STATE STREET CORP (Form: 10-Q, Received: 05/04/2017 17:11:12)

Large accelerated filer x

Accelerated filer ¨

Non-accelerated filer ¨

Smaller reporting company ¨

Emerging growth company ¨

(Do not check if a smaller reporting company)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2017



¨	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)

______________________________________________________

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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x

The number of shares of the registrant’s common stock outstanding as of April 30, 2017 was 376,235,731 .

STATE STREET CORPORATION

QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED

March 31, 2017

TABLE OF CONTENTS




PART I. FINANCIAL INFORMATION
Table of Contents for Management’s Discussion and Analysis of Financial Condition and Results of Operations	3
Management's Discussion and Analysis of Financial Condition and Results of Operations	4
Quantitative and Qualitative Disclosures About Market Risk	47
Controls and Procedures	47
Consolidated Statement of Income (Unaudited) for the three months ended March 31, 2017 and 2016	48
Consolidated Statement of Comprehensive Income (Unaudited) for the three months ended March 31, 2017 and 2016	49
Consolidated Statement of Condition as of March 31, 2017 (Unaudited) and December 31, 2016	50
Consolidated Statement of Changes in Shareholders' Equity (Unaudited) for the three months ended March 31, 2017 and 2016	51
Consolidated Statement of Cash Flows (Unaudited) for the three months ended March 31, 2017 and 2016	52
Condensed Notes to Consolidated Financial Statements (Unaudited)	53
Review Report of Independent Registered Public Accounting Firm	90
PART II. OTHER INFORMATION
Unregistered Sales of Equity Securities and Use of Proceeds	93
Exhibits	93
Signatures	94
Exhibit Index	95

Table of Contents

STATE STREET CORPORATION

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

TABLE OF CONTENTS





General	4
Overview of Financial Results	8
Consolidated Results of Operations	10
Total Revenue	10
Fee Revenue	10
Net Interest Income	12
Expenses	14
Income Tax Expense	15
Line of Business Information	16
Financial Condition	22
Investment Securities	23
Loans and Leases	27
Cross-Border Outstandings	27
Risk Management	28
Credit Risk Management	28
Liquidity Risk Management	28
Operational Risk Management	32
Market Risk Management	32
Model Risk Management	35
Capital	35
Off-Balance Sheet Arrangements	46
Recent Accounting Developments	46

We use acronyms and other defined terms for certain business terms and abbreviations, as defined on the acronyms list and glossary following the consolidated financial statements in this Form 10-Q.

State Street Corporation | 3

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

GENERAL

State Street Corporation, referred to as the Parent Company, is a financial holding company organized in 1969 under the laws of the Commonwealth of Massachusetts . Our executive offices are located at One Lincoln Street, Boston, Massachusetts 02111 (telephone (617) 786-3000). For purposes of this Form 10-Q, 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 is a source of financial and managerial strength to our subsidiaries. Through our subsidiaries, including our principal banking subsidiary, State Street Bank, we provide a broad range of financial products and services to institutional investors worldwide, with $29.83 trillion of AUCA and $2.56 trillion of AUM as of March 31, 2017 .

As of March 31, 2017 , we had consolidated total assets of $236.80 billion , consolidated total deposits of $183.47 billion , consolidated total shareholders' equity of $21.29 billion and 34,817 employees. We operate in more than 100 geographic markets worldwide, including in the U.S., Canada, Europe, the Middle East and Asia.

Our operations are organized into two lines of business:

Investment Servicing and Investment Management, which are defined based on products and services provided.

Investment Servicing provides services for institutional clients, including mutual funds, collective investment funds and other investment pools, corporate and public retirement plans, insurance companies, investment managers, 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; our enhanced custody product, which integrates principal securities lending and custody; 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 SSGA, provides a broad array of investment management, investment research and investment advisory services to corporations, public funds and other sophisticated investors. SSGA offers passive and active asset management strategies across equity, fixed-income, alternative, multi-asset solutions (including OCIO) and cash asset classes. Products

are distributed directly and through intermediaries using a variety of investment vehicles, including ETFs, such as the SPDR ^® ETF brand.

Additional information about our lines of business is provided in “Line of Business Information” in this Management's Discussion and Analysis and Note 17 to the consolidated financial statements in this Form 10-Q.

This Management's Discussion and Analysis is part of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 , and updates the Management's Discussion and Analysis in our 2016 Form 10-K previously filed with the SEC. You should read the financial information contained in this Management's Discussion and Analysis and elsewhere in this Form 10-Q in conjunction with the financial and other information contained in our 2016 Form 10-K. Certain previously reported amounts presented in this Form 10-Q have been reclassified to conform to current-period presentation.

We prepare our consolidated financial statements in conformity with U.S. GAAP. The preparation of financial statements in conformity with U.S. 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 include:


•	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. For additional information about these significant accounting policies, refer to pages 119 - 122, “Significant Accounting Estimates” included under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, in our 2016 Form 10-K. We did not change these significant accounting policies in the first quarter of 2017 .

Certain financial information provided in this Form 10-Q, including in this Management's Discussion and Analysis, is prepared on both a U.S. GAAP, or reported basis, and a non-GAAP basis,

State Street Corporation | 4

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

including certain non-GAAP measures used in the calculation of identified regulatory ratios. We measure and compare certain financial information on a non-GAAP basis, including information (such as capital ratios calculated under regulatory standards scheduled to be effective in the future) that management uses in evaluating our business and activities.

Non-GAAP financial information should be considered in addition to, and not as a substitute for or superior to, financial information prepared in conformity with U.S. GAAP. Any non-GAAP financial information presented in this Form 10-Q, including this Management’s Discussion and Analysis, is reconciled to its most directly comparable currently applicable regulatory ratio or U.S. GAAP-basis measure.

We further believe that our presentation of fully taxable-equivalent net interest income, a non-GAAP measure, which reports non-taxable revenue, such as interest income associated with tax-exempt investment securities, on a fully taxable-equivalent basis, facilitates an investor's understanding and analysis of our underlying financial performance and trends.

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), summary results of semi-annual State Street-run stress tests which we conduct under the Dodd-Frank Act, and resolution plan disclosures required under the Dodd-Frank Act. These additional disclosures are accessible on the “Investor Relations” section of our corporate website at www.statestreet.com .

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-Q.

We use acronyms and other defined terms for certain business terms and abbreviations, as defined in the acronyms list and glossary following the consolidated financial statements in this Form 10-Q.

Forward-Looking Statements

This Form 10-Q, as well as other reports and proxy materials 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, may contain statements (including statements in the Management's Discussion and Analysis included in such reports, as applicable) 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, strategies, financial portfolio performance, dividend and stock purchase programs, outcomes of legal proceedings, market growth, acquisitions, joint ventures and divestitures, cost savings and transformation initiatives, client growth and new technologies, services and opportunities, as well as 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,” “priority,” “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 income, 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

State Street Corporation | 5

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

expenses and the performance and volatility of securities, credit, currency and other markets in the U.S. and internationally; and the impact of monetary and fiscal policy in the United States and internationally on prevailing rates of interest and currency exchange rates in the markets in which we provide services to our clients;


•	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, our ability to manage levels of such deposits and 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 needs, regulatory requirements and risk profile;

•

the manner and timing with which the Federal Reserve and other U.S. and foreign regulators implement or reevaluate changes to the regulatory framework applicable to our operations, including implementation or modification of the Dodd-Frank Act, the Basel III final rule and European legislation (such as the Alternative Investment Fund Managers Directive, Undertakings for Collective Investment in Transferable Securities Directives and Markets in Financial Instruments Directive II); 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, liquidity and capital planning, resolution planning, compliance programs, and changes in governmental enforcement approaches to perceived failures to comply with regulatory or legal obligations;


•	we may not successfully implement our plans to have a credible resolution plan by July 2017, or that plan may not be considered to be sufficient by the Federal Reserve and the FDIC, due to a number of factors, including, but not limited to, challenges we may experience in interpreting and addressing regulatory expectations, failure to implement remediation in a timely manner,

the complexities of development of a comprehensive plan to resolve a global custodial bank and related costs and dependencies. If we fail to meet regulatory expectations to the satisfaction of the Federal Reserve and the FDIC in any future submission, we could be subject to more stringent capital, leverage or liquidity requirements, or restrictions on our growth, activities or operations;

•

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 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;

•

requirements to obtain the prior approval or non-objection of the Federal Reserve or other U.S. and non-U.S. regulators for the use, allocation or distribution of our capital or other specific capital actions or corporate activities, including, without limitation, acquisitions, investments in subsidiaries, dividends and stock purchases, without which our growth plans, distributions to shareholders, share repurchase programs or other capital or corporate 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;

•

economic or financial market disruptions in the U.S. or internationally, including those which may result from recessions or political instability; for example, the U.K.'s decision to exit from the European Union may continue to disrupt financial markets or economic growth in Europe or, similarly, financial markets may react sharply or abruptly to actions taken by the new administration in the United States;


•	our ability to develop and execute State Street Beacon, our multi-year transformation program to digitize our business, deliver significant value and innovation for our clients and lower expenses across the organization, any failure of which, in whole or in part, may among other things, reduce our competitive position, diminish

State Street Corporation | 6

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

the cost-effectiveness of our systems and processes or provide an insufficient return on our associated investment;

•

our ability to promote a strong culture of risk management, operating controls, compliance oversight, ethical behavior and governance that meets our expectations and those of our clients and our regulators, and the financial, regulatory, reputation and other consequences of our failure to meet such expectations; the impact on our compliance and controls enhancement programs of the appointment of a monitor under the deferred prosecution agreement with the DOJ and compliance consultant expected to be appointed under a potential settlement with the SEC, including the potential for such monitor and compliance consultant to require changes to our programs or to identify other issues that require substantial expenditures, changes in our operations, or payments to clients or reporting to U.S. authorities;


•	the results of our review of our billing practices, including additional amounts we may be required to reimburse clients, as well as potential consequences of such review, including damage to our client relationships and adverse actions by governmental authorities;


•	the results of, and costs associated with, governmental or regulatory inquiries and investigations, litigation and similar claims, disputes, or civil or criminal proceedings;


•	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;

•

the large institutional clients on which we focus are often able to exert considerable market influence, and this, combined with strong competitive market forces, subjects us to significant pressure to reduce the fees we charge, to potentially significant changes in our assets under custody and administration or our assets under management in the event of the acquisition or loss of a client, in whole or in part, and to potentially significant changes in our fee revenue in the event a client re-balances or changes its investment approach or otherwise re-directs assets to lower- or higher-fee asset classes;


•	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 depositary 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 (including those of our third-party service providers) and their effective operation both independently and with external systems, and complexities and costs of protecting the security of such 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;


•	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;

State Street Corporation | 7

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS


•	our ability to recognize evolving needs of our clients and to develop products that are responsive to such trends and profitable to 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 section and elsewhere in this Form 10-Q or disclosed in our other SEC filings. Forward-looking statements in this Form 10-Q should not be relied on as representing our expectations or beliefs as of any time subsequent to the time this Form 10-Q is filed with the SEC. We undertake no obligation to revise our forward-looking statements after the time they are made. The factors discussed herein 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, financial condition or cash flows.

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 annual reports on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 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 .

OVERVIEW OF FINANCIAL RESULTS



TABLE 1: OVERVIEW OF FINANCIAL RESULTS
	Quarters Ended March 31,
(Dollars in millions, except per share amounts)	2017			2016			% Change
Total fee revenue	$	2,198		$	1,970		12	%
Net interest income	510			512			—
Gains (losses) related to investment securities, net	(40		)	2			nm
Total revenue	2,668			2,484			7
Provision for loan losses	(2		)	4			nm
Total expenses	2,086			2,050			2
Income before income tax expense	584			430			36
Income tax expense (benefit)	82			62			32
Net income	$	502		$	368		36
Adjustments to net income:
Dividends on preferred stock ⁽¹⁾	$	(55	)	$	(49	)	12
Earnings allocated to participating securities ⁽²⁾	(1		)	—			nm
Net income available to common shareholders	$	446		$	319		40
Earnings per common share:
Basic	$	1.17		$	.80		46
Diluted	1.15			.79			46
Average common shares outstanding (in thousands):
Basic	381,224			399,421
Diluted	386,417			403,615
Cash dividends declared per common share	$	.38		$	.34
Return on average common equity	9.9		%	6.8		%

⁽¹⁾ Additional information about our preferred stock dividends is provided in Note 12 to the consolidated financial statements in this Form 10-Q.

⁽²⁾ Represents the portion of net income available to common equity allocated to participating securities, composed of unvested and fully vested SERP shares 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 the common stock in undistributed earnings.

^nm Not meaningful

State Street Corporation | 8

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The following “Highlights” and “Financial Results” sections provide information related to significant events, as well as highlights of our consolidated financial results for the quarter ended March 31, 2017 presented in Table 1: Overview of Financial Results . More detailed information about our consolidated financial results, including comparisons of our financial results for the quarter ended March 31, 2017 to those for the quarter ended March 31, 2016 , is provided under “Consolidated Results of Operations,” which follows these sections. In this Management’s Discussion and Analysis, where we describe the effects of changes in foreign exchange rates, those effects are determined by applying applicable weighted average foreign exchange rates from the relevant 2016 period to the relevant 2017 results.

Highlights

•

First quarter 2017 EPS of $1.15 increased 46% compared to first quarter 2016 EPS of $0.79 , driven by strong fee revenue growth from higher equity markets, the contribution of the acquired GEAM operations, new business wins and savings associated with State Street Beacon. First quarter 2017 EPS also benefited from lower restructuring charges in the first quarter of 2017 compared to the first quarter of 2016 , primarily related to State Street Beacon.


•	First quarter 2017 ROE of 9.9% increased 310 bps compared to ROE of 6.8% in the first quarter of 2016 , reflecting strong earnings and capital return through stock repurchases and dividend payouts. First quarter 2017 ROE also benefited from the aforementioned lower restructuring charges.

•

AUCA increased 11% in the first quarter of 2017 compared to the first quarter of 2016 , primarily due to market appreciation, net inflows, and net new business. In the first quarter of 2017 , we secured new asset servicing mandates of $110 billion . Our AUCA pipeline of asset servicing mandates that have been won but not yet installed as of March 31, 2017 totaled approximately $375 billion . Additional information about AUCA is provided in "Servicing Fees" in "Line of Business - Investment Servicing" in this Management's Discussion and Analysis in this Form 10-Q.


•	AUM increased 12% in the first quarter of 2017 compared to the first quarter of 2016 , primarily due to market appreciation and growth from the acquired GEAM operations.


•	We declared a quarterly common stock dividend of $0.38 per share, totaling

approximately $144 million , in the first quarter of 2017 , compared to $0.34 per share, totaling $135 million in the first quarter of 2016 .

•

In the first quarter of 2017 , we acquired approximately 6.7 million shares of common stock, including common shares acquired in connection with the exchange of BDFS stock for State Street's common stock, at an average per-share cost of $78.34 and an aggregate cost of approximately $523 million . We have approximately $227 million remaining under our current $1.4 billion common stock purchase program approved by our Board in June 2016, covering the period ending June 30, 2017.

Additional information with respect to our common stock purchase program is provided under "Capital" in "Financial Condition" in this Management's Discussion and Analysis in this Form 10-Q.

Financial Results

•

Total revenue in the first quarter of 2017 increased 7% compared to the first quarter of 2016 , primarily due to an increase in servicing and management fee revenue. Also included in total revenue is a pre-tax gain of approximately $30 million related to the sale of IFDS and the disposition of BFDS, and an offsetting pre-tax loss of $40 million reflecting a modest repositioning of $2.7 billion of AFS in response to the current interest rate environment.


•	Servicing fee revenue increased 4% in the first quarter of 2017 compared to the first quarter of 2016 , primarily due to higher equity markets and net new business.


•	Management fee revenue increased $112 million, or 41% , in the first quarter of 2017 compared to the first quarter of 2016 , primarily due to approximately $71 million from the acquired GEAM business, higher global equity markets and higher revenue-yielding ETF flows.

•

Processing and other fee revenue increased $60 million, or 115% , in the first quarter of 2017 compared to the first quarter of 2016 , primarily due to a pre-tax gain of approximately $30 million related to the sale of IFDS and the disposition of BFDS in the first quarter of 2017 as well as favorable foreign exchange swap costs. Refer to "Processing Fees and Other" in "Investment Servicing" line of business within this Management's Discussion and Analysis for additional information.

State Street Corporation | 9

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS


•	Net interest income remained flat in the first quarter of 2017 compared to the first quarter of 2016 , primarily due to a higher domestic rate environment and deposit pricing, largely offset by lower yields on the foreign investment securities portfolio.

•

In the first quarter of 2017 , we recorded restructuring charges of $16 million related to State Street Beacon , our multi-year transformation program to digitize our business, deliver significant value and innovation for our clients and lower expenses across the organization. We expect to achieve estimated annual pre-tax net run-rate expense savings of $550 million by the end of 2020, relative to 2015, all else equal, for full effect in 2021. We expect to generate at least $140 million in annual pre-tax expense savings in 2017. Actual expenses may increase or decrease in the future due to other factors.


•	Total expenses in the first quarter of 2017 were relatively flat compared to the first quarter of 2016 , primarily driven by increases in compensation and employee benefits and information systems and communication expenses due to the July 1, 2016 acquisition of GEAM, largely offset by lower restructuring charges and savings associated with State Street Beacon.

CONSOLIDATED RESULTS OF OPERATIONS

This section discusses our consolidated results of operations for the quarter ended March 31, 2017 compared to the quarter ended March 31, 2016 , and should be read in conjunction with the consolidated financial statements and accompanying condensed notes to the consolidated financial statements included in this Form 10-Q.

Total Revenue



TABLE 2: TOTAL REVENUE
	Quarters Ended March 31,
(Dollars in millions)	2017			2016		% Change
Fee revenue:
Servicing fees	$	1,296		$	1,242	4	%
Management fees	382			270		41
Trading services:
Foreign exchange trading	164			156		5
Brokerage and other trading services	111			116		(4	)
Total trading services	275			272		1
Securities finance	133			134		(1	)
Processing fees and other	112			52		115
Total fee revenue	2,198			1,970		12
Net interest income:
Interest income	650			629		3
Interest expense	140			117		20
Net interest income	510			512		—
Gains (losses) related to investment securities, net	(40		)	2		nm
Total revenue	$	2,668		$	2,484	7

^nm Not meaningful

Fee Revenue

Table 2: Total Revenue , provides the breakout of fee revenue for the quarters ended March 31, 2017 and 2016 .

Servicing and management fees collectively made up approximately 76% of total fee revenue in the first quarter of 2017 , compared to approximately 77% in the first quarter of 2016 . The level of these fees is influenced by several factors, including the mix and volume of our AUCA and our AUM, the value and type of securities positions held (with respect to assets under custody), 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 AUCA. 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.

Management fees are generally affected by changes in month-end valuations of AUM. Management fees for certain components of managed assets, such as ETFs, are affected by daily average valuations of AUM. Management fee revenue is more sensitive to market valuations than servicing fee revenue, as a higher proportion of the

State Street Corporation | 10

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

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, may have a significant effect on our management fee revenue. While certain management fees are directly determined by the values of AUM and the investment strategies employed, management fees may reflect other factors as well, including performance fee arrangements, 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 March 31, 2017 and assuming that all other factors remain constant, that:


•	A 10% increase or decrease in worldwide equity valuations, on a weighted average basis, over the relevant periods for which our servicing and management fees are calculated, would result in a corresponding change in our total servicing and

management fee revenues of approximately 3% ; and


•	A 10% increase or decrease in worldwide fixed income markets, on a weighted average basis, over the relevant periods for which our servicing and management fees are calculated, would result in a corresponding change in our total servicing and management fee revenues of approximately 1% .

See Table 3: Daily, Month-End and Quarter-End Equity Indices , for selected equity market indices, and see Table 4: Quarter-End Debt Index . While the specific indices presented are indicative of general market trends, the asset types and classes relevant to 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, month-end averages, and quarter-end indices demonstrate worldwide changes in equity and debt markets that affect our servicing and management fee revenue. Quarter-end indices affect the values of AUCA and AUM as of those dates. The index names listed in the table are service marks of their respective owners.

Further discussion of fee revenue is provided under “Line of Business Information” in this Management's Discussion and Analysis in this Form 10-Q.



TABLE 3: DAILY, MONTH-END AND QUARTER-END EQUITY INDICES
	Daily Averages of Indices				Averages of Month-End Indices				Quarter-End Indices
	Quarters Ended March 31,				Quarters Ended March 31,				As of March 31,
	2017	2016	% Change		2017	2016	% Change		2017	2016	% Change
S&P 500 ^®	2,326	1,951	19	%	2,335	1,977	18	%	2,363	2,060	15	%
NASDAQ ^®	5,736	4,614	24		5,784	4,681	24		5,912	4,870	21
MSCI ^® EAFE ^®	1,749	1,594	10		1,759	1,601	10		1,793	1,652	9
MSCI ^® Emerging Markets	927	757	22		935	773	21		958	837	14



TABLE 4: QUARTER-END DEBT INDEX
	Quarter-End Indices
	As of March 31,
	2017	2016	% Change
Barclays Capital Global Aggregate Bond Index ^®	459	468	(2	)%

State Street Corporation | 11

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Net Interest Income

See Table 2: Total Revenue , for the breakout of interest income and interest expense for the quarters ended March 31, 2017 and 2016 .

NII is defined as interest income 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 income and average total interest-earning assets for the period. It is calculated by dividing fully taxable-equivalent net interest income by average interest-earning assets. 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 5: AVERAGE BALANCES AND INTEREST RATES - FULLY TAXABLE-EQUIVALENT BASIS
	Quarters Ended March 31,
	2017							2016
(Dollars in millions; fully taxable-equivalent basis)	Average Balance		Interest Revenue/ Expense			Rate		Average Balance		Interest Revenue/ Expense			Rate
Interest-bearing deposits with banks	$	48,893	$	34		.28	%	$	48,545	$	43		.36	%
Securities purchased under resale agreements ⁽¹⁾	2,056		46			9.07		2,490		36			5.86
Trading account assets	914		—			—		860		—			—
Investment securities	97,219		471			1.94		100,899		488			1.94
Loans and leases	20,139		108			2.17		18,615		91			1.96
Other interest-earning assets	22,619		34			.62		22,672		13			.22
Average total interest-earning assets	$	191,840	$	693		1.47		$	194,081	$	671		1.39
Interest-bearing deposits:
U.S.	$	25,928	$	32		.50	%	$	27,096	$	27		.40	%
Non-U.S.	94,990		12			.05		92,971		11			.05
Securities sold under repurchase agreements ⁽¹⁾	3,894		—			—		4,243		—			—
Federal funds purchased	—		—			—		15		—			—
Other short-term borrowings	1,341		2			.63		1,688		—			—
Long-term debt	11,421		73			2.56		11,027		61			2.20
Other interest-bearing liabilities	5,240		21			1.63		5,951		18			1.22
Average total interest-bearing liabilities	$	142,814	$	140		.40		$	142,991	$	117		.33
Interest-rate spread						1.07	%						1.06	%
Net interest income—fully taxable-equivalent basis			$	553						$	554
Net interest margin—fully taxable-equivalent basis						1.17	%						1.15	%
Tax-equivalent adjustment			(43		)					(42		)
Net interest income—GAAP basis			$	510						$	512

⁽¹⁾ Reflects the impact of balance sheet netting under enforceable netting agreements.

See Table 5: Average Balances and Interest Rates - Fully Taxable-Equivalent Basis , for the breakout of net interest income on a fully taxable-equivalent basis for the quarters ended March 31, 2017 and 2016 . Net interest income on a fully taxable-equivalent basis was relatively flat in the first quarter of 2017 compared to the first quarter of 2016 , as benefits due to a higher domestic rate environment and disciplined liability pricing were offset by lower yields on foreign investment portfolio securities, a smaller amount of discount accretion related to the asset-backed commercial paper conduits and more FX swaps qualifying for hedge accounting. Average balances in the first quarter of 2017 reflect management actions to reduce the usage of wholesale deposit funding of our balance sheet.

Though average interest and non-interest bearing deposits were unchanged in the first quarter of 2017 compared to the first quarter of 2016 , these management actions contributed to a $6 billion reduction in wholesale deposits and were offset by less expensive client deposits.

We recorded aggregate discount accretion in interest income of $5 million and $14 million in the first quarter of 2017 and 2016 , respectively, related to the assets we consolidated onto our balance sheet in 2009 from our asset-backed commercial paper conduits. Assuming that we hold the former conduit securities remaining in our investment portfolio until they mature or are sold, we expect to generate aggregate discount accretion in future periods of approximately $124 million over their remaining

State Street Corporation | 12

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

terms, with approximately one third of this discount accretion to be recorded through 2019.

Changes in the components of interest-earning assets and interest-bearing liabilities are discussed in more detail below. Additional information about the components of interest income and interest expense is provided in Note 14 to the consolidated financial statements included in this Form 10-Q.

Average total interest-earning assets were slightly lower in the quarter ended March 31, 2017 compared to the quarter ended March 31, 2016 .

Our clients have continued to place elevated levels of deposits with us, as central bank actions have resulted in high levels of liquidity and low global interest rates. We evaluate deposits as either inherent in our relationship with our custodial clients, which we generally invest in our investment portfolio or excess deposits, which we generally deposit with central banks. Deposits with central banks generate low or negative returns. Consequently, the elevated levels of these excess deposits have contributed to a reduction of our net interest margin relative to historical levels.

Average deposits with central banks of $44.91 billion in the quarter ended March 31, 2017 are included in our total consolidated assets, and lower deposit levels benefit our regulatory leverage ratios. If global interest rates increase, we would expect to see some additional decreases in client deposits. In general, we continue to anticipate higher levels of client deposits when compared to longer-term historical trends, irrespective of the interest rate environment, particularly during periods of market stress.

Interest-bearing deposits with banks averaged $48.89 billion in the quarter ended March 31, 2017 compared to $48.55 billion in the quarter ended March 31, 2016 . These deposits reflected our maintenance of cash balances at the Federal Reserve, the ECB and other non-U.S. central banks both to satisfy regulatory reserve requirements, and include elevated levels of client deposits and our investment of these excess client deposits with central banks.

We expect to continue to invest deposits we deem as elevated in investment securities or short-term assets, including central bank deposits, depending on our assessment of the underlying characteristics of the deposits.

Loans and leases averaged $20.14 billion in the quarter ended March 31, 2017 compared to $18.62 billion in the quarter ended March 31, 2016 . The increase in average loans and leases resulted from growth in loans to municipalities, alternative financing, mutual fund lending, and continued investment in senior secured loans.



TABLE 6: U.S. AND NON-U.S. SHORT-DURATION ADVANCES
	Quarters Ended March 31,
(Dollars in millions)	2017			2016
Average U.S. short-duration advances	$	2,260		$	2,230
Average non-U.S. short-duration advances	1,220			1,264
Average total short-duration advances	$	3,480		$	3,494
Average short-duration advances to average loans and leases	17		%	19		%

Average loans and leases also includes short-duration advances. The decline in the proportion of average 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.

Average other interest-earning assets decreased to $22.62 billion in the quarter ended March 31, 2017 from $22.67 billion in the quarter ended March 31, 2016 . Our average other interest-earning assets, largely associated with our enhanced custody business, comprised approximately 12% of our average total interest-earning assets for both the quarters ended March 31, 2017 and 2016 . The enhanced custody business, which is our principal securities financing business for our custody clients, generates securities finance revenue. The net interest income earned on these transactions is generally lower than the interest earned on other alternative investments.

Aggregate average interest-bearing deposits increased to $120.92 billion in the quarter ended March 31, 2017 from $120.07 billion in the quarter ended March 31, 2016 . The relatively flat levels in the quarter ended March 31, 2017 compared to the prior year period were the result of higher U.S. and non-U.S. client deposit levels during the year, offset by management's actions to reduce more expensive wholesale certificates of deposit. Future deposit levels will be influenced by the underlying asset servicing business, client deposit behavior, as well as market conditions, including the general levels of U.S. and non-U.S. interest rates.

Average other short-term borrowings declined to $1.34 billion in the quarter ended March 31, 2017 from $1.69 billion in the quarter ended March 31, 2016 as bonds matured in the Tax-Exempt Investment program.

Average long-term debt increased to $11.42 billion in the quarter ended March 31, 2017 from $11.03 billion in the quarter ended March 31, 2016 . The increase primarily reflected the issuance of $1.5 billion of senior debt in May 2016, which was partially offset by maturity of $400 million of senior debt in January 2016 and $1.0 billion of senior debt in March 2016.

State Street Corporation | 13

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Average other interest-bearing liabilities were $5.24 billion in the quarter ended March 31, 2017 compared to $5.95 billion in the quarter ended March 31, 2016 , primarily the result of changes in the level of cash collateral received from clients in connection with our enhanced custody business, which is presented on a net basis in accordance with enforceable netting agreements.

