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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 20182019
 
OR
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File No. 001-07511
STATE STREET CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 04-2456637
(State or other jurisdiction of incorporation) (I.R.S. Employer Identification No.)
One Lincoln Street
Boston, Massachusetts
 02111
(Address of principal executive office) (Zip Code)
617-786-3000
(Registrant’s telephone number, including area code)


IndicateIndicate 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.  YesxNo¨
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).  YesxNo¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large"large accelerated filer,” “accelerated filer,” “smallerfiler", "accelerated filer", "smaller reporting company,”company", and "emerging growth company" in Rule 12b-2 of the Exchange Act.
    Large accelerated filer  x
 
Accelerated filer ¨
 
Non-accelerated filer  ¨
 
Smaller reporting company  ¨
Emerging growth company¨
   (Do not check if a smaller reporting company)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes  ¨  No  x
The number of shares of the registrant’s common stock outstanding as of April 30, 201829, 2019 was 365,408,056.373,163,922.















 




STATE STREET CORPORATION
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED
March 31, 20182019


TABLE OF CONTENTS

  
PART I. FINANCIAL INFORMATION 
Table of Contents for Management's Discussion and Analysis of Financial Condition and Results of Operations
3
Management's Discussion and Analysis of Financial Condition and Results of Operations
4
Quantitative and Qualitative Disclosures About Market Risk
4347
Controls and Procedures
4347
Consolidated Statement of Income (Unaudited) for the three months ended March 31, 20182019 and 20172018
4448
Consolidated Statement of Comprehensive Income (Unaudited) for the three months ended March 31, 20182019 and 20172018
4549
Consolidated Statement of Condition as of March 31, 20182019 (Unaudited) and December 31, 20172018
4650
Consolidated Statement of Changes in Shareholders' Equity (Unaudited) for the three months ended March 31, 20182019 and 20172018
4751
Consolidated Statement of Cash Flows (Unaudited) for the three months ended March 31, 20182019 and 20172018
4852
Condensed Notes to Consolidated Financial Statements (Unaudited)
4953
Review Report of Independent Registered Public Accounting Firm
8889
PART II. OTHER INFORMATION 
Unregistered Sales of Equity Securities and Use of Proceeds
9192
Exhibits
9293
Signatures
9394






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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS


TABLE OF CONTENTS
  
  
General
4

Overview of Financial Results
89

Consolidated Results of Operations
1011

Total Revenue
1011

Fee Revenue
1011

Net Interest Income
1215

Expenses
1417

Acquisition Costs
17

Restructuring and Repositioning Charges18
Income Tax Expense
1518

Line of Business Information
1518

 Investment Servicing
19

 Investment Management
22

Financial Condition
20
Investment Securities
21
Loans and Leases
23
Cross-Border Outstandings
24

Risk ManagementInvestment Securities
25

Credit Risk ManagementLoans and Leases
2527

Liquidity Risk ManagementCross-Border Outstandings
2528

Operational Risk Management
29

Information TechnologyCredit Risk Management
29

MarketLiquidity Risk Management
3029

ModelOperational Risk Management
33

CapitalInformation Technology Risk Management
33

Off-Balance Sheet ArrangementsMarket Risk Management
4233

Recent Accounting DevelopmentsModel Risk Management
4237

Strategic Risk Management
37

Capital
38

Off-Balance Sheet Arrangements
46

Recent Accounting Developments
46






























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


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GENERAL
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 Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 (Form 10-Q), unless the context requires otherwise, references to "State Street," "we," "us," "our" or similar terms mean State Street Corporation and its subsidiaries on a consolidated basis. The Parent Company is a source of financial and managerial strength to our subsidiaries. Through our subsidiaries, including our principal banking subsidiary, State Street Bank and Trust Company, referred to as State Street Bank, we provide a broad range of financial products and services to institutional investors worldwide, with $33.28$32.64 trillion of AUCAAUC/A and $2.73$2.81 trillion of AUM as of March 31, 2018.2019.
As of March 31, 2018,2019, we had consolidated total assets of $250.29$228.33 billion, consolidated total deposits of $191.52$162.47 billion, consolidated total shareholders' equity of $22.40$25.04 billion and 37,19239,969 employees. We operate in more than 100 geographic markets worldwide, including in the U.S., Canada, Europe, the Middle East and Asia.
Our operations are organized into two lines of business, Investment Servicing and Investment Management, which are defined based on products and services provided.
Additional information about our lines of business is provided in Line of Business Information in this Management's Discussion and Analysis and Note 1718 to the consolidated financial statements in this Quarterly Report on Form 10-Q (Form 10-Q).10-Q.
This Management's Discussion and Analysis is part of ourthe Form 10-Q for the quarter ended March 31, 2018, and updates the Management's Discussion and Analysis in our 20172018 Annual Report on Form 10-K previously filed with the SEC (2017(2018 Form 10-K). You should read the financial information contained in this Management's Discussion and Analysis and elsewhere in this Form 10-Q in conjunction with the financial and other information contained in our 20172018 Form 10-K. Certain previously reported amounts presented in this Form 10-Q have been reclassified to conform to current-period presentation.
We prepare our consolidated financial statements in conformity with U.S. GAAP. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions in its application of certain accounting policies that materially affect the reported amounts of assets, liabilities, equity, revenue and expenses.
The significant accounting policies that require us to make judgments, estimates and assumptions that
are difficult, subjective or complex about matters that
are uncertain and may change in subsequent periods include:
accounting for fair value measurements;
other-than-temporary impairmentOTTI of investment securities;
impairment of goodwill and other intangible assets; and
contingencies.
These significant accounting policies require the most subjective or complex judgments, and underlying estimates and assumptions could be subject to revision as new information becomes available. For additional information about these significant accounting policies refer to pages 115 to 118,116, “Significant Accounting Estimates” included under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, in our 20172018 Form 10-K. We did not change these significant accounting policies in the first quarterthree months of 2018.2019.
Certain financial information provided in this Form 10-Q, including in this Management's Discussion and Analysis, is prepared on both a U.S. GAAP, or reported basis, and a non-GAAP basis, including certain non-GAAP measures used in the calculation of identified regulatory ratios. We measure and compare certain financial information on a non-GAAP basis, including information (such as capital ratios calculated under regulatory standards then scheduled to be effective in the future) that management uses in evaluating our business and activities.
Non-GAAP financial information should be considered in addition to, and not as a substitute for or superior to, financial information prepared in conformity with U.S. GAAP. Any non-GAAP financial information presented in this Form 10-Q, including this Management’s Discussion and Analysis, is reconciled to its most directly comparable then currently applicable regulatory ratio or U.S. GAAP-basis measure.
We further believe that our presentation of fully taxable-equivalentFTE NII, a non-GAAP measure, which reports non-taxable revenue, such as interest income associated with tax-exempt investment securities, on a fully taxable-equivalentFTE basis, facilitates an investor's understanding and analysis of our underlying financial performance and trends.

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We provide additional disclosures required by applicable bank regulatory standards, including supplemental qualitative and quantitative information with respect to regulatory capital (including market risk associated with our trading activities) and the liquidity coverage ratio,LCR, 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”

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section of our corporate website at www.statestreet.com.
We have included our website address in this report as an inactive textual reference only. Information on our website is not incorporated by reference into this Form 10-Q.
We use acronyms and other defined terms for certain business terms and abbreviations, as defined in the acronyms list and glossary following the consolidated financial statements in this Form 10-Q.
Forward-Looking Statements
This Form 10-Q, as well as other reports and proxy materials submitted by us under the Securities Exchange Act of 1934, registration statements filed by us under the Securities Act of 1933, our annual report to shareholders and other public statements we may make, may contain statements (including statements in theour Management's Discussion and Analysis included in such reports, as applicable) that are considered “forward-looking statements” within the meaning of U.S. securities laws, including statements about our goals and expectations regarding our business, financial and capital condition, results of operations, strategies, cost savings and transformation initiatives, investment portfolio performance, dividend and stock purchase programs, outcomes of legal proceedings, market growth, acquisitions, joint ventures and divestitures, client growth and new technologies, services and opportunities, as well as industry, governmental, regulatory, economic and market trends, initiatives and developments, the business environment and other matters that do not relate strictly to historical facts.
Terminology such as “plan,” “expect,” “intend,” “objective,” “forecast,” “outlook,” “believe,” “priority,” “anticipate,” “estimate,” “seek,” “may,” “will,” “trend,” “target,” “strategy” and “goal,” or similar statements or variations of such terms, are intended to identify forward-looking statements, although not all forward-looking statements contain such terms.
Forward-looking statements are subject to various risks and uncertainties, which change over time, are based on management's expectations and assumptions at the time the statements are made, and are not guarantees of future results. Management's expectations and assumptions, and the continued validity of the forward-looking statements, are subject
to change due to a broad range of factors affecting the nationalU.S. 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 of the counterparties with which we or our clients do business and to which we have investment, credit or financial exposures or to which our clients have such exposures as a result of our acting as agent, including as an asset manager or securities lending agent;
•
increases in the volatility of, or declines in the level of, our NII; 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 changes in the manner in which we fund those assets;
•
the volatility of servicing fee, management fee, trading fee and securities finance revenues due to, among other factors, the value of equity and fixed-income markets, market interest and FX rates, the volume of client transaction activity, competitive pressures in the investment servicing and asset management industries, and the timing of revenue recognition with respect to processing fees and other revenues;
•
the liquidity of the U.S. and international securities markets, particularly the markets for fixed-income securities and inter-bank credits; the liquidity of the assets on our balance sheet and changes or volatility in the sources of such funding, particularly the deposits of our clients; and demands upon our liquidity, including the liquidity demands and 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; and the impact of monetary and fiscal policy in the U.S. and internationally on prevailing rates of interest and currency exchange rates in the markets in which we provide services to our clients;
•
the credit quality, credit-agency ratings and fair values of the securities in our investment securities portfolio, a deterioration or downgrade of which could lead to OTTI of such securities and the recognition of an impairment loss in our consolidated statement of income;

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the financial strength
Table of the counterparties with which we or our clients do business and to which we have investment, credit or financial exposures or to which our clients have such exposures as a result of our acting as agent, including as an asset manager;Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

increases in the volatility of, or declines in the level of, our NII, 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 changes in 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; the liquidity of the assets on our balance sheet and changes or volatility in the sources of such funding, particularly the deposits of our clients; and demands upon our liquidity, including the liquidity demands and 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; and the impact of monetary and fiscal policy in the U.S. and internationally on prevailing rates of interest and currency exchange rates in the markets in which we provide services to our clients;
the credit quality, credit-agency ratings and fair values of the securities in our investment securities portfolio, a deterioration or downgrade of which could lead to other-than-temporary impairment of such 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 the level and pricing of such deposits and the relative portion of our deposits that are determined to be operational under regulatory guidelines; and our ability to deploy deposits in a profitable manner consistent with our liquidity needs, regulatory requirements and risk profile;
•
our ability to attract deposits and other low-cost, short-term funding; our ability to manage the level and pricing of such deposits and the relative portion of our deposits that are determined to be operational under regulatory guidelines; and our ability to deploy deposits in a profitable manner consistent with our liquidity needs, regulatory requirements and risk profile;
the manner and timing with which the Federal Reserve and other U.S. and foreignnon-U.S. regulators implement or reevaluate the regulatory framework applicable to our operations (as well as changes to that framework), including implementation or modification of the Dodd-Frank Act and related stress testing and resolution planning requirements and implementation of international standards applicable to financial institutions, such as those proposed by the Basel Committee and

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European legislation (such as the AIFMD, UCITS,Undertakings for Collective Investments in Transferable Securities (UCITS) V, the Money Market FundsFund Regulation and MiFID IIthe Markets in Financial Instruments Directive (MiFID II)/ MiFIR)Markets in Financial Instruments Regulation (MiFIR)); among other consequences, these regulatory changes impact the levels of regulatory capital, long-term debt and liquidity we must maintain, acceptable levels of credit exposure to third parties, margin requirements applicable to derivatives, restrictions on banking and financial activities and the manner in which we structure and implement our global operations and servicing relationships. In addition, our regulatory posture and related expenses have been and will continue to be affected by heightened standards and changes in regulatory expectations for global systemically important financial institutions applicable to, among other things, risk management, liquidity and capital planning, resolution planning and compliance programs, andas well as changes in governmental enforcement approaches to perceived failures to comply with regulatory or legal obligations;
adverse changes in the regulatory ratios that we are, or will be, required to meet, whether arising under the Dodd-Frank Act or implementation of international standards applicable to financial institutions, such as those proposed by the Basel Committee, 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 or liquidity ratios that cause changes in those ratios as they are measured from period to period;
requirements to obtain the prior approval or non-objection of the Federal Reserve or other U.S. and non-U.S. regulators for the use, allocation or distribution of our capital or other specific capital actions or corporate activities, including, without limitation, acquisitions, investments in subsidiaries, dividends and stock purchases, without which our growth plans, distributions to shareholders, share repurchase programs or other capital or corporate initiatives may be restricted;
changes in law or regulation, or the enforcement of law or regulation, that may adversely affect our business activities or those of our clients or our counterparties, and the products or services that we sell, including additional or increased taxes or assessments thereon, capital adequacy requirements, margin requirements and changes that expose us to risks related to the adequacy of our controls or compliance programs;
economic or financial market disruptions in the U.S. or internationally, including those which may result from recessions or political instability; for
•
adverse changes in the regulatory ratios that we are, or will be, required to meet, whether arising under the Dodd-Frank Act or implementation of international standards applicable to financial institutions, such as those proposed by the Basel Committee, 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 or liquidity ratios that cause changes in those ratios as they are measured from period to period;
 
•
requirements to obtain the prior approval or non-objection of the Federal Reserve or other U.S. and non-U.S. regulators for the use, allocation or distribution of our capital or other specific capital actions or corporate activities, including, without limitation, acquisitions, investments in subsidiaries, dividends and stock repurchases, without which our growth plans, distributions to shareholders, share repurchase programs or other capital or corporate initiatives may be restricted;
•
changes in law or regulation, or the enforcement of law or regulation, that may adversely affect our business activities or those of our clients or our counterparties, and the products or services that we sell, including, without limitation, additional or increased taxes or assessments thereon, capital adequacy requirements, margin requirements and changes that expose us to risks related to the adequacy of our controls or compliance programs;
•
economic or financial market disruptions in the U.S. or internationally, including those which may result from recessions or political instability; for example, the U.K.'s exit from the European Union or actual or potential changes in trade policy, such as tariffs or bilateral and multilateral trade agreements;
•
our ability to create cost efficiencies through changes in our operational processes and to further digitize our processes and interfaces with 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 insufficient return on our associated investment;
•
our ability to promote a strong culture of risk management, operating controls, compliance oversight, ethical behavior and governance that meets our expectations and those of our clients and our regulators, and the financial, regulatory, reputational and other consequences of our failure to meet such expectations;
•
the impact on our compliance and controls enhancement programs associated with the appointment of a monitor under the deferred prosecution agreement with the DOJ and compliance consultant appointed under a settlement with the SEC, including the potential for such monitor and compliance consultant to require changes to our programs or to identify other issues that require substantial expenditures, changes in our operations, payments to clients or reporting to U.S. authorities;
example, the U.K.'s decision to exit from the European Union may continue to disrupt financial markets or economic growth in Europe or potential changes in trade policy and bi-lateral and multi-lateral trade agreements proposed by the U.S.;
our ability to create cost efficiencies through changes in our operational processes and to further digitize our processes and interfaces with 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 insufficient return on our associated investment;
our ability to promote a strong culture of risk management, operating controls, compliance oversight, ethical behavior and governance that meets our expectations and those of our clients and our regulators, and the financial, regulatory, reputation and other consequences of our failure to meet such expectations;
the impact on our compliance and controls enhancement programs associated with the appointment of a monitor under the deferred prosecution agreement with the DOJ and compliance consultant appointed under a settlement with the SEC, including the potential for such monitor and compliance consultant to require changes to our programs or to identify other issues that require substantial expenditures, changes in our operations, or payments to clients or reporting to U.S. authorities;
the results of our review of our billing practices, including additional findings or amounts we may be required to reimburse clients, as well as

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potential consequences of such review, including damage to our client relationships or our reputation and adverse actions or penalties imposed by governmental authorities;
•
our ability to expand our use of technology to enhance the efficiency, accuracy and reliability of our operations and our dependencies on information technology; to replace and consolidate systems, particularly those relying upon older technology, and to adequately incorporate resiliency and business continuity into our systems management; to implement robust management processes into our technology development and maintenance programs; and to control risks related to use of technology, including cyber-crime and inadvertent data disclosures;
•
our ability to address threats to our information technology infrastructure and systems (including those of our third-party service providers); the effectiveness of our and our third party service providers' efforts to manage the resiliency of the systems on which we rely; controls regarding the access to, and integrity of, our and our clients' data; and complexities and costs of protecting the security of such systems and data;
•
the results of, and costs associated with, governmental or regulatory inquiries and investigations, litigation and similar claims, disputes, or civil or criminal proceedings;
•
changes or potential changes in the amount of compensation we receive from clients for our services, and the mix of services provided by us that clients choose;
•
the large institutional clients on which we focus are often able to exert considerable market influence and have diverse investment activities, and this, combined with strong competitive market forces, subjects us to significant pressure to reduce the fees we charge, to potentially significant changes in our AUC/A or our AUM in the event of the acquisition or loss of a client, in whole or in part, and to potentially significant changes in our revenue in the event a client re-balances or changes its investment approach, re-directs assets to lower- or higher-fee asset classes or changes the mix of products or services that it receives from us;
•
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; the possibility of significant reductions in the liquidity or valuation of assets underlying those pools and the potential that clients will seek to hold us liable for such losses; and the possibility that our clients or regulators will assert claims that our fees, with respect to such investment products, are not appropriate;
•
our ability to anticipate and manage the level and timing of redemptions and withdrawals from our collateral pools and other collective investment products;
•
the credit agency ratings of our debt and depositary obligations and investor and client perceptions of our financial strength;
•
adverse publicity, whether specific to us 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;
•
changes or potential changes to the competitive environment, due to, among other things, regulatory and technological changes, the effects of industry consolidation and perceptions of us, as a suitable service provider or counterparty;
•
our ability to complete acquisitions, joint ventures and divestitures, including, without limitation, our 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, including, without limitation, our acquisition of Charles River Systems, Inc. (CRD), and joint ventures will not achieve their anticipated financial, operational and product innovation 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;
the results of, and costs associated with, governmental or regulatory inquiries and investigations, litigation and similar claims, disputes, or civil or criminal proceedings;
changes or potential changes in the amount of compensation we receive from clients for our services, and the mix of services provided by us that clients choose;
the large institutional clients on which we focus are often able to exert considerable market influence and have diverse investment activities, and this, combined with strong competitive market forces, subjects us to significant pressure to reduce the fees we charge, to potentially significant changes in our AUCA or our AUM in the event of the acquisition or loss of a client, in whole or in part, and to potentially significant changes in our fee revenue in the event a client re-balances or


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•
our ability to integrate CRD's front office software solutions with our middle and back office capabilities to develop a front-to-middle-to-back office platform that is competitive, generates revenues in line with our expectations and meets our clients' requirements;
•
our ability to recognize evolving needs of our clients and to develop products that are responsive to such trends and profitable to us; the performance of and demand for the products and services we offer; and the potential for new products and services to impose additional costs on us and expose us to increased operational risk;
•
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 in accounting standards and practices; and
•
the impact of the U.S. tax legislation enacted in 2017, 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.
changes its investment approach or otherwise re-directs assets to lower- or higher-fee asset classes;
the potential for losses arising from our investments in sponsored investment funds;
the possibility that our clients will incur substantial losses in investment pools for which we act as agent, the possibility of significant reductions in the liquidity or valuation of assets underlying those pools and the potential that clients will seek to hold us liable for such losses;
our ability to anticipate and manage the level and timing of redemptions and withdrawals from our collateral pools and other collective investment products;
the credit agency ratings of our debt and depositary obligations and investor and client perceptions of our financial strength;
adverse publicity, whether specific to State Street or regarding other industry participants or industry-wide factors, or other reputational harm;
our ability to control operational risks, data security breach risks and outsourcing risks, our ability to protect our intellectual property rights, the possibility of errors in the quantitative models we use to manage our business and the possibility that our controls will prove insufficient, fail or be circumvented;
our ability to expand our use of technology to enhance the efficiency, accuracy and reliability of our operations and our dependencies on information technology and our ability to control related risks, including cyber-crime and other threats to our information technology infrastructure and systems (including those of our third-party service providers) and their effective operation both independently and with external systems, and complexities and costs of protecting the security of such systems and data;
changes or potential changes to the competitive environment, including changes due to regulatory and technological changes, the effects of industry consolidation and perceptions of State Street as a suitable service provider or counterparty;
our ability to complete acquisitions, joint ventures and divestitures, including the ability to obtain regulatory approvals, the ability to arrange financing as required and the ability to satisfy closing conditions;
the risks that our acquired businesses and joint ventures will not achieve their anticipated financial, operational and product innovation 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 evolving needs of our clients and to develop products that are responsive to such trends and profitable to us; the performance of and demand for the products and services we offer; and the potential for new products and services to impose additional costs on us and expose us to increased operational risk;
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 in accounting standards and practices; and
the impact of the U.S. tax legislation enacted in 2017, 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- lookingforward-looking statements and from our historical financial results due to the factors discussed in this section and elsewhere in this Form 10-Q or disclosed in our other SEC filings. Forward-looking statements in this Form 10-Q should not be relied on as representing our expectations or assumptions as of any time subsequent to the time this Form 10-Q is filed with the SEC. We undertake no obligation to revise our forward-looking statements after the time they are made. The factors discussed herein are not intended to be a complete statement of all risks and uncertainties that may affect our businesses. We cannot anticipate all developments that may adversely affect our business or operations or our consolidated results of operations, financial condition or cash flows.
Forward-looking statements should not be viewed as predictions, and should not be the primary basis on which investors evaluate State Street. Any investor in State Street should consider all risks and uncertainties disclosed in our SEC filings, including our filings under the Securities Exchange Act of 1934, in particular our annual reports on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K, or registration statements filed under the Securities Act of 1933, all of which are accessible on the SEC's website at www.sec.gov or on the “Investor Relations” section of our corporate website at www.statestreet.com.


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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS



OVERVIEW OF FINANCIAL RESULTS
In the first quarter of 2019, we voluntarily changed our accounting method under Financial Accounting Standards Board (FASB) ASC 323, Investments-Equity Method and Joint Ventures, for investments in Low Income Housing Tax Credit (LIHTC) from the equity method of accounting to the proportional amortization method of accounting. The change was applied retrospectively and affects multiple financial statement line items. For additional information about changes in accounting, refer to Note 1 of our consolidated financial statements in this Form 10-Q.
TABLE 1: OVERVIEW OF FINANCIAL RESULTS
Quarters Ended March 31,  Three Months Ended March 31,  
(Dollars in millions, except per share amounts)2018 2017 % Change2019 2018 % Change
Total fee revenue(2)$2,363
 $2,198
 8 %$2,260
 $2,415
 (6)%
Net interest income(1)658
 510
 29
673
 643
 5
Gains (losses) related to investment securities, net(2) (40) (95)(1) (2) nm
Total revenue(2)3,019
 2,668
 13
2,932
 3,056
 (4)
Provision for loan losses—
 (2) nm
4
 —
 nm
Total expenses(2)2,256
 2,086
 8
2,293
 2,268
 1
Income before income tax expense763
 584
 31
635
 788
 (19)
Income tax expense102
 82
 24
127
 129
 (2)
Net income$661

$502
 32
$508
 $659
 (23)
Adjustments to net income:    
    
Dividends on preferred stock(1)(3)
$(55) $(55) —
$(55) $(55) —
Earnings allocated to participating securities(2)(4)
(1) (1) —
(1) (1) —
Net income available to common shareholders$605
 $446
 36
$452
 $603
 (25)
Earnings per common share:    
    
Basic$1.65
 $1.17
 41
$1.20
 $1.64
 (27)
Diluted1.62
 1.15
 41
1.18
 1.62
 (27)
Average common shares outstanding (in thousands):    
Average common shares outstanding (in thousands):
Basic367,439
 381,224
 (4)377,915
 367,439
 3
Diluted372,619
 386,417
 (4)381,703
 372,619
 2
Cash dividends declared per common share$.42
 $.38
 11
$.47
 $.42
 12
Return on average common equity12.8% 9.9%  8.7% 12.8% 
(410) bps
Pre-tax margin25.3
 21.9
  
Pre-tax Margin21.7
 25.8
 (410)
  
(1) In the first quarter of 2018, approximately $15 million of swap costs were reclassified from processing fees and other revenue within fee revenue to net interest income to conform to current presentation.
(2) CRD contributed approximately $99 million and $41 million in total revenue and total expenses, respectively, in the first quarter of 2019, including approximately $95 million in processing fees and other revenue and $4 million in brokerage and other trading services, within foreign exchange trading services, and expenses contributed approximately $31 million in compensation and employee benefits and $10 million in other expense lines. In addition, CRD-related expenses in the first quarter of 2019 include $15 million in amortization of other intangible assets.
(3) Additional information about our preferred stock dividends is provided in Note 12 to the consolidated financial statements in this Form 10-Q.
(2)(4) Represents the portion of net income available to common equity allocated to participating securities, composed of unvested and fully vested SERP (Supplemental executive retirement plans) shares and fully vested deferred director stock awards, which are equity-based awards that contain non-forfeitable rights to dividends, and are considered to participate with the common stock in undistributed earnings.
nm Not meaningful
The following “Financial Results and Highlights” section provides information related to significant events, as well as highlights of our consolidated financial results forin the first quarter ended March 31, 2018of 2019 presented in Table 1: Overview of Financial Results. More detailed information about our consolidated financial results, including comparisons of our financial results forin the first quarter ended March 31,of 2019 compared to the same period in 2018, to those for the quarter ended March 31, 2017, is provided under “Consolidated Results of Operations,”Operations”, "Line of Business Information" and "Capital" which follows these sections, as well as in our consolidated financial statements included in this Form 10-Q. In this Management’s Discussion and Analysis, where we describe the effects of changes in foreign exchangeFX rates, those effects are determined by applying applicable weighted average foreign exchangeFX rates from the relevant 20172018 period to the relevant 20182019 period results.
Financial Results and Highlights
EPS of $1.62$1.18 in the first quarter of 2018 increased 41%2019 decreased 27% compared to $1.15$1.62 in the same period in 2018. The first quarter of 2019 includes the impact of the following notable items:
◦Acquisition and restructuring costs of $9 million, consisting of acquisition costs related to CRD of $13 million, partially offset by a $4 million accrual release for restructuring; and
◦Legal and related expenses of approximately $14 million.
We had no notable items in the first quarter of 2017.2018.
FirstIn the first quarter of 2018 ROE2019, revenues were impacted by challenging industry conditions and lower average equity market levels, partially offset by CRD revenue and NII. In light of challenging market and industry headwinds, we are executing on our previously announced expense savings program.
In the first quarter of 2019, return on equity of 8.7% decreased from 12.8% and pre-taxin the same period in 2018. Pre-tax margin of 25.3% increased from 9.9% and 21.9%, respectively,21.7% in the first quarter of 2017.2019 decreased from 25.8% in the same period in 2018.
Operating leverage was 5.0%.(5.2)% in the first quarter of 2019. Operating leverage represents the difference inbetween the percentage change in total revenue lessand the percentage change in total expenses, in each case relative to the prior year period.
Fee operating leverage was (0.6)%. Fee operating leverage represents the difference in the percentage change in total fee revenue less the percentage change in total expenses, in each case relative to the prior year period. The negative fee operating leverage was primarily due to lower processing fees and other revenue.
Revenue
•
Total revenue(1) and fee revenue increased 13%, and 8%, respectively, in the first quarter of 2018 compared to the first quarter of 2017, primarily driven by higher servicing fees, management fees and NII.
Servicing fee revenue increased 10% in the first quarter of 2018 compared to the first quarter of 2017, primarily due to higher global equity markets, new business, client activity and the favorable impact of currency translation, partially offset by modest hedge fund outflows.
Management fee revenue increased 24% in the first quarter of 2018 compared to the first quarter of 2017, primarily due to higher global equity markets, the favorable impact of currency translation and the adoption of the new revenue recognition accounting standard.
Processing fees and other revenue decreased 78% in the first quarter of 2018 compared to the first quarter of 2017, largely reflecting the absence of a $30 million gain from the sale of a business in the first quarter of 2017 and the impact of $22 million higher FX swap costs not included in the net interest income deposit hedging program in the first quarter of 2018.
NII increased 29% in the first quarter of 2018 compared to the first quarter of 2017, driven by higher U.S. interest rates, disciplined liability pricing, higher client balances, and a continued shift away from wholesale certificate of deposits (wholesale CDs).
(1) The impact of adopting the new revenue recognition standard was an increase in both total revenue and total expense of $65 million, or 3% of the change in both total revenue and total expenses compared to the first quarter of 2017. Revenues increased approximately $45 million in management fee revenue, $15 million in trading services and $5 million across other revenue lines. Expenses increased approximately $45 million in other expenses, $15 million in transaction processing and $5 million across other expense lines.


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We repurchased $300 million of our common stock in the first quarter of 2019 under our previously announced common stock purchase program (the 2018 Program). We may repurchase up to $300 million of our common stock under the 2018 Program in the second quarter of 2019.
Revenue
•
Total revenueand fee revenuedecreased 4% and 6%, respectively, in the first quarter of 2019 compared to the same period of 2018, primarily driven by lower servicing fees, lower management fees, and lower markets revenues, partially offset by higher processing fees and other revenues, and, in the case of total revenue, by higher NII. Processing fees and other revenues in the first quarter of 2019 include revenue from CRD, which we acquired in October 2018.
◦Total revenues contributed by CRD in the first quarter of 2019 were approximately $99 million, including $95 million in processing fees and other revenue, of which approximately $3 million were project-related fees associated with State Street Global Advisors, and $4 million in brokerage and other trading services, within foreign exchange trading services.
•
Servicing fee revenue decreased 12% in the first quarter of 2019 compared to the same period in 2018, primarily due to challenging industry conditions including fee concessions, lower client activity and flows, weaker average equity market levels and a previously announced client transition, partially offset by new business.
Management fee revenue decreased 11% in the first quarter of 2019 compared to the same period in 2018, reflecting product mix and weaker average equity market levels.
Foreign exchange trading services decreased 8% in the first quarter of 2019 compared to the same period in 2018 due to lower client volumes and market volatility.
Securities finance revenue decreased 16% in the first quarter of 2019 compared to the same period in 2018, reflecting a balance sheet repositioning initiative in the second half of 2018.
Processing fees and other revenue increased 148% in the first quarter of 2019 compared to the same period in 2018, primarily due to $95 million in the first quarter of 2019 from CRD, which we acquired in October 2018.
NII increased 5% in the first quarter of 2019 compared to the same period in 2018, primarily due to higher U.S. interest rates and disciplined liability pricing, partially offset by lower average deposit balances.
Expenses
•
Total expenses(1) increased 8%1% in the first quarter of 20182019 compared to the same period in 2018, primarily driven by technology infrastructure spend and the impact of the CRD acquisition, partially offset by savings associated with our 2019 expense savings program through resource discipline, process re-engineering and automation benefits.
◦Total expenses contributed by CRD in the first quarter of 2017, primarily due to investments to support new business,2019 were approximately $41 million, including $31 million in compensation and employee benefit costs, transaction processing costs,benefits, and $10 million in other expense lines. In addition, CRD-related expenses in the first quarter of 2019 included $15 million in amortization of other intangible assets.
◦In the first quarter of 2019, we achieved approximately $78 million of gross expense impactsavings related to our previously announced $350 million 2019 expense savings program through expense savings of the new revenue recognition accounting standard$31 million in resource discipline and the unfavorable impact of currency translation, partially offset by the absence of restructuring charges$47 million in process re-engineering and the effects of Beacon savings, net of Beacon investments.automation benefits.
AUCA/AUC/A and AUM
AUCA increased 12% inAUC/A decreased 2% as of March 31, 2019 compared to March 31, 2018, primarily due to the negative impact of FX translation and a previously announced client transition. In the first quarter of 2018 compared to the first quarter of 2017, primarily due to strength in equity markets, new business and client activity. Asset2019, newly announced asset servicing mandates newly announced in the first quarter of 2018 totaled approximately $1.3 trillion.$120 billion. Servicing assets remaining to be installed in future periods totaled approximately $1.6 trillion$310 billion as of March 31, 2018.2019.
AUM increased 7% in the first quarter3% as of 2018March 31, 2019 compared to the first quarter of 2017,March 31, 2018, primarily driven by strength inhigher equity markets, growth from institutional and ETF net inflows, partially offset by thinner-yielding institutionalyear-end cash outflows.
Capital
We declared aggregate common stock dividends of $0.42 per share, totaling approximately $154 million in the first quarter of 2018, compared to $0.38 per share, totaling $144 million in the first quarter of 2017, representing an increase of approximately 11% on a per share basis.
In the first quarter of 2018, we acquired 3.3 million shares of common stock at an average per-share cost of $105.31 and an aggregate cost of approximately $350 million under the common stock purchase program approved by our Board in June 2017.
CET1 capital ratio decreased to 10.8% as of March 31, 2018 compared to 11.9% as of December 31, 2017 primarily due to an increase in overdraft exposure as of March 31, 2018. Subsequent to March 31, 2018 such overdrafts have been covered by our clients.
Tier 1 leverage ratio decreased to 6.9% as of March 31, 2018, compared to 7.3% as of December 31, 2017. The decrease was primarily due to an increase in client deposits.























(1) The impact of adopting the new revenue recognition standard was an increase in both total revenue and total expense of $65 million, or 3% of the change in both total revenue and total expenses compared to the first quarter of 2017. Revenues increased approximately $45 million in management fee revenue, $15 million in trading services and $5 million across other revenue lines. Expenses increased approximately $45 million in other expenses, $15 million in transaction processing and $5 million across other expense lines.


