State Street
Annual Report 2015

Plain-text annual report

Annual Report 2015 to Shareholders State Street Corporation State Street Financial Center One Lincoln Street Boston, MA 02111 www.statestreet.com ©2015 STATE STREET CORPORATION 16-27279-0316 To Our Shareholders When we look back on the first two decades of the 21st century, I believe this period will be remembered for the role that technology- driven innovation played in transforming the way we live, work and interact. As new technologies and breakthroughs in digitization redefine markets and customer expectations, the implications for financial services providers are profound. At State Street, we have a long history of investing in and integrating technology to strengthen our business and spur innovation, and in recent years we’ve made significant strides in digitizing our operations to provide more efficient and effective solutions for our clients. Building on the successful completion in 2014 of our multi-year Business Operations and Information Technology Transformation program, we announced in October 2015 the next phase of our digital evolution, a five-year initiative we’re calling State Street Beacon. We expect Beacon to strengthen our position as a digital leader in the financial services industry and generate $550 million of annual pre- tax net run-rate expense reductions1 by the end of 2020, compared with our 2015 operating-basis2 expenses. It will enable us to expand and improve end- to-end service delivery, increase scale and efficiency and position us to better serve our clients’ increasing needs for sophisticated data analytics, insights and solutions. In my letter to you last year, I noted that we had increased investment in our regulatory compliance and risk management infrastructure and processes and resolved to make risk excellence a competitive strength for State Street. These efforts gathered momentum in 2015 as we elevated risk excellence as a top priority across the company, on par with our commitment to client centricity and financial performance. We strengthened our risk assessment and monitoring capabilities by investing in skilled people, technology and processes. We rolled out a newly revised Standard of Conduct and Ethical Decision-Making Framework to all employees, and we initiated a new compliance architecture that clarifies accountability and individual responsibility for managing risk. Our renewed commitment to these two critical initiatives — digitizing our company and setting a new standard for risk excellence — are foundational to State Street’s future success. Joseph L. Hooley Chairman and Chief Executive Officer Our renewed commitment to these two critical initiatives— digitizing our company and setting a new standard for risk excellence — are foundational to State Street’s future success. Overall, our capital ratios, which are an important measure of financial strength, remain among the highest in the industry. Summary Financial Results We faced a number of challenges in 2015, including persistently low interest rates, the strengthening U.S. dollar, and heightened regulatory costs. At mid- year, we were tracking well against our annual financial goals, but declining global equity markets and investor outflows presented additional hurdles in the second half of the year, and we fell short of achieving our overall financial targets for the year. Our 2015 GAAP-basis diluted earnings per common share were $4.47, down 1.3 percent compared with $4.53 in 2014. GAAP-basis revenue increased 0.8 percent to $10.4 billion for the year, while total expenses rose 2.8 percent. Our 2015 GAAP-basis return on average common shareholders’ equity was 9.8 percent, unchanged from the prior- year level. On an operating basis2, our 2015 diluted earnings per common share were $4.89, down 3.2 percent from $5.05 in 2014. Operating-basis revenue rose 0.1 percent to $10.6 billion for the year, while operating-basis expenses rose 1.3 percent. The impact of the stronger U.S. dollar constrained revenue growth but helped reduce expenses. Normalizing for the effects of currency, revenue rose 3.1 percent and expenses rose 4.7 percent, on an operating basis. Operating-basis fee revenue rose 2.1 percent, resulting in positive fee operating leverage3 of 79 basis points. Our operating-basis return on average common shareholders’ equity was 10.7 percent, compared with 10.9 percent in 2014. While disappointed in our 2015 financial results, I am confident we have the right strategy and talent in place and are making the necessary investments in technology and risk management to position State Street to deliver shareholder value over the long term. I am pleased with the progress we made during the year in a number of areas across the company, which I believe position us for improved performance and profitable growth. Optimizing our Capital Position We continued to prioritize returning capital to shareholders in 2015, while strengthening our capital base and retaining sufficient funds to invest in our business. We bought back $1.52 billion of our common stock in 2015 and declared a total of $1.32 per share in common stock dividends, an increase of nearly 14 percent over dividends per share declared in 2014. Our capital ratios improved from 2014 year-end levels, reflecting our proactive efforts to reduce both risk-weighted assets and the level of client deposits on our balance sheet. Overall, our capital ratios, which are an important measure of financial strength, remain among the highest in the industry. Strengthening our Global Franchise We serve many of the world’s most sophisticated institutional investors in more than 100 geographic markets worldwide. In 2015, 42 percent of our asset servicing revenue and 35 percent of our asset management revenue came from outside the U.S., and approximately half of our employees were based outside the U.S. We strengthened our presence in Europe in 2015 by opening an office in Copenhagen and preparing to expand operations in Poland, where we opened an office in Gdansk in early 2016. Our new Copenhagen office deepens our overall Nordic reach and reinforces our commitment to growing our business in the region. The new Gdansk office builds on the success of our existing operations in Krakow, Poland, which opened in 2007 and now employs 2,500 people providing a range of services to support our businesses across Europe, including investment fund accounting, securities valuation and financial reporting. Our asset servicing business added $800 billion of new client commitments during 2015, and we continue to see diverse opportunities to deepen our relationships with existing clients and attract new business. The strength of our capabilities and quality of our client services received recognition throughout the year. We were honored as No. 1 Global Custodian (global total score) in the 2015 Global Custody Survey by Global Investor/ISF and as Global Custodian of the Year by Central Banking Publications in its annual awards recognizing excellence in the official institutions industry. Custody Risk selected us as top Custodian (U.S. and Canada), Hedge Fund Administrator and Transfer Agent of the Year in its 2015 Americas Awards, and also as Transition Manager, Securities Lender and Transfer Agent of the Year in its 2015 European Awards. We also were named Fund Administrator of the Year by Global Investor/ISF in its 2015 Investment Excellence Awards, and Asset Service Provider of the Year by AsianInvestor in its 2015 Asset Management Awards. Investing in Growth Our asset management business, State Street Global Advisors (SSGA), continued to invest in its exchange traded fund We continue to see diverse opportunities to deepen our relationships with existing clients and attract new business. In June... we launched the Boston Workforce Investment Network, or Boston WINs, a four-year pilot program to boost education and job readiness for urban youth in Boston. (ETF) product line-up and distribution channels and over the past two years has nearly doubled its U.S. sales force that works with financial intermediaries and retail clients. SSGA launched 35 ETFs during the year and had five of the top 10 new products in the U.S., including the fastest-growing new fund, a total return tactical ETF launched in a partnership with DoubleLine Capital. SSGA also expanded its Environmental, Social and Governance product offering with the launch of the first ETF designed to help investors seeking to eliminate fossil fuel reserves from their portfolio while maintaining exposure to the core of the S&P 500 Index. Since its launch in 2013, State Street Global ExchangeSM has worked with asset owners and asset managers to help them use advanced data analytics to make better-informed business decisions, such as uncovering new investment approaches or managing risk or liquidity more effectively across their portfolios. Investors and regulators are increasingly concerned about portfolio liquidity challenges that can arise from a mix of factors, such as investment trends and the overall market environment. State Street Global Exchange provides tools and solutions, including expertise in liquidity measurement and stress testing, to help investment managers comply with their global regulatory requirements. For example, our liquidity risk solution, which we tailor to each client’s specific needs, aggregates and manages data from multiple providers to present a consistent view of liquidity across portfolios. Committed to Corporate Responsibility We believe that being a responsible corporate citizen is essential to the long-term success of our business, and the strength of our business is directly linked to the well-being of the communities in which we operate. Our State Street Foundation provided $22.7 million to nonprofit organizations around the world in 2015, including matching employee contributions of $4.2 million to 2,222 charitable organizations. During the year, more than a fifth of our employees participated in company-sponsored volunteer activities, devoting 116,000 hours of their time to charitable causes. In June, given our emphasis on education and workforce development, we launched the Boston Workforce Investment Network, or Boston WINs, a four-year pilot program to boost education and job readiness for urban youth in Boston, our headquarters for well over 200 years. Our Foundation pledged to donate $20 million to five nonprofit organizations over four years and hire 1,000 young people who work with them to advance their education and job readiness. All five of these partner organizations have committed to working closely with each other and with State Street to pursue our shared objectives of providing education, training and meaningful career opportunities for Boston youth – and to measure, assess and report our joint progress regularly. We believe Boston WINs will provide better job skills and career opportunities for young Bostonians; a stronger, more diverse pipeline of local talent for State Street and other employers; and a more prosperous Boston. We hope to mirror the WINs model over time in other locations where we operate. Our efforts to be a responsible corporate citizen received widespread recognition in 2015. Corporate Responsibility Magazine named State Street to its list of the 100 Best Corporate Citizens for the ninth consecutive year. We also received a perfect 100 rating for the second consecutive year in the Human Rights Campaign’s 2015 Corporate Equality Index, a national benchmarking survey and report on corporate policies and practices related to LGBT workplace equality. Looking Ahead Our strategy continues to be supported by long-term secular trends, including the globalization of investment assets and growth in global retirement savings pools. At the same time, institutional investors are wrestling with significant challenges and uncertainty in the current environment, including weak global growth, volatile financial markets, heightened regulatory expectations, extremely low interest rates, and the impact of technological disruption and new competition. As a trusted partner to many of the world’s largest asset owners and asset managers, we’re well-positioned to provide insights and solutions to support our clients as they respond to these challenges and pursue opportunities to grow their business. We believe that being a responsible corporate citizen is essential to the long-term success of our business. Regardless of what 2016 may bring, we will continue to focus on what’s within our control and do our best to respond effectively to those elements we can’t control. Generating positive fee operating leverage (growing fee revenue at a faster rate than expenses) remains a top priority for us in 2016. We are sharply focused on managing expenses while pursuing opportunities to accelerate revenue growth through cross-selling and product innovation. I am grateful to you, our shareholders, for your investment in us, and to the approximately 30,000 State Street employees around the world who are working hard to reward your confidence in us. Sincerely, Joseph L. Hooley Chairman and Chief Executive Officer March 23, 2016 1 Estimated pre-tax expense savings relate only to State Street Beacon and the targeted staff reductions announced as part of our 3Q15 financial results and are based on projected improvement from our full-year 2015 operating-basis expenses, all else being equal. Actual expenses may increase or decrease in the future due to other factors. 2 This letter to shareholders includes financial information presented on a GAAP basis as well as on a non-GAAP, or “operating,” basis. Our management team measures and compares certain financial information on an operating basis, as we believe this presentation supports meaningful comparisons from period to period and the analysis of comparable financial trends with respect to State Street’s normal ongoing business operations. We believe that operating-basis financial information, which reports revenue from non-taxable sources, such as interest revenue from tax-exempt investment securities and processing fees and other revenue associated with tax-advantaged investments, on a fully-taxable equivalent basis and excludes the impact of revenue and expenses outside of the normal course of business, facilitates an investor’s understanding and analysis of State Street’s underlying financial performance and trends in addition to financial information prepared and reported in conformity with GAAP. Operating-basis, or non-GAAP, financial measures should be considered in addition to, not as a substitute for or superior to, financial measures determined in conformity with GAAP. 3 Fee operating leverage is defined as rate of growth of total fee revenue less the rate of growth of expense, each as determined on an operating basis. Forward-Looking Statements This letter contains forward-looking statements as defined by U.S. securities laws, including statements relating to our goals and expectations regarding our business, financial and capital condition, results of operations, the financial and market outlook, dividend and stock purchase programs, governmental and regulatory initiatives and developments, and the business environment. Forward-looking statements are often, but not always, identified by such forward-looking terminology as “goal,” “target,” “expect,” “objective,” “intend,” “believe,” “may,” “will,” “focus” and “strategy” or similar statements or variations of such terms. These statements are not guarantees of future performance, are inherently uncertain, are based on current assumptions that are difficult to predict and involve a number of risks and uncertainties. Therefore, actual outcomes and results may differ materially from what is expressed in those statements, and those statements should not be relied upon as representing our expectations or beliefs as of any date subsequent to the date of this letter. Important factors that could cause actual results to differ materially from those indicated by any forward-looking statements are set forth in our accompanying 2015 Annual Report on Form 10-K and our subsequent SEC filings. We encourage investors to read these filings, particularly the sections on risk factors, for additional information with respect to any forward-looking statements and prior to making any investment decision. The forward-looking statements contained in this letter speak only as of the date of this letter, and we do not undertake efforts to revise those forward-looking statements to reflect events after that date. 2015 Annual Report to Shareholders CORPORATE INFORMATION CORPORATE HEADQUARTERS State Street Corporation State Street Financial Center One Lincoln Street Boston, Massachusetts 02111-2900 Website: www.statestreet.com General Inquiries: +1 617/786-3000 ANNUAL MEETING Wednesday, May 18, 2016, 9:00 a.m. at Corporate Headquarters TRANSFER AGENT Registered shareholders wishing to change name or address information on their shares, transfer ownership of stock, deposit certificates, report lost certificates, consolidate accounts, authorize direct deposit of dividends, or receive information on our dividend reinvestment plan should contact: American Stock Transfer & Trust Co., LLC Operations Center 6201 15th Avenue Brooklyn, NY 11219 Phone: +1 866/714-7293 Website: www.amstock.com E-mail: info@amstock.com STOCK LISTINGS State Street’s common stock is listed on the New York Stock Exchange under the ticker symbol STT. SHAREHOLDER INFORMATION For timely information about State Street’s consolidated financial results and other matters of interest to shareholders, and to request copies of our news releases and financial reports by mail, please visit our web-site at: www.statestreet.com/stockholder For copies of our Forms 10-Q, quarterly earnings press releases, Forms 8-K or additional copies of this Annual Report, please visit our website, or write to Investor Relations at Corporate Headquarters. Copies are provided without charge. Investors and analysts interested in additional financial information may contact our Investor Relations department at Corporate Headquarters, telephone +1 617/664-3477. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Form 10-K x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2015 OR ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File No. 001-07511 STATE STREET CORPORATION (Exact name of registrant as specified in its charter) Massachusetts (State or other jurisdiction of incorporation) One Lincoln Street Boston, Massachusetts (Address of principal executive office) 04-2456637 (I.R.S. Employer Identification No.) 02111 (Zip Code) 617-786-3000 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: (Title of Each Class) Common Stock, $1 par value per share Depositary Shares, each representing a 1/4,000th ownership interest in a share of Non-Cumulative Perpetual Preferred Stock, Series C, without par value per share Depositary Shares, each representing a 1/4,000th ownership interest in a share of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series D, without par value per share Depositary Shares, each representing a 1/4,000th ownership interest in a share of Non-Cumulative Perpetual Preferred Stock, Series E, without par value per share Depositary Shares, each representing a 1/100th ownership interest in a share of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series F, without par value per share (Name of each exchange on which registered) New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company ¨ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the per share price ($77.00) at which the common equity was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter (June 30, 2015) was approximately $31.21 billion The number of shares of the registrant’s common stock outstanding as of January 31, 2016 was 400,017,186. Portions of the following documents are incorporated by reference into Parts of this Report on Form 10-K, to the extent noted in such Parts, as indicated below: (1) The registrant’s definitive Proxy Statement for the 2016 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A on or before April 29, 2016 (Part III).  STATE STREET CORPORATION ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2015 TABLE OF CONTENTS PART I Item 1 Item 1A Item 1B Item 2 Item 3 Item 4 PART II Item 5 Item 6 Item 7 Item 7A Item 8 Item 9 Item 9A Item 9B PART III Item 10 Item 11 Item 12 Item 13 Item 14 PART IV Item 15 Business Risk Factors Unresolved Staff Comments Properties Legal Proceedings Mine Safety Disclosures Executive Officers of the Registrant Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Selected Financial Data Management’s Discussion and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosures About Market Risk Financial Statements and Supplementary Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Controls and Procedures Other Information Directors, Executive Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accounting Fees and Services Exhibits, Financial Statement Schedules SIGNATURES EXHIBIT INDEX 5 18 45 45 45 45 46 47 51 53 122 122 199 199 202 202 202 203 203 203 204 205 206 ABS AIFMD AFS ALCO ALLL AML AOCI AUCA AUM BCBS BCRC BOC CAP CCAR CD CEO CET1(1) CFO CFP CFTC CIS CLO COSO CRE CRO CRPC CVA DIF Dodd-Frank Act E&A Committee EAD(1) ECB ECC EMIR EPS ERISA ERM ETF EVE FASB FCA FDIC FDICIA ACRONYMS Asset-backed securities Alternative Investment Fund Managers Directive Available-for-sale Asset-Liability Committee Allowance for loan and lease losses Anti-money laundering Accumulated other comprehensive income (loss) Assets under custody and administration Assets under management Basel Committee on Banking Supervision Business Conduct Risk Committee Basel Oversight Committee FSB FSOC FX GAAP GCR G-SIB HQLA(1) HTM IDI ISDA LCR(1) LDA model LEDR LTD Commercial real estate Chief Risk Officer Credit Risk & Policy Committee Credit valuation adjustment Deposit Insurance Fund Dodd-Frank Wall Street Reform and Consumer Protection Act Capital adequacy process Comprehensive Capital Analysis and Review MiFID MRAC Certificates of deposit MRC Chief Executive Officer MVG Common equity tier 1 NAV Chief Financial Officer NIR Contingency funding plan NSFR(1) Commodity Futures Trading Commission NYSE Corporate Information Security OCI Collateralized loan obligations OFAC Committee of Sponsoring Organizations of the Treadway Commission ORM OTTI Parent Company PCA PD(1) PRA P&L RC RCSA RWA(1) SEC SERP SIFI SLR(1) SOX SSGA SSGA FM Examining and Audit Committee Exposure-at-default European Central Bank Executive Compensation Committee European Market Infrastructure Resolution Earnings per share Employee Retirement Income Security Act Enterprise Risk Management Exchange-Traded Fund Economic value of equity Financial Accounting Standards Board Financial Conduct Authority Federal Deposit Insurance Corporation Federal Deposit Insurance Corporation Improvement Act of 1991 Financial Stability Board Financial Stability Oversight Council Foreign exchange Generally accepted accounting principals Global credit review Global systemically important banks High-quality liquid assets Held-to-maturity Insured depository institution International Swaps and Derivatives Association Liquidity coverage ratio Loss distribution approach model Loss Event Data Repository Long term debt Markets in Financial Instruments Directive Management Risk and Capital Committee Model Risk Committee Model Validation Group Net asset value Net interest revenue Net stable funding ratio New York Stock Exchange Other comprehensive income (loss) Office of Foreign Assets Control Operational risk management Other-than-temporary-impairment State Street Corporation Prompt corrective action Probability-of-default Prudential Regulatory Authority (U.K.) Profit-and-loss Risk Committee Risk and control self-assessment Risk-weighted assets Securities and Exchange Commission Supplemental executive retirement plans Systemically important financial institutions Supplementary leverage ratio Sarbanes-Oxley Act of 2002 State Street Global Advisors State Street Global Advisors Funds Management, Inc. SSGA Ltd. State Street Bank TLAC(1) TMRC TORC UCITS State Street Global Advisors Limited State Street Bank and Trust Company Total loss-absorbing capacity Trading and Markets Risk Committee Technology and Operational Risk Committee Undertakings for Collective Investments in Transferable Securities Federal Reserve Board of Governors of the Federal Reserve System FFELP FHLB FRB Federal Family Education Loan Program Federal Home Loan Bank of Boston Federal Reserve Bank of Boston UOM VaR VIE Unit of measure Value-at-risk Variable interest entity (1) As defined by the applicable U.S. regulations. 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 on the “Investor Relations” section of our website under "Filings and Reports." We use acronyms and other defined terms for certain business terms and abbreviations, as defined on the acronyms list following the table of contents to this Form 10-K. BUSINESS DESCRIPTION Overview We conduct our business primarily through State Street Bank, which traces its beginnings to the founding of the Union Bank in 1792. State Street Bank's current charter was authorized by a special Act of the Massachusetts Legislature in 1891, and its present name was adopted in 1960. State Street Bank operates as a specialized bank, referred to as a trust or custody bank, that services and manages assets on behalf of its institutional clients. Our clients include mutual funds, collective investment funds and other investment pools, corporate and public retirement plans, insurance companies, foundations, endowments and investment managers. Additional Information Additional information about our business activities is provided in the sections that follow. For information about our management of credit and counterparty risk; liquidity risk; operational risk; market risk associated with our trading activities; market risk associated with our non-trading, or asset- and-liability management, activities, primarily composed of interest-rate risk; and capital, as well as other risks inherent in our businesses, refer to “Risk Factors” included under Item 1A, the “Financial Condition” section of Management's Discussion and Analysis of Financial Condition and Results of Operations, or Management's Discussion and Analysis, included under Item 7, and our consolidated financial statements and accompanying notes included under Item 8 of this Form 10-K. PART I ITEM 1. BUSINESS 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-K, unless the context requires otherwise, references to “State Street,” “we,” “us,” “our” or similar terms mean State Street Corporation and its subsidiaries on a consolidated basis. The parent company is a source of financial and managerial strength to our subsidiaries. Through our subsidiaries, including our principal banking subsidiary, State Street Bank and Trust Company, referred to as State Street Bank, we provide a broad range of financial products and services to institutional investors worldwide, with $27.51 trillion of AUCA and $2.25 trillion of AUM as of December 31, 2015. As of December 31, 2015, we had consolidated total assets of $245.19 billion, consolidated total deposits of $191.63 billion, consolidated total shareholders' equity of $21.10 billion and 32,356 employees. We operate in more than 100 geographic markets worldwide, including in the U.S., Canada, Europe, the Middle East and Asia. On the “Investor Relations” section of our corporate website at www.investors.statestreet.com, we make available, free of charge, all reports we electronically file with, or furnish to, the SEC including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as any amendments to those reports, as soon as reasonably practicable after those documents have been filed with, or furnished to, the SEC. These documents are also accessible on the SEC’s website at www.sec.gov. We have included the website addresses of State Street and the SEC in this report as inactive textual references only. Information on those websites is not part of this Form 10-K. We have Corporate Governance Guidelines, as well as written charters for the Examining and Audit Committee, the Executive Committee, the Executive Compensation Committee, the Nominating and Corporate Governance Committee, the Risk Committee and the Technology Committee of our Board of Directors, or Board, and a Code of Ethics for senior financial officers, a Standard of Conduct for Directors and a Standard of Conduct for our employees. Each of these documents is posted on the "Investor Relations" section of our website under "Corporate Governance." 5 LINES OF BUSINESS Investment Management We have two lines of business: Investment Servicing and Investment Management. Investment Servicing Our Investment Servicing line of business performs core custody and related value-added functions, such as providing institutional investors with clearing, settlement and payment services. Our financial services and products allow our large institutional investor clients to execute financial transactions on a daily basis in markets across the globe. As most institutional investors cannot economically or efficiently build their own technology and operational processes necessary to facilitate their global securities settlement needs, our role as a global trust and custody bank is generally to aid our clients to efficiently perform services associated with the clearing, settlement and execution of securities transactions and related payments. Our investment servicing products and services include: custody; product- and participant-level accounting; daily pricing and administration; master trust and master custody; record-keeping; cash management; foreign exchange, brokerage and other trading services; securities finance; deposit and short- term investment facilities; loans and lease financing; investment manager and alternative investment manager operations outsourcing; and performance, risk and compliance analytics. We provide mutual fund custody and accounting services in the U.S. We offer clients a broad range of integrated products and services, including accounting, daily pricing and fund administration. We service U.S. tax-exempt assets for corporate and public pension funds, and we provide trust and valuation services for daily-priced portfolios. We are a service provider outside of the U.S. as well. In Germany, Italy, France and Luxembourg, we provide depotbank services (a fund oversight role created by regulation) for retail and institutional fund assets, as well as custody and other services to pension plans and other institutional clients. In the U.K., we provide custody services for pension fund assets and administration services for mutual fund assets. As of December 31, 2015, we serviced approximately $1.50 trillion of offshore assets in funds located primarily in Luxembourg, Ireland and the Cayman Islands. As of December 31, 2015, we serviced $1.28 trillion of assets under custody and administration in the Asia/Pacific region, and in Japan, we serviced approximately 92% of the trust assets serviced by non-domestic trust banks. We are an alternative asset servicing provider worldwide, servicing hedge, private equity and real estate funds. As of December 31, 2015, we serviced approximately $1.32 trillion of AUCA in such funds. 6 We provide our Investment Management services through SSGA. SSGA provides a broad array of investment management, investment research and investment advisory services to corporations, public funds and other sophisticated investors. SSGA offers active and passive asset management strategies across equity, fixed-income and cash asset classes. Products are distributed directly and through intermediaries using a variety of investment vehicles including ETFs such as the SPDR® ETF brand. Additional information about our lines of business is provided under “Line of Business Information” in Management's Discussion and Analysis included under Item 7, and in Note 24 to the consolidated financial statements included under Item 8 of this Form 10-K. Additional information about our non-U.S. activities is provided in Note 25 to the consolidated financial statements included under Item 8 of this Form 10-K. COMPETITION We operate in a highly competitive environment and face global competition in all areas of our business. Our competitors include a broad range of financial institutions and servicing companies, including other custodial banks, deposit-taking institutions, investment management firms, insurance companies, mutual funds, broker/dealers, investment banks, benefits consultants, business service and software companies and information services firms. As our businesses grow and markets evolve, we may encounter increasing and new forms of competition around the world. We believe that many key factors drive competition in the markets for our business. For Investment Servicing, quality of service, economies of scale, technological expertise, quality and scope of sales and marketing, required levels of capital and price drive competition, and are critical to our servicing business. For Investment Management, key competitive factors include expertise, experience, availability of related service offerings, quality of service and performance, and price. Our competitive success may depend on our ability to develop and market new and innovative services, to adopt or develop new technologies, to bring new services to market in a timely fashion at competitive prices, to continue and expand our relationships with existing clients, and to attract new clients. SUPERVISION AND REGULATION State Street is registered with the Federal Reserve as a bank holding company pursuant to the Bank Holding Company Act of 1956. The Bank Holding Company Act limits the activities in which we and our non-banking subsidiaries may engage to those that the Federal Reserve considers to be closely related to banking, or to managing or controlling banks. These limits also apply to non- banking entities that we are deemed to “control” for purposes of the Bank Holding Company Act, which may include companies of which we own or control more than 5% of a class of voting shares. The Federal Reserve may order a bank holding company to terminate any activity, or its ownership or control of a non-banking subsidiary, if the Federal Reserve finds that the activity, ownership or control constitutes a serious risk to the financial safety, soundness or stability of a banking subsidiary or is inconsistent with sound banking principles or statutory purposes. The Bank Holding Company Act also requires a bank holding company to obtain prior approval of the Federal Reserve before it acquires substantially all the assets of any bank, or ownership or control of more than 5% of the voting shares of any bank. The parent company has elected to be treated as a financial holding company. A financial holding company and the entities under its control are permitted to engage both in activities closely related to banking and in activities considered “financial in nature” as defined by the Bank Holding Company Act and the Federal Reserve’s implementing rules and interpretations. As a financial holding company, State Street may engage in a broader range of activities than permitted for bank holding companies and their subsidiaries that have not elected to become financial holding companies. Financial holding companies may engage directly or indirectly in activities that are defined by the Federal Reserve to be financial in nature, either de novo or by acquisition, provided that the financial holding company gives the Federal Reserve after-the-fact notice of the new activities. Activities defined to be financial in nature include, but are not limited to, the following: providing financial or investment advice; underwriting; dealing in or making markets in securities; making merchant banking investments, subject to significant limitations; and any activities previously found by the Federal Reserve to be closely related to banking. In order to maintain our status as a financial holding company, we and each of our U.S. depository institution subsidiaries must be well capitalized and well managed, as defined in applicable regulations and determined in part by the results of regulatory examinations, and must comply with Community Reinvestment Act obligations. Failure to maintain these standards may ultimately permit the Federal Reserve to take enforcement actions against us and restrict our ability to engage in activities defined to be financial in nature. Currently, under the Bank Holding Company Act, we may not be able to engage in new activities or acquire shares or control of other businesses. The Dodd-Frank Act, which became law in July 2010, has had, and will continue to have, a significant effect on the regulatory structure of the financial markets and supervision of bank holding companies, banks and other financial institutions. The Dodd- Frank Act, among other things: established the FSOC to monitor systemic risk posed by financial institutions; enacted new restrictions on proprietary trading and private-fund investment activities by banks and their affiliates, commonly known as the “Volcker rule” (refer to our discussion of the Volcker rule provided below under “Regulatory Capital Adequacy and Liquidity Standards” in this “Supervision and Regulation” section); created a new framework for the regulation of derivatives and the entities that engage in derivatives trading; altered the regulatory capital treatment of trust preferred and other hybrid capital securities; revised the assessment base that is used by the FDIC to calculate deposit insurance premiums; adopted capital planning and stress test requirements for large bank holding companies, including us; and required large financial institutions to develop plans for their resolution under the U.S. Bankruptcy Code (or other specifically applicable insolvency regime) in the event of material financial distress or failure. In addition, regulatory change is being implemented internationally with respect to financial institutions, including, but not limited to, the implementation of the Basel III final rule (refer to “Regulatory Capital Adequacy and Liquidity Standards” below in this “Supervision and Regulation” section and “Financial Condition - Capital” in Management's Discussion and Analysis included under Item 7 of this Form 10-K for a discussion of Basel III) and the AIFMD, the EMIR, revisions to the UCITS directive, revisions to the MiFID, and ongoing review of European Union data protection regulation. Many aspects of our business are subject to regulation by other U.S. federal and state governmental and regulatory agencies and self- regulatory organizations (including securities exchanges), and by non-U.S. governmental and regulatory agencies and self-regulatory organizations. Some aspects of our public disclosure, corporate governance principles and internal control systems are subject to SOX, the Dodd-Frank Act and regulations and rules of the SEC and the NYSE. Regulatory Capital Adequacy and Liquidity Standards Like other U.S. bank holding companies, we and our depository institution subsidiaries are subject to the current U.S. minimum risk-based capital and 7 leverage ratio guidelines, referred to as Basel III. As noted above, the status of our parent company as a financial holding company also requires that we and our depository institution subsidiaries maintain specified regulatory capital ratio levels. As of December 31, 2015, our regulatory capital levels on a consolidated basis, and the regulatory capital levels of State Street Bank, our principal banking subsidiary, exceeded the currently applicable minimum capital requirements under Basel III and the requirements we must meet for the parent company to qualify as a financial holding company. As an “advanced approaches” banking organization, State Street became subject to the U.S. Basel III final rule beginning on January 1, 2014. However, certain aspects of the U.S. Basel III final rule, including the new minimum risk-based and leverage capital ratios, capital buffers, regulatory adjustments and deductions and revisions to the calculation of risk-weighted assets under the so- called “standardized approach,” will commence at a later date or be phased in over several years. Among other things, the U.S. Basel III final rule 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 U.S. 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 U.S. 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. Banking regulators have initially set the countercyclical capital buffer at zero. To maintain the status of our parent company as a financial holding company, we and our insured depository institution subsidiaries are required to be “well-capitalized” by maintaining capital ratios above the minimum requirements. Effective on January 1, 2015, the “well-capitalized” standard for our banking subsidiaries was revised to reflect the higher capital requirements in the U.S. Basel III final rule. In addition to introducing new capital ratios and buffers, the U.S. Basel III final rule revises the eligibility criteria for regulatory capital instruments and provides for the phase-out of existing capital instruments that do not satisfy the new criteria. For example, existing trust preferred capital securities 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. We had trust preferred capital securities of $237 million and $475 million included in tier 1 regulatory capital as of December 31, 2015 and 2014, respectively. Under the U.S. Basel III final rule, certain new items are deducted from common equity tier 1 capital and certain regulatory capital deductions were modified as compared to the previously applicable capital regulations. Among other things, the final rule requires significant investments in the common stock of unconsolidated financial institutions, as defined, and certain deferred tax assets that exceed specified individual and aggregate thresholds to be deducted from common equity tier 1 capital. As an advanced approaches banking organization, after-tax unrealized gains and losses on 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. Since January 1, 2015, the Basel III standardized approach has acted as that capital floor, and we are subject to the more stringent of the risk-based capital ratios calculated under the standardized approach and those calculated under the advanced approaches in the assessment of our capital adequacy under the PCA framework. In addition to the U.S. Basel III final rule, the Dodd-Frank Act requires the Federal Reserve to establish more stringent capital requirements for large bank holding companies, including State Street. 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: 8 • 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 systematically important, and therefore some of our competitors may not be subject to the same additional capital requirements. In 2014 the FSB published a consultative document with a proposal to enhance the TLAC of G- SIBs in resolution. The proposal calls for G-SIBs to maintain TLAC in excess of prescribed minimum thresholds. TLAC would include regulatory capital and liabilities that can be written down or converted into equity during resolution. On October 30, 2015, the Federal Reserve released its proposed TLAC and LTD requirements for U.S. domiciled G-SIBs, like State Street, that are intended to improve the resiliency and resolvability of certain U.S. banking organizations through new enhanced prudential standards. The proposed standards impose: (1) TLAC requirements (i.e., combined eligible Tier 1 regulatory capital and eligible LTD); (2) separate eligible LTD requirements; and (3) clean holding company requirements designed to make short-term unsecured debt (including deposits) and most other ineligible liabilities structurally senior to eligible LTD. The proposed rule would also require banking organizations subject to the Federal Reserve’s Basel III capital rules to deduct from regulatory capital any investments in unsecured debt issued by a G-SIB. If adopted as proposed, the rule would, among other things, subject State Street to minimum requirements for external TLAC and external LTD, plus an external TLAC buffer. Specifically, State Street would be required to hold (1) qualifying equity and LTD in the amount equal to the greater of 21.5% of total risk-weighted assets (using the capital conservation buffer of 2.5% and an estimated G-SIB method 1 surcharge of 1%) and 9.5% of total leverage exposure, as defined by the SLR final rule and (2) qualifying external LTD equal to the greater of 7.5% of risk weighted assets (using an estimated G- SIB method 2 surcharge of 1.5%) and 4.5% of total leverage exposure, as defined by the SLR final rule. The risk-based requirements, if adopted as proposed, will be phased-in starting in 2019 through 2022. The proposed leverage requirements would be effective in 2019. On November 9, 2015, the FSB published its final principles on TLAC. The FSB final principles establish minimum levels of loss-absorbing capital that must be held as a percentage of a G-SIBs risk- weighted assets. Subject to certain conditions, the TLAC requirement can be partially met by tier 1 and tier 2 capital that meets the Basel III capital requirements. However, capital held for the following reasons cannot be counted towards a G-SIB’s TLAC requirements: (1) Basel III capital conservation buffer; (2) Basel III countercyclical capital buffer requirements; and (3) supplemental capital conservation buffer requirements. G-SIBs will be required to meet the minimum TLAC requirement of at least 16% of the risk-weighted assets minimum by January 1, 2019 and at least 18% by January 2022. Based on the FSB final principles on TLAC, State Street anticipates having to maintain a TLAC requirement of 21.5% of risk-weighted assets by January 2022. Supplementary Leverage Ratio Framework 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 September 30, 2015, State Street was required to include SLR disclosures, calculated on a transitional basis, with its other Basel disclosures. 9 Liquidity Coverage Ratio and Net Stable Funding Ratio In addition to capital standards, the Basel III final rule introduced two quantitative liquidity standards: the LCR and the NSFR. In 2014, U.S. banking regulators issued a final rule to implement the BCBS' LCR in the United States. The LCR is intended to promote the short- term resilience of internationally active banking organizations, like State Street, to improve the banking industry's ability to absorb shocks arising from market stress over a 30 calendar day period and improve the measurement and management of liquidity risk. The LCR measures an institution’s HQLA against its net cash outflows. The LCR began being phased in on January 1, 2015, at 80%, with full implementation beginning on January 1, 2017. In January 2015, State Street was required to begin reporting its LCR to the Federal Reserve on a monthly basis. Daily reporting of the LCR to the Federal Reserve began in July 2015. As of December 31, 2015, our LCR was in excess of 100%. Compliance with the LCR has required that we maintain an investment portfolio that contains an adequate amount of HQLA. In general, HQLA investments generate a lower investment return than other types of investments, resulting in a negative impact on our net interest revenue and our net interest margin. In addition, the level of HQLA we are required to maintain under the LCR is dependent upon our client relationships and the nature of services we provide, which may change over time. For example, if the percentage of our operational deposits relative to deposits that are not maintained for operational purposes increases, we would expect to require less HQLA in order to maintain our LCR. Conversely, if the percentage of our operational deposits relative to deposits that are not maintained for operational purposes decreases, we would expect to require additional HQLA in order to maintain our LCR. In October 2014, the Basel Committee issued final guidance with respect to the NSFR. The NSFR will require banking organizations to maintain a stable funding profile relative to the composition of their assets and off-balance sheet activities. The NSFR limits over-reliance on short-term wholesale funding, encourages better assessment of funding risk across all on- and off-balance sheet exposures, and promotes funding stability. The final guidance establishes a one-year liquidity standard representing the proportion of long-term assets funded by long- term stable funding, with the NSFR scheduled to become a minimum standard beginning on January 1, 2018. U.S. banking regulators have not yet issued a proposal to implement the NSFR. We are reviewing the specifics of the final Basel guidance and will evaluate the U.S. implementation of this standard to analyze the impact and develop strategies for compliance as rules are proposed. Failure to meet current and future regulatory capital requirements could subject us to a variety of enforcement actions, including the termination of State Street Bank's deposit insurance by the FDIC, and to certain restrictions on our business, including those that are described above in this “Supervision and Regulation” section. For additional information about our regulatory capital position and our regulatory capital adequacy, as well as current and future regulatory capital requirements, refer to “Financial Condition - Capital” in Management's Discussion and Analysis included under Item 7, and Note 16 to the consolidated financial statements included under Item 8 of this Form 10-K. Capital Planning, Stress Tests and Dividends Pursuant to the Dodd-Frank Act, the Federal Reserve has adopted capital planning and stress test requirements for large bank holding companies, including us, which form part of the Federal Reserve’s annual CCAR framework. CCAR is used by the Federal Reserve to evaluate our management of capital, the adequacy of our regulatory capital and the potential requirement for us to maintain capital levels above regulatory minimums. Under the Federal Reserve’s capital plan final rule, we must conduct periodic stress testing of our business operations and submit an annual capital plan to the Federal Reserve, taking into account the results of separate stress tests designed by us and by the Federal Reserve. The capital plan must include a description of all of our planned capital actions over a nine-quarter planning horizon, including any issuance of debt or equity capital instruments, any capital distributions, such as payments of dividends on, or purchases of, our stock, and any similar action that the Federal Reserve determines could affect our consolidated capital. The capital plan must include a discussion of how we will maintain capital above the minimum regulatory capital ratios, including the minimum ratios under the U.S. Basel III final rule that are phased in over the planning horizon, and serve as a source of strength to our U.S. depository institution subsidiaries under supervisory stress scenarios. The capital plan requirements mandate that we receive no objection to our plan from the Federal Reserve before making a capital distribution. These requirements could require us to revise our stress-testing or capital management approaches, resubmit our capital plan or postpone, cancel or alter our planned capital actions. In addition, changes in our strategy, merger or 10 acquisition activity or unanticipated uses of capital could result in a change in our capital plan and its associated capital actions, including capital raises or modifications to planned capital actions, such as purchases of our stock, and may require resubmission of the capital plan to the Federal Reserve for its non-objection if, among other reasons, we would not meet our regulatory capital requirements after making the proposed capital distribution. For additional information regarding capital planning and stress test requirements and restrictions on dividends, refer to "Capital Planning, Stress Tests and Dividends” in this “Supervision and Regulation” section and Item 5, "Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities” in Part II of this Form 10-K. In addition to its capital planning requirements, the Federal Reserve has the authority to prohibit or to limit the payment of dividends by the banking organizations it supervises, including us and State Street Bank, if, in the Federal Reserve’s opinion, the payment of a dividend would constitute an unsafe or unsound practice in light of the financial condition of the banking organization. All of these policies and other requirements could affect our ability to pay dividends and purchase our stock, or require us to provide capital assistance to State Street Bank and any other banking subsidiary. In March 2015, we received the results of the Federal Reserve’s review of our 2015 capital plan in connection with its 2015 annual CCAR process. The Federal Reserve did not object to the capital actions we proposed in our 2015 capital plan and, in March 2015, our Board approved a new common stock purchase program authorizing the purchase of up to $1.8 billion of our common stock through June 30, 2016. As of December 31, 2015, we purchased approximately 14.2 million shares of our common stock at an average per-share cost of $73.72 and an aggregate cost of approximately $1.05 billion under this program. Our 2015 capital plan included an increase, subject to approval by our Board, to our quarterly stock dividend to $0.34 per share from $0.30 per share, beginning in the second quarter of 2015. In 2012, the Federal Reserve issued a final rule to implement its capital stress-testing requirements under the Dodd-Frank Act that require us to conduct semi-annual State Street-run stress tests. Under this rule, we are required to publicly disclose the summary results of our State Street-run stress tests under the severely adverse economic scenario. In July 2015, we provided summary results of our 2015 mid-cycle State Street-run stress tests on the “Investor Relations” section of our corporate website. The rule also subjects us to an annual supervisory stress test conducted by the Federal Reserve. The Dodd-Frank Act also requires State Street Bank to conduct an annual stress test. State Street Bank must submit its 2016 annual State Street Bank- run stress test to the Federal Reserve by April 5, 2016. The Volcker Rule In December 2013, U.S. regulators issued final regulations to implement the Volcker rule. The Volcker rule prohibits banking entities, including us and our affiliates, from engaging in certain prohibited proprietary trading activities, as defined in the final Volcker rule regulations, subject to exemptions for market-making related activities, risk-mitigating hedging, underwriting and certain other activities. The Volcker rule will also require banking entities to either restructure or divest certain ownership interests in, and relationships with, covered funds (as such terms are defined in the final Volcker rule regulations). The Volcker rule became effective in July 2012, and the final implementing regulations became effective in April 2014. We were required to bring our activities and investments into conformance with the Volcker rule and its final regulations by July 21, 2015. In December 2014, the Federal Reserve issued an order, the 2016 conformance period extension, extending the Volcker rule’s general conformance period until July 21, 2016 for investments in and relationships with covered funds and certain foreign funds that were in place on or prior to December 31, 2013, referred to as legacy covered funds. Under the 2016 conformance period extension, all investments in and relationships 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, 2015. The Federal Reserve stated in the 2016 conformance period extension that it intends to grant a final one-year extension of the general conformance period, to July 21, 2017, for banking entities to conform ownership interests in and relationships with legacy covered funds. Whether certain types of investment securities or structures such as CLOs constitute covered funds, as defined in the final Volcker rule regulations, and do not benefit from the exemptions provided in the Volcker rule, and whether a banking organization's investments therein constitute ownership interests remain subject to (1) market, and ultimately regulatory, interpretation, and (2) the specific terms and other characteristics relevant to such investment securities and structures. 11 As of December 31, 2015, we held approximately $2.10 billion of investments in CLOs. As of the same date, these investments had an aggregate pre-tax net unrealized gain of approximately $43 million, composed of gross unrealized gains of $46 million and gross unrealized losses of $3 million. Comparatively, as of December 31, 2014, we held approximately $4.54 billion of investments in CLOs which had an aggregate pre-tax net unrealized gain of approximately $97 million composed of gross unrealized gains of $105 million and gross unrealized losses of $8 million. In the event that we or our banking regulators conclude that such investments in CLOs, or other investments, are covered funds, we may be required to divest 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 such investments at a significant discount compared to the investments' book value. This could result in a material adverse effect on our consolidated statement of income or on our consolidated statement of 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 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. Enhanced Prudential Standards The Dodd-Frank Act established a new regulatory framework to regulate banking organizations designated as SIFIs, and has subjected them to heightened prudential standards, including heightened capital, leverage, liquidity and risk management requirements, single-counterparty credit limits and early remediation requirements. Bank holding companies with $50 billion or more in consolidated assets, which includes us, became automatically subject to the systemic-risk regime in 2010. The FSOC can recommend prudential standards, reporting and disclosure requirements to the Federal Reserve for SIFIs, and must approve any finding by the Federal Reserve that a financial institution poses a grave threat to financial stability and must undertake mitigating actions. The FSOC is also empowered to designate systemically important payment, clearing and settlement activities of financial institutions, subjecting them to prudential supervision and regulation, and, assisted by the new Office of Financial Research within the U.S. Department of the Treasury, also established by the Dodd-Frank Act, can gather data and reports from financial institutions, including us. In February 2014, the Federal Reserve approved a final rule implementing certain of the Dodd-Frank Act’s enhanced prudential standards for large bank holding companies such as State Street. Under the final rule, we will have to comply with various liquidity-related risk management standards and maintain a liquidity buffer of unencumbered highly liquid assets based on the results of internal liquidity stress testing. This liquidity buffer is in addition to other liquidity requirements, such as the LCR and, when implemented, the NSFR. The final rule also establishes requirements and responsibilities for our risk committee and mandates risk management standards. We became subject to these new standards on January 1, 2015. Final rules on single counterparty credit limits and an early termination framework have not yet been promulgated. Refer to the risk factor titled “We assume significant credit risk to counterparties, many of which are major financial institutions. These financial institutions and other counterparties may also have substantial financial dependencies with other financial institutions and sovereign entities. This credit exposure and concentration could expose us to financial loss” included under "Risk Factors" under Item 1A of this Form 10-K. In addition, the final rules create a new early-remediation regime to address financial distress or material management weaknesses determined with reference to four levels of early remediation, including heightened supervisory review, initial remediation, recovery, and resolution assessment, with specific limitations and requirements tied to each level. The systemic-risk regime also provides that, for institutions deemed to pose a grave threat to U.S. financial stability, the Federal Reserve, upon an FSOC vote, must limit that institution’s ability to merge, restrict its ability to offer financial products, require it to terminate activities, impose conditions on activities or, as a last resort, require it to dispose of assets. Upon a grave-threat determination by the FSOC, the Federal Reserve must issue rules that require financial institutions subject to the systemic- risk regime to maintain a debt-to-equity ratio of no more than 15 to 1 if the FSOC considers it necessary to mitigate the risk of the grave threat. The Federal Reserve also has the ability to establish further standards, including those regarding contingent capital, enhanced public disclosures, and limits on short-term debt, including off-balance sheet exposures. 12 Resolution Planning As required by the Dodd-Frank Act, the FDIC and the Federal Reserve jointly issued a final rule pursuant to which we are required to submit annually to the Federal Reserve and the FDIC a plan for our rapid and orderly resolution under the Bankruptcy Code (or other specifically applicable insolvency regime) in the event of material financial distress or failure, referred to as a resolution plan. The FDIC also issued a final rule pursuant to which State Street Bank is required to submit annually to the FDIC a plan for resolution in the event of its failure, referred to as an IDI plan. We timely submitted our most recent annual resolution plan to the Federal Reserve and the FDIC on July 1, 2015 and State Street Bank timely submitted its most recent IDI plan to the FDIC on September 1, 2015. Through resolution planning, State Street seeks, 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 State Street’s stakeholders. State Street has and will continue to focus management attention and resources to meet regulatory expectations with respect to resolution planning. As set out in its 2015 resolution plan, in the event of material financial distress or failure, State Street’s preferred resolution strategy, referred to as the single point of entry strategy, provides for the recapitalization of State Street Bank by the parent company (for example, by forgiving inter-company indebtedness of State Street Bank owed to the parent company) prior to the parent company’s entry into bankruptcy proceedings. The recapitalization is intended to enable State Street Bank and its material subsidiaries to continue operating. Under this single point of entry strategy, State Street Bank and its material entity subsidiaries 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. In 2014, the Federal Reserve and the FDIC announced the completion of their reviews of resolution plans submitted in 2013 by 11 large, complex banking organizations, including State Street, under the requirements of the Dodd-Frank Act, and informed each of these organizations of specific shortcomings with their respective 2013 resolution plans. As of February 19, 2016, the Federal Reserve and the FDIC had not announced the outcomes of their reviews of plans submitted in 2015. If we fail to meet regulatory expectations to the satisfaction of the Federal Reserve and the FDIC in the submission of our 2015 resolution plan, we could be subject to more stringent capital, leverage or liquidity requirements, restrictions on our growth, activities or operations, or be required to divest certain of our assets or operations. Orderly Liquidation Authority Under the Dodd-Frank Act, certain financial companies, including bank holding companies such as State Street, and certain covered subsidiaries, can be subjected to a new orderly liquidation authority. The U.S. Treasury Secretary, in consultation with the President, must first make certain extraordinary financial distress and systemic risk determinations, and action must be recommended by two-thirds of the FDIC Board and two-thirds of the Federal Reserve Board. Absent such actions, we, as a bank holding company, would remain subject to the U.S. Bankruptcy Code. The orderly liquidation authority went into effect in July 2010, and rulemaking is proceeding in stages, with some regulations now finalized and others planned but not yet proposed. If we were subject to the orderly liquidation authority, the FDIC would be appointed as our receiver, which would give the FDIC considerable powers to resolve us, including: (1) the power to remove officers and directors responsible for our failure and to appoint new directors and officers; (2) the power to assign assets and liabilities to a third party or bridge financial company without the need for creditor consent or prior court review; (3) the ability to differentiate among creditors, including by treating junior creditors better than senior creditors, subject to a minimum recovery right to receive at least what they would have received in bankruptcy liquidation; and (4) broad powers to administer the claims process to determine distributions from the assets of the receivership to creditors not transferred to a third party or bridge financial institution. In December 2013, the FDIC released its proposed single-point-of-entry strategy for resolution of a SIFI under the orderly liquidation authority. The FDIC’s release outlines how it would use its powers under the orderly liquidation authority to resolve a SIFI by placing its top-tier U.S. holding company in receivership and keeping its operating subsidiaries open and out of insolvency proceedings by transferring the operating subsidiaries to a new bridge holding company, recapitalizing the operating subsidiaries and imposing losses on the shareholders and creditors of the holding company in receivership according to their statutory order of priority. 13 Derivatives Title VII of the Dodd-Frank Act imposes a new regulatory structure on the over-the-counter derivatives market, including requirements for clearing, exchange trading, capital, margin, reporting and record-keeping. In addition, certain derivative activities are required to be pushed out of insured depository institutions and conducted in separately capitalized non-bank affiliates. Title VII also requires certain persons to register as a major swap participant, a swap dealer or a securities-based swap dealer. The CFTC, the SEC, and other U.S. regulators have adopted and are still in the process of adopting regulations to implement Title VII. Through this rulemaking process, these regulators collectively have adopted or proposed, among other things, regulations relating to reporting and record-keeping obligations, margin and capital requirements, the scope of registration and the central clearing and exchange trading requirements for certain over-the- counter derivatives. The CFTC has also issued rules to enhance the oversight of clearing and trading entities. The CFTC, along with other regulators, including the Federal Reserve, are also in the process of proposing and finalizing additional rules, such as with respect to margin requirements for uncleared derivatives transactions. State Street Bank has registered provisionally with the CFTC as a swap dealer. As a provisionally registered swap dealer, State Street Bank is subject to significant regulatory obligations regarding its swap activity and the supervision, examination and enforcement powers of the CFTC and other regulators. In December 2013, the CFTC granted State Street Bank a limited-purpose swap dealer designation. Under this limited-purpose designation, interest-rate swap activity engaged in by State Street Bank’s Global Treasury group is not subject to certain of the swap regulatory requirements otherwise applicable to swaps entered into by a registered swap dealer, subject to a number of conditions. For all other swap transactions, our swap activities remain subject to all applicable swap dealer regulations. Money Market Funds In July 2014, the SEC adopted amendments to the regulations governing money market funds to address potential systemic risks and improve transparency for money market fund investors. Among other things, the amendments require a floating net asset value for institutional prime money market funds (i.e., money market funds that are either not restricted to natural person investors or not restricted to investing primarily in U.S. government securities) and permit (and in some cases require) all money market funds to impose redemption fees and gates under certain circumstances. As a result of these reforms, money market funds may be required to take certain steps that will affect their structure and/or operations, which could in turn affect the liquidity, marketability and return potential of such funds. Full conformance with these amendments is required by October 14, 2016. Money market reforms are also being considered in Europe. The timing and content of those regulations remains uncertain. The SEC's July 2014 amended regulations, and the potential reforms in Europe, could alter the business models of money market fund sponsors and asset managers, including many of our servicing clients and SSGA, and may result in reduced levels of investment in money market funds. As a result, these requirements may have an adverse impact on our business, our operations or our consolidated results of operations. Subsidiaries The Federal Reserve is the primary federal banking agency responsible for regulating us and our subsidiaries, including State Street Bank, with respect to both our U.S. and non-U.S. operations. Our banking subsidiaries are subject to supervision and examination by various regulatory authorities. State Street Bank is a member of the Federal Reserve System, its deposits are insured by the FDIC and it is subject to applicable federal and state banking laws and to supervision and examination by the Federal Reserve, as well as by the Massachusetts Commissioner of Banks, the FDIC, and the regulatory authorities of those states and countries in which State Street Bank operates a branch. Our other subsidiary trust companies are subject to supervision and examination by the Office of the Comptroller of the Currency, the Federal Reserve or by the appropriate state banking regulatory authorities of the states in which they are organized and operate. Our non-U.S. banking subsidiaries are subject to regulation by the regulatory authorities of the countries in which they operate. As of December 31, 2015, the capital of each of these banking subsidiaries exceeded the minimum legal capital requirements set by those regulatory authorities. We and our subsidiaries that are not subsidiaries of State Street Bank are affiliates of State Street Bank under federal banking laws, which impose restrictions on various types of transactions, including loans, extensions of credit, investments or asset purchases by or from State Street Bank, on the one hand, to us and those of our subsidiaries, on the other. Transactions of this kind between State Street Bank and its affiliates are limited with respect to each affiliate to 10% of State Street Bank’s capital and surplus, as defined by the aforementioned banking laws, and to 20% in the aggregate for all affiliates, and in some cases are also subject to strict collateral requirements. Under the Dodd-Frank Act, effective in 14 July 2012, derivatives, securities borrowing and securities lending transactions between State Street Bank and its affiliates became subject to these restrictions. The Dodd-Frank Act also expanded the scope of transactions required to be collateralized. In addition, the Volcker rule generally prohibits similar transactions between the parent company or any of its affiliates and covered funds for which we or any of our affiliates serve as the investment manager, investment adviser, commodity trading advisor or sponsor and other covered funds organized and offered pursuant to specific exemptions in the final Volcker rule regulations. Federal law also requires that certain transactions with affiliates be on terms and under circumstances, including credit standards, that are substantially the same, or at least as favorable to the institution, as those prevailing at the time for comparable transactions involving other non-affiliated companies. Alternatively, in the absence of comparable transactions, the transactions must be on terms and under circumstances, including credit standards, that in good faith would be offered to, or would apply to, non-affiliated companies. State Street Bank is also prohibited from engaging in certain tie-in arrangements in connection with any extension of credit or lease or sale of property or furnishing of services. Federal law provides as well for a depositor preference on amounts realized from the liquidation or other resolution of any depository institution insured by the FDIC. Our subsidiaries, SSGA FM and SSGA Ltd., act as investment advisers to investment companies registered under the Investment Company Act of 1940. SSGA FM, incorporated in Massachusetts in 2001 and headquartered in Boston, Massachusetts, is registered with the SEC as an investment adviser under the Investment Advisers Act of 1940 and is registered with the CFTC as a commodity trading adviser and pool operator. SSGA Ltd., incorporated in 1990 as a U.K. limited company and domiciled in the U.K., is also registered with the SEC as an investment adviser under the Investment Advisers Act of 1940. SSGA Ltd. is also authorized and regulated by the U.K. FCA and is an investment firm under the MiFID. SSGA FM and SSGA Ltd. each offer a variety of investment management solutions, including active, enhanced and passive equity, active and passive fixed-income, cash management, multi-asset class solutions and real estate. In addition, a major portion of our investment management activities are conducted by State Street Bank, which is subject to supervision primarily by the Federal Reserve with respect to these activities. Our U.S. broker/dealer subsidiary is registered as a broker/dealer with the SEC, is subject to regulation by the SEC (including the SEC’s net capital rule) and is a member of the Financial Industry Regulatory Authority, a self-regulatory organization. The U.K. broker/dealer business operates through our subsidiary, State Street Global Markets International Limited, which is registered in the U.K. as a regulated securities broker, is authorized and regulated by the FCA and is an investment firm under the MiFID. It is also a member of the London Stock Exchange. In accordance with the rules of the FCA, the U.K. broker/dealer publishes information on its risk management objectives and on policies associated with its regulatory capital requirements and resources. Many aspects of our investment management activities are subject to federal and state laws and regulations primarily intended to benefit the investment holder, rather than our shareholders. Our activities as a futures commission merchant are subject to regulation by the CFTC in the U.S. and various regulatory authorities internationally, as well as the membership requirements of the applicable clearinghouses. In addition, we have a subsidiary registered with the CFTC as a swap execution facility, and our U.S. broker/dealer subsidiary also offers a U.S. equities alternative trading system registered with the SEC. These laws and regulations generally grant supervisory agencies and bodies broad administrative powers, including the power to limit or restrict us from conducting our investment management activities in the event that we fail to comply with such laws and regulations, and examination authority. Our business related to investment management and trusteeship of collective trust funds and separate accounts offered to employee benefit plans is subject to ERISA, and is regulated by the U.S. Department of Labor. Our businesses, including our investment management and securities and futures businesses, are also regulated extensively by non-U.S. governments, securities exchanges, self-regulatory organizations, central banks and regulatory bodies, especially in those jurisdictions in which we maintain an office. For instance, among others, the FCA, the U.K. PRA and the Bank of England regulate our activities in the U.K.; the Central Bank of Ireland regulates our activities in Ireland; the German Federal Financial Supervisory Authority regulates our activities in Germany; the Commission de Surveillance du Secteur Financier regulates our activities in Luxembourg; our German banking group and the Luxembourg banks are also subject to direct supervision by the European Central Bank under the ECB Single Supervisory Mechanism; the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission regulate our activities in Australia; and the Financial Services Agency and the Bank of Japan regulate our activities 15 in Japan. We have established policies, procedures, and systems designed to comply with the requirements of these organizations. However, as a global financial services institution, we face complexity and costs related to regulation. The majority of our non-U.S. asset servicing operations are conducted pursuant to the Federal Reserve's Regulation K through State Street Bank’s Edge Act subsidiary or through international branches of State Street Bank. An Edge Act corporation is a corporation organized under federal law that conducts foreign business activities. In general, banks may not make investments in their Edge Act corporations (and similar state law corporations) that exceed 20% of their capital and surplus, as defined, and the investment of any amount in excess of 10% of capital and surplus requires the prior approval of the Federal Reserve. In addition to our non-U.S. operations conducted pursuant to Regulation K, we also make new investments abroad directly (through us or through our non-banking subsidiaries) pursuant to the Federal Reserve's Regulation Y, or through international bank branch expansion, which are not subject to the investment limitations applicable to Edge Act subsidiaries. Additionally, Massachusetts has its own bank holding company statute, under which State Street, among other things, may be required to obtain prior approval by the Massachusetts Board of Bank Incorporation for an acquisition of more than 5% of any additional bank's voting shares, or for other forms of bank acquisitions. Anti-Money Laundering and Financial Transparency We and certain of our subsidiaries are subject to the Bank Secrecy Act of 1970, as amended by the USA PATRIOT Act of 2001, which contains AML and financial transparency provisions and requires implementation of regulations applicable to financial services companies, including standards for verifying client identification and monitoring client transactions and detecting and reporting suspicious activities. AML laws outside the U.S. contain similar requirements. We have implemented policies, procedures and internal controls that are designed to comply with all applicable AML laws and regulations. Compliance with applicable AML and related requirements is a common area of review for financial regulators, and our level of compliance with these requirements could result in fines, penalties, lawsuits, regulatory sanctions or difficulties in obtaining approvals, restrictions on our business activities or harm to our reputation. On June 1, 2015, State Street entered into a written agreement with the Federal Reserve and the Massachusetts Division of Banks relating to deficiencies identified in State Street's 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, State Street is 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. If 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 our results of operations or financial condition. Deposit Insurance FDIC-insured depository institutions are required to pay deposit insurance assessments to the FDIC. The Dodd-Frank Act made permanent the general $250,000 deposit insurance limit for insured deposits. The FDIC’s DIF is funded by assessments on insured depository institutions. The FDIC assesses DIF premiums based on an insured depository institution's average consolidated total assets, less the average tangible equity of the insured depository institution during the assessment period. For larger institutions, such as State Street Bank, assessments are determined based on regulatory ratings and forward-looking financial measures to calculate the assessment rate, which is subject to adjustments by the FDIC, and the assessment base. The Dodd-Frank Act also directed the FDIC to determine whether and to what extent adjustments to the assessment base are appropriate for “custody banks". The FDIC has concluded that certain liquid assets could be excluded from the deposit insurance assessment base of custody banks that satisfy specified institutional eligibility criteria. This has the effect of reducing the amount of DIF insurance premiums due from custody banks. State Street Bank is a custody bank for this purpose. The custody bank assessment adjustment may not exceed total transaction account deposits identified by the institution as being directly linked to a fiduciary or custody and safekeeping asset. Prompt Corrective Action The FDIC Improvement Act of 1991 requires the appropriate federal banking regulator to take “prompt corrective action” with respect to a depository institution if that institution does not meet certain capital adequacy standards. While these regulations apply only to banks, such as State Street Bank, the Federal Reserve is authorized to take appropriate 16 action against a parent bank holding company, such as our parent company, based on the under- capitalized status of any banking subsidiary. In certain instances, we would be required to guarantee the performance of the capital restoration plan for our under-capitalized banking subsidiary. Support of Subsidiary Banks Under Federal Reserve regulations, a bank holding company such as our parent company is required to act as a source of financial and managerial strength to its banking subsidiaries. This requirement was added to the Federal Deposit Insurance Act by the Dodd-Frank Act and means that we are expected to commit resources to State Street Bank and any other banking subsidiary in circumstances in which we otherwise might not do so absent such a requirement. In the event of bankruptcy, any commitment by us to a federal bank regulatory agency to maintain the capital of a banking subsidiary will be assumed by the bankruptcy trustee and will be entitled to a priority payment. Insolvency of an Insured U.S. Subsidiary Depository Institution If the FDIC is appointed the conservator or receiver of an FDIC-insured U.S. subsidiary depository institution, such as State Street Bank, upon its insolvency or certain other events, the FDIC has the ability to transfer any of the depository institution’s assets and liabilities to a new obligor without the approval of the depository institution’s creditors, enforce the terms of the depository institution’s contracts pursuant to their terms or repudiate or disaffirm contracts or leases to which the depository institution is a party. Additionally, the claims of holders of deposit liabilities and certain claims for administrative expenses against an insured depository institution would be afforded priority over other general unsecured claims against such an institution, including claims of debt holders of the institution and, under current interpretation, depositors in non-U.S. offices, in the liquidation or other resolution of such an institution by any receiver. As a result, such persons would be treated differently from and could receive, if anything, substantially less than the depositors in U.S. offices of the depository institution. ECONOMIC CONDITIONS AND GOVERNMENT POLICIES Economic policies of the U.S. government and its agencies influence our operating environment. Monetary policy conducted by the Federal Reserve directly affects the level of interest rates, which may affect overall credit conditions of the economy. Monetary policy is applied by the Federal Reserve through open market operations in U.S. government securities, changes in reserve requirements for depository institutions, and changes in the discount rate and availability of borrowing from the Federal Reserve. Government regulation of banks and bank holding companies is intended primarily for the protection of depositors of the banks, rather than for the shareholders of the institutions and therefore may, in some cases, be adverse to the interests of those shareholders. We are similarly affected by the economic policies of non-U.S. government agencies, such as the ECB. STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES The following information, included under Items 6, 7 and 8 of this Form 10-K, is incorporated by reference herein: “Selected Financial Data” table (Item 6) - presents return on average common equity, return on average assets, common dividend payout and equity- to-assets ratios. “Distribution of Average Assets, Liabilities and Shareholders’ Equity; Interest Rates and Interest Differential” table (Item 8) - presents consolidated average balance sheet amounts, related fully taxable- equivalent interest earned and paid, related average yields and rates paid and changes in fully taxable- equivalent interest revenue and interest expense for each major category of interest-earning assets and interest-bearing liabilities. “Investment Securities” section included in Management's Discussion and Analysis (Item 7) and Note 3, “Investment Securities,” to the consolidated financial statements (Item 8) - disclose information regarding book values, market values, maturities and weighted-average yields of securities (by category). Note 4, “Loans and Leases,” to the consolidated financial statements (Item 8) - discloses our policy for placing loans and leases on non-accrual status. “Loans and Leases” section included in Management’s Discussion and Analysis (Item 7) and Note 4, “Loans and Leases,” to the consolidated financial statements (Item 8) - disclose distribution of loans, loan maturities and sensitivities of loans to changes in interest rates. “Loans and Leases” and “Cross-Border Outstandings” sections of Management’s Discussion and Analysis (Item 7) - disclose information regarding cross-border outstandings and other loan concentrations of State Street. “Credit Risk Management” section included in Management’s Discussion and Analysis (Item 7) and Note 4, “Loans and Leases,” to the consolidated financial statements (Item 8) - present the allocation of the allowance for loan losses, and a description of factors which influenced management’s judgment in determining amounts of additions or reductions to the allowance, if any, charged or credited to results of operations. 