means the common stock, par value $1.00 per share, of the Corporation.
(h) “Junior Stock” means the Common Stock and any other class or series of stock of the Corporation (other than the Series A) that ranks junior to the Series A either or both as to the payment of dividends and/or as to the distribution of assets on any liquidation, dissolution or winding up of the Corporation.
(i) “London Banking Day” means any day on which commercial banks are open for general business (including dealings in deposits in U.S. dollars) in London, England.
(j) “Preferred Stock” means any and all series of Preferred Stock, having no par value, of the Corporation, including the Series A.
(k) “Reuters Screen LIBOR01 Page” means the display designated on the Reuters 3000 Xtra (or such other page as may replace that page on that service or such other service as may be nominated by the British Bankers’ Association for the purpose of displaying London interbank offered rates for U.S. dollar deposits).
(l) “Three-month LIBOR,” with respect to any Dividend Period, means the offered rate expressed as a percentage per annum for deposits in U.S. dollars for a three-month period commencing on the first day of such Dividend Period, as that rate appears on Reuters Screen LIBOR01 Page as of 11:00 A.M., London time, on the second London Banking Day immediately preceding the first day of such Dividend Period.
If Three-month LIBOR does not appear on Reuters Screen LIBOR01 Page, Three-month LIBOR shall be determined on the basis of the rates at which deposits in U.S. dollars for a three-month period, beginning on the first day of such Dividend Period, and in a principal amount of not less than $1,000,000 are offered to prime banks in the London interbank market by four major banks in that market selected by the Calculation Agent at approximately 11:00 A.M., London time, on the second London Banking Day immediately preceding the first day of such Dividend Period. The Calculation Agent shall request the principal London office of each of these banks to provide a quotation of its rate. If at




least two quotations are provided, Three-month LIBOR for such Dividend Period shall be the arithmetic mean of such quotations (rounded upward if necessary to the nearest 0.00001 of 1%) of such quotations.
If fewer than two quotations are provided as described in the preceding paragraph, Three-month LIBOR for such Dividend Period shall be the arithmetic mean (rounded upward if necessary to the nearest 0.00001 of 1%) of the rates quoted by three major banks in New York City selected by the Calculation Agent at approximately 11:00 A.M., New York City time, on the first day of such Dividend Period for loans in U.S. dollars to leading European banks for a three-month period, beginning on the first day of such Dividend Period, and in a principal amount of not less than $1,000,000.
If fewer than three banks selected by the Calculation Agent to provide quotations are quoting as described in the preceding paragraph, Three-month LIBOR for such Dividend Period shall be the Three-month LIBOR in effect for the prior Dividend Period or in the case of the first Dividend Period, the most recent Three-month LIBOR that could have been determined had the Preferred Stock been outstanding.
(m) “Voting Parity Stock” means, with regard to any election or removal of a Preferred Stock Director (as defined in Section 6(b) below) or any other matter as to which the holders of Series A are entitled to vote as specified in Section 6 of this Certificate of Designation, any and all series of Preferred Stock (other than the Series A) that rank equally with the Series A as to the payment of dividends, whether bearing dividends on a non-cumulative or cumulative basis, and having voting rights equivalent to those described in Section 6(b).

Section 3. Dividends.
(a) Rate. Holders of the Series A shall be entitled to receive, when, as and if declared by the Board of Directors (or a duly authorized committee of the Board of Directors) out of funds legally available therefor, non-cumulative cash dividends at the rate determined as set forth below in this Section 3 applied to the liquidation preference amount of $100,000 per share of Series A. Such dividends shall be payable in arrears (as provided below in this Section 3(a)), but only when, as and if declared by the Board of Directors (or a duly authorized committee of the Board of Directors), (a) if the shares of Series A are issued prior to March 15, 2011, on March 15 and September 15 of each year until March 15, 2011, and (b) thereafter, on March 15, June 15, September 15 and December 15 of each year (each a “Dividend Payment Date”); provided that if any such Dividend Payment Date on or after March 15, 2011 would otherwise occur on a day that is not a Business Day, such Dividend Payment Date shall instead be (and any dividend payable on the Series A on such Dividend Payment Date shall instead be payable on) the immediately succeeding Business Day. If a Dividend Payment Date prior to March 15, 2011 is not a Business Day, the applicable dividend shall be paid on the first Business Day following that day without adjustment. Dividends on the Series A shall not be cumulative; holders of Series A shall not be entitled to receive any dividends not declared by the Board of Directors (or a duly authorized committee of the Board of Directors) and no interest, or sum of money in lieu of interest, shall be payable in respect of any dividend not so declared.
Dividends that are payable on the Series A on any Dividend Payment Date will be payable to holders of record of the Series A as they appear on the stock register of the Corporation on the applicable record date, which shall be the 15th calendar day before such Dividend Payment Date or such other record date fixed by the Board of Directors (or a duly authorized committee of the Board of Directors) that is not more than 60 nor less than 10 days prior to such Dividend Payment Date (each, a “Dividend Record Date”). Any such day that is a Dividend Record Date shall be a Dividend Record Date whether or not such day is a Business Day.
Each dividend period (a “Dividend Period”) shall commence on and include a Dividend Payment Date (other than the initial Dividend Period, which shall commence on and include the date of original issue of the Series A) and shall end on and include the calendar day preceding the next Dividend Payment Date. Dividends payable on the Series A in respect of a Dividend Period shall be computed by the Calculation Agent (i) if shares of Series A are issued prior to March 15, 2011, on the basis of a 360-day year consisting of twelve-30 day months until the Dividend Payment Date in March 2011 and (ii) thereafter, by multiplying the per annum dividend rate in effect for that Dividend Period by a fraction, the numerator of which will be the actual number of days in that Dividend Period and the denominator of which will be 360, and multiplying the rate obtained by $100,000. Dividends payable in respect of a Dividend Period shall be payable in arrears-i.e., on the first Dividend Payment Date after such Dividend Period.
The dividend rate on the Series A, for each Dividend Period, shall be (a) if the shares of Series A are issued prior to March 15, 2011, a rate per annum equal to 8.250% until the Dividend Payment date in March 15, 2011, and (b) thereafter, a rate per annum that will be reset quarterly and shall be equal to Three-month LIBOR for such Dividend Period plus 4.990%, applied to the $100,000 liquidation preference per share.
The Calculation Agent’s determination of any dividend rate, and its calculation of the amount of dividends for any Dividend Period, will be maintained on file at the Corporation’s principal offices and will be available to any shareholder upon request and will be final and binding in the absence of manifest error.




Holders of the Series A shall not be entitled to any dividends, whether payable in cash, securities or other property, other than dividends (if any) declared and payable on the Series A as specified in this Section 4 (subject to the other provisions of this Certificate of Designation).
(b) Priority of Dividends. So long as any share of Series A remains outstanding, no dividend shall be declared or paid on the Common Stock or any other shares of Junior Stock (other than a dividend payable solely in Junior Stock), unless (i) full dividends for the then current Dividend Period on all outstanding shares of Series A have been declared and paid (or declared and a sum sufficient for the payment thereof has been set aside) and (ii) the Corporation is not in default on its obligation to redeem any shares of Series A that have been called for redemption. The Corporation and its subsidiaries shall not purchase, redeem or otherwise acquire, directly or indirectly, for consideration any shares of Common Stock or other Junior Stock (other than as a result of a reclassification of Junior Stock for or into other Junior Stock, or the exchange or conversion of one share of Junior Stock for or into another share of Junior Stock and other than through the use of the proceeds of a substantially contemporaneous sale of other shares of Junior Stock) nor shall the Corporation pay or make available any monies for a sinking fund for the redemption of any shares of Common Stock or any other shares of Junior Stock during a Dividend Period, unless the full dividends for the most recently-completed Dividend Period on all outstanding shares of Series A have been declared and paid (or declared and a sum sufficient for the payment thereof has been set aside). The foregoing provision shall not restrict the ability of the Corporation, or any other affiliate of the Corporation to engage in any market-making transactions in Junior Stock in the ordinary course of business.
On any Dividend Payment Date for which full dividends are not paid, or declared and funds set aside therefor, upon the Preferred Stock and other equity securities designated as ranking on a parity with the Series A as to payment of dividends (“Dividend Parity Stock”), all dividends paid or declared for payment on that Dividend Payment Date with respect to the Series A and the Dividend Parity Stock shall be shared (1) first ratably by the holders of any such shares who have the right to receive dividends with respect to Dividend Periods prior to the then- current Dividend Period for which such dividends were not declared and paid, in proportion to the respective amounts of the undeclared and unpaid dividends relating to prior Dividend Periods, and thereafter (2) by the holders of these shares on a pro rata basis.
Subject to the foregoing, such dividends (payable in cash, securities or other property) as may be determined by the Board of Directors (or a duly authorized committee of the Board of Directors) may be declared and paid on any securities, including Common Stock and other Junior Stock, from time to time out of any funds legally available for such payment, and the Series A shall not be entitled to participate in any such dividends.
Any class or series of preferred stock issued at any time by the Corporation that is entitled to receive dividends when, as and if declared by the Board of Directors (or a duly authorized committee of the Board of Directors) shall have, for any period when any shares of Series A is outstanding, the same dividend payment dates as the Dividend Payment Dates of the Series A.
Section 4. Liquidation Rights.
(a) Voluntary or Involuntary Liquidation. In the event of any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, holders of Series A shall be entitled to receive, out of the assets of the Corporation or proceeds thereof (whether capital or surplus) available for distribution to shareholders of the Corporation, and after satisfaction of all liabilities and obligations to creditors of the Corporation, before any distribution of such assets or proceeds is made to or set aside for the holders of Common Stock and any other stock of the Corporation ranking junior to the Series A as to such distribution, in full an amount equal to $100,000 per share (the “Series A Liquidation Amount”), together with an amount equal to all dividends (if any) that have been declared but not paid prior to the date of payment of such distribution (but without any amount in respect of dividends that have not been declared prior to such payment date). After payment of the full amount of such liquidation distribution, the holders of Series A shall not be entitled to any further participation in any distribution of assets of the Corporation.
(b) Partial Payment. If in any distribution described in Section 4(a) above the assets of the Corporation or proceeds thereof are not sufficient to pay the Liquidation Preferences (as defined below) in full to all holders of Series A and all holders of any stock of the Corporation ranking equally with the Series A as to such distribution, the amounts paid to the holders of Series A and to the holders of all such other stock shall be paid pro rata in accordance with the respective aggregate Liquidation Preferences of the holders of Series A and the holders of all such other stock. In any such distribution, the “Liquidation Preference” of any holder of stock of the Corporation shall mean the amount otherwise payable to such holder in such distribution (assuming no limitation on the assets of the Corporation available for such distribution), including an amount equal to any declared but unpaid dividends (and, in the case of any holder of stock other than the Series A and on which dividends accrue on a cumulative basis, an amount equal to any unpaid, accrued, cumulative dividends, whether or not declared, as applicable).




(c) Residual Distributions. If the Liquidation Preference has been paid in full to all holders of Series A, the holders of other stock of the Corporation shall be entitled to receive all remaining assets of the Corporation (or proceeds thereof) according to their respective rights and preferences.
(d) Merger, Consolidation and Sale of Assets Not Liquidation. For purposes of this Section 4, the merger or consolidation of the Corporation with any other corporation or other entity, including a merger or consolidation in which the holders of Series A receive cash, securities or other property for their shares, or the sale, lease or exchange (for cash, securities or other property) of all or substantially all of the assets of the Corporation, shall not constitute a liquidation, dissolution or winding up of the Corporation.
Section 5. Redemption.
(a) Optional Redemption. The Series A may not be redeemed by the Corporation prior to the later of March 15, 2011 and the date of original issue of the Series A. On or after that date, the Corporation, at its option, may redeem, in whole at any time or in part from time to time, the shares of Series A at the time outstanding, upon notice given as provided in Section 5(c) below, at a cash redemption price equal to $100,000 per share, together (except as otherwise provided herein) with an amount equal to any dividends that have been declared but not paid prior to the redemption date (but with no amount in respect of any dividends that have not been declared prior to such date). The redemption price for any shares of Series A shall be payable on the redemption date to the holder of such shares against surrender of the certificate(s) evidencing such shares to the Corporation or its agent. Any declared but unpaid dividends payable on a redemption date that occurs subsequent to the Dividend Record Date for a Dividend Period shall not be paid to the holder entitled to receive the redemption price on the redemption date, but rather shall be paid to the holder of record of the redeemed shares on such Dividend Record Date relating to the Dividend Payment Date as provided in Section 3 above.
(b) No Sinking Fund. The Series A will not be subject to any mandatory redemption, sinking fund or other similar provisions. Holders of Series A will have no right to require redemption of any shares of Series A.
(c) Notice of Redemption. Notice of every redemption of shares of Series A shall be given by first class mail, postage prepaid, addressed to the holders of record of the shares to be redeemed at their respective last addresses appearing on the books of the Corporation. Such mailing shall be at least 30 days and not more than 60 days before the date fixed for redemption. Any notice mailed as provided in this Subsection shall be conclusively presumed to have been duly given, whether or not the holder receives such notice, but failure duly to give such notice by mail, or any defect in such notice or in the mailing thereof, to any holder of shares of Series A designated for redemption shall not affect the validity of the proceedings for the redemption of any other shares of Series A. Notwithstanding the foregoing, if the Series A or any depositary shares representing interests in the Series A are issued in book-entry form through The Depository Trust Company or any other similar facility, notice of redemption may be given to the holders of Series A at such time and in any manner permitted by such facility. Each such notice given to a holder shall state: (1) the redemption date; (2) the number of shares of Series A to be redeemed and, if less than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (3) the redemption price; and (4) the place or places where certificates for such shares are to be surrendered for payment of the redemption price.

(d) Partial Redemption. In case of any redemption of only part of the shares of Series A at the time outstanding, the shares to be redeemed shall be selected either pro rata or by lot or in such other manner as the Board of Directors (or a duly authorized committee of the Board of Directors) may determine to be fair and equitable. Subject to the provisions hereof, the Corporation shall have full power and authority to prescribe the terms and conditions upon which shares of Series A shall be redeemed from time to time. If fewer than all the shares represented by any certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without charge to the holder thereof.
(e) Effectiveness of Redemption. If notice of redemption has been duly given and if on or before the redemption date specified in the notice all funds necessary for the redemption have been set aside by the Corporation, separate and apart from its other funds, in trust for the pro rata benefit of the holders of the shares called for redemption, so as to be and continue to be available therefor, then, notwithstanding that any certificate for any share so called for redemption has not been surrendered for cancellation, on and after the redemption date dividends shall cease to accrue on all shares so called for redemption, all shares so called for redemption shall no longer be deemed outstanding and all rights with respect to such shares shall forthwith on such redemption date cease and terminate, except only the right of the holders thereof to receive the amount payable on such redemption, without interest. Any funds unclaimed at the end of two years from the redemption date, to the extent permitted by law, shall be released to the Corporation, after which time the holders of the shares so called for redemption shall look only to the Corporation for payment of the redemption price of such shares.
Section 6. Voting Rights.




(a) General. The holders of Series A shall not have any voting rights except as set forth below or as otherwise from time to time required by applicable law.
(b) Right To Elect Two Directors Upon Nonpayment Events. If and whenever the dividends on the Series A and any other class or series of Voting Parity Stock have not been declared and paid in an aggregate amount (i) in the case of the Series A and any other class or series of Voting Parity Stock bearing non-cumulative dividends, equal to at least six quarterly dividends (whether or not consecutive) or (ii) in the case of any class or series of Voting Parity Stock bearing cumulative dividends, in an aggregate amount equal to full dividends for at least six quarterly dividend periods or their equivalent (whether or not consecutive) (a “Nonpayment Event”), the number of directors then constituting the Board of Directors shall automatically be increased by two and the holders of Series A, together with the holders of any outstanding shares of Voting Parity Stock, voting as a single class, shall be entitled to elect the two additional directors (the “Preferred Stock Directors”), provided that it shall be a qualification for election for any such Preferred Stock Director that the election of such director shall not cause the Corporation to violate the corporate governance requirement of the New York Stock Exchange (or any other securities exchange or other trading facility on which securities of the Corporation may then be listed or traded) that listed or traded companies must have a majority of independent directors and provided further that the Board of Directors shall at no time include more than two Preferred Stock Directors (including, for purposes of this limitation, all directors that the holders of any series of Voting Parity Stock are entitled to elect pursuant to like voting rights).
In the event that the holders of Series A and such other holders of Voting Parity Stock shall be entitled to vote for the election of the Preferred Stock Directors following a Nonpayment Event, such directors shall be initially elected following such Nonpayment Event only at a special meeting called at the request of the holders of record of at least 20% of the Series A and each other series of Voting Parity Stock then outstanding (unless such request for a special meeting is received less than 90 days before the date fixed for the next annual or special meeting of the shareholders of the Corporation, in which event such election shall be held only at such next annual or special meeting of shareholders), and at each subsequent annual meeting of shareholders of the Corporation. Such request to call a special meeting for the initial election of the Preferred Stock Directors after a Nonpayment Event shall be made by written notice, signed by the requisite holders of Series A or Voting Parity Stock, and delivered to the Secretary of the Corporation in such manner as provided for in Section 8 below, or as may otherwise be required by applicable law. If the Secretary of the Corporation fails to call a special meeting for the election of the Preferred Stock Directors within 20 days of receiving proper notice, any holder of Series A may call such a meeting at the Corporation’s expense solely for the election of the Preferred Stock Directors, and for this purpose only such Series A holder shall have access to the Corporation’s stock ledger.
When dividends have been paid in full on the Series A and any and all series of non-cumulative Voting Parity Stock (other than the Series A) for Dividend Periods, whether or not consecutive, equivalent to at least one year after a Nonpayment Event and all dividends on any cumulative Voting Parity Stock have been paid in full, then the right of the holders of Series A to elect the Preferred Stock Directors shall cease (but subject always to revesting of such voting rights in the case of any future Nonpayment Event), and, if and when any rights of holders of Series A and Voting Parity Stock to elect the Preferred Stock Directors shall have ceased, the terms of office of all the Preferred Stock Directors shall forthwith terminate and the number of directors constituting the Board of Directors shall automatically be reduced accordingly.
Any Preferred Stock Director may be removed at any time without cause by the holders of record of a majority of the outstanding shares of Series A and Voting Parity Stock, when they have the voting rights described above (voting together as a single class). The Preferred Stock Directors elected at any such special meeting shall hold office until the next annual meeting of the shareholders if such office shall not have previously terminated as below provided. In case any vacancy shall occur among the Preferred Stock Directors, a successor shall be elected by the Board of Directors to serve until the next annual meeting of the shareholders upon the nomination of the then remaining Preferred Stock Director or, if no Preferred Stock Director remains in office, by the vote of the holders of record of a majority of the outstanding shares of Series A and such Voting Parity Stock for which dividends have not been paid, voting as a single class. The Preferred Stock Directors shall each be entitled to one vote per director on any matter that shall come before the Board of Directors for a vote.
(c) Other Voting Rights. So long as any shares of Series A are outstanding, in addition to any other vote or consent of shareholders required by law or by the Articles of Organization, the vote or consent of the holders of at least a majority of the shares of Series A at the time outstanding and entitled to vote thereon, voting separately as a single class, given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, shall be necessary for effecting or validating:
(i) Authorization of Senior Stock. Any amendment, alteration or repeal of any provision of the Articles of Organization or Bylaws to authorize or create, or increase the authorized amount of, any shares of any class or series of capital stock of the Corporation ranking senior to the Series A with respect to either the payment of dividends or the distribution of assets on any liquidation, dissolution or winding up of the Corporation;




(ii) Amendment of Series A. Any amendment, alteration or repeal of any provision of the Articles of Organization or Bylaws so as to adversely affect the special rights, preferences, privileges or voting powers of the Series A; provided , however , that any amendment of the Articles of Organization to authorize or create or to increase the authorized amount of any Junior Stock or any class or series or any securities convertible into shares of any class or series of Dividend Parity Stock or other series of Preferred Stock ranking equally with the Series A with respect to the distribution of assets upon liquidation, dissolution or winding up of the Corporation will not be deemed to adversely affect the rights, preferences, privileges or voting powers of the Series A; or
(iii) Share Exchanges, Reclassifications, Mergers and Consolidations. Any consummation of a binding share exchange or reclassification involving the Series A, or of a merger or consolidation of the Corporation with another corporation or other entity, or any merger or consolidation of the Corporation with or into any entity other than a corporation unless in each case (x) the shares of Series A remain outstanding or, in the case of any such merger or consolidation with respect to which the Corporation is not the surviving or resulting corporation, are converted into or exchanged for preference securities of the surviving or resulting corporation or a corporation controlling such corporation, and (y) such shares remaining outstanding or such preference securities, as the case may be, have such rights, preferences, privileges and voting powers, and limitations and restrictions thereof as would not require a vote of the holders of the Preferred Stock pursuant to clauses (i) or (ii) above if such change were effected by an amendment of the Articles of Organization.
If any amendment, alteration, repeal, share exchange, reclassification, merger or consolidation specified in this Section 6(c) would adversely affect the Series A and one or more but not all other series of Preferred Stock, then only the Series A and such series of Preferred Stock as are adversely affected by and entitled to vote on the matter shall vote on the matter together as a single class (in lieu of all other series of Preferred Stock).
(d) Changes for Clarification. Without the consent of the holders of Series A, so long as such action does not adversely affect the rights, preferences, privileges and voting powers, and limitations and restrictions thereof, of the Series A, the Corporation may amend, alter, supplement or repeal any terms of the Series A:
(i) to cure any ambiguity, or to cure, correct or supplement any provision contained in this Certificate of Designation that may be defective or inconsistent; or
(ii) to make any provision with respect to matters or questions arising with respect to the Series A that is not inconsistent with the provisions of this Certificate of Designation.
(e) Changes after Provision for Redemption. No vote or consent of the holders of Series A shall be required pursuant to Section 6(b) or (c) above if, at or prior to the time when any such vote or consent would otherwise be required pursuant to such Section, all outstanding shares of Series A shall have been redeemed, or shall have been called for redemption upon proper notice and sufficient funds shall have been set aside for such redemption, in each case pursuant to Section 5 above.
(f) Procedures for Voting and Consents. The rules and procedures for calling and conducting any meeting of the holders of Series A (including, without limitation, the fixing of a record date in connection therewith), the solicitation and use of proxies at such a meeting, the obtaining of written consents and any other aspect or matter with regard to such a meeting or such consents shall be governed by any rules the Board of Directors, in its discretion, may adopt from time to time, which rules and procedures shall conform to the requirements of the Articles of Organization, the Bylaws, applicable law and any national securities exchange or other trading facility on which the Series A is listed or traded at the time. Whether the vote or consent of the holders of a plurality, majority or other portion of the shares of Series A and any Voting Parity Stock has been cast or given on any matter on which the holders of shares of Series A are entitled to vote shall be determined by the Corporation by reference to the specified liquidation amounts of the shares voted or covered by the consent.
For purposes of determining the voting rights of the holders of Series A under this Section 6, each holder will be entitled to one vote for each $100,000 of liquidation preference to which his or her shares are entitled. Holders of shares of Series A will be entitled to one vote for each such share of Series A held by them.
Section 7. Record Holders. To the fullest extent permitted by applicable law, the Corporation and the transfer agent for the Series A may deem and treat the record holder of any share of Series A as the true and lawful owner thereof for all purposes, and neither the Corporation nor such transfer agent shall be affected by any notice to the contrary.
Section 8. Notices. All notices or communications in respect of the Series A shall be sufficiently given if given in writing and delivered in person or by first class mail, postage prepaid, or if given in such other manner as may be permitted in this Certificate of Designation, in the Articles of Organization or Bylaws or by applicable law.




Section 9. No Preemptive Rights. No share of Series A shall have any rights of preemption whatsoever as to any securities of the Corporation, or any warrants, rights or options issued or granted with respect thereto, regardless of how such securities, or such warrants, rights or options, may be designated, issued or granted.

Section 10. Other Rights. The shares of Series A shall not have any voting powers, preferences or relative, participating, optional or other special rights, or qualifications, limitations or restrictions thereof, other than as set forth herein or in the Articles of Organization or as provided by applicable law.


04-2456637
 
 
 
D
 
The Commonwealth of Massachusetts
PC
 
William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512

 
 
 
 
 
FOR MUST BE TYPED
 
Articles of Amendment
 
FORM MUST BE TYPED
(General Laws Chapter 156D, Section 10.06; 950 CMR 113.34)




 
 
 
 
 
(1)
 
Exact name of corporation: State Street Corporation 042456637
 
 
(2)
 
Registered office address: 155 Federal Street, Boston, MA 02110
 
 
 
 
(number, street, city or town, state, zip code)
 
 
(3)
 
These articles of amendment affect article(s): IV
 
 
 
 
(specify the number(s) of article(s) being amended (I-VI))
 
 
(4)
 
Date adopted: October 27, 2008
 
 
 
 
(month, day, year)
 
 
(5)
 
Approved by:
 
 
 
 
(check appropriate box)
 
 
 
 
¬  the incorporators.
 
 
 
 
þ  the board of directors without shareholder approval and shareholder approval was not required.
 
 
 
 
¬  the board of directors and the shareholders in the manner required by law and the articles of organization.
 
 
(6)
 
State the article number and the text of the amendment. Unless contained in the text of the amendment, state the provisions for implementing the exchange, reclassification or cancellation of issued shares.
That Article 4 of the Restated Articles of Organization be amended to designate a Series B of Preferred Stock more particularly described on Exhibit A attached hereto and made a part hereof.
To change the number of shares and the par value, * if any, of any type, or to designate a class or series, of stock, or change a designation of class or series of stock, which the corporation is authorized to issue, complete the following:
Total authorized prior to amendment:
 
 
 
 
 
 
 
 
 
WITHOUT PAR VALUE
 
WITH PAR VALUE
TYPE
 
NUMBER OF SHARES
 
TYPE
 
NUMBER OF SHARES
 
PAR VALUE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




Total authorized after amendment:
 
 
 
 
 
 
 
 
 
WITHOUT PAR VALUE
 
WITH PAR VALUE
TYPE
 
NUMBER OF SHARES
 
TYPE
 
NUMBER OF SHARES
 
PAR VALUE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
(7)
 
The amendment shall be effective at the time and on the date approved by the Division, unless a later effective date nor more than 90 days from the date and time of filing is specified:

*
G.L. Chapter 156D eliminates the concept of par value, however a corporation may specify par value in Article III. See G.L. Chapter 156D, Section 6.21, and the comments relative thereto.


Exhibit A
CERTIFICATE OF DESIGNATIONS
OF
FIXED RATE CUMULATIVE PERPETUAL PREFERRED STOCK, SERIES B
OF
STATE STREET CORPORATION
State Street Corporation, a corporation organized and existing under the laws of the Commonwealth of Massachusetts (the “ Corporation ”), in accordance with the provisions of Section 6.02 of the Massachusetts Business Corporation Act, does hereby certify:
The board of directors of the Corporation (the “ Board of Directors ”) or an applicable committee of the Board of Directors, in accordance with the articles of organization and bylaws of the Corporation and applicable law, adopted the following resolution on October 27, 2008 creating a series of 20,000 shares of Preferred Stock of the Corporation designated as “ Fixed Rate Cumulative Perpetual Preferred Stock, Series B ”.
RESOLVED, that pursuant to the provisions of the articles of organization and the bylaws of the Corporation and applicable law, a series of Preferred Stock, no par value per share, of the Corporation be and hereby is created, and that the designation and number of shares of such series, and the voting and other powers, preferences and relative, participating, optional or other rights, and the qualifications, limitations and restrictions thereof, of the shares of such series, are as follows:




Part 1. Designation and Number of Shares . There is hereby created out of the authorized and unissued shares of preferred stock of the Corporation a series of preferred stock designated as the “Fixed Rate Cumulative Perpetual Preferred Stock, Series B” (the “ Designated Preferred Stock ”). The authorized number of shares of Designated Preferred Stock shall be 20,000.
Part 2. Standard Provisions . The Standard Provisions contained in Annex A attached hereto are incorporated herein by reference in their entirety and shall be deemed to be a part of this Certificate of Designations to the same extent as if such provisions had been set forth in full herein.
Part 3. Definitions . The following terms are used in this Certificate of Designations (including the Standard Provisions in Annex A hereto) as defined below:
(a) “ Common Stock ” means the common stock, par value $1.00 per share, of the Corporation.
(b) “ Dividend Payment Date ” means March 15, June 15, September 15 and December 15 of each year.
(c) “ Junior Stock ” means the Common Stock and any other class or series of stock of the Corporation the terms of which expressly provide that it ranks junior to Designated Preferred Stock as to dividend rights and/or as to rights on liquidation, dissolution or winding up of the Corporation.

(d) “ Liquidation Amount ” means $100,000 per share of Designated Preferred Stock.
(e) “ Minimum Amount ” means $500,000,000.
(f) “ Parity Stock ” means any class or series of stock of the Corporation (other than Designated Preferred Stock) the terms of which do not expressly provide that such class or series will rank senior or junior to Designated Preferred Stock as to dividend rights and/or as to rights on liquidation, dissolution or winding up of the Corporation (in each case without regard to whether dividends accrue cumulatively or non-cumulatively). Without limiting the foregoing, Parity Stock shall include the Corporation’s Non-Cumulative Perpetual Preferred Stock, Series A.
(g) “ Signing Date ” means October 26, 2008.
Part 4. Certain Voting Matters . Whether the vote or consent of the holders of a plurality, majority or other portion of the shares of Designated Preferred Stock and any Voting Parity Stock has been cast or given on any matter on which the holders of shares of Designated Preferred Stock are entitled to vote shall be determined by the Corporation by reference to the specified liquidation amount of the shares voted or covered by the consent as if the Corporation were liquidated on the record date for such vote or consent, if any, or in the absence of a record date, on the date for such vote or consent. For purposes of determining the voting rights of the holders of Designated Preferred Stock under Section 7 of the Standard Provisions forming part of this Certificate of Designations, each holder will be entitled to one vote for each $100,000 of liquidation preference to which such holder’s shares are entitled.

IN WITNESS WHEREOF, State Street Corporation has caused this Certificate of Designations to be signed by Jeffrey N. Carp, its Executive Vice President and Chief Legal Officer, this 27th day of October 2008.
 
 
STATE STREET CORPORATION
 
 
By:
/s/ Jeffrey N. Carp
Name:
Jeffrey N. Carp
Title:
Executive Vice President and Chief Legal Officer


ANNEX A
STANDARD PROVISIONS




Section 1. General Matters . Each share of Designated Preferred Stock shall be identical in all respects to every other share of Designated Preferred Stock. The Designated Preferred Stock shall be perpetual, subject to the provisions of Section 5 of these Standard Provisions that form a part of the Certificate of Designations. The Designated Preferred Stock shall rank equally with Parity Stock and shall rank senior to Junior Stock with respect to the payment of dividends and the distribution of assets in the event of any dissolution, liquidation or winding up of the Corporation.
Section 2. Standard Definitions . As used herein with respect to Designated Preferred Stock:
(a) “ Applicable Dividend Rate ” means (i) during the period from the Original Issue Date to, but excluding, the first day of the first Dividend Period commencing on or after the fifth anniversary of the Original Issue Date, 5% per annum and (ii) from and after the first day of the first Dividend Period commencing on or after the fifth anniversary of the Original Issue Date, 9% per annum.
(b) “ Appropriate Federal Banking Agency ” means the “appropriate Federal banking agency” with respect to the Corporation as defined in Section 3(q) of the Federal Deposit Insurance Act (12 U.S.C. Section 1813(q)), or any successor provision.
(c) “ Business Combination ” means a merger, consolidation, statutory share exchange or similar transaction that requires the approval of the Corporation’s stockholders.
(d) “ Business Day ” means any day except Saturday, Sunday and any day on which banking institutions in the State of New York generally are authorized or required by law or other governmental actions to close.
(e) “ Bylaws ” means the bylaws of the Corporation, as they may be amended from time to time.
(f) “ Certificate of Designations ” means the Certificate of Designations or comparable instrument relating to the Designated Preferred Stock, of which these Standard Provisions form a part, as it may be amended from time to time.
(g) “ Charter ” means the Corporation’s certificate or articles of incorporation, articles of association, or similar organizational document.
(h) “ Dividend Period ” has the meaning set forth in Section 3(a).
(i) “ Dividend Record Date ” has the meaning set forth in Section 3(a).
(j) “ Liquidation Preference ” has the meaning set forth in Section 4(a).

(k) “ Original Issue Date ” means the date on which shares of Designated Preferred Stock are first issued.
(1) “ Preferred Director ” has the meaning set forth in Section 7(b).
(m) “ Preferred Stock ” means any and all series of preferred stock of the Corporation, including the Designated Preferred Stock.
(n) “ Qualified Equity Offering ” means the sale and issuance for cash by the Corporation to persons other than the Corporation or any of its subsidiaries after the Original Issue Date of shares of perpetual Preferred Stock, Common Stock or any combination of such stock, that, in each case, qualify as and may be included in Tier 1 capital of the Corporation at the time of issuance under the applicable risk-based capital guidelines of the Corporation’s Appropriate Federal Banking Agency (other than any such sales and issuances made pursuant to agreements or arrangements entered into, or pursuant to financing plans which were publicly announced, on or prior to October 13, 2008).
(o) “ Share Dilution Amount ” has the meaning set forth in Section 3(b).
(p) “ Standard Provisions ” mean these Standard Provisions that form a part of the Certificate of Designations relating to the Designated Preferred Stock.
(q) “ Successor Preferred Stock ” has the meaning set forth in Section 5(a).
(r) “ Voting Parity Stock ” means, with regard to any matter as to which the holders of Designated Preferred Stock are entitled to vote as specified in Sections 7(a) and 7(b) of these Standard Provisions that form a part of the Certificate of Designations, any and all series of Parity Stock upon which like voting rights have been conferred and are exercisable with respect to such matter.
Section 3. Dividends .




(a) Rate . Holders of Designated Preferred Stock shall be entitled to receive, on each share of Designated Preferred Stock if, as and when declared by the Board of Directors or any duly authorized committee of the Board of Directors, but only out of assets legally available therefor, cumulative cash dividends with respect to each Dividend Period (as defined below) at a rate per annum equal to the Applicable Dividend Rate on (i) the Liquidation Amount per share of Designated Preferred Stock and (ii) the amount of accrued and unpaid dividends for any prior Dividend Period on such share of Designated Preferred Stock, if any. Such dividends shall begin to accrue and be cumulative from the Original Issue Date, shall compound on each subsequent Dividend Payment Date ( i.e. , no dividends shall accrue on other dividends unless and until the first Dividend Payment Date for such other dividends has passed without such other dividends having been paid on such date) and shall be payable quarterly in arrears on each Dividend Payment Date, commencing with the first such Dividend Payment Date to occur at least 20 calendar days after the Original Issue Date. In the event that any Dividend Payment Date would otherwise fall on a day that is not a Business Day, the dividend payment due on that date will be postponed to the next day that is a Business Day and no additional dividends will accrue as a result of that postponement. The period from and including any Dividend Payment Date to, but excluding, the next Dividend Payment Date is a “ Dividend Period ”, provided that the initial Dividend Period shall be the period from and including the Original Issue Date to, but excluding, the next Dividend Payment Date.
Dividends that are payable on Designated Preferred Stock in respect of any Dividend Period shall be computed on the basis of a 360-day year consisting of twelve 30-day months. The amount of dividends payable on Designated Preferred Stock on any date prior to the end of a Dividend Period, and for the initial Dividend Period, shall be computed on the basis of a 360-day year consisting of twelve 30-day months, and actual days elapsed over a 30-day month.
Dividends that are payable on Designated Preferred Stock on any Dividend Payment Date will be payable to holders of record of Designated Preferred Stock as they appear on the stock register of the Corporation on the applicable record date, which shall be the 15th calendar day immediately preceding such Dividend Payment Date or such other record date fixed by the Board of Directors or any duly authorized committee of the Board of Directors that is not more than 60 nor less than 10 days prior to such Dividend Payment Date (each, a “ Dividend Record Date ”). Any such day that is a Dividend Record Date shall be a Dividend Record Date whether or not such day is a Business Day.
Holders of Designated Preferred Stock shall not be entitled to any dividends, whether payable in cash, securities or other property, other than dividends (if any) declared and payable on Designated Preferred Stock as specified in this Section 3 (subject to the other provisions of the Certificate of Designations).
(b) Priority of Dividends . So long as any share of Designated Preferred Stock remains outstanding, no dividend or distribution shall be declared or paid on the Common Stock or any other shares of Junior Stock (other than dividends payable solely in shares of Common Stock) or Parity Stock, subject to the immediately following paragraph in the case of Parity Stock, and no Common Stock, Junior Stock or Parity Stock shall be, directly or indirectly, purchased, redeemed or otherwise acquired for consideration by the Corporation or any of its subsidiaries unless all accrued and unpaid dividends for all past Dividend Periods, including the latest completed Dividend Period (including, if applicable as provided in Section 3(a) above, dividends on such amount), on all outstanding shares of Designated Preferred Stock have been or are contemporaneously declared and paid in full (or have been declared and a sum sufficient for the payment thereof has been set aside for the benefit of the holders of shares of Designated Preferred Stock on the applicable record date). The foregoing limitation shall not apply to (i) redemptions, purchases or other acquisitions of shares of Common Stock or other Junior Stock in connection with the administration of any employee benefit plan in the ordinary course of business (including purchases to offset the Share Dilution Amount (as defined below) pursuant to a publicly announced repurchase plan) and consistent with past practice, provided that any purchases to offset the Share Dilution Amount shall in no event exceed the Share Dilution Amount; (ii) purchases or other acquisitions by a broker-dealer subsidiary of the Corporation solely for the purpose of market-making, stabilization or customer facilitation transactions in Junior Stock or Parity Stock in the ordinary course of its business; (iii) purchases by a broker-dealer subsidiary of the Corporation of capital stock of the Corporation for resale pursuant to an offering by the Corporation of such capital stock underwritten by such broker-dealer subsidiary; (iv) any dividends or distributions of rights or Junior Stock in connection with a stockholders’ rights plan or any redemption or repurchase of rights pursuant to any stockholders’ rights plan; (v) the acquisition by the Corporation or any of its subsidiaries of record ownership in Junior Stock or Parity Stock for the beneficial ownership of any other persons (other than the Corporation or any of its subsidiaries), including as trustees or custodians; and (vi) the exchange or conversion of Junior Stock for or into other Junior Stock or of Parity Stock for or into other Parity Stock (with the same or lesser aggregate liquidation amount) or Junior Stock, in each case, solely to the extent required pursuant to binding contractual agreements entered into prior to the Signing Date or any subsequent agreement for the accelerated exercise, settlement or exchange thereof for Common Stock. “ Share Dilution Amount ” means the increase in the number of diluted shares outstanding (determined in accordance with generally accepted accounting principles in the United States, and as measured from the date of the Corporation’s consolidated financial statements most recently filed with the Securities and Exchange Commission prior to the Original Issue Date) resulting from the grant, vesting or exercise of equity-based compensation to employees and equitably adjusted for any stock split, stock dividend, reverse stock split, reclassification or similar transaction.




When dividends are not paid (or declared and a sum sufficient for payment thereof set aside for the benefit of the holders thereof on the applicable record date) on any Dividend Payment Date (or, in the case of Parity Stock having dividend payment dates different from the Dividend Payment Dates, on a dividend payment date falling within a Dividend Period related to such Dividend Payment Date) in full upon Designated Preferred Stock and any shares of Parity Stock, all dividends declared on Designated Preferred Stock and all such Parity Stock and payable on such Dividend Payment Date (or, in the case of Parity Stock having dividend payment dates different from the Dividend Payment Dates, on a dividend payment date falling within the Dividend Period related to such Dividend Payment Date) shall be declared pro rata so that the respective amounts of such dividends declared shall bear the same ratio to each other as all accrued and unpaid dividends per share on the shares of Designated Preferred Stock (including, if applicable as provided in Section 3(a) above, dividends on such amount) and all Parity Stock payable on such Dividend Payment Date (or, in the case of Parity Stock having dividend payment dates different from the Dividend Payment Dates, on a dividend payment date falling within the Dividend Period related to such Dividend Payment Date) (subject to their having been declared by the Board of Directors or a duly authorized committee of the Board of Directors out of legally available funds and including, in the case of Parity Stock that bears cumulative dividends, all accrued but unpaid dividends) bear to each other. If the Board of Directors or a duly authorized committee of the Board of Directors determines not to pay any dividend or a full dividend on a Dividend Payment Date, the Corporation will provide written notice to the holders of Designated Preferred Stock prior to such Dividend Payment Date.
Subject to the foregoing, and not otherwise, such dividends (payable in cash, securities or other property) as may be determined by the Board of Directors or any duly authorized committee of the Board of Directors may be declared and paid on any securities, including Common Stock and other Junior Stock, from time to time out of any funds legally available for such payment, and holders of Designated Preferred Stock shall not be entitled to participate in any such dividends.
Section 4. Liquidation Rights .
(a) Voluntary or Involuntary Liquidation . In the event of any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, holders of Designated Preferred Stock shall be entitled to receive for each share of Designated Preferred Stock, out of the assets of the Corporation or proceeds thereof (whether capital or surplus) available for distribution to stockholders of the Corporation, subject to the rights of any creditors of the Corporation, before any distribution of such assets or proceeds is made to or set aside for the holders of Common Stock and any other stock of the Corporation ranking junior to Designated Preferred Stock as to such distribution, payment in full in an amount equal to the sum of (i) the Liquidation Amount per share and (ii) the amount of any accrued and unpaid dividends (including, if applicable as provided in Section 3(a) above, dividends on such amount), whether or not declared, to the date of payment (such amounts collectively, the “ Liquidation Preference ”).
(b) Partial Payment . If in any distribution described in Section 4(a) above the assets of the Corporation or proceeds thereof are not sufficient to pay in full the amounts payable with respect to all outstanding shares of Designated Preferred Stock and the corresponding amounts payable with respect of any other stock of the Corporation ranking equally with Designated Preferred Stock as to such distribution, holders of Designated Preferred Stock and the holders of such other stock shall share ratably in any such distribution in proportion to the full respective distributions to which they are entitled.
(c) Residual Distributions . If the Liquidation Preference has been paid in full to all holders of Designated Preferred Stock and the corresponding amounts payable with respect of any other stock of the Corporation ranking equally with Designated Preferred Stock as to such distribution has been paid in full, the holders of other stock of the Corporation shall be entitled to receive all remaining assets of the Corporation (or proceeds thereof) according to their respective rights and preferences.
(d) Merger, Consolidation and Sale of Assets Not Liquidation . For purposes of this Section 4, the merger or consolidation of the Corporation with any other corporation or other entity, including a merger or consolidation in which the holders of Designated Preferred Stock receive cash, securities or other property for their shares, or the sale, lease or exchange (for cash, securities or other property) of all or substantially all of the assets of the Corporation, shall not constitute a liquidation, dissolution or winding up of the Corporation.
Section 5. Redemption .
(a) Optional Redemption . Except as provided below, the Designated Preferred Stock may not be redeemed prior to the first Dividend Payment Date falling on or after the third anniversary of the Original Issue Date. On or after the first Dividend Payment Date falling on or after the third anniversary of the Original Issue Date, the Corporation, at its option, subject to the approval of the Appropriate Federal Banking Agency, may redeem, in whole or in part, at any time and from time to time, out of funds legally available therefor, the shares of Designated Preferred Stock at the time outstanding, upon notice given as provided in Section 5(c) below, at a redemption price equal to the sum of (i) the Liquidation Amount per share and (ii) except as otherwise provided below, any accrued and unpaid dividends (including, if applicable as provided in Section 3(a) above,




dividends on such amount) (regardless of whether any dividends are actually declared) to, but excluding, the date fixed for redemption.
Notwithstanding the foregoing, prior to the first Dividend Payment Date falling on or after the third anniversary of the Original Issue Date, the Corporation, at its option, subject to the approval of the Appropriate Federal Banking Agency, may redeem, in whole or in part, at any time and from time to time, the shares of Designated Preferred Stock at the time outstanding, upon notice given as provided in Section 5(c) below, at a redemption price equal to the sum of (i) the Liquidation Amount per share and (ii) except as otherwise provided below, any accrued and unpaid dividends (including, if applicable as provided in Section 3(a) above, dividends on such amount) (regardless of whether any dividends are actually declared) to, but excluding, the date fixed for redemption; provided that (x) the Corporation (or any successor by Business Combination) has received aggregate gross proceeds of not less than the Minimum Amount (plus the “Minimum Amount” as defined in the relevant certificate of designations for each other outstanding series of preferred stock of such successor that was originally issued to the United States Department of the Treasury (the “ Successor Preferred Stock ”) in connection with the Troubled Asset Relief Program Capital Purchase Program) from one or more Qualified Equity Offerings (including Qualified Equity Offerings of such successor), and (y) the aggregate redemption price of the Designated Preferred Stock (and any Successor Preferred Stock) redeemed pursuant to this paragraph may not exceed the aggregate net cash proceeds received by the Corporation (or any successor by Business Combination) from such Qualified Equity Offerings (including Qualified Equity Offerings of such successor).
The redemption price for any shares of Designated Preferred Stock shall be payable on the redemption date to the holder of such shares against surrender of the certificate(s) evidencing such shares to the Corporation or its agent. Any declared but unpaid dividends payable on a redemption date that occurs subsequent to the Dividend Record Date for a Dividend Period shall not be paid to the holder entitled to receive the redemption price on the redemption date, but rather shall be paid to the holder of record of the redeemed shares on such Dividend Record Date relating to the Dividend Payment Date as provided in Section 3 above.
(b) No Sinking Fund . The Designated Preferred Stock will not be subject to any mandatory redemption, sinking fund or other similar provisions. Holders of Designated Preferred Stock will have no right to require redemption or repurchase of any shares of Designated Preferred Stock.
(c) Notice of Redemption . Notice of every redemption of shares of Designated Preferred Stock shall be given by first class mail, postage prepaid, addressed to the holders of record of the shares to be redeemed at their respective last addresses appearing on the books of the Corporation. Such mailing shall be at least 30 days and not more than 60 days before the date fixed for redemption. Any notice mailed as provided in this Subsection shall be conclusively presumed to have been duly given, whether or not the holder receives such notice, but failure duly to give such notice by mail, or any defect in such notice or in the mailing thereof, to any holder of shares of Designated Preferred Stock designated for redemption shall not affect the validity of the proceedings for the redemption of any other shares of Designated Preferred Stock. Notwithstanding the foregoing, if shares of Designated Preferred Stock are issued in book-entry form through The Depository Trust Corporation or any other similar facility, notice of
redemption may be given to the holders of Designated Preferred Stock at such time and in any manner permitted by such facility. Each notice of redemption given to a holder shall state: (1) the redemption date; (2) the number of shares of Designated Preferred Stock to be redeemed and, if less than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (3) the redemption price; and (4) the place or places where certificates for such shares are to be surrendered for payment of the redemption price.
(d) Partial Redemption . In case of any redemption of part of the shares of Designated Preferred Stock at the time outstanding, the shares to be redeemed shall be selected either pro rata or in such other manner as the Board of Directors or a duly authorized committee thereof may determine to be fair and equitable. Subject to the provisions hereof, the Board of Directors or a duly authorized committee thereof shall have full power and authority to prescribe the terms and conditions upon which shares of Designated Preferred Stock shall be redeemed from time to time. If fewer than all the shares represented by any certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without charge to the holder thereof.
(e) Effectiveness of Redemption . If notice of redemption has been duly given and if on or before the redemption date specified in the notice all funds necessary for the redemption have been deposited by the Corporation, in trust for the pro rata benefit of the holders of the shares called for redemption, with a bank or trust company doing business in the Borough of Manhattan, The City of New York, and having a capital and surplus of at least $500 million and selected by the Board of Directors, so as to be and continue to be available solely therefor, then, notwithstanding that any certificate for any share so called for redemption has not been surrendered for cancellation, on and after the redemption date dividends shall cease to accrue on all shares so called for redemption, all shares so called for redemption shall no longer be deemed outstanding and all




rights with respect to such shares shall forthwith on such redemption date cease and terminate, except only the right of the holders thereof to receive the amount payable on such redemption from such bank or trust company, without interest. Any funds unclaimed at the end of three years from the redemption date shall, to the extent permitted by law, be released to the Corporation, after which time the holders of the shares so called for redemption shall look only to the Corporation for payment of the redemption price of such shares.
(f) Status of Redeemed Shares . Shares of Designated Preferred Stock that are redeemed, repurchased or otherwise acquired by the Corporation shall revert to authorized but unissued shares of Preferred Stock ( provided that any such cancelled shares of Designated Preferred Stock may be reissued only as shares of any series of Preferred Stock other than Designated Preferred Stock).
Section 6. Conversion . Holders of Designated Preferred Stock shares shall have no right to exchange or convert such shares into any other securities.
Section 7. Voting Rights .
(a) General. The holders of Designated Preferred Stock shall not have any voting rights except as set forth below or as otherwise from time to time required by law.

(b) Preferred Stock Directors . Whenever, at any time or times, dividends payable on the shares of Designated Preferred Stock have not been paid for an aggregate of six quarterly Dividend Periods or more, whether or not consecutive, the authorized number of directors of the Corporation shall automatically be increased by two and the holders of the Designated Preferred Stock shall have the right, with holders of shares of any one or more other classes or series of Voting Parity Stock outstanding at the time, voting together as a class, to elect two directors (hereinafter the “ Referred Directors ” and each a “ Preferred Director ”) to fill such newly created directorships at the Corporation’s next annual meeting of stockholders (or at a special meeting called for that purpose prior to such next annual meeting) and at each subsequent annual meeting of stockholders until all accrued and unpaid dividends for all past Dividend Periods, including the latest completed Dividend Period (including, if applicable as provided in Section 3(a) above, dividends on such amount), on all outstanding shares of Designated Preferred Stock have been declared and paid in full at which time such right shall terminate with respect to the Designated Preferred Stock, except as herein or by law expressly provided, subject to revesting in the event of each and every subsequent default of the character above mentioned; provided that it shall be a qualification for election for any Preferred Director that the election of such Preferred Director shall not cause the Corporation to violate any corporate governance requirements of any securities exchange or other trading facility on which securities of the Corporation may then be listed or traded that listed or traded companies must have a majority of independent directors. Upon any termination of the right of the holders of shares of Designated Preferred Stock and Voting Parity Stock as a class to vote for directors as provided above, the Preferred Directors shall cease to be qualified as directors, the term of office of all Preferred Directors then in office shall terminate immediately and the authorized number of directors shall be reduced by the number of Preferred Directors elected pursuant hereto. Any Preferred Director may be removed at any time, with or without cause, and any vacancy created thereby may be filled, only by the affirmative vote of the holders a majority of the shares of Designated Preferred Stock at the time outstanding voting separately as a class together with the holders of shares of Voting Parity Stock, to the extent the voting rights of such holders described above are then exercisable. If the office of any Preferred Director becomes vacant for any reason other than removal from office as aforesaid, the remaining Preferred Director may choose a successor who shall hold office for the unexpired term in respect of which such vacancy occurred.
(c) Class Voting Rights as to Particular Matters . So long as any shares of Designated Preferred Stock are outstanding, in addition to any other vote or consent of stockholders required by law or by the Charter, the vote or consent of the holders of at least 66 2 / 3 % of the shares of Designated Preferred Stock at the time outstanding, voting as a separate class, given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, shall be necessary for effecting or validating:
(i) Authorization of Senior Stock . Any amendment or alteration of the Certificate of Designations for the Designated Preferred Stock or the Charter to authorize or create or increase the authorized amount of, or any issuance of, any shares of, or any securities convertible into or exchangeable or exercisable for shares of, any class or series of capital stock of the Corporation ranking senior to Designated Preferred Stock with respect to either or both the payment of dividends and/or the distribution of assets on any liquidation, dissolution or winding up of the Corporation;

(ii) Amendment of Designated Preferred Stock . Any amendment, alteration or repeal of any provision of the Certificate of Designations for the Designated Preferred Stock or the Charter (including, unless no vote on such merger or consolidation is required by Section 7(c)(iii) below, any amendment, alteration or repeal by means of a merger, consolidation or otherwise) so as to adversely affect the rights, preferences, privileges or voting powers of the Designated Preferred Stock; or




(iii) Share Exchanges, Reclassifications, Mergers and Consolidations . Any consummation of a binding share exchange or reclassification involving the Designated Preferred Stock, or of a merger or consolidation of the Corporation with another corporation or other entity, unless in each case (x) the shares of Designated Preferred Stock remain outstanding or, in the case of any such merger or consolidation with respect to which the Corporation is not the surviving or resulting entity, are converted into or exchanged for preference securities of the surviving or resulting entity or its ultimate parent, and (y) such shares remaining outstanding or such preference securities, as the case may be, have such rights, preferences, privileges and voting powers, and limitations and restrictions thereof, taken as a whole, as are not materially less favorable to the holders thereof than the rights, preferences, privileges and voting powers, and limitations and restrictions thereof, of Designated Preferred Stock immediately prior to such consummation, taken as a whole;
provided, however , that for all purposes of this Section 7(c), any increase in the amount of the authorized Preferred Stock, including any increase in the authorized amount of Designated Preferred Stock necessary to satisfy preemptive or similar rights granted by the Corporation to other persons prior to the Signing Date, or the creation and issuance, or an increase in the authorized or issued amount, whether pursuant to preemptive or similar rights or otherwise, of any other series of Preferred Stock, or any securities convertible into or exchangeable or exercisable for any other series of Preferred Stock, ranking equally with and/or junior to Designated Preferred Stock with respect to the payment of dividends (whether such dividends are cumulative or non-cumulative) and the distribution of assets upon liquidation, dissolution or winding up of the Corporation will not be deemed to adversely affect the rights, preferences, privileges or voting powers, and shall not require the affirmative vote or consent of, the holders of outstanding shares of the Designated Preferred Stock.
(d) Changes after Provision for Redemption . No vote or consent of the holders of Designated Preferred Stock shall be required pursuant to Section 7(c) above if, at or prior to the time when any such vote or consent would otherwise be required pursuant to such Section, all outstanding shares of the Designated Preferred Stock shall have been redeemed, or shall have been called for redemption upon proper notice and sufficient funds shall have been deposited in trust for such redemption, in each case pursuant to Section 5 above.
(e) Procedures for Voting and Consents . The rules and procedures for calling and conducting any meeting of the holders of Designated Preferred Stock (including, without limitation, the fixing of a record date in connection therewith), the solicitation and use of proxies at such a meeting, the obtaining of written consents and any other aspect or matter with regard to such a meeting or such consents shall be governed by any rules of the Board of Directors or any duly authorized committee of the Board of Directors, in its discretion, may adopt from time to
time, which rules and procedures shall conform to the requirements of the Charter, the Bylaws, and applicable law and the rules of any national securities exchange or other trading facility on which Designated Preferred Stock is listed or traded at the time.
Section 8. Record Holders . To the fullest extent permitted by applicable law, the Corporation and the transfer agent for Designated Preferred Stock may deem and treat the record holder of any share of Designated Preferred Stock as the true and lawful owner thereof for all purposes, and neither the Corporation nor such transfer agent shall be affected by any notice to the contrary.
Section 9. Notices . All notices or communications in respect of Designated Preferred Stock shall be sufficiently given if given in writing and delivered in person or by first class mail, postage prepaid, or if given in such other manner as may be permitted in this Certificate of Designations, in the Charter or Bylaws or by applicable law. Notwithstanding the foregoing, if shares of Designated Preferred Stock are issued in book-entry form through The Depository Trust Corporation or any similar facility, such notices may be given to the holders of Designated Preferred Stock in any manner permitted by such facility.
Section 10. No Preemptive Rights . No share of Designated Preferred Stock shall have any rights of preemption whatsoever as to any securities of the Corporation, or any warrants, rights or options issued or granted with respect thereto, regardless of how such securities, or such warrants, rights or options, may be designated, issued or granted.
Section 11. Replacement Certificates . The Corporation shall replace any mutilated certificate at the holder’s expense upon surrender of that certificate to the Corporation. The Corporation shall replace certificates that become destroyed, stolen or lost at the holder’s expense upon delivery to the Corporation of reasonably satisfactory evidence that the certificate has been destroyed, stolen or lost, together with any indemnity that may be reasonably required by the Corporation.
Section 12. Other Rights . The shares of Designated Preferred Stock shall not have any rights, preferences, privileges or voting powers or relative, participating, optional or other special rights, or qualifications, limitations or restrictions thereof, other than as set forth herein or in the Charter or as provided by applicable law.




 
 
 
 
 
Signed by:
 
/s/ Jeffrey N. Carp
 
,
 
 
Jeffrey N. Carp (signature of authorized individual)
 
 
 
 
 
 
 

¬
Chairman of the board of directors,

¬
President,

þ
Other officer,

¬
Court-appointed fiduciary,
on this 27th day of October, 2008.

COMMONWEALTH OF MASSACHUSETTS
William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
Articles of Amendment
(General Laws Chapter 156D, Section 10.06; 950 CMR 113.34)
 
 
 
 
 
I hereby certify that upon examination of these articles of amendment, it appears that the provisions of the General Laws relative thereto have been complied with, and the filing fee in the amount of $100 having been paid, said articles are deemed to have been filed with me this 27 th  day of Oct. 2008, at 2:28 p.m.
 
 
time
Effective date: October 27 2008
(must be within 90 days of date submitted)
 
 
 
 
 
 
 
/s/ WILLIAM FRANCIS GALVIN
 
 
 
 
WILLIAM FRANCIS GALVIN
 
 
 
 
Secretary of the Commonwealth
 
 





 
 
 
RE
 
Filing fee: Minimum filing fee $100 per article amended, stock increases $100 per 100,000 shares, plus $100 for each additional 100,000 shares or any fraction thereof.
Examiner
 
 
 
 
 
 
TO BE FILLED IN BY CORPORATION
Contact Information:
Name approval
 
 
 
C
 
Mark Devine c/o WilmerHale
 
 
 
 
 
M
 
60 State Street
 
 
 
 
Boston, MA 02109
 
 
 
 
Telephone: 617-526-5122
 
 
 
 
Email: mark.devine@wilmerhale.com
 
 
 
 
Upon filing, a copy of this filing will be available at www.sec.state.ma.us/cor. If the document is rejected, a copy of the rejection sheet and rejected document will be available in the rejected queue.

 
 
 
 
 

D
The Commonwealth of Massachusetts
PC
William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
Articles of Amendment
(General Laws Chapter 156D, Section 10.06; 950 CMR 113.34)




 
 
 
 
 
 
 
(1)
 
Exact name of corporation:
 
 
 
 
 
 
State Street Corporation
 
 
 
 
 
(2)
 
Registered office address:
 
 
 
 
 
 
155 Federal Street, Boston, Massachusetts 02110
 
 
 
 
 
 
(number, street, city or town, state, zip code)
 
 
 
 
 
(3)
 
These articles of amendment affect article(s):
 
 
 
 
 
 
6
 
 
 
 
 
 
(specify the number(s) of article(s) being amended (I-VI))
 
 
 
 
 
 
(4)
 
Date adopted:
 
May 20, 2009
 
 
 
 
 
 
(month, day, year)
 
 
 
 
 
 
(5)
 
Approved by:
 
 
 
 
 
 
 
 
(check appropriate box)
 
 
 
 
¬
the incorporators.
 
 
 
 
¬
the board of directors without shareholder approval and shareholder approval was not required.
 
 
 
 
þ
the board of directors and the shareholders in the manner required by law and the articles of organization.
 
 
(6)
 
State the article number and the text of the amendment. Unless contained in the text of the amendment, state the provisions for implementing the exchange, reclassification or cancellation of issued shares.
That Article 6 of the Restated Articles of Organization be amended to add the following at the end hereof:
The by-laws of the Corporation may, but are not required to, provide that in a meeting of shareholders other than a Contested Election Meeting (as defined below), a nominee for director shall be elected to the board of directors only if the votes cast “for” such nominee’s election exceed the votes cast “against” such nominee’s election (with “abstentions,” “broker non-votes” and “withheld votes” not counted as a vote “for” or “against” such nominee’s election). In a Contested Election Meeting, directors shall be elected by a plurality of the votes cast at such Contested Election Meeting. A meeting of shareholders shall be a “Contested Election Meeting” if there are more persons nominated for election as directors at such meeting than there are directors to be elected at such meeting, determined as of the tenth day preceding the date of the Corporation’s first notice to shareholders of such meeting sent pursuant to the Corporation’s by-laws (the “Determination Date”); provided, however, that if in accordance with the Corporation’s by-laws, shareholders are entitled to make nominations during a period of time that ends after the otherwise applicable Determination Date, the Determination Date shall instead be as of the end of such period.