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Capital
In the first quarter of 2019, we returned a total of approximately $480 million to our shareholders in the form of common stock dividends and share purchases.
◦We declared aggregate common stock dividends of $0.47 per share, totaling $177 million in the first quarter of 2019, compared to $0.42 per share, totaling $154 million in the first quarter of 2018, representing an increase of approximately 12% on a per share basis.
◦In the first quarter of 2019, we acquired 4.2 million shares of common stock at an average per share cost of $70.93 and an aggregate cost of approximately $300 million under the 2018 Program.
Our standardized CET1 capital ratio decreased to 11.5% as of March 31, 2019 compared to 11.7% as of December 31, 2018, and Tier 1 leverage ratio increased to 7.4% as of March 31, 2019 compared to 7.2% as of December 31, 2018.


CONSOLIDATED RESULTS OF OPERATIONS
This section discusses our consolidated results of operations forin the first quarter ended March 31, 2018of 2019 compared to the quarter ended March 31, 2017,same period in 2018, and should be read in conjunction with the consolidated financial statements and accompanying condensed notes to the consolidated financial statements included in this Form 10-Q.
Total Revenue
TABLE 2: TOTAL REVENUE
 Three Months Ended March 31,  
(Dollars in millions)2019 2018 % Change
Fee revenue:     
Servicing fees$1,251
 $1,421
 (12)%
Management fees420
 472
 (11)
Foreign exchange trading services(1)
280
 304
 (8)
Securities finance118
 141
 (16)
Processing fees and other(1)
191
 77
 148
Total fee revenue(1)
2,260
 2,415
 (6)
Net interest income:    
Interest income1,027
 857
 20
Interest expense354
 214
 65
Net interest income673
 643
 5
Gains (losses) related to investment securities, net(1) (2) nm
Total revenue(1)
$2,932
 $3,056
 (4)
TABLE 2: TOTAL REVENUE 
 Quarters Ended March 31,  
(Dollars in millions)2018 2017 % Change
Fee revenue:     
Servicing fees$1,421
 $1,296
 10 %
Management fees472
 382
 24
Trading services:     
Foreign exchange trading181
 164
 10
Brokerage and other trading services123
 111
 11
Total trading services304
 275
 11
Securities finance141
 133
 6
Processing fees and other25
 112
 (78)
Total fee revenue2,363
 2,198
 8
Net interest income:     
   Interest income857
 650
 32
   Interest expense199
 140
 42
Net interest income658
 510
 29
Gains (losses) related to investment securities, net(2) (40) (95)
Total revenue$3,019
 $2,668
 13
(1) CRD contributed approximately $99 million in total revenue for the first quarter of 2019, including approximately $95 million in processing fees and other revenue and $4 million in brokerage and other trading services within foreign exchange trading services.
nm Not meaningful
Fee Revenue
Table 2: Total Revenue, provides the breakout of fee revenue forin the first quarters ended March 31, 2018of 2019 and 2017.
2018. Servicing and management fees collectively made up approximately 80%74% of the total fee revenue in both the first quarter of 2018, compared to approximately 76% in the first quarter of 2017. The level of these fees is influenced2019 and 2018.
Servicing Fee Revenue
Generally, our servicing fee revenues are affected by several factors including changes in market valuations, client activity and asset flows, net new business and the manner in which we price our services. We provide a range of services to our clients, including core custody services, accounting, reporting and administration and middle office services, and the nature and mix of services provided affects our servicing fees. The basis for fees will differ across regions and volumeclients. On average and over time, approximately 55% of our AUCA and our AUM, the value and type of securities positions held (with respectservicing fee revenues have been variable due to assets under custody), the volume of portfolio transactions and the types of products and services used by our clients, and is generally affected by changes in worldwide equity and fixed-income securityasset valuations and trends in market asset class preferences.
Generally, servicing fees are affected byincluding changes in daily average valuations of AUCA. Additional factors, such asAUC/A; another 15% of our servicing fees are impacted by the relativevolume of activity in the funds we serve; and the remaining 30% of our servicing fees tend not to be variable in nature nor impacted by market fluctuations or values.

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Changes in Market Valuations
Our servicing fee revenue is impacted by both our levels of and the geographic and product mix of assets serviced,our AUC/A. Increases or decreases in market valuations have a corresponding impact on the level of our AUC/A and servicing fee revenues, though the degree of impact will vary depending on asset types and classes and geography of assets held within our clients’ portfolios.
Over the five years ended December 31, 2018, we estimate that worldwide market valuations impacted our servicing fee revenues by approximately (2%) to 5% annually. See Table 3: Daily, Month-End and Quarter-End Equity Indices for selected 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 and of client portfolios can therefore differ from the performance of the indices presented. In addition, our asset classifications may differ from those industry classifications presented.
We estimate, using relevant information as of March 31, 2019 and assuming that all other factors remain constant, that:
A 10% increase or decrease in worldwide equity valuations, on a weighted average basis, over the relevant periods for which our servicing fees are calculated, would result in a corresponding change in our total servicing fee revenues, on average and over time, of approximately 3%; and
•
A 10% increase or decrease in worldwide fixed income valuations, on a weighted average basis, over the relevant periods for which our servicing fees are calculated, would result in a corresponding change in our total servicing fee revenues, on average and over time, of approximately 1%.
TABLE 3: DAILY AVERAGES, MONTH-END AVERAGES AND QUARTER-END EQUITY INDICES(1)
 Daily Averages of Indices Month-End Averages of Indices Quarter-End Indices
 Three Months Ended March 31, Three Months Ended March 31, Three Months Ended March 31,
 2019 2018 % Change 2019 2018 % Change 2019 2018 % Change
S&P 500®
2,721
 2,733
 — % 2,774
 2,726
 2 % 2,834
 2,641
 7 %
MSCI EAFE®
1,833
 2,072
 (12) 1,860
 2,070
 (10) 1,875
 2,006
 (7)
MSCI® Emerging Markets

1,033
 1,204
 (14) 1,053
 1,207
 (13) 1,058
 1,171
 (10)
HFRI Asset Weighted Composite®
NA
 NA
 NA
 1,413
 1,409
 —
 1,425
 1,398
 2
(1) The index names listed in the table are service marks of their respective owners.
NA Not applicable
Client Activity and Asset Flows
Client activity and asset flows are impacted by the number of transactions we execute on behalf of our clients, including FX settlements, equity and derivative trades, and wire transfer activity, as well as actions by our clients to change the asset class in which their assets are invested. Our servicing fee revenues are impacted by a number of factors, including transaction volumes, changesasset levels and asset classes in service level,which funds are invested, as well as industry trends associated with these client-related activities.
Our clients may change the asset classes in which their assets are invested, based on their market outlook,
risk acceptance tolerance or other considerations. Over the five years ended December 31, 2018, we estimate that client activity and asset flows, together, impacted our servicing fee revenues by approximately (1%) to 2% annually. See Table 4: Industry Asset Flows for selected asset flow information. While the asset flows presented are indicative of general market trends, the asset types and classes relevant to individual client portfolios can and do differ, and our flows may differ from those market trends. In addition, our asset classifications may differ from those industry classifications presented.

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TABLE 4: INDUSTRY ASSET FLOWS
 Three Months Ended March 31,
(In billions)2019 2018
North America - ICI Market Data(1)(2)
  
Long-Term Funds(3)
$47.3
 $38.0
Money Market54.0
 (52.2)
Exchange-Traded Fund43.3
 62.8
Total ICI Flows$144.6
 $48.6
    
Europe - Broadridge Market Data(1)(4)(5)
  
Long-Term Funds(3)
$(50.0) $160.5
Money Market19.8
 (10.3)
Total Broadridge Flows$(30.2) $150.2
(1) Industry data is provided for illustrative purposes only and is not intended to reflect our activity or its clients' activity.
(2) Source: Investment Company Institute. Investment Company Institute (ICI) data includes funds not registered under the Investment Company Act of 1940. Mutual fund data represents estimates of net new cash flow, which is new sales minus redemptions combined with net exchanges, while ETF data represents net issuance, which is gross issuance less gross redemptions. Data for mutual funds that invest primarily in other mutual funds and ETFs that invest primarily in other ETFs were excluded from the series. ICI classifies mutual funds and ETFs based on language in the fund prospectus.
(3) The long-term fund flows reported by ICI are composed of North America Market flows mainly in Equities, Hybrids and Fixed-Income Asset Classes. The long-term fund flows reported by Broadridge are composed of the European, Middle-Eastern, and African market flows mainly in Equities, Fixed-Income and Multi Asset Classes.
(4) Source: © Copyright 2018, Broadridge Financial Solutions, Inc.Funds of funds have been excluded from Broadridge data (to avoid double counting). Therefore, a market total is the sum of all the investment categories excluding the three funds of funds categories (in-house, ex-house and hedge). ETFs are included in Broadridge’s database on mutual funds, but this excludes exchange-traded commodity products that are not mutual funds.
(5) The first quarter of 2019 data is on a rolling 3 month basis and includes December 2018, January and February 2019 for EMEA (Copyright 2018 Broadridge Financial Solutions, Inc.).
Pricing
The industry in which we operate has historically faced pricing pressure, and our servicing fee revenues are also affected by such pressures today. On average, over the five years ended December 31, 2018, we estimate that pricing pressure with respect to existing clients has impacted our servicing fees by approximately (2%) annually, with the impact ranging from (1%) to (4%) in any given year. Pricing concessions can be a part of a contract renegotiation with a client including terms that may benefit us, such as extending the terms of our relationship with the client, expanding the scope of services that we provide or reducing our dependency on manual processes through the standardization of the services we provide. The timing of the impact of additional revenue generated by such additional services, and the amount of revenue generated, may differ from the impact of pricing concessions on existing services due to the necessary time required to onboard those new services and the nature of services provided, balance credits, client minimum balances, pricing concessions,those services. These same market pressures also impact the geographical location infees we negotiate when we win business from new clients.
Net New Business
Over the five years ended December 31, 2018, net new business, which services are providedincludes business both won and other factors, may have a significant effect onlost, has affected our servicing fee revenue.revenues by approximately 2% on average with a range of 1% to 3% annually. New business can include: custody; product and participant level accounting; daily valuation and administration; record-keeping; cash management; FX, brokerage and other trading services; securities finance; and other services. Revenues associated with new servicing mandates may vary based on the breadth
 
of services provided, the time required to install the assets, and the types of assets installed.
Management Fee Revenue
Management fees generally are affected by changes inour level of AUM, which we report based on month-end valuations of AUM.valuations. Management fees for certain components of managed assets, such as ETFs, mutual funds and UCITS, are affected by daily average valuations of AUM. Management fee revenue is more sensitive to market valuations than servicing fee revenue, as a higher proportion of the underlying services provided, and the associated management fees earned, are dependent on equity and fixed-income security valuations. Additional factors, such as the relative mix of assets managed, may have a significant effect on our management fee revenue. While certain management fees are directly determined by the values of AUM and the investment strategies employed, management fees may reflect other factors, including performance fee arrangements, as well as our relationship pricing for clients using multiple services.clients.
Asset-based management fees for actively managed products are generally charged at a higher percentage of AUM than for passive products. Actively managed products may also include performance fee arrangements which are recorded when the fee is earned, based on predetermined benchmarks associated with the applicable fund’saccount's performance.

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In light of the above, we estimate, using relevant information as of March 31, 20182019 and assuming that all other factors remain constant, including the impact of business won and lost and client flows, that:
A 10% increase or decrease in worldwide equity valuations, on a weighted average basis, over the relevant periods for which our servicing and management fees are calculated, would result in a corresponding change in our total servicing and management fee revenues, on average and over time, of approximately 3%5%; and
A 10% increase or decrease in worldwide fixed income valuations, on a weighted average basis, over the relevant periods for which our servicing and management fees are calculated, would result in a corresponding change in our total servicing and management fee revenues of approximately 1%.
See Table 3: Daily, Month-End and Quarter-End Equity Indices and Table 4: Quarter-End Debt Indices, for selected 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.
•
A 10% increase or decrease in worldwide fixed-income valuations, on a weighted average basis, over the relevant periods for which our management fees are calculated, would result in a corresponding change in our total management fee revenues, on average and over time, of approximately 4%.
Daily averages, month-end averages and quarter-end indices demonstrate worldwide changes in equity and debt markets that affect our servicing and management fee revenue. Quarter-end indices affect the values of AUCA and AUM as of those dates. See Table 3: Daily Averages, Month-End Averages and Quarter-End Equity Indices for selected indices.
Additional information about fee revenue is provided under "Line of Business Information" included in this Management's Discussion and Analysis.


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Further discussion of fee revenue is provided under Line of Business Information in this Management's Discussion and Analysis in this Form 10-Q.
TABLE 3: DAILY, MONTH-END AND QUARTER-END EQUITY INDICES(1)
 Daily Averages of Indices Averages of Month-End Indices Quarter-End Indices
 Quarters Ended March 31, Quarters Ended March 31, Quarters Ended March 31,
 2018 2017 % Change 2018 2017 % Change 2018 2017 % Change
S&P 500®
2,733
 2,326
 17% 2,726
 2,335
 17% 2,641
 2,363
 12%
MSCI EAFE®
2,072
 1,749
 18
 2,070
 1,759
 18
 2,006
 1,793
 12
MSCI® Emerging Markets

1,204
 927
 30
 1,207
 935
 29
 1,171
 958
 22
HFRI Asset Weighted Composite®
NA
 NA
 NA
 1,406
 1,323
 6
 1,392
 1,331
 5
(1) The index names listed in the table are service marks of their respective owners.
NA Not applicable
TABLE 4: QUARTER-END DEBT INDICES(1)
 As of March 31,
 2018 2017 % Change
Barclays Capital U.S. Aggregate Bond Index®
2,016
 1,993
 1%
Barclays Capital Global Aggregate Bond Index®
491
 459
 7
(1) The index names listed in the table are service marks of their respective owners.

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Net Interest Income
See Table 2: Total Revenue, for the breakout of interest income and interest expense forin the first quarters ended March 31, 2018of 2019 and 2017.2018. NII was $658$673 million and $510in the first quarter of 2019 compared to $643 million forin the quarters ended March 31, 2018 and 2017, respectively.same period in 2018.
NII is defined as interest income earned on interest-earning assets less interest expense incurred on interest-bearing liabilities. Interest-earning assets, which principally consist of investment securities, interest-bearing deposits with banks, repurchaseresale agreements, loans and leases and other liquid assets,
are financed primarily by client deposits, short-term borrowings and long-term debt.
NIM represents the relationship between annualized fully taxable-equivalentFTE NII and average total interest-earning assets for the period. It is calculated by dividing fully taxable-equivalentFTE NII 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-equivalentFTE basis using the U.S. federal and state statutory income tax rates.
See Table 5: Average Balances and Interest Rates - Fully Taxable-Equivalent Basis, for the breakout of NII on a FTE basis for the first quarters of 2019 and 2018. NII on a FTE basis increased in the first quarter of 2019 compared to the same period in 2018, primarily due to higher U.S. interest rates and disciplined liability pricing, partially offset by lower average deposit balances.
TABLE 5: AVERAGE BALANCES AND INTEREST RATES - FULLY TAXABLE-EQUIVALENT BASIS(1)
TABLE 5: AVERAGE BALANCES AND INTEREST RATES - FULLY TAXABLE-EQUIVALENT BASIS(1)
TABLE 5: AVERAGE BALANCES AND INTEREST RATES - FULLY TAXABLE-EQUIVALENT BASIS(1)
Quarters Ended March 31,Three Months Ended March 31,
2018 20172019 2018
(Dollars in millions; fully taxable-equivalent basis)
Average
Balance
 
Interest
Revenue/
Expense
 Rate 
Average
Balance
 
Interest
Revenue/
Expense
 Rate
Average
Balance
 
Interest
Revenue/
Expense
 Average Rates 
Average
Balance
 
Interest
Revenue/
Expense
 Average Rates
Interest-bearing deposits with banks$51,492
 $82
 .64% $48,893
 $34
 .28%$48,856
 $119
 0.99% $51,492
 $82
 0.64%
Securities purchased under resale agreements(2)
2,872
 77
 10.89
 2,056
 46
 9.07
2,775
 98
 14.33
 2,872
 77
 10.89
Trading account assets1,138
 —
 —
 914
 —
 —
866
 —
 —
 1,138
 —
 —
Investment securities95,362
 484
 2.03
 97,219
 471
 1.94
88,273
 507
 2.30
 95,362
 484
 2.03
Loans and leases23,959
 158
 2.68
 20,139
 108
 2.17
23,056
 199
 3.49
 23,959
 158
 2.68
Other interest-earning assets17,733
 77
 1.78
 22,619
 34
 .62
15,286
 109
 2.89
 17,733
 77
 1.78
Average total interest-earning assets$192,556
 $878
 1.85
 $191,840
 $693
 1.47
$179,112
 $1,032
 2.34
 $192,556
 $878
 1.85
Interest-bearing deposits:                      
U.S.$48,638
 $34
 .28% $25,928
 $32
 .50%$64,531
 $132
 0.83
 $48,638
 $34
 0.28
Non-U.S.(3)(4)
78,582
 14
 .07
 94,990
 12
 .05
59,775
 39
 0.26
 78,582
 29
 0.15
Securities sold under repurchase agreements(4)
2,617
 —
 —
 3,894
 —
 —
Total interest-bearing deposits(3)(5)
124,306
 171
 0.56
 127,220
 63
 0.20
Securities sold under repurchase agreements1,773
 12
 2.66
 2,617
 —
 —
Other short-term borrowings1,255
 3
 1.09
 1,341
 2
 .63
1,157
 4
 1.34
 1,255
 3
 1.09
Long-term debt11,412
 97
 3.37
 11,421
 73
 2.56
10,955
 106
 3.89
 11,412
 97
 3.37
Other interest-bearing liabilities5,260
 51
 3.87
 5,240
 21
 1.63
4,642
 61
 5.31
 5,260
 51
 3.87
Average total interest-bearing liabilities$147,764
 $199
 .55
 $142,814
 $140
 .40
$142,833
 $354
 1.00
 $147,764
 $214
 0.59
Interest-rate spread    1.30%     1.07%
Net interest income—fully taxable-equivalent basis  $679
     $553
  
Net interest margin—fully taxable-equivalent basis    1.43%     1.17%
Interest rate spread    1.34
     1.26
Net interest income-fully taxable-equivalent basis  $678
     $664
  
Net interest margin-fully taxable-equivalent basis    1.54
     1.40
Tax-equivalent adjustment  (21)     (43)    (5)     (21)  
Net interest income—GAAP basis  $658
     $510
  
Net interest income-GAAP basis  $673
     $643
  
  
(1) Rates earned/paid on interest-earning assets and interest-bearing liabilities include the impact of hedge activities associated with our asset and liability management activities where applicable.
(2) Reflects the impact of balance sheet netting under enforceable netting agreements of approximately $32$59.20 billion and $31in the first quarter of 2019 compared to $32.18 billion forin the quarters ended March 31, 2018 and 2017, respectively.same period in 2018. Excluding the impact of netting, the average interest rates would be approximately 0.64% in the first quarter of 2019 compared to 0.89% and 0.56% forin the quarters ended March 31, 2018 and 2017, respectively.same period in 2018.
(3) Average rate includes the impact of FX swap costs of approximately $19$39 million and $32in the first quarter of 2019 compared to $34 million forin the quarters ended March 31, 2018 and 2017, respectively.same period in 2018. Average rates for total interest-bearing deposits excluding the impact of FX swap costs were 0.09% and 0.04% for the quarters ended March 31, 2018 and 2017, respectively.
(4) Interest for the quarters ended March 31, 2018 and 2017 was less than $1 million, representing an average interest rate of 0.16% and 0.03%, respectively.
See Table 5: Average Balances and Interest Rates - Fully Taxable-Equivalent Basis, for the breakout of NII on a fully taxable-equivalent (FTE) basis for the quarters ended March 31, 2018 and 2017. NII on a FTE basis increased0.43% in the first quarter of 20182019 compared to 0.09% in the same period in 2018.
(4) In the first quarter of 2017, primarily due2018, approximately $15 million of swap costs were reclassified from processing fees and other revenue within fee revenue to higher U.S.net interest rates, disciplined liability pricing and a continued shift away from wholesale CDs. Average interest-bearing and non-interest-bearingincome to conform to current presentation.
(5) Total deposits were relatively stableaveraged $155.34 billion in the first quarter of 20182019 compared to $165.01 billion in the first quarter of 2017, primarily due to a $4.22 billion reductionsame period in wholesale CDs, offset by an increase in client deposits.
2018.
We recorded aggregate discount accretion in interest income of approximately $5 million in both the first quarters of 2018 and 2017 related to the assets we consolidated onto our balance sheet in 2009 from our asset-backed commercial paper conduits. Assuming that we hold the former conduit securities remaining in our investment portfolio until they mature or are sold, we expect to generate aggregate discount accretion in future periods of approximately $116 million over their remaining terms.
The timing and ultimate recognition of any applicable discount accretion depends, in part, on factors that are outside of our control, including


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anticipated prepayment speeds and credit quality. The impact of these factors is uncertain and can be significantly influenced by general economic and financial market conditions. The timing and recognition of any applicable discount accretion can also be influenced by our ongoing management of the risks and other characteristics associated with our investment securities portfolio, including sales of securities which would otherwise generate interest revenue through accretion.
Changes in the components of interest-earning assets and interest-bearing liabilities are discussed in more detail below. Additional information about the components of interest income and interest expense is provided in Note 14 to the consolidated financial statements included in this Form 10-Q.
Average total interest-earning assets were approximately $716 million higher$179.11 billion in the first quarter ended March 31, 2018of 2019 compared to $192.56 billion in the quarter ended March 31, 2017.same period in 2018. The increase was primarilydecrease is largely driven by higher interest-bearinglower average client deposits, offset by lower wholesale CDswhich includes both interest-bearing and non-interest-bearing client deposits.
Interest-bearing deposits with banks averaged $48.86 billion in the first quarter of 2019 compared to $51.49 billion in the quarter ended March 31, 2018 compared to $48.89 billionsame period in the quarter ended March 31, 2017.2018. These deposits primarily reflect our maintenance of cash balances at the Federal Reserve, the ECBEuropean Central Bank (ECB) and other non-U.S. central banks.
Securities purchased under resale agreements averaged $2.78 billion in the first quarter of 2019 compared to $2.87 billion in the quarter ended March 31, 2018 compared to $2.06 billionsame period in 2018. While the quarter ended March 31, 2017, which reflectson-balance sheet amount has remained stable, the impact of balance sheet netting under enforceable netting agreementshas increased to $59.20 billion in the first quarter of approximately $322019 compared to $32.18 billion and $31 billion forin the quarters ended March 31, 2018 and 2017, respectively.same period in 2018. We maintain an agreement with the Fixed Income Clearing Corporation (FICC), a clearing organization that enables us to net all securities sold under repurchase agreements against those purchased under resale agreements with counterparties that are also members of the clearing organization. The increase in balance sheet netting, in the first quarter of 2019 compared to the same period in 2018, is primarily due to the expansion of our program with the FICC and new client activity.
Investment securities averaged $88.27 billion in the first quarter of 2019 compared to $95.36 billion in the quarter ended March 31, 2018 compared to $97.22 billionsame period in the quarter ended March 31, 2017.2018. The decrease in average investment securities was primarily driven by a reduction in U.S. Treasury and asset-backed securities, partially offset by an increase in foreign sovereign bonds. We sold approximately $12 billion of non-HQLA securities during the quarter, primarily asset-backed securities, municipal bonds and covered bonds. These sales were part of our investment repositioning strategy to prioritize capital efficient client lending while managing OCI sensitivity. Sale proceeds will be reinvested into additional interest earning assets.
Loans and leases averaged $23.06 billion in the first quarter of 2019 compared to $23.96 billion in quarter ended March 31, 2018 compared to $20.14
the same period in 2018.
billion in the quarter ended March 31, 2017. The increase in average loans and leases was primarily driven by higher levels of overdrafts and senior secured bank loans. Loans and leases also includes U.S. and non-U.S. overdrafts, which provide liquidity to clients in support of investment activities. Average U.S. and non-U.S. overdrafts were $734 million higher in the quarter ended March 31, 2018 compared to the quarter ended March 31, 2017.
Our average other interest-earning assets, largely associated with our enhanced custody business, comprised approximately 9% and 12% of our average total assetsdecreased to $15.29 billion in the quarters ended March 31,first quarter of 2019 from $17.73 billion in the same period in 2018, and 2017, respectively. The enhancedprimarily driven by a reduction in the level of cash collateral posted. Enhanced custody business is our securities financing business where we act as principal with respect to our custody clients and generate securities finance revenue. The NII earned on these transactions is generally lower than the interest earned on other alternative investments. Average other interest-earning assets
Aggregate average total interest-bearing deposits decreased to $17.73$124.31 billion in the first quarter ended March 31, 2018of 2019 from $22.62 billion in the quarter ended March 31, 2017, largely driven by a reduction in the level of cash collateral posted by our enhanced custody business.
Aggregate average U.S. and non-U.S. interest-bearing deposits increased to $127.22 billion in the quarter ended March 31, 2018 from $120.92 billionsame period in the quarter ended March 31, 2017. The higher levels compared to the prior year period were2018. Average U.S. interest-bearing deposits increased as a result of highera gradual shift from non-interest bearing deposits and a reclassification from non-U.S. into U.S. interest-bearing deposits that occurred in the third quarter of 2018. The overall decrease was primarily driven by lower client deposit levels, offset by management actions to reduce wholesale CDs.levels. Future deposit levels will be influenced by the underlying asset servicing business, client depositbehavior and market conditions, including the general levels of U.S. and non-U.S. interest rates.
Average other short-term borrowings, declinedlargely associated with our tax-exempt investment program, decreased to $1.16 billion in the first quarter of 2019 from $1.26 billion in the quarter ended March 31, 2018 from $1.34same period in 2018.
Average long-term debt was $10.96 billion in the first quarter ended March 31, 2017, as bonds maturedof 2019 compared to $11.41 billion in the tax-exempt investment program.same period in 2018. These amounts reflect issuances and maturities of senior debt during the respective periods.
Average other interest-bearing liabilities were $4.64 billion in the first quarter of 2019 compared to $5.26 billion in the quarter ended March 31, 2018 compared to $5.24 billionsame period in the quarter ended March 31, 2017.2018. Other interest-bearing liabilities primarily reflect our level of cash collateral received from clients in connection with our enhanced custody business, which is presented on a net basis where we have enforceable netting agreements.
Several factors could affect future levels of NII and NIM, including the volume and mix of client liabilities; actions of variousdeposits and funding sources; central banks;bank actions; balance sheet management activities; changes in the level and slope of U.S. and non-U.S. interest rates; revised or proposed regulatory capital or liquidity standards, or interpretations of those standards; the yields earned on securities purchased compared to the yields earned on securities sold or matured and changes in the type and amount of credit or other loans we extend.

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Based on market conditions and other factors, including regulatory standards, we continue to reinvest the majority of the proceeds from pay-downs and maturities of investment securities in highly-rated U.S. and non-U.S. securities, such as U.S. Treasury and agency securities, municipalsovereign debt securities and federal agency MBS and U.S. and non-U.S. mortgage- and ABS.MBS. The pace at which we continue to reinvest and the types of investment securities purchased will depend on the impact of market conditions, the implementation of regulatory standards, including interpretation of those standards and other factors over time. We expect these factors and the levels of global interest rates to influence what effectimpact our reinvestment program will have onand future levels of our NII and NIM.

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Expenses
Table 6: Expenses, provides the breakout of expenses forin the first quarters ended March 31, 2018of 2019 and 2017.2018.
TABLE 6: EXPENSES  
 Three Months Ended March 31, % Change
(Dollars in millions)2019 2018 
Compensation and employee benefits(1)
$1,229
 $1,249
 (2)%
Information systems and communications362
 315
 15
Transaction processing services242
 254
 (5)
Occupancy116
 120
 (3)
Acquisition costs13
 —
 nm
Restructuring charges, net(4) —
 nm
Amortization of other intangible assets(1)
60
 50
 20
Other:     
Professional services80
 79
 1
Regulatory fees and assessments18
 27
 (33)
Other177
 174
 2
Total other275
 280

(2)
Total expenses(1)
$2,293
 $2,268

1
Number of employees at quarter-end39,969
 37,192
 7
TABLE 6: EXPENSES
 Quarters Ended March 31,  
(Dollars in millions)2018 2017 % Change
Compensation and employee benefits$1,249
 $1,166
 7 %
Information systems and communications315
 287
 10
Transaction processing services242
 197
 23
Occupancy120
 110
 9
Acquisition costs—
 12
 (100)
Restructuring charges, net—
 17
 (100)
Other:     
Professional services79
 94
 (16)
Amortization of other intangible assets50
 52
 (4)
Regulatory fees and assessments27
 27
 —
Other174
 124
 40
Total other330
 297
 11
Total expenses$2,256
 $2,086
 8
Number of employees at quarter-end37,192
 34,817
 7
(1)CRD contributed approximately $41 million in total expenses in the first quarter of 2019, including approximately $31 million in compensation and employee benefits, and $10 million in other expense lines. In addition, CRD-related expenses in the first quarter of 2019 include $15 million in amortization of other intangible assets.
nm Not meaningful
Compensation and employee benefits expenses increased 7%decreased 2% in the first quarter of 20182019 compared to the same period in 2018, partially due to lower seasonal deferred incentive compensation expenses for retirement eligible employees and related payroll taxes. These seasonal expenses were $137 million in the first quarter of 2017, primarily due2019 compared to increased$148 million in the same period in 2018. The decrease is also a result of lower contractor service costs in the first quarter of 2019 compared to support new business, annual meritthe same period in 2018, and performance based incentives and the unfavorable impact of currency translation,is partially offset by Beacon savings.
Compensation$31 million of CRD compensation and employee benefits expenses in the first quarter of 20182019 and the first quarter of 2017 included approximately $148 million and $154 million, respectively, of deferred incentive compensation expense for retirement-eligible employees and payroll taxes.annual merit increases.
Headcount increased 7% in the first quarter of 20182019 compared to the first quarter of 2017. Thesame period in 2018, primarily driven by growth in headcount was all withinour low cost locations and was driven by new business and strategic initiatives, as well as regulatory initiatives and contractor conversions to full-time employees,the impact of CRD, partially offset by reductions from
Beacon. Headcounta reduction in headcount in our high cost locations. Total headcount decreased by approximately 0.5% as of March 31, 2019 compared to December 31, 2018, primarily driven by a reduction in high cost locations fell compared to the first quarter of 2017.headcount.
Information systems and communications expenses increased 10%15% in the first quarter of 20182019 compared to the first quarter of 2017.same period in 2018. The increases wereincrease was primarily related to higher technology costs.infrastructure enhancements.
Other
Transaction processing services expenses increased 11%decreased 5% in the first quarter of 20182019 compared to the same period in 2018, due to lower sub-custodian costs.
Occupancy expenses decreased 3% in the first quarter of 2017,2019 compared to the same period in 2018, primarily driven by the advancement of our global footprint strategy.
Amortization of other intangible assets increased 20% in the first quarter of 2019 compared to the same period in 2018, primarily due to the $45 million impactCRD acquisition.
Other expenses decreased 2% in the first quarter of 2019 compared to the adoption of the new revenue recognition accounting standard.same period in 2018, primarily due to lower travel and insurance costs.
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, technology and systems, as well as significant additional implementation and related costs to enhance our regulatory compliance programs. We anticipate that these evolving regulatoryRegulatory compliance requirements and expectations will continueare anticipated to affect our expenses.remain at least at the elevated levels we have experienced over the past several years.
Restructuring ChargesAcquisition Costs
In connection with Beacon, we announced in 2016 that we expected:
(i) to incur aggregate pre-tax restructuring chargesWe recorded approximately $13 million of approximately $300 million to $400 million beginning in 2016 through December 31, 2020, including approximately $250 million to $300 million in severance and benefitsacquisition costs associated with targeted staff reductions (a substantial portion of which would result in future cash expenditures) and approximately $50 million to $100 million in information technology application rationalization and real estate actions; and
(ii) to achieve estimated annual pre-tax net run-rate expense savings of $550 million by the end of 2020, relative to 2015, all else equal, for full effect in 2021. Actual expenses may increase or decrease in the future due to other factors.
In the first quarter of 2018, we recorded no restructuring charges, compared to $17 million in the first quarter of 2017,2019 related to Beacon. In aggregate,our acquisition of CRD. As we have recorded restructuring chargesintegrate CRD into our business, we expect to incur a total of approximately $385 million related to Beacon, including $300 million in severance costs and $85 million in information technology application rationalization and real estate action.
In the first quarter of 2018, we achieved approximately $58$200 million of Beacon pre-tax run rate savings, net of Beacon investments,acquisition costs, including merger and expect total target pre-tax run rate net savings of $550 million to be realized by mid-2019,integration costs, through 2021, out of which $385$44 million has been realizedincurred as of March 31, 2018.2019.