Several factors could affect future levels of our net interest income and net interest margin, including the volume and 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; the yields earned on securities purchased compared to the yields earned on securities sold or matured; changes in the type and amount of credit or other loans we extend; and changes in our enhanced custody business.

Based on market conditions and other factors, including regulatory requirements, 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, the implementation of regulatory standards, 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 income and net interest margin.

Expenses

Table 7: Expenses provides the breakout of expenses for the quarters ended March 31, 2017 and 2016 .



TABLE 7: EXPENSES
	Quarters Ended March 31,
(Dollars in millions)	2017		2016		% Change
Compensation and employee benefits	$	1,166	$	1,107	5	%
Information systems and communications	287		272		6
Transaction processing services	197		200		(2	)
Occupancy	110		113		(3	)
Acquisition costs	12		7		71
Restructuring charges, net	17		97		(82	)
Other:
Professional services	94		93		1
Amortization of other intangible assets	52		49		6
Regulatory fees and assessments	27		20		35
Securities processing costs	8		4		100
Other	116		88		32
Total other	297		254		17
Total expenses	$	2,086	$	2,050	2
Number of employees at quarter-end	34,817		32,527		7

Compensation and employee benefits expenses increased 5% in the first quarter of 2017 compared to the first quarter of 2016 . The increase was primarily due to the addition of the acquired GEAM operations, an increase in deferred incentive compensation expense, and higher costs to support new business, partially offset by savings from State Street Beacon.

Compensation and employee benefits expenses in the first quarter of 2017 and the first quarter of 2016 included approximately $154 million and $122 million, respectively, of deferred incentive compensation expense for retirement-eligible employees and payroll taxes.

The number of employees increased 7% in the first quarter of 2017 compared to the first quarter of 2016 . Approximately 3% of the growth was driven by continued build to support our regulatory initiatives, and includes insourcing of work previously performed by contractors and consultants. An additional approximately 3% of the growth was related to large client lift outs and the addition of GEAM operations.

Information systems and communications expenses increased 6% in the first quarter of 2017 compared to the first quarter of 2016 . The increase was primarily related to investments supporting new business, partially offset by savings from State Street Beacon.

Other expenses increased 17% in the first quarter of 2017 compared to the first quarter of 2016 . The increase was primarily due to the addition of the acquired GEAM sub-advisory relationships, and higher regulatory and insurance expense.

Our compliance obligations have increased due to new regulations in the U.S. and internationally that

State Street Corporation | 14

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

have been adopted or proposed in response to the 2008 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 regulatory compliance programs. We anticipate that these evolving regulatory compliance requirements and expectations, including our efforts to complete our 2017 resolution plan (due to be submitted on July 1, 2017), as discussed under "Liquidity Risk Management" in "Financial Condition" included in this Management's Discussion and Analysis in this Form 10-Q, 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.

Acquisition Costs

We recorded acquisition costs of $12 million and $7 million in the first quarter of 2017 and 2016 , respectively. Costs incurred in the first quarter of 2017 related to our acquisition of GEAM on July 1, 2016. As we integrate GEAM's operations into our business, we expect to incur total merger and integration costs of approximately $80 million through 2018. For additional information about the GEAM acquisition, refer to page 132 in Note 1 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 2016 Form 10-K.

Restructuring Charges

In October 2015, we announced State Street Beacon, a multi-year program to create cost efficiencies through changes in our operational processes and to further digitize our processes and interfaces with our clients. In connection with State Street Beacon, we expect to incur aggregate pre-tax restructuring charges of approximately $300 million to $400 million beginning in 2016 through December 31, 2020 to implement State Street Beacon. We estimate those charges will include approximately $250 million to $300 million in severance and benefits costs associated with targeted staff reductions (a substantial portion of which will result in future cash expenditures) and approximately $50 million to $100 million in information technology application rationalization and real estate actions. We expect to achieve estimated annual pre-tax net run-rate expense savings of $550 million by the end of 2020,

relative to 2015, all else equal, for full effect in 2021. Actual expenses may increase or decrease in the future due to other factors.

In the first quarter of 2017 and 2016 , we recorded restructuring charges of $16 million and $97 million , respectively, related to State Street Beacon .

The following table presents aggregate restructuring activity for the periods indicated.



TABLE 8: RESTRUCTURING CHARGES
(In millions)	Employee Related Costs			Real Estate Consolidation			Asset and Other Write-offs			Total
Accrual Balance at December 31, 2015	$	9		$	11		$	3		$	23
Accruals for Business Operations and IT	(2		)	—			—			(2		)
Accruals for State Street Beacon	94			18			30			142
Payments and other adjustments	(64		)	(12		)	(31		)	(107		)
Accrual Balance at December 31, 2016	$	37		$	17		$	2		$	56
Accruals for State Street Beacon	14			—			2			16
Payments and Other Adjustments	(13		)	(3		)	(2		)	(18		)
Accrual Balance at March 31, 2017	$	38		$	14		$	2		$	54

Income Tax Expense

Income tax expense was $82 million in the first quarter of 2017 compared to $62 million in the same period of 2016 . Our effective tax rate in the first quarter of 2017 was 14.0% compared to 14.4% in the same period of 2016 . The 2017 tax expense included the effects of the sale of IFDS and the disposition of BFDS, a reduced state tax accrual and excess deductions related to stock based compensation, partially offset by a reduced benefit due to a decrease in alternative energy investments. Refer to "Processing Fees and Other" in "Investment Servicing" line of business within this Management's Discussion and Analysis for additional information regarding IFDS and BFDS.

State Street Corporation | 15

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

LINE OF BUSINESS INFORMATION

Our operations are organized into two lines of business: Investment Servicing and Investment Management, which are defined based on products and services provided. 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. For information about our two lines of business, as well as the revenues, expenses and capital allocation methodologies associated with them, refer to pages 188 to 189 provided in Note 24 to the consolidated financial statements under Item 8, Financial Statements and Supplementary Data, in our 2016 Form 10-K and Note 17 to the consolidated financial statements included in this Form 10-Q.

Investment Servicing



TABLE 9: INVESTMENT SERVICING LINE OF BUSINESS RESULTS
	Quarters Ended March 31,
(Dollars in millions)	2017			2016			% Change
Servicing fees	$	1,296		$	1,242		4	%
Trading services	257			258			—
Securities finance	133			134			(1	)
Processing fees and other	106			49			116
Total fee revenue	1,792			1,683			6
Net interest income	509			511			—
Gains (losses) related to investment securities, net	(40		)	2			nm
Total revenue	2,261			2,196			3
Provision for loan losses	(2		)	4			nm
Total expenses	1,728			1,687			2
Income before income tax expense	$	535		$	505		6
Pre-tax margin	24		%	23		%

^nm Not meaningful

Total revenue and total fee revenue for our Investment Servicing Line of Business, presented in Table 9: Investment Servicing Line of Business Results , increased 3% and 6% , respectively, in the first quarter of 2017 compared to the same period in 2016 .

Net interest income remained flat in the first quarter of 2017 compared to the same period in 2016 , as discussed under “Net Interest Income" in “Consolidated Results of Operations - Total Revenue" in this Management's Discussion and Analysis.

Total expenses increased 2% in the first quarter of 2017 compared to the same period in 2016 , primarily due to an increase of approximately $28 million associated with the deferred incentive compensation expense for retirement-eligible employees and payroll taxes as well as net new business. These increases were partially offset by savings related to State Street Beacon.

Additional information about expenses is provided under "Expenses" in this Management's Discussion and Analysis in this Form 10-Q.

In December 2015, we announced a review of the manner in which we invoiced certain expenses to certain of our Investment Servicing clients, primarily in the United States, during a period going back to 1998. We have informed our clients that we will pay to them the expenses we concluded were incorrectly invoiced to them, plus interest. In conjunction with that review, which is ongoing, we are implementing enhancements to our billing processes and reviewing the conduct of our employees and have taken appropriate steps to address conduct inconsistent with our standards, including, in some cases, termination of employment. We are also evaluating other aspects of invoicing relating to billing our Investment Servicing clients, including calculation of asset-based fees. Additional information about the invoicing matter is provided in Note 10 to the consolidated financial statements included in this Form 10-Q.

Servicing Fees

Servicing fees increased 4% in the first quarter of 2017 compared to the same period in 2016 , primarily due to higher global equity markets and net new business, partially offset by the effect of the strong U.S. dollar and hedge fund outflows.

Servicing fees generated outside the U.S. were approximately 43% and 41% of total servicing fees in the first quarter s of 2017 and 2016 , respectively.



TABLE 10: ASSETS UNDER CUSTODY AND ADMINISTRATION BY PRODUCT
(In billions)	March 31, 2017		December 31, 2016		March 31, 2016
Mutual funds	$	7,033	$	6,841	$	6,728
Collective funds	8,024		7,501		7,000
Pension products	5,775		5,584		5,197
Insurance and other products	9,001		8,845		8,018
Total	$	29,833	$	28,771	$	26,943



TABLE 11: ASSETS UNDER CUSTODY AND ADMINISTRATION BY ASSET CLASS
(In billions)	March 31, 2017		December 31, 2016		March 31, 2016
Equities	$	16,651	$	15,833	$	14,433
Fixed-income	9,786		9,665		9,199
Short-term and other investments	3,396		3,273		3,311
Total	$	29,833	$	28,771	$	26,943



TABLE 12: GEOGRAPHIC MIX OF ASSETS UNDER CUSTODY AND ADMINISTRATION ⁽¹⁾
(In billions)	March 31, 2017		December 31, 2016		March 31, 2016
North America	$	22,361	$	21,544	$	20,505
Europe/Middle East/Africa	5,979		5,734		5,159
Asia/Pacific	1,493		1,493		1,279
Total	$	29,833	$	28,771	$	26,943

⁽¹⁾ Geographic mix is based on the location in which the assets are serviced.

State Street Corporation | 16

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The increase in total AUCA as of March 31, 2017 compared to December 31, 2016 primarily resulted from higher global equity markets. Asset levels as of March 31, 2017 do not reflect the approximately $375 billion of new business in assets to be serviced, which was awarded to us in the first quarter of 2017 and prior periods but not installed prior to March 31, 2017 . This new business will be reflected in AUCA in future periods after installation and will generate servicing fee revenue in subsequent periods. This does not include loss of business which occurs from time to time or changes in AUCA usually from changes in market values of customer assets or subscriptions or redemptions from our customer investment products.

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.

As a result of a decision to diversify providers, one of our large clients will move a portion of its assets, largely common trust funds, currently with State Street to another service provider. We expect to remain a significant service provider to this client. The transition will not be fully complete until 2018 and represents approximately $1 trillion in assets with respect to which we will no longer derive revenue post-transition.

Trading Services



TABLE 13: TRADING SERVICES REVENUE
	Quarters Ended March 31,
(Dollar in millions)	2017		2016		% Change
Foreign exchange trading:
Direct sales and trading	$	98	$	90	9	%
Indirect foreign exchange trading	66		66		—
Total foreign exchange trading	164		156		5
Brokerage and other trading services:
Electronic foreign exchange services	41		44		(7	)
Other trading, transition management and brokerage	52		58		(10	)
Total brokerage and other trading services	93		102		(9	)
Total trading services revenue	$	257	$	258	—

Trading services revenue is composed of revenue generated by FX trading, as well as revenue generated by brokerage and other trading services as noted in Table 13: Trading Services Revenue .

Foreign Exchange Trading Revenue

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. 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.

Our FX trading revenue is influenced by multiple factors, including: the volume and type of client FX transactions and related spreads; currency volatility, reflecting market conditions; and our management of exchange rate, interest rate and other market risks associated with our foreign exchange activities. The relative impact of these factors on our total FX trading revenues often differs from period to period. For example, assuming all other factors remain constant, increases or decreases in volumes or spreads across product mix tend to result in increases or decreases, as the case may be, in client-related FX revenue. Revenue earned from direct sales and trading and indirect FX trading is recorded in FX trading revenue.

Total FX trading revenue increased 5% in the first quarter of 2017 compared to the same period in 2016 , primarily due to higher volumes, partially offset by lower volatility. Total FX trading revenue comprises:

•

Direct sales and trading : 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. Direct sales and trading revenue represented 60% and 58% of total foreign exchange trading revenue in the first quarter s of 2017 and 2016 , respectively. Our direct sales and trading revenue increased by 9% in the first quarter of 2017 compared to the same period

State Street Corporation | 17

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

in 2016 . The increase was primarily due to higher volumes.

•

Indirect FX trading : 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, we are the funds' custodian. We execute indirect FX trades as a principal at rates disclosed to our clients. Estimated indirect sales and trading revenue represented 40% and 42% of total foreign exchange trading revenue in the first quarter s of 2017 and 2016 , respectively. 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 estimated indirect FX trading revenue remained flat in the first quarter of 2017 compared to the same period in 2016 .

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 we continue 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 with us as well as those under custody at another bank.

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 constant.

Total brokerage and other trading services revenue decreased 9% in the first quarter of 2017 compared to the same period in 2016 , primarily due to lower electronic foreign exchange trading revenue as well as the absence of revenue associated with the WM Reuters business, which we disposed of in the second quarter of 2016 . Total brokerage and other trading services revenue comprises:


•	Electronic FX services : 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 decreased 7% in the first quarter of 2017 compared to the same period in 2016 .


•	Other trading, transition management and brokerage revenue : Decreased 10% in the first quarter of 2017 compared to the same period in 2016 , primarily due to the WM Reuters disposition.

In recent years, our transition management revenue was adversely affected by compliance issues in our U.K. business during 2010 and 2011, including settlements with the FCA in 2014 and the DOJ in 2017 , the latter including a deferred prosecution agreement. The reputational and regulatory impact of those compliance issues continues and may adversely affect our results in future periods. Information about contingencies is provided in Note 10 to the consolidated financial statements included in this Form 10-Q.

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 9: Investment Servicing Line of Business Results , for the comparison of securities finance revenue in the first quarter of 2017 compared to the same period in 2016 .

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. We act as principal when the lending client is unable to, or elects not to, transact directly with the market and 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

State Street Corporation | 18

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

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 remained flat in the first quarter of 2017 compared to the same period in 2016 .

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, the constantly evolving regulatory environment 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, derivative financial instruments to support our clients' needs and to manage our interest-rate and currency risk, and amortization of our tax-advantaged investments.

Processing fees and other revenue, presented in Table 9: Investment Servicing Line of Business Results , increased 116% in the first quarter of 2017 compared to the same period in 2016 . In the first quarter of 2017 , we completed the sale of our joint venture interest in IFDS for approximately $175 million in cash and the exchange of our joint venture interest in BFDS stock for $158 million in State Street's common stock. We recognized a pre-tax gain within processing fees and other revenue of approximately $30 million , in the aggregate, in the first quarter of 2017 (after-tax gain of approximately $31 million with a full year annual benefit of $43 million ). The increase in processing fees and other revenue was also due to favorable foreign exchange swap costs.

Investment Management



TABLE 14: INVESTMENT MANAGEMENT LINE OF BUSINESS RESULTS
	Quarters Ended March 31,
(Dollars in millions)	2017			2016			% Change
Management fees	$	382		$	270		41	%
Trading services ⁽¹⁾	18			14			29
Processing fees and other	6			3			nm
Total fee revenue	406			287			41
Net interest income	1			1			nm
Total revenue	407			288			41
Total expenses	329			256			29
Income before income tax expense	$	78		$	32		144
Pre-tax margin	19		%	11		%

^nm Not meaningful

⁽¹⁾ Includes revenues associated with the SPDR ^® Gold ETF and SPDR ^® Long Dollar Gold Trust ETF, for which we act as the marketing agent.

Total revenue and total fee revenue for our Investment Management Line of Business, presented in Table 14: Investment Management Line of Business Results , increased 41% in the first quarter of 2017 compared to the same period in 2016 primarily due to approximately $71 million from the acquired GEAM operations.

Total expenses increased 29% in the first quarter of 2017 compared to the same period in 2016 primarily due to approximately $51 million in incremental costs related to the acquisition of GEAM on July 1, 2016 and an increase of approximately $4 million associated with the deferred incentive compensation expense for retirement-eligible employees and payroll taxes. These increases were partially offset by savings related to State Street Beacon.

Additional information about expenses is provided under "Expenses" in “Consolidated Results of Operations” in this Management's Discussion and Analysis in this Form 10-Q.

In July 2016, we completed our acquisition of GEAM. AUM associated with the acquired GEAM operations totaled $120 billion as of March 31, 2017 , including assets from acquired clients and new business from these clients since the acquisition date. Our consolidated financial statements include the operating results for the acquired business from the date of acquisition, July 1, 2016.

State Street Corporation | 19

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Management Fees

Through SSGA, we provide a broad range of investment management strategies, specialized investment management advisory services, OCIO and other financial services for corporations, public funds, and other sophisticated investors. SSGA offers an 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 41% in the first quarter 2017 compared to the same period in 2016 , primarily due to approximately $71 million from the acquired GEAM operations, higher global equity markets, and stronger ETF flows.

Management fees generated outside the U.S. were approximately 27% of total management fees in the first quarter of 2017 compared to 36% in the same period in 2016 .



TABLE 15: ASSETS UNDER MANAGEMENT BY ASSET CLASS AND INVESTMENT APPROACH
(In billions)	March 31, 2017		December 31, 2016		March 31, 2016
Equity:
Active	$	77	$	73	$	32
Passive	1,482		1,401		1,295
Total Equity	1,559		1,474		1,327
Fixed-Income:
Active	69		70		17
Passive	312		308		310
Total Fixed-Income	381		378		327
Cash ⁽¹⁾	335		333		381
Multi-Asset-Class Solutions:
Active	19		19		17
Passive	113		107		92
Total Multi-Asset-Class Solutions	132		126		109
Alternative Investments ⁽²⁾ :
Active	26		28		18
Passive	128		129		134
Total Alternative Investments	154		157		152
Total	$	2,561	$	2,468	$	2,296

⁽¹⁾ Includes both floating- and constant-net-asset-value portfolios held in commingled structures or separate accounts.

⁽²⁾ Includes real estate investment trusts, currency and commodities, including SPDR ^® Gold ETF and SPDR ^® Long Dollar Gold Trust ETF. State Street is not the investment manager for the SPDR ^® Gold ETF and SPDR ^® Long Dollar Gold Trust ETF, but acts as the marketing agent.



TABLE 16: EXCHANGE - TRADED FUNDS BY ASSET CLASS ⁽¹⁾⁽²⁾
(In billions)	March 31, 2017		December 31, 2016		March 31, 2016
Alternative Investments ⁽²⁾	$	46	$	42	$	45
Cash	2		2		3
Equity	457		426		349
Fixed-income	53		51		46
Total Exchange-Traded Funds	$	558	$	521	$	443

⁽¹⁾ ETFs are a component of assets under management presented in the preceding table.



TABLE 17: GEOGRAPHIC MIX OF ASSETS UNDER MANAGEMENT ⁽¹⁾
(In billions)	March 31, 2017		December 31, 2016		March 31, 2016
North America	$	1,772	$	1,691	$	1,491
Europe/Middle East/Africa	486		482		496
Asia/Pacific	303		295		309
Total	$	2,561	$	2,468	$	2,296

⁽¹⁾ Geographic mix is based on client location or fund management location.

State Street Corporation | 20

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS



TABLE 18: ACTIVITY IN ASSETS UNDER MANAGEMENT BY PRODUCT CATEGORY
(In billions)	Equity			Fixed-Income			Cash ⁽²⁾			Multi-Asset-Class Solutions			Alternative Investments ⁽³⁾			Total
Balance as of March 31, 2016	$	1,327		$	327		$	381		$	109		$	152		$	2,296
Long-term institutional inflows ⁽¹⁾	181			73			—			36			11			301
Long-term institutional outflows ⁽¹⁾	(234		)	(76		)	—			(25		)	(18		)	(353		)
Long-term institutional flows, net	(53		)	(3		)	—			11			(7		)	(52		)
ETF flows, net	41			5			—			—			(1		)	45
Cash fund flows, net	—			—			(48		)	—			—			(48		)
Total flows, net	(12		)	2			(48		)	11			(8		)	(55		)
Market appreciation	141			1			—			7			7			156
Foreign exchange impact	(20		)	(8		)	(4		)	(4		)	(5		)	(41		)
Total market/foreign exchange impact	121			(7		)	(4		)	3			2			115
Acquisitions and transfers ⁽⁴⁾	38			56			4			3			11			112
Balance as of December 31, 2016	$	1,474		$	378		$	333		$	126		$	157		$	2,468
Long-term institutional inflows ⁽¹⁾	71			22			—			12			8			113
Long-term institutional outflows ⁽¹⁾	(85		)	(25		)	—			(11		)	(18		)	(139		)
Long-term institutional flows, net	(14		)	(3		)	—			1			(10		)	(26		)
ETF flows, net	10			1			—			—			1			12
Cash fund flows, net	—			—			3			—			—			3
Total flows, net	(4		)	(2		)	3			1			(9		)	(11		)
Market appreciation	81			2			(2		)	3			4			88
Foreign exchange impact	8			3			1			2			2			16
Total market/foreign exchange impact	89			5			(1		)	5			6			104
Balance as of March 31, 2017	$	1,559		$	381		$	335		$	132		$	154		$	2,561

⁽¹⁾ Amounts represent long-term portfolios, excluding ETFs.

⁽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 ETF and SPDR ^® Long Dollar Gold Trust ETF. State Street is not the investment manager for the SPDR ^® Gold ETF and SPDR ^® Long Dollar Gold Trust ETF, but acts as the marketing agent.

⁽⁴⁾ Includes assets under management acquired as part of the acquisition of GEAM on July 1, 2016.

The preceding table does not include approximately $9 billion of new asset management business which was awarded but not installed as of March 31, 2017 . New business will be reflected in AUM in future periods after installation, and will generate management fee revenue in subsequent periods. Total AUM as of March 31, 2017 included managed assets lost but not liquidated. Lost business occurs from time to time and it is difficult to predict the timing of client behavior in transitioning these assets. This timing can vary significantly.

State Street Corporation | 21

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

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 have contractual maturities significantly longer than our liabilities; however, we evaluate the operational nature of our deposits and seek to maintain appropriate short-term liquidity of those liabilities that are not operational in nature and maintain longer-termed assets for our operational deposits. 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.

TABLE 19: AVERAGE STATEMENT OF CONDITION ⁽¹⁾

	Quarters Ended March 31,
	2017		2016
(In millions)	Average Balance		Average Balance
Assets:
Interest-bearing deposits with banks	$	48,893	$	48,545
Securities purchased under resale agreements	2,056		2,490
Trading account assets	914		860
Investment securities	97,219		100,899
Loans and leases	20,139		18,615
Other interest-earning assets	22,619		22,672
Average total interest-earning assets	191,840		194,081
Cash and due from banks	2,608		2,690
Other non-interest-earning assets	24,761		26,852
Average total assets	$	219,209	$	223,623
Liabilities and shareholders’ equity:
Interest-bearing deposits:
U.S.	$	25,928	$	27,096
Non-U.S.	94,990		92,971
Total interest-bearing deposits	120,918		120,067
Securities sold under repurchase agreements	3,894		4,243
Federal funds purchased	—		15
Other short-term borrowings	1,341		1,688
Long-term debt	11,421		11,027
Other interest-bearing liabilities	5,240		5,951
Average total interest-bearing liabilities	142,814		142,991
Non-interest-bearing deposits	44,249		45,001
Other non-interest-bearing liabilities	10,626		14,053
Preferred shareholders’ equity	3,197		2,703
Common shareholders’ equity	18,323		18,875
Average total liabilities and shareholders’ equity	$	219,209	$	223,623

⁽¹⁾ Additional information about our average statement of condition, primarily our interest-earning assets and interest-bearing liabilities, is provided in "Net Interest Income" in this Management's Discussion and Analysis included in this Form 10-Q.

State Street Corporation | 22

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Investment Securities



TABLE 20: CARRYING VALUES OF INVESTMENT SECURITIES
(In millions)	March 31, 2017		December 31, 2016
Available-for-sale:
U.S. Treasury and federal agencies:
Direct obligations	$	3,151	$	4,263
Mortgage-backed securities	11,348		13,257
Asset-backed securities:
Student loans ⁽¹⁾	5,691		5,596
Credit cards	1,302		1,351
Sub-prime	252		272
Other	871		905
Total asset-backed securities	8,116		8,124
Non-U.S. debt securities:
Mortgage-backed securities	6,583		6,535
Asset-backed securities	2,811		2,516
Government securities	5,804		5,836
Other	5,802		5,613
Total non-U.S. debt securities	21,000		20,500
State and political subdivisions	9,822		10,322
Collateralized mortgage obligations	2,461		2,593
Other U.S. debt securities	2,426		2,469
U.S. equity securities	44		42
Non-U.S. equity securities	2		3
U.S. money-market mutual funds	424		409
Non-U.S. money-market mutual funds	16		16
Total	$	58,810	$	61,998

Held-to-maturity ⁽²⁾ :
U.S. Treasury and federal agencies:
Direct obligations	$	17,504	$	17,527
Mortgage-backed securities	11,254		10,334
Asset-backed securities:
Student loans ⁽¹⁾	2,812		2,883
Credit cards	858		897
Other	15		35
Total asset-backed securities	3,685		3,815
Non-U.S. debt securities:
Mortgage-backed securities	1,131		1,150
Asset-backed securities	437		531
Government securities	340		286
Other	117		113
Total non-U.S. debt securities	2,025		2,080
Collateralized mortgage obligations	1,361		1,413
Total	$	35,829	$	35,169

⁽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.

⁽²⁾ At amortized cost or fair value on the date of transfer from available-for- sale.

Additional information about our investment securities portfolio is provided in Note 3 to the consolidated financial statements included in this Form 10-Q.

We manage our investment securities portfolio to align with the interest-rate and duration characteristics of our client liabilities that we consider to be operational deposits 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.

In the first quarter of 2017 , we sold $2.7 billion of AFS, primarily Agency MBS and U.S. Treasury securities in our investment portfolio, in response to the current interest rate environment resulting in a pre-tax loss of $40 million .

Approximately 92% and 91% of the carrying value of the portfolio was rated “AAA” or “AA” as of March 31, 2017 and December 31, 2016 , respectively.



TABLE 21: INVESTMENT PORTFOLIO BY EXTERNAL CREDIT RATING
	March 31, 2017		December 31, 2016
AAA ⁽¹⁾	78	%	78	%
AA	14		13
A	4		5
BBB	3		3
Below BBB	1		1
	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 March 31, 2017 , the investment portfolio of 11,533 securities was diversified with respect to asset class. Approximately 52% of the aggregate carrying value of the portfolio as of March 31, 2017 and December 31, 2016 was composed of mortgage-backed and asset-backed securities. The asset-backed securities portfolio, of which approximately 95% and 93% of the carrying value as of March 31, 2017 and December 31, 2016 , 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 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 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 require banking entities to either

State Street Corporation | 23

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

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 in July 2012, and the final implementing regulations became effective in April 2014. Under a 2016 conformance period extension issued by the Federal Reserve, all investments in and relationships with investments in a covered fund made or entered into after December 31, 2013 by a banking entity and its affiliates, and all proprietary trading activities of those entities, were required to be in conformance with the Volcker rule and its final implementing regulations by July 21, 2016. On July 7, 2016, the Federal Reserve announced a final one-year extension of the general conformance period for banking entities to conform ownership interests in and relationships with legacy covered funds to July 21, 2017.

Whether certain types of investment securities or structures such as CLO s 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 March 31, 2017 , we held approximately $961 million of investments in CLOs. As of the same date, these investments had an aggregate pre-tax net unrealized gain of approximately $10 million , composed primarily of gross unrealized gains. Comparatively, as of December 31, 2016 , we held approximately $972 million of investments in CLOs which had an aggregate pre-tax net unrealized gain of approximately $11 million , composed primarily of gross unrealized gains. In the event that we or our banking regulators conclude that such investments in CLOs, or other investments, are covered funds under the Volker rule, 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 or on our consolidated financial condition in the period in which such a divestiture occurs.

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 have established a compliance program which we believe complies with the final Volcker rule regulations as currently in effect. Such compliance program restricts our ability in the future

to engage in certain activities including priority trading and 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 entails both the cost of a compliance program and loss of certain revenue and future opportunities.

Non-U.S. Debt Securities

Approximately 24% of the aggregate carrying value of our investment securities portfolio was non-U.S. debt securities as of March 31, 2017 , compared to approximately 23% as of December 31, 2016 .