To change the number of shares and the par value, * if any, of any type, or to designate a class or series, of stock, or change a designation of class or series of stock, which the corporation is authorized to issue, complete the following:
Total authorized prior to amendment:




 
 
 
 
 
 
 
 
 
WITHOUT PAR VALUE
 
WITH PAR VALUE
TYPE
 
NUMBER OF SHARES
 
TYPE
 
NUMBER OF SHARES
 
PAR VALUE
Total authorized after amendment:
 
 
 
 
 
 
 
 
 
WITHOUT PAR VALUE
 
WITH PAR VALUE
TYPE
 
NUMBER OF SHARES
 
TYPE
 
NUMBER OF SHARES
 
PAR VALUE

(7)
The amendment shall be effective at the time and on the date approved by the Division, unless a later effective date not more than 90 days from the date and time of filing is specified: _______________________________

*
G.L. Chapter 156D eliminates the concept of par value, however a corporation may specify par value in Article III. See G.L. Chapter 156D, Section 6.21, and comments relative thereto.
 
 

 
 
 
Signed by:
 
/s/ Shannon C. Stanley
 
 
(signature of authorized individual)
¬
Chairman of the board of directors,
¬
President,
þ
Other officer,
¬
Court-appointed fiduciary,
on this 28 th day of May, 2009.


THE COMMONWEALTH OF MASSACHUSETTS
I hereby certify that, upon examination of this document, duly submitted to me, it appears that the provisions of the General Laws relative to corporations have been complied with, and I hereby approve said articles; and the filing fee having been paid, said articles are deemed to have been filed with me on: May 29, 2009 11:48 AM




 
 
/ S / WILLIAM FRANCIS GALVIN
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth


 
 
 
 
 
 
 

William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
 
 
 
 
 
 
 
 

 
 
 
 
 
FORM MUST BE TYPED
 
Articles of Amendment
 
FORM MUST BE TYPED
(General Laws Chapter 156D, Section 10.06; 950 CMR 113.34)

 
 
 
(1) Exact name of corporation:
 
State Street Corporation

 
 
 
(2) Registered office address:
 
155 Federal Street, Boston, Massachusetts 02110
(number, street, city or town, state, zip code)

 
 
(3) These articles of amendment affect article(s):
 
(specify the number(s) of article(s) being amended (I-VI))





 
 
 
(4) Date adopted:
 
August 14, 2012
(month, day, year)
(5) Approved by:
(check appropriate box)
 
¬
the incorporators.

 
þ
the board of directors without shareholder approval and shareholder approval was not required.

 
¬
the board of directors and the shareholders in the manner required by law and the articles of organization.
(6) State the article number and the text of the amendment. Unless contained in the text of the amendment, state the provisions for implementing the exchange, reclassification or cancellation of issued shares.
That Article IV of the Restated Articles of Organization be amended to designate a Series C of Preferred Stock more particularly described on Exhibit A attached hereto and made a part hereof.
 
 
 
 
 
 
P.C.
 
c156ds1006950c11334 01/13/05
To change the number of shares and the par value, * if any, of any type, or to designate a class or series, of stock, or change a designation of class or series of stock, which the corporation is authorized to issue, complete the following:
Total authorized prior to amendment:
 
 
 
 
 
 
 
 
 
WITHOUT PAR VALUE
 
WITH PAR VALUE
TYPE
 
NUMBER OF SHARES
 
TYPE
 
NUMBER OF SHARES
 
PAR VALUE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total authorized after amendment:




 
 
 
 
 
 
 
 
 
WITHOUT PAR VALUE
 
WITH PAR VALUE
TYPE
 
NUMBER OF SHARES
 
TYPE
 
NUMBER OF SHARES
 
PAR VALUE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

(7)
The amendment shall be effective at the time and on the date approved by the Division, unless a later effective date not more than 90 days from the date and time of filing is specified:

*
G.L. Chapter 156D eliminates the concept of par value, however a corporation may specify par value in Article III. See G.L. Chapter 156D, Section 6.21, and the comments relative thereto.

 
 
 
 
 
Signed by:
 
/s/ Jeffrey N. Carp
 
,
 
 
(signature of authorized individual)
 
 

 
¬
Chairman of the board of directors,

 
¬
President,

 
þ
Other officer,

 
¬
Court-appointed fiduciary,
on this 14th day of August , 2012 .
Exhibit A
CERTIFICATE OF DESIGNATION
OF
NON-CUMULATIVE PERPETUAL PREFERRED STOCK, SERIES C
OF
STATE STREET CORPORATION




(Pursuant to Section 6.02 of the Massachusetts Business Corporation Act)
State Street Corporation, a corporation organized and existing under the Massachusetts Business Corporation Act of the Commonwealth of Massachusetts (the “ Corporation ”), in accordance with the provisions of Section 6.02 thereof, hereby certifies:
On August 14, 2012, the Chairman of the Board of Directors of the Corporation, in accordance with the votes of the Board of Directors of the Corporation adopted on February 16, 2012 and the provisions of the Corporation’s Articles of Organization, as amended, duly adopted the following vote creating a series of 5,000 shares of preferred stock of the Corporation designated as “Non-Cumulative Perpetual Preferred Stock, Series C”.
VOTED: that pursuant to the authority vested in the Chairman of the Board of Directors of the Corporation and in accordance with the votes of the Board of Directors of the Corporation adopted on February 16, 2012 and the provisions of the Corporation’s Articles of Organization, as amended, a series of preferred stock, without par value, of the Corporation be and hereby is created, and that the designation and number of shares, and the preferences, limitations, and relative rights thereof are as follows:
Section 1. Designation. The designation of the series of preferred stock shall be Non-Cumulative Perpetual Preferred Stock, Series C (hereinafter referred to as the “ Series C Preferred Stock ”). Each share of Series C Preferred Stock shall be identical in all respects to every other share of Series C Preferred Stock. Series C Preferred Stock will rank (i) at least equally with Parity Stock, if any, with respect to the payment of dividends and the distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation (ii) and will rank senior to Junior Stock with respect to the payment of dividends or the distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.
Section 2. Number of Shares. The number of authorized shares of Series C Preferred Stock shall be 5,000. Such number may from time to time be increased (but not in excess of the total number of authorized shares of preferred stock set forth in the Articles of Organization) or decreased (but not below the number of shares of Series C Preferred Stock then outstanding) by further votes duly adopted by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation and by the filing of articles of amendment pursuant to the provisions of the Massachusetts Business Corporation Act of the Commonwealth of Massachusetts stating that such increase or reduction, as the case may be, has been so authorized. The Corporation shall have the authority to issue fractional shares of Series C Preferred Stock.

Section 3. Definitions. As used herein with respect to Series C Preferred Stock:
(a) “ Appropriate Federal Banking Agency ” means the “appropriate Federal banking agency” with respect to the Corporation as defined in Section 3(q) of the Federal Deposit Insurance Act (12 U.S.C. Section 1813(q)), or any successor provision.
(b) “ Articles of Organization ” means the Articles of Organization of the Corporation, as may be amended from time to time, and shall include this Certificate of Designation.
(c) “ Board of Directors ” means the board of directors of the Corporation.
(d) “ Bylaws ” means the Bylaws of the Corporation, as may be amended from time to time.
(e) “ Business Day ” means any day other than a Saturday, Sunday or any other day on which banking institutions and trust companies in New York, New York or Boston, Massachusetts are permitted or required by any applicable law to close.
(f) “ Certificate of Designation ” means this Certificate of Designation relating to the Series C Preferred Stock, as it may be amended from time to time.
(g) “ Common Stock ” means the common stock, par value $1.00 per share, of the Corporation.
(h) “ Depositary Company ” shall have the meaning set forth in Section 6(d) hereof.
(i) “ Dividend Payment Date ” shall have the meaning set forth in Section 4(a) hereof.
(j) “ Dividend Period ” shall have the meaning set forth in Section 4(a) hereof.
(k) “ DTC ” means The Depository Trust Company, together with its successors and assigns.




(l) “ Junior Stock ” means the Common Stock and any other class or series of stock of the Corporation hereafter authorized over which Series C Preferred Stock has preference or priority in the payment of dividends or in the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.
(m) “ MBCA ” means the Massachusetts Business Corporation Act, as amended from time to time.
(n) “ Nonpayment ” shall have the meaning set forth in Section 7(c)(i) hereof.
(o) “ Parity Stock ” means any other class or series of stock of the Corporation that ranks equally with Series C Preferred Stock in the payment of dividends and in the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.

(p) “ Preferred Director ” shall have the meaning set forth in Section 7(c)(i) hereof.
(q) “ Redemption Price ” shall have the meaning set forth in Section 6(a) hereof.
(r) “ Regulatory Capital Treatment Event ” means the Corporation’s determination, in good faith, that, as a result of (i) any amendment to, or change in (including any announced prospective amendment or change), the laws or regulations of the United States or any political subdivision of or in the United States that is enacted or becomes effective after the initial issuance of any share of Series C Preferred Stock, (ii) any proposed amendment or change in those laws or regulations that is announced or becomes effective after the initial issuance of any share of Series C Preferred Stock, or (iii) any official administrative decision or judicial decision or administrative action or other official pronouncement interpreting or applying those laws or regulations that is announced after the initial issuance of any share of Series C Preferred Stock, there is more than an insubstantial risk that the Corporation will not be entitled to treat the full liquidation value of the shares of Series C Preferred Stock then outstanding as “tier 1 capital” (or its equivalent) for purposes of the capital adequacy guidelines of the Appropriate Federal Banking Agency, as then in effect and applicable, for as long as any share of Series C Preferred Stock is outstanding.
(s) “ Series C Preferred Stock ” shall have the meaning set forth in Section 1 hereof.
Section 4. Dividends.
(a) Rate. Holders of Series C Preferred Stock shall be entitled to receive, if, as and when declared by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation, but only out of assets legally available therefor, non-cumulative cash dividends at a rate per annum equal to 5.250% on the liquidation preference of $100,000 per share of Series C Preferred Stock, and no more, payable quarterly in arrears on each March 15, June 15, September 15 or December 15; provided , however , if any such day is not a Business Day, then payment of any dividend otherwise payable on that date will be made on the next succeeding day that is a Business Day (without any interest or other payment in respect of such delay) (each such day on which dividends are payable a “ Dividend Payment Date ”). The period from and including the date of original issuance of such Series C Preferred Stock or any Dividend Payment Date to but excluding the next Dividend Payment Date is a “ Dividend Period .” The record date for payment of dividends on the Series C Preferred Stock shall be the 15th calendar day before such Dividend Payment Date; provided , however , if any such day is not a Business Day, then the record date will be the next succeeding day that is a Business Day. The amount of dividends payable shall be computed on the basis of a 360-day year consisting of twelve 30-day months. Notwithstanding any other provision hereof, dividends on the Series C Preferred Stock shall not be declared, paid or set aside for payment to the extent such act would cause the Corporation to fail to comply with laws and regulations applicable thereto, including applicable capital adequacy guidelines.

(b) Non-Cumulative Dividends. Dividends on shares of Series C Preferred Stock shall be non-cumulative. To the extent that any dividends payable on the shares of Series C Preferred Stock on any Dividend Payment Date are not declared and paid, in full or otherwise, on such Dividend Payment Date, then such unpaid dividends shall not cumulate and shall not accrue or be payable for such Dividend Period, and the Corporation shall have no obligation to pay, and the holders of Series C Preferred Stock shall have no right to receive, dividends for such Dividend Period after the Dividend Payment Date for such Dividend Period or interest with respect to such dividends, whether or not dividends are declared for any subsequent Dividend Period with respect to Series C Preferred Stock, Junior Stock or any other class or series of authorized preferred stock of the Corporation.
(c) Priority of Dividends. So long as any share of Series C Preferred Stock remains outstanding, (i) no dividend shall be declared or paid or set aside for payment and no distribution shall be declared or made or set aside for payment on any Junior Stock, other than a dividend payable solely in Junior Stock or any dividend or distribution of capital stock or rights to acquire capital stock of the Corporation in connection with a shareholders’ rights plan or any redemption or repurchase of capital stock or rights to acquire capital stock under any such plan, (ii) no shares of Junior Stock shall be repurchased, redeemed or




otherwise acquired for consideration by the Corporation, directly or indirectly (other than (A) as a result of a reclassification of Junior Stock for or into other Junior Stock, (B) the exchange or conversion of one share of Junior Stock for or into another share of Junior Stock, (C) through the use of the proceeds of a substantially contemporaneous sale of other shares of Junior Stock, (D) purchases, redemptions or other acquisitions of shares of Junior Stock pursuant to any employment contract, benefit plan or other similar arrangement with or for the benefit of employees, officers, directors or consultants, (E) purchases of shares of Junior Stock pursuant to a contractually binding requirement to buy Junior Stock existing prior to or during the most recent preceding Dividend Period for which the full dividends for the then-current Dividend Period on all outstanding shares of Series C Preferred Stock have been declared and paid or declared and a sum sufficient for the payment thereof has been set aside, including under a contractually binding stock repurchase plan or (F) the purchase of fractional interests in shares of Junior Stock pursuant to the conversion or exchange provisions of such stock or the security being converted or exchanged), nor shall any monies be paid to or made available for a sinking fund for the redemption of any such securities by the Corporation and (iii) no shares of Parity Stock shall be repurchased, redeemed or otherwise acquired for consideration by the Corporation otherwise than pursuant to pro rata offers to purchase all, or a pro rata portion, of the Series C Preferred Stock and such Parity Stock except by conversion into or exchange for Junior Stock during a Dividend Period, unless, in each case, the full dividends on all outstanding shares of Series C Preferred Stock for the then-current Dividend Period have been declared and paid in full or declared and a sum sufficient for the payment in full thereof set aside. When dividends are not paid in full upon the shares of Series C Preferred Stock and any Parity Stock, all dividends declared upon shares of Series C Preferred Stock and any Parity Stock shall be declared on a proportional basis so that the amount of dividends declared per share will bear to each other the same ratio that accrued dividends for the then-current Dividend Period per share on Series C Preferred Stock, and accrued dividends, including any accumulations, on Parity Stock, bear to each other. No interest will be payable in respect of any declared but unpaid dividend payment on shares of Series C Preferred Stock that is paid after the relevant Dividend Payment Date for such Dividend Period. If the Board of Directors of the Corporation determines not to pay any dividend or a full dividend on the Series C Preferred Stock on a Dividend Payment Date, the Corporation will provide, or cause to be provided, written notice (which may be in the form of a press release or other public announcement) to the holders of the Series C Preferred Stock prior to such date. Subject to the foregoing, and not otherwise, dividends (payable in cash, stock or otherwise) as may be determined by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation may be declared and paid on any Junior Stock and any Parity Stock from time to time out of any assets legally available therefor, and the shares of Series C Preferred Stock shall not be entitled to participate in any such dividend.

Section 5. Liquidation Rights.
(a) Voluntary or Involuntary Liquidation. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, holders of Series C Preferred Stock shall be entitled, out of assets legally available therefor, before any distribution of the assets of the Corporation may be made to the holders of any Junior Stock and subject to the rights of the holders of any class or series of securities ranking senior to or on parity with Series C Preferred Stock upon liquidation and the rights of the Corporation’s depositors and other creditors, to receive in full a liquidating distribution in the amount of the liquidation preference of $100,000 per share, plus any authorized, declared and unpaid dividends, without accumulation of any undeclared dividends. The holders of Series C Preferred Stock shall not be entitled to any other amounts in the event of any such voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation other than what is expressly provided for in this Section 5.
(b) Partial Payment. If in any distribution described in Section 5(a) above the assets of the Corporation are not sufficient to pay in full the liquidation preference plus any declared and unpaid dividends in full to all holders of Series C Preferred Stock and all holders of any Parity Stock, the amounts paid to the holders of Series C Preferred Stock and to the holders of all Parity Stock shall be pro rata in accordance with the respective aggregate liquidation preferences plus any authorized, declared and unpaid dividends of Series C Preferred Stock and all such Parity Stock.
(c) Residual Distributions. If the liquidation preference plus any declared and unpaid dividends has been paid in full to all holders of Series C Preferred Stock and all holders of any Parity Stock, the holders of Junior Stock shall be entitled to receive all remaining assets of the Corporation according to their respective rights and preferences.
(d) Merger, Consolidation and Sale of Assets Not Liquidation. For purposes of this Section 5, the sale, lease or exchange (for cash, securities or other property) of all or substantially all of the property and assets of the Corporation shall not constitute a voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, nor shall the merger, consolidation or any other business combination transaction of the Corporation into or with any other entity or the merger, consolidation or any other business combination transaction of any other entity into or with the Corporation in which the holders of Series C Preferred Stock receive cash, securities or other property, constitute a voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.





Section 6. Redemption.
(a) Optional Redemption. The Corporation, at the option of its Board of Directors or any duly authorized committee of the Board of Directors of the Corporation, may redeem in whole or in part the shares of Series C Preferred Stock at the time outstanding, on the Dividend Payment Date on September 15, 2017 or on any Dividend Payment Date thereafter, upon notice given as provided in Section 6(b) below. The redemption price for shares of Series C Preferred Stock shall be $100,000 per share plus dividends that have been declared but not paid, without accumulation of any undeclared dividends (the “ Redemption Price ”). Notwithstanding the foregoing, within 90 days following the occurrence of a Regulatory Capital Treatment Event, the Corporation, at its option, subject to the approval of the Appropriate Federal Banking Agency, may provide notice of its intent to redeem, as provided in Subsection (b) below, and subsequently redeem, all (but not less than all) of the shares of Series C Preferred Stock at the time outstanding at the Redemption Price applicable on such date of redemption.
(b) Notice of Redemption. Notice of every redemption of shares of Series C Preferred Stock shall be either (1) mailed by first class mail, postage prepaid, addressed to the holders of record of such shares to be redeemed at their respective last addresses appearing on the stock register of the Corporation or (2) transmitted by such other method approved by the Depositary Company, in its reasonable discretion, to the holders of record of such shares to be redeemed. Such mailing or transmittal shall be at least 30 days and not more than 60 days before the date fixed for redemption. Notwithstanding the foregoing, if the Series C Preferred Stock is held in book-entry form through DTC (or a successor securities depositary), the Corporation may give such notice in any manner permitted by DTC (or such successor). Any notice provided pursuant to this Section 6(b) shall be conclusively presumed to have been duly given, whether or not the holder receives such notice, but failure duly to provide such notice, or any defect in such notice or in the provision thereof, to any holder of shares of Series C Preferred Stock designated for redemption shall not affect the validity of the proceedings for the redemption of any other shares of Series C Preferred Stock. Each notice shall state (i) the redemption date; (ii) the number of shares of Series C Preferred Stock to be redeemed and, if less than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed by such holder (or the method of determining such number); (iii) the Redemption Price; (iv) the place or places where the certificates evidencing such shares of Series C Preferred Stock are to be surrendered for payment of the Redemption Price; and (v) that dividend rights on the shares to be redeemed will cease on the redemption date.
(c) Partial Redemption. In case of any redemption of only part of the shares of Series C Preferred Stock at the time outstanding, the shares of Series C Preferred Stock to be redeemed shall be selected either pro rata from the holders of record of Series C Preferred Stock in proportion to the number of Series C Preferred Stock held by such holders or by lot or in such other manner as the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation may determine to be fair and equitable. Subject to the provisions of this Section 6, the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors shall have full power and authority to prescribe the terms and conditions upon which shares of Series C Preferred Stock shall be redeemed from time to time.

(d) Effectiveness of Redemption. If notice of redemption has been duly given and if on or before the redemption date specified in the notice all funds necessary for the redemption have been set aside by the Corporation, separate and apart from its other assets, for the benefit of the holders of the shares called for redemption, so as to be and continue to be available therefor, or deposited by the Corporation with a bank or trust company selected by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors (the “ Depositary Company ”) for the benefit of the holders of the shares called for redemption, then, notwithstanding that any certificate for any share so called for redemption has not been surrendered for cancellation, on and after the redemption date all shares so called for redemption shall cease to be outstanding, all dividend rights with respect to such shares will cease on the redemption date, and all rights with respect to such shares shall forthwith on such redemption date cease and terminate, except only the right of the holders thereof to receive the amount payable on such redemption from the trust fund set aside by the Corporation or from the bank or trust company where the funds have been deposited at any time after the redemption date from such funds, without interest. The Corporation shall be entitled to receive, from time to time, from the Depositary Company any interest accrued on such funds, and the holders of any shares called for redemption shall have no claim to any such interest. Any funds so deposited and unclaimed at the end of three years from the redemption date shall, to the extent permitted by law, be released or repaid to the Corporation, and in the event of such repayment to the Corporation, the holders of record of the shares so called for redemption shall be deemed to be unsecured creditors of the Corporation for an amount equivalent to the amount deposited as stated above for the redemption of such shares and so repaid to the Corporation, but shall in no event be entitled to any interest.
Section 7. Voting Rights. The holders of Series C Preferred Stock will have no voting rights and will not be entitled to elect any directors, except as expressly provided by law and except that:
(a) Supermajority Voting Rights-Amendments. Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the affirmative vote or consent of the holders of at least two-thirds of all of the shares of the Series C Preferred Stock at the time outstanding, voting separately as a single class, shall be required to authorize any




amendment of the Articles of Organization (including this Certificate of Designation and any other certificate of designation or any similar document relating to any series of preferred stock) or Bylaws which will materially and adversely affect the powers, preferences, privileges or rights of the Series C Preferred Stock, taken as a whole; provided, however, that any increase in the amount of the authorized or issued Series C Preferred Stock or authorized preferred stock of the Corporation or the creation and issuance, or an increase in the authorized or issued amount, of other series of preferred stock ranking equally with and/or junior to the Series C Preferred Stock with respect to the payment of dividends (whether such dividends are cumulative or non-cumulative) and/or the distribution of assets upon voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation will not be deemed to adversely affect the powers, preferences, privileges or rights of the Series C Preferred Stock.
(b) Supermajority Voting Rights-Priority. Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the affirmative vote or consent of the holders of at least two-thirds of all of the shares of the Series C Preferred Stock at the time outstanding, voting separately as a single class, shall be required to issue, authorize or increase the authorized amount of, or to issue or authorize any obligation or security convertible into or evidencing the right to purchase, any additional class or series of stock ranking senior to the shares of the Series C Preferred Stock and all other Parity Stock with respect to dividends or the distribution of assets upon liquidation, dissolution or winding up of the Corporation.
(c) Special Voting Right.
(i) Voting Right. If and whenever dividends on the Series C Preferred Stock or any other class or series of preferred stock that ranks on parity with the Series C Preferred Stock as to payment of dividends, and upon which voting rights equivalent to those granted by this Section 7(c) have been conferred and are exercisable, have not been paid, or declared and set aside for payment, in an aggregate amount equal, as to any class or series, to at least six quarterly Dividend Periods (whether consecutive or not) (a “ Nonpayment ”), the number of directors constituting the Board of Directors of the Corporation shall be increased by two, and the holders of the Series C Preferred Stock (together with holders of any other series of the Corporation’s authorized preferred stock that ranks on parity with the Series C Preferred Stock as to payment of dividends with equivalent voting rights), shall have the right, voting separately as a single class without regard to series, to the exclusion of the holders of Common Stock, to elect two directors of the Corporation to fill such newly created directorships (and to fill any vacancies in the terms of such directorships), provided that the election of such directors must not cause the Corporation to violate the corporate governance requirements of the New York Stock Exchange (or other exchange on which the Corporation’s securities may be listed) that listed companies must have a majority of independent directors and further provided that the Board of Directors of the Corporation shall at no time include more than two such directors. Each such director elected by the holders of shares of Series C Preferred Stock and any other class or series of preferred stock having equivalent voting rights with the Series C Preferred Stock is a “ Preferred Director ”.
(ii) Election. The election of the Preferred Directors will take place at any annual meeting of shareholders or any special meeting of the holders of Series C Preferred Stock and any other class or series of the Corporation’s preferred stock that ranks on parity with Series C Preferred Stock as to payment of dividends and for which dividends have not been paid, called as provided herein. At any time after the special voting power has vested pursuant to Section 7(c)(i) above, but prior to the initial election of the Preferred Directors, the secretary of the Corporation may, and upon the written request of any holder of Series C Preferred Stock (addressed to the secretary at the Corporation’s principal office) must (unless such request is received less than 90 days before the date fixed for the next annual or special meeting of the shareholders, in which event such election shall be held at such next annual or special meeting of shareholders), call a special meeting of the holders of Series C Preferred Stock, and any other class or series of preferred stock that ranks on parity with Series C Preferred Stock as to payment of dividends and for which dividends have not been paid, for the election of the two directors to be elected by them as provided in Section 7(c)(iii) below.
(iii) Notice for Special Meeting. Notice for a special meeting will be given in a similar manner to that provided in the Corporation’s Bylaws for a special meeting of the shareholders. If the secretary of the Corporation does not call a special meeting within 20 days after receipt of any such request, then any holder of Series C Preferred Stock may (at the Corporation’s expense) call such meeting, upon notice as provided in this Section 7(c)(iii), and for that purpose will have access to the stock register of the Corporation. The Preferred Directors elected at any such special meeting will hold office until the next annual meeting of the Corporation’s shareholders unless they have been previously terminated or removed pursuant to Section 7(c)(iv). In case any vacancy in the office of a Preferred Director occurs (other than prior to the initial election of the Preferred Directors), the vacancy may be filled by the written consent of the Preferred Director remaining in office, or if none remains in office, by the vote of the holders of the Series C Preferred Stock (together with holders of any other class of the Corporation’s authorized preferred stock that ranks on parity with Series C Preferred Stock as to payment of dividends with equivalent voting rights, whether or not the holders of such preferred stock would be entitled to vote for the election of directors if such default in dividends did not exist) to serve until the next annual meeting of the shareholders.




(iv) Termination; Removal. Whenever full dividends have been paid regularly on the Series C Preferred Stock and any other class or series of preferred stock that ranks on parity with the Series C Preferred Stock as to payment of dividends, if any, for at least four consecutive Dividend Periods following a Nonpayment event, then the right of the holders of Series C Preferred Stock to elect such additional two directors will cease (but subject always to the same provisions for the vesting of the special voting rights in the case of any subsequent Nonpayment). The terms of office of the Preferred Directors will immediately terminate and the number of directors constituting the Corporation’s board of directors will be automatically reduced accordingly. When the voting rights described in this Section 7(c) are in effect, any Preferred Director may be removed at any time without cause by the holders of record of a majority of the outstanding shares of Series C Preferred Stock (together with holders of any other class of the Corporation’s authorized preferred that ranks on party with the Series C Preferred Stock as to payment of dividends with equivalent voting rights, whether or not the holders of such preferred stock would be entitled to vote for the election of directors if such default in dividends did not exist).
(d) Changes for Clarification. Without the consent of the holders of Series C Preferred Stock, so long as such action does not adversely affect the powers, preferences, privileges or rights thereof, of the Series C Preferred Stock, the Corporation may amend, alter, supplement or repeal any terms of the Series C Preferred Stock:
(i) to cure any ambiguity, or to cure, correct or supplement any provision contained in this Certificate of Designation that may be defective or inconsistent; or
(ii) to make any provision with respect to matters or questions arising with respect to the Series C Preferred Stock that is not inconsistent with the provisions of this Certificate of Designation.
(e) Changes after Provision for Redemption. No vote or consent of the holders of Series C Preferred Stock shall be required pursuant to Section 7(a), 7(b) or 7(c) above if, at or prior to the time when any such vote or consent would otherwise be required pursuant to such Section, all outstanding shares of Series C Preferred Stock shall have been redeemed, or shall have been called for redemption upon proper notice and sufficient funds shall have been set aside for such redemption, in each case pursuant to Section 6 above.

(f) Inapplicability of Section 11.04(6) of the Act. The holders of Series C Preferred Stock are not entitled to vote as a separate class or series or voting group (including without limitation, alone or together with one or more other classes or series of shares) with respect to any plan of merger or share exchange solely as a result of Section 11.04(6) of the MBCA (or any similar successor provision of the MBCA).
Section 8. Conversion. The holders of Series C Preferred Stock shall not have any rights to convert such Series C Preferred Stock into shares of any other class of capital stock of the Corporation.
Section 9. Rank. Notwithstanding anything set forth in the Articles of Organization, the Bylaws or this Certificate of Designation to the contrary, the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation, without the vote of the holders of the Series C Preferred Stock, may authorize and issue additional shares of Junior Stock, Parity Stock or, subject to the voting rights granted in Section 7(b), any class of securities ranking senior to the Series C Preferred Stock as to dividends and the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.
Section 10. Repurchase. Subject to the limitations imposed herein, the Corporation may purchase Series C Preferred Stock from time to time to such extent, in such manner, and upon such terms as the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation may determine; provided , however , that the Corporation shall not use any of its funds for any such purchase when there are reasonable grounds to believe that the Corporation is, or by such purchase would be, rendered insolvent.
Section 11. Unissued or Reacquired Shares. Shares of Series C Preferred Stock not issued or which have been issued, redeemed or otherwise purchased or acquired by the Corporation shall be restored to the status of authorized but unissued shares of preferred stock without designation as to series.
Section 12. No Sinking Fund. The Series C Preferred Stock will not be subject to any mandatory redemption, sinking fund or other similar provisions. Holders of Series C Preferred Stock will have no right to require redemption or repurchase of any shares of Series C Preferred Stock.
Section 13. Record Holders. To the fullest extent permitted by applicable law, the Corporation and any transfer agent for the Series C Preferred Stock may deem and treat the record holder of any share of Series C Preferred Stock as the true and lawful owner thereof for all purposes, and neither the Corporation nor such transfer agent shall be affected by any notice to the contrary.




Section 14. Notices. All notices or communications in respect of the Series C Preferred Stock shall be sufficiently given if given in writing and delivered in person or by first class mail, postage prepaid, or if given in such other manner as may be permitted in this Certificate of Designation, the Corporation’s Articles of Organization or Bylaws or by applicable law.

Section 15. No Preemptive Rights. No share of Series C Preferred Stock shall have any rights of preemption whatsoever as to any securities of the Corporation, or any warrants, rights or options issued or granted with respect thereto, regardless of how such securities, or such warrants, rights or options, may be designated, issued or granted.
Section 16. Other Rights. The shares of Series C Preferred Stock shall not have any voting powers, preferences or relative, participating, optional or other special rights, or qualifications, limitations or restrictions thereof, other than as set forth herein or in the Articles of Organization or as provided by applicable law.

IN WITNESS WHEREOF, State Street Corporation has caused this Certificate of Designations to be signed by Jeffrey N. Carp, its Executive Vice President, Chief Legal Officer and Secretary, this 14th day of August 2012.
 
 
STATE STREET CORPORATION
 
 
By:
 /s/ Jeffrey N. Carp
Name:
 Jeffrey N. Carp
Title:
Executive Vice President, Chief Legal Officer and Secretary


COMMONWEALTH OF MASSACHUSETTS
William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
Articles of Amendment
(General Laws Chapter 156D, Section 10.06; 950 CMR 113.34)
I hereby certify that upon examination of these articles of amendment, it appears that the provisions of the General Laws relative thereto have been complied with, and the filing fee in the amount of $100 having been paid, said articles are deemed to have been filed with me this 15 th day of August, 2012, at 11:52 a.m. /p.m.
time
 
 
 
 
 
Effective date:
 
 
 
 
 
 
(must be within 90 days of date submitted)
 
 
/s/ William Francis Galvin
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
Filing fee: Minimum filing fee $100 per article amended, stock increases $100 per 100,000 shares, plus $100 for each additional 100,000 shares or any fraction thereof.
TO BE FILLED IN BY CORPORATION
Contact Information:




 
 
 
 
 
Mark Devine c/o WilmerHale
 
 
 
 
60 State Street
 
 
 
 
Boston, Massachusetts 02109
 
 
 
 
 
Telephone:
 
617 526 5122
 
 

 
 
 
 
 
 
 
 
Email:
 
mark.devine@wilmerhale.com
 
 
Upon filing, a copy of this filing will be available at www.sec.state.ma.us/cor. If the document is rejected, a copy of the rejection sheet and rejected document will be available in the rejected queue.

Exhibit 4.1
D
PC
The Commonwealth of Massachusetts
William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
 
 
 
 
 
FORM MUST BE TYPED
 
Articles of Amendment
 
FORM MUST BE TYPED
(General Laws Chapter 156D, Section 10.06; 950 CMR 113.34)
(1) Exact name of corporation: State Street Corporation
(2) Registered office address: 155 Federal Street, Boston, MA 02110
(number, street, city or town, state, zip code)
(3) These articles of amendment affect article(s): IV
(specify the number(s) of article(s) being amended (I-VI))
(4) Date adopted: February 25, 2014
(month, day, year)
(5) Approved by:
(check appropriate box)
 
¬
the incorporators.





 
þ
the board of directors without shareholder approval and shareholder approval was not required.

 
¬
the board of directors and the shareholders in the manner required by law and the articles of organization.

(6) State the article number and the text of the amendment. Unless contained in the text of the amendment, state the provisions for implementing the exchange, reclassification or cancellation of issued shares.
That Article IV of the Restated Articles of Organization be amended to designate a Series D of Preferred Stock more particularly described on Exhibit A attached hereto and made a part hereof.
P.C.

To change the number of shares and the par value, * if any, of any type, or to designate a class or series, of stock, or change a designation of class or series of stock, which the corporation is authorized to issue, complete the following:
Total authorized prior to amendment:
 
 
 
 
 
 
 
 
 
WITHOUT PAR VALUE
 
WITH PAR VALUE
TYPE
 
NUMBER OF SHARES
 
TYPE
 
NUMBER OF SHARES
 
PAR VALUE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Total authorized after amendment:
 
 
 
 
 
 
 
 
 
WITHOUT PAR VALUE
 
WITH PAR VALUE
TYPE
 
NUMBER OF SHARES
 
TYPE
 
NUMBER OF SHARES
 
PAR VALUE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 





(7)
The amendment shall be effective at the time and on the date approved by the Division, unless a later effective date not more than 90 days from the date and time of filing is specified: _____________________________________

*G.L. Chapter 156D eliminates the concept of par value, however a corporation may specify par value in Article III. See G.L. Chapter 156D, Section 6.21, and the comments relative thereto.

Signed by: /s/ Jeffrey N. Carp
(signature of authorized individual)
 
¬
Chairman of the board of directors,

 
¬
President,

 
þ
Other officer,

 
¬
Court-appointed fiduciary,
on this 27th day of February , 2014 .


Exhibit A
CERTIFICATE OF DESIGNATION
OF
FIXED-TO-FLOATING RATE NON-CUMULATIVE PERPETUAL PREFERRED STOCK, SERIES D
OF
STATE STREET CORPORATION
(Pursuant to Section 6.02 of the Massachusetts Business Corporation Act)
February 27, 2014
State Street Corporation, a corporation organized and existing under the Massachusetts Business Corporation Act of the Commonwealth of Massachusetts (the “ Corporation ”), in accordance with the provisions of Section 6.02 thereof, hereby certifies:
On February 25, 2014, the Chairman of the Board of Directors of the Corporation, in accordance with the votes of the Board of Directors of the Corporation adopted on February 16, 2012 and October 15, 2013 and the provisions of the Corporation’s Articles of Organization, as amended, duly adopted the following vote creating a series of 7,500 shares of preferred stock of the Corporation designated as “ Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series D ”.
VOTED: that pursuant to the authority vested in the Chairman of the Board of Directors of the Corporation and in accordance with the votes of the Board of Directors of the Corporation adopted on February 16, 2012 and October 15, 2013 and the provisions of the Corporation’s Articles of Organization, as amended, a series of preferred stock, without par value, of the Corporation be and hereby is created, and that the designation and number of shares, and the preferences, limitations, and relative rights thereof are as follows:




Section 1. Designation. The designation of the series of preferred stock shall be Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series D (hereinafter referred to as the “ Series D Preferred Stock ”). Each share of Series D Preferred Stock shall be identical in all respects to every other share of Series D Preferred Stock. Series D Preferred Stock will rank (i) at least equally with Parity Stock, if any, with respect to the payment of dividends and the distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation (ii) and will rank senior to Junior Stock with respect to the payment of dividends or the distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.
Section 2. Number of Shares . The number of authorized shares of Series D Preferred Stock shall be 7,500. Such number may from time to time be increased (but not in excess of the total number of authorized shares of preferred stock set forth in the Articles of Organization) or decreased (but not below the number of shares of Series D Preferred Stock then outstanding) by further votes duly adopted by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation and by the filing of articles of amendment pursuant to the provisions of the Massachusetts Business Corporation Act of the Commonwealth of Massachusetts stating that such increase or reduction, as the case may be, has been so authorized. The Corporation shall have the authority to issue fractional shares of Series D Preferred Stock.
Section 3. Definitions. As used herein with respect to Series D Preferred Stock:
(a) “ Appropriate Federal Banking Agency ” means the “appropriate Federal banking agency” with respect to the Corporation as defined in Section 3(q) of the Federal Deposit Insurance Act (12 U.S.C. Section 1813(q)), or any successor provision.
(b) “ Articles of Organization ” means the Articles of Organization of the Corporation, as may be amended from time to time, and shall include this Certificate of Designation.
(c) “ Board of Directors ” means the board of directors of the Corporation.
(d) “ Bylaws ” means the Bylaws of the Corporation, as may be amended from time to time.
(e) “ Business Day ” means, for dividends payable during the Fixed Rate Period, any day other than a Saturday, Sunday, that is neither a legal holiday nor any other day on which banking institutions and trust companies in New York, New York or Boston, Massachusetts are permitted or required by any applicable law to close, and for dividends payable during the Floating Rate Period, any day that would be considered a Business Day during the Fixed Rate Period that is also a London Banking Day.
(f) “ Calculation Agent ” means State Street Bank and Trust Company or any other successor appointed by the Corporation, acting as calculation agent.
(g) “ Certificate of Designation ” means this Certificate of Designation relating to the Series D Preferred Stock, as it may be amended from time to time.
(h) “ Common Stock ” means the common stock, par value $1.00 per share, of the Corporation.
(i) “ Depositary Company ” shall have the meaning set forth in Section 6(d) hereof.
(j) “ Designated LIBOR Page ” means the display on Reuters, or any successor service, on page LIBOR01, or any other page as may replace that page on that service, for the purpose of displaying the London interbank rates for U.S. dollars.
(k) “ Dividend Payment Date ” shall have the meaning set forth in Section 4(a) hereof.
(l) “ Dividend Period ” shall have the meaning set forth in Section 4(a) hereof.

(m) “ DTC ” means The Depository Trust Company, together with its successors and assigns.
(n) “ Fixed Rate Period ” shall have the meaning set forth in Section 4(a) hereof.
(o) “ Floating Rate Period ” shall have the meaning set forth in Section 4(a) hereof.
(p) “ Junior Stock ” means the Common Stock and any other class or series of stock of the Corporation hereafter authorized over which Series D Preferred Stock has preference or priority in the payment of dividends or in the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.
(q) “ LIBOR Determination Date ” means the second London Banking Day immediately preceding the first day of the relevant Dividend Period.
(r) “ London Banking Day ” means any day on which commercial banks and foreign exchange markets settle payments in London.
(s) “ MBCA ” means the Massachusetts Business Corporation Act, as amended from time to time.




(t) “ Nonpayment ” shall have the meaning set forth in Section 7(c)(i) hereof.
(u) “ Parity Stock ” means any other class or series of stock of the Corporation, including the shares of preferred stock of the Corporation designated as Non-Cumulative Perpetual Preferred Stock, Series C, that ranks equally with the Series D Preferred Stock in the payment of dividends and in the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.
(v) “ Preferred Director ” shall have the meaning set forth in Section 7(c)(i) hereof.
(w) “ Redemption Price ” shall have the meaning set forth in Section 6(a) hereof.
(x) “ Regulatory Capital Treatment Event ” means the Corporation’s determination, in good faith, that, as a result of (i) any amendment to, clarification of or change in (including any announced prospective amendment to, clarification of or change in), the laws or regulations or policies of the United States or any political subdivision of or in the United States that is enacted or announced or that becomes effective after the initial issuance of any share of Series D Preferred Stock, (ii) any proposed amendment to or change in those laws or regulations or policies that is announced or becomes effective after the initial issuance of any share of Series D Preferred Stock, or (iii) any official administrative decision or judicial decision or administrative action or other official pronouncement interpreting or applying those laws or regulations or policies that is announced after the initial issuance of any share of Series D Preferred Stock, there is more than an insubstantial risk that the Corporation will not be entitled to treat the full liquidation value of all shares of Series D Preferred Stock then outstanding as “additional tier 1 capital” (or its equivalent) for purposes of the capital adequacy guidelines or regulations of the Appropriate Federal Banking Agency, as then in effect and applicable, for as long as any share of Series D Preferred Stock is outstanding.

(y) “ Representative Amount ” shall have the meaning set forth in the definition of “Three-month LIBOR”.
(z) “ Series D Preferred Stock ” shall have the meaning set forth in Section 1 hereof.
(aa) “ Three-month LIBOR ” means, for any LIBOR Determination Date, the offered rate for deposits in U.S. dollars having a maturity of three months that appears on the Designated LIBOR Page as of 11:00 a.m., London time, on such LIBOR Determination Date. If such rate does not appear on such page at such time, then the Calculation Agent will request the principal London office of each of four major reference banks in the London interbank market, selected by the Calculation Agent, to provide such bank’s offered quotation to prime banks in the London interbank market for deposits in U.S. dollars for a term of three months as of 11:00 a.m., London time, on such LIBOR Determination Date and in a principal amount equal to an amount that, in the judgment of the Calculation Agent, is representative for a single transaction in U.S. dollars in the relevant market at the relevant time (a “ Representative Amount ”). If at least two such quotations are so provided, Three-Month LIBOR will be the arithmetic mean of such quotations. If fewer than two such quotations are provided, the Calculation Agent will request each of three major banks in New York City to provide such bank’s rate for loans in U.S. dollars to leading European banks for a term of three months as of approximately 11:00 a.m., New York City time, on such LIBOR Determination Date and in a Representative Amount. If three such quotations are so provided, Three-Month LIBOR will be the arithmetic mean of such quotations. If fewer than three such rates are so provided, then Three-Month LIBOR for the next Dividend Period will be set to equal the Three-Month LIBOR for the then-current Dividend Period or, in the case of the Dividend Period beginning March 15, 2024, 5.90%. All percentages used in or resulting from any calculation of Three-month LIBOR will be rounded, if necessary, to the nearest one hundred-thousandth of a percentage point, with .000005% rounded up to .00001%.
Section 4. Dividends.
(a) Rate. Dividends on the Series D Preferred Stock will not be mandatory. Holders of Series D Preferred Stock shall be entitled to receive, if, as and when declared by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation, but only out of assets legally available therefor, non-cumulative cash dividends on the liquidation preference of $100,000 per share of Series D Preferred Stock, quarterly in arrears on each March 15, June 15, September 15 and December 15, commencing June 15, 2014 (each, a “ Dividend Payment Date ”). From the date of issuance to, but excluding, March 15, 2024 (the “ Fixed Rate Period ”), dividends will be calculated at an annual rate of 5.90%, and from, and including, March 15, 2024 (the “ Floating Rate Period ”), dividends will be calculated at an annual rate equal to Three-month LIBOR plus 3.108%. In the event that any Dividend Payment Date during the Fixed Rate Period falls on a date that is not a Business Day, then payment of any dividend payable on such date will be made on the next succeeding Business Day (without interest or other payment in respect of such delay). In the event that any Dividend Payment Date during the Floating Rate Period falls on a date that is not a Business Day, then payment of any dividend otherwise payable on such date will be made on the next succeeding Business Day, and dividends will be calculated to, but excluding, the actual payment date. However if, during the Floating Rate Period, such postponed payment date would fall in the next calendar month following the relevant Dividend Payment Date, then payment of any dividend otherwise payable on such date will be made on the Business Day immediately preceding the relevant Dividend Payment Date. The period from, and including, any Dividend Payment Date to, but excluding, the next succeeding Dividend Payment Date is a “Dividend Period”; provided , however , that the first




Dividend Period shall be the period from, and including, the date of original issuance of the Series D Preferred Stock to, but excluding, June 15, 2014 and provided , further , that, during the Floating Rate Period for purposes of determining a Dividend Period only, the Dividend Payment Date shall be the actual payment date of the applicable dividends. The record date for payment of dividends on the Series D Preferred Stock shall be the 15th calendar day before such Dividend Payment Date ( provided , however , that if any such day is not a Business Day, then the record date will be the next succeeding day that is a Business Day) or such other date as determined by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation. The amount of dividends payable during the Fixed Rate Period, including dividends payable for any partial Dividend Period, shall be calculated on the basis of a 360-day year consisting of twelve 30-day months. The amount of any dividend payable during the Floating Rate Period, including dividends payable for any partial Dividend Period, shall be calculated (without duplication) on the basis of a 360-day year and the actual number of days elapsed. Dollar amounts resulting from that calculation will be rounded to the nearest cent, with one-half cent being rounded upward. The determination of Three-month LIBOR for each relevant dividend period by the Calculation Agent will (in the absence of manifest error) be final and binding. The Calculation Agent’s determination of any dividend rate, and its calculation of the amount of any dividend payable during the Floating Rate Period, will be maintained on file at the Calculation Agent’s principal offices. Notwithstanding any other provision hereof, dividends on the Series D Preferred Stock shall not be declared, paid or set aside for payment to the extent such act would cause the Corporation to fail to comply with laws and regulations applicable thereto, including applicable capital adequacy guidelines.
(b) Non-Cumulative Dividends . Dividends on shares of Series D Preferred Stock shall be non-cumulative. To the extent that any dividends payable on the shares of Series D Preferred Stock on any Dividend Payment Date are not declared and paid, in full or otherwise, on such Dividend Payment Date, then such unpaid dividends shall not be cumulative and shall not be payable for such Dividend Period, and the Corporation shall have no obligation to pay, and the holders of Series D Preferred Stock shall have no right to receive, dividends for such Dividend Period after the Dividend Payment Date for such Dividend Period or interest with respect to such dividends, whether or not dividends are declared for any subsequent Dividend Period with respect to Series D Preferred Stock, Junior Stock or any other class or series of authorized preferred stock of the Corporation.
(c) Priority of Dividends. So long as any share of Series D Preferred Stock remains outstanding, (i) no dividend shall be declared or paid or set aside for payment and no distribution shall be declared or made or set aside for payment on any Junior Stock, other than a dividend payable solely in Junior Stock, or any dividend or distribution of capital stock or rights to acquire capital stock of the Corporation in connection with a shareholders’ rights plan or any redemption or repurchase of capital stock or rights to acquire capital stock under any such plan, and (ii) no shares of Junior Stock shall be repurchased, redeemed or otherwise acquired for consideration by the Corporation, directly or indirectly (other than (A) as a result of a reclassification of Junior Stock for or into other Junior Stock, (B) the exchange or conversion of one share of Junior Stock for or into another share of Junior Stock, (C) through the use of the proceeds of a substantially contemporaneous sale of other shares of Junior Stock, (D) purchases, redemptions or other acquisitions of shares of Junior Stock pursuant to any employment contract, benefit plan or other similar arrangement with or for the benefit of employees, officers, directors or consultants, (E) purchases of shares of Junior Stock pursuant to a contractually binding requirement to buy Junior Stock existing prior to or during the most recent preceding Dividend Period for which the full dividends for the then most recently completed Dividend Period on all outstanding shares of Series D Preferred Stock have been declared and paid or declared and a sum sufficient for the payment thereof has been set aside, including under a contractually binding stock repurchase plan, or (F) the purchase of fractional interests in shares of Junior Stock pursuant to the conversion or exchange provisions of such stock or the security being converted or exchanged), nor shall any monies be paid to or made available for a sinking fund for the redemption of any such securities by the Corporation; unless, in each case, the full dividends on all outstanding shares of Series D Preferred Stock for the then most recently completed Dividend Period have been declared and paid in full (or a sum sufficient for the payment in full thereof has been set aside for such payment). When dividends are not paid in full upon the shares of Series D Preferred Stock and any Parity Stock, all dividends declared upon shares of Series D Preferred Stock and any such Parity Stock shall be declared on a proportional basis. For purposes of calculating the proportional allocation of partial dividend payments, the Corporation shall allocate dividend payments based on the ratio between the then-current dividends due on the shares of the Series D Preferred Stock and (i) in the case of any series of Parity Stock that is non-cumulative preferred stock, the aggregate of the current and unpaid dividends due on such series of preferred stock, and (ii) in the case of any series of Parity Stock that is cumulative preferred stock, the aggregate of the current and accumulated and unpaid dividends due on such series of preferred stock. No interest will be payable in respect of any declared but unpaid dividend payment on shares of Series D Preferred Stock that is paid after the relevant Dividend Payment Date for such Dividend Period. If the Board of Directors of the Corporation determines not to pay any dividend or a full dividend on the Series D Preferred Stock on a Dividend Payment Date, the Corporation will provide, or cause to be provided, written notice (which may be in the form of a press release or other public announcement) to the holders of the Series D Preferred Stock prior to such date. Subject to the foregoing, and not otherwise, such dividends (payable in cash, stock or otherwise) as may be determined by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation may be declared and paid on any




Junior Stock and any Parity Stock from time to time out of any assets legally available therefor, and the holders of shares of Series D Preferred Stock shall not be entitled to participate in any such dividend.
Section 5. Liquidation Rights.
(a) Voluntary or Involuntary Liquidation. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, holders of Series D Preferred Stock shall be entitled, out of assets legally available therefor, before any distribution of the assets of the Corporation may be made to the holders of any Common Stock or of any of the Corporation’s shares of capital stock ranking junior as to such a distribution to the shares of Series D Preferred Stock, and subject to the rights of the holders of any class or series of securities ranking senior to the Series D Preferred Stock upon liquidation and the rights of the Corporation’s depositors and other creditors, to receive in full a liquidating distribution in the amount of the liquidation preference of $100,000 per share, plus any declared and unpaid dividends, without accumulation of any undeclared dividends. The holders of Series D Preferred Stock shall not be entitled to any other amounts in the event of any such voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation other than what is expressly provided for in this Section 5.
(b) Partial Payment. If in any distribution described in Section 5(a) above the assets of the Corporation are not sufficient to pay in full the liquidation preference plus any declared and unpaid dividends in full to all holders of Series D Preferred Stock and all holders of any Parity Stock ranking equally as to such distribution with the Series D Preferred Stock, the amounts paid to the holders of Series D Preferred Stock and to the holders of all such other Parity Stock shall be paid pro rata in accordance with the respective aggregate liquidation preferences plus any declared and unpaid dividends on the Series D Preferred Stock and all such Parity Stock.
(c) Residual Distributions. If the liquidation preference plus any declared and unpaid dividends has been paid in full to all holders of Series D Preferred Stock and all holders of any Parity Stock ranking equally as to such distribution with the Series D Preferred Stock, the holders of Junior Stock shall be entitled to receive all remaining assets of the Corporation according to their respective rights and preferences.
(d) Merger, Consolidation and Sale of Assets Not Liquidation. For purposes of this Section 5, the sale, lease or exchange (for cash, securities or other property) of all or substantially all of the property and assets of the Corporation shall not constitute a voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, nor shall the merger, consolidation or any other business combination transaction of the Corporation into or with any other entity or the merger, consolidation or any other business combination transaction of any other entity into or with the Corporation in which the holders of Series D Preferred Stock receive cash, securities or other property for their shares of Series D Preferred Stock, constitute a voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.
Section 6. Redemption.
(a) Optional Redemption. The Corporation, at the option of its Board of Directors or any duly authorized committee of the Board of Directors of the Corporation, may redeem in whole or in part the shares of Series D Preferred Stock at the time outstanding, on the Dividend Payment Date on March 15, 2024 or on any Dividend Payment Date thereafter, upon notice given as provided in Section 6(b) below. The redemption price for shares of Series D Preferred Stock shall be $100,000 per share plus dividends that have been declared but not paid, without accumulation of any undeclared dividends (the “ Redemption Price ”). Notwithstanding the foregoing, within 90 days following the occurrence of a Regulatory Capital Treatment Event, the Corporation, at its option, subject to the approval of the Appropriate Federal Banking Agency, may provide notice of its intent to redeem, as provided in Subsection (b) below, and subsequently redeem, all (but not less than all) of the shares of Series D Preferred Stock at the time outstanding at the Redemption Price applicable on such date of redemption.
(b) Notice of Redemption. Notice of every redemption of shares of Series D Preferred Stock shall be either (1) mailed by first class mail, postage prepaid, addressed to the holders of record of such shares to be redeemed at their respective last addresses appearing on the stock register of the Corporation or (2) transmitted by such other method approved by the Depositary Company, in its reasonable discretion, to the holders of record of such shares to be redeemed. Such mailing or transmittal shall be at least 30 days and not more than 60 days before the date fixed for redemption. Notwithstanding the foregoing, if the Series D Preferred Stock is held in book-entry form through DTC (or a successor securities depositary), the Corporation may give such notice in any manner permitted by DTC (or such successor). Any notice provided pursuant to this Section 6(b) shall be conclusively presumed to have been duly given, whether or not the holder receives such notice, but failure duly to provide such notice, or any defect in such notice or in the provision thereof, to any holder of shares of Series D Preferred Stock designated for redemption shall not affect the validity of the proceedings for the redemption of any other shares of Series D Preferred Stock. Each notice shall state (i) the redemption date; (ii) the number of shares of Series D Preferred Stock to be redeemed and, if less than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder (or the method of determining such number); (iii) the Redemption Price; (iv) the place or places




where the certificates evidencing such shares of Series D Preferred Stock are to be surrendered for payment of the Redemption Price; and (v) that dividend rights on the shares to be redeemed will cease on the redemption date.
(c) Partial Redemption. In case of any redemption of only part of the shares of Series D Preferred Stock at the time outstanding, the shares of Series D Preferred Stock to be redeemed shall be selected either pro rata from the holders of record of Series D Preferred Stock in proportion to the number of Series D Preferred Stock held by such holders or by lot or in such other manner as the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation may determine to be fair and equitable. Subject to the provisions of this Section 6, the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors shall have full power and authority to prescribe the terms and conditions upon which shares of Series D Preferred Stock shall be redeemed from time to time.
(d) Effectiveness of Redemption. If notice of redemption has been duly given and if on or before the redemption date specified in the notice all funds necessary for the redemption have been set aside by the Corporation, separate and apart from its other assets, for the benefit of the holders of the shares called for redemption, so as to be and continue to be available therefor, or deposited by the Corporation with a bank or trust company selected by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors (the “ Depositary Company ”) for the benefit of the holders of the shares called for redemption, then, notwithstanding that any certificate for any share so called for redemption has not been surrendered for cancellation, on and after the redemption date all shares so called for redemption shall cease to be outstanding, all dividend rights with respect to such shares will cease on the redemption date, and all rights with respect to such shares shall forthwith on such redemption date cease and terminate, except only the right of the holders thereof to receive the amount payable on such redemption from the trust fund set aside by the Corporation or from the bank or trust company where the funds have been deposited at any time after the redemption date from such funds, without interest. The Corporation shall be entitled to receive, from time to time, from the Depositary Company any interest accrued on such funds, and the holders of any shares called for redemption shall have no claim to any such interest. Any funds so deposited and unclaimed at the end of three years from the redemption date shall, to the extent permitted bylaw, be released or repaid to the Corporation, and in the event of such repayment to the Corporation, the holders of record of the shares so called for redemption shall be deemed to be unsecured creditors of the Corporation for an amount equivalent to the amount deposited as stated above for the redemption of such shares and so repaid to the Corporation, but shall in no event be entitled to any interest.
Section 7. Voting Rights. The holders of Series D Preferred Stock will have no voting rights and will not be entitled to elect any directors, except as expressly provided by law and except that:
(a) Supermajority Voting Rights-Amendments . Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the affirmative vote or consent of the holders of at least two-thirds of all of the shares of the Series D Preferred Stock at the time outstanding, voting separately as a single class, shall be required to authorize any amendment of the Articles of Organization (including this Certificate of Designation and any other certificate of designation or any similar document relating to any series of preferred stock) or Bylaws which will materially and adversely affect the powers, preferences, privileges or rights of the Series D Preferred Stock, taken as a whole; provided , however , that any increase in the amount of the authorized or issued Series D Preferred Stock or authorized preferred stock of the Corporation or the creation and issuance, or an increase in the authorized or issued amount, of other series of preferred stock ranking equally with and/or junior to the Series D Preferred Stock with respect to the payment of dividends (whether such dividends are cumulative or non-cumulative) and/or the distribution of assets upon voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation will not be deemed to adversely affect the powers, preferences, privileges or rights of the Series D Preferred Stock.
(b) Supermajority Voting Rights-Priority . Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the affirmative vote or consent of the holders of at least two-thirds of all of the shares of the Series D Preferred Stock at the time outstanding, voting separately as a single class, shall be required to issue, authorize or increase the authorized amount of, or to issue or authorize any obligation or security convertible into or evidencing the right to purchase, any additional class or series of stock ranking senior to the shares of the Series D Preferred Stock and all other Parity Stock with respect to dividends or the distribution of assets upon liquidation, dissolution or winding up of the Corporation.
(c) Special Voting Right.
(i) Voting Right. If and whenever dividends on the Series D Preferred Stock or any other class or series of preferred stock that ranks on parity with the Series D Preferred Stock as to payment of dividends, and upon which voting rights equivalent to those granted by this Section 7(c) have been conferred and are exercisable, have not been paid, or declared and set aside for payment, in an aggregate amount equal, as to any class or series, to at least six quarterly Dividend Periods (whether consecutive or not) (a “ Nonpayment ”), the number of directors constituting the Board of Directors of the Corporation shall be increased by two, and the holders of the Series D Preferred Stock (together with holders of any other series of the Corporation’s authorized preferred stock that ranks on parity with the Series D Preferred Stock as to payment of dividends with equivalent voting rights), shall have the right, voting separately as a single class without regard to series, to the exclusion of the holders of




Common Stock, to elect two directors of the Corporation to fill such newly created directorships (and to fill any vacancies in the terms of such directorships), provided that the election of such directors must not cause the Corporation to violate the corporate governance requirements of the New York Stock Exchange (or other exchange on which the Corporation’s securities may be listed) that listed companies must have a majority of independent directors and further provided that the Board of Directors of the Corporation shall at no time include more than two such directors. Each such director elected by the holders of shares of Series D Preferred Stock and any other class or series of preferred stock having equivalent voting rights with the Series D Preferred Stock is a “ Preferred Director ”.
(ii) Election . The election of the Preferred Directors will take place at any annual meeting of shareholders or any special meeting of the holders of Series D Preferred Stock and any other class or series of the Corporation’s preferred stock that ranks on parity with Series D Preferred Stock as to payment of dividends and for which dividends have not been paid, called as provided herein. At any time after the special voting power has vested pursuant to Section 7(c)(i) above, but prior to the initial election of the Preferred Directors, the secretary of the Corporation may, and upon the written request of any holder of Series D Preferred Stock (addressed to the secretary at the Corporation’s principal office) must (unless such request is received less than 90 days before the date fixed for the next annual or special meeting of the shareholders, in which event such election shall be held at such next annual or special meeting of shareholders), call a special meeting of the holders of Series D Preferred Stock, and any other class or series of preferred stock that ranks on parity with Series D Preferred Stock as to payment of dividends and for which dividends have not been paid, for the election of the two directors to be elected by them as provided in Section 7(c)(iii) below.
(iii) Notice for Special Meeting. Notice for a special meeting will be given in a similar manner to that provided in the Corporation’s Bylaws for a special meeting of the shareholders. If the secretary of the Corporation does not call a special meeting within 20 days after receipt of any such request, then any holder of Series D Preferred Stock may (at the Corporation’s expense) call such meeting, upon notice as provided in this Section 7(c)(iii), and for that purpose will have access to the stock register of the Corporation. The Preferred Directors elected at any such special meeting will hold office until the next annual meeting of the Corporation’s shareholders unless they have been previously terminated or removed pursuant to Section 7(c)(iv). In case any vacancy in the office of a Preferred Director occurs (other than prior to the initial election of the Preferred Directors), the vacancy may be filled by the written consent of the Preferred Director remaining in office, or if none remains in office, by the vote of the holders of the Series D Preferred Stock (together with holders of any other class of the Corporation’s authorized preferred stock that ranks on parity with Series D Preferred Stock as to payment of dividends with equivalent voting rights, whether or not the holders of such preferred stock would be entitled to vote for the election of directors if such default in dividends did not exist) to serve until the next annual meeting of the shareholders.
(iv) Termination; Removal . Whenever full dividends have been paid regularly on the Series D Preferred Stock and any other class or series of preferred stock that ranks on parity with the Series D Preferred Stock as to payment of dividends, if any, for at least four consecutive Dividend Periods following a Nonpayment, then the right of the holders of Series D Preferred Stock to elect such additional two directors will cease (but subject always to the same provisions for the vesting of the special voting rights in the case of any subsequent Nonpayment). The terms of office of the Preferred Directors will immediately terminate and the number of directors constituting the Corporation’s board of directors will be automatically reduced accordingly. When the voting rights described in this Section 7(c) are in effect, any Preferred Director may be removed at any time without cause by the holders of record of a majority of the outstanding shares of Series D Preferred Stock (together with holders of any other class of the Corporation’s authorized preferred that ranks on party with the Series D Preferred Stock as to payment of dividends with equivalent voting rights, whether or not the holders of such preferred stock would be entitled to vote for the election of directors if such default in dividends did not exist).
(d) Changes for Clarification. Without the consent of the holders of Series D Preferred Stock, so long as such action does not adversely affect the powers, preferences, privileges or rights thereof, of the Series D Preferred Stock, the Corporation may amend, alter, supplement or repeal any terms of the Series D Preferred Stock:
(i) to cure any ambiguity, or to cure, correct or supplement any provision contained in this Certificate of Designation that may be defective or inconsistent; or
(ii) to make any provision with respect to matters or questions arising with respect to the Series D Preferred Stock that is not inconsistent with the provisions of this Certificate of Designation.
(e) Changes after Provision for Redemption. No vote or consent of the holders of Series D Preferred Stock shall be required pursuant to Section 7(a), 7(b) or 7(c) above if, at or prior to the time when any such vote or consent would otherwise be required pursuant to such Section, all outstanding shares of Series D Preferred Stock shall have been redeemed, or shall have been called for redemption upon proper notice and sufficient funds shall have been set aside for such redemption, in each case pursuant to Section 6 above.
(f) Inapplicability of Section 11.04(6) of the MBCA . The holders of Series D Preferred Stock are not entitled to vote as a separate class or series or voting group (including without limitation, alone or together with one or more other classes or




series of shares) with respect to any plan of merger or share exchange solely as a result of Section 11.04(6) of the MBCA (or any similar successor provision of the MBCA).
Section 8. Conversion. The holders of Series D Preferred Stock shall not have any rights to convert such Series D Preferred Stock into shares of any other class of capital stock of the Corporation.
Section 9. Rank . Notwithstanding anything set forth in the Articles of Organization, the Bylaws or this Certificate of Designation to the contrary, the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation, without the vote of the holders of the Series D Preferred Stock, may authorize and issue additional shares of Junior Stock, Parity Stock or, subject to the voting rights granted in Section 7(b), any class of securities ranking senior to the Series D Preferred Stock as to dividends and the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.
Section 10. Repurchase . Subject to the limitations imposed herein, the Corporation may purchase Series D Preferred Stock from time to time to such extent, in such manner, and upon such terms as the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation may determine; provided , however , that the Corporation shall not use any of its funds for any such purchase when there are reasonable grounds to believe that the Corporation is, or by such purchase would be, rendered insolvent.
Section 11. Unissued or Reacquired Shares . Shares of Series D Preferred Stock not issued or which have been issued, redeemed or otherwise purchased or acquired by the Corporation shall be restored to the status of authorized but unissued shares of preferred stock without designation as to series.
Section 12. No Sinking Fund. The Series D Preferred Stock will not be subject to any mandatory redemption, sinking fund or other similar provisions. Holders of Series D Preferred Stock will have no right to require redemption or repurchase of any shares of Series D Preferred Stock.
Section 13. Record Holders. To the fullest extent permitted by applicable law, the Corporation and any transfer agent for the Series D Preferred Stock may deem and treat the record holder of any share of Series D Preferred Stock as the true and lawful owner thereof for all purposes, and neither the Corporation nor such transfer agent shall be affected by any notice to the contrary.
Section 14. Notices. All notices or communications in respect of the Series D Preferred Stock shall be sufficiently given if given in writing and delivered in person or by first class mail, postage prepaid, or if given in such other manner as may be permitted in this Certificate of Designation, the Corporation’s Articles of Organization or Bylaws or by applicable law.
Section 15. No Preemptive Rights. No share of Series D Preferred Stock shall have any rights of preemption whatsoever as to any securities of the Corporation, or any warrants, rights or options issued or granted with respect thereto, regardless of how such securities, or such warrants, rights or options, may be designated, issued or granted.
Section 16. Other Rights. The shares of Series D Preferred Stock shall not have any voting powers, preferences or relative, participating, optional or other special rights, or qualifications, limitations or restrictions thereof, other than as set forth herein or in the Articles of Organization or as provided by applicable law.