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Restructuring and Repositioning Charges
Repositioning Charges
In 2018, we initiated a new expense program to accelerate efforts to become a higher-performing organization and help navigate challenging market and industry conditions. Through our new expense savings program, we expect to realize $350 million in gross expense savings in 2019. In the first quarter of 2019, we achieved approximately $78 million of gross expense savings, including $31 million in resource discipline and $47 million in process re-engineering and automation benefits. Resource discipline benefits can include reducing senior management headcount, rigorous performance management, vendor management and optimization of real estate. Process re-engineering and automation benefits can include high-cost location workforce reductions, reducing manual/bespoke and redundant activities, streamlining operational centers and moving to common platforms/retiring legacy applications.
Beacon
In the first quarter of 2019, we released $4 million of restructuring accruals related to Beacon as the program continues to wind down. We recorded no restructuring charges in the same period in 2018.
The following table presents aggregate restructuring and repositioning activity for the periods indicated.indicated:
TABLE 7: RESTRUCTURING CHARGES
(In millions)Employee
Related Costs		 Real Estate
Actions		 Asset and Other Write-offs Total
Accrual Balance at December 31, 2016$37
 $17
 $2
 $56
Accruals for Beacon186
 32
 27
 245
Payments and Other Adjustments(57) (17) (26) (100)
Accrual Balance at December 31, 2017$166
 $32
 $3
 $201
Accruals for Beacon—
 —
 —
 —
Payments and Other Adjustments(22) (4) —
 (26)
Accrual Balance at March 31, 2018$144
 $28
 $3
 $175
TABLE 7: RESTRUCTURING AND REPOSITIONING CHARGES
(In millions)Employee
Related Costs		 Real Estate
Actions		 Asset and Other Write-offs Total
Accrual balance at December 31, 2017$166
 $32
 $3
 $201
Accruals for Beacon—

—

—
 —
Payments and other adjustments(22)
(4)
—
 (26)
Accrual balance at March 31, 2018$144
 $28
 $3
 $175
Accrual balance at December 31, 2018$303

$37

$1
 $341
Accruals for Beacon(4)
—

—
 (4)
Payments and other adjustments(53)
(25)
—
 (78)
Accrual balance at March 31, 2019$246
 $12
 $1
 $259
Income Tax Expense
Income tax expense was $102$127 million in the first quarter of 20182019 compared to $82$129 million in the first quarter of 2017.same period in 2018. Our effective tax rate in the first quarter of 20182019 was 13.5%,20.1% compared to 14.0%16.4% in the same period in 2018. The effective tax rate in the first quarter of 2017. The 2018 tax expense2019 included net benefits from the enactment of the Tax Cuts and Jobs Act and an increasea decrease in excess deductions related to stock based compensation, partially offset by a decreasecompensation. The effective tax rate in tax advantaged investments.
In the first quarter of 2018 we continuedincluded one-time benefits related to perform our analysisaudit settlements and evaluate interpretations and other guidance regarding the Tax Cuts and Jobs Act, but did not record any adjustments to the amounts recorded onrealization of a provisional basis in the year ended December 31, 2017 or deem any such amounts as complete.tax loss.
LINE OF BUSINESS INFORMATION
Our operations are organized into two lines of business: Investment Servicing and Investment Management, which are defined based on products and services provided. The results of operations for these lines of business are not necessarily comparable with those of other companies, including companies in the financial services industry.
Investment Servicing provides services for institutional clients, including mutual funds, collective investment funds and other investment pools, corporate and public retirement plans, insurance companies, investment managers, foundations and endowments worldwide. Products includeinclude: custody; product- and participant-level accounting; daily pricing and administration; master trust and master custody; record-keeping; cash management; foreign exchange,FX, brokerage and other trading services; securities finance; our enhanced custody product, which integrates principal securities lending and custody; deposit and short-term investment facilities; loans and lease financing; investment manager and alternative investment manager operations outsourcing; and performance, risk and compliance analytics to support institutional investors.
Products and services related to CRD include: portfolio modeling and construction; trade order management; investment risk and compliance; and wealth management solutions.
Investment Management, through SSGA,State Street Global Advisors, provides a broad arrayrange of investment management investment researchstrategies and products for our clients. Our investment advisory services to corporations, public funds and other sophisticated investors. SSGA offers passive and active asset management strategies across equity, fixed-income,and products span the risk/reward spectrum, including core and enhanced indexing, multi-asset strategies, active quantitative and fundamental active capabilities and alternative multi-assetinvestment strategies. Our AUM is currently primarily weighted to indexed strategies. In addition, we provide a breadth of services and solutions, (including OCIO)including environmental, social and cash asset classes. Productsgovernance investing, defined benefit and defined contribution and Outsourced Chief Investment Officer. State Street Global Advisors is also a provider of ETFs, including the SPDR® ETF brand. While management fees are distributed directlyprimarily determined by the values of AUM and through intermediaries using a variety ofthe investment vehicles,strategies employed, management fees reflect other factors as well, including ETFs, such as the SPDR ETF® brand.benchmarks specified in the respective management agreements related to performance fees.
For information about our two lines of business, as well as the revenues, expenses and capital allocation methodologies associated with them, refer to pages 179 to 181 in Note 2418 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 2017 Form 10-K and Note 17 to the consolidated financial statements included in this Form 10-Q.

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Investment Servicing
TABLE 8: INVESTMENT SERVICING LINE OF BUSINESS RESULTS
Quarters Ended March 31,  
(Dollars in millions, except where otherwise noted)2018 2017 % Change
(Dollars in millions)Three Months Ended March 31,  
2019 2018 % Change
Servicing fees$1,421
 $1,296
 10 %$1,251
 $1,421
 (12)%
Trading services274
 257
 7
Foreign exchange trading services246
 274
 (10)
Securities finance141
 133
 6
117
 141
 (17)
Processing fees and other(1)25
 106
 (76)180
 77
 134
Total fee revenue(1)1,861
 1,792
 4
1,794
 1,913
 (6)
Net interest income663
 509
 30
679
 648
 5
Gains (losses) related to investment securities, net(2) (40) (95)(1) (2) nm
Total revenue(1)2,522
 2,261
 12
2,472
 2,559
 (3)
Provision for loan losses—
 (2) nm
4
 —
 nm
Total expenses1,858
 1,728
 8
1,864
 1,870
 —
Income before income tax expense$664
 $535
 24
$604
 $689
 (12)
Pre-tax margin26% 24%  24% 27%  
   
(1) CRD contributed approximately $99 million and $41 million in total revenue and total expenses, respectively, in the first quarter of 2019, including approximately $95 million in processing fees and other revenue and $4 million in brokerage and other trading services within foreign exchange trading services, and expenses contributed approximately $31 million in compensation and employee benefits and $10 million in other expense lines. In addition, CRD-related expenses in the first quarter of 2019 include $15 million in amortization of other intangible assets.
nm Not meaningful
Servicing Fees
Servicing fees increaseddecreased 12% in the first quarter of 2019 compared to the same period in 2018, primarily due to challenging industry conditions including fee concessions, lower client activity and flows, weaker average equity market levels and a previously announced client transition, partially offset by new business. Servicing fees, excluding the impact of FX rates, decreased 10% in the first quarter of 20182019 compared to the first quarter of 2017, primarily due to higher global equity markets, new business, client activity and the favorable impact of currency translation, partially offset by modest hedge fund outflows.same period in 2018.
Servicing fees generated outside the U.S. were approximately 46% and 43% of total servicing fees in the first quartersquarter of 2018both 2019 and 2017, respectively.2018.

TABLE 9: ASSETS UNDER CUSTODY AND/OR ADMINISTRATION BY PRODUCT
(In billions)March 31, 2019 December 31, 2018 March 31, 2018
Collective funds$9,436
 $8,999
 $9,908
Mutual funds8,586
 7,912
 7,503
Insurance and other products8,108
 8,220
 9,071
Pension products6,513
 6,489
 6,802
Total$32,643
 $31,620
 $33,284
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TABLE 9: ASSETS UNDER CUSTODY AND ADMINISTRATION BY PRODUCT
(In billions)March 31, 2018 December 31, 2017 March 31, 2017
Mutual funds$7,503
 $7,603
 $7,033
Collective funds9,908
 9,707
 8,024
Pension products6,802
 6,704
 5,775
Insurance and other products9,071
 9,105
 9,001
Total$33,284
 $33,119
 $29,833
TABLE 10: ASSETS UNDER CUSTODY AND/OR ADMINISTRATION BY ASSET CLASS
(In billions)March 31, 2019 December 31, 2018 March 31, 2018
Equities$18,924
 $18,041
 $19,198
Fixed-income9,831
 9,758
 10,186
Short-term and other investments3,888
 3,821
 3,900
Total$32,643
 $31,620
 $33,284
TABLE 10: ASSETS UNDER CUSTODY AND ADMINISTRATION BY ASSET CLASS
(In billions)March 31, 2018 December 31, 2017 March 31, 2017
Equities$19,198
 $19,214
 $16,651
Fixed-income10,186
 10,070
 9,786
Short-term and other investments3,900
 3,835
 3,396
Total$33,284
 $33,119
 $29,833
TABLE 11: ASSETS UNDER CUSTODY AND ADMINISTRATION BY GEOGRAPHY(1)
TABLE 11: ASSETS UNDER CUSTODY AND/OR ADMINISTRATION BY GEOGRAPHY(1)
TABLE 11: ASSETS UNDER CUSTODY AND/OR ADMINISTRATION BY GEOGRAPHY(1)
(In billions)March 31, 2018 December 31, 2017 March 31, 2017March 31, 2019 December 31, 2018 March 31, 2018
North America$24,336
 $24,418
 $22,361
Americas$23,979
 $23,203
 $24,336
Europe/Middle East/Africa7,211
 7,028
 5,979
6,875
 6,699
 7,211
Asia/Pacific1,737
 1,673
 1,493
1,789
 1,718
 1,737
Total$33,284
 $33,119
 $29,833
$32,643
 $31,620
 $33,284
  
(1) Geographic mix is generally based on the location in whichdomicile of the assets are serviced.entity servicing the funds and is not necessarily representative of the underlying asset mix.
Asset servicing mandates newly announced in the first quarter of 20182019 totaled approximately $1.3 trillion.$120 billion. Servicing assets remaining to be installed in future periods totaled approximately $1.6 trillion$310 billion as of March 31, 2018,2019, which will be reflected in AUCAAUC/A in future periods after installation and will generate servicing fee revenue in subsequent periods. The full revenue impact
of such mandates will be realized over several quarters as the assets are installed and additional services are added over that period.
We expect that for the remainder of the year newly announced asset servicing mandates will return to levels more commonly reflected historically. New asset servicing mandates and servicing assets remaining to be installed in future periods exclude certain new business which has been contracted, but for which the client has not yet provided

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permission to publicly disclose and is not yet installed.the expected installation date extends beyond one quarter. These excluded assets, which from time to time may be significant, will be included in new asset servicing mandates and reflected in servicing assets remaining to be installed in the period in which the client provides its permission. Newly announced servicing asset mandates for the first quarter of 2018 include a significant amount of assets contracted for in the fourth quarter of 2017 for which we received client consent to disclose in the first quarter of 2018. Servicing mandates and servicing assets remaining to be installed in future periods are presented on a gross basis and therefore also do not include the impact of clients who have notified us during the period of their intent to terminate or reduce their relationship with us.us, which may from time to time be significant.
With respect to these new servicing mandates, once installed we may provide various services, including, accounting, bank loan servicing, compliance reporting and monitoring, custody, depository banking services, foreign exchange,FX, fund administration, hedge fund servicing, middle-officemiddle office outsourcing, performance and analytics, private equity administration, real estate administration, securities finance, transfer agency and wealth management services. Revenues associated with new servicing mandates may vary based on the breadth of services provided and the timing of installation, and the types of assets.
For additional information about the impact of worldwide equity and fixed incomefixed-income valuations on our fee revenue, includingas well as other key drivers of our servicing fee revenue, refer to "Fee Revenue" in "Consolidated Results of Operations" included in this Management's Discussion and Analysis in this Form 10-Q.Analysis.
As a result of a decision to diversify providers, one of our large clients will movehas moved a portion of its assets, largely common trust funds, currently with us to another service provider. We expect to remain a significant service provider to this client. The transition, will principally occurwhich began in 2018 and beyond andis largely complete, represents approximately $1 trillion in assets with respect to which we will no longer derive revenue post-transition.
Foreign Exchange Trading Services
TradingForeign exchange trading services revenue, increased 11%as presented in Table 8: Investment Servicing Line of Business Results, decreased 10% in the first quarter of 20182019 compared to the first quarter of 2017,same period in 2018, primarily due to strongerlower FX client FX volumes the adoption of the new revenue recognition accounting standard and higher electronicmarket volatility. Foreign exchange trading activity. Trading services revenue is composed of revenue generated by FX trading, as well as revenue generated by brokerage and other trading services. FX trading and brokerage and other trading services as notedrepresented approximately 57% and 43%, respectively, of our total foreign exchange trading services revenue in Table 2: Total Revenue.
Foreign Exchange Trading Revenuethe first quarter of 2019, compared to 60% and 40%, respectively, in the same period in 2018.
We primarily earn FX trading revenue by acting as a principal market-maker through both "direct sales and trading” and “indirect foreign exchangeFX trading.”
Direct sales and trading: Represent FX transactions at negotiated rates with clients and investment managers that contact our trading desk directly. These principal market-making activities include transactions for funds serviced by third party custodians or prime brokers, as well as those funds under custody with us.
Indirect FX trading: Represent FX transactions with clients or their investment managers routed to our FX desk through our asset-servicing operation; in which all cases, we are the funds' custodian. We execute indirect FX trades as a principal at rates disclosed to our clients.

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•
Direct sales and trading: Represent FX transactions at negotiated rates with clients and investment managers that contact our trading desk directly. These principal market-making activities include transactions for funds serviced by third party custodians or prime brokers, as well as those funds under custody with us.
•
Indirect FX trading: Represent FX transactions with clients or their investment managers routed to our FX desk through our asset-servicing operation, and to all of which, we are the funds' custodian. We execute indirect FX trades as a principal at rates disclosed to our clients.
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 exchangeFX 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 bid-offer spreads across product mix tend to result in increases or decreases, as the case may be, in client-related FX revenue.
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.
Brokerage and Other Trading Services
We also offer a range of brokerage and other trading products tailored specifically to meet the needs of the global pension community, including transition management and commission recapture. These products and services are generally offered by us as 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.
Total brokerage and otherearn foreign exchange trading services revenue primarily consists ofthrough "electronic FX services" and "other trading, transition management and brokerage revenue."
Electronic FX services:services: Our clients may choose to execute FX transactions through one of our electronic trading platforms. These transactions generate revenue through a “click” fee.
Other trading, transition management and brokerage revenue:revenue: As our clients look to us to enhance and preserve portfolio values, they may choose to utilize our Transition or Currency Management capabilities or transact with our Equity Trade execution group. These transactions generate revenue via commissions charged for trades transacted during the management of these portfolios.
In recent years, our
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Our transition management revenue washas been adversely affected by compliance issues in our U.K. business during 2010 and 2011, including settlements with the FCAU.K. Financial Conduct Authority in 2014 and the DOJ and SEC
in 2017, including a deferred prosecution agreement. The reputational and regulatory impact of those compliance issues continues and may continue to adversely affect our results in future periods.
Securities Finance
Our securities finance business consists of three components:
(1) an agency lending program for SSGA-managedState Street Global Advisors managed investment funds with a broad range of investment objectives, which we refer to as the SSGAState Street Global Advisors 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.
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-rateinterest 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 or other market participants and then lends such securities to the subsequent borrower, either our 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 parties, we have the ability to source securities through assets under custody and administration from clients who have designated State Streetus as an eligible borrower.
Securities finance revenue, as presented in Table 8: Investment Servicing Line of Business Results, increased 6%decreased 17% in the first quarter of 20182019 compared to the first quartersame period in 2018, primarily due to balance sheet repositioning efforts in the second half of 2017, primarily as a result of higher lending activity from2018 within our agency business.enhanced custody business and lower client activity.
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, including
revised or proposed capital and liquidity standards, interpretations of those standards, and our own balance sheet management activities, may influence modifications to the way in which we deliver our agency lending or enhanced custody businesses, the volume of our securities lending activity and related revenue and profitability in future periods.

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Processing Fees and Other
Processing fees and other revenue includes diverse types of fees and revenue, including fees from software licensing and maintenance, 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 other assets derivative financial instruments to support our clients' needs and to manage our interest-rate and currency risk, and amortization of our tax-advantaged investments.
Processing fees and other revenue, presented in Table 8: Investment Servicing Line of Business Results, decreased 76%increased 134% in the first quarter of 20182019 compared to the first quarter of 2017. The decrease is primarily due to the absence of a $30same period in 2018, and reflects approximately $95 million gainfrom CRD in the first quarter of 2017 from2019. Revenue related to the front office solutions provided by CRD is primarily driven by the sale of term software licenses and software as a businessservice arrangement inclusive of professional services such as consulting and the impact of $22 million higher FX swap costs not included in our net interest income deposit hedging programimplementation services, software support and maintenance.
Expenses
Total expenses for Investment Servicing were flat in the first quarter of 2018.
Expenses
Total2019 compared to the same period in 2018, primarily due to $41 million of expenses for Investment Servicing increased 8%from CRD, higher technology costs and higher investments to support new business, offset by benefits of our previously announced expense savings initiative and lower seasonal deferred incentive compensation. In addition, CRD-related expenses in the first quarter of 2018 compared to the first quarter2019 include $15 million in amortization of 2017, primarily due to higher technology costs, costs to support new business, higher annual merit and performance based incentive compensation and the unfavorable impact of currency translation, partially offset by the effects of Beacon savings.other intangible assets. Seasonal deferred incentive compensation expense for retirement eligible employees and payroll taxes was $116 million in the first quarter of 2019 compared to $132 million and $137 million for in the quarters ended March 31, 2018 and 2017, respectively.same period in 2018.
Additional information about expenses is provided under Expenses"Expenses" in Consolidated"Consolidated Results of OperationsOperations" included in this Management's Discussion and Analysis of this Form 10-Q.Analysis.

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Investment Management
TABLE 12: INVESTMENT MANAGEMENT LINE OF BUSINESS RESULTS
 Quarters Ended March 31,  
(Dollars in millions)2018 2017 % Change
Management fees$472
 $382
 24%
Trading services(1)
30
 18
 67
Processing fees and other—
 6
 nm
Total fee revenue502
 406
 24
Net interest income(5) 1
 nm
Total revenue497
 407
 22
Total expenses398
 329
 21
Income before income tax expense$99
 $78
 27
Pre-tax margin20% 19%  
TABLE 12: INVESTMENT MANAGEMENT LINE OF BUSINESS RESULTS
(Dollars in millions)Three Months Ended March 31, % Change
2019 2018 
Management fees$420
 $472
 (11)%
Foreign exchange trading services(1)
34
 30
 13
Securities finance1
 —
 nm
Processing fees and other11
 —
 nm
Total fee revenue466
 502
 (7)
Net interest income(6) (5) 20
Total revenue460
 497
 (7)
Total expenses406
 398
 2
Income before income tax expense$54
 $99
 (45)
Pre-tax margin12% 20%  
  
(1)Includes revenues from distributing and marketing activities for U.S. mutual funds and ETFs associated with the SPDR® Gold Shares ETF and SPDR® Long Dollar Gold Trust ETF, for which we act as the marketing agent.State Street Global Advisors.
nm Not meaningful
 
Management Fees
Through SSGA, we provide a broad range of investment management strategies, specialized investment management advisory services, OCIO and other financial services for corporations, public funds and other sophisticated investors. SSGA offers an array of investment management strategies, including passive and active, such as enhanced indexing, using quantitative and fundamental methods for both U.S. and global equity and fixed income securities. SSGA also offers ETFs, such as the SPDR® ETF brand. While certain management fees are directly determined by the values of AUM and the investment strategies employed, management fees reflect other factors as well, including our relationship pricing for clients who use multiple services and the benchmarks specified in the respective management agreements related to performance fees.
Management fees increased 24%decreased 11% in the first quarter of 20182019 compared to the first quarter of 2017, primarily due to higher globalsame period in 2018, reflecting product mix and weaker average equity markets, the adoption of the new revenue recognition accounting standard and the favorable impact of currency translation.market levels.
Management fees generated outside the U.S. were approximately 27% of total management fees in both the first quartersquarter of 2018both 2019 and 2017.2018.

TABLE 13: ASSETS UNDER MANAGEMENT BY ASSET CLASS AND INVESTMENT APPROACH
(In billions)March 31, 2018 December 31, 2017 March 31, 2017March 31, 2019 December 31, 2018 March 31, 2018
Equity:     Equity:
Active$94
 $95
 $77
$85
 $80
 $94
Passive1,576
 1,650
 1,482
1,696
 1,464
 1,576
Total Equity1,670
 1,745
 1,559
1,781
 1,544
 1,670
Fixed-Income:     Fixed-Income:
Active79
 77
 69
88
 81
 79
Passive354
 337
 312
341
 341
 354
Total Fixed-Income433
 414
 381
429
 422
 433
Cash(1)
336
 330
 335
314
 287
 336
Multi-Asset-Class Solutions:     Multi-Asset-Class Solutions:
Active18
 18
 19
22
 19
 18
Passive128
 129
 113
125
 113
 128
Total Multi-Asset-Class Solutions146
 147
 132
147
 132
 146
Alternative Investments(2):
     
Alternative Investments(2):
Active23
 23
 26
21
 21
 23
Passive121
 123
 128
113
 105
 121
Total Alternative Investments144
 146
 154
134
 126
 144
Total$2,729
 $2,782
 $2,561
$2,805
 $2,511
 $2,729
  
(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 Shares ETF and SPDR® Long Dollar Gold Trust ETF. We are not the investment manager for the SPDR® Gold Shares ETF and SPDR® Long Dollar Gold Trust ETF, but actsact as the marketing agent.

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TABLE 14: EXCHANGE - TRADED FUNDS BY ASSET CLASS(1)(2)
(In billions) March 31, 2018 December 31, 2017 March 31, 2017
Alternative Investments(2)
 $48
 $48
 $46
Cash 3
 2
 2
Equity 513
 531
 457
Fixed-income 65
 63
 53
Total Exchange-Traded Funds $629
 $644
 $558
TABLE 14: EXCHANGE-TRADED FUNDS BY ASSET CLASS(1)
(In billions)March 31, 2019 December 31, 2018 March 31, 2018
Alternative Investments(2)
$45
 $43
 $48
Cash8
 9
 3
Equity535
 482
 513
Fixed-Income73
 66
 65
Total Exchange-Traded Funds$661
 $600
 $629
  
(1) ETFs are a component of AUM presented in the preceding table.
(2) Includes real estate investment trusts, currency and commodities, including SPDR® Gold Shares ETF and SPDR® Long Dollar Gold Trust ETF. We are not the investment manager for the SPDR® Gold Shares ETF and SPDR® Long Dollar Gold Trust ETF, but actsact as the marketing agent.

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TABLE 15: GEOGRAPHIC MIX OF ASSETS UNDER MANAGEMENT(1)
(In billions) March 31, 2018 December 31, 2017 March 31, 2017
North America $1,885
 $1,931
 $1,772
Europe/Middle East/Africa 511
 521
 486
Asia/Pacific 333
 330
 303
Total $2,729
 $2,782
 $2,561

TABLE 15: GEOGRAPHIC MIX OF ASSETS UNDER MANAGEMENT(1)
(In billions)March 31, 2019 December 31, 2018 March 31, 2018
North America$1,899
 $1,731
 $1,885
Europe/Middle East/Africa447
 421
 511
Asia/Pacific459
 359
 333
Total$2,805
 $2,511
 $2,729
  
(1) Geographic mix is based on client location or fund management location.
TABLE 16: ACTIVITY IN ASSETS UNDER MANAGEMENT BY PRODUCT CATEGORY
(In billions)Equity Fixed-Income 
Cash(1)
 Multi-Asset-Class Solutions 
Alternative Investments(2)
 Total
Balance as of December 31, 2017$1,745
 $414
 $330
 $147
 $146
 $2,782
Long-term institutional flows, net(3)
(45)
12

—

(3)
(2) (38)
Exchange-Traded Fund flows, net(3) 7
 6
 —
 (2) 8
Cash fund flows, net—
 —
 (50) —
 —
 (50)
Total flows, net(48) 19
 (44) (3) (4) (80)
Market appreciation (depreciation)(142) (7) 3
 (10) (10) (166)
Foreign exchange impact(11) (4) (2) (2) (6) (25)
Total market/foreign exchange impact(153) (11) 1
 (12) (16) (191)
Balance as of December 31, 2018$1,544
 $422
 $287
 $132
 $126
 $2,511
Long-term institutional flows, net(3)
53
 (9) 1
 5
 2
 52
Exchange-Traded Fund flows, net(6) 4
 (1) —
 —
 (3)
Cash fund flows, net—
 —
 24
 —
 —
 24
Total flows, net47
 (5) 24
 5
 2
 73
Market appreciation (depreciation)191
 13
 3
 10
 6
 223
Foreign exchange impact(1) (1) —
 —
 —
 (2)
Total market/foreign exchange impact190
 12
 3
 10
 6
 221
Balance as of March 31, 2019$1,781
 $429
 $314
 $147
 $134
 $2,805
TABLE 16: ACTIVITY IN ASSETS UNDER MANAGEMENT BY PRODUCT CATEGORY
(In billions)Equity Fixed-Income 
Cash(1)
 Multi-Asset-Class Solutions 
Alternative Investments(2)
 Total
Balance as of March 31, 2017$1,559
 $381
 $335
 $132
 $154
 $2,561
Long-term institutional inflows(3)
199
 72
 —
 44
 12
 327
Long-term institutional outflows(3)
(259) (67) —
 (41) (23) (390)
Long-term institutional flows, net(60) 5
 —
 3
 (11) (63)
ETF flows, net16
 9
 —
 —
 —
 25
Cash fund flows, net—
 —
 (11) —
 —
 (11)
Total flows, net(44) 14
 (11) 3
 (11) (49)
Market appreciation212
 13
 4
 9
 (1) 237
Foreign exchange impact18
 6
 2
 3
 4
 33
Total market/foreign exchange impact230
 19
 6
 12
 3
 270
Balance as of December 31, 2017$1,745
 $414
 $330
 $147
 $146
 $2,782
Long-term institutional inflows(3)
62
 47
 —
 19
 6
 134
Long-term institutional outflows(3)
(109) (29) —
 (18) (5) (161)
Long-term institutional flows, net(47) 18
 —
 1
 1
 (27)
ETF flows, net(8) 2
 1
 —
 —
 (5)
Cash fund flows, net—
 —
 6
 —
 —
 6
Total flows, net(55) 20
 7
 1
 1
 (26)
Market appreciation(28) (5) (2) (3) (2) (40)
Foreign exchange impact8
 4
 1
 1
 (1) 13
Total market/foreign exchange impact(20) (1) (1) (2) (3) (27)
Balance as of March 31, 2018$1,670
 $433
 $336
 $146
 $144
 $2,729
  
(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 Shares ETF and SPDR® Long Dollar Gold Trust ETF. We are not the investment manager for the SPDR® Gold Shares ETF and SPDR® Long Dollar Gold Trust ETF, but actsact as the marketing agent.
(3) Amounts represent long-term portfolios, excluding ETFs.
The preceding table does not include approximately $22$25 billion of new asset management business which was awarded but not installed as of March 31, 2018.2019. New business will be reflected in AUM in future periods after installation, and will generate management fee revenue in subsequent periods. Total AUM as of March 31, 20182019 included managed assets lost but not liquidated. Lost business occurs from time to time and it is difficult to predict the timing of client behavior in transitioning these assets as the timing can vary significantly.


Expenses
Total expenses for Investment Management increased 2% in the first quarter of 2019 compared to the same period in 2018, primarily due to annual merit increases and seasonal deferred incentive compensation. Seasonal deferred incentive compensation expense and payroll taxes was $21 million in the first quarter of 2019 compared to $16 million in the same period in 2018.
Additional information about expenses is provided under "Expenses" in "Consolidated Results of Operations" included in this Management's Discussion and Analysis.

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Expenses
Total expenses for Investment Management increased 21% in the first quarter of 2018 compared to the first quarter of 2017, primarily due to the $60 million impact from the adoption of the new revenue recognition accounting standard, costs to support new business and the unfavorable impact of currency translation. Seasonal deferred incentive compensation expense for retirement eligible employees and payroll taxes was $16 million and $17 million for the quarters ended March 31, 2018 and 2017, respectively.
Additional information about expenses is provided under Expenses in Consolidated Results of Operations included in this Management's Discussion and Analysis of this Form 10-Q.
FINANCIAL CONDITION
The structure of our consolidated statement of condition is primarily driven by the liabilities generated by our Investment Servicing and Investment Management lines of business. Our clients' needs and our operating objectives determine balance sheet volume, mix and currency denomination. As our clients execute their worldwide cash management and investment activities, they utilize deposits and short-term investments that constitute the majority of our liabilities. These liabilities are generally in the form of interest-bearing transaction account deposits, which are denominated in a variety of currencies; non-interest-bearing demand deposits; and repurchase agreements, which generally serve as short-term investment alternatives for our clients.
Deposits and other liabilities resulting from client initiated transactions are invested in assets that generally have contractual maturities significantly longer than our liabilities; however, we evaluate the operational nature of our deposits and seek to maintain appropriate short-term liquidity of those liabilities that are not operational in nature and maintain longer-termed assets for our operational deposits. Our assets consist primarily of securities held in our AFS or HTM portfolios and short-duration financial instruments, such as interest-bearing deposits with banks and securities purchased under resale agreements. The actual mix of assets is determined by the characteristics of the client liabilities and our desire to maintain a well-diversified portfolio of high-quality assets.
 
TABLE 17: AVERAGE STATEMENT OF CONDITION(1)
TABLE 17: AVERAGE STATEMENT OF CONDITION(1)
TABLE 17: AVERAGE STATEMENT OF CONDITION(1)
Quarters Ended March 31,
2018 2017Three Months Ended March 31,
(In millions)Average Balance Average Balance2019 2018
Assets:      
Interest-bearing deposits with banks$51,492
 $48,893
$48,856
 $51,492
Securities purchased under resale agreements2,872
 2,056
2,775
 2,872
Trading account assets1,138
 914
866
 1,138
Investment securities95,362
 97,219
U.S. Treasury and federal agencies:   
Direct obligations15,427
 17,183
Mortgage-and asset-backed securities39,216
 28,307
State and political subdivisions1,914
 8,622
Other investments:   
Asset-backed securities9,078
 19,543
Collateralized mortgage-backed securities and obligations

980
 2,088
Other debt investments and equity securities

21,658
 19,619
Total Investment securities88,273
 95,362
Loans and leases23,959
 20,139
23,056
 23,959
Other interest-earning assets17,733
 22,619
15,286
 17,733
Average total interest-earning assets192,556
 191,840
179,112
 192,556
Cash and due from banks3,081
 2,608
3,078
 3,081
Other non-interest-earning assets31,233
 24,761
37,370
 31,233
Average total assets$226,870
 $219,209
$219,560
 $226,870
      
Liabilities and shareholders’ equity:Liabilities and shareholders’ equity:  Liabilities and shareholders’ equity:  
Interest-bearing deposits:      
U.S.$48,638
 $25,928
$64,531
 $48,638
Non-U.S.78,582
 94,990
59,775
 78,582
Total interest-bearing deposits127,220
 120,918
Total interest-bearing deposits(2)
124,306
 127,220
Securities sold under repurchase agreements2,617
 3,894
1,773
 2,617
Other short-term borrowings1,255
 1,341
1,157
 1,255
Long-term debt11,412
 11,421
10,955
 11,412
Other interest-bearing liabilities5,260
 5,240
4,642
 5,260
Average total interest-bearing liabilities147,764
 142,814
142,833
 147,764
Non-interest-bearing deposits37,790
 44,249
Non-interest-bearing deposits(2)
31,037
 37,790
Other non-interest-bearing liabilities18,942
 10,626
20,921
 18,942
Preferred shareholders’ equity3,197
 3,197
3,690
 3,197
Common shareholders’ equity19,177
 18,323
21,079
 19,177
Average total liabilities and shareholders’ equity$226,870
 $219,209
$219,560
 $226,870
  
(1) Additional information about our average statement of condition, primarily our interest-earning assets and interest-bearing liabilities, is provided in "Net Interest Income" included in this Management's Discussion and Analysis includedAnalysis.
(2) Total deposits averaged $155.34 billion in this Form 10-Q.the first quarter of 2019 compared to $165.01 billion in the same period in 2018.


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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS



Investment Securities
TABLE 18: CARRYING VALUES OF INVESTMENT SECURITIES
(In millions)March 31, 2018 December 31, 2017March 31, 2019 December 31, 2018
Available-for-sale:U.S. Treasury and federal agencies:
Direct obligations$89
 $223
$1,041
 $1,039
Mortgage-backed securities10,290
 10,872
20,043
 15,968
Total U.S. Treasury and federal agencies10,379
 11,095
21,084
 17,007
Asset-backed securities:      
Student loans(1)
1,743
 3,358
481
 541
Credit cards1,431
 1,542
586
 583
Sub-prime—
 —
Other826
 1,447
886
 593
Total asset-backed securities4,000
 6,347
1,953
 1,717
Non-U.S. debt securities:      
Mortgage-backed securities2,952
 6,695
1,517
 1,682
Asset-backed securities1,633
 2,947
1,511
 1,574
Government securities10,875
 10,721
12,572
 12,793
Other4,531
 6,108
6,576
 6,602
Total non-U.S. debt securities19,991
 26,471
22,176
 22,651
State and political subdivisions7,307
 9,151
1,940
 1,918
Collateralized mortgage obligations347
 1,054
129
 197
Other U.S. debt securities2,280
 2,560
1,720
 1,658
U.S. equity securities—
 46
U.S. money-market mutual funds—
 397
Total$44,304
 $57,121
$49,002
 $45,148
      
Held-to-maturity(2):
      
U.S. Treasury and federal agencies:
Direct obligations$16,903
 $17,028
$13,369
 $14,794
Mortgage-backed securities17,879
 16,651
22,568
 21,647
Total U.S. Treasury and federal agencies34,782
 33,679
35,937
 36,441
Asset-backed securities:      
Student loans(1)
2,973
 3,047
3,286
 3,191
Credit cards709
 798
—
 193
Other1
 1
1
 1
Total asset-backed securities3,683
 3,846
3,287
 3,385
Non-U.S. debt securities:      
Mortgage-backed securities791
 939
575
 638
Asset-backed securities259
 263
98
 223
Government securities411
 474
399
 358
Other49
 48
44
 46
Total non-U.S. debt securities1,510
 1,724
1,116
 1,265
Collateralized mortgage obligations1,183
 1,209
805
 823
Total$41,158
 $40,458
$41,145
 $41,914
  
(1) Primarily composedcomprised of securities guaranteed by the federal government with respect to at least 97% of defaulted principal and accrued interest on the underlying loans.
(2) Includes securities at amortized cost or fair value on the date of transfer from AFS.
Additional information about our investment securities portfolio is provided in Note 3 to the consolidated financial statements included in this Form 10-Q.
 