TABLE 22: NON-U.S. DEBT SECURITIES
(In millions)	March 31, 2017		December 31, 2016
Available-for-sale:
United Kingdom	$	5,116	$	5,093
Australia	4,246		4,272
Canada	3,010		2,989
Japan	1,417		1,388
Netherlands	1,290		1,283
France	1,256		1,013
Italy	798		676
South Korea	683		634
Germany	622		713
Norway	519		508
Hong Kong	500		664
Sweden	400		188
Belgium	364		360
Spain	340		266
Finland	212		223
Other ⁽¹⁾	227		230
Total	$	21,000	$	20,500
Held-to-maturity:
United Kingdom	$	481	$	504
Netherlands	466		473
Australia	374		374
Germany	257		329
Singapore	231		180
Other ⁽²⁾	216		220
Total	$	2,025	$	2,080

⁽¹⁾ Included approximately $161 million and $164 million as of March 31, 2017 and December 31, 2016 , respectively, related to Ireland, Portugal and Austria, all of which were related to mortgage-backed securities and auto loans.

⁽²⁾ Included approximately $173 million and $178 million as of March 31, 2017 and December 31, 2016 , respectively, related to Spain, Italy, Portugal and Norway, all of which were related to mortgage-backed securities and auto loans.

Approximately 88% of the aggregate carrying value of these non-U.S. debt securities was rated “AAA” or “AA” as of March 31, 2017 and December 31, 2016 . The majority of these securities comprised senior positions within the security structures; these positions have a level of protection provided through subordination and other forms of credit protection. As of March 31, 2017 and December 31, 2016 , approximately 67% and 65% ,

State Street Corporation | 24

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

respectively, of the aggregate carrying value of these non-U.S. debt securities was floating-rate, and accordingly, we consider these securities to have minimal interest-rate risk.

As of March 31, 2017 , our non-U.S. debt securities had an average market-to-book ratio of 100.6% , and an aggregate pre-tax net unrealized gain of approximately $126 million , composed of gross unrealized gains of $164 million and gross unrealized losses of $38 million . These unrealized amounts included a pre-tax net unrealized gain of $59 million , composed of gross unrealized gains of $84 million and gross unrealized losses of $25 million , associated with non-U.S. debt securities available-for- sale.

As of March 31, 2017 , the underlying collateral for non-U.S. mortgage- and asset-backed securities primarily included Australian, Dutch, Italian and U.K. prime 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, prime mortgages, and corporate debt and covered bonds. The securities listed under “Japan” were substantially composed of Japanese government securities and corporate debt. The securities listed under “South Korea” were composed of South Korean government securities.

Municipal Obligations

We carried approximately $9.82 billion of municipal securities classified as state and political subdivisions in our investment securities portfolio as of March 31, 2017 as shown in Table 20: Carrying Values of Investment Securities , all of which were classified as AFS. As of the same date, we also provided approximately $9.57 billion of credit and liquidity facilities to municipal issuers.



TABLE 23: STATE AND MUNICIPAL OBLIGORS ⁽¹⁾
(Dollars in millions)	Total Municipal Securities		Credit and Liquidity Facilities ⁽²⁾		Total		% of Total Municipal Exposure
As of March 31, 2017
State of Issuer:
Texas	$	1,672	$	1,675	$	3,347	17	%
California	479		2,290		2,769		14
New York	728		1,288		2,016		10
Massachusetts	902		1,257		2,159		11
Washington	681		334		1,015		5
Total	$	4,462	$	6,844	$	11,306

As of December 31, 2016
State of Issuer:
Texas	$	1,781	$	1,685	$	3,466	18	%
California	523		2,298		2,821		14
New York	740		1,293		2,033		10
Massachusetts	916		1,071		1,987		10
Washington	708		234		942		5
Maryland	488		411		899		5
Total	$	5,156	$	6,992	$	12,148

⁽¹⁾ Represented 5% or more of our aggregate municipal credit exposure of approximately $19.39 billion and $19.57 billion across our businesses as of March 31, 2017 and December 31, 2016 , respectively.

⁽²⁾ Includes municipal loans which are also presented within Table 25 .

Our aggregate municipal securities exposure presented in Table 23: State and Municipal Obligors , was concentrated primarily with highly-rated counterparties, with approximately 92% of the obligors rated “AAA” or “AA” as of March 31, 2017 . As of that date, approximately 49% and 45% of our aggregate municipal securities 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.

State Street Corporation | 25

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

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 AFS and HTM debt securities, 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).

The change in the net unrealized gain/(loss) position as of March 31, 2017 compared to December 31, 2016 , presented in Table 24: Amortized Cost, Fair Value and Net Unrealized Gains (Losses) of Investment Securities , was primarily attributable to higher interest rates.



TABLE 24: AMORTIZED COST, FAIR VALUE AND NET UNREALIZED GAINS (LOSSES) OF INVESTMENT SECURITIES
	March 31, 2017							December 31, 2016
(In millions)	Amortized Cost		Net Unrealized Gain (Losses)			Fair Value		Amortized Cost		Net Unrealized Gain (Losses)			Fair Value
Available-for-sale ⁽¹⁾	$	58,658	$	152		$	58,810	$	62,056	$	(58	)	$	61,998
Held-to-maturity ⁽¹⁾	35,829		(135		)	35,694		35,169		(175		)	34,994
Total investment securities	$	94,487	$	17		$	94,504	$	97,225	$	(233	)	$	96,992
Net after-tax unrealized gain (loss)			$	10						$	(140	)

⁽¹⁾ AFS securities are carried at fair value, with after-tax net unrealized gains and losses recorded in AOCI . HTM securities are carried at amortized cost, and unrealized gains and losses are not recorded in our consolidated financial statements.

We conduct periodic reviews of individual securities to assess whether OTTI exists. Our assessment of OTTI 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 or due to idiosyncratic bond performance, OTTI could increase, in particular the credit-related component that would be recorded in our consolidated statement of income.

We recorded less than $1 million of OTTI in the first quarter of 2017 and 2016. Management considers the aggregate decline in fair value of the remaining investment securities and the resulting gross unrealized losses of $646 million as of March 31, 2017 to be temporary and not the result of any material changes in the credit characteristics of the securities. Additional information with respect to OTTI, net impairment losses and gross unrealized losses is provided in Note 3 to the consolidated financial statements included in this Form 10-Q.

Our evaluation of potential OTTI of structured credit securities with collateral in the U.K. and Italy takes into account the outcome from the Brexit referendum and the Italian constitutional referendum, and assumes no disruption of payments on these securities.

Our evaluation of potential OTTI of mortgage-backed securities with collateral in Spain, Italy, Ireland, and Portugal takes into account slow economic growth, austerity measures, and 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 between 3% and 23% . Our evaluation of OTTI in our base case does not assume a disorderly sovereign debt restructuring or a break-up of the Eurozone.

State Street Corporation | 26

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Loans and Leases



TABLE 25: U.S. AND NON- U.S. LOANS AND LEASES
(In millions)	March 31, 2017		December 31, 2016
Domestic:
Commercial and financial	$	17,289	$	16,412
Commercial real estate	27		27
Lease financing	329		338
Total domestic	17,645		16,777
Non-U.S.:
Commercial and financial	4,388		2,476
Lease financing	504		504
Total non-U.S.	4,892		2,980
Total loans and leases	$	22,537	$	19,757

The increase in loans in the commercial and financial segment as of March 31, 2017 compared to December 31, 2016 was primarily driven by higher levels of loans to investment funds and loans to municipalities.

As of March 31, 2017 and December 31, 2016 , our investment in senior secured loans totaled approximately $3.4 billion and $3.5 billion , respectively. In addition, we had binding unfunded commitments as of March 31, 2017 and December 31, 2016 of $427 million and $76 million , respectively, to participate in such syndications.

These senior secured loans, which are primarily rated “speculative” under our internal risk-rating framework, are externally rated “BBB,” “BB” or “B,” with approximately 92% of the loans rated “BB” or “B” as of March 31, 2017 and December 31, 2016 . Information about our internal risk-rating framework is provided in Note 4 to the consolidated financial statements included in this Form 10-Q. Our investment strategy involves generally 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.

Loans to municipalities included in the commercial and financial segment were $1.7 billion and $1.4 billion as of March 31, 2017 and December 31, 2016 , respectively.

As of March 31, 2017 and December 31, 2016 , unearned income deducted from our investment in leveraged lease financing was $79 million and $94 million , respectively, for U.S. leases and $169 million and $192 million , respectively, for non-U.S. leases.

Additional information about all of our loan-and-leases segments, as well as underlying classes, is provided in Note 4 to the consolidated financial statements included in this Form 10-Q.

No loans, including CRE loans, were modified in troubled debt restructurings in the quarters ended March 31, 2017 and 2016 .



TABLE 26: ALLOWANCE FOR LOAN AND LEASE LOSSES
	Quarters Ended March 31,
(In millions)	2017			2016
Allowance for loan and lease losses:
Beginning balance	$	53		$	46
Provision for loan and lease losses ⁽¹⁾	(2		)	4
Charge-offs ⁽²⁾	—			(3		)
Ending balance	$	51		$	47

⁽¹⁾ The provision for loan and lease losses is related to commercial and financial loans in the quarters ended March 31, 2017 and 2016 .

⁽²⁾ The charge-offs are related to commercial and financial loans.

As of March 31, 2017 approximately $43 million of our allowance for loan and lease losses were related to senior secured loans included in the commercial and financial segment. As this portfolio grows and matures, our allowance for loan and lease losses related to these loans may increase through additional provisions for credit losses. The remaining $8 million was related to other components of commercial and financial loans.

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.

As market and economic conditions change, the major independent credit rating agencies may downgrade 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.

State Street Corporation | 27

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The cross-border outstandings presented in Table 27: Cross-Border Outstandings , represented approximately 24% and 28% and of our consolidated total assets as of March 31, 2017 and December 31, 2016 , respectively.



TABLE 27: CROSS-BORDER OUTSTANDINGS ⁽¹⁾
(In millions)	Investment Securities and Other Assets		Derivatives and Securities on Loan		Total Cross-Border Outstandings
March 31, 2017
Germany	$	17,484	$	498	$	17,982
United Kingdom	14,059		870		14,929
Japan	10,749		327		11,076
Australia	5,698		307		6,005
Luxembourg	3,979		269		4,248
Canada	3,066		680		3,746
December 31, 2016
United Kingdom	$	18,712	$	1,761	$	20,473
Japan	17,922		1,171		19,093
Germany	13,812		484		14,296
Australia	5,122		986		6,108
Luxembourg	3,389		762		4,151
Canada	3,179		781		3,960

⁽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 March 31, 2017 , aggregate cross-border outstandings in countries which amounted to between 0.75% and 1% of our consolidated assets totaled approximately $1.97 billion , $1.98 billion and $2.11 billion to Switzerland, France and the Netherlands, respectively. As of December 31, 2016 , aggregate cross-border outstandings in countries which amounted to between 0.75% and 1% of our consolidated assets totaled approximately $1.84 billion and $2.38 billion to France and the Netherlands, respectively.

Risk Management

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;


•	information technology 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;


•	strategic risk;


•	model risk; and


•	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 included under Item 1A, Risk Factors, in our 2016 Form 10-K.

For additional information about our risk management, including our risk appetite framework and risk governance committee structure, refer to pages 80 to 85 included under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, in our 2016 Form 10-K.

Credit Risk Management

We define credit risk as the risk of financial loss if a counterparty, borrower or obligor, collectively referred to as a 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.

For additional information about our credit risk management, including our core policies and principles, structure and organization, credit ratings, risk parameter estimates, credit risk mitigation, credit limits, reporting, monitoring, controls and reserve for credit losses, refer to pages 85 to 90 included under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, in our 2016 Form 10-K.

Liquidity Risk Management

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.

State Street Corporation | 28

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

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, or has direct access to, enough cash, primarily in the form of interest-bearing deposits or time 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 March 31, 2017 , the value of our Parent Company's net liquid assets totaled $4.08 billion , compared with $3.64 billion as of December 31, 2016 . As of March 31, 2017 , our Parent Company and State Street Bank had approximately $950 million of senior notes and junior subordinated debentures outstanding that will mature in the next twelve months.

For additional information on our liquidity risk management, as well as liquidity risk metrics, refer to page 91 included under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operation, in our 2016 Form 10-K. For additional information on our liquidity ratios, including LCR and NSFR, refer to pages 7 and 8 in "Supervision and Regulation" included under Item 1, Business, in our 2016 Form 10-K. Beginning in July 2015, we were required to report our LCR to the Federal Reserve on a daily basis. As of March 31, 2017 , our LCR was in excess of 100%.

Asset Liquidity

Central to the management of our liquidity is asset liquidity, which consists primarily of unencumbered highly liquid securities, cash and cash equivalents reported on our consolidated statement of condition. We restrict the eligibility of securities to be characterized as 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 HQLA under the U.S. LCR, and our HQLA, under the LCR final rule definition, were estimated to be $94.55 billion and $100.93 billion as of March 31, 2017 and December 31, 2016 , respectively.



TABLE 28: COMPONENTS OF HQLA BY TYPE OF ASSET
(In millions)	March 31, 2017		December 31, 2016
Excess Central Bank Balances	$	60,337	$	65,790
U.S. Treasuries	14,427		15,821
Other Investment securities	14,255		13,753
Foreign government	5,533		5,561
Total	$	94,552	$	100,925

With respect to highly liquid short-term investments presented in the preceding table, due to the continued elevated level of client deposits as of March 31, 2017 , we maintained cash balances in excess of regulatory requirements governing deposits with the Federal Reserve of approximately $60.34 billion at the Federal Reserve, the ECB and other non-U.S. central banks, compared to $65.79 billion as of December 31, 2016 . The lower levels of deposits with central banks as of March 31, 2017 compared to December 31, 2016 was due to normal deposit volatility. The increase in other investment securities as of March 31, 2017 compared to December 31, 2016 , presented in the table above, was primarily associated with repositioning 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 FRBB, the 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 March 31, 2017 and December 31, 2016 , we had no outstanding primary credit borrowings from the FRBB discount window or any other central bank facility, and as of the same dates, no FHLB advances were outstanding.

In addition to the securities included in our asset liquidity, we have significant amounts of other unencumbered investment securities. The aggregate fair value of those securities was $37.27 billion as of March 31, 2017 , compared to $38.23 billion as of December 31, 2016 . These securities are available sources of liquidity, although not as rapidly deployed as those included in our asset liquidity.

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

State Street Corporation | 29

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

ratings. We had unfunded commitments to extend credit with gross contractual amounts totaling $27.17 billion and $26.99 billion as of March 31, 2017 and December 31, 2016 , respectively. These amounts do not reflect the value of any collateral. As of March 31, 2017 , approximately 70% 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.

State Street, like other bank holding companies with total consolidated assets of $50 billion or more, periodically submits a plan for rapid and orderly resolution in the event of material financial distress or failure-commonly referred to as a resolution plan or a living will-to the Federal Reserve and the FDIC under Section 165(d) of the Dodd-Frank Act. Through resolution planning, we seek, in the event of the insolvency of State Street, to maintain State Street Bank’s role as a key infrastructure provider within the financial system, while minimizing risk to the financial system and maximizing value for the benefit of our stakeholders. We have and will continue to focus management attention and resources to meet regulatory expectations with respect to resolution planning. In the event of material financial distress or failure, our preferred resolution strategy, referred to as the single point of entry strategy, provides for the recapitalization of State Street Bank and our other material entities by the Parent Company (for example, by forgiving inter-company indebtedness of State Street Bank owed, directly or indirectly, to the Parent Company) prior to the Parent Company’s entry into bankruptcy proceedings. The recapitalization, if successful, is intended to enable State Street Bank and our other material entities to continue operating. To implement this strategy, we anticipate establishing a pre-funded intermediate holding company that would support State Street Bank and our other material entities throughout the resolution period. The amount of assets available to the intermediate holding company is anticipated to vary over time and may not be sufficient to meet the liquidity and capital needs of State Street Bank and our other material entities. The Parent Company and the intermediate holding company would obligate themselves to recapitalizing and/or providing liquidity to State Street Bank and all of our other material entities in the event of material financial distress, under a contract known as a support agreement. The Parent Company and the intermediate holding company would secure their obligations under the support agreement by entering into a contract known as a security agreement and by pledging their rights in the assets that the Parent Company and the intermediate holding company would use to fulfill their

support obligations to State Street Bank and our other material entities. The Parent Company intends to pre-fund the intermediate holding company upon the execution of the support agreement by transferring assets to it that will be available for the subsequent provision of capital and liquidity to State Street Bank and all of our other material entities, as well as being available to State Street and its subsidiaries in the ordinary course of business. Under this single point of entry strategy, State Street Bank and our material entities would not themselves enter into resolution proceedings; they would instead be transferred to a newly organized holding company held by a reorganization trust for the benefit of the Parent Company’s claimants. In the event that such recapitalization actions occur and were unsuccessful in stabilizing State Street Bank, the Parent Company's financial condition would be adversely impacted and equity and debt holders of the Parent Company may, as a consequence, be in a worse position than if the recapitalization did not occur.

We are required to submit our next annual resolution plan to the Federal Reserve and the FDIC on July 1, 2017. The Federal Reserve and the FDIC may determine that our 2017 resolution plan is not credible or would not facilitate an orderly resolution due to a number of factors, including, but not limited to: (1) challenges we may experience in interpreting and addressing regulatory expectations; (2) any failure to implement remediation actions in a timely manner; (3) the complexities in developing and implementing a comprehensive plan to resolve a global custodial bank; and (4) related costs and dependencies. If our resolution plan submission filed on July 1, 2017, or any future submission, fails to meet regulatory expectations to the satisfaction of the Federal Reserve and the FDIC, we could be subject to more stringent capital, leverage or liquidity requirements, restrictions on our growth, activities or operations, or we could be required to divest certain of our assets or operations.

State Street Bank is also required to submit annually to the FDIC a plan for resolution in the event of its failure, referred to as an IDI plan. State Street Bank’s next IDI plan is due in October 2017.

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

State Street Corporation | 30

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

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 frequently experienced higher client deposit inflows toward the end of each fiscal quarter or the end of the fiscal year. As a result, we believe average client deposit balances are more reflective of ongoing funding than period-end balances.



TABLE 29: CLIENT DEPOSITS
					Average Balance
	March 31,				Quarters Ended March 31,
(In millions)	2017		2016		2017		2016
Client deposits ⁽¹⁾	$	176,702	$	170,561	$	156,623	$	150,088

⁽¹⁾ Balance as of March 31, 2017 and March 31, 2016 excluded term wholesale CDs of $6.76 billion and $14.96 billion , respectively; average balances for the quarters ended March 31, 2017 and 2016 excluded average CDs of $8.54 billion and $14.98 billion , respectively.

Short-Term Funding

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 $4.00 billion and $4.40 billion as of March 31, 2017 and December 31, 2016 , respectively.

State Street Bank currently maintains a line of credit with a financial institution of CAD 1.40 billion , or approximately $1.05 billion as of March 31, 2017 , 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 March 31, 2017 , there was no balance outstanding on this line of credit.

Long-Term Funding

As of March 31, 2017 , 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 March 31, 2017 , $4 billion was available for issuance pursuant to this authority. As of March 31, 2017 , State Street Bank also had Board authority to issue an additional $500 million of subordinated debt.

State Street Corporation maintains 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;


•	serving markets; and


•	engaging 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 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.

State Street Corporation | 31

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

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 additional collateral or termination payments related to our net derivative liabilities under these arrangements that could have been called by counterparties in the event of a downgrade in our credit ratings below levels specified in the agreements is disclosed in Note 7 to the consolidated financial statements included in this Form 10-Q. Other funding sources, such as secured financing transactions and other margin requirements, for which there are no explicit triggers, could also be adversely affected.

Operational Risk Management

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. Operational risk encompasses fiduciary risk and legal risk. Fiduciary risk is defined as the risk that State Street fails to properly exercise its fiduciary duties in its provision of products or services to clients. Legal risk is the risk of loss resulting from failure to comply with laws and contractual obligations as well as prudent ethical standards in business practices in addition to exposure to litigation from all aspects of State Street’s activities.

For additional information about our operational risk framework, refer to pages 95 to 98 included under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, in our 2016 Form 10-K.

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.

For additional information about the market risk associated with our trading activities, refer to pages 98 to 99 included under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, in our 2016 Form 10-K.

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 March 31, 2017 , the notional amount of these derivative contracts was $1.63 trillion , of which $1.60 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.

Value-at-Risk, Stress Testing and Stressed VaR

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.

For additional information about our VaR measurement tools and methodologies, refer to pages 101 to 104 included under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, in our 2016 Form 10-K.

State Street Corporation | 32

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

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.

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 frequent 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 daily, actual profit-and-loss outcomes, or 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 income, 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 had no back-testing exceptions in the quarters ended March 31, 2017 and December 31, 2016 .

The following tables present VaR and stressed VaR associated with our trading activities for covered positions held during the quarters ended March 31, 2017 and December 31, 2016 , and as of March 31, 2017 and December 31, 2016 , as measured by our VaR methodology:



TABLE 30: TEN-DAY VaR ASSOCIATED WITH TRADING ACTIVITIES FOR COVERED POSITIONS
	Quarter Ended March 31, 2017						Quarter Ended December 31, 2016						As of March 31, 2017		As of December 31, 2016
(In thousands)	Average		Maximum		Minimum		Average		Maximum		Minimum		VaR		VaR
Global Markets	$	6,614	$	13,090	$	2,566	$	8,307	$	15,847	$	3,048	$	8,599	$	4,088
Global Treasury	645		832		421		527		756		333		421		756
Total VaR	$	6,595	$	12,971	$	2,544	$	8,285	$	15,723	$	2,970	$	8,475	$	3,938



TABLE 31: TEN-DAY STRESSED VaR ASSOCIATED WITH TRADING ACTIVITIES FOR COVERED POSITIONS
	Quarter Ended March 31, 2017						Quarter Ended December 31, 2016						As of March 31, 2017		As of December 31, 2016
(In thousands)	Average		Maximum		Minimum		Average		Maximum		Minimum		Stressed VaR		Stressed VaR
Global Markets	$	31,676	$	43,001	$	13,704	$	36,168	$	52,057	$	18,883	$	32,115	$	26,811
Global Treasury	10,892		17,019		6,609		10,275		13,868		7,030		7,396		11,342
Total Stressed VaR	$	34,846	$	46,895	$	18,119	$	38,645	$	55,899	$	20,646	$	33,745	$	28,624

State Street Corporation | 33

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The three month average of our stressed VaR-based measure was approximately $35 million for the quarter ended March 31, 2017 , compared to an average of approximately $39 million for the quarter ended December 31, 2016 .

The increase in the total VaR and stressed VaR-based measures as of March 31, 2017, compared to December 31, 2016 , was driven mainly by lower end of day foreign exchange positions on December 31, 2016, due to the holiday season.

The VaR-based measures presented in the preceding tables are primarily a reflection of the overall level of market volatility and our appetite for taking market risk in our trading activities. 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.

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.

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 March 31, 2017 and December 31, 2016 . The totals of the VaR-based and stressed VaR-based measures for the three attributes in total 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 32: TEN-DAY VaR ASSOCIATED WITH TRADING ACTIVITIES BY RISK FACTOR ⁽¹⁾
	As of March 31, 2017						As of December 31, 2016
(In thousands)	Foreign Exchange Risk		Interest Rate Risk		Volatility Risk		Foreign Exchange Risk		Interest Rate Risk		Volatility Risk
By component:
Global Markets	$	6,107	$	3,682	$	263	$	3,279	$	3,281	$	102
Global Treasury	53		436		—		220		737		—
Total VaR	$	6,134	$	3,579	$	263	$	3,269	$	3,004	$	102



TABLE 33: TEN-DAY STRESSED VaR ASSOCIATED WITH TRADING ACTIVITIES BY RISK FACTOR ⁽¹⁾
	As of March 31, 2017						As of December 31, 2016
(In thousands)	Foreign Exchange Risk		Interest Rate Risk		Volatility Risk		Foreign Exchange Risk		Interest Rate Risk		Volatility Risk
By component:
Global Markets	$	6,750	$	34,006	$	324	$	5,026	$	36,563	$	111
Global Treasury	78		7,489		—		258		11,597		—
Total Stressed VaR	$	6,770	$	35,574	$	324	$	5,056	$	36,592	$	111

⁽¹⁾ For purposes of risk attribution by component, foreign exchange 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.

Asset-and-Liability Management Activities

The primary objective of asset-and-liability management is to provide sustainable NII 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 NII 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 NII 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.

We quantify NII sensitivity using an earnings simulation model that includes our expectations for new business growth, changes in balance sheet mix and investment portfolio positioning. This measure compares our baseline view of NII over a twelve-month horizon, based on our internal forecast of interest rates, to a wide range of instantaneous and gradual rate shocks. Economic value of equity sensitivity is a discounted cash flow model designed to estimate the fair value of assets and liabilities under a series of interest rate shocks over a long-term horizon. Each approach is routinely monitored as market conditions change and within internally-approved risk limits and guidelines.

For additional information about our Asset-and-Liability Management Activities, refer to pages 104 to 105 included under Item 7, Management's Discussion

State Street Corporation | 34

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

and Analysis of Financial Condition and Results of Operations, in our 2016 Form 10-K.

In the table below, we report the expected change in NII over the next twelve months from +/-100 basis point instantaneous and gradual parallel rate shocks. Each scenario assumes no management action is taken to mitigate the adverse effects of interest rate changes on our financial performance. While investment securities balances can fluctuate with the level of rates as prepayment assumptions change, our deposit balances remain consistent with the baseline.

We also routinely measure NII sensitivity to non-parallel rate shocks to isolate the impact of short-term or long-term market rates. In the up 100 basis point instantaneous shock, approximately 80% of the benefit stems from the short-end of the yield curve. Additionally, we quantify how much of the change is a result of shifts in U.S. and non-U.S. rates. In the up 100 basis point instantaneous shock, approximately 50% of the benefit is driven by U.S. rates.



TABLE 34: NII SENSITIVITY
(In millions)	March 31, 2017			December 31, 2016
Rate change:	Benefit/(Exposure)
+100 bps shock	$	514		$	585
–100 bps shock	(304		)	(265		)
+100 bps ramp	228			284
–100 bps ramp	(124		)	(161		)

As of March 31, 2017 , NII sensitivity remains positioned to benefit from rising interest rates. Compared to December 31, 2016, the decreased benefit to the up 100 basis point instantaneous shock is driven by a mix shift in client deposits and the repricing characteristics of other wholesale liabilities, partially offset by investment portfolio activity. The increased exposure to the down 100 basis point instantaneous shock is driven by higher projected short-term interest rates and investment portfolio activity, partially offset by a mix shift in client deposits.

The following table highlights our economic value of equity sensitivity to a +/-200 basis point instantaneous rate shock, relative to spot interest rates. Management compares the change in EVE sensitivity against State Street's aggregate tier 1 and tier 2 risk-based capital, calculated in conformity with current applicable regulatory requirements. Economic value of equity sensitivity is dependent on the timing of interest and principal cash flows. Also, the measure only evaluates the spot balance sheet and does not include the impact of new business assumptions.



TABLE 35: EVE SENSITIVITY
(In millions)	March 31, 2017			December 31, 2016
Rate change:	Benefit/(Exposure)
+200 bps shock	$	(836	)	$	(1,092	)
–200 bps shock	470			877

As of March 31, 2017, economic value of equity sensitivity remains exposed to upward shifts in interest rates. The change in each scenario was primarily driven by investment portfolio repositioning.

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 State Street, model results influence business decisions, and model failure could have a harmful effect on our financial performance. As a result, the Model Risk Management Framework seeks to mitigate model risk at State Street.

For additional information about our model risk management, including our governance and model validation, refer to pages 105 to 106 included under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, in our 2016 Form 10-K.

Capital

Managing our capital involves evaluating 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 adequacy based on relevant regulatory capital requirements, as well as our own internal capital goals, targets and other relevant metrics.

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 Management group within Global Treasury is responsible for the Capital Policy and guidelines, capital forecasting, development of the Capital Plan, the management of global capital, capital optimization and net investment hedging. The Capital Management group is also responsible for enterprise stress testing, including stress revenue and expense modeling and information technology related matters associated with stress testing models.

MRAC provides oversight of our capital management, our capital adequacy, our internal targets and the expectations of the major

State Street Corporation | 35

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

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. Our Capital Policy is reviewed and approved at least annually by the Board's RC.

For additional information about our capital, refer to pages 107 to 117 included under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, in our 2016 Form 10-K.

Global Systemically Important Bank

We are one among a group of 30 institutions worldwide that have been identified by the FSB and the BCBS as G-SIBs. Our designation as a G-SIB requires 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.

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. On August 14, 2015, the Federal Reserve published a final rule on the implementation of capital requirements that impose a capital surcharge on U.S. G-SIBs. The surcharge requirements within the final rule began to phase-in on January 1, 2016 and will be fully effective on January 1, 2019. The eight U.S. banks deemed to be G-SIBs, including State Street, are required to calculate the G-SIB surcharge according to two methods, and be bound by the higher of the two:


•	Method 1: Assesses 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

As part of the final rule, the Federal Reserve published estimated G-SIB surcharges for the eight U.S. G-SIBs based on relevant data from 2012 to 2014. Method 2 is identified as the binding methodology for State Street and the applicable surcharge on January 1, 2016 is calculated to be 1.5%. Assuming completion of the phase-in period for the capital conservation buffer, and a countercyclical buffer of 0%, the minimum capital ratios as of January 1, 2019, including a capital conservation buffer of 2.5% and G-SIB surcharge of 1.5% in 2019, 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.