IN WITNESS WHEREOF, State Street Corporation has caused this Certificate of Designations to be signed by Jeffrey N. Carp, its Executive Vice President, Chief Legal Officer and Secretary, on the date first written above.
 
 
STATE STREET CORPORATION
 
 
By:
/s/ Jeffrey N. Carp
Name:
Jeffrey N. Carp
Title:
Executive Vice President, Chief Legal Officer and Secretary






COMMONWEALTH OF MASSACHUSETTS
William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
Articles of Amendment
(General Laws Chapter 156D, Section 10.06; 950 CMR 113.34)
I hereby certify that upon examination of these articles of amendment, it appears that the
provisions of the General Laws relative thereto have been complied with, and the filing
fee in the amount of $100 having been paid, said articles are deemed to have been filed
with me this 27th day of February, 2014, at a.m./p.m.
(time)
Effective date:
(must be within 90 days of date submitted)
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
Filing fee: Minimum filing fee $100 per article amended, stock increases $100 per 100,000 shares, plus $100 for each additional 100,000 shares or any fraction thereof.
TO BE FILLED IN BY CORPORATION
Contact Information:
 
 
 
 
 
 
 
Sharon Napolitano c/o WilmerHale
 
 
 
 
 
 
 
60 State Street
 
 
 
 
 
 
 
Boston, MA 02109
 
 
 
 
 
Telephone:
 
617-526-5106
 
 
 
 
 
Email:
 
sharon.napolitano@wilmerhale.com
 
 
Upon filing, a copy of this filing will be available at www.sec.state.ma.us/cor. If the document is rejected, a copy of the rejection sheet and rejected document will be available in the rejected queue.




 
/s/ ILLEGIBLE
Examiner
 
/s/ LAC
Name approval
 
C
 
M


EXHIBIT 4.1

William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
 
 
 
 
 
FORM MUST BE TYPED
 
Articles of Amendment
 
FORM MUST BE TYPED
(General Laws Chapter 156D, Section 10.06; 950 CMR 113.34)
(1) Exact name of corporation: State Street Corporation
(2) Registered office address: 155 Federal Street, Boston, Massachusetts 02110
(number, street, city or town, state, zip code)
(3) These articles of amendment affect article(s): IV
(specify the number(s) of article(s) being amended (I-VI))
(4) Date adopted: November 18, 2014
(month, day, year)
(5)
Approved by:
(check appropriate box)
 
¬
the incorporators.

 
x
the board of directors without shareholder approval and shareholder approval was not required.

 
¬
the board of directors and the shareholders in the manner required by law and the articles of organization.




(6) State the article number and the text of the amendment. Unless contained in the text of the amendment, state the provisions for implementing the exchange, reclassification or cancellation of issued shares.
The Article IV of the Restated Articles of Organization be amended to designate a Series E of Preferred Stock more particularly described on Exhibit A attached hereto and made a part hereof.
P.C.

To change the number of shares and the par value, * if any, of any type, or to designate a class or series, of stock, or change a designation of class or series of stock, which the corporation is authorized to issue, complete the following:
Total authorized prior to amendment:
 
 
 
 
 
 
 
 
 
WITHOUT PAR VALUE
 
WITH PAR VALUE
TYPE
 
NUMBER OF SHARES
 
TYPE
 
NUMBER OF SHARES
 
PAR VALUE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total authorized after amendment:
 
 
 
 
 
 
 
 
 
WITHOUT PAR VALUE
 
WITH PAR VALUE
TYPE
 
NUMBER OF SHARES
 
TYPE
 
NUMBER OF SHARES
 
PAR VALUE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

(7)
The amendment shall be effective at the time and on the date approved by the Division, unless a later effective date not more than 90 days from the date and time of filing is specified:

*
G.L. Chapter 156D eliminates the concept of par value, however a corporation may specify par value in Article III. See G.L. Chapter 156D, Section 6.21, and the comments relative thereto.






Exhibit A
CERTIFICATE OF DESIGNATION
OF
NON-CUMULATIVE PERPETUAL PREFERRED STOCK, SERIES E
OF
STATE STREET CORPORATION
(Pursuant to Section 6.02 of the Massachusetts Business Corporation Act)
November 21, 2014
State Street Corporation, a corporation organized and existing under the Massachusetts Business Corporation Act of the Commonwealth of Massachusetts (the “ Corporation ”), in accordance with the provisions of Section 6.02 thereof, hereby certifies:
On November 18, 2014, the Chairman of the Board of Directors of the Corporation, in accordance with the votes of the Board of Directors of the Corporation adopted on October 23, 2014 and the provisions of the Corporation’s Articles of Organization, as amended, duly adopted the following vote creating a series of 7,500 shares of preferred stock of the Corporation designated as “ Non-Cumulative Perpetual Preferred Stock, Series E ”.
VOTED: that pursuant to the authority vested in the Chairman of the Board of Directors of the Corporation and in accordance with the votes of the Board of Directors of the Corporation adopted on October 23, 2014 and the provisions of the Corporation’s Articles of Organization, as amended, a series of preferred stock, without par value, of the Corporation be and hereby is created, and that the designation and number of shares, and the preferences, limitations, and relative rights thereof are as follows:
Section 1. Designation. The designation of the series of preferred stock shall be Non-Cumulative Perpetual Preferred Stock, Series E (hereinafter referred to as the “ Series E Preferred Stock ”). Each share of Series E Preferred Stock shall be identical in all respects to every other share of Series E Preferred Stock. Series E Preferred Stock will rank (i) at least equally with Parity Stock, if any, with respect to the payment of dividends and the distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation (ii) and will rank senior to Junior Stock with respect to the payment of dividends or the distribution of assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.
Section 2. Number of Shares. The number of authorized shares of Series E Preferred Stock shall be 7,500. Such number may from time to time be increased (but not in excess of the total number of authorized shares of preferred stock set forth in the Articles of Organization) or decreased (but not below the number of shares of Series E Preferred Stock then outstanding) by further votes duly adopted by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation and by the filing of articles of amendment pursuant to the provisions of the Massachusetts Business Corporation Act of the Commonwealth of Massachusetts stating that such increase or reduction, as the case may be, has been so authorized. The Corporation shall have the authority to issue fractional shares of Series E Preferred Stock.
Section 3. Definitions. As used herein with respect to Series E Preferred Stock:
(a) “ Appropriate Federal Banking Agency ” means the “appropriate Federal banking agency” with respect to the Corporation as defined in Section 3(q) of the Federal Deposit Insurance Act (12 U.S.C. Section 1813(q)), or any successor provision.
(b) “ Articles of Organization ” means the Articles of Organization of the Corporation, as may be amended from time to time, and shall include this Certificate of Designation.
(c) “ Board of Directors ” means the board of directors of the Corporation.
(d) “ Bylaws ” means the Bylaws of the Corporation, as may be amended from time to time.




(e) “ Business Day ” means any day other than a Saturday, Sunday, that is neither a legal holiday nor any other day on which banking institutions and trust companies in New York, New York or Boston, Massachusetts are permitted or required by any applicable law to close.
(f) “ Certificate of Designation ” means this Certificate of Designation relating to the Series E Preferred Stock, as it may be amended from time to time.
(g) “ Common Stock ” means the common stock, par value $1.00 per share, of the Corporation.
(h) “ Depositary Company ” shall have the meaning set forth in Section 6(d) hereof.
(i) “ Dividend Payment Date ” shall have the meaning set forth in Section 4(a) hereof.
(j) “ Dividend Period ” shall have the meaning set forth in Section 4(a) hereof.
(k) “ DTC ” means The Depository Trust Company, together with its successors and assigns.
(l) “ Junior Stock ” means the Common Stock and any other class or series of stock of the Corporation hereafter authorized over which Series E Preferred Stock has preference or priority in the payment of dividends or in the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.
(m) “ MBCA ” means the Massachusetts Business Corporation Act, as amended from time to time.
(n) “ Nonpayment ” shall have the meaning set forth in Section 7(c)(i) hereof.

(o) “ Parity Stock ” means any other class or series of stock of the Corporation, including the shares of preferred stock of the Corporation designated as Non-Cumulative Perpetual Preferred Stock, Series C and Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series D, that ranks equally with the Series E Preferred Stock in the payment of dividends and in the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.
(p) “ Preferred Director ” shall have the meaning set forth in Section 7(c)(i) hereof.
(q) “ Redemption Price ” shall have the meaning set forth in Section 6(a) hereof.
(r) “ Regulatory Capital Treatment Event ” means the Corporation’s determination, in good faith, that, as a result of any:
(i) amendment to, clarification of or change in (including any announced prospective amendment to, clarification of or change in), the laws or regulations or policies of the United States or any political subdivision of or in the United States that is enacted or announced or that becomes effective after the initial issuance of any share of Series E Preferred Stock;
(ii) proposed amendment to or change in those laws or regulations or policies that is announced or becomes effective after the initial issuance of any share of Series E Preferred Stock; or
(iii) official administrative decision or judicial decision or administrative action or other official pronouncement interpreting or applying those laws or regulations or policies that is announced or that becomes effective after the initial issuance of any share of Series E Preferred Stock,
there is more than an insubstantial risk that the Corporation will not be entitled to treat the full liquidation value of all shares of Series E Preferred Stock then outstanding as “additional tier 1 capital” (or its equivalent) for purposes of the capital adequacy guidelines or regulations of the Appropriate Federal Banking Agency, as then in effect and applicable, for as long as any share of Series E Preferred Stock is outstanding.
(s) “ Series E Preferred Stock ” shall have the meaning set forth in Section 1 hereof.
Section 4. Dividends.
(a) Rate. Dividends on the Series E Preferred Stock will not be mandatory. Holders of Series E Preferred Stock shall be entitled to receive, if, as and when declared by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation, but only out of assets legally available therefor, non-cumulative cash dividends at a




rate per annum equal to 6.000% on the liquidation preference of $100,000 per share of Series E Preferred Stock, quarterly in arrears on each March 15, June 15, September 15 and December 15, commencing March 15, 2015 (each, a “ Dividend Payment Date ”). In the event that any Dividend Payment Date falls on a date that is not a Business Day, then payment of any dividend payable on such date will be made on the next succeeding Business Day (without interest or other payment in respect of such delay). The period from, and including, any Dividend Payment Date to, but excluding, the next succeeding Dividend Payment Date is a “Dividend Period”;

provided , however , that the first Dividend Period shall be the period from, and including, the date of original issuance of the Series E Preferred Stock to, but excluding, March 15, 2015. The record date for payment of dividends on the Series E Preferred Stock shall be the 15th calendar day before such Dividend Payment Date ( provided , however , that if any such day is not a Business Day, then the record date will be the next succeeding day that is a Business Day) or such other date as determined by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation. The amount of dividends payable, including dividends payable for any partial Dividend Period, shall be calculated on the basis of a 360-day year consisting of twelve 30-day months. Notwithstanding any other provision hereof, dividends on the Series E Preferred Stock shall not be declared, paid or set aside for payment to the extent such act would cause the Corporation to fail to comply with laws and regulations applicable thereto, including applicable capital adequacy guidelines.
(b) Non-Cumulative Dividends. Dividends on shares of Series E Preferred Stock shall be non-cumulative. To the extent that any dividends payable on the shares of Series E Preferred Stock on any Dividend Payment Date are not declared and paid, in full or otherwise, on such Dividend Payment Date, then such unpaid dividends shall not be cumulative and shall not be payable for such Dividend Period, and the Corporation shall have no obligation to pay, and the holders of Series E Preferred Stock shall have no right to receive, dividends for such Dividend Period after the Dividend Payment Date for such Dividend Period or interest with respect to such dividends, whether or not dividends are declared for any subsequent Dividend Period with respect to Series E Preferred Stock, Junior Stock or any other class or series of authorized preferred stock of the Corporation.
(c) Priority of Dividends. So long as any share of Series E Preferred Stock remains outstanding, (i) no dividend shall be declared or paid or set aside for payment and no distribution shall be declared or made or set aside for payment on any Junior Stock, other than a dividend payable solely in Junior Stock, or any dividend or distribution of capital stock or rights to acquire capital stock of the Corporation in connection with a shareholders’ rights plan or any redemption or repurchase of capital stock or rights to acquire capital stock under any such plan, and (ii) no shares of Junior Stock shall be repurchased, redeemed or otherwise acquired for consideration by the Corporation, directly or indirectly (other than (A) as a result of a reclassification of Junior Stock for or into other Junior Stock, (B) the exchange or conversion of one share of Junior Stock for or into another share of Junior Stock, (C) through the use of the proceeds of a substantially contemporaneous sale of other shares of Junior Stock, (D) purchases, redemptions or other acquisitions of shares of Junior Stock pursuant to any employment contract, benefit plan or other similar arrangement with or for the benefit of employees, officers, directors or consultants, (E) purchases of shares of Junior Stock pursuant to a contractually binding requirement to buy Junior Stock existing prior to or during the most recent preceding Dividend Period for which the full dividends for the then most recently completed Dividend Period on all outstanding shares of Series E Preferred Stock have been declared and paid or declared and a sum sufficient for the payment thereof has been set aside, including under a contractually binding stock repurchase plan, or (F) the purchase of fractional interests in shares of Junior Stock pursuant to the conversion or exchange provisions of such stock or the security being converted or exchanged), nor shall any monies be paid to or made available for a sinking fund for the redemption of any such securities by the Corporation; unless, in each case, the full dividends on all outstanding shares of Series E Preferred Stock for the then most recently completed Dividend Period have been declared and paid in full (or a sum sufficient for the payment in full thereof has been set aside for such payment). When dividends are not paid in full upon the shares of Series E Preferred Stock and any Parity Stock, all dividends declared upon shares of Series E Preferred Stock and any such Parity Stock shall be declared on a proportional basis. For purposes of calculating the proportional allocation of partial dividend payments, the Corporation shall allocate dividend payments based on the ratio between the then-current dividends due on the shares of the Series E Preferred Stock and (i) in the case of any series of Parity Stock that is non-cumulative preferred stock, the aggregate of the current and unpaid dividends due on such series of preferred stock, and (ii) in the case of any series of Parity Stock that is cumulative preferred stock, the aggregate of the current and accumulated and unpaid dividends due on such series of preferred stock. No interest will be payable in respect of any declared but unpaid dividend payment on shares of Series E Preferred Stock that is paid after the relevant Dividend Payment Date for such Dividend Period. If the Board of Directors of the Corporation determines not to pay any dividend or a full dividend on the Series E Preferred Stock on a Dividend Payment Date, the Corporation will provide, or cause to be provided, written notice (which may be in the form of a press release or other public announcement) to the holders of the Series E Preferred Stock prior to such date. Subject to the foregoing, and not otherwise, such dividends (payable in cash, stock or otherwise) as may be determined by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation may be declared and paid on any Junior Stock and any




Parity Stock from time to time out of any assets legally available therefor, and the holders of shares of Series E Preferred Stock shall not be entitled to participate in any such dividend.
Section 5. Liquidation Rights.
(a) Voluntary or Involuntary Liquidation. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, holders of Series E Preferred Stock shall be entitled, out of assets legally available therefor, before any distribution of the assets of the Corporation may be made to the holders of any Common Stock or of any of the Corporation’s shares of capital stock ranking junior as to such a distribution to the shares of Series E Preferred Stock, and subject to the rights of the holders of any class or series of securities ranking senior to the Series E Preferred Stock upon liquidation and the rights of the Corporation’s depositors and other creditors, to receive in full a liquidating distribution in the amount of the liquidation preference of $100,000 per share, plus any declared and unpaid dividends, without accumulation of any undeclared dividends. The holders of Series E Preferred Stock shall not be entitled to any other amounts in the event of any such voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation other than what is expressly provided for in this Section 5.
(b) Partial Payment. If in any distribution described in Section 5(a) above the assets of the Corporation are not sufficient to pay in full the liquidation preference plus any declared and unpaid dividends in full to all holders of Series E Preferred Stock and all holders of any Parity Stock ranking equally as to such distribution with the Series E Preferred Stock, the amounts paid to the holders of Series E Preferred Stock and to the holders of all such other Parity Stock shall be paid pro rata in accordance with the respective aggregate liquidation preferences plus any declared and unpaid dividends on the Series E Preferred Stock and all such Parity Stock.

(c) Residual Distributions. If the liquidation preference plus any declared and unpaid dividends has been paid in full to all holders of Series E Preferred Stock and all holders of any Parity Stock ranking equally as to such distribution with the Series E Preferred Stock, the holders of Junior Stock shall be entitled to receive all remaining assets of the Corporation according to their respective rights and preferences.
(d) Merger, Consolidation and Sale of Assets Not Liquidation. For purposes of this Section 5, the sale, lease or exchange (for cash, securities or other property) of all or substantially all of the property and assets of the Corporation shall not constitute a voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, nor shall the merger, consolidation or any other business combination transaction of the Corporation into or with any other entity or the merger, consolidation or any other business combination transaction of any other entity into or with the Corporation in which the holders of Series E Preferred Stock receive cash, securities or other property for their shares of Series E Preferred Stock, constitute a voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.
Section 6. Redemption.
(a) Optional Redemption. The Corporation, at the option of its Board of Directors or any duly authorized committee of the Board of Directors of the Corporation, may redeem in whole or in part the shares of Series E Preferred Stock at the time outstanding, on the Dividend Payment Date on December 15, 2019 or on any Dividend Payment Date thereafter, upon notice given as provided in Section 6(b) below. The redemption price for shares of Series E Preferred Stock shall be $100,000 per share plus dividends that have been declared but not paid, without accumulation of any undeclared dividends (the “ Redemption Price ”). Notwithstanding the foregoing, within 90 days following the occurrence of a Regulatory Capital Treatment Event, the Corporation, at its option, subject to the approval of the Appropriate Federal Banking Agency, may provide notice of its intent to redeem, as provided in Subsection (b) below, and subsequently redeem, all (but not less than all) of the shares of Series E Preferred Stock at the time outstanding at the Redemption Price applicable on such date of redemption.
(b) Notice of Redemption. Notice of every redemption of shares of Series E Preferred Stock shall be either (1) mailed by first class mail, postage prepaid, addressed to the holders of record of such shares to be redeemed at their respective last addresses appearing on the stock register of the Corporation or (2) transmitted by such other method approved by the Depositary Company, in its reasonable discretion, to the holders of record of such shares to be redeemed. Such mailing or transmittal shall be at least 30 days and not more than 60 days before the date fixed for redemption. Notwithstanding the foregoing, if the Series E Preferred Stock is held in book-entry form through DTC (or a successor securities depositary), the Corporation may give such notice in any manner permitted by DTC (or such successor). Any notice provided pursuant to this Section 6(b) shall be conclusively presumed to have been duly given, whether or not the holder receives such notice, but failure duly to provide such notice, or any defect in such notice or in the provision thereof, to any holder of shares of Series E Preferred Stock designated for redemption shall not affect the validity of the proceedings for the redemption of any other shares of Series E Preferred Stock. Each notice shall state (i) the redemption date; (ii) the number of shares of Series E Preferred Stock




to be redeemed and, if less than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder (or the method of determining such number); (iii) the Redemption Price; (iv) the place or places where the certificates evidencing such shares of Series E Preferred Stock are to be surrendered for payment of the Redemption Price; and (v) that dividend rights on the shares to be redeemed will cease on the redemption date.
(c) Partial Redemption. In case of any redemption of only part of the shares of Series E Preferred Stock at the time outstanding, the shares of Series E Preferred Stock to be redeemed shall be selected either pro rata from the holders of record of Series E Preferred Stock in proportion to the number of Series E Preferred Stock held by such holders or by lot or in such other manner as the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation may determine to be fair and equitable. Subject to the provisions of this Section 6, the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors shall have full power and authority to prescribe the terms and conditions upon which shares of Series E Preferred Stock shall be redeemed from time to time.
(d) Effectiveness of Redemption. If notice of redemption has been duly given and if on or before the redemption date specified in the notice all funds necessary for the redemption have been set aside by the Corporation, separate and apart from its other assets, for the benefit of the holders of the shares called for redemption, so as to be and continue to be available therefor, or deposited by the Corporation with a bank or trust company selected by the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors (the “ Depositary Company ”) for the benefit of the holders of the shares called for redemption, then, notwithstanding that any certificate for any share so called for redemption has not been surrendered for cancellation, on and after the redemption date all shares so called for redemption shall cease to be outstanding, all dividend rights with respect to such shares will cease on the redemption date, and all rights with respect to such shares shall forthwith on such redemption date cease and terminate, except only the right of the holders thereof to receive the amount payable on such redemption from the trust fund set aside by the Corporation or from the bank or trust company where the funds have been deposited at any time after the redemption date from such funds, without interest. The Corporation shall be entitled to receive, from time to time, from the Depositary Company any interest accrued on such funds, and the holders of any shares called for redemption shall have no claim to any such interest. Any funds so deposited and unclaimed at the end of three years from the redemption date shall, to the extent permitted by law, be released or repaid to the Corporation, and in the event of such repayment to the Corporation, the holders of record of the shares so called for redemption shall be deemed to be unsecured creditors of the Corporation for an amount equivalent to the amount deposited as stated above for the redemption of such shares and so repaid to the Corporation, but shall in no event be entitled to any interest.
Section 7. Voting Rights. The holders of Series E Preferred Stock will have no voting rights and will not be entitled to elect any directors, except as expressly provided by law and except that:
(a) Supermajority Voting Rights-Amendments. Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the affirmative vote or consent of the holders of at least two-thirds of all of the shares of the Series E Preferred Stock at the time outstanding, voting separately as a single class, shall be required to authorize any amendment of the Articles of Organization (including this Certificate of Designation and any other certificate of designation or any similar document relating to any series of preferred stock) or Bylaws which will materially and adversely affect the powers, preferences, privileges or rights of the Series E Preferred Stock, taken as a whole; provided , however, that any increase in the amount of the authorized or issued Series E Preferred Stock or authorized preferred stock of the Corporation or the creation and issuance, or an increase in the authorized or issued amount, of other series of preferred stock ranking equally with and/or junior to the Series E Preferred Stock with respect to the payment of dividends (whether such dividends are cumulative or non-cumulative), and/or the distribution of assets upon voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation will not be deemed to adversely affect the powers, preferences, privileges or rights of the Series E Preferred Stock.
(b) Supermajority Voting Rights-Priority. Unless the vote or consent of the holders of a greater number of shares shall then be required by law, the affirmative vote or consent of the holders of at least two-thirds of all of the shares of the Series E Preferred Stock at the time outstanding, voting separately as a single class, shall be required to issue, authorize or increase the authorized amount of, or to issue or authorize any obligation or security convertible into or evidencing the right to purchase, any additional class or series of stock ranking senior to the shares of the Series E Preferred Stock and all other Parity Stock with respect to dividends or the distribution of assets upon liquidation, dissolution or winding up of the Corporation.
(c) Special Voting Right.
(i) Voting Right. If and whenever dividends on the Series E Preferred Stock or any other class or series of preferred stock that ranks on parity with the Series E Preferred Stock as to payment of dividends, and upon which voting rights equivalent to those granted by this Section 7(c) have been conferred and are exercisable, have not been paid, or declared and set aside for




payment, in an aggregate amount equal, as to any class or series, to at least six quarterly Dividend Periods (whether consecutive or not) (a “ Nonpayment ”), the number of directors constituting the Board of Directors of the Corporation shall be increased by two, and the holders of the Series E Preferred Stock (together with holders of any other series of the Corporation’s authorized preferred stock that ranks on parity with the Series E Preferred Stock as to payment of dividends with equivalent voting rights), shall have the right, voting separately as a single class without regard to series, to the exclusion of the holders of Common Stock, to elect two directors of the Corporation to fill such newly created directorships (and to fill any vacancies in the terms of such directorships), provided that the election of such directors must not cause the Corporation to violate the corporate governance requirements of the New York Stock Exchange (or other exchange on which the Corporation’s securities may be listed) that listed companies must have a majority of independent directors and further provided that the Board of Directors of the Corporation shall at no time include more than two such directors. Each such director elected by the holders of shares of Series E Preferred Stock and any other class or series of preferred stock having equivalent voting rights with the Series E Preferred Stock is a “ Preferred Director ”.
(ii) Election. The election of the Preferred Directors will take place at any annual meeting of shareholders or any special meeting of the holders of Series E Preferred Stock and any other class or series of the Corporation’s preferred stock that ranks on parity with Series E Preferred Stock as to payment of dividends and for which dividends have not been paid, called as provided herein. At any time after the special voting power has vested pursuant to Section 7(c)(i) above, but prior to the initial election of the Preferred Directors, the secretary of the Corporation may, and upon the written request of any holder of Series E Preferred Stock (addressed to the secretary at the Corporation’s principal office) must (unless such request is received less than 90 days before the date fixed for the next annual or special meeting of the shareholders, in which event such election shall be held at such next annual or special meeting of shareholders), call a special meeting of the holders of Series E Preferred Stock, and any other class or series of preferred stock that ranks on parity with Series E Preferred Stock as to payment of dividends and for which dividends have not been paid, for the election of the two directors to be elected by them as provided in Section 7(c)(iii) below.
(iii) Notice for Special Meeting. Notice for a special meeting will be given in a similar manner to that provided in the Corporation’s Bylaws for a special meeting of the shareholders. If the secretary of the Corporation does not call a special meeting within 20 days after receipt of any such request, then any holder of Series E Preferred Stock may (at the Corporation’s expense) call such meeting, upon notice as provided in this Section 7(c)(iii), and for that purpose will have access to the stock register of the Corporation. The Preferred Directors elected at any such special meeting will hold office until the next annual meeting of the Corporation’s shareholders unless they have been previously terminated or removed pursuant to Section 7(c)(iv). In case any vacancy in the office of a Preferred Director occurs (other than prior to the initial election of the Preferred Directors), the vacancy may be filled by the written consent of the Preferred Director remaining in office, or if none remains in office, by the vote of the holders of the Series E Preferred Stock (together with holders of any other class of the Corporation’s authorized preferred stock that ranks on parity with Series E Preferred Stock as to payment of dividends with equivalent voting rights, whether or not the holders of such preferred stock would be entitled to vote for the election of directors if such default in dividends did not exist) to serve until the next annual meeting of the shareholders.
(iv) Termination; Removal. Whenever full dividends have been paid regularly on the Series E Preferred Stock and any other class or series of preferred stock that ranks on parity with the Series E Preferred Stock as to payment of dividends, if any, for at least four consecutive Dividend Periods following a Nonpayment, then the right of the holders of Series E Preferred Stock to elect such additional two directors will cease (but subject always to the same provisions for the vesting of the special voting rights in the case of any subsequent Nonpayment). The terms of office of the Preferred Directors will immediately terminate and the number of directors constituting the Corporation’s board of directors will be automatically reduced accordingly. When the voting rights described in this Section 7(c) are in effect, any Preferred Director may be removed at any time without cause by the holders of record of a majority of the outstanding shares of Series E Preferred Stock (together with holders of any other class of the Corporation’s authorized preferred that ranks on parity with the Series E Preferred Stock as to payment of dividends with equivalent voting rights, whether or not the holders of such preferred stock would be entitled to vote for the election of directors if such default in dividends did not exist).

(d) Changes for Clarification. Without the consent of the holders of Series E Preferred Stock, so long as such action does not adversely affect the powers, preferences, privileges or rights thereof, of the Series E Preferred Stock, the Corporation may amend, alter, supplement or repeal any terms of the Series E Preferred Stock:
(i) to cure any ambiguity, or to cure, correct or supplement any provision contained in this Certificate of Designation that may be defective or inconsistent; or
(ii) to make any provision with respect to matters or questions arising with respect to the Series E Preferred Stock that is not inconsistent with the provisions of this Certificate of Designation.




(e) Changes after Provision for Redemption. No vote or consent of the holders of Series E Preferred Stock shall be required pursuant to Section 7(a), 7(b) or 7(c) above if, at or prior to the time when any such vote or consent would otherwise be required pursuant to such Section, all outstanding shares of Series E Preferred Stock shall have been redeemed, or shall have been called for redemption upon proper notice and sufficient funds shall have been set aside for such redemption, in each case pursuant to Section 6 above.
(f) Inapplicability of Section 11.04(6) of the MBCA. The holders of Series E Preferred Stock are not entitled to vote as a separate class or series or voting group (including without limitation, alone or together with one or more other classes or series of shares) with respect to any plan of merger or share exchange solely as a result of Section 11.04(6) of the MBCA (or any similar successor provision of the MBCA).
Section 8. Conversion. The holders of Series E Preferred Stock shall not have any rights to convert such Series E Preferred Stock into shares of any other class of capital stock of the Corporation.
Section 9. Rank. Notwithstanding anything set forth in the Articles of Organization, the Bylaws or this Certificate of Designation to the contrary, the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation, without the vote of the holders of the Series E Preferred Stock, may authorize and issue additional shares of Junior Stock, Parity Stock or, subject to the voting rights granted in Section 7(b), any class of securities ranking senior to the Series E Preferred Stock as to dividends and the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.
Section 10. Repurchase. Subject to the limitations imposed herein, the Corporation may purchase Series E Preferred Stock from time to time to such extent, in such manner, and upon such terms as the Board of Directors of the Corporation or any duly authorized committee of the Board of Directors of the Corporation may determine; provided , however , that the Corporation shall not use any of its funds for any such purchase when there are reasonable grounds to believe that the Corporation is, or by such purchase would be, rendered insolvent.
Section 11. Unissued or Reacquired Shares. Shares of Series E Preferred Stock not issued or which have been issued, redeemed or otherwise purchased or acquired by the Corporation shall be restored to the status of authorized but unissued shares of preferred stock without designation as to series.

Section 12. No Sinking Fund. The Series E Preferred Stock will not be subject to any mandatory redemption, sinking fund or other similar provisions. Holders of Series E Preferred Stock will have no right to require redemption or repurchase of any shares of Series E Preferred Stock.
Section 13. Record Holders. To the fullest extent permitted by applicable law, the Corporation and any transfer agent for the Series E Preferred Stock may deem and treat the record holder of any share of Series E Preferred Stock as the true and lawful owner thereof for all purposes, and neither the Corporation nor such transfer agent shall be affected by any notice to the contrary.
Section 14. Notices. All notices or communications in respect of the Series E Preferred Stock shall be sufficiently given if given in writing and delivered in person or by first class mail, postage prepaid, or if given in such other manner as may be permitted in this Certificate of Designation, the Corporation’s Articles of Organization or Bylaws or by applicable law.
Section 15. No Preemptive Rights. No share of Series E Preferred Stock shall have any rights of preemption whatsoever as to any securities of the Corporation, or any warrants, rights or options issued or granted with respect thereto, regardless of how such securities, or such warrants, rights or options, may be designated, issued or granted.
Section 16. Other Rights. The shares of Series E Preferred Stock shall not have any voting powers, preferences or relative, participating, optional or other special rights, or qualifications, limitations or restrictions thereof, other than as set forth herein or in the Articles of Organization or as provided by applicable law.


IN WITNESS WHEREOF, State Street Corporation has caused this Certificate of Designations to be signed by Jeffrey N. Carp, its Executive Vice President, Chief Legal Officer and Secretary, on the date first written above.




 
 
STATE STREET CORPORATION
 
 
By:
/s/ Jeffrey N. Carp
Name:
Jeffrey N. Carp
Title:
Executive Vice President, Chief Legal Officer and Secretary

Signed by: /s/ Jeffrey N. Carp ,
(signature of authorized individual)
 
¬
Chairman of the board of directors,

 
¬
President,

 
x
Other officer,

 
¬
Court-appointed fiduciary,
on this 21st day of November , 2014 .

 
 
 

Examiner
L.A.L
Name approval
C
M
Sharon Napolitano c/o WilmerHale 60 State Street Boston, Massachusetts 02109 Telephone: 617 526 5106 Email: Sharon.napolitano@wilmerhale.com Upon filing, a copy of this filing will be available at www.sec.state.ma.us/cor. If the document is rejected, a copy of the rejection sheet and rejected document will be available in the rejected queue.








Exhibit 3.2




BY-LAWS
of
STATE STREET CORPORATION
As amended through February 19, 2015
ARTICLE I
Shareholders
SECTION 1. Annual Meeting . The annual meeting of shareholders of this corporation shall be held at such time and place as may be determined from time to time by the Board of Directors. In the event an annual meeting is not held at the time fixed in accordance with these by-laws or the time for an annual meeting is not fixed in accordance with these by-laws to be held within 13 months after the last annual meeting, the corporation may designate a special meeting as a special meeting in lieu of the annual meeting, and such meeting shall have all of the effect of an annual meeting. The purposes for which an annual meeting is to be held shall be specified in the corporation’s notice of the meeting and only business within such purposes may be conducted at the meeting.
SECTION 2. Special Meetings . Special meetings of the shareholders may be called at any time by the chairman of the Board or by the Board of Directors and shall be called by the secretary, or in the case of the death, absence, incapacity or refusal of the secretary, by any other officer, if the holders of at least twenty-five (25) percent of all the votes entitled to be cast on any issue to be considered at the proposed special meeting sign, date and deliver to the secretary one or more written demands for the meeting describing the purpose for which it is to be held. Such demands must include all the information that would be required pursuant to paragraph (b) of Section 7 of this Article I. Such demands may suggest a place, date and hour of such meeting, provided, however, that no such demands shall suggest a date not a full business day or an hour not within normal business hours as the date or hour of such meeting and provided, further, that such date and hour shall be determined by the chairman of the Board or by the Board of Directors. Special meetings of the shareholders shall be held at such place as may be determined by the Board of Directors. The purposes for which a special meeting is to be held shall be described in the corporation’s notice of the meeting and only business within such purposes may be conducted at the meeting.
SECTION 3. Place of Meetings . Meetings of the shareholders may be held within or without the Commonwealth.
SECTION 4. Notice . Except as hereinafter provided, a written notice of each meeting of shareholders stating the place, date and hour and describing the purpose or purposes thereof shall be given by the secretary or an assistant secretary (or by any other officer who is authorized to provide notice of such meeting) no fewer than seven nor more than 60 days before the meeting date to each shareholder entitled to vote thereat and to each other shareholder to whom, by law or by the articles of organization, the corporation is required to provide such notice. Such notice shall be given in accordance with Article V of these by-laws. Whenever notice of a meeting is required to be given to a shareholder by law, by the articles of organization or by these by-laws, a written waiver of such notice, signed before or after the meeting by such shareholder or such shareholder’s attorney thereunto

1


authorized, or transmitted by such shareholder or attorney by a method from which it can be determined that the waiver was authorized by the shareholder or attorney, and delivered to the corporation for inclusion with the records of the meeting, shall be deemed equivalent to such notice for such meeting and all adjourned sessions thereof. In addition, a shareholder’s attendance at a meeting: (i) waives objection to lack of notice or defective notice of the meeting, unless the shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting; and (ii) waives objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the shareholder objects to considering the matter when it is presented.
SECTION 5. Action at a Meeting . Unless otherwise provided by law, or in the articles of organization, these by-laws or, to the extent authorized by law, a resolution of the Board of Directors requiring satisfaction of a greater quorum requirement for any voting group, a majority of the votes entitled to be cast on the matter by a voting group constitutes a quorum of that voting group for action on that matter. Though less than such a quorum be present, any meeting may without further notice be adjourned to a subsequent date or until a quorum be had, and at any such adjourned meeting any business may be transacted which might have been transacted at the original meeting. As used in these by-laws, a voting group includes all shares of one or more classes or series that, under the articles of organization or the Massachusetts Business Corporation Act, as in effect from time to time (the “MBCA”), are entitled to vote and to be counted together collectively on a matter at a meeting of shareholders.
If a quorum of a voting group exists, favorable action on a matter, other than the election of a member of the Board of Directors, is taken by a voting group if the votes cast within the group “for” the action exceed the votes cast “against” the action, unless a greater number of affirmative votes is required by law, the articles of organization, these by-laws or, to the extent authorized by law, a resolution of the Board of Directors requiring receipt of a greater affirmative vote of the shareholders, including more separate voting groups. Other than in a Contested Election Meeting (as defined below), when a quorum is present, a nominee for director shall be elected to the Board of Directors if the votes cast “for” such nominee’s election exceed the votes cast “against” such nominee’s election. In a Contested Election Meeting, when a quorum is present, directors shall be elected by a plurality of the votes cast at such Contested Election Meeting. For purposes of this Section 5, “abstentions,” “broker non-votes” and “withheld votes” shall not be counted as a vote “for” or “against” a matter or election. A meeting of shareholders shall be a “Contested Election Meeting” if there are more persons nominated for election as directors at such meeting than there are directors to be elected at such meeting, determined as of the tenth day preceding the date of the corporation’s first notice to shareholders of such meeting sent pursuant to Section 4 of this Article I (the “Determination Date”); provided, however, that if in accordance with Section 7 of this Article I, shareholders are entitled to make nominations during a period of time that ends after the otherwise applicable Determination Date, the Determination Date shall instead be as of the end of such period.
Except as otherwise provided by law or by the articles of organization, each outstanding share entitled to vote on any matter shall have one vote for each such share held of record according to the records of the corporation, and a proportionate vote for any fractional share so held, on each matter voted on at a shareholder meeting. To the extent permitted by law, shareholders may vote either in person or by proxy. The delivery of a proxy on behalf of a shareholder consistent with telephonic or electronically transmitted instructions obtained pursuant to procedures of the corporation reasonably designed to verify that such instructions have been authorized by such shareholder shall constitute execution and delivery of the proxy by or on behalf of the shareholder. Except to the extent permitted by law, no proxy dated more than eleven months before the meeting named therein shall be valid, and unless otherwise expressly limited by its terms, a proxy shall entitle the holder or holders of the proxy to vote at any adjournment of such meeting but shall not be valid after the final adjournment of such meeting. A proxy with respect to stock held in the name of two or more persons shall be valid if authorized by or on behalf of any one of them unless at or prior to the exercise of the proxy the corporation receives written (including by electronic transmission as provided above in this paragraph) notice to the contrary from any one of them. A proxy purporting to be authorized by or on behalf of a

2


shareholder, if accepted by the corporation in its discretion, shall be deemed valid unless challenged at or prior to its exercise, and the burden of proving its invalidity shall rest on the challenger.
Any election of directors by shareholders and the determination of any other action to come before a meeting of shareholders shall be by ballot if so requested by any shareholder at the meeting entitled to vote thereon but need not be otherwise.
SECTION 6. Action Without a Meeting . Except as otherwise required by law, any action required or permitted to be taken at any meeting of the shareholders may be taken without a meeting if all shareholders entitled to vote on the action consent to the action in writing (including by means of electronic transmission describing the action taken, from which it can be determined that the consent was authorized by the shareholder), which written consents describe the action taken, are signed by all shareholders entitled to vote on the action, bear the date of the signatures of such shareholders and are delivered to the corporation for inclusion with the records of the meetings of shareholders within sixty (60) days of the earliest dated consent delivered to the corporation. Each consent shall be treated for all purposes as a vote at a meeting.
SECTION 7. Notice of Shareholder Business and Nomination of Directors .
(a) Meetings of Shareholders . At any meeting of the shareholders, only such business shall be conducted, and only such nominations for director shall be considered, as shall have been properly brought before the meeting as provided in this Section 7. To be properly brought before a meeting, business and nominations must be (i) specified in the corporation’s notice of meeting, (ii) brought before the meeting by or at the direction of the chairman of the Board or the Board of Directors, (iii) properly brought before a special meeting upon written demands as provided in Section 2 of this Article I or properly requested to be brought before a special meeting in accordance with paragraph (c) of this Section 7, or (iv) properly requested to be brought before an annual meeting by a shareholder of the corporation who (x) was a shareholder of record at the time of the giving of the notice provided for in this Section 7, (y) is a shareholder of record on the record date for the meeting and is entitled to vote at such meeting and (z) has complied with the notice procedures and other requirements of this Section 7; provided, however, that a shareholder may not bring or propose to be brought before a meeting any business under this clause (iv) unless such business is a proper matter for shareholder action under Massachusetts law and such business is within the purposes specified in the corporation’s notice of meeting. Other than matters properly brought under Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), clause (iii) of this Section 7(a) shall be the exclusive means for a shareholder to bring business and nominations before any special meeting of the shareholders and clause (iv) of this Section 7(a) shall be the exclusive means for a shareholder to bring business and nominations before any annual meeting of the shareholders. The chairman of the Board or other presiding officer of the meeting shall have the power and duty to determine whether business or a nomination was properly brought before the meeting in accordance with the provisions of this Section 7, and if the chairman or other presiding officer should determine that business or a nomination was not properly brought before the meeting in accordance with the provisions of this Section 7, he or she shall so declare to the meeting and such business shall not be brought before the meeting.
(b) Annual Meetings . For business and nominations to be properly brought before an annual meeting by a shareholder pursuant to clause (iv) of paragraph (a) of this Section 7, the shareholder must have given timely notice thereof in writing to the secretary of this corporation and, if the shareholder, or the beneficial owner on whose behalf any such business or nomination(s) is to be made, solicits or participates in the solicitation of proxies in support of such business or nomination(s), the shareholder must have timely and accurately indicated its, or such beneficial owner’s, intention to do so as provided below. To be timely, a shareholder’s notice shall be delivered to the secretary of this corporation at the principal executive offices of this corporation not less than 60 days nor more than 90 days prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event that the date of the regularly-scheduled annual meeting is advanced by more than 30 days or delayed by more than 60 days from such anniversary date, notice by the shareholder to be timely must be so delivered not earlier than the 90th day prior to such annual meeting and not later than the close of

3


business on the later of (x) the 60th day prior to such annual meeting and (y) the 10th day following the day on which public announcement of the date of such meeting is first made. In no event shall the public announcement of an adjournment or postponement of a scheduled meeting of shareholders commence a new time period (or extend any time period) for the giving of a shareholder’s notice as described above. Such shareholder’s notice shall set forth: (A) as to each person whom the shareholder proposes to nominate for election or reelection as a director (I) all information relating to such proposed nominee that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitation of proxies for election of directors in a contested election pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder (along with such proposed nominee’s written consent to being named as a nominee and to serving as a director if elected) and (II) a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three years, and any other material relationships, between or among (x) the shareholder, the beneficial owner, if any, on whose behalf the nomination is being made and the respective affiliates and associates of, or others acting in concert with, such shareholder and such beneficial owner, on the one hand, and (y) each proposed nominee, and his or her respective affiliates and associates, or others acting in concert with such nominee, on the other hand, including all information that would be required to be disclosed pursuant to Item 404 promulgated under Regulation S-K if the shareholder making the nomination and any beneficial owner on whose behalf the nomination is made or any affiliate or associate thereof or person acting in concert therewith, were the “registrant” for purposes of such Item and the proposed nominee were a director or executive officer of such registrant; (B) as to any business (other than nominations for election as a director) that the shareholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting, the text of the proposal (including the text of any resolutions proposed for consideration and, if such business includes a proposal to amend the bylaws of this corporation, the text of the proposed amendment), and a description of any material interest in such business of such shareholder, the beneficial owner, if any, on whose behalf the proposal is made and the respective affiliates and associates of, or others acting in concert with, such shareholder and such beneficial owner; (C) as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the business or nomination(s) is proposed (I) the name and address of such shareholder, as they appear on this corporation’s books, and of such beneficial owner, (II) the class or series and number of shares of this corporation which are, directly or indirectly, owned beneficially and of record by such shareholder and by such beneficial owner, (III) a description of any agreement, arrangement or understanding between such shareholder and such beneficial owner and any other person or persons (including their names) in connection with such business or nomination, (IV) a description of any agreement, arrangement or understanding (including any derivative or short positions, profit interests, options, warrants, stock appreciation or similar rights, hedging transactions, and borrowed or loaned shares) that has been entered into as of the date of the shareholder's notice by, or on behalf of, such shareholder and such beneficial owner, the effect or intent of which is to mitigate loss to, manage risk or benefit of share price changes for, or increase or decrease the voting power of, such shareholder or such beneficial owner with respect to shares of stock of the corporation, and (V) any other information relating to such shareholder and such beneficial owner that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for, as applicable, the business proposed and/or for the election of directors in a contested election pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder; and (D) a representation as to whether either such shareholder or beneficial owner, alone or as part of a group, intends (x) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the corporation’s outstanding capital stock required to approve or adopt the business proposed or elect the nominee and/or (y) otherwise to solicit proxies from shareholders in support of such business or nominee. Not later than 10 days after the record date for the meeting, the information required by Items (A), (B) and (C) of the prior sentence shall be supplemented by the shareholder giving the notice to provide updated information as of the record date. The corporation may require any proposed nominee to furnish promptly such other information as may be reasonably required to determine the eligibility and

4


qualifications of such proposed nominee to serve as a director of the corporation or that could be material to a reasonable shareholder’s understanding of the independence, or lack thereof, of such nominee.
(c) Special Meetings . Nominations of persons for election to the Board of Directors may be properly brought before a special meeting at which the Board of Directors has determined that directors shall be elected either (i) by or at the direction of the Board of Directors, or (ii) by any shareholder of the corporation who complies with the notice provisions set forth below and is a shareholder of record on the date of the giving of such notice and who is a shareholder of record on the record date for the meeting and is entitled to vote at such meeting. Shareholders desiring to nominate persons for election to the Board of Directors at such a special meeting of shareholders shall deliver a shareholder’s notice that includes all the information that would be required pursuant to paragraph (b) of this Section 7 to the secretary of this corporation at the principal executive offices of this corporation not earlier than the 90th day prior to such special meeting and not later than the close of business on the later of (x) the 60th day prior to such special meeting and (y) the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. Such notice shall be updated in the same manner as provided by paragraph (b) of this Section 7. The corporation may require any proposed nominee to furnish promptly such other information as may be reasonably required to determine the eligibility and qualifications of such proposed nominee to serve as a director of the corporation or that could be material to a reasonable shareholder’s understanding of the independence, or lack thereof, of such nominee. In no event shall the public announcement of an adjournment or postponement of a scheduled meeting of shareholders commence a new time period (or extend any time period) for the giving of a shareholder’s notice as described above.
(d) General . For purposes of this Section 7, “public announcement” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by this corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
Except as otherwise required by law, nothing in this Section 7 shall obligate the corporation or the Board of Directors to include in its notice of meeting or proxy statement for any annual meeting any proposal or other information submitted by a shareholder.
Notwithstanding the foregoing provisions of this Section 7, a shareholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 7; provided, however, that any references in these by-laws to the Exchange Act or the rules and regulations promulgated thereunder are not intended to, and shall not, limit the requirements applicable to shareholder business and nominations contained in this Section 7 . Nothing in this Section 7 shall be deemed to affect any rights (i) of shareholders to request inclusion of proposals in the corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act or any successor Rule or (ii) of the holders of any series of preferred stock if and to the extent provided for under law, the articles of organization or these by-laws.
SECTION 8. Postponement or Adjournment of Annual or Special Meeting. The Board of Directors acting by resolution may postpone and reschedule any previously scheduled annual or special meeting of shareholders. Any annual or special meeting of shareholders may be adjourned by the chairman of the Board or by the Board of Directors.

ARTICLE II
Directors
SECTION 1. Number, Election and Term. There shall be a board of not less than three nor more than 30 directors. The number of directors shall be determined from time to time by vote of a majority of the directors then in office. No director need be a shareholder. Except as otherwise provided by law or by the articles of organization, each director shall hold office until the next annual meeting of

5


shareholders and until such director’s successor is duly elected and qualified, or until such director sooner dies, resigns, is removed or becomes disqualified or there is a decrease in the number of directors.
No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.
SECTION 2. Resignations . Any director may resign by delivering his or her written resignation to the corporation at its principal office or to the chairman of the Board or to the Board of Directors. Such resignation shall become effective at the time or upon the happening of the condition, if any, specified therein, or, if no such time or condition is specified, upon its receipt. A director who has submitted a resignation effective at a future date shall continue to have all the powers of a director of the corporation, including without limitation the power to vote to fill any vacancy or newly created directorship pursuant to Section 4 of this Article II, until such time as such resignation becomes effective.
SECTION 3. Removal. At any meeting of the shareholders called for the purpose, the notice of which meeting states that purpose, any director may be removed from office only for cause and only by vote of a majority of the shares issued, outstanding and entitled to vote for the election of directors. At any meeting of the Board of Directors called for the purpose, the notice of which meeting states that purpose, any director may be removed from office for cause by vote of a majority of the directors then in office.
SECTION 4. Vacancies. Vacancies and newly created directorships, whether resulting from an increase in the size of the Board of Directors, from the death, resignation, disqualification or removal of a director, or otherwise, may be filled by the shareholders or by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors, and any director so elected shall hold office for a term to expire at the next shareholders’ meeting at which directors are elected, and until such director’s successor is duly elected and qualified or until such director sooner dies, resigns, is removed or becomes disqualified or there is a decrease in the number of directors.
SECTION 5. Regular Meetings . Regular meetings of the Board of Directors may be held at such times and places within or without the Commonwealth of Massachusetts as the Board of Directors may fix from time to time and, when so fixed, no notice thereof need be given. Unless otherwise prescribed by the Board of Directors, the first meeting of the Board of Directors following the annual meeting of the shareholders shall be held without notice on the day of the annual meeting of the shareholders or the special meeting of the shareholders held in lieu thereof, immediately following the annual meeting at the principal office of the corporation. If in any year a first meeting of the Board of Directors is not held at such time and place, any elections to be held or business to be transacted at such first meeting may be held or transacted at any later meeting of the Board of Directors with the same force and effect as if held or transacted at such first meeting.
SECTION 6. Special Meetings . Special meetings of the Board of Directors may be called at any time by the president or secretary or by any director. Such special meetings may be held anywhere within or without the Commonwealth of Massachusetts, as designated in the notice of the meeting. A written notice stating the place, date and hour (but not necessarily the purposes) of the meeting shall be given to each director by the secretary or an assistant secretary or by the officer or director calling the meeting at least forty-eight hours before such meeting in accordance with Article V of these by-laws. A director may waive any notice before or after the date and time of the meeting. The waiver shall be in writing, signed by the director entitled to the notice, or in the form of an electronic transmission by the director to the corporation, and filed with the minutes or corporate records. A director’s attendance at or participation in a meeting waives any required notice to him or her of the meeting unless the director at the beginning of the meeting, or promptly upon his or her arrival, objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting.

6


SECTION 7. Action at a Meeting. Unless otherwise provided by law, the articles of organization or these by-laws, a quorum of the Board of Directors consists of a majority of the directors then in office, provided always that any number of directors (whether one or more and whether or not constituting a quorum) constituting a majority of directors present at any meeting or at any adjourned meeting may make an adjournment thereof. If a quorum is present when a vote is taken, the affirmative vote of a majority of directors present is the act of the Board of Directors, unless the articles of organization or these by-laws require the vote of a greater or different number of directors. A director who is present at a meeting of the Board of Directors or a committee of the Board of Directors when corporate action is taken is considered to have assented to the action taken unless: (i) he or she objects at the beginning of the meeting, or promptly upon his or her arrival, to holding it or transacting business at the meeting; (ii) his or her dissent or abstention from the action taken is entered in the minutes of the meeting; or (iii) he or she delivers written notice of his or her dissent or abstention to the presiding officer of the meeting before its adjournment or to the corporation immediately after adjournment of the meeting. The right of dissent or abstention is not available to a director who votes in favor of the action taken.
SECTION 8. Action Without a Meeting. Any action required or permitted to be taken by the directors may be taken without a meeting if the action is taken by the unanimous consent of the members of the Board of Directors. The action must be evidenced by one or more consents describing the action taken, in writing, signed by each director, or delivered to the corporation by electronic transmission, to the address specified by the corporation for the purpose or, if no address has been specified, to the principal office of the corporation, addressed to the secretary or other officer or agent having custody of the records of proceedings of directors, and included in the minutes or filed with the corporate records reflecting the action taken. Action taken under this Section 8 is effective when the last director signs or delivers the consent, unless the consent specifies a different effective date. A consent signed or delivered under this Section 8 has the effect of a meeting vote and may be described as such in any document.
SECTION 9. Powers . The business and affairs of the corporation shall be managed under the direction of the Board of Directors, who shall have and may exercise (or have exercised under its authority) all the powers of the corporation, except such as by law or by the articles of organization are conferred upon or reserved to the shareholders. In particular, and without limiting the foregoing, the directors may at any time authorize to be issued all or any part of the unissued capital stock of the corporation from time to time authorized under the articles of organization and may determine, subject to any requirements of applicable law, the consideration for which stock is to be issued and the manner of allocating such consideration between capital and surplus. In the event of any vacancy in the Board of Directors, the remaining directors then in office, except as otherwise provided by law, shall have and may exercise all of the powers of the Board of Directors until the vacancy is filled.
SECTION 10. Committees . The Board of Directors may appoint from the Board an executive committee or one or more other committees and may delegate to any such committee or committees any or all of the powers of the Board except those which by law, by the articles of organization or by these by-laws may not be so delegated. Such committees shall serve at the pleasure of the Board. Except as provided by law or as the Board of Directors may otherwise determine, each such committee may make rules for the conduct of its business, but, unless otherwise determined by the Board in a manner consistent with law or in such rules, its business shall be conducted as nearly as may be provided in these by-laws for the conduct of the business by the Board of Directors.
SECTION 11. Presence Through Communications Equipment. Unless otherwise provided by law or the articles of organization, members of the Board of Directors or any committee thereof may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can simultaneously hear each other during the meeting and participation by such means shall constitute presence in person at a meeting.


7


ARTICLE III
Officers
SECTION 1. Enumeration. The officers of the corporation shall consist of a president, a treasurer and a secretary and such other officers, including without limitation a chairman of the Board of Directors, one or more vice chairmen of the Board of Directors, a clerk and one or more vice presidents, assistant treasurers, assistant secretaries and assistant clerks, as the Board of Directors may from time to time determine.
SECTION 2. Qualifications. Any officer may be, but none need be, a shareholder or a director. The same person may hold at the same time one or more offices. Any officer may be required by the Board of Directors to give a bond for the faithful performance of his or her duties to the corporation, in such form and with such sureties as the Board of Directors may determine.
SECTION 3. Appointments. The president, treasurer and secretary shall be appointed annually by the Board of Directors at its first meeting following the annual meeting of the shareholders. All other officers shall be chosen or appointed by the Board of Directors at such meeting or at any other time.
SECTION 4. Term. Except as otherwise provided by law, by the articles of organization or by these by-laws, the chairman, president, treasurer and secretary shall hold office until the first meeting of the Board of Directors following the next annual meeting of shareholders and until their respective successors are chosen and qualified, or in each case until such officer sooner dies, resigns, is removed or becomes disqualified. All other officers shall hold office at the pleasure of the Board of Directors.
SECTION 5. Resignations. Any officer may resign by delivering his or her written resignation to the corporation at its principal office or to the president or to the secretary. Such resignation shall be effective at such later time or upon such later happening of a condition, if any, specified therein or, if no such time or condition is specified, upon its delivery.
SECTION 6. Removal. Any officer may be removed from office with or without cause by the vote of a majority of the directors then in office.
SECTION 7. Vacancies. Vacancies in any office may be filled by or as authorized by the Board of Directors.
SECTION 8. Certain Duties and Powers. Unless otherwise prescribed by the Board of Directors, the officers designated below, subject at all times to these by-laws and to the direction and control of the Board of Directors, shall have and may exercise the respective duties and powers set forth below. Any two or more offices may be held by the same person, except as otherwise required by law.
a. The Chairman of the Board of Directors. The chairman of the Board, if there is one, shall have such duties and powers as are prescribed by the Board of Directors and, when present, shall preside at all meetings of the shareholders and at all meetings of the Board of Directors.
b. The Chief Executive Officer. The chief executive officer, if there is one, shall, subject to the direction of the Board of Directors, have general supervision and control of the business of the corporation and have such other duties and powers as are prescribed by the Board of Directors. If there is no chairman, unless otherwise determined by the Board, the chief executive officer shall, when present, preside at all meetings of the shareholders and at all meetings of the Board of Directors.
c. The President. The president shall have such duties and powers as are prescribed by the Board of Directors. If there is no chairman or chief executive officer, unless otherwise determined by the Board, the president shall, when present, preside at all meetings of the shareholders and at all meetings of the Board of Directors.
d. The Treasurer. Except as the Board of Directors shall otherwise determine, the treasurer shall be the chief financial officer of the corporation and shall cause to be kept accurate books of accounts and have such other powers and duties as customarily belong to the office of treasurer or as may be designated from time to time by the Board of Directors.