We manage our investment securities portfolio to align with the interest-rateinterest 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-rateinterest 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.
Average duration of our investment securities portfolio increased to 3.0was 2.8 years and 3.1 years as of March 31, 2018, compared to 2.7 years as of2019 and December 31, 2017.2018, respectively. The increase is primarily driven by higherdecrease in securities duration reflects reinvestment into shorter duration securities and lower long-end U.S. rates and the sale of lower duration non-HQLA securities.
We sold approximately $12 billion of non-HQLA securities during the quarter, primarily asset-backed securities, municipal bonds and covered bonds. These sales were part of our strategy to prioritize capital efficient client lending while managing OCI sensitivity. Sale proceeds will be reinvested into additional interest earning assets.rates.
Approximately 91% and 90% of the carrying value of the portfolio was rated “AAA” or “AA” as of both March 31, 20182019 and December 31, 2017.2018, respectively.
TABLE 19: INVESTMENT PORTFOLIO BY EXTERNAL CREDIT RATING
March 31, 2018 December 31, 2017March 31, 2019 December 31, 2018
AAA(1)
75% 74%78% 76%
AA15
 16
13
 14
A6
 6
5
 5
BBB4
 4
4
 5
Below BBB—
 —
—
 —
100% 100%100% 100%
  
(1) Includes U.S. Treasury and federal agency securities that are split-rated, “AAA” by Moody’s Investors Service and “AA+” by Standard & Poor’s.Poor’s and also includes Agency MBS securities which are not explicitly rated but which have an explicit or assumed guarantee from the U.S. government.
As of March 31, 2019 and December 31, 2018, the investment portfolio was diversified with respect to asset class composition. The following table presents the composition of these asset classes.
TABLE 20: INVESTMENT PORTFOLIO BY ASSET CLASS
 March 31, 2019 December 31, 2018
U.S. Agency
Mortgage-backed securities
44% 40%
Foreign Sovereign18
 19
U.S. Treasuries16
 18
Asset-backed securities10
 11
Other Credit12
 12
 100% 100%
TABLE 20: INVESTMENT PORTFOLIO BY ASSET CLASS
 March 31, 2018 December 31, 2017
US Treasuries20% 17%
US Agency MBS31
 26
ABS15
 22
Foreign Sovereign14
 12
Other Credit20
 23
 100% 100%



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AND RESULTS OF OPERATIONS



Non-U.S. Debt Securities
Approximately 25%26% of the aggregate carrying value of our investment securities portfolio was non-U.S. debt securities as of March 31, 2018,2019, compared to approximately 29%27% as of December 31, 2017.2018.
TABLE 21: NON-U.S. DEBT SECURITIES
(In millions)March 31, 2018 December 31, 2017March 31, 2019 December 31, 2018
Available-for-sale:      
Australia$2,533
 $2,847
United Kingdom2,488
 2,580
Canada2,188
 2,185
France1,837
 1,875
Germany1,606
 1,547
Spain1,481
 1,504
Japan1,342
 1,352
Austria1,323
 1,312
Ireland1,285
 1,301
European(1)
1,151
 1,087
Netherlands1,108
 1,116
Italy952
 1,010
Belgium944
 952
Finland777
 789
Asian(1)
338
 338
Hong Kong309
 458
Sweden189
 186
Brazil90
 —
Norway50
 94
Other(2)
185
 118
Total$22,176
 $22,651
Held-to-maturity:   
Singapore$285
 $242
United Kingdom$3,707
 $5,721
234
 363
Australia2,745
 4,717
153
 158
Canada2,509
 3,066
France2,157
 2,500
Italy1,436
 1,645
Japan1,400
 1,319
Netherlands140
 187
Germany113
 115
Spain1,234
 1,413
89
 92
Belgium1,077
 1,193
Ireland724
 787
Netherlands669
 1,175
Hong Kong664
 666
Sweden396
 538
Germany336
 529
Finland282
 299
Norway243
 514
Austria233
 234
South Korea19
 19
Other(1)
160
 136
Other(3)
102
 108
Total$19,991
 $26,471
$1,116
 $1,265
Held-to-maturity:   
United Kingdom$402
 $410
Netherlands255
 372
Singapore288
 353
Australia213
 235
Spain105
 104
Germany124
 127
Other(2)
123
 123
Total$1,510
 $1,724
  
(1) Consists entirely of supranational bonds.
(2) Included approximately $31$145 million and $37$78 million as of March 31, 20182019 and December 31, 2017,2018, respectively, related to Portugal, which was related to MBS and auto loans.supranational bonds.
(2)(3) Included approximately $74$58 million and $75$61 million as of March 31, 20182019 and December 31, 2017,2018, respectively, related to Italy and Portugal, all of which were related to MBS and auto loans.MBS.
Approximately 74%73% and 80%74% of the aggregate carrying value of these non-U.S. debt securities was rated “AAA” or “AA” as of March 31, 20182019 and December 31, 2017,2018, 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 March 31, 20182019 and December 31, 2017,2018, approximately 86%28% and 61%31%, 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.floating-rate.
As of March 31, 2018,2019, our non-U.S. debt securities had an average market-to-book ratio of 100.5%100.9%, and an aggregate pre-tax net unrealized gain of approximately $105$205 million, composed of gross unrealized gains of $158$240 million and
gross unrealized losses of $35 million. These unrealized amounts included:
a pre-tax net unrealized loss of $130 million, composed of gross unrealized gains of $157 million and gross unrealized losses of $53 million. These unrealized amounts included;$27 million, associated with non-U.S. AFS debt securities; and
a pre-tax net unrealized gain of $20$75 million, composed of gross unrealized gains of $68$83 million and gross unrealized losses of $48$8 million, associated with non-U.S. HTM debt securities available-for-sale and;
a pre-tax net unrealized gain of $85 million, composed of gross unrealized gains of $90 million and gross unrealized losses of $5 million, associated with non-U.S. debt securities held-to-maturity.securities.
As of March 31, 2018,2019, the underlying collateral for non-U.S. MBS and ABS primarily included U.K., Australian, Italian and Dutch mortgages as well as U.K., German and U.K. and EurozoneSpanish consumer ABS. 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 sovereign bonds and corporate debt and covered bonds. The securities listed under “Japan” were substantially composed of Japanese government securities.

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AND RESULTS OF OPERATIONS

Municipal Obligations
We carried approximately$7.31 $1.94 billion of municipal securities classified as state and political subdivisions in our investment securities portfolio as of March 31, 20182019 as shown in Table 18: Carrying Values of Investment Securities, all of which were classified as AFS. As of the same date,March 31, 2019, we also provided approximately $9.22$9.25 billion of credit and liquidity facilities to municipal issuers.
TABLE 22: STATE AND MUNICIPAL OBLIGORS(1)
TABLE 22: STATE AND MUNICIPAL OBLIGORS(1)
TABLE 22: STATE AND MUNICIPAL OBLIGORS(1)
(Dollars in millions)
Total  Municipal
Securities
 
Credit and
Liquidity 
Facilities(2)
 Total 
% of Total Municipal
Exposure
Total Municipal
Securities		 
Credit and
Liquidity 
Facilities(2)
 Total 
% of Total Municipal
Exposure
As of March 31, 2018      
March 31, 2019March 31, 2019      
State of Issuer:State of Issuer:      State of Issuer:      
Texas$1,230
 $1,597
 $2,827
 17%$299
 $2,467
 $2,766
 25%
California342
 2,237
 2,579
 16
115
 1,693
 1,808
 16
New York690
 1,433
 2,123
 13
283
 1,518
 1,801
 16
Massachusetts804
 991
 1,795
 11
465
 778
 1,243
 11
Washington505
 365
 870
 5
Tennessee7
 502
 509
 5
Total$3,571
 $6,623
 $10,194
  $1,169
 $6,958
 $8,127
  
              
As of December 31, 2017      
December 31, 2018December 31, 2018      
State of Issuer:State of Issuer:      State of Issuer:      
Texas$1,713
 $1,622
 $3,335
 18%$315
 $2,467
 $2,782
 25%
California415
 2,237
 2,652
 14
108
 1,693
 1,801
 16
New York742
 1,288
 2,030
 11
231
 1,518
 1,749
 15
Massachusetts859
 991
 1,850
 10
467
 978
 1,445
 13
Washington623
 366
 989
 5
Total$4,352
 $6,504
 $10,856
  $1,121
 $6,656
 $7,777
  
    
(1) Represented 5% or more of our aggregate municipal credit exposure of approximately $16.53$11.19 billion and $18.47$11.35 billion across our businesses as of March 31, 20182019 and December 31, 2017,2018, respectively.
(2) Includes municipal loans which are also presented within Table 23: U.S. and Non-U.S. Loans and Leases.


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Our aggregate municipal securities exposure presented in Table 22: State and Municipal Obligors, was concentrated primarily with highly-rated counterparties, with approximately 90%81% of the obligors rated “AAA” or “AA” as of March 31, 2018.2019. As of that date, approximately 44%22% and 55%78% of our aggregate municipal securities exposure was associated with general obligation and revenue bonds, respectively. 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 OTTI of our municipal securities is provided in Note 3to the consolidated financial statements in this Form 10-Q.
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. 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).
We conduct periodic reviews of individual securities to assess whether OTTI exists. Our assessment of OTTI involves an evaluation of economic and security-specific factors. Such factors are based on estimates, derived by management, which contemplate current market conditions and security-specific performance. To the extent that market conditions are worse than management's expectations or due to idiosyncratic bond performance, OTTI could increase, in particular the credit-related component that would be recorded in our consolidated statement of income.
We recorded approximately $1 million of OTTI in the first quarter of 2018 and less than $1 million of OTTI in the first quarter of 2017. Management considers the aggregate decline in fair value of the remaining investment securities and the resulting gross unrealized losses of $1.26 billion as of March 31, 2018 to be temporary and not the result of any material changes in the credit characteristics of the securities. Additional information with respect to OTTI, net impairment losses and gross unrealized losses is provided in Note 3 to the consolidated financial statements included in this Form 10-Q.
Our evaluation of potential OTTI of structured credit securities with collateral in the U.K. and continental Europe takes into account the outcome from the Brexit referendum and other geopolitical events, and assumes no disruption of payments on these securities.
Loans and Leases
TABLE 23: U.S. AND NON- U.S. LOANS AND LEASES
(In millions)March 31, 2018 December 31, 2017March 31, 2019 December 31, 2018
Domestic:      
Commercial and financial$23,581
 $18,696
$16,451
 $19,479
Commercial real estate257
 98
976
 874
Lease financing261
 267
Total domestic24,099
 19,061
17,427
 20,353
Non-U.S.:      
Commercial and financial5,080
 3,837
5,954
 5,436
Lease financing403
 396
Total non-U.S.5,483
 4,233
Total loans and leases$29,582
 $23,294
$23,381
 $25,789
The increasedecrease in loans in the domestic commercial and financial segment as of March 31, 20182019 compared to December 31, 20172018 was primarily driven by higherlower levels of overdrafts and senior secured bank loans.client overdrafts.
As of March 31, 20182019 and December 31, 2017,2018, our investment in senior secured loans totaled approximately $3.9$4.5 billion and $3.5$4.4 billion, respectively. In addition, we had binding unfunded commitments as of March 31, 20182019 and December 31, 20172018 of $338$114 million and $279$238 million, respectively, to participate in such syndications.

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Table The decrease in unfunded commitments is due to lower activity in the leveraged loans market in the first quarter of Contents2019 compared to the fourth quarter of 2018. Unfunded commitments as of December 31, 2018 settled in the first quarter of 2019 and are now funded commitments. Additional information about these unfunded commitments is provided in Note 9 to the consolidated financial statements in this Form 10-Q.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

These senior secured loans, which are primarily rated “speculative” under our internal risk-rating framework (refer to Note 4 to the consolidated financial statements included in this Form 10-Q), are externally rated “BBB,” “BB” or “B,” with approximately 89%88% and 90% of the loans rated “BB” or “B” as of both March 31, 20182019 and December 31, 2017.2018, respectively. Our investment strategy involves generally limiting our investment to larger, more liquid credits underwritten by major global financial institutions, applying our internal credit analysis process to each potential investment and diversifying our exposure by counterparty and industry segment. However, these loans have significant exposure to credit losses relative to higher-rated loans.loans in our portfolio.
Loans to municipalities included in the commercial and financial segment were $1.9$0.97 billion and $2.1$0.90 billion as of March 31, 20182019 and December 31, 2017,2018, respectively.
As of March 31, 2018 and December 31, 2017, unearned income deducted from our investment in leveraged lease financing was $32 million and $75 million, respectively, for U.S. leases and $110 million and $159 million, respectively, for non-U.S. leases.
Additional information about all of our loan-and-leasesloan and leases segments, as well as underlying classes, is provided in Note 4 to the consolidated financial statements included in this Form 10-Q.
No loans were modified in troubled debt restructurings in the quarters endedas of both March 31, 20182019 and 2017.December 31, 2018.

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TABLE 24: ALLOWANCE FOR LOAN AND LEASE LOSSES
  Quarters Ended March 31,
(In millions) 2018 2017
Allowance for loan and lease losses:    
Beginning balance $54
 $53
Provision for loan and lease losses(1)
 —
 (2)
Ending balance $54
 $51

TABLE 24: ALLOWANCE FOR LOAN AND LEASE LOSSES
 Three Months Ended March 31,
(In millions)2019 2018
Allowance for loan and lease losses:
Beginning balance$67
 $54
Provision for loan and lease losses(1)
4
 —
Other(2)
(1) —
Ending balance$70

$54
  
(1)The provision for loan and lease losses is primarily related to commercial and financial loans.
As(2) Consists primarily of March 31, 2018 and March 31, 2017,FX translation.
We recorded a provision for loan losses of $4 million in the first quarter of 2019 compared to less than $1 million provision for loan losses recorded in the same period in 2018. The increase was primarily due to a higher volume of loans to non-investment grade borrowers composed of senior secured loans that we purchased in connection with our participation in loan syndications in the non-investment grade lending market.
In the first quarter of 2019, approximately $46$62 million and $43 million, respectively, of our allowance for loan and lease losses wereALLL was related to senior secured loans included in the commercial and financial segment.segment compared to $46 million in the same period in 2018. As this portfolio grows and matures, our allowance for loan and lease lossesALLL related to these loans may increase through additional provisions for credit losses. The remaining $8 million asin both the first quarter of both March 31,2019 and 2018 and March 31, 2017, was related to other components of commercial and financial loans.
Cross-Border Outstandings
Cross-border outstandings are amounts payable to us by non-U.S. counterparties which are denominated in U.S. dollars or other non-local currency, as well as non-U.S. local currency claims not funded by local currency liabilities. Our cross-border outstandings consist primarily of deposits with banks; loans and lease financing, including short-duration advances; investment securities; amounts related to foreign exchangeFX and interest-rateinterest 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 exchangeFX needed by borrowers to repay their obligations.
As market and economic conditions change, the major independent credit rating agencies may downgrade U.S. and non-U.S. financial institutions and sovereign issuers which have been, and may in the future be, significant counterparties to us, or whose financial instruments serve as collateral on which we rely for credit risk mitigation purposes, and may do so again in the future. As a result, we may be exposed to
increased counterparty risk, leading to negative ratings volatility.
The cross-border outstandings presented in Table 25: Cross-Border Outstandings, represented approximately 26%28% of our consolidated total assets as of both March 31, 20182019 and December 31, 2017.2018.
TABLE 25: CROSS-BORDER OUTSTANDINGS(1)
(In millions)
Investment Securities and Other Assets 
 Derivatives and Securities on Loan Total Cross-Border Outstandings
March 31, 2018 
    
Germany$22,295
 $351
 $22,646
United Kingdom16,524
 1,349
 17,873
Japan9,497
 1,346
 10,843
Canada3,183
 1,079
 4,262
Australia3,080
 909
 3,989
France2,967
 423
 3,390
Switzerland1,749
 553
 2,302
December 31, 2017   
  
Germany$18,201
 $295
 $18,496
Japan15,250
 549
 15,799
United Kingdom12,051
 1,253
 13,304
Australia5,278
 390
 5,668
Canada4,215
 707
 4,922
France2,684
 344
 3,028
TABLE 25: CROSS-BORDER OUTSTANDINGS(1)
(In millions)
Investment Securities and Other Assets 
 Derivatives and Securities on Loan Total Cross-Border Outstandings
March 31, 2019 
    
Germany$18,962
 $441
 $19,403
Japan12,444
 1,384
 13,828
United Kingdom11,750
 1,057
 12,807
Australia4,072
 512
 4,584
Luxembourg2,420
 1,299
 3,719
Canada2,612
 606
 3,218
Ireland1,878
 1,193
 3,071
France2,479
 352
 2,831
December 31, 2018     
Germany$20,157
 $489
 $20,646
Japan13,985
 1,084
 15,069
United Kingdom12,623
 1,176
 13,799
Australia4,217
 1,349
 5,566
Canada3,010
 1,507
 4,517
Ireland2,019
 809
 2,828
France2,495
 294
 2,789
Luxembourg2,033
 710
 2,743
  
(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.

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As of March 31, 2018, countries whose2019, aggregate cross-border outstandings in Switzerland amounted to between 0.75% and 1% of our consolidated assets, were Ireland, Italy and Luxembourg at approximately $1.80 billion, $1.67 billion and $1.73 billion, respectively.$1.85 billion. As of December 31, 2017,2018, there were no countries whose aggregate cross-border outstandings amounted to between 0.75% and 1% of our consolidated assets.

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AND RESULTS OF OPERATIONS


Risk Management
In the normal course of our global business activities, we are exposed to a variety of risks, some inherent in the financial services industry, others more specific to our business activities. Our risk management framework focuses on material risks, which include the following:
credit and counterparty risk;
liquidity risk, funding and management;
•
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;
model risk;
strategic risk; and
•
model risk;
•
strategic 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 on pages 17 to 46 included under Item 1A, Risk Factors, in our 20172018 Form 10-K.
For additional information about our risk management, including our risk appetite framework and risk governance committee structure, refer to pages 7579 to 8083 included under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, "Risk Management Framework" in our 20172018 Form 10-K.
Credit Risk Management
We define credit risk as the risk of financial loss if a counterparty, borrower or obligor, collectively referred to as a counterparty, is either unable or unwilling to repay borrowings or settle a transaction in accordance with underlying contractual terms. We assume credit risk in our traditional non-trading lending activities, such as loans and contingent commitments, in our investment securities portfolio, where recourse to a counterparty exists, and in our direct and indirect trading activities, such as principal securities lending and foreign exchangeFX and indemnified agency securities lending. We also assume credit risk in our day-to-day treasury and securities and other settlement operations, in the form of deposit placements and other cash
balances, with central banks or private sector institutions.
For additional information about our credit risk management framework, including our core policies and principles, structure and organization, credit ratings, risk parameter estimates, credit risk mitigation, credit limits, reporting, monitoring, controls and reserve
for credit losses, refer to pages 8083 to 8588 included under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, "Risk Management Framework", in our 20172018 Form 10-K.
Liquidity Risk Management
Our liquidity framework contemplates areas of potential risk based on our activities, size and other appropriate risk-related factors. In managing liquidity risk we employ limits, maintain established metrics and early warning indicators and perform routine stress testing to identify potential liquidity needs. This process involves the evaluation of a combination of internal and external scenarios which assist us in measuring our liquidity position and in identifying potential increases in cash needs or decreases in available sources of cash, as well as the potential impairment of our ability to access the global capital markets.
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. The Parent Company is managed to a more conservative liquidity profile, reflecting narrower market access. Additionally, the Parent Company typically holds, or has direct access to, primarily through SSIF (a recently formedState Street Intermediate Funding, LLC (SSIF), a direct subsidiary of the Parent Company)Company, and the support agreement, as discussed in the "Uses of Liquidity" section of this Management's Discussion and Analysis, enough cash to meet its current debt maturities and cash needs, as well as those projected over the next one-year period. Reference our SPOE Strategy as discussed in the "Uses of Liquidity" section of this Management's Discussion and Analysis. Absent certain triggers reflecting financial distress at the Parent Company, the liquidity transferred toliquid assets available at SSIF continuescontinue to be available to the Parent Company. As of March 31, 2018,2019, the Parent Company and State Street Bank had approximately $904 million ofno senior notes and junioror subordinated debentures outstanding that will mature in the next twelve months.
As a systemically important financial institution, our liquidity risk management activities are subject to heightened and evolving regulatory requirements, including interpretations of those requirements, under specific U.S. and international regulations and also resulting from published and unpublished guidance,

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supervisory activities, such as stress tests, resolution planning, examinations and other regulatory interactions. Satisfaction of these requirements could, in some cases, result in changes in the composition of our investment portfolio, reduced NII or NIM, a reduction in the level of certain business activities or modifications to the way in which we deliver our products and services. If we fail to meet regulatory requirements to the

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satisfaction of our regulators, we could receive negative regulatory stress test results, incur a resolution plan deficiency or determination of a non-credible resolution plan or otherwise receive an adverse regulatory finding. Our efforts to satisfy, or our failure to satisfy, these regulatory requirements could materially adversely affect our business, financial condition or results of operations.
For additional information on our liquidity risk management, as well as liquidity risk metrics, refer to pages 8588 to 9092 included under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operation, in our 20172018 Form 10-K. For additional information on our liquidity ratios, including LCR and NSFR,the net stable funding ratio, refer to pages 7 to 8 included under Item 1, Business, in our 20172018 Form 10-K.
Asset Liquidity
Central to the management of our liquidity is asset liquidity, which consists primarily of unencumbered highly liquid securities, cash and cash equivalents reported on our consolidated statement of condition. We restrict the eligibility of securities to be characterized as asset liquidity to U.S. Government and federal agency securities (including MBS), securities of selected non-U.S. GovernmentGovernments and supranational securitiesorganizations as well as certain other high-quality securities which generally are more liquid than other types of assets even in times of stress. In 2014,As a banking organization, we are subject to a minimum LCR under the LCR rule approved by U.S. banking regulators issued a final rule to implement the BCBS' LCR in the United States.regulators. The LCR is intended to promote the short-term resilience of internationally active banking organizations, like State Street,us, 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. HQLA primarily consists of unencumbered cash and certain high quality liquid securities that qualify for inclusion under the LCR rule. The LCR was fully implemented beginning on January 1, 2017. We report LCR to the Federal Reserve daily. In addition, in December 2016,For the Federal Reserve issued a final rule requiring large banking organizations, including us, to publicly disclose certain qualitative and quantitative information about their LCR. As of bothquarters ended March 31, 20182019 and December 31, 2017, our2018, daily average LCR for the Parent Company was in excess of 100%.110% and 108%, respectively. The average HQLA for the Parent Company under the LCR final rule was $80.29$93.50 billion and $65.35$91.67 billion, post-prescribed haircuts, for the quarters ended March 31, 20182019 and December 31, 2017,2018, respectively.
TABLE 26: COMPONENTS OF AVERAGE HQLA BY TYPE OF ASSET
  Quarters Ended
(In millions) March 31, 2018 December 31, 2017
Excess central bank balances $42,279
 $33,584
U.S. Treasuries 10,720
 10,278
Other investment securities 17,287
 13,422
Foreign government 10,003
 8,064
Total $80,289
 $65,348
With respect to highly liquid short-term investments presented in the preceding table, weWe maintained average cash balances in excess of regulatory requirements governing deposits with the Federal Reserve of approximately $42.28$39.26 billion at the Federal Reserve, the ECB and other non-U.S. central banks for the quarter ended March 31, 2018,2019, compared to $33.58$44.17 billion for the quarter ended December 31, 2017.
2018.The higherlower levels of average cash balances with central banks was due to normal deposit volatility. The increase in average HQLA for the quarter ended March 31, 2018 compared to the quarter ended December 31, 2017 presented in the table above was primarily a resultreflect levels of the sale of $12 billion in non-HQLA securities during the quarter ended March 31, 2018.client deposits.
Liquid securities carried in our asset liquidity include securities pledged without corresponding advances from the FRBB,Federal Reserve Bank of Boston (FRBB), the FHLB and other non-U.S. central banks. State Street Bank is a member of the FHLB. This membership allows for advances of liquidity in varying terms against high-quality collateral, which helps facilitate asset-and-liability management. As of March 31, 2019, we had no outstanding borrowings from the FHLB. As of December 31, 2018, we had approximately $2 billion of outstanding borrowings from the FHLB.
Access to primary, intra-day and contingent liquidity provided by these utilities is an important source of contingent liquidity with utilization subject to underlying conditions. As of March 31, 20182019 and December 31, 2017,2018, we had no outstanding primary credit borrowings from the FRBB discount window or any other central bank facility, and as of the same dates, no FHLB advances were outstanding.facility.
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 $27.02 billion as of March 31, 2018, compared to $66.10 billion as of December 31, 2017. These securities are available sources of liquidity, although not as rapidly deployed as those included in our asset liquidity.
The average fair value of total unencumbered securities was $70.17 billion for the quarter ended March 31, 2019 compared to $65.94 billion for the quarter ended December 31, 2018.
Uses of Liquidity
Significant uses of our liquidity could result from the following: withdrawals of client deposits; draw-downs by our custody clients of lines of credit; advances to clients to settle securities transactions; or other permitted purposes. Such circumstances would generally arise under stress conditions including deterioration in credit ratings. A recurring significant use of our liquidity involves our deployment of HQLA from

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our investment portfolio to post collateral to financial institutions serving as sources of securities under our enhanced custody program.
We had unfunded commitments to extend credit with gross contractual amounts totaling $26.83$29.95 billion and $26.49$28.95 billion and standby letters of credit totaling $2.97 billion and $2.99 billion as of March 31, 20182019 and December 31, 2017,2018, respectively. These amounts do not reflect the value of any collateral. As of March 31, 2018,2019, approximately 73%75% of our unfunded commitments to extend credit and 29% of our standby letters of 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.

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Resolution Planning
State Street, like other bank holding companies with total consolidated assets of $50 billion or more, periodically submits a plan for rapid and orderly resolution in the event of material financial distress or failure, commonly referred to as a resolution plan or a living will, to the Federal Reserve and the FDIC under Section 165(d) of the Dodd-Frank Act. Through resolution planning, we seek, in the event of our 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.
We submitted our 2017 resolution plan describing our preferred resolution strategy to the Federal Reserve and FDIC on June 30, 2017. Subsequently, the Federal Reserve and FDIC extended the next resolution plan filing deadline for eight large domestic banks, including us, to July 1, 2019. The agencies completed their review of our 2017 165(d) resolution plan in December 2017 and found no deficiencies or shortcomings in the plan.
In the event of material financial distress or failure, our preferred resolution strategy is the SPOE Strategy. For additional information about the SPOE Strategy, refer to pages 1011 and 1112 included under Item 1, Business, in our 20172018 Form 10-K. The SPOE Strategy provides that prior to the bankruptcy of the Parent Company and pursuant to a support agreement among the Parent Company, SSIF, our Beneficiary Entities (as defined below) and certain other of our entities, SSIF is obligated, up to its available resources, to recapitalize and/or provide liquidity to State Street Bank and our other entities benefiting from such capital and/or liquidity (collectively with State Street Bank, “Beneficiary Entities”), in amounts designed to prevent the Beneficiary Entities from themselves entering into resolution proceedings. Following the recapitalization of, or provision of liquidity to the Beneficiary Entities, the Parent Company would enter into a bankruptcy proceeding under the U.S. Bankruptcy Code. The
Beneficiary Entities and our subsidiaries would be transferred to a newly organized holding company held by a reorganization trust for the benefit of the Parent Company’s claimants.
Under the support agreement, the Parent Company has pre-funded SSIF by contributing certain of its assets (primarily its liquid assets, cash deposits, debt investments, investments in marketable securities and other cash and non-cash equivalent investments) to SSIF contemporaneous with entering into the support agreement and will continue to contribute such assets, to the extent available, on an on-going basis. In consideration for these contributions, SSIF has agreed
in the support agreement to provide capital and liquidity support to the Parent Company and all of the Beneficiary Entities in accordance with the Parent Company’s capital and liquidity policies. Under the support agreement, the Parent Company is only permitted to retain certain amounts of cash needed to meet its upcoming obligations and to fund expenses during a potential bankruptcy proceeding. SSIF has provided the Parent Company with a committed credit line and issued (and may issue) one or more promissory notes to the Parent Company (the "Parent Company Funding Notes") that together are intended to allow us to continue to meet itsour obligations throughout the period prior to the occurrence of a "Recapitalization Event" (as defined below). The support agreement does not contemplate that SSIF is obligated to maintain any specific level of resources and SSIF may not have sufficient resources to implement the SPOE Strategy.
In the event a Recapitalization Event occurs, the obligations outstanding under the Parent Company Funding Notes would automatically convert into or be exchanged for capital contributed to SSIF. The obligations of the Parent Company and SSIF under the support agreement are secured through a security agreement that grants a lien on the assets that the Parent Company and SSIF would use to fulfill their obligations under the support agreement to the Beneficiary Entities. SSIF is a distinct legal entity separate from the Parent Company and the Parent Company’s other affiliates.
In accordance with its policies, we are required to monitor, on an ongoing basis, the capital and liquidity needs of State Street Bank and the other Beneficiary Entities. To support this process, we have established a trigger framework that identifies key actions that would need to be taken or decisions that would need to be made if certain events tied to our financial condition occur. In the event that we experience material financial distress, the support agreement requires us to model and calculate certain capital and liquidity triggers on a regular basis to determine whether or not the Parent Company should commence preparations for a bankruptcy filing and whether or not a Recapitalization Event has occurred.

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Upon the occurrence of a Recapitalization Event: (1) SSIF would not be authorized to provide any further liquidity to the Parent Company; (2) the Parent Company would be required to contribute to SSIF any remaining assets it is required to contribute to SSIF under the support agreement; (3) SSIF would be required to provide capital and liquidity support to the Beneficiary Entities to support such entities’ continued operation; and (4) the Parent Company would be expected to commence Chapter 11 proceedings under the U.S. Bankruptcy Code. No person or entity, other than a party to the support agreement, should rely, including in evaluating any of our entities from a

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creditor's perspective or determining whether to enter into a contractual relationship with any of our entities, on any of our affiliates being or remaining a Beneficiary Entity or receiving capital or liquidity support pursuant to the support agreement.
A “Recapitalization Event” is defined under the support agreement as the earlier occurrence of one or more capital and liquidity thresholds being breached or the authorization by the Parent Company's Board of Directors for the Parent Company to commence bankruptcy proceedings. These thresholds are set at levels intended to provide for the availability of sufficient capital and liquidity to enable an orderly resolution without extraordinary government support. The SPOE Strategy and the obligations under the support agreement may result in the recapitalization of State Street Bank and the commencement of bankruptcy proceedings by the Parent Company at an earlier stage of financial stress than might otherwise occur without such mechanisms in place. An expected effect of the SPOE Strategy and applicable TLAC regulatory requirements is that our losses will be imposed on the Parent Company shareholders and the holders of long-term debt and other forms of TLAC securities currently outstanding or issued in the future by the Parent Company, as well as on any other Parent Company creditors, before any of its losses are imposed on the holders of the debt securities of the Parent Company's operating subsidiaries or any of their depositors or creditors, or before U.S. taxpayers are put at risk.
There can be no assurance that credit rating agencies, in response to our 2017 resolution plan or the support agreement, will not downgrade, place on negative watch or change their outlook on our debt credit ratings, generally or on specific debt securities. Any such downgrade, placement on negative watch or change in outlook could adversely affect our cost of borrowing, limit our access to the capital markets or result in restrictive covenants in future debt agreements and could also adversely impact the trading prices, or the liquidity, of our outstanding debt securities.
State Street Bank is also required to submit annually to the FDIC a plan for resolution in the event of its failure, referred to as an IDIInsured Depository Institution (IDI) plan. The FDIC has
extended the date for the nextWe filed our most recent IDI plan submission to July 1, 2018. This IDI plan will satisfy the annual plan submission requirements under the IDI Rule for 2016, 2017 andon June 28, 2018.
Funding
Deposits
We provide products and services including custody, accounting, administration, daily pricing, foreign exchangeFX 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 our
entities in various currencies. As of both March 31, 20182019 and December 31, 2017,2018, approximately 60% of our average clienttotal deposit balances were denominated in U.S. dollars, approximately 20% in EUR, 10% in GBP and 10% in all other currencies.
For the past several years, we have typically 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 27: TOTAL DEPOSITS
   Average Balance
 Quarters Ended March 31, Quarters Ended March 31,
(In millions)2018 2017 2018 2017
Client deposits$187,507
 $176,702
 $160,681
 $156,623
Wholesale CDs4,010
 6,763
 4,329
 8,544
Total deposits$191,517
 $183,465
 $165,010
 $165,167
Short-Term Funding
Our on-balance sheet liquid assets are also an integral component of our liquidity management strategy. These assets provide liquidity through maturities of the assets, but more importantly, they provide us with the ability to raise funds by pledging the securities as collateral for borrowings or through outright sales. In addition, our access to the global capital markets gives us the ability to source incremental funding at reasonable rates of interest from wholesale investors. As discussed earlier under “Asset Liquidity,” State Street Bank's membership in the FHLB allows for advances of liquidity with varying terms against high-quality collateral.
Short-term secured funding also comes in the form of securities lent or sold under agreements to repurchase. These transactions are short-term in nature, generally overnight and are collateralized by high-quality investment securities. These balances were $2.02$1.42 billion and $2.84$1.08 billion as of March 31, 20182019 and December 31, 2017,2018, respectively.

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State Street Bank currently maintains a line of credit with a financial institution of CAD 1.40 billion, or approximately $1.09$1.05 billion, as of March 31, 2018,2019, 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 both March 31, 2019 and December 31, 2018, there was no balance outstanding on this line of credit.
Long-Term Funding
We have the ability to issue debt and equity securities under our current universal shelf registration statement to meet current commitments and business needs, including accommodating the transaction and cash management needs of our clients. In addition, State Street Bank also has current authorization from the Board to issue up to $5 billion in unsecured senior debt and an additional $500 million of subordinated debt.

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Agency Credit Ratings
Our ability to maintain consistent access to liquidity is fostered by the maintenance of high investment-gradeinvestment grade ratings as measured by the major independent credit rating agencies. Factors essential to maintaining high credit ratings include:
diverse and stable core earnings;
relative market position;
strong risk management;
strong capital ratios;
diverse liquidity sources, including the global capital markets and client deposits;
strong liquidity monitoring procedures; and
preparedness for current or future regulatory developments.
High ratings limit borrowing costs and enhance our liquidity by:
providing assurance for unsecured funding and depositors;
increasing the potential market for our debt and improving our ability to offer products;
serving markets; and
engaging in transactions in which clients value high credit ratings.
A downgrade or reduction of our credit ratings could have a material adverse effect on our liquidity by restricting our ability to access the capital markets, which could increase the related cost of funds. In turn, this could cause the sudden and large-scale withdrawal of unsecured deposits by our clients, which could lead to draw-downs of unfunded commitments to extend credit or trigger requirements under securities purchase commitments; or require additional collateral or force terminations of certain trading derivative contracts.
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 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 disclosedprovided in Note 7 to the consolidated financial statements included in this Form 10-Q. Other funding sources, such as secured financing transactions and other margin requirements, for which there are no explicit triggers, could also be adversely affected.