Regulatory Capital

We and State Street Bank, as advanced approaches banking organizations, are subject to the current Basel III minimum risk-based capital and leverage ratio guidelines. 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 will be completed by January 1, 2019, which is concurrent with the full implementation of the Basel III final rule in the U.S.

Among other things, the Basel III final rule introduced a minimum common equity tier 1 risk-based capital ratio of 4.5% and raises the minimum tier 1 risk-based capital ratio from 4% to 6%. In addition, for advanced approaches banking organizations such as State Street, the Basel III final rule 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.

The Basel III final rule also introduced 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. The countercyclical capital buffer is currently set at zero by U.S. banking regulators.

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 Basel III final rule.

In addition to introducing new capital ratios and buffers, the Basel III final rule revises the eligibility criteria for regulatory capital instruments and provides

State Street Corporation | 36

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

for the phase-out of existing capital instruments that do not satisfy the new criteria. For example, existing trust preferred capital securities were phased out from tier 1 capital over a two-year period that ended 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. As of March 31, 2017 , we retired the trusts related to our trust preferred securities and the underlying indentures do not qualify as tier 2 regulatory capital.

Under the 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 AFS investment securities flow through to and affect State Street’s and State Street Bank's common equity tier 1 capital, subject to a phase-in schedule.

We are required to use the advanced approaches framework as provided in the Basel III final rule to determine 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. 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 PCA framework.

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.



TABLE 36: BASEL III FINAL RULES TRANSITION ARRANGEMENTS AND MINIMUM RISK-BASED CAPITAL RATIOS ^{(1) (2)}

	2015		2016		2017		2018		2019
Capital conservation buffer (Common Equity Tier 1)	—	%	0.625	%	1.250	%	1.875	%	2.500	%
G-SIB surcharge (CET1) ⁽¹⁾	—		0.375		0.750		1.125		1.500

Minimum common equity tier 1 ⁽³⁾	4.5		5.500		6.500		7.500		8.500
Minimum tier 1 capital ⁽³⁾	6.0		7.000		8.000		9.000		10.000
Minimum total capital ⁽³⁾	8.0		9.000		10.000		11.000		12.000

⁽¹⁾ As part of the G-SIB Surcharge final rule, the Federal Reserve published estimated G-SIB surcharges for the eight U.S. G-SIBs based on relevant data from 2012-2014 and the estimated resulting G-SIB surcharge for State Street is 1.5%. 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, 10.0% for tier 1 capital and 12.0% for total capital.

⁽²⁾ Minimum ratios shown above do not reflect the countercyclical buffer, currently set at zero by U.S. banking regulators.

⁽³⁾ Minimum common equity tier 1 capital, minimum tier 1 capital and minimum total capital presented include the transitional capital conservation buffer as well as the estimated transitional G-SIB surcharge being phased-in beginning January 1, 2016 through January 1, 2019 based on an estimated 1.5% surcharge in all periods.

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.

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. 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 applicable bank regulatory standards.

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 .

State Street Corporation | 37

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS



TABLE 37: REGULATORY CAPITAL STRUCTURE AND RELATED REGULATORY CAPITAL RATIOS
					State Street												State Street Bank
(In millions)					Basel III Advanced Approaches March 31, 2017 ⁽¹⁾			Basel III Standardized Approach March 31, 2017 ⁽²⁾			Basel III Advanced Approaches December 31, 2016 ⁽¹⁾			Basel III Standardized Approach December 31, 2016 ⁽²⁾			Basel III Advanced Approaches March 31, 2017 ⁽¹⁾			Basel III Standardized Approach March 31, 2017 ⁽²⁾			Basel III Advanced Approaches December 31, 2016 ⁽¹⁾			Basel III Standardized Approach December 31, 2016 ⁽²⁾
Common shareholders' equity:
Common stock and related surplus					$	10,300		$	10,300		$	10,286		$	10,286		$	11,376		$	11,376		$	11,376		$	11,376
Retained earnings					17,762			17,762			17,459			17,459			12,089			12,089			12,285			12,285
Accumulated other comprehensive income (loss)					(1,782		)	(1,782		)	(1,936		)	(1,936		)	(1,530		)	(1,530		)	(1,648		)	(1,648		)
Treasury stock, at cost					(8,159		)	(8,159		)	(7,682		)	(7,682		)	—			—			—			—
Total					18,121			18,121			18,127			18,127			21,935			21,935			22,013			22,013
Regulatory capital adjustments:
Goodwill and other intangible assets, net of associated deferred tax liabilities ⁽³⁾					(6,641		)	(6,641		)	(6,348		)	(6,348		)	(6,349		)	(6,349		)	(6,060		)	(6,060		)
Other adjustments					(161		)	(161		)	(155		)	(155		)	(94		)	(94		)	(148		)	(148		)
Common equity tier 1 capital					11,319			11,319			11,624			11,624			15,492			15,492			15,805			15,805
Preferred stock					3,196			3,196			3,196			3,196			—			—			—			—
Trust preferred capital securities subject to phase-out from tier 1 capital					—			—			—			—			—			—			—			—
Other adjustments					(40		)	(40		)	(103		)	(103		)	—			—			—			—
Tier 1 capital					14,475			14,475			14,717			14,717			15,492			15,492			15,805			15,805
Qualifying subordinated long-term debt					1,067			1,067			1,172			1,172			1,072			1,072			1,179			1,179
Trust preferred capital securities phased out of tier 1 capital					—			—			—			—			—			—			—			—
ALLL and other					—			75			19			77			—			75			15			77
Other adjustments					—			—			1			1			—			—			—			—
Total capital					$	15,542		$	15,617		$	15,909		$	15,967		$	16,564		$	16,639		$	16,999		$	17,061
Risk-weighted assets:
Credit risk					$	52,759		$	96,948		$	50,900		$	98,125		$	49,492		$	93,501		$	47,383		$	94,413
Operational risk ⁽⁴⁾					44,798			NA			44,579			NA			44,256			NA			44,043			NA
Market risk ⁽⁵⁾					3,286			1,546			3,822			1,751			3,286			1,546			3,822			1,751
Total risk-weighted assets					$	100,843		$	98,494		$	99,301		$	99,876		$	97,034		$	95,047		$	95,248		$	96,164
Adjusted quarterly average assets					$	212,361		$	212,361		$	226,310		$	226,310		$	209,392		$	209,392		$	222,584		$	222,584

Capital Ratios ⁽¹⁾ :	2017 Minimum Requirements Including Capital Conservation Buffer and G-SIB Surcharge ⁽⁶⁾		2016 Minimum Requirements Including Capital Conservation Buffer and G-SIB Surcharge ⁽⁷⁾
Common equity tier 1 capital	6.5	%	5.5	%	11.2		%	11.5		%	11.7		%	11.6		%	16.0		%	16.3		%	16.6		%	16.4		%
Tier 1 capital	8.0		7.0		14.4			14.7			14.8			14.7			16.0			16.3			16.6			16.4
Total capital	10.0		9.0		15.4			15.9			16.0			16.0			17.1			17.5			17.8			17.7
Tier 1 leverage	4.0		4.0		6.8			6.8			6.5			6.5			7.4			7.4			7.1			7.1

NA: Not applicable.

⁽¹⁾ Common equity tier 1 capital, tier 1 capital and total capital ratios as of March 31, 2017 and December 31, 2016 were calculated in conformity with the advanced approaches provisions of the Basel III final rule. Tier 1 leverage ratio as of March 31, 2017 and December 31, 2016 were calculated in conformity with the Basel III final rule.

⁽²⁾ Common equity tier 1 capital, tier 1 capital and total capital ratios as of March 31, 2017 and December 31, 2016 were calculated in conformity with the standardized approach provisions of the Basel III final rule. Tier 1 leverage ratio as of March 31, 2017 and December 31, 2016 were calculated in conformity with the Basel III final rule.

⁽³⁾ Amounts for State Street and State Street Bank as of March 31, 2017 consisted of goodwill, net of associated deferred tax liabilities, and 80% of other intangible assets, net of associated deferred tax liabilities. Amounts for State Street and State Street Bank as of December 31, 2016 consisted of goodwill, net of deferred tax liabilities and 60% of other intangible assets, net of associated deferred tax liabilities. Intangible assets, net of associated deferred tax liabilities is phased in as a deduction from capital, in conformity with the Basel III final rule.

⁽⁴⁾ Under the current advanced approaches rules and regulatory guidance concerning operational risk models, RWA attributable to operational risk can vary substantially from period-to-period, without direct correlation to the effects of a particular loss event on our results of operations and financial condition and impacting dates and periods that may differ from the dates and periods as of and during which the loss event is reflected in our financial statements, with the timing and categorization dependent on the processes for model updates and, if applicable, model revalidation and regulatory review and related supervisory processes. An individual loss event can have a significant effect on the output of our operational risk RWA under the advanced approaches depending on the severity of the loss event and its categorization among the seven Basel-defined UOMs.

⁽⁵⁾ Market risk risk-weighted assets reported in conformity with the Basel III advanced approaches included a 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. We used a 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 March 31, 2017 . See Table 36: Basel III Final Rules Transition Arrangements and Minimum Risk Based Capital Ratios.

⁽⁷⁾ Minimum requirements will be phased in up to full implementation beginning on January 1, 2019; minimum requirements listed are as of December 31, 2016 . See Table 36: Basel III Final Rules Transition Arrangements and Minimum Risk Based Capital Ratios.

State Street Corporation | 38

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

As of January 1, 2015 we used the standardized provisions of the Basel III final rule in addition to the advanced approaches provisions which were previously implemented in the second quarter of 2014, and the lower of our regulatory capital ratios calculated under the advanced approaches and those ratios calculated under the standardized approach are applied in the assessment of our capital adequacy for regulatory capital purposes. Beginning in the second quarter of 2014, until January 1, 2015, we used the advanced approaches provisions in the Basel III final rule, and transitional provisions of the Basel III final rule, and the lower of our regulatory capital ratios calculated under the advanced approaches and those ratios calculated under the transitional provisions were applied in the assessment of our capital adequacy for regulatory capital purposes.

Our common equity tier 1 capital decreased $ 305 million as of March 31, 2017 compared to December 31, 2016 due to capital distributions of $722 million from common stock purchases and dividends, and the impact from the 2017 phase-in of the deduction of intangibles (80% in 2017 compared to 60% in 2016). The decreases in common equity tier 1 capital were partially offset by net income and an increase in accumulated other comprehensive income for AFS securities. In the same comparative period, our tier 1 capital decreased $ 242 million , due to the decrease in common equity tier 1 capital. Total capital decreased $367 million under advanced approaches and decreased $350 million under standardized approach due to the changes to tier 1 capital. State Street Bank's tier 1 capital decreased $313 million, and total capital decreased $435 million and $422 million under the advanced and standardized approaches, respectively, as of March 31, 2017 , compared to December 31, 2016 . The decrease resulted from the phase-in provisions of the Basel III final rule related to other intangible assets and the previously-described impact to accumulated other comprehensive income and dividends paid to State Street.

The table below presents a roll-forward of common equity tier 1 capital, tier 1 capital and total capital for the quarter ended March 31, 2017 and for the year ended December 31, 2016 .



TABLE 38: CAPITAL ROLL-FORWARD
	State Street
(In millions)	Basel III Advanced Approaches March 31, 2017			Basel III Standardized Approach March 31, 2017			Basel III Advanced Approaches December 31, 2016			Basel III Standardized Approach December 31, 2016
Common equity tier 1 capital:
Common equity tier 1 capital balance, beginning of period	$	11,624		$	11,624		$	12,433		$	12,433
Net income	502			502			2,143			2,143
Changes in treasury stock, at cost	(477		)	(477		)	(1,225		)	(1,225		)
Dividends declared	(199		)	(199		)	(732		)	(732		)
Goodwill and other intangible assets, net of associated deferred tax liabilities	(293		)	(293		)	(421		)	(421		)
Effect of certain items in accumulated other comprehensive income (loss)	154			154			(514		)	(514		)
Other adjustments	8			8			(60		)	(60		)
Changes in common equity tier 1 capital	(305		)	(305		)	(809		)	(809		)
Common equity tier 1 capital balance, end of period	11,319			11,319			11,624			11,624
Additional tier 1 capital:
Tier 1 capital balance, beginning of period	14,717			14,717			15,264			15,264
Change in common equity tier 1 capital	(305		)	(305		)	(809		)	(809		)
Net issuance of preferred stock	—			—			493			493
Trust preferred capital securities phased out of tier 1 capital	—			—			(237		)	(237		)
Other adjustments	63			63			6			6
Changes in tier 1 capital	(242		)	(242		)	(547		)	(547		)
Tier 1 capital balance, end of period	14,475			14,475			14,717			14,717
Tier 2 capital:
Tier 2 capital balance, beginning of period	1,192			1,250			2,085			2,139
Net issuance and changes in long-term debt qualifying as tier 2	(105		)	(105		)	(186		)	(186		)
Trust preferred capital securities phased into tier 2 capital	—			—			(713		)	(713		)
Changes in ALLL and other	(19		)	(2		)	7			11
Change in other adjustments	(1		)	(1		)	(1		)	(1		)
Changes in tier 2 capital	(125		)	(108		)	(893		)	(889		)
Tier 2 capital balance, end of period	1,067			1,142			1,192			1,250
Total capital:
Total capital balance, beginning of period	15,909			15,967			17,349			17,403
Changes in tier 1 capital	(242		)	(242		)	(547		)	(547		)
Changes in tier 2 capital	(125		)	(108		)	(893		)	(889		)
Total capital balance, end of period	$	15,542		$	15,617		$	15,909		$	15,967

State Street Corporation | 39

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The following table presents a roll-forward of the Basel III advanced approaches risk-weighted assets for the quarter ended March 31, 2017 and for the year ended December 31, 2016 .



TABLE 39: ADVANCED APPROACHES RWA ROLL-FORWARD
	State Street
(In millions)	March 31, 2017			December 31, 2016
Total risk-weighted assets, beginning of period	$	99,301		$	99,552
Changes in credit risk-weighted assets:
Net increase (decrease) in investment securities-wholesale	398			(1,027		)
Net increase (decrease) in loans and leases	2,463			575
Net increase (decrease) in securitization exposures	(31		)	(3,246		)
Net increase (decrease) in repo-style transaction exposures	46			606
Net increase (decrease) in OTC derivatives exposures	(715		)	1,812
Net increase (decrease) in all other ⁽¹⁾	(302		)	447
Net increase (decrease) in credit risk-weighted assets	1,859			(833		)
Net increase (decrease) in credit valuation adjustment	(331		)	512
Net increase (decrease) in market risk-weighted assets	(205		)	(627		)
Net increase (decrease) in operational risk-weighted assets	219			697
Total risk-weighted assets, end of period	$	100,843		$	99,301

⁽¹⁾ Includes assets not in a definable category, cleared transactions, non-material portfolio, other wholesale, cash and due from, and interest-bearing deposits with banks, equity exposures, and 6% credit risk supervisory charge.

As of March 31, 2017 , total advanced approaches risk-weighted assets increased $1.54 billion compared to December 31, 2016 , mainly due to an increase in credit risk and operational risk, partially offset by a decrease in market risk and credit valuation adjustment. The increase in credit risk was mainly due to an increase in leveraged loans stemming from a new LGD model being introduced, cash and overdrafts. Operational risk increased approximately $219 million due to an increase in loss event frequency. Market risk reduction is resulting from a lower stressed VaR. The decrease in credit valuation adjustment was driven by lower volatility in our FX derivative portfolios, leading to a lower positive marked-to-market.

As of December 31, 2016 , total advanced approaches risk-weighted assets decreased $251 million compared to December 31, 2015 , mainly due to a decrease in credit risk and market risk, partially offset by an increase in operational risk and credit valuation adjustment. The decrease in credit risk was mainly due to a decrease in securitization exposures as a result of sell-offs and maturities as well as calls of agency debt securities within our wholesale investment portfolio, mostly offset by an increase in

derivatives exposure from marked-to-market FX contracts stemming from a stronger dollar and an increase in securities finance agency lending. The market risk decrease was a result of reduced end of day positions in FX and interest rate risk. Operational risk increased approximately $700 million mainly due to an increase in loss event frequency. The increase in credit valuation adjustment was driven by an increase in the marked-to-market FX contracts.

The following table presents a roll-forward of the Basel III standardized approach risk-weighted assets for the quarter ended March 31, 2017 and year ended December 31, 2016 .



TABLE 40: STANDARDIZED APPROACH RWA ROLL-FORWARD
	State Street
(In millions)		March 31, 2017			December 31, 2016
Total estimated risk-weighted assets, beginning of period ⁽¹⁾		$	99,876		$	95,893
Changes in credit risk-weighted assets:
Net increase (decrease) in investment securities-wholesale		(112		)	(1,471		)
Net increase (decrease) in loans and leases		1,670			998
Net increase (decrease) in securitization exposures		(32		)	(3,144		)
Net increase (decrease) in repo-style transaction exposures		1,599			4,994
Net increase (decrease) in OTC derivatives exposures		(3,791		)	3,462
Net increase (decrease) in all other ⁽²⁾		(511		)	(229		)
Net increase (decrease) in credit risk-weighted assets		(1,177		)	4,610
Net increase (decrease) in market risk-weighted assets		(205		)	(627		)
Total risk-weighted assets, end of period		$	98,494		$	99,876

⁽¹⁾ Standardized approach risk-weighted assets as of the periods noted above were calculated using State Street’s estimates, based on our then current interpretation of the Basel III final rule.

⁽²⁾ Includes assets not in a definable category, cleared transactions, other wholesale, cash and due from, and interest-bearing deposits with banks and equity exposures.

As of March 31, 2017 , total standardized approach risk-weighted assets decreased $1.38 billion compared to December 31, 2016 , primarily the result of a decrease in FX contracts due to lower volatility in our FX derivative portfolios, leading to a positive marked-to-market and market risk, partially offset by an increase in securities finance agency lending, overdrafts and cash. The increase in overdrafts was due to an increase in U.S short-duration advances to clients. Market risk reduction is resulting from a lower stressed VaR.

As of December 31, 2016, total standardized approach risk-weighted assets increased $3.98 billion compared to December 31, 2015, primarily the result of an increase in securities finance agency lending, an increase in market values of FX contracts, partially offset by a decrease in securitization exposures,

State Street Corporation | 40

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

wholesale investments and market risk. The decrease in securitization was due to sell-offs and maturities while the decrease in wholesale investments was due to calls of agency debt securities. Market risk reduction is resulting from lower stressed VaR

The regulatory capital ratios as of March 31, 2017 , presented in Table 37: Regulatory Capital Structure and Related Regulatory Capital Ratios , are calculated under the standardized approach and advanced approaches in conformity with the Basel III final rule. The advanced approaches-based ratios (actual and estimated pro forma) reflect calculations and determinations with respect to our capital and related matters as of March 31, 2017 , 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 first reported such ratios in a quarterly report on Form 10-Q. Significant components of these advanced systems involve the exercise of judgment by us and our regulators, and 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.

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 the output of 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. An operational loss that we experience could also result in a material change in our capital requirements for operational risk under the advanced approaches, depending on the severity of the loss event, its characterization among the seven Basel-defined UOMs, and the stability of the distributional approach for a particular UOM, and without direct correlation to the effects of the loss event, or the timing of such effects, on our results of operations.

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 Fully Phased-in Capital Ratios

Table 41: Regulatory Capital Structure and Related Regulatory Capital Ratios - State Street , and Table 42: Regulatory Capital Structure and Related Regulatory Capital Ratios - State Street Bank , present our capital ratios for State Street and State Street Bank as of March 31, 2017 , calculated in conformity with the advanced approaches provisions and standardized approach of the Basel III final rule on a pro forma basis under the fully phased-in provisions of the Basel III final rule.

State Street Corporation | 41

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS



TABLE 41: REGULATORY CAPITAL STRUCTURE AND RELATED REGULATORY CAPITAL RATIOS - STATE STREET
March 31, 2017 (In millions)							Basel III Advanced Approaches			Phase-In Provisions			Basel III Advanced Approaches Fully Phased-In Pro-Forma Estimate			Basel III Standardized Approach			Phase-In Provisions			Basel III Standardized Approach Fully Phased-In Pro-Forma Estimate
Total common shareholders' equity							$	18,121		$	(24	)	$	18,097		$	18,121		$	(24	)	$	18,097
Regulatory capital adjustments:
Goodwill and other intangible assets, net of associated deferred tax liabilities							(6,641		)	(275		)	(6,916		)	(6,641		)	(275		)	(6,916		)
Other adjustments							(161		)	(40		)	(201		)	(161		)	(40		)	(201		)
Common equity tier 1 capital							11,319			(339		)	10,980			11,319			(339		)	10,980
Additional tier 1 capital:
Preferred stock							3,196			—			3,196			3,196			—			3,196
Trust preferred capital securities							—			—			—			—			—			—
Other adjustments							(40		)	40			—			(40		)	40			—
Additional tier 1 capital							3,156			40			3,196			3,156			40			3,196
Tier 1 capital							14,475			(299		)	14,176			14,475			(299		)	14,176
Tier 2 capital:
Qualifying subordinated long-term debt							1,067			—			1,067			1,067			—			1,067
Trust preferred capital securities							—			—			—			—			—			—
ALLL and other							—			—			—			75			—			75
Tier 2 capital							1,067			—			1,067			1,142			—			1,142
Total capital							$	15,542		$	(299	)	$	15,243		$	15,617		$	(299	)	$	15,318
Risk weighted assets							$	100,843		$	134		$	100,977		$	98,494		$	127		$	98,621
Adjusted average assets							212,361			(269		)	212,092			212,361			(269		)	212,092
Total assets for SLR							238,146			(269		)	237,877			238,146			(269		)	237,877

Capital ratios ⁽¹⁾ :	Minimum Requirement		Minimum Requirement Including Capital Conservation Buffer and G-SIB Surcharge 2017		Minimum Requirement Including Capital Conservation Buffer and G-SIB Surcharge 2019
Common equity tier 1 capital ⁽²⁾	4.5	%	6.5	%	8.5	%	11.2		%				10.9		%	11.5		%				11.1		%
Tier 1 capital	6.0		8.0		10.0		14.4						14.0			14.7						14.4
Total capital	8.0		10.0		12.0		15.4						15.1			15.9						15.5
Tier 1 leverage	4.0		NA		NA		6.8						6.7			6.8						6.7
Supplementary leverage	5.0		NA		NA		6.1						6.0			6.1						6.0

NA: Not applicable.

⁽¹⁾ 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, or SLR, is calculated by dividing tier 1 capital (numerator) by total assets for SLR (denominator).

⁽²⁾ Common equity tier 1 ratios were calculated in conformity with the provisions of the Basel III final rule; refer to Table 37: Regulatory Capital Structure and Related Regulatory Capital Ratios .

State Street Corporation | 42

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS



TABLE 42: REGULATORY CAPITAL STRUCTURE AND RELATED REGULATORY CAPITAL RATIOS - STATE STREET BANK
March 31, 2017 (In millions)							Basel III Advanced Approaches			Phase-In Provisions			Basel III Advanced Approaches Fully Phased-In Pro-Forma Estimate			Basel III Standardized Approach			Phase-In Provisions			Basel III Standardized Approach Fully Phased-In Pro-Forma Estimate
Total common shareholders' equity							$	21,935		$	(20	)	$	21,915		$	21,935		$	(20	)	$	21,915
Regulatory capital adjustments:
Goodwill and other intangible assets, net of associated deferred tax liabilities							(6,349		)	(265		)	(6,614		)	(6,349		)	(265		)	(6,614		)
Other adjustments							(94		)	(1		)	(95		)	(94		)	(1		)	(95		)
Common equity tier 1 capital							15,492			(286		)	15,206			15,492			(286		)	15,206
Additional tier 1 capital:
Preferred stock							—			—			—			—			—			—
Other adjustments							—			—			—			—			—			—
Additional tier 1 capital							—			—			—			—			—			—
Tier 1 capital							15,492			(286		)	15,206			15,492			(286		)	15,206
Tier 2 capital:
Qualifying subordinated long-term debt							1,072			—			1,072			1,072			—			1,072
ALLL and other							—			—			—			75			—			75
Tier 2 capital							1,072			—			1,072			1,147			—			1,147
Total capital							$	16,564		$	(286	)	$	16,278		$	16,639		$	(286	)	$	16,353
Risk weighted assets							$	97,034		$	(154	)	$	96,880		$	95,047		$	(145	)	$	94,902
Adjusted average assets							209,392			(261		)	209,131			209,392			(261		)	209,131
Total assets for SLR							235,141			(261		)	234,880			235,141			(261		)	234,880

Capital ratios ⁽¹⁾ :	Minimum Requirement		Minimum Requirement Including Capital Conservation Buffer and G-SIB Surcharge 2017		Minimum Requirement Including Capital Conservation Buffer and G-SIB Surcharge 2019
Common equity tier 1 capital ⁽²⁾	4.5	%	6.5	%	8.5	%	16.0		%				15.7		%	16.3		%				16.0		%
Tier 1 capital	6.0		8.0		10.0		16.0						15.7			16.3						16.0
Total capital	8.0		10.0		12.0		17.1						16.8			17.5						17.2
Tier 1 leverage	4.0		NA		NA		7.4						7.3			7.4						7.3
Supplementary leverage	6.0		NA		NA		6.6						6.5			6.6						6.5

NA: Not applicable.

⁽¹⁾ Common equity tier 1 capital 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).

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. 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.

The Volcker rule, including the required capital deduction for investments in a covered fund, became effective on July 21, 2015, for investments in and relationships with a covered fund made after December 31, 2013. The Federal Reserve issued an order extending the Volcker rule's general conformance period until July 21, 2016 for legacy covered funds and announced its intention to grant banking entities an additional one-year extension of the conformance period until July 21, 2017. On July 7, 2016, the Federal Reserve formally announced the extension of the general conformance period. As a result, for legacy covered funds, the Volcker rule capital deduction will not become effective until July 21, 2017. For additional information on the Volcker rule, refer to pages 9 to10 under “Regulatory Capital Adequacy and Liquidity Standards” in "Supervision and Regulation" included under Item 1, Business, in our 2016 Form 10-K.

State Street Corporation | 43

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Supplementary Leverage Ratio

In 2014, U.S. banking regulators issued final rules implementing an SLR, for certain bank holding companies, like State Street, and their insured depository institution subsidiaries, like State Street Bank, which we refer to as the SLR final rule. Upon implementation, the SLR final rule requires that, as of January 1, 2018, (i) State Street Bank maintain an SLR of at least 6% to be well capitalized under the U.S. banking regulators’ PCA framework and (ii) State Street maintain an SLR of at least 5% to avoid

limitations on capital distributions and discretionary bonus payments. In addition to the SLR, State Street is subject to a minimum tier 1 leverage ratio of 4%, which differs from the SLR primarily in that the denominator of the tier 1 leverage ratio is only a quarterly average of on-balance sheet assets and does not include any off-balance sheet exposures. Beginning with reporting for March 31, 2015, State Street was required to include SLR disclosures, calculated on a transitional basis, with its other Basel disclosures.



TABLE 43: SUPPLEMENTARY LEVERAGE RATIO
March 31, 2017	Transitional SLR			Phase-In Provisions			Fully Phased-in Pro Forma SLR Estimate
(Dollars in millions)	Transitional SLR			Phase-In Provisions			Fully Phased-in Pro Forma SLR Estimate
State Street:
Tier 1 capital	$	14,475		$	(299	)	$	14,176

On-and off-balance sheet leverage exposure	244,964			—			244,964
Less: regulatory deductions	(6,818		)	(269		)	(7,087		)
Total assets for SLR	$	238,146		$	(269	)	$	237,877
Supplementary leverage ratio	6.1		%	(0.1		)%	6.0		%

State Street Bank:
Tier 1 capital	$	15,492		$	(286	)	$	15,206

On-and off-balance sheet leverage exposure	241,563			—			241,563
Less: regulatory deductions	(6,422		)	(261		)	(6,683		)
Total assets for SLR	$	235,141		$	(261	)	$	234,880
Supplementary leverage ratio	6.6		%	(0.1		)%	6.5		%

Capital Actions

Preferred Stock

The following table summarizes selected terms of each of the series of the preferred stock issued and outstanding as of March 31, 2017 :



TABLE 44: PREFERRED STOCK ISSUED AND OUTSTANDING
	Issuance Date	Depositary Shares Issued	Ownership Interest per Depositary Share	Liquidation Preference Per Share		Liquidation Preference Per Depositary Share		Net Proceeds of Offering (In millions)		Redemption Date ⁽¹⁾
Preferred Stock ⁽²⁾ :
Series C	August 2012	20,000,000	1/4,000th	$	100,000	$	25	$	488	September 15, 2017
Series D	February 2014	30,000,000	1/4,000th	100,000		25		742		March 15, 2024
Series E	November 2014	30,000,000	1/4,000th	100,000		25		728		December 15, 2019
Series F	May 2015	750,000	1/100th	100,000		1,000		742		September 15, 2020
Series G	April 2016	20,000,000	1/4,000th	100,000		25		493		March 15, 2026

⁽ ¹⁾ On the redemption date, or any dividend declaration date thereafter, the preferred stock and corresponding depositary shares may be redeemed by us, in whole or in part, at the liquidation price per share and liquidation price per depositary share plus any declared and unpaid dividends, without accumulation of any undeclared dividends.