8


e. The Secretary. The secretary shall keep a record of all proceedings of the shareholders and of all proceedings of the Board of Directors. In the absence of the secretary from any meeting of the shareholders or from any meeting of the Board of Directors, an assistant secretary, if there be one, otherwise a secretary pro tempore designated by the person presiding at the meeting, shall perform the duties of the secretary at such meeting.
SECTION 9. Other Duties and Powers. Each officer, subject at all times to these by-laws and to the direction and control of the Board of Directors, shall have and may exercise, in addition to the duties and powers specifically set forth in these by-laws, such duties and powers as are prescribed by law, such duties and powers as are commonly incident to his or her office and such duties and powers as the Board of Directors may from time to time prescribe.

ARTICLE IV
Capital Stock
SECTION 1. Certificates. Unless the Board of Directors by resolution otherwise provides, each shareholder of record shall be entitled to a certificate or certificates stating the number and the class and the designation of the series, if any, of the shares held by the shareholder, and otherwise in a form approved by the Board of Directors. Each certificate shall be signed by the chairman of the Board, the president or a vice president and by the treasurer or an assistant treasurer and shall bear the corporate seal. Such signatures and such seal may be facsimiles. In case any officer who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the corporation with the same effect as if he or she was such officer at the time of its issue.
Every certificate issued for shares of stock at a time when such shares are subject to any restriction on transfer pursuant to the articles of organization, these by-laws or any agreement to which the corporation is a party shall have the restriction noted conspicuously on the certificate.
Every certificate issued for shares of stock at a time when the corporation is authorized to issue more than one class or series of stock shall set forth on the face or back of the certificate either (i) a summary of the preferences, limitations and special and relative rights of the shares of each class and series, if any, authorized to be issued, as set forth in the articles of organization, or (ii) a statement of the existence of such preferences, limitations and rights and a statement that the corporation will furnish a copy thereof to the holder of such certificate upon written request and without charge.
SECTION 2. Transfers. The Board of Directors may make such rules and regulations not inconsistent with law, with the articles of organization or with these by-laws as it deems expedient relative to the issue, transfer and registration of stock certificates. The Board of Directors may appoint one or more banks or trust companies, including one which is a subsidiary or affiliate of the corporation, as transfer agents and registrars of the shares of stock of the corporation and may require all stock certificates to be signed by such a transfer agent or registrar or both. The corporation or its agent shall maintain a record of its shareholders, in a form that permits preparation of a list of names and addresses of all shareholders, in alphabetical order, by voting group and by class or series of shares showing the number of shares held by each. Except as otherwise provided by law, by the articles of organization or by these by-laws, the corporation shall be entitled to treat the record holder of any shares of stock as shown on the books of the corporation as the holder of such shares for all purposes, including the right to receive notice of and to vote at any meeting of shareholders and the right to receive any dividend or other distribution in respect of such shares.
SECTION 3. Record Date. The Board of Directors may fix in advance a time, which shall be not more than 70 days before the date of any meeting of shareholders or the date for the payment of any dividend or the making of any distribution to shareholders or the last day on which the consent or dissent of shareholders may be effectively expressed for any purpose, as the record date for determining the shareholders having the right to notice of and to vote at such meeting and any adjournment thereof or the right to receive such dividend or distribution or the right to give such consent or dissent, and in such case

9


only shareholders of record on such record date shall have such right, notwithstanding any transfer of stock on the books of the corporation after the record date; or without fixing such record date the directors may for any of such purposes close the transfer books for all or any part of such period. If no record date is fixed and the transfer books are not closed, (i) the record date for determining shareholders having the right to notice of or to vote at a meeting of shareholders shall be at the close of business on the day next preceding the day on which notice is given, and (ii) the record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board of Directors acts with respect thereto.
SECTION 4. Lost Certificates. The Board of Directors may, except as otherwise provided by law, determine the conditions upon which a new certificate of stock may be issued in place of any certificate alleged to have been lost, mutilated or destroyed.

ARTICLE V
MANNER OF NOTICE
Except as otherwise provided in these by-laws or required by law, notices provided for under these by-laws shall conform to the following requirements:
(a) Notice shall be in writing. Notice by electronic transmission is written notice.
(b) Subject to subsection (d) below, notice may be communicated in person; telegraph, teletype or other electronic means; by mail; by electronic transmission; or by messenger or delivery service.
(c) Written notice, other than notice by electronic transmission, by the corporation to its shareholders, in comprehensible form, is effective upon deposit in the United States mail, if mailed postpaid and correctly addressed to the shareholder’s address shown in the corporation’s current record of shareholders.
(d) Written notice by electronic transmission, if in comprehensible form, is effective: (1) if by facsimile telecommunication, when directed to a number furnished by the addressee for the purpose; (2) if by electronic mail, when directed to an electronic mail address furnished by the addressee for the purpose; (3) if by a posting on an electronic network together with separate notice to the addressee of such specific posting, directed to an electronic mail address furnished by the addressee for the purpose, upon the later of (i) such posting and (ii)  the giving of such separate notice; and (4)  if by any other form of electronic transmission, when directed to the addressee in such manner as the addressee shall have specified to the corporation; provided , however , that notices by any shareholder to the corporation shall not be by any of the forms of electronic transmission set forth in clauses (2), (3) or (4) of this subsection (d). An affidavit of the secretary or an assistant secretary of the corporation, the transfer agent or other agent of the corporation that the notice has been given by a form of electronic transmission shall, in the absence of fraud, be prima facie evidence of the facts stated therein.
(e) Except as provided in subsection (c) of this Article V, written notice, other than notice by electronic transmission, if in comprehensible form, is effective at the earliest of the following: (1) when received; (2) five days after its deposit in the United States mail, if mailed postpaid and correctly addressed; or (3) on the date shown on the return receipt, if sent by registered or certified mail, return receipt requested; or if sent by messenger or delivery service, on the date shown on the return receipt signed by or on behalf of the addressee.
ARTICLE VI
Miscellaneous Provisions
SECTION 1. Fiscal Year. The fiscal year of the corporation shall begin on the first day of January in each year and end on the last day of December next following.
SECTION 2. Corporate Seal. The seal of the corporation shall be in such form as shall be determined from time to time by the Board of Directors.

10


SECTION 3. Corporate Records. A copy of the corporation’s articles of organization, by-laws, resolutions creating one or more classes or series of outstanding shares fixing their relevant rights, preferences and limitations, minutes of all meetings of the shareholders for the preceding three years, written communications to shareholders generally within the preceding three years, list of the names and business addresses of the current directors and officers, and most recent annual report for the secretary of state, shall be kept in the Commonwealth of Massachusetts at the principal office of the corporation or at an office of its transfer agent or of its secretary or of its registered agent, if any.
SECTION 4. Voting of Securities. Except as the Board of Directors may otherwise prescribe and as may be limited by law, the chairman of the Board, if there be one, the president and the treasurer and each of them acting singly shall have full power and authority in the name and behalf of the corporation, subject to the instructions of the Board of Directors, to waive notice of, to attend, act and vote at, and to appoint any person or persons to act as proxy or attorney in fact for this corporation (with or without power of substitution) at, any meeting of shareholders or shareholders of any other corporation or organization, the securities of which may be held by this corporation.
SECTION 5. MGL Chapter 110D. The provisions of Chapter 110D of the General Laws shall not apply to this corporation on or after January l, 1988, provided that the Board of Directors has and reserves its right under Chapter 110D to subsequently amend these by-laws to accept the provisions of Chapter 110D.
ARTICLE VII
Amendments
Except as otherwise provided by the articles of organization, these by-laws may be altered, amended or repealed at any annual or special meeting of the shareholders by the affirmative vote of a majority of the shares of stock then issued, outstanding and entitled to vote on the matter, provided notice of the substance of the proposed alteration, amendment or repeal is given with the notice of the meeting. These by-laws may also be altered, amended or repealed by vote of a majority of the directors then in office, except with respect to any provision which by law, by the articles of organization or by these by-laws requires action by the shareholders. Action by the shareholders is required to alter, amend or repeal this Article VII so as to increase the power of the directors or reduce the power of the shareholders to alter, amend or repeal these by-laws. Not later than the time of giving notice of the meeting of the shareholders next following the making, amending or repealing by the directors of any by-law, notice stating the substance of the action taken shall be given to all shareholders entitled to vote on amending the by-laws. Any action taken by the directors with respect to these by-laws may be amended or repealed by the shareholders.




11
Exhibit 10.2























STATE STREET CORPORATION
Executive Supplemental Retirement Plan
(Amended and Restated January 1, 2015)


    




    
























Table of Contents
ARTICLE 1

Establishment and Purpose    
1

1.1

Restatement
1

1.2

Purpose
1

1.3

Section 409A
1

ARTICLE 2

Definitions
1

2.1

Account
1

2.2

Account Balance
1

2.3

Account Vesting Commencement Date
1

2.4

Active Participant
1

2.5

Administrative Procedures
1

2.6

Administrator
1

2.7

Affiliate
1

2.8

Annual Credit Date
1

2.9

Authorized Person
1

2.10

Basic Plan
1

2.11

Beneficiary
1

2.12

Board
1

2.13

Business Day
2

2.14

Cause
2

2.15

Claimant
2

2.16

Code    
2

2.17

Committee
2

2.18

Company
2

2.19

Company Credit
2

2.20

Continuing Participant
2

2.21

Credit Date
2

2.22

Default Investment Option
2

2.23

Domestic Partner    
2

2.24

Early Retirement
2

2.25

Early Retirement Age    
2

2.26

Early Retirement Date
2

2.27

Effective Date
2

2.28

Eligible Employee
2

2.29

Employee
2

2.30

Employer
2

2.31

Employment
2

2.32

Equity Plan
2

2.33

ERISA    
2

2.34

ESRP Share Award
3

2.35

Fair Market Value
3

2.36

FICA Amount    
3

2.37

Final Company Credit
3

2.38

Impairment
3

2.39

Investment Earnings/Losses    
3

2.40

Investment Election Form
3



2.41

Investment Options
3

2.42

Normal Retirement
3

2.43

Normal Retirement Age
3

2.44

Normal Retirement Date
3

2.45

Operating Group Participant
3

2.46

Participant
3

2.47

Plan    
3

2.48

Plan Year
3

2.49

Prior Plan
3

2.50

Reference Date
3

2.51

Retirement
3

2.52

Retirement Date
3

2.53

Schedule
3

2.54

Section 409A
4

2.55

Section 409A Compliance
4

2.56

Separated Participant
4

2.57

Separation From Service
4

2.58

Service    
4

2.59

Spouse
4

2.60

Stock
4

2.61

Supplemental Benefits
4

2.62

Supplemental Defined Benefit
4

2.63

Supplemental Defined Contribution Benefit
4

2.64

Top Hat Plan
4

2.65

Total Disability
4

2.66

Transition Participant
4

2.67

Treasury Regulations    
4

ARTICLE 3

Participation
4

3.1

Eligibility
4

3.2

Participation
5

3.3

Age/Service Requirements for Supplemental Benefits Upon Retirement
5

3.4

Supplemental Benefits Upon Death
5

3.5

Supplemental Benefits Upon Total Disability
5

3.6

Forfeiture
5

ARTICLE 4

Supplemental Defined Contribution Benefits    
6

4.1

Company Credits
6

4.2

Accounts
8

4.3

Vesting
9

4.4

Distribution
9

ARTICLE 5

Special Payment Rules
10

5.1

Delay in Payment
10

5.2

Acceleration of Payment
10

5.3

No Suspension of Payment
10

5.4

Designation of Taxable Year    
10

ARTICLE 6

Administration
11

6.1

Authority of the Committee
11



6.2

Outside Services
11

6.3

Decisions Binding
11

6.4

Indemnity of Committee
11

6.5

Cost of Administration
11

ARTICLE 7

Amendment and Termination    
11

7.1

Amendment/Termination of Plan    
11

7.2

Termination of Participant Interests
12

ARTICLE 8

Miscellaneous
12

8.1

Claims
12

8.2

Unfunded Plan
12

8.3

Unsecured General Creditor    
12

8.4

Trust Fund
12

8.5

Nonassignability
12

8.6

Not a Contract of Employment
12

8.7

Validity
12

8.8

Incompetency    
13

8.9

Successors
13

8.10

Tax Withholdings
13

8.11

Governing Law
13

 
 
 
EXHIBIT A

 
14

 
 
 
EXHIBIT B

 
19

 
Schedule 1
19

 
Schedule 2
20

 
 
 
EXHIBIT C

 
21






ARTICLE 1
Establishment and Purpose

1.1 Restatement. The Plan is a further amendment and restatement of the Prior Plan, effective as of January 1, 2015, unless otherwise provided.
1.2 Purpose. The principal purposes of the Plan are to provide certain key Employees with competitive retirement benefits and to encourage the continued employment of such Employees with the Employer.
1.3 Section 409A. The Plan is intended to comply with Section 409A and shall be construed and administered accordingly.

ARTICLE 2
Definitions
                               
To the extent not otherwise defined in the text of the Plan, including, without limitation, any Exhibits and Schedules of the Plan, capitalized terms shall have the following meaning:
2.1 Account . “Account” means a bookkeeping account (including any subaccounts) maintained by the Administrator for a Participant to record the Participant’s Account Balance from time to time.
2.2 Account Balance . “Account Balance” means the value of an Account, as credited and/or debited in accordance with Article IV, from time to time.
2.3 Account Vesting Commencement Date . “Account Vesting Commencement Date” shall mean the date an Active Participant meets the Age/Service Requirements for Supplemental Plan Benefits upon Retirement set forth in Section 4.3(a).
2.4 Active Participant . “Active Participant” means an Eligible Employee who is participating in the Plan and who has not experienced a Separation from Service, Total Disability or death.
2.5 Administrative Procedures . “Administrative Procedures” means the policies and procedures established by the Committee and/or the Administrator from time to time governing elections to participate in the Plan, maintenance of Accounts, Investment Options, calculation of Investment Earnings/Losses, Investment Election Forms, distributions from the Plan and such other matters as are necessary for the proper administration of the Plan.
2.6 Administrator . “Administrator” means that person or persons, including a committee, as is or are delegated by the Board from time to time to discharge the responsibility of administering the Plan.
2.7 Affiliate . “Affiliate” means any corporation which is included in a controlled group of corporations (within the meaning of Section 414(b) of the Code), which includes the Company and any trade or business (whether or not incorporated) which is under common control with the Company (within the meaning of Section 414(c) of the Code).
2.8 Annual Credit Date . “Annual Credit Date” means, with respect to a Plan Year, the date of the first regularly scheduled meeting of the Committee that occurs after February 1 of the immediately following Plan Year.
2.9 Authorized Person . “Authorized Person” means, effective for actions taken on or after August 1, 2012, the Authorized Person appointed pursuant to Section 6.1(b).
2.10 Basic Plan . “Basic Plan” means, effective for determinations made on or after January 1, 2013, the State Street Salary Saving Program as the same may be amended from time to time for all purposes except with respect to i) Exhibit A, and ii) Exhibit B- Schedule 1, in which cases the Basic Plan shall mean the State Street Retirement Plan as the same may be amended from time to time.
2.11 Beneficiary . “Beneficiary” means the beneficiary designated to receive a death benefit by the Participant in writing in a form and manner satisfactory to the Administrator. If no Beneficiary is so designated, any death benefits shall be paid at the Administrator’s direction in the following order of priority: Spouse, Domestic Partner, children, parents, siblings, estate.
2.12 Board . “Board” means the Board of Directors of the Company.

1


2.13 Business Day . “Business Day” means each day that the New York Stock Exchange is open for business.
2.14 Cause . “Cause” means, in the case of any Participant:
(i)
the willful and continued failure of the Participant to perform substantially the Participant’s duties with the Employer (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Participant by the Participant’s supervisor which specifically identifies the manner in which it is asserted that the Participant has not substantially performed the Participant’s duties, or
(ii)
the willful engaging by the Participant in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Employer.
For purposes of this definition, no act or failure to act on the part of the Participant shall be considered “willful” unless it is done or omitted to be done by the Participant in bad faith or without reasonable belief that the Participant’s action or omission was in the best interests of the Employer.
2.15 Claimant . “Claimant” has the meaning set forth in Section 8.1.
2.16 Code . “Code” means the Internal Revenue Code of 1986, as the same may be amended from time to time.
2.17 Committee. “Committee” means the Executive Compensation Committee of the Board.
2.18 Company . “Company” means State Street Corporation and any successor company.
2.19 Company Credit . “Company Credit” means a notional amount credited to a Participant’s Account in accordance with Section 4.1.
2.20 Continuing Participant . “Continuing Participant” means an Active Participant in the Prior Plan on December 31, 2007.
2.21 Credit Date . “Credit Date” means, as applicable, the Annual Credit Date or the Final Credit Date.
2.22 Default Investment Option . “Default Investment Option” means the default investment option specified from time to time by the Committee for the hypothetical investment of a Participant’s Account in the event the Participant fails to allocate all or a portion of his or her Account to a particular Investment Option.
2.23 Domestic Partner . “Domestic Partner” means the person designated in a manner and form satisfactory to the Administrator as the Participant’s domestic partner with respect to eligibility for company‑provided benefits.
2.24 Early Retirement . “Early Retirement” means a Participant’s Separation From Service upon or after the Participant’s attainment of Early Retirement Age and prior to the Participant’s attainment of Normal Retirement Age but excluding a Separation From Service for Cause.
2.25 Early Retirement Age . “Early Retirement Age” means age 53.
2.26 Early Retirement Date . “Early Retirement Date” means the date of a Participant’s Early Retirement.
2.27 Effective Date . “Effective Date” means January 1, 2008.
2.28 Eligible Employee . “Eligible Employee” means an Employee who is appointed to the office of Executive Vice President of the Company or to a position superior to that of Executive Vice President of the Company.
2.29 Employee . “Employee” means an individual who renders services to the Employer (or who has rendered services to the Employer but is currently subject to an Impairment) as a common-law employee.
2.30 Employer . “Employer” means the Company and its Affiliates.
2.31 Employment . “Employment” means the period or periods during which a Participant is an Employee of the Employer and has not experienced a Separation From Service.
2.32 Equity Plan . “Equity Plan” means the 2006 Equity Incentive Plan, as may be amended from time to time, or such other equity plan of the Company as the Committee may designate from time to time.
2.33 ERISA . “ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and any successor act thereto.

2


2.34 ESRP Share Award . “ESRP Share Award” has the meaning set forth in Section 4.1(b).
2.35 Fair Market Value . “Fair Market Value” of a share of Stock on any given day shall mean closing price per share of Stock on the New York Stock Exchange, on the date as of which such value is being determined or, if there shall be no sale on that date, then on the basis of the closing price per share of Stock on the nearest date before the date on which such value is being determined.
2.36 FICA Amount . “FICA Amount” shall mean the amount of Federal Insurance Contributions Act tax imposed under Sections 3101, 3121(a) and 3121(v)(2) of the Code, where applicable, on compensation under the Plan.
2.37 Final Company Credit . “Final Company Credit” has the meaning set forth in Section 4.1(a)(iii).
2.38 Impairment . “Impairment” means any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than six months.
2.39 Investment Earnings/Losses . “Investment Earnings/Losses” means the amounts that would have been realized had an amount deferred hereunder actually been invested in the Investment Option or Options selected by a Participant during the effectiveness of such selections.
2.40 Investment Election Form . “Investment Election Form” means such form or other means designated by the Company from time to time by which a Participant elects the Investment Options in which the Participant’s Account is deemed to be invested in accordance with Section 4.2.
2.41 Investment Options . “Investment Options” means the Default Investment Option and such other investment options as selected from time to time by the Committee that are used as hypothetical investment options among which the Participant may allocate all or a portion of his or her Account.
2.42 Normal Retirement . “Normal Retirement” means a Participant’s Separation From Service upon or after the Participant’s Normal Retirement Age, other than a Separation From Service for Cause.
2.43 Normal Retirement Age . “Normal Retirement Age” means age 65.
2.44 Normal Retirement Date . “Normal Retirement Date” means the date of a Participant’s Normal Retirement.
2.45 Operating Group Participant . “Operating Group Participant” means, in respect of a Plan Year, an Active Participant who is identified in the records of the Committee as being a member of the Company’s Operating Group during the Plan Year (or a portion thereof) or otherwise designated by the Committee to be a member of the Operating Group.
2.46 Participant . “Participant” means an Active Participant or a Separated Participant (for so long as he or she is receiving a distribution of Supplemental Benefits under the Plan).
2.47 Plan . “Plan” means this State Street Corporation Executive Supplemental Retirement Plan (including the Exhibits and Schedules hereto and the Committee actions referenced herein), as the same may be amended from time to time in accordance with the terms hereof.
2.48 Plan Year . “Plan Year” means the calendar year.
2.49 Prior Plan . “Prior Plan” means the terms of the Plan (formerly known as the “State Street Corporation Supplemental Defined Benefit Pension Plan”) in effect immediately prior to the Effective Date, as set forth in the Company’s written documentation, rules, practices and procedures applicable to the Plan.
2.50 Reference Date . “Reference Date” means, effective for all determinations made on or after October 1, 2012, a date that is as soon as administratively feasible but no later than 5 business days prior to each applicable payment date specified in Section 4.4; provided that if a Reference Date is not a Business Day, such Reference Date shall be deemed to be the immediately following Business Day.
2.51 Retirement . “Retirement” means Normal Retirement or Early Retirement.
2.52 Retirement Date . “Retirement Date” means the date of a Participant’s Normal Retirement or Early Retirement, as applicable.
2.53 Schedule . “Schedule” means, in the case of any Participant to whom the “separate rule” provisions of Section 3.2(c) below apply, an attachment to the Plan or a separate action of the Committee duly recorded in the Committee’s records that sets forth identifying information concerning the separate rules applicable to such Participant.

3


2.54 Section 409A . “Section 409A” means Section 409A of the Code and the applicable rulings, regulations and guidance promulgated thereunder, as each may be amended or issued from time to time.
2.55 Section 409A Compliance . “Section 409A Compliance” has the meaning set forth in Section 7.1.
2.56 Separated Participant . “Separated Participant” means an Active Participant who has experienced a Separation From Service, Total Disability or death.
2.57 Separation From Service . “Separation From Service” means a separation from service with the Employer for purposes of Section 409A within the meaning of the default rules of Treasury Regulation Section 1.409A-(h)(1) and correlative terms shall be construed to have a corresponding meaning; provided that in the event that an Active Participant is absent from work due to an Impairment, other than a Total Disability, where such Impairment causes the Participant to be unable to perform the duties of his position or any substantially similar position of employment, the Participant shall incur a Separation From Service 29 months after the date on which the Participant was first Impaired. Notwithstanding the foregoing, if an Active Participant would otherwise incur a Separation From Service in connection with a sale of assets of the Company, the Committee shall retain the discretion to determine whether a Separation From Service has occurred in accordance with Treasury Regulation Section 1.409A-1(h)(4).
2.58 Service . “Service” means, effective for all determinations made on or after August 1, 2012, a Participant’s years (and fraction thereof) of service with the Employer for vesting and eligibility (as determined under the terms of the Basic Plan as in effect on the Effective Date). For the avoidance of doubt, for any Participant who was terminated at any time and subsequently rehired on or after August 1, 2012, only Service after rehire will be counted.
2.59 Spouse . “Spouse” means the individual (if any) who is legally married to the Participant at the time that payment of the Participant’s Supplemental Benefits commences or at death if death occurs prior to such benefit commencement date.
2.60 Stock . “Stock” means common stock of the Company, par value $1.00 per share.
2.61 Supplemental Benefits . “Supplemental Benefits” means Supplemental Defined Benefits and/or Supplemental Defined Contribution Benefits.
2.62 Supplemental Defined Benefit . “Supplemental Defined Benefit” means the benefits provided under Exhibit A and Exhibit B to the Plan and any Schedule to the Plan.
2.63 Supplemental Defined Contribution Benefit . “Supplemental Defined Contribution Benefit” means the benefits provided under Article IV of this Plan.
2.64 Top Hat Plan . “Top Hat Plan” means an unfunded plan maintained primarily to provide deferred compensation benefits to a select group of management or highly compensated Employees within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA.
2.65 Total Disability . “Total Disability” or “Totally Disabled” means (i) a Participant’s inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve months or (ii) a Participant’s receipt, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve months, of income replacement benefits for a period of not less than six months under an accident and health plan covering Employees of the Employer.
2.66 Transition Participant . “Transition Participant means a Continuing Participant (i) who, as of the Effective Date, (x) was at least age 50 and (y) has been employed with the Employer for at least five years as an Executive Vice President (or superior position) or (ii) who is otherwise identified as a Transition Participant in the records of the Committee.
2.67 Treasury Regulations . “Treasury Regulations” means the regulations adopted by the Internal Revenue Service under the Code, as they may be amended from time to time.

ARTICLE 3 Participation

3.1 Eligibility . Subject to Section 3.2, all Eligible Employees shall participate in the Plan unless the Committee specifies otherwise in a particular case. The Committee may designate other Employees as

4


eligible to participate in the Plan, but only if they are management or highly compensated employees as those terms are used in Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA.
3.2 Participation .
(a) Continuing Participants shall continue to participate under the Plan in accordance with the terms hereof.
(b) Except as otherwise provided by the Committee, each Eligible Employee who became an Eligible Employee on or after January 1, 2007 and who is not a Continuing Participant shall become an Active Participant upon the earlier of the (i) Effective Date and (ii) the effective date of his or her becoming an Eligible Employee.
(c) The Committee may determine that separately applicable rules (or exceptions to the generally applicable rules) (the “separate rules”) shall apply to certain Participants. Such Participants and the relevant separate rules are set forth on Exhibits A and B to the Plan and in any Schedules to the Plan. With respect to any such Participant, the separate rules applicable to such Participant shall be treated as part of the Plan, shall be incorporated herein by reference, and shall apply, in a manner that results in Section 409A Compliance, in lieu of the generally applicable rules set forth below to the extent of any inconsistency.
(d) Participation in the Plan as an Active Participant is terminable by the Committee, in its discretion, upon written notice to the Active Participant, and such termination of participation shall be effective as of the date contained therein, but in no event earlier than the date of such notice; provided , however , that such termination of participation may not reduce or adversely affect an Active Participant’s accrued benefit for which the Active Participant has satisfied the age and service requirements of Section 3.3 hereunder.

3.3 Age/Service Requirements for Supplemental Benefits Upon Retirement .
(a)    Any Participant who became an Eligible Employee before August 1, 2012 shall be eligible to receive a Supplemental Benefit in connection with Retirement only if he or she has (i) attained Early Retirement Age and (ii) satisfied the “rule of 60” (age plus completed years of Service must equal at least 60).
(b)    Any Participant hired or rehired, or first elected an Executive Vice President (or to a superior position), on or after August 1, 2012, shall be eligible to receive a Supplemental Benefit in connection with Retirement only if he or she has (i) attained Early Retirement Age, (ii) satisfied the “rule of 60” (age plus completed years of Service must equal at least 60), and (iii) has completed a minimum of 5 years of Service.
3.4 Supplemental Benefits Upon Death . In the event of an Active Participant’s death prior to satisfying the age and service requirement of Section 3.3, the Supplemental Benefits set forth in Section 4.4(b) and, if applicable, Section A.2.4 of Exhibit A, shall be payable to the Participant’s designated Beneficiary.
3.5 Supplemental Benefits Upon Total Disability . In the event that an Active Participant becomes Totally Disabled prior to meeting the age and service requirements set forth in Section 3.3, the Supplemental Benefits set forth in Section 4.4(c) and, if applicable, Section A.2.5 of Exhibit A, shall be payable to the Participant.
3.6 Forfeiture .
(a) Failure to Satisfy Age/Service Requirements . In the event of a Participant’s Separation From Service prior to satisfying the age and service requirements of Section 3.3, such Participant shall forfeit his or her right to receive any and all Supplemental Benefits set forth in this Plan. For the avoidance of doubt, if a Participant is rehired by the Employer, the Supplemental Benefits forfeited upon such Participant’s Separation From Service shall remain forfeited.
(b) Nonsolicitation/Noncompetition . Notwithstanding any other provisions hereof, all payments of Supplemental Benefits shall immediately cease and neither Participant nor his or her Spouse, nor any other Beneficiary of the Participant shall receive any benefits hereunder if the Participant, without the prior written consent of the Committee, engages, either directly or indirectly, in any of the activities described in subparagraph (i), (ii) or (iii) below within two years after his or her Separation From Service:

5


(i)
solicitation of the employment or retention of any person whom the Employer has employed or retained during the two‑year period prior to the Participant’s Separation From Service. For purposes of the foregoing sentence, a person retained by the Employer means anyone who has rendered substantial consulting services to the Employer and has thereby acquired material confidential information concerning any aspect of the Employer’s operations;
(ii)
any sale, offer to sell or negotiation with respect to orders or contracts for any product or service similar to or competitive with a product or service or any equipment or system containing any such product or service sold or offered by the Employer, other than for the Employer’s account, during the two‑year period after the Participant’s Separation From Service, to or with anyone with whom the Employer has so dealt or anywhere in any state of the United States or in any other country, territory or possession in which the Employer has, during said period, sold, offered or negotiated with respect to orders or contracts for any such product, service, equipment or system; or
(iii)
ownership of any direct or indirect interest (other than a less-than-one-percent stock interest in a corporation) in, or affiliation with, or rendering any services for, any person or business entity which engages, during the two‑year period after the Participant’s Separation From Service, either directly or indirectly, in any of the activities described in subparagraph (i) or (ii) above.

ARTICLE 4 Supplemental Defined Contribution Benefits

4.1 Company Credits .
(a) Generally . For Plan Years commencing on and after the Effective Date, an Active Participant shall be entitled to receive Company Credits as follows:
(i)
An Active Participant who was a Participant for an entire Plan Year shall receive a Company Credit in the amount of $200,000 on the Annual Credit Date for the Plan Year to his or her Account; provided, however, that the Company Credit received under this Section 4.1(a)(i) for the 2013 Plan Year shall be in the amount of $100,000 and shall not be provided to an Active Participant who is an Operating Group Participant; provided, further, there shall be no Company Credit under this Section 4.1(a)(i) for any Participant for the 2015 Plan Year.
(ii)
An Active Participant who became an Active Participant during a Plan Year shall receive for such Plan Year a Company Credit equal to the product of (x) $200,000 and (y) a fraction, the numerator of which is the number of complete calendar months in the Plan Year during which the Active Participant was an Active Participant, and the denominator of which is twelve; provided, however, that the Company Credit received under this Section 4.1(a)(ii) for the 2013 Plan Year shall be equal to the product of (x) $100,000 and (y) a fraction, the numerator of which is the number of complete calendar months in the Plan Year during which the Active Participant was an Active Participant but not an Operating Group Participant, and the denominator of which is twelve; provided, further, there shall be no Company Credit under this Section 4.1(a)(ii) for any Participant for the 2015 Plan Year. Any such Company Credit shall be credited to the Active Participant’s Account on the Annual Credit Date for the relevant Plan Year.
(iii)
An Active Participant who becomes a Separated Participant due to Retirement, death or Total Disability during a Plan Year shall receive a Company Credit equal to the product of (x) $200,000 and (y) a fraction, the numerator of which is the number of complete calendar months in the Plan Year when such Participant was an Active Participant prior to (I) the Active Participant’s Retirement Date, (II) the date of the Active Participant’s death or (III) the date the Active Participant became Totally Disabled, as applicable, and the denominator of which is twelve; provided, however, that the Company Credit received under this Section 4.1(a)(iii) for the 2013 Plan Year shall be equal to the product of (x) $100,000 and (y) a fraction, the

6


numerator of which is the number of complete calendar months in the Plan Year when such Participant was an Active Participant but not an Operating Group Participant prior to (I) the Active Participant's Retirement Date, (II) the date of the Active Participant's death or (III) the date the Active Participant became Totally Disabled, as applicable, and the denominator of which is twelve) ; provided, further, there shall be no Company Credit under this Section 4.1(a)(iii) for any Participant for the 2015 Plan Year. Any such prorated Company Credit shall be credited to the Participant’s Account on the last Business Day of the month in which the Participant’s Retirement, death or Total Disability occurred (the “ Final Credit Date ”).
(b) Operating Group Participants . An Operating Group Participant shall be entitled to receive the following for Plan Years commencing on and after the Effective Date:
(i)
An Active Participant who is an Operating Group Participant for an entire Plan Year shall be granted on the Annual Credit Date for such Plan Year a deferred share unit award under the Equity Plan (an “ ESRP Share Award ”) with a Fair Market Value on such Annual Credit Date equal to $200,000; provided, however, there shall be no ESRP Share Award under this Section 4.1(b)(i) for the 2015 Plan Year. The terms of the ESRP Share Award shall, in a manner that results in Section 409A Compliance, provide that the award will vest in accordance with Section 4.3 of the Plan and the underlying shares of Stock will be settled to the Operating Group Participant in accordance with Section 4.4 of the Plan, subject, in each case, to Section 7 of the Equity Plan or any successor provision. In addition, the ESRP Share Award shall provide for dividend equivalents. The other terms of the ESRP Share Award shall be governed by the Equity Plan.
(ii)
An Active Participant who is an Operating Group Participant for a portion of a Plan Year, other than an Active Participant who becomes a Separated Participant during the Plan Year, shall receive an ESRP Share Award with a Fair Market Value on such Annual Credit Date equal to the product of (x) $200,000 and (y) a fraction, the numerator of which is the number of complete calendar months in the Plan Year during which the Active Participant was an Operating Group Participant and the denominator of which is twelve; provided, however, there shall be no ESRP Share Award under this Section 4.1(b)(ii) for the 2015 Plan Year. Any such ESRP Share Award shall be granted to the Active Participant on the Annual Credit Date for the relevant Plan Year.
(iii)
An Active Participant who becomes a Separated Participant due to Retirement, death or Total Disability during a Plan Year at a time when he/she is an Operating Group Participant, shall not be entitled to an ESRP Share Award in respect of such Plan Year but instead for the period of the Plan Year, if any, when the Active Participant was an Operating Group Participant shall be entitled to receive a Company Credit equal to the product of (x) $200,000 and (y) a fraction, the numerator of which is the number of complete calendar months in the Plan Year when the Active Participant was an Operating Group Participant prior to (I) the Operating Group Participant's Retirement Date, (II) the date of the Operating Group Participant's death or (III) the date the Operating Group Participant became Totally Disabled, as applicable, and the denominator of which is twelve; provided, however, there shall be no Company Credit under this Section 4.1(b)(iii) for the 2015 Plan Year. Any such prorated Company Credit shall be credited to the Participant's Account on the Final Credit Date.
For the avoidance of doubt, an Operating Group Participant shall also be entitled to Company Credits pursuant to Section 4.1(a); provided, however that for the 2013 Plan Year, an Operating Group Participant shall not be entitled to Company Credits pursuant to Section 4.1(a) for any period during a Plan Year when the Active Participant was an Operating Group Participant; provided, further, there shall be no Company Credit under Section 4.1(a) for any Participant for the 2015 Plan Year.
(c) Transition Participants . Notwithstanding Section 4.1(a) and Section 4.1(b) above, Company Credits (including any Final Company Credits) shall not be credited to the Account of a

7


Transition Participant and ESRP Share Awards shall not be granted to a Transition Participant in respect of any period commencing prior to the Freeze Date applicable to the Transition Participant. A Transition Participant shall continue to earn a Supplemental Defined Benefit in accordance with the relevant terms of the Plan (including any Schedules hereto) until the Freeze Date applicable to the Transition Participant.
(d) Adjustment by Committee . Notwithstanding anything to the contrary in Section 4.1(a) and 4.1(b) above, the Committee shall have the discretion to adjust, in a manner that results in Section 409A Compliance: (i) the amount of a Company Credit (including any Final Company Credits or ESRP Share Award credited or granted, as applicable, in respect of a Participant’s status as an Active Participant or an Operating Group Participant for a portion of a Plan Year); and (ii) the medium of settlement of an ESRP Share Award, in each case, to the extent necessary to avoid adverse tax consequences to an Operating Group Participant; provided , however , that in no event shall such adjustment diminish the economic benefit to the Participant of a Company Credit or an ESRP Share Award without the Participant’s consent.
4.2 Accounts .
(a) Generally . An Account shall be established and maintained under the Plan on behalf of each Participant. The Account shall track the Company Credits (including any Final Company Credits), Investment Earnings/Losses, distributions or other elections applicable to such accounts. The Account shall have subaccounts, established and maintained as appropriate to reflect the Company Credits and Investment Option(s) selected by the Participant.
(b) Crediting/Debiting of Account . A Company Credit (including any Final Company Credits) shall be credited to a Participant’s Account in accordance with the Administrative Procedures; provided that a Company Credit shall not be credited or debited with Investment Earnings/Losses prior to the applicable Credit Date for such Company Credit. A Participant’s Account shall be credited or debited with Investment Earnings/Losses based upon the Investment Options selected by the Participant pursuant to Section 4.2(c) and in accordance with the Administrative Procedures.
(c) Election of Investment Options . A Participant shall elect, in accordance with the Administrative Procedures, one or more Investment Option(s) from a menu of Investment Options provided by the Committee to be used to determine Investment Earnings/Losses credited or debited to his or her Account. A Participant may reallocate the existing balance of his or her Account among the available Investment Options and change Investment Options with respect to future deferrals under the Plan in accordance with the Administrative Procedures. In the event that a Participant fails to select one or more Investment Options for all or a portion of his or her Account (including in the situation where the Investment Option is discontinued and the Participant fails to designate an alternative in accordance with the Administrative Procedures), such amounts shall be deemed invested in the Default Investment Option. Notwithstanding the foregoing, the Final Company Credits credited to the Account of a Participant on the Final Credit Date in connection with his or her death or Total Disability shall not be deemed invested in any Investment Option.
(d) Investment Options . The Committee shall select the Investment Options. The Committee shall be permitted to add, remove or change Investment Options, as it deems appropriate; provided that any such addition, deletion or change shall not be effective with respect to any period prior to the effective date of the change. Each Participant, as a condition to his or her participation in the Plan, agrees to indemnify and hold harmless the Committee, the Administrator and the Company, and their agents and representatives, from any losses or damages of any kind relating to the Investment Options made available hereunder.
(e) Crediting or Debiting Method . The performance of each elected Investment Option (either positive or negative) will be determined based on the performance of the actual Investment Option. A Participant’s Account shall be credited or debited with Investment Earnings/Losses as determined by the Administrator in accordance with the Administrative Procedures. The Administrator shall establish procedures for valuing the balance of a Participant’s Account, from time to time, including upon distribution, in accordance with the Administrative Procedures.
(f) No Actual Investment . Notwithstanding any other provision of the Plan, the Investment Options are to be used for measurement purposes only, and a Participant’s election of any such Investment Options and the crediting or debiting of Investment Earnings/Losses to a Participant’s Account shall not be considered or construed in any manner as an actual investment of his or her Account in any such Investment Options. In the event that the Company decides to invest funds in any or all of the Investment Options, no Participant shall have any rights in or to such investments themselves. Without limiting the foregoing, a Participant’s Account shall at all times be a bookkeeping entry only and shall not

8


represent any investment made on his or her behalf by the Company. The Participant shall at all times remain an unsecured creditor of the Company.
4.3 Vesting
.
(a) Generally . An Active Participant shall commence vesting in his or her Account on the date that the Active Participant (i) attains Early Retirement Age and (ii) satisfies the requirements under Section 3.3 (the “ Age/Service Requirements for Supplemental Benefits Upon Retirement Date ”). An Active Participant shall vest on a cumulative basis in one-third (33.3%) of his or her Account on the Account Vesting Date, and each of the Active Participant’s first two birthdays immediately subsequent to the Account Vesting Commencement Date. Notwithstanding the foregoing, a Continuing Participant who was first elected an Executive Vice President (or to a superior position) prior to March 1, 2000 shall immediately vest in full in his or her Account on the date such Continuing Participant attains Early Retirement Age.
(b) Death . In the event of an Active Participant’s death, the Active Participant shall become fully vested in his or her Account effective as of the date of the Active Participant’s death.
(c) Total Disability . If an Active Participant becomes Totally Disabled, the Active Participant shall become fully vested effective as of the date the Active Participant became Totally Disabled.
4.4 Distribution
(a) Retirement .
(i)
Upon an Active Participant’s Retirement, the vested balance of the Participant’s Account, other than the ESRP Share Award if applicable, shall be payable to the Participant in cash in three installment payments. The amount of each cash installment payment shall be the amount determined by multiplying the value of a Participant’s Account, other than the ESRP Share Award if applicable, calculated as of the close of business on the applicable Reference Date by a fraction, the numerator of which is one and the denominator of which is the remaining number of payments due to the Participant. The installment payments shall be made on the following dates: (I) the first Business Day of the month coinciding with or following the date that is six months after the Participant’s Retirement Date; (II) the first Business Day of the month coinciding with or following the first anniversary of the Participant’s Retirement Date; and (III) the first Business Day of the month coinciding with or following the second anniversary of the Participant’s Retirement Date, or, in each case, as soon as administratively feasible thereafter in a manner that is consistent with Section 409A Compliance.
(ii)
Upon an Active Participant’s Retirement, the vested balance of the Participant’s ESRP Share Award if applicable shall be distributed to the Participant in the form of shares of Stock, also in three installment payments. The number of shares in any installment payment of an ESRP Share Award if applicable shall the total number of shares under such Award remaining unpaid on the applicable Reference Date multiplied by a fraction, the numerator of which is one and the denominator of which is the remaining number of payments due to the Participant. The installment payments shall be payable on the following dates: (I) the first Business Day following the date that is six months after the Participant’s Retirement Date, (II) the first Business Day coinciding with or following the first anniversary of the Participant’s Retirement Date, and (III) the first Business Day coinciding with or following the second anniversary of the Participant’s Retirement Date, or, in each case, as soon as administratively feasible thereafter in a manner that is consistent with Section 409A Compliance.

(b) Death .
(i)
Upon the death of an Active Participant, the balance of the Active Participant’s Account, calculated as of the close of business on the Reference Date, shall be paid to the Active Participant’s Beneficiary in a single lump sum cash distribution within 90 days following the date of the Active Participant’s death.

9


(ii)
Upon the death of a Separated Participant, the Committee shall commute any or all remaining payments to the Separated Participant’s Beneficiary by paying the remaining balance of the Separated Participant’s Account, calculated as of the close of business on the Reference Date, in a single lump sum cash distribution within 90 days following the date of the Separated Participant’s death.
(c) Total Disability . Upon the Total Disability of an Active Participant, the balance of the Active Participant’s Account, , including the ESRP Share Award if applicable, calculated as of the close of business on the Reference Date, shall be paid to the Active Participant in a single lump sum cash distribution as soon as administratively feasible following the date on which the Active Participant becomes Totally Disabled, and in any event by the later of (I) the fifteenth day of the third month following the date on which the Participant becomes Totally Disabled, or (II) the end of the calendar year in which the Participant becomes Totally Disabled, in a manner that is consistent with Section 409A Compliance, provided the Active Participant has remained Totally Disabled through the date of payment.

ARTICLE 5 Special Payment Rules
5.1 Delay in Payment . Notwithstanding anything in the Plan to the contrary, neither the Committee nor the Administrator shall have the discretionary authority to delay payment of Supplemental Benefits, except to the extent that the Administrator determines, in its discretion, that any such delay can be effected in a manner that results in Section 409A Compliance (as hereinafter defined). Without limiting the generality of the foregoing, payment of the Supplemental Benefits may be delayed, at the discretion of the Committee or Administrator, to the extent that the Committee or the Administrator reasonably anticipates that (i) if payment were made as scheduled, the Employer’s deduction with respect to such payment would not be permitted due to the application of Section 162(m) of the Code, or (ii) payment of the Supplemental Benefits would violate federal securities laws or other applicable law. Payment of any amount delayed pursuant to this Section 5.1 shall earn interest at the then prevailing applicable federal rate provided for in Section 7872(f)(2)(A) of the Code and made in a manner that results in Section 409A Compliance.
5.2 Acceleration of Payment .
(a) Notwithstanding anything in the Plan to the contrary, neither the Committee nor the Administrator shall have the discretionary authority to accelerate payment of any Supplemental Benefits except as set forth in the remainder of this Section 5.2(a) or to the extent the Committee or the Administrator determines, in its discretion, that any such acceleration may be effected in a manner that results in Section 409A Compliance.
(b) The Administrator may, in a manner that results in Section 409A Compliance, determine to accelerate the time or schedule of a Participant’s distribution to pay (i) the FICA Amount and/or (ii) the income tax at source on wages imposed under Section 3401 of the Code or the corresponding withholding provisions of applicable state, local or foreign tax laws as a result of the payment of the FICA Amount (and any additional tax due as a result of such payment). The total amount accelerated under this Section 5.2(b) may not exceed the aggregate of the FICA Amount and the income tax withholding related to such FICA Amount.
(c) The Administrator may, in a manner that results in Section 409A Compliance, determine to accelerate the time or schedule of a Participant’s distribution if at any time the Plan, as applicable to such Participant, fails to meet the requirements of Section 409A of the Code and the corresponding Treasury Regulations. Such amount may not exceed the amount required to be included in income as a result of the failure to comply with Section 409A of the Code and the corresponding Treasury Regulations.
5.3 No Suspension of Payment . Notwithstanding anything to the contrary in the Plan, in the event (i) a Separated Participant is subsequently rehired by the Employer or (ii) a Separated Participant who was Totally Disabled subsequently recovers and recommences performing services for the Employer, the payment of such Separated Participant’s Supplemental Benefits accrued prior to such Separation From Service or Total Disability shall not be suspended or otherwise delayed.
5.4 Designation of Taxable Year . In no event may any Participant or any Beneficiary designate the taxable year of payment of any Supplemental Benefits. The timing of payment of a Participant’s Supplemental Benefits shall be determined by the Committee, in its sole discretion, in accordance with the provisions of the Plan and in a manner that results in Section 409A Compliance.


10


ARTICLE 6
Administration

6.1 Authority of the Committee .
(a)
Authority of the Committee. The Administrator of the Plan shall be the Committee. The Administrator shall have complete discretionary authority to interpret the Plan and to decide all matters under the Plan. Such interpretation and decision shall be final, conclusive and binding on all Participants and any person claiming under or through any Participant, in the absence of clear and convincing evidence that the Administrator acted arbitrarily and capriciously. The Administrator shall establish such rules and procedures, maintain such records and prepare such reports as it considers to be necessary or appropriate to carry out the purposes of the Plan. As the Administrator, the Committee’s powers and duties shall include, but shall not be limited to, permitting the acceleration of vesting in individual cases in its sole and exclusive direction.
(b)
Authorized Person. Except as the Committee may otherwise determine, the Authorized Person shall be the Executive Vice President-Global Human Resources, as from time to time in office, and his or her delegates. The Authorized Person shall have the power and responsibility to (i) undertake routine administrative tasks related to the Plan, (ii) make amendments to the Plan (in general or with respect to one or more individual Participants or Beneficiaries) that are administrative in nature and that do not materially increase the financial obligations of the Employer, and (iii) add, remove or change investment options (including with respect to balances already notionally invested) under the Plan. References to “Committee” in Sections 6.2, 6.3 and 6.4 below shall be deemed to include the Authorized Person acting within the scope of his or her responsibilities as described in the immediately preceding sentence.
(c)
Notwithstanding any other provision in this Section, no individual acting, directly or by delegation (including, for the avoidance of doubt, the Authorized Person), as the Administrator may determine his or her own rights or entitlements under the Plan.

6.2 Outside Services . The Committee may engage counsel and such clerical, financial, investment, accounting, and other specialized services as the Committee may deem necessary or appropriate in the administration of the Plan. The Committee shall be entitled to rely upon any opinions, reports, or other advice furnished by counsel or other specialists engaged for that purpose and, in so relying, shall be fully protected by the Company in any action, determination, or omission made in good faith.
6.3 Decisions Binding . The decision or action of the Committee with respect to any question arising out of or in connection with the administration, interpretation and application of the Plan and any rules or guidelines made in connection with the Plan shall be final, binding and conclusive upon all persons and entities having or claiming any interest in the Plan.
6.4 Indemnity of Committee . The Company shall indemnify and hold harmless the Committee and its individual members against any and all claims, loss, damage, expense or liability arising from any action or failure to act with respect to the Plan.
6.5 Cost of Administration . The Company shall bear all expenses of administration of the Plan.

ARTICLE 7
Amendment and Termination

7.1 Amendment/Termination of Plan . Subject to Section 7.2 below, the Company hereby reserves the right to amend, modify or terminate the Plan at any time by action of a majority of the members of the Committee. In addition, the Authorized Person shall have the right at any time and from time to time to make amendments to the Plan as specified in Section 6.1(b). Except as described below in this Article 7, no such amendment or termination shall in any material manner reduce or adversely affect any Participant’s accrued benefit without the consent of the Participant. Upon termination of the Plan, payment of a Participant’s Supplemental Benefits shall be made in accordance with the terms of the Plan and the elections in effect prior to such termination, unless the Board or the Committee, in its discretion, determines to accelerate payment, and such acceleration may be effected in a manner that will not cause any Participant or Beneficiary to

11


recognize income for U.S. federal income tax purposes prior to the time of a distribution of Supplemental Benefits or to incur interest or additional tax under Section 409A (“ Section 409A Compliance ”).
7.2 Termination of Participant Interests . The Plan is intended to be a Top Hat Plan and therefore to be exempt from the provisions of Parts 2, 3 and 4 of Subtitle B of Title I of ERISA. Accordingly, subject to Section 7.1 above, the Board may terminate the Plan and commence termination distributions for all or certain Participants, or remove certain Employees as Participants, if it is determined by the United States Department of Labor, or a court of competent jurisdiction, that the Plan constitutes an employee pension benefit plan within the meaning of Section 3(2) of ERISA which is not so exempt. If distribution is commenced pursuant to the operation of this Article 7, the payment of such amounts shall be made consistent with Section 7.1.

ARTICLE 8
Miscellaneous

8.1 Claims . If a Participant or his or her Beneficiary or the authorized representative of one of the foregoing (hereinafter, the “ Claimant ”) does not receive the timely payment of the benefits which he or she believes are due under the Plan, the Claimant may make a claim for benefits in accordance with the Claims Procedures set forth on Exhibit C to this Plan. Notwithstanding Section 7.1, the Claims Procedures may be amended by the Administrator from time to time.
8.2 Unfunded Plan . It is intended that this Plan’s status as a Top Hat Plan shall not be adversely affected by the establishment of any trust pursuant to Section 8.4.
8.3 Unsecured General Creditor . No Participant, nor any Spouse, Domestic Partner or other Beneficiaries of a Participant, shall have any legal or equitable right, interest or claim in any property or assets of the Employer, other than that of an unsecured general creditor of the Employer. Without limiting the generality of the foregoing, no such person shall have any right, claim or interest in any life insurance policies, annuity contracts or the proceeds therefrom owned or which may be acquired by the Employer. Except as provided in Section 8.4, such policies, annuity contracts or other assets of the Employer shall not be held under any trust for the benefit of a Participant, his or her Beneficiaries, heirs, successors or assigns, or held, in any way, as collateral security for the fulfilling of any obligations of the Employer under this Plan. The Employer’s assets shall be, and shall remain for purposes of this Plan, the general assets of the Employer. The Employer’s obligation under this Plan shall be that of an unfunded and unsecured promise to pay money in the future.
8.4 Trust Fund . At its discretion and in a manner intended to result in Section 409A Compliance, the Employer may establish one or more grantor trusts, with such trustees as the Committee may approve, for the purpose of providing for the payment of benefits under this Plan. Such trust or trusts may be irrevocable, but the assets thereof shall be subject to the claims of the Employer’s general creditors in the event of bankruptcy or insolvency of the grantor. To the extent any benefits provided under this Plan are actually paid from any such trust, the Employer shall have no further obligation with respect to the benefits so paid, but to the extent not so paid, such benefits shall remain the obligation of, and shall be paid by, the Employer.
8.5 Nonassignability . Neither a Participant nor any other person shall have any right to sell, assign, transfer, pledge, anticipate, mortgage, or otherwise encumber, hypothecate or convey in advance of actual receipt the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are, expressly declared to be nonassignable and nontransferable. No part of the amount payable shall, prior to actual payment, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, nor shall such amounts or rights to such amounts be transferable by operation of law in the event of a Participant’s or any other person’s bankruptcy or insolvency.
8.6 Not a Contract of Employment . The terms and conditions of this Plan shall not be deemed to constitute a contract of employment between the Employer and any Participant, and the Participants (and a Participant’s Spouse, Domestic Partner or other Beneficiaries) shall have no rights against the Employer except as may otherwise be specially provided herein. Moreover, nothing in this Plan shall be deemed to give a Participant the right to be retained in the service of the Employer or to interfere with the right of the Employer to discipline or discharge any Participant at any time.
8.7 Validity . If any provision of this Plan shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but this Plan shall be construed and enforced, in a manner

12


intended to result in Section 409A Compliance, as if such illegal and invalid provision had never been inserted herein.
8.8 Incompetency . If the Committee determines in its discretion that a payment under the Plan is to be paid to a minor, a person declared incompetent or a person incapable of handling the disposition of such person’s property, the Committee may direct payment of such benefit to the guardian, legal representative or person having the care and custody of such minor, incompetent or incapable person. Any payment of a benefit shall be a payment for the account of the Participant and the Participant’s Beneficiary, as the case may be, and shall be a complete discharge of any liability under the Plan for such payment amount.
8.9 Successors . The provisions of this Plan shall bind and inure to the benefit of the Employer and its successors and assigns, and the Employer shall require all its successors and assigns to expressly assume its obligations hereunder. The term “successors,” as used herein, shall include any corporate or other business entity which shall, whether by merger, consolidation, purchase or otherwise, acquire all or substantially all of the business and assets of the Employer.
8.10 Tax Withholdings . The Employer shall have the right to deduct from payments made pursuant to the Plan amounts sufficient to satisfy federal, state and local income and/or employment tax withholding requirements.
8.11 Governing Law . The provisions of this Agreement shall be construed and interpreted according to the laws of the Commonwealth of Massachusetts except as preempted by federal law.

IN WITNESS WHEREOF, the Employer has caused this instrument to be executed by its duly authorized officer on the 22nd day of December, 2014.

                        
State Street Corporation    



by ___/s/ Todd Gershkowitz_________
    
    Todd Gershkowitz
Executive Vice President
Head of Global Total Rewards
k

o
NYDOCS01/1173495.8
35
n
document property name.     
31








PAGE
NYDOCS01/1173495.8





13







EXHIBIT A
The terms and conditions in this Exhibit A shall apply to the Supplemental Defined Benefits of Continuing Participants. Except as otherwise defined in this Exhibit A, capitalized terms shall have the meaning given to such terms in Article 2 of the Plan.
Article A.1      Definitions .
A.1.1      Actuarially Equivalent . A benefit is “Actuarially Equivalent” to or the “Actuarial Equivalent” of a benefit payable in a different form or at a different time if the two benefits are of actuarially equivalent value as determined by the Administrator in Section 409A Compliance based upon a computation by an actuary chosen by the Administrator using the actuarial assumptions with respect to the Basic Plan.
A.1.2      Additional Company Benefit . “Additional Company Benefit” means the annual Employer-provided retirement supplemental benefits, in each case expressed in the form of a single life annuity, as determined by the Administrator, that are payable to a Continuing Participant at age 65 under the Additional Company Benefit Plans applicable to the Continuing Participant, if any, determined as follows:
(i)
if the Additional Company Benefit Plan is a defined benefit or funded retirement plan, the retirement benefit shall be the Continuing Participant’s benefit accrued as of December 31, 2007, where such accrued benefit includes future cost of living increases at 3.25% from December 31, 2007 through age 65 and reduced to an Actuarially Equivalent non-escalating life annuity (where such escalation would be assumed at 3.25%); and
(ii)
if the Additional Company Benefit Plan is a defined contribution retirement plan, the retirement benefit shall be a projected benefit at age 65, based on the Continuing Participant’s account balance thereunder as of December 31, 2007, assuming 7.0% annual returns, and converted to an age 65 annuity using mortality and interest rates under Section 417(e) of the Code in effect on the applicable Freeze Date.

A.1.3      Additional Company Benefit Plans . “Additional Company Benefit Plans” means the following Employer-sponsored retirement benefit plans and any other Employer-sponsored Company plan so designated by the Committee:
i.
Mandatory Provision Fund - Dresdner RCM MPF Plan (Hong Kong);
ii.
State Street Superannuation Plan (Australia);
iii.
State Street Switzerland Pension Plan for Senior Management; and
iv.
State Street UK Pension & Life Assurance Plan.

A.1.4      Basic Plan Offset . “Basic Plan Offset” means the annual benefit, expressed in the form of a single life annuity as determined by the Administrator payable to a Continuing Participant from the Basic Plan that is the greater of (i) the Continuing Participant’s Grandfathered Benefit (as defined under Section 4.6 of the Basic Plan), if any, thereunder payable at age 65 or (ii) the Continuing Participant’s Cash Balance Benefit (as defined under the Basic Plan) based on the Continuing Participant’s account balance as of December 31, 2007 projected to age 65, assuming a 5% interest rate, and converted to an age 65 annuity using mortality and interest rates under Section 417(e) of the Code in effect on the Freeze Date; provided , however , that the Cash Balance Account of a Transition Participant under the foregoing clause (ii) shall be increased on a notional basis until the Freeze Date applicable to the Transition Participant by deemed Basic Credits (as defined under the Basic Plan) that would have been contributed to the Cash Balance Account of the Transition Participant pursuant to Section 4.4 of the Basic Plan had the Basic Plan not been frozen and credited with 5% interest. For the avoidance of doubt,

14


any Basic Credits under Section 4.4(b) of the Basic Plan credited to the Cash Balance Account of a Continuing Participant shall not be included in the Basic Plan Offset.
A.1.5      Earnings . “Earnings” means the following:
(a)
For years prior to 2007, a Continuing Participant’s annualized rate of base salary as of January 1 of that year and annual incentive compensation under the Employer’s annual incentive plan relating to performance in the prior fiscal year, regardless of when paid.
(b)
For 2007 and any year thereafter including the applicable Freeze Date, a Continuing Participant’s annualized rate of base salary as of January 1 of that year and annual incentive compensation awards under the incentive plan applicable to the Continuing Participant relating to performance in the prior fiscal year and, in the case of members of the Operating Group, the annual incentive compensation awarded or paid under the Senior Executive Annual Incentive Plan (“ SEAIP ”) or any successor thereto, regardless of whether or when awarded or paid.
(c)
In lieu of other amounts, the calculation of the amount of annual incentive award to be included for purposes of determining “Earnings” through January 1, 2008, with respect to a Continuing Participant who was employed by SSgA in an SSgA Plan shall be the lesser of (i) his or her actual annual incentive cash bonus or (ii) the percentage of base pay earned for the respective year as determined by the Administrator and recorded in the records of the Company.
(d)
For the avoidance of doubt, prior to January 1, 2007, “Earnings” shall not include any long‑term incentive awards.