Operational Risk Management
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. Operational risk encompasses fiduciary risk and legal risk. Fiduciary risk is defined as the risk that we fail to properly exercise our fiduciary duties in our 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 our activities.
For additional information about our operational risk framework, refer to pages 9093 to 9296 included under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, "Risk Management Framework", in our 20172018 Form 10-K.
Information Technology Risk Management
TechnologyWe define information technology risk is defined as the risk associated with the use, ownership, operation, involvement, influence and adoption of information technology. TechnologyInformation technology risk includes risks potentially triggered by technology non-compliance with regulatory obligations, information security and privacy incidents, business disruption, technology internal control and process gaps, technology operational events and adoption of new business technologies.
For additional information about our informationalinformation technology risk mangement framework, refer to pages 9396 to 9497 included under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, "Risk Management" in our 20172018 Form 10-K.

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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 exchangeFX 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.

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For additional information about the market risk associated with our trading activities, refer to pages 9497 to 9598 included under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, in our 20172018 Form 10-K.
As part of our trading activities, we assume positions in the foreign exchangeFX and interest-rate markets by buying and selling cash instruments and entering into derivative instruments, including foreign exchangeFX forward contracts, foreign exchangeFX and interest-rate options and interest-rate swaps, interest-rate forward contracts, and interest-rate futures. As of March 31, 2018,2019, the notional amount of these derivative contracts was $2.24$2.30 trillion, of which $2.23$2.29 trillion was composed of foreign exchangeFX forward, swap and spot contracts. We seek to match positions closely with the objective of minimizing related currency and interest-rate risk. All foreign exchangeFX contracts are valued daily at current market rates.
Value-at-Risk Stress Testing and Stressed VaRValue-at-Risk
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-relatedtrading related VaR, and we maintain regulatory capital for market risk associated with our trading activities in conformity with currently applicable bank regulatory market risk requirements.
For additional information about our VaR measurement tools and methodologies, refer to pages 96 to 100 included under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, in our 2017 Form 10-K.
Stress Testing and Stressed VaR
We have a corporate-wide stress testing program in place that incorporates an array of techniques to Our regulatory VaR-based 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 basisis calculated based on selected historical stress events that are relevantvolatilities of market risk factors during a two-year observation period calibrated to our positions in order to estimate the potential impact to our current portfolio should similar market conditions recur,a one-tail, 99% confidence interval 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).a ten-business-day holding period.
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.
For additional information about our VaR measurement tools and methodologies, refer to pages
99 to 103 included under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, in our 2018 Form 10-K.
Stress Testing
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 Comprehensive Capital Analysis and Review (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).
Stress testing results and limits are actively monitored on a daily basis by ERMEnterprise Risk Management (ERM) and reported to the TMRC.Trading and Markets Risk Committee (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 (P&L) outcomes, or P&L, observed from daily market movements. We back-test our VaR model using “clean” P&L, which excludes non-trading revenue

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such as fees, commissions and NII, as well as estimated revenue from intra-day trading.
Our VaR definition of trading losses excludes items that are not specific to the price movement of the trading assets and liabilities themselves, such as fees, commissions, changes to reserves and gains or losses from intra-day activity.
We had no back-testing exceptions in both the quarters ended March 31, 2019, December 31, 2018 and March 31, 2017.2018.
The following tables present VaR and stressed VaR associated with our trading activities for covered positions held during both the quarters ended March 31, 2018 and March 31, 2017, and as of March2019, December 31, 2018 and March 31, 2017,2018. As of March 31, 2019, December 31, 2018 and March 31, 2018, as measured by our VaR methodology:methodology, a covered

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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.
Diversification effect in the table below represents the difference between total VaR and the sum of the VaRs for each trading activity. This effect arises because the trading activities are not perfectly correlated.
TABLE 28: TEN-DAY VaR ASSOCIATED WITH TRADING ACTIVITIES FOR COVERED POSITIONS
TABLE 26: TEN-DAY VALUE-AT-RISK ASSOCIATED WITH TRADING ACTIVITIES FOR COVERED POSITIONSTABLE 26: TEN-DAY VALUE-AT-RISK ASSOCIATED WITH TRADING ACTIVITIES FOR COVERED POSITIONS  
Quarters Ended March 31, As of March 31,Three Months Ended As of March 31, 2019 As of December 31, 2018 As of March 31, 2018
2018 2017 2018 2017March 31, 2019 December 31, 2018 March 31, 2018 
(In thousands)Average Maximum Minimum Average Maximum Minimum VaR VaRAvg. Max. Min. Avg. Max. Min. Avg. Max. Min. VaR VaR VaR
Global Markets$6,496
 $11,390
 $2,967
 $6,614
 $13,090
 $2,566
 $4,233
 $8,599
$10,030

$18,397

$4,201
 $10,459
 $19,160
 $3,721
 $6,496

$11,390

$2,967
 $16,571
 $10,588
 $4,233
Global Treasury764
 1,940
 100
 645
 832
 421
 1,187
 421
614

2,615

207
 1,281
 3,579
 392
 764

1,940

100
 865
 1,354
 1,187
Diversification(772)
(2,738)
(157) (1,100) (3,348) 278
 (640)
(1,982)
513
 (939) (1,435) (1,309)
Total VaR$6,620
 $11,348
 $3,580
 $6,595
 $12,971
 $2,544
 $4,111
 $8,475
$9,872

$18,274

$4,251
 $10,640
 $19,391
 $4,391
 $6,620

$11,348

$3,580
 $16,497
 $10,507
 $4,111
TABLE 29: TEN-DAY STRESSED VaR ASSOCIATED WITH TRADING ACTIVITIES FOR COVERED POSITIONS
TABLE 27: TEN-DAY STRESSED VALUE-AT-RISK ASSOCIATED WITH TRADING ACTIVITIES FOR COVERED POSITIONSTABLE 27: TEN-DAY STRESSED VALUE-AT-RISK ASSOCIATED WITH TRADING ACTIVITIES FOR COVERED POSITIONS  
Quarters Ended March 31, As of March 31,Three Months Ended As of March 31, 2019 As of December 31, 2018 As of March 31, 2018
2018 2017 2018 2017March 31, 2019 December 31, 2018 March 31, 2018 
(In thousands)Average Maximum Minimum Average Maximum Minimum Stressed VaR Stressed VaRAvg. Max. Min. Avg. Max. Min. Avg. Max. Min. Stressed VaR Stressed VaR Stressed VaR
Global Markets$34,136
 $56,764
 $20,411
 $31,676
 $43,001
 $13,704
 $45,984
 $32,115
$26,810

$49,359

$15,052
 $30,678
 $58,221
 $14,875
 $34,136

$56,764

$20,411
 $39,238
 $26,512
 $45,984
Global Treasury4,118
 10,177
 342
 10,892
 17,019
 6,609
 7,024
 7,396
4,999

9,530

1,953
 4,495
 8,896
 1,838
 4,118

10,177

342
 6,761
 7,683
 7,024
Total Stressed VaR$34,060
 $56,297
 $20,478
 $34,846
 $46,895
 $18,119
 $44,989
 $33,745
Diversification(5,426)
(10,857)
(1,710) (4,804) (8,898) (1,818) (4,194)
(10,644)
(275) (8,592) (7,919) (8,019)
Total VaR$26,383

$48,032

$15,295
 $30,369
 $58,219
 $14,895
 $34,060

$56,297

$20,478
 $37,407
 $26,276
 $44,989

The three month average of our stressed VaR-based measure was approximately $26 million for the quarter ended March 31, 2019 compared to an average of approximately $30 million for the quarter ended December 31, 2018 and $34 million for the quarter ended March 31, 2018, compared2018. The decrease in the stressed VaR is primarily attributed to an average of approximately $35 million for the quarter ended March 31, 2017.lower interest-rate basis risk in emerging markets.
The VaR-based measures presented in the preceding tables are primarily a reflection of the overall level of market volatility and our appetite for taking market risk in our trading activities. Overall levels of volatility have been low both on an absolute basis and relative to the historical information observed at the beginning of the period used for the calculations. Both
 
the ten-day VaR-based measures and the stressed VaR-based measures are based on historical changes observed during rolling ten-day periods for the portfolios as of the close of business each day over the past one-year period.
We may in the future modify and adjust our models and methodologies used to calculate VaR and stressed VaR, subject to regulatory review and approval, and these modifications and adjustments may result in changes in our VaR-based and stressed VaR-based measures.

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The following tables present the VaR and stressed-VaR associated with our trading activities attributable to foreign exchangeFX risk, interest-rate risk and volatility risk as of March 31, 2019, December 31, 2018 and March 31, 2017. The totals of2018. Diversification effect in the VaR-based and stressed VaR-based measures fortable below represents the three attributes in total exceeded the relateddifference between total VaR and total stressed VaR presented in the foregoing tables assum of the VaRs for each period-end, primarily due torisk category. This effect arises because the benefits of diversification across risk types.categories are not perfectly correlated.

TABLE 30: TEN-DAY VaR ASSOCIATED WITH TRADING ACTIVITIES BY RISK FACTOR(1)
 As of March 31, 2018 As of March 31, 2017
(In thousands)Foreign Exchange Risk Interest Rate Risk Volatility Risk Foreign Exchange Risk Interest Rate Risk Volatility Risk
By component:           
Global Markets$2,407
 $3,806
 $243
 $6,107
 $3,682
 $263
Global Treasury62
 1,148
 —
 53
 436
 —
Total VaR$2,415
 $3,379
 $243
 $6,134
 $3,579
 $263
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TABLE 31: TEN-DAY STRESSED VaR ASSOCIATED WITH TRADING ACTIVITIES BY RISK FACTOR(1)
 As of March 31, 2018 As of March 31, 2017
(In thousands)Foreign Exchange Risk Interest Rate Risk Volatility Risk Foreign Exchange Risk Interest Rate Risk Volatility Risk
By component:           
Global Markets$10,520
 $44,416
 $273
 $6,750
 $34,006
 $324
Global Treasury126
 7,173
 —
 78
 7,489
 —
Total Stressed VaR$10,421
 $43,371
 $273
 $6,770
 $35,574
 $324

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AND RESULTS OF OPERATIONS


TABLE 28: TEN-DAY VALUE-AT-RISK ASSOCIATED WITH TRADING ACTIVITIES BY RISK FACTOR FOR COVERED POSITIONS(1)
 As of March 31, 2019 As of December 31, 2018 As of March 31, 2018
(In thousands)Foreign Exchange Risk Interest Rate Risk Volatility Risk Foreign Exchange Risk Interest Rate Risk Volatility Risk Foreign Exchange Risk Interest Rate Volatility Risk
By component:                 
Global Markets$3,837

$14,401

$327
 $2,679
 $11,850
 $—
 $2,407

$3,806

$243
Global Treasury47

836

—
 53
 1,377
 —
 62

1,148

—
Diversification(62)
(746)
—
 (39) (1,436) —
 (54)
(1,575)
—
Total VaR$3,822

$14,491

$327
 $2,693
 $11,791
 $—
 $2,415

$3,379

$243
TABLE 29: TEN-DAY STRESSED VALUE-AT-RISK ASSOCIATED WITH TRADING ACTIVITIES BY RISK FACTOR FOR COVERED POSITIONS(1)
 As of March 31, 2019 As of December 31, 2018 As of March 31, 2018
(In thousands)Foreign Exchange Risk Interest Rate Risk Volatility Risk Foreign Exchange Risk Interest Rate Risk Volatility Risk Foreign Exchange Risk Interest Rate Volatility Risk
By component:                 
Global Markets$12,870

$45,137

$421
 $10,465
 $23,324
 $—
 $10,520

$44,416

$273
Global Treasury126

7,121

—
 74
 8,202
 —
 126

7,173

—
Diversification(162)
(10,467)
—
 (132) (7,835) —
 (225)
(8,218)
—
Total VaR$12,834

$41,791

$421
 $10,407
 $23,691
 $—
 $10,421

$43,371

$273
   
(1) For purposes of risk attribution by component, foreign exchangeFX 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 exchangeFX instruments is included in the interest-rate risk component.
Asset and Liability Management Activities
The primary objective of asset and liability management is to provide sustainable NII under varying economic conditions, while protecting the economic value of the assets and liabilities carried in our consolidated statement of condition from the adverse effects of changes in interest rates. While many market factors affect the level of NII and the economic value of our assets and liabilities, one of the most significant factors is our exposure to movements in interest rates. Most of our NII is earned from the investment of client deposits generated by our businesses. We invest these client deposits in assets that conform generally to the characteristics of our balance sheet liabilities, including the currency composition of our significant non-U.S. dollar denominated client liabilities.
We quantify NII sensitivity using an earnings simulation model that includes our expectations for new business growth, changes in balance sheet mix and investment portfolio positioning. This measure compares our baseline view of NII over a twelve-month horizon, based on our internal forecast of interest rates, to a wide range of instantaneous and gradual rate shocks. Economic value of equity (EVE)EVE sensitivity is a discounted cash flow model designed to estimate the fair value of assets and liabilities under a series of interest rate shocks over a long-term horizon. Each approach is routinely monitored as market conditions change and within internally-approvedinternally approved risk limits and guidelines.
For additional information about our Asset-and-Liability Management Activities, refer to pages 100103 to 101104 included under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, in our 20172018 Form 10-K.
In the table below, we report the expected change in NII over the next twelve months from +/-100 bps instantaneous shocks to all tenors on the yield curves. We also shock the short-end through a 100 basis point change to rates three months and less with a gradual parallel rate shocks.reduction to a zero basis point shock at the five year tenor. These are referred to as "short-end shocks" in the NII sensitivity table. We separately shock the long-end 100 basis points from the five year tenor and longer, with a gradual reduction to a zero basis point shock at the three month tenor. These are referred to as "long-end shocks" in the NII sensitivity table. Each scenario assumes no management action is taken to mitigate the adverse effects of interest rate changes on our financial performance. While investment securities balances can fluctuate with the level of rates as prepayment assumptions change, our deposit balances remain consistent with the baseline.
We also routinely measure NII sensitivity to non-parallel rate shocks to isolate the impact of short-term or long-term market rates. In the up 100 bps instantaneous shock, approximately 75% of the expected benefit stems from the short-end of the yield curve. Additionally, we quantify how much of the change is a result of shifts in U.S. and non-U.S. rates. In the up 100 bps instantaneous shock, approximately 60-70% of the expected benefit is driven by U.S. rates.
TABLE 32: NII SENSITIVITY
TABLE 30: NET INTEREST INCOME SENSITIVITYTABLE 30: NET INTEREST INCOME SENSITIVITY
(In millions) March 31,
2018		 December 31,
2017		March 31,
2019		 March 31,
2018
Rate change: Benefit (Exposure)Benefit (Exposure)
Parallel shifts:   
+100 bps shock $524
 $435
$341

$524
–100 bps shock (356) (294)(142)
(359)
+100 bps ramp 207
 177
–100 bps ramp (150) (122)
Steeper yield curve:




+100 bps long-end shock109

162
-100 bps short-end shock2

(180)
Flatter yield curve:




+100 bps short-end shock239

369
-100 bps long-end shock(137)
(177)


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As of March 31, 2018,2019, NII sensitivity remains positioned to benefit from rising interest rates.interest-rates. Compared to DecemberMarch 31, 2017, investment portfolio activity, including2018, our NII is less sensitive to instantaneous shifts in both higher and lower rate scenarios. For the sale of $12 billion of non-HQLA assetsshort-end shocks, the reduction in NII sensitivity was driven by changes to the U.S. deposit composition and increasing pricing betas. For the long-end shocks, the reduction in NII sensitivity was driven by a continued shift toward more fixed-rate securities in the first quarter of 2018, was the main driverinvestment portfolio.
We also measure how much of the increasedNII sensitivity change is a result of shifts in U.S. and non-U.S. rates, as shown in the table below.
TABLE 31: NET INTEREST INCOME SENSITIVITY BY CURRENCY

March 31, 2019
(In millions)U.S. Dollar
All Other Currencies
Total
Rate change:Benefit (Exposure)
Parallel shifts:




+100 bps shock$103

$238

$341
–100 bps shock(165)
23

(142)







March 31, 2018
(In millions)U.S. Dollar
All Other Currencies
Total
Rate change:Benefit (Exposure)
Parallel shifts:




+100 bps shock$278

$246

$524
–100 bps shock(368)
9

(359)
Compared to March 31, 2018, our U.S. rate sensitivity has decreased driven by changes to our deposit composition and rising pricing betas along with adding more fixed-rate securities to the investment portfolio. This has also resulted in the majority of our current U.S. rate impacts to be driven by the long-end of the curve. Non-U.S. rate sensitivities are largely unchanged versus March 31, 2018. The majority of the benefit to the up 100 bps instantaneous shock and the increased exposure to the down 100 bps instantaneous shock. Gradual rate shocks are impactedhigher non-U.S.rates is driven by the same drivers as instantaneous shocks, but the changes are less pronounced due to the severity and timingshort-end of the rate shift.curve given deposit pricing expectations for currencies such as Euro and Sterling.
The following table highlights our EVE sensitivity to a +/-200 bps instantaneous rate shock, relative to spot interest rates. Management compares the change in EVE sensitivity against State Street'sour aggregate tier 1 and tier 2 risk-based capital, calculated in conformity with current applicable regulatory requirements. EVE sensitivity is dependent on the timing of interest and principal cash flows. Also, the measure only evaluates the spot balance sheet and does not include the impact of new business assumptions.
TABLE 32: ECONOMIC VALUE OF EQUITY SENSITIVITY
(In millions)March 31,
2019		 March 31,
2018
Rate change:Benefit (Exposure)
+200 bps shock$(1,615) $(1,375)
–200 bps shock605
 145
TABLE 33: EVE SENSITIVITY
(In millions) March 31,
2018		 December 31,
2017
Rate change: Benefit (Exposure)
+200 bps shock $(1,375) $(1,507)
–200 bps shock 145
 11
As of March 31, 2018,2019, EVE sensitivity remains exposed to upward shifts in interest rates. Compared to DecemberMarch 31, 2017,2018, the change in the up 200 bps instantaneous shocksshock was driven by investment portfolio activitypurchases in fixed-rate securities, partially offset by higher US interestlower long-end U.S. rates. The change in the down 200 bps instantaneous shock was driven by higher USprimarily due to a modeling enhancement implemented in the second quarter of 2018 for negative rate currencies. The modeling enhancement allows for interest rate shocks to go below zero for certain currencies, such as Euro, where central banks have allowed negative rates. The March 31, 2018 position in the down 200 bps shock scenario, which does not reflect the modeling enhancement, would have increased approximately $1 billion under the new modeling approach. This update aligns our modeling approaches for negative rates partially offset by investment portfolio activities.in both EVE and NII sensitivity simulations.
Model Risk Management
The use of 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,us, model results influence business decisions, and model failure could have a harmful effect on our financial performance. As a result, the Model Risk Management Framework seeks to mitigate our model risk at State Street.risk.
For additional information about our model risk management framework, including our governance and model validation, refer to pages 101104 to 102105 included under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, "Risk Management Framework", in our 20172018 Form 10-K.

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

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processes. Active management of strategic risk is an integral component of all aspects of our business.
For additional information about our strategic risk management framework, refer to page 102105 included under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, "Risk Management Framework", in our 20172018 Form 10-K.
Capital
Managing our capital involves evaluating whether our actual and projected levels of capital are commensurate with our risk profile, are in compliance with all applicable regulatory requirements and are sufficient to provide us with the financial flexibility to undertake future strategic business initiatives. We assess capital adequacy based on relevant regulatory capital requirements, as well as our own internal capital goals, targets and other relevant metrics.
Governance
We have a hierarchical structure supporting appropriate committee review of relevant risk and capital information. The ongoing responsibility for capital management rests with our Treasurer. The Capital PlanningManagement group within Global Treasury is responsible for the Capital Policy and Guidelines,guidelines, development of the Capital Plan, the managementoversight of global capital capital optimizationmanagement and business unit capital management. optimization.
The Management Risk and Capital Planning group is also responsible for enterprise stress testing, including stress revenue and expense modeling and information technology related matters associated with stress testing models.
MRACCommittee (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 RCRisk Committee (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.
For additional information about our capital, refer to pages 102105 to 112 included under Item 7, Management's Discussion and Analysis of Financial

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Condition and Results of Operations, in our 20172018 Form 10-K.
Global Systemically Important Bank
We are one among a group of 3029 institutions worldwide that have been identified by the FSBFinancial Stability Board and the BCBSBasel Committee on Banking Supervision as G-SIBs. Our designation as a G-SIB is based on a number of factors, as evaluated by banking regulators, and requires us to maintain an additional capital buffersurcharge above the minimum capital ratios set forth in the Basel III final rule.
In addition to the Basel III final rule, we are subject to the Federal Reserve's final rule imposing a capital surcharge on U.S. G-SIBs. The surcharge requirements within the final rule began to phase-in inon January 2016 and will bebecame fully effective on January 1, 2019. The eight
U.S. banks deemed to be G-SIBs, including State Street,us, are required to calculate the G-SIB surcharge annually according to the following two methods, and be bound by the higher of the two:
Method 1: Assesses systemic importance based upon five equally-weighted components: size, interconnectedness, complexity, cross-jurisdictional activity and substitutabilitysubstitutability; or
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 componentscomponents.
Method 2 currently is the binding methodology for us, and our applicable surcharge is presentlyfor 2019 was calculated to be 1.5%., which is based on a calculation date of December 31, 2017. 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 a G-SIB surcharge of 1.5% in 2019, would be, are 8.5% for CET1 capital, 10.0% for tier 1 risk-based capital and 12.0% for total risk-based capital, in order for us to make capital distributions and discretionary bonus payments without limitation. Based on a calculation date of December 31, 2018, our G-SIB surcharge for 2020 will be reduced to 1.0%. This reduction was driven by 2018 strategic balance sheet repositioning and risk reduction actions.
Further, like all other U.S. G-SIBs, we are also currently subject to a 2%2.0% leverage buffer under the Basel III final rule.rule, subject to the Federal Reserve’s proposed changes to the SLR. If we fail to exceed the 2%2.0% leverage buffer, itwe will be subject to increased restrictions (depending upon the extent of the shortfall) regarding capital distributions and discretionary executive bonus payments.
Not all of our banking competitors have similarly been designated as systemically important nor are all of them subject to the same degree of regulation as a bank or financial holding company, and therefore some of our competitors may not be subject to the same additional capital liquidity and leverageother regulatory requirements. In addition, not all our competitors are banking institutions and therefore are not subject to the same degree of regulation as is applicable to banking institutions, such as State Street, including the capital leverage requirements described above.
Total Loss-Absorbing Capacity (TLAC)
In December 2016, the Federal Reserve released its final rule on TLAC, LTD and clean holding company requirements for U.S. domiciled G-SIBs, such as State Street, that are intended to improve the resiliency and resolvability of certain U.S. banking organizations through enhanced prudential standards. The TLAC final rule imposes: (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.
Among other things, the TLAC final rule requires us to comply with minimum requirements for external TLAC and external LTD, plus an external TLAC buffer. Specifically, we must hold (1) combined eligible tier 1 regulatory capital and eligible LTD in the amount equal to at least 21.5% of total risk-weighted assets (using 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.
Based upon current estimates, assumptions and guidance, we project that compliance with TLAC and LTD will result in increasing our outstanding LTD by approximately $1.5 billion at December 31, 2018 compared to debt outstanding at December 31, 2017. Our estimates regarding TLAC and LTD are subject to additional regulatory guidance and interpretation.
For additional information on our TLAC requirements, refer to page 9 under "Regulatory Capital Adequacy and Liquidity Standards" in "Total Loss-Absorbing Capacity (TLAC)" included under Item 1, Business, in our 2017 Form 10-K.
We must comply with the TLAC final rule starting on January 1, 2019.

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Regulatory Capital
We and State Street Bank, as advanced approaches banking organizations, are subject to the U.S. Basel III framework in the U.S.framework. Provisions of the Basel III final rule that became effective under a transition timetable starting in January 2014, with full implementation required byon January 1, 2019. We are also subject to the final market risk capital rule issued by U.S. banking regulators effective as of January 2013.
The Basel III final rule provides for two frameworks for monitoring capital adequacy: the “standardized” approach and the “advanced” approaches, applicable to advanced approaches banking organizations, like us. The standardized approach prescribes standardized calculations for credit RWA, including specified risk

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weights for certain on- and off-balance sheet exposures.
The advanced approaches consist of the AIRB approachAdvanced Internal Ratings-Based Approach used for the calculation of RWA related to credit risk, and the AMA approachAdvanced Measurement Approach used for the calculation of RWA related to operational risk. RWA related to market risk continues to be calculated in conformity with the final market risk capital rule described below.
The final market risk capital rule requires us to use internal models to calculate daily measures of Value-at-Risk, referred to as VaR, that reflect general market risk for certain of our trading positions defined by the rule as “covered positions,” as well as stressed-VaR measures to supplement the VaR measures. The rule also requires a public disclosure composed of qualitative and quantitative information about the market risk associated with our trading activities and our related VaR and stressed-VaR measures. The qualitative and quantitative information required by the rule is provided under "Market Risk" included in this Form 10-Q.Management's Discussion and Analysis.
As required by the Dodd-Frank Act, we and State Street Bank, as advanced approaches banking organizations, are subject to a permanent "capital floor," also referred to as the Collins Amendment, in the assessment of our regulatory capital adequacy, including the capital conservation buffer and countercyclical capital buffer. Our risk-based capital ratios for regulatory assessment purposes are the lower of each ratio calculated under the standardized approach and the advanced approaches.
The requirement for the capital conservation buffer is being phased in beginning on January 1, 2016,became effective with full implementation byon January 1, 2019. 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 CET1 capital conservation buffer of more than 2.5% of total risk-weighted assetsRWA and, if deployed during
periods of excessive credit growth, a CET1 countercyclical capital buffer of up to 2.5% of total risk-weighted assets,RWA, above each of the minimum CET1, tier 1, and total risk-based
capital ratios. The countercyclical capital buffer is currently set at zero by U.S. banking regulators.
To maintain the status of the Parent Company as a financial holding company, we and our insured depository institution subsidiaries are required, among other requirements, to be “well-capitalized”"well capitalized" as defined by maintaining capital ratios above the minimum requirements. Effective on January 1, 2015, the “well-capitalized” standard for our banking subsidiaries was revised to reflect the higher capital requirements in the Basel III final rule.


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The following table sets forth the transition to full implementation and the minimum risk-based capital ratio requirements under the Basel III final rule.
TABLE 34: BASEL III FINAL RULES TRANSITION ARRANGEMENTS AND MINIMUM RISK-BASED CAPITAL RATIOS(1)
           
  2015 2016 2017 2018 2019
Capital conservation buffer (CET1) —% 0.625% 1.250% 1.875% 2.500%
G-SIB surcharge (CET1)(2)
 —
 0.375
 0.750
 1.125
 1.500
           
Minimum CET1(3)
 4.500
 5.500
 6.500
 7.500
 8.500
Minimum tier 1 capital(3)
 6.000
 7.000
 8.000
 9.000
 10.000
Minimum total capital(3)
 8.000
 9.000
 10.000
 11.000
 12.000
(1) Minimum ratios shown above do not reflect the countercyclical buffer, currently set at zero by U.S. banking regulators.
(2) 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%.
(3) Minimum CET1 capital, minimum tier 1 capital and minimum total capital presented include the transitional capital conservation buffer as well as the estimated transitional G-SIB surcharge being phased-in beginning January 1, 2016 through January 1, 2019 based on an estimated 1.5% surcharge in all periods.Prompt Corrective Action Framework.
The specific calculation of State Street'sour and State Street Bank's risk-based capital ratios has changed as the provisions of the Basel III final rule related to the numerator (capital) and denominator (risk-weighted assets)(RWA) were phased in, and as our risk-weighted assetsRWA calculated using the advanced approaches changed due to changes in methodology. These methodological changes result in differences in our reported capital ratios from one reporting period to the next that are independent of applicable changes to our capital base, our asset composition, our off-balance sheet exposures or our risk profile.
The following table presents the regulatory capital structure and related regulatory capital ratios for State Streetus and State Street Bank as of the dates indicated. We are subject to the more stringent of the risk-based capital ratios calculated under the standardized approach and those calculated under the advanced approaches in the assessment of our capital adequacy under applicable bank regulatory standards.
As a result of changes in the methodologies used to calculate our regulatory capital ratios from period to period, as the provisions of the Basel III final rule arewere phased in, the ratios presented in the table for each period are not directly comparable. Refer to the footnotes following the table.


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TABLE 35: REGULATORY CAPITAL STRUCTURE AND RELATED REGULATORY CAPITAL RATIOS
TABLE 33: REGULATORY CAPITAL STRUCTURE AND RELATED REGULATORY CAPITAL RATIOSTABLE 33: REGULATORY CAPITAL STRUCTURE AND RELATED REGULATORY CAPITAL RATIOS
State Street State Street Bank State Street State Street Bank
(In millions)
Basel III Advanced Approaches March 31, 2018(1)

Basel III Standardized Approach March 31, 2018(2)

Basel III Advanced Approaches December 31, 2017(1)

Basel III Standardized Approach December 31, 2017(2)

Basel III Advanced Approaches March 31, 2018(1)

Basel III Standardized Approach March 31, 2018(2)

Basel III Advanced Approaches December 31, 2017(1)

Basel III Standardized Approach December 31, 2017(2)
(Dollars in millions)(Dollars in millions)Basel III Advanced Approaches March 31, 2019
Basel III Standardized Approach March 31, 2019
Basel III Advanced Approaches December 31, 2018(1)

Basel III Standardized Approach December 31, 2018(1)

Basel III Advanced Approaches March 31, 2019
Basel III Standardized Approach March 31, 2019
Basel III Advanced Approaches December 31, 2018(1)

Basel III Standardized Approach December 31, 2018(1)
Common shareholders' equity: Common shareholders' equity:                Common shareholders' equity:               
Common stock and related surplusCommon stock and related surplus$10,300
 $10,300
 $10,302
 $10,302
 $11,612
 $11,612
 $11,612
 $11,612
Common stock and related surplus$10,586
 $10,586
 $10,565
 $10,565
 $12,894
 $12,894
 $12,894
 $12,894
Retained earningsRetained earnings19,311
 19,311
 18,856
 18,856
 12,442
 12,442
 12,312
 12,312
Retained earnings20,911
 20,911
 20,606
 20,606
 14,273
 14,273
 14,261
 14,261
Accumulated other comprehensive income (loss)Accumulated other comprehensive income (loss)(1,040) (1,040) (972) (972) (898) (898) (809) (809)Accumulated other comprehensive income (loss)(1,168) (1,168) (1,332) (1,332) (954) (954) (1,112) (1,112)
Treasury stock, at costTreasury stock, at cost(9,334) (9,334) (9,029) (9,029) —
 —
 —
 —
Treasury stock, at cost(8,969) (8,969) (8,715) (8,715) —
 —
 —
 —
TotalTotal19,237
 19,237
 19,157
 19,157
 23,156
 23,156
 23,115
 23,115
Total21,360
 21,360
 21,124
 21,124
 26,213
 26,213
 26,043
 26,043
Regulatory capital adjustments:Regulatory capital adjustments:               Regulatory capital adjustments:               
Goodwill and other intangible assets, net of associated deferred tax liabilities(3)
(7,169) (7,169) (6,877) (6,877) (6,859) (6,859) (6,579) (6,579)
Other adjustments(118) (118) (76) (76) (1) (1) (5) (5)
CET1 capital11,950
 11,950
 12,204
 12,204
 16,296
 16,296
 16,531
 16,531
Goodwill and other intangible assets, net of associated deferred tax liabilitiesGoodwill and other intangible assets, net of associated deferred tax liabilities(9,294) (9,294) (9,350) (9,350) (9,016) (9,016) (9,073) (9,073)
Other adjustments(2)
Other adjustments(2)
(167) (167) (194) (194) (1) (1) (29) (29)
Common equity tier 1 capital Common equity tier 1 capital11,899
 11,899
 11,580
 11,580
 17,196
 17,196
 16,941
 16,941
Preferred stockPreferred stock3,196
 3,196
 3,196
 3,196
 —
 —
 —
 —
Preferred stock3,690
 3,690
 3,690
 3,690
 —
 —
 —
 —
Trust preferred capital securities subject to phase-out from tier 1 capital—
 —
 —
 —
 —
 —
 —
 —
Other adjustments—
 —
 (18) (18) —
 —
 —
 —
Tier 1 capital Tier 1 capital15,146
 15,146
 15,382
 15,382
 16,296
 16,296
 16,531
 16,531
 Tier 1 capital15,589
 15,589
 15,270
 15,270
 17,196
 17,196
 16,941
 16,941
Qualifying subordinated long-term debtQualifying subordinated long-term debt961
 961
 980
 980
 962
 962
 983
 983
Qualifying subordinated long-term debt787
 787
 778
 778
 785
 785
 776
 776
Trust preferred capital securities phased out of tier 1 capital—
 —
 —
 —
 —
 —
 —
 —
ALLL and other—
 72
 4
 72
 —
 72
 —
 72
Other adjustments—
 —
 1
 1
 —
 —
 —
 —
Allowance for loan and lease lossesAllowance for loan and lease losses10
 84
 14
 83
 6
 83
 11
 83
Total capital Total capital$16,107
 $16,179
 $16,367
 $16,435
 $17,258
 $17,330
 $17,514
 $17,586
 Total capital$16,386
 $16,460
 $16,062
 $16,131
 $17,987
 $18,064
 $17,728
 $17,800
Risk-weighted assets: Risk-weighted assets:                Risk-weighted assets:               
Credit risk$48,843
 $108,946
 $49,976
 $101,349
 $46,164
 $106,132
 $47,448
 $98,433
Credit risk(3)
Credit risk(3)
$49,451
 $102,284
 $47,738
 $97,303
 $47,106
 $99,673
 $45,565
 $94,776
Operational risk(4)
Operational risk(4)
46,039
 NA
 45,822
 NA
 45,488
 NA
 45,295
 NA
Operational risk(4)
47,213
 NA
 46,060
 NA
 44,416
 NA
 44,494
 NA
Market risk(5)
3,630
 1,531
 3,358
 1,334
 3,632
 1,531
 3,375
 1,334
Market riskMarket risk1,359
 1,359
 1,517
 1,517
 1,359
 1,359
 1,517
 1,517
Total risk-weighted assetsTotal risk-weighted assets$98,512
 $110,477
 $99,156
 $102,683
 $95,284
 $107,663
 $96,118
 $99,767
Total risk-weighted assets$98,023
 $103,643
 $95,315
 $98,820
 $92,881
 $101,032
 $91,576
 $96,293
Adjusted quarterly average assetsAdjusted quarterly average assets$219,582
 $219,582
 $209,328
 $209,328
 $216,922
 $216,922
 $206,070
 $206,070
Adjusted quarterly average assets$210,099
 $210,099
 $211,924
 $211,924
 $207,417
 $207,417
 $209,413
 $209,413
                                