17 “Distribution of Average Assets, Liabilities and Shareholders’ Equity; Interest Rates and Interest Differential” table (Item 8) - discloses deposit information. Note 8, “Short-Term Borrowings,” to the consolidated financial statements (Item 8) - discloses information regarding short-term borrowings of State Street. ITEM 1A. RISK FACTORS Forward-Looking Statements This Form 10-K, as well as other reports submitted by us under the Securities Exchange Act of 1934, registration statements filed by us under the Securities Act of 1933, our annual report to shareholders and other public statements we may make, contain statements (including statements in the Management's Discussion and Analysis) 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, expected outcomes of legal proceedings, market growth, acquisitions, joint ventures and divestitures and new technologies, services and opportunities, as well as regarding industry, regulatory, economic and market trends, initiatives and developments, the business environment and other matters that do not relate strictly to historical facts. Terminology such as “plan,” “expect,” “intend,” “objective,” “forecast,” “outlook,” “believe,” “anticipate,” “estimate,” “seek,” “may,” “will,” “trend,” “target,” “strategy” and “goal,” or similar statements or variations of such terms, are intended to identify forward-looking statements, although not all forward- looking statements contain such terms. Forward-looking statements are subject to various risks and uncertainties, which change over time, are based on management's expectations and assumptions at the time the statements are made, and are not guarantees of future results. Management's expectations and assumptions, and the continued validity of the forward-looking statements, are subject to change due to a broad range of factors affecting the national and global economies, regulatory environment and the equity, debt, currency and other financial markets, as well as factors specific to State Street and its subsidiaries, including State Street Bank. Factors that could cause changes in the expectations or assumptions on which forward-looking statements are based cannot be foreseen with certainty and include, but are not limited to: • the financial strength and continuing viability of the counterparties with which we or our clients do business and to which we have 18 • • • • • • investment, credit or financial exposure, including, for example, the direct and indirect effects on counterparties of the sovereign- debt risks in the U.S., Europe and other regions; increases in the volatility of, or declines in the level of, our net interest revenue, changes in the composition or valuation of the assets recorded in our consolidated statement of condition (and our ability to measure the fair value of investment securities) and the possibility that we may change the manner in which we fund those assets; the liquidity of the U.S. and international securities markets, particularly the markets for fixed-income securities and inter-bank credits, and the liquidity requirements of our clients; the level and volatility of interest rates, the valuation of the U.S. dollar relative to other currencies in which we record revenue or accrue expenses and the performance and volatility of securities, credit, currency and other markets in the U.S. and internationally; the credit quality, credit-agency ratings and fair values of the securities in our investment securities portfolio, a deterioration or downgrade of which could lead to other-than- temporary impairment of the respective securities and the recognition of an impairment loss in our consolidated statement of income; our ability to attract deposits and other low- cost, short-term funding, 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 requirements and risk profile; the manner and timing with which the Federal Reserve and other U.S. and foreign regulators implement changes to the regulatory framework applicable to our operations, including implementation of the Dodd-Frank Act, the Basel III final rule and European legislation (such as the Alternative Investment Fund Managers Directive, 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 and compliance programs, and changes in governmental enforcement approaches to perceived failures to comply with regulatory or legal obligations; adverse changes in the regulatory ratios that we are required or will be required to meet, whether arising under the Dodd-Frank Act or the Basel III final rule, or due to changes in regulatory positions, practices or regulations in jurisdictions in which we engage in banking activities, including changes in internal or external data, formulae, models, assumptions or other advanced systems used in the calculation of our capital ratios that cause changes in those ratios as they are measured from period to period; increasing requirements to obtain the prior approval of the Federal Reserve or our other U.S. and non-U.S. regulators for the use, allocation or distribution of our capital or other specific capital actions or programs, including acquisitions, dividends and stock purchases, without which our growth plans, distributions to shareholders, share repurchase programs or other capital initiatives may be restricted; changes in law or regulation, or the enforcement of law or regulation, that may adversely affect our business activities or those of our clients or our counterparties, and the products or services that we sell, including additional or increased taxes or assessments thereon, capital adequacy requirements, margin requirements and changes that expose us to risks related to the adequacy of our controls or compliance programs; financial market disruptions or economic recession, whether in the U.S., Europe, Asia or other regions; our ability to develop and execute State Street Beacon, our multi-year program to create cost efficiencies through changes to our operations and to further digitize our service delivery to our clients, any failure of which, in whole or in part, may among other things, reduce our competitive position, diminish the cost-effectiveness of our systems and processes or provide an • • • • • 19 • • • • • • • • • • insufficient return on our associated investment; our ability to promote a strong culture of risk management, operating controls, compliance oversight and governance that meet our expectations and those of our clients and our regulators; the results of our review of the manner in which we invoiced certain client expenses, including the amount of expenses determined to be reimbursable, as well as potential consequences of such review including with respect to our client relationships and potential investigations by regulators; the results of, and costs associated with, governmental or regulatory inquiries and investigations, litigation and similar claims, disputes, or proceedings; the potential for losses arising from our investments in sponsored investment funds; the possibility that our clients will incur substantial losses in investment pools for which we act as agent, and the possibility of significant reductions in the liquidity or valuation of assets underlying those pools; our ability to anticipate and manage the level and timing of redemptions and withdrawals from our collateral pools and other collective investment products; the credit agency ratings of our debt and depository obligations and investor and client perceptions of our financial strength; adverse publicity, whether specific to State Street or regarding other industry participants or industry-wide factors, or other reputational harm; our ability to control operational risks, data security breach risks and outsourcing risks, our ability to protect our intellectual property rights, the possibility of errors in the quantitative models we use to manage our business and the possibility that our controls will prove insufficient, fail or be circumvented; our ability to expand our use of technology to enhance the efficiency, accuracy and reliability of our operations and our dependencies on information technology and our ability to control related risks, including cyber-crime and other threats to our information technology infrastructure and systems and their effective operation both independently and with external systems, and complexities and costs of protecting the security of our systems and data; our expectations or beliefs as of any date subsequent to the time this Form 10-K is filed with the SEC. We undertake no obligation to revise our forward-looking statements after the time they are made. The factors discussed 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. • • • • • • • • our ability to grow revenue, manage expenses, attract and retain highly skilled people and raise the capital necessary to achieve our business goals and comply with regulatory requirements and expectations; changes or potential changes to the competitive environment, including changes due to regulatory and technological changes, the effects of industry consolidation and perceptions of State Street as a suitable service provider or counterparty; changes or potential changes in the amount of compensation we receive from clients for our services, and the mix of services provided by us that clients choose; our ability to complete acquisitions, joint ventures and divestitures, including the ability to obtain regulatory approvals, the ability to arrange financing as required and the ability to satisfy closing conditions; the risks that our acquired businesses and joint ventures will not achieve their anticipated financial and operational benefits or will not be integrated successfully, or that the integration will take longer than anticipated, that expected synergies will not be achieved or unexpected negative synergies or liabilities will be experienced, that client and deposit retention goals will not be met, that other regulatory or operational challenges will be experienced, and that disruptions from the transaction will harm our relationships with our clients, our employees or regulators; our ability to recognize emerging needs of our clients and to develop products that are responsive to such trends and profitable to 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-K or disclosed in our other SEC filings. Forward-looking statements in this Form 10-K should not be relied on as representing 20 Risk Factors In the normal course of our business activities, we are exposed to a variety of risks. The following is a discussion of various risk factors applicable to State Street. Additional information about our risk management framework is included under “Risk Management” in Management’s Discussion and Analysis included under Item 7 of this Form 10-K. Additional risks beyond those described in Management's Discussion and Analysis or in the following discussion may be inherent in our activities or operations as currently conducted, or as we may conduct them in the future, or in the markets in which we operate or may in the future operate. Credit and Counterparty, Liquidity and Market Risks We assume significant credit risk to counterparties, many of which are major financial institutions. These financial institutions and other counterparties may also have substantial financial dependencies with other financial institutions and sovereign entities. This credit exposure and concentration could expose us to financial loss. The financial markets are characterized by extensive interdependencies among numerous parties, including banks, central banks, broker/ dealers, insurance companies and other financial institutions. These financial institutions also include collective investment funds, such as mutual funds, UCITS and hedge funds that share these interdependencies. Many financial institutions, including collective investment funds also hold, or are exposed to, loans, sovereign debt, fixed-income securities, derivatives, counterparty and other forms of credit risk in amounts that are material to their financial condition. As a result of our own business practices and these interdependencies, we and many of our clients have concentrated counterparty exposure to other financial institutions and collective investment funds, particularly large and complex institutions, sovereign issuers, mutual funds and UCITS and hedge funds. Although we have procedures for monitoring both individual and aggregate counterparty risk, significant individual and aggregate counterparty exposure is inherent in our business, as our focus is on servicing large institutional investors. In the normal course of our business, we assume concentrated credit risk at the individual obligor, counterparty or group level. Such concentrations may be material and can often exceed 10% of our consolidated total shareholders' equity. Our material counterparty exposures change daily, and the counterparties or groups of related counterparties to which our risk exposure exceeds 10% of our consolidated total shareholders' equity are also variable during any reported period; however, our largest exposures tend to be to other financial institutions. Concentration of counterparty exposure presents significant risks to us and to our clients because the failure or perceived weakness of our counterparties (or in some cases of our clients' counterparties) has the potential to expose us to risk of financial loss. Changes in market perception of the financial strength of particular financial institutions or sovereign issuers can occur rapidly, are often based on a variety of factors and are difficult to predict. Since mid-2007, a variety of economic, market and other factors have contributed to the perception of many financial institutions as being less creditworthy, as reflected in the credit downgrades of numerous large U.S. and non-U.S. financial institutions in recent years. Also, credit downgrades to several sovereign issuers (including the U.S., Austria, France, Greece, Italy, the Netherlands, Portugal and Spain) and other issuers have stressed the perceived creditworthiness of financial institutions, many of which invest in, accept collateral in the form of, or value other transactions based on the debt or other securities issued by sovereign or other issuers. Economic, political or market turmoil or other developments may lead to stress on sovereign issuers, and increase the potential for sovereign defaults or restructurings, additional credit-rating downgrades or the departure of sovereign issuers from common currencies or economic unions. These same factors may contribute to increased risk of default or downgrading for financial and corporate issuers or other market risks associated with reduced levels of liquidity. As a result, we may be exposed to increased counterparty risks, either resulting from our role as principal or because of commitments we make in our capacity as agent for some of our clients. Additional selected areas where we experience exposure to credit risk include: • Short-term credit. The degree of client demand for short-term credit tends to increase during periods of market turbulence, which may expose us to further counterparty- related risks. For example, investors in collective investment vehicles for which we act as custodian may experience significant redemption activity due to adverse market or economic news. Our relationship with our clients and the nature of the settlement process for some types of payments may result in the extension of short-term credit in such circumstances. For some types of clients, we provide credit to allow them to leverage their portfolios, which may expose 21 • us to potential loss if the client experiences investment losses or other credit difficulties. Industry and country risks. In addition to our exposure to financial institutions, we are from time to time exposed to concentrated credit risk at an industry or country level. This concentration risk also applies to groups of unrelated counterparties that may have similar investment strategies involving one or more particular industries, regions, or other characteristics. These unrelated counterparties may concurrently experience adverse effects to their performance, liquidity or reputation due to events or other factors affecting such investment strategies. Though potentially not material individually (relative to any one such counterparty), our aggregated credit exposures to such a group of counterparties could expose us to a single market or political event or a correlated set of events. • Unavailability of netting. We are generally not able to net exposures across counterparties that are affiliated entities and may not be able in all circumstances to net exposures to the same legal entity across multiple products. As a consequence, we may incur a loss in relation to one entity or product even though our exposure to an entity's affiliates or across product types is over-collateralized. • Subcustodian risks. Our use of unaffiliated subcustodians exposes us to credit risk, in addition to other risks, such as operational risk, dependencies on credit extensions and risks of the legal systems of the jurisdictions in which the subcustodians operate, each of which risks may be material. These risks are amplified due to changing regulatory requirements with respect to our financial exposures in the event those subcustodians are unable to return a client’s assets, including, in some cases, requirements that we be responsible for resulting losses suffered by our clients. • Settlement risks. We are exposed to settlement risks, particularly in our payments and foreign exchange activities. Those activities may lead to losses in the event of a counterparty breach, failure to provide credit extensions or an operational error. Due to our membership in several industry clearing or settlement exchanges, we may be required to guarantee obligations and liabilities, or provide financial support, in the event that other members do not honor their obligations 22 or default. Moreover, not all of our counterparty exposure is secured, and when our exposure is secured, the realizable value of the collateral may have declined by the time we exercise our rights against that collateral. This risk may be particularly acute if we are required to sell the collateral into an illiquid or temporarily-impaired market. • Securities lending and repurchase agreement indemnification. On behalf of clients enrolled in our securities lending program, we lend securities to banks, broker/dealers and other institutions. In the event of a failure of the borrower to return such securities, we typically agree to indemnify our clients for the amount by which the fair market value of those securities exceeds the proceeds of the disposition of the collateral recalled from the borrower in connection with such transaction. Borrowers are generally required to provide collateral equal to a contractually-agreed percentage equal to or in excess of the fair market value of the loaned securities. As the fair market value of the loaned securities changes, additional collateral is provided by the borrower or collateral is returned to the borrower. In addition, our clients often purchase securities or other financial instruments from financial counterparties, including broker/dealers, under repurchase arrangements, frequently as a method of reinvesting the cash collateral they receive from lending their securities. Under these arrangements, the counterparty is obligated to repurchase these securities or financial instruments from the client at the same price (plus an agreed rate of return) at some point in the future. The value of the collateral is intended to exceed the counterparty's payment obligation, and collateral is adjusted daily to account for shortfall under, or excess over, the agreed-upon collateralization level. As with the securities lending program, we agree to indemnify our clients from any loss that would arise on a default by the counterparty under these repurchase arrangements if the proceeds from the disposition of the securities or other financial assets held as collateral are less than the amount of the repayment obligation by the client's counterparty. In such instances of counterparty default, for both securities lending and repurchase agreements, we, rather than our client, are exposed to the risks associated with collateral value. • Stable value arrangements. We provide benefit-responsive contracts, known as wraps, to defined contribution plans that offer a stable value option to their participants. During the financial crisis, the book value of obligations under many of these contracts exceeded the market value of the underlying portfolio holdings. Concerns regarding the portfolio of investments protected by such contracts, or regarding the investment manager overseeing such an investment option, may result in redemption demands from stable value products covered by benefit-responsive contracts at a time when the portfolio's market value is less than its book value, potentially exposing us to risk of loss. • U.S. Municipal obligations remarketing credit facilities. We provide credit facilities in connection with the remarketing of U.S. municipal obligations, potentially exposing us to credit exposure to the municipalities issuing such bonds and to their increased liquidity demands. In the current economic environment, where municipalities are subject to increased investor concern, the risks associated with such businesses increase. • Senior secured bank loans. In recent years, we have increased our investment in senior secured bank loans. We invest in these loans to non-investment grade borrowers through participation in loan syndications in the non-investment grade lending market. We rate these loans as "speculative" under our internal risk-rating framework, and these loans have significant exposure to credit losses relative to higher-rated loans. We are therefore at a higher risk of default with respect to these investments relative to other of our investments activities. In addition, unlike other financial institutions that may have an active role in managing individual loan compliance, our investment in these loans is generally as a passive investor with limited control. As our investment in these loans has increased, we have also experienced increases in our provision for loan losses. As this portfolio grows and becomes more seasoned, our allowance for loan losses related to these loans may increase through additional provisions for credit losses. Under evolving regulatory restrictions on credit exposure, which are anticipated to include broader or more prescriptive measures of credit exposure, we may be required to limit our exposures to specific issuers or groups, including financial institutions and 23 sovereign issuers, to levels that we may currently exceed. These credit exposure restrictions under such evolving regulations may adversely affect our businesses, may require that we expand our credit exposure to a broader range of issuers, including issuers that represent increased credit risk and may require that we modify our operating models or the policies and practices we use to manage our consolidated statement of condition. The effects of these considerations may increase when evaluated under a stressed environment in stress testing, including CCAR. In addition, we are an adherent to the new ISDA 2015 Universal Resolution Stay Protocol and as such are subject to restrictions against the exercise of rights and remedies against fellow adherents, including other major financial institutions, in the event they or an affiliate of theirs enters into resolution. Although our overall business is subject to these interdependencies, several of our business units are particularly sensitive to them, including our Global Treasury group, that, among other responsibilities, manages our investment portfolio, our currency trading business, our securities finance business, and our investment management business. Given the limited number of strong counterparties in the current market, we are not able to mitigate all of our and our clients' counterparty credit risk. Our investment securities portfolio, consolidated financial condition and consolidated results of operations could be adversely affected by changes in market factors including interest rates, credit spreads and credit performance. Our investment securities portfolio represented approximately 41% of our consolidated total assets as of December 31, 2015. The gross interest revenue associated with our investment portfolio represented approximately 18% of our consolidated total gross revenue for the year ended December 31, 2015 and has represented as much as 30% of our consolidated gross revenue in the fiscal years since 2007. As such, our consolidated financial condition and results of operations are materially exposed to the risks associated with our investment portfolio, including, without limitation, changes in interest rates, credit spreads, credit performance, credit ratings, our access to liquidity, foreign exchange markets, mark- to-market valuations, and our ability to profitably reinvest repayments of principal with respect to these securities. Despite recent increases to interest rates in the United States, the continued low interest-rate environment that has persisted since the financial crisis began in mid-2007, and may continue in 2016 and beyond, limits our ability to achieve a net interest margin consistent with our historical averages. In addition, new and proposed regulatory liquidity standards, such as the LCR, require that we maintain minimum levels of high quality liquid assets in our investment portfolio, which generally generate lower rates of return than other investment assets, resulting in a negative impact on our net interest revenue and our net interest margin. For additional information regarding these liquidity requirements, refer to the “Liquidity Coverage Ratio and Net Stable Funding Ratio” section of “Supervision and Regulation” in Item 1, "Business" in this Form 10-K. We may enter into derivative transactions to hedge or manage our exposure to interest rate risk, as well as other risks, such as foreign currency exchange risk and credit risk. Derivative instruments that we hold for these or other purposes may not achieve their intended results and could result in unexpected losses or stresses on our liquidity or capital resources. Our investment securities portfolio represents a greater proportion of our consolidated statement of condition and our loan and lease portfolios represent a smaller proportion (approximately 8% of our consolidated total assets as of December 31, 2015), in comparison to many other major financial institutions. In some respects, the accounting and regulatory treatment of our investment securities portfolio may be less favorable to us than a more traditional held-for-investment lending portfolio. For example, under the U.S. Basel III final rule issued in July 2013, after-tax changes in the fair value of AFS investment securities are included in tier 1 capital. Since loans held for investment are not subject to a fair-value accounting framework, changes in the fair value of loans (other than incurred credit losses) are not similarly included in the determination of tier 1 capital under the U.S. Basel III final rule. Due to this differing treatment, we may experience increased variability in our tier 1 capital relative to other major financial institutions whose loan-and-lease portfolios represent a larger proportion of their consolidated total assets than ours. Additional selected risks associated with our investment portfolio include: • Asset class concentration. Our investment portfolio continues to have significant concentrations in several classes of securities, including agency residential mortgage-backed securities, commercial mortgage-backed securities and other asset- backed securities, and securities with concentrated exposure to consumers. These classes and types of securities experienced significant liquidity, valuation and credit quality deterioration during the financial crisis that began in mid-2007. We also hold non- U.S. mortgage-backed and asset-backed securities with exposures to European countries, whose sovereign-debt markets have experienced increased stress since 24 2011 and may continue to experience stress in the future. For further information, refer to the risk factor titled “Our businesses have significant European operations, and disruptions in European economies could have a material adverse effect on our consolidated results of operations or financial condition". Further, we hold a portfolio of U.S. state and municipal bonds. In view of the budget deficits that a number of states and municipalities currently face, the risks associated with this portfolio are significant. • Effects of market conditions. If market conditions deteriorate, our investment portfolio could experience a decline in liquidity and market value, regardless of our credit view of our portfolio holdings. For example, we recorded significant losses not related to credit in connection with the consolidation of our off-balance sheet asset- backed commercial paper conduits in 2009 and the repositioning of our investment portfolio in 2010. In addition, in general, deterioration in credit quality, or changes in management's expectations regarding repayment timing or in management's investment intent to hold securities to maturity, in each case with respect to our portfolio holdings, could result in other-than- temporary impairment. Similarly, if a material portion of our investment portfolio were to experience credit deterioration our capital ratios as calculated pursuant to the Basel III final rule could be adversely affected. This risk is greater with portfolios of investment securities than with holdings of U.S. Treasury securities. • Effects of interest rates. Our investment portfolio is further subject to changes in both U.S. and non-U.S. (primarily in Europe) interest rates, and could be negatively affected by changes in those rates, whether or not expected, particularly by a quicker- than-anticipated increase in interest rates or by monetary policy that results in persistently low or negative rates of interest. This has been the case, for example, with respect to ECB monetary policy, including negative interest rates in some jurisdictions, with associated negative effects on our net interest revenue and net interest margin. The effect on our net interest revenue has been exacerbated by the effects of the strong U.S. dollar relative to other currencies, particularly the Euro. If ECB monetary policy continues to pressure European interest rates downward and the U.S. dollar remains strong or strengthens, the negative effects on our net interest revenue likely will continue or increase. Our business activities expose us to interest-rate risk. In our business activities, we assume interest- rate risk by investing short-term deposits received from our clients in our investment portfolio of longer- and intermediate-term assets. Our net interest revenue and net interest margin are affected by among other things, the levels of interest rates in global markets, changes in the relationship between short- and long-term interest rates, the direction and speed of interest-rate changes, and the asset and liability spreads relative to the currency and geographic mix of our interest-earning assets and interest-bearing liabilities. These factors are influenced, among other things, by a variety of economic and market forces and expectations, including monetary policy and other activities of central banks, such as the Federal Reserve, that we do not control. Our ability to anticipate changes in these factors or to hedge the related on- and off- balance sheet exposures can significantly influence the success of our asset-and-liability management activities and the resulting level of our net interest revenue and net interest margin. The impact of changes in interest rates and related factors will depend on the relative duration and fixed- or floating- rate nature of our assets and liabilities. Sustained lower interest rates, a flat or inverted yield curve and narrow credit spreads generally have a constraining effect on our net interest revenue. In addition, our ability to change deposit rates in response to changes in interest rates and other market and related factors is limited by client relationship considerations. For additional information about the effects on interest rates on our business, refer to “Financial Condition - Market Risk Management - Asset-and-Liability Management Activities” in Management's Discussion and Analysis included under Item 7 of this Form 10-K. If we are unable to effectively manage our liquidity, including by continuously attracting deposits and other short-term funding, our consolidated financial condition, including our regulatory capital ratios, our consolidated results of operations and our business prospects, could be adversely affected. Liquidity management, including on an intra-day basis, is critical to the management of our consolidated statement of condition and to our ability to service our client base. We generally use our liquidity to: • meet clients' demands for return of their deposits; • extend credit to our clients in connection with our custody business; and • fund the pool of long- and intermediate-term assets that are included in the investment securities carried in our consolidated statement of condition. Because the demand for credit by our clients is difficult to predict and control, and may be at its peak at times of disruption in the securities markets, and because the average maturity of our investment securities portfolio is longer than the contractual maturity of our client deposit base, we need to continuously attract, and are dependent on access to, various sources of short-term funding. During periods of market disruption, the level of client deposits held by us has in recent years tended to increase; however, since such deposits are considered to be transitory, we have historically deposited so-called excess deposits with U.S. and non-U.S. central banks and in other highly liquid but low-yielding instruments. These levels of excess client deposits, as a consequence, have increased our net interest revenue but have adversely affected our net interest margin. During 2015, we took action to better balance our clients’ cash management needs with our economic and regulatory objectives. These efforts contributed to a reduction of interest and non-interest bearing client deposits. While efforts of this nature may help to decrease the levels of excess deposits in the near-term, we continue to anticipate higher levels of client deposits irrespective of the interest rate environment, particularly during periods of market stress. In addition, our efforts to better balance our clients’ cash management needs with our economic and regulatory objectives could result in some clients altering their cash management strategies over time, which exposes us to the risk that those clients may in the medium or long term reduce their client deposit balances available to fund the pool of assets included in our investment securities portfolio. This could adversely affect our net interest revenue. In managing our liquidity, our primary source of short-term funding is client deposits, which are predominantly transaction-based deposits by institutional investors. Our ability to continue to attract these deposits, and other short-term funding sources such as certificates of deposit and commercial paper, is subject to variability based on a number of factors, including volume and volatility in global financial markets, the relative interest rates that we are prepared to pay for these deposits, the perception of safety of these deposits or short-term obligations relative to alternative short-term investments available to our clients, including the capital markets, and the classification of certain 25 deposits for regulatory purposes and related discussions we may have from time to time with clients regarding better balancing our clients' cash management needs with our economic and regulatory objectives. The parent company is a non-operating holding company. To effectively manage our liquidity we routinely transfer assets among affiliated entities, subsidiaries and branches. Internal or external factors, such as government regulations, influence our liquidity management and may limit our ability to effectively transfer liquidity internally which could, among other things, restrict our ability to fund operations, dividends or stock repurchases, require us to seek external and potentially more costly capital and impact our liquidity position. In addition, we may be exposed to liquidity or other risks in managing asset pools for third parties that are funded on a short-term basis, or for which the clients participating in these products have a right to the return of cash or assets on limited notice. These business activities include, among others, securities finance collateral pools, money market and other short-term investment funds and liquidity facilities utilized in connection with municipal bond programs. If clients demand a return of their cash or assets, particularly on limited notice, and these investment pools do not have the liquidity to support those demands, we could be forced to sell investment securities at unfavorable prices, damaging our reputation as an asset manager and potentially exposing us to claims related to our management of the pools. The availability and cost of credit in short-term markets are highly dependent on the markets' perception of our liquidity and creditworthiness. Our efforts to monitor and manage our liquidity risk, including on an intra-day basis, may not be successful or sufficient to deal with dramatic or unanticipated changes in the global securities markets or other event-driven reductions in liquidity. As a result of such events, among other things, our cost of funds may increase, thereby reducing our net interest revenue, or we may need to dispose of a portion of our investment securities portfolio, which, depending on market conditions, could result in a loss from such sales of investment securities being recorded in our consolidated statement of income. Our business and capital-related activities, including our ability to return capital to shareholders and purchase our capital stock, may be adversely affected by our implementation of the revised regulatory capital and liquidity standards that we must meet under the Basel III final rule, the Dodd-Frank Act and other regulatory initiatives, or in the event our capital plan or post-stress capital ratios are determined to be insufficient as a result of regulatory capital stress testing. Basel III and Dodd-Frank On January 1, 2015, the U.S. Basel III final rule replaced the existing Basel I-based approach for calculating risk-weighted assets with the U.S. Basel III standardized approach that, among other things, modifies certain existing risk weights and introduces new methods for calculating risk-weighted assets for certain types of assets and exposures. The final rule also revised the Basel II-based advanced approaches capital rules to implement Basel III. As a so-called “advanced approaches” banking organization, State Street became subject to the U.S. Basel III final rule on January 1, 2014. The U.S. Basel III final rule also implemented certain provisions of the Dodd-Frank Act. The Dodd- Frank Act applies a “capital floor” to advanced approaches banking organizations, such as State Street and State Street Bank. As of January 1, 2015, the Basel III standardized approach acts as that capital floor. As a result, we are required to calculate our risk-based capital ratios under both the Basel III advanced approaches and the Basel III standardized approach, and we are subject to the more stringent of the risk-based capital ratios calculated under the standardized approach and those calculated under the advanced approaches in the assessment of our capital adequacy, including under the prompt corrective action framework. In implementing certain aspects of these capital regulations, we are making interpretations of the regulatory intent. The Federal Reserve may determine that we are not in compliance with certain aspects of the advanced approaches capital rules and may require us to take certain actions to come into compliance that could adversely affect our business operations, our regulatory capital structure, our capital ratios or our financial performance, or otherwise restrict our growth plans or strategies. In addition, banking regulators could change the Basel III final rule or their interpretations as they apply to us, including changes to these standards or interpretations made in regulations implementing provisions of the Dodd-Frank Act, which could adversely affect us and our ability to comply with the Basel III final rule. 26 Along with the U.S. Basel III final rule, banking regulators also introduced additional new requirements, such as the SLR and LCR. In addition, further capital and liquidity requirements are under consideration by U.S. and international banking regulators, such as an NSFR, each of which has the potential to have significant effects on our capital and liquidity planning and activities. For example, the specification of the various elements of the U.S. LCR in the final rule, such as the eligibility of assets as high-quality liquid assets, the calculation of net outflows, including the treatment of operational deposits, and the timing of indeterminate maturities, could have a material effect on our business activities, including the management and composition of our investment securities portfolio and our ability to extend committed contingent credit facilities to our clients. The full effects of the Basel III final rule, and of other regulatory initiatives related to capital or liquidity, on State Street and State Street Bank are subject to further regulatory guidance, action or rule-making. Systemic Importance As a G-SIB, we generally expect to be held to the most stringent provisions under the U.S. Basel III final rule. For example, on August 14, 2015, the Federal Reserve published a final rule on the implementation of capital requirements for U.S. G- SIBs, and on October 30, 2015, the Federal Reserve released its proposed TLAC and LTD requirements for U.S. G-SIBs. For additional information on these requirements, refer to the “Regulatory Capital Adequacy and Liquidity Standards” section under “Supervision and Regulation” in Item 1, "Business" of this Form 10-K. Not all of our competitors have similarly been designated as systemically important, and therefore some of our competitors are not subject to the same additional capital requirements. CCAR We are required by the Federal Reserve to conduct periodic stress testing of our business operations and to develop an annual capital plan as part of the Federal Reserve's Comprehensive Capital Analysis and Review process. That process is used by the Federal Reserve to evaluate our management of capital, the adequacy of our regulatory capital and the potential requirement for us to maintain capital levels above regulatory minimums. The planned capital actions in our capital plan, including stock purchases and dividends, may be objected to by the Federal Reserve, potentially requiring us to revise our stress-testing or capital management approaches, resubmit our capital plan or postpone, cancel or alter our planned capital actions. In addition, changes in our business strategy, merger or acquisition activity or unanticipated uses of capital could result in a change in our capital plan and its associated capital actions, and may require resubmission of the capital plan to the Federal Reserve for its non-objection. We are also subject to asset quality reviews and stress testing by the ECB and may in the future to be subject to similar reviews and testing by other regulators. Our implementation of the new capital and liquidity requirements, including our capital plan, may not be approved or may be objected to by the Federal Reserve, and the Federal Reserve may impose capital requirements in excess of our expectations or require us to maintain levels of liquidity that are higher than we may expect, and which may adversely affect our consolidated revenues. In the event that our implementation of new capital and liquidity requirements under the Basel III final rule, the Dodd- Frank Act or other regulatory initiatives or our current capital structure are determined not to conform with current and future capital requirements, our ability to deploy capital in the operation of our business or our ability to distribute capital to shareholders or to purchase our capital stock may be constrained, and our business may be adversely affected. In addition, we may choose to forgo business opportunities, due to their impact on our capital plan or stress tests, including CCAR. Likewise, in the event that regulators in other jurisdictions in which we have banking subsidiaries determine that our capital or liquidity levels do not conform with current and future regulatory requirements, our ability to deploy capital, our levels of liquidity or our business operations in those jurisdictions may be adversely affected. For additional information about the above matters, refer to “Business - Supervision and Regulation - Regulatory Capital Adequacy and Liquidity Standards” included under Item 1, and “Financial Condition - Capital” in Management's Discussion and Analysis included under Item 7 of this Form 10-K. Fee revenue represents a significant majority of our consolidated revenue and is subject to decline, among other things, in the event of a reduction in, or changes to, the level or type of investment activity by our clients. We rely primarily on fee-based services to derive our revenue. This contrasts with commercial banks that may rely more heavily on interest-based sources of revenue, such as loans. During 2015 total fee revenue represented approximately 80% of our total consolidated revenue. Fee revenue generated by our investment servicing and investment management businesses is augmented by trading services, securities finance and processing fees and other revenue. 27 The level of these fees is influenced by several factors, including the mix and volume of our assets under custody and administration and our assets under management, the value and type of securities positions held (with respect to assets under custody) and the volume of portfolio transactions, and the types of products and services used by our clients. For example, reductions in the level of economic and capital markets activity tend to have a negative effect on our fee revenue, as these often result in reduced asset valuations and transaction volumes. They may also result in investor preference trends towards asset classes and markets deemed more secure, such as cash or non-emerging markets, with respect to which our fee rates are often lower. In addition, our clients include institutional investors, such as mutual funds, collective investment funds, hedge funds and other investment pools, corporate and public retirement plans, insurance companies, foundations, endowments and investment managers. Economic, market or other factors that reduce the level or rates of savings in or with those institutions, either through reductions in financial asset valuations or through changes in investor preferences, could materially reduce our fee revenue and have a material adverse effect on our consolidated results of operations. These clients also, by their nature, are often able to exert considerable market influence, and this, combined with strong competitive forces in the markets for our services, has resulted in, and may continue to result in, significant pressure to reduce the fees we charge for our services in both our asset servicing and asset management business lines. Our businesses have significant European operations, and disruptions in European economies could have an adverse effect on our consolidated results of operations or financial condition. Since 2011, several European economies have experienced, and in the future may experience, difficulties in financing their deficits and servicing their outstanding debt. Instability and sovereign debt concerns, and the downgraded credit ratings of associated sovereign debt and European financial institutions, have contributed to volatility in the financial markets. Throughout 2015 the European Central Bank has further reduced interest rates below zero and continued with purchasing European sovereign debt and other quantitative easing measures to support economic growth and employment. The divergence between U.S. and European monetary policy has led to increased uncertainty around the strength of the European economies and strength of the Euro. Numerous European governments, have adopted austerity and other measures in an attempt to contain budget deficits. Current popular and political attitudes towards economic austerity programs in Europe appear to be diverging, creating the potential for an increasingly complex political environment in which actions to support European economies need to be resolved. During the last two quarters of 2015 Europe has experienced an unprecedented mass-migration of refugees from the Middle East and Africa. This is placing significant pressures on governments, society and budget across Europe. The conflict between Ukraine and Russia has led to increased geopolitical pressure, with governments globally imposing trade restrictions which affect the global and European economy, the Russian currency and Russian financial markets and financial institutions. Finally, terrorist threat has increased significantly in Europe, as demonstrated by the Paris attacks, which adds to economic uncertainty. The current geo-political and economic uncertainty create ongoing concern regarding deflationary pressures in Europe, persistent high levels of unemployment in certain countries and the stability of the Euro, European financial markets generally and certain institutions in particular. Given the scope of our European operations, clients and counterparties, disruptions in the European financial markets, the failure to resolve fully and contain sovereign-debt concerns, continued recession in significant European economies, the possible attempt of a country to abandon the Euro, independence movements (e.g. Scotland, Catalonia and Britain) the failure of a significant European financial institution, even if not an immediate counterparty to us, or persistent weakness in the Euro and the consequences of prolonged negative interest rates, could have a material adverse impact on our consolidated results of operations or financial condition. Recent geopolitical and economic conditions have adversely affected us, and they have increased the uncertainty and unpredictability we face in managing our businesses. Global credit and other financial markets have recently suffered from substantial volatility, illiquidity and disruption. The resulting economic pressure and lack of confidence in the financial stability of certain countries, and in the financial markets generally, have adversely affected our business, as well as the businesses of our clients and our significant counterparties. This environment, the potential for continuing or additional disruptions, and the regulatory and enforcement environment that has subsequently arisen have also affected overall confidence in financial institutions, have further exacerbated liquidity and pricing issues within the securities markets, have increased the uncertainty 28 and unpredictability we face in managing our businesses, and have had an adverse effect on our consolidated results of operations and financial condition. Numerous global financial services firms and the sovereign debt of some nations experienced credit downgrades and recessionary issues in 2015. The occurrence of additional disruptions in global markets, the worsening of economic conditions, continued economic or political uncertainty in Europe or in emerging markets, volatility in the price of oil or prolonged instability in China and other regions, could further adversely affect our businesses and the financial services industry in general, and also increase the difficulty and unpredictability of aligning our business strategies, our infrastructure and our operating costs in light of current and future market and economic conditions. Market disruptions can adversely affect our consolidated results of operations if the value of assets under custody, administration or management decline, while the costs of providing the related services remain constant. These factors can reduce the profitability of our asset-based fee revenue and could also adversely affect our transaction-based revenue, such as revenues from securities finance and foreign exchange activities, and the volume of transactions that we execute for or with our clients. Further, the degree of volatility in foreign exchange rates can affect our foreign exchange trading revenue. In general, increased currency volatility tends to increase our market risk but also increases our foreign exchange revenue. Conversely, periods of lower currency volatility tend to decrease our market risk but also decrease our foreign exchange revenue. In addition, as our business grows globally and a significant percentage of our revenue is earned (and of our expenses paid) in currencies other than U.S. dollars, our exposure to foreign currency volatility could affect our levels of consolidated revenue, our consolidated expenses and our consolidated results of operations, as well as the value of our investment in our non-U.S. operations and our investment portfolio holdings. For example, throughout 2015 the effect of a stronger U.S. dollar, particularly relative to the Euro, reduced our servicing fee and management fee revenue and also reduced our expenses. The extent to which changes in the strength of the U.S. dollar relative to other currencies affects our consolidated results of operations, including the degree of any offset between increases or decreases to both revenue and expenses, will depend upon the nature and scope of our operations and activities in the relevant jurisdictions during the relevant periods, which may vary from period to period. As our product offerings expand, in part as we seek to take advantage of perceived opportunities arising under various regulatory reforms and resulting market changes, the degree of our exposure to various market and credit risks will evolve, potentially resulting in greater revenue volatility. We also will need to make additional investments to develop the operational infrastructure and to enhance our compliance and risk management capabilities to support these businesses, which may increase the operating expenses of such businesses or, if our control environment fails to keep pace with product expansion, result in increased risk of loss from such businesses. We may need to raise additional capital in the future, which may not be available to us or may only be available on unfavorable terms. We may need to raise additional capital in order to maintain our credit ratings in response to regulatory changes, including capital rules, or for other purposes, including financing acquisitions and joint ventures. However, our ability to access the capital markets, if needed, will depend on a number of factors, including the state of the financial markets. In the event of rising interest rates, disruptions in financial markets, negative perceptions of our business or our financial strength, or other factors that would increase our cost of borrowing, we cannot be sure of our ability to raise additional capital, if needed, on terms acceptable to us. Any diminished ability to raise additional capital, if needed, could adversely affect our business and our ability to implement our business plan, capital plan and strategic goals, including the financing of acquisitions and joint ventures. Any downgrades in our credit ratings, or an actual or perceived reduction in our financial strength, could adversely affect our borrowing costs, capital costs and liquidity and cause reputational harm. Major independent rating agencies publish credit ratings for our debt obligations based on their evaluation of a number of factors, some of which relate to our performance and other corporate developments, including financings, acquisitions and joint ventures, and some of which relate to general industry conditions. We anticipate that the rating agencies will review our ratings regularly based on our consolidated results of operations and developments in our businesses. One or more of the major independent credit rating agencies have in the past downgraded, and may in the future downgrade, our credit ratings, or have negatively revised their outlook for our credit ratings. In December 2015, Standard & Poor’s downgraded the senior unsecured 29 and subordinated debt of State Street Corporation and the subordinated debt of State Street Bank. The current market environment and our exposure to financial institutions and other counterparties, including sovereign entities, increase the risk that we may not maintain our current ratings, and we cannot provide assurance that we will continue to maintain our current credit ratings. Downgrades in our credit ratings may adversely affect our borrowing costs, our capital costs and our ability to raise capital and, in turn, our liquidity. A failure to maintain an acceptable credit rating may also preclude us from being competitive in various products. Additionally, our counterparties, as well as our clients, rely on our financial strength and stability and evaluate the risks of doing business with us. If we experience diminished financial strength or stability, actual or perceived, including the effects of market or regulatory developments, our announced or rumored business developments or consolidated results of operations, a decline in our stock price or a reduced credit rating, our counterparties may be less willing to enter into transactions, secured or unsecured, with us; our clients may reduce or place limits on the level of services we provide them or seek other service providers; or our prospective clients may select other service providers, all of which may have other adverse effects on our reputation. The risk that we may be perceived as less creditworthy relative to other market participants is higher in the current market environment, in which the consolidation, and in some instances failure, of financial institutions, including major global financial institutions, have resulted in a smaller number of much larger counterparties and competitors. If our counterparties perceive us to be a less viable counterparty, our ability to enter into financial transactions on terms acceptable to us or our clients, on our or our clients' behalf, will be materially compromised. If our clients reduce their deposits with us or select other service providers for all or a portion of the services we provide to them, our revenues will decrease accordingly. Operational, Business and Reputational Risks We face extensive and changing government regulation in the U.S. and in foreign jurisdictions in which we operate, which may increase our costs and expose us to risks related to compliance. Most of our businesses are subject to extensive regulation by multiple regulatory bodies, and many of the clients to which we provide services are themselves subject to a broad range of regulatory requirements. These regulations may affect the scope of, and the manner and terms of delivery of, our services. As a financial institution with substantial international operations, we are subject to extensive regulation and supervisory oversight, both in and outside of the U.S. This regulation and supervisory oversight affects, among other things, the scope of our activities and client services, our capital and organizational structure, our ability to fund the operations of our subsidiaries, our lending practices, our dividend policy, our common stock purchase actions, the manner in which we market our services, and our interactions with foreign regulatory agencies and officials. In particular, State Street is registered with the Federal Reserve as a bank holding company pursuant to the Bank Holding Company Act of 1956. The Bank Holding Company Act limits the activities in which we (and non-banking entities that we are deemed to control under that Act) may engage in activities the Federal Reserve considers to be closely related to banking or to managing or controlling banks. Financial holding company status expands the activities permissible for a bank holding company to those that are deemed to be “financial in nature” by the Federal Reserve. State Street elected to become a financial holding company under the Bank Holding Company Act. Financial holding company status requires State Street and its banking subsidiaries to remain well capitalized and well managed and to comply with Community Reinvestment Act obligations. Currently, under the Bank Holding Company Act, we may not be able to engage in new activities or acquire shares or control of other businesses. Several other aspects of the regulatory environment in which we operate, and related risks, are discussed below. Additional information is provided in “Business - Supervision and Regulation” included under Item 1 of this Form 10-K. Dodd-Frank Act The Dodd-Frank Act, which became law in July 2010, has had, and will continue to have, a significant impact on the regulatory structure of the global financial markets and has imposed, and is expected to continue to impose, significant additional costs on us. Several elements of the Dodd-Frank Act, such as the Volcker rule and enhanced prudential standards for financial institutions designated as SIFIs, impose or are expected to impose significant additional operational, compliance and risk management costs both in the near-term, as we develop and integrate appropriate systems and procedures, and on a recurring basis thereafter, as we monitor, support and refine those systems and procedures. A number of regulations implementing the Dodd- Frank Act that are not yet final are anticipated to be finalized in 2016 or 2017, with compliance dates soon 30 thereafter, and, as a result of and together with regulatory change in Europe, the costs and impact on our operations of the post-financial crisis regulatory reform are accelerating. We may not anticipate completely all areas in which the Dodd-Frank Act or other regulatory initiatives could affect our business or influence our future activities or the full effects or extent of related operational, compliance, risk management or other costs. Other provisions of the Dodd-Frank Act and its implementing regulations, such as new rules for swap market participants, additional regulation of financial system utilities, the designation of non-bank institutions as SIFIs, and further requirements to facilitate orderly liquidation of large institutions, could adversely affect our business operations and our competitive position, and could also negatively affect the operational and competitive positions of our clients. The final effects of the Dodd-Frank Act on our business will depend largely on the scope and timing of the implementation of the Dodd-Frank Act by regulatory bodies, which in many cases have been delayed, and the exercise of discretion by these regulatory bodies. Resolution Planning State Street Corporation, 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. We submitted our 2015 resolution plan to the Federal Reserve and the FDIC on July 1, 2015. Through resolution planning, we seek, in the event of the insolvency, 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. As set out in its 2015 resolution plan, 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 by the parent company (for example, by forgiving inter-company indebtedness of State Street Bank owed to the parent company) prior to the parent company’s entry into bankruptcy proceedings. The recapitalization is intended to enable State Street Bank and its material subsidiaries to continue operating. Under this single point of entry strategy, State Street Bank and its material entity subsidiaries 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, 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. In 2014, the Federal Reserve and the FDIC announced the completion of their reviews of the resolution plans submitted in 2013 by 11 large, complex banking organizations, including State Street, under the requirements of the Dodd-Frank Act, and informed each of these organizations of specific shortcomings with their respective 2013 resolution plans. If the FDIC and the Federal Reserve should determine that one or more of our 2015 or any subsequent resolution plan is not credible or would not facilitate an orderly resolution under the Bankruptcy Code, or we otherwise fail to meet regulatory expectations to the satisfaction of the Federal Reserve and the FDIC with respect to one or more of such resolution plans, we could be subject to more stringent capital, leverage or liquidity requirements, restrictions on our growth, activities or operations, or be required to divest certain of our assets or operations. Volcker Rule U.S. banking regulators have issued final regulations to implement the Volcker rule. The Volcker rule will, over time, prohibit banking entities, including us and our affiliates, from engaging in specified prohibited proprietary trading activities, subject to exemptions, including for market-making- related activities and risk-mitigating hedging. The Volcker rule will also require banking entities to either restructure or divest specified ownership interests in, and relationships with, covered funds, within the meaning of the final Volcker rule regulations. Whether various investment securities or structures, such as CLOs constitute covered funds, as defined in the final Volcker rule regulations, and do not benefit from the exemptions provided in the Volcker rule, and whether a banking organization's investments therein constitute ownership interests remain subject to (1) market, and ultimately regulatory, interpretation, and (2) the specific terms and other characteristics relevant to such investment securities and structures. We hold significant investments in CLOs. In the event that we or our banking regulators conclude that such investments in CLOs, or other investments, are covered funds, we may be required to divest of such investments. If other banking entities reach similar conclusions with respect to similar investments held by them, the prices of such investments could decline significantly, and we may be required to divest of such investments 31 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 complies with the final Volcker rule regulations as currently in effect. Such compliance program restricts our ability in the future to service various types of funds, in particular covered funds for which SSGA acts as an advisor and specified types of trustee relationships. Consequently, Volcker rule compliance entails both the cost of a compliance program and loss of certain revenue and future opportunities. Systemic Importance Our qualification under the Dodd-Frank Act in the U.S. as a SIFI, and our designation by the FSB as a G-SIB, to which certain regulatory capital surcharges may apply, will subject us to incrementally higher capital and prudential requirements, increased scrutiny of our activities and potential further regulatory requirements or increased regulatory expectations than those applicable to some of the financial institutions with which we compete as a custodian or asset manager. This qualification and designation also has significantly increased, and may continue to increase, our expenses associated with regulatory compliance, including personnel and systems, as well as implementation and related costs to enhance our programs. Non-U.S. Regulatory Requirements The breadth of our business activities, together with the scope of our global operations and varying business practices in relevant jurisdictions, increase the complexity and costs of meeting our regulatory compliance obligations, including in areas that are receiving significant regulatory scrutiny. We are, therefore, subject to related risks of non-compliance, including fines, penalties, lawsuits, regulatory sanctions or difficulties in obtaining approvals, limitations on our business activities, or reputational harm, any of which may be significant. For example, the global nature of our client base requires us to comply with complex regulations relating to money laundering and anti-terrorist monitoring of our clients. The same applies with respect to anti-corruption laws and related requirements. Regulatory scrutiny of compliance with these and other regulations is increasing and our operations are subject to regulations from multiple jurisdictions. The overall evolving regulatory landscape in each jurisdiction in which we operate, including requirements or restrictions on our service offerings or opportunities for new service offerings, particularly when applied on a cross-border basis, is not necessarily consistent with the requirements or regulatory objectives of other jurisdictions in which we have clients or operations. This evolving regulatory landscape may interfere with our ability to conduct our operations, with our pursuit of a common global operating model or with our ability to compete effectively with other financial institutions operating in those jurisdictions or which may be subject to different regulatory requirements than apply to us. In particular, non-U.S. regulation and initiatives may be inconsistent or conflict with current or proposed regulations in the U.S., which could create increased compliance and other costs that would adversely affect business, operations or profitability. In addition to U.S. regulatory initiatives such as the Dodd-Frank Act and implementation of the Basel III final rule, including the Basel III SLR and the proposed NSFR, we are further affected by non-U.S. regulatory initiatives, including, but not limited to, the implemented AIFMD, the European Bank Recovery and Resolution Directive, the EMIR which is currently in an implementation phase, proposed revisions to the European Undertakings for the Collective Investment Fund in Transferable Securities Directive, or UCITS, proposed revisions to the MiFID and revisions to the European Union Data Protection Directive. Recent, proposed or potential regulations in the U.S. and Europe with respect to money market funds, short-term wholesale funding, such as repurchase agreements or securities lending, or other “shadow banking” activities, could also adversely affect not only our own operations but also the operations of the clients to which we provide services. In Europe, the AIFMD increases the responsibilities and potential liabilities of custodians to certain of their clients for asset losses, and proposed revisions to the regulations affecting UCITS are anticipated to incorporate similar, potentially more strict, standards. EMIR requires the reporting of all derivatives to a trade repository, the mandatory clearing of certain derivatives trades via a central counterparty and risk mitigation techniques for derivatives not cleared via a central counterparty. EMIR will continue to impact our business activities, and increase costs, in various ways, some of which may be adverse. Further, the European Commission's proposal to introduce a proposed financial transaction tax or similar proposals elsewhere, if adopted, could materially affect the location and volume of financial transactions or otherwise alter the conduct of financial activities, any of which could have a material adverse effect on our business and on our consolidated results of operations or financial condition. 32 Consequences of Regulatory Environment and Compliance Risks The Dodd-Frank Act and these other international regulatory changes could limit our ability to pursue certain business opportunities, increase our regulatory capital requirements, alter the risk profile of certain of our core activities and impose additional costs on us, otherwise adversely affect our business, our consolidated results of operations or financial condition and have other negative consequences, including a reduction of our credit ratings. Different countries may respond to the market and economic environment in different and potentially conflicting manners, which could increase the cost of compliance for us. The evolving regulatory environment, including changes to existing regulations and the introduction of new regulations, may also contribute to decisions we may make to suspend, reduce or withdraw from existing businesses, activities or initiatives. In addition to potential lost revenue associated with any such suspensions, reductions or withdrawals, any such suspensions, reductions or withdrawals may result in significant restructuring or related costs or exposures. If we do not comply with governmental regulations, we may be subject to fines, penalties, lawsuits, delays, or difficulties in obtaining regulatory approvals or restrictions on our business activities or harm to our reputation, which may significantly and adversely affect our business operations and, in turn, our consolidated results of operations. The willingness of regulatory authorities to impose meaningful sanctions, and the level of fines and penalties imposed in connection with regulatory violations, have increased substantially since the financial crisis. Regulatory agencies may, at times, limit our ability to disclose their findings, related actions or remedial measures. Similarly, many of our clients are subject to significant regulatory requirements and retain our services in order for us to assist them in complying with those legal requirements. Changes in these regulations can significantly affect the services that we are asked to provide, as well as our costs. Adverse publicity and damage to our reputation arising from the failure or perceived failure to comply with legal, regulatory or contractual requirements could affect our ability to attract and retain clients. If we cause clients to fail to comply with these regulatory requirements, we may be liable to them for losses and expenses that they incur. In recent years, regulatory oversight and enforcement have increased substantially, imposing additional costs and increasing the potential risks associated with our operations. If this regulatory trend continues, it could adversely affect our operations and, in turn, our consolidated results of operations and financial condition. For additional information, see the risk factor below, “Our businesses may be adversely affected by regulatory enforcement and litigation.” Our calculations of credit, market and operational risk exposures, total risk-weighted assets and capital ratios for regulatory purposes depend on data inputs, formulae, models, correlations, and assumptions that are subject to changes over time, which changes, in addition to our consolidated financial results, could materially change our risk exposures, our total risk- weighted assets and our capital ratios from period to period. To calculate our credit, market and operational risk exposures, our total risk-weighted assets and our capital ratios for regulatory purposes, the Basel III final rule involves the use of current and historical data, including our own loss data and claims experience and similar information from other industry participants, market volatility measures, interest rates and spreads, asset valuations, credit exposures, and the creditworthiness of our counterparties. These calculations also involve the use of quantitative formulae, statistical models, historical correlations and significant assumptions. We refer to the data, formulae, models, correlations, and assumptions, as well as our related internal processes, as our “advanced systems.” While our advanced systems are generally quantitative in nature, significant components involve the exercise of judgment based, among other factors, on our and the financial services industry's evolving experience. Any of these judgments or other elements of our advanced systems may not, individually or collectively, precisely represent or calculate the scenarios, circumstances, outputs or other results for which they are designed or intended. In addition, our advanced systems are subject to update and periodic revalidation in response to changes in our business activities and our historical experiences, forces and events experienced by the market broadly or by individual financial institutions, changes in regulations and regulatory interpretations and other factors, and are also subject to continuing regulatory review and approval. For example, a significant operational loss experienced by another financial institution, even if we do not experience a related loss, could result in a material change in our advanced systems and a corresponding material change in our risk exposures, our total risk-weighted assets and our capital ratios compared to prior periods. Due to the influence of changes in our advanced systems, whether resulting from changes in 33 data inputs, regulation or regulatory supervision or interpretation, State Street-specific or more general market, or individual financial institution-specific, activities or experiences, or other updates or factors, we expect that our advanced systems and our credit, market and operational risk exposures, our total risk- weighted assets and our capital ratios calculated under the Basel III final rule will change, and may be volatile, over time, and that those latter changes or volatility could be material as calculated and measured from period to period. Our businesses may be adversely affected by regulatory enforcement and litigation. In the ordinary course of our business, we are subject to various regulatory, governmental and law enforcement inquiries, investigations and subpoenas. These may be directed generally to participants in the businesses or markets in which we are involved or may be specifically directed at us. In regulatory enforcement matters, claims for disgorgement, the imposition of penalties and the imposition of other remedial sanctions are possible. From time to time, our clients, or the government on their or its own behalf, make claims and take legal action relating to, among other things, our performance of our fiduciary or contractual responsibilities. Often, the announcement or other publication of such a claim or action, or of any related settlement, may spur the initiation of similar claims by other clients or governmental parties. In any such claims or actions, demands for substantial monetary damages may be asserted against us and may result in financial liability, changes in our business practices or an adverse effect on our reputation or on client demand for our products and services. The exposure associated with any proceedings that may be threatened, commenced or filed against us could have a material adverse effect on our consolidated results of operations for the period in which we establish a reserve with respect to such potential liability or upon our reputation. In regulatory settlements since the financial crisis, the fines imposed by regulators have increased substantially and may exceed in some cases the profit earned or harm caused by the regulatory or other breach In December 2015, we announced a review into the manner in which we invoiced certain expenses to certain of our asset servicing clients, primarily in the United States, during an 18-year period going back to 1998. As a result of this review, we determined that we had incorrectly invoiced clients in the aggregate amount of approximately $240 million for expenses within the specific categories under review. In addition to this amount, we will compensate clients for an aggregate of approximately $17 million in interest associated with the incorrect invoicing. There is the potential that as our review continues, our estimates of the amounts reimbursable to clients may increase or that clients or regulators may assert other legal theories of liability. Our billing arrangements capture multiple asset classes and transactions executed by our clients and therefore may be subject to operational error or disagreements with clients. We have notified certain governmental authorities about this review. We may become subject to regulatory proceedings and litigation in connection with this matter, and there can be no assurance as to the outcome of any proceedings that may be commenced against us. In many cases, we are required to self-report inappropriate or non-compliant conduct to the authorities, and our failure to do so may represent an independent regulatory violation. Even when we promptly bring the matter to the attention of the appropriate authorities, we may nonetheless experience regulatory fines, liabilities to clients, harm to our reputation or other adverse effects in connection with self-reported matters. Moreover, our settlement or other resolution of any matter with any one or more regulators or other applicable party may not forestall other regulators or parties in the same or other jurisdictions from pursuing a claim or other action against us with respect to the same or a similar matter. Our operations are subject to regular and ongoing inspection by our bank and other financial market regulators in the U.S. and internationally. As a result of such inspections, regulators may identify areas in which we may need to take actions, which may be significant, to enhance our regulatory compliance or risk management practices. Such remedial actions may entail significant cost, management attention, and systems development and such efforts may affect our ability to expand our business until such remedial actions are completed. Our failure to implement enhanced compliance and risk management procedures in a manner and in a timeframe deemed to be responsive by the applicable regulatory authority could adversely impact our relationship with such regulatory authority and could lead to restrictions on our activities or other sanctions. 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, anti- money laundering (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 34 three-month period to evaluate whether any suspicious activity not previously reported should have been identified and reported in accordance with applicable regulatory requirements. If 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. Further, we may become subject to regulatory scrutiny, inquiries or investigations associated with broad, industry-wide concerns, and potentially client- related inquiries or claims, whether or not we engaged in the relevant activities, and could experience associated increased costs or harm to our reputation. In view of the inherent difficulty of predicting the outcome of legal and regulatory matters, we cannot provide assurance as to the outcome of any pending or potential matter or, if determined adversely against us, the costs associated with any such matter, particularly where the claimant seeks very large or indeterminate damages or where the matter presents novel legal theories, involves a large number of parties or is at a preliminary stage. We may be unable to accurately estimate our exposure to litigation risk when we record reserves for probable and estimable loss contingencies. As a result, any reserves we establish to cover any settlements, judgments or regulatory fines may not be sufficient to cover our actual financial exposure. The resolution of certain pending or potential legal or regulatory matters could have a material adverse effect on our consolidated results of operations for the period in which the relevant matter is resolved or an accrual is determined to be required, on our consolidated financial condition or on our reputation We face litigation and governmental and client inquiries in connection with our execution of indirect foreign exchange trades with custody clients; these issues have adversely affected our revenue from such trading and may cause our revenue from such trading to decline in the future. Our custody clients are not required to execute foreign exchange transactions with us. To the extent they execute foreign exchange trades with us, they generally execute a greater volume using our direct methods of execution at negotiated rates or spreads than they execute using our “indirect” methods at rates we establish. Where our clients or their investment managers choose to use our indirect foreign exchange execution methods, generally they elect that service for trades of smaller size or for currencies where regulatory or operational requirements cause trading in such currencies to present greater operational risk and costs for them. Given the nature of these trades and other features of the indirect foreign exchange trading in which we engage, we generally charge higher rates for indirect execution than we charge for other trades, including trades in the interbank currency market. As discussed more fully below, claims have been asserted on behalf of current and former custody clients, and future claims may be asserted, alleging that our indirect foreign exchange rates (including the differences between those rates and indicative interbank market rates at the time we executed the trades) were not adequately disclosed or were otherwise improper, and seeking to recover, among other things, the full amount of the revenue we obtained from our indirect foreign exchange trading with them. In addition, attorneys general and other governmental authorities from a number of jurisdictions, as well as U.S. Attorney's offices, the U.S. Department of Labor and the SEC, have requested information or issued subpoenas in connection with inquiries into the pricing of our indirect foreign exchange trading. In February 2011, a putative class action was filed in federal court in Boston seeking unspecified damages, including treble damages, on behalf of all custodial clients that executed certain foreign exchange transactions with State Street from 1998 to 2009. The putative class action alleges, among other things, that the rates at which State Street executed foreign currency trades constituted an unfair and deceptive practice under Massachusetts law and a breach of the duty of loyalty. Two other putative class actions are currently pending in federal court in Boston alleging various violations of ERISA on behalf of all ERISA plans custodied with us that executed indirect foreign exchange trades with State Street from 1998 onward. The complaints allege that State Street caused class members to pay unfair and unreasonable rates for indirect foreign exchange trades with State Street. The complaints seek unspecified damages, disgorgement of profits, and other equitable relief. Other claims may be asserted in the future, including in response to developments in the actions discussed above or governmental proceedings. If these matters were to proceed to trial, we expect that plaintiffs would seek to recover their share of all or a portion of the revenue that we have recorded from indirect foreign exchange trades. We cannot predict whether a court, in the event of an adverse resolution, would consider our revenue to be the appropriate measure of damages. 35 The following table summarizes our estimated The heightened regulatory and media scrutiny total revenue worldwide from indirect foreign exchange trading for the years ended December 31: (In millions) 2008 2009 2010 2011 2012 2013 2014 2015 Revenue from indirect foreign exchange trading $ 462 369 336 331 248 285 246 280 We believe that the amount of our revenue from indirect foreign exchange trading had been of a similar or lesser order of magnitude for many years prior to 2008. Our revenue calculations related to indirect foreign exchange trading reflect judgment concerning the relationship between the rates we charge for indirect foreign exchange execution and indicative interbank market rates near in time to execution. Our revenue from foreign exchange trading generally depends on the difference between the rates we set for those indirect trades and indicative interbank market rates at the time of execution of the trade. As of December 31, 2015, we have accrued a total of $565 million associated with our indirect foreign exchange business. This accrual reflects the current status of our ongoing efforts to seek to resolve the outstanding claims asserted in the United States against us by federal governmental entities and U.S. civil litigants with regard to our indirect foreign exchange business. Although we believe this recorded legal accrual will address the financial demands associated with these claims, significant non-financial terms remain outstanding. In addition, there can be no assurance that other claims will not be asserted in the future. Consequently, there can be no assurance that we will enter into any settlements, that the cost of any settlements or other resolutions of any such matters will not materially exceed our accrual or that other, potentially material, claims relating to our indirect foreign exchange business will not be asserted against us. An adverse outcome with respect to one or more claims, whether or not currently asserted, relating to our indirect foreign exchange business could have a material adverse effect on our reputation, on our consolidated results of operations for the period in which the adverse outcome occurs (or an accrual is determined to be required), or on our consolidated financial condition. on indirect foreign exchange services has resulted in clients reducing the volume of indirect foreign exchange trades, which has had and is anticipated to continue to have an adverse impact on our revenue from, and the profitability of, our indirect foreign exchange trading. Some custody clients or their investment managers have elected to change the manner in which they execute foreign exchange with us or have decided not to use our foreign exchange execution methods. We do not expect the market, regulatory and other pressures on our indirect foreign exchange services to decrease in 2016. We intend to continue to offer our custody clients a range of execution options for their foreign exchange needs; however, the range of services, costs and profitability vary by execution option. We cannot provide assurance that clients or investment managers who choose to use less or none of our indirect foreign exchange trading, or to use alternatives to our existing indirect foreign exchange trading, will choose the alternatives offered by us. Accordingly, our revenue earned from providing these foreign exchange trading services may decline further. We may not be successful in implementing State Street Beacon, our 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 order to maintain and grow our business, we must continuously make strategic decisions about our current and future business plans, including plans to target cost initiatives and enhance operational processes and efficiencies, plans to improve existing and to develop new service offerings and enhancements, plans for entering or exiting business lines or geographic markets, plans for acquiring or disposing of businesses, plans to build new systems, migrate from existing systems and other infrastructure and to address staffing needs. 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. Operational process transformations, including State Street Beacon, entail significant risks. The program, and any future strategic or business plan we implement, may prove to be inadequate to achieve its objectives, may result in increased or unanticipated costs, may result in earnings volatility, may take longer than anticipated to implement, may involve elements reliant on the performance of third parties and may not be successfully implemented. In addition, our efforts to manage expenses may be matched or exceeded by our competitors. Any failure to implement State Street Beacon in whole or in part may, among other things, reduce our competitive 36 position, diminish the cost effectiveness of our systems and processes or provide an insufficient return on our associated investment. In particular, elements of the program include investment in systems integration and new technologies, including straight-through-processing, to increase global servicing capabilities, reduce expenses and enhance the client experience, and also the development of new, and the evolution of existing, methods and tools to accelerate the pace of innovation, the introduction of new services and enhancements to the security of our data systems. The transition to new operating processes and technology infrastructure may cause disruptions in our relationships with clients and employees and may present other unanticipated technical or operational hurdles. As a result, we may not achieve some or all of the cost savings or other benefits anticipated through the program. In addition, other systems development initiatives, which are not included in State Street Beacon, may not have access to the same level of resources or management attention and, consequently, may be delayed or unsuccessful. Many of our systems require enhancements to meet the requirements of evolving regulation, to permit us to optimize our use of capital or to reduce the risk of operating error. We may not have the resources to pursue all of these objectives, including State Street Beacon, simultaneously. The success of the program and our other strategic plans could also be affected by market disruptions and unanticipated changes in the overall market for financial services and the global economy. We also may not be able to abandon or alter these plans without significant loss, as the implementation of our decisions may involve significant capital outlays, often far in advance of when we expect to generate any related revenues or cost expectations. Accordingly, our business, our consolidated results of operations and our consolidated financial condition may be adversely affected by any failure or delay in our strategic decisions, including the program or elements thereof. For additional information about the program, see the “Consolidated Results of Operations - Expenses” section of Management’s Discussion and Analysis, included under Item 7. Our businesses may be negatively affected by adverse publicity or other reputational harm. Our relationship with many of our clients is predicated on our reputation as a fiduciary and a service provider that adheres to the highest standards of ethics, service quality and regulatory compliance. Adverse publicity, regulatory actions or fines, litigation, operational failures or the failure to meet client expectations or fiduciary or other obligations could materially and adversely affect our reputation, our ability to attract and retain clients or key employees or our sources of funding for the same or other businesses. For example, over the past several years we have experienced adverse publicity with respect to our indirect foreign exchange trading, and this adverse publicity has contributed to a shift of client volume to other foreign exchange execution methods. Similarly, regulatory and reputational issues in our transition management business in the U.K. in 2010 and 2011 adversely affected our revenue from that business in subsequent years. Preserving and enhancing our reputation also depends on maintaining systems, procedures and controls that address known risks and regulatory requirements, as well as our ability to timely identify, understand and mitigate additional risks that arise due to changes in our businesses and the marketplaces in which we operate, the regulatory environment and client expectations. Our controls and procedures may fail or be circumvented, our risk management policies and procedures may be inadequate, and operational risk could adversely affect our consolidated results of operations. We may fail to identify and manage risks related to a variety of aspects of our business, including, but not limited to, operational risk, interest-rate risk, foreign exchange risk, trading risk, fiduciary risk, legal and compliance risk, liquidity risk and credit risk. We have adopted various controls, procedures, policies and systems to monitor and manage risk. While we currently believe that our risk management process is effective, we cannot provide assurance that those controls, procedures, policies and systems will always be adequate to identify and manage the internal and external, including service provider, risks in our various businesses. Risks that individuals, either employees or contractors, consciously circumvent established control mechanisms to, for example, exceed trading or investment management limitations, or commit fraud, are particularly challenging to manage through a control framework. The financial and reputational impact of control failures can be significant. Persistent or repeated issues with respect to controls may raise concerns among regulators regarding our culture, governance and control environment. While we seek to contractually limit our financial exposure to operational risk, the degree of protection that we are able to achieve varies, and our potential exposure may be greater than the revenue we anticipate that we will earn from servicing our clients. In addition, our businesses and the markets in which we operate are continuously evolving. We may fail to identify or fully understand the implications of changes in our businesses or the financial markets and fail to adequately or timely enhance our risk framework to address those changes. If our risk 37 framework is ineffective, either because it fails to keep pace with changes in the financial markets, regulatory or industry requirements, our businesses, our counterparties, clients or service providers or for other reasons, we could incur losses, suffer reputational damage or find ourselves out of compliance with applicable regulatory or contractual mandates or expectations. Operational risk is inherent in all of our business activities. As a leading provider of services to institutional investors, we provide a broad array of services, including research, investment management, trading services and investment servicing that expose us to operational risk. In addition, these services generate a broad array of complex and specialized servicing, confidentiality and fiduciary requirements, many of which involve the opportunity for human, systems or process errors. We face the risk that the control policies, procedures and systems we have established to comply with our operational requirements will fail, will be inadequate or will become outdated. We also face the potential for loss resulting from inadequate or failed internal processes, employee supervision or monitoring mechanisms, service-provider processes or other systems or controls, which could materially affect our future consolidated results of operations. Given the volume and magnitude of transactions we process on a daily basis, operational losses represent a potentially significant financial risk for our business. Operational errors that result in us remitting funds to a failing or bankrupt entity may be irreversible, and may subject us to losses. We may also be subject to disruptions from external events that are wholly or partially beyond our control, which could cause delays or disruptions to operational functions, including information processing and financial market settlement functions. In addition, our clients, vendors and counterparties could suffer from such events. Should these events affect us, or the clients, vendors or counterparties with which we conduct business, our consolidated results of operations could be negatively affected. When we record balance sheet accruals for probable and estimable loss contingencies related to operational losses, we may be unable to accurately estimate our potential exposure, and any accruals we establish to cover operational losses may not be sufficient to cover our actual financial exposure, which could have a material adverse effect on our consolidated results of operations. The quantitative models we use to manage our business may contain errors that result in inadequate risk assessments, inaccurate valuations or poor business decisions, and lapses in disclosure controls and procedures or internal control over financial reporting could occur, any of which could result in material harm. We use quantitative models to help manage many different aspects of our businesses. As an input to our overall assessment of capital adequacy, we use models to measure the amount of credit risk, market risk, operational risk, interest-rate risk and liquidity risk we face. During the preparation of our consolidated financial statements, we sometimes use models to measure the value of asset and liability positions for which reliable market prices are not available. We also use models to support many different types of business decisions including trading activities, hedging, asset-and-liability management and whether to change business strategy. Weaknesses in the underlying model, inadequate model assumptions, normal model limitations, inappropriate model use, weaknesses in model implementation or poor data quality, could result in unanticipated and adverse consequences, including material loss and material non-compliance with regulatory requirements or expectations. Because of our widespread usage of models, potential weaknesses in our model risk management practices pose an ongoing risk to us. We also may fail to accurately quantify the magnitude of the risks we face. Our measurement methodologies rely on many assumptions and historical analyses and correlations. These assumptions may be incorrect, and the historical correlations on which we rely may not continue to be relevant. Consequently, the measurements that we make for regulatory purposes may not adequately capture or express the true risk profiles of our businesses. Moreover, as businesses and markets evolve, our measurements may not accurately reflect this evolution. While our risk measures may indicate sufficient capitalization, they may underestimate the level of capital necessary to conduct our businesses. Additionally, our disclosure controls and procedures may not be effective in every circumstance, and, similarly, it is possible we may identify a material weakness or significant deficiency in internal control over financial reporting. Any such lapses or deficiencies may materially and adversely affect our business and consolidated results of operations or consolidated financial condition, restrict our ability to access the capital markets, require us to expend significant resources to correct the lapses or deficiencies, expose us to regulatory or legal proceedings, subject us to fines, penalties or judgments or harm our reputation. 38 Cost shifting to non-U.S. jurisdictions and outsourcing may expose us to increased operational risk and reputational harm and may not result in expected cost savings. We actively strive to achieve cost savings by shifting certain business processes and business support functions to lower-cost geographic locations, such as Poland, India and China, and by outsourcing. We may accomplish this shift by establishing operations in lower-cost locations, by outsourcing to vendors in various jurisdictions or through joint ventures. This effort exposes us to the risk that we may not maintain service quality, control or effective management within these operations, to the risks that our outsourcing vendors or joint ventures may not comply with their servicing and other contractual obligations to us, including with respect to indemnification and information security, and to the risk that we may not satisfy applicable regulatory responsibilities regarding the management and oversight of third parties and outsourcing providers. In addition, we are exposed to the relevant macroeconomic, political and similar risks generally involved in doing business in the jurisdictions in which we establish lower-cost locations or joint ventures or in which our outsourcing vendors locate their operations. The increased elements of risk that arise from certain operating processes being conducted in some jurisdictions could lead to an increase in reputational risk. During periods of transition of operations, greater operational risk and client concern exist with respect to maintaining a high level of service delivery. The extent and pace at which we are able to move functions to lower-cost locations, joint ventures and outsourcing providers may also be affected by regulatory and client acceptance issues. Such relocation or outsourcing of functions also entails costs, such as technology, real estate and restructuring expenses, that may offset or exceed the expected financial benefits of the relocation or outsourcing. In addition, the financial benefits of lower-cost locations and of outsourcings may diminish over time. We may incur losses arising from our investments in sponsored investment funds, which could be material to our consolidated results of operations in the periods incurred. In the normal course of business, we manage various types of sponsored investment funds through SSGA. The services we provide to these sponsored investment funds generate management fee revenue, as well as servicing fees from our other businesses. From time to time, we may invest in the funds, which we refer to as seed capital, in order for the funds to establish a performance history for newly launched strategies. These funds may meet the definition of variable interest entities, as defined by GAAP, and if we are deemed to be the primary beneficiary of these funds, we may be required to consolidate these funds in our financial statements under GAAP. The funds follow specialized investment company accounting rules which prescribe fair value for the underlying investment securities held by the funds. In the aggregate, we expect any financial losses that we realize over time from these seed investments to be limited to the actual fair value of the amount invested in the consolidated fund, which is based on the fair value of the underlying investment securities held by the funds. However, in the event of a fund wind-down, gross gains and losses of the fund may be recognized for financial accounting purposes in different periods during the time the fund is consolidated but not wholly owned. Although we expect the actual economic loss to be limited to the amount invested, our losses in any period for financial accounting purposes could exceed the value of our economic interests in the fund and could exceed the value of our initial seed capital investment. In instances where we are not deemed to be the primary beneficiary of the sponsored investment fund, we do not include the funds in our consolidated financial statements. Our risk of loss associated with investment in these unconsolidated funds primarily represents our seed capital investment, which could become realized as a result of poor investment performance. However, the amount of loss we may recognize during any period would be limited to the carrying amount of our investment. Our reputation and business prospects may be damaged if our clients incur substantial losses in investment pools in which we act as agent or are restricted in redeeming their interests in these investment pools. We manage assets on behalf of clients in several forms, including in collective investment pools, money market funds, securities finance collateral pools, cash collateral and other cash products and short-term investment funds. Our management of collective investment pools on behalf of clients exposes us to reputational risk and operational losses. If our clients incur substantial investment losses in these pools, receive redemptions as in-kind distributions rather than in cash, or experience significant under-performance relative to the market or our competitors' products, our reputation could be significantly harmed, which harm could significantly and adversely affect the prospects of our associated business units. Because we often implement investment and operational decisions and actions over multiple investment pools to achieve scale, we face the risk that losses, even small losses, may have a significant effect in the aggregate. 