A.1.6      Final Average Earnings . “Final Average Earnings” means, for any Continuing Participant, the average annual Earnings amount obtained by averaging the Continuing Participant’s Earnings over the five‑consecutive‑year period during the last ten years of such Continuing Participant’s Employment ending with the applicable Freeze Date which yields the highest such annual average. A Continuing Participant’s annual Earnings after the applicable Freeze Date shall not be taken into account for any purpose under the Plan.
A.1.7      Freeze Date . “Freeze Date” means (i) with respect to a Continuing Participant other than a Transition Participant, the Effective Date; and (ii) with respect to a Transition Participant, (x) January 1, 2010 or (y) such other date as may be specified in a schedule to this Exhibit A.
A.1.8      Indexing End Date . “Indexing End Date” means, with respect to a Continuing Participant, the first to occur of (i) the date of the Continuing Participant’s Separation From Service, Total Disability or death or (ii) December 31, 2017.
A.1.9      MSRP Benefit . “MSRP Benefit” means the annual retirement supplemental benefits, expressed in the form of a single life annuity as determined by the Administrator, that are payable to a Continuing Participant under the State Street Corporation Management Supplemental Retirement Plan (the “ MSRP ”) of (i) the Continuing Participant’s Grandfathered Benefit (as provided under the MSRP), if any, thereunder payable at age 65 or (ii) the Continuing Participant’s Cash Balance Account (as provided under the MSRP) based on the Continuing Participant’s account balance as of December 31, 2007 projected to age 65, assuming a 5% interest rate, and converted to an age 65 annuity using mortality and interest rates under Section 417(e) of the Code in effect the applicable Freeze Date; provided , however , that the Cash Balance Account of a Transition Participant under the foregoing clause (i) shall be increased on a notional basis until the Freeze Date applicable to the Transition Participant by deemed Basic Credits (as provided under the MSRP) that would have been contributed to the Cash Balance Account of the Transition Participant had the MSRP not been frozen and credited with 5% interest.
A.1.10      Other Retirement Income . “Other Retirement Income” means the sum of the following:
(a) the Basic Plan Offset; plus
(b) the MSRP Benefit; plus

15


(c) any Additional Company Benefit; plus
(d) any retirement income payable under plans of a Continuing Participant’s employers other than the Employer, as identified by the Administrator and recorded in the records of the Company in accordance with the Administrative Procedures and expressed in the form of a single life annuity, as determined by the Administrator in a manner that results in Section 409A Compliance.

A.1.11      SSgA . “SSgA” means the State Street Global Advisors business unit of the Company.
A.1.12      SSgA Plans . “SSgA Plans” means the SSgA annual incentive plan for each of the years 2003, 2004, 2005, 2006 and 2007.
Article A.2      Supplemental Defined Benefits .
A.2.1      Eligibility for Supplemental Defined Benefits .
(a) A Participant is eligible to receive a Supplemental Defined Benefit under the Plan only if he or she is a Continuing Participant. No Eligible Employee (i) who was not a Continuing Participant on December 31, 2007 or (ii) who is hired or rehired by the Employer on or after the Effective Date shall become eligible to receive a Supplemental Defined Benefit.
(b) Effective as of the applicable Freeze Date, the Supplemental Defined Benefit of a Continuing Participant shall be frozen such that (i) any annual Earnings of a Continuing Participant after the applicable Freeze Date shall not be taken into account for any purpose under the Plan and (ii) no additional Supplemental Defined Benefit shall accrue on or after the applicable Indexing End Date on behalf of a Continuing Participant or any other individual.

A.2.2      Normal Retirement . Subject to the terms of the Plan (including this Exhibit A and Exhibit B), the annual Supplemental Defined Benefit payable to a Continuing Participant in connection with Normal Retirement, expressed as a single life annuity commencing at the later of (i) Normal Retirement Age or (ii) the Continuing Participant’s Normal Retirement Date, shall equal either (a) or (b) below, whichever shall be applicable, minus (c) below, increased by the factors in (d) below, and adjusted pursuant to (e) below:
(a) For a Continuing Participant who was first elected an Executive Vice President (or to a superior position) prior to March 1, 2000, 50% of the Continuing Participant’s Final Average Earnings.
(b) For a Continuing Participant who was first elected an Executive Vice President (or to a superior position) on or after March 1, 2000, 2.5% of the Participant’s Final Average Earnings multiplied by the Continuing Participant’s years of Service prior to the applicable Freeze Date, but not more than 20 years of such Service, shall be taken into account.
(c) Other Retirement Income, as accrued or as deemed to be accrued under the respective plans as of the earlier to occur of (i) the Freeze Date and (ii) the date of the Continuing Participant’s Separation From Service.
(d) Three percent for each whole calendar year following the applicable Freeze Date until the Continuing Participant’s Indexing End Date, plus an additional amount equal to the product of (i) the excess of whole calendar months elapsed prior to the Indexing End Date for the Plan Year in which the Indexing End Date occurs over twelve and (ii) 3%.
(e) Where the pre-offset benefit is determined under (b), the benefit amount determined by subtracting (c) from (b) and increased by (d) (the “unadjusted benefit”) shall be multiplied by (A) one‑third (33.3%) if the Continuing Participant’s Separation From Service is prior to attainment of his or her birthday next following the date (the “ age/service eligibility date ”) on which the Continuing Participant first satisfied the age and service requirements of Section 3.3 of the Plan; (B) two‑thirds (66.7%) if the Continuing Participant’s Separation From Service is on or after attainment of such first birthday following the age/service eligibility date, but before attainment of his or her second birthday following such date; and (C) one (100%) in every other case.

A.2.3      Early Retirement .

16


(a) Subject to the terms of the Plan (including this Exhibit A and Exhibit B), the annual Supplemental Defined Benefit payable in connection with Early Retirement to a Continuing Participant who on January 1, 2005 had reached the age of 55, completed ten years of Service and previously been elected an Executive Vice President (or to a superior position), expressed as a single life annuity commencing as of the Continuing Participant’s Early Retirement Date, shall equal (i) reduced by the factors in (ii), and further where:
(i)
the supplemental benefit determined under Section A.2.2 above, reduced by:
(ii)
the sum of (A) and (B) below:
(A)
.0833% for each whole calendar month by which the Continuing Participant’s Early Retirement Date commencement precedes his or her 65 th birthday, excluding any period prior to the Continuing Participant’s 60 th birthday; and
(B)
.2083% for each whole calendar month by which the Continuing Participant’s Early Retirement Date precedes his or her 60 th birthday.
(b) Subject to the terms of the Plan (including this Exhibit A and Exhibit B), the annual Supplemental Defined Benefit in connection with Early Retirement of a Continuing Participant who as of January 1, 2005 had not both reached the age of 55 and completed ten years of Service, expressed as a single life annuity commencing as of the Continuing Participant’s Early Retirement Date, shall equal the benefit determined under A.2.3(a) above except that in lieu of the reductions described in Section A.2.3(a)(ii) above, the Supplemental Defined Benefit determined under Section A.2.2 above shall be reduced by 0.25% for each whole calendar month by which the Continuing Participant’s Early Retirement Date precedes his or her 65 th birthday.
(c) Notwithstanding the above, with respect to a Transition Participant, if Early Retirement occurs prior to the applicable Freeze Date, the reductions in (a) and (b) will apply to the pre-offset benefit as defined in A.2.2(a) and A.2.2(b) and the offsets for Other Retirement Income as defined in A.2.2(c) will be computed on an early retirement basis in accordance with the provisions of the plan or plans providing such Other Retirement Income; provided , however , that if such Additional Company Benefit Plan (or Additional Company Benefit Plans) does/do not contain provisions for early retirement, or such provisions are not ascertainable as of the date of determination, the Committee shall determine the actuarial equivalence basis to be used for such purpose. For this purpose, the Basic Plan and MSRP Cash Balance Accounts will be increased on a notional basis from December 31, 2007 until Early Retirement by deemed Basic Credits that would have been contributed to the Cash Balance Accounts of the Transition Participant had the Basic Plan and MSRP not been frozen and credited with 5% interest through Early Retirement. The offsets so computed will be subtracted from the reduced preoffset benefit.

A.2.4      Death Before Retirement Eligibility . If a Continuing Participant dies under the circumstances described in Section 3.4, a Supplemental Defined Benefit shall be paid to his or her designated Beneficiary which equals the amount derived by multiplying (a) times (b) times (c), where (a) equals the net amount calculated under either Section A.2.2, as if the Continuing Participant’s Normal Retirement Date was the date of his or her death (determined without the adjustments described in Section A.2.2(e)); (b) equals a fraction of which the numerator is the sum of the Continuing Participant’s age at his or her date of death plus the number of completed years of Service prior to the applicable Freeze Date and the denominator is 85; and (c) equals 50%. Payment shall be made in an Actuarially Equivalent single lump sum cash distribution within 90 days following the date of the Continuing Participant’s death.
A.2.5      Total Disability Before Retirement Eligibility . If a Continuing Participant becomes Totally Disabled as described in Section 3.5, a Supplemental Defined Benefit shall be paid to him or her equal to the product of (a) and (b) where (a) equals the amount calculated under either Section A.2.2, as if the Continuing Participant’s Normal Retirement Date was on the date on which he or she became Totally Disabled (determined without the adjustments described in Section A.2.2(e)), and (b) equals a fraction the numerator of which is the sum of the Continuing Participant’s age at the date he or she became Totally Disabled plus the number of completed years of Service prior to the applicable Freeze Date and the denominator of which is 85. A Continuing Participant’s Supplemental Defined Benefit shall be paid in cash in three equal installment payments, which in the aggregate, are the Actuarial Equivalent of the Supplemental Defined Benefit as of the Continuing Participant’s Total Disability Date, provided the Continuing Participant has remained Totally Disabled through the first date of payment. The first installment payment shall be made by the later of (A) the fifteenth day of the third month coinciding with or following the date on which the Continuing Participant becomes Totally Disabled, or (B) the end of the calendar

17


year in which the Continuing Participant becomes Totally Disabled, and the remaining installment payments shall be made on the first Business Day of the month coinciding with or following the first and second anniversaries of the first installment payment date, or, in each case, as soon as administratively feasible thereafter in a manner that is consistent with Section 409A Compliance.
A.2.6      Distribution Following Retirement Eligibility .
(a) Retirement . In the event of a Continuing Participant’s Retirement after satisfying the age and service requirements of Section 3.3, a Continuing Participant’s Supplemental Defined Benefit shall be paid in cash in three equal installment payments which, in the aggregate, are the Actuarial Equivalent of the Supplemental Defined Benefit as of the Continuing Participant’s Retirement Date. The installment payments shall be made on the following dates: (i) the first Business Day of the month coinciding with or following the date that is six months after the Continuing Participant’s Retirement Date; (ii) the first Business Day of the month coinciding with or following the first anniversary of the Continuing Participant’s Retirement Date, and (iii) the first Business Day of the month coinciding with or following the second anniversary of the Continuing Participant’s Retirement Date, or, in each case, as soon as administratively feasible thereafter in a manner that is consistent with Section 409A Compliance.
(b) Death .
i.
Death Benefits . Upon the death of a Continuing Participant after satisfying the age and service requirements of Section 3.3, but before commencement of benefit payments, a death benefit shall be payable to the Continuing Participant’s designated Beneficiary. The amount of such death benefit shall be the Actuarial Equivalent of 50% of the Continuing Participant’s Supplemental Defined Benefit calculated pursuant to Section A.2.2 (determined without the adjustments described in Section A.2.2(e)), payable as an Actuarially Equivalent single lump sum cash distribution within 90 days following the date of the Continuing Participant’s death.
ii.
Commutation Due to Death . Upon the death of a Continuing Participant who is receiving the distribution of his or her accrued Supplemental Defined Benefit pursuant to Section A.2.6(a), the Committee shall commute any or all remaining payments by paying the remainder of the accrued Supplemental Defined Benefit to the Continuing Participant’s Beneficiary in an Actuarially Equivalent single lump sum cash distribution within 90 days following the date of the Continuing Participant’s death.
(c) Total Disability . Upon the Total Disability of a Continuing Participant after satisfying the age and service requirements of Section 3.3 but before commencement of benefit payments, a Continuing Participant’s Supplemental Defined Benefit shall be paid in cash in three equal installment payments, which in the aggregate are the Actuarial Equivalent of the Supplemental Defined Benefit as of the Continuing Participant’s Total Disability Date, provided the Continuing Participant has remained Totally Disabled through the date of payment. The first installment payment shall be made by the later of (A) the fifteenth day of the third month coinciding with or following the date on which the Continuing Participant becomes Totally Disabled, or (B) the end of the calendar year in which the Continuing Participant becomes Totally Disabled, and the remaining installment payments shall be made on the first Business Day of the month coinciding with or following the first and second anniversaries of the first installment payment date, or, in each case, as soon as administratively feasible thereafter in a manner that is consistent with Section 409A Compliance.








18




EXHIBIT B
Schedule 1 (2005 Restatement)
Section 3.2(c) Separate Rules Applicable to J. Hooley
Status:
Active
Participation Date:
September 1, 2000
Section A.2.2 Supplemental Defined Benefit at Normal Retirement:
Subject to the terms of the Plan, Exhibit A, and the Special Benefit hereafter described, the supplemental benefit under Section A.2.2 of the Plan shall be the benefit set forth in this Schedule 1 of Exhibit B.
Special
Benefit:
The Participant’s Special Benefit under the Plan and Exhibit A shall be equal to his cash balance account benefit which shall consist of an opening cash balance account in the sum of $500,000 as of September 1, 2000 and earnings credited thereafter in the same percentage and in the same manner as though such cash balance account were provided under the terms of the Basic Plan. There shall be no additional contributions to this “cash balance account.”
 
If the Participant’s benefit under the Plan is subsequently determined under the generally applicable rules of the Plan, the value of the Special Benefit set forth above shall be payable in addition to such generally applicable Plan benefit.
 
The Special Benefit is in addition to any Supplemental Benefits under the Plan and Exhibit A.
Section A.2.2(e) Applicability:
The offset for Other Retirement Income is not applicable to the Special Benefit pursuant to this Schedule 1 of Exhibit B.
Age/Service Requirements:
The Participant’s prior years of service with the Employer as well as the Participant’s years of service with Boston Financial Data Services shall be considered as Service hereunder.
 
The age and service requirements to qualify for a benefit set forth in Section A.2.2 of the Plan above are as follows:
 
(1)The Service requirement of completion of ten full years of Employment is satisfied by the recognition of prior Service above.
 
(2)There is no age requirement to qualify for the Special Benefit pursuant to this Schedule 1 of Exhibit B.











19





EXHIBIT B
Schedule 2 (2008 Restatement)
Section 3.2(c) Separate Rules for Edward Resch
Status:
Active
Participation Date:
January 1, 2003
Freeze Date:
For purposes of the Plan, the Freeze Date applicable to the Participant is December 31, 2010.
Section A.2.2 Supplemental Defined Benefit at Normal Retirement:
Subject to the terms of the Plan and Exhibit A, the maximum Supplemental Defined Benefit under Section A.2.2 of the Plan before offsets shall be equal to 20% of the Participant’s Final Average Earnings.
Section A.2.3 Supplemental Defined Benefit at Early Retirement:
The Participant’s Supplemental Defined Benefit shall be determined under Section A.2.3(a) of the Plan. Subject to the terms of the Plan and Exhibit A, the maximum Supplemental Defined Benefit under Section A.2.3 of the Plan before offsets shall be equal to 20% of the Participant’s Final Average Earnings.
Section A.2.2(c) Applicability:
The offset for Other Retirement Income is applicable to the benefit under Section A.2.2 of the Plan.
















20




EXHIBIT C
CLAIMS PROCEDURES
STATE STREET CORPORATION
DEFERRED COMPENSATION PLAN CLAIMS PROCEDURES
(Amended and Restated Effective January 1, 2008)
These Claims Procedures for filing and reviewing claims have been established and adopted for the State Street Corporation Executive Supplemental Retirement Plan (the “ Plan ”) and are intended to comply with Section 503 of ERISA and related Department of Labor regulations. These amended and restated Claims Procedures are effective for claims made under the Plan on or after January 1, 2008.
1. In General . Any employee or former employee, or any person claiming to be a beneficiary with respect to such a person, may request, with respect to the Plan:
a)
a benefit payment,
b)
a resolution of a disputed amount of benefit payment, or
c)
a resolution of a dispute as to whether the person is entitled to the particular form of benefit payment.
A request described above and filed in accordance with these Procedures is a claim , and the person on whose behalf the claim is filed is a claimant . A claim must relate to a benefit which the claimant asserts he or she is already entitled to receive or will become entitled to receive within one year following the date the claim is filed.
2. Effect on Benefit Requests in Due Course . The Plan has established procedures for benefit applications, selection of benefit forms, and designation of beneficiaries, determination of qualified domestic relations orders, and similar routine requests and inquiries relating to the operation of the Plan.
3.
Filing of Claims .
a)
Each claim must be in writing and delivered by hand or first-class mail (including registered or certified mail) to the Administrator, at the following address:
GHR U.S. Benefits Planning
State Street Corporation
c/o Vice President, GHR-U.S. Benefits Planning
One Lincoln Street, 14 th Floor
Boston, MA 02111
A claim must clearly state the specific outcome being sought by the claimant.
b)
The claim must also include sufficient information relating to the identity of the claimant and such other information reasonably necessary to allow the claim to be evaluated.
c)
In no event may a claim for benefits be filed by a Claimant more than 120 days after the applicable “Notice Date,” as defined below.
i)
In any case where benefits are paid to the Claimant as a lump sum, the Notice Date shall be the date of payment of the lump sum.
ii)
In any case where benefits are paid to the Claimant in the form of an annuity or installments, the Notice Date shall be the date of payment of the first installment of the annuity or payment of first installment.
iii)
In any case where the Plan (prior to the filing of a claim for benefits) determines that an individual is not entitled to benefits (for example (without limitation) where an individual terminates employment and the Plan determines that he has not vested) and the Plan provides written notice to such person of its determination, the Notice Date shall be the date of the individual’s receipt of such notice.

21


iv)
In any case where the Plan provides an individual with a written statement of his account as of a specific date or the amounts credit to, or charged against, his account within a specified period, the Notice Date with regard to matters described in such statement shall be the date of the receipt of such notice by such individual (or beneficiary).
4. Processing of Claims. A claim normally shall be processed and determined by the Administrator within a reasonable time (not longer than 90 days) following actual receipt of the claim. However, if the Administrator determines that additional time is needed to process the claim and so notifies the claimant in writing within the initial 90-day period, the Administrator may extend the determination period for up to an additional 90 days. In addition, where the Administrator determines that the extension of time is required due to the failure of the claimant to submit information necessary in order to determine the claim, the period of time in which the claim is required to be considered pursuant to this Paragraph 4 shall be tolled from the date on which notification of the extension is sent to the claimant until the date on which the claimant responds to the request for additional information. Any notice to a claimant extending the period for considering a claim shall indicate the circumstances requiring the extension and the date by which the Administrator expects to render a determination with respect to the claim. The Administrator shall not process or adjudicate any claim relating specifically to his or her own benefits under the Plan.
5. Determination of Claim. The Administrator shall inform the claimant in writing of the decision regarding the claim by registered or certified mail posted within the time period described in Paragraph 4. The decision shall be based on governing Plan documents. If there is an adverse determination with respect to all or part of the claim, the written notice shall include:
a)
the specific reason or reasons for the denial,
b)
reference to the specific Plan provisions on which the denial is based,
c)
a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary,
d)
reference to and a copy of these Procedures, so as to provide the claimant with a description of the relevant Plan’s review procedures and the time limits applicable to such procedures, a description of the claimant’s rights regarding documentation as described in Paragraph 9, and
e)
a statement of the claimant’s rights under Section 502(a) of ERISA to bring a civil action with respect to an adverse determination upon review of an appeal filed under Paragraph 6.
For purposes of these Procedures, an adverse determination shall mean determination of a claim resulting in a denial, reduction, or termination of a benefit under a Plan, or the failure to provide or make payment (in whole or in part) of a benefit or any form of benefit under a Plan. Adverse determinations shall include denials, reductions, etc., based on the claimant’s lack of eligibility to participate in the relevant Plan. All decisions made by the Administrator under these Procedures shall be summarized in a report to be maintained in the files of the Administrator. The report shall include reference to the applicable governing Plan provision(s) and, where applicable, reference to prior determinations of claims involving similarly situated claimants.
6. Appeal of Claim Denials - Appeals Committee. A claimant who has received an adverse determination of all or part of a claim shall have 60 days from the date of such receipt to contest the denial by filing an appeal . An appeal must be in writing and delivered to the Administrator. An appeal will be considered timely only if actually received by the Administrator within the 60-day period or, if sent by mail, postmarked within the 60-day period. The timely review will be completed by the Appeals Committee and should be sent to:
Appeals Committee
State Street Corporation
c/o Vice President, GHR-U.S. Benefits Planning
2 Avenue de Lafayette, LCC 1 E  
Boston, MA 02111-1724
The Appeals Committee shall meet at such times and places as it considers appropriate, shall keep a record of such meetings and shall periodically report its deliberations to the Administrator. Such reports shall include the basis upon which the appeal was determined and, where applicable, reference to prior determinations of claims involving similarly situated claimants. The vote of a majority of the members of the Appeals Committee shall decide any question brought before the Appeals Committee.
7. Consideration of Appeals. The Appeals Committee shall make an independent decision as to the claim based on a full and fair review of the record. The Appeals Committee shall take into account in its deliberations all

22


comments, documents, records and other information submitted by the claimant, whether submitted in connection with the appeal or in connection with the original claim, and may, but need not, hold a hearing in connection with its consideration of the appeal. The Appeals Committee shall consider an appeal within a reasonable period of time, but not later than 60 days after receipt of the appeal, unless the Appeals Committee determines that special circumstances (such as the need to hold a hearing) require an extension of time. If the Appeals Committee determines that an extension of time is required, it will cause written notice of the extension, including a description of the circumstances requiring an extension and the date by which the Appeals Committee expects to render the determination on review, to be furnished to the claimant before the end of the initial 60-day period. In no event shall an extension exceed a period of 60 days from the end of the initial period; provided , that in the case of any extension of time required by the failure of the claimant to submit information necessary for the Appeals Committee to consider the appeal, the period of time in which the appeal is required to be considered under this Paragraph 7 shall be tolled from the date on which notification of the extension is sent to the claimant until the date on which the claimant responds to the Appeals Committee’s request for additional information.
8. Resolution of Appeal. Notice of the Appeals Committee’s determination with respect to an appeal shall be communicated to the claimant in writing by registered or certified mail posted within the time period described in Paragraph 7. If the determination is adverse, such notice shall include:
a)
the specific reason or reasons for the adverse determination,
b)
reference to the specific plan provisions on which the adverse determination was based,
c)
reference to and a copy of these Procedures, so as to provide the claimant with a description of the claimant’s rights regarding documentation as described in Paragraph 9, and
d)
a statement of the claimant’s rights under Section 502(a) of ERISA to bring a civil action with respect to the adverse determination.
9. Certain Information. In connection with the determination of a claim or appeal, a claimant may submit written comments, documents, records and other information relating to the claim and may request (in writing) copies of any documents, records and other information relevant to the claim. An item shall be deemed relevant to a claim if it:
a)
was relied on in determining the claim,
b)
was submitted, considered or generated in the course of making such determination (whether or not actually relied on), or
c)
demonstrates that such determination was made in accordance with governing Plan documents (including, for this purpose, these Procedures) and that, where appropriate, Plan provisions have been applied consistently with similarly situated claimants.
The Administrator shall furnish free of charge copies of all relevant documents, records and other information so requested; provided , that nothing in these Procedures shall obligate the Company, the Administrator, or any person or committee to disclose any document, record or information that is subject to a privilege (including, without limitation, the attorney-client privilege) or the disclosure of which would, in the Administrator’s judgment, violate any law or regulation.
10.
Rights of a Claimant Where Appeal is Denied .
a)
The claimant’s actual entitlement, if any, to bring suit and the scope of and other rules pertaining to any such suit shall be governed by, and subject to the limitations of, applicable law, including ERISA. By extending to an employee or former employee the right to file a claim under these Procedures, neither the Company nor any person or committee appointed as Administrator acknowledges or concedes that such individual is a participant in any particular Plan within the meaning of such Plan or ERISA, and reserves the right to assert that an individual is not a participant in any action brought under Section 502(a).
b)
In no event may any legal proceeding regarding entitlement to benefits or any aspect of benefits under the Plan be commenced later than the earliest of:
i)
two years after the applicable Notice Date; or
ii)
one year after the date a claimant receives a decision from the Appeals Committee regarding his appeal; or
iii)
the date otherwise prescribed by applicable law.

23


c)
Before any legal proceeding can be brought, a participant must exhaust the claim appeals procedures as set forth herein.
11. Special Rules Regarding Disability. Certain benefits under the Plans are contingent upon an individual’s incurring a disability. Where a claim requires a determination by the Company as to whether an individual is “disabled” as defined under the Plan, the additional rules set forth in Schedule 1 to these Procedures shall apply to the claim. 1 However, where disabled status is based upon actual entitlement to benefits under a separate plan in which the individual participates or is otherwise covered, the determination of such status for purposes of each Plan shall be made under such separate disability plan, and any claims or disputes as to disabled status under such plan or program shall be resolved in accordance with the procedures established for that purpose under the separate plan or program.
12. Authorized Representation. A claimant may authorize an individual to represent him/her with respect to a claim or appeal made under these Procedures. Any such authorization shall be in writing, shall clearly identify the name and address of the individual, and shall be delivered to the Plan Administrator at the address listed in Paragraph 3. On receipt of a letter of authorization, all parties authorized to act under these Procedures shall be entitled to rely on such authorization, until similarly revoked by the claimant. While an authorization is in effect, all notices and communications to be provided to the claimant under these Procedures shall also be provided to his/her authorized representative.
13. Form of Communications. Unless otherwise specified above, any claim, appeal, notice, determination, request, or other communication made under these Procedures shall be in writing, with original signed copy delivered by hand or first class mail (including registered or certified mail). A copy or advance delivery of any such claim, appeal, notice, determination, request, or other communication may be made by electronic mail or facsimile. Any such electronic or facsimile communication, however, shall be for the convenience of the parties only and not in substitution of a writing required to be mailed or delivered under these Procedures, and receipt or delivery of any such claim, appeal, notice, determination, request, or other written communication shall not be considered to have been made until the actual posting or receipt of original signed copy, as the case may be.
14. Reliance on Outside Counsel, Consultants, etc. The Administrator and the Appeals Committee may rely on or take into account advice or information provided by such legal, accounting, actuarial, consulting or other professionals as may be selected in determining a claim or appeal, including those individuals and firms that may render advice to the Company or the Plans from time to time.

_______________________
1 State Street to provide.










24





Exhibit 10.3
        









AMENDED AND RESTATED
STATE STREET CORPORATION
SUPPLEMENTAL CASH INCENTIVE PLAN


Effective as of January 1, 2014 24


    





TABLE OF CONTENTS
ARTICLE I Name, Purpose and Definitions                                  1
1.1      Name and Effective Date                                          1
1.2      Status of Plan                                              1
1.3      Definitions                                                  1
ARTICLE II Participation And Vesting                                      3
2.1      Eligibility to Participate                                          3
2.2      Vesting Date                                                  3
2.3      Termination of Participation                                      3
ARTICLE III Awards and Distribution                                      3
3.1      Awards; Award Provisions                                          3
3.2      Accounts; Notional Tracking Options                                  3
3.3      Form of Payment                                              4
3.4      Timing of Payment                                              4
3.5      Treatment of Awards following Separation of Service                          4
3.6      Forfeiture of Awards                                             4
3.7      Special Rules                                              5
3.8      Rehire                                                      5
3.9      Certain Tax Matters                                              5
3.10      Distribution of Taxable Amounts                                     5
ARTICLE IV Administration of Plan                                      6
4.1      Plan Administrator                                              6
4.2      Outside Services                                              6
4.3      Indemnification                                              6
ARTICLE V Amendment, Modification and Termination                          6
5.1      Amendment; Termination                                         6
ARTICLE VI Miscellaneous Provisions                                      7
6.1      Source of Payments                                          7
6.2      No Warranties; No Liability                                         7
6.3      Inalienability of Benefits                                         7
6.4      Reclassification of Employment Status                                 7
6.5      Application of Local Law                                         7
6.6      Expenses                                                  8
6.7      No Right of Employment                                         8
6.8      Headings                                                 8
6.9      Construction                                                 8




ARTICLE I
Name, Purpose and Definitions

1.1
Name and Effective Date. The Plan sets forth the terms of the Amended and Restated State Street Corporation Supplemental Cash Incentive Plan effective January 1, 2014. All benefits under the Plan shall be subject to the terms and conditions of this Plan document.
1.2
Status of Plan . The Plan has been established for the purpose of rewarding, retaining and motivating Participants for services and performance during the period from the date of grant of an Award to the date of vest of an Award. The Plan is intended to be a bonus plan which is not subject to ERISA. The provisions of the Plan are intended to comply with the requirements applicable to a “nonqualified deferred compensation plan” under Code section 409A and the regulations thereunder and shall be interpreted and administered consistent with that intent.
1.3
Definitions. When used herein, the following words shall have the meanings indicated below.
(a)
“Award” means that portion of the cash bonus awarded to an Eligible Employee under the Company’s Incentive Compensation Plan, or any other cash award to an Eligible Employee, that the Plan Administrator determines, in its discretion, is to be paid in accordance with the terms of this Plan.
(b)
“Award Agreement” means the document established pursuant to Section 3.1(b).
(c)
“Beneficiary” means the person or persons designated by the Participant in writing, subject to such rules as the Plan Administrator may prescribe, to receive benefits under the Plan in the event of the Participant’s death. In the absence of an effective designation at the time of the Participant’s death, the Participant’s Beneficiary shall be his or her surviving spouse or domestic partner as determined by the Plan Administrator in its discretion in accordance with its policies, or, if the Participant has no surviving spouse or domestic partner, then the Participant’s estate.
(d)
“Code” means the Internal Revenue Code of 1986, as amended, and its implementing regulations from time to time.
(e)
“Company” means State Street Corporation, its subsidiaries and affiliates as determined by the Plan Administrator in its sole discretion.
(f)
“Committee” means the Executive Compensation Committee of the Board of Directors of State Street Corporation.
(g)
“Disabled” means, for any Participant, that the Participant, as determined in the sole discretion of the Plan Administrator:
is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or
is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than 6 months under an accident and health plan covering employees of the Employer.

1


(h)
“EIP” means the 2006 Equity Incentive Plan, as may be amended and in effect from time to time, or successor equity incentive plan of the Company
(i)
“Eligible Employee” means any employee of an Employer.
(j)
“Employer” means any or all, as the context requires in order to refer to the employing entity of a Participant, of State Street Corporation and any other entity (or branch) that would be treated as a member of the same controlled group of corporations, or as trades or business under common control, with State Street Corporation, under Code sections 414(b) and (c).
(k)
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and its implementing regulations from time to time.
(l)
“ Incentive Compensation Plan ” means the annual incentive compensation plan under which an Eligible Employee receives a cash award, currently either the Incentive Compensation Plan or the Senior Executive Annual Incentive Plan.
(m)
“Participant” means an Eligible Employee who has an unpaid Award under the Plan.
(n)
“Plan” means this Amended and Restated State Street Corporation Supplemental Cash Incentive Plan, as from time to time amended and in effect.
(o)
“Plan Administrator” means the Plan Administrator appointed pursuant to Section 4.1.
(p)
“Release of Claims” means contractual documentation releasing the Company and the Employer, to the maximum extent permitted by applicable law, from all contractual and statutory claims a Participant has, or may have, in connection with his or her employment, engagement or termination thereof.
(q)
“Retirement Eligible” means an Eligible Employee is age 55 or older and has completed five (5) or more years of service with the Company. For this purpose, years of service shall be determined using Company records in a consistent manner by the Plan Administrator in its sole discretion.
(r)
“Restrictive Covenant” means any confidentiality, non-solicitation, non-competition, non-disparagement, post-employment cooperation or notice provision that the Participant agrees to or has agreed to with the Employer, including but not limited to the restrictions contained in the Award Agreement, any employment agreement or offer letter, equity award agreement, change in control employment agreement or required as a condition to entitlement to payment under any executive supplemental retirement plan.
(s)
“Separation from Service” means a separation from service, within the meaning of Treas. Regs. §1.409A-1(h), with all Employers that would be treated as a single employer with State Street Corporation under the first sentence of Treas. Regs. §1.409A-1(h)(3).
(t)
“Vest,” “vesting,” and terms of similar import refer to the Participant’s right to payment under an Award becoming non-forfeitable.
(u)
“W ritten” “in writing” and similar terms . To the extent permitted by the Plan Administrator, the terms “written,” “in writing,” and terms of similar import shall include communications by electronic media.


2



ARTICLE II
Participation And Vesting
2.1
Eligibility to Participate . An Eligible Employee shall become a Participant when issued an Award payable under the terms of this Plan.
2.2
Vesting Date . Each Award shall vest as specified in the Award Agreement or accompanying statement at the time of the issuance of the Award.
2.3
Termination of Participation . Participation in the Plan shall end when all Awards issued to a Participant are either distributed or forfeited consistent with the terms of this Plan.

AREICLE III
Awards and Distribution

3.1
Awards; Award Provisions .
a.
Awards shall be issued to Eligible Employees (other than executive officers of the Company) as determined by the Committee or the Plan Administrator in its sole discretion. Awards may be issued to Eligible Employees who are executive officers of the Company by the Committee in its sole discretion.
b.
The Plan Administrator will determine the terms of all Awards, subject to the limitations set forth herein, including without limitation the time or times at which an Award will vest. Without limiting the foregoing, the Plan Administrator may at any time accelerate the vesting of an Award, regardless of any adverse or potentially adverse tax consequences resulting from such acceleration. The Plan Administrator will document each Award with a written agreement that may set forth specific terms applicable to the Award, including without limitation forfeiture conditions in addition to those specified in Section 3.6, performance criteria, notional tracking designations as described in Section 3.2 and such other provisions, as may determined by the Plan Administrator in its sole discretion.
3.2
Accounts; Notional Tracking Options . The Plan Administrator shall establish for each Participant a bookkeeping account together with such sub-accounts as the Plan Administrator may determine are needed or appropriate to reflect interest provided for in the Participant’s Award and/or adjustments for notional (hypothetical) investment experience as described in this Section 3.2. The Plan Administrator may in its discretion designate for purposes of the Plan one or more funds (each, a “tracking fund”) and may allocate the amount of each Award made under the Plan in whole or in part among such tracking funds. The Plan Administrator may also provide a Participant with the discretion to elect to allocate the amount of any Award made under the Plan in whole or in part among such tracking funds. In the absence of an affirmative allocation by a Participant, the Plan Administrator may designate a default tracking fund and allocate the amount of any Award made under the Plan in whole or in part to such tracking fund. Amounts allocated under the Plan to a tracking fund shall be treated as though notionally invested in that tracking fund. The Plan Administrator shall periodically adjust Participant accounts to reflect increases or decreases attributable to these notional investments. The Plan Administrator shall adjust accounts to reflect the notional reinvestment of an amount equivalent to any cash dividends or other cash distributions from a tracking fund. The

3


Plan Administrator may at any time and from time to time eliminate or add tracking funds or substitute a new fund for an existing tracking fund, including with respect to balances already notionally invested under the Plan. The Plan Administrator may, but need not, direct the purchase of securities or other investments with characteristics similar to the tracking funds, but any such securities or other investments shall remain part of the Company’s general assets unless held in a trust described in Section 6.1 in a manner not inconsistent with the requirements of Section 409A(b) of the Code. By his or her acceptance of an Award under the Plan, a Participant agrees, on his or her behalf and on behalf of his or her Beneficiaries, that none of the Company, any Employer, the Committee, the Plan Administrator, or any of their delegates, agents or representatives, shall be liable for any losses or damages of any kind relating to the allocation of an Award to any tracking fund or funds under the Plan.
3.3
Form of Payment . All payments under this Plan will be made in cash out of the Company’s general corporate assets.
3.4
Timing of Payment . The amount of any payment due under an Award shall be determined on the vesting date of such payment and, subject to satisfaction of all conditions of this Plan and the Award Agreement, shall be made to the Participant as soon as administratively feasible following the vesting date, but in no event later than 30 days following the vesting date.
3.5
Treatment of Awards following Separation of Service . Following Separation from Service:
a.
A Participant shall continue to vest in any outstanding Award, subject to Section 3.6, if such Participant:
is Retirement Eligible at the time of the Separation from Service; or
is involuntarily terminated for reasons other than gross misconduct as determined by the Plan Administrator in its sole discretion and the Participant executes a Release of Claims in a form satisfactory to the Plan Administrator.
b.
Upon the Participant’s death or becoming Disabled, the Participant shall vest in accordance with Section 3.7.
c.
Except as provided otherwise in Section 3.7, vesting post-separation, where applicable, shall continue in accordance with the vesting schedule specified at the time of the issuance of the Award.
3.6
Forfeiture of Awards . A Participant shall forfeit all Awards and all amounts due under any Awards if:
a.
He or she has a Separation from Service which meets the terms of Section 3.5 but fails to comply with any Restrictive Covenant without the prior written consent of the Plan Administrator;
b.
He or she has a Separation from Service on a voluntary basis (other than for Good Reason on or prior to the first anniversary of a Change in Control, each as defined in the EIP) and is not Retirement Eligible; or
c.
He or she has a Separation from Service by the Employer and such Separation from Service is classified as being for gross misconduct as determined by the Employer in its sole discretion (even if the Participant is Retirement Eligible at the time of such Separation from Service for gross misconduct).

4



3.7
Special Rules .
a.
Payments on account of Disability . If the Participant is determined to be Disabled, the Award shall become vested in full and the balance of a Participant’s Award, if any, shall be distributed in a single lump sum cash payment to the Participant or the Participant’s Beneficiary or Beneficiaries as soon as practical following the date on which the Participant becomes Disabled but in no event later than 30 days following such date.
b.
Payment upon death . Following a Participant’s death, the Award shall become vested in full and the balance of a Participant’s Award, if any, shall be distributed in a single lump sum cash payment to the Participant’s Beneficiary or Beneficiaries as soon as practical following the date of the Participant’s death but in no event later than 30 days following such date.
c.
Payment upon a change in control of State Street Corporation . If, on or prior to the first anniversary of the consummation of the Change in Control (as defined in the EIP), the Participant’s employment with the Company is terminated for Good Reason (as defined in the EIP) by the Participant or is terminated without Cause (as defined in the EIP) by the Company, any Award awarded on or after February 20, 2014 shall become fully vested on the date of such termination and the balance of the Award, if any, shall be distributed in a single lump sum payment to the Participant as soon as practical following the date of such termination but in no event later than 30 days following such date. For purposes of this Section 3.7(c), termination of employment shall mean a “separation from service” as determined in accordance with Treasury Regulation Section 1.409A-1(h).
3.8
Rehire . No Award that was forfeited shall be reinstated in the event a Participant who has a Separation from Service is subsequently rehired.
3.9
Certain Tax Matters. All payments under the Plan shall be subject to reduction for applicable tax and other legally or contractually required withholdings. The distribution of any vested portion of an Award subject to Section 409A of the Code will not be accelerated or deferred unless specifically permitted or required under Section 409A of the Code. Solely to the extent that a distribution in connection with an Award subject to Section 409A of the Code would be paid pursuant to the terms of this Plan or any Award on account of the Participant’s “Separation from Service” as defined under Section 409A of the Code and the Participant is a “specified employee” as defined under Section 409A, any distribution that otherwise would be paid during the six-month period following such separation from service shall be delayed until the date that is six months and one day after such “Separation from Service.” Any remaining distributions that otherwise would be paid after such six-month period shall be paid at the time set forth in this Plan or any Award. It is intended that each installment of the payments provided under the Plan is a separate “payment” for purposes of Section 409A. In any event, State Street Corporation makes no representations or warranty and will have no liability to any Participant or any other person if any provisions of or payments under this Plan are determined to constitute deferred compensation subject to Section 409A but not to satisfy the conditions of that section.
3.10
Distribution of Taxable Amounts . Notwithstanding the foregoing, if any portion of a Participant’s Award is determined by the Plan Administrator to be includible, by reason of Section 409A of the Code, in a Participant’s or Beneficiary’s income, such portion shall be

5


paid by the Employer (or by the Employers, on an allocated basis determined by the Plan Administrator) to such Participant or Beneficiary.

ARTICLE IV
Administration of Plan

4.1
Plan Administrator . Except with respect to any authority the Committee retains for itself to act as Plan Administrator with respect to some or all of the Participants and/or some or all of the provisions of the Plan and except as the Committee may otherwise determine, the Plan Administrator shall be either or both of (i) the Executive Vice President-Chief Human Resources and Citizenship Officer as from time to time in office, and his or her delegates, and (ii) the Senior Vice President-Head of Global Total Rewards. The Plan Administrator shall have complete discretionary authority to interpret the Plan and to decide all matters under the Plan, including decisions regarding any claim for benefits under the Plan. Such interpretation and decision shall be final, conclusive and binding on all Participants and any person claiming under or through any Participant, in the absence of clear and convincing evidence that the Plan Administrator acted arbitrarily and capriciously. However, no individual acting, directly or by delegation, as the Plan Administrator may determine his or her own rights or entitlements under the Plan. The Plan Administrator shall establish such rules and procedures, maintain such records and prepare such reports as it considers necessary or appropriate to carry out the purposes of the Plan. The Plan Administrator may delegate to such employees or other persons as it determines such of its duties or responsibilities as it deems appropriate.
4.2
Outside Services . The Plan Administrator may engage counsel and such clerical, financial, investment, accounting, and other specialized services as the Plan Administrator may deem necessary or appropriate in the administration of the Plan. The Plan Administrator shall be entitled to rely upon any opinions, reports, or other advice furnished by counsel or other specialists engaged for that purpose and, in so relying, shall be fully protected in any action, determination, or omission made in good faith.
4.3
Indemnification . To the extent permitted by law and not prohibited by its charter and by-laws, State Street Corporation will indemnify and hold harmless every person serving (directly or by delegation) as Plan Administrator and the estate of such an individual if he or she is deceased from and against all claims, loss, damages, liability and reasonable costs and expenses incurred in carrying out his or her responsibilities as Plan Administrator, unless due to the gross negligence, bad faith or willful misconduct of such individual; provided, that counsel fees and amounts paid in settlement must be approved by State Street Corporation; and further provided , that this Section 4.3 will not apply to any claims, loss, damages, liability or costs and expenses which are covered by a liability insurance policy maintained by State Street Corporation or by the individual. The provisions of the preceding sentence shall not apply to any corporate trustee, insurance company, investment manager or outside service provider (or to any employee of any of the foregoing) unless the Company otherwise specifies in writing.

ARTICLE V
Amendment, Modification and Termination


6


5.1
Amendment; Termination . By action of the Committee or its delegate, the Company reserves the absolute right at any time and from time to time to amend the Plan or any outstanding Award for any purpose which may at the time be permitted by law, and may at any time terminate the Plan; provided that any distributions upon a termination and liquidation of the Plan shall be done in accordance with the requirements of Treas. Regs. § 1.409A-3(j)(4)(ix); provided, further, that except as otherwise expressly provided in the Plan, the Committee may not, without the Participant’s consent, alter the terms of an outstanding Award so as to affect materially and adversely the Participant’s rights under the Award, unless the Committee expressly reserved the right to do so at the time of the Award. In addition, subject to the other provisions of this Section 5.1, the Plan Administrator shall have the authority at any time and from time to time to make amendments to the Plan or outstanding Awards (in general or with respect to one or more individual Participants or Beneficiaries) that do not materially increase the financial obligations of the Company.

ARTICLE VI
Miscellaneous Provisions

6.1
Source of Payments . All payments hereunder to Participants and their Beneficiaries shall be paid from the general assets of the Company, including for this purpose, if the Company in its sole discretion so determines, assets of one or more trusts established to assist in the payment of benefits hereunder. Any trust established pursuant to the preceding sentence shall provide that trust assets remain subject to the Company’s general creditors in the event of insolvency or bankruptcy and shall otherwise contain such terms as are necessary to ensure that they do not constitute a “funding” of the Plan for purposes of the Code.
6.2
No Warranties; No Liability . Neither the Plan Administrator nor any Employer warrants or represents in any way that the value of a Participant’s Award will increase or not decrease. No individual acting as a director, officer, employee or agent of the Company will be liable to a Participant, Beneficiary or any other person for any action, including any Award forfeiture or discretionary action taken pursuant to this Plan, an Award Agreement or any related implementing policy or procedure of the Company.
6.3
Inalienability of Benefits . Except as required by law, no benefit under, or interest in, the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any attempt to do so shall be void.
6.4
Reclassification of Employment Status . Notwithstanding anything herein to the contrary, an individual who is not characterized or treated as a common law employee by an Employer shall not be eligible to participate in the Plan notwithstanding any determination of employee status by the Internal Revenue Service, a court of competent jurisdiction or otherwise.
6.5
Application of Local Law. Participation in the Plan and the issuance and payment of any Award under the Plan shall be subject to any special terms and conditions for the Participant’s country of residence (and country of employment, if different), as may be set forth in an addendum to an Award Agreement or otherwise in writing. The Plan Administrator reserves the right to impose other requirements on participation in the Plan, to the extent the Plan Administrator, in its sole discretion, determines that such other

7


requirements are necessary or advisable in order to comply with local law. To the extent a court or tribunal of competent jurisdiction determines that any provision of the Plan is invalid or unenforceable, in whole or in part, the Plan Administrator, in its sole discretion, shall have the power and authority to revise or strike such provision to the extent necessary to make it and the other provisions of the Plan valid and enforceable to the full extent permitted under local law. In the case of a Participant who is a local national of and employed in a country that is a member of the European Union, the grant of the Award and the terms and conditions governing the Award are intended to comply with the age discrimination provisions of the EU Equal Treatment Framework Directive, as implemented into local law (the “Age Discrimination Rules”). To the extent a court or tribunal of competent jurisdiction determines that any provision of the Award is invalid or unenforceable, in whole or in part, under the Age Discrimination Rules, the Company, in its sole discretion, shall have the power and authority to revise or strike such provision to the minimum extent necessary to make the provision and the Award valid and enforceable to the full extent permitted under local law.
6.6
Expenses. The Employer shall pay all costs and expenses incurred in operating and administering the Plan.
6.7
No Right of Employment . Nothing contained herein, or any action taken under the provisions hereof, shall be construed as giving any Participant the right to be retained in the employ of an Employer.
6.8
Headings . The headings of the sections in the Plan are placed herein for convenience of reference, and, in the case of any conflict, the text of the Plan, rather than such heading, shall control.
6.9
Construction . The Plan shall be construed, regulated, and administered in accordance with the laws of the Commonwealth of Massachusetts and applicable federal laws.



IN WITNESS WHEREOF, the Company has caused this instrument to be executed by its duly authorized officer on the 20th day of February, 2014.

STATE STREET CORPORATION



By: _/s/ Alison Quirk___________
Executive Vice President - Chief Human Resources and Citizenship Officer


8


    

STATE STREET CORPORATION
2006 EQUITY INCENTIVE PLAN

2015 Deferred Stock Award Agreement (Regulatory)

Subject to your acceptance of the terms set forth in this agreement (“Agreement”), State Street Corporation (“Company”) has awarded you, under the State Street Corporation 2006 Equity Incentive Plan, as amended (“Plan”), and pursuant to this Agreement and the terms set forth herein (“Award”), a contingent right to receive the number of shares of Stock (“Deferred Shares”) as set forth in the information pertaining to this Award on the website (“Website”) maintained by the Equity Administrator (Fidelity or another party designated by the Company) (“Statement”). Copies of the Plan and of the Company’s U.S. Prospectus are located on the Website for your reference, and your acceptance of this Award constitutes your acknowledgement that you have read and understood the Plan and such Prospectus. The provisions of the Plan are incorporated herein by reference, and all terms used herein shall have the meaning given to them in the Plan, except as otherwise expressly provided herein. In the event of any conflict between the provisions of this Agreement and the provisions of the Plan, the provisions of the Plan shall control.
The terms of your Award, are as follows:
1.
Grant of Deferred Shares .
To be entitled to any payment under this Award, you must accept your Award and in so doing agree to comply with the terms and conditions of this Agreement and Appendix A (which is incorporated into, and forms a material and integral part of, this Agreement). Failure to accept this Award within 60 days following the posting of this Agreement on the Equity Administrator website will result in forfeiture of this Award. 1 Subject to the terms and conditions of this Agreement, your right to receive shares of Stock shall vest according to the vesting schedule set forth in your Statement. The term “vest” as used herein means the lapsing of certain (but not all) restrictions described herein and in the Plan with respect to one or more Deferred Shares. To vest in all or any portion of this Award as of any date, you must have been continuously employed with the Company or any Subsidiary from and after the date hereof and until (and including) the applicable vesting date, except as otherwise provided herein.
This Award is subject to any forfeiture, compensation recovery or similar requirements under applicable law and related implementing regulations and related implementing policies and practices of the Company or its relevant Subsidiaries in effect from time to time. In the event that under any applicable law or related implementing regulations, the Administrator is required to reduce or cancel any amount remaining to be paid, or to recover any amount previously paid, with respect to this Award, or to otherwise impose or apply restrictions on this Award or shares of Stock subject hereto, it shall, in its sole discretion, be authorized to do so.
2.
Payment of Stock; Shareholder Rights .
Upon the vesting of Deferred Shares, the Company will issue and transfer to you, no later than 60 days following such vesting dates, the number of shares of Stock specified in the vesting schedule in your Statement. Prior to that time you will have no rights as a shareholder with respect to the Deferred Shares. Without limiting the foregoing, prior to the issuance and transfer to you of shares of Stock pursuant to this Agreement, you will have no right to receive dividends or amounts in lieu of dividends with respect to Deferred Shares and no right to vote Deferred Shares. The Company’s obligation to issue and transfer Stock in the future pursuant to this Agreement is an unsecured and unfunded contractual obligation.
_________________________
1 For purposes of clarity the 60 day period shall run from date of delivery of your Statement. Should the end of this period fall on a non-business day this period shall extend until the next succeeding business day.

1



3.
Identified Staff Holding Requirement .
Notwithstanding anything herein to the contrary, you agree and covenant that, as a condition to the receipt of this Award and the payment of the Deferred Shares hereunder, in the event the Company or any Subsidiary notifies you at any time before or after this Award is made (but before it has vested) that you have been designated Identified Staff for purposes of Capital Requirements Directives III or IV (or any implementing or successor rule or regulation, including the rules and regulations of the United Kingdom Financial Conduct Authority or Prudential Regulatory Authority (“PRA”)), you will not sell or otherwise transfer any shares of Stock subject to this Award until the date that is at least six months and one day after the vesting date of such shares, except that (1) you shall be permitted to sell, upon such vesting date, a number of shares of Stock sufficient to pay applicable tax and social security withholding, if any, with respect to such vesting (or, alternatively, if your Employer withholds such shares pursuant to Section 9 of this Agreement, the requirements in this Section 3 not to sell or otherwise transfer any shares shall only apply to the number of such shares delivered to you (i.e., after such withholding of shares)), (2) transfers by will or pursuant to the laws of descent or distribution are permitted and (3) this holding requirement shall not apply to such portion of the shares, if any, as was awarded with respect to a period of time, as determined by the Company in its discretion, during which you were not subject to such holding requirement.  Any attempt by you (or in the case of your death, by your beneficiary) to assign or transfer shares of Stock subject to this Award, either voluntarily or involuntarily, contrary to the provisions hereof, shall be null and void and without effect.  The Company may, in its sole discretion, impose restrictions on the assignment or transfer of shares of Stock consistent with the provisions hereof, including, without limitation, by or through the transfer agent for such shares or by means of legending Stock certificates or otherwise.
4.
General Circumstances of Forfeiture .
(a) You will immediately forfeit any and all rights to receive shares of Stock under this Agreement, less any shares that have previously vested, in the event (i) you cease to be employed by the Company and its Subsidiaries due to Circumstances of Forfeiture or (ii) the Company or the Subsidiary that employs you (“Employer”), in its sole discretion, determines that circumstances prior to the date on which you ceased to be employed by the Company and its Subsidiaries for any reason constituted grounds for an involuntary termination constituting Circumstances of Forfeiture.
(b) If your employment terminates by reason of Retirement or Disability or for reasons other than for Circumstances of Forfeiture, then unless accelerated as provided in Section 8, your unvested right to receive shares of Stock hereunder shall continue to vest in accordance with the vesting schedule detailed in your Statement and subject to the terms and conditions of this Agreement.
(c) For purposes hereof:
(i) “Circumstances of Forfeiture” means the termination of your employment with the Company and its Subsidiaries either (A) voluntarily (other than (x) Retirement or (y) for Good Reason on or prior to the first anniversary of a Change in Control (each as defined in the Plan)) or (B) involuntarily for reasons determined by the Company or the relevant Subsidiary in its sole discretion to constitute “gross misconduct” (including while you are Retirement eligible).
(ii) “Retirement” means your attainment of age 55 and completion of 5 years of service with the Company and its Subsidiaries.
(iii) “Disability” means (A) your inability to engage in any substantially gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in your death or can be expected to last for a continuous period of not less than 12 months (an “impairment”) or (B) if you, as a result of the impairment described in subparagraph (A), receive income replacement benefits for a period of not less than 3 months under a plan of the Company or a Subsidiary.

2


5.
Malus-Based Forfeiture.
Any amount remaining to be paid in respect of this Award may, in the sole discretion of the Administrator, be reduced or cancelled, in the event that it is determined by the Administrator, in its sole discretion, that your actions exposed the Business to inappropriate risk or risks (including where you failed to timely identify, analyze, assess or raise concerns about such risk or risks, including in a supervisory capacity, where it was reasonable to expect you to do so), and such exposure has resulted or could reasonably be expected to result in a material loss or losses that are or would be substantial in relation to the revenues, capital and overall risk tolerance of the Business. The Business shall mean State Street Corporation, together with its direct and indirect subsidiaries on a consolidated basis (“State Street”), or, to the extent you devote substantially all of your business time to a particular business unit (e.g., Global Services Americas, Global Services International, State Street Global Advisors, State Street Global Markets, State Street Global Exchange or State Street Sector Solutions) or business division (e.g., Alternative Investment Solutions, Securities Lending, etc.), Business shall refer to such business unit or business division.

6.
Identified Staff Malus-Based Forfeiture and Clawback.
(a) In the event the Company or any Subsidiary notifies you at any time before or after this Award is made that you have been designated Identified Staff for purposes of the United Kingdom Prudential Regulatory Authority Remuneration Code, you acknowledge and agree that this Award is subject to the provisions of this Section 6 for a period of seven (7) years from the date this Award is granted. By accepting this Award on the Website, you consent to making a payment to the Employer in the event of a PRA Clawback.

(b) If the Company determines that a PRA Forfeiture Event has occurred it may elect to reduce or cancel all or part of any amount remaining to be paid in respect of this Award (“PRA Malus-Based Forfeiture”).

(c) If the Company determines that a PRA Clawback Event has occurred it may require the repayment by you of (or otherwise seek to recover from you) all or part of any compensation paid to you in respect of this Award (“PRA Clawback”).

(d) The Company may produce guidelines from time to time in respect of its operation of the provisions of this Section 6. The Company intends to apply such guidelines in deciding whether and when to effect any reduction, cancellation or recovery of compensation but, in the event of any inconsistency between the provisions of this Section 6 and any such guidelines, this Section 6 shall prevail. Such guidelines do not form part of any employee’s contract of employment, and the Company may amend such guidelines and their application at any time.

(e) For the purposes of this Section 6:

(i) A “PRA Forfeiture Event” means a determination by the Company, in its sole discretion, that (A) there is reasonable evidence of employee misbehavior or material error; or (B) the Company, one of its Subsidiaries or a relevant business unit has suffered a material downturn in its financial performance; or (C) the Company, one of its Subsidiaries or a relevant business unit has suffered a material failure of risk management.

(ii) A “PRA Clawback Event” means a determination by the Company, in its sole discretion, that either (A) there is reasonable evidence of employee misbehavior or material error or (B) the Company, one of its Subsidiaries or a relevant business unit has suffered a material failure of risk management.

7.
Management Committee Forfeiture and Clawback .
(a) If you are a member of the State Street Corporation Management Committee (“Management Committee”) at the time this Award is made, any amount remaining to be paid in respect of this Award may, in the sole discretion of the Administrator, be reduced or cancelled, in whole or in part, in the event that it is determined by the Administrator, in its sole discretion, that:

3


(i) you engaged in fraud, gross negligence or any misconduct that was materially detrimental to the interests or business reputation of the Company or any of its businesses; or
(ii) as a result of a material financial restatement by State Street contained in a filing with the Securities and Exchange Commission, or miscalculation or inaccuracy in the determination of performance metrics, financial results or other criteria used in determining the amount of this Award, you would have received a smaller or no Award hereunder.
(b) If you are a member of the Management Committee at the time this Award is made, this Award also is subject to compensation recovery as provided herein. Upon the occurrence of an MC Clawback Event within three (3) years after the date of grant of this Award, the Administrator may, in its sole discretion, determine to recover the MC Clawback Amount, in whole or in part. Following such a determination, you agree to immediately repay such compensation, but in no event later than sixty (60) days following such determination, in the form of any shares of Stock delivered to you previously by the Company or cash (or a combination of such shares and cash). For purposes of calculating the value of both (i) the amount of the MC Clawback Amount determined by the Administrator to be recovered and (ii) the amount of such compensation repaid, shares of Stock will be valued in an amount equal to the market value of the Deferred Shares delivered to you under this Award by the Company as determined at the time of such delivery. To the extent not prohibited by applicable law and subject to Section 13 (if applicable), if you fail to comply with any requirement to repay compensation under this Section 7(b), the Administrator may determine, in its sole discretion, in addition to any other remedies available to the Company, that you will satisfy your repayment obligation through an offset to any future payments owed by the Company or any of its Subsidiaries to you.
(c) For purposes of this Section 7:
(i) “MC Clawback Event” means a determination by the Administrator, in its sole discretion, with respect to any event or series of related events that you engaged in fraud or willful misconduct that directly resulted in either (A) financial or reputational harm that is material to State Street and resulted in the termination of your employment for Cause (as defined in the Plan) by the Company and its Subsidiaries (or, following a cessation of your employment for any other reason, circumstances constituting grounds for such termination for Cause) or (B) a material financial restatement by State Street contained in a filing with the Securities and Exchange Commission. For the avoidance of doubt and as applicable, an MC Clawback Event includes any determination by the Administrator that is based on circumstances prior to the date on which you cease to be employed by the Company and its Subsidiaries for any reason, even if the determination by the Administrator occurs after such cessation of employment.
(ii) “MC Clawback Amount” means (A) with respect to an MC Clawback Event described in Section 7(c)(i)(A), the value of the Deferred Shares, if any, that were delivered to you under this Award by the Company during the period of three (3) years immediately prior to such MC Clawback Event or (B) with respect to an MC Clawback Event described in Section 7(c)(i)(B), the value of the Deferred Shares, if any, that were delivered to you under this Award by the Company (x) during the period of three (3) years immediately prior to the date such financial restatement is contained in a filing with the Securities and Exchange Commission and (y) that represents an amount that, in the sole discretion of the Administrator, exceeds the amount you would have been awarded under this Award had the financial statements of State Street been accurate (reduced, in the case of both of the immediately preceding clauses (A) and (B), by any portion of this Award that was previously recovered by the Company under Section 7(b)).
8.
Acceleration of Vesting upon Certain Events.
(a) Notwithstanding anything in this Agreement to the contrary, if you die while employed by the Company or any of its Subsidiaries, or in the event that you die after your employment has terminated for a reason permitting continued vesting pursuant to subparagraph 4(b) above, the Deferred Shares shall become fully vested on the date of your death and the Company will issue and pay to your beneficiary (designated in accordance with the terms of the Plan) within 60 days of your death any shares of Stock under this Award that you had not otherwise had a right to receive prior to your death. In addition, Sections 5, 6 and 7 of this Agreement shall cease to apply upon

4


your death at any time provided, however, if a PRA Clawback Event or an MC Clawback Event has occurred pursuant to Section 6 or 7, respectively, prior to your death, any amount that the Administrator has made a determination to recover under either such Section shall continue to be payable to the Company.
(b) Notwithstanding anything in this Agreement to the contrary, if your employment with the Company and its Subsidiaries is terminated by the Company or the applicable Subsidiary without Cause (as defined in the Plan), by you for Good Reason (as defined in the Plan) or on account of your Retirement, in each case, on or prior to the first anniversary of a Change in Control as defined in the Plan (and provided that such Change in Control constitutes a “change in control event” as that term is defined under Section 409A of the Internal Revenue Code of 1986, as amended, (“Code”) and Treasury Regulations 1.409A-3(i)(5)) prior to the full settlement of your Award, this Award shall become fully vested on the date of such termination and the Company will promptly issue and pay to you within 30 days of such termination any shares under this Award that you had not otherwise had a right to receive prior to such termination. For purposes of this Section 8(b), termination of employment shall mean a “separation from service” as determined in accordance with Treasury Regulation Section 1.409A-1(h).
9.
Withholding.
Regardless of any action the Company or the Employer takes with respect to any or all income tax (including U.S. federal, state and local taxes and/or non-U.S. taxes), social insurance, payroll tax, payment on account of other tax-related withholding (“Tax-Related Items”), you acknowledge that the ultimate liability for all Tax-Related Items legally due from you is and remains your responsibility. Furthermore, neither the Company nor your Employer (a) makes any representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of this Award, including the grant of this Award, the vesting of this Award and the issuance of shares of Stock in settlement, the subsequent sale of any shares of Stock acquired upon vesting, the cancellation, forfeiture or repayment of any shares of Stock (or cash in lieu thereof) or the receipt of any dividends or dividend equivalents; or (b) commits to structure the terms of the grant, vesting, settlement, cancellation, forfeiture, repayment or any other aspect of this Award to reduce or eliminate your liability for Tax-Related Items.
Prior to the delivery of the Stock upon the vesting of the Deferred Shares, if any taxing jurisdiction requires withholding of Tax-Related Items, the Company may withhold a sufficient number of whole shares of Stock otherwise issuable upon the vesting of this Award that have an aggregate fair market value sufficient to pay the minimum Tax-Related Items required to be withheld with respect to this Award; provided, however, that the total tax withholding cannot exceed the Employer’s minimum statutory withholding obligations (based on minimum statutory withholding rates for federal and state tax purposes, including payroll taxes, that are applicable to such supplemental taxable income). The cash equivalent of the shares of Stock withheld will be used to settle the obligation to withhold the Tax-Related Items (determined in the Company’s reasonable discretion). No fractional shares of Stock will be withheld or issued pursuant to the grant of the Deferred Shares and the issuance of Stock hereunder. Alternatively, the Company and/or your Employer may, in its discretion, withhold any amount necessary to pay the Tax-Related Items from your salary or other amounts payable to you, with no withholding in shares of Stock. In the event the withholding requirements are not satisfied through the withholding of shares of Stock or through your salary or other amounts payable to you, no shares of Stock will be issued upon vesting of this Award unless and until satisfactory arrangements (as determined by the Company or your Employer) have been made by you with respect to the payment of any Tax-Related Items which the Company or your Employer determines, in its sole discretion, must be withheld or collected with respect to such Award. By accepting this Award, you expressly consent to the withholding of shares of Stock and/or cash as provided for hereunder. All other Tax-Related Items related to this Award and any Stock delivered in payment thereof, including the extent to which the Company or your Employer does not so-withhold shares of Stock and/or cash, are your sole responsibility.
10.
Changes in Capitalization or Corporate Structure.
The number and kind of Deferred Shares subject to this Award, and the number and kind of shares of Stock to be paid in satisfaction of the Company’s obligations hereunder, shall be subject to adjustment in accordance with Section 7(b) of the Plan.