⁽²⁾ The preferred stock and corresponding depositary shares may be redeemed at our option in whole, but not in part, prior to the redemption date upon the occurrence of a regulatory capital treatment event, as defined in the certificate of designation, at a redemption price equal to the liquidation price per share and liquidation price per depositary share plus any declared and unpaid dividends, without accumulation of any undeclared dividends.

State Street Corporation | 44

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The following table presents the dividends declared for each of the series of preferred stock issued and outstanding for the periods indicated:



TABLE 45: PREFERRED STOCK DIVIDENDS
	Quarters Ended March 31,
	2017						2016
	Dividends Declared per Share		Dividends Declared per Depositary Share		Total (In millions) ⁽¹⁾		Dividends Declared per Share		Dividends Declared per Depositary Share		Total (In millions)
Preferred Stock:
Series C	$	1,313	$	0.33	$	6	$	1,313	$	0.33	$	7
Series D	1,475		0.37		11		1,475		0.37		11
Series E	1,500		0.38		11		1,500		0.38		11
Series F	2,625		26.25		20		2,625		26.25		20
Series G	1,338		0.33		7		—		—		—
Total					$	55					$	49

⁽¹⁾ Dividends were paid in March 2017.

In April 2017, we declared dividends on our Series C, D, E and G preferred stock of approximately $1,313 , $1,475 , $1,500 and $1,338 , respectively, per share, or approximately $0.33 , $0.37 , $0.38 and $0.33 , respectively, per depositary share. These dividends total approximately $6 million , $11 million , $11 million and $7 million on our Series C, D, E and G preferred stock, respectively, which will be paid in June 2017.

Common Stock

In June 2016, our Board approved a common stock purchase program authorizing the purchase of up to $1.4 billion of our common stock through June 30, 2017 (the 2016 Program). The table below presents the activity under the 2016 Program during the period indicated:



TABLE 46: SHARES REPURCHASED
	Quarter Ended March 31, 2017
	Shares Acquired (In millions)	Average Cost per Share		Total Acquired (In millions)
2016 Program ⁽¹⁾	6.7	$	78.34	$	523

⁽¹⁾ Includes $158 million relating to shares acquired in exchange for BFDS stock. Additional information about the exchange is provided in Note 1 to the consolidated financial statements included in this Form 10-Q.

The table below presents the dividends declared on common stock for the periods indicated:



TABLE 47: COMMON STOCK DIVIDENDS
	Quarters Ended March 31,
	Dividends Declared per Share		Total (In millions)		Dividends Declared per Share		Total (In millions)
	2017				2016
Common Stock	$	0.38	$	144	$	0.34	$	135

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. For information concerning limitations on dividends from our subsidiary banks, refer to pages 49 to 50 in “Related Stockholder Matters” included under Item 5, Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities , and to Note 15 on pages 176 to 178 to the consolidated financial statements included under Item

8, Financial Statements and Supplementary Data, in our 2016 Form 10-K.

Stock purchases may be made using various types of mechanisms, including open market purchases or transactions off market, and may be made under Rule 10b5-1 trading programs. The timing of stock purchases, types of transactions and number of shares purchased will depend on several factors, including, market conditions and State Street’s capital positions, its financial performance and investment opportunities. The common stock purchase program does not have specific price targets and may be suspended at any time.

State Street Corporation | 45

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

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 $373.53 billion as of March 31, 2017 , compared to $360.45 billion as of December 31, 2016 . 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 $391.10 billion and $377.92 billion as collateral for indemnified securities on loan as of March 31, 2017 and December 31, 2016 , 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 $391.10 billion and $377.92 billion , referenced above, $63.66 billion and $60.00 billion was invested in indemnified repurchase agreements as of March 31, 2017 and December 31, 2016 , respectively. We or our agents held $67.62 billion and $63.96 billion as collateral for indemnified investments in repurchase agreements as of March 31, 2017 and December 31, 2016 , respectively.

Additional information about our securities finance activities and other off-balance sheet arrangements is provided in Notes 7 and 9 to the consolidated financial statements included in this Form 10-Q.

RECENT ACCOUNTING DEVELOPMENTS

Information with respect to recent accounting developments is provided in Note 1 to the consolidated financial statements included in this Form 10-Q.

State Street Corporation | 46

Table of Contents

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information provided under “Financial Condition - Market Risk Management” in Management’s Discussion and Analysis, included in this Form 10-Q, is incorporated by reference herein. For more information on our market risk refer to pages 98 to 105 included under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, in our 2016 Form 10-K.

CONTROLS AND PROCEDURES

State Street has established and maintains disclosure controls and procedures that are designed to ensure that 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 March 31, 2017 , 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 March 31, 2017 .

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 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 March 31, 2017 , 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.

State Street Corporation | 47

STATE STREET CORPORATION

CONSOLIDATED STATEMENT OF INCOME

(UNAUDITED)



	Three Months Ended March 31,
(Dollars in millions, except per share amounts)	2017			2016
Fee revenue:
Servicing fees	$	1,296		$	1,242
Management fees	382			270
Trading services	275			272
Securities finance	133			134
Processing fees and other	112			52
Total fee revenue	2,198			1,970
Net interest income:
Interest income	650			629
Interest expense	140			117
Net interest income	510			512
Gains (losses) related to investment securities, net:
Gains (losses) from sales of available-for-sale securities, net	(40		)	2
Gains (losses) related to investment securities, net	(40		)	2
Total revenue	2,668			2,484
Provision for loan losses	(2		)	4
Expenses:
Compensation and employee benefits	1,166			1,107
Information systems and communications	287			272
Transaction processing services	197			200
Occupancy	110			113
Acquisition and restructuring costs	29			104
Professional services	94			93
Amortization of other intangible assets	52			49
Other	151			112
Total expenses	2,086			2,050
Income before income tax expense	584			430
Income tax expense (benefit)	82			62
Net income	$	502		$	368
Net income available to common shareholders	$	446		$	319
Earnings per common share:
Basic	$	1.17		$	.80
Diluted	1.15			.79
Average common shares outstanding (in thousands):
Basic	381,224			399,421
Diluted	386,417			403,615
Cash dividends declared per common share	$	.38		$	.34

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

State Street Corporation | 48

STATE STREET CORPORATION

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(UNAUDITED)



	Three Months Ended March 31,
(In millions)	2017			2016
Net income	$	502		$	368
Other comprehensive income (loss), net of related taxes:
Foreign currency translation, net of related taxes of $123 and $9, respectively	91			306
Net unrealized gains (losses) on available-for-sale securities, net of reclassification adjustment and net of related taxes of $131 and $171, respectively	201			260
Net unrealized gains (losses) on available-for-sale securities designated in fair value hedges, net of related taxes of $5 and ($12), respectively	6			(19		)
Other-than-temporary impairment on held-to-maturity securities related to factors other than credit, net of related taxes of $1 and $1, respectively	1			1
Net unrealized gains (losses) on cash flow hedges, net of related taxes of ($51) and ($45), respectively	(70		)	(68		)
Net unrealized gains (losses) on retirement plans, net of related taxes of $3 and $2, respectively	6			(2		)
Other comprehensive income (loss)	235			478
Total comprehensive income	$	737		$	846

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

State Street Corporation | 49

STATE STREET CORPORATION

CONSOLIDATED STATEMENT OF CONDITION

(UNAUDITED)



(Dollars in millions, except per share amounts)	March 31, 2017			December 31, 2016
Assets:	(Unaudited)
Cash and due from banks	$	2,909		$	1,314
Interest-bearing deposits with banks	66,789			70,935
Securities purchased under resale agreements	2,181			1,956
Trading account assets	945			1,024
Investment securities available-for-sale	58,810			61,998
Investment securities held-to-maturity (fair value of $35,694 and $34,994)	35,829			35,169
Loans and leases (less allowance for losses of $51 and $53)	22,486			19,704
Premises and equipment (net of accumulated depreciation of $3,463 and $3,333)	2,101			2,062
Accrued interest and fees receivable	2,690			2,644
Goodwill	5,855			5,814
Other intangible assets	1,710			1,750
Other assets	34,497			38,328
Total assets	$	236,802		$	242,698
Liabilities:
Deposits:
Non-interest-bearing	$	56,786		$	59,397
Interest-bearing—U.S.	26,746			30,911
Interest-bearing—non-U.S.	99,933			96,855
Total deposits	183,465			187,163
Securities sold under repurchase agreements	4,003			4,400
Other short-term borrowings	1,177			1,585
Accrued expenses and other liabilities	15,469			16,901
Long-term debt	11,394			11,430
Total liabilities	215,508			221,479
Commitments, guarantees and contingencies (Notes 9 and 10)
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			742
Series E, 7,500 shares issued and outstanding	728			728
Series F, 7,500 shares issued and outstanding	742			742
Series G, 5,000 shares issued and outstanding	493			493
Common stock, $1 par, 750,000,000 shares authorized:
503,879,642 and 503,879,642 shares issued	504			504
Surplus	9,796			9,782
Retained earnings	17,762			17,459
Accumulated other comprehensive income (loss)	(1,805		)	(2,040		)
Treasury stock, at cost (127,520,264 and 121,940,502 shares)	(8,159		)	(7,682		)
Total shareholders’ equity	21,294			21,219
Total liabilities and shareholders' equity	$	236,802		$	242,698

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

State Street Corporation | 50

STATE STREET CORPORATION

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

(UNAUDITED)



(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
	PREFERRED STOCK		Shares	Amount		Surplus			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Shares		Amount			Total
Balance as of December 31, 2015	$	2,703	503,880	$	504	$	9,746		$	16,049		$	(1,442	)	104,228		$	(6,457	)	$	21,103
Net income									368											368
Other comprehensive income (loss)												478								478
Cash dividends declared:
Common stock - $0.34 per share									(135		)									(135		)
Preferred stock									(49		)									(49		)
Common stock acquired															5,615		(325		)	(325		)
Common stock awards and options exercised, including income tax benefit of $3						(7		)							(1,542	)	64			57
Other															15		(1		)	(1		)
Balance as of March 31, 2016	$	2,703	503,880	$	504	$	9,739		$	16,233		$	(964	)	108,316		$	(6,719	)	$	21,496
Balance as of December 31, 2016	$	3,196	503,880	$	504	$	9,782		$	17,459		$	(2,040	)	121,941		$	(7,682	)	$	21,219
Net income									502											502
Other comprehensive income (loss)												235								235
Cash dividends declared:
Common stock - $0.38 per share									(144		)									(144		)
Preferred stock									(55		)									(55		)
Common stock acquired															6,671		(523		)	(523		)
Common stock awards and options exercised						14									(1,091	)	46			60
Other															(1	)				—
Balance as of March 31, 2017	$	3,196	503,880	$	504	$	9,796		$	17,762		$	(1,805	)	127,520		$	(8,159	)	$	21,294

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

State Street Corporation | 51

STATE STREET CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)



	Three Months Ended March 31,
(In millions)	2017			2016
Operating Activities:
Net income	$	502		$	368
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Deferred income tax (benefit)	(3		)	(23		)
Amortization of other intangible assets	52			49
Other non-cash adjustments for depreciation, amortization and accretion, net	212			183
Losses (gains) related to investment securities, net	40			(2		)
Change in trading account assets, net	79			(24		)
Change in accrued interest and fees receivable, net	(46		)	(25		)
Change in collateral deposits, net	(68		)	(776		)
Change in unrealized losses on foreign exchange derivatives, net	2,334			2,366
Change in other assets, net	(1,606		)	(874		)
Change in accrued expenses and other liabilities, net	1,908			1,293
Other, net	105			317
Net cash provided by operating activities	3,509			2,852
Investing Activities:
Net decrease in interest-bearing deposits with banks	4,146			10,306
Net (increase) in securities purchased under resale agreements	(225		)	(318		)
Proceeds from sales of available-for-sale securities	2,165			226
Proceeds from maturities of available-for-sale securities	6,836			6,544
Purchases of available-for-sale securities	(6,287		)	(6,947		)
Proceeds from maturities of held-to-maturity securities	670			618
Purchases of held-to-maturity securities	(1,311		)	(1,782		)
Net (increase) in loans and leases	(2,769		)	(378		)
Purchases of equity investments and other long-term assets	(18		)	(80		)
Purchases of premises and equipment, net	(164		)	(168		)
Proceeds from sale of joint venture investment	172			—
Other, net	(5		)	6
Net cash provided by investing activities	3,210			8,027
Financing Activities:
Net (decrease) increase in time deposits	(5,793		)	3,087
Net increase (decrease) in all other deposits	2,095			(9,202		)
Net (decrease) in other short-term borrowings	(805		)	(323		)
Payments for long-term debt and obligations under capital leases	(11		)	(1,410		)
Purchases of common stock	(354		)	(268		)
Excess tax benefit related to stock-based compensation	—			3
Repurchases of common stock for employee tax withholding	(55		)	(54		)
Payments for cash dividends	(201		)	(184		)
Net cash used in financing activities	(5,124		)	(8,351		)
Net increase	1,595			2,528
Cash and due from banks at beginning of period	1,314			1,207
Cash and due from banks at end of period	$	2,909		$	3,735

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

State Street Corporation | 52

Table of Contents

STATE STREET CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

TABLE OF CONTENTS



Note 1. Summary of Significant Accounting Policies	54

Note 2. Fair Value	57

Note 3. Investment Securities	63

Note 4. Loans and Leases	68

Note 5. Goodwill and Other Intangible Assets	71

Note 6. Other Assets	72

Note 7. Derivative Financial Instruments	72

Note 8. Offsetting Arrangements	76

Note 9. Commitments and Guarantees	79

Note 10. Contingencies	80

Note 11. Variable Interest Entities	82

Note 12. Shareholders’ Equity	83

Note 13. Regulatory Capital	85

Note 14. Net Interest Income	87

Note 15. Expenses	87

Note 16. Earnings Per Common Share	87

Note 17. Line of Business Information	88

Note 18. Non-U.S. Activities	89

We use acronyms and other defined terms for certain business terms and abbreviations, as defined in the acronyms list and glossary accompanying these consolidated financial statements.

State Street Corporation | 53

Table of Contents

STATE STREET CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1 . Summary of Significant Accounting Policies

Basis of Presentation:

The accounting and financial reporting policies of State Street Corporation conform to U.S. 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.

The accompanying Consolidated Financial Statements should be read in conjunction with the financial and risk factor information included in our 2016 Form 10-K, which we previously filed with the SEC.

The consolidated financial statements accompanying these condensed notes are unaudited. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair statement of the consolidated results of operations in these financial statements, have been made. Certain previously reported amounts presented in this Form 10-Q have been reclassified to conform to current-period presentation. Events occurring subsequent to the date of our consolidated statement of condition were

evaluated for potential recognition or disclosure in our consolidated financial statements through the date we filed this Form 10-Q with the SEC.

The preparation of consolidated financial statements in conformity with U.S. 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. These accounting estimates reflect the best judgment of management, but actual results could differ.

Our consolidated statement of condition as of December 31, 2016 included in the accompanying consolidated financial statements was derived from the audited financial statements as of that date, but does not include all notes required by U.S. GAAP for a complete set of consolidated financial statements.

Dispositions

In the first quarter of 2017 , we completed the sale of our joint venture interest in IFDS for approximately $175 million in cash and the exchange of our joint venture interest in BFDS stock for $158 million in State Street's common stock. We recognized a pre-tax gain of $30 million , in the aggregate, in the quarter ended March 31, 2017 .

State Street Corporation | 54

Table of Contents

STATE STREET CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Recent Accounting Developments:



Relevant standards that were issued but not yet adopted
Standard	Description	Date of Adoption	Effects on the financial statements or other significant matters
ASU 2014-09, Revenue from Contracts with Customers (Topic 606)	The standard, and its related amendments, will replace existing revenue recognition standards and expand the disclosure requirements for revenue arrangements with customers. Under the new standard, revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective method).	January 1, 2018	We are currently assessing the full impact of the revenue recognition standard and its amendments on our consolidated financial statements and evaluating the alternative methods of adoption. The standard does not apply to revenue associated with financial instruments, including loans and securities, or revenue recognized under other U.S. GAAP standards. Therefore net interest income, securities gains/ losses and revenue related to derivative instruments are not impacted by the standard. Our implementation efforts include the scoping of material revenue streams into cohorts, analysis of underlying contracts for each cohort, business unit workshops to further assess specific contracts and products, and the development of updated disclosures. Based on our efforts to date, we expect both the timing and amount of our material revenue streams, including servicing fees, management fees, trading services, and securities finance to remain substantially unchanged as these revenues likely will continue to be recognized over time. Specifically, under the new standard we expect to recognize revenue related to these activities ratably over the term of the related agreements with customers as the customer simultaneously benefits from the services as they are performed. Due to the complexity of certain of our agreements, the actual revenue recognition treatment required under the standard will be dependent on contract-specific terms, and certain aspects may vary in some instances from recognition ratably over the contract term. While we have not yet identified any material changes, we continue to monitor industry progress and focus our assessment on areas such as any additional costs that may require capitalization under the new standard as well as assessing the impact of changes to principal and agent guidance. The new standard modified some of the principal and agent considerations which may result in changes to gross or net treatment of revenue and expenses but would not affect net income. Although we currently expect no material changes to the timing or amount of revenue, we are still assessing the operational and disclosure impacts of each transition method.
ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities	The standard makes limited amendments to the guidance on the classification and measurement of financial instruments. Under the new standard, all equity securities will be measured at fair value through earnings with certain exceptions, including investments accounted for under the equity method of accounting. In addition, the FASB clarified the guidance related to valuation allowance assessments when recognizing deferred tax assets on unrealized losses on available-for-sale debt securities. This standard must be applied on a retrospective basis.	January 1, 2018	We are currently assessing the impact of the standard on our consolidated financial statements. Based on our initial assessments, we do not currently anticipate this standard to have a material impact on our consolidated financial statements due to the limited number of investments on our consolidated statement of condition that are within scope of the standard.
ASU 2016-02, Leases (Topic 842)	The standard represents a wholesale change to lease accounting and requires all leases, other than short-term leases, to be reported on balance sheet through recognition of a right-of-use asset and a corresponding liability for future lease obligations. The standard also requires extensive disclosures for assets, expenses, and cash flows associated with leases, as well as a maturity analysis of lease liabilities.	January 1, 2019	We are currently assessing the impact of the standard on our consolidated financial statements, but we anticipate an increase in assets and liabilities due to the recognition of the required right-of-use asset and corresponding liability for all lease obligations that are currently classified as operating leases, primarily real estate leases for office space, as well as additional disclosure on all our lease obligations.

State Street Corporation | 55

Table of Contents

STATE STREET CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



Relevant standards that were issued but not yet adopted
Standard	Description	Date of Adoption	Effects on the financial statements or other significant matters
ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments	The standard requires immediate recognition of expected credit losses for financial assets carried at amortized cost, including trade and other receivables, loans and commitments, held-to-maturity debt securities and other financial assets, held at the reporting date to be measured based on historical experience, current conditions and reasonable supportable forecasts. Credit losses on available-for-sale securities will be recorded as an allowance versus a write-down of the amortized cost basis of the security and will allow for a reversal of impairment loss when the credit of the issuer improves.	January 1, 2020	We are currently assessing the impact of the standard on our consolidated financial statements, but we anticipate a significant implementation effort to ensure that expected credit losses are calculated in accordance with the standard. We have established a steering committee to provide cross-functional governance over the project plan and key decisions, and are currently developing key accounting policies, evaluating existing credit loss models and processes and identifying a complete set of data requirements and sources. Based on our analysis to date, we expect a significant effort to develop new or modified credit loss models and that the timing of the recognition of credit losses will accelerate under the new standard.
ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)	The standard amends the statement of cash flow guidance to address specific cash flow issues with the objective of reducing the existing diversity in practice.	January 1, 2018	We are currently assessing the impact of the standard on our consolidated financial statements; however based on our current presentation we do not anticipate a significant change to our financial statement presentation of the statement of cash flows.
ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business	The standard incorporates gating criteria to determine when an integrated set of assets and activities is not a business. When substantially all the fair value of gross assets acquired (or group of similar identifiable assets) is concentrated in a single identifiable asset, it would not represent a business.	January 1, 2018, early adoption permitted	We will apply this standard prospectively upon adoption.
ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment	The standard simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. The ASU requires an entity to compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying value exceeds the fair value of the reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss.	January 1, 2020, early adoption permitted	We are evaluating the impacts of early adoption, and will apply this standard prospectively upon adoption.
ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium amortization on Purchased Callable Debt Securities	This standard shortens the amortization period for certain purchased callable debt securities to the earliest call date.	January 1, 2019, early adoption permitted	We are currently evaluating the impact of the new standard and the early adoption provisions.

We adopted ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting , effective January 1, 2017. For the quarter ended March 31, 2017, we reclassified excess tax benefits related to stock-based compensation from financing activities to other operating activities. We continued to present repurchases of common stock for employee tax withholding in financing activities in the consolidated statements of cash flows for all periods presented.

As required by the transition provisions of the standard, excess tax benefits previously recognized in surplus prior to January 1, 2017 remain in surplus, and excess tax benefits recognized after January 1, 2017 are included in income tax expense. In connection with this change, we recognized a tax benefit of $10 million in the first quarter of 2017 . We elected to make no changes to our current policy of estimating forfeitures. Lastly, we did not make any changes to tax withholding rates at this time and rates currently used are still in line with standard requirements.

State Street Corporation | 56

Table of Contents

STATE STREET CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 2 . Fair Value

Fair-Value Measurements:

We carry trading account assets, AFS investment securities 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 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 U.S. 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 U.S. GAAP. We categorize the financial assets and liabilities that we carry at fair value based on a

prescribed three-level valuation hierarchy. For information about our valuation techniques for financial assets and financial liabilities measured at fair value and the fair value hierarchy, refer to pages 135 to 142 in Note 2 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 2016 Form 10-K.

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. During the three months ended March 31, 2017 , approximately $9 million of assets were transferred between levels 1 and 2. No transfers of financial assets or liabilities between levels 1 and 2 occurred during the year ended December 31, 2016 .

State Street Corporation | 57

Table of Contents

STATE STREET CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



	Fair-Value Measurements on a Recurring Basis
	as of March 31, 2017
(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	$	39	$	—	$	—				$	39
Non-U.S. government securities	366		187		—					553
Other	—		353		—					353
Total trading account assets	405		540		—					945
AFS Investment securities:
U.S. Treasury and federal agencies:
Direct obligations	2,731		420		—					3,151
Mortgage-backed securities	—		11,348		—					11,348
Asset-backed securities:
Student loans	—		5,592		99					5,691
Credit cards	—		1,302		—					1,302
Sub-prime	—		252		—					252
Other ⁽²⁾	—		100		771					871
Total asset-backed securities	—		7,246		870					8,116
Non-U.S. debt securities:
Mortgage-backed securities	—		6,583		—					6,583
Asset-backed securities	—		2,752		59					2,811
Government securities	—		5,804		—					5,804
Other ⁽³⁾	—		5,546		256					5,802
Total non-U.S. debt securities	—		20,685		315					21,000
State and political subdivisions	—		9,783		39					9,822
Collateralized mortgage obligations	—		2,422		39					2,461
Other U.S. debt securities	—		2,426		—					2,426
U.S. equity securities	—		44		—					44
Non-U.S. equity securities	—		2		—					2
U.S. money-market mutual funds	—		424		—					424
Non-U.S. money-market mutual funds	—		16		—					16
Total investment securities available-for-sale	2,731		54,816		1,263					58,810
Other assets:
Derivative instruments:
Foreign exchange contracts	—		9,159		2		$	(6,151	)	3,010
Interest-rate contracts	9		—		—		(3		)	6
Total derivative instruments	9		9,159		2		(6,154		)	3,016
Total assets carried at fair value	$	3,145	$	64,515	$	1,265	$	(6,154	)	$	62,771
Liabilities:
Accrued expenses and other liabilities:
Derivative instruments:
Foreign exchange contracts	$	—	$	8,891	$	1	$	(5,334	)	$	3,558
Interest-rate contracts	—		113		—		(4		)	109
Other derivative contracts	—		389		—		—			389
Total derivative instruments	—		9,393		1		(5,338		)	4,056
Total liabilities carried at fair value	$	—	$	9,393	$	1	$	(5,338	)	$	4,056

⁽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 $1,211 million and $393 million , respectively, for cash collateral received from and provided to derivative counterparties.

⁽²⁾ As of March 31, 2017 , the fair value of other asset-backed securities was primarily composed of $871 million of collateralized loan obligations.

⁽³⁾ As of March 31, 2017 , the fair value of other non-U.S. debt securities was primarily composed of $3,742 million of covered bonds and $1,054 million of corporate bonds.

State Street Corporation | 58

Table of Contents

STATE STREET CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



	Fair-Value Measurements on a Recurring Basis
	as of December 31, 2016
(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	$	30	$	—	$	—				$	30
Non-U.S. government securities	495		174		—					669
Other	—		325		—					325
Total trading account assets	525		499		—					1,024
AFS Investment securities:
U.S. Treasury and federal agencies:
Direct obligations	3,824		439		—					4,263
Mortgage-backed securities	—		13,257		—					13,257
Asset-backed securities:
Student loans	—		5,499		97					5,596
Credit cards	—		1,351		—					1,351
Sub-prime	—		272		—					272
Other ⁽²⁾	—		—		905					905
Total asset-backed securities	—		7,122		1,002					8,124
Non-U.S. debt securities:
Mortgage-backed securities	—		6,535		—					6,535
Asset-backed securities	—		2,484		32					2,516
Government securities	—		5,836		—					5,836
Other ⁽³⁾	—		5,365		248					5,613
Total non-U.S. debt securities	—		20,220		280					20,500
State and political subdivisions	—		10,283		39					10,322
Collateralized mortgage obligations	—		2,577		16					2,593
Other U.S. debt securities	—		2,469		—					2,469
U.S. equity securities	—		42		—					42
Non-U.S. equity securities	—		3		—					3
U.S. money-market mutual funds	—		409		—					409
Non-U.S. money-market mutual funds	—		16		—					16
Total investment securities available-for-sale	3,824		56,837		1,337					61,998
Other assets:
Derivatives instruments:
Foreign exchange contracts	—		16,476		8		$	(9,163	)	7,321
Interest-rate contracts	—		68		—		(68		)	—
Total derivative instruments	—		16,544		8		(9,231		)	7,321
Total assets carried at fair value	$	4,349	$	73,880	$	1,345	$	(9,231	)	$	70,343
Liabilities:
Accrued expenses and other liabilities:
Derivative instruments:
Foreign exchange contracts	$	—	$	15,948	$	8	$	(10,456	)	$	5,500
Interest-rate contracts	—		348		—		(226		)	122
Other derivative contracts	—		380		—		—			380
Total derivative instruments	—		16,676		8		(10,682		)	6,002
Total liabilities carried at fair value	$	—	$	16,676	$	8	$	(10,682	)	$	6,002

⁽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 $906 million and $2,356 million , respectively, for cash collateral received from and provided to derivative counterparties.

⁽²⁾ As of December 31, 2016 , the fair value of other asset-backed securities was primarily composed of $905 million of collateralized loan obligations.

⁽³⁾ As of December 31, 2016 , the fair value of other non-U.S. debt securities was primarily composed of $3,769 million of covered bonds and $988 million of corporate bonds.