39 Within our investment management business, we manage investment pools, such as mutual funds and collective investment funds that generally offer our clients the ability to withdraw their investments on short notice, generally daily or monthly. This feature requires that we manage those pools in a manner that takes into account both maximizing the long-term return on the investment pool and retaining sufficient liquidity to meet reasonably anticipated liquidity requirements of our clients. The importance of maintaining liquidity varies by product type, but it is a particularly important feature in money market funds and other products designed to maintain a constant net asset value of $1.00. During the market disruption that accelerated following the bankruptcy of Lehman Brothers, the liquidity in many asset classes, particularly short- and long-term fixed-income securities, declined dramatically, and providing liquidity to meet all client demands in these investment pools without adversely affecting the return to non-withdrawing clients became more difficult. In 2008, we imposed restrictions on cash redemptions from the agency lending collateral pools, as the per-unit market value of those funds' assets had declined below the constant $1.00 the funds employ to effect purchase and redemption transactions. Both the decline of the funds' net asset value below $1.00 and the imposition of restrictions on redemptions had a significant client, reputational and regulatory impact on us, and the recurrence of such or similar circumstances in the future could adversely impact our consolidated results of operations and financial condition. During this period, we also continued to process purchase and redemption of units of the collateral pools at $1.00 although the fair market value of the collateral pools' assets were less than $1.00. Our willingness in the future to continue to process purchases and redemptions from collateral pools at $1.00 when the fair market value of our collateral pools' assets is less than $1.00 could expose us to significant liability. Our unwillingness in the future to continue to process purchases and redemptions from collateral pools at $1.00 when the fair market value of the collateral pools' assets are less than $1.00 could similarly expose us to significant liability. In the case of SSGA funds that engage in securities lending, we implemented limitations, which were terminated in 2010, on the portion of an investor's interest in such fund that may be withdrawn during any month. We also elected to contribute significant amounts to these funds to negate the effect of the collateral pools on the funds’ net asset value. If higher than normal demands for liquidity from our clients were to return to post-Lehman-Brothers- bankruptcy levels or increase, managing the liquidity requirements of our collective investment pools could become more difficult. If such liquidity problems were to recur, our relationships with our clients may be adversely affected, and, we could, in certain circumstances, be required to consolidate the investment pools into our consolidated statement of condition; levels of redemption activity could increase; and our consolidated results of operations and business prospects could be adversely affected. In addition, if a money market fund that we manage were to have unexpected liquidity demands from investors in the fund that exceeded available liquidity, the fund could be required to sell assets to meet those redemption requirements, and selling the assets held by the fund at a reasonable price, if at all, may then be difficult. While it is currently not our intention, and we do not have contractual or other obligations to do so, we have in the past guaranteed, and may in the future guarantee, liquidity to investors desiring to make withdrawals from a fund or otherwise take actions to mitigate the impact of market conditions on our clients and if permitted by applicable laws. Making a significant amount of such guarantees could adversely affect our own consolidated liquidity and financial condition. Because of the size of the investment pools that we manage, we may not have the financial ability or regulatory authority to support the liquidity or other demands of our clients. The extreme volatility in the equity markets has led to the potential for the return on passive and quantitative products to deviate from their target returns. Any decision by us to provide financial support to an investment pool to support our reputation in circumstances where we are not statutorily or contractually obligated to do so could result in the recognition of significant losses, could adversely affect the regulatory view of our capital levels or plans and could, in certain situations, require us to consolidate the investment pools into our consolidated statement of condition. Any failure of the pools to meet redemption requests, or under- performance of our pools relative to similar products offered by our competitors, could harm our business and our reputation. Development of new products and services may impose additional costs on us and may expose us to increased operational risk. Our financial performance depends, in part, on our ability to develop and market new and innovative services and to adopt or develop new technologies that differentiate our products or provide cost efficiencies, while avoiding increased related expenses. The introduction of new products and services can entail significant time and resources, including regulatory approvals. Substantial risks and 40 uncertainties are associated with the introduction of new products and services, including technical and control requirements that may need to be developed and implemented, rapid technological change in the industry, our ability to access technical and other information from our clients, the significant and ongoing investments required to bring new products and services to market in a timely manner at competitive prices and the preparation of marketing, sales and other materials that fully and accurately describe the product or service and its underlying risks. Our failure to manage these risks and uncertainties also exposes us to enhanced risk of operational lapses which may result in the recognition of financial statement liabilities. Regulatory and internal control requirements, capital requirements, competitive alternatives, vendor relationships and shifting market preferences may also determine if such initiatives can be brought to market in a manner that is timely and attractive to our clients. Failure to successfully manage these risks in the development and implementation of new products or services could have a material adverse effect on our business and reputation, as well as on our consolidated results of operations and financial condition. We depend on information technology, and any failures of or damage to, attack on or unauthorized access to our information technology systems or facilities, or those of third parties with which we do business, including as a result of cyber-attacks, could result in significant limits on our ability to conduct our operations and activities, costs and reputational damage. Our businesses depend on information technology infrastructure, both internal and external, to, among other things, record and process a large volume of increasingly complex transactions and other data, in many currencies, on a daily basis, across numerous and diverse markets and jurisdictions. In recent years, several financial services firms have suffered successful cyber-attacks launched both domestically and from abroad, resulting in the disruption of services to clients, loss or misappropriation of sensitive or private data and reputational harm. We also have been subjected to cyber-attack, and although we have not to our knowledge suffered a material breach of our systems, it is possible that we could suffer such a breach in the future. Cyber-threats are sophisticated and continually evolving. We may not implement effective systems and other measures to effectively prevent or mitigate the full diversity of cyber-threats or improve and adapt such systems and measures as such threats evolve and advance. Our computer, communications, data processing, networks, backup, business continuity or other operating, information or technology systems and facilities, including those that we outsource to other providers, may fail to operate properly or become disabled, overloaded or damaged as a result of a number of factors, including events that are wholly or partially beyond our control, which could adversely affect our ability to process transactions, provide services or maintain systems availability, maintain compliance and internal controls or otherwise appropriately conduct our business activities. For example, there could be sudden increases in transaction or data volumes, electrical or telecommunications outages, cyber-attacks or employee or contractor error or malfeasance. The third parties with which we do business, which facilitate our business activities or with whom we otherwise engage or interact, including financial intermediaries and technology infrastructure and service providers, are also susceptible to the foregoing risks (including regarding the third parties with which they are similarly interconnected or on which they otherwise rely), and our or their business operations and activities may therefore be adversely affected, perhaps materially, by failures, terminations, errors or malfeasance by, or attacks or constraints on, one or more financial, technology, infrastructure or government institutions or intermediaries with whom we or they are interconnected or conduct business. In particular, we, like other financial services firms, will continue to face increasing cyber threats, including computer viruses, malicious code, distributed denial of service attacks, phishing attacks, information security breaches or employee or contractor error or malfeasance that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of our, our clients' or other parties' confidential, personal, proprietary or other information or otherwise disrupt, compromise or damage our or our clients' or other parties' business assets, operations and activities. Our status as a global systemically important financial institution may increase the risk that we are targeted by such cyber- security threats. In addition, some of our service offerings, such as data warehousing, may also increase the risk we are, and the consequences of being, so-targeted. We therefore could experience significant related costs and exposures, including lost or constrained ability to provide our services or maintain systems availability to clients, regulatory inquiries, enforcements, actions and fines, litigation, damage to our reputation or property and enhanced competition. Due to our dependence on technology and the important role it plays in our business operations, we must persist in improving and updating our information technology infrastructure. Updating these systems and facilities can require significant resources and often involves implementation, 41 integration and security risks that could cause financial, reputational and operational harm. However, failing to properly respond to and invest in changes and advancements in technology can limit our ability to attract and retain clients, prevent us from offering similar products and services as those offered by our competitors and inhibit our ability to meet regulatory requirements. Any theft, loss or other misappropriation or inadvertent disclosure of, or inappropriate access to, the confidential information we possess could have an adverse impact on our business and could subject us to regulatory actions, litigation and other adverse effects. Our businesses and relationships with clients are dependent on our ability to maintain the confidentiality of our and our clients' trade secrets and confidential information (including client transactional data and personal data about our employees, our clients and our clients' clients). Unauthorized access, or failure of our controls with respect to granting access to our systems, may occur, resulting in theft, loss, or other misappropriation of such information. Any theft, loss, other misappropriation or inadvertent disclosure of confidential information could have a material adverse impact on our competitive position, our relationships with our clients and our reputation and could subject us to regulatory inquiries, enforcement and fines, civil litigation and possible financial liability or costs. We may not be able to protect our intellectual property, and we are subject to claims of third- party intellectual property rights. Our potential inability to protect our intellectual property and proprietary technology effectively may allow competitors to duplicate our technology and products and may adversely affect our ability to compete with them. To the extent that we do not protect our intellectual property effectively through patents or other means, other parties, including former employees, with knowledge of our intellectual property may leave and seek to exploit our intellectual property for their own or others' advantage. In addition, we may infringe on claims of third-party patents, and we may face intellectual property challenges from other parties. We may not be successful in defending against any such challenges or in obtaining licenses to avoid or resolve any intellectual property disputes. Third-party intellectual rights, valid or not, may also impede our deployment of the full scope of our products and service capabilities in all jurisdictions in which we operate or market our products and services. The intellectual property of an acquired business may be an important component of the value that we agree to pay for such a business. However, such acquisitions are subject to the risks that the acquired business may not own the intellectual property that we believe we are acquiring, that the intellectual property is dependent on licenses from third parties, that the acquired business infringes on the intellectual property rights of others, or that the technology does not have the acceptance in the marketplace that we anticipated. Competition for our employees is intense, and we may not be able to attract and retain the highly skilled people we need to support our business. Our success depends, in large part, on our ability to attract and retain key people. Competition for the best people in most activities in which we engage can be intense, and we may not be able to hire people or retain them, particularly in light of challenges associated with evolving compensation restrictions applicable, or which may become applicable, to banks and some asset managers and that potentially are not applicable to other financial services firms in all jurisdictions. The unexpected loss of services of key personnel, both in business units and control functions, could have a material adverse impact on our business because of their skills, their knowledge of our markets, operations and clients, their years of industry experience and, in some cases, the difficulty of promptly finding qualified replacement personnel. Similarly, the loss of key employees, either individually or as a group, could adversely affect our clients' perception of our ability to continue to manage certain types of investment management mandates or to provide other services to them. We are subject to intense competition in all aspects of our business, which could negatively affect our ability to maintain or increase our profitability. The markets in which we operate across all facets of our business are both highly competitive and global. These markets are changing as a result of new and evolving laws and regulations applicable to financial services institutions. Regulatory-driven market changes cannot always be anticipated, and may adversely affect the demand for, and profitability of, the products and services that we offer. In addition, new market entrants and competitors may address changes in the markets more rapidly than we do, or may provide clients with a more attractive offering of products and services, adversely affecting our business. Our efforts to develop and market new products may position us in new markets with pre- existing competitors with strong market position. We have also experienced, and anticipate that we will continue to experience, pricing pressure in many of our core businesses, particularly our custodial and 42 investment management services. Many of our businesses compete with other domestic and international banks and financial services companies, such as custody banks, investment advisors, broker/ dealers, outsourcing companies and data processing companies. Further consolidation within the financial services industry could also pose challenges to us in the markets we serve, including potentially increased downward pricing pressure across our businesses. Some of our competitors, including our competitors in core services, have substantially greater capital resources than we do or are not subject to as stringent capital or other regulatory requirements as are we. In some of our businesses, we are service providers to significant competitors. These competitors are in some instances significant clients, and the retention of these clients involves additional risks, such as the avoidance of actual or perceived conflicts of interest and the maintenance of high levels of service quality and intra-company confidentiality. The ability of a competitor to offer comparable or improved products or services at a lower price would likely negatively affect our ability to maintain or increase our profitability. Many of our core services are subject to contracts that have relatively short terms or may be terminated by our client after a short notice period. In addition, pricing pressures as a result of the activities of competitors, client pricing reviews, and rebids, as well as the introduction of new products, may result in a reduction in the prices we can charge for our products and services. Acquisitions, strategic alliances, joint ventures and divestitures pose risks for our business. As part of our business strategy, we acquire complementary businesses and technologies, enter into strategic alliances and joint ventures and divest portions of our business. We undertake transactions of varying sizes to, among other reasons, expand our geographic footprint, access new clients, technologies or services, develop closer or more collaborative relationships with our business partners, bolster existing servicing capabilities, efficiently deploy capital or leverage cost savings or other business or financial opportunities. We may not achieve the expected benefits of these transactions, which could result in increased costs, lowered revenues, ineffective deployment of capital, regulatory concerns, exit costs or diminished competitive position or reputation. Transactions of this nature also involve a number of risks and financial, accounting, tax, regulatory, managerial, operational, cultural and employment challenges, which could adversely affect our consolidated results of operations and financial condition. For example, the businesses that we acquire or our strategic alliances or joint ventures may under-perform relative to the price paid or the resources committed by us; we may not achieve anticipated cost savings; or we may otherwise be adversely affected by acquisition-related charges. Further, past acquisitions have resulted in the recognition of goodwill and other significant intangible assets in our consolidated statement of condition. These assets are not eligible for inclusion in regulatory capital under applicable requirements. In addition, we may be required to record impairment in our consolidated statement of income in future periods if we determine that the value of these assets has declined. Through our acquisitions or joint ventures, we may also assume unknown or undisclosed business, operational, tax, regulatory and other liabilities, fail to properly assess known contingent liabilities or assume businesses with internal control deficiencies. While in most of our transactions we seek to mitigate these risks through, among other things, due diligence and indemnification provisions, these or other risk-mitigating provisions we put in place may not be sufficient to address these liabilities and contingencies. Various regulatory approvals or consents, formal or informal, are generally required prior to closing of these transactions, which may include approvals or non-objections from the Federal Reserve and other domestic and non-U.S. regulatory authorities. These regulatory authorities may impose conditions on the completion of the acquisition or require changes to its terms that materially affect the terms of the transaction or our ability to capture some of the opportunities presented by the transaction. Any such conditions, or any associated regulatory delays, could limit the benefits of the transaction. Acquisitions or joint ventures we announce may not be completed if we do not receive the required regulatory approvals, if regulatory approvals are significantly delayed or if other closing conditions are not satisfied. The integration of our acquisitions results in risks to our business and other uncertainties. The integration of acquisitions presents risks that differ from the risks associated with our ongoing operations. Integration activities are complicated and time consuming and can involve significant unforeseen costs. We may not be able to effectively assimilate services, technologies, key personnel or businesses of acquired companies into our business or service offerings as anticipated, alliances may not be successful, and we may not achieve related revenue growth or cost savings. We also face the risk of being unable to retain, or cross-sell our products or services to, the clients of acquired companies or joint ventures. Acquisitions of 43 investment servicing businesses entail information technology systems conversions, which involve operational risks and may result in client dissatisfaction and defection. Clients of investment servicing businesses that we have acquired may be competitors of our non-custody businesses. The loss of some of these clients or a significant reduction in the revenues generated from them, for competitive or other reasons, could adversely affect the benefits that we expect to achieve from these acquisitions or cause impairment to goodwill and other intangibles. With any acquisition, the integration of the operations and resources of the businesses could result in the loss of key employees, the disruption of our and the acquired company's ongoing businesses or inconsistencies in standards, controls, procedures or policies that could adversely affect our ability to maintain relationships with clients or employees or to achieve the anticipated benefits of the acquisition. Integration efforts may also divert management attention and resources. Long-term contracts expose us to pricing and performance risk. We enter into long-term contracts to provide middle office or investment manager and alternative investment manager operations outsourcing services to clients, primarily for conversions, including services related but not limited to certain trading activities, cash reporting, settlement and reconciliation activities, collateral management and information technology development. We also may enter into longer-term arrangements with respect to custody, fund administration and depository services. These arrangements generally set forth our fee schedule for the term of the contract and, absent a change in service requirements, do not permit us to re-price the contract for changes in our costs or for market pricing. The long-term contracts for these relationships require, in some cases, considerable up-front investment by us, including technology and conversion costs, and carry the risk that pricing for the products and services we provide might not prove adequate to generate expected operating margins over the term of the contracts. The profitability of these contracts is largely a function of our ability to accurately calculate pricing for our services, efficiently assume our contractual responsibilities in a timely manner, control our costs and maintain the relationship with the client for an adequate period of time to recover our up-front investment. Our estimate of the profitability of these arrangements can be adversely affected by declines in the assets under the clients' management, whether due to general declines in the securities markets or client-specific issues. In addition, the profitability of these arrangements may be based on our ability to cross-sell additional services to these clients, and we may be unable to do so. Performance risk exists in each contract, given our dependence on successful conversion and implementation onto our own operating platforms of the service activities provided. Our failure to meet specified service levels or implementation timelines may also adversely affect our revenue from such arrangements, or permit early termination of the contracts by the client. If the demand for these types of services were to decline, we could see our revenue decline. Changes in accounting standards may adversely affect our consolidated financial statements. New accounting standards, or changes to existing accounting standards, resulting both from initiatives of the FASB, or their convergence efforts with the International Accounting Standards Board, as well as changes in the interpretation of existing accounting standards, by the FASB or the SEC or otherwise reflected in U.S. GAAP, potentially could affect our consolidated results of operations, cash flows and financial condition. These changes can materially affect how we record and report our consolidated results of operations, cash flows, financial condition and other financial information. In some cases, we could be required to apply a new or revised standard retroactively, resulting in the revised treatment of certain transactions or activities, and, in some cases, the revision of our consolidated financial statements for prior periods. Changes in tax laws, rules or regulations, challenges to our tax positions with respect to historical transactions, and changes in the composition of our pre-tax earnings may increase our effective tax rate and thus adversely affect our consolidated financial statements. Our businesses can be directly or indirectly affected by new tax legislation, the expiration of existing tax laws or the interpretation of existing tax laws worldwide. The U.S. federal government, state governments, including Massachusetts, and jurisdictions around the world continue to review proposals to amend tax laws, rules and regulations applicable to our business that could have a negative impact on our after-tax earnings. In the normal course of our business, we are subject to review by U.S. and non-U.S. tax authorities. A review by any such authority could result in an increase in our recorded tax liability. In addition to the aforementioned risks, our effective tax rate is dependent on the nature and geographic composition of our pre-tax earnings and could be negatively affected by changes in these factors. 44 We may incur losses as a result of unforeseen events, including terrorist attacks, natural disasters, the emergence of a pandemic or acts of embezzlement. Acts of terrorism, natural disasters or the emergence of a pandemic could significantly affect our business. We have instituted disaster recovery and continuity plans to address risks from terrorism, natural disasters and pandemic; however, anticipating or addressing all potential contingencies is not possible for events of this nature. Acts of terrorism, either targeted or broad in scope, or natural disasters could damage our physical facilities, harm our employees and disrupt our operations. A pandemic, or concern about a possible pandemic, could lead to operational difficulties and impair our ability to manage our business. Acts of terrorism, natural disasters and pandemics could also negatively affect our clients, counterparties and service providers, as well as result in disruptions in general economic activity and the financial markets. We occupy other principal properties located in Missouri, New Jersey, New York, and Ontario, composed of four leased buildings containing a total of approximately 680,000 square feet, under leases expiring from August 2022 to August 2025. Significant properties in the U.K. and Europe include nine buildings located in England, Scotland, Poland, Ireland, Luxembourg, Germany, and Italy, containing approximately 1.4 million square feet under leases expiring from January 2019 through August 2034. Principal properties located in China and Australia consist of three buildings containing approximately 379,000 square feet under leases expiring from September 2020 through May 2021. We believe that our owned and leased facilities are suitable and adequate for our business needs. Additional information about our occupancy costs, including our commitments under non-cancelable leases, is provided in Note 20 to the consolidated financial statements included under Item 8 of this Form 10-K. ITEM 1B. UNRESOLVED STAFF COMMENTS ITEM 3. LEGAL PROCEEDINGS The information required by this Item is provided under "Legal and Regulatory Matters" in Note 13 to the consolidated financial statements included under Item 8 of this Form 10-K, and is incorporated herein by reference. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. None. ITEM 2. PROPERTIES We occupy a total of approximately 7.3 million square feet of office space and related facilities worldwide, of which approximately 6.4 million square feet are leased. Of the total leased space, approximately 2.4 million square feet are located in eastern Massachusetts. An additional 1.3 million square feet are located elsewhere throughout the U.S. and in Canada. We lease approximately 2.0 million square feet in the U.K. and elsewhere in Europe, and approximately 700,000 square feet in the Asia/Pacific region. Our headquarters is located at State Street Financial Center, One Lincoln Street, Boston, Massachusetts, a 36-story office building. Various divisions of our two lines of business, as well as support functions, occupy space in this building. We lease the entire 1,025,000 square feet of the building, and a related underground parking garage, at One Lincoln Street, under 20-year non-cancellable capital leases expiring in 2023. A portion of the lease payments is offset by subleases for approximately 127,000 square feet of the building. We occupy four buildings located in Quincy, Massachusetts, one of which we own and three of which we lease. The buildings contain a total of approximately 1.2 million square feet (720,000 square feet owned and 470,000 square feet leased). These, along with the Channel Center, an office building located in Boston, of which we lease the entire 500,000 square feet, function as State Street Bank's principal operations facilities. 45 EXECUTIVE OFFICERS OF THE REGISTRANT The following table presents certain information with respect to each of our executive officers as of February 19, 2016. Name Joseph L. Hooley Michael W. Bell Jeffrey N. Carp Jeffrey D. Conway Gunjan Kedia Andrew Kuritzkes Sean P. Newth Ronald P. O'Hanley James S. Phalen Alison A. Quirk Michael F. Rogers Wai-Kwong Seck Age Position 58 Chairman and Chief Executive Officer 52 Executive Vice President and Chief Financial Officer 59 Executive Vice President, Chief Legal Officer and Secretary 50 Executive Vice President 45 Executive Vice President 55 Executive Vice President and Chief Risk Officer 40 Senior Vice President, Chief Accounting Officer and Controller 59 Chief Executive Officer and President of State Street Global Advisors 65 Vice Chairman 54 Executive Vice President 58 President and Chief Operating Officer 60 Executive Vice President All executive officers are appointed by the Board and hold office at the discretion of the Board. No family relationships exist among any of our directors and executive officers. Mr. Hooley joined State Street in 1986 and currently serves as Chairman and Chief Executive Officer. He was appointed Chief Executive Officer in March 2010 and Chairman of the Board in January 2011. He served as our President and Chief Operating Officer from April 2008 until December 2014. From 2002 to April 2008, Mr. Hooley served as Executive Vice President and head of Investor Services and, in 2006, was appointed Vice Chairman and Global Head of Investment Servicing and Investment Research and Trading. Mr. Hooley was elected to serve on the Board of Directors effective October 22, 2009. Mr. Bell joined State Street in August 2013 as Executive Vice President and Chief Financial Officer. Prior to joining State Street, Mr. Bell served as senior executive vice president and chief financial officer of Manulife Financial Corporation, a leading Canada- based financial services group with principal operations in Asia, Canada and the U.S., from 2009 to June 2012. From 2002 to 2009, he served as executive vice president and chief financial officer at Cigna Corporation, a global health services organization where he had previously served in several senior management positions, including as President of Cigna Group Insurance. Mr. Carp joined State Street in 2006 as Executive Vice President and Chief Legal Officer. Later in 2006, he was also appointed Secretary. From 2004 to 2005, Mr. Carp served as executive vice president and general counsel of Massachusetts Financial Services, an investment management and research company. From 1989 until 2004, Mr. Carp was a senior partner at the law firm of Hale and Dorr LLP, where he was an attorney since 1982. Mr. Carp served as State Street's interim Chief Risk Officer from February 2010 until September 2010. Mr. Conway joined State Street more than 25 years ago and since March 2015 has served as Executive Vice President and Chief Executive Officer for Europe, the Middle East and Africa. Prior to that, Mr. Conway held several other management positions within the Company, including leading Global Exchange, State Street's data and analytics business from April 2013 to March 2015. From 2007 to April 2013 Mr. Conway served as the global head of State Street's Investment Management Services business. Ms. Kedia joined State Street in 2008 as an executive vice president and is responsible for the Investment Servicing business in the Americas for mutual funds, insurance and institutional clients. Prior to joining State Street, Ms. Kedia previously was an executive vice president, global product management at Bank of New York Mellon. Additionally, Ms. Kedia was a partner with McKinsey & Company focusing on financial institutions and an associate with PriceWaterhouseCoopers. Mr. Kuritzkes joined State Street in 2010 as Executive Vice President and Chief Risk Officer. Prior to joining State Street, Mr. Kuritzkes was a partner at Oliver, Wyman & Company, an international management consulting firm, and led the firm’s Public Policy practice in North America. He joined Oliver, Wyman & Company in 1988, was a managing director in the firm’s London office from 1993 to 1997, and served as vice chairman of Oliver, Wyman & Company globally from 2000 until the firm’s acquisition by MMC in 2003. From 1986 to 1988, he worked as an economist and lawyer for the Federal Reserve Bank of New York. Mr. Newth joined State Street in 2005 and has served as Senior Vice President, Chief Accounting 46 Officer and Corporate Controller since October 2014. Prior to that, he held several senior positions in State Street's Accounting Department, including Director of Accounting Policy from 2009 to 2014 and Deputy Controller from April 2014 to October 2014. Before joining State Street, Mr. Newth served in various transaction services, accounting advisory and assurance roles at KPMG, from 1997 to 2005. Mr. O'Hanley joined State Street in April 2015 as Chief Executive Officer and President of State Street Global Advisors, the investment management arm of State Street Corporation. Prior to that, Mr. O'Hanley was president of Asset Management & Corporate Services for Fidelity Investments, from 2010 to February 2014. From 1997 to 2010, Mr. O'Hanley served in various positions at Bank of New York Mellon, serving as President and Chief Executive Officer of BNY Asset Management in Boston from 2007 to 2010. Mr. Phalen joined State Street in 1992 and in 2014 began serving as head of the Office of Regulatory Initiatives. He was appointed Vice Chairman in March 2014. Mr. Phalen served as Executive Vice President and head of Global Operations, Technology and Product Development from 2010 to 2014. Prior to that, starting in 2000 and until 2003, he served as Chairman and Chief Executive Officer of CitiStreet, a global benefits provider and retirement plan record keeper. In February 2005, he was appointed head of State Street's Investor Services division in North America. In 2006, he was appointed head of international operations for Investment Servicing and Investment Research and Trading, based in Europe. From January 2008 until May 2008, he served on an interim basis as President and Chief Executive Officer of SSGA, following which he returned to his role as head of international operations for Investment Servicing and Investment Research and Trading. Ms. Quirk joined State Street in 2002, and since January 2012 has served as Chief Human Resources and Citizenship Officer. She has served as Executive Vice President and head of Global Human Resources since March 2010. Prior to that, Ms. Quirk served as Executive Vice President in Global Human Resources and held various senior roles in that group. Mr. Rogers joined State Street in 2007 as part of our acquisition of Investors Financial Services Corp., and was appointed President and Chief Operating Officer in December 2014. In that role, he is responsible for State Street Global Markets, State Street Global Services Americas, Information Technology, Global Operations, and Global Exchange, State Street’s data and analytics business. Prior to that, Mr. Rogers served as head of Global Markets and Global Services - Americas since November 2011 and served as head of Global Services, including alternative investment solutions, for all of the Americas since March 2010. Mr. Rogers was previously head of the Relationship Management group, a role which he held beginning in 2009. From State Street's acquisition of Investors Financial Services Corp. in July 2007 to 2009, Mr. Rogers headed the post-acquisition Investors Financial Services Corp. business and its integration into State Street. Before joining State Street at the time of the acquisition, Mr. Rogers spent 27 years at Investors Financial Services Corp. and its predecessors in various capacities, most recently as President beginning in 2001. Mr. Seck joined State Street in September 2011 as Executive Vice President and head of Global Markets and Global Services across Asia Pacific. Prior to joining State Street, Mr. Seck was chief financial officer of the Singapore Exchange for eight years. Previously he held senior-level positions in the Monetary Authority of Singapore, the Government of Singapore Investment Corporation, Lehman Brothers and DBS Bank. PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES MARKET FOR REGISTRANT'S COMMON EQUITY Our common stock is listed on the New York Stock Exchange under the ticker symbol STT. There were 2,897 shareholders of record as of January 31, 2016. The information required by this item concerning the market prices of, and dividends on, our common stock during the past two years is provided under “Quarterly Summarized Financial Information (Unaudited)” included under Item 8 of this Form 10-K, and is incorporated herein by reference. In March 2015, our Board approved a new common stock purchase program authorizing the purchase by us of up to $1.8 billion of our common stock from April 1, 2015 through June 30, 2016. As of December 31, 2015, we had approximately $780 million remaining under that program. 47 The following table presents purchases of our common stock and related information for each of the months in the quarter ended December 31, 2015. All shares of our common stock purchased during the quarter ended December 31, 2015 were purchased under the above-described Board-approved program. 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, our capital position, our financial performance and investment opportunities. The common stock purchase program does not have specific price targets and may be suspended at any time. (Dollars in millions, except per share amounts; shares in thousands) Period: October 1 - October 31, 2015 November 1 - November 30, 2015 December 1 - December 31, 2015 Total Total Number of Shares Purchased Under Publicly Announced Program Average Price Paid Per Share Approximate Dollar Value of Shares Purchased Under Publicly Announced Program Approximate Dollar Value of Shares Yet to be Purchased Under Publicly Announced Program 666 $ 69.14 $ 46 $ 2,355 1,948 71.80 69.23 4,969 $ 70.44 $ 169 135 350 $ 1,084 915 780 780 Additional information about our common stock, including Board authorization with respect to purchases by us of our common stock, is provided under “Financial Condition - Capital” in Management's Discussion and Analysis included under Item 7, and in Note 15 to the consolidated financial statements included under Item 8 of this Form 10-K, and is incorporated herein by reference. RELATED STOCKHOLDER MATTERS As a bank holding company, our parent company is a legal entity separate and distinct from its principal banking subsidiary, State Street Bank, and its non-banking subsidiaries. The right of the parent company to participate as a shareholder in any distribution of assets of State Street Bank upon its liquidation, reorganization or otherwise is subject to the prior claims by creditors of State Street Bank, including obligations for federal funds purchased and securities sold under repurchase agreements and deposit liabilities. Payment of dividends by State Street Bank is subject to the provisions of the Massachusetts banking law, which provide that State Street Bank's Board of Directors may declare, from State Street Bank's "net profits," as defined below, cash dividends annually, semi-annually or quarterly (but not more frequently) and can declare non-cash dividends at any time. Under Massachusetts banking law, for purposes of determining the amount of cash dividends that are payable by State Street Bank, “net profits” is defined as an amount equal to the remainder of all earnings from current operations plus actual recoveries on loans and investments and other assets, after deducting from the total thereof all current operating expenses, actual losses, accrued dividends on preferred stock, if any, and all federal and state taxes. No dividends may be declared, credited or paid so long as there is any impairment of State Street Bank's capital stock. The approval of the Massachusetts Commissioner of Banks is required if the total of all dividends declared by State Street Bank in any calendar year would exceed the total of its net profits for that year combined with its retained net profits for the preceding two years, less any required transfer to surplus or to a fund for the retirement of any preferred stock. Under Federal Reserve regulations, the approval of the Federal Reserve would be required for the payment of dividends by State Street Bank if the total amount of all dividends declared by State Street Bank in any calendar year, including any proposed dividend, would exceed the total of its net income for such calendar year as reported in State Street Bank's Consolidated Reports of Condition and Income for a Bank with Domestic and Foreign Offices Only - FFIEC 031, commonly referred to as the “Call Report,” as submitted through the Federal Financial Institutions Examination Council and provided to the Federal Reserve, plus its “retained net income” for the preceding two calendar years. For these purposes, “retained net income,” as of any date of determination, is defined as an amount equal to State Street Bank's net income (as reported in its Call Reports for the calendar year in which retained net income is being determined) less any dividends declared during such year. In determining the amount of dividends that are payable, the total of State Street Bank's net income for the current year and its retained net income for the preceding two calendar years is reduced by any net losses incurred in the current or preceding two-year period and by any required transfers to surplus or to a fund for the retirement of preferred stock. Prior Federal Reserve approval also must be obtained if a proposed dividend would exceed State 48 Street Bank's “undivided profits” (retained earnings) as reported in its Call Reports. State Street Bank may include in its undivided profits amounts contained in its surplus account, if the amounts reflect transfers of undivided profits made in prior periods and if the Federal Reserve's approval for the transfer back to undivided profits has been obtained. Under the PCA provisions adopted pursuant to the FDIC Improvement Act of 1991, State Street Bank may not pay a dividend when it is deemed, under the PCA framework, to be under-capitalized, or when the payment of the dividend would cause State Street Bank to be under-capitalized. If State Street Bank is under-capitalized for purposes of the PCA framework, it must cease paying dividends for so long as it is deemed to be under-capitalized. Once earnings have begun to improve and an adequate capital position has been restored, dividend payments may resume in accordance with federal and state statutory limitations and guidelines. In 2015, our parent company declared aggregate quarterly common stock dividends to its shareholders of $1.32 per share, totaling approximately $536 million. In 2014, our parent company declared aggregate quarterly common stock dividends to its shareholders of $1.16 per share, totaling approximately $490 million. Currently, any payment of future common stock dividends by our parent company to its shareholders is subject to the review of our capital plan by the Federal Reserve in connection with its CCAR process. Information about dividends declared by our parent company and dividends from our subsidiary banks is provided under “Financial Condition - Capital” in Management's Discussion and Analysis included under Item 7, and in Note 15 to the consolidated financial statements included under Item 8 of this Form 10-K, and is incorporated herein by reference. Future dividend payments of State Street Bank and our non-banking subsidiaries cannot be determined at this time. In addition, refer to “Business - Supervision and Regulation - Capital Planning, Stress Tests and Dividends” included under Item 1 of this Form 10-K and the risk factor titled “Our business and capital- related activities, including our ability to return capital to shareholders and purchase our capital stock, may be adversely affected by our implementation of the revised regulatory capital and liquidity standards that we must meet under the Basel III final rule, the Dodd- Frank Act and other regulatory initiatives, or in the event our capital plan or post-stress capital ratios are determined to be insufficient as a result of regulatory capital stress testing” included under Item 1A of this Form 10-K. Information about our equity compensation plans is included under Item 12, and in Note 18 to the consolidated financial statements included under Item 8 of this Form 10-K, and is incorporated herein by reference. SHAREHOLDER RETURN PERFORMANCE PRESENTATION The graph presented below compares the cumulative total shareholder return on State Street's common stock to the cumulative total return of the S&P 500 Index, the S&P Financial Index and the KBW Bank Index over a five-year period. The cumulative total shareholder return assumes the investment of $100 in State Street common stock and in each index on December 31, 2010 at the closing price on the last trading day of 2010, and also assumes reinvestment of common stock dividends. The S&P Financial Index is a publicly available measure of 88 of the Standard & Poor's 500 companies, representing 26 diversified financial services companies, 21 insurance companies, 25 real estate companies and 16 banking companies. The KBW Bank Index seeks to reflect the performance of banks and thrifts that are publicly traded in the U.S., and is composed of 24 leading national money center and regional banks and thrifts. 49 State Street Corporation S&P 500 Index S&P Financial Index KBW Bank Index 2010 2011 2012 2013 2014 2015 $ 100 100 100 100 $ 89 $ 102 83 77 $ 106 118 107 101 $ 167 157 145 139 $ 182 178 167 152 157 181 164 153 50 ITEM 6. SELECTED FINANCIAL DATA (Dollars in millions, except per share amounts or where otherwise noted) FOR THE YEARS ENDED DECEMBER 31: Total fee revenue(1) Net interest revenue Gains (losses) related to investment securities, net(2) Total revenue(1) Provision for loan losses Total expenses Income before income tax expense(1) Income tax expense(1)(3) Net income(1) Adjustments to net income(4) Net income available to common shareholders(1) PER COMMON SHARE: Earnings per common share(1): Basic Diluted Cash dividends declared Closing market price (at year end) AT YEAR END: Investment securities Average total interest-earning assets Total assets Deposits Long-term debt Total shareholders' equity(1) Assets under custody and administration (in billions) Assets under management (in billions) Number of employees RATIOS: Return on average common shareholders' equity(1) Return on average assets(1) Common dividend payout(1) Average common equity to average total assets(1) Net interest margin, fully taxable-equivalent basis Common equity tier 1 ratio(1)(5) Tier 1 capital ratio(1)(5) Total capital ratio(1)(5) Tier 1 leverage ratio(1)(5) Supplementary leverage ratio(1)(6) 2015 2014 2013 2012 2011 $ 8,278 $ 8,010 $ 7,570 $ 7,069 $ 7,176 2,088 (6) 2,260 4 10,360 10,274 12 8,050 2,298 318 1,980 (132) 1,848 4.53 4.47 1.32 10 7,827 2,437 415 2,022 (64) 1,958 4.62 4.53 1.16 $ $ $ $ $ $ 2,303 (9) 9,864 6 7,192 2,666 616 2,050 (34) 2,016 4.52 4.43 1.04 $ $ $ 2,538 23 9,630 (3) 6,886 2,747 700 2,047 (42) 2,005 4.23 4.17 .96 $ $ $ 2,333 67 9,576 — 7,058 2,518 611 1,907 (38) 1,869 3.79 3.77 .72 $ $ $ $ 66.36 $ 78.50 $ 73.39 $ 47.01 $ 40.31 $ 100,022 $ 112,636 $ 116,914 $ 121,061 $ 109,153 220,456 245,192 191,627 11,534 21,103 27,508 2,245 32,356 209,054 274,119 209,040 10,042 21,328 28,188 2,448 29,970 178,101 243,291 182,268 9,699 20,248 27,427 2,345 29,430 167,615 222,582 164,181 7,429 20,824 24,371 2,086 29,650 147,657 216,827 157,287 8,131 19,366 21,807 1,845 29,740 9.8% 9.8% 10.2% 10.3% 9.9% 0.79 28.99 7.5 1.03 12.5 15.3 17.4 6.9 6.2 0.85 25.03 8.4 1.16 12.4 14.5 16.4 6.3 5.6 0.99 22.89 9.6 1.37 15.3 17.1 19.5 6.8 1.06 22.57 9.7 1.59 17.1 19.1 20.6 7.1 1.09 18.96 11.2 1.67 16.8 18.8 20.5 7.3 N/A N/A N/A (1) Amounts for 2011 through 2014 reflect adjustments related to certain expenses billed to our asset servicing clients as more fully described in Note 1 to the consolidated financial statements included under Item 8 of this Form 10-K. (2) Amount for 2012 reflects a $46 million loss from the sale of our Greek investment securities. (3) Amount for 2013 reflects the correction of an out-of-period adjustment to deferred taxes, as more fully described in Note 1 to the consolidated financial statements included under Item 8 of this Form 10-K. Amounts for 2012 and 2011 reflect the net effects of certain tax matters ($7 million benefit and $55 million expense, respectively) associated with the 2010 Intesa acquisition. Amount for 2011 reflects discrete tax benefits of $103 million attributable to costs incurred in terminating former conduit asset structures. (4) Amounts represent preferred stock dividends and the allocation of earnings to participating securities using the two-class method. (5) Ratios for 2015 and 2014 were calculated in conformity with the advanced approaches provisions of the Basel III final rule. Ratios for 2013, 2012 and 2011 were calculated in conformity with the provisions of Basel I. Ratios for 2015 and 2014 are not directly comparable to ratios for prior years. Refer to Note 16 to the consolidated financial statements included under Item 8 of this Form 10-K. (6) The supplementary leverage ratio was calculated using the transitional tier 1 capital as calculated under the supplementary leverage ratio provisions of the Basel III final rule as of the date indicated. 51 STATE STREET CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS TABLE OF CONTENTS General Overview of Financial Results Consolidated Results of Operations Total Revenue Fee Revenue Net Interest Revenue Gains (Losses) Related to Investment Securities, Net Provision for Loan Losses Expenses Income Tax Expense Line of Business Information Financial Condition Investment Securities Loans and Leases Cross-Border Outstandings Risk Management Credit Risk Management Liquidity Risk Management Operational Risk Management Market Risk Management Model Risk Management Strategic Risk Management Capital Off-Balance Sheet Arrangements Recent Accounting Developments 53 54 56 56 56 57 60 61 61 62 62 70 71 75 77 78 83 88 93 96 105 106 106 117 121 We use acronyms and other defined terms for certain business terms and abbreviations, as defined on the acronyms list following the table of contents to this Form 10-K. 52 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL As of December 31, 2015, we had consolidated total assets of $245.19 billion, consolidated total deposits of $191.63 billion, consolidated total shareholders' equity of $21.10 billion and 32,356 employees. We operate in more than 100 geographic markets worldwide, including in the U.S., Canada, Europe, the Middle East and Asia. We have two lines of business: Investment Servicing provides services for institutional clients, including mutual funds, collective investment funds and other investment pools, corporate and public retirement plans, insurance companies, foundations and endowments worldwide. Products include custody; product- and participant- level accounting; daily pricing and administration; master trust and master custody; record-keeping; cash management; foreign exchange, brokerage and other trading services; securities finance, including our enhanced custody product, which integrates securities lending and custody into a platform that offers clients the ability to borrow securities from us as principal and finance their borrowing activities in numerous ways, including by lending securities in our agency lending program; 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 active and passive asset management strategies across equity, fixed-income and cash asset classes. Products are distributed directly and through intermediaries using a variety of investment vehicles, including ETFs, such as the SPDR® ETF brand. For financial and other information about our lines of business, refer to “Line of Business Information” included in this Management's Discussion and Analysis and Note 24 to the consolidated financial statements included under Item 8 of this Form 10-K. This Management's Discussion and Analysis should be read in conjunction with the consolidated financial statements and accompanying notes to consolidated financial statements included under Item 8 of this Form 10-K. Certain previously reported amounts presented in this Form 10-K have been reclassified to conform to current-year presentation. In addition, certain prior period amounts have been revised to correct for errors related to those prior periods. Refer to Note 1 to the consolidated financial statements included under Item 8 of this Form 10-K. 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. Additional information about these significant accounting policies is included under “Significant Accounting Estimates” in this Management's Discussion and Analysis. Certain financial information provided in this Form 10-K, including this Management's Discussion and Analysis, is prepared on both a U.S. GAAP, or reported basis, and a non-GAAP, or operating basis, including certain non-GAAP measures used in the calculation of identified regulatory capital ratios. We measure and compare certain financial information on an operating basis, as we believe that this presentation supports meaningful comparisons from period to period and the analysis of comparable financial trends with respect to our normal ongoing business operations. We believe that operating-basis financial information, which reports non-taxable revenue, such as interest revenue associated with tax-exempt investment securities, on a fully taxable- equivalent basis, facilitates an investor's understanding and analysis of our underlying financial performance and trends in addition to financial information prepared and reported in conformity with U.S. GAAP. We also believe that the use of certain non-GAAP measures in the calculation of identified regulatory capital ratios is useful in understanding our capital position and is of interest to investors. Operating-basis financial information should be considered in addition to, not as a substitute for or superior to, financial information prepared in conformity with U.S. GAAP. Any non-GAAP, or operating-basis, financial information presented in 53 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) this Form 10-K, including this Management’s Discussion and Analysis, is reconciled to its most directly comparable U.S. GAAP-basis measure. This Management's Discussion and Analysis contains statements that are considered "forward- looking statements" within the meaning of U.S. securities laws. Forward-looking statements include 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, expected outcomes of legal proceedings, market growth, acquisitions, joint ventures and divestitures and new technologies, services and opportunities, as well as regarding industry, regulatory, economic and market trends, initiatives and developments, the business environment and other matters that do not relate strictly to historical facts. These forward-looking statements involve certain risks and uncertainties which could cause actual results to differ materially. We undertake no obligation to revise the forward-looking statements contained in this Management's Discussion and Analysis to reflect events after the time we file this Form 10-K with the SEC. Additional information about forward-looking statements and related risks and uncertainties is provided in "Risk Factors" included under Item 1A of this Form 10-K. We provide additional disclosures required by applicable bank regulatory standards, including supplemental qualitative and quantitative information with respect to regulatory capital (including market risk associated with our trading activities), 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-K. We use acronyms and other defined terms for certain business terms and abbreviations, as defined on the acronyms list following the table of contents to this Form 10-K. OVERVIEW OF FINANCIAL RESULTS TABLE 1: OVERVIEW OF FINANCIAL RESULTS Years Ended December 31, 2015 2014 2013 (Dollars in millions, except per share amounts) Total fee revenue(1) Net interest revenue Gains (losses) related to investment securities, net Total revenue(1) Provision for loan losses Total expenses Income before income tax expense(1) Income tax expense(1) Net income(1) Adjustments to net income: Dividends on preferred stock(2) Earnings allocated to participating securities(3) Net income available to common shareholders(1) Earnings per common share(1): Basic Diluted Average common shares outstanding (in thousands): Basic Diluted $ 8,278 $ 8,010 $ 7,570 2,088 2,260 2,303 (6) 4 (9) 10,360 10,274 9,864 12 8,050 2,298 318 10 7,827 2,437 415 6 7,192 2,666 616 $ 1,980 $ 2,022 $ 2,050 (130) (2) (61) (3) (26) (8) $ 1,848 $ 1,958 $ 2,016 $ 4.53 4.47 $ 4.62 4.53 $ 4.52 4.43 407,856 424,223 413,638 432,007 446,245 455,155 Cash dividends declared per common share Return on average common equity(1) $ 1.32 $ 1.16 $ 1.04 9.8% 9.8% 10.2% (1) Amounts for 2013 and 2014 reflect adjustments related to certain expenses billed to our asset servicing clients as more fully described in Note 1 to the consolidated financial statements included under Item 8 of this Form 10-K. (2) Refer to Note 15 of the consolidated financial statements included under Item 8 of this Form 10-K for additional information regarding our preferred stock dividends. (3) Refer to Note 23 of the consolidated financial statements included under Item 8 of this Form 10-K. The following “Highlights” and “Financial Results” sections provide information related to significant events, as well as highlights of our consolidated financial results for the year ended December 31, 2015 presented in Table 1: Overview of Financial Results. More detailed information about our consolidated financial results, including comparisons of our financial results for the year ended December 31, 2015 to those for the year ended December 31, 2014, 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 2014 period to the relevant 2015 period. 54 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Highlights • In October 2015, we announced the next phase of our multi-year transformation program, which we refer to as State Street Beacon. We expect to deliver cost efficiencies through changes in our operational processes, and further digitize our processes and interfaces with clients. We expect State Street Beacon, which includes the targeted staff reductions that we announced with our third quarter 2015 results, to generate approximately $550 million in estimated annualized pre-tax expense savings over the next five years, including approximately $75 million in 2016. The full effect of the savings generated each year will be realized the following year. To implement State Street Beacon, we expect to incur aggregate pre-tax restructuring costs of approximately $300 million to $400 million over the five- year period ending December 31, 2020. Estimated pre-tax expense savings relate only to State Street Beacon, include the effects of the targeted staff reductions announced as part of our third quarter of 2015 financial results, and are based on projected improvement from our full-year 2015 operating-basis expenses, all else equal. Actual expenses may increase or decrease in the future due to other factors. • In 2015, we secured new asset servicing mandates of $797.5 billion; of that total, approximately $444.9 billion was installed prior to December 31, 2015, with the remaining balance expected to be installed in 2016 or later. • Net outflows of AUM totaled $151 billion, which does not include $13 billion of new asset management business which was awarded to SSGA but not installed as of December 31, 2015. • During 2015, we recorded legal charges of $415 million or $0.76 per share. Of that, $400 million was to increase our legal accrual associated with our indirect foreign exchange business prior to 2010. The total legal accrual associated with this matter as of the time of filing this Form 10-K is $565 million. The legal accrual is further discussed under "Legal and Regulatory Matters" in Note 13 to the consolidated financial statements included under Item 8 of this Form 10-K. • During 2015, we declared common stock dividends of $1.32 per share, totaling approximately $536 million. • During 2015, we purchased approximately 20.5 million shares of our common stock at an average per-share cost of $74.07 and an aggregate cost of approximately $1.52 billion. We have approximately $780 million remaining under our current $1.8 billion program approved by our Board in March 2015. Additional information with respect to our common stock purchase program and stock dividends is provided under "Financial Condition - Capital" in this Management's Discussion and Analysis. • During the fourth quarter of 2015, we identified and corrected an error that originated in prior periods relating to certain expenses billed to certain of our asset servicing clients, which misstated our servicing revenue. This error misstated our servicing fee revenue. Based on the results of our analysis, we determined that the error was immaterial to each of the prior reporting periods affected. However, we concluded that correcting the error in the year ended December 31, 2015 would materially misstate the consolidated results of operations for that period. Accordingly, our financial results for all prior periods presented herein have been revised for the correction of this error. Refer to "Investment Servicing" under "Line of Business Information" within this Management's Discussion and Analysis, and Note 1 to the consolidated financial statements included under Item 8 of this Form 10-K. Financial Results • Total revenue in 2015 increased 1% compared to 2014, primarily due to a 3% increase in total fee revenue, partially offset by a decline in net interest revenue. • Total revenue in 2015 included a $165 million pre-tax gain from the sale of commercial real estate in the third-quarter of 2015 and final paydown in the fourth-quarter of a commercial real estate loan, both acquired as a result of the Lehman Brothers bankruptcy. • In 2015, we recorded a $61 million reduction to our income tax expense related to an Italian deferred tax liability as a consequence of our European legal entity restructuring activities. • Servicing fee revenue increased 1% in 2015 compared to 2014, primarily due to net new business, partially offset by $203 million due to the effect of the stronger U.S. dollar. 55 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) • Management fee revenue decreased 3% in TOTAL REVENUE 2015 compared to 2014, primarily due to $43 million from the effect of the stronger U.S. dollar, partially offset by net new business. • Total expenses in 2015 increased 3% compared to 2014, primarily driven by an increase in expenses due to $415 million in legal accruals, as well as higher information systems and communications costs to support new business and other expenses from professional services, partially offset by a $108 million decrease in acquisition and restructuring costs and $251 million from the effect of the stronger U.S. dollar. • Return on average common shareholders' equity remained flat at 9.8% in 2015 compared to 2014. CONSOLIDATED RESULTS OF OPERATIONS This section discusses our consolidated results of operations for 2015 compared to 2014, as well as 2014 compared to 2013, and should be read in conjunction with the consolidated financial statements and accompanying notes to the consolidated financial statements included under Item 8 of this Form 10-K. TABLE 2: TOTAL REVENUE Years Ended December 31, 2015 2014 2013 % Change 2015 vs. 2014 % Change 2014 vs. 2013 (Dollars in millions) Fee revenue: Servicing fees(1) $ 5,153 $ 5,108 $ 4,799 1% 6 % Management fees Trading services: Foreign exchange trading Brokerage and other trading services Total trading services Securities finance Processing fees and other Total fee revenue(1) Net interest revenue: Interest revenue Interest expense Net interest revenue Gains (losses) related to investment securities, net 1,174 1,207 1,106 (3) 690 607 589 14 456 477 505 (4) 1,146 1,084 1,094 496 309 437 174 359 212 8,278 8,010 7,570 2,488 2,652 2,714 400 392 411 2,088 2,260 2,303 (6) 4 (9) 6 14 78 3 (6) 2 (8) 9 3 (6) (1) 22 (18) 6 (2) (5) (2) Total revenue(1) $10,360 $10,274 $ 9,864 1 4 (1) Amounts for 2013 and 2014 reflect adjustments related to certain expenses billed to our asset servicing clients as more fully described in Note 1 to the consolidated financial statements included under Item 8 of this Form 10-K. FEE REVENUE Table 2: Total Revenue, provides the breakout of fee revenue for the years ended December 31, 2015, 2014 and 2013. Servicing and management fees collectively made up approximately 76% of our total fee revenue in 2015 compared to approximately 79% and 78%, in 2014 and 2013, respectively. The level of these fees is influenced by several factors, including the mix and volume of our assets under custody and administration and our assets under management, the value and type of securities positions held (with respect to assets under custody) and the volume of portfolio transactions, and the types of products and services used by our clients, and is generally affected by changes in worldwide equity and fixed-income security valuations and trends in market asset class preferences. Generally, servicing fees are affected by changes in daily average valuations of assets under 56 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) custody and administration. Additional factors, such as the relative mix of assets serviced, the level of transaction volumes, changes in service level, the nature of services provided, balance credits, client minimum balances, pricing concessions, the geographical location in which services are provided and other factors, may have a significant effect on our servicing fee revenue. Management fees are generally affected by changes in month-end valuations of assets under management. Management fees for certain components of managed assets, such as ETFs, are affected by daily average valuations of assets under management. Management fee revenue is more sensitive to market valuations than servicing fee revenue, as a higher proportion of the underlying services provided, and the associated management fees earned, are dependent on equity and fixed- income security valuations. Additional factors, such as the relative mix of assets managed, may have a significant effect on our management fee revenue. While certain management fees are directly determined by the values of assets under management and the investment strategies employed, management fees may reflect other factors as well, including performance fee arrangements, 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 TABLE 3: DAILY, MONTH-END AND YEAR-END INDICES with performance fees than with more traditional management fees. In light of the above, we estimate, using relevant information as of December 31, 2015 and assuming that all other factors remain constant, that: • A 10% increase or decrease in worldwide equity valuations, over the relevant periods for which our servicing and management fees are calculated, would result in a corresponding change in our total revenue of approximately 2%; and • A 10% increase or decrease in worldwide fixed income security valuations, over the relevant periods for which our servicing and management fees are calculated, would result in a corresponding change in our total revenue of approximately 1%. See Table 3: Daily, Month-end and Year-end Indices for selected equity market indices. While the specific indices presented are indicative of general market trends, the asset types and classes relevant to individual client portfolios can and do differ, and the performance of associated relevant indices can therefore differ from the performance of the indices presented. Daily averages and the averages of month-end indices demonstrate worldwide changes in equity markets that affect our servicing and management fee revenue. Year-end indices affect the values of assets under custody and administration and assets under management as of those dates. The index names listed in the table are service marks of their respective owners. Further discussion of fee revenue is provided under “Line of Business Information” in this Management's Discussion and Analysis. Daily Averages of Indices Averages of Month-End Indices Year-End Indices Twelve Months Ended December 31, Twelve Months Ended December 31, As of December 31, 2015 2014 % Change 2015 2014 % Change 2015 2014 % Change S&P 500® NASDAQ® MSCI EAFE® MSCI Emerging 2,061 4,946 1,809 918 1,931 4,375 1,888 1,008 7% 13 (4) (9) 2,052 4,933 1,806 910 1,944 4,415 1,891 1,009 6% 12 (4) (10) 2,044 5,007 1,716 794 2,059 4,736 1,775 956 (1)% 6 (3) (17) NET INTEREST REVENUE See Table 2: Total Revenue, for the breakout of interest revenue and interest expense for the years ended December 31, 2015, 2014 and 2013. Net interest revenue is defined as interest revenue earned on interest-earning assets less interest expense incurred on interest-bearing liabilities. Interest-earning assets, which principally consist of investment securities, interest-bearing deposits with banks, repurchase agreements, loans and leases and other liquid assets, are financed primarily by client deposits, short-term borrowings and long-term debt. Net interest margin represents the relationship between annualized fully taxable- equivalent net interest revenue and average total interest-earning assets for the period. It is calculated by dividing fully taxable-equivalent net interest 57 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) revenue 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 4: AVERAGE BALANCES AND INTEREST RATES - FULLY TAXABLE-EQUIVALENT BASIS (Dollars in millions; fully taxable- equivalent basis) Average Balance Years Ended December 31, 2015 Interest Revenue/ Expense Rate Average Balance 2014 Interest Revenue/ Expense Rate Average Balance 2013 Interest Revenue/ Expense Rate Interest-bearing deposits with banks $ 69,753 $ 208 .30% $ 55,353 $ 196 .35% $ 28,946 $ 125 .43% Securities purchased under resale agreements Trading account assets Investment securities Loans and leases Other interest-earning assets 3,233 1,194 105,611 17,948 22,717 62 1 2,069 311 10 Average total interest-earning assets $ 220,456 $ 2,661 1.92 .08 1.96 1.73 .04 1.21 4,077 959 38 1 116,809 2,317 15,912 15,944 266 7 .94 .13 1.98 1.67 .05 5,766 748 117,696 13,781 11,164 45 — 2,429 253 4 $ 209,054 $ 2,825 1.36 $ 178,101 $ 2,856 .16% $ 21,296 $ .10% $ 8,862 $ Interest-bearing deposits: U.S. Non-U.S. Securities sold under repurchase agreements Federal funds purchased Other short-term borrowings Long-term debt Other interest-bearing liabilities $ 30,819 $ 102,491 8,875 21 3,826 10,333 6,471 Average total interest-bearing liabilities $ 162,836 $ 51 46 1 — 6 250 46 400 Interest-rate spread Net interest revenue—fully taxable- equivalent basis Net interest margin—fully taxable- equivalent basis Tax-equivalent adjustment Net interest revenue—GAAP basis $ 2,261 (173) $ 2,088 .05 .01 — .15 2.42 .71 .25 0.96% 1.03% 109,003 8,817 20 4,177 9,309 7,351 $ 159,973 $ 21 78 — — 5 245 43 392 $ 2,433 (173) $ 2,260 .07 — — .12 2.63 .59 .25 1.11% 1.16% 100,391 8,436 298 3,785 8,415 6,457 $ 136,644 $ 10 83 1 — 59 232 26 411 $ 2,445 (142) $ 2,303 .77 — 2.06 1.84 .04 1.60 .12% .08 .01 — 1.57 2.75 .40 .30 1.30% 1.37% Net interest revenue decreased 7% on a fully taxable-equivalent basis in 2015 compared to 2014. The decrease was generally the result of efforts to optimize our capital position to comply with evolving regulatory requirements on liquidity, lower yields on interest earning assets, as lower global interest rates affected our revenue from floating-rate assets and the rate at which payments from the maturity or prepayment on portfolio holdings could be reinvested, and the effect of the stronger U.S. dollar. The stronger U.S. dollar had the effect of reducing net interest revenue by approximately $54 million in 2015 compared to 2014, partially offset by the benefit of higher levels of interest-earning assets. Changes in the components of interest-earning assets and interest-bearing liabilities are discussed in more detail below. Additional detail about the components of interest revenue and interest expense is provided in Note 17 to the consolidated financial statements included under Item 8 of this Form 10-K. Average total interest-earning assets were higher for 2015 compared to 2014 as a result of elevated levels of client deposits invested in interest- bearing deposits with banks, higher average loans and leases and higher levels of cash collateral (included in other interest-earning assets in Table 4: Average Balances and Interest Rates - Fully Taxable- Equivalent Basis) provided in connection with our enhanced custody business. The higher level of investment in interest- bearing deposits with banks resulted from higher levels of client deposits and our efforts to optimize our capital position during 2015 compared to 2014, discussed further below, while the increase in average loans and leases resulted from growth in mutual fund lending and our continued investment in senior secured bank loans. During the past year, our clients have continued to place elevated levels of deposits with us, as 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 transient, or excess, deposits, which we generally deposit with central banks. Deposits with central banks generate low returns. Consequently, the elevated levels of these transient 58 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) also be influenced by our ongoing management of the risks and other characteristics associated with our investment securities portfolio, including sales of securities which would otherwise generate interest revenue through accretion. Depending on the factors discussed above, among others, we anticipate that until the former conduit securities remaining in our investment portfolio mature or are sold, discount accretion will continue to contribute to our net interest revenue, though generally in declining amounts. Assuming that we hold the remaining former conduit securities to maturity, all else being equal, we expect the remaining former conduit securities carried in our investment portfolio as of December 31, 2015 to generate aggregate discount accretion in future periods of approximately $209 million over their remaining terms, with approximately half of this discount accretion to be recorded over the next four years. Interest-bearing deposits with banks averaged $69.75 billion for 2015 compared to $55.35 billion for 2014. 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 due to the continued elevated levels of client deposits and our investment of the excess 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. Average investment securities decreased to $105.61 billion for 2015 compared to $116.81 billion for 2014, as we seek to optimize our capital position in light of the evolving regulatory environment. Detail with respect to our investment securities portfolio as of December 31, 2015 and December 31, 2014 is provided in Note 3 to the consolidated financial statements included under Item 8 of this Form 10-K. Average loans and leases increased to $17.95 billion for 2015 compared to $15.91 billion for 2014. The increase was mainly related to mutual fund lending and our continued investment in senior secured bank loans. Mutual fund lending and senior secured bank loans averaged approximately $12.73 billion for 2015, compared to $10.52 billion for 2014. deposits have contributed to a reduction of our net interest margin relative to historical levels. The deposits with central banks are also included in our total consolidated assets, and higher deposit levels impact our regulatory leverage ratios. During the year, we took action to better balance our clients' cash management needs with our economic and regulatory objectives. These efforts contributed to a reduction of interest and non-interest bearing client deposits of $17 billion, from $209 billion as of December 31, 2014 to $192 billion as of December 31, 2015. If global interest rates increase, we would expect to see decreases in client deposits; however, in general, we continue to anticipate higher levels of client deposits, irrespective of the interest rate environment, particularly during periods of market stress. The effect of the stronger U.S. dollar relative to other currencies, particularly the Euro, also negatively impacted our net interest revenue, as we maintain a portion of our investment portfolio in Euro denominated securities. If ECB monetary policy continues to pressure European interest rates downward and the U.S. dollar remains strong or strengthens, the negative effects on our net interest revenue may continue or worsen. We recorded aggregate discount accretion in interest revenue of $98 million in 2015 related to the assets we consolidated onto our balance sheet in 2009 from our asset-backed commercial paper conduits. Subsequent to the commercial paper conduit consolidation in 2009, we have recorded total discount accretion in interest revenue as follows: TABLE 5: TOTAL DISCOUNT ACCRETION IN INTEREST REVENUE (in millions) Years Ending: Discount Accretion in Interest Revenue 2009 2010 2011 2012 2013 2014 2015 $ 621 712 220 215 137 119 98 Total Discount Accretion $ 2,122 The timing and ultimate recognition of any applicable discount accretion depends, in part, on factors that are outside of our control, including anticipated prepayment speeds and credit quality. The impact of these factors is uncertain and can be significantly influenced by general economic and financial market conditions. The timing and recognition of any applicable discount accretion can 59 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) TABLE 6: U.S. AND NON-U.S. SHORT-DURATION ADVANCES (In millions) Average U.S. short-duration advances Average non-U.S. short-duration advances Average total short-duration advances Average short-duration advances to average loans and leases Years Ended December 31, 2015 2014 2013 $ 2,351 $ 2,355 $ 2,356 1,404 1,512 1,393 $ 3,755 $ 3,867 $ 3,749 21% 24% 27% The decline in the proportion of average daily short-duration advances to average loans and leases is primarily due to growth in the other segments of the loan and lease portfolio. Short-duration advances provide liquidity to clients in support of their investment activities. Average other interest-earning assets increased to $22.72 billion for 2015 from $15.94 billion for 2014. Growth in our enhanced custody business, which is our principal securities financing business for our custody clients, contributed to this increase. Our average other interest-earning assets, largely associated with our enhanced custody business, comprised approximately 10% of our average total interest-earning assets for 2015, compared to approximately 8% of our average total interest- earning assets for 2014. The enhanced custody business supports our overall profitability by generating securities finance revenue. The net interest earned on these transactions is generally lower than the interest earned on other alternative investments. Aggregate average interest-bearing deposits increased to $133.31 billion for 2015 from $130.30 billion for 2014. The higher levels in 2015 were primarily the result of increases in both U.S. and time deposits, offset by decreases in non-U.S. transaction accounts. Future transaction account 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 $3.83 billion for 2015 from $4.18 billion for 2014. The decrease was the result of State Street phasing-out its commercial paper program during 2015, consistent with the objectives of its 2015 recovery and resolution plan developed pursuant to the requirements of the Dodd-Frank Act. Average long-term debt increased to $10.33 billion for 2015 from $9.31 billion for 2014. The increase primarily reflected the issuance of $1.0 billion of senior debt issued in December 2014 and $3.0 billion of senior debt issued in August 2015 which was offset by a $900 million extendible note called at the end of February 2015 and the maturities of $500 million of senior debt in May 2014, $250 million of senior debt in March 2014 and $200 million of subordinated debt in December 2015. Average other interest-bearing liabilities decreased to $6.47 billion for 2015 from $7.35 billion for 2014, primarily the result of higher levels of cash collateral received from clients in connection with our enhanced custody business. Average loans and leases also include short- duration advances. Although average short-duration advances remained relatively flat for 2015 compared to 2014, such average short-duration advances provided by us remained low relative to historical levels, primarily the result of higher levels of liquidity, including excess deposits, held by our clients. Several factors could affect future levels of our net interest revenue and 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; and changes in our enhanced custody business. Based on market conditions and other factors, we continue to reinvest the majority of the proceeds from pay-downs and maturities of investment securities in highly-rated securities, such as U.S. Treasury and agency securities, municipal securities, federal agency mortgage-backed securities and U.S. and non-U.S. mortgage- and asset-backed securities. The pace at which we continue to reinvest and the types of investment securities purchased will depend on the impact of market conditions and other factors over time. We expect these factors and the levels of global interest rates to influence what effect our reinvestment program will have on future levels of our net interest revenue and net interest margin. GAINS (LOSSES) RELATED TO INVESTMENT SECURITIES, NET We regularly review our investment securities portfolio to identify other-than-temporary impairment of individual securities. Additional information about investment securities, the gross gains and losses that compose the net gains from sales of securities and other-than-temporary impairment is provided in Note 3 to the consolidated financial statements included under Item 8 of this Form 10-K. 60 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) TABLE 7: INVESTMENT SECURITIES GAINS (LOSSES), NET (In millions) Net realized gains (losses) from sales of available-for-sale securities Net impairment losses: Gross losses from other-than-temporary impairment Losses reclassified (from) to other comprehensive income Net impairment losses(1) Gains (losses) related to investment securities, net (1) Net impairment losses, recognized in our consolidated statement of income, were composed of the following: Impairment associated with expected credit losses Impairment associated with management’s intent to sell impaired securities prior to recovery in value Impairment associated with adverse changes in timing of expected future cash flows Years Ended December 31, 2015 2014 2013 (5) $ 15 $ (1) — (1) (1) (10) (11) (6) $ 4 $ — $ (10) $ — (1) — (1) (1) $ (11) $ 14 (21) (2) (23) (9) (11) (6) (6) (23) $ $ $ $ Net impairment losses From time to time, in connection with the ongoing management of our investment securities portfolio, we sell available-for-sale securities to manage risk, to take advantage of favorable market conditions, to optimize our balance sheet for regulatory changes, or for other reasons. In 2015, we sold approximately $12.31 billion of such investment securities, compared to approximately $9.77 billion in 2014. We recorded $5 million of net realized losses in 2015 and $15 million of net realized gains in 2014, as presented in the preceding table. PROVISION FOR LOAN LOSSES We recorded a provision for loan losses of $12 million in 2015 compared to $10 million in 2014 and $6 million in 2013. The provisions in all periods were recorded as a result of our exposure to certain senior secured bank loans to non-investment grade borrowers, which we purchased in connection with our participation in loan syndications in the non- investment-grade lending market. Increases in the provisions in the year-to-date comparison reflected growth of our senior secured loan portfolio. Additional information about these senior secured bank loans is provided under “Financial Condition - Loans and Leases” in this Management's Discussion and Analysis and in Note 4 to the consolidated financial statements included under Item 8 of this Form 10-K. EXPENSES TABLE 8: EXPENSES (Dollars in millions) Compensation and employee benefits Information systems and communications Transaction processing services Occupancy Acquisition costs Restructuring charges, net Other: Professional services Amortization of other intangible assets Securities processing costs Regulatory fees and assessments Other Years Ended December 31, 2015 2014 2013 % Change 2015 vs. 2014 % Change 2014 vs. 2013 $ 4,061 $ 4,060 $ 3,800 —% 7 % 1,022 976 935 793 444 20 5 784 461 58 75 733 467 76 5 1 (4) (66) 4 7 (1) (24) 28 (93) 168 490 440 392 11 197 222 214 (11) 79 68 52 115 824 74 609 72 423 12 4 31 3 44 23 9 16 55 35 21 3 Total other 1,705 1,413 1,153 Total expenses $ 8,050 $ 7,827 $ 7,192 Number of employees at year-end 32,356 29,970 29,430 Compensation and employee benefits expenses were flat in 2015 compared to 2014. Increases in costs for additional staffing to support new business, regulatory initiatives and $72.6 million in net severance costs related to targeted staff reductions were offset by the effect of the stronger U.S. dollar and decreases in incentive compensation and benefits. 61 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) implementation and related costs to enhance our regulatory compliance programs. We anticipate that these evolving and increasing regulatory compliance requirements and expectations will continue to affect our expenses. Our employee compensation and benefits, information systems and other expenses could increase, as we further adjust our operations in response to new or proposed requirements and heightened expectations. INCOME TAX EXPENSE Income tax expense was $318 million for 2015 compared to $415 million for 2014. The decrease in tax expense was primarily due to deductions for litigation expense recorded in 2015. Our effective tax rate for 2015 was 13.8% compared to 17.1% in 2014, and included effects of the approval of a tax refund for prior years and the reduction of $61 million for an Italian deferred tax liability, partially offset by a change in New York tax law. Income tax expense was $415 million in 2014 compared to $616 million in 2013. Our effective tax rate for 2014 was 17.1% compared to 23.1% in 2013. The decline in the 2014 effective tax rate was primarily attributable to an expansion of our municipal securities portfolio, increased investments in alternative energy projects and greater benefits from our non-U.S. operations. Additional information regarding income tax expense, including unrecognized tax benefits, and tax contingencies are provided in Notes 22 and 13, to the consolidated financial statements under Item 8 of this Form 10-K. LINE OF BUSINESS INFORMATION We have two lines of business: Investment Servicing and Investment Management. The results of operations for these lines of business are not necessarily comparable with those of other companies, including companies in the financial services industry. Information about our two lines of business, as well as the revenues, expenses and capital allocation methodologies associated with them, is provided in Note 24 to the consolidated financial statements included under Item 8 of this Form 10-K. Compensation and employee benefits expenses increased 7% in 2014 compared to 2013. Compensation and employee benefits expenses in 2014 included approximately $53 million of costs related to our Business Operations and Information Technology Transformation program, which was completed at the end of 2014 and $84 million of net severance costs associated with staffing realignment. Information systems and communications expenses increased 5% in 2015 compared to 2014.The increase was primarily related to $31 million in additional depreciation costs supporting investments associated with regulatory initiatives and costs to support new business. Information systems and communications expenses increased 4% in 2014 compared to 2013. The increase was mainly associated with higher infrastructure costs related to the completion of our Business Operations and Information Technology Transformation program. Other expenses increased 21% in 2015 compared to 2014. The increase was primarily due to legal accruals of approximately $400 million in 2015 compared to $185 million in 2014 in connection with our indirect FX client activities and higher levels of regulatory fees, which were partially offset by a decrease in amortization of intangible assets due to a write off of intangible assets in 2014. The legal accrual is further discussed under "Legal and Regulatory Matters" in Note 13 to the consolidated financial statements included under Item 8 of this Form 10-K. Other expenses increased 23% in 2014 compared to 2013, primarily due to a legal accrual of $185 million in connection with management's intention to seek to resolve some, but not all, of the outstanding and potential claims arising out of our indirect FX client activities, higher levels of professional services associated with regulatory compliance requirements, a charitable contribution to the State Street Foundation, as well as the impact of the Lehman Brothers-related gains and recoveries recorded in 2013. Our compliance obligations have increased due to new regulations in the U.S. and internationally that have been adopted or proposed in response to the financial crisis. As a systemically important financial institution, we are subject to enhanced supervision and prudential standards. Our status as a G-SIB has also resulted in heightened prudential and conduct expectations of our U.S. and international regulators with respect to our capital and liquidity management and our compliance and risk oversight programs. These heightened expectations have increased our regulatory compliance costs, including personnel and systems, as well as significant additional 62 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Investment Servicing TABLE 9: INVESTMENT SERVICING LINE OF BUSINESS RESULTS (Dollars in millions, except where otherwise noted) Servicing fees(1) 2015 2014 2013 % Change 2015 vs. 2014 % Change 2014 vs. 2013 $ 5,153 $ 5,108 $ 4,799 1% 6% Trading services 1,108 1,039 1,027 Securities finance Processing fees and other Total fee revenue(1) Net interest revenue 496 325 7,082 2,086 437 179 6,763 2,245 359 206 6,391 2,278 Gains (losses) related to investment securities, net Total revenue(1) Provision for loan losses (6) 4 (9) 9,162 9,012 8,660 12 10 6 Total expenses 6,990 6,648 6,190 7 14 82 5 (7) nm 2 20 5 1 22 (13) 6 (1) nm 4 67 7 Income before income tax expense(1) Pre-tax margin(1) Average assets (in billions) $ 2,160 $ 2,354 $ 2,464 (8) (4) 24% 26% 28% $ 246.6 $ 234.2 $ 203.2 (1) Amounts for 2013 and 2014 reflect adjustments related to certain expenses billed to our asset servicing clients as more fully described in Note 1 to the consolidated financial statements included under Item 8 of this Form 10-K. nm- Not meaningful Total revenue in 2015 for our Investment Servicing line of business, presented in Table 9: Investment Servicing Line of Business Results, increased 2% compared to 2014. Total fee revenue increased 5% in 2015 compared to 2014. Total revenue increased 4% in 2014 compared to 2013, presented in Table 9: Investment Servicing Line of Business Results. Total fee revenue increased 6% in 2014 compared to 2013. Net interest revenue decreased 7% in 2015 compared to 2014. The decrease was generally the result of our efforts to optimize our capital position, lower yields on interest-earning assets, as lower global interest rates affected our revenue from floating-rate assets and the effect of the stronger U.S. dollar, partially offset by the benefit of higher levels of interest-earning assets. A discussion of net interest revenue is provided under “Net Interest Revenue” in “Total Revenue.” Total expenses increased 5% in 2015 compared to 2014. The increase primarily resulted from expenses for a legal accrual recorded in connection with management's intention to seek to resolve some, but not all, of the outstanding and potential claims arising out of our indirect FX client activities, higher regulatory and compliance costs and increases in compensation and employee benefits due to additional staffing to support new business and regulatory initiatives. The expense increase was partially offset by the effect of the stronger U.S. dollar. As a result of the previously disclosed review into the manner in which we invoiced certain expenses to certain asset servicing clients, we determined that we had incorrectly invoiced clients in the aggregate amount of approximately $240 million for expenses within the specific categories under review. This amount is reflected as a liability on our consolidated statement of condition as of December 31, 2015, with $223 million of this amount relating to periods prior to the 2015 fiscal year and reflected in the beginning retained earnings balance of our consolidated statement of changes in shareholders’ equity as of December 31, 2014. Our financial results for all prior periods presented in this Form 10-K have been revised to reflect the impact of the reimbursement liability on each prior period presented. In addition to this amount, we will compensate clients for an aggregate of approximately $17 million in interest associated with the incorrect invoicing. There is the potential that as our review continues, our estimates of the amounts reimbursable to clients may increase or that clients or regulators may assert other legal theories of liability. Our billing arrangements capture multiple asset classes and transactions executed by our clients and therefore may be subject to operational error or disagreements with clients. We have notified certain governmental authorities about this review. We may become subject to regulatory proceedings and litigation in connection with this matter, and there can be no assurance as to the outcome of any proceedings that may be commenced against us. Refer to Note 1 to the consolidated financial statements included under Item 8 of this Form 10-K. Servicing Fees Servicing fees increased 1% in 2015 compared to 2014, primarily due to net new business (revenue added from new servicing business installed less revenue lost from the removal of assets serviced) and higher transaction volumes, partially offset by $203 million due to the effect of the stronger U.S. dollar. Servicing fees increased 6% in 2014 compared to 2013 primarily as a result of stronger global equity markets and the positive revenue impact of net new business. Servicing fees generated outside the U.S. were approximately 42% of total servicing fees for the years ended December 31, 2015, 2014 and 2013. 