5


11.
Employee Rights.
Nothing in this Award shall be construed to guarantee you any right of employment with the Company or any Subsidiary or to limit the discretion of any of them to terminate your employment at any time, with or without cause.
12.
Non-Transferability, Etc.
This Award shall not be transferable other than (1) by will or the laws of descent and distribution or (2) pursuant to the terms of a court-approved domestic relations order, official marital settlement agreement or other divorce or settlement instrument satisfactory to the Company in its sole discretion. In the case of transfer pursuant to (2) above, this Award shall remain subject to all the terms and conditions contained in the Plan and this Agreement, including vesting and forfeiture conditions. Any attempt by you (or in the case of your death, by your beneficiary) to assign or transfer this Award, either voluntarily or involuntarily, contrary to the provisions hereof, shall be null, void and without effect and shall render this Award itself null and void.
13.
Compliance with Section 409A of the Code.
(a)      The provisions of this Award are intended to be exempt from, or compliant with, Section 409A of the Code, and shall be construed and interpreted consistently therewith. Notwithstanding the foregoing, neither the Company nor any Subsidiary shall have any liability to you or to any other person if this Award is not so exempt or compliant.
(b)      If and to the extent (i) any portion of any payment, compensation or other benefit provided to you pursuant to the Plan in connection with your employment termination constitutes “nonqualified deferred compensation” within the meaning of Section 409A of the Code and (ii) you are a specified employee as defined in Section 409A(a)(2)(B)(i) of the Code, in each case as determined by the Company in accordance with its procedures, by which determinations you (through accepting this Award) agree that you are bound, such portion of the payment, compensation or other benefit shall not be paid before the day that is six months plus one day after the date of “separation from service” (as determined under Section 409A of the Code) (“New Payment Date”), except as Section 409A of the Code may then permit. The aggregate of any payments that otherwise would have been paid to you during the period between the date of separation from service and the New Payment Date shall be paid to you in a lump sum on such New Payment Date, and any remaining payments will be paid on their original schedule.
14.
Entire Agreement.
The Plan and this Agreement constitute the complete understanding and agreement between the parties to this Agreement with respect to this Award, and supersede and cancel any previous oral or written discussions, agreements or representations regarding this Award or the Deferred Shares; provided, however, that any conditions to the receipt and retention of this Award or the payment of the Deferred Shares contained in any prior written document describing this Award to you shall remain in full force and effect in accordance with their terms.
15.
Miscellaneous.
(a) The grant of this Award is a one-time benefit and does not create any contractual or other right to receive an award, compensation or benefits in lieu of an award in the future.
(b) Sections 4, 5, 6 and 7 of this Agreement are intended to comply with and meet the requirements of applicable law and related implementing regulations regarding incentive compensation and will be interpreted and administered accordingly as well as in accordance with any implementing policies and practices of the Company or its relevant Subsidiaries in effect from time to time. In making determinations under such Sections, the Company, the relevant Subsidiary or the Administrator, as applicable, may take into account, in its sole discretion, all factors that it deems appropriate or relevant. Furthermore, the Company, the relevant Subsidiary or the Administrator may, as applicable, take any and all actions it deems necessary or appropriate in its sole discretion, as permitted by applicable law, to implement the intent of Sections 4, 5, 6 and 7, including suspension of vesting and payment pending an investigation or the determination by the Company, the relevant Subsidiary or the Administrator, as applicable. Each such Section is without

6


prejudice to the provisions of the other Sections, and the Company, the relevant Subsidiary or the Administrator, as applicable, may elect or be required to apply any or all of the provisions of Sections 4, 5, 6 and 7 to this Award.
(c) The Company reserves the right to impose other requirements on this Award, any shares of Stock acquired pursuant to this Award, and your participation in the Plan, to the extent the Company determines, in its sole discretion, that such other requirements are necessary or advisable in order to comply with applicable laws or regulations or to facilitate the administration of the Plan. Such requirements may include (but are not limited to) requiring you to sign any agreements or undertakings that may be necessary to accomplish the foregoing.
(d) Your participation in the Plan is voluntary. The value of this Award is an extraordinary item of compensation, and this Award is not part of your normal or expected compensation for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long-service awards, pension, or retirement benefits or similar payments.
(e) The Company or any of its Subsidiaries may, in its sole discretion, decide to deliver any documents related to this Award by electronic means. You hereby consent to receive such documents by electronic delivery and agree to participate in the Plan through an on-line or electronic system, including the Website, established and maintained by the Company, any of its Subsidiaries, Equity Administrator or another party designated by the Company.
(f) By accepting this Award electronically, (i) you will be deemed to have acknowledged and agreed that you are bound by the terms of this Agreement and the Plan and that you and this Award are subject to all of the rights, power and discretion of the Company, its Subsidiaries and the Administrator set forth in this Agreement and the Plan; and (ii) this Award is deemed accepted by the Company and the Company shall be deemed to be bound by the terms of this Agreement.
(g) You acknowledge and agree that it is your express intent that this Agreement, the Plan and all other documents, notices and legal proceedings entered into, given or instituted pursuant to this Award, be drawn up in English. If you have received the Agreement, the Plan or any other documents related to this Award translated into a language other than English, and if the meaning of the translated version is different than the English version, the English version will control.
(h) Notwithstanding any provisions of this Agreement to the contrary, this Award shall be subject to any special terms and conditions for your country of residence (and country of employment, if different), as may be set forth in an applicable Addendum to the Agreement. Further, if you transfer residence and/or employment to another country reflected in an Addendum to the Agreement, the special terms and conditions for such country will apply to you to the extent the Company or the relevant Subsidiary determines, in its sole discretion, that the application of such terms are necessary or advisable in order to comply with applicable laws or regulations or to facilitate administration of the Plan. Any such Addendum is hereby incorporated into, and forms a part of, this Agreement.
(i) No individual acting as a director, officer, employee or agent of the Company or any of its Subsidiaries will be liable to you or any other person for any action, including any Award forfeiture, Award recovery or other discretionary action taken pursuant to this Agreement or any related implementing policy or procedure of the Company.
(j) This Agreement, including Appendix A, shall be subject to and governed by the laws of the Commonwealth of Massachusetts, without regard to that commonwealth’s conflicts of law principles.

7






APPENDIX A
    

In consideration of the opportunity to participate in the Plan and the granting to you of an Award under the Plan, you expressly agree to comply with the terms and conditions of this Appendix A, irrespective of whether or not any amount has been forfeited, paid, delivered or repaid, under this Award at any time, including the time you separate from service with the Company and its Subsidiaries. In addition, your eligibility to participate in the Plan in the future, including any potential future grants of awards under the Plan (or any successor equity incentive plan of the Company), is subject to and conditioned on your compliance with the terms and conditions of this Appendix A. All terms used herein shall have the meaning given to them in the Plan, except as otherwise expressly provided herein.
I. Confidentiality . You acknowledge that you have access to Confidential Information which is not generally known or made available to the general public and that such Confidential Information is the property of the Company, its Subsidiaries or its or their licensors, suppliers or customers. You agree specifically as follows, in each case whether during your employment or following the termination thereof:
(a) You will always preserve as confidential all Confidential Information, and will never use it for your own benefit or for the benefit of others; this includes that you will not use the knowledge of activities or positions in clients’ securities portfolio accounts or cash accounts for your own personal gain or for the gain of others.
(b) You will not disclose, divulge, or communicate Confidential Information to any unauthorized person, business or corporation during or after the termination of your employment with the Company and its Subsidiaries. You will use your best efforts and exercise due diligence to protect, to not disclose and to keep as confidential all Confidential Information.
(c) You will not initiate or facilitate any unauthorized attempts to intercept data in transmission or attempt entry into data systems or files. You will not intentionally affect the integrity of any data or systems of the Company or any of its Subsidiaries through the introduction of unauthorized code or data, or through unauthorized deletion or addition. You will abide by all applicable Corporate Information Security procedures.
(d) Upon the earlier of request or termination of employment, you agree to return to the Company or the relevant Subsidiaries, or if so directed by the Company or the relevant Subsidiaries, destroy any and all copies of materials in your possession containing Confidential Information.
The terms of this Appendix A do not apply to any information which is previously known to you without an obligation of confidence or without breach of this Appendix A, is publicly disclosed (other than by a violation by you of the terms of this Appendix A) either prior to or subsequent to your receipt of such information, or is rightfully received by you from a third party without obligation of confidence and other than in relation to your employment with the Company or any of its Subsidiaries.
II. Assignment and Disclosure . You acknowledge that in the course of your employment you assigned or will assign all of your rights, title and interest in any work performed by you and all deliverables and products created by you or jointly by you and any other party to your Employer, including any track record

8


you may have as investment manager or fund manager. You will not pursue any ownership or other interest in such work product or deliverables including any rights as to copyright, trademark or patent.
(a) You will disclose promptly and in writing to the Company or your Employer all inventions and creative works, whether or not patentable or copyrightable, conceived or created solely or jointly by you during the period of your employment which relate to State Street’s business, and you hereby assign and agree to assign all of your interest in them to your Employer. You will execute all papers, at the Company’s or your Employer’s expense, which the Company or your Employer shall deem necessary to apply for and obtain domestic and foreign patents, copyright and other registrations, and to protect and enforce the Company’s or any of its Subsidiaries’ interest in them.
(b) These obligations shall continue beyond the period of your employment with respect to inventions or creations conceived or made by you during the period of your employment.
III. Non-Solicitation . If you hold a position title of Vice President or higher, you understand, acknowledge and agree that during your employment and for a period of six (6) months from the date of termination of your employment you will not, without the prior written consent of the Company or your Employer:
(a) solicit, directly or indirectly (other than through a general solicitation of employment not specifically directed to employees of the Company or any of its Subsidiaries), the employment of, hire or employ, recruit, or in any way assist another in soliciting or recruiting the employment of, or otherwise induce the termination of the employment of, any person who then or within the preceding twelve (12) months was an officer of the Company or any of its Subsidiaries (excluding any such officer whose employment was involuntarily terminated); or
(b) engage in the Solicitation of Business from any Client on behalf of any person or entity other than the Company or any of its Subsidiaries.
Section (a) above shall be deemed to exclude the words “hire or employ” if your work location is in California or New York, and shall be construed and administered accordingly.
For purposes of this Section III, “officer” shall include any person holding a position title of Assistant Vice President or SSgA Principal 4 or higher. Notwithstanding the foregoing, this Section III shall be inapplicable following a Change in Control as defined in the Plan.
IV. Notice Period Upon Resignation . If you hold a position title of Managing Director or higher, you agree to the notice provisions in this Section IV. In order to permit the Company and its Subsidiaries to safeguard their business interests and goodwill in the event of your resignation from employment, including by arranging to transition your duties and any client responsibilities or relationships in an orderly manner or, if necessary, to hire a replacement for you, you agree as follows:
(a) You agree to give your Employer 60 days’ notice (“Notice Period”) before terminating your employment with your Employer for any reason. Your compliance during the Notice Period with (i) Section III of this Appendix A, (ii) a post-employment non-solicitation or non-competition provision contained in any other agreement you entered into with the Company or any of its Subsidiaries or (iii) any other post-employment non-solicitation or non-competition covenant otherwise imposed as a condition precedent to the receipt of compensation or benefits under other awards, plans or arrangements of the Company or any of its Subsidiaries, in each case will be applied towards satisfaction of the restriction period in Section III or in such other agreement or restrictive covenant.
(b) During the Notice Period, you agree to cooperate with the Company and its Subsidiaries and to provide the Company and its Subsidiaries with any requested information to assist the Company and its Subsidiaries with transitioning your duties, accomplishing the Company’s and its Subsidiaries’ business, and/or preserving its or their client relationships. In its sole discretion, during the Notice Period, the Company or your Employer may either ask you to continue performing your regular duties or may place you on a partial or complete leave of absence and relieve you of some or all of your duties and responsibilities. In these circumstances, you shall remain an employee of your Employer at all times, shall continue to receive your regular salary and benefits (although you will not be eligible

9


for any new incentive compensation awards) and the Company’s and the relevant Subsidiaries’ corporate and other policies will continue to apply to you.
(c) You agree that should you breach this Section IV and fail to provide notice as required herein, in addition to remedies under law, the Company or the relevant Subsidiaries shall be entitled to seek injunctive relief restricting you from employment for a period equal to the period for which notice of resignation was required but not provided.
(d) In its sole discretion, at any time during the Notice Period, the Company or your Employer may release you from your obligations under this Section IV, and allow for the immediate termination of your employment, subject to your obligations under the other Sections of this Appendix A.
Any termination of your employment pursuant to this Section IV, including by the Company or your Employer during the Notice Period as provided in paragraph (d), will be a voluntary termination constituting Circumstances of Forfeiture for purposes of this Agreement.
Notwithstanding the foregoing, if you hold the position title of Executive Vice President, this Section IV shall not apply in the event you terminate your employment for Good Reason on or prior to the first anniversary of a Change in Control (each as defined in the Plan).
V. Definitions . For the purpose of this Appendix A, the following terms are defined as follows:
(a) “Client” means a present or former customer or client of the Company or any of its Subsidiaries with whom you have had, or with whom persons you have supervised have had, substantive and recurring personal contact during your employment with the Company or any of its Subsidiaries. A former customer or client means a customer or client for which the Company or any of its Subsidiaries stopped providing all services within twelve months prior to the date your employment with your Employer ends.
(b) “Confidential Information” includes but is not limited to all trade secrets, trade knowledge, systems, software, code, data documentation, files, formulas, processes, programs, training aids, printed materials, methods, books, records, client files, policies and procedures, client and prospect lists, employee data and other information relating to the operations of the Company or any of its Subsidiaries and to its or any of their customers, and any and all discoveries, inventions or improvements thereof made or conceived by you or others for the Company or any of its Subsidiaries whether or not patented or copyrighted, as well as cash and securities account transactions and position records of clients, regardless of whether such information is stamped “confidential.”
(c) “Solicitation of Business” means the attempt through direct or indirect contact by you or by any other person or entity with your assistance to induce a Client to:
(i) transfer the Client’s business from the Company or any of its Subsidiaries to any other person or entity;
(ii) cease or curtail the Client’s business with the Company or any of its Subsidiaries; or
(iii) divert a business opportunity from the Company or any of its Subsidiaries to any other person or entity, which business or business opportunity concerns or relates to the business with which you were actively connected during your employment with the Company or any of its Subsidiaries.
(d) “Subsidiaries” means any entity controlling, controlled by or under common control with the Company, including direct and indirect subsidiaries.
VI. Post-Employment Cooperation . You agree that, following the termination of your employment with the Company and its Subsidiaries, you will reasonably cooperate with the Company or the relevant Subsidiary with respect to any matters arising during or related to your employment, including but not limited to reasonable cooperation in connection with any litigation, governmental investigation, or regulatory or other proceeding (even if such litigation, governmental investigation, or regulatory or other proceeding arises following the date of this Award to which this Appendix A is appended or following the termination of your employment). The Company or any of its Subsidiaries shall reimburse you for any reasonable out-of-pocket

10


and properly documented expenses you incur in connection with such cooperation.
VII. Non-Disparagement . You agree that during your employment and following the termination thereof you shall not make any false, disparaging, or derogatory statements to any media outlet (including Internet-based chat rooms, message boards, any and all social media, and/or web pages), industry groups, financial institutions, or to any current, former or prospective employees, consultants, clients, or customers of the Company or its Subsidiaries regarding the Company, its Subsidiaries or any of their respective directors, officers, employees, agents, or representatives, or about the business affairs and financial condition of State Street or any of its Subsidiaries.
VIII. Enforcement . You acknowledge and agree that the provisions contained in this Appendix A are necessary to the protection of, among other things, the Company’s and its Subsidiaries’ proprietary information, trade secrets and good will, and are material and integral to the undertakings of the Company under this Award to which this Appendix A is appended. You further agree that the Company and its Subsidiaries will be irreparably harmed in the event such provisions are not performed in accordance with their specific terms or are otherwise breached. Accordingly, if you fail to comply with such provisions, the Company or any of its Subsidiaries shall be entitled to preliminary or permanent injunctive or other equitable relief or remedy without the need to post bond, and to recover their reasonable attorney’s fees and costs incurred in securing such relief, in addition to, and not in lieu of, any other relief or remedy at law to which it or they may be entitled.
IX. No Waiver . No delay by the Company or any of its Subsidiaries in exercising any right under this Appendix A shall operate as a waiver of that right or of any other right. Any waiver or consent as to any of the provisions herein provided by the Company or any of its Subsidiaries must be in writing, is effective only in that instance, and may not be construed as a broader waiver of rights or as a bar to enforcement of the provision(s) at issue on any other occasion.
X. Relationship to Other Agreements . This Appendix A supplements and does not limit, amend or replace any other obligations you may have under applicable law or any other agreement or understanding you may have with the Company or any of its Subsidiaries or pursuant to the applicable policies of the Company or any of its Subsidiaries, whether such additional obligations have been agreed to in the past, or are agreed to in the future.
XI. Interpretation of Business Protections. The representations and agreements made by you in paragraphs (I) - (VIII) above shall be construed and interpreted in any judicial or other adjudicatory proceeding to permit their enforcement to the maximum extent permitted by law, and each of the provisions to this Appendix A is severable and independently enforceable without reference to the enforcement of any other provision. If any restriction set forth in this Appendix A is found by any court of competent jurisdiction to be unenforceable because it extends for too long a period of time or over too great a range of activities or in too broad a geographic area, it shall be interpreted to extend only over the maximum period of time, range of activities or geographic area as to which it may be enforceable.
XII. Assignment . Except as provided otherwise herein, this Appendix A shall be binding upon and inure to the benefit of both parties and their respective successors and assigns, including any person or entity which acquires the Company or its assets or business; provided, however, that your obligations are personal and may not be assigned by you.
XIII. Electronic Acceptance . By accepting this Award electronically, you will be deemed to have acknowledged and agreed that you are bound by the terms of this Appendix A, and it shall be deemed to have been accepted by the Company.




11




    
Exhibit 10.8
STATE STREET CORPORATION
2006 EQUITY INCENTIVE PLAN
as Amended and Restated (2012)


1.
DEFINED TERMS; EFFECTIVE DATE
Exhibit A, which is incorporated by reference, defines the terms used in the Plan and sets forth certain operational rules related to those terms. The Plan shall take effect on the Effective Date.

2.
PURPOSE
The Plan has been established to advance the interests of the Company by providing for the grant to Participants of Stock-based Awards.

3.
ADMINISTRATION
The Administrator has discretionary authority, subject only to the express provisions of the Plan, to interpret the Plan, determine eligibility for and grant or cancel Awards; determine, modify or waive the terms and conditions, size, or type of any Award, prescribe forms, rules and procedures, and otherwise do all things necessary to carry out the purposes of the Plan. In the case of any Award intended to be eligible for the performance-based compensation exception under Section 162(m), the Administrator will exercise its discretion consistent with qualifying the Award for that exception. Determinations of the Administrator made under the Plan will be conclusive and will bind all parties.
4.
LIMITS ON AWARDS UNDER THE PLAN
(a) Number of Shares . The number of shares of Stock available for delivery in satisfaction of Awards under the Plan shall be determined in accordance with this Section 4(a).
(1) Subject to Section 7(b), the maximum number of shares of Stock that may be delivered in satisfaction of Awards under the Plan shall be 52,500,000 plus the number (not to exceed 8,000,000) of unused Prior Plan shares. For purposes of the preceding sentence, shares of Stock shall be unused Prior Plan shares (i) if they were subject to awards under the Prior Plan, other than restricted stock awards, that were outstanding on the day preceding the Effective Date to the extent such Prior Plan awards are exercised or are satisfied, or terminate or expire, on or after the Effective Date without the delivery of such shares, or (ii) if they were outstanding on the day preceding the Effective Date as restricted stock awards under the Prior Plan and are thereafter forfeited. The number of shares of Stock delivered in satisfaction of an Award shall be, for purposes of the first sentence of this Section 4(a)(1), the number of shares of Stock subject to the Award reduced by the number of shares of Stock (a) withheld by the Company in payment of the exercise price of the Award or in satisfaction of tax withholding requirements with respect to the Award, or (b) awarded under the Plan as Restricted Stock but thereafter forfeited, or (c) made subject to an Award that is exercised or satisfied, or that terminates or expires, without the delivery of such shares.
(2) To the extent consistent with the requirements of Section 422 and with other applicable legal requirements (including applicable stock exchange requirements), Stock issued under awards of an acquired company that are converted, replaced, or adjusted in connection with the acquisition shall not reduce the number of shares available for Awards under the Plan.  
(b) Type of Shares . Stock delivered by the Company under the Plan may be authorized but unissued Stock or previously issued Stock acquired by the Company. No fractional shares of Stock will be delivered under the Plan.
(c) Section 162(m) Limits . Subject to Section 7(b), the maximum number of shares of Stock for which Stock Options may be granted to any person in any calendar year and the maximum number of shares of Stock subject to SARs granted to any person in any calendar year shall each be 2,000,000, and the maximum number of shares subject to other Awards granted to any person in any calendar year shall be 2,000,000 shares. The provisions of this Section 4(c) shall be construed in a manner consistent with Section 162(m).




5. ELIGIBILITY AND PARTICIPATION
The Administrator will select Participants from among those key Employees and directors of, and consultants and advisors to, the Company or its Subsidiaries who, in the opinion of the Administrator, are in a position to make a significant contribution to the success of the Company and its Subsidiaries. Eligibility for ISOs is limited to employees of the Company or of a “parent corporation” or “subsidiary corporation” of the Company as those terms are defined in Section 424 of the Code.
6. RULES APPLICABLE TO AWARDS
(a) All Awards
(1) Award Provisions . The Administrator will determine the terms of all Awards, subject to the limitations provided herein. By accepting any Award granted hereunder, the Participant agrees to the terms of the Award and the Plan. Notwithstanding any provision of this Plan to the contrary, awards of an acquired company that are converted, replaced or adjusted in connection with the acquisition may contain terms and conditions that are inconsistent with the terms and conditions specified herein, as determined by the Administrator.
(2) Term of Plan . No Awards may be made after May 15, 2022, but previously granted Awards may continue beyond that date in accordance with their terms.
(3) Transferability . Neither ISOs nor, except for gratuitous transfers (i.e., transfers for no consideration) to the extent permitted by the Administrator, other Awards may be transferred other than by will or the laws of descent and distribution, and during a Participant’s lifetime ISOs (and, except as the Administrator otherwise expressly provides, other non-transferable Awards requiring exercise) may be exercised only by the Participant.
(4) Vesting, Etc. The Administrator may determine the time or times at which an Award will vest or become exercisable and the terms on which an Award requiring exercise will remain exercisable. Without limiting the foregoing, the Administrator may at any time accelerate the vesting or exercisability of an Award, regardless of any adverse or potentially adverse tax consequences resulting from such acceleration. Unless the Administrator expressly provides otherwise, however, the following rules will apply: immediately upon the cessation of the Participant’s Employment, each Award requiring exercise that is then held by the Participant or by the Participant’s permitted transferees, if any, will cease to be exercisable and will terminate, and all other Awards that are then held by the Participant or by the Participant’s permitted transferees, if any, to the extent not already vested will be forfeited, except that:
(A) subject to (B) and (C) below, all Stock Options and SARs held by the Participant or the Participant’s permitted transferees, if any, immediately prior to the cessation of the Participant’s Employment, to the extent then exercisable, will remain exercisable for the lesser of (i) a period of three months or (ii) the period ending on the latest date on which such Stock Option or SAR could have been exercised without regard to this Section 6(a)(4), and will thereupon terminate;
(B) all Stock Options and SARs held by a Participant or the Participant’s permitted transferees, if any, immediately prior to the Participant’s death, to the extent then exercisable, will remain exercisable for the lesser of (i) the one year period ending with the first anniversary of the Participant’s death or (ii) the period ending on the latest date on which such Stock Option or SAR could have been exercised without regard to this Section 6(a)(4), and will thereupon terminate; and
(C) all Stock Options and SARs held by a Participant or the Participant’s permitted transferees, if any, immediately prior to the cessation of the Participant’s Employment will immediately terminate upon such cessation if the Administrator in its sole discretion determines that such cessation of Employment has resulted for reasons which cast such discredit on the Participant as to justify immediate termination of the Award.
(5) Taxes . The Administrator will make such provision for the withholding of taxes as it deems necessary. The Administrator may, but need not, hold back shares of Stock from an Award or permit a Participant to tender previously owned shares of Stock in satisfaction of tax withholding requirements (but not in excess of the minimum withholding required by law).
(6) Dividend Equivalents, Etc. The Administrator may provide for the payment of amounts in lieu of cash dividends or other cash distributions with respect to Stock subject to an Award. Any entitlement to dividend equivalents or similar entitlements shall be established and administered consistent either with exemption from, or compliance with, the requirements of Section 409A to the extent applicable.




(7) Rights Limited . Nothing in the Plan will be construed as giving any person the right to continued employment or service with the Company or its Subsidiaries, or any rights as a shareholder except as to shares of Stock actually issued under the Plan. The loss of existing or potential profit in Awards will not constitute an element of damages in the event of termination of Employment for any reason, even if the termination is in violation of an obligation of the Company or Subsidiary to the Participant.
(8) Section 162(m) . This Section 6(a)(8) applies to any Performance Award intended to qualify as performance-based for the purposes of Section 162(m) other than a Stock Option or SAR. In the case of any Performance Award to which this Section 6(a)(8) applies, the Plan and such Award will be construed to the maximum extent permitted by law in a manner consistent with qualifying the Award for such exception. With respect to such Performance Awards, the Administrator will preestablish, in writing, one or more specific Performance Criteria no later than 90 days after the commencement of the period of service to which the performance relates (or at such earlier time as is required to qualify the Award as performance-based under Section 162(m)). Prior to grant, vesting or payment of the Performance Award, as the case may be, the Administrator will certify whether the applicable Performance Criteria have been attained and such determination will be final and conclusive. No Performance Award to which this Section 6(a)(8) applies may be granted after the first meeting of the shareholders of the Company held in 2017 until the listed performance measures set forth in the definition of “Performance Criteria” (as originally approved or as subsequently amended) have been resubmitted to and reapproved by the shareholders of the Company in accordance with the requirements of Section 162(m) of the Code, unless such grant is made contingent upon such approval.
(b) Awards Requiring Exercise
(1) Time And Manner Of Exercise . Unless the Administrator expressly provides otherwise, an Award requiring exercise by the holder will not be deemed to have been exercised until the Administrator receives a notice of exercise (in form acceptable to the Administrator) signed by the appropriate person and accompanied by any payment required under the Award. If the Award is exercised by any person other than the Participant, the Administrator may require satisfactory evidence that the person exercising the Award has the right to do so.
(2) Section 409A Exemption . Except as the Administrator otherwise determines, no Award requiring exercise shall have deferral features, or shall be administered in a manner, that would cause such Award to fail to qualify for exemption from Section 409A.
(3) Exercise Price . The exercise price (or the base value from which appreciation is to be measured) of each Award requiring exercise shall be 100% of the fair market value of the Stock subject to the Award, determined as of the date of grant, or such higher amount as the Administrator may determine in connection with the grant. No such Award, once granted, may be repriced other than in accordance with the applicable shareholder approval requirements of the New York Stock Exchange. Fair market value shall be determined by the Administrator consistent with the requirements of Section 422 and Section 409A.
(4) Payment Of Exercise Price . Where the exercise of an Award is to be accompanied by payment, the Administrator may determine the required or permitted forms of payment, subject to the following: all payments will be by cash or check acceptable to the Administrator, or, if so permitted by the Administrator and if legally permissible, (i) through the delivery of shares of Stock that have been outstanding for at least six months (unless the Administrator approves a shorter period) and that have a fair market value equal to the exercise price, (ii) through a broker-assisted exercise program acceptable to the Administrator, (iii) by other means acceptable to the Administrator, or (iv) by any combination of the foregoing permissible forms of payment. The delivery of shares in payment of the exercise price under Section 6(b)(3)(i) above may be accomplished either by actual delivery or by constructive delivery through attestation of ownership, subject to such rules as the Administrator may prescribe.
(c) Awards Not Requiring Exercise
Restricted Stock and Unrestricted Stock, whether delivered outright or under Awards of Stock Units or other Awards that do not require exercise, may be made in exchange for such lawful consideration, including services, as the Administrator determines. Any Award resulting in a deferral of compensation subject to Section 409A shall be construed to the maximum extent possible, as determined by the Administrator, consistent with the requirements of Section 409A.

7.
EFFECT OF CERTAIN TRANSACTIONS
(a) Mergers, etc. Except as otherwise provided in an Award, the following provisions shall apply in the event of a Covered Transaction:
(1) Assumption or Substitution . If the Covered Transaction is one in which there is an




acquiring or surviving entity, the Administrator may provide for the assumption of some or all outstanding Awards or for the grant of new awards in substitution therefor by the acquiror or survivor or an affiliate of the acquiror or survivor.
(2) Cash-Out of Awards . If the Covered Transaction is one in which holders of Stock will receive upon consummation a payment (whether cash, non-cash or a combination of the foregoing), the Administrator may provide for payment (a “cash-out”), with respect to some or all Awards, equal in the case of each affected Award to the excess, if any, of (A) the fair market value of one share of Stock (as determined by the Administrator in its reasonable discretion) times the number of shares of Stock subject to the Award, over (B) the aggregate exercise or purchase price, if any, under the Award (in the case of an SAR, the aggregate base price above which appreciation is measured), in each case on such payment terms (which need not be the same as the terms of payment to holders of Stock) and other terms, and subject to such conditions, as the Administrator determines.
(3) Acceleration of Certain Awards . If the Covered Transaction (whether or not there is an acquiring or surviving entity) is one in which there is no assumption, substitution or cash-out, each Award requiring exercise will become fully exercisable, and the delivery of shares of Stock deliverable under each outstanding Award of Stock Units (including Restricted Stock Units and Performance Awards to the extent consisting of Stock Units) will be accelerated and such shares will be delivered, prior to the Covered Transaction, in each case on a basis that gives the holder of the Award a reasonable opportunity, as determined by the Administrator, following exercise of the Award or the delivery of the shares, as the case may be, to participate as a shareholder in the Covered Transaction.
(4) Termination of Awards Upon Consummation of Covered Transaction . Each Award (unless assumed pursuant to Section 7(a)(1) above), other than outstanding shares of Restricted Stock (which shall be treated in the same manner as other shares of Stock, subject to Section 7(a)(5) below), will terminate upon consummation of the Covered Transaction.
(5) Additional Limitations . Any share of Stock delivered pursuant to Section 7(a)(2) or Section 7(a)(3) above with respect to an Award may, in the discretion of the Administrator, contain such restrictions, if any, as the Administrator deems appropriate to reflect any performance or other vesting conditions to which the Award was subject. In the case of Restricted Stock, the Administrator may require that any amounts delivered, exchanged or otherwise paid in respect of such Stock in connection with the Covered Transaction be placed in escrow or otherwise made subject to such restrictions as the Administrator deems appropriate to carry out the intent of the Plan.
(b) Change in and Distributions With Respect to Stock; Other Adjustments
(1) Basic Adjustment Provisions . In the event of a stock dividend, stock split or combination of shares (including a reverse stock split), recapitalization or other change in the Company’s capital structure, the Administrator will make appropriate adjustments to the maximum number of shares specified in Section 4(a) that may be delivered under the Plan and to the maximum share limits described in Section 4(c), and will also make appropriate adjustments to the number and kind of shares of stock or securities subject to Awards then outstanding or subsequently granted, any exercise prices relating to Awards and any other provision of Awards affected by such change.
(2) Certain Other Adjustments . The Administrator may also make adjustments of the type described in Section 7(b)(1) above to take into account distributions to shareholders other than those provided for in Section 7(a) and 7(b)(1), material changes in law or accounting practices, principles, or interpretations, mergers, consolidations, acquisitions, dispositions, or similar corporate transactions, or any other event, if the Administrator determines that adjustments are appropriate to avoid distortion in the operation of the Plan, having due regard for the qualification of ISOs under Section 422, the requirements of Section 409A, and the performance-based compensation rules of Section 162(m), where applicable.
(3) Continuing Application of Plan Terms . References in the Plan to shares of Stock will be construed to include any stock or securities resulting from an adjustment pursuant to this Section 7.
(c) Change in Control Provisions . Notwithstanding any other provision of the Plan to the contrary, in the event of a Change of Control:
(1)     Acceleration of Stock Options and SARs; Effect on Other Awards . All Stock Options and SARs outstanding as of the date such Change of Control is determined to have occurred and which are not then exercisable shall (prior to application of the provisions of Section 7(a), above, in the case of a Change of Control that also constitutes a Covered Transaction) become exercisable to the full extent of the original grant, all shares of Restricted Stock which are not otherwise vested shall vest, and holders of Performance Awards granted




hereunder as to which the relevant performance period has not ended as of the date such Change of Control is determined to have occurred shall be entitled at the time of such Change of Control to receive a cash-out with respect to each Performance Award in the amount and in a form described in Section 7(a)(2).

(2)     Restriction on Application of Plan Provisions Applicable in the Event of Termination of Employment . After a Change of Control, Stock Options and SARs granted under Section 7(a)(1) as substitution for existing Awards shall remain exercisable following a termination of employment or other service relationship (other than termination by reason of death, disability (as determined by the Company) or retirement (as defined in the Award)) for the lesser of (i) a period of seven (7) months, or (ii) the period ending on the latest date on which such Stock Option or SAR could otherwise have been exercised.

(1) Restriction on Amendment . In connection with or following a Change of Control, neither the Committee nor the Board may impose additional conditions upon exercise or otherwise amend or restrict any Award, or amend the terms of the Plan in any manner adverse to the holder thereof, without the written consent of such holder.

(d)      Section 409A . Notwithstanding the foregoing provisions of this Section 7, Awards subject to and intended to satisfy the requirements of Section 409A shall be construed and administered consistent with such intent.

8. LEGAL CONDITIONS ON DELIVERY OF STOCK
The Company will not be obligated to deliver any shares of Stock pursuant to the Plan or to remove any restriction from shares of Stock previously delivered under the Plan until: (i) the Company is satisfied that all legal matters in connection with the issuance and delivery of such shares have been addressed and resolved; (ii) if the outstanding Stock is at the time of delivery listed on any stock exchange or national market system, the shares to be delivered have been listed or authorized to be listed on such exchange or system upon official notice of issuance; and (iii) all conditions of the Award have been satisfied or waived. If the sale of Stock has not been registered under the Securities Act of 1933, as amended, the Company may require, as a condition to exercise of the Award, such representations or agreements as counsel for the Company may consider appropriate to avoid violation of such Act. The Company may require that certificates evidencing Stock issued under the Plan bear an appropriate legend reflecting any restriction on transfer applicable to such Stock, and the Company may hold the certificates pending lapse of the applicable restrictions.

9. AMENDMENT AND TERMINATION
The Administrator may at any time or times amend the Plan or any outstanding Award for any purpose which may at the time be permitted by law, and may at any time terminate the Plan as to any future grants of Awards; provided , that except as otherwise expressly provided in the Plan the Administrator may not, without the Participant’s consent, alter the terms of an Award so as to affect materially and adversely the Participant’s rights under the Award, unless the Administrator expressly reserved the right to do so at the time of the Award. Any amendments to the Plan shall be conditioned upon shareholder approval only to the extent, if any, such approval is required by law (including the Code and applicable stock exchange requirements), as determined by the Administrator.

10. OTHER COMPENSATION ARRANGEMENTS
The existence of the Plan or the grant of any Award will not in any way affect the Company’s right to award a person bonuses or other compensation in addition to Awards under the Plan.

11. MISCELLANEOUS
(a)      Waiver of Jury Trial . By accepting an Award under the Plan, each Participant waives any right to a trial by jury in any action, proceeding or counterclaim concerning any rights under the Plan and any Award, or under any amendment, waiver, consent, instrument, document or other agreement delivered or which in the future may be delivered in connection therewith, and agrees that any such action, proceedings or counterclaim shall be tried before a court and not before a jury. By accepting an Award under the Plan, each Participant certifies that no officer, representative, or attorney of the Company has represented, expressly or otherwise, that the Company would not, in the event of any action, proceeding or counterclaim, seek to enforce the foregoing waivers.




(b)      Limitation of Liability . Notwithstanding anything to the contrary in the Plan, neither the Company nor the Administrator, nor any person acting on behalf of the Company or the Administrator, shall be liable to any Participant or to the estate or beneficiary of any Participant by reason of any acceleration of income, or any additional tax, asserted by reason of the failure of an Award to satisfy the requirements of Section 422 or Section 409A or by reason of Section 4999 of the Code; provided , that nothing in this Section 11(b) shall limit the ability of the Administrator or the Company to provide by express agreement with a Participant for a gross-up payment or other payment in connection with any such tax or additional tax.
(c)      Special Terms for Non-U.S. Participants .  The Administrator may establish special rules under the Plan (which may be, but need not be, consistent with the rules applicable to Participants and Awards generally) for Awards to Participants who are or are expected to be employed by or otherwise providing services outside the United States or to a non-U.S. Subsidiary, provided, that no such rules shall be established without the approval of the
shareholders of the Company to the extent they would be ineffective without such shareholder approval if accomplished as an amendment to the Plan pursuant to Section 9.
EXHIBIT A

Definition of Terms

The following terms, when used in the Plan, will have the meanings and be subject to the provisions set forth below:

“Administrator”: The Executive Compensation Committee or, if the Board so determines, another committee of the Board, except that the Executive Compensation Committee or such other committee may delegate (i) to one or more of its members such of its duties, powers and responsibilities as it may determine; (ii) to one or more officers of the Company the power and authority to grant or to allocate, consistent with the requirements of Chapter 156D of the Massachusetts General Laws and subject to such limitations as the Executive Compensation Committee or such other committee may impose, Awards among such persons (other than officers of the Company) eligible to receive Awards under the Plan as such delegated officer or officers determine consistent with such delegation; and (iii) to such Employees or other persons as it determines such ministerial tasks as it deems appropriate. In the event of any delegation described in the preceding sentence, the term “Administrator” shall include the person or persons so delegated to the extent of such delegation. If the Executive Compensation Committee or such other committee includes members who are not “non-employee directors” within the meaning of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended, or “outside directors” within the meaning of paragraph (4)(c)(i) of Section 162(m), it shall act and shall be deemed to have acted, in any case where it would be required to do so with respect to Awards to directors or executive officers of the Company to ensure exemption under Rule 16b-3 or Section 162(m), through a subcommittee consisting solely of its non-employee and outside director members.

“Award”: Any or a combination of the following:

(i) Stock Options.

(ii) SARs.

(iii) Restricted Stock.

(iv) Unrestricted Stock.

(v) Stock Units, including Restricted Stock Units.

(vi) Performance Awards.

(vii) Awards (other than Awards described in (i) through (vi) above) that are convertible into or otherwise based on Stock.

“Board”: The Board of Directors of the Company.

“Change in Control” : Any of the following:




(1)    The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or more of either (x) the then outstanding shares of Stock of the Company (the "Outstanding Company Common Stock") or (y) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); excluding, however, the following acquisitions of Outstanding Company Common Stock and Outstanding Company Voting Securities: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iv) any acquisition by any Person pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (3) of this definition; or

(2)    Individuals who, as of the effective date of the Plan, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual who becomes a member of the Board subsequent to such effective date, whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board; but, provided further, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board shall not be so considered as a member of the Incumbent Board; or

(3)    Consummation by the Company of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company ("Business Combination"); excluding, however, such a Business Combination pursuant to which (i) all or substantially all of the individuals and entities who are the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination own, directly or indirectly, more than 50% of, respectively, the outstanding shares of common stock, and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (other than any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or such corporation resulting from such Business Combination) will beneficially own, directly or indirectly, 25% or more of, respectively, the outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the outstanding voting securities of such corporation entitled to vote generally in the election of directors except to the extent that such ownership existed with respect to the Company prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or

(1) The approval by the shareholders of the Company of a complete liquidation or dissolution of the Company;

provided , that, to the extent necessary to ensure compliance with the requirements of Section 409A, where applicable, an event described above shall be treated as a Change in Control only if it also constitutes or results in a change in ownership or control of the Company, or a change in ownership of assets of the Company, described in Section 409A.

“Code”: The U.S. Internal Revenue Code of 1986 as from time to time amended and in effect, or any successor statute as from time to time in effect. Any reference to a provision of the Code shall include, as determined by the Administrator, a reference to applicable regulations and Internal Revenue Service guidance with respect to such provision.

“Company”: State Street Corporation.

“Covered Transaction”: Any of (i) a consolidation, merger, or similar transaction or series of related transactions, including a sale or other disposition of stock, in which the Company is not the surviving corporation or




which results in the acquisition of all or substantially all of the Company’s then outstanding common stock by a single person or entity or by a group of persons and/or entities acting in concert, (ii) a sale or transfer of all or substantially all the Company’s assets, or (iii) a dissolution or liquidation of the Company. Where a Covered Transaction involves a tender offer that is reasonably expected to be followed by a merger described in clause (i) (as determined by the Administrator), the Covered Transaction shall be deemed to have occurred upon consummation of the tender offer.

“Effective Date” : The date on which the shareholders of the Company approve the Plan.

“Employee”: Any person who is employed by the Company or a Subsidiary.

“Employment”: A Participant’s employment or other service relationship with the Company and its Subsidiaries. Employment will be deemed to continue, unless the Administrator expressly provides otherwise, so long as the Participant is employed by, or otherwise is providing services in a capacity described in Section 5 to the Company or its Subsidiaries. If a Participant’s employment or other service relationship is with a Subsidiary and that entity ceases to be a Subsidiary, the Participant’s Employment will be deemed to have terminated when the entity ceases to be a Subsidiary unless the Participant transfers Employment to the Company or its remaining Subsidiaries.

“Executive Compensation Committee”: The Executive Compensation Committee of the Board.

    
“ISO”: A Stock Option intended to be an “incentive stock option” within the meaning of Section 422. Each option granted pursuant to the Plan will be treated as providing by its terms that it is to be a non-incentive stock option unless, as of the date of grant, it is expressly designated as an ISO. No ISO shall be exercisable beyond ten years from the date of grant.

“Participant”: A person who is granted an Award under the Plan.

“Performance Award” : An Award subject to Performance Criteria. The Committee in its discretion may grant Performance Awards that are intended to qualify for the performance-based compensation exception under Section 162(m) and Performance Awards that are not intended so to qualify.

“Performance Criteria” : Specified criteria, other than the mere continuation of Employment or the mere passage of time, the satisfaction of which is a condition for the grant, exercisability, vesting or full enjoyment of an Award. For purposes of Awards that are intended to qualify for the performance-based compensation exception under Section 162(m), a Performance Criterion will mean an objectively determinable measure of performance relating to any or any combination of the following (measured either absolutely or by reference to an index or indices and determined either on a consolidated basis or, as the context permits, on a divisional, subsidiary, line of business, project or geographical basis or in combinations thereof): sales; revenue; assets; expenses; expense control; earnings before or after deduction for all or any portion of interest, taxes, depreciation, or amortization, whether or not on a continuing operations or an aggregate or per share basis; return on equity, investment, capital or assets; capital or capital ratios; one or more operating ratios; operating leverage; borrowing levels, leverage ratios or credit rating; market share; capital expenditures; cash flow; stock price; shareholder return; sales of particular products or services; customer acquisition or retention; acquisitions and divestitures (in whole or in part); joint ventures and strategic alliances; spin-offs, split-ups and the like; reorganizations; or recapitalizations, restructurings, financings (issuance of debt or equity) or refinancings. A Performance Criterion and any targets with respect thereto determined by the Administrator need not be based upon an increase, a positive or improved result or avoidance of loss. To the extent consistent with the requirements for satisfying the performance-based compensation exception under Section 162(m), the Administrator may provide in the case of any Award intended to qualify for such exception that one or more of the Performance Criteria applicable to such Award will be adjusted in an objectively determinable manner to reflect events (for example, but without limitation, acquisitions or dispositions, changes in accounting principles or interpretations, impairment charges) occurring during the performance period that affect the applicable Performance Criterion or Criteria.

“Plan”: The State Street Corporation 2006 Equity Incentive Plan as from time to time amended and in effect.





“Prior Plan”: The State Street Corporation 1997 Equity Incentive Plan as amended and in effect prior to the Effective Date.

“Restricted Stock”: Stock subject to restrictions requiring that it be redelivered or offered for sale to the Company if specified conditions are not satisfied.

“Restricted Stock Unit”: A Stock Unit that is, or as to which the delivery of Stock or cash in lieu of Stock is, subject to the satisfaction of specified performance or other vesting conditions.

“SAR”: A right entitling the holder upon exercise to receive an amount (payable in shares of Stock of equivalent value) equal to the excess of the fair market value of the shares of Stock subject to the right over the fair market value of such shares at the date of grant.    

“Section 409A”: Section 409A of the Code.

“Section 422”: Section 422 of the Code.

“Section 162(m)”: Section 162(m) of the Code.

“Stock”: The Common Stock of the Company, par value $1 per share.

“Stock Option”: An option entitling the holder to acquire shares of Stock upon payment of the exercise price.

“Stock Unit” : An unfunded and unsecured promise, denominated in shares of Stock, to deliver Stock or cash measured by the value of Stock in the future.

“Subsidiary” : Any corporation or other entity that stands in a relationship to the Company that would result in the Company and such corporation or other entity being treated as one employer under Section 414(b) or Section 414(c) of the Code, except that in determining eligibility for the grant of a Stock Option or SAR by reason of service for a Subsidiary, Sections 414(b) and 414(c) of the Code shall be applied by substituting “at least 50%” for “at least 80%” under Section 1563(a)(1), (2) and (3) of the Code and Treas. Regs. § 1.414(c)-2; provided , that to the extent permitted under Section 409A, “at least 20%” shall be used in lieu of “at least 50%”; and further provided , that the lower ownership threshold described in this definition (50% or 20% as the case may be) shall apply only if the same definition of affiliation is used consistently with respect to all compensatory stock options or stock awards (whether under the Plan or another plan). The Company may at any time by amendment provide that different ownership thresholds (consistent with Section 409A) apply. Notwithstanding the foregoing provisions of this definition, except as otherwise determined by the Administrator a corporation or other entity shall be treated as a Subsidiary only if its employees would be treated as employees of the Company for purposes of the rules promulgated under the Securities Act of 1933, as amended, with respect to the use of Form S-8.

“Unrestricted Stock”: Stock not subject to any restrictions under the terms of the Award .





AMENDMENT NO. 1
TO
STATE STREET CORPORATION
2006 EQUITY INCENTIVE PLAN
Solely with respect to Awards granted under the 2006 Equity Incentive Plan, as Amended and Restated (2012) (the “Plan”), of State Street Corporation (the “Company”) on or after February 20, 2014, the Plan is hereby amended as follows (all capitalized terms used and not defined herein shall have the respective meanings ascribed to such terms in the Plan):
1.    Section 7(c)(1) of the Plan is hereby deleted in its entirety and the following is inserted in lieu thereof:
(1) Acceleration of Stock Options and SARs; Effect on Other Awards . If, on or prior to the first anniversary of the consummation of the Change in Control, the Participant’s Employment with the Company is terminated for Good Reason by the Participant or is terminated without Cause by the Company, all Stock Options and SARs outstanding as of the date such Change in Control is consummated and which are not then exercisable shall become exercisable to the full extent of the original grant, all shares of Restricted Stock which are not otherwise vested shall vest, and Performance Awards granted hereunder shall vest to the extent set forth in the applicable Award agreement.
2.    The following definitions are inserted in Exhibit A, in alphabetical order:
“Cause”: If the Participant is party to an employment or similar agreement with the Company that contains a definition of “Cause,” that definition shall apply for purposes of the Plan. Otherwise, “Cause” shall mean any (i) willful failure by the Participant, which failure is not cured within 30 days of written notice to the Participant from the Company, to perform his or her material responsibilities to the Company or (ii) willful misconduct by the Participant which is materially injurious to the Company. For purposes of this definition of “Cause,” reference to the “Company” shall include the acquiror or survivor (or an affiliate of the acquiror or survivor) in the applicable Change in Control.
“Good Reason”: If the Participant is party to an employment or similar agreement with the Company that contains a definition of “Good Reason,” that definition shall apply for purposes of the Plan. Otherwise, “Good Reason” shall mean any significant diminution in the Participant’s duties, authority, or responsibilities from and after such Change in Control, as the case may be, or any material reduction in the base compensation payable to the Participant from and after such Change in Control, as the case may be, or the relocation of the place of business at which the Participant is principally located to a location that is greater than 50 miles from its location immediately prior to such Change in Control. Notwithstanding the occurrence of any such event or circumstance, such occurrence shall not be deemed to constitute Good Reason unless (x) the Participant gives the Company the notice of termination no more than 90 days after the initial existence of such event or circumstance, (y) such event or circumstance has not been fully corrected and the Participant has not been reasonably compensated for any losses or damages resulting therefrom within 30 days of the Company’s receipt of such notice and (z) the Participant’s termination of employment occurs within six months following the Company’s receipt of such notice. For purposes of this definition of “Good Reason,” reference to the “Company” shall include the acquiror or survivor (or an affiliate of the acquiror or survivor) in the applicable Change in Control.




STATE STREET CORPORATION
2006 EQUITY INCENTIVE PLAN

2015 Deferred Stock Award Agreement (Regulatory)

Subject to your acceptance of the terms set forth in this agreement (“Agreement”), State Street Corporation (“Company”) has awarded you, under the State Street Corporation 2006 Equity Incentive Plan, as amended (“Plan”), and pursuant to this Agreement and the terms set forth herein (“Award”), a contingent right to receive the number of shares of Stock (“Deferred Shares”) as set forth in the information pertaining to this Award on the website (“Website”) maintained by the Equity Administrator (Fidelity or another party designated by the Company) (“Statement”). Copies of the Plan and of the Company’s U.S. Prospectus are located on the Website for your reference, and your acceptance of this Award constitutes your acknowledgement that you have read and understood the Plan and such Prospectus. The provisions of the Plan are incorporated herein by reference, and all terms used herein shall have the meaning given to them in the Plan, except as otherwise expressly provided herein. In the event of any conflict between the provisions of this Agreement and the provisions of the Plan, the provisions of the Plan shall control.
The terms of your Award, are as follows:
1.
Grant of Deferred Shares .
To be entitled to any payment under this Award, you must accept your Award and in so doing agree to comply with the terms and conditions of this Agreement and Appendix A (which is incorporated into, and forms a material and integral part of, this Agreement). Failure to accept this Award within 60 days following the posting of this Agreement on the Equity Administrator website will result in forfeiture of this Award. 1 Subject to the terms and conditions of this Agreement, your right to receive shares of Stock shall vest according to the vesting schedule set forth in your Statement. The term “vest” as used herein means the lapsing of certain (but not all) restrictions described herein and in the Plan with respect to one or more Deferred Shares. To vest in all or any portion of this Award as of any date, you must have been continuously employed with the Company or any Subsidiary from and after the date hereof and until (and including) the applicable vesting date, except as otherwise provided herein.
This Award is subject to any forfeiture, compensation recovery or similar requirements under applicable law and related implementing regulations and related implementing policies and practices of the Company or its relevant Subsidiaries in effect from time to time. In the event that under any applicable law or related implementing regulations, the Administrator is required to reduce or cancel any amount remaining to be paid, or to recover any amount previously paid, with respect to this Award, or to otherwise impose or apply restrictions on this Award or shares of Stock subject hereto, it shall, in its sole discretion, be authorized to do so.
2.
Payment of Stock; Shareholder Rights .
Upon the vesting of Deferred Shares, the Company will issue and transfer to you, no later than 60 days following such vesting dates, the number of shares of Stock specified in the vesting schedule in your Statement. Prior to that time you will have no rights as a shareholder with respect to the Deferred Shares. Without limiting the foregoing, prior to the issuance and transfer to you of shares of Stock pursuant to this Agreement, you will have no right to receive dividends or amounts in lieu of dividends with respect to Deferred Shares and no right to vote Deferred Shares. The Company’s obligation to issue and transfer Stock in the future pursuant to this Agreement is an unsecured and unfunded contractual obligation.
3.
Identified Staff Holding Requirement .
Notwithstanding anything herein to the contrary, you agree and covenant that, as a condition to the receipt of this Award and the payment of the Deferred Shares hereunder, in the event the Company or any Subsidiary notifies you at any time before or after this Award is made (but before it has vested) that you have been designated Identified Staff for purposes of Capital Requirements Directives III or IV (or any implementing or successor rule or regulation, including the rules and regulations of the United Kingdom Financial Conduct Authority or Prudential Regulatory Authority (“PRA”)), you will not sell or otherwise transfer any shares of Stock subject to this Award until the date that is at least six months and one day after the vesting date of such shares, except that (1) you shall be permitted to sell, upon such vestingdate, a number of shares of Stock sufficient to pay applicable tax and social security withholding, if any, with respect to such

1 For purposes of clarity the 60 day period shall run from date of delivery of your Statement. Should the end of this period fall on a non-business day this period shall extend until the next succeeding business day.




vesting (or, alternatively, if your Employer withholds such shares pursuant to Section 9 of this Agreement, the requirements in this Section 3 not to sell or otherwise transfer any shares shall only apply to the number of such shares delivered to you (i.e., after such withholding of shares)), (2) transfers by will or pursuant to the laws of descent or distribution are permitted and (3) this holding requirement shall not apply to such portion of the shares, if any, as was awarded with respect to a period of time, as determined by the Company in its discretion, during which you were not subject to such holding requirement.  Any attempt by you (or in the case of your death, by your beneficiary) to assign or transfer shares of Stock subject to this Award, either voluntarily or involuntarily, contrary to the provisions hereof, shall be null and void and without effect.  The Company may, in its sole discretion, impose restrictions on the assignment or transfer of shares of Stock consistent with the provisions hereof, including, without limitation, by or through the transfer agent for such shares or by means of legending Stock certificates or otherwise.
4.
General Circumstances of Forfeiture .
(a) You will immediately forfeit any and all rights to receive shares of Stock under this Agreement, less any shares that have previously vested, in the event (i) you cease to be employed by the Company and its Subsidiaries due to Circumstances of Forfeiture or (ii) the Company or the Subsidiary that employs you (“Employer”), in its sole discretion, determines that circumstances prior to the date on which you ceased to be employed by the Company and its Subsidiaries for any reason constituted grounds for an involuntary termination constituting Circumstances of Forfeiture.
(b) If your employment terminates by reason of Retirement or Disability or for reasons other than for Circumstances of Forfeiture, then unless accelerated as provided in Section 8, your unvested right to receive shares of Stock hereunder shall continue to vest in accordance with the vesting schedule detailed in your Statement and subject to the terms and conditions of this Agreement.
(c) For purposes hereof:
(i) “Circumstances of Forfeiture” means the termination of your employment with the Company and its Subsidiaries either (A) voluntarily (other than (x) Retirement or (y) for Good Reason on or prior to the first anniversary of a Change in Control (each as defined in the Plan)) or (B) involuntarily for reasons determined by the Company or the relevant Subsidiary in its sole discretion to constitute “gross misconduct” (including while you are Retirement eligible).
(ii) “Retirement” means your attainment of age 55 and completion of 5 years of service with the Company and its Subsidiaries.
(iii) “Disability” means (A) your inability to engage in any substantially gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in your death or can be expected to last for a continuous period of not less than 12 months (an “impairment”) or (B) if you, as a result of the impairment described in subparagraph (A), receive income replacement benefits for a period of not less than 3 months under a plan of the Company or a Subsidiary.
5.
Malus-Based Forfeiture.
Any amount remaining to be paid in respect of this Award may, in the sole discretion of the Administrator, be reduced or cancelled, in the event that it is determined by the Administrator, in its sole discretion, that your actions exposed the Business to inappropriate risk or risks (including where you failed to timely identify, analyze, assess or raise concerns about such risk or risks, including in a supervisory capacity, where it was reasonable to expect you to do so), and such exposure has resulted or could reasonably be expected to result in a material loss or losses that are or would be substantial in relation to the revenues, capital and overall risk tolerance of the Business. The Business shall mean State Street Corporation, together with its direct and indirect subsidiaries on a consolidated basis (“State Street”), or, to the extent you devote substantially all of your business time to a particular business unit (e.g., Global Services Americas, Global Services International, State Street Global Advisors, State Street Global Markets, State Street Global Exchange or State Street Sector Solutions) or business division (e.g., Alternative Investment Solutions, Securities Lending, etc.), Business shall refer to such business unit or business division.

6.
Identified Staff Malus-Based Forfeiture and Clawback.
(a) In the event the Company or any Subsidiary notifies you at any time before or after this Award is made that you have been designated Identified Staff for purposes of the United Kingdom Prudential Regulatory Authority Remuneration Code, you acknowledge and agree that this Award is subject to the provisions of this Section 6 for a period of seven (7) years from the date this Award is granted. By accepting this Award on the Website, you consent to making a payment to the Employer in the event of a PRA Clawback.

(b) If the Company determines that a PRA Forfeiture Event has occurred it may elect to reduce or cancel all




or part of any amount remaining to be paid in respect of this Award (“PRA Malus-Based Forfeiture”).

(c) If the Company determines that a PRA Clawback Event has occurred it may require the repayment by you of (or otherwise seek to recover from you) all or part of any compensation paid to you in respect of this Award (“PRA Clawback”).

(d) The Company may produce guidelines from time to time in respect of its operation of the provisions of this Section 6. The Company intends to apply such guidelines in deciding whether and when to effect any reduction, cancellation or recovery of compensation but, in the event of any inconsistency between the provisions of this Section 6 and any such guidelines, this Section 6 shall prevail. Such guidelines do not form part of any employee’s contract of employment, and the Company may amend such guidelines and their application at any time.

(e) For the purposes of this Section 6:

(i) A “PRA Forfeiture Event” means a determination by the Company, in its sole discretion, that (A) there is reasonable evidence of employee misbehavior or material error; or (B) the Company, one of its Subsidiaries or a relevant business unit has suffered a material downturn in its financial performance; or (C) the Company, one of its Subsidiaries or a relevant business unit has suffered a material failure of risk management.