State Street Corporation | 59

Table of Contents

STATE STREET CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following tables present activity related to our level 3 financial assets during the three months ended March 31, 2017 and 2016 , respectively. Transfers into and out of level 3 are reported as of the beginning of the period presented. During the three months ended March 31, 2017 there were no transfers out of level 3. During the three months ended March 31, 2016 , 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
	Three Months Ended March 31, 2017
	Fair Value as of December 31, 2016		Total Realized and Unrealized Gains (Losses)					Purchases		Settlements			Fair Value as of March 31, 2017 ⁽²⁾		Change in Unrealized Gains (Losses) Related to Financial Instruments Held as of March 31, 2017
(In millions)			Recorded in Revenue ⁽¹⁾			Recorded in Other Comprehensive Income ⁽¹⁾
Assets:
AFS Investment securities:
Asset-backed securities:
Student loans	$	97	$	—		$	2	$	—	$	—		$	99
Other	905		1			—		155		(290		)	771
Total asset-backed securities	1,002		1			2		155		(290		)	870
Non-U.S. debt securities:
Asset-backed securities	32		—			—		31		(4		)	59
Other	248		—			—		5		3			256
Total Non-U.S. debt securities	280		—			—		36		(1		)	315
State and political subdivisions	39		—			—		—		—			39
Collateralized mortgage obligations	16		—			—		23		—			39
Total AFS investment securities	1,337		1			2		214		(291		)	1,263
Other assets:
Derivative instruments:
Foreign exchange contracts	8		(7		)	—		5		(4		)	2		$	(3	)
Total derivative instruments	8		(7		)	—		5		(4		)	2		(3		)
Total assets carried at fair value	$	1,345	$	(6	)	$	2	$	219	$	(295	)	$	1,265	$	(3	)

⁽¹⁾ Total realized and unrealized gains (losses) on AFS investment securities are included within gains (losses) related to investment securities, net. Total realized and unrealized gains (losses) on derivative instruments are included within trading services.

⁽²⁾ There were no transfers of assets into level 3 during the three months ended March 31, 2017 .

State Street Corporation | 60

Table of Contents

STATE STREET CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



	Fair-Value Measurements Using Significant Unobservable Inputs
	Three Months Ended March 31, 2016
	Fair Value as of December 31, 2015		Total Realized and Unrealized Gains (Losses)					Purchases		Settlements			Transfers out of Level 3			Fair Value as of March 31, 2016 ⁽²⁾		Change in Unrealized Gains (Losses) Related to Financial Instruments Held as of March 31, 2016
(In millions)			Recorded in Revenue ⁽¹⁾		Recorded in Other Comprehensive Income ⁽¹⁾
Assets:
AFS Investment securities:
U.S. Treasury and federal agencies, mortgage-backed securities	$	—	$	—	$	—		$	300	$	—		$	—		$	300
Asset-backed securities:
Student loans	189		—		(3		)	—		—			—			186
Other	1,764		7		(11		)	113		(60		)	—			1,813
Total asset-backed securities	1,953		7		(14		)	113		(60		)	—			1,999
Non-U.S. debt securities:
Asset-backed securities	174		—		—			53		(18		)	(82		)	127
Other	255		—		(2		)	29		13			—			295
Total non-U.S. debt securities	429		—		(2		)	82		(5		)	(82		)	422
State and political subdivisions	33		—		—			—		(1		)	—			32
Collateralized mortgage obligations	39		—		—			50		(7		)	—			82
Other U.S. debt securities	10		—		—			—		(10		)	—			—
Total AFS investment securities	2,464		7		(16		)	545		(83		)	(82		)	2,835
Other assets:
Derivative instruments:
Foreign exchange contracts	5		3		—			—		(8		)	—			—		$	—
Total derivative instruments	5		3		—			—		(8		)	—			—		—
Total assets carried at fair value	$	2,469	$	10	$	(16	)	$	545	$	(91	)	$	(82	)	$	2,835	$	—

⁽²⁾ There were no transfers of assets into level 3 during the three months ended March 31, 2016 .

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 March 31, 2017		As of December 31, 2016		Valuation Technique	Significant Unobservable Input ⁽¹⁾	As of March 31, 2017		As of December 31, 2016
Significant unobservable inputs readily available to State Street:
Assets:
Asset-backed securities, other	$	—	$	1	Discounted cash flows	Credit spread	—	%	0.3	%
State and political subdivisions	39		39		Discounted cash flows	Credit spread	1.8		1.8
Derivative instruments, foreign exchange contracts	2		8		Option model	Volatility	9.2		14.4
Total	$	41	$	48
Liabilities:
Derivative instruments, foreign exchange contracts	$	1	$	8	Option model	Volatility	9.4		14.4
Total	$	1	$	8

⁽¹⁾ Significant chan ges in these unobservable inputs would result in significant changes in fair value measurement.

State Street Corporation | 61

Table of Contents

STATE STREET CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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.

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
(In millions)	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)
March 31, 2017
Financial Assets:
Cash and due from banks	$	2,909	$	2,909	$	2,909	$	—	$	—
Interest-bearing deposits with banks	66,789		66,789		—		66,789		—
Securities purchased under resale agreements	2,181		2,181		—		2,181		—
Investment securities held-to-maturity	35,829		35,694		17,395		18,164		135
Net loans (excluding leases) ⁽¹⁾	21,653		21,657		—		21,567		90
Financial Liabilities:
Deposits:
Non-interest-bearing	$	56,786	$	56,786	$	—	$	56,786	$	—
Interest-bearing - U.S.	26,746		26,746		—		26,746		—
Interest-bearing - non-U.S.	99,933		99,933		—		99,933		—
Securities sold under repurchase agreements	4,003		4,003		—		4,003		—
Other short-term borrowings	1,177		1,177		—		1,177		—
Long-term debt	11,394		11,624		—		11,301		323

⁽¹⁾ Includes $28 million of loans classified as held-for-sale that were measured at fair value on a non-recurring basis as of March 31, 2017.



					Fair-Value Hierarchy
(In millions)	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)
December 31, 2016
Financial Assets:
Cash and due from banks	$	1,314	$	1,314	$	1,314	$	—	$	—
Interest-bearing deposits with banks	70,935		70,935		—		70,935		—
Securities purchased under resale agreements	1,956		1,956		—		1,956		—
Investment securities held-to-maturity	35,169		34,994		17,400		17,439		155
Net loans (excluding leases)	18,862		18,877		—		18,781		96
Financial Liabilities:
Deposits:
Non-interest-bearing	$	59,397	$	59,397	$	—	$	59,397	$	—
Interest-bearing - U.S.	30,911		30,911		—		30,911		—
Interest-bearing - non-U.S.	96,855		96,855		—		96,855		—
Securities sold under repurchase agreements	4,400		4,400		—		4,400		—
Other short-term borrowings	1,585		1,585		—		1,585		—
Long-term debt	11,430		11,618		—		11,282		336

State Street Corporation | 62

Table of Contents

STATE STREET CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 3 . Investment Securities

Investment securities held by us are classified as either trading, AFS , or HTM at the time of purchase and reassessed periodically, 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. AFS investment securities are those securities that we intend to hold for an indefinite period of time. AFS investment 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. HTM securities 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 AFS are carried at fair value, and after-tax net unrealized gains and losses are recorded in AOCI. Gains or losses realized on sales of AFS investment 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. HTM investment securities are carried at cost, adjusted for amortization of premiums and accretion of discounts.

State Street Corporation | 63

Table of Contents

STATE STREET CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following table presents the amortized cost and fair value, and associated unrealized gains and losses, of investment securities as of the dates indicated:



	March 31, 2017								December 31, 2016
	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	$	3,149	$	3	$	1	$	3,151	$	4,265	$	7	$	9	$	4,263
Mortgage-backed securities	11,379		71		102		11,348		13,340		76		159		13,257
Asset-backed securities:
Student loans ⁽¹⁾	5,702		26		37		5,691		5,659		12		75		5,596
Credit cards	1,323		1		22		1,302		1,377		—		26		1,351
Sub-prime	264		2		14		252		289		1		18		272
Other ⁽²⁾	863		8		—		871		895		10		—		905
Total asset-backed securities	8,152		37		73		8,116		8,220		23		119		8,124
Non-U.S. debt securities:
Mortgage-backed securities	6,550		38		5		6,583		6,506		35		6		6,535
Asset-backed securities	2,806		6		1		2,811		2,513		4		1		2,516
Government securities	5,810		7		13		5,804		5,834		8		6		5,836
Other ⁽³⁾	5,776		31		5		5,802		5,587		31		5		5,613
Total non-U.S. debt securities	20,942		82		24		21,000		20,440		78		18		20,500
State and political subdivisions	9,640		252		70		9,822		10,233		201		112		10,322
Collateralized mortgage obligations	2,480		15		34		2,461		2,610		18		35		2,593
Other U.S. debt securities	2,435		16		25		2,426		2,481		18		30		2,469
U.S. equity securities	39		7		2		44		39		6		3		42
Non-U.S. equity securities	2		—		—		2		3		—		—		3
U.S. money-market mutual funds	424		—		—		424		409		—		—		409
Non-U.S. money-market mutual funds	16		—		—		16		16		—		—		16
Total	$	58,658	$	483	$	331	$	58,810	$	62,056	$	427	$	485	$	61,998
Held-to-maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	17,504	$	18	$	44	$	17,478	$	17,527	$	17	$	58	$	17,486
Mortgage-backed securities	11,254		26		229		11,051		10,334		20		221		10,133
Asset-backed securities:
Student loans ⁽¹⁾	2,812		13		20		2,805		2,883		5		30		2,858
Credit cards	858		3		—		861		897		2		—		899
Other	15		—		—		15		35		—		—		35
Total asset-backed securities	3,685		16		20		3,681		3,815		7		30		3,792
Non-U.S. debt securities:
Mortgage-backed securities	1,131		76		12		1,195		1,150		70		15		1,205
Asset-backed securities	437		1		—		438		531		—		—		531
Government securities	340		2		—		342		286		3		—		289
Other	117		2		—		119		113		1		—		114
Total non-U.S. debt securities	2,025		81		12		2,094		2,080		74		15		2,139
Collateralized mortgage obligations	1,361		39		10		1,390		1,413		42		11		1,444
Total	$	35,829	$	180	$	315	$	35,694	$	35,169	$	160	$	335	$	34,994

⁽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.

⁽²⁾ As of March 31, 2017 and December 31, 2016 , the fair value of other ABS was primarily composed of $871 million and $905 million , respectively, of collateralized loan obligations.

⁽³⁾ As of March 31, 2017 and December 31, 2016 , the fair value of other non-U.S. debt securities was primarily composed of $3,742 million and $3,769 million , respectively, of covered bonds and $1,054 million and $988 million , as of March 31, 2017 and December 31, 2016 , respectively, of corporate bonds.

State Street Corporation | 64

Table of Contents

STATE STREET CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Aggregate investment securities with carrying values of approximately $48 billion and $46 billion as of March 31, 2017 and December 31, 2016 , 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
March 31, 2017	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
(In millions)	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Available-for-sale:
U.S. Treasury and federal agencies:
Direct obligations	$	663	$	—	$	178	$	1	$	841	$	1
Mortgage-backed securities	5,653		93		525		9		6,178		102
Asset-backed securities:
Student loans	136		—		3,107		37		3,243		37
Credit cards	—		—		497		22		497		22
Sub-prime	—		—		233		14		233		14
Total asset-backed securities	136		—		3,837		73		3,973		73
Non-U.S. debt securities:
Mortgage-backed securities	542		1		780		4		1,322		5
Asset-backed securities	75		—		135		1		210		1
Government securities	2,695		13		—		—		2,695		13
Other	633		5		111		—		744		5
Total non-U.S. debt securities	3,945		19		1,026		5		4,971		24
State and political subdivisions	2,294		69		52		1		2,346		70
Collateralized mortgage obligations	1,100		30		177		4		1,277		34
Other U.S. debt securities	888		19		158		6		1,046		25
U.S. equity securities	—		—		6		2		6		2
Total	$	14,679	$	230	$	5,959	$	101	$	20,638	$	331
Held-to-maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	7,977	$	43	$	83	$	1	$	8,060	$	44
Mortgage-backed securities	7,240		229		—		—		7,240		229
Asset-backed securities:
Student loans	557		6		1,016		14		1,573		20
Total asset-backed securities	557		6		1,016		14		1,573		20
Non-U.S. debt securities:
Mortgage-backed securities	13		—		323		12		336		12
Total non-U.S. debt securities	13		—		323		12		336		12
Collateralized mortgage obligations	452		3		190		7		642		10
Total	$	16,239	$	281	$	1,612	$	34	$	17,851	$	315

State Street Corporation | 65

Table of Contents

STATE STREET CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



	Less than 12 months				12 months or longer				Total
December 31, 2016	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	$	651	$	8	$	180	$	1	$	831	$	9
Mortgage-backed securities	7,072		131		1,114		28		8,186		159
Asset-backed securities:
Student loans	54		—		3,745		75		3,799		75
Credit cards	795		1		494		25		1,289		26
Sub-prime	1		—		252		18		253		18
Other	75		—		—		—		75		—
Total asset-backed securities	925		1		4,491		118		5,416		119
Non-U.S. debt securities:
Mortgage-backed securities	442		1		893		5		1,335		6
Asset-backed securities	253		—		276		1		529		1
Government securities	1,314		6		—		—		1,314		6
Other	670		4		218		1		888		5
Total non-U.S. debt securities	2,679		11		1,387		7		4,066		18
State and political subdivisions	3,390		102		304		10		3,694		112
Collateralized mortgage obligations	1,259		31		162		4		1,421		35
Other U.S. debt securities	944		24		157		6		1,101		30
U.S. equity securities	8		—		5		3		13		3
Total	$	16,928	$	308	$	7,800	$	177	$	24,728	$	485
Held-to-maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	8,891	$	57	$	86	$	1	$	8,977	$	58
Mortgage-backed securities	6,838		221		—		—		6,838		221
Asset-backed securities:
Student loans	705		9		1,235		21		1,940		30
Credit cards	33		—		—		—		33		—
Other	18		—		9		—		27		—
Total asset-backed securities	756		9		1,244		21		2,000		30
Non-U.S. debt securities:
Mortgage-backed securities	54		2		330		13		384		15
Asset-backed securities	28		—		35		—		63		—
Government securities	180		—		—		—		180		—
Total non-U.S. debt securities	262		2		365		13		627		15
Collateralized mortgage obligations	537		4		204		7		741		11
Total	$	17,284	$	293	$	1,899	$	42	$	19,183	$	335

State Street Corporation | 66

Table of Contents

STATE STREET CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following table presents contractual maturities of debt investment securities by carrying amount as of March 31, 2017 . The maturities of certain asset-backed securities, mortgage-backed securities, and collateralized mortgage obligations are based on expected principal payments. Actual maturities may differ from these expected maturities since certain borrowers have the right to prepay obligations with or without prepayment penalties.



	Under 1 Year		1 to 5 Years		6 to 10 Years		Over 10 Years		Total
(In millions)	Under 1 Year		1 to 5 Years		6 to 10 Years		Over 10 Years		Total
Available-for-sale:
U.S. Treasury and federal agencies:
Direct obligations	$	2,731	$	11	$	44	$	365	$	3,151
Mortgage-backed securities	224		1,433		3,235		6,456		11,348
Asset-backed securities:
Student loans	580		3,038		807		1,266		5,691
Credit cards	—		1,005		297		—		1,302
Sub-prime	1		2		2		247		252
Other	—		62		809		—		871
Total asset-backed securities	581		4,107		1,915		1,513		8,116
Non-U.S. debt securities:
Mortgage-backed securities	1,213		3,643		831		896		6,583
Asset-backed securities	260		2,281		268		2		2,811
Government securities	4,079		999		726		—		5,804
Other	1,837		3,465		500		—		5,802
Total non-U.S. debt securities	7,389		10,388		2,325		898		21,000
State and political subdivisions	492		2,379		5,161		1,790		9,822
Collateralized mortgage obligations	—		64		828		1,569		2,461
Other U.S. debt securities	406		1,033		978		9		2,426
Total	$	11,823	$	19,415	$	14,486	$	12,600	$	58,324
Held-to-maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	400	$	16,319	$	716	$	69	$	17,504
Mortgage-backed securities	—		180		1,724		9,350		11,254
Asset-backed securities:
Student loans	348		231		293		1,940		2,812
Credit cards	124		734		—		—		858
Other	1		12		—		2		15
Total asset-backed securities	473		977		293		1,942		3,685
Non-U.S. debt securities:
Mortgage-backed securities	249		232		55		595		1,131
Asset-backed securities	168		269		—		—		437
Government securities	232		108		—		—		340
Other	74		43		—		—		117
Total non-U.S. debt securities	723		652		55		595		2,025
Collateralized mortgage obligations	45		18		482		816		1,361
Total	$	1,641	$	18,146	$	3,270	$	12,772	$	35,829

State Street Corporation | 67

Table of Contents

STATE STREET CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following table presents a roll-forward with respect to net impairment losses that have been recognized in income for the periods indicated.



	Three Months Ended March 31,
(In millions)	2017		2016
Balance, beginning of period	$	66	$	92
Deductions:
Previously recognized losses related to securities sold or matured	—		(1		)
Balance, end of period	$	66	$	91

Interest income related to debt securities is recognized in our consolidated statement of income using the effective 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 non-refundable 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 income 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 income 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 OTTI exists. For additional information about the review of securities for impairment, refer to pages 149 to 152 in Note 3 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 2016 Form 10-K.

We recorded less than $1 million of OTTI in the three months ended March 31, 2017 and 2016 , which resulted from adverse changes in the timing of expected future cash flows from the securities.

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, management considers the aggregate decline in fair value of the investment securities portfolio and the resulting gross pre-tax unrealized losses of $646 million related to 1,389 securities as of March 31, 2017 to be temporary, and not the result of any material changes in the credit characteristics of the securities.

Note 4 . Loans and Leases

We segregate our loans and leases into three segments: commercial and financial loans, commercial real estate loans, and lease financing. We further classify commercial and financial loans as loans to investment funds, senior secured bank loans, loans to municipalities, and other. These classifications reflect their risk characteristics, their initial measurement attributes and the methods we use to monitor and assess credit risk. For additional information on our loans and leases, including our internal risk-rating system used to assess our risk of credit loss for each loan or lease, refer to pages 152 to 155 in Note 4 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 2016 Form 10-K.

State Street Corporation | 68

Table of Contents

STATE STREET CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following table presents our recorded investment in loans and leases, by segment, as of the dates indicated:



(In millions)	March 31, 2017			December 31, 2016
Domestic:
Commercial and financial:
Loans to investment funds	$	12,362		$	11,734
Senior secured bank loans	3,202			3,256
Loans to municipalities	1,660			1,352
Other	65			70
Commercial real estate	27			27
Lease financing	329			338
Total domestic	17,645			16,777
Non-U.S.:
Commercial and financial:
Loans to investment funds	4,158			2,224
Senior secured bank loans	230			252
Lease financing	504			504
Total non-U.S.	4,892			2,980
Total loans and leases	22,537			19,757
Allowance for loan and lease losses	(51		)	(53		)
Loans and leases, net of allowance	$	22,486		$	19,704

The commercial and financial segment is composed of primarily floating-rate loans to mutual fund clients, purchased senior secured bank loans, and loans to municipalities. Investment fund lending is composed of short-duration revolving credit lines providing liquidity to fund clients in support of their transaction flows associated with securities' settlement activities.

Certain loans are pledged as collateral for access to the Federal Reserve's discount window. As of March 31, 2017 and December 31, 2016 , the loans pledged as collateral totaled $2.1 billion and $1.5 billion , respectively.

The following tables present our recorded investment in each class of loans and leases by credit quality indicator as of the dates indicated:



March 31, 2017	Commercial and Financial		Commercial Real Estate		Lease Financing		Total Loans and Leases
(In millions)	Commercial and Financial		Commercial Real Estate		Lease Financing		Total Loans and Leases
Investment grade ⁽¹⁾	$	17,502	$	27	$	833	$	18,362
Speculative ⁽²⁾	4,160		—		—		4,160
Substandard ⁽³⁾	15		—		—		15
Total	$	21,677	$	27	$	833	$	22,537



December 31, 2016	Commercial and Financial		Commercial Real Estate		Lease Financing		Total Loans and Leases
(In millions)	Commercial and Financial		Commercial Real Estate		Lease Financing		Total Loans and Leases
Investment grade ⁽¹⁾	$	14,889	$	27	$	842	$	15,758
Speculative ⁽²⁾	3,984		—		—		3,984
Substandard ⁽³⁾	15		—		—		15
Total	$	18,888	$	27	$	842	$	19,757

⁽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⁾ Substandard loans and leases consist of counterparties with well-defined weakness that jeopardizes repayment with the possibility we will sustain some loss.

State Street Corporation | 69

Table of Contents

STATE STREET CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following table presents our recorded investment in loans and leases, disaggregated based on our impairment methodology, as of the dates indicated:



	March 31, 2017								December 31, 2016
(In millions)	Commercial and Financial		Commercial Real Estate		Lease Financing		Total Loans and Leases		Commercial and Financial		Commercial Real Estate		Lease Financing		Total Loans and Leases
Loans and leases ⁽¹⁾ :
Individually evaluated for impairment	$	15	$	—	$	—	$	15	$	15	$	—	$	—	$	15
Collectively evaluated for impairment	21,662		27		833		22,522		18,873		27		842		19,742
Total	$	21,677	$	27	$	833	$	22,537	$	18,888	$	27	$	842	$	19,757

⁽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 March 31, 2017 and December 31, 2016 $195 thousand of the allowance for loan and lease loss related to commercial and financial loans individually evaluated for impairment, and the remainder of the allowance related to commercial and financial loans collectively evaluated for impairment.

The following table presents information related to our recorded investment in impaired loans and leases as of the dates indicated:



	As of March 31, 2017						As of December 31, 2016
(In millions)	Recorded Investment		Unpaid Principal Balance ⁽¹⁾		Related Allowance ⁽²⁾		Recorded Investment		Unpaid Principal Balance		Related Allowance ⁽²⁾
With an allowance recorded:
Commercial and financial ⁽¹⁾⁽³⁾	$	15	$	15	$	—	$	15	$	15	$	—
Total	$	15	$	15	$	—	$	15	$	15	$	—

⁽¹⁾ As of March 31, 2017 and December 31, 2016, the related allowance for loan loss was approximately $195 thousand . This relates to one loan, which was on non-accrual status.

⁽²⁾ As of March 31, 2017 and December 31, 2016 , with exception of the aforementioned specific allowance, all of the allowance for loan and lease losses of $51 million and $53 million , respectively, related to loans that were not impaired.

⁽³⁾ We identified $15 million of commercial and financial loans as impaired. The average recorded investment and related interest income recognized is $15 million and zero , respectively, for the three months ended March 31, 2017 .

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 three months ended March 31, 2017 and the year ended December 31, 2016 .

As of March 31, 2017 and December 31, 2016 , there was one commercial and financial loan on non-accrual status, no CRE loans or leases were on non-accrual status, and no loans and leases were 90 days or more contractually past due.

Allowance for loan and lease losses

The following table presents activity in the allowance for loan and lease losses for the periods indicated:



	Three Months Ended March 31,
	2017			2016
(In millions)	Total Loans and Leases			Total Loans and Leases
Allowance for loan and lease losses ⁽¹⁾ :
Beginning balance	$	53		$	46
Provision for loan and lease losses	(2		)	4
Charge-offs	—			(3		)
Ending balance	$	51		$	47

⁽¹⁾ The provisions and charge-offs for loans and leases were attributable to exposure to senior secured loans to non-investment grade borrowers, purchased in connection with our participation in syndicated loans.

Loans and leases are reviewed on a regular basis, and any provisions for loan and lease losses that are recorded reflect management's estimate of the amount necessary to maintain the allowance for loan and lease losses at a level considered appropriate to absorb estimated incurred losses in the loan and lease portfolio.

State Street Corporation | 70

Table of Contents

STATE STREET CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 5 . Goodwill and Other Intangible Assets

The following table presents changes in the carrying amount of goodwill during the periods indicated:



	March 31, 2017								December 31, 2016
(In millions)	Investment Servicing			Investment Management		Total			Investment Servicing			Investment Management			Total
Goodwill:
Beginning balance	$	5,550		$	264	$	5,814		$	5,641		$	30		$	5,671
Acquisitions ⁽¹⁾	20			—		20			—			236			236
Divestitures and other reductions	(1		)	—		(1		)	(11		)	—			(11		)
Foreign currency translation	22			—		22			(80		)	(2		)	(82		)
Ending balance	$	5,591		$	264	$	5,855		$	5,550		$	264		$	5,814

⁽¹⁾ Investment Management includes our acquisition of GEAM on July 1, 2016.

The following table presents changes in the net carrying amount of other intangible assets during the periods indicated:



	March 31, 2017									December 31, 2016
(In millions)	Investment Servicing			Investment Management			Total			Investment Servicing			Investment Management			Total
Other intangible assets:
Beginning balance	$	1,539		$	211		$	1,750		$	1,753		$	15		$	1,768
Acquisitions ⁽¹⁾	11			—			11			—			217			217
Divestitures	(6		)	—			(6		)	(8		)	—			(8		)
Amortization	(45		)	(7		)	(52		)	(186		)	(21		)	(207		)
Foreign currency translation and other, net	8			(1		)	7			(20		)	—			(20		)
Ending balance	$	1,507		$	203		$	1,710		$	1,539		$	211		$	1,750

⁽¹⁾ Investment Management includes our acquisition of GEAM on July 1, 2016.

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:



	March 31, 2017							December 31, 2016
(In millions)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Other intangible assets:
Client relationships	$	2,566	$	(1,282	)	$	1,284	$	2,620	$	(1,306	)	$	1,314
Core deposits	664		(286		)	378		661		(277		)	384
Other	126		(78		)	48		132		(80		)	52
Total	$	3,356	$	(1,646	)	$	1,710	$	3,413	$	(1,663	)	$	1,750

State Street Corporation | 71

Table of Contents

STATE STREET CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 6 . Other Assets

The following table presents the components of other assets as of the dates indicated:



(In millions)	March 31, 2017		December 31, 2016
Receivable - securities lending ⁽¹⁾	$	22,553	$	21,204
Bank-owned life insurance	3,176		3,158
Derivative instruments, net	3,016		7,321
Investments in joint ventures and other unconsolidated entities	2,088		2,363
Receivable for securities settlement	1,510		40
Collateral, net	586		2,236
Prepaid expenses	457		333
Accounts receivable	317		886
Deferred tax assets, net of valuation allowance ⁽²⁾	214		210
Income taxes receivable	155		106
Deposits with clearing organizations	108		132
Other ⁽³⁾	317		339
Total	$	34,497	$	38,328

⁽¹⁾ Refer to Note 8 for further information on the impact of collateral on our financial statement presentation of securities borrowing transactions.

⁽²⁾ Deferred tax assets and liabilities recorded in our consolidated statement of condition are netted within the same tax jurisdiction.

⁽³⁾ Includes amounts held in escrow accounts at third parties related to the negotiated settlements in the transition management legal matter presented in Note 10.

Note 7 . Derivative Financial Instruments

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 options and interest-rate contracts. For information on our derivative instruments, including the related accounting policies, refer to pages 160 to 166 in Note 10 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 2016 Form 10-K.

Derivative financial instruments are also subject to credit and counterparty risk, which we manage by performing credit reviews, maintaining individual counterparty limits, entering into netting arrangements and requiring the receipt of collateral. 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 March 31, 2017 and December 31, 2016 , we had recorded approximately $1.70 billion and $1.99 billion , respectively, of cash collateral received from counterparties and approximately $742 million and

$4.39 billion , respectively, of cash collateral provided to counterparties in connection with derivative financial instruments in our consolidated statement of condition.

Certain of our derivative assets and liabilities as of March 31, 2017 and December 31, 2016 are subject to master netting agreements with our derivative counterparties. Certain of these agreements contain credit risk-related contingent features in which the counterparty has the right to declare us 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 March 31, 2017 totaled approximately $1.14 billion , against which we provided $25 million of underlying collateral. If our 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, assuming no change in fair value, as of March 31, 2017 was approximately $1.11 billion . Such accelerated settlement would be at fair value and therefore not affect our consolidated results of operations.

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 income. The level of market risk that we assume is a function of our overall objectives and liquidity needs, our clients' requirements and market volatility. For additional information on derivative not designated as hedging instruments, refer to pages 161 to 162 in Note 10 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 2016 Form 10-K.

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 and foreign currency risk. Interest rate risk, defined as the sensitivity of income or financial condition to

State Street Corporation | 72

Table of Contents

STATE STREET CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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. Interest rate swap agreements alter the interest-rate characteristics of specific balance sheet assets or liabilities. We use foreign exchange forward and swap contracts to hedge foreign exchange exposure to various foreign currencies with respect to certain assets and liabilities. Our hedging relationships are formally designated, and qualify for hedge accounting, as fair value, cash flow or net investment hedges. For additional information on derivative designated as hedging instruments, refer to pages 162 to 166 in Note 10 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 2016 Form 10-K.

Fair Value Hedges

We have entered into interest rate swap agreements to modify our interest income from certain AFS investment securities from a fixed rate to a floating rate. The hedged AFS investment securities included hedged trusts that had a weighted-average life of approximately 4.4 years as of March 31, 2017 , compared to 4.5 years as of December 31, 2016 .