63 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) TABLE 10: COMPONENTS OF ASSETS UNDER CUSTODY AND ADMINISTRATION As of December 31, (Dollars in billions) Mutual funds Collective funds Pension products Insurance and other products 2015 2014 2013 2012 2011 2014-2015 Annual Growth Rate 2011-2015 Compound Annual Growth Rate $ 6,768 $ 6,992 $ 6,811 $ 5,852 $ 7,088 5,510 8,142 6,949 5,746 8,501 6,428 5,851 8,337 5,363 5,339 7,817 5,265 4,437 4,837 7,268 (3)% 2 (4) (4) (2) 6% 12 3 3 6 Total $ 27,508 $ 28,188 $ 27,427 $ 24,371 $ 21,807 TABLE 11: COMPOSITION OF ASSETS UNDER CUSTODY AND ADMINISTRATION 2015 2014 2013 2012 2011 2014-2015 Annual Growth Rate 2011-2015 Compound Annual Growth Rate As of December 31, (Dollars in billions) Equities Fixed-income Short-term and other investments $ 14,888 $ 15,876 $ 15,050 $ 12,276 $ 10,849 9,264 3,356 8,739 3,573 9,072 3,305 8,885 3,210 8,317 2,641 (6)% 6 (6) (2) 8% 3 6 6 Total $ 27,508 $ 28,188 $ 27,427 $ 24,371 $ 21,807 TABLE 12: GEORGRAPHIC MIX OF ASSETS UNDER CUSTODY AND ADMINISTRATION(1) (Dollars in billions) North America Europe/Middle East/Africa Asia/Pacific Total 2015 2014 2013 2012 2011 $ $ 20,842 $ 21,217 $ 20,764 $ 18,463 $ 5,387 1,279 5,633 1,338 5,511 1,152 4,801 1,107 27,508 $ 28,188 $ 27,427 $ 24,371 $ 16,368 4,400 1,039 21,807 (1) Geographic mix is based on the location in which the assets are serviced. The decrease in total assets under custody and administration for year-end 2015 compared to year- end 2014 primarily resulted from weaker global equity markets, partially offset by net new business. Asset levels as of December 31, 2015 did not reflect the estimated $352.6 billion of new business in assets to be serviced awarded to us in 2015 and prior periods but not installed prior to December 31, 2015. This new business will be reflected in assets under custody and administration in future periods after installation and will generate servicing fee revenue in subsequent periods. With respect to these new assets, we will provide various services, including accounting, bank loan servicing, compliance reporting and monitoring, custody, depository banking services, foreign exchange, fund administration, hedge fund servicing, middle-office outsourcing, performance and analytics, private equity administration, real estate administration, securities finance, transfer agency, and wealth management services. The value of assets under custody and administration is a broad measure of the relative size of various markets served. Changes in the values of assets under custody and administration from period to period do not necessarily result in proportional changes in our servicing fee revenue. Trading Services TABLE 13: TRADING SERVICES REVENUE Years Ended December 31, (Dollars in millions) Foreign exchange trading: Direct sales and trading Indirect foreign exchange trading Total foreign exchange trading Brokerage and other trading services: Electronic foreign exchange services Other trading, transition management and brokerage Total brokerage and other trading services Total trading services revenue 2015 2014 2013 % Change 2015 vs. 2014 % Change 2014 vs. 2013 $ 410 $ 361 $ 304 14% 19 % 280 690 246 607 285 589 14 14 (14) 3 175 181 218 (3) (17) 243 418 251 432 220 438 $ 1,108 $ 1,039 $ 1,027 (3) (3) 7 14 (1) 1 Trading services revenue increased 7% in 2015 compared to 2014, primarily due to stronger market- making revenue and higher client volumes. Trading services revenue increased 1% in 2014 compared to 2013, primarily the result of higher client volumes. 64 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Trading services revenue is composed of revenue generated by FX trading, as well as revenue generated by brokerage and other trading services. We primarily earn FX trading revenue by acting as a principal market-maker. We offer a range of FX products, services and execution models. Most of our FX products and execution services can be grouped into three broad categories, which are further explained below: “direct sales and trading,” “indirect FX trading” and “electronic FX services.” With respect to electronic FX services, we provide an execution venue, but do not act as agent or principal. We also offer a range of brokerage and other trading products tailored specifically to meet the needs of the global pension community, including transition management and commission recapture. In addition, we act as distribution agent for the SPDR® Gold ETF. These products and services are generally differentiated by our role as an agent of the institutional investor. Revenue earned from these services is recorded in other trading, transition management and brokerage revenue within brokerage and other trading services revenue. 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 14% in 2015 compared to 2014, primarily the result of stronger market-making revenue and higher client volumes. Total FX trading revenue increased 3% in 2014 compared to 2013, primarily the result of higher client volumes. 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 59% of total foreign exchange trading revenue in 2015 compared to 59% and 52% in 2014 and 2013, respectively. Alternatively, clients or their investment managers may elect to route FX transactions to our FX desk through our asset-servicing operation; we refer to this activity as “indirect FX trading” and, in all cases, 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 41% of total foreign exchange trading revenue for the year ended December 31, 2015 as compared to 41% and 48% in 2014 and 2013, 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 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. Our direct sales and trading revenue increased 14% in 2015 as compared to 2014. The increase primarily resulted from higher market-making activities and client volumes. Our estimated indirect FX trading revenue increased 14% in 2015 compared to 2014. The increase mainly resulted from higher spreads. Our direct sales and trading revenue increased 19% in 2014 as compared to 2013. The increase primarily resulted from higher client volumes, partially offset by lower currency volatility and spreads. Our estimated indirect FX trading revenue decreased 14% in 2014 compared to 2013. The decline mainly resulted from lower client volumes and spreads. We continue to expect that some clients may choose, over time, to reduce their level of indirect FX trading transactions in favor of other execution methods, including either direct sales and trading transactions or electronic FX services which we provide. To the extent that clients shift to other execution methods that we provide, our FX trading revenue may decrease, even if volumes remain consistent. Total brokerage and other trading services revenue decreased 3% in 2015 compared to 2014, and decreased 1% in 2014 compared to 2013. Decreases in both periods were primarily due to a decline in volumes and lower transition management revenue. 65 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) parties, we have the ability to source securities through our assets under custody and administration from clients who have designated State Street as an eligible borrower. Securities finance revenue increased 14% in 2015 compared to 2014. The increase was primarily the result of growth in our enhanced custody business. Securities finance revenue increased 22% in 2014 compared to 2013. The increase was mainly the result of growth in our enhanced custody business and the impact of higher lending volumes associated with our agency lending program. 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, and amortization of our tax-advantaged investments. Processing fees and other revenue increased 82% in 2015 compared to 2014, as presented in Table 9: Investment Servicing Line of Business Results. The increase was primarily due to a gain from the sale of commercial real estate in the third- quarter of 2015 and final paydown in the fourth- quarter of 2015 of a commercial real estate loan, both acquired as a result of the Lehman Brothers bankruptcy. Processing fees and other revenue declined 13% in 2014 compared to 2013 as presented in Table 9: Investment Servicing Line of Business Results. The decrease was mainly due to higher amortization of tax-advantaged investments, partially offset by higher revenue from our investment in bank-owned life insurance. 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 3% in 2015 compared to 2014 and decreased 17% in 2014 compared to 2013, mainly due to declines in client volumes. Other trading, transition management and brokerage revenue decreased 3% in 2015 compared to 2014, primarily due to a decrease in transition management revenue, partially offset by an increase in other trading revenue. Other trading, transition management and brokerage revenue increased 14% in 2014 compared to 2013, primarily due to an increase in currency management revenue. In recent years, our transition management revenue was adversely affected by compliance issues in our U.K. business during 2010 and 2011. The reputational and regulatory impact of those compliance issues may adversely affect our transition management revenue in future periods. 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 for the years ended December 31, 2015, 2014 and 2013. 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 66 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Investment Management TABLE 14: INVESTMENT MANAGEMENT LINE OF BUSINESS RESULTS (Dollars in millions, except where otherwise noted) Management fees Trading services Processing fees and other 2015 2014 2013 $ 1,174 $ 1,207 $ 1,106 38 (16) 45 (5) 67 6 Total fee revenue 1,196 1,247 1,179 % Change 2015 vs. 2014 % Change 2014 vs. 2013 (3)% (16) nm (4) 9% (33) nm 6 Net interest revenue Total revenue Total expenses Income before income tax expense 2 15 25 (87) (40) 1,198 962 1,262 960 1,204 822 (5) — 5 17 $ 236 $ 302 $ 382 (22) (21) Pre-tax margin 20% 24% 32% Average assets (in billions) $3.9 $3.9 $3.8 nm Not meaningful Total revenue for our Investment Management line of business, presented in Table 14: Investment Management Line of Business Results, decreased 5% in 2015 compared to 2014. Total fee revenue decreased 4% compared to 2014. Total revenue increased 5% and total fee revenue increased 6% in 2014 compared to 2013. Total expenses were flat in 2015 compared to 2014 resulting from higher transaction processing services and increases in regulatory and compliance costs, offset by recoveries associated with Lehman Brothers-related assets recorded in 2015 and the effect of the stronger U.S. dollar. Management Fees Through SSGA, we provide a broad range of investment management strategies, specialized investment management advisory services and other financial services for corporations, public funds, and other sophisticated investors. SSGA offers 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 decreased $33 million, or 3%, in 2015 compared to 2014, primarily due to a $43 million effect of the stronger U.S. dollar, offset by net new business. Management fees increased 9% in 2014 compared to 2013 primarily as a result of stronger global equity markets, net inflows and the positive revenue impact of the excess of revenue added from newly installed assets to be managed over the revenue lost from liquidations of managed assets. Management fees generated outside the U.S. were approximately 35% of total management fees for 2015, compared to 37% in 2014 and 2013. 67 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) TABLE 15: ASSETS UNDER MANAGMENT BY ASSET CLASS AND INVESTMENT APPROACH(1) 2015 2014 2013 2012 2011 2014-2015 Annual Growth Rate 2011-2015 Compound Annual Growth Rate As of December 31, (Dollars in billions) Equity: Active Passive Total Equity Fixed-Income: Active Passive Total Fixed-Income Cash(1) Multi-Asset-Class Solutions: Active Passive Total Multi-Asset-Class Solutions Alternative Investments(2): Active Passive Total Alternative Investments $ 32 $ 39 $ 42 $ 45 $ 1,293 1,325 1,436 1,475 1,334 1,376 1,047 1,092 18 294 312 369 17 86 103 17 119 136 17 302 319 399 30 97 127 17 111 128 16 311 327 385 23 110 133 14 110 124 17 325 342 369 23 94 117 18 148 166 46 893 939 16 271 287 380 15 70 85 17 137 154 (18)% (10) (10) 6 (3) (2) (8) (43) (11) (19) — 7 6 (8) (9)% 10 9 3 2 2 (1) 3 5 5 — (3) (3) 5 Total $ 2,245 $ 2,448 $ 2,345 $ 2,086 $ 1,845 (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 Fund, for which State Street is not the investment manager, but acts as distribution agent. TABLE 16: EXCHANGE - TRADED FUNDS BY ASSET CLASS(1)(2) As of December 31, (Dollars in billions) Alternative Investments(2) Cash Equity Fixed-income Total Exchange-Traded Funds 2015 2014 2013 2012 2011 $ $ $ 34 3 350 41 $ 38 1 388 39 39 1 325 34 79 1 227 30 428 $ 466 $ 399 $ 337 $ 68 2 184 20 274 (1) ETFs are a component of assets under management presented in the preceding table. (2) Includes SPDR® Gold Fund, for which State Street is not the investment manager, but acts as distribution agent. TABLE 17: GEOGRAPHIC MIX OF ASSETS UNDER MANAGEMENT(1) 2014-2015 Annual Growth Rate 2011-2015 Compound Annual Growth Rate (11)% (16)% 200 (10) 5 (8) 11 17 20 12 As of December 31, (Dollars in billions) North America Europe/Middle East/Africa Asia/Pacific Total 2015 2014 2013 2012 2011 $ $ 1,452 $ 1,568 $ 1,456 $ 1,288 $ 1,190 489 304 559 321 560 329 480 318 428 227 2,245 $ 2,448 $ 2,345 $ 2,086 $ 1,845 (1) Geographic mix is based on client location or fund management location. 68 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) TABLE 18: ACTIVITY IN ASSETS UNDER MANAGEMENT BY PRODUCT CATEGORY (In billions) Balance as of December 31, 2012 Long-term institutional inflows(1) Long-term institutional outflows(1) Long-term institutional flows, net ETF flows, net Cash fund flows, net Total flows, net Market appreciation(2) Foreign exchange impact(2) Total market/foreign exchange impact Balance as of December 31, 2013 Long-term institutional inflows(1) Long-term institutional outflows(1) Long-term institutional flows, net ETF flows, net Cash fund flows, net Total flows, net Market appreciation Foreign exchange impact Total market/foreign exchange impact Balance as of December 31, 2014 Long-term institutional inflows(1) Long-term institutional outflows(1) Long-term institutional flows, net ETF flows, net Cash fund flows, net Total flows, net Market appreciation Foreign exchange impact Total market/foreign exchange impact Equity Fixed- Income Cash(2) Multi-Asset- Class Solutions Alternative Investments(3) Total $ 1,092 $ 342 $ 369 $ 117 $ 166 $ 2,086 256 (283) (27) 33 — 6 291 (13) 278 1,376 285 (297) (12) 31 — 19 113 (33) 80 1,475 277 (363) (86) (29) — (115) (13) (21) (34) 70 (71) (1) 4 — 3 (4) (14) (18) 327 80 (103) (23) 5 — (18) 27 (17) 10 319 62 (70) (8) 5 — (3) 3 (7) (4) — — — — 17 17 (1) — (1) 385 — — — — 19 19 — (5) (5) 399 — — — 1 (27) (26) — (5) (5) 32 (28) 4 — — 4 12 — 12 133 43 (35) 8 — — 8 (9) (5) (14) 127 51 (59) (8) — — (8) (12) (4) (16) 13 (21) (8) (25) — (33) (5) (4) (9) 124 13 (11) 2 (2) — — 11 (7) 4 128 33 (31) 2 (1) — 1 16 (9) 7 371 (403) (32) 12 17 (3) 293 (31) 262 2,345 421 (446) (25) 34 19 28 142 (67) 75 2,448 423 (523) (100) (24) (27) (151) (6) (46) (52) Balance as of December 31, 2015 $ 1,326 $ 312 $ 368 $ 103 $ 136 $ 2,245 (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 Fund, for which State Street is not the investment manager, but acts as distribution agent. The decrease in total AUM in 2015 compared to 2014 resulted from net outflows of approximately $151 billion. Net outflows were driven by approximately $100 billion from long-term institutional portfolios attributable to institutional equity product asset allocation shifts, approximately $27 billion from cash products and approximately $24 billion from ETFs which include SPY, our S&P 500 ETF. Net outflows include an expected redemption by one sub- advisory client that is in-sourcing their business. Further redemptions by this client, totaling approximately $35 billion, are expected to continue through the remainder of 2016 and are not expected to have a significant impact on revenue. AUM did not include approximately $13 billion of new asset management business, which was awarded to SSGA but not installed as of December 31, 2015. This new business will be reflected in assets under management in future periods after installation, and will generate management fee revenue in subsequent periods. Total assets under management as of December 31, 2015 included managed assets lost but not yet liquidated. Lost business occurs from time to time and it is difficult to predict the timing of client behavior in transitioning these assets. This timing can vary significantly. 69 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) FINANCIAL CONDITION TABLE 19: AVERAGE STATEMENT OF CONDITION(1) The structure of our consolidated statement of Years Ended December 31, 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. 2015 2014 Average Balance Average Balance (In millions) Assets: Interest-bearing deposits with banks $ 69,753 $ 55,353 Securities purchased under resale agreements Trading account assets Investment securities Loans and leases Other interest-earning assets 3,233 1,194 4,077 959 105,611 116,809 17,948 22,717 15,912 15,944 Average total interest-earning assets 220,456 209,054 Cash and due from banks Other noninterest-earning assets 2,460 27,548 4,139 24,935 Average total assets $ 250,464 $ 238,128 Liabilities and shareholders’ equity: Deposits and other liabilities resulting from client Interest-bearing deposits: 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. U.S. Non-U.S. Total interest-bearing deposits Securities sold under repurchase agreements Federal funds purchased Other short-term borrowings Long-term debt Other interest-bearing liabilities $ 30,819 $ 21,296 102,491 109,003 133,310 130,299 8,875 21 3,826 10,333 6,471 8,817 20 4,177 9,309 7,351 Average total interest-bearing liabilities 162,836 159,973 Noninterest-bearing deposits Other noninterest-bearing liabilities(2) Preferred shareholders’ equity Common shareholders’ equity(2) Average total liabilities and shareholders’ equity(2) 51,675 14,626 2,418 18,909 44,041 12,935 1,181 19,998 $ 250,464 $ 238,128 (1) Additional information about our average statement of condition, primarily our interest-earning assets and interest-bearing liabilities, is included under “Consolidated Results of Operations - Total Revenue - Net Interest Revenue” in this Management's Discussion and Analysis. (2) Amounts for 2014 reflect adjustments related to certain expenses billed to our asset servicing clients as more fully described in Note 1 to the consolidated financial statements included under Item 8 of this Form 10-K. 70 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Investment Securities TABLE 20: CARRYING VALUES OF INVESTMENT SECURITIES (In millions) Available for sale: U.S. Treasury and federal agencies: As of December 31, 2015 2014 2013 Direct obligations $ 5,718 $ 10,655 $ 709 Mortgage-backed securities 18,165 20,714 23,563 Asset-backed securities: Student loans(1) Credit cards Sub-prime Other Total asset-backed securities Non-U.S. debt securities: Mortgage-backed securities Asset-backed securities Government securities Other Total non-U.S. debt securities State and political subdivisions Collateralized mortgage obligations Other U.S. debt securities U.S. equity securities Non-U.S. equity securities U.S. money-market mutual funds Non-U.S. money-market mutual funds 7,176 1,341 419 1,764 12,460 14,542 3,053 951 4,145 8,210 1,203 5,064 10,700 20,609 29,019 7,071 3,267 4,355 4,834 19,527 9,746 2,987 2,624 39 3 542 19 9,606 3,226 3,909 5,428 22,169 10,820 5,339 4,109 39 2 449 8 11,029 5,390 3,761 4,727 24,907 10,263 5,269 4,980 34 1 422 7 Additional information about our investment securities portfolio is provided in Note 3 to the consolidated financial statements included under Item 8 of this Form 10-K. We manage our investment securities portfolio to align with the interest-rate and duration characteristics of our client liabilities 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 fourth quarter of 2015, $7.1 billion of U.S. Treasuries previously classified as AFS were transferred to HTM, reflecting our intent to hold these securities until their maturity. These securities were transferred at fair value, which included a net unrealized gain of $89 million within accumulated other comprehensive loss which will be accreted into interest income over the life of the transferred security. Approximately 92% of the carrying value of the portfolio was rated “AAA” or “AA” as of December 31, 2015 and 90% as of December 31, 2014. TABLE 21: INVESTMENT PORTFOLIO BY EXTERNAL CREDIT RATING December 31, 2015 December 31, 2014 Total $ 70,070 $ 94,913 $ 99,174 Held to maturity(2): U.S. Treasury and federal agencies: Direct obligations $ 20,878 $ 5,114 $ 5,041 Mortgage-backed securities 610 62 91 AAA(1) AA A BBB Below BBB 80% 12 5 2 1 73% 17 6 2 2 100% 100% Asset-backed securities: Student loans(1) Credit cards Other Total asset-backed securities Non-U.S. debt securities: 1,592 1,814 1,627 897 366 897 577 762 782 2,855 3,288 3,171 Mortgage-backed securities Asset-backed securities Government securities Other Total non-U.S. debt securities 2,202 1,415 239 65 3,787 2,868 154 72 3,921 6,881 State and political subdivisions 1 9 4,211 2,202 2 192 6,607 24 Collateralized mortgage obligations 1,687 2,369 2,806 Total $ 29,952 $ 17,723 $ 17,740 (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. (1) Includes U.S. Treasury and federal agency securities that are split-rated, “AAA” by Moody’s Investors Service and “AA+” by Standard & Poor’s. As of December 31, 2015, the investment portfolio of 13,520 securities was diversified with respect to asset class. Approximately 51% of the aggregate carrying value of the portfolio as of December 31, 2015 was composed of mortgage- backed and asset-backed securities, compared to 64% as of December 31, 2014. The asset-backed securities portfolio, of which approximately 92% and 96% of the carrying value as of December 31, 2015 and 2014, 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. 71 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) In December 2013, U.S. regulators issued final Non-U.S. Debt Securities regulations to implement the Volcker rule. The Volcker rule will, over time, prohibit banking entities, including us and our affiliates, from engaging in certain prohibited proprietary trading activities, as defined in the final Volcker rule regulations, subject to exemptions for market making-related activities, risk- mitigating hedging, underwriting and certain other activities. The Volcker rule will also require banking entities to either restructure or divest certain ownership interests in, and relationships with, covered funds (as such terms are defined in the final Volcker rule regulations). Whether certain types of investment securities or structures, such as CLOs, constitute covered funds, as defined in the final Volcker rule regulations, and do not benefit from the exemptions provided in the Volcker rule, and whether a banking organization's investments therein constitute ownership interests remain subject to (1) market, and ultimately regulatory, interpretation, and (2) the specific terms and other characteristics relevant to such investment securities and structures. Refer to the "Supervision and Regulation" section, included under Item 1 of this Form 10-K for information regarding the Volcker rule and related regulations. As of December 31, 2015, we held approximately $2.10 billion of investments in CLOs. As of the same date, these investments had an aggregate pre-tax net unrealized gain of approximately $43 million, composed of gross unrealized gains of $46 million and gross unrealized losses of $3 million. Comparatively, as of December 31, 2014, we held approximately $4.54 billion of investments in CLOs which had an aggregate pre-tax net unrealized gain of approximately $97 million, composed of gross unrealized gains of $105 million and gross unrealized losses of $8 million. In the event that we or our banking regulators conclude that such investments in CLOs, or other investments, are covered funds 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. Approximately 23% of the aggregate carrying value of our investment securities portfolio has non- U.S. debt securities as of December 31, 2015 compared to approximately 26% as of December 31, 2014. TABLE 22: NON-U.S. DEBT SECURITIES (In millions) Available for sale: United Kingdom Australia Canada Netherlands Japan South Korea Germany France Norway Italy Finland Belgium Sweden Other(1) Total Held to maturity: United Kingdom Australia Germany Netherlands Singapore Spain Italy Ireland Other(2) Total As of December 31, 2015 2014 $ 5,754 $ 3,316 2,400 1,839 1,348 1,052 990 954 524 389 319 234 123 285 $ $ 19,527 1,067 $ $ 917 832 684 129 108 59 10 115 $ 3,921 $ 6,925 3,401 2,711 3,219 860 920 810 1,407 438 464 513 120 103 278 22,169 1,779 1,712 1,651 1,128 154 155 79 68 155 6,881 (1) Included approximately $205 million and $66 million as of December 31, 2015 and December 31, 2014, respectively, related to Portugal, Ireland and Spain, all of which were related to mortgage-backed securities and auto loans. (2) Included approximately $31 million and $36 million as of December 31, 2015 and December 31, 2014, respectively, of securities related to Portugal, all of which were mortgage-backed securities. Approximately 89% and 88% of the aggregate carrying value of these non-U.S. debt securities was rated “AAA” or “AA” as of December 31, 2015 and 2014, respectively. 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 December 31, 2015 and 2014, approximately 70% and 74%, 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. 72 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) As of December 31, 2015, our non-U.S. debt securities had an average market-to-book ratio of 100.7%, and an aggregate pre-tax net unrealized gain of approximately $162 million, composed of gross unrealized gains of $222 million and gross unrealized losses of $60 million. These unrealized amounts included a pre-tax net unrealized gain of $78 million, composed of gross unrealized gains of $109 million and gross unrealized losses of $31 million, associated with non-U.S. debt securities available for sale. As of December 31, 2015, the underlying collateral for non-U.S. mortgage- and asset-backed securities primarily included U.K. prime mortgages, Australian and Dutch mortgages and German automobile loans. The securities listed under “Canada” were composed of Canadian government securities and corporate debt and covered bonds. The securities listed under “France” were composed of automobile loans, prime mortgages, and corporate debt and covered bonds. The securities listed under “Japan” were substantially composed of Japanese government securities. The securities listed under “South Korea” were composed of South Korean government securities. Additional information on our exposures relating to Spain, Italy, Ireland and Portugal as of December 31, 2015 is provided under "Financial Condition - Cross-Border Outstandings" in this Management's Discussion and Analysis. Municipal Obligations We carried approximately $9.75 billion of municipal securities classified as state and political subdivisions in our investment securities portfolio as of December 31, 2015 as shown in Table 20: Carrying Values of Investment Securities. Substantially all of these securities were classified as AFS, with the remainder classified as HTM. As of the same date, we also provided approximately $8.75 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 December 31, 2015 State of Issuer: Texas California New York Massachusetts Maryland Total $ 1,250 $ 1,962 $ 3,212 17% 444 817 927 454 2,220 1,259 731 413 2,664 2,076 1,658 867 14 11 9 5 $ 3,892 $ 6,585 $ 10,477 December 31, 2014 State of Issuer: Texas California New York Massachusetts Maryland Total $ 1,326 $ 1,405 $ 2,731 15% 458 920 989 446 1,837 996 847 416 2,295 1,916 1,836 862 12 10 10 5 $ 4,139 $ 5,501 $ 9,640 (1) Represented 5% or more of our aggregate municipal credit exposure of approximately $18.50 billion and $18.44 billion across our businesses as of December 31, 2015 and December 31, 2014, respectively. (2) Includes municipal loans which are also presented within Table 26. Our aggregate municipal securities exposure presented in Table 23: State and Municipal Obligors, was concentrated primarily with highly-rated counterparties, with approximately 90% of the obligors rated “AAA” or “AA” as of December 31, 2015. As of that date, approximately 56% and 39% 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. Additional information with respect to our assessment of other-than-temporary impairment of our municipal securities is provided in Note 3 to the consolidated financial statements included under Item 8 of this Form 10-K. 73 2.05% 3.00 1.08 — 1.15 1.85 2.87 0.54 — — 9.06 3.08 0.89 0.57% 3.02 0.97 — 0.91 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) TABLE 24: CONTRACTUAL MATURITIES AND YIELDS As of December 31, 2015 (In millions) Available for sale(1): U.S. Treasury and federal agencies: Under 1 Year 1 to 5 Years 6 to 10 Years Over 10 Years Amount Yield Amount Yield Amount Yield Amount Yield Direct obligations $ 2,000 0.63% $ 3,223 0.88% $ 40 3.05% $ 455 Mortgage-backed securities 78 4.04 2,501 2.65 3,858 3.42 11,728 Asset-backed securities: Student loans Credit cards Sub-prime Other Total asset-backed securities Non-U.S. debt securities: Mortgage-backed securities Asset-backed securities Government securities Other Total non-U.S. debt securities State and political subdivisions(2) Collateralized mortgage obligations Other U.S. debt securities Total Held to maturity(1): 339 2 1 19 361 1,103 485 2,736 1,410 5,734 542 350 948 0.66 0.93 2.69 1.73 1.74 0.61 2.99 5.81 9.69 3.89 3.73 3,702 259 5 220 4,186 3,375 2,394 1,619 2,886 10,274 2,450 80 1,500 0.88 1.37 1.59 0.51 1.67 0.72 0.46 1.36 9.61 2.75 4.24 2,054 1,080 3 1,260 4,397 648 220 — 538 1,406 5,001 472 142 0.83 1.68 1.48 1.63 1.22 0.63 — 0.53 10.83 3.21 3.63 1,081 — 410 265 1,756 1,945 168 — — 2,113 1,753 2,085 34 $ 10,013 $ 24,214 $ 15,316 $ 19,924 U.S. Treasury and federal agencies: Direct obligations $ Mortgage-backed securities Asset-backed securities: Student loans Credit cards Other Total asset-backed securities Non-U.S. debt securities: Mortgage-backed securities Asset-backed securities Government securities Other Total non-U.S. debt securities State and political subdivisions(2) Collateralized mortgage obligations — 1 — — 60 60 435 201 129 22 787 1 251 —% $ 11,348 1.89% $ 9,440 2.30% $ 5.00 — — 0.68 0.99 0.97 0.72 0.88 6.73 3.94 12 5.00 — — 193 680 227 1,100 507 1,067 110 43 1,727 — 142 1.05 0.77 0.70 0.89 0.58 0.25 0.10 — 2.81 304 217 76 597 95 147 — — 242 — 489 1.16 0.74 0.56 3.18 1.00 — — — 1.52 90 597 1,095 — 3 1,098 1,165 1.22 — — — 1,165 — 805 — — — — 1.99 Total $ 1,100 $ 14,329 $ 10,768 $ 3,755 (1) The maturities of mortgage-backed securities, asset-backed securities and collateralized mortgage obligations are based on expected principal payments. (2) Yields were calculated on a fully taxable-equivalent basis, using applicable federal and state income tax rates. Impairment Impairment exists when the fair value of an individual security is below its amortized cost basis. Impairment of a security is further assessed to determine whether such impairment is other-than- temporary. When the impairment is deemed to be other-than-temporary, we record the loss in our consolidated statement of income. In addition, for 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). 74 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) The decrease in the net unrealized gain position as of December 31, 2015 as compared to December 31, 2014, presented in Table 25: Amortized Cost, Fair Value and Net Unrealized Gains (Losses) of Investment Securities, was primarily attributable to the decrease in the balance of our AFS portfolio and widening spreads. TABLE 25: AMORTIZED COST, FAIR VALUE AND NET UNREALIZED GAINS (LOSSES) OF INVESTMENT SECURITIES (In millions) Available for sale(1) Held to maturity(1) Total investment securities Net after-tax unrealized gain (loss) December 31, 2015 December 31, 2014 Amortized Cost Net Unrealized Gains (Losses) Fair Value Amortized Cost Net Unrealized Gains (Losses) $ 69,843 $ 227 $ 70,070 $ 94,108 $ 29,952 (154) 29,798 17,723 $ 99,795 $ $ 73 44 $ 99,868 $ 111,831 $ $ 805 119 924 554 Fair Value $ 94,913 17,842 $ 112,755 (1) AFS securities are carried at fair value, with after-tax net unrealized gains and losses recorded in AOCI. HTM securities are carried at cost, and unrealized gains and losses are not recorded in our consolidated financial statements. We conduct periodic reviews of individual securities to assess whether 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, OTTI could increase, in particular the credit-related component that would be recorded in our consolidated statement of income. In the aggregate, we recorded net losses from OTTI of $1 million and $11 million in 2015 and 2014, respectively. Management considers the aggregate decline in fair value of the remaining investment securities and the resulting gross unrealized losses of $841 million as of December 31, 2015 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 under Item 8 of this Form 10-K. 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 17%. Our evaluation of OTTI in our base case does not assume a disorderly sovereign debt restructuring or a break-up of the Eurozone. Excluding OTTI recorded in 2015, management considers the aggregate decline in fair value of the remaining investment securities and the resulting gross unrealized losses as of December 31, 2015 to be temporary and not the result of any material changes in the credit characteristics of the securities. Additional information about these gross unrealized losses is provided in Note 3 to the consolidated financial statements included under Item 8 of this Form 10-K. Loans and Leases TABLE 26: U.S. AND NON- U.S. LOANS AND LEASES As of December 31, (In millions) Institutional: 2015 2014 2013 2012 2011 U.S. $ 16,237 $14,908 $10,623 $ 9,645 $ 7,115 Non-U.S. 2,534 3,263 2,654 2,251 2,478 Commercial real estate: U.S. Total loans and leases Average loans and leases 28 28 209 411 460 $ 18,799 $18,199 $13,486 $12,307 $10,053 $ 17,948 $15,912 $13,781 $11,610 $12,180 The increase in loans in the institutional segment as of December 31, 2015 as compared to December 31, 2014 was primarily driven by increased investment in the non-investment-grade lending market through participations in loan syndications, specifically senior secured bank loans, partially offset by lower levels of short-duration advances. Short-duration advances to our clients included in the institutional segment were $2.62 billion and $3.54 billion as of December 31, 2015 and December 31, 2014, respectively. These short- duration advances provide liquidity to fund clients in 75 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) support of their transaction flows associated with securities settlement activities. As of December 31, 2015 and December 31, 2014, our investment in senior secured bank loans totaled approximately $3.14 billion and $2.07 billion, respectively. In addition, we had binding unfunded commitments as of December 31, 2015 and December 31, 2014 of $186 million and $337 million, respectively, to participate in such syndications. These senior secured bank loans, which we have rated “speculative” under our internal risk-rating framework (refer to Note 4 to the consolidated financial statements included under Item 8 of this Form 10-K), are externally rated “BBB,” “BB” or “B,” with approximately 93% of the loans rated “BB” or “B” as of December 31, 2015, compared to 95% as of December 31, 2014. Our investment strategy involves limiting our investment to larger, more liquid credits underwritten by major global financial institutions, applying our internal credit analysis process to each potential investment, and diversifying our exposure by counterparty and industry segment. However, these loans have significant exposure to credit losses relative to higher-rated loans. As of TABLE 27: CONTRACTUAL MATURITIES FOR LOANS AND LEASES (In millions) Institutional: Investment funds: U.S. Non-U.S. Commercial and financial: U.S. Non-U.S. Purchased receivables: U.S. Non-U.S. Lease financing: U.S. Non-U.S. Total institutional Commercial real estate: U.S. Total loans and leases December 31, 2015 and December 31, 2014, our allowance for loan losses included approximately $35 million and $26 million, respectively, related to these senior secured bank loans. As this portfolio grows and becomes more seasoned, our allowance for loan losses related to these loans may increase through additional provisions for credit losses. As of December 31, 2015 and December 31, 2014, unearned income deducted from our investment in leveraged lease financing was $102 million and $109 million, respectively, for U.S. leases and $231 million and $261 million, respectively, for non-U.S. leases. The CRE loans are composed of the loans acquired in 2008 pursuant to indemnified repurchase agreements with an affiliate of Lehman as a result of the Lehman Brothers bankruptcy. Additional information about all of our loan-and-lease segments, as well as underlying classes, is provided in Note 4 to the consolidated financial statements included under Item 8 of this Form 10-K. No loans, including CRE loans, were modified in troubled debt restructurings in 2015 or in 2014. As of December 31, 2015 Total Under 1 Year 1 to 5 Years Over 5 Years $ 11,136 $ 9,395 $ 1,726 $ 1,678 1,139 539 4,671 278 93 — 337 578 559 61 — — — 96 18,771 11,250 2,180 42 71 — — 194 4,752 15 — 1,932 175 22 — 337 288 2,769 28 $ 18,799 $ — 11,250 28 — $ 4,780 $ 2,769 TABLE 28: CLASSIFICATION OF LOAN AND LEASE BALANCES DUE AFTER ONE YEAR (In millions) Loans and leases with predetermined interest rates Loans and leases with floating or adjustable interest rates Total As of December 31, 2015 $ $ 2,652 4,897 7,549 76 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) TABLE 29: ALLOWANCE FOR LOAN LOSSES (In millions) Allowance for loan losses: Beginning balance Provision for loan losses(1) Charge-offs(2) Recoveries(3) Ending balance Years Ended December 31, 2015 2014 2013 2012 2011 $ $ 38 12 (4) — 46 $ $ 28 10 — — 38 $ $ 22 $ 22 $ 6 — — 28 $ (3) — 3 22 $ 100 — (78) — 22 (1) Includes $12 million, $10 million and $6 million of provision related to institutional loans for the years ended December 31, 2015, 2014 and 2013, respectively, and $(3) million related to CRE loans for the year ended December 31, 2012. (2) Includes $4 million in charge-offs related to institutional loans for the year ended December 31, 2015 and $78 million related to CRE loans for the year ended December 31, 2011. (3) Includes $3 million in recoveries related to CRE loans for the year ended December 31, 2012. The provision of $12 million and the charge-offs of $4 million recorded in 2015 were associated with our exposure to certain senior secured bank loans to non-investment grade borrowers, which we purchased in connection with our participation in loan syndications in the non-investment-grade lending market. As of December 31, 2015, approximately $35 million of our allowance for loan losses was related to senior secured bank loans included in the institutional segment; the remaining $11 million was related to other commercial and financial loans in the institutional segment. Cross-Border Outstandings Cross-border outstandings are amounts payable to us by non-U.S. counterparties which are denominated in U.S. dollars or other non-local currency, as well as non-U.S. local currency claims not funded by local currency liabilities. Our cross- border outstandings consist primarily of deposits with banks; loans and lease financing, including short- duration advances; investment securities; amounts related to foreign exchange and interest-rate contracts; and securities finance. In addition to credit risk, cross-border outstandings have the risk that, as a result of political or economic conditions in a country, borrowers may be unable to meet their contractual repayment obligations of principal and/or interest when due because of the unavailability of, or restrictions on, foreign exchange needed by borrowers to repay their obligations. We place deposits with non-U.S. counterparties that have strong internal State Street risk ratings. Counterparties are approved and monitored by our Country Risk Committee. This process includes financial analysis of non-U.S. counterparties and the use of an internal risk-rating system. Each counterparty is reviewed at least annually and potentially more frequently based on deteriorating credit fundamentals or general market conditions. We also utilize risk mitigation and other facilities that may reduce our exposure through the use of cash collateral and/or balance sheet netting where we deem appropriate. In addition, the Country Risk Committee performs country-risk analyses and monitors limits on country exposure. The total cross-border outstandings presented in Table 30: Cross-Border Outstandings represented approximately 25%, 17% and 19% of our consolidated total assets as of December 31, 2015, 2014 and 2013, respectively. TABLE 30: CROSS-BORDER OUTSTANDINGS(1) (In millions) December 31, 2015 United Kingdom Japan Germany Australia Canada Luxembourg December 31, 2014 United Kingdom Japan Australia Netherlands Canada Germany December 31, 2013 United Kingdom Australia Netherlands Canada Germany France Japan Investment Securities and Other Assets Derivatives and Securities on Loan Total Cross- Border Outstandings $ $ $ $ $ $ 16,965 17,328 12,111 4,035 3,156 3,034 15,288 9,465 5,981 4,425 3,227 3,075 15,422 7,309 4,542 3,675 4,062 2,887 2,445 $ $ $ 1,589 87 569 292 1,113 514 1,769 644 1,039 330 974 792 1,697 672 277 620 147 735 605 18,554 17,415 12,680 4,327 4,269 3,548 17,057 10,109 7,020 4,755 4,201 3,867 17,119 7,981 4,819 4,295 4,209 3,622 3,050 (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. 77 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) As of December 31, 2015, aggregate cross- border outstandings in countries which amounted to 0.75% and 1% of our total consolidated assets totaled approximately $2.20 billion to Netherlands. As of December 31, 2014, there were no countries whose aggregate cross-border outstandings amounted to between 0.75% and 1% of our total consolidated assets. As of December 31, 2013, aggregate cross- border outstandings in countries which amounted to 0.75% and 1% of our total consolidated assets totaled approximately $1.85 billion to China. TABLE 31: CROSS-BORDER OUTSTANDINGS (IRELAND, ITALY, SPAIN AND PORTUGAL) (In millions) December 31, 2015 Ireland Italy Spain Portugal December 31, 2014 Ireland Italy Spain Portugal December 31, 2013 Italy Ireland Spain Portugal Investment Securities and Other Assets Derivatives and Securities on Loan Total Cross- Border Outstandings $ $ $ 326 $ 678 $ 1,004 460 150 26 — 12 — 460 162 26 510 $ 1,253 $ 1,763 907 155 69 11 71 — 763 $ 2 $ 369 271 78 304 11 — 918 226 69 765 673 282 78 Throughout the sovereign debt crisis, the major independent credit rating agencies have downgraded U.S. and non-U.S. financial institutions and sovereign issuers which have been, and may in the future be, significant counterparties to us, or whose financial instruments serve as collateral on which we rely for credit risk mitigation purposes, and may do so again in the future. As a result, we may be exposed to increased counterparty risk, leading to negative ratings volatility. Risk Management General In the normal course of our global business activities, we are exposed to a variety of risks, some inherent in the financial services industry, others more specific to our business activities. Our risk management framework focuses on material risks, which include the following: • • • • credit and counterparty risk; liquidity risk, funding and management; operational risk; 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 under Item 1A, “Risk Factors,” included in this Form 10-K. The scope of our business requires that we balance these risks with a comprehensive and well- integrated risk management function. The identification, assessment, monitoring, mitigation and reporting of risks are essential to our financial performance and successful management of our businesses. These risks, if not effectively managed, can result in losses to State Street as well as erosion of our capital and damage to our reputation. Our approach, including Board and senior management oversight and a system of policies, procedures, limits, risk measurement and monitoring and internal controls, allows for an assessment of risks within a framework for evaluating opportunities for the prudent use of capital that appropriately balances risk and return. Our objective is to optimize our return while operating at a prudent level of risk. In support of this objective, we have instituted a risk appetite framework that aligns our business strategy and financial objectives with the level of risk that we are willing to incur. Our risk management is based on the following major goals: A culture of risk awareness that extends across all of our business activities; The identification, classification and quantification of State Street's material risks; The establishment of our risk appetite and associated limits and policies, and our compliance with these limits; The establishment of a risk management structure at the “top of the house” that enables the control and coordination of risk- taking across the business lines; The implementation of stress testing practices and a dynamic risk-assessment capability; 78 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) A direct link between risk and strategic- decision making processes and incentive compensation practices; and The overall flexibility to adapt to the ever- changing business and market conditions. Our risk appetite framework outlines the quantitative limits and qualitative goals that define our risk appetite, as well as the responsibilities for measuring and monitoring risk against limits, and for reporting, escalating, approving and addressing exceptions. Our risk appetite framework is established by ERM, a corporate risk oversight group, in conjunction with the MRAC and the RC of the Board. The Board formally reviews and approves our risk appetite statement annually, or more frequently as required. The risk appetite framework describes the level and types of risk that we are willing to accommodate in executing our business strategy, and also serves as a guide in setting risk limits across our business units. In addition to our risk appetite framework, we use stress testing as another important tool in our risk management practice. Additional information with respect to our stress testing process and practices is provided under “Capital” in Management's Discussion and Analysis. Disclosures about our management of significant risks can be found on the following pages within this Form 10-K. Governance and Structure Credit Risk Management Liquidity Risk Management Operational Risk Management Market Risk Management Model Risk Management Strategic Risk Management Form 10-K Page Number 79 83 88 93 96 105 106 Governance and Structure We have an approach to risk management that involves all levels of management, from the Board and its committees, including its E&A Committee, RC, the ECC, as well as the Technology Committee, to each business unit and each employee. We allocate responsibility for risk oversight so that risk/return decisions are made at an appropriate level, and are subject to robust and effective review and challenge. Risk management is the responsibility of each employee, and is implemented through three lines of defense: the business units, which own and manage the risks inherent in their business, are considered the first line of defense; ERM and other support functions, such as Compliance, Finance and Vendor Management, provide the second line of defense; and Corporate Audit, which assesses the effectiveness of the first two lines of defense. The responsibilities for effective review and challenge reside with senior managers, management oversight committees, Corporate Audit and, ultimately, the Board and its committees. While we believe that our risk management program is effective in managing the risks in our businesses, internal and external factors may create risks that cannot always be identified or anticipated. Corporate-level risk committees provide focused oversight, and establish corporate standards and policies for specific risks, including credit, sovereign exposure, market, liquidity, operational, information technology as well as new business products, regulatory compliance and ethics, vendor risk and model risks. These committees have been delegated the responsibility to develop recommendations and remediation strategies to address issues that affect or have the potential to affect State Street. We maintain a risk governance committee structure which serves as the formal governance mechanism through which we seek to undertake the consistent identification, management and mitigation of various risks facing State Street in connection with its business activities. This governance structure is enhanced and integrated through multi-disciplinary involvement, particularly through ERM. The following chart presents this structure. 79 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Management Risk Governance Committee Structure Executive Management Committees: Management Risk and Capital Committee (MRAC) Risk Committees: Business Conduct Risk Committee (BCRC) Technology and Operational Risk Committee (TORC) Asset-Liability Committee (ALCO) Credit Risk and Policy Committee (CRPC) Fiduciary Review Committee Operational Risk Committee Technology Risk Governance Committee Trading and Market Risk Committee (TMRC) Recovery and Resolution Planning Executive Committee Basel Oversight Committee (BOC) New Business and Product Approval Committee Executive Continuity Steering Committee Executive Information Security Committee Model Risk Committee (MRC) Compliance and Ethics Committee Third Party Risk Management Steering Committee Access Control Board CCAR Steering SSGA Risk Committee Committee Country Risk Committee Legal Entity Oversight Committee Enterprise Risk Management The goal of ERM is to ensure that risks are proactively identified, well-understood and prudently managed in support of our business strategy. ERM provides risk oversight, support and coordination to allow for the consistent identification, measurement and management of risks across business units separate from the business units' activities, and is responsible for the formulation and maintenance of corporate-wide risk management policies and guidelines. In addition, ERM establishes and reviews limits and, in collaboration with business unit management, monitors key risks. Ultimately, ERM works to validate that risk-taking occurs within the risk appetite statement approved by the Board and conforms to associated risk policies, limits and guidelines. The CRO is responsible for State Street’s risk management globally, leads ERM and has a dual reporting line to State Street’s CEO and the Board’s RC. ERM manages its responsibilities globally through a three-dimensional organization structure: • • “Vertical” business unit-aligned risk groups that support business managers with risk management, measurement and monitoring activities; “Horizontal” risk groups that monitor the risks that cross all of our business units (for example, credit and operational risk); and • Risk oversight for international activities, which combines intersecting “Verticals” and “Horizontals” through a hub and spoke model to provide important regional and legal entity perspectives to the global risk framework. Sitting on top of this three-dimensional organization structure is a centralized group responsible for the aggregation of risk exposures across the vertical, horizontal and regional dimensions, for consolidated reporting, for setting the corporate-level risk appetite framework and associated limits and policies, and for dynamic risk assessment across State Street. 80 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Board Committees The Board has four committees which assist it in discharging its responsibilities with respect to risk management: the RC, the E&A Committee, the ECC, and the Technology Committee. The RC is responsible for oversight related to the operation of our global risk management framework, including policies and procedures establishing risk management governance and processes and risk control infrastructure for our global operations. The RC is responsible for reviewing and discussing with management our assessment and management of all risks applicable to our operations, including credit, market, interest rate, liquidity, operational and business risks, as well as compliance and reputational risk and related policies. In addition, the RC provides oversight on strategic capital governance principles and controls, and monitors capital adequacy in relation to risk. The RC is also responsible for discharging the duties and obligations of the Board under applicable Basel and other regulatory requirements. The E&A Committee oversees the operation of our system of internal controls covering the integrity of our consolidated financial statements and reports, compliance with laws, regulations and corporate policies. The E&A Committee acts on behalf of the Board in monitoring and overseeing the performance of Corporate Audit and in reviewing certain communications with banking regulators. The E&A Committee has direct responsibility for the appointment, compensation, retention, evaluation and oversight of the work of our independent registered public accounting firm, including sole authority for the establishment of pre-approval policies and procedures for all audit engagements and any non- audit engagements. The ECC has direct responsibility for the oversight of all compensation plans, policies, and programs of State Street in which executive officers participate and incentive, retirement, welfare as well as equity plans in which certain other employees of State Street participate. In addition, the ECC oversees the alignment of our incentive compensation arrangements with our safety and soundness, including the integration of risk management objectives, and related policies, arrangements and control processes consistent with applicable related regulatory rules and guidance. The Technology Committee leads and assists in the Board’s oversight of the role of technology in executing State Street’s strategy and supporting State Street’s global business and operational requirements. The Technology Committee reviews the use of technology in our activities and operations, as well as significant technology and technology- related strategies, investments and policies. In addition, the Technology Committee reviews and approves technology and technology-related risk matters, including information and cyber security. Executive Management Committees MRAC is the senior management decision- making body for risk and capital issues, and oversees our financial risks, our consolidated statement of condition, and our capital adequacy, liquidity and recovery and resolution planning. Its responsibilities include: • The approval of the policies of our global risk, capital and liquidity management frameworks, including our risk appetite framework; • The monitoring and assessment of our capital adequacy based on internal policies and regulatory requirements; • The oversight of our firm-wide risk identification, model risk governance, stress testing and Recovery and Resolution Plan programs; and • The ongoing monitoring and review of risks undertaken within the businesses, and our senior management oversight and approval of risk strategies and tactics. MRAC, which is co-chaired by our CRO and the CFO, regularly presents a report to the RC outlining developments in the risk environment and performance trends in our key business areas. BCRC provides additional risk governance and leadership, by overseeing our business practices in terms of our compliance with laws, regulations and our standards of business conduct, our commitments to clients and others with whom we do business, and potential reputational risks. Management considers adherence to high ethical standards to be critical to the success of our business and to our reputation. The BCRC is co-chaired by our CRO and our Chief Legal Officer. TORC oversees and assesses the effectiveness of corporate-wide technology and operational risk management programs, to manage and control technology and operational risk consistently across the organization. TORC is co-chaired by our CRO and our Vice Chairman & Head of the Office of Regulatory Initiatives. Risk Committees The following risk committees, under the oversight of the respective executive management committees, have focused responsibilities for oversight of specific areas of risk management: 81 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) MRAC • ALCO oversees the management of our consolidated statement of condition and the management of our global liquidity, our interest-rate risk, and our non-traded market risk positions, as well as the business activities of our Global Treasury group and the risks associated with the generation of net interest revenue and overall balance sheet management. ALCO’s roles and responsibilities are designed to work complementary to, and be coordinated with, MRAC, which approves our corporate risk appetite and associated balance sheet strategy; • CRPC has primary responsibility for the oversight and review of credit and counterparty risk across business units, as well as oversight, review and approval of the credit risk policies and guidelines; the Committee consists of senior executives within ERM, and reviews policies and guidelines related to all aspects of our business which give rise to credit risk; our business units are also represented on the CRPC; credit risk policies and guidelines are reviewed periodically, but at least annually; • TMRC reviews the effectiveness of, and approves, the market risk framework at least annually; it is the senior oversight and decision-making committee for risk management within our global markets businesses; the TMRC is responsible for the formulation of guidelines, strategies and workflows with respect to the measurement, monitoring and control of our trading market risk, and also approves market risk tolerance limits, collateral and margin policies, and trading authorities; the TMRC meets regularly to monitor the management of our trading market risk activities; • BOC provides oversight and governance over Basel related regulatory requirements, assesses compliance with respect to Basel regulations and approves all material methodologies and changes, policies and reporting; • The Recovery and Resolution Planning Executive Committee oversees the development of recovery and resolution plans as required by banking regulators; • MRC monitors the overall level of model risk and provides oversight of the model governance process pertaining to financial models, including the validation of key models and the ongoing monitoring of model 82 performance. The MRC may also, as appropriate, mandate remedial actions and compensating controls to be applied to models to address modeling deficiencies as well as other issues identified; • The CCAR Steering Committee provides primary supervision of the stress tests performed in conformity with the Federal Reserve's CCAR process and the Dodd- Frank Act, and is responsible for the overall management, review, and approval of all material assumptions, methodologies, and results of each stress scenario; • The SSGA Risk Committee is the most senior oversight and decision making committee for risk management within SSGA; the committee is responsible for overseeing the alignment of SSGA's strategy, budget, and risk appetite, as well as alignment with State Street corporate-wide strategies and risk management standards; and • The Country Risk Committee oversees the identification, assessment, monitoring, reporting and mitigation, where necessary, of country risks. BCRC • The Fiduciary Review Committee reviews and assesses the fiduciary risk management programs of those units in which we serve in a fiduciary capacity; • The New Business and Product Approval Committee provides oversight of the evaluation of the risk inherent in proposed new products or services and new business, and extensions of existing products or services, evaluations including economic justification, material risk, compliance, regulatory and legal considerations, and capital and liquidity analyses; • The Compliance and Ethics Committee provides review and oversight of our compliance programs, including its culture of compliance and high standards of ethical behavior; and • The Legal Entity Oversight Committee establishes standards with respect to the governance of State Street legal entities, monitors adherence to those standards, and oversees the ongoing evaluation of our legal entity structure, including the formation, maintenance and dissolution of legal entities. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) TORC • The Technology Risk Governance Committee provides regular reporting to TORC and escalates technology risk issues to TORC, as appropriate; • The Executive Continuity Steering Committee reviews overall business continuity program performance, provides for executive accountability for compliance with the business continuity program and standards, and reviews and approves major changes or exceptions to program policy and standards; • The Executive Information Security Committee is responsible for managing the Enterprise Information Security posture and program, including cyber security protections, provides enterprise-wide oversight of the Information Security Program to provide that controls are measured and managed, and serves as an escalation point for issues identified during the execution of information technology activities and risk mitigation; • The Third Party Risk Management Steering Committee provides oversight over the vendor management program, approves policies, and serves as an escalation path for program compliance exceptions; • The Access Control Board establishes and provides appropriate governance and controls over our access control security framework; and • The Operational Risk Committee, along with the support of regional business or entity- specific working groups and committees, is responsible for oversight of our operational risk programs, including determining that the implementation of those programs is designed to identify, manage, and control operational risk in an effective and consistent manner across the firm. Credit Risk Management Core Policies and Principles We define credit risk as the risk of financial loss if a counterparty, borrower or obligor, collectively referred to as counterparty, is either unable or unwilling to repay borrowings or settle a transaction in accordance with underlying contractual terms. We assume credit risk in our traditional non-trading lending activities, such as loans and contingent commitments, in our investment securities portfolio, where recourse to a counterparty exists, and in our direct and indirect trading activities, such as principal securities lending and foreign exchange and indemnified agency securities lending. We also assume credit risk in our day-to-day treasury and securities and other settlement operations, in the form of deposit placements and other cash balances, with central banks or private sector institutions. We distinguish between three major types of credit risk: Default risk - the risk that a counterparty fails to meet its contractual payment obligations; Country risk - the risk that we may suffer a loss, in any given country, due to any of the following reasons: deterioration of economic conditions, political and social upheaval, nationalization and appropriation of assets, government repudiation of indebtedness, exchange controls, and disruptive currency depreciation or devaluation; and Settlement risk - the risk that the settlement or clearance of transactions will fail, which arises whenever the exchange of cash, securities and/or other assets is not simultaneous. The acceptance of credit risk by State Street is governed by corporate policies and guidelines, which include standardized procedures applied across the entire organization. These policies and guidelines include specific requirements related to each counterparty's risk profile; the markets served; counterparty, industry and country concentrations; and regulatory compliance. These policies and procedures also implement a number of core principles, which include the following: • We measure and consolidate credit risks to each counterparty, or group of counterparties, in accordance with a “one- obligor” principle that aggregates risks across our business units; • ERM reviews and approves all extensions of credit, or material changes to extensions of credit (such as changes in term, collateral structure or covenants), in accordance with assigned credit-approval authorities; • Credit-approval authorities are assigned to individuals according to their qualifications, experience and training, and these authorities are periodically reviewed. Our largest exposures require approval by the Credit Committee, a sub-committee of the CRPC. With respect to small and low-risk extensions of credit to certain types of counterparties, approval authority is granted to individuals outside of ERM; • We seek to avoid or limit undue concentrations of risk. Counterparty (or groups of counterparties), industry, country and product-specific concentrations of risk 83 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) are subject to frequent review and approval in accordance with our risk appetite; credit risk and the manner in which we control, manage and monitor such risks. • We determine the creditworthiness of counterparties through a detailed risk assessment, including the use of comprehensive internal risk-rating methodologies; • We review all extensions of credit and the creditworthiness of counterparties at least annually. The nature and extent of these reviews are determined by the size, nature and term of the extensions of credit and the creditworthiness of the counterparty; and The previously described CRPC (refer to "Risk Committees") has primary responsibility for the oversight, review and approval of the credit risk guidelines and policies. Credit risk guidelines and policies are reviewed periodically, but at least annually. The Credit Committee, a sub-committee of the CRPC, has responsibility for assigning credit authority and approving the largest and higher-risk extensions of credit to individual counterparties or groups of counterparties. • We subject all corporate policies and CRPC provides periodic updates to MRAC and guidelines to annual review as an integral part of our periodic assessment of our risk appetite. Our corporate policies and guidelines require that the business units which engage in activities that give rise to credit and counterparty risk comply with procedures that promote the extension of credit for legitimate business purposes; are consistent with the maintenance of proper credit standards; limit credit- related losses; and are consistent with our goal of maintaining a strong financial condition. Structure and Organization The Credit Risk group within ERM is responsible for the assessment, approval and monitoring of credit risk across State Street. The group is managed centrally, has dedicated teams in a number of locations worldwide across our businesses, and is responsible for related policies and procedures, and for our internal credit-rating systems and methodologies. In addition, the group, in conjunction with the business units, establishes appropriate measurements and limits to control the amount of credit risk accepted across its various business activities, both at the portfolio level and for each individual counterparty or group of counterparties, to individual industries, and also to counterparties by product and country of risk. These measurements and limits are reviewed periodically, but at least annually. In conjunction with other groups in ERM, the Credit Risk group is jointly responsible for the design, implementation and oversight of our credit risk measurement and management systems, including data and assessment systems, quantification systems and the reporting framework. Various key committees within State Street are responsible for the oversight of credit risk and associated credit risk policies, systems and models. All credit-related activities are governed by our risk appetite framework and our credit risk guidelines, which define our general philosophy with respect to the Board's RC. Credit Ratings We perform initial and ongoing reviews to exercise due diligence on the creditworthiness of our counterparties when conducting any business with them or approving any credit limits. This due diligence process generally includes the assignment of an internal credit rating, which is determined by the use of internally developed and validated methodologies, scorecards and a 15-grade rating scale. This risk-rating process incorporates the use of risk-rating tools in conjunction with management judgment; qualitative and quantitative inputs are captured in a replicable manner and, following a formal review and approval process, an internal credit rating based on our rating scale is assigned. Credit ratings are reviewed and approved by the Credit Risk group or designees within ERM. To facilitate comparability across the portfolio, counterparties within a given sector are rated using a risk-rating tool developed for that sector. Our risk-rating methodologies are approved by the CRPC, after completion of internal model validation processes, and are subject to an annual review, including re-validation. We generally rate our counterparties individually, although certain portfolios defined by us as low-risk are rated on a pooled basis. We evaluate and rate the credit risk of our counterparties on an ongoing basis. Risk Parameter Estimates Our internal risk-rating system promotes a clear and consistent approach to the determination of appropriate credit risk classifications for our credit counterparties and exposures, tracking the changes in risk associated with these counterparties and exposures over time. This capability enhances our ability to more accurately calculate both risk exposures and capital, enabling better strategic decision making across the organization. 84 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) We use credit risk parameter estimates for the • Collateral. In many parts of our business, following purposes: • The assessment of the creditworthiness of new counterparties and, in conjunction with our risk appetite statement, the development of appropriate credit limits for our products and services, including loans, foreign exchange, securities finance, placements and repurchase agreements; • The use of an automated process for limit approvals for certain low-risk counterparties, as defined in our credit risk guidelines, based on the counterparty’s probability-of- default, or PD, rating class; • The development of approval authority matrices based on PD; riskier counterparties with higher ratings require higher levels of approval for a comparable PD and limit size compared to less risky counterparties with lower ratings; • The analysis of risk concentration trends using historical PD and exposure-at-default, or EAD, data; • The standardization of rating integrity testing by GCR using rating parameters; • The determination of the level of management review of short-duration advances depending on PD; riskier counterparties with higher rating class values generally trigger higher levels of management escalation for comparable short-duration advances compared to less risky counterparties with lower rating-class values; • The monitoring of credit facility utilization levels using EAD values and the identification of instances where counterparties have exceeded limits; • The aggregation and comparison of counterparty exposures with risk appetite levels to determine if businesses are maintaining appropriate risk levels; and • The determination of our regulatory capital requirements for the AIRB provided in the Basel framework. Credit Risk Mitigation We seek to limit our credit exposure and reduce our potential credit losses through various types of risk mitigation. In our day-to-day management of credit risks, we utilize and recognize the following types of risk mitigation. we regularly require or agree for collateral to be received from or provided to clients and counterparties in connection with contracts that incur credit risk. In our trading businesses, this collateral is typically in the form of cash and high-grade securities (government securities and other bonds or equity securities). Credit risks in our non- trading and securities finance businesses are also often secured by bonds and equity securities and by other types of assets. Collateral serves to reduce the risk of loss inherent in an exposure by improving the prospect of recovery in the event of a counterparty default. While collateral is often an alternative source of repayment, it generally does not replace the requirement within our policies and guidelines for high- quality underwriting standards. Our credit risk guidelines require that the collateral we accept for risk mitigation purposes is of high quality, can be reliably valued and can be liquidated if or when required. Generally, when collateral is of lower quality, more difficult to value or more challenging to liquidate, higher discounts to market values are applied for the purposes of measuring credit risk. For certain less liquid collateral, longer liquidation periods are assumed when determining the credit exposure. All types of collateral are assessed regularly by ERM, as is the basis on which the collateral is valued. Our assessment of collateral, including the ability to liquidate collateral in the event of a counterparty default, and also with regard to market values of collateral under a variety of hypothetical market conditions, is an integral component of our assessment of risk and approval of credit limits. We also seek to identify, limit and monitor instances of "wrong-way" risk, where a counterparty’s risk of default is positively correlated with the risk of our collateral eroding in value. We maintain policies and procedures requiring that documentation used to collateralize a transaction is legal, valid, binding and enforceable in the relevant jurisdictions. We also conduct legal reviews to assess whether our documentation meets these standards on an ongoing basis. • Netting. Netting is a mechanism that allows institutions and counterparties to net offsetting exposures and payment obligations against one another through the use of qualifying master netting agreements. A master netting agreement allows the netting of rights and obligations arising under derivative or other transactions that 85 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) have been entered into under such an agreement upon the counterparty’s default, resulting in a single net claim owed by, or to, the counterparty. This is commonly referred to as "close-out netting,” and is pursued wherever possible. We may also enter into master agreements that allow for the netting of amounts payable on a given day and in the same currency, reducing our settlement risk. This is commonly referred to as “payment netting,” and is widely used in our foreign exchange activities. As with collateral, we have policies and procedures in place to apply close-out and payment netting only to the extent that we have verified legal validity and enforceability of the master agreement. In the case of payment netting, operational constraints with our counterparties may preclude us from reducing settlement risk, notwithstanding the legal right to require the same under the master netting agreement. • Guarantees. A guarantee is a financial instrument that results in credit support being provided by a third party, (i.e., the protection provider) to the underlying obligor (the beneficiary of the provided protection) on account of an exposure owing by the obligor. The protection provider may support the underlying exposure either in whole or in part. Support of this kind may take different forms. Typical forms of guarantees provided to State Street include financial guarantees, letters of credit, bankers’ acceptances, PUA contracts and insurance. ERM and Legal teams have established a review process to evaluate guarantees under the applicable requirements of State Street policies and Basel III requirements. Governance for this evaluation is covered under policies and procedures that require regular reviews of documentation, jurisdictions, and credit quality of protection providers. Pursuant to the Basel III final rule, we are permitted to reflect the application of credit risk mitigation which may include, for example, guarantees, collateral, netting, secured interests in non-financial assets and credit default swaps. State Street does not actively use credit default swaps as a risk mitigation tool, although it increasingly applies the recognition of guarantees, collateral and security over non-financial assets to mitigate overall risk within its counterparty credit portfolio. Credit Limits Central to our philosophy for our management of credit risk is the approval and imposition of credit limits, against which we monitor the actual and potential future credit exposure arising from our business activities with counterparties or groups of counterparties. Credit limits are a reflection of our risk appetite, which may be determined by the creditworthiness of the counterparty, the nature of the risk inherent in the business undertaken with the counterparty, or a combination of relevant credit factors. Our risk appetite for certain sectors and certain countries and geographic regions may also influence the level of risk we are willing to assume to certain counterparties. The analysis and approval of credit limits is undertaken in a consistent manner across our businesses, although the nature and extent of the analysis may vary, based on the type, term and magnitude of the risk being assumed. Credit limits and underlying exposures are assessed and measured on both a gross and net basis where appropriate, with net exposure determined by deducting the value of any collateral held. For certain types of risk being assumed, we will also assess and measure exposures under a variety of hypothetical market conditions. Credit limit approvals across State Street are undertaken by the Credit Risk group, by individuals to whom credit authority has been delegated, or by the Credit Committee. Credit limits are re-evaluated annually, or more frequently as needed, and are revised periodically on prevailing and anticipated market conditions, changes in counterparty or country-specific credit ratings and outlook, changes in State Street's risk appetite for certain counterparties, sectors or countries, and enhancements to the measurement of credit utilization. Reporting Ongoing active monitoring and management of our credit risk is an integral part of our credit risk management framework. We maintain management information systems to identify, measure, monitor and report credit risk across businesses and legal entities, enabling ERM and our businesses to have timely access to accurate information on credit limits and exposures. Monitoring is performed along the dimensions of counterparty, industry, country and product-specific risks to facilitate the identification of concentrations of risk and emerging trends. Key aspects of this credit risk reporting structure include governance and oversight groups, policies that define standards for the reporting of credit risk, data aggregation and sourcing systems, and separate testing of relevant risk reporting functions by Corporate Audit. The Credit Portfolio Management group routinely assesses the composition of our overall credit risk portfolio for alignment with our stated risk appetite. This assessment includes routine analysis and reporting of the portfolio, monitoring of market- 86 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) based indicators, the assessment of industry trends and developments, and regular reviews of concentrated risks. The Credit Portfolio Management group is also responsible, in conjunction with the business units, for defining the appetite for credit risk in the major sectors in which we have a concentration of business activities. These sector-level risk appetite statements, which include counterparty selection criteria and granular underwriting guidelines, are reviewed periodically and approved by the CRPC. Monitoring Regular surveillance of credit and counterparty risks is undertaken by our business units, the Credit Risk group and designees with ERM, allowing for frequent and extensive oversight. This surveillance process includes, but is not limited to, the following components: • Annual Reviews. A formal review of • counterparties is conducted at least annually and includes a thorough review of operating performance, primary risk factors and our internal credit risk rating. This annual review also includes a review of current and proposed credit limits, an assessment of our ongoing risk appetite and verification that supporting legal documentation remains effective. Interim Monitoring. Periodic monitoring of our largest and riskiest counterparties is undertaken more frequently, utilizing financial information, market indicators and other relevant credit and performance measures. The nature and extent of this interim monitoring is individually tailored to certain counterparties and/or industry sectors to identify material changes to the risk profile of a counterparty (or group of counterparties) and assign an updated internal risk rating in a timely manner. We maintain an active "watch list" for all counterparties where we have identified a concern that the actual or potential risk of default has increased. The watch list status denotes a concern with some aspect of a counterparty's risk profile that warrants closer monitoring of the counterparty's financial performance and related risk factors. Our ongoing monitoring processes are designed to facilitate the early identification of counterparties whose creditworthiness is deteriorating; any counterparty may be placed on the watch list by ERM at its sole discretion. Counterparties that receive an internal risk rating within a certain range on our rating scale are eligible for watch list designation. These risk ratings generally correspond with the non-investment grade or near non-investment grade ratings established by the major independent credit-rating agencies, and also include the regulatory classifications of “Special Mention,” “Substandard,” “Doubtful” and “Loss.” Counterparties whose internal ratings are outside this range may also be placed on the watch list. The Credit Risk group maintains primary responsibility for our watch list processes, and generates a monthly report of all watch list counterparties. The watch list is formally reviewed at least on a quarterly basis, with participation from senior ERM staff, and representatives from the business units and our corporate finance and legal groups as appropriate. These meetings include a review of individual watch list counterparties, together with credit limits and prevailing exposures, and are focused on actions to contain, reduce or eliminate the risk of loss to State Street. Identified actions are documented and monitored. Controls GCR provides a separate level of surveillance and oversight over the integrity of our credit risk management processes, including the internal risk- rating system. GCR reviews counterparty credit ratings for all identified sectors on an ongoing basis. GCR is subject to oversight by the CRPC, and provides periodic updates to the Board’s RC. Specific activities of GCR include the following: • Separate and objective assessments of our credit and counterparty exposures to determine the nature and extent of risk undertaken by the business units; • Periodic credit process and credit product reviews, focusing on and assessing credit analysis, policy compliance, prudent transaction structure and underwriting standards, administration and documentation, risk-rating integrity, and relevant trends; • Identification and monitoring of developing counterparty, market and/or industry sector trends to limit risk of loss and protect capital; • Regular and formal reporting of reviews, including findings and requisite actions to remedy identified deficiencies; • Allocation of resources for specialized risk assessments (on an as-needed basis); • Assessment of the level of the allowance for loan and lease losses and OTTI; and • Liaison with auditors and regulatory personnel on matters relating to risk rating, reporting, and measurement. Reserve for Credit Losses We maintain an allowance for loan losses to support our on-balance sheet credit exposures. We also maintain a reserve for unfunded commitments 87 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) and letters of credit to support our off-balance credit exposure. The two components together represent the reserve for credit losses. Review and evaluation of the adequacy of the reserve for credit losses is ongoing throughout the year, but occurs at least quarterly, and is based, among other factors, on our evaluation of the level of risk in the portfolio, the volume of adversely classified loans, previous loss experience, current trends, and economic conditions and their effect on our counterparties. Additional information about the allowance for loan losses is provided in Note 4 to the consolidated financial statements included under Item 8 of this Form 10-K. Liquidity Risk Management Liquidity risk is defined as the potential that our financial condition or overall viability could be adversely affected by an actual or perceived inability to meet cash and collateral obligations. The goal of liquidity risk management is to maintain, even in the event of stress, our ability to meet our cash and collateral obligations. Liquidity is managed to meet our financial obligations in a timely and cost-effective manner, as well as maintain sufficient flexibility to fund strategic corporate initiatives as they arise. Our effective management of liquidity involves the assessment of the potential mismatch between the future cash demands of our clients and our available sources of cash under both normal and adverse economic and business conditions. We manage our liquidity on a global, consolidated basis. We also manage liquidity on a stand-alone basis at the parent company, as well as at certain branches and subsidiaries of State Street Bank. State Street Bank generally has access to markets and funding sources limited to banks, such as the federal funds market and the Federal Reserve's discount window. Our parent company is managed to a more conservative liquidity profile, reflecting narrower market access. Our parent company typically holds enough cash, primarily in the form of 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 December 31, 2015, the value of our parent company's net liquid assets totaled $5.73 billion, compared with $6.03 billion as of December 31, 2014. As of December 31, 2015, our parent company and State Street Bank have approximately $1.0 billion and $400 million, respectively, of senior and subordinated notes outstanding that will mature in the next twelve months. Based on our level of consolidated liquid assets and our ability to access the capital markets for additional funding when necessary, including our ability to issue debt and equity securities under our current universal shelf registration, management considers our overall liquidity as of December 31, 2015 to be sufficient to meet its current commitments and business needs, including accommodating the transaction and cash management needs of its clients. Governance Global Treasury is responsible for our management of liquidity. This includes the day-to-day management of our global liquidity position, the development and monitoring of early warning indicators, key liquidity risk metrics, the creation and execution of stress tests, the evaluation and implementation of regulatory requirements, the maintenance and execution of our liquidity guidelines and contingency funding plan, and routine management reporting to ALCO, MRAC and the Board's RC. Global Treasury Risk Management, part of ERM, provides separate oversight over the identification, communication, and management of Global Treasury’s risks in support of our business strategy. Global Treasury Risk Management reports to the CRO. Global Treasury Risk Management’s responsibilities relative to liquidity risk management include the development and review of policies and guidelines; the monitoring of limits related to adherence to the liquidity risk guidelines and associated reporting. Liquidity Framework Our liquidity framework contemplates areas of potential risk based on our activities, size, and other appropriate risk-related factors. In managing liquidity risk we employ limits, maintain established metrics and early warning indicators, and perform routine stress testing to identify potential liquidity needs. This process involves the evaluation of a combination of internal and external scenarios which assist us in measuring our liquidity position and in identifying potential increases in cash needs or decreases in available sources of cash, as well as the potential impairment of our ability to access the global capital markets. We manage liquidity according to several principles that are equally important to our overall liquidity risk management framework: • Structural liquidity management addresses liquidity by monitoring and directing the composition of our consolidated statement of condition. Structural liquidity is measured by metrics such as the percentage of total wholesale funds to consolidated total assets, and the percentage of non-government investment securities to client deposits. In 88 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) addition, on a regular basis and as described below, our structural liquidity is evaluated under various stress scenarios. liquid assets, deposits, and the total of investment securities and loans as a percentage of total client deposits. • Tactical liquidity management addresses our day-to-day funding requirements and is largely driven by changes in our primary source of funding, which are client deposits. Fluctuations in client deposits may be supplemented with short-term borrowings, which generally include commercial paper and certificates of deposit. • Stress testing and contingent funding planning are longer-term strategic liquidity risk management practices. Regular and ad hoc liquidity stress testing are performed under various severe but plausible scenarios at the consolidated level and at significant subsidiaries, including State Street Bank. These tests contemplate severe market and State Street-specific events under various time horizons and severities. Tests contemplate the impact of material changes in key funding sources, credit ratings, additional collateral requirements, contingent uses of funding, systemic shocks to the financial markets, and operational failures based on market and State Street-specific assumptions. The stress tests evaluate the required level of funding versus available sources in an adverse environment. As stress testing contemplates potential forward- looking scenarios, results also serve as a trigger to activate specific liquidity stress levels and contingent funding actions. CFPs are designed to assist senior management with decision-making associated with any contingency funding response to a possible or actual crisis scenario. The CFPs define roles, responsibilities and management actions to be taken in the event of deterioration of our liquidity profile caused by either a State Street-specific event or a broader disruption in the capital markets. Specific actions are linked to the level of stress indicated by these measures or by management judgment of market conditions. Liquidity Risk Metrics In managing our liquidity, we employ early warning indicators and metrics. Early warning indicators are intended to detect situations which may result in a liquidity stress, including changes in our common stock price and the spread on our long-term debt. Additional metrics that are critical to the management of our consolidated statement of condition and monitored as part of our routine liquidity management include measures of our fungible cash position, purchased wholesale funds, unencumbered 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 of asset liquidity to U.S. Government and federal agency securities (including mortgage-backed securities), selected non-U.S. Government and supranational securities as well as certain other high- quality securities which generally are more liquid than other types of assets even in times of stress. Our asset liquidity metric is similar to the HQLA under the U.S. LCR, and our HQLA, under the LCR final rule definition, were estimated to be $109.39 billion and $115.58 billion as of December 31, 2015 and December 31, 2014, respectively. TABLE 32: COMPONENTS OF HQLA BY TYPE OF ASSET (In millions) December 31, 2015 December 31, 2014 Excess Central Bank Balances $ 66,063 $ U.S. Treasuries Other Investment securities Foreign government 22,518 16,952 3,861 85,176 10,308 16,545 3,554 Total $ 109,394 $ 115,583 With respect to highly liquid short-term investments presented in the preceding table, due to the continued elevated level of client deposits as of December 31, 2015, we maintained cash balances in excess of regulatory requirements governing deposits with the Federal Reserve of approximately $66.06 billion at the Federal Reserve, the ECB and other non-U.S. central banks, compared to $85.18 billion as of December 31, 2014. The increase in investment securities as of December 31, 2015 compared to December 31, 2014, presented in the table, was mainly 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 Federal Reserve Bank of Boston, or FRB, the Federal Home Loan Bank of Boston, or FHLB, and other non-U.S. central banks. State Street Bank is a member of the FHLB. This membership allows for advances of liquidity in varying terms against high-quality collateral, which helps facilitate asset-and-liability management. Access to primary, intra-day and contingent liquidity provided by these utilities is an important source of contingent liquidity with utilization subject to underlying conditions. As of December 31, 2015 and 89 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) December 31, 2014, we had no outstanding primary credit borrowings from the FRB discount window or any other central bank facility, and as of the same dates, no FHLB advances were outstanding. 