(ii) A “PRA Clawback Event” means a determination by the Company, in its sole discretion, that either (A) there is reasonable evidence of employee misbehavior or material error or (B) the Company, one of its Subsidiaries or a relevant business unit has suffered a material failure of risk management.

7.
Management Committee Forfeiture and Clawback .
(a) If you are a member of the State Street Corporation Management Committee (“Management Committee”) at the time this Award is made, any amount remaining to be paid in respect of this Award may, in the sole discretion of the Administrator, be reduced or cancelled, in whole or in part, in the event that it is determined by the Administrator, in its sole discretion, that:
(i) you engaged in fraud, gross negligence or any misconduct that was materially detrimental to the interests or business reputation of the Company or any of its businesses; or
(ii) as a result of a material financial restatement by State Street contained in a filing with the Securities and Exchange Commission, or miscalculation or inaccuracy in the determination of performance metrics, financial results or other criteria used in determining the amount of this Award, you would have received a smaller or no Award hereunder.
(b) If you are a member of the Management Committee at the time this Award is made, this Award also is subject to compensation recovery as provided herein. Upon the occurrence of an MC Clawback Event within three (3) years after the date of grant of this Award, the Administrator may, in its sole discretion, determine to recover the MC Clawback Amount, in whole or in part. Following such a determination, you agree to immediately repay such compensation, but in no event later than sixty (60) days following such determination, in the form of any shares of Stock delivered to you previously by the Company or cash (or a combination of such shares and cash). For purposes of calculating the value of both (i) the amount of the MC Clawback Amount determined by the Administrator to be recovered and (ii) the amount of such compensation repaid, shares of Stock will be valued in an amount equal to the market value of the Deferred Shares delivered to you under this Award by the Company as determined at the time of such delivery. To the extent not prohibited by applicable law and subject to Section 13 (if applicable), if you fail to comply with any requirement to repay compensation under this Section 7(b), the Administrator may determine, in its sole discretion, in addition to any other remedies available to the Company, that you will satisfy your repayment obligation through an offset to any future payments owed by the Company or any of its Subsidiaries to you.
(c) For purposes of this Section 7:
(i) “MC Clawback Event” means a determination by the Administrator, in its sole discretion, with respect to any event or series of related events that you engaged in fraud or willful misconduct that directly resulted in either (A) financial or reputational harm that is material to State Street and resulted in the termination of your employment for Cause (as defined in the Plan) by the Company and its Subsidiaries (or, following a cessation of your employment for any other reason, circumstances constituting grounds for such termination for Cause) or (B) a material financial restatement by State Street contained in a filing with the Securities and Exchange Commission. For the avoidance of doubt and as applicable, an MC Clawback Event includes any




determination by the Administrator that is based on circumstances prior to the date on which you cease to be employed by the Company and its Subsidiaries for any reason, even if the determination by the Administrator occurs after such cessation of employment.
(ii) “MC Clawback Amount” means (A) with respect to an MC Clawback Event described in Section 7(c)(i)(A), the value of the Deferred Shares, if any, that were delivered to you under this Award by the Company during the period of three (3) years immediately prior to such MC Clawback Event or (B) with respect to an MC Clawback Event described in Section 7(c)(i)(B), the value of the Deferred Shares, if any, that were delivered to you under this Award by the Company (x) during the period of three (3) years immediately prior to the date such financial restatement is contained in a filing with the Securities and Exchange Commission and (y) that represents an amount that, in the sole discretion of the Administrator, exceeds the amount you would have been awarded under this Award had the financial statements of State Street been accurate (reduced, in the case of both of the immediately preceding clauses (A) and (B), by any portion of this Award that was previously recovered by the Company under Section 7(b)).
8.
Acceleration of Vesting upon Certain Events.
(a) Notwithstanding anything in this Agreement to the contrary, if you die while employed by the Company or any of its Subsidiaries, or in the event that you die after your employment has terminated for a reason permitting continued vesting pursuant to subparagraph 4(b) above, the Deferred Shares shall become fully vested on the date of your death and the Company will issue and pay to your beneficiary (designated in accordance with the terms of the Plan) within 60 days of your death any shares of Stock under this Award that you had not otherwise had a right to receive prior to your death. In addition, Sections 5, 6 and 7 of this Agreement shall cease to apply upon your death at any time provided, however, if a PRA Clawback Event or an MC Clawback Event has occurred pursuant to Section 6 or 7, respectively, prior to your death, any amount that the Administrator has made a determination to recover under either such Section shall continue to be payable to the Company.
(b) Notwithstanding anything in this Agreement to the contrary, if your employment with the Company and its Subsidiaries is terminated by the Company or the applicable Subsidiary without Cause (as defined in the Plan), by you for Good Reason (as defined in the Plan) or on account of your Retirement, in each case, on or prior to the first anniversary of a Change in Control as defined in the Plan (and provided that such Change in Control constitutes a “change in control event” as that term is defined under Section 409A of the Internal Revenue Code of 1986, as amended, (“Code”) and Treasury Regulations 1.409A-3(i)(5)) prior to the full settlement of your Award, this Award shall become fully vested on the date of such termination and the Company will promptly issue and pay to you within 30 days of such termination any shares under this Award that you had not otherwise had a right to receive prior to such termination. For purposes of this Section 8(b), termination of employment shall mean a “separation from service” as determined in accordance with Treasury Regulation Section 1.409A-1(h).
9.
Withholding.
Regardless of any action the Company or the Employer takes with respect to any or all income tax (including U.S. federal, state and local taxes and/or non-U.S. taxes), social insurance, payroll tax, payment on account of other tax-related withholding (“Tax-Related Items”), you acknowledge that the ultimate liability for all Tax-Related Items legally due from you is and remains your responsibility. Furthermore, neither the Company nor your Employer (a) makes any representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of this Award, including the grant of this Award, the vesting of this Award and the issuance of shares of Stock in settlement, the subsequent sale of any shares of Stock acquired upon vesting, the cancellation, forfeiture or repayment of any shares of Stock (or cash in lieu thereof) or the receipt of any dividends or dividend equivalents; or (b) commits to structure the terms of the grant, vesting, settlement, cancellation, forfeiture, repayment or any other aspect of this Award to reduce or eliminate your liability for Tax-Related Items.
Prior to the delivery of the Stock upon the vesting of the Deferred Shares, if any taxing jurisdiction requires withholding of Tax-Related Items, the Company may withhold a sufficient number of whole shares of Stock otherwise issuable upon the vesting of this Award that have an aggregate fair market value sufficient to pay the minimum Tax-Related Items required to be withheld with respect to this Award; provided, however, that the total tax withholding cannot exceed the Employer’s minimum statutory withholding obligations (based on minimum statutory withholding rates for federal and state tax purposes, including payroll taxes, that are applicable to such supplemental taxable income). The cash equivalent of the shares of Stock withheld will be used to settle the obligation to withhold the Tax-Related Items (determined in the Company’s reasonable discretion). No fractional shares of Stock will be withheld or issued pursuant to the grant of the Deferred Shares and the issuance of Stock hereunder. Alternatively, the Company and/or your Employer may, in its discretion, withhold any amount necessary to pay the Tax-Related Items from your salary or other amounts payable to you, with no withholding in shares of Stock. In the event the withholding requirements are not satisfied through the withholding of shares of Stock or through your salary or other amounts payable to you, no shares




of Stock will be issued upon vesting of this Award unless and until satisfactory arrangements (as determined by the Company or your Employer) have been made by you with respect to the payment of any Tax-Related Items which the Company or your Employer determines, in its sole discretion, must be withheld or collected with respect to such Award. By accepting this Award, you expressly consent to the withholding of shares of Stock and/or cash as provided for hereunder. All other Tax-Related Items related to this Award and any Stock delivered in payment thereof, including the extent to which the Company or your Employer does not so-withhold shares of Stock and/or cash, are your sole responsibility.
10.
Changes in Capitalization or Corporate Structure.
The number and kind of Deferred Shares subject to this Award, and the number and kind of shares of Stock to be paid in satisfaction of the Company’s obligations hereunder, shall be subject to adjustment in accordance with Section 7(b) of the Plan.
11.
Employee Rights.
Nothing in this Award shall be construed to guarantee you any right of employment with the Company or any Subsidiary or to limit the discretion of any of them to terminate your employment at any time, with or without cause.
12.
Non-Transferability, Etc.
This Award shall not be transferable other than (1) by will or the laws of descent and distribution or (2) pursuant to the terms of a court-approved domestic relations order, official marital settlement agreement or other divorce or settlement instrument satisfactory to the Company in its sole discretion. In the case of transfer pursuant to (2) above, this Award shall remain subject to all the terms and conditions contained in the Plan and this Agreement, including vesting and forfeiture conditions. Any attempt by you (or in the case of your death, by your beneficiary) to assign or transfer this Award, either voluntarily or involuntarily, contrary to the provisions hereof, shall be null, void and without effect and shall render this Award itself null and void.
13.
Compliance with Section 409A of the Code.
(a)    The provisions of this Award are intended to be exempt from, or compliant with, Section 409A of the Code, and shall be construed and interpreted consistently therewith. Notwithstanding the foregoing, neither the Company nor any Subsidiary shall have any liability to you or to any other person if this Award is not so exempt or compliant.
(b)    If and to the extent (i) any portion of any payment, compensation or other benefit provided to you pursuant to the Plan in connection with your employment termination constitutes “nonqualified deferred compensation” within the meaning of Section 409A of the Code and (ii) you are a specified employee as defined in Section 409A(a)(2)(B)(i) of the Code, in each case as determined by the Company in accordance with its procedures, by which determinations you (through accepting this Award) agree that you are bound, such portion of the payment, compensation or other benefit shall not be paid before the day that is six months plus one day after the date of “separation from service” (as determined under Section 409A of the Code) (“New Payment Date”), except as Section 409A of the Code may then permit. The aggregate of any payments that otherwise would have been paid to you during the period between the date of separation from service and the New Payment Date shall be paid to you in a lump sum on such New Payment Date, and any remaining payments will be paid on their original schedule.
14.
Entire Agreement.
The Plan and this Agreement constitute the complete understanding and agreement between the parties to this Agreement with respect to this Award, and supersede and cancel any previous oral or written discussions, agreements or representations regarding this Award or the Deferred Shares; provided, however, that any conditions to the receipt and retention of this Award or the payment of the Deferred Shares contained in any prior written document describing this Award to you shall remain in full force and effect in accordance with their terms.
15.
Miscellaneous.
(a) The grant of this Award is a one-time benefit and does not create any contractual or other right to receive an award, compensation or benefits in lieu of an award in the future.
(b) Sections 4, 5, 6 and 7 of this Agreement are intended to comply with and meet the requirements of applicable law and related implementing regulations regarding incentive compensation and will be interpreted and administered accordingly as well as in accordance with any implementing policies and practices of the Company or its relevant Subsidiaries in effect from time to time. In making determinations under such Sections, the Company, the relevant Subsidiary or the Administrator, as applicable, may take into account, in its sole discretion, all factors that it




deems appropriate or relevant. Furthermore, the Company, the relevant Subsidiary or the Administrator may, as applicable, take any and all actions it deems necessary or appropriate in its sole discretion, as permitted by applicable law, to implement the intent of Sections 4, 5, 6 and 7, including suspension of vesting and payment pending an investigation or the determination by the Company, the relevant Subsidiary or the Administrator, as applicable. Each such Section is without prejudice to the provisions of the other Sections, and the Company, the relevant Subsidiary or the Administrator, as applicable, may elect or be required to apply any or all of the provisions of Sections 4, 5, 6 and 7 to this Award.
(c) The Company reserves the right to impose other requirements on this Award, any shares of Stock acquired pursuant to this Award, and your participation in the Plan, to the extent the Company determines, in its sole discretion, that such other requirements are necessary or advisable in order to comply with applicable laws or regulations or to facilitate the administration of the Plan. Such requirements may include (but are not limited to) requiring you to sign any agreements or undertakings that may be necessary to accomplish the foregoing.
(d) Your participation in the Plan is voluntary. The value of this Award is an extraordinary item of compensation, and this Award is not part of your normal or expected compensation for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long-service awards, pension, or retirement benefits or similar payments.
(e) The Company or any of its Subsidiaries may, in its sole discretion, decide to deliver any documents related to this Award by electronic means. You hereby consent to receive such documents by electronic delivery and agree to participate in the Plan through an on-line or electronic system, including the Website, established and maintained by the Company, any of its Subsidiaries, Equity Administrator or another party designated by the Company.
(f) By accepting this Award electronically, (i) you will be deemed to have acknowledged and agreed that you are bound by the terms of this Agreement and the Plan and that you and this Award are subject to all of the rights, power and discretion of the Company, its Subsidiaries and the Administrator set forth in this Agreement and the Plan; and (ii) this Award is deemed accepted by the Company and the Company shall be deemed to be bound by the terms of this Agreement.
(g) You acknowledge and agree that it is your express intent that this Agreement, the Plan and all other documents, notices and legal proceedings entered into, given or instituted pursuant to this Award, be drawn up in English. If you have received the Agreement, the Plan or any other documents related to this Award translated into a language other than English, and if the meaning of the translated version is different than the English version, the English version will control.
(h) Notwithstanding any provisions of this Agreement to the contrary, this Award shall be subject to any special terms and conditions for your country of residence (and country of employment, if different), as may be set forth in an applicable Addendum to the Agreement. Further, if you transfer residence and/or employment to another country reflected in an Addendum to the Agreement, the special terms and conditions for such country will apply to you to the extent the Company or the relevant Subsidiary determines, in its sole discretion, that the application of such terms are necessary or advisable in order to comply with applicable laws or regulations or to facilitate administration of the Plan. Any such Addendum is hereby incorporated into, and forms a part of, this Agreement.
(i) No individual acting as a director, officer, employee or agent of the Company or any of its Subsidiaries will be liable to you or any other person for any action, including any Award forfeiture, Award recovery or other discretionary action taken pursuant to this Agreement or any related implementing policy or procedure of the Company.
(j) This Agreement, including Appendix A, shall be subject to and governed by the laws of the Commonwealth of Massachusetts, without regard to that commonwealth’s conflicts of law principles.






APPENDIX A
    

In consideration of the opportunity to participate in the Plan and the granting to you of an Award under the Plan, you expressly agree to comply with the terms and conditions of this Appendix A, irrespective of whether or not any amount has been forfeited, paid, delivered or repaid, under this Award at any time, including the time you separate from service with the Company and its Subsidiaries. In addition, your eligibility to participate in the Plan in the future, including any potential future grants of awards under the Plan (or any successor equity incentive plan of the Company), is subject to and conditioned on your compliance with the terms and conditions of this Appendix A. All terms used herein shall have the meaning given to them in the Plan, except as otherwise expressly provided herein.
I. Confidentiality . You acknowledge that you have access to Confidential Information which is not generally known or made available to the general public and that such Confidential Information is the property of the Company, its Subsidiaries or its or their licensors, suppliers or customers. You agree specifically as follows, in each case whether during your employment or following the termination thereof:
(a) You will always preserve as confidential all Confidential Information, and will never use it for your own benefit or for the benefit of others; this includes that you will not use the knowledge of activities or positions in clients’ securities portfolio accounts or cash accounts for your own personal gain or for the gain of others.
(b) You will not disclose, divulge, or communicate Confidential Information to any unauthorized person, business or corporation during or after the termination of your employment with the Company and its Subsidiaries. You will use your best efforts and exercise due diligence to protect, to not disclose and to keep as confidential all Confidential Information.
(c) You will not initiate or facilitate any unauthorized attempts to intercept data in transmission or attempt entry into data systems or files. You will not intentionally affect the integrity of any data or systems of the Company or any of its Subsidiaries through the introduction of unauthorized code or data, or through unauthorized deletion or addition. You will abide by all applicable Corporate Information Security procedures.
(d) Upon the earlier of request or termination of employment, you agree to return to the Company or the relevant Subsidiaries, or if so directed by the Company or the relevant Subsidiaries, destroy any and all copies of materials in your possession containing Confidential Information.
The terms of this Appendix A do not apply to any information which is previously known to you without an obligation of confidence or without breach of this Appendix A, is publicly disclosed (other than by a violation by you of the terms of this Appendix A) either prior to or subsequent to your receipt of such information, or is rightfully received by you from a third party without obligation of confidence and other than in relation to your employment with the Company or any of its Subsidiaries.
II. Assignment and Disclosure . You acknowledge that in the course of your employment you assigned or will assign all of your rights, title and interest in any work performed by you and all deliverables and products created by you or jointly by you and any other party to your Employer, including any track record you may have as investment manager or fund manager. You will not pursue any ownership or other interest in such work product or deliverables including any rights as to copyright, trademark or patent.
(a) You will disclose promptly and in writing to the Company or your Employer all inventions and creative works, whether or not patentable or copyrightable, conceived or created solely or jointly by you during the period of your employment which relate to State Street’s business, and you hereby assign and agree to assign all of your interest in them to your Employer. You will execute all papers, at the Company’s or your Employer’s expense, which the Company or your Employer shall deem necessary to apply for and obtain domestic and foreign patents, copyright and other registrations, and to protect and enforce the Company’s or any of its Subsidiaries’ interest in them.
(b) These obligations shall continue beyond the period of your employment with respect to inventions or creations conceived or made by you during the period of your employment.
III. Non-Solicitation . If you hold a position title of Vice President or higher, you understand, acknowledge and agree that during your employment and for a period of six (6) months from the date of termination of your employment you will not, without the prior written consent of the Company or your Employer:




(a) solicit, directly or indirectly (other than through a general solicitation of employment not specifically directed to employees of the Company or any of its Subsidiaries), the employment of, hire or employ, recruit, or in any way assist another in soliciting or recruiting the employment of, or otherwise induce the termination of the employment of, any person who then or within the preceding twelve (12) months was an officer of the Company or any of its Subsidiaries (excluding any such officer whose employment was involuntarily terminated); or
(b) engage in the Solicitation of Business from any Client on behalf of any person or entity other than the Company or any of its Subsidiaries.
Section (a) above shall be deemed to exclude the words “hire or employ” if your work location is in California or New York, and shall be construed and administered accordingly.
For purposes of this Section III, “officer” shall include any person holding a position title of Assistant Vice President or SSgA Principal 4 or higher. Notwithstanding the foregoing, this Section III shall be inapplicable following a Change in Control as defined in the Plan.
IV. Notice Period Upon Resignation . If you hold a position title of Managing Director or higher, you agree to the notice provisions in this Section IV. In order to permit the Company and its Subsidiaries to safeguard their business interests and goodwill in the event of your resignation from employment, including by arranging to transition your duties and any client responsibilities or relationships in an orderly manner or, if necessary, to hire a replacement for you, you agree as follows:
(a) You agree to give your Employer 60 days’ notice (“Notice Period”) before terminating your employment with your Employer for any reason. Your compliance during the Notice Period with (i) Section III of this Appendix A, (ii) a post-employment non-solicitation or non-competition provision contained in any other agreement you entered into with the Company or any of its Subsidiaries or (iii) any other post-employment non-solicitation or non-competition covenant otherwise imposed as a condition precedent to the receipt of compensation or benefits under other awards, plans or arrangements of the Company or any of its Subsidiaries, in each case will be applied towards satisfaction of the restriction period in Section III or in such other agreement or restrictive covenant.
(b) During the Notice Period, you agree to cooperate with the Company and its Subsidiaries and to provide the Company and its Subsidiaries with any requested information to assist the Company and its Subsidiaries with transitioning your duties, accomplishing the Company’s and its Subsidiaries’ business, and/or preserving its or their client relationships. In its sole discretion, during the Notice Period, the Company or your Employer may either ask you to continue performing your regular duties or may place you on a partial or complete leave of absence and relieve you of some or all of your duties and responsibilities. In these circumstances, you shall remain an employee of your Employer at all times, shall continue to receive your regular salary and benefits (although you will not be eligible for any new incentive compensation awards) and the Company’s and the relevant Subsidiaries’ corporate and other policies will continue to apply to you.
(c) You agree that should you breach this Section IV and fail to provide notice as required herein, in addition to remedies under law, the Company or the relevant Subsidiaries shall be entitled to seek injunctive relief restricting you from employment for a period equal to the period for which notice of resignation was required but not provided.
(d) In its sole discretion, at any time during the Notice Period, the Company or your Employer may release you from your obligations under this Section IV, and allow for the immediate termination of your employment, subject to your obligations under the other Sections of this Appendix A.
Any termination of your employment pursuant to this Section IV, including by the Company or your Employer during the Notice Period as provided in paragraph (d), will be a voluntary termination constituting Circumstances of Forfeiture for purposes of this Agreement.
Notwithstanding the foregoing, if you hold the position title of Executive Vice President, this Section IV shall not apply in the event you terminate your employment for Good Reason on or prior to the first anniversary of a Change in Control (each as defined in the Plan).
V. Definitions . For the purpose of this Appendix A, the following terms are defined as follows:
(a) “Client” means a present or former customer or client of the Company or any of its Subsidiaries with whom you have had, or with whom persons you have supervised have had, substantive and recurring personal contact during your employment with the Company or any of its Subsidiaries. A former customer or client means a customer or client for which the Company or any of its Subsidiaries stopped providing all services




within twelve months prior to the date your employment with your Employer ends.
(b) “Confidential Information” includes but is not limited to all trade secrets, trade knowledge, systems, software, code, data documentation, files, formulas, processes, programs, training aids, printed materials, methods, books, records, client files, policies and procedures, client and prospect lists, employee data and other information relating to the operations of the Company or any of its Subsidiaries and to its or any of their customers, and any and all discoveries, inventions or improvements thereof made or conceived by you or others for the Company or any of its Subsidiaries whether or not patented or copyrighted, as well as cash and securities account transactions and position records of clients, regardless of whether such information is stamped “confidential.”
(c) “Solicitation of Business” means the attempt through direct or indirect contact by you or by any other person or entity with your assistance to induce a Client to:
(i) transfer the Client’s business from the Company or any of its Subsidiaries to any other person or entity;
(ii) cease or curtail the Client’s business with the Company or any of its Subsidiaries; or
(iii) divert a business opportunity from the Company or any of its Subsidiaries to any other person or entity, which business or business opportunity concerns or relates to the business with which you were actively connected during your employment with the Company or any of its Subsidiaries.
(d) “Subsidiaries” means any entity controlling, controlled by or under common control with the Company, including direct and indirect subsidiaries.
VI. Post-Employment Cooperation . You agree that, following the termination of your employment with the Company and its Subsidiaries, you will reasonably cooperate with the Company or the relevant Subsidiary with respect to any matters arising during or related to your employment, including but not limited to reasonable cooperation in connection with any litigation, governmental investigation, or regulatory or other proceeding (even if such litigation, governmental investigation, or regulatory or other proceeding arises following the date of this Award to which this Appendix A is appended or following the termination of your employment). The Company or any of its Subsidiaries shall reimburse you for any reasonable out-of-pocket and properly documented expenses you incur in connection with such cooperation.
VII. Non-Disparagement . You agree that during your employment and following the termination thereof you shall not make any false, disparaging, or derogatory statements to any media outlet (including Internet-based chat rooms, message boards, any and all social media, and/or web pages), industry groups, financial institutions, or to any current, former or prospective employees, consultants, clients, or customers of the Company or its Subsidiaries regarding the Company, its Subsidiaries or any of their respective directors, officers, employees, agents, or representatives, or about the business affairs and financial condition of State Street or any of its Subsidiaries.
VIII. Enforcement . You acknowledge and agree that the provisions contained in this Appendix A are necessary to the protection of, among other things, the Company’s and its Subsidiaries’ proprietary information, trade secrets and good will, and are material and integral to the undertakings of the Company under this Award to which this Appendix A is appended. You further agree that the Company and its Subsidiaries will be irreparably harmed in the event such provisions are not performed in accordance with their specific terms or are otherwise breached. Accordingly, if you fail to comply with such provisions, the Company or any of its Subsidiaries shall be entitled to preliminary or permanent injunctive or other equitable relief or remedy without the need to post bond, and to recover their reasonable attorney’s fees and costs incurred in securing such relief, in addition to, and not in lieu of, any other relief or remedy at law to which it or they may be entitled.
IX. No Waiver . No delay by the Company or any of its Subsidiaries in exercising any right under this Appendix A shall operate as a waiver of that right or of any other right. Any waiver or consent as to any of the provisions herein provided by the Company or any of its Subsidiaries must be in writing, is effective only in that instance, and may not be construed as a broader waiver of rights or as a bar to enforcement of the provision(s) at issue on any other occasion.
X. Relationship to Other Agreements . This Appendix A supplements and does not limit, amend or replace any other obligations you may have under applicable law or any other agreement or understanding you may have with the Company or any of its Subsidiaries or pursuant to the applicable policies of the Company or any of its Subsidiaries, whether such additional obligations have been agreed to in the past, or are agreed to in the future.
XI. Interpretation of Business Protections. The representations and agreements made by you in paragraphs (I) - (VIII) above shall be construed and interpreted in any judicial or other adjudicatory proceeding to permit their enforcement to the maximum extent permitted by law, and each of the provisions to this Appendix A is severable and independently enforceable without reference to the enforcement of any other provision. If any restriction set forth in




this Appendix A is found by any court of competent jurisdiction to be unenforceable because it extends for too long a period of time or over too great a range of activities or in too broad a geographic area, it shall be interpreted to extend only over the maximum period of time, range of activities or geographic area as to which it may be enforceable.
XII. Assignment . Except as provided otherwise herein, this Appendix A shall be binding upon and inure to the benefit of both parties and their respective successors and assigns, including any person or entity which acquires the Company or its assets or business; provided, however, that your obligations are personal and may not be assigned by you.
XIII. Electronic Acceptance . By accepting this Award electronically, you will be deemed to have acknowledged and agreed that you are bound by the terms of this Appendix A, and it shall be deemed to have been accepted by the Company.






STATE STREET CORPORATION
2006 Equity Incentive Plan
2015 Restricted Stock Unit Award Agreement with Performance Criteria

Subject to your acceptance of the terms set forth in this agreement (“Agreement”), State Street Corporation (“Company”), has awarded you, under the Company’s 2006 Equity Incentive Plan, as amended (“Plan”), and pursuant to this Agreement and the terms set forth herein (“Award”), a contingent right to receive the number of shares of Stock (the right to receive such Stock, “Restricted Stock Units”) as set forth in the information pertaining to this Award on the website (“Website”) maintained by the Equity Administrator (Fidelity or another party designated by the Company) (“Statement”). Copies of the Plan and of the Company’s U.S. Prospectus are located on the Website for your reference, and your acceptance of this Award constitutes your acknowledgement that you have read and understood the Plan and such Prospectus. The provisions of the Plan are incorporated herein by reference, and all terms used herein shall have the meaning given to them in the Plan, except as otherwise expressly provided herein. In the event of any conflict between the provisions of this Agreement and the provisions of the Plan, the provisions of the Plan shall control.
1.
Grant of Restricted Stock Units .
To be entitled to any payment under this Award, you must accept your Award and in so doing agree to comply with the terms and conditions of this Agreement and Appendix A (which is incorporated into, and forms a material and integral part of, this Agreement). Failure to accept this Award within 60 days following the posting of this Agreement on the Website will result in forfeiture of this Award. 2 Subject to the terms and conditions of this Agreement, your Restricted Stock Units shall vest on the vesting and payment date described in Section 2. The term “vest” as used herein means the lapsing of certain (but not all) restrictions described herein and in the Plan with respect to one or more Restricted Stock Units. To vest in all or any portion of this Award, you must be continuously employed with the Company or any Subsidiary from and after the date hereof and until (and including) the vesting and payment date described in Section 2, except as otherwise provided herein.
This Award is subject to any forfeiture, compensation recovery or similar requirements under applicable law and related implementing regulations and related implementing policies and practices of the Company or its relevant Subsidiaries in effect from time to time. In the event that under any applicable law or related implementing regulations, the Administrator is required to reduce or cancel any amount remaining to be paid, or to recover any amount previously paid, with respect to this Award, or to otherwise impose or apply restrictions on this Award or shares of Stock subject hereto, it shall, in its sole discretion, be authorized to do so.
2.
Performance Targets; Administrator Certification; Form of Payment .
Whether your Award will be paid and in what amounts will depend on achievement of average GAAP return on average common shareholders’ equity (“ROE”) as described in the attached Exhibit I (which is incorporated into, and forms a material and integral part of, this Agreement) during the three (3) calendar years commencing on January 1, 2015 and ending on December 31, 2017 (“Performance Period”) and the other terms and conditions as set forth herein. Payment under this Award will only be made if the Administrator certifies, following the close of the Performance Period, that the pre-established threshold performance targets have been met or exceeded, and then only to the extent of the level of performance so certified as having been achieved.
Any portion of this Award earned by reason of the Administrator’s certification as described above will vest and be paid in Stock to you (or your beneficiary, in the case of your death) in one single installment between February 15 and March 15 of the calendar year beginning after the end of the Performance Period. The total number of shares of Stock to be paid will be determined by multiplying the number of Restricted Stock Units referred to in your Statement by the Total Vesting Percentage. For this purpose, “Total Vesting Percentage” means the vesting percentage achieved for the ROE performance target for the Performance Period, as provided in Exhibit I and certified by the Administrator.
5.
Identified Staff Holding Requirement .
Notwithstanding anything herein to the contrary, you agree and covenant that, as a condition to the receipt of this Award and the payment of the Restricted Stock Units hereunder, in the event the Company or any Subsidiary notifies you at any time before or after this Award is made (but before it has vested) that you have been designated Identified Staff for purposes of Capital Requirements Directives III or IV (or any implementing or successor rule or regulation, including the rules and regulations of the United Kingdom Financial Conduct Authority or Prudential Regulatory Authority (“PRA”)), you will not sell or otherwise transfer any shares of Stock subject to this Award until the date that is at least
2 For purposes of clarity the 60 day period shall run from date of delivery of your Statement. Should the end of this period fall on a non-business day this period shall extend until the next succeeding business day.




six months and one day after the vesting date of such shares (“Release Date”), except that (1) you shall be permitted to sell, prior to the Release Date, a number of shares of Stock sufficient to pay applicable tax and social security withholding, if any, with respect to such vesting (or, alternatively, if your Employer withholds such shares pursuant to Section 14 of this Agreement, the requirements in this Section 3 not to sell or otherwise transfer any shares shall only apply to the number of such shares delivered to you (i.e., after such withholding of shares)), (2) transfers by will or pursuant to the laws of descent or distribution are permitted and (3) this holding requirement shall not apply to such portion of the shares, if any, as was awarded with respect to a period of time, as determined by the Company in its discretion, during which you were not subject to such holding requirement.  Any attempt by you (or in the case of your death, by your beneficiary) to assign or transfer shares of Stock subject to this Award, either voluntarily or involuntarily, contrary to the provisions hereof, shall be null and void and without effect.  The Company may, in its sole discretion, impose restrictions on the assignment or transfer of shares of Stock consistent with the provisions hereof, including, without limitation, by or through the transfer agent for such shares or by means of legending Stock certificates or otherwise.
4.
Non - Transferability, Etc .
This Award shall not be transferable other than (1) by will or the laws of descent and distribution or (2) pursuant to the terms of a court-approved domestic relations order, official marital settlement agreement or other divorce or settlement instrument satisfactory to the Company in its sole discretion. In the case of transfer pursuant to (2) above, this Award shall remain subject to all the terms and conditions contained in the Plan and this Agreement, including vesting and forfeiture conditions. Any attempt by you (or in the case of your death, by your beneficiary) to assign or transfer this Award, either voluntarily or involuntarily, contrary to the provisions hereof, shall be null, void and without effect and shall render this Award itself null and void.
5.
General Circumstances of Forfeiture .
(a) No amount shall be paid in respect of this Award in the event (i) you cease to be employed by the Company and its Subsidiaries due to Circumstances of Forfeiture or (ii) the Company or the Subsidiary that employs you (“Employer”), in its sole discretion, determines that circumstances prior to the date on which you ceased to be employed by the Company and its Subsidiaries for any reason constituted grounds for an involuntary termination constituting Circumstances of Forfeiture. If your employment with the Company and its Subsidiaries ceases by reason of Retirement, Disability, death, or any reason other than for Circumstances of Forfeiture, then you shall be eligible to receive a payment under this Award subject to the certification of the Administrator in accordance with Section 2, and subject to the terms and conditions of this Agreement. Unless accelerated as provided in Section 9, any amount payable pursuant to this Section 5 shall be paid in accordance with Section 2.
(b) For purposes hereof:
(i) “Retirement” means your attainment of age 55 and completion of 5 years of service with the Company and its Subsidiaries.
(ii) “Disability” means (A) your inability to engage in any substantially gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in your death or can be expected to last for a continuous period of not less than 12 months (an “impairment”) or (B) if you, as a result of the impairment described in subparagraph (A), receive income replacement benefits for a period of not less than 3 months under a plan of the Company or a Subsidiary.
(iii) “Circumstances of Forfeiture” means the termination of your employment with the Company and its Subsidiaries either (A) voluntarily (other than (x) Retirement or (y) for Good Reason on or prior to the first anniversary of a Change in Control (each as defined in the Plan)) or (B) involuntarily for reasons determined by the Company or the relevant Subsidiary in its sole discretion to constitute “gross misconduct” (including while you are Retirement eligible).
6. Malus-Based Forfeiture.
Any amount remaining to be paid in respect of this Award may, in the sole discretion of the Administrator, be reduced or cancelled, in the event that it is determined by the Administrator, in its sole discretion, that your actions exposed the Business to inappropriate risk or risks (including where you failed to timely identify, analyze, assess or raise concerns about such risk or risks, including in a supervisory capacity, where it was reasonable to expect you to do so), and such exposure has resulted or could reasonably be expected to result in a material loss or losses that are or would be substantial in relation to the revenues, capital and overall risk tolerance of the Business. The Business shall mean State Street Corporation, together with its direct and indirect subsidiaries on a consolidated basis (“State Street”), or, to the extent you devote substantially all of your business time to a particular business unit (e.g., Global Services Americas, Global Services International, State Street Global Advisors, State Street Global Markets, State Street Global




Exchange or State Street Sector Solutions) or business division (e.g., Alternative Investment Solutions, Securities Lending, etc.), Business shall refer to such business unit or business division.


7.
Identified Staff Malus-Based Forfeiture and Clawback.

(a) In the event the Company or any Subsidiary notifies you at any time before or after this Award is made that you have been designated Identified Staff for purposes of the United Kingdom Prudential Regulatory Authority Remuneration Code, you acknowledge and agree that this Award is subject to the provisions of this Section 7 for a period of seven (7) years from the date this Award is granted. By accepting this Award on the Website, you consent to making a payment to the Employer in the event of a PRA Clawback.

(b) If the Company determines that a PRA Forfeiture Event has occurred it may elect to reduce or cancel all or part of any amount remaining to be paid in respect of this Award (“PRA Malus-Based Forfeiture”).

(c) If the Company determines that a PRA Clawback Event has occurred it may require the repayment by you of (or otherwise seek to recover from you) all or part of any compensation paid to you in respect of this Award (“PRA Clawback”).

(d) The Company may produce guidelines from time to time in respect of its operation of the provisions of this Section 7. The Company intends to apply such guidelines in deciding whether and when to effect any reduction, cancellation or recovery of compensation but, in the event of any inconsistency between the provisions of this Section 7 and any such guidelines, this Section 7 shall prevail. Such guidelines do not form part of any employee’s contract of employment, and the Company may amend such guidelines and their application at any time.

(e) For the purposes of this Section 7:

(i) A “PRA Forfeiture Event” means a determination by the Company, in its sole discretion, that (A) there is reasonable evidence of employee misbehavior or material error; or (B) the Company, one of its Subsidiaries or a relevant business unit has suffered a material downturn in its financial performance; or (C) the Company, one of its Subsidiaries or a relevant business unit has suffered a material failure of risk management.

(ii) A “PRA Clawback Event” means a determination by the Company, in its sole discretion, that either (A) there is reasonable evidence of employee misbehavior or material error or (B) the Company, one of its Subsidiaries or a relevant business unit has suffered a material failure of risk management.
8.
Management Committee Forfeiture and Clawback .
(d) If you are a member of the State Street Corporation Management Committee (“Management Committee”) at the time this Award is made, any amount remaining to be paid in respect of this Award may, in the sole discretion of the Administrator, be reduced or cancelled, in whole or in part, in the event that it is determined by the Administrator, in its sole discretion, that:
(i) you engaged in fraud, gross negligence or any misconduct that was materially detrimental to the interests or business reputation of the Company or any of its businesses; or
(ii) as a result of a material financial restatement by State Street contained in a filing with the Securities and Exchange Commission, or miscalculation or inaccuracy in the determination of performance metrics, financial results or other criteria used in determining the amount of this Award, you would have received a smaller or no Award hereunder.
(e) If you are a member of the Management Committee at the time this Award is made, this Award also is subject to compensation recovery as provided herein. Upon the occurrence of an MC Clawback Event within four (4) years after the date of grant of this Award, the Administrator may, in its sole discretion, determine to recover the MC Clawback Amount, in whole or in part. Following such a determination, you agree to immediately repay such compensation, but in no event later than sixty (60) days following such determination, in the form of any shares of Stock delivered to you previously by the Company or cash (or a combination of such shares and cash). For purposes of calculating the value of both (i) the amount of the MC Clawback Amount determined by the Administrator to be recovered and (ii) the amount of such compensation repaid, shares of Stock will be valued in an amount equal to the market value of the shares of Stock delivered to you under this Award by the Company as determined at the time of




such delivery. To the extent not prohibited by applicable law and subject to Section 16 (if applicable), if you fail to comply with any requirement to repay compensation under this Section 8(b), the Administrator may determine, in its sole discretion, in addition to any other remedies available to the Company, that you will satisfy your repayment obligation through an offset to any future payments owed by the Company or any of its Subsidiaries to you.
(f) For purposes of this Section 8:
(i) “MC Clawback Event” means a determination by the Administrator, in its sole discretion, with respect to any event or series of related events that you engaged in fraud or willful misconduct that directly resulted in either (A) financial or reputational harm that is material to State Street and resulted in the termination of your employment for Cause (as defined in the Plan) by the Company and its Subsidiaries (or, following a cessation of your employment for any other reason, circumstances constituting grounds for such termination for Cause) or (B) a material financial restatement by State Street contained in a filing with the Securities and Exchange Commission. For the avoidance of doubt and as applicable, an MC Clawback Event includes any determination by the Administrator that is based on circumstances prior to the date on which you cease to be employed by the Company and its Subsidiaries for any reason, even if the determination by the Administrator occurs after such cessation of employment.
(ii) “MC Clawback Amount” means (A) with respect to an MC Clawback Event described in Section 8(c)(i)(A), the value of the shares of Stock, if any, that were delivered to you under this Award by the Company prior to such MC Clawback Event or (B) with respect to an MC Clawback Event described in Section 8(c)(i)(B), the value of the shares of Stock, if any, that were delivered to you under this Award by the Company (x) prior to the date such financial restatement is contained in a filing with the Securities and Exchange Commission and (y) that represents an amount that, in the sole discretion of the Administrator, exceeds the amount you would have been awarded under this Award had the financial statements of State Street been accurate (reduced, in the case of both of the immediately preceding clauses (A) and (B), by any portion of this Award that was previously recovered by the Company under Section 8(b)).
9.
Change in Control; Acceleration of Performance Award .
(a) In the case of a Change in Control occurring (i) in 2015, the Total Vesting Percentage shall be 100%, (ii) in 2016, the Total Vesting Percentage shall be the simple average of the actual GAAP ROE results for the 2015 calendar year, adjusted in accordance with the Plan, and 100% for each of 2016 and 2017 and (iii) in 2017, the Total Vesting Percentage shall be the simple average of the actual GAAP ROE results, adjusted in accordance with the Plan, for each of the 2015 and 2016 calendar years and 100% for 2017.
    (b) Notwithstanding anything in this Agreement to the contrary, if, prior to the full settlement of your Award, your employment with the Company and its Subsidiaries is terminated by the Company or the applicable Subsidiary without Cause (as defined in the Plan), by you for Good Reason (as defined in the Plan) or on account of your Retirement, in each case, during the one-year period following a Change in Control, you shall be entitled within 30 days of such termination to receive a cash payment equal to the adjusted fair market value of a share of the Stock (1) multiplied by the number of units referred to in your Statement and (2) further multiplied by the Total Vesting Percentage (which shall be calculated in accordance with clause (a) above in the case of a Change in Control occurring prior to the end of the Performance Period); provided, to the extent an Award or any portion thereof constitutes “nonqualified deferred compensation” within the meaning of Section 409A of the Code, that such Change in Control constitutes a “change in control event” as that term is defined under Section 409A of the Internal Revenue Code of 1986, as amended, (“Code”) and Treasury Regulations 1.409A-3(i)(5). For purposes of the preceding sentence, “adjusted fair market value” shall mean the higher of the (i) the highest average of the reported daily high and low prices per share of the Stock during the 60-day period prior to the first date of actual knowledge by the Board of the circumstances that resulted in a Change in Control, and (ii) if the Change in Control is the result of a transaction or series of transactions described in paragraph 1 or 2 of the definition of Change in Control in the Plan, the highest price per share of the Stock paid in such transaction or series of transactions (which in the case of a transaction described in paragraph 1 of such definition in the Plan shall be the highest price per share of the Stock as reflected in a Schedule 13D filed by the person having made the acquisition). For purposes of this Section 9, termination of employment shall mean a “separation from service” as determined in accordance with Treasury Regulation Section 1.409A-1(h).
10.
Changes in Capitalization or Corporate Structure .
The Award is subject to adjustment pursuant to Section 7(b) of the Plan in the circumstances therein described.
11.
Amendments to Restricted Stock Units .
Subject to the specific limitations set forth in the Plan, the Administrator may at any time suspend or terminate any rights or obligations relating to this Award prior to the full settlement of your Award without your consent.




12.
Compliance with Section 162(m) .
The Administrator shall exercise its discretion with respect to this Award so as to preserve the deductibility of payments under this Award against disallowance by reason of Section 162(m) of the Code, where applicable.
13.
Shareholder Rights .
You are not entitled to any rights as a shareholder with respect to any shares of Stock subject to this Award until they are transferred to you. Without limiting the foregoing, prior to the issuance and transfer to you of shares of Stock pursuant to this Agreement, you will have no right to receive dividends or amounts in lieu of dividends with respect to the shares of Stock subject to this Award nor any right to vote the shares of Stock prior to any shares being transferred to you.
14.
Withholding .
Regardless of any action the Company or the Employer takes with respect to any or all income tax (including U.S. federal, state and local taxes and/or non-U.S. taxes), social insurance, payroll tax, payment on account of other tax-related withholding (“Tax-Related Items”), you acknowledge that the ultimate liability for all Tax-Related Items legally due from you is and remains your responsibility. Furthermore, neither the Company nor your Employer (a) makes any representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of this Award, including the grant of this Award, the vesting of this Award and the issuance of shares of Stock in settlement of this Award, the subsequent sale of any shares of Stock delivered upon settlement of this Award, the cancellation, forfeiture or repayment of any shares of Stock (or cash in lieu thereof) or the receipt of any dividends or dividend equivalents; or (b) commits to structure the terms of the grant, vesting, settlement, cancellation, forfeiture, repayment or any other aspect of this Award to reduce or eliminate your liability for Tax-Related Items.
Prior to the delivery of any Stock upon the settlement of this Award, if any taxing jurisdiction requires withholding of Tax-Related Items, the Company may withhold a sufficient number of whole shares of Stock otherwise issuable upon the settlement of this Award that have an aggregate fair market value sufficient to pay the minimum Tax-Related Items required to be withheld with respect to this Award; provided, however, that the total tax withholding cannot exceed the Employer’s minimum statutory withholding obligations (based on minimum statutory withholding rates for federal and state tax purposes, including payroll taxes, that are applicable to such supplemental taxable income). The cash equivalent of the shares of Stock withheld will be used to settle the obligation to withhold the Tax-Related Items (determined in the Company’s reasonable discretion). No fractional shares of Stock will be withheld or issued pursuant to the issuance of Stock hereunder. Alternatively, the Company and/or your Employer may, in its discretion, withhold any amount necessary to pay the Tax-Related Items from your salary or other amounts payable to you, with no withholding in shares of Stock. In the event the withholding requirements are not satisfied through the withholding of shares of Stock or through your salary or other amounts payable to you, no shares of Stock will be issued upon vesting of this Award unless and until satisfactory arrangements (as determined by the Company or your Employer) have been made by you with respect to the payment of any Tax-Related Items which the Company or your Employer determines, in its sole discretion, must be withheld or collected with respect to such Award. By accepting this Award on the Website, you expressly consent to the withholding of shares of Stock and/or cash as provided for hereunder. All other Tax-Related Items related to this Award and any Stock delivered in payment thereof, including the extent to which the Company or your Employer does not so-withhold shares of Stock and/or cash, are your sole responsibility.
15.
Employee Rights .
Nothing in this Award shall be construed to guarantee you any right of employment with the Company or any Subsidiary or to limit the discretion of any of them to terminate your employment at any time, with or without cause.
16.
Compliance with Section 409A of the Code .
(a)    The provisions of this Award are intended to be exempt from, or compliant with, Section 409A of the Code, and shall be construed and interpreted consistently therewith. Notwithstanding the foregoing, neither the Company nor any Subsidiary shall have any liability to you or to any other person if this Award is not so exempt or compliant.
(b)    If and to the extent (i) any portion of any payment, compensation or other benefit provided to you pursuant to the Plan in connection with your employment termination constitutes “nonqualified deferred compensation” within the meaning of Section 409A of the Code and (ii) you are a specified employee as defined in Section 409A(a)(2)(B)(i) of the Code, in each case as determined by the Company in accordance with its procedures, by which determinations you (through accepting this Award) agree that you are bound, such portion of the payment, compensation or other benefit shall not be paid before the day that is six months plus one day after the date of “separation from service” (as determined under Section 409A of the Code) (“New Payment Date”), except as Section 409A of the Code




may then permit. The aggregate of any payments that otherwise would have been paid to you during the period between the date of separation from service and the New Payment Date shall be paid to you in a lump sum on such New Payment Date, and any remaining payments will be paid on their original schedule.
17.
Entire Agreement .
This Agreement constitutes the complete understanding and agreement between the parties to this Agreement with respect to this Award, and supersedes and cancels any previous oral or written discussions, agreements or representations regarding this Award or the Stock.
18.
Miscellaneous.
a) The grant of this Award is a one-time benefit and does not create any contractual or other right to receive an award, compensation or benefits in lieu of an award in the future.
b) Sections 5, 6, 7 and 8 of this Agreement are intended to comply with and meet the requirements of applicable law and related implementing regulations regarding incentive compensation and will be interpreted and administered accordingly as well as in accordance with any implementing policies and practices of the Company or its relevant Subsidiaries in effect from time to time. In making determinations under such Sections, the Company, the relevant Subsidiary or the Administrator, as applicable, may take into account, in its sole discretion, all factors that it deems appropriate or relevant. Furthermore, the Company, the relevant Subsidiary or the Administrator may, as applicable, take any and all actions it deems necessary or appropriate in its sole discretion, as permitted by applicable law, to implement the intent of Sections 5, 6, 7 and 8, including suspension of vesting and payment pending an investigation or the determination by the Company, the relevant Subsidiary or the Administrator, as applicable. Each such Section is without prejudice to the provisions of the other Sections, and the Company, the relevant Subsidiary or the Administrator, as applicable, may elect or be required to apply any or all of the provisions of Sections 5, 6, 7 and 8 to this Award. Sections 5, 6, 7 and 8 of this Agreement shall cease to apply upon your death at any time provided, however, if a PRA Clawback Event or an MC Clawback Event has occurred pursuant to Section 7 or 8, respectively, prior to your death, any amount that the Administrator has made a determination to recover under either such Section shall continue to be payable to the Company.
c) The Company reserves the right to impose other requirements on this Award, any shares of Stock acquired pursuant to this Award, and your participation in the Plan, to the extent the Company determines, in its sole discretion, that such other requirements are necessary or advisable in order to comply with local law or to facilitate the administration of the Plan. Such requirements may include (but are not limited to) requiring you to sign any agreements or undertakings that may be necessary to accomplish the foregoing.
d) Your participation in the Plan is voluntary. The value of this Award is an extraordinary item of compensation and this Award is not part of your normal or expected compensation for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long-service awards, pension, or retirement benefits or similar payments.
e) The Company or any of its Subsidiaries may, in its sole discretion, decide to deliver any documents related to this Award by electronic means. You hereby consent to receive such documents by electronic delivery and agree to participate in the Plan through an on-line or electronic system, including the Website, established or maintained by the Company, Equity Administrator or another party designated by the Company.
f) By accepting this Award electronically, (i) you will be deemed to have acknowledged and agreed that you are bound by the terms of this Agreement and the Plan and that you and this Award are subject to all of the rights, power and discretion of the Company, its Subsidiaries and the Administrator set forth in this Agreement and the Plan; and (ii) this Award is deemed accepted by the Company and the Company shall be deemed to be bound by the terms of this Agreement.
g) You acknowledge and agree that it is your express intent that this Agreement, the Plan and all other documents, notices and legal proceedings entered into, given or instituted pursuant to this Award, be drawn up in English. If you have received the Agreement, the Plan or any other documents related to this Award translated into a language other than English, and if the meaning of the translated version is different than the English version, the English version will control.
h) Notwithstanding any provisions of this Agreement to the contrary, this Award shall be subject to any special terms and conditions for your country of residence (and country of employment, if different), as may be set forth in an applicable Addendum to the Agreement. Further, if you transfer residence and/or employment to another country reflected in an Addendum to the Agreement, the special terms and conditions for such country will apply to you to the extent the Company or the relevant Subsidiary determines, in its sole discretion, that the application of such




terms are necessary or advisable in order to comply with local law or to facilitate administration of the Plan. Any such Addendum is hereby incorporated into, and forms a part of, this Agreement.
i) No individual acting as a director, officer, employee or agent of the Company or any of its Subsidiaries will be liable to you or any other person for any action, including any Award forfeiture, Award recovery or other discretionary action taken pursuant to this Agreement or any related implementing policy or procedure of the Company.
j) This Agreement, including Appendix A, shall be subject to and governed by the laws of the Commonwealth of Massachusetts, without regard to that commonwealth’s conflicts of law principles.




Exhibit I
2015 Performance-Based Restricted Stock Unit Awards

◦
Performance Period: The three (3) calendar years commencing January 1, 2015 and ending on December 31, 2017.

◦
The number of units eligible to vest is based on the three-year simple average of the GAAP ROE results for each calendar year (2015, 2016 and 2017) of the Performance Period, adjusted in accordance with the Plan to reflect events (for example, but without limitation, acquisitions or dispositions, changes in accounting principles or interpretations, impairment charges) occurring during the Performance Period. The Total Vesting Percentage will be determined under Table 1 using linear interpolation to adjust between percentage points and rounding up to the nearest one-tenth of one percent, as determined by the Company in its sole discretion.

Table 1: 2015 Total Vesting Percentage

Three-year
(2015-2017)
ROE Results (Average)
Total Vesting Percentage
≤0.0%
0.00%
>0% - 3.0%
30.00%
4.0%
41.67%
5.0%
53.33%
6.0%
65.00%
7.0%
76.67%
8.0%
88.33%
≥9.0%
100.00%







APPENDIX A
    

In consideration of the opportunity to participate in the Plan and the granting to you of an Award under the Plan, you expressly agree to comply with the terms and conditions of this Appendix A, irrespective of whether or not any amount has been forfeited, paid, delivered or repaid, under this Award at any time, including the time you separate from service with the Company and its Subsidiaries. In addition, your eligibility to participate in the Plan in the future, including any potential future grants of awards under the Plan (or any successor equity incentive plan of the Company), is subject to and conditioned on your compliance with the terms and conditions of this Appendix A. All terms used herein shall have the meaning given to them in the Plan, except as otherwise expressly provided herein.
I.
Confidentiality . You acknowledge that you have access to Confidential Information which is not generally known or made available to the general public and that such Confidential Information is the property of the Company, its Subsidiaries or its or their licensors, suppliers or customers. You agree specifically as follows, in each case whether during your employment or following the termination thereof:
(a) You will always preserve as confidential all Confidential Information, and will never use it for your own benefit or for the benefit of others; this includes that you will not use the knowledge of activities or positions in clients’ securities portfolio accounts or cash accounts for your own personal gain or for the gain of others.
(b) You will not disclose, divulge, or communicate Confidential Information to any unauthorized person, business or corporation during or after the termination of your employment with the Company and its Subsidiaries. You will use your best efforts and exercise due diligence to protect, to not disclose and to keep as confidential all Confidential Information.
(c) You will not initiate or facilitate any unauthorized attempts to intercept data in transmission or attempt entry into data systems or files. You will not intentionally affect the integrity of any data or systems of the Company or any of its Subsidiaries through the introduction of unauthorized code or data, or through unauthorized deletion or addition. You will abide by all applicable Corporate Information Security procedures.
(d) Upon the earlier of request or termination of employment, you agree to return to the Company or the relevant Subsidiaries, or if so directed by the Company or the relevant Subsidiaries, destroy any and all copies of materials in your possession containing Confidential Information.
The terms of this Appendix A do not apply to any information which is previously known to you without an obligation of confidence or without breach of this Appendix A, is publicly disclosed (other than by a violation by you of the terms of this Appendix A) either prior to or subsequent to your receipt of such information, or is rightfully received by you from a third party without obligation of confidence and other than in relation to your employment with the Company or any of its Subsidiaries.
II. Assignment and Disclosure . You acknowledge that in the course of your employment you assigned or will assign all of your rights, title and interest in any work performed by you and all deliverables and products created by you or jointly by you and any other party to your Employer, including any track record you may have as investment manager or fund manager. You will not pursue any ownership or other interest in such work product or deliverables including any rights as to copyright, trademark or patent.
(a) You will disclose promptly and in writing to the Company or your Employer all inventions and creative works, whether or not patentable or copyrightable, conceived or created solely or jointly by you during the period of your employment which relate to State Street’s business, and you hereby assign and agree to assign all of your interest in them to your Employer. You will execute all papers, at the Company’s or your Employer’s expense, which the Company or your Employer shall deem necessary to apply for and obtain domestic and foreign patents, copyright and other registrations, and to protect and enforce the Company’s or any of its Subsidiaries’ interest in them.
(b) These obligations shall continue beyond the period of your employment with respect to inventions or creations conceived or made by you during the period of your employment.
III. Non-Solicitation . If you hold a position title of Vice President or higher, you understand, acknowledge and




agree that during your employment and for a period of six (6) months from the date of termination of your employment you will not, without the prior written consent of the Company or your Employer:
(a) solicit, directly or indirectly (other than through a general solicitation of employment not specifically directed to employees of the Company or any of its Subsidiaries), the employment of, hire or employ, recruit, or in any way assist another in soliciting or recruiting the employment of, or otherwise induce the termination of the employment of, any person who then or within the preceding twelve (12) months was an officer of the Company or any of its Subsidiaries (excluding any such officer whose employment was involuntarily terminated); or
(b) engage in the Solicitation of Business from any Client on behalf of any person or entity other than the Company or any of its Subsidiaries.
Section (a) above shall be deemed to exclude the words “hire or employ” if your work location is in California or New York, and shall be construed and administered accordingly.
For purposes of this Section III, “officer” shall include any person holding a position title of Assistant Vice President or SSgA Principal 4 or higher. Notwithstanding the foregoing, this Section III shall be inapplicable following a Change in Control as defined in the Plan.
IV. Notice Period Upon Resignation . If you hold a position title of Managing Director or higher, you agree to the notice provisions in this Section IV. In order to permit the Company and its Subsidiaries to safeguard their business interests and goodwill in the event of your resignation from employment, including by arranging to transition your duties and any client responsibilities or relationships in an orderly manner or, if necessary, to hire a replacement for you, you agree as follows:
(a) You agree to give your Employer 60 days’ notice (“Notice Period”) before terminating your employment with your Employer for any reason. Your compliance during the Notice Period with (i) Section III of this Appendix A, (ii) a post-employment non-solicitation or non-competition provision contained in any other agreement you entered into with the Company or any of its Subsidiaries or (iii) any other post-employment non-solicitation or non-competition covenant otherwise imposed as a condition precedent to the receipt of compensation or benefits under other awards, plans or arrangements of the Company or any of its Subsidiaries, in each case will be applied towards satisfaction of the restriction period in Section III or in such other agreement or restrictive covenant.
(b) During the Notice Period, you agree to cooperate with the Company and its Subsidiaries and to provide the Company and its Subsidiaries with any requested information to assist the Company and its Subsidiaries with transitioning your duties, accomplishing the Company’s and its Subsidiaries’ business, and/or preserving its or their client relationships. In its sole discretion, during the Notice Period, the Company or your Employer may either ask you to continue performing your regular duties or may place you on a partial or complete leave of absence and relieve you of some or all of your duties and responsibilities. In these circumstances, you shall remain an employee of your Employer at all times, shall continue to receive your regular salary and benefits (although you will not be eligible for any new incentive compensation awards) and the Company’s and the relevant Subsidiaries’ corporate and other policies will continue to apply to you.
(c) You agree that should you breach this Section IV and fail to provide notice as required herein, in addition to remedies under law, the Company or the relevant Subsidiaries shall be entitled to seek injunctive relief restricting you from employment for a period equal to the period for which notice of resignation was required but not provided.
(d) In its sole discretion, at any time during the Notice Period, the Company or your Employer may release you from your obligations under this Section IV, and allow for the immediate termination of your employment, subject to your obligations under the other Sections of this Appendix A.
Any termination of your employment pursuant to this Section IV, including by the Company or your Employer during the Notice Period as provided in paragraph (d), will be a voluntary termination constituting Circumstances of Forfeiture for purposes of this Agreement.
Notwithstanding the foregoing, if you hold the position title of Executive Vice President, this Section IV shall not apply in the event you terminate your employment for Good Reason on or prior to the first anniversary of a Change in Control (each as defined in the Plan).
V. Definitions . For the purpose of this Appendix A, the following terms are defined as follows:
(a) “Client” means a present or former customer or client of the Company or any of its Subsidiaries with whom you have had, or with whom persons you have supervised have had, substantive and recurring personal




contact during your employment with the Company or any of its Subsidiaries. A former customer or client means a customer or client for which the Company or any of its Subsidiaries stopped providing all services within twelve months prior to the date your employment with your Employer ends.
(b) “Confidential Information” includes but is not limited to all trade secrets, trade knowledge, systems, software, code, data documentation, files, formulas, processes, programs, training aids, printed materials, methods, books, records, client files, policies and procedures, client and prospect lists, employee data and other information relating to the operations of the Company or any of its Subsidiaries and to its or any of their customers, and any and all discoveries, inventions or improvements thereof made or conceived by you or others for the Company or any of its Subsidiaries whether or not patented or copyrighted, as well as cash and securities account transactions and position records of clients, regardless of whether such information is stamped “confidential.”
(c) “Solicitation of Business” means the attempt through direct or indirect contact by you or by any other person or entity with your assistance to induce a Client to:
1. transfer the Client’s business from the Company or any of its Subsidiaries to any other person or entity;
2. cease or curtail the Client’s business with the Company or any of its Subsidiaries; or
3. divert a business opportunity from the Company or any of its Subsidiaries to any other person or entity, which business or business opportunity concerns or relates to the business with which you were actively connected during your employment with the Company or any of its Subsidiaries.
(d) “Subsidiaries” means any entity controlling, controlled by or under common control with the Company, including direct and indirect subsidiaries.
VI. Post-Employment Cooperation . You agree that, following the termination of your employment with the Company and its Subsidiaries, you will reasonably cooperate with the Company or the relevant Subsidiary with respect to any matters arising during or related to your employment, including but not limited to reasonable cooperation in connection with any litigation, governmental investigation, or regulatory or other proceeding (even if such litigation, governmental investigation, or regulatory or other proceeding arises following the date of this Award to which this Appendix A is appended or following the termination of your employment). The Company or any of its Subsidiaries shall reimburse you for any reasonable out-of-pocket and properly documented expenses you incur in connection with such cooperation.
VII. Non-Disparagement . You agree that during your employment and following the termination thereof you shall not make any false, disparaging, or derogatory statements to any media outlet (including Internet-based chat rooms, message boards, any and all social media, and/or web pages), industry groups, financial institutions, or to any current, former or prospective employees, consultants, clients, or customers of the Company or its Subsidiaries regarding the Company, its Subsidiaries or any of their respective directors, officers, employees, agents, or representatives, or about the business affairs and financial condition of State Street or any of its Subsidiaries.
VIII. Enforcement . You acknowledge and agree that the provisions contained in this Appendix A are necessary to the protection of, among other things, the Company’s and its Subsidiaries’ proprietary information, trade secrets and good will, and are material and integral to the undertakings of the Company under this Award to which this Appendix A is appended. You further agree that the Company and its Subsidiaries will be irreparably harmed in the event such provisions are not performed in accordance with their specific terms or are otherwise breached. Accordingly, if you fail to comply with such provisions, the Company or any of its Subsidiaries shall be entitled to preliminary or permanent injunctive or other equitable relief or remedy without the need to post bond, and to recover their reasonable attorney’s fees and costs incurred in securing such relief, in addition to, and not in lieu of, any other relief or remedy at law to which it or they may be entitled.
IX. No Waiver . No delay by the Company or any of its Subsidiaries in exercising any right under this Appendix A shall operate as a waiver of that right or of any other right. Any waiver or consent as to any of the provisions herein provided by the Company or any of its Subsidiaries must be in writing, is effective only in that instance, and may not be construed as a broader waiver of rights or as a bar to enforcement of the provision(s) at issue on any other occasion.
X. Relationship to Other Agreements . This Appendix A supplements and does not limit, amend or replace any other obligations you may have under applicable law or any other agreement or understanding you may have with the Company or any of its Subsidiaries or pursuant to the applicable policies of the Company or any of its Subsidiaries, whether such additional obligations have been agreed to in the past, or are agreed to in the future.
XI. Interpretation of Business Protections. The representations and agreements made by you in paragraphs (I) - (VIII) above shall be construed and interpreted in any judicial or other adjudicatory proceeding to permit their




enforcement to the maximum extent permitted by law, and each of the provisions to this Appendix A is severable and independently enforceable without reference to the enforcement of any other provision. If any restriction set forth in this Appendix A is found by any court of competent jurisdiction to be unenforceable because it extends for too long a period of time or over too great a range of activities or in too broad a geographic area, it shall be interpreted to extend only over the maximum period of time, range of activities or geographic area as to which it may be enforceable.
XII. Assignment . Except as provided otherwise herein, this Appendix A shall be binding upon and inure to the benefit of both parties and their respective successors and assigns, including any person or entity which acquires the Company or its assets or business; provided, however, that your obligations are personal and may not be assigned by you.
XIII. Electronic Acceptance . By accepting this Award electronically, you will be deemed to have acknowledged and agreed that you are bound by the terms of this Appendix A, and it shall be deemed to have been accepted by the Company.