We have entered into interest rate swap agreements to modify our interest expense on eight senior notes and one subordinated note from fixed rates to floating rates. The senior and subordinated notes are hedged with interest rate swap contracts with notional amounts, maturities and fixed-rate coupon terms that effectively hedge the fixed-rate notes. The table below summarizes the maturities and the paid fixed interest rates for the hedged senior and subordinated notes:



March 31, 2017	Maturity	Paid Fixed Interest Rate
Senior Notes
	2018	1.35%
	2020	2.55
	2021	1.95
	2021	4.38
	2023	3.70
	2024	3.30
	2025	3.55
	2026	2.65

Subordinated Notes
	2023	3.10

We have entered into foreign exchange swap contracts to hedge the change in fair value attributable to foreign exchange movements in our foreign currency denominated investment securities and deposits. 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 and deposits attributable to changes in foreign exchange rates.

Cash Flow Hedges

We have entered into foreign exchange contracts to hedge the change in cash flows attributable to foreign exchange movements in foreign 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.

Net Investment Hedges

We have entered into foreign exchange contracts to protect the net investment in our foreign operations against adverse changes in exchange rates. These forward contracts convert the foreign currency risk to U.S. dollars, thereby mitigating our exposure to fluctuations in the fair value of our net investments in our foreign operations attributable to changes in foreign exchange rates. The changes in fair value of the foreign exchange forward contracts are recorded, net of taxes, in the foreign currency translation component of other comprehensive income. Effectiveness of net investment hedges is based on the overall changes in the fair value of the forward contracts.

State Street Corporation | 73

Table of Contents

STATE STREET CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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)	March 31, 2017		December 31, 2016
Derivatives not designated as hedging instruments:
Interest-rate contracts:
Futures	$	16,893	$	13,455
Foreign exchange contracts:
Forward, swap and spot	1,588,100		1,414,765
Options purchased	666		337
Options written	353		202
Futures	3		—
Other:
Stable value contracts	26,020		27,182
Deferred value awards ⁽¹⁾⁽²⁾	652		409
Derivatives designated as hedging instruments:
Interest-rate contracts:
Swap agreements	10,131		10,169
Foreign exchange contracts:
Forward and swap	12,735		8,564

⁽¹⁾ Represents grants of deferred value awards to employees; refer to discussion in this note under "Derivatives Not Designated as Hedging Instruments."

⁽²⁾ Amount as of December 31, 2016 reflects $249 million related to the acceleration of expense associated with certain cash settled deferred incentive compensation awards.

In connection with our asset-and-liability management activities, we have entered into interest-rate contracts designated as fair value hedges to manage our interest rate risk. The following tables present the aggregate notional amounts of these interest rate contracts and the related assets or liabilities being hedged as of the dates indicated:



	March 31, 2017 ⁽¹⁾
(In millions)	Fair Value Hedges
Investment securities available-for-sale	$	1,406
Long-term debt ⁽²⁾	8,725
Total	$	10,131



	December 31, 2016 ⁽¹⁾
(In millions)	Fair Value Hedges
Investment securities available-for-sale	$	1,444
Long-term debt ⁽²⁾	8,725
Total	$	10,169

⁽¹⁾ As of March 31, 2017 and December 31, 2016 , there were no interest-rate contracts designated as cash flow hedges.

⁽²⁾ As of March 31, 2017 , these fair value hedges decreased the carrying value of long-term debt presented in our consolidated statement of condition by $43 million . As of December 31, 2016 , these fair value hedges decreased the carrying value of long-term debt presented in our consolidated statement of condition by $15 million .

The following table presents 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:



	Three Months Ended March 31,
	2017				2016
	Contractual Rates		Rate Including Impact of Hedges		Contractual Rates		Rate Including Impact of Hedges
Long-term debt	3.40	%	2.56	%	3.44	%	2.20	%

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 provided in Note 8 to the consolidated financial statements in this Form 10-Q.



	Derivative Assets ⁽¹⁾
	Fair Value
(In millions)	March 31, 2017		December 31, 2016
Derivatives not designated as hedging instruments:
Foreign exchange contracts	$	8,783	$	15,982
Total	$	8,783	$	15,982

Derivatives designated as hedging instruments:
Foreign exchange contracts	$	378	$	502
Interest-rate contracts	9		68
Total	$	387	$	570

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



	Derivative Liabilities ⁽¹⁾
	Fair Value
(In millions)	March 31, 2017		December 31, 2016
Derivatives not designated as hedging instruments:
Foreign exchange contracts	$	8,780	$	15,881
Other derivative contracts	389		380
Total	$	9,169	$	16,261

Derivatives designated as hedging instruments:
Foreign exchange contracts	$	112	$	75
Interest-rate contracts	113		348
Total	$	225	$	423

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

State Street Corporation | 74

Table of Contents

STATE STREET CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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
		Three Months Ended March 31,
(In millions)		2017			2016
Derivatives not designated as hedging instruments:
Foreign exchange contracts	Trading services revenue	$	163		$	154
Interest-rate contracts	Processing fees and other revenue	—			2
Interest-rate contracts	Trading services revenue	1			(2		)
Credit derivative contracts	Trading services revenue	—			(1		)
Other derivative contracts	Trading services revenue	—			1
Other derivative contracts	Compensation and employee benefits	(66		)	71
Total		$	98		$	225



	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
		Three Months Ended March 31,								Three Months Ended March 31,
(In millions)		2017			2016					2017			2016
Derivatives designated as fair value hedges:
Foreign exchange contracts	Processing fees and other revenue	$	(2	)	$	44		Investment securities	Processing fees and other revenue	$	2		$	(44	)
Foreign exchange contracts	Processing fees and other revenue	979			248			FX deposit	Processing fees and other revenue	(980		)	(248		)
Interest-rate contracts	Processing fees and other revenue	12			(30		)	Available-for-sale securities	Processing fees and other revenue ⁽¹⁾	(11		)	31
Interest-rate contracts	Processing fees and other revenue	(20		)	248			Long-term debt	Processing fees and other revenue	19			(240		)
Total		$	969		$	510				$	(970	)	$	(501	)

⁽¹⁾ In the three months ended March 31, 2017 and 2016 , $6 million and $19 million , respectively, of net unrealized (losses) gains on AFS investment securities designated in fair value hedges were recognized in OCI.

Differences between the gains (losses) on the derivative and the gains (losses) on the hedged item, excluding any amounts recorded in net interest income, 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
	Three Months Ended March 31,							Three Months Ended March 31,					Three Months Ended March 31,
(In millions)	2017			2016				2017		2016			2017		2016
Derivatives designated as cash flow hedges:
Foreign exchange contracts	$	(106	)	$	(113	)	Net interest income	$	—	$	—	Net interest income	$	6	$	5
Total	$	(106	)	$	(113	)		$	—	$	—		$	6	$	5

Derivatives designated as net investment hedges:
Foreign exchange contracts	$	(14	)	$	—		Gains (Losses) related to investment securities, net	$	—	$	—	Gains (Losses) related to investment securities, net	$	—	$	—
Total	$	(14	)	$	—			$	—	$	—		$	—	$	—

State Street Corporation | 75

Table of Contents

STATE STREET CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 8 . 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. For additional information on offsetting arrangements, refer to pages 166 to 170 in Note 11 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 2016 Form 10-K.

As of March 31, 2017 and December 31, 2016 , the fair value of securities received as collateral from third parties where we are permitted to transfer or re-pledge the securities totaled $1.42 billion and $1.77 billion , respectively, and the fair value of the portion that had been transferred or re-pledged as of the same dates was $0.4 million and $166 million , 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:	March 31, 2017
									Gross Amounts Not Offset in Statement of Condition
(In millions)	Gross Amounts of Recognized Assets ⁽¹⁾⁽²⁾		Gross Amounts Offset in Statement of Condition ⁽³⁾			Net Amounts of Assets Presented in Statement of Condition			Cash and Securities Received ⁽⁵⁾			Net Amount ⁽⁶⁾
Derivatives:
Foreign exchange contracts	$	9,161	$	(4,940	)	$	4,221					$	4,221
Interest-rate contracts ⁽⁷⁾	9		(3		)	6						6
Cash collateral and securities netting	NA		(1,211		)	(1,211		)	$	(28	)	(1,239		)
Total derivatives	9,170		(6,154		)	3,016			(28		)	2,988
Other financial instruments:
Resale agreements and securities borrowing ⁽⁴⁾	62,135		(37,401		)	24,734			(24,734		)	—
Total derivatives and other financial instruments	$	71,305	$	(43,555	)	$	27,750		$	(24,762	)	$	2,988



Assets:	December 31, 2016
									Gross Amounts Not Offset in Statement of Condition
(In millions)	Gross Amounts of Recognized Assets ⁽¹⁾⁽²⁾		Gross Amounts Offset in Statement of Condition ⁽³⁾			Net Amounts of Assets Presented in Statement of Condition			Cash and Securities Received ⁽⁵⁾			Net Amount ⁽⁶⁾
Derivatives:
Foreign exchange contracts	$	16,484	$	(8,257	)	$	8,227					$	8,227
Interest-rate contracts	68		(68		)	—						—
Cash collateral and securities netting	NA		(906		)	(906		)	$	(247	)	(1,153		)
Total derivatives	16,552		(9,231		)	7,321			(247		)	7,074
Other financial instruments:
Resale agreements and securities borrowing ⁽⁴⁾	58,677		(35,517		)	23,160			(22,939		)	221
Total derivatives and other financial instruments	$	75,229	$	(44,748	)	$	30,481		$	(23,186	)	$	7,295

NA: Not applicable.

⁽¹⁾ Amounts include all transactions regardless of whether or not they are subject to an enforceable netting arrangement.

⁽²⁾ Derivative amounts are carried at fair value and securities financing amounts are carried at amortized cost, except for securities collateral which is also carried at fair value. For additional information about the measurement basis of these instruments, refer to pages 131 to 142 in Notes 1 and 2 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 2016 Form 10-K.

⁽³⁾ Amounts subject to netting arrangements which have been determined to be legally enforceable and eligible for netting in the consolidated statement of condition.

⁽⁴⁾ Included in the $24,734 million as of March 31, 2017 were $2,181 million of resale agreements and $22,553 million of collateral provided related to securities borrowing. Included in the $23,160 million as of December 31, 2016 were $1,956 million of resale agreements and $21,204 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. Additional information about principal securities finance transactions is provided in Note 9 to the consolidated financial statements in this Form 10-Q.

⁽⁵⁾ Includes securities in connection with our securities borrowing transactions.

⁽⁶⁾ Includes amounts secured by collateral not determined to be subject to enforceable netting arrangements.

⁽⁷⁾ Variation margin payments presented as settlements rather than collateral

State Street Corporation | 76

Table of Contents

STATE STREET CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following tables present information about the offsetting of liabilities related to derivative contracts and secured financing transactions, as of the dates indicated:



Liabilities:	March 31, 2017
									Gross Amounts Not Offset in Statement of Condition
(In millions)	Gross Amounts of Recognized Liabilities ⁽¹⁾⁽²⁾		Gross Amounts Offset in Statement of Condition ⁽³⁾			Net Amounts of Liabilities Presented in Statement of Condition			Cash and Securities Provided ⁽⁵⁾			Net Amount ⁽⁶⁾
Derivatives:
Foreign exchange contracts	$	8,892	$	(4,941	)	$	3,951					$	3,951
Interest-rate contracts ⁽⁷⁾	113		(4		)	109						109
Other derivative contracts	389		—			389						389
Cash collateral and securities netting	NA		(393		)	(393		)	$	(96	)	(489		)
Total derivatives	9,394		(5,338		)	4,056			(96		)	3,960
Other financial instruments:
Repurchase agreements and securities lending ⁽⁴⁾	46,503		(37,401		)	9,102			(6,915		)	2,187
Total derivatives and other financial instruments	$	55,897	$	(42,739	)	$	13,158		$	(7,011	)	$	6,147



Liabilities:	December 31, 2016
									Gross Amounts Not Offset in Statement of Condition
(In millions)	Gross Amounts of Recognized Liabilities ⁽¹⁾⁽²⁾		Gross Amounts Offset in Statement of Condition ⁽³⁾			Net Amounts of Liabilities Presented in Statement of Condition			Cash and Securities Provided ⁽⁵⁾			Net Amount ⁽⁶⁾
Derivatives:
Foreign exchange contracts	$	15,956	$	(8,253	)	$	7,703					$	7,703
Interest-rate contracts	348		(73		)	275						275
Other derivative contracts	380		—			380						380
Cash collateral and securities netting	NA		(2,356		)	(2,356		)	$	(180	)	(2,536		)
Total derivatives	16,684		(10,682		)	6,002			(180		)	5,822
Other financial instruments:
Resale agreements and securities lending ⁽⁴⁾	44,933		(35,517		)	9,416			(7,059		)	2,357
Total derivatives and other financial instruments	$	61,617	$	(46,199	)	$	15,418		$	(7,239	)	$	8,179

NA: Not applicable.

⁽¹⁾ Amounts include all transactions regardless of whether or not they are subject to an enforceable netting arrangement.

⁽³⁾ Amounts subject to netting arrangements which have been determined to be legally enforceable and eligible for netting in the consolidated statement of condition.

⁽⁴⁾ Included in the $9,102 million as of March 31, 2017 were $4,003 million of repurchase agreements and $5,099 million of collateral received related to securities lending. Included in the $9,416 million as of December 31, 2016 were $4,400 million of repurchase agreements and $5,016 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 liabilit ies, respectively, in our consolidated statement of condition. Additional information about principal securities finance transactions is provided in Note 9 to the consolidated financial statements in this Form 10-Q.

⁽⁵⁾ Includes securities provided in connection with our securities lending transactions.

⁽⁶⁾ Includes amounts secured by collateral not determined to be subject to enforceable netting arrangements.

⁽⁷⁾ Variation margin payments presented as settlements rather than collateral.

State Street Corporation | 77

Table of Contents

STATE STREET CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The securities transferred under resale and repurchase agreements typically are U.S. Treasury, agency and agency mortgage-backed securities. In our principal securities borrowing and lending arrangements, the securities transferred are predominantly equity securities and some corporate debt securities. The fair value of the securities transferred may increase in value to an amount greater than the amount received under our repurchase and securities lending arrangements, which exposes the Company with counterparty risk. We require the review of the price of the underlying

securities in relation to the carrying value of the repurchase agreements and securities lending arrangements on a daily basis and when appropriate, adjust the cash or security to be obtained or returned to counterparties that is reflective of the required collateral levels.

The following tables summarize our repurchase agreements and securities lending transactions by category of collateral pledged and remaining maturity of these agreements as of the periods indicated:



	Remaining Contractual Maturity of the Agreements
	As of March 31, 2017
(In millions)	Overnight and Continuous		Up to 30 days		30 – 90 days		Total
Repurchase agreements:
U.S. Treasury and agency securities	$	36,379	$	—	$	—	$	36,379
Total	36,379		—		—		36,379
Securities lending transactions:
Corporate debt securities	45		—		—		45
Equity securities	9,483		—		596		10,079
Total	9,528		—		596		10,124
Gross amount of recognized liabilities for repurchase agreements and securities lending	$	45,907	$	—	$	596	$	46,503



	Remaining Contractual Maturity of the Agreements
	As of December 31, 2016
(In millions)	Overnight and Continuous		Up to 30 days		30 – 90 days		Total
Repurchase agreements:
U.S. Treasury and agency securities	$	35,509	$	—	$	—	$	35,509
Total	35,509		—		—		35,509
Securities lending transactions:
Corporate debt securities	53		—		—		53
Equity securities	8,337		—		1,034		9,371
Total	8,390		—		1,034		9,424
Gross amount of recognized liabilities for repurchase agreements and securities lending	$	43,899	$	—	$	1,034	$	44,933

State Street Corporation | 78

Table of Contents

STATE STREET CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 9 . Commitments and Guarantees

For additional information about our commitments and guarantees, refer to pages 171 to 172 in Note 12 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 2016 Form 10-K.

The following table presents the aggregate gross contractual amounts of our off-balance sheet commitments and off-balance sheet guarantees as of the dates indicated.



(In millions)	March 31, 2017		December 31, 2016
Commitments:
Unfunded credit facilities	$	27,165	$	26,993

Guarantees ⁽¹⁾ :
Indemnified securities financing	$	373,533	$	360,452
Stable value protection	26,020		27,182
Standby letters of credit	3,440		3,459

⁽¹⁾ The potential losses associated with these guarantees equal the gross contractual amounts and do not consider the value of any collateral or reflect any participations to independent third parties.

Unfunded Credit Facilities

Unfunded credit facilities consist of liquidity facilities for our fund and municipal lending clients and undrawn lines of credit related to senior secured bank loans.

As of March 31, 2017 , approximately 70% 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.

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.

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)	March 31, 2017		December 31, 2016
Fair value of indemnified securities financing	$	373,533	$	360,452
Fair value of cash and securities held by us, as agent, as collateral for indemnified securities financing	391,101		377,919
Fair value of collateral for indemnified securities financing invested in indemnified repurchase agreements	63,655		60,003
Fair value of cash and securities held by us or our agents as collateral for investments in indemnified repurchase agreements	67,619		63,959

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. Our right to receive and obligation to return collateral in connection with our securities lending transactions are recorded in other assets and accrued expenses and other liabilities, respectively, in our consolidated statement of condition. As of March 31, 2017 and December 31, 2016 , we had approximately $22.55 billion and $21.20 billion , respectively, of collateral provided and approximately $5.10 billion and $5.02 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 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.

State Street Corporation | 79

Table of Contents

STATE STREET CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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 7 to the consolidated financial statements in this Form 10-Q. 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.

Standby Letters of Credit

Standby letters of credit provide credit enhancement to our municipal clients to support the issuance of capital markets financing.

Note 10 . 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 March 31, 2017, our aggregate accruals for legal loss contingencies and regulatory matters totaled approximately $58 million (excluding approximately $ 47 million relating to client reimbursements in connection with errors in invoicing certain of our Investment Servicing clients, described below). 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.

Transition Management

In January 2014, we entered into a settlement with the 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 DOJ opened separate investigations into this matter. In April 2016, the U.S. Attorney’s office in Boston charged two former employees in our transition management business with criminal fraud in connection with their alleged role in this matter, and, in May 2016, the SEC commenced a parallel civil enforcement proceeding against one of these individuals.

On January 18, 2017, we announced that we had entered into a settlement agreement with the DOJ and the United States Attorney for the District of Massachusetts to resolve their investigation. Under the terms of the agreement, we, among other things, paid a fine of $32.3 million and entered into a deferred prosecution agreement. Under the deferred prosecution agreement, we agreed to retain an independent compliance consultant and compliance monitor for a term of three years (subject to extension) which will, among other things, evaluate the effectiveness of our compliance controls and business ethics and make related recommendations.

State Street Corporation | 80

Table of Contents

STATE STREET CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

As previously disclosed, we are also in discussions with the SEC Staff regarding a resolution of their investigation, and have reached an agreement in principle with the Staff of the SEC to pay a penalty of $32.3 million (equal to the fine being paid to the DOJ). Resolution of the matter is subject to completion of negotiations with the SEC Staff on other terms of the settlement, followed by review and consideration by the SEC.

As of March 31, 2017, we had an accrual of $32.3 million with respect to the SEC investigation.

GovEx

We are cooperating in an ongoing inquiry by the SEC relating to the GovEx electronic trading platform, which was offered and operated by State Street Global Markets, LLC from September 2009 to July 2015. The subjects of the inquiry are our communications related to volume, pricing and functionalities of the platform. We are currently engaged in discussions with the Staff of the SEC concerning a possible resolution of this matter, and have reached an agreement in principle with the Staff to pay a penalty of $3 million . Resolution of the matter is subject to completion of negotiations with the SEC Staff on other terms of the settlement, followed by review and consideration by the SEC. As of March 31, 2017, we had accrued $3 million for this matter.

Federal Reserve/Massachusetts Division of Banks Written Agreement

On June 1, 2015, we entered into a written agreement with the Federal Reserve and the Massachusetts Division of Banks relating to deficiencies identified in our compliance programs with the requirements of the Bank Secrecy Act, AML regulations and U.S. economic sanctions regulations promulgated by OFAC. As part of this enforcement action, we are required to, among other things, implement improvements to our compliance programs and to retain an independent firm to conduct a review of account and transaction activity covering a prior three-month period to evaluate whether any suspicious activity not previously reported should have been identified and reported in accordance with applicable regulatory requirements. To the extent deficiencies in our historical reporting are identified as a result of the transaction review or if we fail to comply with the terms of the written agreement, we may become subject to fines and other regulatory sanctions, which may have a material adverse effect on us.

Invoicing Matter

In December 2015, we announced a review of the manner in which we invoiced certain expenses to

some of our Investment Servicing clients, primarily in the United States, during an 18-year period going back to 1998, and our determination that we had incorrectly invoiced clients for certain expenses. We informed our clients in December 2015 that we will pay to them the amounts we concluded were incorrectly invoiced to them, plus interest. We currently expect to pay at least $340 million (including interest), in connection with that review, which is ongoing, of which approximately $ 47 million has not yet been paid to clients and is accrued in our consolidated statement of condition at March 31, 2017 . We are implementing enhancements to our billing processes, and we are reviewing the conduct of our employees and have taken appropriate steps to address conduct inconsistent with our standards, including, in some cases, termination of employment. We are also evaluating other billing practices relating to our Investment Servicing clients, including calculation of asset-based fees.

We have received a purported class action demand letter alleging that our invoicing practices were unfair and deceptive under Massachusetts law. A class of customers, or particular customers, may assert that we have not paid to them all amounts incorrectly invoiced, and may seek double or treble damages under Massachusetts law. In addition, in March 2017, a purported class action was commenced against us alleging that our invoicing practices violated duties owed to retirement plan customers under the Employee Retirement Income and Security Act.

We are also responding to requests for information from, and are cooperating with investigations by, governmental authorities on these matters, including the civil and criminal divisions of the DOJ, the SEC, the DOL and the Massachusetts Attorney General, which could result in significant fines or other sanctions, civil and criminal, against us. The severity of such fines or other sanctions could take into account factors such as the amount and duration of our incorrect invoicing, the government’s assessment of the conduct of our employees, as well as prior conduct such as that which resulted in our January 2017 deferred prosecution agreement in connection with transition management services and our recent settlement of civil claims regarding our indirect foreign exchange business. Any of the foregoing could have a material adverse effect on our reputation or business, including the imposition of restrictions on the operation of our business or a reduction in client demand. Resolution of these matters could also have a material adverse effect on our consolidated results of operations for the period or periods in which such matters are resolved or an

State Street Corporation | 81

Table of Contents

STATE STREET CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

accrual is determined to be required. No accrual, other than a reserve for client reimbursement, is reflected on our consolidated statement of condition as of March 31, 2017.

Shareholder Litigation

In January 2017, a State Street shareholder filed a purported class action complaint against the Company alleging that statements made by the Company in its annual reports for the 2011-2015 period regarding its internal controls and procedures were misleading due to the failure of those controls and procedures to detect the practices at issue in the Transition Management and Invoicing Matters discussed above.

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. Unrecognized tax benefits of approximately $64 million as of March 31, 2017 decreased from $71 million as of December 31, 2016 .

We are presently under audit by a number of tax authorities and the Internal Revenue Service is expected to commence a review of our U.S. income tax returns for the tax years 2014 and 2015. The earliest tax year open to examination in jurisdictions where we have material operations is 2010. Management believes that we have sufficiently accrued liabilities as of March 31, 2017 for tax exposures.

Note 11 . Variable Interest Entities

For additional information on our VIEs, refer to pages 174 to 175 in Note 14 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 2016 Form 10-K.

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 AFS investment securities and other

short-term borrowings. As of March 31, 2017 and December 31, 2016 , we carried AFS investment securities, composed of securities related to state and political subdivisions, with a fair value of $1.36 billion and $1.35 billion , respectively, and other short-term borrowings of $1.16 billion and $1.16 billion , respectively, in our consolidated statement of condition in connection with these trusts. The interest income and interest expense generated by the investments and certificated interests, respectively, are recorded as components of net interest income when earned or incurred.

The trusts had a weighted-average life of approximately 4.4 years as of March 31, 2017 , compared to approximately 4.5 years as of December 31, 2016 .

Under separate legal agreements, we provide liquidity facilities to these trusts and, with respect to certain securities, letters of credit. As of March 31, 2017 , our commitments to the trusts under these liquidity facilities and letters of credit totaled $1.18 billion and $351 million , respectively, and none of the liquidity facilities were utilized.

Interests in Investment Funds:

As of March 31, 2017 and December 31, 2016 , we have no consolidated funds.

As of March 31, 2017 and December 31, 2016 , we managed certain 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 $120 million and $121 million as of March 31, 2017 and December 31, 2016 , respectively, and represented the carrying value of our investments, which are recorded in either AFS investment securities 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 investments in the unconsolidated funds.

State Street Corporation | 82

Table of Contents

STATE STREET CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 12 . Shareholders' Equity

Preferred Stock:

The following table summarizes selected terms of each of the series of the preferred stock issued and outstanding as of March 31, 2017 :



	Issuance Date	Depositary Shares Issued	Ownership Interest per Depositary Share	Liquidation Preference Per Share		Liquidation Preference Per Depositary Share		Net Proceeds of Offering (In millions)		Redemption Date ⁽¹⁾
Preferred Stock ⁽²⁾ :
Series C	August 2012	20,000,000	1/4,000th	$	100,000	$	25	$	488	September 15, 2017
Series D	February 2014	30,000,000	1/4,000th	100,000		25		742		March 15, 2024
Series E	November 2014	30,000,000	1/4,000th	100,000		25		728		December 15, 2019
Series F	May 2015	750,000	1/100th	100,000		1,000		742		September 15, 2020
Series G	April 2016	20,000,000	1/4,000th	100,000		25		493		March 15, 2026

⁽¹⁾ On the redemption date, or any dividend declaration date thereafter, the preferred stock and corresponding depositary shares may be redeemed by us, in whole or in part, at the liquidation price per share and liquidation price per depositary share plus any declared and unpaid dividends, without accumulation of any undeclared dividends.

The following table presents the dividends declared for each of the series of preferred stock issued and outstanding for the periods indicated:



	Three Months Ended March 31,
	2017						2016
	Dividends Declared per Share		Dividends Declared per Depositary Share		Total (In millions) ⁽¹⁾		Dividends Declared per Share		Dividends Declared per Depositary Share		Total (In millions)
Preferred Stock:
Series C	$	1,313	$	0.33	$	6	$	1,313	$	0.33	$	7
Series D	1,475		0.37		11		1,475		0.37		11
Series E	1,500		0.38		11		1,500		0.38		11
Series F	2,625		26.25		20		2,625		26.25		20
Series G	1,338		0.33		7		—		—		—
Total					$	55					$	49

⁽¹⁾ Dividends were paid in March 2017.

Common Stock:



	Three Months Ended March 31, 2017
	Shares Acquired (In millions)	Average Cost per Share		Total Acquired (In millions)
2016 Program ⁽¹⁾	6.7	$	78.34	$	523

State Street Corporation | 83

Table of Contents

STATE STREET CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The table below presents the dividends declared on common stock for the periods indicated:



	Three Months Ended March 31,
	Dividends Declared per Share		Total (In millions)		Dividends Declared per Share		Total (In millions)
	2017				2016
Common Stock	$	0.38	$	144	$	0.34	$	135

Accumulated Other Comprehensive Income (Loss):

The following table presents the after-tax components of AOCI as of the dates indicated:



(In millions)	March 31, 2017			December 31, 2016
Net unrealized gains on cash flow hedges	$	159		$	229
Net unrealized gains (losses) on available-for-sale securities portfolio	(21		)	(225		)
Net unrealized gains (losses) related to reclassified available-for-sale securities	21			25
Net unrealized gains (losses) on available-for-sale securities	—			(200		)
Net unrealized losses on available-for-sale securities designated in fair value hedges	(79		)	(86		)
Net unrealized gains (losses) on hedges of net investments in non-U.S. subsidiaries	81			95
Other-than-temporary impairment on held-to-maturity securities related to factors other than credit	(8		)	(9		)
Net unrealized losses on retirement plans	(188		)	(194		)
Foreign currency translation	(1,770		)	(1,875		)
Total	$	(1,805	)	$	(2,040	)

The following table presents changes in AOCI by component, net of related taxes, for the periods indicated:



	Three Months Ended March 31, 2017
(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, 2016	$	229		$	(286	)	$	95		$	(9	)	$	(194	)	$	(1,875	)	$	(2,040	)
Other comprehensive income (loss) before reclassifications	(70		)	231			(14		)	1			—			105			253
Amounts reclassified into (out of) earnings	—			(24		)	—			—			6			—			(18		)
Other comprehensive income (loss)	(70		)	207			(14		)	1			6			105			235
Balance as of March 31, 2017	$	159		$	(79	)	$	81		$	(8	)	$	(188	)	$	(1,770	)	$	(1,805	)



	Three Months Ended March 31, 2016
(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, 2015	$	293		$	(128	)	$	(14	)	$	(16	)	$	(183	)	$	(1,394	)	$	(1,442	)
Other comprehensive income (loss) before reclassifications	(68		)	238			—			1			(3		)	306			474
Amounts reclassified into (out of) earnings	—			3			—			—			1			—			4
Other comprehensive income (loss)	(68		)	241			—			1			(2		)	306			478
Balance as of March 31, 2016	$	225		$	113		$	(14	)	$	(15	)	$	(185	)	$	(1,088	)	$	(964	)

State Street Corporation | 84

Table of Contents

STATE STREET CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following table presents after-tax reclassifications into earnings for the periods indicated:



	Three Months Ended March 31,
	2017			2016
(In millions)	Amounts Reclassified into (out of) Earnings					Affected Line Item in Consolidated Statement of Income
Available-for-sale securities:
Net realized gains (losses) from sales of available-for-sale securities, net of related taxes of $16 and ($1), respectively	$	(24	)	$	3	Net gains (losses) from sales of available-for-sale securities
Retirement plans:
Amortization of actuarial losses, net of related taxes of ($3) and ($2), respectively	6			1		Compensation and employee benefits expenses
Total reclassifications (out of) into AOCI	$	(18	)	$	4

Note 13 . 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. For additional information on regulatory capital, and the requirements to which we are subject, refer to pages 179 to 180 in Note 16 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 2016 Form 10-K.