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 $41.00 billion as of December 31, 2015, compared to $60.06 billion as of December 31, 2014. These securities are available sources of liquidity, although not as rapidly deployed as those included in our asset liquidity. Measures of liquidity include LCR, NSFR and TLAC which are described in "Supervision and Regulation" included under Item 1, "Business" of this Form 10-K. Uses of Liquidity Significant uses of our liquidity could result from the following: withdrawals of client deposits; draw- downs of unfunded commitments to extend credit or to purchase securities, generally provided through lines of credit; and short-duration advance facilities. Such circumstances would generally arise under stress conditions including deterioration in credit ratings. We had unfunded commitments to extend credit with gross contractual amounts totaling $22.58 billion and $24.25 billion as of December 31, 2015 and December 31, 2014, respectively. These amounts do not reflect the value of any collateral. As of December 31, 2015, approximately 76% of our unfunded commitments to extend credit expire within one year. Since many of our commitments are expected to expire or renew without being drawn upon, the gross contractual amounts do not necessarily represent our future cash requirements. Funding Deposits We provide products and services including custody, accounting, administration, daily pricing, foreign exchange services, cash management, financial asset management, securities finance and investment advisory services. As a provider of these products and services, we generate client deposits, which have generally provided a stable, low-cost source of funds. As a global custodian, clients place deposits with State Street entities in various currencies. We invest these client deposits in a combination of investment securities and short- duration financial instruments whose mix is determined by the characteristics of the deposits. For the past several years, we have experienced higher client deposit inflows toward the end of 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 33: CLIENT DEPOSITS December 31, Average Balance Year Ended December 31, (In millions) Client deposits(1) 2015 2014 2015 2014 $ 177,907 $ 195,276 $ 171,425 $ 167,470 (1) Balance as of December 31, 2015 and December 31, 2014 excluded term wholesale CDs of $13.72 billion and $13.76 billion, respectively; average balances for the years ended December 31, 2015 and December 31, 2014 excluded average CDs of $13.56 billion and $6.87 billion, respectively. Short-Term Funding Our corporate commercial paper program had zero and $2.48 billion of commercial paper outstanding as of December 31, 2015 and December 31, 2014, respectively. State Street phased-out its commercial paper program prior to December 31, 2015, consistent with the objectives of its 2015 recovery and resolution plan developed pursuant to the requirements of the Dodd-Frank Act. 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 $4.50 billion and $8.93 billion as of December 31, 2015 and December 31, 2014, respectively. State Street Bank currently maintains a line of credit with a financial institution of CAD $1.40 billion, or approximately $1.09 billion as of December 31, 2015, to support its Canadian securities processing operations. The line of credit has no stated termination date and is cancelable by either party with prior notice. As of December 31, 2015, there was no balance outstanding on this line of credit. 90 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Long-Term Funding As of December 31, 2015, State Street Bank had Board authority to issue unsecured senior debt securities from time to time, provided that the aggregate principal amount of such unsecured senior debt outstanding at any one time does not exceed $5 billion. As of December 31, 2015, $5 billion was available for issuance pursuant to this authority. As of December 31, 2015, 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. commitments to extend credit or trigger requirements under securities purchase commitments; or require additional collateral or force terminations of certain trading derivative contracts. A majority of our derivative contracts have been entered into under bilateral agreements with counterparties who may require us to post collateral or terminate the transactions based on changes in our credit ratings. We assess the impact of these arrangements by determining the collateral or termination payments that would be required assuming a downgrade by all rating agencies. The 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 10 to the consolidated financial statements included under Item 8 of this Form 10-K. Other funding sources, such as secured financing transactions and other margin requirements, for which there are no explicit triggers, could also be adversely affected. Agency Credit Ratings TABLE 34: CREDIT RATINGS Our ability to maintain consistent access to liquidity is fostered by the maintenance of high investment-grade ratings as measured by the major independent credit rating agencies. Factors essential to maintaining high credit ratings include diverse and stable core earnings; relative market position; strong risk management; strong capital ratios; diverse liquidity sources, including the global capital markets and client deposits; strong liquidity monitoring procedures; and preparedness for current or future regulatory developments. High ratings limit borrowing costs and enhance our liquidity by providing assurance for unsecured funding and depositors, increasing the potential market for our debt and improving our ability to offer products, serve markets, and engage in transactions in which clients value high credit ratings. A downgrade or reduction of our credit ratings could have a material adverse effect on our liquidity by restricting our ability to access the capital 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 As of December 31, 2015 Standard & Poor’s Moody’s Investors Service Dominion Bond Rating Service R-1 (Middle) AA (Low) A (High) Fitch F1+ AA- A+ BBB+ A (High) State Street: Short-term commercial paper Senior debt Subordinated debt Trust preferred capital securities Preferred stock A-1 A A- BBB BBB P-1 A2 A2 A3 Baa1 BBB A (Low) Outlook Stable Stable Stable Stable State Street Bank: Short-term deposits Long-term deposits Senior debt Long-term counterparty/ issuer A-1+ AA- AA- AA- Subordinated debt A P-1 Aa2 A1 A1 A1 F1+ AA+ AA AA A+ R-1 (High) AA AA - AA (Low) Outlook Stable Stable Stable Stable 91 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Contractual Cash Obligations and Other Commitments The long-term contractual cash obligations included within Table 35: Long-Term Contractual Cash Obligations, and other commercial commitments included in Table 36: Other Commercial Commitments, were recorded in our consolidated statement of condition as of December 31, 2015, except for operating leases and the interest portions of long-term debt and capital leases. TABLE 35: LONG-TERM CONTRACTUAL CASH OBLIGATIONS As of December 31, 2015 (In millions) Long-term debt(1) (2) Operating leases Capital lease obligations(2) Total contractual cash obligations PAYMENTS DUE BY PERIOD Total Less than 1 year 1-3 years 4-5 years Over 5 years $ $ 13,408 $ 1,729 $ 2,480 $ 2,172 $ 7,027 1,300 384 198 58 362 110 242 91 498 125 15,092 $ 1,985 $ 2,952 $ 2,505 $ 7,650 (1) Long-term debt excludes capital lease obligations (presented as a separate line item) and the effect of interest-rate swaps. Interest payments were calculated at the stated rate with the exception of floating-rate debt, for which payments were calculated using the indexed rate in effect as of December 31, 2015. (2) Additional information about contractual cash obligations related to long-term debt and operating and capital leases is provided in Notes 9 and 20 to the consolidated financial statements included under Item 8 of this Form 10-K. Our consolidated statement of cash flows, also included under Item 8 of this Form 10-K, provides additional liquidity information. Total contractual cash obligations shown in Table 35: Long-Term Contractual Cash Obligations, do not include: • Obligations which will be settled in cash, primarily in less than one year, such as client deposits, federal funds purchased, securities sold under repurchase agreements and other short-term borrowings. Additional information about deposits, federal funds purchased, securities sold under repurchase agreements and other short-term borrowings is provided in Notes 8 and 9 to the consolidated financial statements included under Item 8 of this Form 10-K. TABLE 36: OTHER COMMERCIAL COMMITMENTS • Obligations related to derivative instruments because the derivative-related amounts recorded in our consolidated statement of condition as of December 31, 2015 did not represent the amounts that may ultimately be paid under the contracts upon settlement. Additional information about our derivative instruments is provided in Note 10 to the consolidated financial statements included under Item 8 of this Form 10-K. We have obligations under pension and other post- retirement benefit plans, more fully described in Note 19 to the consolidated financial statements included under Item 8 of this Form 10-K, which are not included in Table 35: Long-Term Contractual Cash Obligations. Unfunded commitments to extend credit 22,580 17,225 As of December 31, 2015 (In millions) Indemnified securities financing Asset purchase agreements Standby letters of credit Purchase obligations(2) Total commercial commitments DURATION OF COMMITMENT Total amounts committed(1) Less than 1 year 1-3 years 4-5 years Over 5 years $ 320,436 $ 320,436 $ — $ — $ 3,990 4,700 304 1,271 1,276 53 2,528 1,922 2,548 89 2,665 797 876 68 $ 352,010 $ 340,261 $ 7,087 $ 4,406 $ — 162 — — 94 256 (1) Total amounts committed reflect participations to independent third parties, if any. (2) Amounts represent obligations pursuant to legally binding agreements, where we have agreed to purchase products or services with a specific minimum quantity defined at a fixed, minimum or variable price over a specified period of time. Additional information about the commitments presented in Table 36: Other Commercial Commitments, except for purchase obligations, is provided in Note 12 to the consolidated financial statements included under Item 8 of this Form 10-K. 92 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Operational Risk Management Overview We consider operational risk to be the risk of loss resulting from inadequate or failed internal processes and systems, human error, or from external events. 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 the State Street’s activities. Operational risk is inherent in the performance of investment servicing and investment management activities on behalf of our clients. Whether it be fiduciary risk, risk associated with execution and processing or other types of operational risk, a consistent, transparent and effective operational risk framework is key to identifying, monitoring and managing operational risk. We have established an operational risk framework that is based on three major goals: • Strong, active governance; • Ownership and accountability; and • Consistency and transparency. Governance Our Board is responsible for the approval and oversight of our overall operational risk framework. It does so through its RC, which reviews our operational risk framework and approves our operational risk policy annually. Our operational risk policy establishes our approach to our management of operational risk across State Street. The policy identifies the responsibilities of individuals and committees charged with oversight of the management of operational risk, and articulates a broad mandate that supports implementation of the operational risk framework. ERM and other control groups provide the oversight, validation and verification of the management and measurement of operational risk. Executive management actively manages and oversees our operational risk framework through membership on various risk management committees, including MRAC, the BCRC, TORC, the Operational Risk Committee, the Executive Information Security Committee, and the Fiduciary Review Committee, all of which ultimately report to the appropriate committee of the board. The Operational Risk Committee, chaired by the global head of Operational Risk, provides cross- business oversight of operational risk and reviews and approves operational risk guidelines intended to maintain a consistent implementation of our corporate operational risk policy and framework. Ownership and Accountability We have implemented our operational risk framework to support the broad mandate established by our operational risk policy. This framework represents an integrated set of processes and tools that assists us in the management and measurement of operational risk, including our calculation of required capital and RWA. The framework takes a comprehensive view and integrates the methods and tools used to manage and measure operational risk. The framework utilizes aspects of the COSO framework and other industry leading practices, and is designed foremost to address State Street's risk management needs while complying with regulatory requirements. The operational risk framework is intended to provide a number of important benefits, including: • A common understanding of operational risk management and its supporting processes; • The clarification of responsibilities for the management of operational risk across State Street; • The alignment of business priorities with risk management objectives; • The active management of risk and early identification of emerging risks; • The consistent application of policies and the collection of data for risk management and measurement; and • The estimation of our operational risk capital requirement. The operational risk framework employs a distributed risk management infrastructure executed by ERM groups aligned with the business units, which are responsible for the implementation of the operational risk framework at the business unit level. As with other risks, senior business unit management is responsible for the day-to-day operational risk management of their respective businesses. It is business unit management's responsibility to provide oversight of the implementation and ongoing execution of the operational risk framework within their respective organizations, as well as coordination and communication with ERM. Consistency and Transparency A number of corporate control functions are directly responsible for implementing and assessing various aspects of State Street's operational risk framework, with the overarching goal of consistency 93 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) and transparency to meet the evolving needs of the business: • The global head of Operational Risk, a member of the CRO’s executive management team, leads ERM’s corporate ORM group. ORM is responsible for the strategy, evolution and consistent implementation of our operational risk guidelines, framework and supporting tools across State Street. ORM reviews and analyzes operational key risk information, events, metrics and indicators at the business unit and corporate level for purposes of risk management, reporting and escalation to the CRO, senior management and governance committees; • ERM’s Corporate Risk Analytics group develops and maintains operational risk capital estimation models, and ERM's Operations group calculates State Street's required capital for operational risk; • ERM’s MVG independently validates the quantitative models used to measure operational risk, and ORM performs validation checks on the output of the model; • CIS establishes the framework, policies and related programs to measure, monitor and report on information security risks, including the effectiveness of cyber security program protections. CIS defines and manages the enterprise-wide information security program. CIS coordinates with Information Technology, control functions and business units to support the confidentiality, integrity and availability of corporate information assets. CIS identifies and employs a risk-based methodology consistent with applicable regulatory cyber security requirements and monitors the compliance of our systems with information security policies; and • Corporate Audit performs separate reviews of the application of operational risk management practices and methodologies utilized across State Street. Our operational risk framework consists of five components, each described below, which provide a working structure that integrates distinct risk programs into a continuous process focused on managing and measuring operational risk in a coordinated and consistent manner. Risk Identification, Assessment and Measurement The objective of risk identification, assessment and measurement is to understand business unit strategy, risk profile and potential exposures. It is achieved through a series of risk assessments across State Street using techniques for the identification, assessment and measurement of risk across a spectrum of potential frequency and severity combinations. Three primary risk assessment programs, which occur annually, augmented by other business-specific programs, are the core of this component: • The RCSA program seeks to understand the risks associated with day-to-day activities, and the effectiveness of controls intended to manage potential exposures arising from these activities. These risks are typically frequent in nature but generally not severe in terms of exposure; • The Material Risk Identification process utilizes a bottom-up approach to identify State Street’s most significant risk exposures across all on- and off-balance sheet risk- taking activities. The program is specifically designed to consider risks that could have a material impact irrespective of their likelihood or frequency. This can include risks that may have an impact on longer-term business objectives, such as significant change management activities or long-term strategic initiatives; • The Scenario Analysis program focuses on the set of risks with the highest severity and most relevance from a capital perspective. These are generally referred to as “tail risks," and serve as important benchmarks for our loss distribution approach model (see below); they also provide inputs into stress testing; and • Business-specific programs to identify, assess and measure risk, including new business and product review and approval, new client screening, and, as deemed appropriate, targeted risk assessments. The primary measurement tool used is an internally developed loss distribution approach model, referred to as the LDA model. We use the LDA model to quantify required operational risk capital, from which we calculate RWA related to operational risk. Such required capital and RWA totaled $43.88 billion as of December 31, 2015; refer to the "Capital" section of this Management's Discussion and Analysis. The LDA model incorporates the four required operational risk elements described below: • Internal loss event data is collected from across State Street in conformity with our operating loss policy that establishes the requirements for collecting and reporting individual loss events. We categorize the 94 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) data into seven Basel-defined event types and further subdivide the data by business unit, as deemed appropriate. Each of these loss events are represented in a UOM which is used to estimate a specific amount of capital required for the types of loss events that fall into each specific category. Some UOMs are measured at the corporate level because they are not “business specific,” such as damage to physical assets, where the cause of an event is not primarily driven by the behavior of a single business unit. Internal losses of $500 or greater are captured, analyzed and included in the modeling approach. Loss event data is collected using a corporate-wide data collection tool, which stores the data in a Loss Event Data Repository, referred to as the LEDR, to support processes related to analysis, management reporting and the calculation of required capital. Internal loss event data provides State Street-specific frequency and severity information to our capital calculation process for historical loss events experienced by State Street. • External loss event data provides information with respect to loss event severity from other financial institutions to inform our capital estimation process of events in similar business units at other banking organizations. This information supplements the data pool available for use in our LDA model. Assessments of the sufficiency of internal data and the relevance of external data are completed before pooling the two data sources for use in our LDA model. • Scenario analysis workshops are conducted annually across State Street to inform management of the less frequent but most severe, or “tail,” risks that the organization faces. The workshops are attended by senior business unit managers, other support and control partners and business-aligned risk management staff. The workshops are designed to capture information about the significant risks and to estimate potential exposures for individual risks should a loss event occur. Workshops are aligned with specific UOMs and business units where appropriate. The results of these workshops are used to benchmark our LDA model results to determine that our calculation of required capital considers relevant risk- related information. • Business environment and internal control factors are gathered as part of our scenario analysis program to inform the scenario analysis workshop participants of internal loss event data and business-relevant metrics, such as RCSA results, along with industry loss event data and case studies where appropriate. Business environment and internal control factors are those characteristics of a bank’s internal and external operating environment that bear an exposure to operational risk. The use of this information indirectly influences our calculation of required capital by providing additional relevant data to workshop participants when reviewing specific UOM risks. Monitoring The objective of risk monitoring is to proactively monitor the changing business environment and corresponding operational risk exposure. It is achieved through a series of quantitative and qualitative monitoring tools that are designed to allow us to understand changes in the business environment, internal control factors, risk metrics, risk assessments, exposures and operating effectiveness, as well as details of loss events and progress on risk initiatives implemented to mitigate potential risk exposures. Effectiveness and Testing The objective of effectiveness and testing is to verify that internal controls are designed appropriately, are consistent with corporate and regulatory standards, and are operating effectively. It is achieved through a series of assessments by both internal and external parties, including Corporate Audit, independent registered public accounting firms, business self-assessments and other control function reviews, such as a Sarbanes-Oxley testing program. Consistent with our standard model validation process, the operational risk LDA model is subject to a detailed review, overseen by the MRC. In addition, the model is subject to a rigorous internal governance process. All changes to the model or input parameters, and the deployment of model updates, are reviewed and approved by the Operational Risk Committee, which has oversight responsibility for the model, with technical input from the MRC. Reporting Operational risk reporting is intended to provide transparency, thereby enabling management to manage risk, provide oversight and escalate issues in a timely manner. It is designed to allow the business units, executive management, and the Board's control functions and committees to gain insight into activities that may result in risks and potential exposures. Reports are intended to identify business activities that are experiencing processing issues, whether or 95 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) not they result in actual loss events. Reporting includes results of monitoring activities, internal and external examinations, regulatory reviews, and control assessments. These elements combine in a manner designed to provide a view of potential and emerging risks facing State Street and information that details its progress on managing risks. Documentation and Guidelines Documentation and guidelines allow for consistency and repeatability of the various processes that support the operational risk framework across State Street. Operational risk guidelines document our practices and describe the key elements in a business unit's operational risk management program. The purpose of the guidelines is to set forth and define key operational risk terms, provide further detail on State Street's operational risk programs, and detail the business units' responsibilities to identify, assess, measure, monitor and report operational risk. The guideline supports our operational risk policy. Data standards have been established to maintain consistent data repositories and systems that are controlled, accurate and available on a timely basis to support operational risk management. Market Risk Management Market risk is defined by U.S. banking regulators as the risk of loss that could result from broad market movements, such as changes in the general level of interest rates, credit spreads, foreign exchange rates or commodity prices. We are exposed to market risk in both our trading and certain of our non-trading, or asset-and-liability management, activities. Information about the market risk associated with our trading activities is provided below under “Trading Activities.” Information about the market risk associated with our non-trading activities, which consists primarily of interest-rate risk, is provided below under “Asset-and-Liability Management Activities.” Trading Activities In the conduct of our trading activities, we assume market risk, the level of which is a function of our overall risk appetite, business objectives and liquidity needs, our clients' requirements and market volatility, and our execution against those factors. We engage in trading activities primarily to support our clients' needs and to contribute to our overall corporate earnings and liquidity. In connection with certain of these trading activities, we enter into a variety of derivative financial instruments to support our clients' needs and to manage our interest-rate and currency risk. These activities are generally intended to generate trading services revenue and to manage potential earnings volatility. In addition, we provide services related to derivatives in our role as both a manager and a servicer of financial assets. Our clients use derivatives to manage the financial risks associated with their investment goals and business activities. With the growth of cross- border investing, our clients often enter into foreign exchange forward contracts to convert currency for international investments and to manage the currency risk in their international investment portfolios. As an active participant in the foreign exchange markets, we provide foreign exchange forward and option contracts in support of these client needs, and also act as a dealer in the currency markets. As part of our trading activities, we assume positions in the foreign exchange and interest-rate markets by buying and selling cash instruments and entering into derivative instruments, including foreign exchange forward contracts, foreign exchange and interest-rate options and interest-rate swaps, interest- rate forward contracts, and interest-rate futures. As of December 31, 2015, the notional amount of these derivative contracts was $1.29 trillion, of which $1.28 trillion was composed of foreign exchange forward, swap and spot contracts. We seek to match positions closely with the objective of minimizing related currency and interest-rate risk. All foreign exchange contracts are valued daily at current market rates. Governance Our assumption of market risk in our trading activities is an integral part of our corporate risk appetite. Our Board reviews and oversees our management of market risk, including the approval of key market risk policies and the receipt and review of regular market risk reporting, as well as periodic updates on selected market risk topics. The previously described TMRC (refer to "Risk Committees") oversees all market risk-taking activities across State Street associated with trading. The TMRC, which reports to MRAC, is composed of members of ERM, our global markets business and our Global Treasury group, as well as our senior executives who manage our trading businesses and other members of management who possess specialized knowledge and expertise. The TMRC meets regularly to monitor the management of our trading market risk activities. Our business units identify, actively manage and are responsible for the market risks inherent in their businesses. A dedicated market risk management group within ERM, and other groups within ERM, work with those business units to assist them in the identification, assessment, monitoring, management and control of market risk, and assist business unit managers with their market risk management and measurement activities. ERM provides an additional line of oversight, support and coordination designed 96 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) • Daily monitoring, analysis, and reporting of market risk exposures associated with trading activities against market risk limits; • A defined limit structure and escalation process in the event of a market risk limit excess; • Use of VaR models to measure the one-day market risk exposure of trading positions; • Use of VaR as a ten-day-based regulatory capital measure of the market risk exposure of trading positions; • Use of non-VaR-based limits and other controls; • Use of stressed-VaR models, stress-testing analysis and scenario analysis to support the trading market risk measurement and management process by assessing how portfolios and global business lines perform under extreme market conditions; • Use of back-testing as a diagnostic tool to assess the accuracy of VaR models and other risk management techniques; and • A new product approval process that requires market risk teams to assess trading-related market risks and apply risk tolerance limits to proposed new products and business activities. We use our CAP to assess our overall capital and liquidity in relation to our risk profile and provide a comprehensive strategy for maintaining appropriate capital and liquidity levels. With respect to market risk associated with trading activities, our risk management and our calculations of regulatory and economic capital are based primarily on our internal VaR models and stress testing analysis. As discussed in detail under “Value-at-Risk” below, VaR is measured daily by ERM. The TMRC oversees our market risk exposure in relation to limits established within our risk appetite framework. These limits define threshold levels for VaR- and stressed VaR-based measures and are applicable to all trading positions subject to regulatory capital requirements. These limits are designed to prevent any undue concentration of market risk exposure, in light of the primarily non-proprietary nature of our trading activities. The risk appetite framework and associated limits are reviewed and approved by the Board's RC. to promote the consistent identification, measurement and management of market risk across business units, separate from those business units' discrete activities. The ERM market risk management group is responsible for the management of corporate-wide market risk, the monitoring of key market risks and the development and maintenance of market risk management policies, guidelines, and standards aligned with our corporate risk appetite. This group also establishes and approves market risk tolerance limits and trading authorities based on, but not limited to, measures of notional amounts, sensitivity, VaR and stress. Such limits and authorities are specified in our trading and market risk guidelines which govern our management of trading market risk. Corporate Audit separately assesses the design and operating effectiveness of the market risk controls within our business units and ERM. Other related responsibilities of Corporate Audit include the periodic review of ERM and business unit compliance with market risk policies, guidelines, and corporate standards, as well as relevant regulatory requirements. We are subject to regular monitoring, reviews and supervisory exams of our market risk function by the Federal Reserve. In addition, we are regulated by, among others, the SEC, the Financial Industry Regulatory Authority and the U.S. Commodities Futures Trading Commission. Risk Appetite Our corporate market risk appetite is specified in policy statements that outline the governance, responsibilities and requirements surrounding the identification, measurement, analysis, management and communication of market risk arising from our trading activities. These policy statements also set forth the market risk control framework to monitor, support, manage and control this portion of our risk appetite. All groups involved in the management and control of market risk associated with trading activities are required to comply with the qualitative and quantitative elements of these policy statements. Our trading market risk control framework is composed of the following components: • A trading market risk management process led by ERM, separate from the business units' discrete activities; • Clearly defined responsibilities and authorities for the primary groups involved in trading market risk management; • A trading market risk measurement methodology that captures correlation effects and allows aggregation of market risk across risk types, markets and business lines; 97 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Covered Positions Our trading positions are subject to regulatory market risk capital requirements if they meet the regulatory definition of a “covered position.” A covered position is generally defined by U.S. banking regulators as an on- or off-balance sheet position associated with the organization's trading activities that is free of any restrictions on its tradability, but does not include intangible assets, certain credit derivatives recognized as guarantees and certain equity positions not publicly traded. All FX and commodity positions are considered covered positions, regardless of the accounting treatment they receive. The identification of covered positions for inclusion in our market risk capital framework is governed by our covered positions policy, which outlines the standards we use to determine whether a trading position is a covered position. Our covered positions consist primarily of the trading portfolios held by our global markets business. They also arise from certain positions held by our Global Treasury group. These trading positions include products such as spot foreign exchange, foreign exchange forwards, non-deliverable forwards, foreign exchange options, foreign exchange funding swaps, currency futures, financial futures, and interest rate futures. New activities are analyzed to determine if the positions arising from such new activities meet the definition of a covered position and conform to our covered positions policy. This documented analysis, including any decisions with respect to market risk treatments, must receive approval from the TMRC. We use spot rates, forward points, yield curves and discount factors imported from third-party sources to measure the value of our covered positions, and we use such values to mark our covered positions to market on a daily basis. These values are subject to separate validation by us in order to evaluate reasonableness and consistency with market experience. The mark-to-market gain or loss on spot transactions is calculated by applying the spot rate to the foreign currency principal and comparing the resultant base currency amount to the original transaction principal. The mark-to-market gain or loss on a forward foreign exchange contract or forward cash flow contract is determined as the difference between the life-to-date (historical) value of the cash flow and the value of the cash flow at the inception of the transaction. The mark-to-market gain or loss on interest-rate swaps is determined by discounting the future cash flows from each leg of the swap transaction. Value-at-Risk, Stress Testing and Stressed VaR As noted above, we use a variety of risk measurement tools and methodologies, including VaR, which is an estimate of potential loss for a given period within a stated statistical confidence interval. We use a risk measurement methodology to measure trading-related VaR daily. We have adopted standards for measuring trading-related VaR, and we maintain regulatory capital for market risk associated with our trading activities in conformity with currently applicable bank regulatory market risk requirements. We utilize an internal VaR model to calculate our regulatory market risk capital requirements. We use a historical simulation model to calculate daily VaR- and stressed VaR-based measures for our covered positions in conformity with regulatory requirements. Our VaR model seeks to capture identified material risk factors associated with our covered positions, including risks arising from market movements such as changes in foreign exchange rates, interest rates and option-implied volatilities. We have adopted standards and guidelines to value our covered positions which govern our VaR- and stressed VaR-based measures. Our regulatory VaR-based measure is calculated based on historical volatilities of market risk factors during a two-year observation period calibrated to a one-tail, 99% confidence interval and a ten-business-day holding period. We also use the same platform to calculate a one-tail, 99% confidence interval, one-business-day VaR for internal risk management purposes. A 99% one-tail confidence interval implies that daily trading losses are not expected to exceed the estimated VaR more than 1% of the time, or less than three business days out of a year. Our market risk models, including our VaR model, are subject to change in connection with the governance, validation and back-testing processes described below. These models can change as a result of changes in our business activities, our historical experiences, market forces and events, regulations and regulatory interpretations and other factors. In addition, the models are subject to continuing regulatory review and approval. Changes in our models may result in changes in our measurements of our market risk exposures, including VaR, and related measures, including regulatory capital. These changes could result in material changes in those risk measurements and related measures as calculated and compared from period to period. Value-at-Risk VaR measures are based on the most recent two years of historical price movements for instruments and related risk factors to which we have exposure. The instruments in question are limited to foreign exchange spot, forward and options contracts and interest-rate contracts, including futures and interest-rate swaps. Historically, these instruments 98 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) have exhibited a higher degree of liquidity relative to other available capital markets instruments. As a result, the VaR measures shown reflect our ability to rapidly adjust exposures in highly dynamic markets. For this reason, risk inventory, in the form of net open positions, across all currencies is typically limited. In addition, long and short positions in major, as well as minor, currencies provide risk offsets that limit our potential downside exposure. Our VaR methodology uses a historical simulation approach based on market-observed changes in foreign exchange rates, U.S. and non- U.S. interest rates and implied volatilities, and incorporates the resulting diversification benefits provided from the mix of our trading positions. Our VaR model incorporates approximately 5,000 risk factors and includes correlations among currency, interest rates, and other market rates. All VaR measures are subject to limitations and must be interpreted accordingly. Some, but not all, of the limitations of our VaR methodology include the following: • Compared to a shorter observation period, a two-year observation period is slower to reflect increases in market volatility (although temporary increases in market volatility will affect the calculation of VaR for a longer period); consequently, in periods of sudden increases in volatility or increasing volatility, in each case relative to the prior two-year period, the calculation of VaR may understate current risk; • Compared to a longer observation period, a two-year observation period may not reflect as many past periods of volatility in the markets, because such past volatility is no longer in the observation period; consequently, historical market scenarios of high volatility, even if similar to current or likely future market circumstances, may fall outside the two-year observation period, resulting in a potential understatement of current risk; • The VaR-based measure is calibrated to a specified level of confidence and does not indicate the potential magnitude of losses beyond this confidence level; • In certain cases, VaR-based measures approximate the impact of changes in risk factors on the values of positions and portfolios; this may happen because the number of inputs included in the VaR model is necessarily limited; for example, yield curve risk factors do not exist for all future dates; • The use of historical market information may not be predictive of future events, particularly those that are extreme in nature; this “backward-looking” limitation can cause VaR to understate or overstate risk; • The effect of extreme and rare market movements is difficult to estimate; this may result from non-linear risk sensitivities as well as the potential for actual volatility and correlation levels to differ from assumptions implicit in the VaR calculations; and • Intra-day risk is not captured. 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. We perform scenario analysis daily 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 99 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) conditions recur. Relevant scenarios are chosen from an inventory of historical financial stresses and applied to our current portfolio. These historical event scenarios involve spot foreign exchange, credit, equity, unforeseen geo-political events and natural disasters, and government and central bank intervention scenarios. Examples of the specific historical scenarios we incorporate in our stress testing program may include the Asian financial crisis of 1997, the September 11, 2001 terrorist attacks in the U.S., and the 2008 financial crisis. We continue to update our inventory of historical stress scenarios as new stress conditions emerge in the financial markets. As each of the historical stress events is associated with a different time horizon, we normalize results by scaling down the longer horizon events to a ten-day horizon and keeping the shorter horizon events (i.e., events that are shorter than ten days) at their original terms. We also conduct sensitivity analysis daily to calculate the impact of a large predefined shock in a specific risk factor or a group of risk factors on our current portfolio. These predefined shocks include parallel and non-parallel yield curve shifts and foreign exchange spot and volatility surface shifts. In a parallel shift scenario, we apply a constant factor shift across all yield curve tenors. In a non-parallel shift scenario, we apply different shock levels to different tenors of a yield curve, rather than shifting the entire curve by a constant amount. Non- parallel shifts include steepening, flattening and butterflies. 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 revenue, as well as estimated revenue from intra-day trading. Our VaR definition of trading losses excludes items that are not specific to the price movement of the trading assets and liabilities themselves, such as fees, commissions, changes to reserves and gains or losses from intra- day activity. We experienced one back-testing exception in 2015, which occurred in the third quarter. The trading P&L that day exceeded the VaR based on the prior day’s closing positions, following a large depreciation in the U.S. dollar against several major and emerging market currencies, which depreciation can be attributed to a decision and related statements by the Federal Reserve’s Federal Open Market Committee to hold interest rates at current levels. We experienced no back-testing exceptions for the full- year of 2014. Our market risk models are governed by our model risk governance guidelines, in conformity with our model risk governance policy. Our market risk models are subject to regular review and validation by MVG within ERM and overseen by the MRC. Additional information about the MRC and MVG is provided under “Model Risk Management” in this Disclosure. As part of its responsibilities, the MRC evaluates model soundness by assessing the quality of the model design and construction, as well as reviewing documentation and empirical evidence supporting the methods used for the model based on the recommendations of MVG. In addition, the MRC considers technical modeling issues for our market risk models, including the selection of an appropriate modeling approach, the setting of key model input assumptions, the deployment of substantive model changes, the deployment of new models as needed, and the monitoring of ongoing model performance. Consistent with regulatory requirements, our market risk regulatory capital models are subject to an annual review process and a validation schedule with frequency based on the model tier. MVG conducts the periodic reviews and validations of our market risk models, and their process identifies the areas of model risk for the three model components (input, processing and output), model implementation, and ongoing monitoring. Model testing is concentrated in the areas of model risk identified by MVG. MVG is responsible for the results of this annual review or validation, and for determining whether a model should be approved for a desired use. MVG communicates their result as one of the following three outcomes: “Approved”, “Approved with conditions”, or “Not Approved”. Our model validation process also evaluates the integrity of our VaR models through the use of regular outcome analysis. Such outcome analysis includes back-testing, which compares the VaR model's predictions to actual outcomes using out-of-sample information. MVG examined back testing results for the market risk regulatory capital model used for 100 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) 2012. Consistent with regulatory guidance, the back- testing compared “clean” P&L, defined above, with the one-day VaR produced by the model. The back- testing was performed for a time period not used for model development. The number of occurrences where “clean” trading-book P&L exceeded the one- day VaR was within our expected VaR tolerance level. Market Risk Reporting Our ERM market risk management group is responsible for market risk monitoring and reporting. We use a variety of systems and controlled market feeds from third-party services to compile data for several daily, weekly, and monthly management reports. Our business units and trading market risk teams review daily P&L, market risk limit exceptions, open positions, interest-rate and option sensitivities and VaR reports on a daily basis. Market risk limit exceptions are also reported to and reviewed by the global head of Market Risk. We produce and review several other reports that summarize relevant market risk metrics, including VaR, on a periodic basis. The following tables present VaR and stressed VaR associated with our trading activities for covered positions held during the years ended December 31, 2015 and 2014, and as of December 31, 2015 and December 31, 2014, as measured by our VaR methodology. TABLE 37: TEN-DAY VaR ASSOCIATED WITH TRADING ACTIVITIES FOR COVERED POSITIONS Year Ended December 31, 2015 Year Ended December 31, 2014 As of December 31, 2015 As of December 31, 2014 (In thousands) Global Markets Global Treasury Total VaR Average Maximum Minimum Average Maximum Minimum VaR VaR $ $ 5,279 1,517 5,733 $ $ 17,649 5,273 16,700 $ $ 2,977 333 2,912 $ $ 6,365 4,027 8,100 $ $ 12,327 6,467 12,278 $ $ 2,273 683 3,244 $ $ 4,269 368 4,052 $ $ 4,566 4,759 8,281 TABLE 38: TEN-DAY STRESSED VaR ASSOCIATED WITH TRADING ACTIVITIES FOR COVERED POSITIONS Year Ended December 31, 2015 Year Ended December 31, 2014 As of December 31, 2015 As of December 31, 2014 (In thousands) Global Markets Global Treasury Total Stressed VaR Average Maximum Minimum Average Maximum Minimum Stressed VaR Stressed VaR $ 39,524 27,626 $ 63,149 $ $ 65,860 47,929 95,692 $ $ 20,601 $ 32,639 8,028 36,344 35,557 $ 61,874 $ $ 64,510 $ 15,625 59,253 10,454 89,053 $ 29,689 $ $ 36,757 8,080 43,293 $ $ 30,255 39,050 58,945 The twelve month average of our stressed VaR- based measure was approximately $63 million for the period ended December 31, 2015, compared to a twelve month average of approximately $62 million for the period ended December 31, 2014. The increase in the twelve month average of our stressed VaR-based measure for the period ended December 31, 2015, compared to the period ended December 31, 2014, was primarily the result of an extension of the tenor of FX swaps used by Global Treasury designed to improve our liquidity position. Although the FX swaps are not considered part of our trading activity, all FX activity (trading or banking) generates market risk captured under Basel rules. The tenor extension gives rise to additional market risk in our stressed VaR calculation. The VaR-based measures presented in the preceding tables are primarily a reflection of the overall level of market volatility and our appetite for trading market risk. Overall levels of volatility have been low both on an absolute basis and relative to the historical information observed at the beginning of the period used for the calculations. Both the ten-day VaR-based measures and the stressed VaR-based measures are based on historical changes observed during rolling ten-day periods for the portfolios as of the close of business each day over the past one- year period. 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. 101 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) The following tables present the VaR and stressed-VaR associated with our trading activities attributable to foreign exchange risk, interest-rate risk and volatility risk as of December 31, 2015 and December 31, 2014. The totals of the VaR-based and stressed VaR-based measures for the three attributes for each VaR and stressed-VaR component exceeded the related total VaR and total stressed VaR presented in the foregoing tables as of each period-end, primarily due to the benefits of diversification across risk types. TABLE 39: TEN-DAY VaR ASSOCIATED WITH TRADING ACTIVITIES BY RISK FACTOR(1) (In thousands) By component: Global Markets Global Treasury Total VaR As of December 31, 2015 As of December 31, 2014 Foreign Exchange Risk Interest Rate Risk Volatility Risk Foreign Exchange Risk Interest Rate Risk Volatility Risk $ $ 2,817 148 2,831 $ 3,582 345 $ 3,472 $ $ 4 — 4 $ $ 5,584 — 5,584 $ 3,230 4,759 $ 5,892 $ $ 349 — 349 TABLE 40: TEN-DAY STRESSED VaR ASSOCIATED WITH TRADING ACTIVITIES BY RISK FACTOR(1) (In thousands) By component: Global Markets Global Treasury Total Stressed VaR As of December 31, 2015 As of December 31, 2014 Foreign Exchange Risk Interest Rate Risk Volatility Risk Foreign Exchange Risk Interest Rate Risk Volatility Risk $ $ 13,199 176 12,939 $ 40,928 7,963 $ 47,658 $ $ 7 — 7 $ $ 8,305 — 8,305 $ 39,220 39,050 $ 62,923 $ $ 468 — 468 (1) For purposes of risk attribution by component, in both Tables 39 and 40, 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. The decline in the total ten-day VaR based measure as of December 31, 2015, as compared to December 31, 2014, is the result of a decline in exposure that arose from the tenor extension strategy initiated by Global Treasury late last year. Asset-and-Liability Management Activities The primary objective of asset-and-liability management is to provide sustainable NIR, under varying economic conditions, while protecting the economic value of the assets and liabilities carried in our consolidated statement of condition from the adverse effects of changes in interest rates. While many market factors affect the level of NIR and the economic value of our assets and liabilities, one of the most significant factors is our exposure to movements in interest rates. Most of our NIR is earned from the investment of client deposits generated by our businesses. We invest these client deposits in assets that conform generally to the characteristics of our balance sheet liabilities, including the currency composition of our significant non-U.S. dollar denominated client liabilities, but we manage our overall interest-rate risk position in the context of current and anticipated market conditions and within internally-approved risk guidelines. Our overall interest-rate risk position is maintained within a series of policies approved by the Board and guidelines established and monitored by ALCO. Our Global Treasury group has responsibility for managing our day-to-day interest-rate risk. To effectively manage our consolidated statement of condition and related NIR, Global Treasury has the authority to assume a limited amount of interest-rate risk based on market conditions and its views about the direction of global interest rates over both short- term and long-term time horizons. Global Treasury manages our exposure to changes in interest rates on a consolidated basis organized into three regional treasury units, North America, Europe and Asia/ Pacific, to reflect the growing, global nature of our exposures and to capture the impact of changes in regional market environments on our total risk position. The economic value of our consolidated statement of condition is a metric designed to estimate the fair value of assets and liabilities which could be garnered if those assets and liabilities were sold immediately. The economic values represent discounted cash flows from all financial instruments; therefore, changes in the yield curves, which are used to discount the cash flows, affect the values of these instruments. Our investment activities and our use of derivative financial instruments are the primary tools used in managing interest-rate risk. We invest in financial instruments with currency, repricing, and maturity characteristics we consider appropriate to manage our overall interest-rate risk position. In addition, we use certain derivative instruments, primarily interest-rate swaps, to alter the interest-rate 102 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) characteristics of specific balance sheet assets or liabilities. Because no one individual measure can accurately assess all of our exposures to changes in interest rates, we use several quantitative measures in our assessment of current and potential future exposures to changes in interest rates and their impact on NIR and balance sheet values. NIR simulation is the primary tool used in our evaluation of the potential range of possible NIR results that could occur under a variety of interest-rate environments. We also use market valuation and duration analysis to assess changes in the economic value of balance sheet assets and liabilities caused by assumed changes in interest rates. To measure, monitor, and report on our interest- rate risk position, we use NIR simulation, referred to as NIR-at-risk, and EVE sensitivity. NIR-at-risk measures the impact on NIR over the next twelve months to immediate, or “rate shock,” and gradual, or “rate ramp,” changes in market interest rates. EVE sensitivity is a total return view of interest-rate risk, which measures the impact on the present value of all NIR-related principal and interest cash flows of an immediate change in interest rates. Although NIR-at- risk and EVE sensitivity measure interest-rate risk over different time horizons, both utilize consistent assumptions when modeling the positions currently held by State Street; however, NIR-at-risk also incorporates future actions planned by management over the time horizons being modeled. In estimating our NIR-at-risk, we start with a base amount of NIR that is projected over the next twelve months, assuming our forecast yield curve over the period. Our existing balance sheet assets and liabilities are adjusted by the amount and timing of transactions that are forecast to occur over the next twelve months. That yield curve is then “shocked,” or moved immediately, +/-100 basis points in a parallel fashion at all points along the yield curve. Two new twelve-month NIR projections are then developed using the same balance sheet and forecast transactions, but with the new yield curves, and compared to the base scenario. We also perform the calculations using interest-rate ramps, which are +/-100-basis-point changes in interest rates that are assumed to occur gradually over the next twelve months, rather than immediately as we do with interest-rate shocks. EVE is based on the change in the present value of all NIR-related principal and interest cash flows for changes in market interest rates. The present value of existing cash flows with a then- current yield curve serves as the base case. We then apply an immediate parallel shock to that yield curve of +/-200 basis points and recalculate the cash flows and related present values. A large shock is used to better capture the embedded option risk in our mortgage-backed securities that results from borrowers' prepayment opportunities. Key assumptions used in the models, described in more detail below, along with changes in market conditions, are inherently uncertain. Actual results necessarily differ from model results as market conditions differ from assumptions. As such, management performs back-testing, stress testing, and model integrity analyses to validate that the modeled results produce predictive NIR-at-risk and EVE sensitivity estimates which can be used in our management of interest-rate risk. Primary factors affecting the actual results include changes in our balance sheet size and mix, the timing, magnitude and frequency of changes in interest rates (including the slope and the relationship between the interest- rate level of U.S. dollar and non-U.S. dollar yield curves), changes in market conditions and management actions taken in response to the preceding conditions. Both NIR-at-risk and EVE sensitivity results are managed against ALCO-approved limits and guidelines and are monitored regularly, along with other relevant simulations, scenario analyses and stress tests, by both Global Treasury and ALCO. Our ALCO-approved guidelines are, we believe, in line with industry standards and are periodically examined by the Federal Reserve. As a result of differences in measurement between NIR-at-risk and EVE with respect to certain assumptions, such as the reinvestment of our interest-earning assets, reported results of NIR-at-risk could present an increase in NIR from an increase in rates while EVE presents a loss. Changes in assumptions may result in different outcomes under both NIR-at-risk and EVE. NIR-at-risk depicts the change in the nominal (un-discounted) dollar net interest flows which are generated from the forecast statement of condition over the next twelve months. As interest rates increase, the interest expense associated with our client deposit liabilities is assumed to increase at a slower pace than the investment returns derived from our current balance sheet or the associated reinvestment of our interest- earning assets, resulting in an overall increase to NIR. EVE, on the other hand, measures the present value change of both principal and interest cash flows based on the current period-end balance sheet. As a result, EVE does not contemplate reinvestment of our assets associated with a change in the interest-rate environment. Although NIR in both NIR-at-risk and EVE sensitivity is higher in response to increased interest rates, the future principal flows from fixed-rate 103 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) investments are discounted for EVE, which results in lower asset values and a corresponding reduction or loss in EVE. As noted above, NIR-at-risk does not analyze changes in the value of principal cash flows and therefore does not experience the same reduction experienced by EVE sensitivity associated with discounting principal cash flows at higher rates. Net Interest Revenue at Risk NIR-at-risk is designed to estimate the potential impact of changes in global market interest rates on NIR in the short term. The impact of changes in market rates on NIR is measured against a baseline NIR which encompasses management's expectations regarding the evolving balance sheet volumes and interest rates in the near-term. The goal is to achieve an acceptable level of NIR under various interest-rate environments. Assumptions regarding levels of client deposits and our ability to price these deposits under various rate environments have a significant impact on the results of the NIR simulations. Similarly, the timing of cash flows from our investment portfolio, especially option-embedded financial instruments like mortgage-backed securities, and our ability to replace these cash flows in line with management's expectations, can affect the results of NIR simulations. The following table presents the estimated exposure of our NIR for the next twelve months, calculated as of the dates indicated, due to an immediate and gradual +/-100-basis-point shift to our internal forecast of global interest rates. We manage our NIR sensitivity to limit declines to 15% or less from baseline NIR. Estimated exposures presented below are dependent on management's assumptions, and do not reflect any additional actions management may undertake in order to mitigate some of the adverse effects of changes in interest rates on our financial performance. TABLE 41: NIR ESTIMATED EXPOSURE Estimated Exposure to Net Interest Revenue (Dollars in millions) December 31, 2015 December 31, 2014 Rate change: Exposure % of Base NIR Exposure % of Base NIR +100 bps shock $ 471 20.8% $ 384 –100 bps shock +100 bps ramp –100 bps ramp (181) 198 (96) (8.0) 8.8 (4.2) (328) 149 (192) 16.6% (14.2) 6.5 (8.3) As of December 31, 2015, NIR sensitivity to an upward-100-basis-point shock to our internal forecast of global interest rates, increased compared to such sensitivity as of December 31, 2014, on a dollar exposure basis as well as a percentage of twelve- month forecasted base NIR, reflecting slower client deposit repricing expectations in the twelve-month forecast horizon beyond December 31, 2015. The benefit to NIR of an upward-100-basis-point ramp is less significant than a shock, since interest rates are assumed to increase gradually. NIR sensitivity to a downward-100-basis-point shock to our internal forecast of global interest rates as of December 31, 2015 decreased compared to such sensitivity as of December 31, 2014 on a dollar and percentage basis, primarily due to higher expected deposit charges when rates decline. December 31, 2015 NIR-at-risk sensitivities incorporate additional charges on deposits as rates decline to their floors compared to December 31, 2014 NIR-at-risk. A downward-100-basis-point shock in global interest rates places pressure on NIR due to declining deposit rates, providing limited funding relief on the liability side, while many assets continue to re- price in the lower-rate environment. The adverse impact on projected NIR due to a downward-100- basis-point ramp is less significant than a shock since interest rates are assumed to decrease gradually, thereby reducing the level of projected spread compression experienced between assets and liabilities over a twelve-month horizon. Our baseline NIR incorporates an expectation that short-term interest rates will begin to rise in anticipation of central bank tightening of current monetary policies. While this rise in rates benefits our baseline NIR, it is detrimental to our NIR sensitivity to a downward-100-basis-point shock, as rising short-term interest rates allow asset yields to re-price lower in a downward shock scenario than previously, while deposits are still priced close to natural floors. Other important factors which affect the levels of NIR are the size and mix of assets carried in our consolidated statement of condition; interest-rate spreads; the slope and interest-rate level of U.S. and non-U.S. dollar yield curves and the relationship between them; the pace of change in global market interest rates; and management actions taken in response to the preceding conditions. Economic Value of Equity EVE sensitivity measures changes in the market value of equity to quantify potential losses to shareholders due to an immediate +/-200-basis-point rate shock compared to current interest-rate levels if the balance sheet were liquidated immediately. Management compares the change in EVE sensitivity against State Street's aggregate tier 1 and tier 2 risk- based capital, calculated in conformity with current applicable regulatory requirements, to evaluate whether the magnitude of the exposure to interest rates is acceptable. Generally, a change resulting from a +/-200-basis-point rate shock that is less than 20% of aggregate tier 1 and tier 2 capital is an 104 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) exposure that management deems acceptable. To the extent that we manage changes in EVE sensitivity within the 20% threshold, we would seek to take action to remain below the threshold if the magnitude of our exposure to interest rates approached that limit. Similar to NIR-at-risk measures, the timing of cash flows affects EVE sensitivity, as changes in asset and liability values under different rate scenarios are dependent on when interest and principal payments are received. In contrast to NIR simulations, however, EVE sensitivity does not incorporate assumptions regarding reinvestment of these cash flows. In addition, our ability to price client deposits has a much smaller impact on EVE sensitivity, as EVE sensitivity does not consider the ongoing benefit of investing client deposits. The following table presents estimated EVE exposures, calculated as of the dates indicated, assuming an immediate and prolonged shift in global interest rates, the impact of which would be spread over a number of years. TABLE 42: ESTIMATED EVE EXPOSURES Estimated Sensitivity of Economic Value of Equity (Dollars in millions) December 31, 2015 December 31, 2014 Rate change: Exposure % of Tier 1/ Tier 2 Capital Exposure % of Tier 1/ Tier 2 Capital +200 bps shock –200 bps shock $ (2,355) (13.4)% $ (2,291) (12.8)% 1,655 9.4 942 5.3 The dollar measure of EVE sensitivity exposure to an upward-200-basis-point shock as of December 31, 2015 increased compared to December 31, 2014 while the dollar measure of EVE sensitivity to a downward-200-basis-point shock as of December 31, 2015 improved compared to December 31, 2014. The change in both EVE sensitivity measures was primarily driven by investment portfolio activity. EVE sensitivity exposure to an upward-200- basis-point shock as of December 31, 2015, as a percentage of the total of tier 1 and tier 2 regulatory capital, increased compared to December 31, 2014. EVE sensitivity to a downward-200-basis-point shock as of December 31, 2015, as a percentage of the total of tier 1 and tier 2 regulatory capital, improved compared to December 31, 2014. These shifts were primarily due to the previously mentioned changes in the dollar measures of EVE sensitivity. 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, we manage model risk within a model risk management framework. Our model risk management program has three principal components: • A model risk governance program that defines roles and responsibilities, including the authority to restrict model usage, provides policies and guidance, monitors compliance, and reports regularly to the Board on the overall degree of model risk across the corporation; • A model development process that focuses on sound design and computational accuracy, and includes activities designed to test for robustness, stability, and sensitivity to assumptions; and • An independent model validation function designed to verify that models are conceptually sound, computationally accurate, are performing as expected, and are in line with their design objectives. Governance Models used in the regulatory capital calculation can only be deployed for use after receiving a satisfactory validation review and approval decision from Model Risk Management. ERM’s Model Risk Management group is responsible for defining the corporate-wide model risk governance framework, and maintains policies that achieve the framework’s objectives. The team is responsible for overall model risk governance capabilities, with particular emphasis in the areas of model validation, model risk reporting, model performance monitoring, tracking of new model development status, and committee-level review and challenge. MRC, which is composed of senior staff with technical expertise, reports to MRAC, and provides guidance and oversight to the Model Risk Management function. Model Development and Usage Models are developed under standards governing data sourcing, methodology selection and model integrity testing. Model development includes a statement of purpose to align development with intended use. It also includes a comparison of alternative approaches to promote a sound modeling approach. 105 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Model developers conduct an assessment of data quality and relevance. The development teams conduct a variety of tests of the accuracy, robustness and stability of each model. Model owners submit models to the Model Validation Group for validation on a regular basis, as per existing policy. Model Validation MVG is part of Model Risk Management within ERM and performs model validations. MVG is independent, as contemplated by applicable bank regulatory requirements, of both the developers and users of the models. MVG validates models through a review process that assesses the appropriateness, accuracy, and suitability of data inputs, methodologies, assumptions, and processing code. Model validation also encompasses an assessment of model performance, sensitivity, and robustness, as well as a model’s potential limitations given its particular assumptions or deficiencies. Based on the results of its review, MVG issues a model use decision and may require remedial actions and compensating controls on model use. MVG also maintains a model risk-rating system, which assigns a risk rating to each model based on an assessment of a model's inherent and residual risks. These ratings aid in the understanding and reporting of model risk across the model portfolio, and enable the triaging of needs for remediation. Although model validation is the primary method of subjecting models to independent review and challenge, in practice, a multi-step governance process provides the opportunity for challenge by multiple parties. First, MVG conducts model validation and issues a model use decision that may be accompanied by mandatory remedial actions and compensating controls. Second, these decisions are reviewed, challenged, and confirmed by the MRC. Finally, model use decisions, risk ratings, and overall levels of model risk are reported to and reviewed by MRAC. MRM also reports regularly on model risk issues to the Board. Strategic Risk Management We define strategic risk as the current or prospective impact on earnings or capital arising from adverse business decisions, improper implementation of strategic initiatives, or lack of responsiveness to industry-wide changes. Strategic risks are influenced by changes in the competitive environment; decline in market performance or changes in our business activities; and the potential secondary impacts of reputational risks, not already captured as market, interest rate, credit, operational, model or liquidity risks. We incorporate strategic risk into our assessment of our business plans and risk and capital management processes. Active management of strategic risk is an integral component of all aspects of our business. Separating the effects of a potential material adverse event into operational and strategic risk is sometimes difficult. For instance, the direct financial impact of an unfavorable event in the form of fines or penalties would be classified as an operational risk loss, while the impact on our reputation and consequently the potential loss of clients and corresponding decline in revenue would be classified as a strategic risk loss. An additional example of strategic risk is the integration of a major acquisition. Failure to successfully integrate the operations of an acquired business, and the resultant inability to retain clients and the associated revenue, would be classified as a loss due to strategic risk. Strategic risk is managed with a long-term focus. Techniques for its assessment and management include the development of business plans, which are subject to robust review and challenge from senior management and the Board of Directors, as well as a formal review and approval process for all new business and product proposals. The potential impact of the various elements of strategic risk is difficult to quantify with any degree of precision. We use a combination of historical earnings volatility, scenario analysis, stress-testing and management judgment to help assess the potential effect on State Street attributable to strategic risk. Management and control of strategic risks are generally the responsibility of the business units, with oversight from the control functions, as part of their overall strategic planning and internal risk management processes. 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. Framework Our objective with respect to management of our capital is to maintain a strong capital base in order to provide financial flexibility for our business needs, including funding corporate growth and supporting clients’ cash management needs, and to provide protection against loss to depositors and creditors. We strive to maintain an appropriate level of capital, commensurate with our risk profile, on which an attractive return to shareholders is expected to be realized over both the short and long term, while 106 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) protecting our obligations to depositors and creditors and complying with regulatory capital requirements. Our capital management focuses on our risk exposures, the regulatory requirements applicable to us with respect to multiple capital measures, the evaluations and resulting credit ratings of the major independent rating agencies, our return on capital at both the consolidated and line-of-business level, and our capital position relative to our peers. Assessment of our overall capital adequacy includes the comparison of capital sources with capital uses, as well as the consideration of the quality and quantity of the various components of capital. The assessment seeks to determine the optimal level of capital and composition of capital instruments to satisfy all constituents of capital, with the lowest overall cost to shareholders. Other factors considered in our assessment of capital adequacy are strategic and contingency planning, stress testing and planned capital actions. Capital Adequacy Process Our primary federal banking regulator is the Federal Reserve. Both State Street and State Street Bank are subject to the minimum regulatory capital requirements established by the Federal Reserve and defined in FDICIA. State Street Bank must exceed the regulatory capital thresholds for “well capitalized” in order for our parent company to maintain its status as a financial holding company. Accordingly, one of our primary goals with respect to capital management is to exceed all applicable minimum regulatory capital requirements and to be “well-capitalized” under the PCA guidelines established by the FDIC. Our capital management activities are conducted as part of our corporate-wide CAP and associated Capital Policy and guidelines. We consider capital adequacy to be a key element of our financial well-being, which affects our ability to attract and maintain client relationships; operate effectively in the global capital markets; and satisfy regulatory, security holder and shareholder needs. Capital is one of several elements that affect our credit ratings and the ratings of our principal subsidiaries. In conformity with our Capital Policy and guidelines, we strive to achieve and maintain specific internal capital levels, not just at a point in time, but over time and during periods of stress, to account for changes in our strategic direction, evolving economic conditions, and financial and market volatility. We have developed and implemented a corporate-wide CAP to assess our overall capital in relation to our risk profile and to provide a comprehensive strategy for maintaining appropriate capital levels. The CAP considers material risks under multiple scenarios, with an emphasis on stress scenarios, and encompasses existing processes and systems used to measure our capital adequacy. Capital Contingency Planning Contingency planning is an integral component of capital management. The objective of contingency planning is to monitor current and forecast levels of select capital, liquidity and other measures that serve as early indicators of a potentially adverse capital or liquidity adequacy situation. These measures are one of the inputs used to set our internal capital adequacy level. We review these measures annually for appropriateness and relevance in relation to our financial budget and capital plan. Stress Testing We administer a robust State Street-wide stress- testing program that executes multiple stress tests each year to assess the institution’s capital adequacy and/or future performance under adverse conditions. Our stress testing program is structured around what we determine to be the key risks incurred by State Street, as assessed through a recurring material risk identification process. The material risk identification process represents a bottom-up approach to identifying the institution’s most significant risk exposures across all on- and off-balance sheet risk- taking activities, including credit, market, liquidity, interest rate, operational, fiduciary, business, reputation, and regulatory risks. These key risks serve as an organizing principle for much of our risk management framework, as well as reporting, including the “risk dashboard” provided to the Board. Over the past few years, stress scenarios have included a deep recession in the U.S., a break-up of the Eurozone, a severe recession in China and an oil shock precipitated by turmoil in the Middle East/North Africa region. In connection with the focus on our key risks, each stress test incorporates idiosyncratic loss events tailored to State Street‘s unique risk profile and business activities. Due to the nature of our business model and our consolidated statement of condition, our risks differ from those of a traditional commercial bank. The Federal Reserve requires bank holding companies with total consolidated assets of $50 billion or more, which includes State Street, to submit a capital plan on an annual basis. The Federal Reserve uses its annual CCAR process, which incorporates hypothetical financial and economic stress scenarios, to review those capital plans and assess whether banking organizations have capital planning processes that account for idiosyncratic 107 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) risks and provide for sufficient capital to continue operations throughout times of economic and financial stress. As part of its CCAR process, the Federal Reserve assesses each organization’s capital adequacy, capital planning process, and plans to distribute capital, such as dividend payments or stock purchase programs. Management and Board risk committees review, challenge, and approve CCAR results and assumptions before submission to the Federal Reserve. Through the evaluation of State Street’s capital adequacy and/or future performance under adverse conditions, the stress testing processes provide important insights for capital planning, risk management, and strategic decision-making at State Street. capital management rests with our Treasurer. The Capital Planning group within Global Treasury is responsible for the Capital Policy and guidelines, development of the Capital Plan, the management of global capital, capital optimization, and business unit capital management. MRAC provides oversight of our capital management, our capital adequacy, our internal targets and the expectations of the major independent credit rating agencies. In addition, MRAC approves our balance sheet strategy and related activities. The Board’s RC assists the Board in fulfilling its oversight responsibilities related to the assessment and management of risk and capital. Our Capital Policy is reviewed and approved annually by the Board's RC. Governance Regulatory Capital In order to support integrated decision making, we have identified three management elements to aid in the compatibility and coordination of our CAP: • Risk Management - identification, measurement, monitoring and forecasting of different types of risk and their combined impact on capital adequacy; • Capital Management - determination of optimal capital levels; and • Business Management - strategic planning, budgeting, forecasting, and performance management. We have a hierarchical structure supporting appropriate committee review of relevant risk and capital information. The ongoing responsibility for We and our depository institution subsidiaries are subject to the current U.S. 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. See "Supervision and Regulation" included under Item 1, "Business" of this Form 10-K for discussion of our capital and liquidity ratios, including minimum ratios we are required to maintain. 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 43: BASEL III FINAL RULES TRANSITION ARRANGEMENTS AND MINIMUM RISK-BASED CAPITAL RATIOS(1),(2) Capital conservation buffer (Common Equity Tier 1) —% 0.625% 1.250% 1.875% 2.500% 2015 2016 2017 2018 2019 G-SIB surcharge (CET1)(1) Minimum common equity tier 1(3) Minimum tier 1 capital(3) Minimum total capital(3) — 4.5 6.0 8.0 0.375 5.500 7.000 9.000 0.750 6.500 8.000 1.125 7.500 9.000 10.000 11.000 1.500 8.500 10.000 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. 108 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) The specific calculation of State Street's and State Street Bank's risk-based capital ratios will change as the provisions of the Basel III final rule related to the numerator (capital) and denominator (risk-weighted assets) are phased in, and as our risk- weighted assets calculated using the advanced approaches change due to potential changes in methodology. These ongoing methodological changes will result in differences in our reported capital ratios from one reporting period to the next that are independent of applicable changes to our capital base, our asset composition, our off-balance sheet exposures or our risk profile. 109 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) The following table presents the regulatory capital structure and related regulatory capital ratios for State Street and State Street Bank as of the dates indicated. As a result of changes in the methodologies used to calculate our regulatory capital ratios from period to period, as the provisions of the Basel III final rule are phased in, the ratios presented in the table for each period are not directly comparable. Refer to the footnotes following the table. TABLE 44: REGULATORY CAPITAL STRUCTURE AND RELATED REGULATORY CAPITAL RATIOS State Street State Street Bank Basel III Advanced Approaches December 31, 2015(1) Basel III Standardized Approach December 31, 2015(2) Basel III Advanced Approaches December 31, 2014(1) Basel III Transitional Approach December 31, 2014(3) Basel III Advanced Approaches December 31, 2015(1) Basel III Standardized Approach December 31, 2015(2) Basel III Advanced Approaches December 31, 2014(1) Basel III Transitional Approach December 31, 2014(3) $ 10,250 $ 10,250 $ 10,295 $ 10,295 $ 10,938 $ 10,938 $ 10,867 $ 10,867 16,049 16,049 14,737 14,737 10,655 10,655 9,270 9,270 (1,422) (6,457) 18,420 (5,927) (60) 12,433 2,703 237 (109) (1,422) (6,457) 18,420 (5,927) (60) 12,433 2,703 237 (109) (642) (5,158) 19,232 (5,869) (36) 13,327 1,961 475 (145) (642) (5,158) 19,232 (5,869) (36) 13,327 1,961 475 (145) (1,230) — 20,363 (5,631) (85) 14,647 — — — (1,230) — 20,363 (5,631) (85) 14,647 — — — (536) — (536) — 19,601 19,601 (5,577) (128) 13,896 — — — (5,577) (128) 13,896 — — — 15,264 15,264 15,618 15,618 14,647 14,647 13,896 13,896 1,358 1,358 1,618 1,618 1,371 1,371 1,634 1,634 713 12 2 17,349 51,733 43,882 3,937 99,552 221,880 $ $ $ $ 713 66 2 17,403 93,515 NA 2,378 95,893 221,880 $ $ $ $ 475 — 4 17,715 66,874 35,866 5,087 107,827 247,740 $ $ $ $ 475 — 4 17,715 87,502 NA 2,910 90,412 247,740 $ $ $ $ — 8 — 16,026 47,677 43,324 3,939 94,940 217,358 $ $ $ $ — 66 — 16,084 89,164 NA 2,378 91,542 217,358 $ $ $ $ — — — 15,530 59,836 35,449 5,048 100,333 243,549 $ $ $ $ — — — $ $ $ $ 15,530 84,433 NA 2,909 87,342 243,549 (Dollars in millions) Common shareholders' equity: Common stock and related surplus Retained earnings(8) Accumulated other comprehensive income (loss) Treasury stock, at cost Total(8) Regulatory capital adjustments: Goodwill and other intangible assets, net of associated deferred tax liabilities(4) Other adjustments Common equity tier 1 capital(8) Preferred stock Trust preferred capital securities subject to phase-out from tier 1 capital Other adjustments Tier 1 capital(8) Qualifying subordinated long- term debt Trust preferred capital securities phased out of tier 1 capital ALLL and other Other adjustments Total capital(8) Risk-weighted assets: Credit risk Operational risk Market risk(5) Total risk-weighted assets Adjusted quarterly average assets Capital Ratios:(8) Minimum Requirements(6) 2015 Minimum Requirements(7) 2014 Common equity tier 1 capital Tier 1 capital Total capital Tier 1 leverage 4.5% 4.0% 12.5% 13.0% 12.4% 14.7% 15.4% 16.0% 13.8% 15.9% 6.0 8.0 4.0 5.5 8.0 4.0 15.3 17.4 6.9 15.9 18.1 6.9 14.5 16.4 6.3 17.3 19.6 6.3 15.4 16.9 6.7 16.0 17.6 6.7 13.8 15.5 5.7 15.9 17.8 5.7 NA: Not applicable. (1) Common equity tier 1 capital, tier 1 capital and total capital ratios as of December 31, 2015 and December 31, 2014 were calculated in conformity with the advanced approaches provisions of the Basel III final rule. Tier 1 leverage ratio as of December 31, 2015 and December 31, 2014 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 December 31, 2015 were calculated in conformity with the standardized approach provisions of the Basel III final rule. Tier 1 leverage ratio as of December 31, 2015 was calculated in conformity with the Basel III final rule. (3) Common equity tier 1 capital, tier 1 capital, total capital and tier 1 leverage ratios as of December 31, 2014 were calculated in conformity with the transitional provisions of the Basel III final rule. Specifically, these ratios reflect common equity tier 1, tier 1 and total capital (the numerator) calculated in conformity with the provisions of the Basel III final rule, and total risk-weighted assets or, with respect to the tier 1 leverage ratio, quarterly average assets (in both cases, the denominator), calculated in conformity with the provisions of Basel I. (4) Amounts for State Street and State Street Bank as of December 31, 2015 consisted of goodwill, net of associated deferred tax liabilities, and 40% of other intangible assets, net of associated deferred tax liabilities. Amounts for State Street and State Street Bank as of December 31, 2014 consisted of goodwill, net of deferred tax liabilities and 20% 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. (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. State Street used the simple CVA approach in conformity with the Basel III advanced approaches. (6) Minimum requirements will be phased in up to full implementation beginning on January 1, 2019; minimum requirements listed are as of December 31, 2015. See Table 43: 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, 2014. See Table 43: Basel III Final Rules Transition Arrangements and Minimum Risk Based Capital Ratios. (8) Amounts for 2014 reflect adjustments related to certain expenses billed to our asset servicing clients as more fully described in Note 1 to the consolidated financial statements included under Item 8 of this Form 10-K. 110 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) The regulatory capital ratios for State Street and State Street Bank as of December 31, 2015, presented in Table 44: Regulatory Capital Structure and Related Regulatory Capital Ratios, differ from such ratios as of December 31, 2014 for reasons beyond changes to our capital base, our asset composition, our off-balance sheet exposures or our risk profile. The December 31, 2015 ratios reflect a different set of methodologies required by applicable regulators to calculate capital and total risk-weighted assets from those utilized to calculate the December 31, 2014 ratios. As a result, the ratios presented in the table for each period are not directly comparable. 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. Prior to the second quarter of 2014, we used the provisions of Basel I to calculate our risk- weighted assets. State Street's common equity tier 1 capital decreased $894 million as of December 31, 2015 compared to December 31, 2014, as a result of purchases by us of our common stock of approximately $1.52 billion, declarations of common and preferred stock dividends of $666 million, the strengthening U.S. dollar's effect on accumulated other comprehensive income, and the impact of the phase-in provisions of the Basel III final rule related to other intangible assets, partially offset by the positive effect of year-to-date net income. Over the same period, State Street's tier 1 capital decreased $354 million, total capital decreased $366 million under advanced approaches and total capital decreased $312 million under standardized approach. Our tier 1 capital and total capital decreased by less than common equity tier 1 capital over the same period, as the net decrease to common equity tier 1 capital was largely offset by the positive effects on tier 1 capital and total capital of the issuance of $750 million of preferred stock in the second quarter of 2015. State Street Bank's tier 1 capital increased $750 million, and total capital increased $495 million and $553 million under the advanced and standardized approaches, respectively, as of December 31, 2015, compared to December 31, 2014, the result of year- to-date net income, partially offset by the previously- described impact to accumulated other comprehensive income and phase-in provisions of the Basel III final rule related to other intangible assets. 111 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) The table below presents a roll-forward of common equity tier 1 capital, tier 1 capital and total capital for the years ended December 31, 2015 and 2014. The following table presents a roll-forward of the Basel III advanced approaches risk-weighted assets for the year ended December 31, 2015 and six months ended December 31, 2014. TABLE 45: CAPITAL ROLL-FORWARD State Street Basel III Advanced Approaches December 31, 2015 Basel III Standardized Approach December 31, 2015 Twelve Months Ended December 31, 2014 (In millions) Common equity tier 1 capital: Common equity tier 1 capital balance, beginning of period(1) $ 13,327 $ 13,327 $ 12,252 Net income(1) Changes in treasury stock, at cost Dividends declared Goodwill and other intangible assets, net of associated deferred tax liabilities Effect of certain items in accumulated other comprehensive income (loss) Other adjustments Changes in common equity tier 1 capital Common equity tier 1 capital balance, end of period(1) Additional tier 1 capital: Tier 1 capital balance, beginning of period(1) Change in common equity tier 1 capital Net issuance of preferred stock Trust preferred capital securities phased out of tier 1 capital Other adjustments Changes in tier 1 capital Tier 1 capital balance, end of period(1) Tier 2 capital: Tier 2 capital balance, beginning of period Net issuance and changes in long-term debt qualifying as tier 2 Trust preferred capital securities phased into tier 2 capital Changes in ALLL and other Change in other adjustments Changes in tier 2 capital Tier 2 capital balance, end of period Total capital: Total capital balance, beginning of period(1) Changes in tier 1 capital Changes in tier 2 capital Total capital balance, end of period(1) 1,980 (1,299) (666) 1,980 (1,299) (666) 2,022 (1,465) (551) (58) (58) 1,874 (780) (71) (894) (780) (71) (894) (857) 52 1,075 12,433 12,433 13,327 15,618 15,618 13,693 (894) 742 (238) 36 (354) (894) 742 (238) 36 (354) 1,075 1,470 (475) (145) 1,925 15,264 15,264 15,618 2,097 2,097 1,892 (260) (260) (300) 238 12 (2) (12) 238 66 (2) 42 475 — 30 205 2,085 2,139 2,097 17,715 17,715 (354) (12) (354) 42 15,585 1,925 205 $ 17,349 $ 17,403 $ 17,715 (1)Amounts for 2014 reflect adjustments related to certain expenses billed to our asset servicing clients as more fully described in Note 1 to the consolidated financial statements included under Item 8 of this Form 10-K. TABLE 46: ADVANCED APPROACHES RWA ROLL- FORWARD (In millions) State Street December 31, 2015 December 31, 2014 Total risk-weighted assets, beginning of period $ 107,827 $ 111,015 Changes in credit risk-weighted assets Net increase (decrease) in investment securities-wholesale Net increase (decrease) in loans and leases Net increase (decrease) in securitization exposures Net increase (decrease) in repo-style transaction exposures Net increase (decrease) in OTC derivatives exposures Net increase (decrease) in all other(1) Net increase (decrease) in credit risk- weighted assets Net increase (decrease) in credit valuation adjustment Net increase (decrease) in market risk- weighted assets Net increase (decrease) in operational risk-weighted assets Total risk-weighted assets, end of period 597 (944) (1,082) 1,381 (9,569) (5,949) 842 (1,317) (4,750) 99 444 888 (15,141) (4,219) (618) (532) 8,016 (80) 1,230 (119) $ 99,552 $ 107,827 (1) Includes assets not in a definable category, non-material portfolio, other wholesale, cash and due from, and interest-bearing deposits with banks, securities financing exposures, equity exposures, over-the-counter derivatives, and 6% credit risk supervisory charge. As of December 31, 2015, total advanced approaches risk-weighted assets decreased $8.28 billion compared to December 31, 2014, primarily the result of a reduction in credit risk due to sales, maturities and pay-downs of the securitized investment portfolio and the subsequent reinvestment in HQLA, a decrease associated with the usage of the alternative modified look through approach for investments in investment funds, and a decline in over the counter foreign exchange derivatives mainly due to a decrease in volumes and the addition of new netting agreements. The decreases were partially offset by an $8.02 billion increase in operational risk which reflects adjustments to the model inputs. As of December 31, 2014, total risk-weighted assets decreased from June 30, 2014 balances primarily due to lower credit risk-weighted assets, partially offset by an increase in market risk- equivalent risk-weighted assets. The increase in market risk-equivalent risk weighted assets resulted from the increase in the sixty-day moving average of our stressed VaR-based measure. Our stressed VaR-based measure was impacted by the extension 112 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) of the tenor of FX swaps by Global Treasury designed to improve our liquidity position. The decrease in credit risk-weighted assets primarily related to sales, maturities and pay-downs of both wholesale and securitized investments, partially offset by an increase in loan activity. The following table presents a roll-forward of the Basel III standardized approach risk-weighted assets for the year ended December 31, 2015. TABLE 47: STANDARDIZED APPROACH RWA ROLL- FORWARD (In millions) Total estimated risk-weighted assets, beginning of period (1) Changes in credit risk-weighted assets: Net increase (decrease) in investment securities- wholesale Net increase (decrease) in loans and leases Net increase (decrease) in securitization exposures Net increase (decrease) in repo-style transaction exposures Net increase (decrease) in OTC derivatives exposures Net increase (decrease) in all other(2) Net increase (decrease) in credit risk-weighted assets Net increase (decrease) in market risk-weighted assets State Street Twelve Months Ended December 31, 2015 $ 125,011 (2,579) (539) (9,569) (7,535) (4,007) (4,357) (28,586) (532) Total risk-weighted assets, end of period $ 95,893 (1) Standardized approach risk-weighted assets as of December 31, 2014 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 December 31, 2015, total standardized approach risk-weighted assets decreased $29.12 billion compared to December 31, 2014, primarily the result of a reduction in credit risk due to sales, maturities and pay-downs of both securitized and wholesale investment portfolio and the subsequent reinvestment in HQLA, a decrease in securities financing exposure, a decrease associated with the usage of the alternative modified look through approach for investments in investment funds and a decline in over the counter foreign exchange derivatives primarily due to a decrease in volumes and the addition of new netting agreements. The regulatory capital ratios as of December 31, 2015, presented in Table 44: 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 December 31, 2015, 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. 