STATE STREET CORPORATION
2006 EQUITY INCENTIVE PLAN

2015 Sale-Restricted Stock Award Agreement (US Employees)

Subject to your acceptance of the terms set forth in this agreement (“Agreement”), State Street Corporation (“Company”) has awarded you, under the State Street Corporation 2006 Equity Incentive Plan, as amended (“Plan”), and pursuant to this Agreement and the terms set forth herein (“Award”), the right to receive the number of shares of Stock (“Shares”) as set forth in the information pertaining to this Award on the website (“Website”) maintained by the Equity Administrator (Fidelity or another party designated by the Company) (“Statement”). Copies of the Plan and the Company’s U.S. Prospectus are located on the Website for your reference, and your acceptance of this Award constitutes your acknowledgement that you have read and understood the Plan and such Prospectus. The provisions of the Plan are incorporated herein by reference, and all terms used herein shall have the meaning given to them in the Plan, except as otherwise expressly provided herein. In the event of any conflict between the provisions of this Agreement and the provisions of the Plan, the provisions of the Plan shall control.
The terms of your Award, are as follows:
1.
Grant of Stock Award .
To be entitled to any payment under this Award, you must accept your Award and in so doing agree to comply with the terms and conditions of this Agreement and Appendix A (which is incorporated into, and forms a material and integral part of, this Agreement). Failure to accept this Award within 60 days following the posting of this Agreement on the Equity Administrator website will result in forfeiture of this Award. 3
This Award is subject to any forfeiture, compensation recovery or similar requirements under applicable law and related implementing regulations and related implementing policies and practices of the Company or its relevant Subsidiaries in effect from time to time. In the event that under any applicable law or related implementing regulations, the Administrator is required to reduce or cancel any amount remaining to be paid, or to recover any amount previously paid, with respect to this Award, or to otherwise impose or apply restrictions on this Award or shares of Stock subject hereto, it shall, in its sole discretion, be authorized to do so. By accepting this Award on the Website, you consent to making a payment to the subsidiary that employs you (“Employer”) in the event of a compensation recovery determination by the Company, the relevant Subsidiary or the Administrator.
2.
Payment of Stock; Shareholder Rights .
Shares will be issued and transferred to you within 60 days following the date of grant of this Award, so long as you accept this Award as provided in Section 1. Prior to that time you will have no rights as a shareholder with respect to the Shares. The Company’s obligation to issue and transfer Stock in the future pursuant to the Agreement is an unsecured and unfunded contractual obligation.
3.
Holding Requirement .
Notwithstanding anything herein to the contrary, as a condition to the receipt of this Award and the delivery of the Shares, you agree and covenant to not sell or otherwise transfer any shares of Stock subject to this Award until the date that is at least six months and one day after the date of grant of this Award, except that (1) you shall be permitted to sell a number of shares of Stock sufficient to pay all applicable income tax (including U.S. federal, state and local taxes and/or non-U.S. taxes), social insurance, primary and secondary Class 1 National Insurance contributions, payroll tax, payment on account or other tax-related withholding (“Tax-Related Items”), if any, with respect to such grant (or, alternatively, if the Employer is required by applicable law to withhold Tax-Related Items in relation to such Shares, you hereby authorise your Employer to sell such number of shares of Stock to a third party to fund such tax and social security withholding requirements and the requirements in this Section 3 not to sell or otherwise transfer any Shares shall only apply to the net number of such Shares delivered to you after or in anticipation of such sale), (2) transfers by will or pursuant to the laws of descent or distribution are permitted and (3) this holding requirement shall not apply to such portion of the Shares, if any, as was awarded with respect to a period of time, as determined by the Company in its discretion, during which you were not subject to such holding requirement under the regulations and guidance of the United Kingdom Financial Conduct Authority and Prudential Regulatory Authority (“PRA”) or other applicable regulatory authority.  Any attempt by you (or in the case of your death, by your beneficiary) to assign or transfer the

3 For purposes of clarity the 60 day period shall run from date of delivery of your Statement. Should the end of this period fall on a non-business day this period shall extend until the next succeeding business day.




Shares, either voluntarily or involuntarily, contrary to the provisions hereof, shall be null and void and without effect.  The Company may, in its sole discretion, impose restrictions on the assignment or transfer of Shares consistent with the provisions hereof, including, without limitation, by or through the transfer agent for such shares or by means of legending Stock certificates or otherwise.

4.
Malus-Based Forfeiture .
Until the expiration of the six-month holding requirement set forth in Section 3, the number of Shares may be reduced, or the entire Award cancelled and forfeited, in the sole discretion of the Administrator, in the event that it is determined by the Administrator, in its sole discretion, that your actions exposed the Business to inappropriate risk or risks (including where you failed to timely identify, analyze, assess or raise concerns about such risk or risks, including in a supervisory capacity, where it was reasonable to expect you to do so), and such exposure has resulted or could reasonably be expected to result in a material loss or losses that are or would be substantial in relation to the revenues, capital and overall risk tolerance of the Business. The Business shall mean State Street Corporation, together with its direct and indirect subsidiaries on a consolidated basis (“State Street”), or, to the extent you devote substantially all of your business time to a particular business unit (e.g., Global Services Americas, Global Services International, State Street Global Advisors, State Street Global Markets, State Street Global Exchange or State Street Sector Solutions) or business division (e.g., Alternative Investment Solutions, Securities Lending, etc.), Business shall refer to such business unit or business division.

5.
Identified Staff Malus-Based Forfeiture and Clawback.
In the event the Company or any Subsidiary notifies you at any time before or after this Award is made that you have been designated Identified Staff for purposes of the United Kingdom Prudential Regulatory Authority Remuneration Code, you acknowledge and agree that, in the event the Company determines that a PRA Clawback Event has occurred, it may require the repayment by you of (or otherwise seek to recover from you) all or part of any compensation paid to you in respect of this Award (“PRA Clawback”) for a period of seven (7) years from the date this Award is granted. The Company may produce guidelines from time to time in respect of its operation of the provisions of this Section 5. The Company intends to apply such guidelines in deciding whether and when to effect any reduction, cancellation or recovery of compensation but, in the event of any inconsistency between the provisions of this Section 5 and any such guidelines, this Section 5 shall prevail. Such guidelines do not form part of any employee’s contract of employment, and the Company may amend such guidelines and their application at any time. For the purposes of this Section 5, a “PRA Clawback Event” means a determination by the Company, in its sole discretion, that either (A) there is reasonable evidence of employee misbehavior or material error or (B) the Company, one of its Subsidiaries or a relevant business unit has suffered a material failure of risk management.

6.
Management Committee Forfeiture and Clawback .
(g) If you are a member of the State Street Corporation Management Committee (“Management Committee”) at the time this Award is made, any amount remaining to be paid in respect of this Award may, in the sole discretion of the Administrator, be reduced or cancelled, in whole or in part, in the event that it is determined by the Administrator, in its sole discretion, that:
(i) you engaged in fraud, gross negligence or any misconduct that was materially detrimental to the interests or business reputation of the Company or any of its businesses; or
(ii) as a result of a material financial restatement by State Street contained in a filing with the Securities and Exchange Commission, or miscalculation or inaccuracy in the determination of performance metrics, financial results or other criteria used in determining the amount of this Award, you would have received a smaller or no Award hereunder.
(h) If you are a member of the Management Committee at the time this Award is made, this Award also is subject to compensation recovery as provided herein. Upon the occurrence of an MC Clawback Event within three (3) years after the date of grant of this Award, the Administrator may, in its sole discretion, determine to recover the MC Clawback Amount, in whole or in part. Following such a determination, you agree to immediately repay such compensation, but in no event later than sixty (60) days following such determination, in the form of any shares of Stock delivered to you previously by the Company or cash (or a combination of such shares and cash). For purposes of calculating the value of both (i) the amount of the MC Clawback Amount determined by the Administrator to be recovered and (ii) the amount of such compensation repaid, shares of Stock will be valued in an amount equal to the market value of the Shares delivered to you under this Award by the Company as determined at the time of such delivery. To the extent not prohibited by applicable law and subject to Section 9 (if applicable), if you fail to comply with any requirement to repay compensation under this Section 6(b), the Administrator may determine, in its sole




discretion, in addition to any other remedies available to the Company, that you will satisfy your repayment obligation through an offset to any future payments owed by the Company or any of its Subsidiaries to you.
(i) For purposes of this Section 6:
(i) “MC Clawback Event” means a determination by the Administrator, in its sole discretion, with respect to any event or series of related events that you engaged in fraud or willful misconduct that directly resulted in either (A) financial or reputational harm that is material to State Street and resulted in the termination of your employment for Cause (as defined in the Plan) by the Company and its Subsidiaries (or, following a cessation of your employment for any other reason, circumstances constituting grounds for such termination for Cause) or (B) a material financial restatement by State Street contained in a filing with the Securities and Exchange Commission. For the avoidance of doubt and as applicable, an MC Clawback Event includes any determination by the Administrator that is based on circumstances prior to the date on which you cease to be employed by the Company and its Subsidiaries for any reason, even if the determination by the Administrator occurs after such cessation of employment.
(ii) “MC Clawback Amount” means (A) with respect to an MC Clawback Event described in Section 6(c)(i)(A), the value of the Shares, if any, that were delivered to you under this Award by the Company during the period of three (3) years immediately prior to such MC Clawback Event or (B) with respect to an MC Clawback Event described in Section 6(c)(i)(B), the value of the Shares, if any, that were delivered to you under this Award by the Company (x) during the period of three (3) years immediately prior to the date such financial restatement is contained in a filing with the Securities and Exchange Commission and (y) that represents an amount that, in the sole discretion of the Administrator, exceeds the amount you would have been awarded under this Award had the financial statements of State Street been accurate (reduced, in the case of both of the immediately preceding clauses (A) and (B), by any portion of this Award that was previously recovered by the Company under Section 6(b)).
7. Withholding .
Regardless of any action the Company or the Employer takes with respect to Tax-Related Items, you acknowledge that the ultimate liability for all Tax-Related Items legally due by you is and remains your responsibility. Furthermore, neither the Company nor the Employer (a) makes any representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of this Award, including the grant of this Award, and the issuance of shares of Stock in settlement of this Award, the subsequent sale of any shares of Stock and the receipt of any dividends and/or dividend equivalents; or (b) commits to structure the terms of the grant, settlement, cancellation, forfeiture, repayment or any other aspect of this Award to reduce or eliminate your liability for Tax-Related Items.
Prior to the delivery of the Shares, if any taxing jurisdiction requires withholding of Tax-Related Items, the Company may withhold a sufficient number of whole shares of Stock otherwise issuable upon the grant of this Award that have an aggregate fair market value sufficient to pay the minimum Tax-Related Items required to be withheld with respect to this Award. The cash equivalent of the shares of Stock withheld will be used to settle the obligation to withhold the Tax-Related Items (determined in the Company’s reasonable discretion). No fractional shares of Stock will be withheld or issued pursuant to the grant of the Deferred Shares and the issuance of Stock hereunder. Alternatively, the Company and/or your Employer may, in its discretion, withhold any amount necessary to pay the Tax-Related Items from your salary or other amounts payable to you, with no withholding in shares of Stock. In the event the withholding requirements are not satisfied through the withholding of shares of Stock or through your salary or other amounts payable to you, no shares of Stock will be issued upon vesting of this Award unless and until satisfactory arrangements (as determined by the Company or your Employer) have been made by you with respect to the payment of any Tax-Related Items which the Company or your Employer determines, in its sole discretion, must be withheld or collected with respect to such Award. By accepting this Award, you expressly consent to the withholding of shares of Stock and/or cash as provided for hereunder. All other Tax-Related Items related to this Award and any Stock delivered in payment thereof, including the extent to which the Company or your Employer does not so-withhold shares of Stock and/or cash, are your sole responsibility.
8.
Changes in Capitalization or Corporate Structure .
The number and kind of Shares subject to this Award, and the number and kind of shares of Stock to be paid in satisfaction of the Company’s obligations hereunder, shall be subject to adjustment in accordance with Section 7(b) of the Plan.
9.
Employee Rights .
Nothing in this Award shall be construed to guarantee you any right of employment with the Company or your Employer or to limit the discretion of any of them to terminate your employment at any time, with or without cause.




10.
Non-Transferability, Etc .
This Award shall not be transferable other than (1) by will or the laws of descent and distribution or (2) pursuant to the terms of a court-approved domestic relations order, official marital settlement agreement or other divorce or settlement instrument satisfactory to the Company in its sole discretion. In the case of transfer pursuant to (2) above, this Award shall remain subject to all the terms and conditions contained in the Plan and this Agreement, including vesting and forfeiture conditions. Any attempt by you (or in the case of your death, by your beneficiary) to assign or transfer this Award, either voluntarily or involuntarily, contrary to the provisions hereof, shall be null, void and without effect and shall render this Award itself null and void.
11.
Compliance with Section 409A of the Code .
(a) The provisions of this Award are intended to be exempt from, or compliant with, Section 409A of the Code, and shall be construed and interpreted consistently therewith. Notwithstanding the foregoing, neither the Company nor any Subsidiary shall have any liability to you or to any other person if this Award is not so exempt or compliant.
(b) If and to the extent (i) any portion of any payment, compensation or other benefit provided to you pursuant to the Plan in connection with your employment termination constitutes “nonqualified deferred compensation” within the meaning of Section 409A of the Code and (ii) you are a specified employee as defined in Section 409A(a)(2)(B)(i) of the Code, in each case as determined by the Company in accordance with its procedures, by which determinations you (through accepting this Award) agree that you are bound, such portion of the payment, compensation or other benefit shall not be paid before the day that is six months plus one day after the date of “separation from service” (as determined under Section 409A of the Code) (the “New Payment Date”), except as Section 409A of the Code may then permit. The aggregate of any payments that otherwise would have been paid to you during the period between the date of separation from service and the New Payment Date shall be paid to you in a lump sum on such New Payment Date, and any remaining payments will be paid on their original schedule.
12.
Miscellaneous .
(a) By accepting this Award, you acknowledge and agree that the Plan is discretionary in nature and limited in duration, and may be amended, cancelled, or terminated by the Company, in its sole discretion, at any time. The grant of this Award is a one-time benefit and does not create any contractual or other right to receive an award, compensation or benefits in lieu of an award in the future. Future awards, if any, will be at the sole discretion of the Company, including, but not limited to, the form and timing of an award, the number of shares of Stock subject to an award, and the vesting provisions.
(b) Sections 4, 5 and 6 of this Agreement are intended to comply with and meet the requirements of applicable law and related implementing regulations regarding incentive compensation and will be interpreted and administered accordingly as well as in accordance with any implementing policies and practices of the Company or its relevant Subsidiaries in effect from time to time. In making determinations under such Sections, the Company, the relevant Subsidiary or the Administrator, as applicable, may take into account, in its sole discretion, all factors that it deems appropriate or relevant. Furthermore, the Company, the relevant Subsidiary or the Administrator may, as applicable, take any and all actions it deems necessary or appropriate in its sole discretion, as permitted by applicable law, to implement the intent of Sections 4, 5 and 6, including suspension of vesting and payment pending an investigation or the determination by the Company, the relevant Subsidiary or the Administrator, as applicable. Each such Section is without prejudice to the provisions of the other Sections, and the Company, the relevant Subsidiary or the Administrator, as applicable, may elect or be required to apply any or all of the provisions of Sections 4, 5 and 6 to this Award.
(c) Your participation in the Plan is voluntary. The value of this Award is an extraordinary item of compensation and is outside the scope of your employment contract, if any, and this Award is not part of your normal or expected compensation for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long-service awards, pension, or retirement benefits or similar payments.
(d) The Company or any of its Subsidiaries may, in its sole discretion, decide to deliver any documents related to this Award by electronic means. You hereby consent to receive such documents by electronic delivery and agree to participate in the Plan through an on-line or electronic system, including the Website, established and maintained by the Company, any of its Subsidiaries, Equity Administrator or another party designated by the Company.
(e) By accepting this Award electronically, (i) you will be deemed to have acknowledged and agreed that you are bound by the terms of this Agreement and the Plan and that you and this Award are subject to all of the rights, power and discretion of the Company, its Subsidiaries and the Administrator set forth in this Agreement and the Plan; and (ii) this Award is deemed accepted by the Company and the Company shall be deemed to be bound by the terms of this Agreement.




(f) You acknowledge and agree that it is your express intent that this Agreement, the Plan and all other documents, notices and legal proceedings entered into, given or instituted pursuant to this Award, be drawn up in English. If you have received the Agreement, the Plan or any other documents related to this Award translated into a language other than English, and if the meaning of the translated version is different than the English version, the English version will control.
(g) The Company reserves the right to impose other requirements on this Award, any shares of Stock acquired pursuant to this Award, and your participation in the Plan, to the extent the Company determines, in its sole discretion, that such other requirements are necessary or advisable in order to comply with local laws, rules and regulations, or to facilitate the operation and administration of this Award and the Plan. Such requirements may include (but are not limited to) requiring you to sign any agreements or undertakings that may be necessary to accomplish the foregoing.
(h) You acknowledge and agree that you will have no entitlement to compensation or damages in consequence of the termination of your employment for any reason whatsoever and whether or not in breach of contract, insofar as such entitlement arises or may arise from your ceasing to have rights under or to be entitled to this Award as a result of such termination, or from the loss or diminution in value of this Award. Upon the grant of your Award, you shall be deemed irrevocably to have waived any such entitlement.
(i) No individual acting as a director, officer, employee or agent of the Company or any of its Subsidiaries will be liable to you or any other person for any action, including any Award forfeiture, Award recovery or other discretionary action taken pursuant to this Agreement or any related implementing policy or procedure of the Company.
(j) This Agreement shall be subject to and governed by the laws of the Commonwealth of Massachusetts, without regard to that commonwealth’s conflicts of law principles.







APPENDIX A
    

In consideration of the opportunity to participate in the Plan and the granting to you of an Award under the Plan, you expressly agree to comply with the terms and conditions of this Appendix A, irrespective of whether or not any amount has been forfeited, paid, delivered or repaid, under this Award at any time, including the time you separate from service with the Company and its Subsidiaries. In addition, your eligibility to participate in the Plan in the future, including any potential future grants of awards under the Plan (or any successor equity incentive plan of the Company), is subject to and conditioned on your compliance with the terms and conditions of this Appendix A. All terms used herein shall have the meaning given to them in the Plan, except as otherwise expressly provided herein.
I.
Confidentiality . You acknowledge that you have access to Confidential Information which is not generally known or made available to the general public and that such Confidential Information is the property of the Company, its Subsidiaries or its or their licensors, suppliers or customers. You agree specifically as follows, in each case whether during your employment or following the termination thereof:
(a) You will always preserve as confidential all Confidential Information, and will never use it for your own benefit or for the benefit of others; this includes that you will not use the knowledge of activities or positions in clients’ securities portfolio accounts or cash accounts for your own personal gain or for the gain of others.
(b) You will not disclose, divulge, or communicate Confidential Information to any unauthorized person, business or corporation during or after the termination of your employment with the Company and its Subsidiaries. You will use your best efforts and exercise due diligence to protect, to not disclose and to keep as confidential all Confidential Information.
(c) You will not initiate or facilitate any unauthorized attempts to intercept data in transmission or attempt entry into data systems or files. You will not intentionally affect the integrity of any data or systems of the Company or any of its Subsidiaries through the introduction of unauthorized code or data, or through unauthorized deletion or addition. You will abide by all applicable Corporate Information Security procedures.
(d) Upon the earlier of request or termination of employment, you agree to return to the Company or the relevant Subsidiaries, or if so directed by the Company or the relevant Subsidiaries, destroy any and all copies of materials in your possession containing Confidential Information.
The terms of this Appendix A do not apply to any information which is previously known to you without an obligation of confidence or without breach of this Appendix A, is publicly disclosed (other than by a violation by you of the terms of this Appendix A) either prior to or subsequent to your receipt of such information, or is rightfully received by you from a third party without obligation of confidence and other than in relation to your employment with the Company or any of its Subsidiaries.
II.
Assignment and Disclosure . You acknowledge that in the course of your employment you assigned or will assign all of your rights, title and interest in any work performed by you and all deliverables and products created by you or jointly by you and any other party to your Employer, including any track record you may have as investment manager or fund manager. You will not pursue any ownership or other interest in such work product or deliverables including any rights as to copyright, trademark or patent.
(a) You will disclose promptly and in writing to the Company or your Employer all inventions and creative works, whether or not patentable or copyrightable, conceived or created solely or jointly by you during the period of your employment which relate to State Street’s business, and you hereby assign and agree to assign all of your interest in them to your Employer. You will execute all papers, at the Company’s or your Employer’s expense, which the Company or your Employer shall deem necessary to apply for and obtain domestic and foreign patents, copyright and other registrations, and to protect and enforce the Company’s or any of its Subsidiaries’ interest in them.
(b) These obligations shall continue beyond the period of your employment with respect to inventions or creations conceived or made by you during the period of your employment.
III.
Non-Solicitation . If you hold a position title of Vice President or higher, you understand, acknowledge and agree that during your employment and for a period of six (6) months from the date of termination of your employment you will not, without the prior written consent of the Company or your Employer:




(a) solicit, directly or indirectly (other than through a general solicitation of employment not specifically directed to employees of the Company or any of its Subsidiaries), the employment of, hire or employ, recruit, or in any way assist another in soliciting or recruiting the employment of, or otherwise induce the termination of the employment of, any person who then or within the preceding twelve (12) months was an officer of the Company or any of its Subsidiaries (excluding any such officer whose employment was involuntarily terminated); or
(b) engage in the Solicitation of Business from any Client on behalf of any person or entity other than the Company or any of its Subsidiaries.
Section (a) above shall be deemed to exclude the words “hire or employ” if your work location is in California or New York, and shall be construed and administered accordingly.
For purposes of this Section III, “officer” shall include any person holding a position title of Assistant Vice President or SSgA Principal 4 or higher. Notwithstanding the foregoing, this Section III shall be inapplicable following a Change in Control as defined in the Plan.
IV.
Notice Period Upon Resignation . If you hold a position title of Managing Director or higher, you agree to the notice provisions in this Section IV. In order to permit the Company and its Subsidiaries to safeguard their business interests and goodwill in the event of your resignation from employment, including by arranging to transition your duties and any client responsibilities or relationships in an orderly manner or, if necessary, to hire a replacement for you, you agree as follows:
(a) You agree to give your Employer 60 days’ notice (“Notice Period”) before terminating your employment with your Employer for any reason. Your compliance during the Notice Period with (i) Section III of this Appendix A, (ii) a post-employment non-solicitation or non-competition provision contained in any other agreement you entered into with the Company or any of its Subsidiaries or (iii) any other post-employment non-solicitation or non-competition covenant otherwise imposed as a condition precedent to the receipt of compensation or benefits under other awards, plans or arrangements of the Company or any of its Subsidiaries, in each case will be applied towards satisfaction of the restriction period in Section III or in such other agreement or restrictive covenant.
(b) During the Notice Period, you agree to cooperate with the Company and its Subsidiaries and to provide the Company and its Subsidiaries with any requested information to assist the Company and its Subsidiaries with transitioning your duties, accomplishing the Company’s and its Subsidiaries’ business, and/or preserving its or their client relationships. In its sole discretion, during the Notice Period, the Company or your Employer may either ask you to continue performing your regular duties or may place you on a partial or complete leave of absence and relieve you of some or all of your duties and responsibilities. In these circumstances, you shall remain an employee of your Employer at all times, shall continue to receive your regular salary and benefits (although you will not be eligible for any new incentive compensation awards) and the Company’s and the relevant Subsidiaries’ corporate and other policies will continue to apply to you.
(c) You agree that should you breach this Section IV and fail to provide notice as required herein, in addition to remedies under law, the Company or the relevant Subsidiaries shall be entitled to seek injunctive relief restricting you from employment for a period equal to the period for which notice of resignation was required but not provided.
(d) In its sole discretion, at any time during the Notice Period, the Company or your Employer may release you from your obligations under this Section IV, and allow for the immediate termination of your employment, subject to your obligations under the other Sections of this Appendix A.
Any termination of your employment pursuant to this Section IV, including by the Company or your Employer during the Notice Period as provided in paragraph (d), will be a voluntary termination constituting Circumstances of Forfeiture for purposes of this Agreement.
Notwithstanding the foregoing, if you hold the position title of Executive Vice President, this Section IV shall not apply in the event you terminate your employment for Good Reason on or prior to the first anniversary of a Change in Control (each as defined in the Plan).
V.
Definitions . For the purpose of this Appendix A, the following terms are defined as follows:
(a) “Client” means a present or former customer or client of the Company or any of its Subsidiaries with whom you have had, or with whom persons you have supervised have had, substantive and recurring personal contact during your employment with the Company or any of its Subsidiaries. A former customer or client means a customer or client for which the Company or any of its Subsidiaries stopped providing all services




within twelve months prior to the date your employment with your Employer ends.
(b) “Confidential Information” includes but is not limited to all trade secrets, trade knowledge, systems, software, code, data documentation, files, formulas, processes, programs, training aids, printed materials, methods, books, records, client files, policies and procedures, client and prospect lists, employee data and other information relating to the operations of the Company or any of its Subsidiaries and to its or any of their customers, and any and all discoveries, inventions or improvements thereof made or conceived by you or others for the Company or any of its Subsidiaries whether or not patented or copyrighted, as well as cash and securities account transactions and position records of clients, regardless of whether such information is stamped “confidential.”
(c) “Solicitation of Business” means the attempt through direct or indirect contact by you or by any other person or entity with your assistance to induce a Client to:
1. transfer the Client’s business from the Company or any of its Subsidiaries to any other person or entity;
2. cease or curtail the Client’s business with the Company or any of its Subsidiaries; or
3. divert a business opportunity from the Company or any of its Subsidiaries to any other person or entity, which business or business opportunity concerns or relates to the business with which you were actively connected during your employment with the Company or any of its Subsidiaries.
(d) “Subsidiaries” means any entity controlling, controlled by or under common control with the Company, including direct and indirect subsidiaries.
VI.
Post-Employment Cooperation . You agree that, following the termination of your employment with the Company and its Subsidiaries, you will reasonably cooperate with the Company or the relevant Subsidiary with respect to any matters arising during or related to your employment, including but not limited to reasonable cooperation in connection with any litigation, governmental investigation, or regulatory or other proceeding (even if such litigation, governmental investigation, or regulatory or other proceeding arises following the date of this Award to which this Appendix A is appended or following the termination of your employment). The Company or any of its Subsidiaries shall reimburse you for any reasonable out-of-pocket and properly documented expenses you incur in connection with such cooperation.
VII.
Non-Disparagement . You agree that during your employment and following the termination thereof you shall not make any false, disparaging, or derogatory statements to any media outlet (including Internet-based chat rooms, message boards, any and all social media, and/or web pages), industry groups, financial institutions, or to any current, former or prospective employees, consultants, clients, or customers of the Company or its Subsidiaries regarding the Company, its Subsidiaries or any of their respective directors, officers, employees, agents, or representatives, or about the business affairs and financial condition of State Street or any of its Subsidiaries.
VIII.
Enforcement . You acknowledge and agree that the provisions contained in this Appendix A are necessary to the protection of, among other things, the Company’s and its Subsidiaries’ proprietary information, trade secrets and good will, and are material and integral to the undertakings of the Company under this Award to which this Appendix A is appended. You further agree that the Company and its Subsidiaries will be irreparably harmed in the event such provisions are not performed in accordance with their specific terms or are otherwise breached. Accordingly, if you fail to comply with such provisions, the Company or any of its Subsidiaries shall be entitled to preliminary or permanent injunctive or other equitable relief or remedy without the need to post bond, and to recover their reasonable attorney’s fees and costs incurred in securing such relief, in addition to, and not in lieu of, any other relief or remedy at law to which it or they may be entitled.
IX.
No Waiver . No delay by the Company or any of its Subsidiaries in exercising any right under this Appendix A shall operate as a waiver of that right or of any other right. Any waiver or consent as to any of the provisions herein provided by the Company or any of its Subsidiaries must be in writing, is effective only in that instance, and may not be construed as a broader waiver of rights or as a bar to enforcement of the provision(s) at issue on any other occasion.
X.
Relationship to Other Agreements . This Appendix A supplements and does not limit, amend or replace any other obligations you may have under applicable law or any other agreement or understanding you may have with the Company or any of its Subsidiaries or pursuant to the applicable policies of the Company or any of its Subsidiaries, whether such additional obligations have been agreed to in the past, or are agreed to in the future.




XI.
Interpretation of Business Protections. The representations and agreements made by you in paragraphs (I) - (VIII) above shall be construed and interpreted in any judicial or other adjudicatory proceeding to permit their enforcement to the maximum extent permitted by law, and each of the provisions to this Appendix A is severable and independently enforceable without reference to the enforcement of any other provision. If any restriction set forth in this Appendix A is found by any court of competent jurisdiction to be unenforceable because it extends for too long a period of time or over too great a range of activities or in too broad a geographic area, it shall be interpreted to extend only over the maximum period of time, range of activities or geographic area as to which it may be enforceable.
XII.
Assignment . Except as provided otherwise herein, this Appendix A shall be binding upon and inure to the benefit of both parties and their respective successors and assigns, including any person or entity which acquires the Company or its assets or business; provided, however, that your obligations are personal and may not be assigned by you.
XIII.
Electronic Acceptance . By accepting this Award electronically, you will be deemed to have acknowledged and agreed that you are bound by the terms of this Appendix A, and it shall be deemed to have been accepted by the Company.






STATE STREET CORPORATION
2006 EQUITY INCENTIVE PLAN

2015 ESRP Share Award Agreement


Subject to your acceptance of the terms set forth in this agreement (“Agreement”), State Street Corporation (“Company”) has awarded you, under the State Street Corporation 2006 Equity Incentive Plan, as amended (“Plan”) and the State Street Corporation Executive Supplemental Retirement Plan, as amended (“ESRP”), and pursuant to this Agreement and the terms set forth herein (“Award”), a contingent right to receive the number of shares of Stock (“Deferred Shares”) as set forth in the information pertaining to this Award on the website (“Website”) maintained by the Equity Administrator (Fidelity or another party designated by the Company) (“Statement”). Copies of the Plan and of the Company’s U.S. Prospectus are located on the Website for your reference, and your acceptance of this Award constitutes your acknowledgement that you have read and understood the Plan and such Prospectus. The provisions of the Plan and the ESRP are incorporated herein by reference, and all terms used herein shall have the meaning given to them in the Plan or the ESRP, as applicable, except as otherwise expressly provided herein. In the event of any conflict between the provisions of this Agreement and the provisions of the Plan or the ESRP, the provisions of the Plan or the ESRP shall control, as applicable. In the event of a conflict between the terms of the Plan and the ESRP, the provisions of the ESRP shall control to the extent necessary for Section 409A Compliance, and the provisions of the Plan shall control, to the extent not required for Section 409A Compliance.

The terms of your Award, are as follows:
1.
General Vesting Requirements . Until such time as you incur a Separation From Service, your right to receive the Deferred Shares shall vest on a cumulative basis in 1/3 increments beginning on your Vesting Commencement Date and continuing on each of your first two birthdays immediately following your Vesting Commencement Date. Notwithstanding the foregoing, if you were first elected to the position of Executive Vice President (or to a superior position) prior to March 1, 2000, then your right to receive the Deferred Shares shall vest in full when you attain your Early Retirement Age, provided you do not earlier incur a Separation From Service.

2.
Special Vesting Provision for Death or Total Disability . The following special vesting provisions shall apply notwithstanding the general vesting requirements set forth in Section 1 above:
(a)
If you die prior to your Separation From Service, your right to receive the Deferred Shares shall fully vest as of the date of your death.
(b)
If you become Totally Disabled prior to your Separation From Service, your right to receive the Deferred Shares shall fully vest effective as of the date you become Totally Disabled.
3.
Ownership . The Deferred Shares will be issued and transferred to you only if and when all requirements of this Agreement have been satisfied. Except as otherwise provided in this Section 3, you will have no rights as a shareholder with respect to the Deferred Shares prior to that time. Without limiting the foregoing, you will have no right to receive dividends with respect to the Deferred Shares and no right to vote the Deferred Shares. However, if any dividends are paid on the Stock prior to the date you are issued the Deferred Shares, the number of Deferred Shares notionally credited to your account will be increased by the number of shares obtained by dividing the total dividend you would have received if you had owned the Deferred Shares credited to your account on the dividend declaration date, by the closing price of a share of Stock on the date the dividend was paid.
4.
Distributions .
(a)
Retirement . Upon your Retirement, the Company will issue and transfer to you the number of Deferred Shares in which you have become vested in three equal installments on the following dates:
(i)
the first Business Day of the month coinciding with or following the date that is six months after your Retirement Date;
(ii)
the first Business Day of the month coinciding with or following the first anniversary of your Retirement Date; and
(iii)
the first Business Day of the month coinciding with or following the second anniversary of your Retirement Date.




If you die after your Retirement, but before you have received the total number of shares in which you have become vested, the Company will issue and transfer to your Beneficiary any remaining vested Deferred Shares within 90 days following the date of your death.
(b)
Death. If you die prior to your Separation From Service, the Company will issue and transfer to your Beneficiary the number of Deferred Shares in which you have become vested within 90 days following the date of your death.
(c)
Total Disability. If you incur a Total Disability prior to your Separation From Service, the Company will issue and transfer to you the number of Deferred Shares in which you have become vested by the later of:
(i)
the end of the calendar year in which you become Totally Disabled, and
(ii)
the 15 th day of the third month following the date on which you become Totally Disabled;
(A) provided that you have remain Totally Disabled through the date of distribution.
5.
Forfeiture for Cause . If the Company terminates your employment for Cause, including while you are Retirement eligible, then all Deferred Shares, whether vested or not, shall be forfeited in full on the date of such termination of employment.
6.
Forfeiture for Breach of Post-Employment Covenants . Your right to receive and retain payment of the Deferred Shares after your Retirement shall be subject to the post-employment covenants contained in the ESRP; specifically, you shall not, without the prior written consent of the Company, engage, either directly or indirectly, in any of the activities described in Section 6(a), (b) or (c) below within two years after your Separation From Service:
(a)
Solicitation of the employment or retention of any person whom the Company or an Affiliate has employed or retained during the two year period prior to your Separation From Service. For purposes of the foregoing sentence, a person retained by the Company or an Affiliate means anyone who has rendered substantial consulting services to the Company or an Affiliate and has thereby acquired material confidential information concerning any aspect of the Company’s or an Affiliate’s operations;
(b)
Any sale, offer to sell or negotiation with respect to orders or contracts for any product or service similar to or competitive with a product or service or any equipment or system containing any such product or service sold or offered by the Company or an Affiliate, other than for the Company’s or a Affiliate’s account, during the two year period after your Separation From Service, to or with anyone with whom the Company or an Affiliate has so dealt or anywhere in any state of the United States or in any other country, territory or possession in which the Company or an Affiliate has, during said period, sold, offered or negotiated with respect to orders or contracts for any such product, service, equipment or system; or
(c)
Ownership of any direct or indirect interest (other than a less-than-one-percent stock interest in a corporation) in, or affiliation with, or rendering any services for, any person or business entity which engages, during the two year period after your Separation From Service, either directly or indirectly, in any of the activities described in paragraphs (a) or (b) above.
7.
Certain Tax Considerations .
(a)
The provisions of this Award are intended to be exempt from, or compliant with, Section 409A of the Code, and shall be construed and interpreted consistently therewith. Notwithstanding the foregoing, neither the Company nor any Subsidiary shall have any liability to you or to any other person if this Award is not so exempt or compliant.
(b)
You expressly acknowledge that the vesting of your right to receive the Deferred Shares, and/or the distribution of the Deferred Shares, hereunder may give rise to ordinary income or wages subject to withholding through your local payroll. You expressly acknowledge and agree that your rights hereunder are subject to your paying to the Company any applicable taxes required to be withheld in connection with such vesting in a form and manner satisfactory to the Company.
(c)
The Company shall be obligated to issue the Deferred Shares pursuant to this Agreement only if you first deliver to the Company funds sufficient to satisfy, or make other arrangements acceptable to the Company for satisfying, any tax withholding or similar withholding obligations to which the Company or its Affiliates may be subject by reason of this Award.
(d)
The Company shall not delay distribution of the Deferred Shares, except to the extent that the Company determines, in its sole discretion, that any such delay can be effected in a manner that results in




Section 409A Compliance. Without limiting the generality of the foregoing, distribution of the Deferred Shares may be delayed, at the sole discretion of the Company, to the extent that the Company reasonably anticipates that (i) if distribution were made as scheduled, the Company’s deduction with respect to such distribution would not be permitted due to the application of Section 162(m) of the Code or (ii) distribution of the Deferred Shares would violate federal securities laws or other applicable law. Distribution of any amount delayed pursuant to this Section 7(d) shall earn interest at the then prevailing applicable federal rate provided for in Section 7872(f)(2)(A) of the Code and made in a manner that results in Section 409A Compliance.
(e)
The Company shall not accelerate distribution of the Deferred Shares except as set forth in the remainder of this Section 7(e) or to the extent the Company determines, in its sole discretion, that any such acceleration may be effected in a manner that results in Section 409A Compliance.
(i)
The Company may, in a manner that results in Section 409A Compliance, determine to accelerate the time or schedule of the distribution of the Deferred Shares to pay (A) the FICA Amount and/or (B) the income tax at source on wages imposed under Section 3401 of the Code or the corresponding withholding provisions of applicable state, local or foreign tax laws as a result of the payment of the FICA Amount (and any additional tax due as a result of such payment). The total amount accelerated under this Section 7(e) may not exceed the aggregate of the FICA Amount and the income tax withholding related to such FICA Amount.
(ii)
The Company may, in a manner that results in Section 409A Compliance, determine to accelerate the time or schedule of the distribution of the Deferred Shares if at any time the Plan or the ESRP, as applicable to you, fails to meet the requirements of Section 409A of the Code and the corresponding Treasury Regulations. Such amount may not exceed the amount required to be included in income as a result of the failure to comply with Section 409A of the Code and the corresponding Treasury Regulations.
(f)
Notwithstanding anything to the contrary in the Plan or the ESRP, in the event you incur a Separation From Service, including due to Total Disability, and are subsequently rehired by the Company or subsequently recover and recommence performing services for the Company, the distribution of your Deferred Shares shall not be suspended or otherwise delayed.
(g)
In no event may you or any of your Beneficiaries designate the taxable year of distribution of the Deferred Shares.



8.
Miscellaneous Provisions .
(a)
The Company’s obligation to issue and transfer the Deferred Shares in the future pursuant to this Agreement is an unsecured and unfunded contractual obligation.
(b)
The number and kind of Deferred Shares subject to this Award, and the number and kind of shares of Stock to be delivered in satisfaction of the Company’s obligations hereunder, shall be subject to adjustment in accordance with Section 7(b) of the Plan.
(c)
Nothing in this Award shall be construed to guarantee you any right of employment with the Company or any Affiliate or to limit the discretion of any of them to terminate your employment at any time, with or without cause, to the maximum extent permitted by applicable law.
(d)
This Award shall not be transferable other than (1) by will or the laws of descent and distribution or (2) pursuant to the terms of a court-approved domestic relations order, official marital settlement agreement or other divorce or settlement instrument satisfactory to the Company in its sole discretion. Any attempt by you (or in the case of your death, by your beneficiary) to assign or transfer this Award, either voluntarily or involuntarily, contrary to the provisions hereof, shall be null and void and without effect and shall render this Award itself null and void.
(e)
The grant of this Award is a one-time benefit and does not create any contractual or other right to receive an award, compensation or benefits in lieu of an award in the future.
(f)
The Company reserves the right to impose other requirements on this Award, any shares of Stock acquired pursuant to this Award, and your participation in the Plan, to the extent the Company determines, in its sole discretion, that such other requirements are necessary or advisable in order to




comply with applicable laws or regulations or to facilitate the administration of the Plan. Such requirements may include (but are not limited to) requiring you to sign any agreements or undertakings that may be necessary to accomplish the foregoing.
(g)
Your participation in the Plan is voluntary. The value of this Award is an extraordinary item of compensation, and this Award is not part of your normal or expected compensation for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long-service awards, pension, or retirement benefits or similar payments.
(h)
The Company or any of its Subsidiaries may, in its sole discretion, decide to deliver any documents related to this Award by electronic means. You hereby consent to receive such documents by electronic delivery and agree to participate in the Plan through an on-line or electronic system, including the Website, established and maintained by the Company, any of its Subsidiaries, Equity Administrator or another party designated by the Company.
(i)
By accepting this Award electronically, (i) you will be deemed to have acknowledged and agreed that you are bound by the terms of this Agreement and the Plan and that you and this Award are subject to all of the rights, power and discretion of the Company, its Subsidiaries and the Administrator set forth in this Agreement and the Plan; and (ii) this Award is deemed accepted by the Company and the Company shall be deemed to be bound by the terms of this Agreement.
(j)
You acknowledge and agree that it is your express intent that this Agreement, the Plan and all other documents, notices and legal proceedings entered into, given or instituted pursuant to this Award, be drawn up in English. If you have received the Agreement, the Plan or any other documents related to this Award translated into a language other than English, and if the meaning of the translated version is different than the English version, the English version will control
(k)
Notwithstanding any provisions of this Agreement to the contrary, this Award shall be subject to any special terms and conditions for your country of residence (and country of employment, if different), as may be set forth in an applicable Addendum to the Agreement. Further, if you transfer residence and/or employment to another country reflected in an Addendum to the Agreement, the special terms and conditions for such country will apply to you to the extent the Company or the relevant Subsidiary determines, in its sole discretion, that the application of such terms are necessary or advisable in order to comply with applicable laws or regulations or to facilitate administration of the Plan. Any such Addendum is hereby incorporated into, and forms a part of, this Agreement.
(l)
The Plan, the ESRP and this Agreement constitute the complete understanding and agreement between the parties to this Agreement with respect to this Award, and supersede and cancel any previous oral or written discussions, agreements or representations regarding this Award or the Deferred Shares.
(m)
No individual acting as a director, officer, employee or agent of the Company or any of its Subsidiaries will be liable to you or any other person for any action, including any Award forfeiture, Award recovery or other discretionary action taken pursuant to this Agreement or any related implementing policy or procedure of the Company.
(n)
The terms of this Agreement are governed by the laws of the Commonwealth of Massachusetts.
9.
Definitions
(a)
“Affiliate” means any corporation which is included in a controlled group of corporations (within the meaning of Section 414(b) of the Code), which includes the Company and any trade or business (whether or not incorporated) which is under common control with the Company (within the meaning of Section 414(c) of the Code).
(b)
“Beneficiary” means the beneficiary designated to receive a death benefit by you in writing in a form and manner satisfactory to the Administrator. If no Beneficiary is so designated, any death benefits shall be paid at the Administrator’s direction in the following order of priority: Spouse, Domestic Partner, children, parents, siblings, estate.
(c)
“Business Day” means each day that the New York Stock Exchange is open for business.
(d)
“Cause” means:
(i)
a willful and continued failure to perform substantially your duties with the Company or an Affiliate (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to you by your supervisor




which specifically identifies the manner in which it is asserted that you have not substantially performed your duties, or
(ii)
a willful engaging in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company or an Affiliate.
For purposes of this definition, no act or failure to act shall be considered “willful” unless it is done or omitted to be done in bad faith or without reasonable belief that the action or omission was in the best interests of the Company or an Affiliate.
(e)
“Code” means the Internal Revenue Code of 1986, as the same may be amended from time to time.
(f)
“Early Retirement” means a Separation From Service upon or after your attainment of Early Retirement Age and prior to your attainment of Normal Retirement Age but excluding a Separation From Service for Cause.
(g)
“Early Retirement Age” means age 53.
(h)
“ESRP” means this State Street Corporation Executive Supplemental Retirement Plan (including the Exhibits and Schedules thereto and the Committee actions referenced therein), as the same may be amended from time to time in accordance with the terms hereof.
(i)
“FICA Amount” shall mean the amount of Federal Insurance Contributions Act tax imposed under Sections 3101, 3121(a) and 3121(v)(2) of the Code, where applicable, on this Award.
(j)
“Impairment” means any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than six months.
(k)
“Normal Retirement” means your Separation From Service upon or after your Normal Retirement Age, other than a Separation From Service for Cause.
(l)
“Retirement” means Normal Retirement or Early Retirement.
(m)
“Retirement Date” means the date of your Normal Retirement or Early Retirement, as applicable.
(n)
“Section 409A” means Section 409A of the Code and the applicable rulings, regulations and guidance promulgated thereunder, as each may be amended or issued from time to time.
(o)
“Section 409A Compliance” means any action or inaction effected in a manner that will not cause you or any of your Beneficiaries to recognize income for U.S. federal income tax purposes prior to the time of a distribution of the Deferred Shares or to incur interest or additional tax under Section 409A.
(p)
“Separation From Service” means a separation from service with the Company and all Affiliates for purposes of Section 409A within the meaning of the default rules of Treasury Regulation Section 1.409A-(h)(1) and correlative terms shall be construed to have a corresponding meaning; provided that in the event that you are absent from work due to an Impairment, other than a Total Disability, where such Impairment causes you to be unable to perform the duties of your position or any substantially similar position of employment, you shall incur a Separation From Service 29 months after the date on which you were first Impaired. Notwithstanding the foregoing, if you would otherwise incur a Separation From Service in connection with a sale of assets of the Company, the Committee shall retain the discretion to determine whether a Separation From Service has occurred in accordance with Treasury Regulation Section 1.409A-1(h)(4).
(q)
“Service” means your years (and fraction thereof) of service for vesting and eligibility, as determined under the terms of the State Street Retirement Plan as in effect on January 1, 2008.
(r)
“Total Disability” or “Totally Disabled” means (i) your inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve months or (ii) a your receipt, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve months, of income replacement benefits for a period of not less than six months under an accident and health plan covering employees of the Company and any Affiliate.
(s)
“Treasury Regulations” means the regulations adopted by the Internal Revenue Service under the Code, as they may be amended from time to time.
(t)
“Vesting Commencement Date” means the date you attain Early Retirement Age and satisfy the Age/Service Requirements for Supplemental Benefits Upon Retirement under Section 3.3 of the ESRP.






Exhibit 10.13

DESCRIPTION OF COMPENSATION ARRANGEMENTS
FOR NON-EMPLOYEE DIRECTORS
For the period between each annual meeting of shareholders, non-employee directors receive the following compensation:
•
annual retainer - $75,000, payable at the director’s election in shares of State Street common stock or in cash;
•
meeting fees - $1,500 for each Board and committee meeting attended, together with reimbursement of expenses incurred as a result of attending such meetings, payable in cash;
•
an annual common stock award in an amount of shares equal to $140,000 divided by the closing price of the stock on the date of the annual meeting that begins the period (with additional stock amounts to reflect dividends if the award is deferred);
•
a pro-rated annual retainer and annual common stock award for any director joining the Board after the annual meeting that begins the period;
•
an additional annual retainer for the Lead Director of $90,000, payable at the director’s election in shares of State Street common stock or in cash;
•
an additional annual retainer for the Examining and Audit Committee Chair and for the Risk and Capital Committee Chair of $25,000, payable at the director’s election in shares of State Street common stock or in cash;
•
an additional annual retainer for the Chair of the Executive Compensation Committee of $20,000, payable at the director’s election in shares of State Street common stock or in cash;
•
an additional annual retainer for the Chair of the Nominating and Corporate Governance Committee of $15,000, payable at the director’s election in shares of State Street common stock or in cash; and
•
an additional annual retainer for each member of the Examining and Audit Committee and for each member of the Risk Committee, other than the Chairs, of $10,000, payable at the director’s election in shares of State Street common stock or in cash.
Pursuant to State Street’s Deferred Compensation Plan for Directors, directors may elect to defer the receipt of 0% or 100% of their (1) retainers, (2) meeting fees, or (3) annual award of shares of common stock. Directors also may elect to receive all of their retainers in cash or shares of common stock. Directors who elect to defer the cash payment of their retainers or meeting fees may also make notional investment elections with respect to such deferrals, with a choice of four notional investment fund returns. Deferrals of shares of common stock are adjusted to reflect the hypothetical reinvestment in additional shares of common stock of any dividend or distributions on State Street common stock. Deferred amounts will be paid (a) as elected by the director, on either the date of the director’s termination of service on the Board or on the earlier of such termination and a future date specified, and (b) in the form elected by the director as either a lump sum or in installments over a two- to five-year period.






1


EXHIBIT 12
STATE STREET CORPORATION
Ratios of Earnings to Combined Fixed Charges and Preferred Stock Dividends
 
 
 
Years Ended December 31,
(Dollars in millions)
 
2014
 
2013
 
2012
 
2011
 
2010
EXCLUDING INTEREST ON DEPOSITS:
 
 
 
 
 
 
 
 
 
 
Pre-tax income from continuing operations, as reported
 
$
2,458

 
$
2,686

 
$
2,766

 
$
2,536

 
$
2,086

Share of pre-tax income (loss) of unconsolidated entities
 
(10
)
 
1

 
(15
)
 
37

 
67

Fixed charges
 
318

 
365

 
370

 
462

 
636

Adjusted earnings
(A)
$
2,766

 
$
3,052

 
$
3,121

 
$
3,035

 
$
2,789

Interest on short-term borrowings
 
$
6

 
$
60

 
$
73

 
$
96

 
$
257

Interest on long-term debt, including amortization of debt issuance costs
 
206

 
184

 
176

 
241

 
235

Portion of long-term leases representative of the interest factor (1)
 
106

 
121

 
121

 
125

 
144

Preferred stock dividends and related adjustments (2)
 
61

 
33

 
39

 
27

 
—

Fixed charges and preferred stock dividends
(B)
$
379

 
$
398

 
$
409

 
$
489

 
$
636

Consolidated ratios of adjusted earnings to combined fixed charges and preferred stock dividends, excluding interest on deposits
(A)/(B)
7.30x

 
7.67x

 
7.63x

 
6.21x

 
4.39x

INCLUDING INTEREST ON DEPOSITS:
 
 

 
 
 
 

 
 

 
 

Pre-tax income from continuing operations, as reported
 
$
2,458

 
$
2,686

 
$
2,766

 
$
2,536

 
$
2,086

Share of pre-tax income (loss) of unconsolidated entities
 
(10
)
 
1

 
(15
)
 
37

 
67

Fixed charges
 
416

 
458

 
536

 
682

 
849

Adjusted earnings
(C)
$
2,864

 
$
3,145

 
$
3,287

 
$
3,255

 
$
3,002

Interest on short-term borrowings and deposits
 
$
104

 
$
153

 
$
239

 
$
316

 
$
470

Interest on long-term debt, including amortization of debt issuance costs
 
206

 
184

 
176

 
241

 
235

Portion of long-term leases representative of the interest factor (1)
 
106

 
121

 
121

 
125

 
144

Preferred stock dividends and related adjustments (2)
 
61

 
33

 
39

 
27

 
—

Fixed charges and preferred stock dividends
(D)
$
477

 
$
491

 
$
575

 
$
709

 
$
849

Consolidated ratios of adjusted earnings to combined fixed charges and preferred stock dividends, including interest on deposits
(C)/(D)
6.00x

 
6.41x

 
5.72x

 
4.59x

 
3.54x

___________________________
(1) The interest factor on long-term operating leases represented a reasonable approximation of the appropriate portion of operating lease expense considered to be representative of interest. The interest factor on long-term capital leases represented the amount recorded as interest expense in our consolidated statement of income.
(2) Preferred dividends and related adjustments, including accretion, were adjusted to represent pre-tax earnings that would be required to cover dividend and accretion requirements.




STATE STREET CORPORATION
Ratios of Earnings to Fixed Charges
 
 
 
Years Ended December 31,
(Dollars in millions)
 
2014
 
2013
 
2012
 
2011
 
2010
EXCLUDING INTEREST ON DEPOSITS:
 
 
 
 
 
 
 
 
 
 
Pre-tax income from continuing operations, as reported
 
$
2,458

 
$
2,686

 
$
2,766

 
$
2,536

 
$
2,086

Share of pre-tax income (loss) of unconsolidated entities
 
(10
)
 
1

 
(15
)
 
37

 
67

Fixed charges
 
318

 
365

 
370

 
462

 
636

Adjusted earnings
(A)
$
2,766

 
$
3,052

 
$
3,121

 
$
3,035

 
$
2,789

Interest on short-term borrowings
 
$
6

 
$
60

 
$
73

 
$
96

 
$
257

Interest on long-term debt, including amortization of debt issuance costs
 
206

 
184

 
176

 
241

 
235

Portion of long-term leases representative of the interest factor (1)
 
106

 
121

 
121

 
125

 
144

Fixed charges
(B)
$
318

 
$
365

 
$
370

 
$
462

 
$
636

Consolidated ratios of adjusted earnings to fixed charges, excluding interest on deposits
(A)/(B)
8.70x

 
8.36x

 
8.44x

 
6.57x

 
4.39x

INCLUDING INTEREST ON DEPOSITS:
 
 
 
 

 
 

 
 

 
 

Pre-tax income from continuing operations, as reported
 
$
2,458

 
$
2,686

 
$
2,766

 
$
2,536

 
$
2,086

Share of pre-tax income (loss) of unconsolidated entities
 
(10
)
 
1

 
(15
)
 
37

 
67

Fixed charges
 
416

 
458

 
536

 
682

 
849

Adjusted earnings
(C)
$
2,864

 
$
3,145

 
$
3,287

 
$
3,255

 
$
3,002

Interest on short-term borrowings and deposits
 
$
104

 
$
153

 
$
239

 
$
316

 
$
470

Interest on long-term debt, including amortization of debt issuance costs
 
206

 
184

 
176

 
241

 
235

Portion of long-term leases representative of the interest factor (1)
 
106

 
121

 
121

 
125

 
144

Fixed charges
(D)
$
416

 
$
458

 
$
536

 
$
682

 
$
849

Consolidated ratios of adjusted earnings to fixed charges, including interest on deposits
(C)/(D)
6.88x

 
6.87x

 
6.13x

 
4.77x

 
3.54x

 
___________________________
(1) The interest factor on long-term operating leases represented a reasonable approximation of the appropriate portion of operating lease expense considered to be representative of interest. The interest factor on long-term capital leases represented the amount recorded as interest expense in our consolidated statement of income.




EXHIBIT 21
SUBSIDIARIES OF STATE STREET CORPORATION
The following table presents the name of certain State Street subsidiaries and the state or jurisdiction of organization. Certain subsidiaries of State Street have been omitted in accordance with SEC regulations because, when considered in the aggregate, they did not constitute a “significant subsidiary” of State Street.
 
 
 
Antrim Corporation
Massachusetts
Currenex INC
New York
International Fund Services (N.A.), L.L.C.
New York
Investors Boston Securities Corporation
Massachusetts
Investors Copley Securities Corporation
Massachusetts
Lincoln Securities Corporation
Massachusetts
Offshore Financial Solutions LTD
Grand Cayman
Quincy Securities Corporation
Massachusetts
SS Borrowdale Pty Limited
Australia
SS Scarborough Pty Limited
Australia
SSB Realty, LLC
Massachusetts
State Street Bank and Trust Company
Massachusetts
State Street Bank GMBH
Germany
State Street Bank S.P.A.
Italy
State Street Bank Luxembourg S.A.
Luxembourg
State Street Banque, S.A.
France
State Street Global Advisors International Holdings INC
Delaware
State Street Global Advisors, INC
Massachusetts
State Street Global Advisors Limited
United Kingdom
State Street Global Markets, LLC
Massachusetts
State Street Holdings Germany GMBH
Germany
State Street Holdings Italy S.R.L.
Italy
State Street International Holdings
Massachusetts
State Street International Holdings Switzerland GMBH
Switzerland
State Street International Ireland Limited
Ireland
State Street Investment Services California LLC
California
State Street Massachusetts Securities Corporation
Massachusetts
State Street Public Lending Corporation
Massachusetts
State Street Social Investments Corporation
Massachusetts
State Street Trust And Banking Company, Limited
Japan
 





EXHIBIT 23
Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statements (Form S-3 No. 333-200321 and Form S-8 No. 333-100001, 333-99989, 333-46678, 333-36793, 333-36409, 333-135696, 333-160171 and 333-183656) of State Street Corporation of our reports dated February 20, 2015 , with respect to the consolidated financial statements of State Street Corporation and the effectiveness of internal control over financial reporting of State Street Corporation, included in this Annual Report (Form 10-K) for the year ended December 31, 2014 .
                                        
/s/ Ernst & Young LLP
Boston, Massachusetts
February 20, 2015





EXHIBIT 31.1
RULE 13a-14(a)/15d-14(a) CERTIFICATION
I, Joseph L. Hooley, certify that:
1.
I have reviewed this Annual Report on Form 10-K of State Street Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present, in all material respects, the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date:
February 20, 2015
 
By:
/s/  J OSEPH  L. H OOLEY        
 
 
 
 
Joseph L. Hooley,
 
 
 
 
Chairman and Chief Executive Officer





EXHIBIT 31.2
RULE 13a-14(a)/15d-14(a) CERTIFICATION
I, Michael W. Bell, certify that:
1.
I have reviewed this Annual Report on Form 10-K of State Street Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present, in all material respects, the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
Date:
February 20, 2015
 
By:
/s/  M ICHAEL  W. B ELL        
 
 
 
 
Michael W. Bell,
 
 
 
 
Executive Vice President and Chief Financial Officer
 





EXHIBIT 32
SECTION 1350 CERTIFICATIONS
To my knowledge, this Annual Report on Form 10-K for the period ended December 31, 2014 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of State Street Corporation.
 
 
 
 
 
 
Date:
February 20, 2015
 
By:
/s/  J OSEPH  L. H OOLEY         
 
 
 
 
Joseph L. Hooley,
 
 
 
 
Chairman and Chief Executive Officer
 
 
 
 
 
Date:
February 20, 2015
 
By:
/s/  M ICHAEL  W. B ELL         
 
 
 
 
Michael W. Bell,
 
 
 
 
Executive Vice President and Chief Financial Officer