As required by the Dodd-Frank Act, 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, 2015, we were required to calculate our risk-based capital ratios using both the advanced approaches and the standardized approach. As a result, from January 1, 2015 going forward, our risk-based capital ratios for regulatory assessment purposes are the lower of each ratio calculated under the standardized approach and the advanced approaches.

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 March 31, 2017 , State Street and State Street Bank exceeded all regulatory capital adequacy requirements to which they were subject. As of March 31, 2017 , 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 March 31, 2017 that have changed the capital categorization of State Street Bank.

The following table presents the regulatory capital structure, total risk-weighted assets, related regulatory capital ratios and the minimum required 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 Corporation | 85

Table of Contents

STATE STREET CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



					State Street												State Street Bank
(In millions)					Basel III Advanced Approaches March 31, 2017 ⁽¹⁾			Basel III Standardized Approach March 31, 2017 ⁽²⁾			Basel III Advanced Approaches December 31, 2016 ⁽¹⁾			Basel III Standardized Approach December 31, 2016 ⁽²⁾			Basel III Advanced Approaches March 31, 2017 ⁽¹⁾			Basel III Standardized Approach March 31, 2017 ⁽²⁾			Basel III Advanced Approaches December 31, 2016 ⁽¹⁾			Basel III Standardized Approach December 31, 2016 ⁽²⁾
Common shareholders' equity:
Common stock and related surplus					$	10,300		$	10,300		$	10,286		$	10,286		$	11,376		$	11,376		$	11,376		$	11,376
Retained earnings					17,762			17,762			17,459			17,459			12,089			12,089			12,285			12,285
Accumulated other comprehensive income (loss)					(1,782		)	(1,782		)	(1,936		)	(1,936		)	(1,530		)	(1,530		)	(1,648		)	(1,648		)
Treasury stock, at cost					(8,159		)	(8,159		)	(7,682		)	(7,682		)	—			—			—			—
Total					18,121			18,121			18,127			18,127			21,935			21,935			22,013			22,013
Regulatory capital adjustments:
Goodwill and other intangible assets, net of associated deferred tax liabilities ⁽³⁾					(6,641		)	(6,641		)	(6,348		)	(6,348		)	(6,349		)	(6,349		)	(6,060		)	(6,060		)
Other adjustments					(161		)	(161		)	(155		)	(155		)	(94		)	(94		)	(148		)	(148		)
Common equity tier 1 capital					11,319			11,319			11,624			11,624			15,492			15,492			15,805			15,805
Preferred stock					3,196			3,196			3,196			3,196			—			—			—			—
Trust preferred capital securities subject to phase-out from tier 1 capital					—			—			—			—			—			—			—			—
Other adjustments					(40		)	(40		)	(103		)	(103		)	—			—			—			—
Tier 1 capital					14,475			14,475			14,717			14,717			15,492			15,492			15,805			15,805
Qualifying subordinated long-term debt					1,067			1,067			1,172			1,172			1,072			1,072			1,179			1,179
Trust preferred capital securities phased out of tier 1 capital					—			—			—			—			—			—			—			—
ALLL and other					—			75			19			77			—			75			15			77
Other adjustments					—			—			1			1			—			—			—			—
Total capital					$	15,542		$	15,617		$	15,909		$	15,967		$	16,564		$	16,639		$	16,999		$	17,061
Risk-weighted assets:
Credit risk					$	52,759		$	96,948		$	50,900		$	98,125		$	49,492		$	93,501		$	47,383		$	94,413
Operational risk ⁽⁴⁾					44,798			NA			44,579			NA			44,256			NA			44,043			NA
Market risk ⁽⁵⁾					3,286			1,546			3,822			1,751			3,286			1,546			3,822			1,751
Total risk-weighted assets					$	100,843		$	98,494		$	99,301		$	99,876		$	97,034		$	95,047		$	95,248		$	96,164
Adjusted quarterly average assets					$	212,361		$	212,361		$	226,310		$	226,310		$	209,392		$	209,392		$	222,584		$	222,584

Capital Ratios:	2017 Minimum Requirements Including Capital Conservation Buffer and G-SIB Surcharge ⁽⁶⁾		2016 Minimum Requirements Including Capital Conservation Buffer and G-SIB Surcharge ⁽⁷⁾
Common equity tier 1 capital	6.5	%	5.5	%	11.2		%	11.5		%	11.7		%	11.6		%	16.0		%	16.3		%	16.6		%	16.4		%
Tier 1 capital	8.0		7.0		14.4			14.7			14.8			14.7			16.0			16.3			16.6			16.4
Total capital	10.0		9.0		15.4			15.9			16.0			16.0			17.1			17.5			17.8			17.7
Tier 1 leverage	4.0		4.0		6.8			6.8			6.5			6.5			7.4			7.4			7.1			7.1

NA: Not applicable.

⁽⁶⁾ Minimum requirements will be phased in up to full implementation beginning on January 1, 2019; minimum requirements listed are as of March 31, 2017 .

⁽⁷⁾ Minimum requirements will be phased in up to full implementation beginning on January 1, 2019; minimum requirements listed are as of December 31, 2016 .

State Street Corporation | 86

Table of Contents

STATE STREET CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 14 . Net Interest Income

The following table presents the components of interest income and interest expense, and related net interest income, for the periods indicated:



	Three Months Ended March 31,
(In millions)	2017		2016
Interest income:
Deposits with banks	$	34	$	43
Investment securities:
U.S. Treasury and federal agencies	212		211
State and political subdivisions	59		52
Other investments	160		183
Securities purchased under resale agreements	46		36
Loans and leases	105		91
Other interest-earning assets	34		13
Total interest income	650		629
Interest expense:
Deposits	44		38
Short-term borrowings	2		—
Long-term debt	73		61
Other interest-bearing liabilities	21		18
Total interest expense	140		117
Net interest income	$	510	$	512

Note 15 . Expenses

The following table presents the components of other expenses for the periods indicated:



	Three Months Ended March 31,
(In millions)	2017		2016
Insurance	$	30	$	22
Regulatory fees and assessments	27		20
Securities processing	8		4
Other	86		66
Total other expenses	$	151	$	112

Acquisition Costs

We recorded acquisition costs of $12 million and $7 million in the three months ended March 31, 2017 and 2016 , respectively. Costs incurred in the three months ended March 31, 2017 related to our acquisition of GEAM on July 1, 2016.

Restructuring Charges

In the three months ended March 31, 2017 and 2016 , we recorded restructuring charges of $16

million and $97 million , respectively, related to State Street Beacon .

The following table presents aggregate restructuring activity for the periods indicated:



(In millions)	Employee Related Costs			Real Estate Consolidation			Asset and Other Write-offs			Total
Accrual Balance at December 31, 2015	$	9		$	11		$	3		$	23
Accruals for Business Operations and IT	(2		)	—			—			(2		)
Accruals for State Street Beacon	94			18			30			142
Payments and other adjustments	(64		)	(12		)	(31		)	(107		)
Accrual Balance at December 31, 2016	$	37		$	17		$	2		$	56
Accruals for State Street Beacon	14			—			2			16
Payments and Other Adjustments	(13		)	(3		)	(2		)	(18		)
Accrual Balance at March 31, 2017	$	38		$	14		$	2		$	54

Note 16 . Earnings Per Common Share

Basic 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 and fully vested SERP shares 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 the common stock in undistributed earnings.

State Street Corporation | 87

Table of Contents

STATE STREET CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The following table presents the computation of basic and diluted earnings per common share for the periods indicated:



	Three Months Ended March 31,
(Dollars in millions, except per share amounts)	2017			2016
Net income	$	502		$	368
Less:
Preferred stock dividends	(55		)	(49		)
Dividends and undistributed earnings allocated to participating securities ⁽¹⁾	(1		)	—
Net income available to common shareholders	$	446		$	319
Average common shares outstanding (In thousands):
Basic average common shares	381,224			399,421
Effect of dilutive securities: common stock options and common stock awards	5,193			4,194
Diluted average common shares	386,417			403,615
Anti-dilutive securities ⁽²⁾	580			3,920
Earnings per Common Share:
Basic	$	1.17		$	.80
Diluted ⁽³⁾	1.15			.79

⁽¹⁾ Represents the portion of net income available to common equity allocated to participating securities, composed of unvested and fully vested SERP shares 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 the common stock in undistributed earnings.

⁽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. Additional information about equity-based awards is provided in Note 18 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 2016 Form 10-K.

⁽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 17 . Line of Business Information

188 to 189 in Note 24 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 2016 Form 10-K.

The following is a summary of our line-of-business results for the periods indicated. The "Other" column represents costs incurred that are not allocated to a specific line of business, including certain severance and restructuring costs, acquisition costs and certain provisions for legal contingencies.



	Three Months Ended March 31,
	Investment Servicing						Investment Management						Other						Total
(Dollars in millions)	2017			2016			2017			2016			2017			2016			2017			2016
Servicing fees	$	1,296		$	1,242		$	—		$	—		$	—		$	—		$	1,296		$	1,242
Management fees	—			—			382			270			—			—			382			270
Trading services	257			258			18			14			—			—			275			272
Securities finance	133			134			—			—			—			—			133			134
Processing fees and other	106			49			6			3			—			—			112			52
Total fee revenue	1,792			1,683			406			287			—			—			2,198			1,970
Net interest income	509			511			1			1			—			—			510			512
Gains (losses) related to investment securities, net	(40		)	2			—			—			—			—			(40		)	2
Total revenue	2,261			2,196			407			288			—			—			2,668			2,484
Provision for loan losses	(2		)	4			—			—			—			—			(2		)	4
Total expenses	1,728			1,687			329			256			29			107			2,086			2,050
Income before income tax expense	$	535		$	505		$	78		$	32		$	(29	)	$	(107	)	$	584		$	430
Pre-tax margin	24		%	23		%	19		%	11		%							22		%	17		%

State Street Corporation | 88

Table of Contents

STATE STREET CORPORATION

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 18 . Non-U.S. Activities

We define our non-U.S. activities as those revenue-producing business activities that arise from clients which are generally serviced or managed 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, assumptions 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. Management periodically reviews and updates its processes for quantifying the financial results and assets related to our non-U.S. activities.

The following table presents our U.S. and non-U.S. financial results for the periods indicated:



	Three Months Ended March 31, 2017						Three Months Ended March 31, 2016
(In millions)	Non-U.S.		U.S.		Total		Non-U.S.		U.S.		Total
Total revenue	$	1,096	$	1,572	$	2,668	$	1,025	$	1,459	$	2,484
Income before income taxes	262		322		584		176		254		430

Non-U.S. assets were $71.6 billion and $81.6 billion as of March 31, 2017 and 2016 , respectively.

State Street Corporation | 89

Table of Contents

REVIEW REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Shareholders and Board of Directors of

State Street Corporation

We have reviewed the consolidated statement of condition of State Street Corporation (the “Corporation”) as of March 31, 2017 , and the related consolidated statements of income, comprehensive income, changes in shareholders' equity and cash flows for the three-month periods ended March 31, 2017 and 2016 . These financial statements are the responsibility of the Corporation's management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously 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, 2016 , and the related consolidated statements of income, comprehensive income, changes in shareholders' equity, and cash flows for the year then ended, not presented herein and we expressed an unqualified audit opinion on those consolidated financial statements in our report dated February 16, 2017 . In our opinion, the information set forth in the accompanying consolidated statement of condition of State Street Corporation as of December 31, 2016 , is fairly stated, in all material respects, in relation to the consolidated statement of condition from which it has been derived.

/s/ Ernst & Young LLP

Boston, Massachusetts

May 4, 2017

State Street Corporation | 90

Table of Contents



ACRONYMS

2016 Form 10-K	State Street Corporation Annual Report on Form 10-K for the year ended December 31, 2016, as amended	FSB	Financial Stability Board
ABS	Asset-backed securities	FX	Foreign exchange
AFS	Available-for-sale	GAAP	Generally accepted accounting principles
ALLL	Allowance for loan and lease losses	GEAM	General Electric Asset Management
AML	Anti-money laundering	G-SIB	Global systemically important bank
AOCI	Accumulated other comprehensive income (loss)	HQLA ⁽¹⁾	High-quality liquid assets
ASU	Accounting Standards Update	HTM	Held-to-maturity
AUCA	Assets under custody and administration	IFDS	International Financial Data Services Limited U.K.
AUM	Assets under management	LCR ⁽¹⁾	Liquidity coverage ratio
BCBS	Basel Committee on Banking Supervision	LGD	Loss given default
BFDS	Boston Financial Data Services, Inc.	MBS	Mortgage-backed securities
Board	Board of Directors	MRAC	Management Risk and Capital Committee
bps	basis points	NII	Net interest income
CAP	Capital adequacy process	NSFR ⁽¹⁾	Net stable funding ratio
CCAR	Comprehensive Capital Analysis and Review	OCI	Other comprehensive income (loss)
CD	Certificates of deposit	OCIO	Outsourced Chief Investment Officer
CET1 ⁽¹⁾	Common equity tier 1	OFAC	Office of Foreign Assets Control
CLO	Collateralized loan obligations	OTC	Over-the-counter
CRE	Commercial real estate	OTTI	Other-than-temporary-impairment
CVA	Credit valuation adjustment	Parent Company	State Street Corporation
Dodd-Frank Act	Dodd-Frank Wall Street Reform and Consumer Protection Act	PCA	Prompt corrective action
DOJ	Department of Justice	P&L	Profit-and-loss
DOL	Department of Labor	RC	Risk Committee
ECB	European Central Bank	ROE	Return on average common equity
EPS	Earnings per share	RWA ⁽¹⁾	Risk-weighted assets
ERISA	Employee Retirement Income Security Act	SEC	Securities and Exchange Commission
ERM	Enterprise Risk Management	SERP	Supplemental executive retirement plans
ETF	Exchange-Traded Fund	SLR ⁽¹⁾	Supplementary leverage ratio
EVE	Economic value of equity	SSGA	State Street Global Advisors
FASB	Financial Accounting Standards Board	State Street Bank	State Street Bank and Trust Company
FCA	Financial Conduct Authority	TMRC	Trading and Markets Risk Committee
FDIC	Federal Deposit Insurance Corporation	UOM	Unit of measure
Federal Reserve	Board of Governors of the Federal Reserve System	VaR	Value-at-Risk
FHLB	Federal Home Loan Bank of Boston	VIE	Variable interest entity
FRBB	Federal Reserve Bank of Boston

⁽¹⁾ As defined by the applicable U.S. regulations.

State Street Corporation | 91

Table of Contents



GLOSSARY


Asset-backed securities: A financial security backed by collateralized assets, other than real estate or mortgage backed securities. Assets under custody and administration: Assets that we hold directly or indirectly on behalf of clients under a safekeeping or custody arrangement or for which we provide administrative services for clients. To the extent that we provide more than one AUCA service for a client’s assets, the value of the asset is only counted once in the total amount of AUCA. Assets under management: The total market value of client assets for which we provide investment management strategy services, advisory services and/or distribution services generating management fees based on a percentage of the assets’ market values. These client assets are not included on our balance sheet. Certificates of deposit: A savings certificate with a fixed maturity date, specified fixed interest rate and can be issued in any denomination aside from minimum investment requirements. A CD restricts access to the funds until the maturity date of the investment. Collateralized loan obligations: A security backed by a pool of debt, primarily senior secured leveraged loans. CLOs are similar to collateralized mortgage obligations, except for the different type of underlying loan. With a CLO, the investor receives scheduled debt payments from the underlying loans, assuming most of the risk in the event borrowers default, but is offered greater diversity and the potential for higher-than-average returns. Commercial real estate: Property intended to generate profit from capital gains or rental income. Our CRE loans are composed of loans acquired in 2008 pursuant to indemnified repurchase agreements with an affiliate of Lehman Brothers. Economic value of equity: Long-term interest rate risk measure designed to estimate the fair value of assets, liabilities and off-balance sheet instruments based on a discounted cash flow model. Exchange-Traded Fund: A type of exchange-traded investment product that offer investors a way to pool their money in a fund that makes investments in stocks, bonds, or other assets and, in return, to receive an interest in that investment pool. ETF shares are traded on a national stock exchange and at market prices that may or may not be the same as the net asset value. Global systemically important bank: A financial institution whose distress or disorderly failure, because of its size, complexity and systemic interconnectedness, would cause significant disruption to the wider financial system and economic activity, which will be subject to additional capital requirements. Held-to-maturity investment securities: We classify investments in debt securities as held-to-maturity only if we have the positive intent and ability to hold those securities to maturity. Investments in debt securities classified as held-to-maturity are measured subsequently at amortized cost in the statement of financial position. High-quality liquid assets: Cash or assets that can be converted into cash at little or no loss of value in private markets and are considered unencumbered.	Liquidity coverage ratio: A Basel III framework requirement for banks and bank holding companies to measure liquidity. It is designed to ensure that certain banking institutions, including us, maintain a minimum amount of unencumbered HQLA sufficient to withstand the net cash outflow under a hypothetical standardized acute liquidity stress scenario for a 30-day stress period. The ratio of our encumbered high-quality liquid assets divided by our total net cash outflows over a 30-day stress period. Net asset value: The amount of net assets attributable to each share of capital stock (other than senior securities, such as, preferred stock) outstanding at the close of the period. Net stable funding ratio: The ratio of the amount of available stable funding relative to the amount of required stable funding. This ratio should be equal to at least 100% on an ongoing basis. Other-than-temporary-impairment: Impairment charge taken on a security whose fair value has fallen below its carrying value on balance sheet and its value is not expected to recover through the holding period of the security. Qualified financial contracts: Securities contracts, commodity contracts, forward contracts, repurchase agreements, swap agreements and any other contract determined by the FDIC to be a qualified financial contract. Risk-weighted assets: A measurement used to quantify risk inherent in our on and off-balance sheet assets by adjusting the asset value for risk. RWA is used in the calculation of our risk-based capital ratios. Supplementary leverage ratio: The ratio of our tier 1 capital to our total leverage exposure, which measures our capital adequacy relative to our on and off-balance sheet assets. Total loss-absorbing capacity: The sum of our tier 1 regulatory capital plus eligible external long-term debt issued by us. Value-at-Risk: Statistical model used to measure the potential loss in value of a portfolio that could occur in normal markets condition, over a defined holding period, within a certain confidence level. Variable interest entity: An entity that: (1) lacks enough equity investment at risk to permit the entity to finance its activities without additional financial support from other parties; (2) has equity owners that lack the right to make significant decisions affecting the entity’s operations; and/or (3) has equity owners that do not have an obligation to absorb or the right to receive the entity’s losses or return.

State Street Corporation | 92

Table of Contents

PART II. OTHER INFORMATION

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(c) In June 2016, our Board approved a common stock purchase program authorizing the purchase of up to $1.4 billion of our common stock through June 30, 2017 (the 2016 Program).

factors, including market conditions and State Street’s capital positions, financial performance and investment opportunities. The 2016 Program does not have specific price targets and may be suspended at any time.

The following table presents purchases of our common stock under the 2016 Program and related information for each of the months in the quarter ended March 31, 2017 . 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	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Approximate Dollar Value of Shares That May Yet be Purchased Under Publicly Announced Program
Period:
January 1 - January 31, 2017	—	$	—	—	$	750
February 1 - February 28, 2017	1,236	78.65		1,236	653
March 1 - March 31, 2017 ⁽¹⁾	5,435	78.27		5,435	227
Total	6,671	$	78.34	6,671	$	227

ITEM 6. EXHIBITS

The exhibits listed in the Exhibit Index following the signature page of this Form 10-Q are filed herewith or are incorporated herein by reference to other SEC filings.

State Street Corporation | 93

Table of Contents

SIGNATURES

Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.



			STATE STREET CORPORATION
			(Registrant)


Date:	May 4, 2017	By:	/s/ E RIC W. A BOAF
			Eric W. Aboaf,
			Executive Vice President and Chief Financial Officer (Principal Financial Officer)


Date:	May 4, 2017	By:	/s/ S EAN P. N EWTH
			Sean P. Newth,
			Senior Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer)

State Street Corporation | 94

Table of Contents

EXHIBIT INDEX



	10.1†	State Street's Executive Supplemental Retirement Plan (formerly "State Street Supplemental Defined Benefit Pension Plan for Executive Officers") Amended and Restated, as amended (filed as Exhibit 10.2 to State Street's Annual Report on Form10-K (File No 001-07511) for the year ended December 31, 2016 filed with the SEC on February 17, 2017 and incorporated herein by reference)

	10.2	Deferred Prosecution Agreement dated January 17, 2017 between State Street Corporation and the U.S. Department of Justice and the United States Attorney for the District of Massachusetts (filed as Exhibit 10.14 to State Street's Annual Report on Form 10-K (File No. 001-07511) for the year-ended December 31, 2016 filed with the SEC on February 17, 2017 and incorporated herein by reference)

	12	Statement of Ratios of Earnings to Fixed Charges

	15	Letter regarding unaudited interim financial information

	31.1	Rule 13a-14(a)/15d-14(a) Certification of Chairman 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

*	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 three months ended March 31, 2017 and 2016 , (ii) consolidated statement of comprehensive income for the three months ended March 31, 2017 and 2016 , (iii) consolidated statement of condition as of March 31, 2017 and December 31, 2016 , (iv) consolidated statement of changes in shareholders' equity for the three months ended March 31, 2017 and 2016 , (v) consolidated statement of cash flows for the three months ended March 31, 2017 and 2016 , and (vi) notes to consolidated financial statements.

State Street Corporation | 95

EXHIBIT 12

STATE STREET CORPORATION

Ratios of Earnings to Combined Fixed Charges and Preferred Stock Dividends



		Three Months Ended March 31,		Years Ended December 31,
(Dollars in millions)		2017		2016		2015			2014			2013		2012
EXCLUDING INTEREST ON DEPOSITS:
Pre-tax income from continuing operations, as reported		$	584	$	2,120	$	2,298		$	2,437		$	2,666	$	2,747
Share of pre-tax income (loss) of unconsolidated entities		317		349		(700		)	(10		)	1		(15		)
Fixed charges		92		334		321			318			365		370
Adjusted earnings	(A)	$	993	$	2,803	$	1,919		$	2,745		$	3,032	$	3,102
Interest on short-term borrowings		$	2	$	8	$	7		$	6		$	60	$	73
Interest on long-term debt, including amortization of debt issuance costs		68		240		219			206			184		176
Portion of long-term leases representative of the interest factor ⁽¹⁾		22		86		95			106			121		121
Preferred stock dividends and related adjustments ⁽²⁾		64		171		112			61			33		39
Fixed charges and preferred stock dividends	(B)	$	156	$	505	$	433		$	379		$	398	$	409
Consolidated ratios of adjusted earnings to combined fixed charges and preferred stock dividends, excluding interest on deposits	(A)/(B)	6.37x		5.55x		4.43x			7.24x			7.62x		7.58x
INCLUDING INTEREST ON DEPOSITS:
Pre-tax income from continuing operations, as reported		$	584	$	2,120	$	2,298		$	2,437		$	2,666	$	2,747
Share of pre-tax income (loss) of unconsolidated entities		317		349		(700		)	(10		)	1		(15		)
Fixed charges		136		419		418			416			458		536
Adjusted earnings	(C)	$	1,037	$	2,888	$	2,016		$	2,843		$	3,125	$	3,268
Interest on short-term borrowings and deposits		$	46	$	93	$	104		$	104		$	153	$	239
Interest on long-term debt, including amortization of debt issuance costs		68		240		219			206			184		176
Portion of long-term leases representative of the interest factor ⁽¹⁾		22		86		95			106			121		121
Preferred stock dividends and related adjustments ⁽²⁾		64		171		112			61			33		39
Fixed charges and preferred stock dividends	(D)	$	200	$	590	$	530		$	477		$	491	$	575
Consolidated ratios of adjusted earnings to combined fixed charges and preferred stock dividends, including interest on deposits	(C)/(D)	5.19x		4.89x		3.80x			5.96x			6.36x		5.68x

⁽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



		Three Months Ended March 31,		Twelve Months Ended December 31,
(Dollars in millions)		2017		2016		2015			2014			2013		2012
EXCLUDING INTEREST ON DEPOSITS:
Pre-tax income from continuing operations, as reported		$	584	$	2,120	$	2,298		$	2,437		$	2,666	$	2,747
Share of pre-tax income (loss) of unconsolidated entities		317		349		(700		)	(10		)	1		(15		)
Fixed charges		92		334		321			318			365		370
Adjusted earnings	(A)	$	993	$	2,803	$	1,919		$	2,745		$	3,032	$	3,102
Interest on short-term borrowings		$	2	$	8	$	7		$	6		$	60	$	73
Interest on long-term debt, including amortization of debt issuance costs		68		240		219			206			184		176
Portion of long-term leases representative of the interest factor ⁽¹⁾		22		86		95			106			121		121
Fixed charges	(B)	$	92	$	334	$	321		$	318		$	365	$	370
Consolidated ratios of adjusted earnings to fixed charges, excluding interest on deposits	(A)/(B)	10.79x		8.39x		5.98x			8.63x			8.31x		8.38x
INCLUDING INTEREST ON DEPOSITS:
Pre-tax income from continuing operations, as reported		$	584	$	2,120	$	2,298		$	2,437		$	2,666	$	2,747
Share of pre-tax income (loss) of unconsolidated entities		317		349		(700		)	(10		)	1		(15		)
Fixed charges		136		419		418			416			458		536
Adjusted earnings	(C)	$	1,037	$	2,888	$	2,016		$	2,843		$	3,125	$	3,268
Interest on short-term borrowings and deposits		$	46	$	93	$	104		$	104		$	153	$	239
Interest on long-term debt, including amortization of debt issuance costs		68		240		219			206			184		176
Portion of long-term leases representative of the interest factor ⁽¹⁾		22		86		95			106			121		121
Fixed charges	(D)	$	136	$	419	$	418		$	416		$	458	$	536
Consolidated ratios of adjusted earnings to fixed charges, including interest on deposits	(C)/(D)	7.63x		6.89x		4.82x			6.83x			6.82x		6.10x

Exhibit 15

Independent Registered Public Accounting Firm’s Acknowledgment Letter

The Shareholders and Board of Directors of

State Street Corporation

We are aware of the incorporation by reference in the Registration Statements (Form S-3 No. 333-200321, and Form S-8: Nos. 333-100001, 333-99989, 333-46678, 333-36793, 333-36409, 333-135696, 333-160171 and 333-183656) of State Street Corporation of our report dated May 4, 2017 relating to the unaudited condensed consolidated interim financial statements of State Street Corporation that are included in its Form 10-Q for the quarter ended March 31, 2017 .

Under Rule 436(c) of the 1933 Act, our report is not part of the registration statements prepared or certified by accountants within the meaning of Section 7 or 11 of the 1933 Act.

/s/ Ernst & Young LLP

May 4, 2017

EXHIBIT 31.1

RULE 13a-14(a)/15d-14(a) CERTIFICATION

I, Joseph L. Hooley, certify that:


1.	I have reviewed this Quarterly Report on Form 10-Q 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:	May 4, 2017	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, Eric W. Aboaf, certify that:


1.	I have reviewed this Quarterly Report on Form 10-Q 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:

(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:	May 4, 2017	By:	/s/ E RIC W. A BOAF
			Eric W. Aboaf,
			Executive Vice President and Chief Financial Officer

EXHIBIT 32

SECTION 1350 CERTIFICATIONS

To my knowledge, this Report on Form 10-Q for the period ended March 31, 2017 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:	May 4, 2017	By:	/s/ J OSEPH L. H OOLEY
			Joseph L. Hooley,
			Chairman and Chief Executive Officer

Date:	May 4, 2017	By:	/s/ E RIC W. A BOAF
			Eric W. Aboaf,
			Executive Vice President and Chief Financial Officer