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 48: Regulatory Capital Structure and Related Regulatory Capital Ratios - State Street and Table 49: Regulatory Capital Structure and Related Regulatory Capital Ratios - State Street Bank present our capital ratios for State Street and State Street Bank as of December 31, 2015, calculated in conformity with the advanced approaches provisions and standardized approach of the Basel III final rule on an estimated, pro forma basis under the fully phased-in provisions of the Basel III final rule. Pro forma fully phased-in capital ratios calculated in accordance with both approaches as of December 31, 2015, are preliminary estimates, based on our present interpretations of the Basel III final rule as applied to our businesses and operations as of December 31, 2015. 113 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) TABLE 48: REGULATORY CAPITAL STRUCTURE AND RELATED REGULATORY CAPITAL RATIOS - STATE STREET Basel III Advanced Approaches Phase-In Provisions Basel III Advanced Approaches Fully Phased-In Pro-Forma Estimate(1) Basel III Standardized Approach Phase-In Provisions Basel III Standardized Approach Fully Phased-In Pro-Forma Estimate(1) $ 18,420 $ (21) $ 18,399 $ 18,420 $ (21) $ 18,399 (5,927) (60) (818) (90) (6,745) (150) (5,927) (60) (818) (90) (6,745) (150) 12,433 (929) 11,504 12,433 (929) 11,504 2,703 — 2,703 2,703 — 2,703 237 (109) 2,831 15,264 (237) 90 (147) (1,076) — (19) 2,684 14,188 237 (109) 2,831 15,264 (237) 90 (147) (1,076) 1,358 713 12 2 2,085 17,349 99,552 221,880 246,857 $ $ — 132 — (2) 130 (946) (406) (545) (545) $ $ 1,358 1,358 845 12 — $ $ 2,215 16,403 99,146 221,335 246,312 713 66 2 $ $ 2,139 17,403 95,893 221,880 246,857 $ $ — 132 — (2) 130 (946) (382) (545) (545) — (19) 2,684 14,188 1,358 845 66 — $ $ 2,269 16,457 95,511 221,335 246,312 Minimum Requirement Including Capital Conservation Buffer of 2.5% and G-SIB 1.5% 2019 8.5% 10.0 12.0 NA NA Minimum Requirement 2015 Minimum Requirement 2019 4.5% 4.5% 6.0 8.0 4.0 NA 6.0 8.0 4.0 5.0 12.5% 15.3 17.4 6.9 6.2 11.6% 13.0% 14.3 16.5 6.4 5.8 15.9 18.1 6.9 6.2 12.0% 14.9 17.2 6.4 5.8 December 31, 2015 (Dollars in millions) Total common shareholders' equity Regulatory capital adjustments: Goodwill and other intangible assets, net of associated deferred tax liabilities Other adjustments Common equity tier 1 capital Additional tier 1 capital: Preferred stock Trust preferred capital securities Other adjustments Additional tier 1 capital Tier 1 capital Tier 2 capital: Qualifying subordinated long-term debt Trust preferred capital securities ALLL and other Other Tier 2 capital Total capital Risk weighted assets Adjusted average assets Total assets for SLR Capital ratios(2): Common equity tier 1 capital(3) Tier 1 capital Total capital Tier 1 leverage Supplementary leverage NA: Not applicable. (1) As of December 31, 2015, represents State Street's estimates calculated in conformity with the fully phased-in provisions of the Basel III Final rule for both Basel III advanced and standardized approaches, based on our current interpretations of the Basel III final rule as applied to our businesses and operations as of December 31, 2015. (2) 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). (3) Common equity tier 1 ratios were calculated in conformity with the provisions of the Basel III final rule; refer to Table 44: Regulatory Capital Structure and Related Regulatory Capital Ratios. 114 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) TABLE 49: REGULATORY CAPITAL STRUCTURE AND RELATED REGULATORY CAPITAL RATIOS - STATE STREET BANK December 31, 2015 (Dollars in millions) Total common shareholders' equity Regulatory capital adjustments: Goodwill and other intangible assets, net of associated deferred tax liabilities Other adjustments Common equity tier 1 capital Additional tier 1 capital: Preferred stock Trust preferred capital securities Other adjustments Additional tier 1 capital Tier 1 capital Tier 2 capital: Qualifying subordinated long-term debt Trust preferred capital securities ALLL and other Other Tier 2 capital Total capital Risk weighted assets Adjusted average assets Total assets for SLR Basel III Advanced Approaches Phase-In Provisions Basel III Advanced Approaches Fully Phased-In Pro-Forma Estimate(1) Basel III Standardized Approach Phase-In Provisions Basel III Standardized Approach Fully Phased-In Pro-Forma Estimate(1) $ 20,363 $ (9) $ 20,354 $ 20,363 $ (9) $ 20,354 (5,631) (85) (769) — (6,400) (85) (5,631) (85) (769) — (6,400) (85) 14,647 (778) 13,869 14,647 (778) 13,869 — — — — — — — — — — — — — — — — — — — — — — — — 14,647 (778) 13,869 14,647 (778) 13,869 1,371 — 8 — 1,379 — — — — — 1,371 1,371 — 8 — — 66 — 1,379 1,437 — — — — — 1,371 — 66 — 1,437 $ $ 16,026 94,940 217,358 242,200 $ $ (778) (860) (500) (500) $ $ 15,248 94,080 216,858 241,700 $ $ 16,084 91,542 217,358 242,200 $ $ (778) (812) (500) (500) $ $ 15,306 90,730 216,858 241,700 Capital ratios(2): Common equity tier 1 capital(3) Tier 1 capital Total capital Tier 1 leverage Supplementary leverage Minimum Requirement 2015 Minimum Requirement 2019 4.5% 4.5% 6.0 8.0 4.0 NA 6.0 8.0 4.0 6.0 Minimum Requirement Including Capital Conservation Buffer of 2.5% and G-SIB 1.5% 2019 8.5% 10.0 12.0 NA NA 15.4% 15.4 16.9 6.7 6.0 14.7% 16.0% 14.7 16.2 6.4 5.7 16.0 17.6 6.7 6.0 15.3% 15.3 16.9 6.4 5.7 NA: Not applicable. (1) As of December 31, 2015, represents State Street Bank's estimates calculated in conformity with the fully phased-in provisions of the Basel III Final rule for both Basel III advanced and standardized approaches, based on our current interpretations of the Basel III final rule as applied to our businesses and operations as of December 31, 2015. (2) 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). (3) Common equity tier 1 ratios were calculated in conformity with the provisions of the Basel III final rule; refer to Table 44: Regulatory Capital Structure and Related Regulatory Capital Ratios. 115 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Fully phased-in pro-forma estimates of common Supplementary Leverage Ratio 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. As of December 31, 2015, tier 1 capital includes 25% of trust preferred capital securities and the remaining 75% is included in tier 2 capital. 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. Estimated pro forma fully phased-in supplementary leverage ratios as of December 31, 2015 are preliminary estimates by State Street, and are calculated based on our current interpretations of the SLR final rule and as applied to our businesses and operations as of December 31, 2015. Refer to "Supervision and Regulation" included under Item 1, "Business" of this Form 10-K for additional details regarding the SLR. TABLE 50: SUPPLEMENTARY LEVERAGE RATIO December 31, 2015 (Dollars in millions) State Street: Tier 1 capital On- and off-balance sheet leverage exposure Less: regulatory deductions Transitional SLR Phase-In Provisions Fully Phased-in Pro Forma SLR Estimate $ 15,264 $ (1,076) $ 14,188 252,752 (5,895) — (545) 252,752 (6,440) Global Systemically Important Bank Total assets for SLR $ 246,857 $ (545) $ 246,312 We are designated as a large bank holding company subject to enhanced supervision and prudential standards, commonly referred to as a “systemically important financial institution,” or SIFI, and we are one among a group of 30 institutions worldwide that have been identified by the FSB and the BCBS as G-SIBs. Our designation as a G-SIB will require us to maintain an additional capital buffer above the Basel III final rule minimum common equity tier 1 capital ratio of 4.5%, based on a number of factors, as evaluated by banking regulators. See further discussion of the G-SIB surcharge within "Supervision and Regulation" included under Item 1, "Business" of this Form 10-K. Capital Actions Preferred Stock Supplementary leverage ratio State Street Bank: 6.2% (0.4)% 5.8% Tier 1 capital $ 14,647 $ (778) $ 13,869 On- and off-balance sheet leverage exposure Less: regulatory deductions 247,737 (5,537) — (500) 247,737 (6,037) Total assets for SLR $ 242,200 $ (500) $ 241,700 Supplementary leverage ratio 6.0% (0.3)% 5.7% The following table summarizes selected terms of each of the series of the preferred stock issued and outstanding: TABLE 51: 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 Series D Series E Series F August 2012 20,000,000 1/4,000th $ 100,000 $ February 2014 30,000,000 November 2014 30,000,000 May 2015 750,000 1/4,000th 1/4,000th 1/100th 100,000 100,000 100,000 $ 25 25 25 1,000 488 September 15, 2017 742 March 15, 2024 728 December 15, 2019 742 September 15, 2020 (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. 116 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) The following table presents the dividends declared for each of the series of preferred stock issued and outstanding for the periods indicted: TABLE 52: PREFERRED STOCK DIVIDENDS Preferred Stock: Series C Series D Series E Series F Total Dividends Declared $ 5,250 $ 5,900 6,333 1,663 Years Ended December 31, 2015 Dividends Declared per Depositary Share Total (in millions) Dividends Declared 2014 Dividends Declared per Depositary Share Total (in millions) 1.32 1.48 1.60 16.63 $ $ $ 26 44 48 12 130 $ 5,252 4,605 — — 1.32 1.15 — — $ $ 26 35 — — 61 In January 2016, we declared dividends on our Series C, D, E, and F preferred stock of approximately $1,313, $1,475, $1,500 and $2,625, respectively, per share, or approximately $0.33, $0.37, $0.38 and $26.5, respectively, per depositary share. These dividends total approximately $7 million, $11 million, $11 million and $20 million on our Series C, D, E, and F preferred stock, respectively, which will be paid in March 2016. Common Stock In March 2015, we received the results of the Federal Reserve's review of our 2015 capital plan in connection with its 2015 annual CCAR process. The Federal Reserve did not object to the capital actions we proposed in our 2015 capital plan and in March 2015 our Board approved a common stock purchase program authorizing the purchase of up to $1.8 billion of our common stock through June 30, 2016 (the 2015 Program). In March 2014, the Board approved the previous program (the 2014 Program) that authorized stock purchases through March 2015. The table below presents the activities under each program during the year ended December 31, 2015. TABLE 53: SHARES REPURCHASED Year Ended December 31, 2015 Amount Authorized (in billions) Shares Purchased (in millions) Average Cost per Share Total Purchased (in millions) Amount Remaining Under the Program (in millions) $ 1.8 1.7 14.2 $ 6.3 20.5 $ 73.72 $ 74.88 74.07 $ 1,050 $ 470 1,520 780 — 2015 Program 2014 Program Total The table below presents the dividends declared on common stock for the periods indicated: TABLE 54: COMMON STOCK DIVIDENDS Years Ended December 31, Dividends Declared per Share Total (in millions) Dividends Declared per Share Total (in millions) 2015 2014 Common Stock $ 1.32 $ 536 $ 1.16 $ 490 Federal and state banking regulations place certain restrictions on dividends paid by subsidiary banks to the parent holding company. In addition, banking regulators have the authority to prohibit bank holding companies from paying dividends. Information concerning limitations on dividends from our subsidiary banks is provided in “Related Stockholder Matters” included under Item 5, and in Note 15 to the consolidated financial statements, included under Item 8 of this 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. 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 117 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) 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 $320.44 billion as of December 31, 2015, compared to $349.77 billion as of December 31, 2014. 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 $335.42 billion and $364.41 billion as collateral for indemnified securities on loan as of December 31, 2015 and December 31, 2014, 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 $335.42 billion and $364.41 billion, referenced above, $63.06 billion and $85.31 billion was invested in indemnified repurchase agreements as of December 31, 2015 and December 31, 2014, respectively. We or our agents held $67.02 billion and $90.82 billion as collateral for indemnified investments in repurchase agreements as of December 31, 2015 and December 31, 2014, respectively. Additional information about our securities finance activities and other off-balance sheet arrangements is provided in Notes 10 and 12 to the consolidated financial statements included under Item 8 of this Form 10-K. SIGNIFICANT ACCOUNTING ESTIMATES Our consolidated financial statements are prepared in conformity with U.S. GAAP, and we apply accounting policies that affect the determination of amounts reported in the consolidated financial statements. Additional information on our significant accounting policies, including references to applicable footnotes, is provided in Note 1 to the consolidated financial statements included under Item 8 of this Form 10-K. Certain of our accounting policies, by their nature, require management to make judgments, involving significant estimates and assumptions, about the effects of matters that are inherently uncertain. These estimates and assumptions are based on information available as of the date of the consolidated financial statements, and changes in this information over time could materially affect the amounts of assets, liabilities, equity, revenue and expenses reported in subsequent consolidated financial statements. Based on the sensitivity of reported financial statement amounts to the underlying estimates and assumptions, the more significant accounting policies applied by State Street have been identified by management as those associated with recurring fair- value measurements, OTTI of investment securities, impairment of goodwill and other intangible assets, and contingencies. These accounting policies require the most subjective or complex judgments, and underlying estimates and assumptions could be most subject to revision as new information becomes available. An understanding of the judgments, estimates and assumptions underlying these accounting policies is essential in order to understand our reported consolidated results of operations and financial condition. The following is a discussion of the above- mentioned significant accounting estimates. Management has discussed these significant accounting estimates with the E&A Committee of the Board. Fair-Value Measurements We carry certain of our financial assets and liabilities at fair value in our consolidated financial statements on a recurring basis, including trading account assets, AFS investment securities and derivative instruments. Changes in the fair value of these financial assets and liabilities are recorded either as components of our consolidated statement of income, or as components of other comprehensive income within shareholders' equity in our consolidated 118 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) statement of condition. In addition to those financial assets and liabilities that we carry at fair value in our consolidated financial statements on a recurring basis, we estimate the fair values of other financial assets and liabilities that we carry at amortized cost in our consolidated statement of condition, and we disclose these fair value estimates in the notes to our consolidated financial statements. We estimate the fair values of these financial assets and liabilities using the definition of fair value described below. As of December 31, 2015, approximately $75.70 billion of our financial assets and approximately $4.23 billion of our financial liabilities were carried at fair value on a recurring basis, compared to $103.77 billion and $6.31 billion, respectively, as of December 31, 2014. The amounts as of December 31, 2015 represented approximately 31% of our consolidated total assets and approximately 2% of our consolidated total liabilities, compared to 38% and 2%, respectively, as of December 31, 2014. The decrease in the relative percentage of consolidated total assets as of December 31, 2015 compared to 2014 mainly reflects a decline in the investment securities portfolio, associated with a lower level of purchases in 2015 compared to 2014, and an increase in interest-bearing deposits with banks, the result of the continued elevated level of client deposits. Additional information with respect to the assets and liabilities carried by us at fair value on a recurring basis is provided in Note 2 to the consolidated financial statements included under Item 8 of this Form 10-K. U.S. GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants on the measurement date. When we measure fair value for our financial assets and liabilities, we consider the principal or the most advantageous market in which we would transact; we also consider assumptions that market participants would use when pricing the asset or liability. When possible, we look to active and observable markets to measure the fair value of identical, or similar, financial assets and liabilities. When identical financial assets and liabilities are not traded in active markets, we look to market- observable data for similar assets and liabilities. In some instances, certain assets and liabilities are not actively traded in observable markets; as a result, we use alternate valuation techniques to measure their fair value. We categorize the financial assets and liabilities that we carry at fair value in our consolidated statement of condition on a recurring basis based on U.S. GAAP's prescribed three-level valuation hierarchy. The hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (level 1) and the lowest priority to valuation methods using significant unobservable inputs (level 3). As of December 31, 2015, including the effect of netting, we categorized approximately 8% of our financial assets carried at fair value in level 1, approximately 89% of our financial assets carried at fair value in level 2, and approximately 3% of our financial assets carried at fair value in level 3 of the fair value hierarchy. As of December 31, 2014, including the effect of netting, we categorized less than 10% of our financial assets carried at fair value in level 1, approximately 85% of our financial assets carried at fair value in level 2, and approximately 5% of our financial assets carried at fair value in level 3 of the fair value hierarchy. As of December 31, 2015, on the same basis, we categorized approximately 2% of our financial liabilities carried at fair value in level 1, approximately 98% of our financial liabilities carried at fair value in level 2, and less than 1% of our financial liabilities carried at fair value in level 3 of the fair value hierarchy. As of December 31, 2014, on the same basis, we had no financial liabilities carried at fair value in level 1, we categorized approximately 99% of our financial liabilities carried at fair value in level 2, and less than 1% of our financial liabilities carried at fair value in level 3 of the fair value hierarchy. The assets categorized in level 1 were primarily trading account assets. Fair value for these securities was measured by management using unadjusted quoted prices in active markets for identical securities. The assets categorized in level 2 were primarily AFS investment securities and derivative instruments. Fair value for the investment securities was measured by management primarily using information obtained from independent third parties. Information obtained from third parties is subject to review by management as part of a validation process. Management utilizes a process to verify the information provided, including an understanding of underlying assumptions and the level of market- participant information used to support those assumptions. In addition, management compares significant assumptions used by third parties to available market information. Such information may include known trades or, to the extent that trading activity is limited, comparisons to market research information pertaining to credit expectations, 119 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) execution prices and the timing of cash flows and, where information is available, back-testing. The derivative instruments categorized in level 2 primarily comprised of foreign exchange and interest- rate contracts used in our trading activities, for which fair value was measured by management using discounted cash flow techniques, with inputs consisting of observable spot and forward points, as well as observable interest rate curves. The substantial majority of our financial assets categorized in level 3 were asset-backed and mortgage-backed AFS securities. Level-3 assets also included foreign exchange derivative contracts. The aggregate fair value of our financial assets and liabilities categorized in level 3 as of December 31, 2015 decreased approximately 55% compared to 2014, primarily the result of transfers out of level 3 and paydowns of asset-backed and non-U.S. debt securities. With respect to derivative instruments, we evaluated the impact on valuation of the credit risk of our counterparties and of our own credit. We considered such factors as the market-based probability of default by us and our counterparties, and our current and expected potential future net exposures by remaining maturities, in determining the appropriate measurements of fair value. Valuation adjustments associated with derivative instruments were not significant to our consolidated financial performance in 2015, 2014 or 2013. Other-Than-Temporary Impairment of Investment Securities Our portfolio of fixed-income investment securities constitutes a significant portion of the assets carried in our consolidated statement of condition. U.S. GAAP requires the use of expected future cash flows to evaluate OTTI of these investment securities. The amount and timing of these expected future cash flows are significant estimates used in our evaluation of OTTI. An OTTI is triggered if the intent is to sell the security or the security will more likely than not have to be sold before the amortized cost basis is recovered. Additional information with respect to management's assessment of OTTI is provided in Note 3 to the consolidated financial statements included under Item 8 of this Form 10-K. Expectations of defaults and prepayments are the most significant assumptions underlying our estimates of future cash flows. In determining these estimates, management relies on relevant and reliable information, including but not limited to deal structure, including optional and mandatory calls, market interest-rate curves, industry standard asset- class-specific prepayment models, recent prepayment history, independent credit ratings, and recent actual and projected credit losses. Management considers this information based on its relevance and uses its best judgment in order to determine its assumptions for underlying cash-flow expectations and resulting estimates. Management reviews its underlying assumptions and develops expected future cash-flow estimates at least quarterly. Additional detail with respect to the sensitivity of these default and prepayment assumptions is provided under “Financial Condition - Investment Securities” in Management's Discussion and Analysis. Impairment of Goodwill and Other Intangible Assets Goodwill represents the excess of the cost of an acquisition over the fair value of the net tangible and other intangible assets acquired. Other intangible assets represent purchased assets that can be distinguished from goodwill because of contractual rights or because the asset can be exchanged on its own or in combination with a related contract, asset or liability. Goodwill is not amortized, while other intangible assets are amortized over their estimated useful lives. Goodwill is ultimately supported by revenue from our Investment Servicing and Investment Management lines of business. A decline in earnings as a result of a lack of growth, or our inability to deliver cost-effective services over sustained periods, could lead to a perceived impairment of goodwill, which would be evaluated and, if necessary, be recorded as a write-down of the reported amount of goodwill through a charge to other expenses in our consolidated statement of income. On an annual basis, or more frequently if circumstances arise, management reviews goodwill and evaluates events or other developments that may indicate impairment of the carrying amount. We perform this evaluation at the reporting unit level, which is one level below our two major lines of business. The evaluation methodology for potential impairment is inherently complex and involves significant management judgment in the use of estimates and assumptions. We evaluate goodwill for impairment using a two-step process. First, we compare the aggregate fair value of the reporting unit to its carrying amount, including goodwill. If the fair value exceeds the carrying amount, no impairment exists. If the carrying amount of the reporting unit exceeds the fair value, then we compare the “implied” fair value of the reporting unit's goodwill to its carrying amount. If the 120 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) carrying amount of the goodwill exceeds the implied fair value, then goodwill impairment is recognized by writing the goodwill down to the implied fair value. The implied fair value of the goodwill is determined by allocating the fair value of the reporting unit to all of the assets and liabilities of that unit, as if the unit had been acquired in a business combination and the overall fair value of the unit was the purchase price. To determine the aggregate fair value of the reporting unit being evaluated for goodwill impairment, we use one of two principal methodologies: a market approach, based on a comparison of the reporting unit to publicly-traded companies in similar lines of business; or an income approach, based on the value of the cash flows that the business can be expected to generate in the future. Events that may indicate impairment include significant or adverse changes in the business, economic or political climate; an adverse action or assessment by a regulator; unanticipated competition; and a more-likely-than-not expectation that we will sell or otherwise dispose of a business to which the goodwill or other intangible assets relate. Additional information about goodwill and other intangible assets, including information by line of business, is provided in Note 5 to the consolidated financial statements included under Item 8 of this Form 10-K. Our evaluation of goodwill and other intangible assets indicated that no significant impairment occurred in 2015, 2014 or 2013. Goodwill and other intangible assets recorded in our consolidated statement of condition as of December 31, 2015 totaled approximately $5.67 billion and $1.77 billion, respectively, compared to $5.83 billion and $2.03 billion, respectively, as of December 31, 2014. Contingencies The significant estimates and judgments related with establishing litigation reserves are discussed in Note 13 of the consolidated financial statements included under Item 8 of this Form 10-K. RECENT ACCOUNTING DEVELOPMENTS Information with respect to recent accounting developments is provided in Note 1 to the consolidated financial statements included under Item 8 of this Form 10-K. 121 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information provided under “Financial Condition - Market Risk Management” in Management’s Discussion and Analysis, included under Item 7 of this Form 10-K, is incorporated by reference herein. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Additional information about restrictions on the transfer of funds from State Street Bank to the parent company is provided in "Related Stockholder Matters" included under Item 5, and in “Financial Condition - Capital” in Management’s Discussion and Analysis included under Item 7 of this Form 10-K. 122 Report of Independent Registered Public Accounting Firm The Shareholders and Board of Directors of State Street Corporation We have audited the accompanying consolidated statement of condition of State Street Corporation (the “Corporation”) as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, changes in shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2015. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of State Street Corporation at December 31, 2015 and 2014, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), State Street Corporation’s internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 19, 2016 expressed an unqualified opinion thereon. Boston, Massachusetts February 19, 2016 /s/ Ernst & Young LLP 123 STATE STREET CORPORATION CONSOLIDATED STATEMENT OF INCOME (Dollars in millions, except per share amounts) Fee revenue: Servicing fees Management fees Trading services Securities finance Processing fees and other Total fee revenue Net interest revenue: Interest revenue Interest expense Net interest revenue Gains (losses) related to investment securities, net: Net gains (losses) from sales of available-for-sale securities Losses from other-than-temporary impairment Losses reclassified (from) to other comprehensive income Gains (losses) related to investment securities, net Total revenue Provision for loan losses Expenses: Compensation and employee benefits Information systems and communications Transaction processing services Occupancy Acquisition and restructuring costs Professional services Amortization of other intangible assets Other Total expenses Income before income tax expense Income tax expense Net income Net income available to common shareholders Earnings per common share: Basic Diluted Average common shares outstanding (in thousands): Basic Diluted Cash dividends declared per common share Years Ended December 31, 2015 2014 2013 $ 5,153 $ 5,108 $ 1,174 1,146 496 309 8,278 2,488 400 2,088 (5) (1) — (6) 1,207 1,084 437 174 8,010 2,652 392 2,260 15 (1) (10) 4 10,360 12 10,274 10 4,799 1,106 1,094 359 212 7,570 2,714 411 2,303 14 (21) (2) (9) 9,864 6 4,061 1,022 793 444 25 490 197 1,018 8,050 2,298 318 1,980 1,848 4.53 4.47 $ $ $ 4,060 3,800 976 784 461 133 440 222 751 7,827 2,437 415 2,022 1,958 4.62 4.53 $ $ $ 935 733 467 104 392 214 547 7,192 2,666 616 2,050 2,016 4.52 4.43 $ $ $ 407,856 413,638 424,223 432,007 446,245 455,155 $ 1.32 $ 1.16 $ 1.04 The accompanying notes are an integral part of these consolidated financial statements. 124 STATE STREET CORPORATION CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (In millions) Net income Years Ended December 31, 2015 2014 2013 $ 1,980 $ 2,022 $ 2,050 Other comprehensive income (loss), net of related taxes: Foreign currency translation, net of related taxes of ($101), ($94) and ($20), respectively (735) (889) 95 Net unrealized gains (losses) on available-for-sale securities, net of related taxes of ($195), ($269) and ($521), respectively (331) 437 (826) Net unrealized gains (losses) on available-for-sale securities designated in fair value hedges, net of related taxes of $5, ($15) and $56, respectively Other-than-temporary impairment on held-to-maturity securities related to factors other than credit, net of related taxes of $8, $12 and $11, respectively Net unrealized gains (losses) on cash flow hedges, net of related taxes of $24, $74 and $62, respectively Net unrealized gains on retirement plans, net of related taxes of $51, ($50) and $71, respectively Other comprehensive income (loss) Total comprehensive income 12 13 17 89 (935) (24) 18 115 (69) (412) 86 18 92 80 (455) $ 1,045 $ 1,610 $ 1,595 The accompanying notes are an integral part of these consolidated financial statements. 125 STATE STREET CORPORATION CONSOLIDATED STATEMENT OF CONDITION (Dollars in millions, except per share amounts) Assets: Cash and due from banks Interest-bearing deposits with banks Securities purchased under resale agreements Trading account assets Investment securities available for sale Investment securities held to maturity (fair value of $29,798 and $17,842) Loans and leases (less allowance for losses of $46 and $38) Premises and equipment (net of accumulated depreciation of $4,820 and $4,599) Accrued interest and fees receivable Goodwill Other intangible assets Other assets Total assets Liabilities: Deposits: Noninterest-bearing Interest-bearing—U.S. Interest-bearing—non-U.S. Total deposits Securities sold under repurchase agreements Federal funds purchased Other short-term borrowings Accrued expenses and other liabilities Long-term debt Total liabilities Commitments, guarantees and contingencies (Notes 12 and 13) Shareholders’ equity: Preferred stock, no par, 3,500,000 shares authorized: Series C, 5,000 shares issued and outstanding Series D, 7,500 shares issued and outstanding Series E, 7,500 shares issued and outstanding Series F, 7,500 shares issued and outstanding Common stock, $1 par, 750,000,000 shares authorized: 503,879,642 and 503,880,120 shares issued Surplus Retained earnings Accumulated other comprehensive income (loss) Treasury stock, at cost (104,227,647 and 88,684,969 shares) Total shareholders’ equity Non-controlling interest-equity Total equity Total liabilities and equity December 31, 2015 2014 $ 1,207 $ 75,338 3,404 849 70,070 29,952 18,753 1,894 2,346 5,671 1,768 1,855 93,523 2,390 924 94,913 17,723 18,161 1,937 2,242 5,826 2,025 $ $ 33,940 32,600 245,192 $ 274,119 65,800 $ 29,958 95,869 191,627 4,499 6 1,748 14,643 11,534 70,490 33,012 105,538 209,040 8,925 21 4,381 20,382 10,042 224,057 252,791 491 742 728 742 504 9,746 16,049 (1,442) (6,457) 21,103 32 21,135 491 742 728 — 504 9,791 14,737 (507) (5,158) 21,328 — 21,328 $ 245,192 $ 274,119 The accompanying notes are an integral part of these consolidated financial statements. 126 STATE STREET CORPORATION CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (Dollars in millions, except per share amounts, shares in thousands) PREFERRED STOCK Shares Amount Surplus COMMON STOCK Retained Earnings Accumulated Other Comprehensive Income (Loss) TREASURY STOCK Shares Amount Total Balance as of December 31, 2012 $ 489 503,900 $ 504 $ 9,667 $ 11,707 $ 360 45,238 $(1,902) $ 20,825 2 Net income Other comprehensive loss Accretion of issuance costs Cash dividends declared: Common stock - $1.04 per share Preferred stock Common stock acquired Common stock awards and options exercised, including income tax benefit of $51 Other (455) 2,050 (2) (463) (26) 2,050 (455) — (463) (26) 31,237 (2,040) (2,040) (17) 113 (4) (1) (6,709) 249 (12) 362 (5) Balance as of December 31, 2013 491 503,883 504 9,776 13,265 (95) 69,754 (3,693) 20,248 1,470 Net income Other comprehensive loss Preferred stock issued Cash dividends declared: Common stock - $1.16 per share Preferred stock Common stock acquired Common stock awards and options exercised, including income tax benefit of $72 Other (412) 2,022 (490) (61) 2,022 (412) 1,470 (490) (61) 23,749 (1,650) (1,650) (3) 17 (2) 1 (4,805) 185 (13) 202 (1) Balance as of December 31, 2014 $ 1,961 503,880 504 9,791 14,737 (507) 88,685 (5,158) 21,328 742 Net income Other comprehensive loss Preferred stock issued Cash dividends declared: Common stock - $1.32 per share Preferred stock Common stock acquired Common stock awards and options exercised, including income tax benefit of $70 Other (935) 1,980 (536) (130) 1,980 (935) 742 (536) (130) 20,521 (1,520) (1,520) (41) (4) (2) (4,976) 221 (2) 180 (6) Balance as of December 31, 2015 $ 2,703 503,880 $ 504 $ 9,746 $ 16,049 $ (1,442) 104,228 $(6,457) $ 21,103 The accompanying notes are an integral part of these consolidated financial statements. 127 STATE STREET CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (In millions) Operating Activities: Net income Adjustments to reconcile net income to net cash used in operating activities: Deferred income tax (benefit) expense Amortization of other intangible assets Other non-cash adjustments for depreciation, amortization and accretion, net Losses (gains) related to investment securities, net Change in trading account assets, net Change in accrued interest and fees receivable, net Change in collateral deposits, net Change in unrealized losses (gains) on foreign exchange derivatives, net Change in other assets, net Change in accrued expenses and other liabilities, net Other, net Net cash used in operating activities Investing Activities: Net decrease (increase) in interest-bearing deposits with banks Net (increase) decrease in securities purchased under resale agreements Proceeds from sales of available for sale securities Proceeds from maturities of available for sale securities Purchases of available for sale securities Proceeds from maturities of held to maturity securities Purchases of held to maturity securities Net increase in loans Purchases of equity investments and other long-term assets Purchases of premises and equipment, net Other, net Net cash provided by (used in) investing activities Financing Activities: Net (decrease) increase in time deposits Net (decrease) increase in all other deposits Net (decrease) increase in other short-term borrowings Proceeds from issuance of long-term debt, net of issuance costs Payments for long-term debt and obligations under capital leases Proceeds from issuance of preferred stock Proceeds from exercises of common stock options Purchases of common stock Excess tax benefit related to stock-based compensation Repurchases of common stock for employee tax withholding Payments for cash dividends Net cash (used in) provided by financing activities Net (decrease) increase Cash and due from banks at beginning of period Cash and due from banks at end of period Supplemental disclosure: Interest paid Income taxes paid, net Years Ended December 31, 2015 2014 2013 $ 1,980 $ 2,022 $ 2,050 (168) 197 596 6 75 (104) (6,662) 982 1,164 (48) 579 (1,403) 18,185 (1,014) 12,309 28,025 (25,397) 3,842 (9,398) (561) (366) (703) 73 60 222 477 (4) (81) (119) (4,362) (2,042) 3,612 (635) 289 (561) (29,266) 3,840 9,766 36,120 (43,146) 3,217 (3,778) (4,785) (182) (427) 149 128 214 461 9 (206) (153) (4,046) (128) (819) 133 333 (2,024) (13,494) (1,214) 10,261 37,529 (39,097) 2,080 (8,415) (1,214) (272) (388) 139 24,995 (28,492) (14,085) (9,878) (7,535) (7,074) 2,983 (1,155) 742 4 54,404 (27,632) 1,575 994 (788) 1,470 14 (14,507) 32,594 (1,155) 2,485 (134) — 121 (1,520) (1,650) (2,040) 70 (222) (655) (24,240) (648) 1,855 72 (232) (539) 27,688 (1,365) 3,220 1,207 $ 1,855 $ 50 (189) (486) 16,739 630 2,590 3,220 $ 385 211 $ 398 358 416 406 $ $ The accompanying notes are an integral part of these consolidated financial statements. 128 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TABLE OF CONTENTS Note 1. Summary of Significant Accounting Policies Note 2. Fair Value Note 3. Investment Securities Note 4. Loans and Leases Note 5. Goodwill and Other Intangible Assets Note 6. Other Assets Note 7. Deposits Note 8. Short-Term Borrowings Note 9. Long-Term Debt Note 10. Derivative Financial Instruments Note 11. Offsetting Arrangements Note 12. Commitments and Guarantees Note 13. Contingencies Note 14. Variable Interest Entities Note 15. Shareholders’ Equity Note 16. Regulatory Capital Note 17. Net Interest Revenue Note 18. Equity-Based Compensation Note 19. Employee Benefits Note 20. Occupancy Expense and Information Systems and Communications Expense Note 21. Expenses Note 22. Income Taxes Note 23. Earnings Per Common Share Note 24. Line of Business Information Note 25. Non-U.S. Activities Note 26. Parent Company Financial Statements 130 133 144 153 157 159 159 159 161 163 170 174 175 177 179 181 183 183 185 186 187 187 188 189 191 191 129 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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. if we have the ability to exercise significant influence over the operations of the investee. For investments accounted for under the equity method, our share of income or loss is recorded in processing fees and other revenue in our consolidated statement of income. Investments not meeting the criteria for equity-method treatment are accounted for under the cost method of accounting. Use of Estimates: 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. We have two lines of business: Investment Servicing provides services for mutual funds, collective investment funds and other investment pools, corporate and public retirement plans, insurance companies, foundations and endowments worldwide. Products include custody; product- and participant-level accounting; daily pricing and administration; master trust and master custody; record-keeping; cash management; foreign exchange, brokerage and other trading services; securities finance; deposit and short-term investment facilities; loans and lease financing; investment manager and alternative investment manager operations outsourcing; and performance, risk and compliance analytics to support institutional investors. functional currencies other than the U.S. dollar are translated at month-end exchange rates, and revenue and expenses are translated at rates that approximate average monthly exchange rates. Gains or losses from the translation of the net assets of subsidiaries with functional currencies other than the U.S. dollar, net of related taxes, are recorded in AOCI, a component of shareholders’ equity. The assets and liabilities of our operations with Foreign Currency Translation: Cash and Cash Equivalents: Investment Management, through SSGA, provides a broad array of investment management, investment research and investment advisory services to corporations, public funds and other sophisticated investors. SSGA offers active and passive asset management strategies across equity, fixed-income and cash asset classes. Products are distributed directly and through intermediaries using a variety of investment vehicles, including ETFs, such as the SPDR® ETF brand. Consolidation: Our consolidated financial statements include the accounts of the parent company and its majority- and wholly-owned and otherwise controlled subsidiaries, including State Street Bank. All material inter-company transactions and balances have been eliminated. Certain previously reported amounts have been reclassified to conform to current-year presentation. We consolidate subsidiaries in which we exercise control. Investments in unconsolidated subsidiaries, recorded in other assets, generally are accounted for under the equity method of accounting For purposes of the consolidated statement of cash flows, cash and cash equivalents are defined as cash and due from banks. Interest-Bearing Deposits with Banks: Interest-bearing deposits with banks generally consist of highly liquid, short-term investments maintained at the Federal Reserve Bank and other non-U.S. central banks with original maturities at the time of purchase of one month or less. Securities Purchased Under Resale Agreements and Securities Sold Under Repurchase Agreements: Securities purchased under resale agreements and sold under repurchase agreements are treated as collateralized financing transactions, and are recorded in our consolidated statement of condition at the amounts at which the securities will be subsequently resold or repurchased, plus accrued interest. Our policy is to take possession or control of securities underlying resale agreements either directly or through agent banks, allowing borrowers the right of collateral substitution and/or short-notice termination. We revalue these securities daily to 130 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) determine if additional collateral is necessary from the borrower to protect us against credit exposure. We can use these securities as collateral for repurchase agreements. For securities sold under repurchase agreements collateralized by our investment securities portfolio, the dollar value of the securities remains in investment securities in our consolidated statement of condition. Where a master netting agreement exists or both parties are members of a common clearing organization, resale and repurchase agreements with the same counterparty or clearing house and maturity date are recorded on a net basis. Fair Value Note 2 Page 133 Investment Securities Note 3 Page 144 Loans and Leases Note 4 Page 153 Note 5 Goodwill and Other Intangible Assets Derivative Financial Instruments Offsetting Arrangements Note 11 Note 10 Page 157 Page 163 Page 170 Contingencies Note 13 Page 175 Variable Interest Entities Note 14 Page 177 Fee and Net Interest Revenue: Regulatory Capital Note 16 Page 181 Fees from investment servicing, investment management, securities finance, trading services and certain types of processing fees and other revenue are recorded in our consolidated statement of income based on estimates or specific contractual terms, including mutually agreed changes to terms, as transactions occur or services are rendered, provided that persuasive evidence exists, the price to the client is fixed or determinable and collectability is reasonably assured. Amounts accrued at period-end are recorded in accrued interest and fees receivable in our consolidated statement of condition. Performance fees generated by our investment management activities are recorded when earned, based on predetermined benchmarks associated with the applicable fund’s performance. Interest revenue on interest-earning assets and interest expense on interest-bearing liabilities are recorded in our consolidated statement of income as components of net interest revenue, and are generally based on the effective yield of the related financial asset or liability. Other Significant Policies: The following table identifies our other significant accounting policies and the note and page where a detailed description of each policy can be found. Equity-Based Compensation Income Taxes Note 18 Page 183 Note 22 Page 187 Earnings Per Common Share Note 23 Page 188 Recent Accounting Developments: In January 2016, the FASB issued an amendment that changes the accounting for equity securities. Under the revised 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 guidance related to valuation allowance assessments when recognizing deferred tax assets on unrealized losses on available-for-sale debt securities. The amendments are effective for State Street beginning January 1, 2018. We are currently assessing the potential impact of these amendments on our consolidated financial statements. In September 2015 the FASB issued an amendment that requires an acquirer to recognize purchase price adjustments to provisional amounts in the reporting period in which the adjustments are determined, as opposed to being applied retrospectively at the acquisition date. The amendment, which allows for early adoption, is effective for State Street beginning on January 1, 2016. We did not have any significant acquisitions in 2015 that could have a material impact on future consolidated financial statements. We will assess the amendment's impact in conjunction with new transactions, as applicable. In July 2015, the FASB issued an update to delay the effective date of the new revenue standard by one year. The deferral relates to the FASB standard issued in May 2014, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised 131 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) goods or services to customers. The standard permits the use of either retrospective or cumulative effect transition method. The deferral results in the new revenue standard being effective for State Street beginning on January 1, 2018. We are evaluating the effect on the consolidated financial statements and related disclosures. In May 2015, the FASB issued an amendment that makes certain technical corrections to the FASB Accounting Standards Codification that affect a wide variety of topics to clarify the codification, correct unintended application of the guidance, or make minor improvements that are not expected to have a significant effect on current accounting practice. The amendments that require transition guidance are effective for State Street beginning on January 1, 2016 and all other amendments are effective immediately. Our adoption of this amendment will not have a material impact on our consolidated financial statements. In May 2015, the FASB issued an amendment to U.S. GAAP which removes from the fair value hierarchy, investments for which the practical expedient is used to measure fair value at NAV. Instead, an entity is required to include those investments as a reconciling line item so that the total fair value amount of investments in the disclosure is consistent with the amount on the balance sheet. The amendment is effective for State Street beginning on January 1, 2016 and is required to be applied retrospectively. The adoption of this amendment will have no impact on our consolidated financial statements. In April 2015, the FASB issued an amendment to U.S. GAAP which will assist entities in evaluating the accounting for fees paid by a customer in a cloud computing arrangement. The amendment, which allows for early adoption, is effective for State Street beginning on January 1, 2016. Our adoption of this amendment is not expected to have a material effect on our consolidated financial statements. In April 2015, the FASB issued an amendment to U.S. GAAP that requires debt issuance costs to be presented in the consolidated balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. This amendment, which allows for early adoption, is effective for State Street beginning on January 1, 2016. Our debt issuance costs that are currently classified as deferred credits have a balance of approximately $37 million as of December 31, 2015 and will be reclassified as contra liabilities upon adoption. In August 2015, the FASB issued a related amendment to clarify that debt issuance costs relating to line of credit arrangements may still be presented as an asset, notwithstanding the April 2015 amendment that requires debt issuance costs relating to recognized debt liabilities to be recognized as contra liabilities. Our adoption of this amendment will not have a material effect on our consolidated financial statements. In February 2015, the FASB issued an amendment to U.S. GAAP that updates the consolidation model used to evaluate whether a legal entity is required to be consolidated. The amendment is effective for State Street beginning on January 1, 2016, and may be applied retrospectively or via a modified retrospective approach. The amendment eliminated the indefinite deferral of Accounting Standard Update 2010-10 “Amendments for Certain Investment Funds” for asset management funds with characteristics of an investment company and also eliminated the presumption that a general partner should consolidate a limited partnership. The amendment also changed the consolidation analysis for fee arrangements that meet certain requirements and for related party relationships. Certain money market funds are excluded from the scope of the amendment. Based on our assessment of the amendment, our adoption of this amendment will not have a material effect on our consolidated financial statements. In February 2015, the FASB issued an amendment to U.S. GAAP to remove the concept of "extraordinary items," which are defined as items that are unusual and infrequent in nature. The amendment, which allows for early adoption, is effective for State Street beginning on January 1, 2016. Our adoption of this amendment will not have a material effect on our consolidated financial statements. Revisions of Previously-Issued Financial Statements: During the fourth quarter of fiscal year 2015, we identified and corrected errors reported in prior periods and assessed the materiality of the errors. The errors arose from a review into the manner in which we invoiced certain expenses to certain of our asset servicing clients, primarily in the U.S., during an 18-year period going back to 1998. As a result of this review, we determined that we had incorrectly invoiced clients in the aggregate amount of approximately $240 million. We determined that the errors were immaterial to each of the prior reporting periods affected, however we concluded that correcting the errors cumulatively in fiscal year 2015 would materially misstate our consolidated statement of income for the year ended December 31, 2015. Accordingly, our 132 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) financial results for all prior periods presented herein have been revised to correct the errors. Additionally, we have corrected for a previously disclosed an immaterial out-of-period adjustment that had been included in our 2013 tax expense and related to prior periods. The cumulative effect of the errors has been reflected in the beginning retained earnings balance as of January 1, 2013 in the amount of $44 million in the consolidated statement of changes in shareholders' equity. The table below shows the effect of the errors on our consolidated statement of income and our consolidated statement of condition for the periods presented. Year Ended December 31, 2014 Year Ended December 31, 2013 Previously Reported Correction Revised Previously Reported Correction Revised $ 5,129 $ (21) $ 5,108 $ 4,819 $ (20) $ 10,295 2,458 421 2,037 (21) (21) (6) (15) 10,274 2,437 415 2,022 9,884 2,686 550 2,136 (20) (20) 66 (86) $ 4.65 $ (0.03) $ 4.62 $ 4.71 $ (0.19) $ 4.57 (0.04) 4.53 4.62 (0.19) 4,799 9,864 2,666 616 2,050 4.52 4.43 December 31, 2014 Previously Reported Correction Revised $ 274,119 $ — $ 274,119 252,646 14,882 21,473 274,119 145 252,791 (145) (145) 14,737 21,328 — 274,119 (In millions, except per share amounts) Servicing fee revenue Total revenue Income before income tax expense Income tax expense Net income Earnings per share: Basic Diluted (In millions) Total assets Total liabilities Retained earnings Total equity Total liabilities and shareholders' equity 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. The hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (level 1) and the lowest priority to valuation methods using significant unobservable inputs (level 3). If the inputs used to measure a financial asset or liability cross different levels of the hierarchy, categorization is based on the lowest-level input that is significant to the fair-value measurement. Management's assessment of the significance of a particular input to the overall fair-value measurement of a financial asset or liability requires judgment, and considers factors specific to that asset or liability. The three levels of the valuation hierarchy are described below. Level 1. Financial assets and liabilities with values based on unadjusted quoted prices for identical assets or liabilities in an active market. Our level-1 financial assets and liabilities primarily include positions in U.S. government securities and highly liquid U.S. and non-U.S. government fixed-income securities carried in trading account assets. We may carry U.S. government securities in our available-for- sale portfolio in connection with our asset-and-liability management activities. Our level-1 financial assets also include active exchange-traded equity securities and non-cash collateral received from counterparties in connection with our enhanced custody business. 133 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Level 2. Financial assets and liabilities with values based on quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability. Level-2 inputs include the following: • Quoted prices for similar assets or liabilities in active markets; • Quoted prices for identical or similar assets or liabilities in non-active markets; • Pricing models whose inputs are observable for substantially the full term of the asset or liability; and • Pricing models whose inputs are derived principally from, or corroborated by, observable market information through correlation or other means for substantially the full term of the asset or liability. Our level-2 financial assets and liabilities primarily include non-U.S. debt securities carried in trading account assets and various types of fixed- income investment securities available-for-sale, as well as various types of foreign exchange and interest-rate derivative instruments. Fair value for our investment securities available-for-sale categorized in level 2 is measured primarily using information obtained from independent third parties. This third-party information is subject to review by management as part of a validation process, which includes obtaining an understanding of the underlying assumptions and the level of market participant information used to support those assumptions. In addition, management compares significant assumptions used by third parties to available market information. Such information may include known trades or, to the extent that trading activity is limited, comparisons to market research information pertaining to credit expectations, execution prices and the timing of cash flows, and where information is available, back-testing. Derivative instruments categorized in level 2 predominantly represent foreign exchange contracts used in our trading activities, for which fair value is measured using discounted cash-flow techniques, with inputs consisting of observable spot and forward points, as well as observable interest-rate curves. With respect to derivative instruments, we evaluate the impact on valuation of the credit risk of our counterparties and our own credit risk. We consider factors such as the likelihood of default by us and our counterparties, our current and potential future net exposures and remaining maturities in determining the fair value. Valuation adjustments associated with derivative instruments were not material to those instruments for the years ended December 31, 2015, 2014 and 2013. Level 3. Financial assets and liabilities with values based on prices or valuation techniques that require inputs that are both unobservable in the market and significant to the overall measurement of fair value. These inputs reflect management's judgment about the assumptions that a market participant would use in pricing the financial asset or liability, and are based on the best available information, some of which is internally developed. The following provides a more detailed discussion of our financial assets and liabilities that we may categorize in level 3 and the related valuation methodology. • The fair value of our investment securities categorized in level 3 is measured using information obtained from third-party sources, typically non-binding broker or dealer quotes, or through the use of internally-developed pricing models. Management has evaluated its methodologies used to measure fair value, but has considered the level of observable market information to be insufficient to categorize the securities in level 2. • The fair value of foreign exchange contracts, primarily options, is measured using an option-pricing model. Because of a limited number of observable transactions, certain model inputs are not observable, such as implied volatility surface, but are derived from observable market information. Our level-3 financial assets and liabilities are similar in structure and profile to our level-1 and level-2 financial instruments, but they trade in less liquid markets, and the measurement of their fair value is inherently more difficult. As of December 31, 2015, on a gross basis, we categorized in level 3 approximately 3% of our financial assets carried at fair value on a recurring basis. As of the same date and on the same basis, the percentage of our financial liabilities categorized in level 3 to our financial liabilities carried at fair value on a recurring basis was de minimis. The fair value of investment securities categorized in level 3 that was measured using non-binding quotes and internally-developed pricing-model inputs was approximately 98% and 2%, respectively, of the total fair value of our investment securities categorized in level 3 as of December 31, 2015. The process used to measure the fair value of our level-3 financial assets and liabilities is overseen by a valuation group within Corporate Finance, separate from the business units that manage the assets and liabilities. This function, which develops and manages the valuation process, reports to State Street's Valuation Committee. The Valuation Committee comprises senior management from 134 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Measuring fair value requires the exercise of management judgment. The level of subjectivity and the degree of management judgment required is more significant for financial instruments whose fair value is measured using inputs that are not observable. The areas requiring significant judgment are identified, documented and reported to the Valuation Committee as part of the valuation control framework. We believe that our valuation methods are appropriate; however, the use of different methodologies or assumptions, particularly as they apply to level-3 financial assets and liabilities, could materially affect our fair-value measurements as of the reporting date. The following tables present information with respect to our financial assets and liabilities carried at fair value in our consolidated statement of condition on a recurring basis as of the dates indicated. No transfers of financial assets or liabilities between levels 1 and 2 occurred during 2015 or 2014. separate business units, Enterprise Risk Management, a corporate risk oversight group, and Corporate Finance, and oversees adherence to State Street's valuation policies. The valuation group performs validation of the pricing information obtained from third-party sources in order to evaluate reasonableness and consistency with market experience in similar asset classes. Monthly analyses include a review of price changes relative to overall trends, credit analysis and other relevant procedures (discussed below). In addition, prices for level-3 securities carried in our investment portfolio are tested on a sample basis based on unexpected pricing movements. These sample prices are then corroborated through price recalculations, when applicable, using available market information, which is obtained separately from third-party pricing sources. The recalculated prices are compared to market-research information pertaining to credit expectations, execution prices and the timing of cash flows, and where information is available, back-testing. If a difference is identified and it is determined that there is a significant impact requiring an adjustment, the adjustment is presented to the Valuation Committee for review and consideration. Validation is also performed on fair-value measurements determined using internally-developed pricing models. The pricing models are subject to validation through our Model Assessment Committee, a corporate risk oversight committee that provides technical support and input to the Valuation Committee. This validation process incorporates a review of a diverse set of model and trade parameters across a broad range of values in order to evaluate the model's suitability for valuation of a particular financial instrument type, as well as the model's accuracy in reflecting the characteristics of the related financial asset or liability and its significant risks. Inputs and assumptions, including any price- valuation adjustments, are developed by the business units and separately reviewed by the valuation group. Model valuations are compared to available market information including appropriate proxy instruments and other benchmarks to highlight abnormalities for further investigation. 135 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Fair-Value Measurements on a Recurring Basis as of December 31, 2015 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 (In millions) Assets: Trading account assets: U.S. government securities Non-U.S. government securities Other Total trading account assets AFS Investment securities: U.S. Treasury and federal agencies: Direct obligations Mortgage-backed securities Asset-backed securities: Student loans Credit cards Sub-prime Other(2) Total asset-backed securities Non-U.S. debt securities: Mortgage-backed securities Asset-backed securities Government securities Other(3) Total non-U.S. debt securities State and political subdivisions Collateralized mortgage obligations Other U.S. debt securities U.S. equity securities Non-U.S. equity securities U.S. money-market mutual funds Non-U.S. money-market mutual funds $ $ 32 $ — $ 479 10 521 5,206 — — — — — — — — — — — — — — — — — — — 328 328 512 18,165 6,987 1,341 419 — 8,747 7,071 3,093 4,355 4,579 19,098 9,713 2,948 2,614 39 3 542 19 — — — — — — 189 — — 1,764 1,953 — 174 — 255 429 33 39 10 — — — — Total investment securities available for sale 5,206 62,400 2,464 Other assets: Derivative instruments: Foreign exchange contracts Interest-rate contracts Other derivative contracts Total derivative instruments Other Total assets carried at fair value Liabilities: Accrued expenses and other liabilities: Trading account liabilities: U.S. government securities Non-U.S. government securities Other Derivative instruments: Foreign exchange contracts Interest-rate contracts Other derivative contracts Total derivative instruments Other $ $ — — — — 2 11,311 135 5 11,451 — 5 — — 5 — $ (6,562) (115) (2) (6,679) — 5,729 $ 74,179 $ 2,469 $ (6,679) $ $ 5 76 5 — — — — 2 — $ — 13 10,863 182 103 11,148 — — $ — $ — — 5 — — 5 — 5 — — (6,995) (24) (2) (7,021) — $ (7,021) $ Total liabilities carried at fair value $ 88 $ 11,161 $ (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 $776 million and $1.12 billion, respectively, for cash collateral received from and provided to derivative counterparties. (2) As of December 31, 2015 the fair value of other asset-backed securities was primarily composed of $1.76 billion of collateralized loan obligations. (3) As of December 31, 2015 the fair value of other non-U.S. debt securities was primarily composed of $3.18 billion of covered bonds and $613 million of corporate bonds. 136 32 479 338 849 5,718 18,165 7,176 1,341 419 1,764 10,700 7,071 3,267 4,355 4,834 19,527 9,746 2,987 2,624 39 3 542 19 70,070 4,754 20 3 4,777 2 75,698 5 76 18 3,873 158 101 4,132 2 4,233 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Fair-Value Measurements on a Recurring Basis as of December 31, 2014 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 (In millions) Assets: Trading account assets: U.S. government securities Non-U.S. government securities Other Total trading account assets AFS Investment securities: U.S. Treasury and federal agencies: Direct obligations Mortgage-backed securities Asset-backed securities: Student loans Credit cards Sub-prime Other(2) Total asset-backed securities Non-U.S. debt securities: Mortgage-backed securities Asset-backed securities Government securities Other(3) Total non-U.S. debt securities State and political subdivisions Collateralized mortgage obligations Other U.S. debt securities U.S. equity securities Non-U.S. equity securities U.S. money-market mutual funds Non-U.S. money-market mutual funds $ $ 20 $ — $ 378 20 418 10,056 — — — — — — — — — — — — — — — — — — — 506 506 599 20,714 12,201 3,053 951 365 16,570 9,606 2,931 3,909 5,057 21,503 10,782 4,725 4,100 39 2 449 8 — — — — — — 259 — — 3,780 4,039 — 295 — 371 666 38 614 9 — — — — Total investment securities available for sale 10,056 79,491 5,366 Other assets: Derivatives instruments: Foreign exchange contracts Interest-rate contracts Other derivative contracts Total derivative instruments Total assets carried at fair value Liabilities: Accrued expenses and other liabilities: Derivative instruments: Foreign exchange contracts Interest-rate contracts Other derivative contracts Total derivative instruments Total liabilities carried at fair value — — — — 10,474 $ 15,054 77 2 15,133 95,130 $ 81 — — 81 $ (7,211) (68) (1) (7,280) 5,447 $ (7,280) $ — $ 14,851 $ — — — — $ 239 61 15,151 15,151 $ 74 — 9 83 83 $ (8,879) $ (46) (1) (8,926) $ (8,926) $ $ $ $ (1) Represents counterparty netting against level 2 financial assets and liabilities where a legally enforceable master netting agreement exists between State Street and the counterparty. Netting also reflects asset and liability reductions of $983 million and $2.63 billion, respectively, for cash collateral received from and provided to derivative counterparties. (2) As of December 31, 2014, the fair value of other asset-backed securities was primarily composed of $3.8 billion of collateralized loan obligations and approximately $315 million of automobile loan securities. (3) As of December 31, 2014, the fair value of other non-U.S. debt securities was primarily composed of $3.3 billion of covered bonds and $1.2 billion of corporate bonds. 137 20 378 526 924 10,655 20,714 12,460 3,053 951 4,145 20,609 9,606 3,226 3,909 5,428 22,169 10,820 5,339 4,109 39 2 449 8 94,913 7,924 9 1 7,934 103,771 6,046 193 69 6,308 6,308 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following tables present activity related to our level-3 financial assets and liabilities during the years ended December 31, 2015 and 2014, respectively. Transfers into and out of level 3 are reported as of the beginning of the period presented. During the years ended December 31, 2015 and 2014, transfers out of level 3 were mainly related to certain mortgage- and asset-backed securities, including non-U.S. debt securities, for which fair value was measured using prices for which observable market information became available. Fair Value Measurements Using Significant Unobservable Inputs Year Ended December 31, 2015 Total Realized and Unrealized Gains (Losses) Fair Value as of December 31, 2014 Recorded in Revenue Recorded in Other Comprehensive Income Purchases Sales Settlements Transfers into Level 3 Transfers out of Level 3 Fair Value as of December 31, 2015 (In millions) Assets: AFS Investment securities: Asset-backed securities: Student loans Other Total asset-backed securities Non-U.S. debt securities: Mortgage-backed securities Asset-backed securities Other Total non-U.S. debt securities State and political subdivisions Collateralized mortgage obligations Other U.S. debt securities Total investment securities available for sale 5,366 Other assets: Derivative instruments: Derivative instruments, Foreign exchange contracts Total derivative instruments 81 81 $ 259 $ 1 $ (4) $ 3,780 4,039 — 295 371 666 38 614 9 53 54 — 2 — 2 1 (1) — 56 48 48 (50) (54) — (1) (1) (2) (3) (2) — (61) — — — — — 43 249 111 403 — 294 — 697 — $ (6) $ — $ (61) $ (1,105) (1,105) — — — — — (88) — (914) (920) — (190) (39) (229) (3) (105) — — — 97 4 — 101 — — 10 — (61) (140) (185) (187) (512) — (673) (9) 189 1,764 1,953 — 174 255 429 33 39 10 (1,193) (1,257) 111 (1,255) 2,464 9 9 — — (133) (133) — — — — 5 5 Total assets carried at fair value $ 5,447 $ 104 $ (61) $ 706 $ (1,193) $ (1,390) $ 111 $ (1,255) $ 2,469 Fair-Value Measurements Using Significant Unobservable Inputs Year Ended December 31, 2015 Total Realized and Unrealized (Gains) Losses Change in Unrealized Gains (Losses) Related to Financial Instruments Held as of December 31, 2015 $ $ (4) (4) (4) Change in Unrealized (Gains) Losses Related to Financial Instruments Held as of December 31, 2015 (In millions) Liabilities: Accrued expenses and other liabilities: Derivative instruments: Foreign exchange contracts Other Total derivative instruments Total liabilities carried at fair value Fair Value as of December 31, 2014 Recorded in Revenue Issuances Settlements Fair Value December 31, as of 2015(1) $ $ 74 $ 9 83 83 $ 23 — 23 23 $ $ 12 — 12 12 $ $ (104) $ (9) (113) (113) $ 5 — 5 5 $ $ (7) — (7) (7) (1) There were no transfers of liabilities into or out of level 3 during the year ended December 31, 2015. 138 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Fair-Value Measurements Using Significant Unobservable Inputs Twelve Months Ended December 31, 2014 Total Realized and Unrealized Gains (Losses) Fair Value as of December 31, 2013 Recorded in Revenue Recorded in Other Comprehensive Income Purchases Sales Settlements Transfers into Level 3 Transfers out of Level 3 as of December 31, 2014 Fair Value Change in Unrealized (Gains) Losses Related to Financial Instruments Held as of December 31, 2014 $ 716 $ — $ — $ 168 $ — $ (14) $ — $ (870) $ — (In millions) Assets: Investment securities available for sale: U.S. Treasury and federal agencies, mortgage-backed securities Asset-backed securities: Student loans Credit cards Other Total asset-backed securities Non-U.S. debt securities: Mortgage-backed securities Asset-backed securities Other Total non-U.S. debt securities State and political subdivisions Collateralized mortgage obligations Other U.S. debt securities Total investment securities available for sale 7,545 Other assets: Derivative instruments: Derivative instruments, Foreign exchange contracts Total derivative instruments 19 19 423 24 4,532 4,979 375 798 464 1,637 43 162 8 2 — 65 67 — 6 — 6 1 — — 74 36 36 1 — (28) (27) — (1) 1 — (3) 1 1 24 — 282 306 — — 55 55 — 633 — (75) — — (75) — — (1) (1) — (6) — (37) (24) (1,071) (1,132) — (272) (41) (313) (3) (32) — — — — — — 76 85 161 — — — (79) — — (79) (375) (312) (192) (879) — (144) — 259 — 3,780 4,039 — 295 371 666 38 614 9 (28) 1,162 (82) (1,494) 161 (1,972) 5,366 — — 36 36 — — (10) (10) — — — — 81 81 Total assets carried at fair value $ 7,564 $ 110 $ (28) $ 1,198 $ (82) $ (1,504) $ 161 $ (1,972) $ 5,447 Fair-Value Measurements Using Significant Unobservable Inputs Twelve Months Ended December 31, 2014 Total Realized and Unrealized (Gains) Losses Fair Value as of December 31, 2013 Recorded in Revenue Issuances Settlements Fair Value as of December 31, 2014(1) $ $ 44 44 44 Change in Unrealized (Gains) Losses Related to Financial Instruments Held as of December 31, 2014 (In millions) Liabilities: Accrued expenses and other liabilities: Derivative instruments: Foreign exchange contracts Other Total derivative instruments Total liabilities carried at fair value $ $ 17 $ 9 26 26 $ 25 — 25 25 $ $ 39 — 39 39 $ $ (7) $ — (7) (7) $ 74 9 83 83 $ $ 35 — 35 35 (1) There were no transfers of liabilities into or out of level 3 during the year ended December 31, 2014. 139 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table presents total realized and unrealized gains and losses for our level-3 financial assets and liabilities and where they are presented in our consolidated statement of income for the years indicated: (In millions) Fee revenue: Trading services Total fee revenue Net interest revenue Total revenue Twelve Months Ended December 31, Total Realized and Unrealized Gains (Losses) Recorded in Revenue Change in Unrealized Gains (Losses) Related to Financial instruments Held as of December 31, 2015 2014 2013 2015 2014 2013 $ $ 25 25 56 81 $ $ 11 11 74 85 $ $ $ 63 63 62 125 $ 3 3 — 3 $ $ 9 9 — 9 $ $ (1) (1) — (1) 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 As of December 31, 2015 As of December 31, 2014 Valuation Technique Significant Unobservable Input(1) As of December 31, 2015 As of December 31, 2014 (Dollars in millions) Significant unobservable inputs readily available to State Street: Assets: Asset-backed securities, other State and political subdivisions Derivative instruments, foreign exchange contracts Total Liabilities: Derivative instruments, foreign exchange contracts Derivative instruments, other(2) Total $ $ $ $ Credit spread 0.1% 0.2% 28 $ 33 5 Discounted cash flows Discounted cash flows 59 38 81 Option model Volatility Credit spread 66 $ 178 5 $ 74 Option model Volatility — 5 $ 9 83 Discounted cash flows Participant redemptions 2.2 9.3 9.2 — 2.1 9.1 9.0 5.2 (1) Significant changes in these unobservable inputs would result in significant changes in fair value measure. (2) Relates to stable value wrap contracts; refer to the sensitivity discussion following the tables presented below, and to Note 12. 140 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following tables present information with respect to the composition of our level-3 financial assets and liabilities, by availability of significant unobservable inputs, as of the dates indicated: December 31, 2015 (In millions) Assets: Asset-backed securities, student loans Asset-backed securities, other Non-U.S. debt securities, asset-backed securities Non-U.S. debt securities, other State and political subdivisions Collateralized mortgage obligations Other U.S. debt securities Derivative instruments, foreign exchange contracts Total Liabilities: Derivative instruments, foreign exchange contracts Total $ $ $ $ Significant Unobservable Inputs Readily Available to State Street(1) Significant Unobservable Inputs Not Developed by State Street and Not Readily Available(2) Total Assets and Liabilities with Significant Unobservable Inputs — $ 189 $ 28 — — 33 — — 5 66 5 5 $ $ $ 1,736 174 255 — 39 10 — 189 1,764 174 255 33 39 10 5 2,403 $ 2,469 — $ — $ 5 5 (1) Information with respect to these model-priced financial assets and liabilities is provided above in a separate table. (2) Fair value for these financial assets is measured using non-binding broker or dealer quotes. December 31, 2014 (In millions) Assets: Asset-backed securities, student loans Asset-backed securities, other Non-U.S. debt securities, asset-backed securities Non-U.S. debt securities, other State and political subdivisions Collateralized mortgage obligations Other U.S. debt securities Derivative instruments, foreign exchange contracts Total Liabilities: Derivative instruments, foreign exchange contracts Derivative instruments, other Total Significant Unobservable Inputs Readily Available to State Street(1) Significant Unobservable Inputs Not Developed by State Street and Not Readily Available(2) Total Assets and Liabilities with Significant Unobservable Inputs $ $ $ $ — $ 59 — — 38 — — 81 259 $ 3,721 295 371 — 614 9 — 178 $ 5,269 $ 74 9 83 $ $ — $ — — $ 259 3,780 295 371 38 614 9 81 5,447 74 9 83 (1) Information with respect to these model-priced financial assets and liabilities is provided above in a separate table. (2) Fair value for these financial assets is measured using non-binding broker or dealer quotes. We use internally-developed pricing models that incorporate discounted cash flow and option model techniques to measure the fair value of certain level-3 financial assets and liabilities. Use of these techniques requires the determination of relevant inputs and assumptions, some of which represent significant unobservable inputs as indicated in the preceding table. Accordingly, changes in these unobservable inputs may have a significant impact on fair value. Certain of these unobservable inputs will, in isolation, have a directionally consistent impact on the fair value of the instrument for a given change in that input. Alternatively, the fair value of the instrument may move in an opposite direction for a given change in another input. Where multiple inputs are used within the valuation technique of an asset or liability, a change in one input in a certain direction may be offset by an opposite change in another input, resulting in a potentially muted impact on the overall fair value of that particular instrument. Additionally, a change in one unobservable input may result in a change to another unobservable input (that is, changes in certain inputs are interrelated to one 141 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) another), which may counteract or magnify the fair- value impact. Fair Value Estimates: Estimates of fair value for financial instruments not carried at fair value on a recurring basis in our consolidated statement of condition are generally subjective in nature, and are determined as of a specific point in time based on the characteristics of the financial instruments and relevant market information. Disclosure of fair-value estimates is not required by U.S. GAAP for certain items, such as lease financing, equity-method investments, obligations for pension and other post-retirement plans, premises and equipment, other intangible assets and income-tax assets and liabilities. Accordingly, aggregate fair-value estimates presented do not purport to represent, and should not be considered representative of, our underlying “market” or franchise value. In addition, because of potential differences in methodologies and assumptions used to estimate fair values, our estimates of fair value should not be compared to those of other financial institutions. We use the following methods to estimate the fair values of our financial instruments: • For financial instruments that have quoted market prices, those quoted prices are used to estimate fair value. • For financial instruments that have no defined maturity, have a remaining maturity of 180 days or less, or reprice frequently to a market rate, we assume that the fair value of these instruments approximates their reported value, after taking into consideration any applicable credit risk. • For financial instruments for which no quoted market prices are available, fair value is estimated using information obtained from independent third parties, or by discounting the expected cash flows using an estimated current market interest rate for the financial instrument. The generally short duration of certain of our assets and liabilities results in a significant number of financial instruments for which fair value equals or closely approximates the amount recorded in our consolidated statement of condition. These financial instruments are reported in the following captions in our consolidated statement of condition: cash and due from banks; interest-bearing deposits with banks; securities purchased under resale agreements; accrued interest and fees receivable; deposits; securities sold under repurchase agreements; federal funds purchased; and other short-term borrowings. In addition, due to the relatively short duration of certain of our net loans (excluding leases), we consider fair value for these loans to approximate their reported value. The fair value of other types of loans, such as senior secured bank loans, commercial real estate loans, purchased receivables and municipal loans is estimated using information obtained from independent third parties or by discounting expected future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings for the same remaining maturities. Commitments to lend have no reported value because their terms are at prevailing market rates. 142 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 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) Reported Amount Estimated Fair Value December 31, 2015 (In millions) Financial Assets: Cash and due from banks $ 1,207 $ 1,207 $ 1,207 $ — $ Interest-bearing deposits with banks Securities purchased under resale agreements Investment securities held to maturity Net loans (excluding leases)(1) 75,338 3,404 29,952 17,838 75,338 3,404 29,798 17,792 — — — — 75,338 3,404 29,798 17,667 Financial Liabilities: Deposits: Noninterest-bearing Interest-bearing - U.S. Interest-bearing - non-U.S. Securities sold under repurchase agreements Federal funds purchased Other short-term borrowings Long-term debt $ 65,800 $ 65,800 $ — $ 65,800 $ 29,958 95,869 4,499 6 1,748 11,534 29,958 95,869 4,499 6 1,748 11,604 — — — — — — 29,958 95,869 4,499 6 1,748 11,215 — — — — 125 — — — — — — 389 (1) Includes $14 million of loans classified as held-for-sale that were measured at fair value on a non-recurring basis as of December 31, 2015. Fair-Value Hierarchy 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) Reported Amount Estimated Fair Value December 31, 2014 (In millions) Financial Assets: Cash and due from banks $ 1,855 $ 1,855 $ 1,855 $ — $ Interest-bearing deposits with banks Securities purchased under resale agreements Investment securities held to maturity Net loans (excluding leases) Financial Liabilities: Deposits: Noninterest-bearing Interest-bearing - U.S. Interest-bearing - non-U.S. Securities sold under repurchase agreements Federal funds purchased Other short-term borrowings Long-term debt 93,523 2,390 17,723 17,158 93,523 2,390 17,842 17,131 — — — — 93,523 2,390 17,842 16,964 $ 70,490 $ 70,490 $ — $ 70,490 $ 33,012 105,538 8,925 21 4,381 33,012 105,538 8,925 21 4,381 10,042 10,229 — — — — — — 33,012 105,538 8,925 21 4,381 9,382 — — — — 167 — — — — — — 847 143 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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. 144 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table presents the amortized cost and fair value, and associated unrealized gains and losses, of investment securities as of the dates indicated: (In millions) Available for sale: U.S. Treasury and federal agencies: December 31, 2015 Gross Unrealized Gains Losses Amortized Cost Fair Value Amortized Cost December 31, 2014 Gross Unrealized Gains Losses Fair Value Direct obligations $ 5,717 $ 6 $ 5 $ 5,718 $ 10,573 $ 83 $ Mortgage-backed securities 18,168 131 134 18,165 20,648 193 Asset-backed securities: Student loans(1) Credit cards Sub-prime Other(2) Total asset-backed securities Non-U.S. debt securities: Mortgage-backed securities Asset-backed securities Government securities Other(3) Total non-U.S. debt securities State and political subdivisions Collateralized mortgage obligations Other U.S. debt securities U.S. equity securities Non-U.S. equity securities U.S. money-market mutual funds Non-U.S. money-market mutual funds Total Held to maturity(4): U.S. Treasury and federal agencies: Direct obligations Mortgage-backed securities Asset-backed securities: Student loans(1) Credit cards Other Total asset-backed securities Non-U.S. debt securities: Mortgage-backed securities Asset-backed securities Government securities Other Total non-U.S. debt securities State and political subdivisions Collateralized mortgage obligations 7,358 1,378 448 1,724 10,908 7,010 3,272 4,348 4,817 19,447 9,402 2,993 2,611 33 3 542 19 16 — 2 43 61 72 2 7 29 110 371 16 31 9 — — — 198 37 31 3 7,176 1,341 419 1,764 12,478 3,077 1,005 4,055 269 10,700 20,615 11 7 — 12 30 27 22 18 3 — — — 7,071 3,267 4,355 4,834 19,527 9,746 2,987 2,624 39 3 542 19 9,442 3,215 3,899 5,383 21,939 10,532 5,280 4,033 29 2 449 8 106 10 2 100 218 168 11 10 52 241 325 71 88 10 — — — 1 127 $ 10,655 20,714 124 34 56 10 12,460 3,053 951 4,145 224 20,609 4 — — 7 11 37 12 12 — — — — 9,606 3,226 3,909 5,428 22,169 10,820 5,339 4,109 39 2 449 8 $ 69,843 $ 735 $ 508 $ 70,070 $ 94,108 $ 1,229 $ 424 $ 94,913 $ 20,878 $ 610 1,592 897 366 2,855 2,202 1,415 239 65 3,921 1 1,687 2 2 — — 2 2 109 4 — — 113 — 60 $ 217 $ 20,663 $ 5,114 $ — $ 147 $ 4,967 8 47 1 1 49 26 3 1 — 30 — 29 604 62 1,545 896 367 2,808 2,285 1,416 238 65 4,004 1 1,718 1,814 897 577 3,288 3,787 2,868 154 72 6,881 9 2,369 4 2 2 3 7 177 14 — — 191 — 107 309 — 4 — 1 5 22 1 — — 23 — 15 66 1,812 899 579 3,290 3,942 2,881 154 72 7,049 9 2,461 $ 190 $ 17,842 Total $ 29,952 $ 179 $ 333 $ 29,798 $ 17,723 $ (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 December 31, 2015 and 2014, the fair value of other ABS was primarily composed of $1.76 billion and $3.8 billion, respectively, of collateralized loan obligations and approximately zero and $315 million, respectively, of automobile loan securities. (3) As of December 31, 2015 and December 31, 2014, the fair value of other non-U.S. debt securities was primarily composed of $3.18 billion and $3.3 billion of covered bonds and $613 million and $1.2 billion, as of December 31, 2015 and December 31, 2014, respectively, of corporate bonds. (4) At amortized cost or fair value on the date of transfer from AFS. 145 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Aggregate investment securities with carrying values of $34.18 billion and $44.02 billion as of December 31, 2015 and 2014, respectively, were designated as pledged for public and trust deposits, short-term borrowings and for other purposes as provided by law. In the fourth quarter of 2015, $7.1 billion of U.S. Treasuries previously classified as AFS were transferred to HTM, reflecting our intent to hold these securities until their maturity. These securities were transferred at fair value, which included a net unrealized gain of $89 million within accumulated other comprehensive loss which will be accreted into interest income over the life of the transferred security. 146 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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: December 31, 2015 (In millions) Available for sale: U.S. Treasury and federal agencies: Direct obligations Mortgage-backed securities Asset-backed securities: Student loans Credit cards Sub-prime Other Total asset-backed securities Non-U.S. debt securities: Mortgage-backed securities Asset-backed securities Government securities Other Total non-U.S. debt securities State and political subdivisions Collateralized mortgage obligations Other U.S. debt securities U.S. equity securities Total Held to maturity: U.S. Treasury and federal agencies: Direct obligations Mortgage-backed Asset-backed securities: Student loans Credit cards Other Total asset-backed securities Non-U.S. mortgage-backed securities: Mortgage-backed securities Asset-backed securities Government securities Other Total non-U.S. debt securities Collateralized mortgage obligations Less than 12 months 12 months or longer Total Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses $ 3,123 $ 4 $ 121 $ 1 $ 3,244 $ 5,729 2,841 838 7 720 4,406 1,457 2,190 1,691 1,548 6,886 206 1,511 475 — 48 54 7 — 3 64 7 7 — 5 19 1 14 9 — 3,166 86 8,895 3,217 490 387 43 144 30 31 — 6,058 1,328 394 763 4,137 205 8,543 437 22 — 527 986 658 217 178 5 4 — — 7 11 26 8 9 3 1,894 2,212 1,691 2,075 7,872 864 1,728 653 5 5 134 198 37 31 3 269 11 7 — 12 30 27 22 18 3 $ 22,336 $ 159 $ 9,468 $ 349 $ 31,804 $ 508 $ 16,370 $ 120 $ 3,005 $ 560 896 636 102 1,634 338 1,015 128 — 1,481 634 8 25 1 — 26 2 3 1 — 6 9 — 615 — 31 646 524 69 — 43 636 537 97 — 22 — 1 23 24 — — — 24 20 $ 19,375 $ 560 1,511 636 133 2,280 862 1,084 128 43 2,117 1,171 217 8 47 1 1 49 26 3 1 — 30 29 Total $ 20,679 $ 169 $ 4,824 $ 164 $ 25,503 $ 333 147 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) December 31, 2014 (In millions) Available for sale: U.S. Treasury and federal agencies: Direct obligations Mortgage-backed securities Asset-backed securities: Student loans Credit cards Sub-prime Other Total asset-backed securities Non-U.S. debt securities: Mortgage-backed securities Other Total non-U.S. debt securities State and political subdivisions Collateralized mortgage obligations Other U.S. debt securities Total Held to maturity: U.S. Treasury and federal agencies: Direct obligations Asset-backed securities: Student Loans Other Total asset-backed securities Non-U.S. debt securities: Mortgage-backed securities Asset-backed securities Total non-U.S. debt securities Collateralized mortgage obligations Less than 12 months 12 months or longer Total Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses $ — $ — $ 167 $ 1 $ 167 $ 2,569 1,473 344 — 547 2,364 1,350 581 1,931 610 731 327 9 15 1 — 1 17 2 4 6 3 2 2 6,466 118 9,035 5,025 1,270 896 791 7,982 170 328 498 1,315 311 244 109 33 56 9 6,498 1,614 896 1,338 207 10,346 2 3 5 34 10 10 1,520 909 2,429 1,925 1,042 571 1 127 124 34 56 10 224 4 7 11 37 12 12 $ 8,532 $ 39 $ 16,983 $ 385 $ 25,515 $ 424 $ 76 $ 1 $ 4,891 $ 146 $ 4,967 $ 147 780 124 904 507 699 1,206 422 3 1 4 3 1 4 4 192 — 192 590 — 590 547 1 — 1 19 — 19 11 972 124 1,096 1,097 699 1,796 969 4 1 5 22 1 23 15 Total $ 2,608 $ 13 $ 6,220 $ 177 $ 8,828 $ 190 148 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table presents contractual maturities of debt investment securities by carrying amount as of December 31, 2015: (In millions) Available for sale: U.S. Treasury and federal agencies: Direct obligations Mortgage-backed securities Asset-backed securities: Student loans Credit cards Sub-prime Other Total asset-backed securities Non-U.S. debt securities: Mortgage-backed securities Asset-backed securities Government securities Other Total non-U.S. debt securities State and political subdivisions Collateralized mortgage obligations Other U.S. debt securities Total Held to maturity: U.S. Treasury and federal agencies: Direct obligations Mortgage-backed securities Asset-backed securities: Student loans Credit cards Other Total asset-backed securities Non-U.S. debt securities: Mortgage-backed securities Asset-backed securities Government securities Other Total non-U.S. debt securities State and political subdivisions Collateralized mortgage obligations Total Under 1 Year 1 to 5 Years 6 to 10 Years Over 10 Years Total $ 2,000 $ 3,223 $ 40 $ 455 $ 5,718 78 2,501 3,858 11,728 18,165 339 2 1 19 361 1,103 485 2,736 1,410 5,734 542 350 948 3,702 259 5 220 4,186 3,375 2,394 1,619 2,886 10,274 2,450 80 1,500 2,054 1,080 3 1,260 4,397 648 220 — 538 1,406 5,001 472 142 1,081 — 410 265 7,176 1,341 419 1,764 1,756 10,700 1,945 168 — — 2,113 1,753 2,085 34 7,071 3,267 4,355 4,834 19,527 9,746 2,987 2,624 $ 10,013 $ 24,214 $ 15,316 $ 19,924 $ 69,467 $ — $ 11,348 $ 9,440 $ 90 $ 20,878 1 — — 60 60 435 201 129 22 787 1 251 12 193 680 227 1,100 507 1,067 110 43 1,727 — 142 — 304 217 76 597 95 147 — — 242 — 489 597 610 1,095 — 3 1,098 1,165 — — — 1,165 — 805 1,592 897 366 2,855 2,202 1,415 239 65 3,921 1 1,687 $ 1,100 $ 14,329 $ 10,768 $ 3,755 $ 29,952 The maturities of asset-backed securities, mortgage-backed securities, and collateralized mortgage obligations are based on expected principal payments. 