Capital Ratios(1):
2018 Minimum Requirements Including Capital Conservation Buffer and G-SIB Surcharge(6)
2017 Minimum Requirements Including Capital Conservation Buffer and G-SIB Surcharge(7)
               
CET1 capital7.5%6.5%12.1% 10.8% 12.3% 11.9% 17.1% 15.1% 17.2% 16.6%
Capital Ratios:
2019 Minimum Requirements Including Capital Conservation Buffer and G-SIB Surcharge(5)
2018 Minimum Requirements Including Capital Conservation Buffer and G-SIB Surcharge(6)
               
Common equity tier 1 capital8.5%7.5%12.1%
11.5% 12.1% 11.7% 18.5% 17.0% 18.5% 17.6%
Tier 1 capital9.0
8.0
15.4
 13.7
 15.5
 15.0
 17.1
 15.1
 17.2
 16.6
10.0
9.0
15.9
 15.0
 16.0
 15.5
 18.5
 17.0
 18.5
 17.6
Total capital11.0
10.0
16.4
 14.6
 16.5
 16.0
 18.1
 16.1
 18.2
 17.6
12.0
11.0
16.7
 15.9
 16.9
 16.3
 19.4
 17.9
 19.4
 18.5
Tier 1 leverage4.0
4.0
6.9
 6.9
 7.3
 7.3
 7.5
 7.5
 8.0
 8.0
    
(1) Under the applicable bank regulatory rules, we are not required to and, accordingly, did not revise previously-filed reported capital metrics and ratios following the change in accounting for LIHTC.
(2) Other adjustments within CET1 capital tier 1 capitalprimarily include the overfunded portion of our defined benefit pension plan obligation net of associated deferred tax liabilities, disallowed deferred tax assets, and total capital ratios asother required credit risk based deductions.
(3) Includes a CVA which reflects the risk of March 31, 2018 and December 31, 2017 were calculatedpotential fair value adjustments for credit risk reflected in conformity with the advanced approaches provisionsour valuation of the Basel III final rule. Tier 1 leverage ratio as of March 31, 2018 and December 31, 2017 were calculatedover-the-counter (OTC) derivative contracts. We used a simple CVA approach in conformity with the Basel III final rule.advanced approaches.
(2) CET1 capital, tier 1 capital and total capital ratios as of March 31, 2018 and December 31, 2017 were calculated in conformity with the standardized approach provisions of the Basel III final rule. Tier 1 leverage ratio as of March 31, 2018 and December 31, 2017 were calculated in conformity with the Basel III final rule.
(3) Amounts for State Street and State Street Bank as of March 31, 2018 consisted of goodwill, net of associated deferred tax liabilities, and 100% of other intangible assets, net of associated deferred tax liabilities. Amounts for State Street and State Street Bank as of December 31, 2017 consisted of goodwill, net of deferred tax liabilities and 80% of other intangible assets, net of associated deferred tax liabilities. Intangible assets, net of associated deferred tax liabilities is phased in as a deduction from capital, in conformity with the Basel III final rule.
(4)Under the current advanced approaches rules and regulatory guidance concerning operational risk models, RWA attributable to operational risk can vary substantially from period-to-period, without direct correlation to the effects of a particular loss event on our results of operations and financial condition and impacting dates and periods that may differ from the dates and periods as of and during which the loss event is reflected in our financial statements, with the timing and categorization dependent on the processes for model updates and, if applicable, model revalidation and regulatory review and related supervisory processes. An individual loss event can have a significant effect on the output of our operational risk RWA under the advanced approaches depending on the severity of the loss event and its categorization among the seven Basel-defined UOMs.
(5) Market risk risk-weighted assets reported in conformity with the Basel III advanced approaches included a CVA which reflected the risk of potential fair value adjustments for credit risk reflected in our valuation of over-the-counter derivative contracts.  The CVA was not provided for in the final market risk capital rule; however, it was required by the advanced approaches provisions of the Basel III final rule. We used a simple CVA approach in conformity with the Basel III advanced approaches.
(6) Minimum requirements will bewere phased in up towith full implementation beginning on January 1, 2019; minimum requirements listed are as of March 31, 2018. See Table 34: Basel III Final Rules Transition Arrangements and Minimum Risk-Based Capital Ratios.2019.
(7)(6) Minimum requirements will bewere phased in up towith full implementation beginning on January 1, 2019; minimum requirements listed are as of December 31, 2017. See Table 34: Basel III Final Rules Transition Arrangements and Minimum Risk-Based Capital Ratios.2018.
NA Not applicable


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Our CET1 capital decreased $254 millionincreased $0.32 billion as of March 31, 20182019 compared to December 31, 20172018, primarily due to capital distributionsdriven by net income of $559 million from common stock purchases and dividends, a $297 million impact from the 2018 phase-in of the deduction of intangibles (100% in 2018 compared to 80% in 2017),$0.51 billion and accumulated other comprehensive income of $68 million. The decreases$0.16 billion in CET1 capital werethe first quarter of 2019, partially offset by net incomecommon stock repurchases of $661 million in the quarter ended March 31, 2018.$0.30 billion and capital distributions of $0.23 billion from common and preferred stock dividends.
In the same comparative period, ourOur tier 1 capital decreased $236 million and total capital decreased $260 millionincreased $0.32 billion as of March 31, 2019 compared to December 31, 2018 under both the advanced approaches and decreased $256 million under standardized approach due to the changes in our CET1 capital. Total capital increased under the advanced approaches and standardized approach by $0.32 billion and $0.33 billion, respectively, due to the changes in our CET1 and tier 2 capital.
The table below presents a roll-forward of CET1 capital, tier 1 capital and total capital for the first quarter ended March 31, 2018of 2019 and for the year ended December 31, 2017.2018.
TABLE 34: CAPITAL ROLL-FORWARD
(In millions)Basel III Advanced Approaches March 31, 2019 Basel III Standardized Approach March 31, 2019 
Basel III Advanced Approaches December 31, 2018(1)
 
Basel III Standardized Approach December 31, 2018(1)
Common equity tier 1 capital:       
Common equity tier 1 capital balance, beginning of period$11,580
 $11,580
 $12,204
 $12,204
Net income508
 508
 2,599
 2,599
Changes in treasury stock, at cost(253) (253) 314
 314
Dividends declared(233) (233) (853) (853)
Goodwill and other intangible assets, net of associated deferred tax liabilities56
 56
 (2,473) (2,473)
Effect of certain items in accumulated other comprehensive income (loss)163
 163
 (360) (360)
Other adjustments78
 78
 149
 149
Changes in common equity tier 1 capital319
 319
 (624) (624)
Common equity tier 1 capital balance, end of period11,899
 11,899
 11,580
 11,580
Additional tier 1 capital:       
Tier 1 capital balance, beginning of period15,270
 15,270
 15,382
 15,382
Change in common equity tier 1 capital319
 319
 (624) (624)
Net issuance of preferred stock—
 —
 494
 494
Other adjustments—
 —
 18
 18
Changes in tier 1 capital319
 319
 (112) (112)
Tier 1 capital balance, end of period15,589
 15,589
 15,270
 15,270
Tier 2 capital:       
Tier 2 capital balance, beginning of period792
 861
 985
 1,053
Net issuance and changes in long-term debt qualifying as tier 29
 9
 (202) (202)
Changes in Allowance for loan and lease losses and other(4) 1
 10
 11
Change in other adjustments—
 —
 (1) (1)
Changes in tier 2 capital5
 10
 (193) (192)
Tier 2 capital balance, end of period797
 871
 792
 861
Total capital:       
Total capital balance, beginning of period16,062
 16,131
 16,367
 16,435
Changes in tier 1 capital319
 319
 (112) (112)
Changes in tier 2 capital5
 10
 (193) (192)
Total capital balance, end of period$16,386
 $16,460
 $16,062
 $16,131
TABLE 36: CAPITAL ROLL-FORWARD
  State Street
(In millions) Basel III Advanced Approaches March 31, 2018 Basel III Standardized Approach March 31, 2018 Basel III Advanced Approaches December 31, 2017 Basel III Standardized Approach December 31, 2017
CET1 capital:        
CET1 capital balance, beginning of period $12,204
 $12,204
 $11,624
 $11,624
Net income 661
 661
 2,177
 2,177
Changes in treasury stock, at cost (305) (305) (1,347) (1,347)
Dividends declared (209) (209) (778) (778)
Goodwill and other intangible assets, net of associated deferred tax liabilities (292) (292) (529) (529)
Effect of certain items in accumulated other comprehensive income (loss) (68) (68) 964
 964
Other adjustments (41) (41) 93
 93
Changes in CET1 capital (254) (254) 580
 580
CET1 capital balance, end of period 11,950
 11,950
 12,204
 12,204
Additional tier 1 capital:        
Tier 1 capital balance, beginning of period 15,382
 15,382
 14,717
 14,717
Change in CET1 capital (254) (254) 580
 580
Net issuance of preferred stock —
 —
 —
 —
Trust preferred capital securities phased out of tier 1 capital —
 —
 —
 —
Other adjustments 18
 18
 85
 85
Changes in tier 1 capital (236) (236) 665
 665
Tier 1 capital balance, end of period 15,146
 15,146
 15,382
 15,382
Tier 2 capital:        
Tier 2 capital balance, beginning of period 985
 1,053
 1,192
 1,250
Net issuance and changes in long-term debt qualifying as
tier 2
 (19) (19) (192) (192)
Trust preferred capital securities phased into tier 2 capital —
 —
 —
 —
Changes in ALLL and other (4) —
 (15) (5)
Change in other adjustments (1) (1) —
 —
Changes in tier 2 capital (24) (20) (207) (197)
Tier 2 capital balance, end of period 961
 1,033
 985
 1,053
Total capital:        
Total capital balance, beginning of period 16,367
 16,435
 15,909
 15,967
Changes in tier 1 capital (236) (236) 665
 665
Changes in tier 2 capital (24) (20) (207) (197)
Total capital balance, end of period $16,107
 $16,179
 $16,367
 $16,435
(1)Under the applicable bank regulatory rules, we are not required to and, accordingly, did not revise previously-filed reported capital metrics and ratios following the change in accounting for LIHTC.


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AND RESULTS OF OPERATIONS



The following table presents a roll-forward of the Basel III advanced approaches risk-weighted assetsRWA for the first quarter ended March 31, 2018of 2019 and for the year ended December 31, 2017.2018.
TABLE 37: ADVANCED APPROACHES RWA ROLL-FORWARD
  State Street
(In millions) March 31, 2018 December 31, 2017
Total risk-weighted assets, beginning of period $99,156
 $99,301
Changes in credit risk-weighted assets:    
Net increase (decrease) in investment securities-wholesale 321
 2,914
Net increase (decrease) in loans and leases 811
 30
Net increase (decrease) in securitization exposures (2,328) (683)
Net increase (decrease) in repo-style transaction exposures (367) 440
Net increase (decrease) in OTC derivatives exposures (364) (1,082)
Net increase (decrease) in all
other(1)
 794
 (2,543)
Net increase (decrease) in credit risk-weighted assets (1,133) (924)
Net increase (decrease) in credit valuation adjustment 74
 (47)
Net increase (decrease) in market risk-weighted assets 198
 (417)
Net increase (decrease) in operational risk-weighted assets 217
 1,243
Total risk-weighted assets, end of period $98,512
 $99,156
TABLE 35: ADVANCED APPROACHES RISK-WEIGHTED ASSETS ROLL-FORWARD
(In millions)March 31, 2019 December 31, 2018
Total risk-weighted assets, beginning of period$95,315
 $99,156
Changes in credit risk-weighted assets:   
Net increase (decrease) in investment securities-wholesale1,430
 (940)
Net increase (decrease) in loans and leases240
 (12)
Net increase (decrease) in securitization exposures(156) (3,666)
Net increase (decrease) in repo-style transaction exposures118
 (19)
Net increase (decrease) in Over-the-counter derivatives exposures(405) (1,170)
Net increase (decrease) in all other(1)
486
 1,545
Net increase (decrease) in credit risk-weighted assets1,713
 (4,262)
Net increase (decrease) in market risk-weighted assets(158) 183
Net increase (decrease) in operational risk-weighted assets1,153
 238
Total risk-weighted assets, end of period$98,023
 $95,315



(1) Includes assets not in a definable category, cleared transactions, non-material portfolio, other wholesale, cash and due from, and interest-bearing deposits with banks, equity exposures and 6% credit risk supervisory charge.
As of March 31, 2018,2019, total advanced approaches risk-weighted assets decreased $644 millionRWA increased $2.71 billion compared to December 31, 2017,2018, primarily due to lower credit risk, partially offset by increases in both credit RWA of $1.71 billion and operational risk and market risk.RWA of $1.15 billion. The decreaseincrease in credit riskRWA was primarily driven by an increase in investment securities RWA of $1.36 billion primarily due to the salepurchases of non-HQLA assets within the investment portfolio in the first quarter of 2018, and a counterparty mix shift from banks to corporates in the FX derivative portfolio. Operational risk increased approximately $217 million due to changes in the average five-year internal loss frequency. Market risk increased $198 million due to higher interest rate risk at the end of each business day over the first quarter, leading to higher average VaR measures.HQLA securities.
 
The following table presents a roll-forward of the Basel III standardized approach risk-weighted assetsRWA for the first quarter ended March 31, 2018of 2019 and for the year ended December 31, 2017.2018.
TABLE 38: STANDARDIZED APPROACH RWA ROLL-FORWARD
 State Street
(In millions) March 31, 2018 December 31, 2017
Total estimated risk-weighted assets, beginning of period(1)
 $102,683
 $99,876
Changes in credit risk-weighted assets:    
Net increase (decrease) in investment securities-wholesale (874) 1,729
Net increase (decrease) in loans and leases 6,653
 2,589
Net increase (decrease) in securitization exposures (2,328) (690)
Net increase (decrease) in repo-style transaction exposures 1,046
 2,058
Net increase (decrease) in OTC derivatives exposures 1,971
 (1,709)
Net increase (decrease) in all other(2)
 1,129
 (753)
Net increase (decrease) in credit risk-weighted assets 7,597
 3,224
Net increase (decrease) in market risk-weighted assets 197
 (417)
Total risk-weighted assets, end of period $110,477
 $102,683
TABLE 36: STANDARDIZED APPROACH RISK-WEIGHTED ASSETS ROLL-FORWARD
(In millions)March 31, 2019 December 31, 2018
Total risk-weighted assets, beginning of period(1)
$98,820
 $102,683
Changes in credit risk-weighted assets:   
Net increase (decrease) in investment securities-wholesale1,483
 (2,887)
Net increase (decrease) in loans and leases(1,879) 3,104
Net increase (decrease) in securitization exposures(156) (3,666)
Net increase (decrease) in repo-style transaction exposures5,158
 (3,156)
Net increase (decrease) in Over-the-counter derivatives exposures(303) (46)
Net increase (decrease) in all other(2)
678
 2,605
Net increase (decrease) in credit risk-weighted assets4,981
 (4,046)
Net increase (decrease) in market risk-weighted assets(158) 183
Total risk-weighted assets, end of period$103,643
 $98,820
   
(1)Standardized approach risk-weighted assetsRWA as of the periods noted above were calculated using State Street’sour estimates, based on our then current interpretation of the Basel III final rule.
(2) Includes assets not in a definable category, cleared transactions, other wholesale, cash and due from, and interest-bearing deposits with banks and equity exposures.
As of March 31, 2018,2019, total standardized approach risk-weighted assetsRWA increased $7.79$4.82 billion compared to December 31, 2017,2018, primarily the result of an increase indue to higher credit risk.RWA. The main drivers of the credit riskRWA change were an increase in loans due to a temporary increase in overdraftssecurities finance RWA of $6.0$5.03 billion an increase indriven by new exposures and market appreciation, higher investment securities RWA of $1.43 billion from the FX portfolio due to a mix shift from banks to corporates which have a higher prescribed risk weight under the standardized approachpurchase of HQLA securities, and an increase in equities within the securities finance portfolio, which require a higher haircut under the Basel rule.other exposures. These increases were partially offset by the salea reduction in domestic overdrafts RWA of non-HQLA assets within the investment portfolio$1.86 billion in the first quarter of 2018.2019.
The regulatory capital ratios as of March 31, 2018,2019, presented in Table 35:33: Regulatory Capital Structure and Related Regulatory Capital Ratios, are calculated under the standardized approach and advanced approaches in conformity with the Basel III final rule. The advanced approaches-based ratios (actual and estimated pro forma) reflect calculations and determinations with respect to our capital and related matters as of March 31, 2018,2019, based on State Streetour and external data, quantitative formulae, statistical models, historical correlations and assumptions, collectively referred to as “advanced systems,” in effect and used by us for

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AND RESULTS OF OPERATIONS

those purposes as of the time we first reported such ratios in a quarterly report on Form 10-Q or an annual report on Form 10-K. Significant components of these advanced systems involve the exercise of judgment by us and our regulators, and our advanced systems may not, individually or collectively, precisely represent or

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AND RESULTS OF OPERATIONS


calculate the scenarios, circumstances, outputs or other results for which they are designed or intended.
Our advanced systems are subject to update and periodic revalidation in response to changes in our business activities and our historical experiences, forces and events experienced by the market broadly or by individual financial institutions, changes in regulations and regulatory interpretations and other factors, and are also subject to continuing regulatory review and approval. For example, a significant operational loss experienced by another financial institution, even if we do not experience a related loss, could result in a material change in the output of our advanced systems and a corresponding material change in our risk exposures, our total risk-weighted assetsRWA and our capital ratios compared to prior periods. An operational loss that we experience could also result in a material change in our capital requirements for operational risk under the advanced approaches, depending on the severity of the loss event, its characterization among the seven Basel-defined UOMs,UOM, and the stability of the distributional approach for a particular UOM, and without direct correlation to the effects of the loss event, or the timing of such effects, on our results of operations.
Due to the influence of changes in these advanced systems, whether resulting from changes in data inputs, regulation or regulatory supervision or interpretation, State Street-specificspecific to us 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 Streetus and State Street Bank are therefore subject to further evaluation and also to further regulatory guidance, action or rule-making.

Total Loss-Absorbing Capacity (TLAC)
In 2016, the Federal Reserve released its final rule on TLAC, long-term debt (LTD) and clean holding company requirements for U.S. domiciled G-SIBs, such as us, that is intended to improve the resiliency and resolvability of certain U.S. banking organizations through enhanced prudential standards. The TLAC final rule imposes: (1) external TLAC requirements (i.e., combined eligible tier 1 regulatory capital and LTD); (2) separate external LTD requirements; and (3) clean holding company requirements that impose restrictions on certain types of liabilities and limit non-TLAC related third party liabilities to 5.0% of external TLAC. Among other things, the TLAC final rule requires us to comply with minimum requirements for external TLAC and external LTD effective January 1, 2019. Specifically, we must hold (1) combined eligible tier 1 regulatory capital and LTD in the amount equal to the greater of 21.5% of total RWA (18.0% minimum plus a 2.5% capital
 
conservation buffer plus a G-SIB surcharge calculated for these purposes under Method 1 of 1.0%) and 9.5% of total leverage exposure (7.5% minimum plus the SLR buffer of 2.0%), as defined by the SLR final rule; and (2) qualifying external LTD equal to the greater of 7.5% of RWA (6.0% minimum plus a G-SIB surcharge calculated for these purposes under method 2 of 1.5%) and 4.5% of total leverage exposure, as defined by the SLR final rule.
The following table presents external LTD and external TLAC as of March 31, 2019:
TABLE 37: TOTAL LOSS-ABSORBING CAPACITY

As of March 31, 2019
(Dollars in millions)Actual 
Requirement(1)
Total loss-absorbing capacity (eligible Tier 1 regulatory capacity and long term debt):       
Risk-weighted assets$26,610
 25.7% $22,283
 21.5%
Supplemental leverage ratio26,610
 11.3
 22,419
 9.5
Long term debt:

 

 

 

Risk-weighted assets9,813
 9.5
 7,773
 7.5
Supplemental leverage ratio9,813
 4.2
 10,619
 4.5
(1) We have received a one year extension for compliance with LTD SLR to January 1, 2020; all other requirements of the TLAC final rule are effective January 1, 2019.
We requested and received from the Federal Reserve, a one year extension from January 1, 2019 to January 1, 2020, for compliance with the LTD SLR requirements of the TLAC final rule. In granting the extension request, the Federal Reserve noted the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA), under which the Federal Reserve and the other U.S. federal banking agencies must promulgate rules to exclude certain central bank placements from the calculation of SLR for custodial banks, such as us. This regulatory change is expected to reduce the LTD we are required to hold as calculated under the current requirements. The extension will allow us to determine the appropriate amount of LTD needed to comply with the LTD SLR requirements of the TLAC rule after the Federal Reserve and the other U.S. federal banking agencies have adopted this regulatory change.
Regulatory Developments
In April 2018, the Federal Reserve Board (FRB) issued a proposed rule which would replace the current 2.0% supplementary leverage ratio buffer for G-SIBs, with a buffer equal to 50% of their G-SIB surcharge. This proposal would also make conforming modifications to our TLAC and eligible LTD requirements applicable to G-SIBs.
In addition, the FRB has issued a separate proposed rule replacing the current 2.5% capital conservation buffer with a firm specific buffer (referred to as the Stress Capital Buffer (SCB), updated annually and tailored to reflect the results of the most recent Federal Reserve’s CCAR supervisory severely adverse

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AND RESULTS OF OPERATIONS


scenario stress test. The proposal also introduces a Stress Leverage Buffer (SLB) applicable to the tier 1 leverage ratio. Under the proposal, both the SCB and SLB would become effective October 1, 2019. Changes to the final rules, if and when proposed, may be material and the application of the proposed rule involves estimates which cannot reasonably be made at present. Consequently, we have not estimated the impact of the proposed rule.
In April 2019, the FRB issued a proposed rule on the promulgation of regulation for section 402 of the EGRRCPA that was signed into law in May 2018. Under the legislation, specific modifications would allow certain central bank deposits to be excluded from the SLR denominator, or total leverage exposure for custody banks. In the first quarter of 2019, we estimated $46.10 billion of average balances held on deposit at central banks would be excluded from the SLR denominator under our interpretation of the proposed regulation. The EGRRCPA may also impact our TLAC and LTD requirements calibrated to SLR.
Tier 1 Capital and Supplementary Leverage Ratio
In 2014, U.S. banking regulators issued final rules implementing an SLR, for certain bank holding companies, like State Street,us, and their insured depository institution subsidiaries, like State Street Bank, which we refer to as the SLR final rule. Upon implementation, theThe SLR final rule requires that, as of January 1, 2018, (i) State Street Bank maintainmaintains an SLR of at least 6%6.0% to be well capitalized under the U.S. banking regulators’ PCA frameworkPrompt Corrective Action Framework and (ii) we maintain an SLR of at least 5%5.0% to avoid limitations on capital distributions and discretionary bonus payments. In addition to the SLR, we are subject to a minimumwell capitalized tier 1 leverage ratio requirement of 4%5.0%, 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.
TABLE 39: SUPPLEMENTARY LEVERAGE RATIO
(In millions) March 31, 2018
TABLE 38: TIER 1 AND SUPPLEMENTARY LEVERAGE RATIOSTABLE 38: TIER 1 AND SUPPLEMENTARY LEVERAGE RATIOS
(Dollars in millions)March 31, 2019 December 31, 2018
State Street:     
Tier 1 capital $15,146
$15,589
 $15,270
  
On-and off-balance sheet leverage exposure 259,650
Less: regulatory deductions (7,288)
Average assets219,560
 221,350
Less: adjustments for deductions from tier 1 capital(9,461) (9,426)
Adjusted average assets210,099
 211,924
Off-balance sheet exposures25,889
 29,279
Total assets for SLR $252,362
$235,988
 $241,203
Tier 1 leverage ratio(1)
7.4% 7.2%
Supplementary leverage ratio 6.0%6.6
 6.3
     
State Street Bank:     
Tier 1 capital $16,296
$17,196
 $16,941
  
On-and off-balance sheet leverage exposure 256,593
Less: regulatory deductions (6,860)
Average assets216,434
 218,402
Less: adjustments for deductions from tier 1 capital(9,017) (8,989)
Adjusted average assets207,417
 209,413
Off-balance sheet exposures26,072
 29,368
Total assets for SLR $249,733
$233,489
 $238,781
Tier 1 leverage ratio (1)
8.3% 8.1%
Supplementary leverage ratio 6.5%7.4
 7.1
(1) Tier 1 leverage ratios were calculated in conformity with the Basel III final rule.


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AND RESULTS OF OPERATIONS



Capital Actions
Preferred Stock
The following table summarizes selected terms of each of the series of the preferred stock issued and outstanding as of March 31, 2018:2019:
TABLE 40: PREFERRED STOCK ISSUED AND OUTSTANDING
TABLE 39: PREFERRED STOCK ISSUED AND OUTSTANDINGTABLE 39: 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)
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):
Preferred Stock(2):
         
Preferred Stock(2):
         
Series CAugust 2012 20,000,000

1/4,000th
$100,000

$25

$488

September 15, 2017August 2012 20,000,000

1/4,000th
$100,000

$25

$488

September 15, 2017
Series DFebruary 2014 30,000,000

1/4,000th
100,000

25

742

March 15, 2024February 2014 30,000,000

1/4,000th
100,000

25

742

March 15, 2024
Series ENovember 2014 30,000,000

1/4,000th
100,000

25

728

December 15, 2019November 2014 30,000,000

1/4,000th
100,000

25

728

December 15, 2019
Series FMay 2015 750,000

1/100th
100,000

1,000

742

September 15, 2020May 2015 750,000

1/100th
100,000

1,000

742

September 15, 2020
Series GApril 2016 20,000,000

1/4,000th
100,000

25

493

March 15, 2026April 2016 20,000,000

1/4,000th
100,000

25

493

March 15, 2026
Series HSeptember 2018 500,000
 1/100th 100,000
 1,000
 494
 December 15, 2023
    
(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 tables presenttable presents the dividends declared for each of the series of preferred stock issued and outstanding for the periods indicated:
TABLE 41: PREFERRED STOCK DIVIDENDS
 Quarters Ended March 31,
 2018 2017
 Dividends Declared per Share Dividends Declared per Depositary Share 
Total
(In millions)(1)
 Dividends Declared per Share Dividends Declared per Depositary Share Total
(In millions)
Preferred Stock:           
Series C$1,313

$0.33

$6

$1,313

$0.33

$6
Series D1,475

0.37

11

1,475

0.37

11
Series E1,500

0.38

11

1,500

0.38

11
Series F2,625

26.25

20

2,625

26.25

20
Series G1,338

0.33

7

1,338

0.33

7
Total    $55
     $55
(1) Dividends were paid in March 2018.
TABLE 40: PREFERRED STOCK DIVIDENDS
 Three Months Ended March 31,
 2019 2018
(Dollars in millions, except per share amounts)Dividends Declared per Share
Dividends Declared per Depositary Share
Total
Dividends Declared per Share
Dividends Declared per Depositary Share
Total
Preferred Stock:           
Series C$1,313
 $0.33
 $6
 $1,313
 $0.33
 $6
Series D1,475
 0.37
 11
 1,475
 0.37
 11
Series E1,500
 0.38
 11
 1,500
 0.38
 11
Series F2,625
 26.25
 20
 2,625
 26.25
 20
Series G1,338
 0.33
 7
 1,338
 0.33
 7
Series H—
 —
 —
 —
 —
 —
Total    $55
     $55
Common Stock
In June 2017,2018, the Federal Reserve issued a conditional non-objection to our Board approved a common stock purchase program authorizing2018 capital plan, requiring State Street to enhance the purchasemanagement and analysis of up to $1.4 billioncounterparty exposures under stress, which was subsequently satisfied. In connection with our capital plan, we repurchased $300 million of our common stock through June 30,under the 2018 (the 2017 Program). Program in the first quarter of 2019 and may repurchase up to $300 million of our common stock under the 2018 Program in the second quarter of 2019.
The table below presents the activity under the 2017 Programour common stock purchase program during the period indicated:
TABLE 42: SHARES REPURCHASED
 Quarter Ended March 31, 2018
 Shares Acquired
(In millions)		 Average Cost per Share Total Acquired
(In millions)
2017 Program3.3
 $105.31
 $350
TABLE 41: SHARES REPURCHASED
 Three Months Ended March 31, 2019
 Shares Acquired
(In millions)		 Average Cost per Share Total Acquired
(In millions)
2018 Program4.2

$70.93

$300



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The table below presents the dividends declared on common stock for the periods indicated:
TABLE 42: COMMON STOCK DIVIDENDS
 Three Months Ended March 31,
 2019 2018
 Dividends Declared per Share Total
(In millions)		 Dividends Declared per Share Total
(In millions)
Common Stock$0.47
 $177
 $0.42
 $154
TABLE 43: COMMON STOCK DIVIDENDS
 Quarters Ended March 31,
 Dividends Declared per Share 
Total
(In millions)
 Dividends Declared per Share 
Total
(In millions)
 2018 2017
Common Stock$0.42
 $154
 $0.38
 $144

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AND RESULTS OF OPERATIONS

Federal and state banking regulations place certain restrictions on dividends paid by subsidiary banks to the parent holding company. In addition, banking regulators have the authority to prohibit bank holding companies from paying dividends. For information concerning limitations on dividends from our subsidiary banks, refer to pages 4850 and 4951 included under Item 5, Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities, and to Note 15 on pages 169165 to 171167 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 20172018 Form 10-K. Our common stock and preferred stock dividends, including the declaration, timing and amount thereof, are subject to consideration and approval by the Board at the relevant times.
Stock purchases may be made using various types of mechanisms, including open market purchases, accelerated share repurchases 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’sour 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 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 $399.06$387.31 billion and $342.34 billion as of March 31, 2018, compared to $381.82 billion as of2019 and December 31, 2017.2018, respectively. 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 $416.86$405.30 billion and $400.83$357.89 billion as collateral for indemnified securities on loan as of March 31, 20182019 and December 31, 2017,2018, 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 $416.86$405.30 billion and $400.83$357.89 billion, referenced above, $59.78$47.56 billion and $61.27$42.61 billion was invested in indemnified repurchase agreements as of March 31, 20182019 and December 31, 2017,2018, respectively. We or our agents held $63.85$50.35 billion and $65.27$45.06 billion as collateral for indemnified investments in repurchase agreements as of March 31, 20182019 and December 31, 2017,2018, respectively.
Additional information about our securities finance activities and other off-balance sheet arrangements is provided in Notes 7, 9 and 911 to the consolidated financial statements included in this Form 10-Q.
RECENT ACCOUNTING DEVELOPMENTS
Information with respect to recent accounting developments is provided in Note 1 to the consolidated financial statements included in this Form 10-Q.


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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information provided under Financial Condition - Market“Market Risk ManagementManagement” in Management’s"Financial Condition" in our Management's Discussion and Analysis included in this Form 10-Q, is incorporated by reference herein. For moreadditional information onabout our market risk framework, refer to pages 9497 to 101104 included under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, "Risk Management Framework" in our 20172018 Form 10-K.
CONTROLS AND PROCEDURES
We have established and maintainmaintained disclosure controls and procedures that are designed to ensure that information related to us and our subsidiaries on a consolidated basis required to be disclosed in our 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 our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. For the quarter ended March 31, 2018,2019, our 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 our disclosure controls and procedures. Based on the evaluation of these disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2018.2019.
We have established and maintainmaintained internal controlscontrol 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 U.S. GAAP. In the ordinary course of business, we routinely enhancesenhance our internal controls and procedures for financial reporting by either upgrading our current systems or implementing new systems. Changes have been made and may be made to our internal controls and procedures for financial reporting as a result of these efforts. During the quarter ended March 31, 2018,2019, no change occurred in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.