149 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following tables present gross realized gains and losses from sales of AFS investment securities, and the components of net impairment losses included in net gains and losses related to investment securities, for the years ended December 31: (In millions) 2015 2014 2013 Gross realized gains from sales of AFS investment securities Gross realized losses from sales of AFS investment securities Net impairment losses: Gross losses from OTTI Losses reclassified (from) to other comprehensive income Net impairment losses(1) Gains (losses) related to investment securities, net (1) Net impairment losses, recognized in our consolidated statement of income, were composed of the following: Impairment associated with expected credit losses Impairment associated with management's intent to sell impaired securities prior to recovery in value Impairment associated with adverse changes in timing of expected future cash flows $ 57 $ 64 $ 104 (62) (49) (90) (1) — (1) (1) (21) (10) (11) (2) (23) $ (6) $ 4 $ (9) $ — $ (10) $ (11) — — (6) (1) (1) (6) Net impairment losses $ (1) $ (11) $ (23) The following table presents a roll-forward with respect to net impairment losses that have been recognized in income for the periods indicated. (In millions) Twelve Months Ended December 31, 2015 2014 2013 Balance, beginning of period $ 115 $ 122 $ 124 Additions: Losses for which OTTI was not previously recognized Losses for which OTTI was previously recognized Deductions: Previously recognized losses related to securities sold or matured Losses related to securities intended or required to be sold Balance, end of period $ 1 — — 11 14 9 (24) (12) (25) — 92 (6) — $ 115 $ 122 Interest revenue 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 nonrefundable fees or costs, as well as purchase premiums or discounts, resulting in amortization or accretion, accordingly. For debt securities acquired for which we consider it probable as of the date of acquisition that we will be unable to collect all contractually required principal, interest and other payments, the excess of our estimate of undiscounted future cash flows from these securities over their initial recorded investment is accreted into interest revenue on a level-yield basis over the securities’ estimated remaining terms. Subsequent decreases in these securities’ expected future cash flows are either recognized prospectively through an adjustment of the yields on the securities over their remaining terms, or are evaluated for other- than-temporary impairment. Increases in expected future cash flows are recognized prospectively over the securities’ estimated remaining terms through the recalculation of their yields. For certain debt securities acquired which are considered to be beneficial interests in securitized financial assets, the excess of our estimate of undiscounted future cash flows from these securities over their initial recorded investment is accreted into interest revenue on a level-yield basis over the securities’ estimated remaining terms. Subsequent decreases in these securities’ expected future cash flows are either recognized prospectively through an adjustment of the yields on the securities over their remaining terms, or are evaluated for other-than- temporary impairment. Increases in expected future cash flows are recognized prospectively over the securities’ estimated remaining terms through the recalculation of their yields. Impairment: We conduct periodic reviews of individual securities to assess whether OTTI exists. Impairment exists when the current fair value of an individual security is below its amortized cost basis. When the decline in the security's fair value is deemed to be other than temporary, the loss is recorded in our consolidated statement of income. In addition, for AFS and HTM debt securities, impairment is recorded in our consolidated statement of income when management intends to sell (or may be required to sell) the securities before they recover in value, or when management expects the present value of cash flows expected to be collected from the securities to be less than the amortized cost of the impaired security (a credit loss). Our review of impaired securities generally includes: 150 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) • • • • • the identification and evaluation of securities that have indications of potential OTTI, such as issuer-specific concerns, including deteriorating financial condition or bankruptcy; the analysis of expected future cash flows of securities, based on quantitative and qualitative factors; the analysis of the collectability of those future cash flows, including information about past events, current conditions, and reasonable and supportable forecasts; the analysis of the underlying collateral for mortgage- and asset-backed securities; the analysis of individual impaired securities, including consideration of the length of time the security has been in an unrealized loss position, the anticipated recovery period, and the magnitude of the overall price decline; • evaluation of factors or triggers that could cause individual securities to be deemed OTTI and those that would not support OTTI; and • documentation of the results of these analyses. Factors considered in determining whether impairment is other than temporary include: • certain macroeconomic drivers; • certain industry-specific drivers; • • • the length of time the security has been impaired; the severity of the impairment; the cause of the impairment and the financial condition and near-term prospects of the issuer; • activity in the market with respect to the issuer's securities, which may indicate adverse credit conditions; and • our intention not to sell, and the likelihood that we will not be required to sell, the security for a period of time sufficient to allow for its recovery in value. Substantially all of our investment securities portfolio is composed of debt securities. A critical component of our assessment of OTTI of these debt securities is the identification of credit-impaired securities for which management does not expect to receive cash flows sufficient to recover the entire amortized cost basis of the security. Debt securities that are not deemed to be credit- impaired are subject to additional management analysis to assess whether management intends to sell, or, more likely than not, would be required to sell, the security before the expected recovery of its amortized cost basis. The following provides a description of our process for the identification and assessment of OTTI, as well as information about OTTI recorded in 2015 and 2014 and changes in period-end unrealized losses, for major security types as of December 31, 2015. U.S. Agency Securities Our portfolio of U.S. agency direct obligations and mortgage-backed securities receives the implicit or explicit backing of the U.S. government in conjunction with specified financial support of the U.S. Treasury. We recorded no OTTI on these securities in 2015, 2014 or 2013. The overall increase in the unrealized losses on these securities as of December 31, 2015 was primarily attributable to interest rate increases in 2015. Asset-Backed Securities - Student Loans Asset-backed securities collateralized by student loans are primarily composed of securities collateralized by FFELP loans. FFELP loans benefit from a federal government guarantee of at least 97% of defaulted principal and accrued interest, with additional credit support provided in the form of over- collateralization, subordination and excess spread, which collectively total in excess of 100%. Accordingly, the vast majority of FFELP loan-backed securities are protected from traditional consumer credit risk. We recorded no OTTI on these securities in 2015, 2014 or 2013. The gross unrealized losses in our FFELP loan-backed securities portfolio as of December 31, 2015 were primarily attributable to the widening FFELP spreads during the year as some rating agencies are reviewing the FFELP market for bonds with cash flows that might extend past their legal final maturities. Our assessment of OTTI of these securities considers, among many other factors, the strength of the U.S. government guarantee, the performance of the underlying collateral, and the remaining average term of the FFELP loan-backed securities portfolio, which was approximately 4.3 years as of December 31, 2015. Our total exposure to private student loan- backed securities was less than $300 million as of December 31, 2015. Our assessment of OTTI of private student loan-backed securities considers, among other factors, the impact of high unemployment rates on the collateral performance of private student loans. We recorded no OTTI on these securities in 2015, 2014 or 2013. 151 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Non-U.S. Mortgage- and Asset-Backed Securities Non-U.S. mortgage- and asset-backed securities are primarily composed of U.K., Australian and Dutch securities collateralized by residential mortgages and German securities collateralized by automobile loans and leases. Our assessment of impairment with respect to these securities considers the location of the underlying collateral, collateral enhancement and structural features, expected credit losses under base-case and stressed conditions and the macroeconomic outlook for the country in which the collateral is located, including housing prices and unemployment. Where appropriate, any potential loss after consideration of the above-referenced factors is further evaluated to determine whether any OTTI exists. We recorded OTTI of $1 million, $1 million, and $6 million for the years ended December 31, 2015, 2014 and 2013, respectively, on non-U.S. residential mortgage-backed securities in our consolidated statement of income associated with adverse changes in the timing of expected future cash flows from the securities. In addition, in the year ended December 31, 2013, we recorded OTTI of $6 million on these securities in our consolidated statement of income associated with management's intent to sell the impaired security prior to its recovery in value. Our assessment of OTTI of these securities takes into account government intervention in the corresponding mortgage markets and assumes a conservative baseline macroeconomic environment for this region, factoring in slower economic growth and continued government austerity measures. Our baseline view assumes a recessionary period characterized by high unemployment and by additional housing price declines of between 3% and 17% across these four countries. Our evaluation of OTTI in our base case does not assume a disorderly sovereign-debt restructuring or a break-up of the Eurozone. In addition, we perform stress testing and sensitivity analysis in order to understand the impact of more severe assumptions on potential OTTI. State and Political Subdivisions and Other U.S. Debt Securities Our municipal securities portfolio primarily includes securities issued by U.S. states and their municipalities. A portion of this portfolio is held in connection with our tax-exempt investment program, more fully described in Note 14. Our portfolio of other U.S. debt securities is primarily composed of securities issued by U.S. corporations. Our assessment of OTTI of these portfolios considers, among other factors, adverse conditions specifically related to the industry, geographic area or financial condition of the issuer; the structure of the security, including collateral, if any, and payment schedule; rating agency changes to the security's credit rating; the volatility of the fair value changes; and our intent and ability to hold the security until its recovery in value. If the impairment of the security is credit-related, we estimate the future cash flows from the security, tailored to the security and considering the above-described factors, and any resulting impairment deemed to be other-than-temporary is recorded in our consolidated statement of income. We recorded no OTTI on these securities in 2015, 2014 or 2013. The decline in the unrealized losses on these securities as of December 31, 2015 was primarily attributable to the narrowing of spreads and U.S. Treasury rates in 2015. U.S. Non-Agency Residential Mortgage-Backed Securities We assess OTTI of our portfolio of U.S. non- agency residential mortgage-backed securities using cash flow models, tailored for each security, that estimate the future cash flows from the underlying mortgages, using the security-specific collateral and transaction structure. Estimates of future cash flows are subject to management judgment. The future cash flows and performance of our portfolio of U.S. non-agency residential mortgage-backed securities are a function of a number of factors, including, but not limited to, the condition of the U.S. economy, the condition of the U.S. residential mortgage markets, and the level of loan defaults, prepayments and loss severities. Management's estimates of future losses for each security also consider the underwriting and historical performance of each specific security, the underlying collateral type, vintage, borrower profile, third-party guarantees, current levels of subordination, geography and other factors. We recorded no OTTI on these securities in 2015, 2014 or 2013. U.S. Non-Agency Commercial Mortgage-Backed Securities With respect to our portfolio of U.S. non-agency commercial mortgage-backed securities, OTTI is assessed by considering a number of factors, including, but not limited to, the condition of the U.S. economy and the condition of the U.S. commercial real estate market, as well as capitalization rates. Management estimates of future losses for each security also consider the underlying collateral type, property location, vintage, debt-service coverage ratios, expected property income, servicer advances and estimated property values, as well as current levels of subordination. We recorded no OTTI on 152 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) these securities in 2015. In 2014 and 2013 , we recorded $10 million and $11 million, respectively, of OTTI on these securities, all associated with expected credit losses. The estimates, assumptions and other risk factors utilized in our assessment of impairment as described above are used by management to identify securities which are subject to further analysis of potential credit losses. Additional analyses are performed using more stressful assumptions to further evaluate the sensitivity of losses relative to the above-described factors. However, since the assumptions are based on the unique characteristics of each security, management uses a range of estimates for prepayment speeds, default, and loss severity forecasts that reflect the collateral profile of the securities within each asset class. In addition, in measuring expected credit losses, the individual characteristics of each security are examined to determine whether any additional factors would increase or mitigate the expected loss. Once losses are determined, the timing of the loss will also affect the ultimate OTTI, since the loss is ultimately subject to a discount commensurate with the purchase yield of the security. After a review of the investment portfolio, taking into consideration current economic conditions, adverse situations that might affect our ability to fully collect principal and interest, the timing of future payments, the credit quality and performance of the collateral underlying mortgage- and asset-backed securities and other relevant factors, and excluding OTTI recorded in 2015, management considers the aggregate decline in fair value of the investment securities portfolio and the resulting gross pre-tax unrealized losses of $841 million related to 1,289 securities as of December 31, 2015 to be temporary, and not the result of any material changes in the credit characteristics of the securities. Note 4. Loans and Leases Loans are generally recorded at their principal amount outstanding, net of the allowance for loan losses, unearned income, and any net unamortized deferred loan origination fees. Acquired loans have been initially recorded at fair value based on management’s expectation with respect to future principal and interest collection as of the date of acquisition. Acquired loans are held for investment, and as such their initial fair value is not adjusted subsequent to acquisition. Loans that are classified as held-for-sale are measured at lower of cost or fair value on an individual basis. Interest revenue related to loans is recognized in our consolidated statement of income using the interest method, or on a basis approximating a level rate of return over the term of the loan. Fees received for providing loan commitments and letters of credit that we anticipate will result in loans typically are deferred and amortized to interest revenue over the term of the related loan, beginning with the initial borrowing. Fees on commitments and letters of credit are amortized to processing fees and other revenue over the commitment period when funding is not known or expected. Leveraged-lease investments are reported at the aggregate of lease payments receivable and estimated residual values, net of non-recourse debt and unearned income. Lease residual values are reviewed regularly for other-than-temporary impairment, with valuation adjustments recorded against processing fees and other revenue. Unearned income is recognized to yield a level rate of return on the net investment in the leases. Gains and losses on residual values of leased equipment sold are recorded in processing fees and other revenue. The following table presents our recorded investment in loans and leases, by segment and class, as of the dates indicated: (In millions) Institutional: Investment funds: U.S. Non-U.S. Commercial and financial: U.S. Non-U.S. Purchased receivables: U.S. Non-U.S. Lease financing: U.S. Non-U.S. Total institutional Commercial real estate: U.S. Total loans and leases Allowance for loan losses Loans and leases, net of allowance for loan losses December 31, 2015 December 31, 2014 $ 11,136 $ 1,678 4,671 278 93 — 337 578 11,388 2,333 3,061 256 124 6 335 668 18,771 18,171 28 18,799 (46) 28 18,199 (38) $ 18,753 $ 18,161 153 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The components of our net investment in leveraged lease financing, included in the institutional segment in the preceding table, were as follows as of December 31: (In millions) Net rental income receivable Estimated residual values Unearned income Investment in leveraged lease financing Less: related deferred income tax liabilities 2015 2014 $ 1,159 $ 1,284 89 (333) 915 (334) 89 (370) 1,003 (326) 677 Net investment in leveraged lease financing $ 581 $ We segregate our loans and leases into two segments: institutional and CRE. Within the institutional and CRE segments, we further segregate the receivables into classes based on their risk characteristics, their initial measurement attributes and the methods we use to monitor and assess credit risk. The institutional segment is composed of the following classes: investment funds, commercial-and- financial, purchased receivables and lease financing. The investment funds class includes lending to mutual and other collective investment funds. The commercial-and-financial class includes lending to corporate borrowers, including broker/dealers, as well as purchased senior secured bank loans. These senior secured bank loans, which are more fully described below, are carried in connection with our participation in loan syndications in the non- investment-grade lending market. The purchased receivables class represents undivided interests in securitized pools of underlying third-party receivables added in connection with the commercial paper conduit consolidation in 2009. The lease financing class includes our investment in leveraged lease financing. Short-duration advances to our clients included in the institutional segment were $2.62 billion and $3.54 billion as of December 31, 2015 and December 31, 2014, respectively. These short- duration advances provide liquidity to fund clients in support of their transaction flows associated with securities settlement activities. The commercial-and-financial class in the institutional segment presented in the preceding table included approximately $3.14 billion and $2.07 billion of senior secured bank loans as of December 31, 2015 and 2014, respectively. These senior secured bank loans are included in the “speculative” category in the credit-quality-indicator tables presented below. As of December 31, 2015 and December 31, 2014, our allowance for loan losses included approximately $35 million and $26 million, respectively, related to these loans. The CRE segment comprises the loans acquired in 2008 pursuant to indemnified repurchase agreements with an affiliate of Lehman as a result of the Lehman Brothers bankruptcy. The CRE loans, primarily collateralized by direct and indirect interests in commercial real estate, were recorded at their then-current fair value based on management’s expectations with respect to future cash flows from the loans using appropriate market discount rates as of the date of acquisition. These cash flow estimates are updated quarterly to reflect changes in management’s expectations, which consider market conditions and other factors. 154 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following tables present our recorded investment in each class of loans and leases by credit quality indicator as of the dates indicated: December 31, 2015 (In millions) Investment grade(1) Speculative(2) Special mention(3) Total December 31, 2014 (In millions) Investment grade(1) Speculative(2) Total Institutional Investment Funds Commercial and Financial Purchased Receivables Lease Financing Commercial Real Estate Total Loans and Leases $ $ 12,415 399 — 12,814 $ $ 1,780 3,138 31 4,949 $ $ 93 — — 93 $ $ 888 27 — 915 Institutional Investment Funds Commercial and Financial Purchased Receivables Lease Financing $ $ 13,304 417 13,721 $ $ 1,011 2,306 3,317 $ $ 130 — 130 $ $ 976 27 1,003 $ $ $ $ 28 — — 28 $ $ 15,204 3,564 31 18,799 Commercial Real Estate Total Loans and Leases — $ 28 28 $ 15,421 2,778 18,199 (1) Investment-grade loans and leases consist of counterparties with strong credit quality and low expected credit risk and probability of default. Ratings apply to counterparties with a strong capacity to support the timely repayment of any financial commitment. (2) Speculative loans and leases consist of counterparties that face ongoing uncertainties or exposure to business, financial, or economic downturns. However, these counterparties may have financial flexibility or access to financial alternatives, which allow for financial commitments to be met. (3) Special mention loans and leases consist of counterparties with potential weaknesses that, if uncorrected, may result in deterioration of repayment prospects. We use an internal risk-rating system to assess our risk of credit loss for each loan or lease. This risk-rating process incorporates the use of risk-rating tools in conjunction with management judgment. Qualitative and quantitative inputs are captured in a systematic manner, and following a formal review and approval process, an internal credit rating based on our credit scale is assigned. In assessing the risk rating assigned to each individual loan or lease, among the factors considered are the borrower's debt capacity, collateral coverage, payment history and delinquency experience, financial flexibility and earnings strength, the expected amounts and sources of repayment, the level and nature of contingencies, if any, and the industry and geography in which the borrower operates. These factors are based on an evaluation of historical and current information, and involve subjective assessment and interpretation. Credit counterparties are evaluated and risk-rated on an individual basis at least annually. Management considers the ratings to be current as of December 31, 2015. The following table presents our recorded investment in loans and leases, disaggregated based on our impairment methodology, as of the dates indicated: (In millions) Loans and leases: Collectively evaluated for impairment(1) Total December 31, 2015 December 31, 2014 Institutional Commercial Real Estate Total Loans and Leases Institutional Commercial Real Estate Total Loans and Leases $ $ 18,771 18,771 $ $ 28 28 $ $ 18,799 $ 18,171 18,799 $ 18,171 $ $ 28 28 $ $ 18,199 18,199 (1) For those portfolios where there are a small number of loans each with a large balance, we review each loan annually for indicators of impairment. For those loans where no such indicators are identified, the loans are collectively evaluated for impairment. As of December 31, 2015 and December 31, 2014, all of the allowance for loan losses of $46 million and $38 million, respectively, related to institutional loans collectively evaluated for impairment. 155 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table presents information related to our recorded investment in impaired loans and leases as of the dates indicated: (In millions) With no related allowance recorded: CRE—property development—acquired credit-impaired CRE—other—acquired credit-impaired Total CRE December 31, 2015 December 31, 2014 Recorded Investment Unpaid Principal Balance(1) Recorded Investment Unpaid Principal Balance(1) $ $ — $ — — $ 34 22 56 $ $ — $ — — $ 34 22 56 (1) As of December 31, 2015 and December 31, 2014, all of the allowance for loan losses of $46 million and $38 million, respectively, related to institutional and CRE loans collectively evaluated for impairment. In certain circumstances, we restructure troubled loans by granting concessions to borrowers experiencing financial difficulty. Once restructured, the loans are generally considered impaired until their maturity, regardless of whether the borrowers perform under the modified terms of the loans. No loans were modified in troubled debt restructurings during the years ended December 31, 2015 and 2014. We generally place loans on non-accrual status once principal or interest payments are 60 days contractually past due, or earlier if management determines that full collection is not probable. Loans 60 days past due, but considered both well-secured and in the process of collection, may be excluded from non-accrual status. When we place a loan on non-accrual status, the accrual of interest is discontinued and previously recorded but unpaid interest is reversed and generally charged against interest revenue. For loans on non-accrual status, revenue is recognized on a cash basis after recovery of principal, if and when interest payments are received. Loans may be removed from non-accrual status when repayment is reasonably assured and performance under the terms of the loan has been demonstrated. As of December 31, 2015 and December 31, 2014, no institutional loans or leases and no CRE loans were on non-accrual status or 90 days or more contractually past due. The allowance for loan losses, recorded as a reduction of loans and leases in our consolidated statement of condition, represents management’s estimate of incurred credit losses in our loan-and- lease portfolio as of the balance sheet date. The allowance is evaluated on a regular basis by management. Factors considered in evaluating the appropriate level of the allowance for both the institutional and commercial real estate segments of our loan-and-lease portfolio include loss experience, the probability of default reflected in our internal risk rating of the counterparty's creditworthiness, current economic conditions and adverse situations that may affect the borrower’s ability to repay, the estimated value of the underlying collateral, if any, the performance of individual credits in relation to contract terms, and other relevant factors. Loans are charged off to the allowance for loan losses in the reporting period in which either an event occurs that confirms the existence of a loss on a loan or a portion of a loan is determined to be uncollectible. In addition, any impaired loan that is determined to be collateral-dependent is reduced to an amount equal to the fair value of the collateral less costs to sell. A loan is identified as collateral- dependent when management determines that it is probable that the underlying collateral will be the sole source of repayment. Recoveries are recorded on a cash basis as adjustments to the allowance. The reserve for off-balance sheet credit exposures, recorded in accrued expenses and other liabilities in our consolidated statement of condition, represents management’s estimate of probable credit losses in outstanding letters and lines of credit and other credit-enhancement facilities provided to our clients and outstanding as of the balance sheet date. The reserve is evaluated on a regular basis by management. Factors considered in evaluating the appropriate level of this reserve are similar to those considered with respect to the allowance for loan losses. Provisions to maintain the reserve at a level considered by us to be appropriate to absorb estimated incurred credit losses in outstanding facilities are recorded in other expenses in our consolidated statement of income. 156 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table presents activity in the allowance for loan losses for the periods indicated: Years Ended December 31, 2015 2014 2013 Total Loans and Leases Total Loans and Leases Total Loans and Leases (In millions) Allowance for loan losses(1)(2): Beginning balance $ 38 $ 28 $ Provision for loan losses Charge-offs 12 (4) Ending balance $ 46 $ 10 — 38 $ 22 6 — 28 (1) As of December 31, 2015, approximately $35 million of our allowance for loan losses was related to senior secured bank loans included in the institutional segment; the remaining $11 million was related to other commercial-and-financial loans in the institutional segment. (2) There were no recoveries in any of the years ended December 31, 2015, 2014 or 2013. The provision of $12 million and the charge-offs of $4 million recorded in the year ended December 31, 2015 were a result of exposure to certain senior secured bank loans to non-investment grade borrowers, which we purchased in connection with our participation in loan syndications in the non- investment-grade lending market. The provision of $10 million recorded in the year ended December 31, 2014 and $6 million recorded in the year ended December 31, 2013 primarily resulted from our estimate of credit losses incurred on our portfolio of senior secured bank loans. Loans and leases are reviewed on a regular basis, and any provisions for loan losses that are recorded reflect management's estimate of the amount necessary to maintain the allowance for loan losses at a level considered appropriate to absorb estimated incurred losses in the loan-and-lease portfolio. Note 5. Goodwill and Other Intangible Assets Goodwill represents the excess of the cost of an acquisition over the fair value of the net tangible and other intangible assets acquired. Other intangible assets represent purchased assets that can be distinguished from goodwill because of contractual rights or because the asset can be exchanged on its own or in combination with a related contract, asset or liability. Goodwill is not amortized, but is subject to annual evaluation for impairment. Other intangible assets, which are also subject to annual evaluation for impairment, are mainly related to client relationships, which are amortized on a straight-line basis over periods ranging from five to twenty years, and core deposit intangible assets, which are amortized over periods ranging from sixteen to twenty-two years, with such amortization recorded in other expenses in our consolidated statement of income. Impairment of goodwill is deemed to exist if the carrying value of a reporting unit, including its allocation of goodwill and other intangible assets, exceeds its estimated fair value. Impairment of other intangible assets is deemed to exist if the balance of the other intangible asset exceeds the cumulative expected net cash inflows related to the asset over its remaining estimated useful life. If these reviews determine that goodwill or other intangible assets are impaired, the value of the goodwill or the other intangible asset is written down through a charge to other expenses in our consolidated statement of income. The following table presents changes in the carrying amount of goodwill during the periods indicated: (In millions) Goodwill: Beginning balance Foreign currency translation Ending balance Years Ended December 31, 2015 2014 Investment Servicing Investment Management Total Investment Servicing Investment Management Total $ $ 5,793 $ (152) 5,641 $ 33 $ 5,826 $ 5,999 $ 37 $ 6,036 (3) (155) (206) (4) (210) 30 $ 5,671 $ 5,793 $ 33 $ 5,826 157 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table presents changes in the net carrying amount of other intangible assets during the periods indicated: (In millions) Other intangible assets: Beginning balance Acquisitions Amortization Foreign currency translation and other, net Years Ended December 31, 2015 2014 Investment Servicing Investment Management Total Investment Servicing Investment Management Total $ 1,998 $ 16 (187) (74) 27 — (10) (2) $ 2,025 $ 2,321 $ 16 (197) (76) — (213) (110) 39 — (9) (3) $ 2,360 — (222) (113) Ending balance $ 1,753 $ 15 $ 1,768 $ 1,998 $ 27 $ 2,025 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: (In millions) Other intangible assets: Client relationships Core deposits Other Total Years Ended December 31, 2015 2014 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount $ 2,486 $ (1,198) $ 1,288 $ 2,569 $ (1,088) $ 1,481 667 147 (246) (88) 421 59 688 214 (219) (139) 469 75 $ 3,300 $ (1,532) $ 1,768 $ 3,471 $ (1,446) $ 2,025 Amortization expense related to other intangible assets was $197 million, $222 million and $214 million for the years ended December 31, 2015, 2014 and 2013, respectively. An impairment of approximately $9 million associated with intangible assets was included in amortization expense in 2014. Expected future amortization expense for other intangible assets recorded as of December 31, 2015 is as follows: Year Ending December 31, (In millions) 2016 2017 2018 2019 2020 $ 193 186 162 148 145 158 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note 6. Other Assets Note 7. Deposits The following table presents the components of As of December 31, 2015, we had $46.55 billion other assets as of the dates indicated: (In millions) December 31, 2015 December 31, 2014 Collateral deposits, net $ 21,465 $ 18,134 Derivative instruments, net Bank-owned life insurance Investments in joint ventures and other unconsolidated entities Accounts receivable Receivable for securities settlement Prepaid expenses Deferred tax assets, net of valuation allowance(1) Income taxes receivable Deposits with clearing organizations Other Total 4,777 3,078 2,034 1,018 311 284 182 154 127 510 7,934 2,402 1,798 513 218 259 214 396 197 535 $ 33,940 $ 32,600 (1) Deferred tax assets and liabilities recorded in our consolidated statement of condition are netted within the same tax jurisdiction. Gross deferred tax assets and liabilities are presented in Note 22. of time deposits outstanding, of which $127 million were non-U.S. and all of which are scheduled to mature in 2016. As of December 31, 2014, we had $56.42 billion of time deposits outstanding, of which $660 million were non-U.S. As of December 31, 2015 and 2014, substantially all U.S. and non-U.S. time deposits were in amounts of $100,000 or more. Note 8. Short-Term Borrowings Our short-term borrowings include securities sold under repurchase agreements, federal funds purchased and other short-term borrowings; other short-term borrowings include borrowings associated with our tax-exempt investment program, more fully described in Note 14. State Street phased-out its commercial paper program prior to December 31, 2015 consistent with the objectives of its 2015 recovery and resolution plan developed pursuant to the requirements of the Dodd-Frank Act. Collectively, short-term borrowings had weighted-average interest rates of 0.05% and 0.04% for the years ended December 31, 2015 and 2014, respectively. The following tables present information with respect to the amounts outstanding and weighted-average interest rates of the primary components of our short-term borrowings as of and for the years ended December 31: Securities Sold Under Repurchase Agreements Federal Funds Purchased (Dollars in millions) 2015 2014 2013 2015 2014 2013 Balance as of December 31 $ 4,499 $ 8,925 $ 7,953 $ Maximum outstanding as of any month-end Average outstanding during the year Weighted-average interest rate as of year-end Weighted-average interest rate for the year 10,977 8,875 .020% .01 10,955 8,817 .005% .00 11,538 8,436 .003% .01 $ 6 29 21 .03% .01 $ 21 29 20 .01% .00 19 570 298 .13% .00 Tax-Exempt Investment Program Corporate Commercial Paper Program (Dollars in millions) 2015 2014 2013 2015 2014 2013 Balance as of December 31 $ 1,748 $ 1,870 $ 1,948 $ — $ 2,485 $ Maximum outstanding as of any month-end Average outstanding during the year Weighted-average interest rate as of year-end Weighted-average interest rate for the year 1,865 1,807 .03% .06 1,938 1,903 .06% .08 2,135 2,030 .09% .13 2,919 1,897 .00% .26 2,485 2,136 .16% .17 1,819 2,535 1,632 .14% .18 159 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) We maintain an agreement with a clearing organization that enables us to net all securities purchased under resale agreements and sold under repurchase agreements with counterparties that are also members of the clearing organization. As a result of this netting, the average balances of securities purchased under resale agreements and securities sold under repurchase agreements were reduced by $30.30 billion for 2015 and $28.82 billion for 2014. State Street Bank currently maintains a line of credit of CAD 1.40 billion, or approximately $1.09 billion as of December 31, 2015, to support its Canadian securities processing operations. The line of credit has no stated termination date and is cancelable by either party with prior notice. As of December 31, 2015 and 2014, there was no balance outstanding on this line of credit. The following table presents the components of securities sold under repurchase agreements by underlying collateral as of December 31, 2015: (In millions) Collateralized by securities purchased under resale agreements Collateralized by investment securities Collateralized by trading account assets Total $ $ 202 4,195 102 4,499 Obligations to repurchase securities sold are recorded as a liability in our consolidated statement of condition. U.S. government securities with a fair value of $4.28 billion underlying the repurchase agreements remained in our investment securities portfolio as of December 31, 2015. The following table presents information about these U.S. government securities and the carrying value of the related repurchase agreements, including accrued interest, as of December 31, 2015. The table excludes repurchase agreements collateralized by securities purchased under resale agreements and collateralized by trading account assets. U.S. Government Securities Sold Amortized Cost Fair Value Repurchase Agreements Amortized Cost $ 4,348 $ 4,284 $ 4,195 (In millions) Overnight maturity 160 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note 9. Long-Term Debt As of December 31, (In millions) Statutory business trusts: 2015 2014 Floating-rate subordinated notes due to State Street Capital Trust IV in 2037 $ Floating-rate subordinated notes due to State Street Capital Trust I in 2028 Parent company and non-banking subsidiary issuances: $ 800 155 3.55% notes due 2025 (1) 2.55% notes due 2020(1) 3.70% notes due in 2023(1) 3.30% notes due 2024(1) 2.875% notes due 2016 3.10% subordinated notes due 2023(1) 4.375% notes due 2021(1) 4.956% junior subordinated debentures due 2018(1) Floating-rate notes due 2020 1.35% notes due 2018(1) 5.375% notes due 2017(1) Long-term capital leases 7.35% notes due 2026 State Street Bank issuances: Floating-rate extendible notes due 2016 5.25% subordinated notes due 2018 5.30% subordinated notes due 2016 Floating-rate subordinated notes due 2015 Total long-term debt 800 155 — — 1,043 999 1,005 983 730 528 — 492 450 769 150 900 433 405 200 1,307 1,199 1,050 1,013 1,001 997 740 519 500 496 449 334 150 — 424 400 — $ 11,534 $ 10,042 (1) We have entered into interest-rate swap agreements, recorded as fair value hedges, to modify our interest expense on these senior and subordinated notes from a fixed rate to a floating rate. As of December 31, 2015, the carrying value of long-term debt associated with these fair value hedges increased $105 million. As of December 31, 2014, the carrying value of long-term debt associated with these fair value hedges increased $76 million. Refer to Note 10 for additional information about fair value hedges. We maintain an effective universal shelf registration that allows for the offering and sale of debt securities, capital securities, common stock, depositary shares and preferred stock, and warrants to purchase such securities, including any shares into which the preferred stock and depositary shares may be convertible, or any combination thereof. As of December 31, 2015, State Street Bank had Board authority to issue unsecured senior debt securities from time to time, provided that the aggregate principal amount of such unsecured senior debt outstanding at any one time does not exceed $5 billion. As of December 31, 2015, $5 billion was available for issuance pursuant to this authority. As of December 31, 2015, State Street Bank also had Board authority to issue an additional $500 million of subordinated debt. In February 2015 State Street Bank called all $900 million of floating-rate extendible notes. Statutory Business Trusts: As of December 31, 2015, we had two statutory business trusts, State Street Capital Trusts I and IV, which as of December 31, 2015 had collectively issued $955 million of trust preferred capital securities. Proceeds received by each of the trusts from their capitalization and from their capital securities issuances are invested in junior subordinated debentures issued by the parent company. The junior subordinated debentures are the sole assets of Capital Trusts I and IV. Each of the trusts is wholly-owned by us; however, in conformity with U.S. GAAP, we do not record the trusts in our consolidated financial statements. Payments made by the trusts to holders of the capital securities are dependent on our payments made to the trusts on the junior subordinated debentures. Our fulfillment of these commitments has the effect of providing a full, irrevocable and unconditional guarantee of the trusts’ obligations 161 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) under the capital securities. While the capital securities issued by the trusts are not recorded in our consolidated statement of condition, a portion of the junior subordinated debentures qualify for inclusion in tier 1 regulatory capital with the remainder qualifying for inclusion in tier 2 regulatory capital under current federal regulatory capital guidelines. Information about restrictions on our ability to obtain funds from our subsidiary banks is provided in Note 16. Interest paid by the parent company on the debentures is recorded in interest expense. Distributions to holders of the capital securities by the trusts are payable from interest payments received on the debentures and are due quarterly by State Street Capital Trusts I and IV, subject to deferral for up to five years under certain conditions. The capital securities are subject to mandatory redemption in whole at the stated maturity upon repayment of the debentures, with an option by us to redeem the debentures at any time. Such optional redemption is subject to federal regulatory approval. Parent Company and Non-Banking Subsidiary Issuances: Interest on the 2.875% senior notes and the 4.375% senior notes is payable semi-annually in arrears on March 7 and September 7 of each year. In August 2015, we issued $1.2 billion of 2.55% senior notes due August 18, 2020, $1.3 billion of 3.55% senior notes due August 18, 2025 and $500 million of floating-rate notes due August 18, 2020. Interest on the 2.55% and 3.55% senior notes is payable semi-annually in arrears on February 18 and August 18 of each year beginning February 18, 2016. Interest on the floating-rate notes is payable quarterly in arrears on February 18, May 18, August 18 and November 18 of each year beginning November 18, 2015. Interest on the 3.30% senior notes is payable semi-annually in arrears on June 16 and December 16 of each year. Interest on the 3.70% senior notes is payable semi-annually in arrears on May 20 and November 20 of each year. Interest on the 3.10% subordinated notes is payable semi-annually in arrears on May 15 and November 15 of each year. The 3.10% subordinated notes qualify for inclusion in tier 2 regulatory capital under current federal regulatory capital guidelines. As of December 31, 2015 and 2014, long-term capital leases included $308 million and $336 million, respectively, related to our One Lincoln Street headquarters building and related underground parking garage. Long-term capital leases as of December 31 2014 also included $241 million, related to an office building in the U.K.; and $191 million, related to obligations associated with the completed construction of the Channel Center, a build-to-suit office building located in Boston, and other premises and equipment. During 2015, we entered into amended lease agreements for our Channel Center property located in Boston, MA and our Churchill Place property located in the U.K. As a result of such amendments, these properties no longer qualify as capital leases and are classified and accounted for as operating leases. Refer to Note 20 for additional information. Interest on the 4.956% junior subordinated debentures is payable semi-annually in arrears on March 15 and September 15 of each year. The debentures mature on March 15, 2018, and we do not have the right to redeem the debentures prior to maturity other than upon the occurrence of specified events. Such redemption is subject to federal regulatory approval. The junior subordinated debentures qualify for inclusion in tier 2 regulatory capital under current federal regulatory capital guidelines. Interest on the 1.35% senior notes is payable semi-annually in arrears on May 15 and November 15 of each year. Interest on the 5.375% senior notes is payable semi-annually in arrears on April 30 and October 30 of each year. Interest on the 7.35% senior notes is payable semi-annually in arrears on June 15 and December 15 of each year. We may not redeem the notes prior to their maturity. State Street Bank Issuances: State Street Bank is required to make semi- annual interest payments on the outstanding principal balance of the 5.25% subordinated bank notes on April 15 and October 15 of each year, and the notes qualify for inclusion in tier 2 regulatory capital under current federal regulatory capital guidelines. State Street Bank is required to make semi- annual interest payments on the outstanding principal balance of the 5.30% subordinated notes on January 15 and July 15 of each year, and the subordinated notes qualify for inclusion in tier 2 regulatory capital under current federal regulatory capital guidelines. 162 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note 10. Derivative Financial Instruments A derivative financial instrument is a financial instrument or other contract which has one or more referenced indices and one or more notional amounts, either no initial net investment or a smaller initial net investment than would be expected for similar types of contracts, and which requires or permits net settlement. We use derivative financial instruments to support our clients' needs and to manage our interest-rate and currency risk. In undertaking these activities, we assume positions in both the foreign exchange and interest-rate markets by buying and selling cash instruments and using derivative financial instruments, including foreign exchange forward contracts, foreign exchange and interest-rate options and interest-rate swaps, interest-rate forward contracts and interest-rate futures. Our derivative positions include derivative contracts held by a consolidated sponsored investment fund (refer to Note 14). We record derivatives in our consolidated statement of condition at their fair value on a recurring basis. Interest-rate contracts involve an agreement with a counterparty to exchange cash flows based on the movement of an underlying interest-rate index. An interest-rate swap agreement involves the exchange of a series of interest payments, at either a fixed or variable rate, based on the notional amount without the exchange of the underlying principal amount. An interest-rate option contract provides the purchaser, for a premium, the right, but not the obligation, to receive an interest rate based upon a predetermined notional amount during a specified period. An interest-rate futures contract is a commitment to buy or sell, at a future date, a financial instrument at a contracted price; it may be settled in cash or through the delivery of the contracted instrument. Foreign exchange contracts involve an agreement to exchange one currency for another currency at an agreed-upon rate and settlement date. Foreign exchange contracts generally consist of foreign exchange forward and spot contracts, option contracts and cross-currency swaps. Future cash requirements, if any, related to foreign exchange contracts are represented by the gross amount of currencies to be exchanged under each contract unless we and the counterparty have agreed to pay or to receive the net contractual settlement amount on the settlement date. Derivative financial instruments involve the management of interest-rate and foreign currency risk, and involve, to varying degrees, market risk and credit and counterparty risk (risk related to repayment). Market risk is defined by U.S. banking regulators as the risk of loss that could result from broad market movements, such as changes in the general level of interest rates, credit spreads, foreign exchange rates or commodity prices. We use a variety of risk management tools and methodologies to measure, monitor and manage the market risk associated with our trading activities, which include our use of derivative financial instruments. One such risk-management measure is Value-at-Risk, or VaR. VaR is an estimate of potential loss for a given period within a stated statistical confidence interval. We use a risk-measurement system to measure VaR daily. We have adopted standards for measuring VaR, and we maintain regulatory capital for market risk in accordance with currently applicable regulatory market risk requirements. Derivative financial instruments are also subject to credit and counterparty risk, which is defined as the risk of financial loss if a borrower or counterparty is either unable or unwilling to repay borrowings or settle a transaction in accordance with the underlying contractual terms. We manage credit and counterparty risk by performing credit reviews, maintaining individual counterparty limits, entering into netting arrangements and requiring the receipt of collateral. Collateral requirements are determined after a review of the creditworthiness of each counterparty, and these requirements are monitored and adjusted daily. Collateral is generally held in the form of cash or highly liquid U.S. government securities. We may be required to provide collateral to the counterparty in connection with our entry into derivative financial instruments. Cash collateral received from and provided to counterparties in connection with derivative financial instruments is recorded in accrued expenses and other liabilities and other assets, respectively, in our consolidated statement of condition. As of December 31, 2015 and 2014, we had recorded approximately $1.40 billion and $1.79 billion, respectively, of cash collateral received from counterparties and approximately $1.65 billion and $4.79 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 December 31, 2015 and 2014 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 163 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) credit rating falls below specified levels. The aggregate fair value of all derivative instruments with credit risk-related contingent features that were in a net liability position as of December 31, 2015 and 2014 totaled approximately $1.05 billion and $2.54 billion, respectively, against which we provided $32 million and $105 million, respectively, 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 as of December 31, 2015 and 2014 was approximately $1.02 billion and $2.43 billion, respectively. Such accelerated settlement would be at fair value and therefore not affect our consolidated results of operations. On the date a derivative contract is entered into, we designate the derivative as: (1) a hedge of the fair value of a recognized fixed-rate asset or liability or of an unrecognized firm commitment (a “fair-value” hedge); (2) a hedge of a forecast transaction or of the variability of cash flows to be received or paid related to a recognized variable-rate asset or liability (a “cash-flow” hedge); (3) a foreign currency fair value or cash flow hedge (a “foreign currency” hedge); (4) a hedge of a net investment in a non-U.S. operation; or (5) a derivative utilized in either our trading activities or in our asset-and-liability management activities that is not designated as a hedge of an asset or liability. At both the inception of the hedge and on an ongoing basis, we formally assess and document the effectiveness of a derivative designated in a hedging relationship and the likelihood that the derivative will be an effective hedge in future periods. We discontinue hedge accounting prospectively when we determine that the derivative is no longer highly effective in offsetting changes in fair value or cash flows of the underlying risk being hedged, the derivative expires, terminates or is sold, or management discontinues the hedge designation. Unrealized gains and losses on foreign exchange and interest-rate contracts are reported at fair value in our consolidated statement of condition as a component of other assets and accrued expenses and other liabilities, respectively, on a gross basis, except where such gains and losses arise from contracts covered by qualifying master netting agreements. Derivatives Not Designated as Hedging Instruments: In connection with our trading activities, we use derivative financial instruments in our role as a financial intermediary and as both a manager and servicer of financial assets, in order to accommodate our clients' investment and risk management needs. In addition, we use derivative financial instruments for risk management purposes as economic hedges, which are not formally designated as accounting hedges, in order to contribute to our overall corporate earnings and liquidity. These activities are designed to generate trading services revenue and to manage volatility in our net interest revenue. The level of market risk that we assume is a function of our overall objectives and liquidity needs, our clients' requirements and market volatility. With respect to cross-border investing, our clients often enter into foreign exchange forward contracts to convert currency for international investments and to manage the currency risk in their international investment portfolios. As an active participant in the foreign exchange markets, we provide foreign exchange forward contracts and options in support of these client needs, and also act as a dealer in the currency markets. As part of our trading activities, we assume positions in both the foreign exchange and interest-rate markets by buying and selling cash instruments and using derivative financial instruments, including foreign exchange forward contracts, foreign exchange and interest-rate options and interest-rate swaps, interest-rate forward contracts, and interest-rate futures. In the aggregate, we seek to match positions closely with the objective of minimizing related currency and interest-rate risk. We also use foreign currency swap contracts to manage the foreign exchange risk associated with certain foreign currency-denominated liabilities. The foreign exchange swap contracts are entered into for periods generally consistent with foreign currency exposure of the underlying transactions. We offer products that provide book-value protection primarily to plan participants in stable value funds managed by non-affiliated investment managers of post-retirement defined contribution benefit plans, particularly 401(k) plans. We account for the associated contingencies, more fully described in Note 12, individually as derivative financial instruments. These contracts are valued quarterly and unrealized losses, if any, are recorded in other expenses in our consolidated statement of income. In 2014 and 2015, we granted deferred cash awards to certain of our employees as part of our employee incentive compensation plans. We account for these awards as derivative financial instruments, as the underlying referenced shares are not equity instruments of State Street. The fair value of these derivatives is referenced to the value of units in State Street-sponsored investment funds or funds sponsored by other unrelated entities. We re- measure these derivatives to fair value quarterly, and 164 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) record the change in value in compensation and employee benefits expenses in our consolidated statement of income. Derivatives Designated as Hedging Instruments: In connection with our asset-and-liability management activities, we use derivative financial instruments to manage our interest-rate risk and foreign currency risk. Interest-rate risk, defined as the sensitivity of income or financial condition to variations in interest rates, is a significant non-trading market risk to which our assets and liabilities are exposed. We manage our interest-rate risk by identifying, quantifying and hedging our exposures, using fixed-rate portfolio securities and a variety of derivative financial instruments, most frequently interest-rate swaps and options (for example, interest-rate caps and floors). Interest-rate swap agreements alter the interest-rate characteristics of specific balance sheet assets or liabilities. When appropriate, forward-rate agreements, options on swaps, and exchange-traded futures and options are also used. 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 or cash flow hedges. Fair Value Hedges Derivatives designated as fair value hedges are utilized to mitigate the risk of changes in the fair values of recognized assets and liabilities. Differences between the gains and losses on fair value hedges and the gains and losses on the asset or liability attributable to the hedged risk represent hedge ineffectiveness. We use interest-rate or foreign exchange contracts in this manner to manage our exposure to changes in the fair value of hedged items caused by changes in interest rates or foreign exchange rates. Changes in the fair value of a derivative that is highly effective, and that is designated and qualifies as a fair-value hedge, are recorded in processing fees and other revenue, along with the changes in fair value of the hedged asset or liability attributable to the hedged risk. We have entered into interest-rate swap agreements to modify our interest revenue from certain available-for-sale investment securities from a fixed rate to a floating rate. The hedged AFS investment securities included hedged trusts that had a weighted-average life of approximately 5.4 years as of December 31, 2015, compared to 5.9 years as of December 31, 2014. These trusts are hedged with interest-rate swap contracts of similar maturity, repricing frequency and fixed-rate coupons. The interest-rate swap contracts convert the interest revenue from a fixed rate to a floating rate indexed to LIBOR, thereby mitigating our exposure to fluctuations in the fair value of the securities attributable to changes in the benchmark interest rate. We have entered into interest-rate swap agreements to modify our interest expense on seven senior notes and two subordinated notes from fixed rates to floating rates. The senior notes mature in 2017, 2018, 2020, 2021, 2023, 2024 and 2025 and pay fixed interest at annual rates of 5.38%, 1.35%, 2.55%, 4.38%, 3.70%, 3.30% and 3.55%, respectively. The subordinated notes mature in 2018 and 2023 and pay fixed interest at annual rates of 4.96% and 3.10%, respectively. The senior and subordinated notes are hedged with interest-rate swap contracts with notional amounts, maturities and fixed-rate coupon terms that align with the hedged notes. The interest-rate swap contracts convert the fixed-rate coupons to floating rates indexed to LIBOR, thereby mitigating our exposure to fluctuations in the fair values of the senior and subordinated notes stemming from changes in the benchmark interest rates. We have entered into 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. Generally, no ineffectiveness is recorded in earnings, since the notional amount of the hedging instruments is aligned with the carrying value of the hedged securities and deposits. The forward points on the hedging instruments are considered to be a hedging cost, and accordingly are excluded from the evaluation of hedge effectiveness and recorded in net interest revenue. Cash Flow Hedges Derivatives categorized as cash flow hedges are utilized to offset the variability of cash flows to be received from or paid on a floating-rate asset or liability. Ineffectiveness of cash flow hedges is defined as the extent to which the changes in fair value of the derivative exceed the changes in the present value of the forecasted cash flows attributable to the forecasted transaction. We have entered into foreign exchange contracts to hedge the change in cash flows attributable to foreign exchange movements in foreign 165 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) currency denominated investment securities. These foreign exchange contracts convert the foreign currency risk to U.S. dollars, thereby mitigating our exposure to fluctuations in the cash flows of the securities attributable to changes in foreign exchange rates. Generally, no ineffectiveness is recorded in earnings, since the critical terms of the hedging instruments and the hedged securities are aligned. Changes in the fair value of a derivative that are highly effective, and that are designated and qualify as a foreign currency hedge, are recorded either in processing fees and other revenue or in other comprehensive income, net of taxes, depending on whether the hedge transaction meets the criteria for a fair-value or a cash-flow hedge. If, however, a derivative is used as a hedge of a net investment in a non-U.S. operation, its changes in fair value, to the extent effective as a hedge, are recorded, net of taxes, in the foreign currency translation component of other comprehensive income. Lastly, entire changes in the fair value of derivatives utilized in our trading activities are recorded in trading services revenue, and entire changes in the fair value of derivatives utilized in our asset-and-liability management activities are recorded in processing fees and other revenue. The following table presents the aggregate contractual, or notional, amounts of derivative financial instruments entered into in connection with our trading and asset-and-liability management activities as of the dates indicated: December 31, 2015 December 31, 2014 (In millions) Derivatives not designated as hedging instruments: Interest-rate contracts: Swap agreements and forwards $ Options and caps purchased Options and caps written Futures Foreign exchange contracts: 336 $ 645 — — 2,621 7 7 3,939 Forward, swap and spot 1,274,277 1,231,344 Options purchased Options written Credit derivative contracts: Credit swap agreements Commodity and equity contracts: Commodity(1) Equity(1) Other: Stable value contracts Deferred value awards(2) Derivatives designated as hedging instruments: Interest-rate contracts: Swap agreements Foreign exchange contracts: Forward and swap 403 404 141 113 87 24,583 320 9,398 4,515 2,767 2,404 191 26 2 23,409 210 6,077 2,705 (1) Primarily composed of positions held by a consolidated sponsored investment fund, more fully described in Note 14. (2) Represents grants of deferred value awards to employees; refer to discussion in this note under "Derivatives Not Designated as Hedging Instruments." 166 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) In connection with our asset-and-liability management activities, we have entered into interest- rate contracts designated as fair value and cash flow hedges to manage our interest-rate risk. The following table presents the aggregate notional amounts of these interest-rate contracts and the related assets or liabilities being hedged as of the dates indicated: (In millions) December 31, 2015(1) Fair Value Hedges Investment securities available for sale $ Long-term debt(2) Total $ 1,698 7,700 9,398 (In millions) December 31, 2014(1) Fair Value Hedges Investment securities available for sale $ Long-term debt(2) Total $ 2,577 3,500 6,077 (1) As of December 31, 2015 and December 31, 2014 there were no interest-rate contracts designated as cash flow hedges. (2) As of December 31, 2015, these fair value hedges increased the carrying value of long-term debt presented in our consolidated statement of condition by $105 million. As of December 31, 2014, these fair value hedges decreased the carrying value of long-term debt presented in our consolidated statement of condition by $76 million. Notional amounts of derivative financial instruments are not recorded in the consolidated statement of condition. They are provided here as an indication of the volume of our derivative activity and do not represent a measure of our potential gains or losses. The notional amounts are not required to be exchanged for most of our derivative contracts and they generally serve as a reference to calculate the fair values of the derivatives. The following tables present the contractual and weighted-average interest rates for long-term debt, which include the effects of the fair value hedges presented in the table above, for the periods indicated: Years Ended December 31, 2015 2014 Contractual Rates Rate Including Impact of Hedges Contractual Rates Rate Including Impact of Hedges Long-term debt 3.57% 2.42% 3.44% 2.63% The following tables present the fair value of derivative financial instruments, excluding the impact of master netting agreements, recorded in our consolidated statement of condition as of the dates indicated. The impact of master netting agreements is disclosed in Note 2. Derivative Assets(1) (In millions) Derivatives not designated as hedging instruments: Foreign exchange contracts Interest-rate contracts Other derivative contracts Total Derivatives designated as hedging instruments: Foreign exchange contracts Interest-rate contracts Total Fair Value December 31, 2015 December 31, 2014 $ $ $ $ 10,799 $ 14,626 2 5 15 2 10,806 $ 14,643 517 $ 133 650 $ 509 62 571 (1) Derivative assets are included within other assets in our consolidated statement of condition. Derivative Liabilities(1) (In millions) Derivatives not designated as hedging instruments: Foreign exchange contracts Other derivative contracts Interest-rate contracts Total Derivatives designated as hedging instruments: Interest-rate contracts Foreign exchange contracts Total Fair Value December 31, 2015 December 31, 2014 $ $ $ $ 10,795 $ 14,922 103 2 70 16 10,900 $ 15,008 180 $ 73 253 $ 223 3 226 (1) Derivative liabilities are included within other liabilities in our consolidated statement of condition. 167 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following tables present the impact of our use of derivative financial instruments on our consolidated statement of income for the periods indicated: Location of Gain (Loss) on Derivative in Consolidated Statement of Income Amount of Gain (Loss) on Derivative Recognized in Consolidated Statement of Income (In millions) Derivatives not designated as hedging instruments: Foreign exchange contracts Interest-rate contracts Credit derivative contracts Credit derivative contracts Other derivative contracts Total Trading services revenue Trading services revenue Trading services revenue Processing fees and other revenue Trading services revenue Years Ended December 31, 2015 2014 2013 $ 686 $ 612 $ 586 (2) (1) — 8 1 1 (1) (2) 2 — 1 — $ 691 $ 611 $ 589 Location of (Gain) Loss on Derivative in Consolidated Statement of Income Amount of (Gain) Loss on Derivative Recognized in Consolidated Statement of Income (In millions) Derivatives not designated as hedging instruments: Other derivative contracts Compensation and employee benefits Total Years Ended December 31, 2015 2014 2013 $ $ 149 149 $ $ 106 106 $ 14 14 Location of Gain (Loss) on Derivative in Consolidated Statement of Income Amount of Gain (Loss) on Derivative Recognized in Consolidated Statement of Income Hedged Item in Fair Value Hedging Relationship Location of Gain (Loss) on Hedged Item in Consolidated Statement of Income Amount of Gain (Loss) on Hedged Item Recognized in Consolidated Statement of Income (In millions) Derivatives designated as fair value hedges: Years Ended December 31, 2015 2014 2013 Years Ended December 31, 2015 2014 2013 Foreign exchange contracts Processing fees and other revenue $ (101) $ (92) (183) Investment securities Processing fees and other revenue $ 101 $ 92 $ 183 Foreign exchange contracts Processing fees and other revenue Interest-rate contracts Interest-rate contracts Total Processing fees and other revenue Processing fees and other revenue (241) 16 61 — (44) — FX deposit Processing fees and other revenue Available-for- sale securities 32 Processing fees and other revenue(1) 150 (192) Long-term debt Processing fees and other revenue 241 (17) (54) — 39 (138) $ (265) $ 14 $ (343) $ 271 $ (7) $ — (30) 175 328 (1) Represents amounts reclassified out of or into OCI. For the year ended December 31, 2015, $12 million of unrealized gains on AFS investment securities designated in fair value hedges were recognized in OCI. For the years ended December 31, 2014 and 2013, $24 million and $86 million, respectively, of unrealized losses and gains, respectively, on AFS investment securities designated in fair value hedges were recognized in OCI. 168 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Differences between the gains (losses) on the derivative and the gains (losses) on the hedged item, excluding any amounts recorded in net interest revenue, represent hedge ineffectiveness. Amount of Gain (Loss) on Derivative Recognized in Other Comprehensive Income Years Ended December 31, Location of Gain (Loss) Reclassified from OCI to Consolidated Statement of Income (In millions) 2015 2014 2013 Derivatives designated as cash flow hedges: Amount of Gain (Loss) Reclassified from OCI to Consolidated Statement of Income Years Ended December 31, 2015 2014 2013 Location of Gain (Loss) on Derivative Recognized in Consolidated Statement of Income Amount of Gain (Loss) on Derivative Recognized in Consolidated Statement of Income Years Ended December 31, 2015 2014 2013 Interest-rate contracts Foreign exchange contracts Total $ $ — $ (2) $ 9 55 55 $ 126 124 $ 153 162 Net interest revenue Net interest revenue $ $ (4) $ (4) $ (4) — — (4) $ (4) $ — (4) Net interest revenue Net interest revenue $ $ — $ 10 10 $ 3 6 9 $ $ 3 6 9 169 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note 11. Offsetting Arrangements We manage credit and counterparty risk by entering into enforceable netting agreements and other collateral arrangements with counterparties to derivative contracts and secured financing transactions, including resale and repurchase agreements, and principal securities borrowing and lending agreements. These netting agreements mitigate our counterparty credit risk by providing for a single net settlement with a counterparty of all financial transactions covered by the agreement in an event of default as defined under such agreement. In limited cases, a netting agreement may also provide for the periodic netting of settlement payments with respect to multiple different transaction types in the normal course of business. Certain of our derivative contracts are executed under either standardized netting agreements or, for exchange-traded derivatives, the relevant contracts for a particular exchange which contain enforceable netting provisions. In certain cases, we may have cross- product netting arrangements which allow for netting and set-off of a variety of types of derivatives with a single counterparty. A derivative netting arrangement creates an enforceable right of set-off that becomes effective, and effects the realization or settlement of individual financial assets and liabilities, only following a specified event of default. Collateral requirements associated with our derivative contracts are determined after a review of the creditworthiness of each counterparty, and the requirements are monitored and adjusted daily, typically based on net exposure by counterparty. Collateral is generally in the form of cash or highly liquid U.S. government securities. In connection with secured financing transactions, we enter into netting agreements and other collateral arrangements with counterparties, which provide for the right to liquidate collateral in the event of default. Collateral is generally required in the form of cash, equity securities or fixed-income securities. Default events may include the failure to make payments or deliver securities timely, material adverse changes in financial condition or insolvency, the breach of minimum regulatory capital requirements, or loss of license, charter or other legal authorization necessary to perform under the contract. In order for an arrangement to be eligible for netting, we must have a reasonable basis to conclude that such netting arrangements are legally enforceable. The analysis of the legal enforceability of an arrangement differs by jurisdiction, depending on the laws of that jurisdiction. In many jurisdictions, specific legislation exists that provides for the enforceability in bankruptcy of close-out netting under a netting agreement, typically by way of specific exception from more general prohibitions on the exercise of creditor rights. When we have a basis to conclude that a legally enforceable netting arrangement exists between us and the derivative counterparty and the relevant transaction is the type of transaction that is recorded in our consolidated statement of condition, we offset derivative assets and liabilities, and the related collateral received and provided, in our consolidated statement of condition. We also offset assets and liabilities related to secured financing transactions with the same counterparty or clearinghouse which have the same maturity date and are settled in the normal course of business on a net basis. Collateral that we receive in the form of securities in connection with secured financing transactions and derivative contracts can be transferred or re-pledged as collateral in many instances to enter into repurchase agreements or securities finance or derivative transactions. The securities collateral received in connection with our securities finance activities is recorded at fair value in other assets in our consolidated statement of condition, with a related liability to return the collateral, if we have the right to transfer or re-pledge the collateral. As of December 31, 2015 and December 31, 2014, the fair value of securities received as collateral where we are permitted to transfer or re-pledge the securities totaled $3.05 billion and $2.60 billion, respectively, and the fair value of the portion that had been transferred or re- pledged as of the same date was $262 million and $125 million, respectively. 170 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following tables present information about the offsetting of assets related to derivative contracts and secured financing transactions, as of the dates indicated: Assets: December 31, 2015 December 31, 2014 Gross Amounts of Recognized Assets(1)(2) Gross Amounts Offset in Statement of Condition(3) Net Amounts of Assets Presented in Statement of Condition Gross Amounts of Recognized Assets(1) Gross Amounts Offset in Statement of Condition(3) Net Amounts of Assets Presented in Statement of Condition (In millions) Derivatives: Foreign exchange contracts $ 11,316 $ (5,896) $ 5,420 $ 15,135 $ (6,275) $ 8,860 Interest-rate contracts Equity derivative contracts Other derivative contracts Cash collateral netting Total derivatives Other financial instruments: Resale agreements and securities borrowing(4) Total derivatives and other financial instruments $ $ $ 135 1 4 — (5) — (2) (776) 130 1 2 (776) 77 — 2 — (21) — (1) (983) 11,456 $ (6,679) $ 4,777 $ 15,214 $ (7,280) $ 56 — 1 (983) 7,934 62,522 73,978 $ $ (38,997) $ 23,525 (45,676) $ 28,302 $ $ 47,488 62,702 $ $ (29,157) $ 18,331 (36,437) $ 26,265 (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 are also carried at fair value. Refer to Note 1 and Note 2 for additional information on the measurement basis of these instruments. (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 $23,525 million as of December 31, 2015 were $3,404 million of resale agreements and $20,121 million of collateral provided related to securities borrowing. Included in the $18,331 million as of December 31, 2014 were $2,390 million of resale agreements and $15,941 million of collateral provided related to securities borrowing. Resale agreements and collateral provided related to securities borrowing were recorded in securities purchased under resale agreements and other assets, respectively, in our consolidated statement of condition. Refer to Note 12 for additional information with respect to principal securities finance transactions. December 31, 2015 Gross Amounts Not Offset in Statement of Condition December 31, 2014 Gross Amounts Not Offset in Statement of Condition Net Amount of Assets Presented in Statement of Condition Counterparty Netting Cash and Securities Received(1) Net Amount(2) Net Amount of Assets Presented in Statement of Condition Counterparty Netting Collateral Received(1) Net Amount(2) $ $ 4,777 $ — $ (405) $ 4,372 $ 7,934 $ — $ (1,490) $ 6,444 23,525 (63) (22,812) 650 18,331 (128) (18,157) 46 28,302 $ (63) $ (23,217) $ 5,022 $ 26,265 $ (128) $ (19,647) $ 6,490 (In millions) Derivatives Resale agreements and securities borrowing Total (1) Includes securities in connection with our securities borrowing transactions. (2) Includes amounts secured by collateral not determined to be subject to enforceable netting arrangements. 171 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following tables present information about the offsetting of liabilities related to derivative contracts and secured financing transactions, as of the dates indicated: Liabilities: December 31, 2015 December 31, 2014 (In millions) Derivatives: Foreign exchange contracts Interest-rate contracts Other derivative contracts Cash collateral netting Total derivatives Other financial instruments: Repurchase agreements and securities lending(4) Total derivatives and other financial instruments Gross Amounts of Recognized Liabilities(1)(2) Gross Amounts Offset in Statement of Condition(3) Net Amounts of Liabilities Presented in Statement of Condition Gross Amounts of Recognized Liabilities(1) Gross Amounts Offset in Statement of Condition(3) Net Amounts of Liabilities Presented in Statement of Condition $ $ $ $ 10,868 $ (5,896) $ 4,972 $ 14,925 $ (6,275) $ 182 103 — (5) (2) 177 101 (1,118) (1,118) 239 70 — (20) (1) (2,630) 11,153 $ (7,021) $ 4,132 $ 15,234 $ (8,926) $ 8,650 219 69 (2,630) 6,308 46,766 57,919 $ $ (38,997) $ 7,769 (46,018) $ 11,901 $ $ 44,562 59,796 $ $ (29,157) $ 15,405 (38,083) $ 21,713 (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 are also carried at fair value. Refer to Note 1 and Note 2 for additional information on the measurement basis of these instruments. (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 $7,769 million as of December 31, 2015 were $4,499 million of repurchase agreements and $3,270 million of collateral received related to securities lending. Included in the $15,405 million as of December 31, 2014 were $8,925 million of repurchase agreements and $6,480 million of collateral received related to securities lending. Repurchase agreements and collateral received related to securities lending were recorded in securities sold under repurchase agreements and accrued expenses and other liabilities, respectively, in our consolidated statement of condition. Refer to Note 12 for additional information with respect to principal securities finance transactions. December 31, 2015 December 31, 2014 Gross Amounts Not Offset in Statement of Condition Gross Amounts Not Offset in Statement of Condition Net Amount of Liabilities Presented in Statement of Condition Counterparty Netting Cash and Securities Provided(1) Net Amount(2) Net Amount of Liabilities Presented in Statement of Condition Counterparty Netting Collateral Provided(1) Net Amount(2) $ $ 4,132 $ — $ (64) $ 4,068 $ 6,308 $ — $ (19) $ 6,289 7,769 (63) (5,287) 2,419 15,405 (128) (13,872) 11,901 $ (63) $ (5,351) $ 6,487 $ 21,713 $ (128) $ (13,891) $ 1,405 7,694 (In millions) Derivatives Repurchase agreements and securities lending Total (1) Includes securities provided in connection with our securities lending transactions. (2) Includes amounts secured by collateral not determined to be subject to enforceable netting arrangements. 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 in exchange for the collateral 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. 172 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table summarizes our repurchase agreements and securities lending transactions by category of collateral pledged and remaining maturity of these agreements as of December 31, 2015: (In millions) Repurchase agreements: Remaining Contractual Maturity of the Agreements Overnight and Continuous Up to 30 days 30 – 90 days Total U.S. Treasury and agency securities $ 37,157 $ 5 $ — $ 37,162 Non-U.S. sovereign debt Total Securities lending transactions: Corporate debt securities Equity securities Non-U.S. sovereign debt Total — 37,157 1 8,502 2 8,505 97 102 — — — — — — — 1,002 — 1,002 97 37,259 1 9,504 2 9,507 Gross amount of recognized liabilities for repurchase agreements and securities lending $ 45,662 $ 102 $ 1,002 $ 46,766 173 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note 12. Commitments and Guarantees Commitments: We had unfunded off-balance sheet commitments to extend credit generally through lines of credit and short-duration advance facilities totaling $22.58 billion and $24.25 billion as of December 31, 2015 and December 31, 2014, respectively. The potential losses associated with these commitments equal the gross contractual amounts, and do not consider the value of any collateral. As of December 31, 2015, approximately 76% of our unfunded commitments to extend credit expire within one year. Since many of these commitments are expected to expire or renew without being drawn upon, the gross contractual amounts do not necessarily represent our future cash requirements. Guarantees: Off-balance sheet guarantees comprise indemnified securities financing, stable value protection, asset purchase agreements, and standby letters of credit. The following table, which presents the aggregate gross contractual amounts of our off- balance sheet guarantees as of the dates indicated, does not consider the value of any collateral, which may mitigate any potential loss. Amounts presented do not reflect participations to independent third parties. (In millions) Indemnified securities financing Stable value protection Asset purchase agreements Standby letters of credit December 31, 2015 December 31, 2014 $ 320,436 $ 349,766 24,583 3,990 4,700 23,409 4,107 4,720 Indemnified Securities Financing On behalf of our clients, we lend their securities, as agent, to brokers and other institutions. In most circumstances, we indemnify our clients for the fair market value of those securities against a failure of the borrower to return such securities. We require the borrowers to maintain collateral in an amount in excess of 100% of the fair market value of the securities borrowed. Securities on loan and the collateral are revalued daily to determine if additional collateral is necessary or if excess collateral is required to be returned to the borrower. Collateral received in connection with our securities lending services is held by us as agent and is not recorded in our consolidated statement of condition. The cash collateral held by us as agent is invested on behalf of our clients. In certain cases, the cash collateral is invested in third-party repurchase agreements, for which we indemnify the client against loss of the principal invested. We require the counterparty to the indemnified repurchase agreement to provide collateral in an amount in excess of 100% of the amount of the repurchase agreement. In our role as agent, the indemnified repurchase agreements and the related collateral held by us are not recorded in our consolidated statement of condition. The following table summarizes the aggregate fair values of indemnified securities financing and related collateral, as well as collateral invested in indemnified repurchase agreements, as of the dates indicated: (In millions) Fair value of indemnified securities financing Fair value of cash and securities held by us, as agent, as collateral for indemnified securities financing Fair value of collateral for indemnified securities financing invested in indemnified repurchase agreements Fair value of cash and securities held by us or our agents as collateral for investments in indemnified repurchase agreements December 31, 2015 December 31, 2014 $ 320,436 $ 349,766 335,420 364,411 63,055 85,309 67,016 90,819 In certain cases, we participate in securities finance transactions as a principal. As a principal, we borrow securities from the lending client and then lend such securities to the subsequent borrower, either a State Street client or a broker/dealer. Collateral provided and received in connection with such transactions is recorded in other assets and accrued expenses and other liabilities, respectively, in our consolidated statement of condition. As of December 31, 2015 and December 31, 2014, we had approximately $20.12 billion and $15.94 billion, respectively, of collateral provided and approximately $3.27 billion and $6.48 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 174 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) withdraw funds when book value exceeds market value and the liquidation of the assets is not sufficient to redeem the participants. The investment parameters of the underlying portfolios, combined with structural protections, are designed to provide cushion and guard against payments even under extreme stress scenarios. These contingencies are individually accounted for as derivative financial instruments. The notional amounts of the stable value contracts are presented as “derivatives not designated as hedging instruments” in the table of aggregate notional amounts of derivative financial instruments provided in Note 10. We have not made a payment under these contingencies that we consider material to our consolidated financial condition, and management believes that the probability of payment under these contingencies in the future, that we would consider material to our consolidated financial condition, is remote. Note 13. Contingencies Legal and Regulatory Matters: In the ordinary course of business, we and our subsidiaries are involved in disputes, litigation, and governmental or regulatory inquiries and investigations, both pending and threatened. These matters, if resolved adversely against us or settled, may result in monetary damages, fines and penalties or require changes in our business practices. The resolution or settlement of these matters is inherently difficult to predict. Based on our assessment of these pending matters, we do not believe that the amount of any judgment, settlement or other action arising from any pending matter is likely to have a material adverse effect on our consolidated financial condition. However, an adverse outcome in certain of the matters described below could have a material adverse effect on our consolidated results of operations for the period in which such matter is resolved, or an accrual is determined to be required on our consolidated financial condition, or on our reputation. We evaluate our needs for accruals of loss contingencies related to legal proceedings on a case- by-case basis. When we have a liability that we deem probable and that we deem can be reasonably estimated as of the date of our consolidated financial statements, we accrue for our estimate of the loss. We also consider a loss probable and establish an accrual when we make, or intend to make, an offer of settlement. Once established, an accrual is subject to subsequent adjustment as a result of additional information. The resolution of proceedings and the reasonably estimable loss (or range thereof) are inherently difficult to predict, especially in the early stages of proceedings. Even if a loss is probable, due to many complex factors, such as speed of discovery and the timing of court decisions or rulings, a loss or range of loss might not be reasonably estimated until the later stages of the proceeding. As of December 31, 2015, our aggregate accruals for legal loss contingencies and regulatory matters totaled approximately $612 million. To the extent that we have established accruals in our consolidated statement of condition for probable loss contingencies, such accruals may not be sufficient to cover our ultimate financial exposure associated with any settlements or judgments. We may be subject to proceedings in the future that, if adversely resolved, would have a material adverse effect on our businesses or on our future consolidated financial statements. Except where otherwise noted below, we have not established accruals with respect to the claims discussed and do not believe that potential exposure is probable and can be reasonably estimated. The following discussion provides information with respect to significant legal and regulatory matters. Foreign Exchange We offer our custody clients and their investment managers the option to route foreign exchange transactions to our foreign exchange desk through our asset servicing operation. We record as revenue an amount approximately equal to the difference between the rates we set for those trades and indicative interbank market rates at the time of settlement of the trade. As discussed more fully below, claims have been asserted on behalf of certain current and former custody clients, and future claims may be asserted, alleging that our indirect foreign exchange rates (including the differences between those rates and indicative interbank market rates at the time we executed the trades) were not adequately disclosed or were otherwise improper, and seeking to recover, among other things, the full amount of the revenue we obtained from our indirect foreign exchange trading with them. Attorneys general and other government authorities from a number of jurisdictions, as well as U.S. Attorney's offices, the U.S. Department of Labor and the SEC, have requested information or issued subpoenas in connection with inquiries into the pricing of our indirect foreign exchange trading. In February 2011, a putative class action was filed in federal court in Boston seeking unspecified damages, including treble damages, on behalf of all 175 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) custodial clients that executed certain foreign exchange transactions with State Street from 1998 to 2009. The putative class action alleges, among other things, that the rates at which State Street executed foreign currency trades constituted an unfair and deceptive practice under Massachusetts law and a breach of the duty of loyalty. Two other putative class actions are currently pending in federal court in Boston alleging various violations of ERISA on behalf of all ERISA plans custodied with us that executed indirect foreign exchange trades with State Street from 1998 onward. The complaints allege that State Street caused class members to pay unfair and unreasonable rates on indirect foreign exchange trades with State Street. The complaints seek unspecified damages, disgorgement of profits, and other equitable relief. Other claims may be asserted in the future, including in response to developments in the actions discussed above or governmental proceedings. If these matters were to proceed to trial, we expect that plaintiffs would seek to recover their share of all or a portion of the revenue that we have recorded from indirect foreign exchange trades. We cannot predict whether a court, in the event of an adverse resolution, would consider our revenue to be the appropriate measure of damages. The following table summarizes our estimated total revenue worldwide from indirect foreign exchange trading for the years ended December 31: (In millions) 2008 2009 2010 2011 2012 2013 2014 2015 Revenue from indirect foreign exchange trading $ 462 369 336 331 248 285 246 280 We believe that the amount of our revenue from such trading has been of a similar or lesser order of magnitude for many years prior to 2008. Our revenue calculations related to indirect foreign exchange trading reflect a judgment concerning the relationship between the rates we charge for indirect foreign exchange execution and indicative interbank market rates near in time to execution. Our revenue from foreign exchange trading generally depends on the difference between the rates we set for those indirect trades and indicative interbank market rates at the time of settlement of the trade. As of December 31, 2015, we have accrued a total of $565 million associated with our indirect foreign exchange business. This accrual reflects the current status of our ongoing efforts to seek to resolve the outstanding claims asserted in the United States against us by federal governmental entities and U.S. civil litigants with regard to our indirect foreign exchange business. Although we believe this recorded legal accrual will address the financial demands associated with these claims, significant non-financial terms remain outstanding. In addition, there can be no assurance that other claims will not be asserted in the future. Consequently, there can be no assurance that we will enter into these settlements, that the cost of any settlements or other resolutions of any such matters will not materially exceed our accruals or that other, potentially material, claims relating to our indirect foreign exchange business will not be asserted against us. An adverse outcome with respect to one or more claims, whether or not currently asserted, relating to our indirect foreign exchange business could have a material adverse effect on our reputation, on our consolidated results of operations for the period in which the adverse outcome occurs (or an accrual is determined to be required), or on our consolidated financial condition. Transition Management In January 2014, we entered into a settlement with the U.K. Financial Conduct Authority, or FCA, pursuant to which we paid a fine of £22.9 million (approximately $37.8 million), as a result of our having charged six clients of our U.K. transition management business during 2010 and 2011 amounts in excess of the contractual terms. The SEC and the U.S. Attorney are conducting separate investigations into this matter. As of December 31, 2015, we had remaining accruals of approximately $2.0 million for indemnification costs associated with this matter. Federal Reserve/Massachusetts Division of Banks Written Agreement On June 1, 2015, State Street entered into a written agreement with the Federal Reserve and the Massachusetts Division of Banks relating to deficiencies identified in its compliance programs with the requirements of the Bank Secrecy Act, anti- money laundering (AML) regulations and U.S. economic sanctions regulations promulgated by OFAC. As part of this enforcement action, State Street is required to, among other things, implement improvements to our compliance programs and to 176 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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. If 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. Income Taxes: In determining our provision for income taxes, we make certain judgments and interpretations with respect to tax laws in jurisdictions in which we have business operations. Because of the complex nature of these laws, in the normal course of our business, we are subject to challenges from U.S. and non-U.S. income tax authorities regarding the amount of income taxes due. These challenges may result in adjustments to the timing or amount of taxable income or deductions or the allocation of taxable income among tax jurisdictions. We recognize a tax benefit when it is more likely than not that our position will result in a tax deduction or credit. Additional information with respect to our provision for income taxes and tax benefits, including unrecognized tax benefits, is provided in Note 22. The Internal Revenue Service is currently reviewing our U.S. income tax returns for the tax years 2012 and 2013. We are presently under audit by a number of tax authorities. The earliest tax year open to examination in jurisdictions where we have material operations is 2009. Management believes that we have sufficiently accrued liabilities as of December 31, 2015 for tax exposures. Note 14. Variable Interest Entities We are involved, in the normal course of our business, with various types of special purpose entities, some of which meet the definition of VIEs. We are required by U.S. GAAP to consolidate a VIE when we are deemed to be the primary beneficiary. This determination is evaluated periodically as facts and circumstances change. Asset-Backed Investment Securities: We invest in various forms of asset-backed securities, which we carry in our investment securities portfolio. These asset-backed securities meet the U.S. GAAP definition of asset securitization entities, which are considered to be VIEs. We are not considered to be the primary beneficiary of these VIEs since we do not have control over their activities. Additional information about our asset- backed securities is provided in Note 3. 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 December 31, 2015 and 2014, we carried AFS investment securities, composed of securities related to state and political subdivisions, with a fair value of $2.10 billion and $2.27 billion, respectively, and other short-term borrowings of $1.75 billion and $1.87 billion, respectively, in our consolidated statement of condition in connection with these trusts. The interest revenue and interest expense generated by the investments and certificated interests, respectively, are recorded as components of net interest revenue when earned or incurred. We transfer assets to the trusts from our investment securities portfolio at adjusted book value, and the trusts finance the acquisition of these assets by selling certificated interests issued by the trusts to third-party investors and to State Street as residual holder. These transfers do not meet the de- recognition criteria defined by U.S. GAAP, and therefore, the assets continue to be recorded in our consolidated financial statements. The trusts had a weighted-average life of approximately 5.4 years as of December 31, 2015, compared to approximately 5.9 years as of December 31, 2014. Under separate legal agreements, we provide standby bond-purchase agreements to these trusts and, with respect to certain securities, letters of credit. Our commitments to the trusts under these standby bond-purchase agreements and letters of credit totaled $1.75 billion and $569 million, respectively, as of December 31, 2015, none of which was utilized as of that date. In the event that our obligations under these agreements are triggered, no material impact to our consolidated results of operations or financial condition is expected to occur, because the securities are already recorded at fair value in our consolidated statement of condition. In addition, neither creditors nor third-party investors in the trusts have any recourse to State Street’s general credit. Interests in Sponsored Investment Funds: In the normal course of business, we manage various types of sponsored investment funds through SSGA. The services we provide to these sponsored investment funds generate management fee revenue. From time to time, we may invest cash in the funds, 177 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) which we refer to as seed capital, in order for the funds to establish a performance history for newly- launched strategies. With respect to our interests in sponsored investment funds that meet the definition of a VIE, a primary beneficiary assessment is performed to determine if our variable interest (or combination of variable interests, including those of related parties) absorbs the majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both. As part of our assessment, we consider all the facts and circumstances regarding the terms and characteristics of the variable interest(s), the design and characteristics of the fund and the other involvements of the enterprise with the fund. Upon consolidation of certain sponsored investment funds, we retain the specialized investment company accounting rules followed by the underlying funds. All of the underlying investments held by such consolidated sponsored investment funds are carried at fair value, with corresponding changes in the investments’ fair values reflected in trading services revenue in our consolidated statement of income. When we no longer control these funds due to a reduced ownership interest or other reasons, the funds are de-consolidated and accounted for under another accounting method if we continue to maintain an investment in the fund. As of December 31, 2015, the aggregate assets and liabilities of our consolidated sponsored investment funds totaled $321 million and $228 million, respectively. As of December 31, 2014, the aggregate assets and liabilities of our consolidated sponsored investment funds totaled $65 million and $13 million, respectively. As of December 31, 2015, our potential maximum total exposure associated with the consolidated sponsored investment funds totaled $61 million and represented the value of our economic ownership interest in the fund. We expect any financial losses that we realize over time from these seed investments to be limited to the actual fair value of the amount invested in the consolidated fund, which is based on the fair value of the underlying investment securities held by the funds. However, in the event of a fund wind-down, gross gains and losses of the fund may be recognized for financial accounting purposes in different periods during the time the fund is consolidated but not wholly owned. Although we expect the actual economic loss to be limited to the amount invested, our losses in any period could exceed the value of our economic interests in the fund and could exceed the value of our initial seed capital investment. Our conclusion to consolidate a sponsored investment fund may vary from period to period, most commonly as a result of fluctuation in our ownership interest as a result of changes in the number of fund shares held by either us or by third parties. Given that the funds follow specialized investment company accounting rules which prescribe fair value, a de- consolidation generally would not result in gains or losses for us. The net assets of any consolidated fund are solely available to settle the liabilities of the fund and to settle any investors’ ownership redemption requests, including any seed capital invested in the fund by State Street. We are not contractually required to provide financial or any other support to any of our sponsored investment funds. In addition, neither creditors nor equity investors in the sponsored investment funds have any recourse to State Street’s general credit. As of December 31, 2015 and 2014, we managed certain sponsored investment funds, considered VIEs, in which we held a variable interest but for which we were not deemed to be the primary beneficiary. Our potential maximum loss exposure related to these unconsolidated funds totaled $75 million and $45 million as of December 31, 2015 and 2014, respectively, and represented the carrying value of our seed capital investment, which is 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 seed capital investment in the unconsolidated fund. 178 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note 15. Shareholders' Equity Preferred Stock: The following table summarizes selected terms of each of the series of the preferred stock issued and outstanding: Preferred Stock:(2) Depositary Shares Issued Ownership Interest per Depositary Share Issuance Date Liquidation Preference Per Share Liquidation Preference Per Depositary Share Net Proceeds of Offering (in millions) Redemption Date(1) 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 Series E November 2014 30,000,000 1/4,000th Series F May 2015 750,000 1/100th 100,000 100,000 100,000 25 25 742 March 15, 2024 728 December 15, 2019 1,000 742 September 15, 2020 (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. The following table presents the dividends declared for each of the series of preferred stock issued and outstanding for the periods indicted: Years Ended December 31, 2015 Dividends Declared per Depositary Share Dividends Declared Total (in millions) Dividends Declared 2014 Dividends Declared per Depositary Share Total (in millions) Preferred Stock: Series C Series D Series E Series F Total $ 5,250 $ 1.32 $ 5,900 6,333 1,663 1.48 1.60 16.63 26 44 48 12 $ 130 $ 5,252 $ 1.32 $ 4,605 — — 1.15 — — $ 26 35 — — 61 In January 2016, we declared dividends on our Series C, D, E, and F preferred stock of approximately $1,313, $1,475, $1,500 and $2,625, respectively, per share, or approximately $0.33, $0.37, $0.38 and $26.5, respectively, per depositary share. These dividends total approximately $7 million, $11 million, $11 million and $20 million on our Series C, D, E, and F preferred stock, respectively, which will be paid in March 2016. Common Stock: In March 2015 our Board approved a common stock purchase program authorizing the purchase of up to $1.8 billion of our common stock through June 30, 2016, (the 2015 Program). In March 2014, the Board approved the previous program (the 2014 Program) that authorized stock purchases through March 2015. The table below presents the activities under each program during the year ended December 31, 2015. 2015 Program 2014 Program Total Year Ended December 31, 2015 Amount Authorized (in billions) Shares Purchased (in millions) Average Cost per Share Total Purchased (in millions) Amount Remaining Under the Program (in millions) $ 1.8 1.7 14.2 6.3 20.5 $ $ 73.72 74.88 74.07 $ $ $ 1,050 470 1,520 780 — 179 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The table below presents the dividends declared on common stock for the periods indicated: Common Stock Years Ended December 31, Dividends Declared per Share Total (in millions) Dividends Declared per Share Total (in millions) 2015 2014 $ 1.32 $ 536 $ 1.16 $ 490 Accumulated Other Comprehensive Income (Loss): The following table presents the after-tax components of AOCI as of December 31: (In millions) 2015 2014 2013 Net unrealized gains on cash flow hedges $ 293 $ Net unrealized gains (losses) on available-for-sale securities portfolio Net unrealized gains (losses) related to reclassified available-for-sale securities Net unrealized gains (losses) on available-for-sale securities Net unrealized losses on available-for-sale securities designated in fair value hedges Other-than-temporary impairment on available-for-sale securities related to factors other than credit Net unrealized losses on hedges of net investments in non-U.S. subsidiaries Other-than-temporary impairment on held-to-maturity securities related to factors other than credit Net unrealized losses on retirement plans Foreign currency translation Total 9 (28) (19) (109) — (14) (16) (183) (1,394) $ 276 273 39 312 (121) 1 (14) (29) (272) (660) 161 (56) (72) (128) (97) 4 (14) (47) (203) 229 (95) $ (1,442) $ (507) $ The following tables present changes in AOCI by component, net of related taxes, for the periods indicated: (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, 2013 $ 161 $ (221) $ (14) $ (47) $ (203) $ 229 $ (95) Other comprehensive income (loss) before reclassifications Amounts reclassified into (out of) earnings Other comprehensive income (loss) 112 3 115 422 (9) 413 — — — 17 1 18 — (69) (69) (889) — (889) (338) (74) (412) Balance as of December 31, 2014 $ 276 $ 192 $ (14) $ (29) $ (272) $ (660) $ (507) Other comprehensive income (loss) before reclassifications Amounts reclassified into (out of) earnings Other comprehensive income (loss) 20 (3) 17 (314) (6) (320) — — — 15 (2) 13 1 88 89 (734) (1,012) — 77 (734) (935) Balance as of December 31, 2015 $ 293 $ (128) $ (14) $ (16) $ (183) $ (1,394) $ (1,442) 180 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table presents after-tax reclassifications into earnings for the periods indicated: (In millions) Cash flow hedges: Interest-rate contracts, net of related tax benefit of $2 and $2, respectively Available-for-sale securities: Net realized gains from sales of available-for-sale securities, net of related tax benefit of $1 and related taxes of ($6), respectively Held-to-maturity securities: Other-than-temporary impairment on held-to-maturity securities related to factors other than credit Retirement plans: Twelve Months Ended December 31, 2015 2014 Amounts Reclassified into Earnings Affected Line Item in Consolidated Statement of Income $ (3) $ 3 Net interest revenue (6) (2) Net gains (losses) from sales of available-for-sale securities (9) Losses reclassified (from) to other comprehensive income 1 Amortization of actuarial losses, net of related taxes of ($51) and ($50), respectively Total reclassifications out of AOCI $ 88 77 $ (69) (74) Compensation and employee benefits expenses The methods for the calculation of our and State Street Bank's risk-based capital ratios will change as the provisions of the Basel III final rule related to the numerator (capital) and denominator (risk-weighted assets) are phased in, and as we begin calculating our risk-weighted assets using the advanced approaches. These ongoing methodological changes will result in differences in our reported capital ratios from one reporting period to the next that are independent of applicable changes to our capital base, our asset composition, our off-balance sheet exposures or our risk profile. As of December 31, 2015, State Street and State Street Bank exceeded all regulatory capital adequacy requirements to which they were subject. As of December 31, 2015, 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. Note 16. Regulatory Capital We are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum regulatory capital requirements can initiate certain mandatory and discretionary actions by regulators that, if undertaken, could have a direct material effect on our consolidated financial condition. Under current regulatory capital adequacy guidelines, we must meet specified capital requirements that involve quantitative measures of our consolidated assets, liabilities and off-balance sheet exposures calculated in conformity with regulatory accounting practices. Our capital components and their classifications are subject to qualitative judgments by regulators about components, risk weightings and other factors. As 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. 181 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 State Street Bank Basel III Advanced Approaches December 31, 2015(1) Basel III Standardized Approach December 31, 2015(2) Basel III Advanced Approaches December 31, 2014(1) Basel III Transitional Approach December 31, 2014(3) Basel III Advanced Approaches December 31, 2015(1) Basel III Standardized Approach December 31, 2015(2) Basel III Advanced Approaches December 31, 2014(1) Basel III Transitional Approach December 31, 2014(3) $ 10,250 $ 10,250 $ 10,295 $ 10,295 $ 10,938 $ 10,938 $ 10,867 $ 10,867 16,049 16,049 14,737 14,737 10,655 10,655 9,270 9,270 (1,422) (6,457) 18,420 (5,927) (60) 12,433 2,703 237 (109) (1,422) (6,457) 18,420 (5,927) (60) 12,433 2,703 237 (109) (642) (5,158) 19,232 (5,869) (36) 13,327 1,961 475 (145) (642) (5,158) 19,232 (5,869) (36) 13,327 1,961 475 (145) — 20,363 (5,631) (85) 14,647 — — — (1,230) (1,230) — (536) — (536) — 20,363 19,601 19,601 (5,631) (85) 14,647 — — — (5,577) (128) 13,896 — — — (5,577) (128) 13,896 — — — 15,264 15,264 15,618 15,618 14,647 14,647 13,896 13,896 1,358 1,358 1,618 1,618 1,371 1,371 1,634 1,634 713 12 2 17,349 51,733 43,882 3,937 99,552 221,880 $ $ $ $ 713 66 2 17,403 93,515 NA 2,378 95,893 221,880 $ $ $ $ 475 — 4 17,715 66,874 35,866 5,087 107,827 247,740 $ $ $ $ 475 — 4 17,715 87,502 NA 2,910 90,412 247,740 $ $ $ $ — 8 — 16,026 47,677 43,324 3,939 94,940 217,358 $ $ $ $ — 66 — — — — — — — $ $ $ $ 16,084 89,164 NA 2,378 91,542 217,358 $ $ $ $ 15,530 59,836 35,449 5,048 100,333 243,549 $ $ $ $ 15,530 84,433 NA 2,909 87,342 243,549 (Dollars in millions) Common shareholders' equity: Common stock and related surplus Retained earnings Accumulated other comprehensive income (loss) Treasury stock, at cost Total Regulatory capital adjustments: Goodwill and other intangible assets, net of associated deferred tax liabilities(4) Other adjustments Common equity tier 1 capital Preferred stock Trust preferred capital securities subject to phase-out from tier 1 capital Other adjustments Tier 1 capital Qualifying subordinated long-term debt Trust preferred capital securities phased out of tier 1 capital ALLL and other Other adjustments Total capital Risk-weighted assets: Credit risk Operational risk Market risk(5) Total risk-weighted assets Adjusted quarterly average assets Capital Ratios: Minimum Requirements(6) 2015 Minimum Requirements(7) 2014 Common equity tier 1 capital Tier 1 capital Total capital Tier 1 leverage 4.5% 4.0% 12.5% 13.0% 12.4% 14.7% 15.4% 16.0% 13.8% 15.9% 6.0 8.0 4.0 5.5 8.0 4.0 15.3 17.4 6.9 15.9 18.1 6.9 14.5 16.4 6.3 17.3 19.6 6.3 15.4 16.9 6.7 16.0 17.6 6.7 13.8 15.5 5.7 15.9 17.8 5.7 NA: Not applicable. (1) Common equity tier 1 capital, tier 1 capital and total capital ratios as of December 31, 2015 and December 31, 2014 were calculated in conformity with the advanced approaches provisions of the Basel III final rule. Tier 1 leverage ratio as of December 31, 2015 and December 31, 2014 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 December 31, 2015 were calculated in conformity with the standardized approach provisions of the Basel III final rule. Tier 1 leverage ratio as of December 31, 2015 was calculated in conformity with the Basel III final rule. (3) Common equity tier 1 capital, tier 1 capital, total capital and tier 1 leverage ratios as of December 31, 2014 were calculated in conformity with the transitional provisions of the Basel III final rule. Specifically, these ratios reflect common equity tier 1, tier 1 and total capital (the numerator) calculated in conformity with the provisions of the Basel III final rule, and total risk-weighted assets or, with respect to the tier 1 leverage ratio, quarterly average assets (in both cases, the denominator), calculated in conformity with the provisions of Basel I. (4) Amounts for State Street and State Street Bank as of December 31, 2015 consisted of goodwill, net of associated deferred tax liabilities, and 40% of other intangible assets, net of associated deferred tax liabilities. Amounts for State Street and State Street Bank as of December 31, 2014 consisted of goodwill, net of deferred tax liabilities and 20% 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. (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. State Street used the simple CVA approach in conformity with the Basel III advanced approaches. (6) Minimum requirements will be phased in up to full implementation beginning on January 1, 2019; minimum requirements listed are as of December 31, 2015. (7) Minimum requirements will be phased in up to full implementation beginning on January 1, 2019; minimum requirements listed are as of December 31, 2014. 182 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note 17. Net Interest Revenue The following table presents the components of interest revenue and interest expense, and related net interest revenue, for the periods indicated: (In millions) Interest revenue: Deposits with banks Investment securities: U.S. Treasury and federal agencies State and political subdivisions Other investments Securities purchased under resale agreements Loans and leases Other interest-earning assets Total interest revenue Interest expense: Deposits Short-term borrowings Long-term debt Other interest-bearing liabilities Total interest expense Net interest revenue Twelve Months Ended December 31, 2015 2014 2013 $ 208 $ 196 $ 125 735 227 934 62 311 11 672 231 707 249 1,241 1,331 38 266 8 45 253 4 2,488 2,652 2,714 97 7 250 46 400 99 5 245 43 392 93 60 232 26 411 $ 2,088 $ 2,260 $ 2,303 Note 18. Equity-Based Compensation We record compensation expense for equity- based awards, such as restricted stock, deferred stock and performance awards, based on the closing price of our common stock on the date of grant, adjusted if appropriate based on the award’s eligibility to receive dividends. The fair value of stock options and stock appreciation rights is determined using the Black-Scholes valuation model. Compensation expense related to equity-based awards with service-only conditions and terms that provide for a graded vesting schedule is recognized on a straight-line basis over the required service period for the entire award. Compensation expense related to equity-based awards with performance conditions and terms that provide for a graded vesting schedule is recognized over the requisite service period for each separately vesting tranche of the award, and is based on the probable outcome of the performance conditions at each reporting date. Compensation expense is adjusted for assumptions with respect to the estimated amount of awards that will be forfeited prior to vesting, and for employees who have met certain retirement eligibility criteria. Compensation expense for common stock awards granted to employees meeting early retirement eligibility criteria is fully expensed and accrued on the grant date. Dividend equivalents for certain equity-based awards are paid on stock units on a current basis prior to vesting and distribution. As of December 31, 2015, a cumulative total of 60.9 million shares had been awarded under the 2006 Equity Incentive Plan, or 2006 Plan, compared with cumulative totals of 56.9 million shares and 52.4 million shares as of December 31, 2014 and 2013, respectively. The 2006 Plan allows for shares withheld in payment of the exercise price of an award or in satisfaction of tax withholding requirements, shares forfeited due to employee termination, shares expired under options awards, or shares not delivered when performance conditions have not been met, to be added back to the pool of shares available for awards. As of December 31, 2015, 21.1 million shares had been awarded under the 2006 Plan but not delivered, and have become available for reissue. A total of 20.8 million shares is available for issuance under the 2006 Plan. The exercise price of non-qualified and incentive stock options and stock appreciation rights may not be less than the fair value of such shares on the date of grant. Stock options and stock appreciation rights granted under the 1997 Equity Incentive Plan, or 1997 Plan, and the 2006 Plan, collectively the Plans, generally vest over four years and expire no later than ten years from the date of grant. No common stock options or stock appreciation rights have been granted since 2009. For restricted stock awards granted under the Plans, common stock is issued at the time of grant and recipients have dividend and voting rights. In general, these grants vest over three to four years. As of December 31, 2015 there are no outstanding stock options or restricted stock awards. For deferred stock awards granted under the Plans, no common stock is issued at the time of grant and the stock does not have dividend and voting rights. Generally, these grants vest over one to four years. Performance awards granted are earned over a performance period based on the achievement of defined goals, generally over one to four years. Payment for performance awards is made in shares of our common stock equal to its fair market value per share, based on certain financial ratios, after the conclusion of each performance period. Beginning with 2012, malus-based forfeiture provisions were included in deferred stock awards granted to employees identified as “material risk- takers,” as defined by management. These malus- based forfeiture provisions provide for the reduction or cancellation of unvested deferred compensation, such as deferred stock awards, if it is determined that 183 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) a material risk-taker made risk-based decisions that exposed State Street to inappropriate risks that resulted in a material unexpected loss at the business-unit, line-of-business or corporate level. Compensation expense related to stock options, stock appreciation rights, restricted stock awards, deferred stock awards and performance awards, which we record as a component of compensation and employee benefits expense in our consolidated statement of income, was $319 million, $329 million and $355 million for the years ended December 31, 2015, 2014 and 2013, respectively. Such expense for 2015, 2014 and 2013 excluded $10 million, $20 million and $3 million, respectively, associated with acceleration of expense in connection with targeted staff reductions. This expense was included in the severance-related portion of the associated restructuring charges recorded in each respective year. The following table presents information about the Plans as of December 31, 2015, and related activity during the years indicated: Stock Options and Stock Appreciation Rights: Outstanding as of December 31, 2013 Exercised Forfeited or expired Outstanding as of December 31, 2014 Exercised Forfeited or expired Outstanding and exercisable as of December 31, 2015 (1) (1) Consists of zero shares subject to stock options and 1,206 stock appreciation rights. The total intrinsic value of options and stock appreciation rights exercised during the years ended December 31, 2015, 2014 and 2013 was $5 million, $14 million and $42 million, respectively. As of December 31, 2015, there was no unrecognized compensation cost related to stock options and stock appreciation rights. The following tables present activity related to other common stock awards during the years indicated: Shares (in thousands) Weighted- Average Grant Date Fair Value 1,245 $ (1,211) (3) 31 (31) — — $ 44.47 44.56 42.57 41.27 41.22 — — Restricted Stock Awards: Outstanding as of December 31, 2013 Vested Forfeited Outstanding as of December 31, 2014 Vested Forfeited Outstanding as of December 31, 2015 Shares (in thousands) Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term (in years) 2,664 $ (801) (2) 1,861 (398) (257) 1,206 $ 68.45 55.33 52.78 74.12 62.63 81.71 76.29 1.6 The total fair value of restricted stock awards vested for the years ended December 31, 2015, 2014 and 2013, based on the weighted average grant date fair value in each respective year, was $1 million, $54 million, and $57 million, respectively. As of December 31, 2015, all awards had vested. Shares (in thousands) Weighted- Average Grant Date Fair Value Deferred Stock Awards: Outstanding as of December 31, 2013 Granted Vested Forfeited Outstanding as of December 31, 2014 Granted Vested Forfeited 15,094 $ 4,282 (6,730) (215) 12,431 3,461 (6,910) (246) Outstanding as of December 31, 2015 8,736 $ 45.07 65.40 46.03 49.87 51.47 72.98 49.17 59.22 61.59 The total fair value of deferred stock awards vested for the years ended December 31, 2015, 2014 184 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) and 2013, based on the weighted average grant date fair value in each respective year, was $340 million, $310 million and $259 million, respectively. As of December 31, 2015, total unrecognized compensation cost related to deferred stock awards, net of estimated forfeitures, was $301 million, which is expected to be recognized over a weighted- average period of 2.4 years. Shares (in thousands) Weighted- Average Grant Date Fair Value Performance Awards: Outstanding as of December 31, 2013 Granted Forfeited Paid out Outstanding as of December 31, 2014 Granted Forfeited Paid out 2,224 $ 437 (1) (1,033) 1,627 400 (1) (861) Outstanding as of December 31, 2015 1,165 $ 43.24 64.56 53.16 42.48 49.46 72.24 41.02 45.09 60.45 The total fair value of performance awards paid out for the years ended December 31, 2015, 2014 and 2013, based on the weighted average grant date fair value in each respective year, was $39 million, $44 million and $34 million, respectively. As of December 31, 2015, total unrecognized compensation cost related to performance awards, net of estimated forfeitures, was $3 million, which is expected to be recognized over a weighted-average period of 1.8 years. We utilize either treasury shares or authorized but unissued shares to satisfy the issuance of common stock under our equity incentive plans. We do not have a specific policy concerning purchases of our common stock to satisfy stock issuances, including exercises of stock options. We have a general policy concerning purchases of our common stock to meet issuances under our employee benefit plans, including option exercises and other corporate purposes. Various factors determine the amount and timing of our purchases of our common stock, including regulatory reviews, our regulatory capital requirements, the number of shares we expect to issue under employee benefit plans, market conditions (including the trading price of our common stock), and legal considerations. These factors can change at any time, and the number of shares of common stock we will purchase or when we will purchase them cannot be assured. Note 19. Employee Benefits Defined Benefit Pension and Other Post- Retirement Benefit Plans: State Street Bank and certain of its U.S. subsidiaries participate in a non-contributory, tax- qualified defined benefit pension plan. The U.S. defined benefit pension plan was frozen as of December 31, 2007 and no new employees were eligible to participate after that date. State Street has agreed to contribute sufficient amounts as necessary to meet the benefits paid to plan participants and to fund the plan’s service cost, plus interest. U.S. employee account balances earn annual interest credits until the employee’s retirement. Non-U.S. employees participate in local defined benefit plans which are funded as required in each local jurisdiction. In addition to the defined benefit pension plans, we have non-qualified unfunded SERPs that provide certain officers with defined pension benefits in excess of allowable qualified plan limits. State Street Bank and certain of its U.S. subsidiaries also participate in a post-retirement plan that provides health care and insurance benefits for certain retired employees. The total expense for these tax-qualified and non-qualified plans was $46 million, $32 million and $42 million for the years ended December 31, 2015, 2014 and 2013, respectively. We recognize the funded status of our defined benefit pension plans and other post-retirement benefit plans, measured as the difference between the fair value of the plan assets and the projected benefit obligation, in the consolidated statement of position. The assets held by the defined benefit pension plans are largely made up of common, collective funds that are liquid and invest principally in U.S. equities and high-quality fixed income investments. The majority of these assets fall within Level 2 of the fair value hierarchy. The benefit obligations associated with our primary U.S. and non- U.S. defined benefit plans, non-qualified unfunded supplemental retirement plans and post-retirement plans were $1.18 billion, $155 million and $30 million, respectively, as of December 31, 2015 and $1.26 billion, $168 million and $120 million, respectively, as of December 31, 2014. As the primary defined benefit plans are frozen, the benefit obligation will only vary over time as a result of changes in market interest rates, the life expectancy of the plan participants and payments made from the plans. The primary U.S. and non-U.S. defined benefit pension plans were underfunded by $16 million and $50 million as of December 31, 2015 and 2014, respectively. The non-qualified supplemental retirement plans were underfunded by $155 million and $168 million as of December 31, 2015 and 2014, 185 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) respectively. The other post-retirement benefit plans were underfunded by $30 million and $120 million as of December 31, 2015 and 2014, respectively. The underfunded status is included in other liabilities. Defined Contribution Retirement Plans: We contribute to employer-sponsored U.S. and non-U.S. defined contribution plans. Our contribution to these plans was $130 million for 2015, $147 million for 2014 and $134 million for 2013. Note 20. Occupancy Expense and Information Systems and Communications Expense Occupancy expense and information systems and communications expense include depreciation of buildings, leasehold improvements, computer hardware and software, equipment, and furniture and fixtures. Total depreciation expense for 2015, 2014 and 2013 was $443 million, $417 million and $401 million, respectively. We lease 1,025,000 square feet at One Lincoln Street, our headquarters building located in Boston, Massachusetts, and a related underground parking garage, under 20-year, non-cancelable capital leases expiring in September 2023. A portion of the lease payments is offset by subleases for approximately 127,000 square feet of the building. As of December 31, 2015 and 2014, an aggregate net book value of $231 million and $624 million, respectively, related to the above-described capital leases was recorded in premises and equipment, with the related liability recorded in long-term debt, in our consolidated statement of condition. During 2015, we entered into amended lease agreements for our Channel Center property located in Boston, MA and our Churchill Place property located in the U.K. As a result of such amendments, these properties no longer qualify as capital leases and are classified and accounted for as operating leases. Capital lease asset amortization is recorded in occupancy expense on a straight-line basis in our consolidated statement of income over the respective lease term. Lease payments are recorded as a reduction of the liability, with a portion recorded as imputed interest expense. For the years ended December 31, 2015, 2014 and 2013, interest expense related to these capital lease obligations, reflected in net interest revenue, was $32 million, $38 million and $40 million, respectively. As of December 31, 2015 and 2014, accumulated amortization of capital lease assets was $334 million and $426 million, respectively. We have entered into non-cancelable operating leases for premises and equipment. Nearly all of these leases include renewal options. Costs related to operating leases for office space are recorded in occupancy expense. Costs related to operating leases for equipment are recorded in information systems and communications expense. Both are recorded on a straight-line basis. Total rental expense net of sublease revenue for the years ended December 31, 2015, 2014 and 2013 amounted to $190 million, $204 million and $224 million, respectively. Total rental expense was reduced by sublease revenue of $4 million in 2015, and $6 million in both 2014 and 2013. The following table presents a summary of future minimum lease payments under non-cancelable capital and operating leases as of December 31, 2015. Aggregate future minimum rental commitments have been reduced by aggregate sublease rental commitments of $48 million for capital leases and $20 million for operating leases. (In millions) 2016 2017 2018 2019 2020 Thereafter Total minimum lease payments Less amount representing interest payments Present value of minimum lease payments Capital Leases Operating Leases $ 198 199 163 128 114 498 Total $ 256 256 216 174 159 623 $ 1,300 $ 1,684 $ $ 58 57 53 46 45 125 384 (98) 286 186 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note 21. Expenses The following table presents the components of other expenses for the years ended December 31: (In millions) Litigation Insurance Regulatory fees and assessments Securities processing Other 2015 2014 2013 $ 422 $ 173 $ (17) 126 115 79 276 80 74 68 356 80 72 52 360 547 Total Other expenses $ 1,018 $ 751 $ Note 22. Income Taxes We use an asset-and-liability approach to account for income taxes. Our objective is to recognize the amount of taxes payable or refundable for the current year through charges or credits to the current tax provision, and to recognize deferred tax assets and liabilities for future tax consequences of temporary differences between amounts reported in our consolidated financial statements and their respective tax bases. The measurement of tax assets and liabilities is based on enacted tax laws and applicable tax rates. The effects of a tax position on our consolidated financial statements are recognized when we believe it is more likely than not that the position will be sustained. A valuation allowance is established if it is considered more likely than not that all or a portion of the deferred tax assets will not be realized. Deferred tax assets and liabilities recorded in our consolidated statement of condition are netted within the same tax jurisdiction. The following table presents the components of income tax expense for the years ended December 31: (In millions) 2015 2014 2013 Current: Federal State Non-U.S. Total current expense Deferred: Federal State Non-U.S. Total deferred (benefit) expense $ $ 52 92 342 486 (39) 40 (169) (168) $ 59 39 257 355 38 10 12 60 Total income tax expense $ 318 $ 415 $ 193 47 248 488 95 31 2 In 2015 we recognized benefits associated with the reduction of an Italian deferred tax liability and the approval of a tax refund for prior years, partially offset by a change in New York tax law. In 2014 we expanded our municipal securities portfolio, increased our investments in alternative energy projects and realized greater benefits from our non-U.S. operations. The amount of income tax expense (benefit) related to net gains (losses) from sales of investment securities was $(3) million, $5 million and $6 million in 2015, 2014 and 2013, respectively. Pre-tax income attributable to our operations located outside the U.S. was approximately $1.30 billion, $1.33 billion and $1.25 billion for 2015, 2014 and 2013, respectively. Pre-tax earnings of our non-U.S. subsidiaries are subject to U.S. income tax when effectively repatriated. As of December 31, 2015, we have chosen to indefinitely reinvest approximately $4.9 billion of earnings of certain of our non-U.S. subsidiaries. No provision has been recorded for U.S. income taxes that could be incurred upon repatriation. As of December 31, 2015, if such earnings had been repatriated to the U.S., we would have provided for approximately $1.1 billion of additional income tax expense. The following table presents significant components of our gross deferred tax assets and gross deferred tax liabilities as of December 31: (In millions) Deferred tax assets: Unrealized losses on investment securities, net Deferred compensation Defined benefit pension plan Restructuring charges and other reserves Foreign currency translation Real estate Other Total deferred tax assets 2015 2014 $ 57 $ 167 143 363 155 20 32 937 — 168 193 237 56 9 68 731 Valuation allowance for deferred tax assets Deferred tax assets, net of valuation allowance Deferred tax liabilities: Unrealized gains on securities, net $ $ (27) (54) 910 $ 677 — $ 334 804 265 121 5 326 1,006 167 83 128 616 Leveraged lease financing Fixed and intangible assets Non-U.S. earnings Other Total deferred tax liabilities $ 1,524 $ 1,587 187 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Management considers the valuation allowance adequate to reduce the total deferred tax assets to an aggregate amount that will more likely than not be realized. Management has determined that a valuation allowance is not required for the remaining deferred tax assets because it is more likely than not that there is sufficient taxable income of the appropriate nature within the carryback and carryforward periods to realize these assets. As of December 31, 2015 and 2014, we had deferred tax assets associated with tax credit carryforwards of $2 million in each year. The tax credit carryforwards do not expire. As of December 31, 2015 and 2014, we had deferred tax assets associated with non-U.S. and state loss carryforwards of $26 million and $53 million, respectively, included in “other” in the table above. Of the total loss carryforwards of $26 million as of December 31, 2015, $19 million do not expire, and the remaining $7 million expire through 2034. The loss carryforwards have a valuation allowance of $22 million and $45 million for 2015 and 2014. The following table presents a reconciliation of the U.S. statutory income tax rate to our effective tax rate based on income before income tax expense for the years ended December 31: U.S. federal income tax rate 35.0% 35.0% 35.0% 2015 2014 2013 Changes from statutory rate: State taxes, net of federal benefit Tax-exempt income Tax credits Foreign tax differential Tax Refund Litigation Expense Other, net Effective tax rate 4.2 (5.6) (9.4) (9.6) (2.8) 2.7 (0.7) 1.5 (5.1) (6.8) (8.5) — 1.3 1.6 (3.7) (3.6) (5.9) — — (0.3) (0.3) 13.8% 17.1% 23.1% The following table presents activity related to unrecognized tax benefits as of December 31: (In millions) Beginning balance Decrease related to agreements with tax authorities Increase related to tax positions taken during current year Increase related to tax positions taken during prior year Ending balance 2015 2014 $ 163 $ 158 (122) (9) 8 14 63 8 6 $ 163 $ The amount of unrecognized tax benefits that, if recognized, would reduce income tax expense and our effective tax rate was $55 million as of December 31, 2015. Unrecognized tax benefits do not include accrued interest of approximately $3 million and $9 million as of December 31, 2015 and 2014. It is reasonably possible that the unrecognized tax benefits could decrease by up to $7 million within the next 12 months due to the resolution of an audit, which would not reduce our income tax expense and our effective tax rate. Management believes that we have sufficient accrued liabilities as of December 31, 2015 for tax exposures and related interest expense. We recorded interest and penalties related to income taxes as a component of income tax expense. Income tax expense included related interest and penalties of approximately $5 million and $3 million for 2015 and 2014, respectively. Note 23. 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 restricted stock, 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. 188 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following tables present the computation of basic and diluted earnings per common share for the years ended December 31: (Dollars in millions, except per share amounts) Net income Less: 2015 2014 2013 $ 1,980 $ 2,022 $ 2,050 Preferred stock dividends (130) (61) (26) Dividends and undistributed earnings allocated to participating securities(1) Net income available to common shareholders Average common shares outstanding (in thousands): (2) (3) (8) $ 1,848 $ 1,958 $ 2,016 Basic average common shares 407,856 424,223 446,245 Effect of dilutive securities: common stock options and common stock awards Diluted average common shares Anti-dilutive securities(2) Earnings per Common Share: 5,782 7,784 8,910 413,638 432,007 455,155 661 1,498 1,855 Basic Diluted(3) $ 4.53 $ 4.62 $ 4.47 4.53 4.52 4.43 (1) Represents the portion of net income available to common equity allocated to participating securities, composed of fully vested deferred director stock, unvested and fully vested SERP shares and unvested restricted stock that contain non-forfeitable rights to dividends during the vesting period on a basis equivalent to dividends paid to common shareholders. (2) Represents common stock options and other equity-based awards outstanding but not included in the computation of diluted average common shares, because their effect was anti-dilutive. (3) Calculations reflect allocation of earnings to participating securities using the two-class method, as this computation is more dilutive than the treasury stock method. Note 24. Line of Business Information We have two lines of business: Investment Servicing and Investment Management. The results of operations for these lines of business are not necessarily comparable with those of other companies, including companies in the financial services industry. Investment Servicing provides services for U.S. mutual funds, collective investment funds and other investment pools, corporate and public retirement plans, insurance companies, foundations and endowments worldwide. Products include custody; product- and participant-level accounting; daily pricing and administration; master trust and master custody; record-keeping; cash management; foreign exchange, brokerage and other trading services; securities finance; deposit and short-term investment facilities; loans and lease financing; investment manager and alternative investment manager operations outsourcing; and performance, risk and compliance analytics to support institutional investors. We provide shareholder services, which include mutual fund and collective investment fund shareholder accounting, through 50%-owned affiliates, Boston Financial Data Services, Inc. and the International Financial Data Services group of companies. Investment Management, through SSGA, provides a broad array of investment management, investment research and investment advisory services to corporations, public funds and other sophisticated investors. SSGA offers active and passive asset management strategies across equity, fixed-income and cash asset classes. Products are distributed directly and through intermediaries using a variety of investment vehicles, including ETFs such as the SPDR® ETF brand. Our investment servicing strategy is to focus on total client relationships and the full integration of our products and services across our client base through cross-selling opportunities. In general, our clients will use a combination of services, depending on their needs, rather than one product or service. For instance, a custody client may purchase securities finance and cash management services from different business units. Products and services that we provide to our clients are parts of an integrated offering to these clients. We price our products and services on the basis of overall client relationships and other factors; as a result, revenue may not necessarily reflect the stand-alone market price of these products and services within the business lines in the same way it would for separate business entities. Generally, approximately 75% of our consolidated total revenue (fee revenue from investment servicing and investment management, as well as trading services and securities finance activities) is generated by these two business lines. The remaining 25% is composed of processing fees and other revenue, net interest revenue, which is largely generated by our investment of client deposits, short-term borrowings and long-term debt in a variety of assets, and net gains (losses) related to investment securities. These other revenue types are generally fully allocated to, or reside in, Investment Servicing and Investment Management. Revenue and expenses are directly charged or allocated to our lines of business through management information systems. Assets and liabilities are allocated according to policies that support management’s strategic and tactical goals. Capital is allocated based on the relative risks and capital requirements inherent in each business line, along with management judgment. Capital 189 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) allocations may not be representative of the capital that might be required if these lines of business were separate business entities. The “Other” column for the year ended December 31, 2013 included net costs of $180 million composed of the following - The following is a summary of our line-of- business results for the periods indicated. The “Other” column for the year ended December 31, 2015 included net costs $98 million composed of the following - • Net acquisition and restructuring costs of $104 million; • Net provisions for litigation exposure and other costs of $65 million; and • Net severance costs associated with staffing • Net acquisition and restructuring costs of $25 realignment of $11 million. million; and • Net severance costs associated with staffing realignment of $73 million. The “Other” column for the year ended December 31, 2014 included net costs $219 million composed of the following - • Net acquisition and restructuring costs of $133 million; • Net severance costs associated with staffing realignment of $84 million; and • Net provisions for litigation exposure and other costs of $2 million. The amounts in the “Other” columns were not allocated to State Street's business lines. Prior reported results reflect reclassifications, for comparative purposes, related to management changes in methodologies associated with allocations of revenue and expenses to lines-of-business in 2015. Investment Servicing Investment Management 2015 2014 2013 2015 2014 2013 2015 Other 2014 2013 2015 Total 2014 2013 Years Ended December 31, (Dollars in millions, except where otherwise noted) Servicing fees $ 5,153 $ 5,108 $ 4,799 $ — $ — $ — $ — $ — $ — $ 5,153 $ 5,108 $ 4,799 — 1,174 1,207 1,106 Management fees Trading services Securities finance Processing fees and other Total fee revenue Net interest revenue — 1,108 496 325 7,082 2,086 — 1,039 437 179 6,763 2,245 1,027 359 206 6,391 2,278 Gains (losses) related to investment securities, net (6) 4 (9) 38 — (16) 45 — (5) 67 — 6 1,196 1,247 1,179 2 — 15 — 25 — Total revenue 9,162 9,012 8,660 1,198 1,262 1,204 Provision for loan losses 12 10 6 Total expenses 6,990 6,648 6,190 — 962 — 960 — 822 — — — — — — — — — 98 — — — — — — — — — — — — — — — — — — 1,174 1,146 496 309 8,278 2,088 1,207 1,084 437 174 8,010 2,260 1,106 1,094 359 212 7,570 2,303 (6) 4 (9) 10,360 10,274 9,864 12 10 6 219 180 8,050 7,827 7,192 Income before income tax expense $ 2,160 $ 2,354 $ 2,464 $ 236 $ 302 $ 382 $ (98) $ (219) $ (180) $ 2,298 $ 2,437 $ 2,666 Pre-tax margin 24% 26% 28% 20% 24% 32% 22% 24% 27% Average assets (in billions) $ 246.6 $ 234.2 $ 203.2 $ 3.9 $ 3.9 $ 3.8 $ 250.5 $ 238.1 $ 207.0 190 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Note 25. Non-U.S. Activities We generally define our non-U.S. activities as those revenue-producing business activities that arise from clients domiciled outside the U.S. Due to the integrated nature of our business, precise segregation of our U.S. and non-U.S. activities is not possible. Subjective estimates, 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. During 2015, management updated its processes for quantifying the financial results related to our non- U.S. activities. Results for the years ended December 31, 2014 and 2013 have not been revised to reflect the change due to a lack of comparable underlying data. Non-U.S. revenue for the years ended December 31, 2015, 2014 and 2013 included $938 million, $1.02 billion and $903 million, respectively, in the U.K., primarily from our London operations. The following table presents our U.S. and non-U.S. financial results for the years ended December 31: (In millions) Total revenue Non-U.S. 2015 U.S. Total Non-U.S. 2014 U.S. Total Non-U.S. 2013 U.S. Total $ 4,428 $ 5,932 $ 10,360 $ 4,644 $ 5,630 $ 10,274 $ 4,299 $ 5,565 $ 9,864 Income before income taxes 1,193 1,105 2,298 1,343 1,094 2,437 1,169 1,497 2,666 Non-U.S. assets were $78.1 billion and $60.0 billion as of December 31, 2015 and 2014, respectively. Note 26. Parent Company Financial Statements The following tables present the financial statements of the parent company without consolidation of its banking and non-banking subsidiaries, as of and for the years indicated: STATEMENT OF INCOME - PARENT COMPANY Years Ended December 31, (In millions) 2015 2014 2013 Cash dividends from consolidated banking subsidiary $ 585 $ 1,470 $ 1,694 Cash dividends from consolidated non-banking subsidiaries and unconsolidated entities Other, net Total revenue Interest expense Other expenses Total expenses Income tax benefit Income (loss) before equity in undistributed income of consolidated subsidiaries and unconsolidated entities Equity in undistributed income of consolidated subsidiaries and unconsolidated entities: Consolidated banking subsidiary Consolidated non-banking subsidiaries and unconsolidated entities Net income 171 73 829 209 310 519 (186) 496 138 63 1,671 193 55 248 (83) 250 35 1,979 169 88 257 (84) 1,506 1,806 1,384 100 360 156 151 93 $ 1,980 $ 2,022 $ 2,050 191 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) STATEMENT OF CONDITION - PARENT COMPANY As of December 31, (In millions) Assets: 2015 2014 Interest-bearing deposits with consolidated banking subsidiary $ 5,735 $ 6,030 279 35 19,978 2,739 288 1,526 331 447 2,485 514 7,326 10,325 21,328 31,653 32,141 $ 31,653 Trading account assets Investment securities available for sale Investments in subsidiaries: Consolidated banking subsidiary Consolidated non-banking subsidiaries Unconsolidated entities Notes and other receivables from: Consolidated banking subsidiary Consolidated non-banking subsidiaries and unconsolidated entities Other assets Total assets Liabilities: Commercial paper Accrued expenses and other liabilities Long-term debt Total liabilities Shareholders’ equity $ $ 308 35 20,584 2,816 315 1,558 275 515 — $ 643 10,363 11,006 21,135 Total liabilities and shareholders’ equity $ 32,141 $ 192 STATE STREET CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) STATEMENT OF CASH FLOWS - PARENT COMPANY Years Ended December 31, (In millions) 2015 2014 2013 Net cash provided by operating activities $ 926 $ 1,767 $ 2,296 Investing Activities: Net decrease (increase) in interest-bearing deposits with consolidated banking subsidiary Investments in consolidated banking and non-banking subsidiaries Sale or repayment of investment in consolidated banking and non-banking subsidiaries Net cash provided by (used in) investing activities Financing Activities: Net increase (decrease) in commercial paper Proceeds from issuance of long-term debt, net of issuance costs Payments for long-term debt Proceeds from issuance of preferred stock, net of issuance costs Proceeds from exercises of common stock options Purchases of common stock Repurchases of common stock for employee tax withholding Payments for cash dividends Net cash used in financing activities Net change Cash and due from banks at beginning of year Cash and due from banks at end of year 295 (7,959) 7,891 227 (2,485) 2,983 — 742 4 (1,520) (222) (655) (1,153) — — (1,610) (1,142) 1,011 (1,741) 667 994 (750) 1,470 14 (1,650) (232) (539) (26) — — $ — $ — $ (620) (1,100) 32 (1,688) (499) 2,485 — — 121 (2,040) (189) (486) (608) — — — 193 STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES Distribution of Average Assets, Liabilities and Shareholders’ Equity; Interest Rates and Interest Differential (Unaudited) The following table presents consolidated average statements of condition and net interest revenue for the years indicated. Years Ended December 31, 2015 2014 2013 (Dollars in millions; fully taxable-equivalent basis) Average Balance Interest Average Rate Average Balance Interest Average Rate Average Balance Interest Average Rate Assets: Interest-bearing deposits with U.S. banks $ 52,135 $ 136 .26% $ 45,158 $ 115 .25% $ 15,858 $ 72 62 1 735 399 935 276 35 10 2,661 44 7 46 97 1 — 6 250 46 400 Interest-bearing deposits with non-U.S. banks Securities purchased under resale agreements Trading account assets Investment securities: U.S. Treasury and federal agencies(1) State and political subdivisions(1) Other investments Loans Lease financing(1) Other interest-earning assets Total interest-earning assets(1) Cash and due from banks Other assets Total assets Liabilities and shareholders’ equity: Interest-bearing deposits: Time Savings Non-U.S. Total interest-bearing deposits Securities sold under repurchase agreements Federal funds purchased Other short-term borrowings Long-term debt Other interest-bearing liabilities 17,618 3,233 1,194 40,056 10,481 55,074 17,007 941 22,717 220,456 2,460 27,548 $ 250,464 $ 20,758 $ 10,061 102,491 133,310 8,875 21 3,826 10,333 6,471 Total interest-bearing liabilities 162,836 Noninterest-bearing deposits: Special time Demand Non-U.S.(2) Other liabilities(3) Shareholders’ equity(3) 34,774 16,746 155 14,626 21,327 .41 10,195 1.92 .08 1.84 3.81 1.70 1.62 3.74 .04 1.21 4,077 959 32,481 10,619 73,709 14,838 1,074 15,944 81 38 1 672 404 1,241 231 35 7 .80 .94 .13 2.07 3.81 1.68 1.56 3.26 .05 1.36 40 85 45 — 707 391 1,331 215 38 4 13,088 5,766 748 33,003 8,637 76,056 12,660 1,121 11,164 209,054 2,825 4,139 24,935 $ 238,128 178,101 2,856 3,747 25,182 $ 207,030 15 6 78 99 — — 5 245 43 392 .21% $ 7,254 $ .07 .05 .07 .01 — .15 2.42 .71 .25 14,042 109,003 130,299 8,817 20 4,177 9,309 7,351 159,973 5,862 37,900 279 12,935 21,179 6 4 83 93 1 — 59 232 26 411 .20% $ 2,504 $ .04 .07 .08 — — .12 2.63 .59 .25 6,358 100,391 109,253 8,436 298 3,785 8,415 6,457 136,644 769 34,725 800 13,683 20,409 Total liabilities and shareholders’ equity(3) $ 250,464 $ 238,128 $ 207,030 Net interest revenue $ 2,261 $ 2,433 $ 2,445 Excess of rate earned over rate paid Net interest margin(4) .96% 1.03 1.11% 1.16 .25% .65 .77 — 2.14 4.53 1.75 1.70 3.43 .04 1.60 .23% .07 .08 .14 .01 — 1.57 2.75 .40 .30 1.30% 1.37 (1) Fully taxable-equivalent revenue is a method of presentation in which the tax savings achieved by investing in tax-exempt investment securities and certain leases are included in interest revenue with a corresponding charge to income tax expense. This method facilitates the comparison of the performance of these assets. The adjustments are computed using a federal income tax rate of 35%, adjusted for applicable state income taxes, net of the related federal tax benefit. The fully taxable-equivalent adjustments included in interest revenue presented above were $173 million, $173 million and $142 million for the years ended December 31, 2015, 2014 and 2013, respectively, and were substantially related to tax-exempt securities (state and political subdivisions). (2) Non-U.S. noninterest-bearing deposits were $95 million, $180 million and $714 million as of December 31, 2015, 2014 and 2013, respectively. (3) Amounts for 2013 and 2014 reflect adjustments related to certain expenses billed to our asset servicing clients as more fully described in Note 1 to the consolidated financial statements. (4) Net interest margin is calculated by dividing fully taxable-equivalent net interest revenue by average total interest-earning assets. 194 The following table summarizes changes in fully taxable-equivalent interest revenue and interest expense due to changes in volume of interest-earning assets and interest-bearing liabilities, and due to changes in interest rates. Changes attributed to both volumes and rates have been allocated based on the proportion of change in each category. Years Ended December 31, (In millions; fully taxable-equivalent basis) Interest revenue related to: 2015 Compared to 2014 2014 Compared to 2013 Change in Volume Change in Rate Net (Decrease) Increase Change in Volume Change in Rate Net (Decrease) Increase Interest-bearing deposits with U.S. banks $ 17 $ 4 $ 21 $ 73 $ 2 $ Interest-bearing deposits with non- U.S. banks Securities purchased under resale agreements Trading account assets Investment securities: U.S. Treasury and federal agencies State and political subdivisions Other investments Loans Lease financing Other interest-earning assets Total interest-earning assets Interest expense related to: Deposits: Time Savings Non-U.S. Securities sold under repurchase agreements Federal funds purchased Other short-term borrowings Long-term debt Other interest-bearing liabilities Total interest-bearing liabilities 59 (8) — 157 (5) (313) 34 (4) 3 (60) 27 (2) (5) — — — 27 (5) 42 (68) 32 — (94) — 7 11 4 — (9) 24 — 63 (5) (306) 45 — 3 (104) (164) 2 3 (27) 1 — 1 (22) 8 (34) 29 1 (32) 1 — 1 5 3 8 Net interest revenue $ (102) $ (70) $ (172) $ (19) (13) — (11) 90 (41) 37 (2) 2 116 11 5 7 — — 6 25 4 58 58 15 6 1 (24) (77) (49) (21) (1) 1 (147) (2) (3) (12) (1) — (60) (12) 13 (77) $ (70) $ 75 (4) (7) 1 (35) 13 (90) 16 (3) 3 (31) 9 2 (5) (1) — (54) 13 17 (19) (12) 195 Quarterly Summarized Financial Information (Unaudited) (Dollars and shares in millions, except per share amounts) Total fee revenue(1) Interest revenue Interest expense Net interest revenue Gains (losses) related to investment securities, net Total revenue(1) Provision for loan losses Total expenses Income before income tax expense(1) Income tax expense(1) Net income (loss) from minority interest Net income(1) Net income available to common shareholders(1) Earnings per common share(1)(2): Basic Diluted Average common shares outstanding: Basic Diluted Dividends per common share Common stock price: High Low Closing 2015 Quarters 2014 Quarters Fourth Third Second First Fourth Third Second First $ 2,044 $ 2,103 $ 2,076 $ 2,055 $ 2,051 $ 2,006 $ 2,034 $ 1,919 603 109 494 — 614 101 513 629 94 535 642 96 546 (2) (3) (1) 676 102 574 — 671 101 570 — 650 89 561 (2) 655 100 555 6 2,538 2,614 2,608 2,600 2,625 2,576 2,593 2,480 2 2 2 1,892 1,850 2,028 1 1,857 680 103 (1) 576 547 1.36 1.34 402 407 .34 $ $ $ $ 5 1,962 647 2 2,134 472 4 2,097 499 67 1 581 539 1.33 1.31 407 412 .34 $ $ $ $ 54 — 418 389 .95 .93 411 417 .34 $ $ $ $ 94 — 405 373 .90 .89 412 419 .30 4 2,057 564 76 — 488 469 $ $ 682 126 — 556 538 $ $ $ 1.13 $ 1.28 1.11 1.25 417 424 .30 $ 422 430 .30 $ 741 122 — 619 599 1.40 1.38 428 435 .30 450 91 — $ 359 $ 352 $ $ .82 .80 431 439 .26 $ $ $ $ 75.40 $ 81.26 $ 81.20 $ 79.31 $ 80.92 $ 76.78 $ 70.20 $ 76.24 63.97 66.36 65.76 67.21 72.56 77.00 70.50 73.53 64.21 78.50 66.42 73.61 62.67 67.26 64.21 69.55 $ $ $ $ $ (1) Amounts for all quarters of 2014 and the first three quarters of 2015 reflect adjustments related to certain expenses billed to our asset servicing clients as more fully described in Note 1 to the consolidated financial statements. See "Reconciliation of Previously Reported and Revised FInancial Information" on the following pages. (2) Basic and diluted earnings per common share for full-year 2015 and 2014 do not equal the sum of the four quarters for the year. 196 RECONCILIATION OF PREVIOUSLY REPORTED AND REVISED FINANCIAL INFORMATION The following reconciliations for Q1 through Q3 of 2015 and all quarters for 2014 reflect adjustments related to certain expenses billed to certain of our asset servicing clients as more fully described in Note 1 to the consolidated financial statements. (Dollars in millions, except per share amounts or where otherwise noted) Consolidated Results of Operations Fee revenue: Servicing fees Total fee revenue Total revenue Income before income tax expense Income tax expense Net income Net income available to common shareholders Consolidated Statement of Condition Liabilities: Accrued expenses and other liabilities Total liabilities Shareholders' Equity: Retained earnings Total shareholders' equity Non-controlling interest-equity Total equity 1Q15 2Q15 3Q15 Reported Adjustment Revised Reported Adjustment Revised Reported Adjustment Revised $ 1,273 $ (5) $ 1,268 $ 1,325 $ (6) $ 1,319 $ 1,294 $ (5) $ 1,289 2,060 2,605 504 95 409 377 23,610 258,657 15,135 20,819 — 20,819 (5) (5) (5) (1) (4) (4) 2,055 2,600 499 94 405 373 2,082 2,614 478 56 422 393 149 149 (149) (149) — 23,759 17,646 258,806 273,071 14,986 20,670 — 15,390 21,500 — (6) (6) (6) (2) (4) (4) 153 153 (153) (153) — 2,076 2,608 472 54 418 389 2,108 2,619 652 68 585 543 (5) (5) (5) (1) (4) (4) 2,103 2,614 647 67 581 539 17,799 15,804 273,224 225,742 157 157 15,961 225,899 15,237 21,347 — 15,795 21,500 32 (157) (157) — 15,638 21,343 32 (149) 20,670 21,500 (153) 21,347 21,532 (157) 21,375 Total liabilities and equity $ 279,476 $ — $ 279,476 $ 294,571 $ — $ 294,571 $ 247,274 $ — $ 247,274 Ratios: Diluted earnings per common share Return on average common equity Pre-tax operating margin After-tax margin Common equity tier 1 risk- based capital1 Tier 1 risk-based capital1 Total risk-based capital1 Tier 1 leverage1 Tangible common equity Internal capital generation rate Common dividend payout ratio 32.8 $ 0.90 $ (0.01) $ 0.89 $ 0.94 $ (0.01) $ 0.93 $ 1.32 $ (0.01) $ 1.31 7.9% —% 7.9% 8.3% (0.1)% 8.2% 11.3% —% 11.3% 19.3 15.7 12.2 14.2 16.3 5.8 6.0 5.3 (0.1) (0.1) (0.2) (0.2) (0.2) — — — 0.3 19.2 15.6 12.0 14.0 16.1 5.8 6.0 5.3 18.3 16.2 12.2 14.9 16.9 6.0 6.6 5.3 33.1 35.3 (0.2) (0.2) (0.2) (0.2) (0.1) — (0.1) — 0.3 18.1 16.0 12.0 14.7 16.8 6.0 6.5 5.3 24.9 22.3 12.1 14.9 16.9 6.3 6.6 8.5 35.6 25.3 (0.1) (0.1) (0.1) (0.2) (0.1) — — (0.2) 0.2 24.8 22.2 12.0 14.7 16.8 6.3 6.6 8.3 25.5 (1) CET1, tier 1 capital, total capital and tier 1 leverage ratios as of June 30, 2014, September 30, 2014, December 31, 2014, March 31, 2015, June 30, 2015, September 30, 2015 and December 31, 2015 were calculated in conformity with the advanced approaches provisions of the Basel III final rule. 197 The following reconciliations for Q1 through Q3 of 2015 and all quarters for 2014 reflect adjustments related to certain expenses billed to certain of our asset servicing clients as more fully described in Note 1 to the consolidated financial statements. RECONCILIATION OF PREVIOUSLY REPORTED AND REVISED FINANCIAL INFORMATION (Continued) 1Q14 2Q14 3Q14 4Q14 (Dollars in millions, except per share amounts or where otherwise noted) Consolidated Results of Operations Fee revenue: Servicing fees Total fee revenue Total revenue Income before income tax expense Income tax expense Net income Net income available to common shareholders Consolidated Statement of Condition Liabilities: Accrued expenses and other liabilities Reported Adjustment Revised Reported Adjustment Revised Reported Adjustment Revised Reported Adjustment Revised $ 1,238 $ (5) $ 1,233 $ 1,288 $ (5) $ 1,283 $ 1,302 $ (6) $ 1,296 $ 1,301 $ (5) $ 1,296 1,924 2,485 455 92 363 356 (5) (5) (5) (1) (4) (4) 1,919 2,480 450 91 359 352 2,039 2,598 746 124 622 602 (5) (5) (5) (2) (3) (3) 2,034 2,593 741 122 619 599 2,012 2,582 688 128 560 542 (6) (6) (6) (2) (4) (4) 2,006 2,576 682 126 556 538 2,056 2,630 569 77 492 473 (5) (5) (5) (1) (4) (4) 2,051 2,625 564 76 488 469 18,457 134 18,591 19,249 138 19,387 22,956 141 23,097 20,237 145 20,382 Total liabilities 235,390 134 235,524 260,624 138 260,762 253,649 141 253,790 252,646 145 252,791 Shareholders' Equity: Retained earnings 13,639 (134) 13,505 14,114 (138) 13,976 14,531 (141) 14,390 14,882 (145) 14,737 Total shareholders' equity Total equity 21,273 21,273 (134) (134) 21,139 21,139 21,700 21,700 (138) (138) 21,562 21,562 21,156 21,156 (141) (141) 21,015 21,015 21,473 21,473 (145) (145) 21,328 21,328 Total liabilities and equity $256,663 $ — $256,663 $282,324 $ — $282,324 $ 274,805 $ — $274,805 $ 274,119 $ — $274,119 Ratios: Diluted earnings per common share Return on average common equity Pre-tax operating margin After-tax margin Common equity tier 1 risk-based capital1 Tier 1 risk-based capital1 Total risk-based capital1 Tier 1 leverage1 Tangible common equity Internal capital generation rate Common dividend payout ratio $ 0.81 $ (0.01) $ 0.80 $ 1.38 $ — $ 1.38 $ 1.26 $ (0.01) $ 1.25 $ 1.12 $ (0.01) $ 1.11 7.2% —% 7.2% 11.9% —% 11.9% 10.6% —% 10.6% 9.4% —% 9.4% 18.3 14.6 NA NA NA NA N/A 5.0 (0.2) (0.1) NA NA NA NA N/A (0.1) 18.1 14.5 NA NA NA NA N/A 4.9 28.7 23.9 12.8 14.1 16.1 6.9 7.0 9.4 31.5 0.3 31.8 21.2 (0.1) — (0.2) (0.1) (0.1) (0.1) (0.1) — 0.1 28.6 23.9 12.6 14.0 16.0 6.8 6.9 9.4 26.6 21.7 12.8 14.2 16.2 6.4 6.6 8.2 (0.1) (0.1) (0.2) (0.2) (0.1) (0.1) (0.1) (0.1) 26.5 21.6 12.6 14.0 16.1 6.3 6.5 8.1 21.6 18.7 12.5 14.6 16.6 6.4 6.8 6.9 21.3 23.3 0.1 23.4 26.3 (0.1) (0.1) (0.1) (0.1) (0.2) (0.1) (0.1) — 0.2 21.5 18.6 12.4 14.5 16.4 6.3 6.7 6.9 26.5 (1) CET1, tier 1 capital, total capital and tier 1 leverage ratios as of June 30, 2014, September 30, 2014, December 31, 2014, March 31, 2015, June 30, 2015, September 30, 2015 and December 31, 2015 were calculated in conformity with the advanced approaches provisions of the Basel III final rule. 198 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES DISCLOSURE CONTROLS AND PROCEDURES; CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING State Street has established and maintains disclosure controls and procedures that are designed to ensure that material information related to State Street and its subsidiaries on a consolidated basis required to be disclosed in its reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to State Street's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. For the quarter ended December 31, 2015, State Street's management carried out an evaluation, with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of State Street's disclosure controls and procedures. Based on the evaluation of these disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer concluded that State Street's disclosure controls and procedures were effective as of December 31, 2015. 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 December 31, 2015, 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. 199 INTERNAL CONTROL OVER FINANCIAL REPORTING Management’s Report on Internal Control Over Financial Reporting The management of State Street is responsible for the preparation and fair presentation of the financial statements and other financial information contained in this Form 10-K. Management is also responsible for establishing and maintaining adequate internal control over financial reporting. Management has designed business processes and internal controls and has also established and is responsible for maintaining a business culture that fosters financial integrity and accurate reporting. To these ends, management maintains a comprehensive system of internal controls intended to provide reasonable assurances regarding the reliability of financial reporting and the preparation of the consolidated financial statements of State Street in conformity with GAAP. State Street's accounting policies and internal control over financial reporting, established and maintained by management, are under the general oversight of State Street's Board of Directors, including the Board's Examining and Audit Committee. Management has made a comprehensive review, evaluation and assessment of State Street's internal control over financial reporting as of December 31, 2015. The standard measures adopted by management in making its evaluation are the measures in the Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the “COSO criteria”). Based on its review and evaluation, management concluded that State Street's internal control over financial reporting was effective as of December 31, 2015, and that State Street's internal control over financial reporting as of that date had no material weaknesses. Ernst & Young LLP, an independent registered public accounting firm, which has audited and reported on the consolidated financial statements contained in this Form 10-K, has issued its written attestation report on its assessment of State Street's internal control over financial reporting, which follows this report. 200 Report of Independent Registered Public Accounting Firm The Shareholders and Board of Directors of State Street Corporation We have audited State Street Corporation’s (the “Corporation”) internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the “COSO criteria”). State Street Corporation management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Corporation’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, State Street Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statement of condition of State Street Corporation as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2015 and our report dated February 19, 2016 expressed an unqualified opinion thereon. Boston, Massachusetts February 19, 2016 /s/ Ernst & Young LLP 201 ITEM 9B. OTHER INFORMATION Not applicable. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Information concerning our directors will appear in our Proxy Statement for the 2016 Annual Meeting of Shareholders, to be filed pursuant to Regulation 14A on or before April 29, 2016, referred to as the 2016 Proxy Statement, under the caption “Election of Directors.” Information concerning compliance with Section 16(a) of the Exchange Act will appear in our 2016 Proxy Statement under the caption “Section 16(a) Beneficial Ownership Reporting Compliance.” Information concerning our Code of Ethics for Senior Financial Officers and our Examining and Audit Committee will appear in our 2016 Proxy Statement under the caption “Corporate Governance at State Street.” Such information is incorporated herein by reference. Information about our executive officers is included under Part I. ITEM 11. EXECUTIVE COMPENSATION Information in response to this item will appear in our 2016 Proxy Statement under the caption “Executive Compensation.” Such information is incorporated herein by reference. 202 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Information concerning security ownership of certain beneficial owners and management will appear in our 2016 Proxy Statement under the caption “Security Ownership of Certain Beneficial Owners and Management.” Such information is incorporated herein by reference. RELATED STOCKHOLDER MATTERS The following table presents the number of outstanding common stock awards, options, warrants and rights granted by State Street to participants in our equity compensation plans, as well as the number of securities available for future issuance under these plans, as of December 31, 2015. The table provides this information separately for equity compensation plans that have and have not been approved by shareholders. Shares presented in the table and in the footnotes following the table are stated in thousands of shares. (Shares in thousands) Plan category: Equity compensation plans approved by shareholders Equity compensation plans not approved by shareholders Total (a) Number of securities to be issued upon exercise of outstanding options, warrants and rights (b) Weighted-average exercise price of outstanding options, warrants and rights(1) (c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) 11,107 (2) $ 24 (3) 11,131 76.29 20,768 — 20,768 (1) Excludes deferred stock awards and performance awards for which there is no exercise price. (2) Consists of 8,736 shares subject to deferred stock awards, zero shares subject to stock options, 1,206 stock appreciation rights and 1,165 shares subject to performance awards (assuming payout at 100% for all awards regarding which performance is uncertain). (3) Consists of shares subject to deferred stock awards. Individual directors who are not our employees have received stock awards and cash retainers, both of which may be deferred. Directors may elect to receive shares of our common stock in place of cash. If payment is in the form of common stock, the number of shares is determined by dividing the approved cash amount by the closing price on the date of the annual shareholders' meeting or date of grant, if different. All deferred shares, whether stock awards or common stock received in place of cash retainers, are increased to reflect dividends paid on the common stock and, for certain directors, may include share amounts in respect of an accrual under a terminated retirement plan. Directors may elect to defer 50% or 100% of cash or stock awards until a date that they specify, usually after termination of service on the Board. The deferral may also be paid in either a lump sum or in installments over a two- to ten-year period. Stock awards totaling 216,948 shares of common stock were outstanding as of December 31, 2015; awards made through June 30, 2003, totaling 23,606 shares outstanding as of December 31, 2015, have not been approved by shareholders. There are no other equity compensation plans under which our equity securities are authorized for issuance that have been adopted without shareholder approval. Awards of stock made or retainer shares paid to individual directors after June 30, 2003 have been or will be made under our 1997 or 2006 Equity Incentive Plan, both of which were approved by shareholders. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Information concerning certain relationships and related transactions and director independence will appear in our 2016 Proxy Statement under the caption “Corporate Governance at State Street.” Such information is incorporated herein by reference. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Information concerning principal accounting fees and services and the Examining and Audit Committee's pre-approval policies and procedures will appear in our 2016 Proxy Statement under the caption “Examining and Audit Committee Matters.” Such information is incorporated herein by reference. 203 PART IV. OTHER INFORMATION ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (A)(1) FINANCIAL STATEMENTS The following consolidated financial statements of State Street are included in Item 8 hereof: Report of Independent Registered Public Accounting Firm Consolidated Statement of Income - Years ended December 31, 2015, 2014 and 2013 Consolidated Statement of Comprehensive Income - Years ended December 31, 2015, 2014 and 2013 Consolidated Statement of Condition - As of December 31, 2015 and 2014 Consolidated Statement of Changes in Shareholders' Equity - Years ended December 31, 2015, 2014 and 2013 Consolidated Statement of Cash Flows - Years ended December 31, 2015, 2014 and 2013 Notes to Consolidated Financial Statements (A)(2) FINANCIAL STATEMENT SCHEDULES Certain schedules to the consolidated financial statements have been omitted if they were not required by Article 9 of Regulation S-X or if, under the related instructions, they were inapplicable, or the information was contained elsewhere herein. (A)(3) EXHIBITS The exhibits listed in the Exhibit Index following the signature page of this Form 10-K are filed herewith or are incorporated herein by reference to other SEC filings. 204 Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, on February 19, 2016, hereunto duly authorized. SIGNATURES STATE STREET CORPORATION By /s/ MICHAEL W. BELL MICHAEL W. BELL, Executive Vice President and Chief Financial Officer By /s/ SEAN P. NEWTH SEAN P. NEWTH Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on February 19, 2016 by the following persons on behalf of the registrant and in the capacities indicated. Senior Vice President, Chief Accounting Officer and Controller OFFICERS: /s/ JOSEPH L. HOOLEY JOSEPH L. HOOLEY, Chairman and Chief Executive Officer; Director /s/ MICHAEL W. BELL MICHAEL W. BELL, Executive Vice President and Chief Financial Officer /s/ SEAN P. NEWTH SEAN P. NEWTH Senior Vice President, Chief Accounting Officer and Controller DIRECTORS: /s/ JOSEPH L. HOOLEY JOSEPH L. HOOLEY /s/ KENNETT F. BURNES KENNETT F. BURNES /s/ PATRICK de SAINT-AIGNAN PATRICK de SAINT-AIGNAN /s/ Lynn A. Dugle LYNN A. DUGLE /s/ AMELIA C. FAWCETT AMELIA C. FAWCETT /s/ WILLIAM C. FREDA WILLIAM C. FREDA /s/ LINDA A. HILL LINDA A. HILL /s/ RICHARD P. SERGEL RICHARD P. SERGEL /s/ RONALD L. SKATES RONALD L. SKATES /s/ GREGORY L. SUMME GREGORY L. SUMME /s/ THOMAS J. WILSON THOMAS J. WILSON 205 * 3.1 * 3.2 * 4.1 * 4.2 * 4.3 * 4.4 * 4.5 * 10.1† * 10.2† * 10.3† * 10.4† EXHIBIT INDEX Restated Articles of Organization, as amended (filed as Exhibit 3.1 to State Street's Quarterly Report on Form 10-Q (File No. 001-07511) for the quarter ended June 30, 2015 and filed with the SEC on August 7, 2015 and incorporated herein by reference) By-Laws, as amended (filed as Exhibit 3.1 to State Street's Current Report on Form 8-K (File No. 001-07511) filed on October 20, 2015 and incorporated herein by reference) The description of State Street’s Common Stock is included in State Street’s Registration Statement on Form 8-A (File No. 001-07511), as filed on January 18, 1995 and March 7, 1995 (filed with the SEC on January 18, 1995 and March 7, 1995 and incorporated herein by reference) Deposit Agreement, dated August 21, 2012, among State Street Corporation, American Stock Transfer & Trust Company, LLC (as depositary), and the holders from time to time of depositary receipts (filed as Exhibit 4.1 to State Street's Current Report on Form 8-K (File No. 001-07511) filed with the SEC on August 21, 2012 and incorporated herein by reference) Deposit Agreement, dated March 4, 2014, among State Street Corporation, American Stock Transfer & Trust Company, LLC (as depositary), and the holders from time to time of depositary receipts (filed as Exhibit 4.1 to State Street's Current Report on Form 8-K (File No. 001-07511) dated March 4, 2014 filed with the SEC on March 4, 2014 and incorporated herein by reference) Deposit Agreement, dated November 25, 2014, among State Street Corporation, American Stock Transfer & Trust Company, LLC (as depositary) and the holders from time to time of depositary receipts (filed as Exhibit 4.1 to State Street's Current Report on Form 8-K (File No. 001-07511) dated November 25, 2014 filed with the SEC on November 25, 2014 and incorporated herein by reference) Deposit Agreement dated May 21, 2015, among State Street Corporation, American Stock Transfer & Trust Company, LLC (as depositary) and the holders from time to time of depositary receipts (filed as Exhibit 4.1) to State Street's Current Report on Form 8-K (File No. 001-7511) dated May 21, 2015 filed with the SEC on May 21, 2015 and incorporated herein by reference) (Note: None of the instruments defining the rights of holders of State Street’s outstanding long- term debt are in respect of indebtedness in excess of 10% of the total assets of State Street and its subsidiaries on a consolidated basis. State Street hereby agrees to furnish to the SEC upon request a copy of any other instrument with respect to long-term debt of State Street and its subsidiaries.) State Street's Management Supplemental Retirement Plan Amended and Restated, as amended (filed as Exhibit 10.1 to State Street's Annual Report on Form 10-K (File No. 001-07511) for the year ended December 31, 2012 filed with the SEC on February 22, 2013 and incorporated herein by reference) State Street's Executive Supplemental Retirement Plan (formerly “State Street Supplemental Defined Benefit Pension Plan for Executive Officers”) Amended and Restated, as amended Supplemental Cash Incentive Plan, as amended, and form of award and agreement thereunder (filed as Exhibit 10.3 to State Street's Annual Report on Form 10-K (File No. 001-07511) for the year ended December 31, 2014 filed with the SEC on February 21, 2015 and incorporated herein by reference) Form of Amended and Restated Employment Agreement entered into with each of Joseph L. Hooley, James S. Phalen and Michael Rogers (filed as Exhibit 10.3 to State Street's Annual Report on Form 10-K (File No. 001-07511) for the year ended December 31, 2009 filed with the SEC on February 22, 2010 and incorporated herein by reference) and Form of Amendment dated March 26, 2014 to Employment Agreement (filed as Exhibit 99.1 to State Street's Current Report on Form 8-K (File No. 001-07511) dated March 26, 2014 filed with the SEC on March 31, 2014 and incorporated herein by reference) 206 * 10.5† * 10.6† * 10.7† * 10.8† Employment Agreement entered into with Michael W. Bell dated June 17, 2013 (filed as Exhibit 10.5 to State Street's Annual Report on Form 10-K (File No. 001-07511) for the year ended December 31, 2013 filed with the SEC on February 21, 2014 and incorporated herein by reference) and Form of Amendment dated March 26, 2014 to Employment Agreement (filed as Exhibit 99.1 to State Street's Current Report on Form 8-K (File No. 001-07511) dated March 26, 2014 filed with the SEC on March 31, 2014 and incorporated herein by reference) State Street’s Executive Compensation Trust Agreement dated December 6, 1996 (Rabbi Trust) (filed as Exhibit 10.5 to State Street's Annual Report on Form 10-K (File No. 001-07511) for the year ended December 31, 2008 filed with the SEC on February 27, 2009 and incorporated herein by reference) State Street’s 1997 Equity Incentive Plan, as amended, and forms of award agreements thereunder (filed as Exhibit 10.6 to State Street's Annual Report on Form 10-K (File No. 001-07511) for the year ended December 31, 2008 filed with the SEC on February 27, 2009 and incorporated herein by reference) State Street’s 2006 Equity Incentive Plan, as amended, and forms of award agreements thereunder (filed as Exhibit 10.8 to State Street's Annual Report on Form 10-K (File No. 001-07511) for the year ended December 31, 2014 and filed with the SEC on February 20, 2015 and incorporated herein by reference) * 10.9† Terms of Employment for Jeffrey N. Carp dated November 11, 2005, as amended * 10.10† * 10.11† * 10.12† State Street’s Management Supplemental Savings Plan, Amended and Restated, as amended (filed as Exhibit 10.1 to State Street's Quarterly Report on Form 10-Q (File No. 001-07511) for the quarter ended September 30, 2014 filed with the SEC on November 10, 2014 and incorporated herein by reference) Deferred Compensation Plan for Directors of State Street Corporation, Restated January 1, 2008, as amended (filed as Exhibit 10.11 to State Street's Annual Report on Form 10-K (File No. 001-07511) for the year ended December 31, 2012 filed with the SEC on February 22, 2013 and incorporated herein by reference) Deferred Compensation Plan for Directors of State Street Corporation, Restated January 1, 2007, as amended (filed as Exhibit 10.12 to State Street's Annual Report on Form 10-K (File No. 001-07511) for the year ended December 31, 2011 filed with the SEC on February 27, 2012 and incorporated herein by reference) * 10.13† Description of compensation arrangements for non-employee directors * 10.14 [Reserved] * 10.15 [Reserved] * 10.16† * 10.17A† * 10.17B† * 10.17C† * 10.17D† Letter Agreement with Michael W. Bell dated May 23, 2013 (filed as Exhibit 10.1 to State Street's Quarterly Report on Form 10-Q (File No. 001-07511) for the quarter ended June 30, 2013 filed with the SEC on August 6, 2013 and incorporated herein by reference) Form of Indemnification Agreement between State Street Corporation and each of its directors (filed as Exhibit 10.18A to State Street's Annual Report on Form 10-K (File No. 001-07511) for the year ended December 31, 2013 filed with the SEC on February 21, 2014 and incorporated herein by reference) Form of Indemnification Agreement between State Street Corporation and each of its executive officers (filed as Exhibit 10.18B to State Street's Annual Report on Form 10-K (File No. 001-07511) for the year ended December 31, 2013 filed with the SEC on February 21, 2014 and incorporated herein by reference) Form of Indemnification Agreement between State Street Bank and Trust Company and each of its directors (filed as Exhibit 10.18C to State Street's Annual Report on Form 10-K (File No. 001-07511) for the year ended December 31, 2013 filed with the SEC on February 21, 2014 and incorporated herein by reference) Form of Indemnification Agreement between State Street Bank and Trust Company and each of its executive officers (filed as Exhibit 10.18D to State Street's Annual Report on Form 10-K (File No. 001-07511) for the year ended December 31, 2013 filed with the SEC on February 21, 2014 and incorporated herein by reference) 207 * 10.18† 2011 Senior Executive Annual Incentive Plan (filed as Exhibit 99.2 to State Street's Current Report on Form 8-K (File No. 001-07511) filed with the SEC on May 24, 2011 and incorporated herein by reference) * 12 * 21 * 23 31.1 31.2 32 Statement of Ratios of Earnings to Fixed Charges Subsidiaries of State Street Corporation Consent of Independent Registered Public Accounting Firm Rule 13a-14(a)/15d-14(a) Certification of Chairman, President and Chief Executive Officer Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer 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 ** Exhibit filed with SEC, but not printed herein * Submitted electronically herewith Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) consolidated statement of income for the years ended December 31, 2015, 2014 and 2013, (ii) consolidated statement of comprehensive income for the years ended December 31, 2015, 2014 and 2013, (iii) consolidated statement of condition as of December 31, 2015 and December 31, 2014, (iv) consolidated statement of changes in shareholders' equity for the years ended December 31, 2015, 2014 and 2013, (v) consolidated statement of cash flows for the years ended December 31, 2015, 2014 and 2013, and (vi) notes to consolidated financial statements. 208 EXHIBIT 31.1 I, Joseph L. Hooley, certify that: 1. I have reviewed this Annual Report on Form 10-K of State Street Corporation; RULE 13a-14(a)/15d-14(a) CERTIFICATION 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present, in all material respects, the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 19, 2016 By: /s/ JOSEPH L. HOOLEY Joseph L. Hooley, Chairman and Chief Executive Officer EXHIBIT 31.2 I, Michael W. Bell, certify that: 1. I have reviewed this Annual Report on Form 10-K of State Street Corporation; RULE 13a-14(a)/15d-14(a) CERTIFICATION 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present, in all material respects, the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 19, 2016 By: /s/ MICHAEL W. BELL Michael W. Bell, Executive Vice President and Chief Financial Officer SECTION 1350 CERTIFICATIONS EXHIBIT 32 To my knowledge, this Annual Report on Form 10-K for the period ended December 31, 2015 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of State Street Corporation. Date: February 19, 2016 By: Date: February 19, 2016 By: /s/ JOSEPH L. HOOLEY Joseph L. Hooley, Chairman and Chief Executive Officer /s/ MICHAEL W. BELL Michael W. Bell, Executive Vice President and Chief Financial Officer RECONCILIATION OF OPERATING-BASIS (NON-GAAP) FINANCIAL RESULTS In addition to presenting State Street’s financial results in conformity with U.S. generally accepted accounting principles, referred to as GAAP, management also presents results on a non-GAAP, or "operating" basis, as it believes that this presentation supports meaningful comparisons from period to period and the analysis of comparable financial trends with respect to State Street’s normal ongoing business operations. Management believes that operating-basis financial information, which reports revenue from non-taxable sources, such as interest revenue from tax-exempt investment securities and processing fees and other revenue associated with tax- advantaged investments, on a fully taxable-equivalent basis and excludes the impact of revenue and expenses outside of State Street's normal course of business, facilitates an investor's understanding and analysis of State Street's underlying financial performance and trends in addition to financial information prepared and reported in conformity with GAAP. Non- GAAP financial measures should be considered in addition to, not as a substitute for or superior to, financial measures determined in conformity with GAAP. The following table reconciles financial information prepared on a non-GAAP, or operating basis, which is presented in the foregoing letter to shareholders, to financial information prepared in conformity with GAAP, which is reported in the accompanying 2015 Annual Report on Form 10-K. (Dollars in millions, except per share amounts) Total Revenue: Total revenue, GAAP basis(1) Tax-equivalent adjustment associated with tax-advantaged investments Tax-equivalent adjustment associated with tax-exempt investment securities Gain on sale of CRE and paydown of CRE loan Discount accretion related to former conduit securities Total revenue, operating basis(1) Fee Revenue: Total fee revenue, GAAP basis(1) Tax-equivalent adjustment associated with tax-advantaged Gain on sale of CRE and paydown of CRE loan Total fee revenue, operating basis(1) Total Expenses: Total expenses, GAAP basis Severance costs associated with staffing realignment Provisions for legal contingencies Expense billing matter Acquisition costs Restructuring charges, net Total expenses, operating basis Diluted Earnings per Common Share: Diluted earnings per common share, GAAP basis(1) Severance costs Provisions for legal contingencies Expense billing matter Acquisition costs Restructuring charges, net Discount accretion associated with former conduit securities Gain on sale of CRE and paydown of CRE loan Italian deferred tax liability One-time Italian tax on banks and insurance companies Years Ended December 31, 2015 December 31, 2014 % Change 2015 vs. 2014 $ 10,360 $ 10,274 0.8% 359 173 (165) (98) 288 173 — (119) 10,629 $ 10,616 8,278 $ 359 (165) 8,472 $ 8,050 $ (73) (415) (17) (20) (5) 8,010 288 — 8,298 7,827 (84) (187) — (58) (75) 0.1 3.3 2.1 2.8 7,520 $ 7,423 1.3 4.47 $ 4.53 (1.3) $ $ $ $ $ $ .11 .76 .03 .03 .01 (.14) (.24) (.14) — .13 .34 — .09 .11 (.17) — — .02 5.05 (3.2) Diluted earnings per common share, operating basis(1) $ 4.89 $ RECONCILIATION OF OPERATING-BASIS (NON-GAAP) FINANCIAL RESULTS (Continued) Return on Average Common Equity: Return on average common equity, GAAP basis(1) Severance costs Provisions for legal contingencies Expense billing matter Acquisition costs Restructuring charges, net Discount accretion associated with former conduit securities Gain on sale of CRE and paydown of CRE loan Italian deferred tax liability One-time Italian tax on banks and insurance companies Years Ended December 31, 2015 December 31, 2014 Change 2015 vs. 2014 9.8% 9.8% - bps .2 1.6 .1 .1 — (.3) (.5) (.3) — .3 .7 — .2 .2 (.4) — — .1 Return on average common equity, operating basis(1) 10.7% 10.9% (20) RECONCILIATION OF OPERATING-BASIS (NON-GAAP) FINANCIAL RESULTS (Continued) (Dollars in millions) Effect of Foreign Exchange Translation: Total revenue, operating basis(1) 2014 Reported 2015 Reported Impact of currency translation Total revenue, operating basis excluding foreign exchange impact(1) Total expenses, operating basis 2014 Reported 2015 Reported Impact of currency translation Total expenses, operating basis excluding foreign exchange impact Year Ended % Change December 31, 2015 2015 vs. 2014 $ $ $ $ 10,616 10,629 316 10,945 7,423 7,520 251 7,771 3.1% 4.7 (1) Amounts for 2014 reflect adjustments related to certain expenses billed to our asset servicing clients as more fully described in Note 1 to the consolidated financial statements included under Item 8 of the 2015 Form 10-K. BOARD OF DIRECTORS February 19, 2016 Joseph L. Hooley Chairman and Chief Executive Officer, State Street Corporation Linda A. Hill Wallace Brett Donham Professor of Business Administration, Harvard Business School Kennett F. Burnes Retired Chairman, President and Chief Executive Officer, Cabot Corporation, manufacturer of specialty chemicals and performance materials Richard P. Sergel Retired President and Chief Executive Officer, North American Electric Reliability Corporation, electric reliability organization Patrick de Saint-Aignan Retired Managing Director and Advisory Director for Morgan Stanley, global financial services Ronald L. Skates Former Chief Executive Officer and President, Data General Corp., manufacturer of multi-user computer systems; private investor Lynn A. Dugle Chief Executive Officer and Director, Engility Holdings, Inc., technology consulting company Gregory L. Summe Managing Partner and Founder, Glen Capital Partners, LLC, an investment fund Amelia C. Fawcett Deputy Chairman, Investment AB Kinnevik, a long-term oriented investment company based in Sweden Thomas J. Wilson Chairman and Chief Executive Officer, Allstate Corporation, property and casualty insurance William C. Freda Retired Senior Partner and Vice Chairman, Deloitte LLP, a global consulting firm EXECUTIVE LEADERSHIP February 19, 2016 Joseph L. Hooley(1)(2) Chairman and Chief Executive Officer Andrew James Erickson Executive Vice President Joerg Ambrosius Executive Vice President Daniel P. Farley Executive Vice President Tracy Atkinson Executive Vice President and Treasurer Scott R. FitzGerald Executive Vice President Kristi L. Michem Executive Vice President Stephen F. Nazzaro Executive Vice President Kimberly Newell Executive Vice President Aunoy Banerjee Executive Vice President Paul J. Fleming Elizabeth Nolan Executive Vice President Executive Vice President Michael W. Bell(1)(2) Executive Vice President and Chief Financial Officer Michael Fontaine Executive Vice President Ronald P. O'Hanley(1)(2) President and Chief Executive Officer of State Street Global Advisors Stefan M. Gavell Executive Vice President Christopher Perretta Executive Vice President Todd Gershkowitz Executive Vice President James S. Phalen(1)(2) Vice Chairman Thomas Bieber Executive Vice President Anthony C. Bisegna Executive Vice President Lynn S. Blake Executive Vice President Martine A. Bond Executive Vice President Nicholas J. Bonn Executive Vice President Marc P. Brown Executive Vice President James C. Caccivio, Jr. Executive Vice President Maria Cantillon Executive Vice President Anthony M. Carey Executive Vice President Jeffrey N. Carp(1)(2) Executive Vice President, Chief Legal Officer and Secretary Patrick D. Centanni Executive Vice President Jeff D. Conway(1)(2) Executive Vice President David C. Crawford Executive Vice President Albert J. Cristoforo Executive Vice President Susan Dargan Executive Vice President Denise A. DeAmore Executive Vice President Jessica Donohue Executive Vice President Sharon E. Donovan Hart Executive Vice President Maria Dwyer Executive Vice President Phillip S. Gillespie Executive Vice President Stefan Gmür Executive Vice President John H. Griffin Executive Vice President Hannah M. Grove Executive Vice President David J. Gutschenritter Executive Vice President James A. Hardy Executive Vice President Kathryn M. Horgan Executive Vice President Robert Kaplan Executive Vice President Michael Karpik Executive Vice President Mark R. Keating Executive Vice President Karen C. Keenan Executive Vice President David C. Phelan Executive Vice President, General Counsel and Assistant Secretary Alison A. Quirk(1)(2) Executive Vice President Michael Richards Executive Vice President and General Auditor Michael F. Rogers(1)(2) President and Chief Operating Officer Dennis E. Ross Executive Vice President James E. Ross Executive Vice President Wai-Kwong Seck(1)(2) Executive Vice President Paul J. Selian Executive Vice President Antoine Shagoury Executive Vice President Rajen Shah Executive Vice President William Slattery Executive Vice President David Suetens Executive Vice President Andrew Kuritzkes(1)(2) Executive Vice President and Chief Risk Officer George E. Sullivan Executive Vice President Richard F. Lacaille Executive Vice President Kevin F. Sullivan Executive Vice President Brenda Lyons Executive Vice President Louis D. Maiuri Executive Vice President Ian Martin Executive Vice President Richard Taggart Executive Vice President Rory Tobin Executive Vice President Brian J. Walsh Executive Vice President Ivan Matviak Executive Vice President Ronald B. Woodard Executive Vice President Cuan Coulter Executive Vice President and Chief Compliance Officer Gunjan Kedia(1)(2) Executive Vice President Ali M. El-Abboud Executive Vice President (1) Designated as executive officer for SEC purposes (2) Member of State Street Management Committee Steven R. Meier Executive Vice President Australia Sydney Austria Vienna Belgium La Hulpe Brunei Darussalam Jerudong Canada Montreal Toronto Vancouver Cayman Islands George Town, Grand Cayman Channel Islands Guernsey Saint Peter Port Jersey Saint Helier France Paris Germany Frankfurt Munich India Bengaluru Mumbai Pune Ireland Carrickmines Drogheda Dublin Kilkenny Naas Italy Milan Turin Japan Fukuoka Tokyo STATE STREET WORLDWIDE Liechtenstein Vaduz Luxembourg Luxembourg Malaysia Kuala Lumpur Mauritius Port Louis Netherlands Amsterdam New Zealand Wellington People's Republic of China Beijing Hangzhou Hong Kong Shanghai Poland Krakow Singapore Singapore South Africa Cape Town South Korea Seoul Switzerland Altishofen St. Gallen Zurich Taiwan Taipei City United Arab Emirates Dubai United Kingdom England London Scotland Edinburgh United States California Alameda Irvine Los Angeles Redwood City Sacramento San Francisco Florida Jacksonville Georgia Atlanta Illinois Chicago Massachusetts Boston Cambridge Grafton Hadley Quincy Westborough Missouri Kansas City Lee’s Summit New Hampshire Nashua New Jersey Clifton Princeton New York New York Pennsylvania Berwyn Texas Austin 2015 Annual Report to Shareholders State Street Corporation State Street Financial Center One Lincoln Street Boston, MA 02111 www.statestreet.com ©2015 STATE STREET CORPORATION 16-27279-0316 

Continue reading text version or see original annual report in PDF format above