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STATE STREET CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
Three Months Ended March 31,Three Months Ended March 31,
(Dollars in millions, except per share amounts)2018 20172019 2018
Fee revenue:      
Servicing fees$1,421
 $1,296
$1,251
 $1,421
Management fees472
 382
420
 472
Trading services304
 275
Foreign exchange trading services280
 304
Securities finance141
 133
118
 141
Processing fees and other25
 112
191
 77
Total fee revenue2,363
 2,198
2,260
 2,415
Net interest income:
 
   
Interest income857
 650
1,027
 857
Interest expense199
 140
354
 214
Net interest income658
 510
673
 643
Gains (losses) related to investment securities, net:
 
   
Gains (losses) from sales of available-for-sale securities, net(1) (40)—
 (1)
Losses from other-than-temporary impairment(1) —
(1) (1)
Gains (losses) related to investment securities, net(2) (40)(1) (2)
Total revenue3,019
 2,668
2,932
 3,056
Provision for loan losses—
 (2)4
 —
Expenses:
 
   
Compensation and employee benefits1,249
 1,166
1,229
 1,249
Information systems and communications315
 287
362
 315
Transaction processing services242
 197
242
 254
Occupancy120
 110
116
 120
Acquisition and restructuring costs—
 29
9
 —
Professional services79
 94
Amortization of other intangible assets50
 52
60
 50
Other201
 151
275
 280
Total expenses2,256
 2,086
2,293
 2,268
Income before income tax expense (benefit)763
 584
Income tax expense (benefit)102
 82
Income before income tax expense635
 788
Income tax expense127
 129
Net income$661
 $502
$508
 $659
Net income available to common shareholders$605
 $446
$452
 $603
Earnings per common share:      
Basic$1.65
 $1.17
$1.20
 $1.64
Diluted1.62
 1.15
1.18
 1.62
Average common shares outstanding (in thousands):      
Basic367,439
 381,224
377,915
 367,439
Diluted372,619
 386,417
381,703
 372,619
Cash dividends declared per common share$.42
 $.38
$.47
 $.42


















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


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STATE STREET CORPORATION
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
 Three Months Ended March 31,
(In millions)2018 2017
Net income$661
 $502
Other comprehensive income (loss), net of related taxes:   
Foreign currency translation, net of related taxes of $52 and $123, respectively151
 91
Net unrealized gains (losses) on available-for-sale securities, net of reclassification adjustment and net of related taxes of $(116) and $131, respectively(135) 201
Net unrealized gains (losses) on available-for-sale securities designated in fair value hedges, net of related taxes of $21 and $5, respectively4
 6
Other-than-temporary impairment on held-to-maturity securities related to factors other than credit, net of related taxes of $2 and $1, respectively—
 1
Net unrealized gains (losses) on cash flow hedges, net of related taxes of $(19) and ($51), respectively(97) (70)
Net unrealized gains (losses) on retirement plans, net of related taxes of $3 and $3, respectively12
 6
Other comprehensive income (loss)(65) 235
Total comprehensive income$596
 $737
 Three Months Ended March 31,
(In millions)2019 2018
Net income$508
 $659
Other comprehensive income (loss), net of related taxes:   
Foreign currency translation, net of related taxes of ($3) and $52, respectively(26) 151
Net unrealized gains (losses) on available-for-sale securities, net of reclassification adjustment and net of related taxes of $108 and ($102), respectively272
 (149)
Net unrealized gains (losses) on available-for-sale securities designated in fair value hedges, net of related taxes of ($1) and $7, respectively(2) 18
Other-than-temporary impairment on held-to-maturity securities related to factors other than credit, net of related taxes of ($1) and $2, respectively—
 —
Net unrealized gains (losses) on cash flow hedges, net of related taxes of $9 and ($19), respectively24
 (97)
Net unrealized gains (losses) on retirement plans, net of related taxes of ($4) and $3, respectively(8) 12
Other comprehensive income (loss)260
 (65)
Total comprehensive income$768
 $594
    



































































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


State Street Corporation | 4549




STATE STREET CORPORATION
CONSOLIDATED STATEMENT OF CONDITION
(UNAUDITED)
March 31, 2019 December 31, 2018
(Dollars in millions, except per share amounts)March 31, 2018 December 31, 2017(Unaudited)  
Assets:(Unaudited)     
Cash and due from banks$2,546
 $2,107
$4,469
 $3,597
Interest-bearing deposits with banks79,418
 67,227
53,864
 73,040
Securities purchased under resale agreements5,136
 3,241
1,522
 4,679
Trading account assets1,178
 1,093
856
 860
Investment securities available-for-sale44,304
 57,121
49,002
 45,148
Investment securities held-to-maturity (fair value of $40,483 and $40,255)41,158
 40,458
Loans and leases (less allowance for losses of $54 and $54)29,528
 23,240
Premises and equipment (net of accumulated depreciation of $4,005 and $3,881)2,194
 2,186
Investment securities held-to-maturity (fair value of $40,971 and $41,351)41,145
 41,914
Loans and leases (less allowance for losses of $70 and $67)23,311
 25,722
Premises and equipment (net of accumulated depreciation of $3,937 and $4,152)2,230
 2,214
Accrued interest and fees receivable3,183
 3,099
3,277
 3,203
Goodwill6,068
 6,022
7,549
 7,446
Other intangible assets1,578
 1,613
2,208
 2,369
Other assets33,995
 31,018
38,899
 34,404
Total assets$250,286
 $238,425
$228,332
 $244,596
Liabilities:      
Deposits:      
Non-interest-bearing$57,025
 $47,175
$35,295
 $44,804
Interest-bearing—U.S.55,094
 50,139
Interest-bearing—non-U.S.79,398
 87,582
Interest-bearing - U.S.62,988
 66,235
Interest-bearing - non-U.S.64,188
 69,321
Total deposits191,517
 184,896
162,471
 180,360
Securities sold under repurchase agreements2,020
 2,842
1,420
 1,082
Other short-term borrowings1,066
 1,144
947
 3,092
Accrued expenses and other liabilities22,340
 15,606
27,274
 24,232
Long-term debt10,944
 11,620
11,182
 11,093
Total liabilities227,887
 216,108
203,294
 219,859
Commitments, guarantees and contingencies (Notes 9 and 10)
 

 

Shareholders’ equity:      
Preferred stock, no par, 3,500,000 shares authorized:      
Series C, 5,000 shares issued and outstanding491
 491
491
 491
Series D, 7,500 shares issued and outstanding742
 742
742
 742
Series E, 7,500 shares issued and outstanding728
 728
728
 728
Series F, 7,500 shares issued and outstanding742
 742
742
 742
Series G, 5,000 shares issued and outstanding493
 493
493
 493
Series H, 5,000 shares issued and outstanding494
 494
Common stock, $1 par, 750,000,000 shares authorized:      
503,879,642 and 503,879,642 shares issued504
 504
503,879,642 and 503,879,642 shares issued, and 376,720,715 and 379,946,724 shares outstanding
504
 504
Surplus9,796
 9,799
10,082
 10,061
Retained earnings19,311
 18,856
20,911
 20,553
Accumulated other comprehensive income (loss)(1,074) (1,009)(1,180) (1,356)
Treasury stock, at cost (138,472,445 and 136,229,784 shares)(9,334) (9,029)
Treasury stock, at cost (127,158,927 and 123,932,918 shares)(8,969) (8,715)
Total shareholders’ equity22,399
 22,317
25,038
 24,737
Total liabilities and shareholders' equity$250,286
 $238,425
$228,332
 $244,596










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


State Street Corporation | 4650




STATE STREET CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
(Dollars in millions, except per share amounts, shares in thousands)
Preferred
Stock
 Common Stock Surplus 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 Treasury Stock Total
Shares
(In thousands)
 Amount Shares
(In thousands)		 Amount 
Balance at December 31, 2017$3,196
 503,880
 $504
 $9,799
 $18,809
 $(1,009) 136,230
 $(9,029) $22,270
Net income
 
 
 
 659
 
 
 
 659
Other comprehensive income
 
 
 
 

 (65) 
 
 (65)
Cash dividends declared:
 

 

 

 

 
 
 
 

  Common stock - $0.42 per share
 

 

 

 (154) 
 

 

 (154)
  Preferred stock
 

 

 

 (55) 
 

 

 (55)
Common stock acquired
 

 

 

 
 
 3,324
 (350) (350)
Common stock awards exercised
 

 

 (3) 
 
 (1,075) 45
 42
Other
 
 
 

 3
 
 (7) 

 3
Balance at March 31, 2018$3,196
 $503,880
 $504
 $9,796
 $19,262
 $(1,074) $138,472
 $(9,334) $22,350
Balance at December 31, 2018$3,690
—
$503,880
—
$504
—
$10,061
 $20,553
 $(1,356)—
$123,933
—
$(8,715) $24,737
Reclassification of certain tax effects(1)
        84
 (84)     —
Net income        508
       508
Other comprehensive income          260
     260
Cash dividends declared:                 
 Common stock - $0.47 per share        (177)       (177)
  Preferred stock        (55)       (55)
Common stock acquired            4,230
 (300) (300)
Common stock awards exercised      26
     (1,002) 45
 71
Other      (5) (2)   (2) 1
 (6)
Balance at March 31, 2019$3,690
 $503,880
 $504
 $10,082
 $20,911
 $(1,180) $127,159
 $(8,969) $25,038
(Dollars in millions, except per share amounts, shares in thousands)
PREFERRED
STOCK
 COMMON STOCK Surplus 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 TREASURY STOCK Total
Shares Amount Shares Amount 
Balance as of December 31, 2016$3,196
 503,880
 $504
 $9,782
 $17,459
 $(2,040) 121,941
 $(7,682) $21,219
Net income        502
       502
Other comprehensive income (loss)          235
     235
Cash dividends declared:                 
  Common stock - $0.38 per share        (144)       (144)
  Preferred stock        (55)       (55)
Common stock acquired            6,671
 (523) (523)
Common stock awards vested      14
     (1,091) 46
 60
Other            (1)   —
Balance as of March 31, 2017$3,196
 503,880
 $504
 $9,796
 $17,762
 $(1,805) 127,520
 $(8,159) $21,294
Balance as of December 31, 2017$3,196
 503,880
 $504
 $9,799
 $18,856
 $(1,009) 136,230
 $(9,029) $22,317
Net income        661
 

     661
Other comprehensive income          (65)     (65)
Cash dividends declared:                
Common stock - $0.42 per share        (154)       (154)
Preferred stock        (55)       (55)
Common stock acquired            3,324
 (350) (350)
Common stock awards vested      (3)     (1,075) 45
 42
Other      —
 3
   (7) —
 3
Balance as of March 31, 2018$3,196
 503,880
 $504
 $9,796
 $19,311
 $(1,074) 138,472
 $(9,334) $22,399
(1) Represents the reclassification from accumulated other comprehensive income into retained earnings as a result of our adoption of ASU 2018-02 - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income in the first quarter of 2019.
















































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


State Street Corporation | 4751




STATE STREET CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Three Months Ended March 31,Three Months Ended March 31,
(In millions)2018 20172019 2018
Operating Activities:      
Net income$661
 $502
$508
 $659
Adjustments to reconcile net income to net cash provided by (used in) operating activities:      
Deferred income tax (benefit)(35) (3)(35) (33)
Amortization of other intangible assets50
 52
60
 50
Other non-cash adjustments for depreciation, amortization and accretion, net248
 212
244
 248
Losses related to investment securities, net2
 40
(Gains) losses related to investment securities, net1
 2
Change in trading account assets, net(85) 79
4
 (85)
Change in accrued interest and fees receivable, net(84) (46)(74) (84)
Change in collateral deposits, net6,011
 (68)(1,527) 6,011
Change in unrealized losses on foreign exchange derivatives, net(2,205) 2,334
Change in unrealized (gains) losses on foreign exchange derivatives, net(63) (2,205)
Change in other assets, net(993) (1,606)(732) (993)
Change in accrued expenses and other liabilities, net1,091
 1,908
976
 1,091
Other, net175
 105
143
 175
Net cash provided by operating activities4,836
 3,509
Net cash (used in) provided by operating activities(495) 4,836
Investing Activities:      
Net (increase) decrease in interest-bearing deposits with banks(12,191) 4,146
19,176
 (12,191)
Net (increase) in securities purchased under resale agreements(1,895) (225)
Net (increase) decrease in securities purchased under resale agreements3,157
 (1,895)
Proceeds from sales of available-for-sale securities11,720
 2,165
152
 11,720
Proceeds from maturities of available-for-sale securities4,438
 6,836
3,959
 4,438
Purchases of available-for-sale securities(3,922) (6,287)(7,408) (3,922)
Proceeds from maturities of held-to-maturity securities1,155
 670
2,606
 1,155
Purchases of held-to-maturity securities(1,860) (1,311)(2,348) (1,860)
Net (increase) in loans and leases(6,280) (2,769)
Net decrease (increase) in loans and leases2,409
 (6,280)
Business acquisitions, net of cash acquired(54) —
Purchases of equity investments and other long-term assets(8) (18)(71) (8)
Purchases of premises and equipment, net(147) (164)(171) (147)
Proceeds from sale of joint venture investment—
 172
Other, net17
 (5)264
 17
Net cash (used in) provided by investing activities(8,973) 3,210
Net cash provided by (used in) investing activities21,671
 (8,973)
Financing Activities:      
Net (decrease) in time deposits(1,789) (5,793)(5,876) (1,789)
Net increase in all other deposits8,410
 2,095
Net (decrease) in other short-term borrowings(900) (805)
Net (decrease) increase in all other deposits(12,013) 8,410
Net increase (decrease) in other short-term borrowings(1,807) (900)
Payments for long-term debt and obligations under capital leases(515) (11)(31) (515)
Purchases of common stock(350) (354)
Repurchases of common stock(300) (350)
Repurchases of common stock for employee tax withholding(70) (55)(43) (70)
Payments for cash dividends(210) (201)(234) (210)
Net cash provided by (used in) financing activities4,576
 (5,124)
Net cash (used in) provided by financing activities(20,304) 4,576
Net increase439
 1,595
872
 439
Cash and due from banks at beginning of period2,107
 1,314
3,597
 2,107
Cash and due from banks at end of period$2,546
 $2,909
$4,469
 $2,546
         

















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


State Street Corporation | 4852


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


TABLE OF CONTENTS


Note 1. Summary of Significant Accounting Policies
5054
  
Note 2. Fair Value
5357
  
Note 3. Investment Securities
58
Note 4. Loans and Leases
63
  
Note 5. Goodwill4. Loans and Other Intangible AssetsLeases
6567
  
Note 6.5. Goodwill and Other Intangible Assets
6669
  
Note 7. De6. Other Assetsrivative Financial Instruments
6670
  
Note 8. Offsetting Arrangements
7. Derivative Financial Instruments
7170
  
Note 9. Commitments and Guarantees
8. Offsetting Arrangements
74
  
Note 10. Contingencies
9. Commitments and Guarantees
7576
  
Note 11. Variable Interest Entities
10. Contingencies
77
  
Note 12. Shareholders' Equity
11. Variable Interest Entities
7879
  
Note 13. Regulatory Capital
12. Shareholders' Equity
80
Note 13. Regulatory Capital
82
  
Note 14. Net Interest Income
8284
  
Note 15. Expenses
8284
  
Note 16. Earnings Per Common Share
83
Note 17. Line of BusinessOccupancy Expense and Information Systems and Communications Expense
84
  
Note 18. Revenues from Contracts with Customers
17. Earnings Per Common Share
8586
  
Note 18. Line of Business Information
86
Note 19. Non-U.S. ActivitiesRevenue From Contracts with Customers
87
Note 20. Non-U.S. Activities
88






















































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


State Street Corporation | 4953


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


Note 1.    Summary of Significant Accounting Policies
Basis of Presentation
The accounting and financial reporting policies of State Street Corporation conform to U.S. GAAP. State Street Corporation, the Parent Company, is a financial holding company headquartered in Boston, Massachusetts. Unless otherwise indicated or unless the context requires otherwise, all references in these notes to consolidated financial statements to “State Street,” “we,” “us,” “our” or similar references mean State Street Corporation and its subsidiaries on a consolidated basis. Ourbasis, including our principal banking subsidiary, is State Street Bank.
The accompanying Consolidated Financial Statementsconsolidated financial statements should be read in conjunction with the financial and risk factor information included in our 20172018 Form 10-K, which we previously filed with the SEC.
The consolidated financial statements accompanying these condensed notes are unaudited. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair statement of the consolidated results of operations in these financial statements, have been made. Certain previously reported amounts presented in this Form 10-Q have been reclassified to
conform to current-period presentation. Events occurring subsequent to the date of our consolidated statement of condition were evaluated for potential recognition or disclosure in our consolidated financial statements through the date we filed this Form 10-Q with the SEC.




















The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions in the application of certain of our significant accounting policies that may materially affect the reported amounts of assets, liabilities, equity, revenue and expenses. As a result of unanticipated events or circumstances, actual results could differ from those estimates. These accounting estimates reflect the best judgment of management, but actual results could differ.
Our consolidated statement of condition as of December 31, 20172018 included in the accompanying consolidated financial statements was derived from the audited financial statements as of that date, but does not include all notes required by U.S. GAAP for a complete set of consolidated financial statements.

















State Street Corporation | 5054


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


Recent Accounting Developments
Relevant standards that were recently issued but not yet adopted
as of March 31, 2019:
StandardDescriptionDate of AdoptionEffects on the financial statements or other significant matters
ASU 2016-02, Leases (Topic 842)The standard represents a wholesale change to lease accounting and requires all leases, other than short-term leases, to be reported on balance sheet through recognition of a right-of-use asset and a corresponding liability for future lease obligations. The standard also requires extensive disclosures for assets, expenses, and cash flows associated with leases, as well as a maturity analysis of lease liabilities.January 1, 2019We are currently assessing the impact of the standard on our consolidated financial statements, but we anticipate an increase in assets and liabilities due to the recognition of the required right-of-use asset and corresponding liability for all lease obligations that are currently classified as operating leases, primarily real estate leases for office space, as well as additional disclosure on all our lease obligations.
ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial InstrumentsThe standard replaces the existing incurred loss impairment guidance and requires immediate recognition of expected credit losses for financial assets carried at amortized cost, including trade and other receivables, loans and commitments, held-to-maturity debt securities and other financial assets, held at the reporting date to be measured based on historical experience, current conditions and reasonable supportable forecasts. The standard also amends existing impairment guidance for available-for-sale securities, and credit losses will be recorded as an allowance versus a write-down of the amortized cost basis of the security and will allow for a reversal of impairment loss when the credit of the issuer improves. The guidance requires a cumulative effect of initial application to be recognized in retained earnings at the date of initial application.January 1, 2020, early adoption permittedWe are currently assessingcontinuing to assess the impact of the standard on our consolidated financial statements, and a significant implementation project is in place to ensure that expected credit losses are calculated in accordance with the standard.statements. We have established a steering committee to provide cross-functional governance over the project plan and key decisions, and are currently developingcontinue to develop key accounting policies, assessingassess new and existing credit loss models against the new guidance and processes and identifying a complete set ofaddress data requirements and sources.sources to ensure that the expected credit losses are calculated in accordance with the standard. We have commenced the development of new or modifieddeveloped credit loss models and basedthat are currently under review by our Model Validation Group. Based on our analysis to date, we expect the timingrecognition of the allowance for credit losses to accelerate under the new standard. We are continuing to assess the extent of the impact on the allowance for credit losses.losses which will be impacted by our portfolio and the macroeconomic factors on the date of adoption. We plan to adopt the new guidance on January 1, 2020.
ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill ImpairmentThe standard simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. The ASU requires an entity to compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying value exceeds the fair value of the reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss.January 1, 2020, early adoption permittedWe are evaluating the impacts of early adoption, and will apply this standard prospectively upon adoption.
ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20)2018-13, Fair Value Measurement (Topic 820): Premium amortization on Purchased Callable Debt SecuritiesDisclosure Framework-Changes to the Disclosure Requirements for Fair Value MeasurementThe standard shortens the amortization periodeliminates, amends and adds disclosure requirements for certain purchased callable debt securities to the earliest call date.fair value measurements.January 1, 2019,2020, early adoption permitted, including partial early adoption. Provisions that eliminate or amend disclosures can be early adopted without early adopting the new disclosure requirements.
We have elected to early adopt the provisions of the new standard that eliminate or amend disclosures as of December 31, 2018 and our disclosures were modified accordingly. The provisions of the new standard that add disclosures will be adopted upon the effective date of the standard.

ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement. That Is a Service Contract (a consensus of the Financial Accounting Standards Board Emerging Issues Task Force)This standard addresses accounting for fees paid by a customer for implementation, set-up and other upfront costs incurred in a cloud computing arrangement that is hosted by the vendor, i.e., a service contract. The new guidance aligns treatment for capitalization of implementation costs with guidance on internal-use software.January 1, 2020, early adoption permittedWe are currently evaluating the impact of the new standard and the early adoption provisions.
ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging ActivitiesThe standard amends the hedge accounting model to better portray the economics of risk management activities in the financial statements and enhances the presentation of hedge results. The amendments also make targeted changes to simplify the application of hedge accounting in certain situations.
January 1, 2019, early adoption permitted

We are currently evaluating the impact of the new standard and the early adoption provisions.
ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

This standard provides an election to reclassify the stranded tax effects resulting from the enactment of the Tax Cuts and Jobs Act of 2017, from accumulated other comprehensive income to retained earnings.

January 1, 2019, early adoption permitted

We are currently evaluating the impact of the new standard and the early adoption provisions.


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STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


Relevant standards that were adopted in the first quarter of 2019:
We adopted ASU 2014-09, Revenue from Contracts with Customers2016-02, Leases (Topic 606), on842) and relevant amendments, effective January 1, 2018.2019. The standard provides companies withrepresents a single model for recognizing revenue from contracts with customers. The core principlechange to lease accounting and requires a company to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expectsall leases, other than short-term leases, to be entitled to in exchangereported on the balance sheet through recognition of a right-of-use asset and a corresponding liability for those goods or services.future lease obligations. The standard also requires incremental disclosures for assets, expenses, and cash flows associated with leases, as well as a maturity analysis of lease liabilities. We used the modified retrospective method of transition, which requires the impact ofadopted Topic 842 by applying the standard on priortransition method whereby comparative periods have not been restated, and no adjustment to be reflected in opening retained earnings upon adoption. Thewas required. Upon adoption of the standard, we recognized right-of-use assets of approximately $0.9 billion and lease liabilities of approximately $1.1 billion. This increase largely relates to the present value of future minimum lease payments due under existing operating leases of office space. No material changes are expected to the recognition of lease expenses in the Consolidated Statement of Income as a result of the adoption of Topic 842. For adoption, we elected Topic 842’s package of three practical expedients, and (1) did not reassess whether any expired or existing contracts are or contain leases, (2) did not reassess the lease classification for any expired or existing leases, and (3) did not reassess initial direct costs for any existing leases. In addition, we made an accounting policy election not to apply the recognition requirements to short-term leases, and elected the practical expedient to not separate lease and nonlease components of leases.
We adopted ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium amortization on Purchased Callable Debt Securities, effective January 1, 2019. The standard shortens the amortization period for certain purchased callable debt securities to the earliest call date. The standard does not haveimpact debt securities which are held at a materialdiscount. The guidance requires a cumulative effect of initial application to be recognized in retained earnings at the beginning of the period of adoption. The impact onto beginning retained earnings was not material.
We adopted ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, effective January 1, 2019. This standard provides an election to reclassify the timingstranded tax effects resulting from the enactment of recognitionthe Tax Cuts and Jobs Act of revenue in our consolidated statement of2017, from accumulated other comprehensive income or our consolidated statement of position, and therefore no adjustment has been made to retained earnings. However, due to the updated principal and agent guidance in the standard, certain costs we pay to third parties on behalf of our clients previously reported in our consolidated statement of income on a net basis, primarily against the related management fee revenue, and trading services revenue are now reported on a gross basis as expenses.
For the period ended March 31, 2018, both revenues and expenses increased by approximately $65 million, primarily due to the updated principal and agent guidance. The revenue impact was approximately $45 million in management fees, $15 million in trading services, and $5 million across other revenue line items, and the expense impact was approximately $15 million in transaction processing, $45 million in other expenses, and $5 million across other expense line items. AdoptionUpon adoption of the standard had no impact on cash from or used in operating, financing, or investing activities on our consolidated statementswe reclassified approximately $84 million of cash flows.stranded tax effects.

 
We adopted ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): RecognitionChange in Accounting Policy
In the first quarter of 2019, we voluntarily changed our accounting method under FASB ASC 323, Investments-Equity Method and Measurement of Financial Assets and Financial Liabilities, effective January 1, 2018. Under the new standard, all equity securities will be measured at fair value through earnings with certain exceptions, includingJoint Ventures, for investments accounted for underin LIHTC from the equity method of accounting or whereto the fair market valueproportional amortization method of an equity securityaccounting. While both methods of accounting are acceptable under U.S. GAAP, we believe the proportional method is not readily available. Upon adoptionpreferable because it more fairly represents the economics of investments in LIHTC, which are made primarily for the standard on January 1, 2018, we reclassified approximately $397 millionpurpose of money market fundsreceiving tax credits and $46 million of equity securities held at fair value through profit and loss in other assets. The cumulative-effect transition adjustment recognized in retained earnings on January 1, 2018, andtax benefits. In addition, this method aligns to the method typically used by the companies within our industry which have similar investments. In addition to the change in fair value recognized through profitthe timing of the recognition of income on investments in LIHTC, amortization of the investments in LIHTC is now recorded fully within the income tax expense line instead of the processing fees and loss forother line on the period ended March 31, 2018, were immaterial to the financial statements.




consolidated statements of operations.


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STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



This change in accounting method has been applied retrospectively to all prior periods presented herein being revised, resulting in a reduction in the opening balance of retained earnings as of January 1, 2018 of $47 million. In addition, the following table presents the effect of the changes on financial statement line items for prior periods presented:
 Consolidated Statement of Condition Impact
 December 31, 2018
(In millions)
As Originally Reported(1)
 Effect of Change As Adjusted
Assets:     
Other assets$34,434
 $(30) $34,404
Total assets$244,626
 $(30) $244,596
Liabilities and stockholders' equity:     
Accrued expenses and other liabilities$24,209
 $23
 $24,232
Retained earnings20,606
 (53) 20,553
Total liabilities and stockholders' equity$244,626
 $(30) $244,596
 Consolidated Statement of Income Impact
 Three Months Ended March 31, 2018
(Dollars in millions, except per share amounts)
As Originally Reported(1)
 Effect of Change As Adjusted
Processing fees and other$52
 $25
 $77
Total fee revenue2,390
 25
 2,415
Income tax expense102
 27
 129
Net income$661
 $(2) $659
Earnings per common share:
Basic$1.65
 $(.01) $1.64
Diluted1.62
 —
 1.62
(1) In the first quarter of 2019, we reclassified certain immaterial revenues and expenses related to an affiliated entity from a net presentation to a gross presentation. Previously reported amounts for quarterly periods in 2018 have been reclassified to conform to the 2019 presentation. The impact of change to the statement of cash flows is immaterial.
The following table presents what our results would have been had we continued to utilize the equity method to record investments in LIHTC in the first quarter of 2019:
 Consolidated Statement of Income Impact
 Three Months Ended March 31, 2019
(Dollars in millions, except per share amounts)As Computed under Equity Method Effect of Change As Reported under the Proportional Amortization Method
Processing fees and other$169
 $22
 $191
Total fee revenue2,238
 22
22
2,260
Income tax expense105
 22
22
127
Net income$508
 $—
 $508
Earnings per common share:
Basic$1.20
 $—
 $1.20
Diluted1.18
 —
 1.18

Note 2.    Fair Value
Fair Value Measurements
We carry trading account assets and liabilities, AFS debt securities, certain equity securities and various types of derivative financial instruments, at fair value in our consolidated statement of condition on a recurring basis. Changes in the fair values of these financial assets and liabilities are recorded either as components of our consolidated statement of income or as components of AOCI within shareholders' equity in our consolidated statement of condition.
We measure fair value for the above-described financial assets and liabilities in conformity with U.S. GAAP that governs the measurement of the fair value of financial instruments. Management believes that its valuation techniques and underlying assumptions used to measure fair value conform to the provisions of U.S. GAAP. We categorize the financial assets and liabilities
that we carry at fair value based on a prescribed three-level valuation hierarchy. For information about our valuation techniques for financial assets and financial liabilities measured at fair value and the

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Table of ContentsSTATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

fair value hierarchy, refer to pages 131129 to 138136 in Note 2 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 20172018 Form 10-K.
The following tables present information with respect to our financial assets and liabilities carried at fair value in our consolidated statement of condition on a recurring basis as of the dates indicated. During the quarter ended March 31, 2018, no assets or liabilities were transferred between levels 1 and 2. Approximately $9 million of assets were transferred between levels 1 and 2 during the year ended December 31, 2017.


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

indicated:
Fair Value Measurements on a Recurring BasisFair Value Measurements on a Recurring Basis
As of March 31, 2018As of March 31, 2019
(In millions)
Quoted Market
Prices in Active
Markets
(Level 1)
 
Pricing Methods
with Significant
Observable
Market Inputs
(Level 2)
 
Pricing Methods
with Significant
Unobservable
Market Inputs
(Level 3)
 
Impact of Netting(1)
 
Total Net
Carrying Value
in Consolidated
Statement of
Condition
Quoted Market
Prices in Active
Markets
(Level 1)
 
Pricing Methods
with Significant
Observable
Market Inputs
(Level 2)
 
Pricing Methods
with Significant
Unobservable
Market Inputs
(Level 3)
 
Impact of Netting(1)
 
Total Net
Carrying Value
in Consolidated
Statement of
Condition
Assets:                  
Trading account assets:                  
U.S. government securities$39
 $—
 $—
   $39
$34
 $—
 $—
   $34
Non-U.S. government securities399
 141
 —
   540
148
 176
 —
   324
Other43
 556
 —
   599
—
 498
 —
   498
Total trading account assets481
 697
 —
   1,178
182
 674
 —
   856
AFS investment securities:         
Available-for-sale investment securities:         
U.S. Treasury and federal agencies:                  
Direct obligations11
 78
 —
   89
1,041
 —
 —
   1,041
Mortgage-backed securities—
 10,290
 —
   10,290
—
 20,043
 —
   20,043
Total U.S. Treasury and federal agencies11
 10,368
 —
   10,379
1,041
 20,043
 —
   21,084
Asset-backed securities:                  
Student loans—
 1,743
 —
   1,743
—
 481
 —
   481
Credit cards—
 1,431
 —
   1,431
—
 586
 —
   586
CLOs—
 —
 826
   826
Collateralized loan obligations—
 218
 668
   886
Total asset-backed securities—
 3,174
 826
 
 4,000
—
 1,285
 668
 
 1,953
Non-U.S. debt securities:                  
Mortgage-backed securities—
 2,952
 —
   2,952
—
 1,517
 —
   1,517
Asset-backed securities—
 1,361
 272
   1,633
—
 884
 627
   1,511
Government securities—
 10,875
 —
   10,875
—
 12,572
 —
   12,572
Other(2)
—
 4,353
 178
   4,531
—
 6,531
 45
   6,576
Total non-U.S. debt securities—
 19,541
 450
   19,991
—
 21,504
 672
   22,176
State and political subdivisions—
 7,270
 37
   7,307
—
 1,940
 —
   1,940
Collateralized mortgage obligations—
 347
 —
   347
—
 129
 —
   129
Other U.S. debt securities—
 2,280
 —
   2,280
—
 1,720
 —
   1,720
Total AFS investment securities11
 42,980
 1,313
 
 44,304
Total available-for-sale investment securities1,041
 46,621
 1,340
 
 49,002
Other assets:                  
Derivative instruments:                  
Foreign exchange contracts—
 11,046
 3
 $(7,102) 3,947
—
 11,140
 4
 $(6,966) 4,178
Interest-rate contracts4
 —
 —
 —
 4
Other derivative contracts1
 —
 —
 —
 1
Total derivative instruments5
 11,046
 3
 (7,102) 3,952
—
 11,140
 4
 (6,966) 4,178
Other—
 148
 —
 —
 148
—
 442
 —
 —
 442
Total assets carried at fair value$497
 $54,871
 $1,316
 $(7,102) $49,582
$1,223
 $58,877
 $1,344
 $(6,966) $54,478
Liabilities:                  
Accrued expenses and other liabilities:                  
Trading account liabilities:         
Other$41
 $—
 $—
 $—
 $41
Derivative instruments:                  
Foreign exchange contracts—
 11,171
 2
 (7,640) 3,533
$—
 $11,297
 $3
 $(7,519) $3,781
Interest-rate contracts—
 96
 —
 —
 96
Interest rate contracts17
 52
 —
 —
 69
Other derivative contracts—
 288
 —
 —
 288
—
 228
 —
 —
 228
Total derivative instruments—
 11,555
 2
 (7,640) 3,917
17
 11,577
 3
 (7,519) 4,078
Other—
 —
 —
 —
 —
Total liabilities carried at fair value$41
 $11,555
 $2
 $(7,640) $3,958
$17
 $11,577
 $3
 $(7,519) $4,078
    
(1) Represents counterparty netting against level 2 financial assets and liabilities where a legally enforceable master netting agreement exists between State Streetus and the counterparty. Netting also reflects asset and liability reductions of $777 million$0.64 billion and $1,315 million,$1.19 billion, respectively, for cash collateral received from and provided to derivative counterparties.
(2) As of March 31, 2018,2019, the fair value of other non-U.S. debt securities was primarily composed of $2,193 millionincluded $1.05 billion of covered bonds and $1,738 million$1.33 billion of corporate bonds.


State Street Corporation | 5458


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


 Fair Value Measurements on a Recurring Basis
 As of December 31, 2017
(In millions)
Quoted Market
Prices in Active
Markets
(Level 1)
 
Pricing Methods
with Significant
Observable
Market Inputs
(Level 2)
 
Pricing Methods
with Significant
Unobservable
Market Inputs
(Level 3)
 
Impact of Netting(1)
 
Total Net
Carrying Value
in Consolidated
Statement of
Condition
Assets:         
Trading account assets:         
U.S. government securities$39
 $—
 $—
   $39
Non-U.S. government securities389
 93
 —
   482
Other44
 528
 —
   572
Total trading account assets472
 621
 —
   1,093
AFS investment securities:         
U.S. Treasury and federal agencies:         
Direct obligations11
 212
 —
   223
Mortgage-backed securities—
 10,872
 —
   10,872
Total U.S. Treasury and federal agencies11
 11,084
 —
   11,095
Asset-backed securities:         
Student loans—
 3,358
 —
   3,358
Credit cards—
 1,542
 —
   1,542
CLOs—
 89
 1,358
   1,447
Total asset-backed securities—
 4,989
 1,358
   6,347
Non-U.S. debt securities:         
Mortgage-backed securities—
 6,576
 119
   6,695
Asset-backed securities—
 2,545
 402
   2,947
Government securities—
 10,721
 —
   10,721
Other(2)
—
 5,904
 204
   6,108
Total non-U.S. debt securities—
 25,746
 725
   26,471
State and political subdivisions—
 9,108
 43
   9,151
Collateralized mortgage obligations—
 1,054
 —
   1,054
Other U.S. debt securities—
 2,560
 —
   2,560
U.S. equity securities—
 46
 —
   46
U.S. money-market mutual funds—
 397
 —
   397
Total AFS investment securities11
 54,984
 2,126
   57,121
Other assets:         
Derivatives instruments:         
Foreign exchange contracts—
 11,596
 1
 $(7,593) 4,004
Interest-rate contracts8
 —
 —
 —
 8
Other derivative contracts1
 —
 —
 —
 1
Total derivative instruments9
 11,596
 1
 (7,593) 4,013
Total assets carried at fair value$492
 $67,201
 $2,127
 $(7,593) $62,227
Liabilities:         
Accrued expenses and other liabilities:         
Trading account liabilities:         
U.S. government securities$39
 $—
 $—
 $—
 $39
Derivative instruments:         
Foreign exchange contracts$—
 $11,467
 $1
 $(5,970) $5,498
Interest-rate contracts—
 100
 —
 —
 100
Other derivative contracts1
 283
 —
 —
 284
Total derivative instruments1
 11,850
 1
 (5,970) 5,882
Total liabilities carried at fair value$40
 $11,850
 $1
 $(5,970) $5,921
 Fair Value Measurements on a Recurring Basis
 As of December 31, 2018
(In millions)
Quoted Market
Prices in Active
Markets
(Level 1)
 
Pricing Methods
with Significant
Observable
Market Inputs
(Level 2)
 
Pricing Methods
with Significant
Unobservable
Market Inputs
(Level 3)
 
Impact of Netting(1)
 
Total Net
Carrying Value
in Consolidated
Statement of
Condition
Assets:         
Trading account assets:         
U.S. government securities$34
 $—
 $—
   $34
Non-U.S. government securities146
 179
 —
   325
Other—
 501
 —
   501
Total trading account assets180
 680
 —
   860
Available-for-sale investment securities:



   

U.S. Treasury and federal agencies:



   

Direct obligations1,039

—

—
  
1,039
Mortgage-backed securities—

15,968

—
  
15,968
Total U.S. Treasury and federal agencies1,039

15,968

—
  
17,007
Asset-backed securities:



   

Student loans—

541

—
  
541
Credit cards—

583

—
  
583
Collateralized loan obligations—

—

593
  
593
Total asset-backed securities—

1,124

593
  
1,717
Non-U.S. debt securities:





   


Mortgage-backed securities—

1,682

—
  
1,682
Asset-backed securities—

943

631
  
1,574
Government securities—

12,793

—
  
12,793
Other(2)
—

6,544

58
  
6,602
Total non-U.S. debt securities—

21,962

689
  
22,651
State and political subdivisions—

1,918

—
  
1,918
Collateralized mortgage obligations—

195

2
  
197
Other U.S. debt securities—

1,658

—
  
1,658
Total available-for-sale investment securities1,039

42,825

1,284
  
45,148
Other assets:



     
Derivative instruments:



     
Foreign exchange contracts—

16,382

4
 $(11,210) 5,176
Interest rate contracts13

—

—
 —
 13
Total derivative instruments13

16,382

4
 (11,210) 5,189
Other—

395

—
 —
 395
Total assets carried at fair value$1,232

$60,282

$1,288
 $(11,210) $51,592
Liabilities:




    
Accrued expenses and other liabilities:




    
Derivative instruments:




    
Foreign exchange contracts$—

$16,518

$4
 $(11,564) $4,958
Interest rate contracts—

71

—
 —
 71
Other derivative contracts—

214

—
 —
 214
Total derivative instruments—

16,803

4
 (11,564) 5,243
Total liabilities carried at fair value$—

$16,803

$4
 $(11,564) $5,243
    
(1) Represents counterparty netting against level 2 financial assets and liabilities where a legally enforceable master netting agreement exists between State Streetus and the counterparty. Netting also reflects asset and liability reductions of $2,045 million$0.99 billion and $422 million,$1.34 billion, respectively, for cash collateral received from and provided to derivative counterparties.
(2) As of December 31, 2017,2018, the fair value of other non-U.S. debt securities was primarily composed of $3,537 millionincluded $1.30 billion of covered bonds and $1,885 million$1.33 billion of corporate bonds.




State Street Corporation | 5559


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


The following tables present activity related to our level 3 financial assets during the first quarters ended March 31,of 2019 and 2018, and 2017, respectively, including total realized and unrealized gains and losses.respectively. Transfers into and out of level 3 are reported as of the beginning of the period presented. During the first quarter ended March 31,of 2018, transfers into level 3 were mainlyprimarily related to certain ABS, including non-U.S.non-US debt securities. During the first quarter of 2019 , there were no transfers into level 3. During the first quarters ended March 31,of 2019 and 2018, and 2017, transfers out of level 3 were mainly related to certain MBSABS, municipal bonds and ABS, including non-U.S. debt securities,MBS, for which fair value was measured using prices for which observable market information became available.
Fair Value Measurements Using Significant Unobservable InputsFair Value Measurements Using Significant Unobservable Inputs
Three Months Ended March 31, 2018Three Months Ended March 31, 2019
Fair Value  as of
December 31,
2017		 Total Realized and
Unrealized Gains (Losses)		 Purchases Sales Settlements Transfers into Level 3 Transfers out of Level 3 
Fair Value as of March 31, 2018(1)
 Change in Unrealized Gains (Losses) Related to Financial Instruments Held as of March 31, 2018Fair Value as of
December 31,
2018		 Total Realized and
Unrealized Gains (Losses)		 Purchases Sales Settlements 
Transfers into
Level 3
 
Transfers
out of Level 3
 
Fair Value 
as of March 31,
2019(1)
 
Change in Unrealized Gains (Losses) Related to Financial Instruments
Held as of
March 31, 2019
(In millions)
Recorded in Revenue(1)
 
Recorded in Other Comprehensive Income(1)
  
Recorded in Revenue(1)
 
Recorded in Other Comprehensive Income(1)
 
Assets:                                      
AFS Investment securities:                   
Available-for-sale Investment securities:                   
Asset-backed securities:                                      
CLOs$1,358
 $1
 $(1) $318
 $(636) $(5) $—
 $(209) $826
  
Collateralized loan obligations$593
 $1
 $(2) $132
 $—
 $(56) $—
 $—
 $668
  
Total asset-backed securities1,358

1

(1)
318
 (636)
(5)
—

(209)
826
  593
 1
 (2) 132
 —
 (56) —
 —
 668
  
Non-U.S. debt securities:                                      
Mortgage-backed securities119
 —
 —
 —
 —
 —
 —
 (119) —
  
Asset-backed securities402
 —
 —
 110
 (310) 2
 68
 —
 272
  631
 —
 (2) 9
 —
 (11) —
 —
 627
  
Government securities—
 —
 —
 —
 —
 —
 —
 —
 —
  
Other204
 —
 —
 —
 —
 (26) —
 —
 178
  58
 —
 —
 —
 —
 (1) —
 (12) 45
  
Total non-U.S. debt securities725

—

—

110
 (310)
(24)
68

(119)
450
  689
 —
 (2) 9
 —
 (12) —
 (12) 672
  
State and political subdivisions43
 —
 —
 —
 —
 (1) —
 (5) 37
  
Total AFS investment securities2,126

1

(1)
428
 (946)
(30)
68

(333)
1,313
  
Other assets:                   
Collateralized mortgage obligations
2
 —
 —
 —
 —
 (2) —
 —
 —
  
Total Available-for-sale investment securities1,284
 1
 (4) 141
 —
 (70) —
 (12) 1,340
  
Derivative instruments:                                      
Foreign exchange contracts1
 (2) —
 4
 —
 —
 —
 —
 3
 $(2)4
 (3) —
 3
 —
 —
 —
 —
 4
 $(1)
Total derivative instruments1
 (2) —
 4
 —
 —
 —
 —
 3
 (2)4
 (3) —
 3
 —
 —
 —
 —
 4
 (1)
Total assets carried at fair value$2,127

$(1)
$(1)
$432
 $(946)
$(30)
$68

$(333)
$1,316
 $(2)$1,288
 $(2) $(4) $144
 $—
 $(70) $—
 $(12) $1,344
 $(1)
    
(1)Total realized and unrealized gains (losses) on AFS investment securities are included within gains (losses) related to investment securities, net. Total realized and unrealized gains (losses) on derivative instruments are included within foreign exchange trading services.

State Street Corporation | 60

Table of ContentsSTATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Fair Value Measurements Using Significant Unobservable InputsFair Value Measurements Using Significant Unobservable Inputs
Three Months Ended March 31, 2017Three Months Ended March 31, 2018
Fair Value as of December 31, 2016 Total Realized and
Unrealized Gains (Losses)		 Purchases Sales Settlements 
Fair Value as of March 31,
2017(2)
 Change in Unrealized Gains (Losses) Related to Financial Instruments Held as of March 31, 2017
Fair Value
as of
December 31,
2017
 Total Realized and
Unrealized Gains (Losses)		 Purchases Sales Settlements Transfers
into
Level 3		 Transfers
out of
Level 3		 
Fair Value 
as of March 31, 2018(1)
 
Change in Unrealized Gains (Losses) Related to Financial Instruments
Held as of
March 31, 2018
(In millions)
Recorded
in
Revenue(1)
 
Recorded
in Other
Comprehensive
Income(1)
  
Recorded
in
Revenue(1)
 
Recorded
in Other
Comprehensive
Income(1)
 
Assets:                                  
AFS Investment securities:               
Available-for-sale Investment securities:                   
Asset-backed securities:                                  
Student loans$97
 $—
 $2
 $—
 $—
 $—
 $99
  
CLOs905
 1
 —
 155
 —
 (290) 771
  
Collateralized loan obligations$1,358
 $1
 $(1) $318
 $(636) $(5) $—
 $(209) $826
  
Total asset-backed securities1,002
 1
 2
 155
 —
 (290) 870
  1,358
 1
 (1) 318
 (636) (5) —
 (209) 826
  
Non-U.S. debt securities:                                  
Mortgage-backed securities119
 —
 —
 —
 —
 —
 —
 (119) —
  
Asset-backed securities32
 —
 —
 31
 —
 (4) 59
  402
 —
 —
 110
 (310) 2
 68
 —
 272
  
Other248
 —
 —
 5
 —
 3
 256
  204
 —
 —
 —
 —
 (26) —
 —
 178
  
Total non-U.S. debt securities280
 —
 —
 36
 —

(1) 315
  725
 —
 —
 110
 (310) (24) 68
 (119) 450
  
State and political subdivisions39
 —
 —
 —
 —
 —
 39
  43
 —
 —
 —
 —
 (1) —
 (5) 37
  
Collateralized mortgage obligations16
 —
 —
 23
 —
 —
 39
  
Total AFS investment securities1,337
 1
 2
 214
 —
 (291) 1,263
  
Total Available-for-sale investment securities2,126

1

(1)
428

(946)
(30)
68

(333)
1,313
  
Other assets:                                  
Derivative instruments:                                  
Foreign exchange contracts8
 (7) —
 5
 —
 (4) 2
 $(3)1
 (2) —
 4
 —
 —
 —
 —
 3
 $(2)
Total derivative instruments8
 (7) —
 5
 —
 (4)
2
 (3)1
 (2) —
 4
 —
 —
 —
 —
 3
 (2)
Total assets carried at fair value$1,345
 $(6) $2
 $219
 $—
 $(295) $1,265
 $(3)$2,127
 $(1) $(1) $432
 $(946) $(30) $68
 $(333) $1,316
 $(2)
    
(1) Total realized and unrealized gains (losses) on AFS investment securities are included within gains (losses) related to investment securities, net. Total realized and unrealized gains (losses) on derivative instruments are included within foreign exchange trading services.
(2) There were no transfers of assets into or out of level 3 during the three months ended March 31, 2017.

State Street Corporation | 56

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

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 broker/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 MeasurementsQuantitative Information about Level 3 Fair Value Measurements
Fair Value Weighted-AverageFair Value Weighted-Average
(Dollars in millions)As of March 31, 2018 As of December 31, 2017 Valuation Technique 
Significant
Unobservable Input(1)
 As of March 31, 2018 As of December 31, 2017As of March 31, 2019 As of December 31, 2018 Valuation Technique 
Significant Unobservable Input(1)
 As of March 31, 2019 As of December 31, 2018
Significant unobservable inputs readily available to State Street:       Significant unobservable inputs readily available to State Street:
Assets:                  
Derivative instruments, foreign exchange contracts$3
 $1
 Option model Volatility —% 7.2%
Derivative Instruments, foreign exchange contracts$4
 $4
 Option model Volatility 7.8% 11.4%
Total$3
 $1
    $4
 $4
    
Liabilities:              
Derivative instruments, foreign exchange contracts$2
 $1
 Option model Volatility —% 7.2%$3
 $4
 Option model Volatility 7.3% 11.4%
Total$2
 $1
    $3
 $4
    
    
(1) Significant changes in these unobservable inputs wouldmay result in significant changes in fair value measurement.measurement of the derivative instrument.


State Street Corporation | 61

Table of ContentsSTATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Fair Value Estimates
Estimates of fair value for financial instruments not carried at fair value on a recurring basis in our consolidated statement of condition are generally subjective in nature, and are determined as of a specific point in time based on the characteristics of the financial instruments and relevant market information.
The following tables present the reported amounts and estimated fair values of the financial assets and liabilities not carried at fair value on a recurring basis, as they would be categorized within the fair value hierarchy, as of the dates indicated.indicated:
      Fair Value Hierarchy
(In millions) Reported Amount  Estimated Fair Value Quoted Market Prices in Active Markets (Level 1) Pricing Methods with Significant Observable Market Inputs (Level 2)  Pricing Methods with Significant Unobservable Market Inputs (Level 3)
March 31, 2018          
Financial Assets:          
Cash and due from banks $2,546
 $2,546
 $2,546
 $—
 $—
Interest-bearing deposits with banks 79,418
 79,418
 —
 79,418
 —
Securities purchased under resale agreements 5,136
 5,136
 —
 5,136
 —
Investment securities held-to-maturity 41,158
 40,483
 16,577
 23,783
 123
Net loans (excluding leases)(1)
 28,864
 28,859
 —
 28,813
 46
Other 5,750
 5,750
 —
 5,750
 —
Financial Liabilities:          
Deposits:          
     Non-interest-bearing $57,025
 $57,025
 $—
 $57,025
 $—
     Interest-bearing - U.S. 55,094
 55,094
 —
 55,094
 —
     Interest-bearing - non-U.S. 79,398
 79,398
 —
 79,398
 —
Securities sold under repurchase agreements 2,020
 2,020
 —
 2,020
 —
Other short-term borrowings 1,066
 1,066
 —
 1,066
 —
Long-term debt 10,944
 11,170
 —
 10,909
 261
Other 5,750
 5,750
 —
 5,750
 —
     Fair Value Hierarchy
(In millions)Reported Amount  Estimated Fair Value Quoted Market Prices in Active Markets (Level 1) Pricing Methods with Significant Observable Market Inputs (Level 2)  Pricing Methods with Significant Unobservable Market Inputs (Level 3)
March 31, 2019         
Financial Assets: 
        
Cash and due from banks$4,469
 $4,469
 $4,469
 $—
 $—
Interest-bearing deposits with banks53,864
 53,864
 —
 53,864
 —
Securities purchased under resale agreements1,522
 1,522
 —
 1,522
 —
Investment securities held-to-maturity41,145
 40,971
 13,198
 27,652
 121
Net loans23,311
 23,288
 —
 22,245
 1,043
Other(1)
8,500
 8,500
 —
 8,500
 —
Financial Liabilities:         
Deposits:         
   Non-interest-bearing$35,295
 $35,295
 $—
 $35,295
 $—
   Interest-bearing - U.S.62,988
 62,988
 —
 62,988
 —
   Interest-bearing - non-U.S.64,188
 64,188
 —
 64,188
 —
Securities sold under repurchase agreements1,420
 1,420
 —
 1,420
 —
Other short-term borrowings947
 947
 —
 947
 —
Long-term debt11,182
 11,319
 —
 11,142
 177
Other(1)
8,500
 8,500
 —
 8,500
 —
    
(1) Represents a portion of underlying client assets related to our enhanced custody business, which clients have allowed us to transfer and re-pledge.
     Fair Value Hierarchy
(In millions)Reported Amount  Estimated Fair Value Quoted Market Prices in Active Markets (Level 1) Pricing Methods with Significant Observable Market Inputs (Level 2)  Pricing Methods with Significant Unobservable Market Inputs (Level 3)
December 31, 2018         
Financial Assets:         
Cash and due from banks$3,597
 $3,597
 $3,597
 $—
 $—
Interest-bearing deposits with banks73,040
 73,040
 —
 73,040
 —
Securities purchased under resale agreements4,679
 4,679
 —
 4,679
 —
Investment securities held-to-maturity41,914
 41,351
 14,541
 26,688
 122
Net loans (excluding leases)(1)
25,722
 25,561
 —
 24,648
 913
Other(2)
8,500
 8,500
 —
 8,500
 —
Financial Liabilities:         
Deposits:         
   Non-interest-bearing$44,804
 $44,804
 $—
 $44,804
 $—
   Interest-bearing - U.S.66,235
 66,235
 —
 66,235
 —
   Interest-bearing - non-U.S.69,321
 69,321
 —
 69,321
 —
Securities sold under repurchase agreements1,082
 1,082
 —
 1,082
 —
Other short-term borrowings3,092
 3,092
 —
 3,092
 —
Long-term debt11,093
 11,048
 —
 10,865
 183
Other(2)
8,500
 8,500
 —
 8,500
 —
(1) Includes $10 million of loans classified as held-for-sale that were measured at fair value on a non-recurring basis as of MarchDecember 31, 2018.

(2) Represents a portion of underlying client assets related to our enhanced custody business, which clients have allowed us to transfer and re-pledge.


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

      Fair Value Hierarchy
(In millions) Reported Amount  Estimated Fair Value Quoted Market Prices in Active Markets (Level 1) Pricing Methods with Significant Observable Market Inputs (Level 2)  Pricing Methods with Significant Unobservable Market Inputs (Level 3)
December 31, 2017          
Financial Assets:          
Cash and due from banks $2,107
 $2,107
 $2,107
 $—
 $—
Interest-bearing deposits with banks 67,227
 67,227
 —
 67,227
 —
Securities purchased under resale agreements 3,241
 3,241
 —
 3,241
 —
Investment securities held-to-maturity 40,458
 40,255
 16,814
 23,318
 123
Net loans (excluding leases)(1)
 22,577
 22,482
 —
 22,431
 51
Financial Liabilities:          
Deposits:          
     Non-interest-bearing $47,175
 $47,175
 $—
 $47,175
 $—
     Interest-bearing - U.S. 50,139
 50,139
 —
 50,139
 —
     Interest-bearing - non-U.S. 87,582
 87,582
 —
 87,582
 —
Securities sold under repurchase agreements 2,842
 2,842
 —
 2,842
 —
Other short-term borrowings 1,144
 1,144
 —
 1,144
 —
Long-term debt 11,620
 11,919
 —
 11,639
 280
(1) Includes $3 million of loans classified as held-for-sale that were measured at fair value on a non-recurring basis as of December 31, 2017.


Note 3.    Investment Securities
Investment securities held by us are classified as either trading account assets, AFS, HTM or equity securities held at fair value at the time of purchase and reassessed periodically, based on management’s intent.
As described For additional information on our accounting for investment securities, refer to page 137 in Note 1, upon adoption of ASU 2016-01 we reclassified approximately $397 million of money market funds3 to the consolidated financial statements included under Item 8, Financial Statements and $46 million of equity securities to other assets, where they are held at fair value with changes to fair value recorded through our consolidated statement of income.
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 revenueSupplementary Data, in our consolidated statement of income. AFS securities are carried at fair value, and after-tax net unrealized gains and losses are recorded in AOCI. Gains or losses realized on sales of AFS investment securities are computed using the specific identification method and are recorded in gains (losses) related to investment securities, net, in our consolidated statement of income. HTM investment securities are carried at cost, adjusted for amortization of premiums and accretion of discounts.

State Street Corporation | 58

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

2018 Form 10-K.
The following table presents the amortized cost, fair value and associated unrealized gains and losses of AFS and HTM investment securities as of the dates indicated:
March 31, 2018 December 31, 2017March 31, 2019 December 31, 2018
Amortized
Cost
 
Gross
Unrealized
 
Fair
Value
 
Amortized
Cost
 
Gross
Unrealized
 
Fair
Value
Amortized
Cost
 
Gross
Unrealized
 
Fair
Value
 
Amortized
Cost
 
Gross
Unrealized
 
Fair
Value
(In millions)Gains Losses Gains Losses Gains Losses Gains Losses 
Available-for-sale:               






        
U.S. Treasury and federal agencies:               





         
Direct obligations$88
 $1
 $—
 $89
 $222
 $2
 $1
 $223
$1,035

$6

$—

$1,041
 $1,035
 $4
 $—
 $1,039
Mortgage-backed securities10,521
 13
 244
 10,290
 10,975
 26
 129
 10,872
20,020

132

109

20,043
 16,112
 37
 181
 15,968
Total U.S. Treasury and federal agencies10,609
 14
 244
 10,379
 11,197
 28
 130
 11,095
21,055

138

109

21,084
 17,147
 41
 181
 17,007
Asset-backed securities:               






        
Student loans(1)
1,719
 26
 2
 1,743
 3,325
 37
 4
 3,358
477

4

—

481
 538
 4
 1
 541
Credit cards1,461
 1
 31
 1,431
 1,565
 2
 25
 1,542
612

—

26

586
 609
 —
 26
 583
CLOs821
 5
 —
 826
 1,440
 7
 —
 1,447
Collateralized loan obligations889

—

3

886
 594
 1
 2
 593
Total asset-backed securities4,001
 32
 33
 4,000
 6,330
 46
 29
 6,347
1,978

4

29

1,953
 1,741
 5
 29
 1,717
Non-U.S. debt securities:               






        
Mortgage-backed securities2,940
 13
 1
 2,952
 6,664
 36
 5
 6,695
1,520

1

4

1,517
 1,687
 —
 5
 1,682
Asset-backed securities1,630
 3
 —
 1,633
 2,942
 5
 —
 2,947
1,517

—

6

1,511
 1,580
 —
 6
 1,574
Government securities10,876
 31
 32
 10,875
 10,754
 16
 49
 10,721
12,489

97

14

12,572
 12,816
 22
 45
 12,793
Other(2)
4,525
 21
 15
 4,531
 6,076
 38
 6
 6,108
6,520

59

3

6,576
 6,600
 18
 16
 6,602
Total non-U.S. debt securities19,971
 68
 48
 19,991
 26,436
 95
 60
 26,471
22,046

157

27

22,176
 22,683
 40
 72
 22,651
State and political subdivisions(3)
7,197
 154
 44
 7,307
 8,929
 245
 23
 9,151
1,903

39

2

1,940
 1,905
 20
 7
 1,918
Collateralized mortgage obligations352
 —
 5
 347
 1,060
 3
 9
 1,054
130

—

1

129
 200
 —
 3
 197
Other U.S. debt securities2,309
 6
 35
 2,280
 2,563
 12
 15
 2,560
1,715

12

7

1,720
 1,683
 1
 26
 1,658
U.S. equity securities(4)
—
 —
 —
 —
 40
 8
 2
 46
U.S. money-market mutual funds(4)
—
 —
 —
 —
 397
 —
 —
 397
Total$44,439
 $274
 $409
 $44,304
 $56,952
 $437
 $268
 $57,121
$48,827

$350

$175

$49,002
 $45,359
 $107
 $318
 $45,148
Held-to-maturity:               






        
U.S. Treasury and federal agencies:               






        
Direct obligations$16,903
 $—
 $259
 $16,644
 $17,028
 $—
 $143
 $16,885
$13,369

$—

$123

$13,246
 $14,794
 $—
 $199
 $14,595
Mortgage-backed securities17,879
 1
 571
 17,309
 16,651
 22
 225
 16,448
22,568

76

250

22,394
 21,647
 24
 518
 21,153
Total U.S. Treasury and federal agencies34,782
 1
 830
 33,953
 33,679
 22
 368
 33,333
35,937

76

373

35,640
 36,441
 24
 717
 35,748
Asset-backed securities:               










        
Student loans(1)
2,973
 38
 9
 3,002
 3,047
 32
 9
 3,070
3,286

26

16

3,296
 3,191
 35
 10
 3,216
Credit cards709
 1
 —
 710
 798
 2
 —
 800
—

—

—

—
 193
 —
 —
 193
Other1
 —
 —
 1
 1
 —
 —
 1
1

—

—

1
 1
 —
 —
 1
Total asset-backed securities3,683
 39
 9
 3,713
 3,846
 34
 9
 3,871
3,287

26

16

3,297
 3,385
 35
 10
 3,410
Non-U.S. debt securities:               






        
Mortgage-backed securities791
 87
 5
 873
 939
 82
 6
 1,015
575

82

8

649
 638
 77
 9
 706
Asset-backed securities259
 1
 —
 260
 263
 1
 —
 264
98

—

—

98
 223
 —
 —
 223
Government securities411
 2
 —
 413
 474
 2
 —
 476
399

1

—

400
 358
 1
 —
 359
Other49
 —
 —
 49
 48
 —
 —
 48
44

—

—

44
 46
 —
 —
 46
Total non-U.S. debt securities1,510
 90
 5
 1,595
 1,724
 85
 6
 1,803
1,116

83

8

1,191
 1,265
 78
 9
 1,334
Collateralized mortgage obligations1,183
 46
 7
 1,222
 1,209
 45
 6
 1,248
805

40

2

843
 823
 38
 2
 859
Total$41,158
 $176
 $851
 $40,483
 $40,458
 $186
 $389
 $40,255
$41,145

$225

$399

$40,971
 $41,914
 $175
 $738
 $41,351
    
(1)Primarily composedcomprised of securities guaranteed by the federal government with respect to at least 97% of defaulted principal and accrued interest on the underlying loans.
(2) As of March 31, 20182019 and December 31, 2017,2018, the fair value of other non-U.S. debt securities was primarily composed of $2,193 millionincluded $1.05 billion and $3,537 million,$1.30 billion, respectively, of covered bonds and $1,738 million and $1,885 million, respectively,$1.33 billion of corporate bonds.bonds for both periods.
(3) As of March 31, 20182019 and December 31, 2017,2018, the fair value of Statestate and Politicalpolitical subdivisions includes securities in trusts of $1,213 million$1.06 billion and $1,247 million,$1.05 billion, respectively. Additional information about these trusts is provided in Note 11 to the consolidated financial statements in this Form 10-Q.11.
(4) During the first quarter of 2018, we adopted ASU 2016-01. For additional information see Note 1.





State Street Corporation | 5963


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


Aggregate investment securities with carrying values of approximately $38$40.06 billion and $48$38.87 billion as of March 31, 20182019 and December 31, 2017,2018, respectively, were designated as pledged for public and trust deposits, short-term borrowings and for other purposes as provided by law.
In the three months ended March 31, 2018, we sold approximately $12 billion of AFS, primarily asset-backed securities, municipal bonds and covered bonds, resulting in a pre-tax loss of approximately $1 million.

The following tables present the aggregate fair values of AFS and HTM investment securities that have been in a continuous unrealized loss position for less than 12 months, and those that have been in a continuous unrealized loss position for 12 months or longer, as of the dates indicated:
Less than 12 months 12 months or longer TotalAs of March 31, 2019
March 31, 2018
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
Less than 12 months 12 months or longer Total
(In millions)
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
Available-for-sale:            
U.S. Treasury and federal agencies:                      
Direct obligations$8
 $—
 $18
 $—
 $26
 $—
Mortgage-backed securities5,595
 108
 3,140
 136
 8,735
 244
$2,565
 $4
 $5,147
 $105
 $7,712
 $109
Total U.S. Treasury and federal agencies5,603
 108
 3,158
 136
 8,761
 244
2,565
 4
 5,147
 105
 7,712
 109
Asset-backed securities:                      
Student loans315
 —
 251
 2
 566
 2
10
 —
 212
 —
 222
 —
Credit cards1,280
 31
 —
 —
 1,280
 31
89
 1
 497
 25
 586
 26
CLOs20
 —
 —
 —
 20
 —
Collateralized loan obligations586
 3
 —
 —
 586
 3
Total asset-backed securities1,615

31

251

2

1,866

33
685

4

709

25

1,394

29
Non-U.S. debt securities:                      
Mortgage-backed securities379
 1
 161
 —
 540
 1
890
 3
 111
 1
 1,001
 4
Asset-backed securities130
 —
 33
 —
 163
 —
992
 6
 —
 —
 992
 6
Government securities6,392
 31
 69
 1
 6,461
 32
3,345
 14
 —
 —
 3,345
 14
Other931
 12
 260
 3
 1,191
 15
721
 2
 189
 1
 910
 3
Total non-U.S. debt securities7,832

44

523

4

8,355

48
5,948

25

300

2

6,248

27
State and political subdivisions1,306
 22
 546
 22
 1,852
 44
—
 —
 254
 2
 254
 2
Collateralized mortgage obligations237
 3
 75
 2
 312
 5
—
 —
 129
 1
 129
 1
Other U.S. debt securities1,357
 27
 292
 8
 1,649
 35
116
 2
 500
 5
 616
 7
Total$17,950
 $235
 $4,845
 $174
 $22,795
 $409
$9,314
 $35
 $7,039
 $140
 $16,353
 $175
Held-to-maturity:                      
U.S. Treasury and federal agencies:                      
Direct obligations$13,137
 $216
 $3,507
 $43
 $16,644
 $259
$2,210
 $25
 $11,036
 $98
 $13,246
 $123
Mortgage-backed securities11,370
 252
 5,820
 319
 17,190
 571
357
 1
 14,205
 249
 14,562
 250
Total U.S. Treasury and federal agencies24,507
 468
 9,327
 362
 33,834
 830
2,567
 26
 25,241
 347
 27,808
 373
Asset-backed securities:        

 

        

 

Student loans131
 1
 572
 8
 703
 9
1,155
 7
 507
 9
 1,662
 16
Other—
 —
 1
 —
 1
 —
Total asset-backed securities131
 1
 573
 8

704

9
1,155
 7
 507
 9

1,662

16
Non-U.S. debt securities:                      
Mortgage-backed securities26
 —
 222
 5
 248
 5
99
 2
 116
 6
 215
 8
Asset-backed securities—
 —
 13
 —
 13
 —
Government securities242
 —
 —
 —
 242
 —
Total non-U.S. debt securities268

—

235

5

503

5
99

2

116

6

215

8
Collateralized mortgage obligations6
 —
 264
 7
 270
 7
101
 —
 48
 2
 149
 2
Total$24,912

$469

$10,399

$382

$35,311

$851
$3,922

$35

$25,912

$364

$29,834

$399


State Street Corporation | 6064


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


 As of December 31, 2018
 Less than 12 months 12 months or longer Total
(In millions)
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
Available-for-sale:           
U.S. Treasury and federal agencies:           
Mortgage-backed securities$5,058
 $21
 $5,089
 $160
 $10,147
 $181
Total U.S. Treasury and federal agencies5,058
 21
 5,089
 160
 10,147
 181
Asset-backed securities:           
Student loans106
 —
 218
 1
 324
 1
Credit cards90
 —
 493
 26
 583
 26
   Collateralized loan obligations548
 2
 —
 —
 548
 2
Total asset-backed securities744
 2
 711
 27
 1,455
 29
Non-U.S. debt securities:           
Mortgage-backed securities1,407
 4
 118
 1
 1,525
 5
Asset-backed securities1,479
 6
 —
 —
 1,479
 6
Government securities5,478
 45
 —
 —
 5,478
 45
Other2,167
 12
 226
 4
 2,393
 16
Total non-U.S. debt securities10,531
 67
 344
 5
 10,875
 72
State and political subdivisions365
 3
 244
 4
 609
 7
Collateralized mortgage obligations181
 3
 14
 —
 195
 3
Other U.S. debt securities861
 14
 484
 12
 1,345
 26
Total$17,740
 $110
 $6,886
 $208
 $24,626
 $318
Held-to-maturity:           
U.S. Treasury and federal agencies:           
Direct obligations$2,192
 $45
 $12,403
 $154
 $14,595
 $199
   Mortgage-backed securities6,502
 103
 10,648
 415
 17,150
 518
Total U.S. Treasury and federal agencies8,694
 148
 23,051
 569
 31,745
 717
Asset-backed securities:           
Student loans481
 4
 536
 6
 1,017
 10
Total asset-backed securities481
 4
 536
 6
 1,017
 10
Non-U.S. debt securities:           
Mortgage-backed securities184
 2
 119
 7
 303
 9
Total non-U.S. debt securities184
 2
 119
 7
 303
 9
Collateralized mortgage obligations102
 1
 51
 1
 153
 2
Total$9,461
 $155
 $23,757
 $583
 $33,218
 $738

 Less than 12 months 12 months or longer Total
December 31, 2017
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
(In millions)     
Available-for-sale:           
U.S. Treasury and federal agencies:           
Direct obligations$—
 $—
 $67
 $1
 $67
 $1
Mortgage-backed securities5,161
 31
 3,341
 98
 8,502
 129
Total U.S. Treasury and federal agencies5,161
 31
 3,408
 99
 8,569
 130
Asset-backed securities:           
Student loans—
 —
 769
 4
 769
 4
Credit cards1,289
 25
 —
 —
 1,289
 25
Total asset-backed securities1,289
 25
 769
 4
 2,058
 29
Non-U.S. debt securities:           
Mortgage-backed securities1,059
 4
 469
 1
 1,528
 5
Government securities7,629
 48
 68
 1
 7,697
 49
Other816
 4
 289
 2
 1,105
 6
Total non-U.S. debt securities9,504
 56
 826
 4
 10,330
 60
State and political subdivisions734
 6
 901
 17
 1,635
 23
Collateralized mortgage obligations399
 5
 136
 4
 535
 9
Other U.S. debt securities1,007
 8
 345
 7
 1,352
 15
U.S. equity securities—
 —
 6
 2
 6
 2
Total$18,094
 $131
 $6,391
 $137
 $24,485
 $268
Held-to-maturity:           
U.S. Treasury and federal agencies:           
Direct obligations$14,439
 $109
 $2,447
 $34
 $16,886
 $143
     Mortgage-backed securities6,785
 38
 5,988
 187
 12,773
 225
Total U.S. Treasury and federal agencies21,224
 147
 8,435
 221
 29,659
 368
Asset-backed securities:           
Student loans440
 3
 423
 6
 863
 9
Total asset-backed securities440
 3
 423
 6
 863
 9
Non-U.S. debt securities:           
Mortgage-backed securities—
 —
 239
 6
 239
 6
Total non-U.S. debt securities—
 —
 239
 6
 239
 6
Collateralized mortgage obligations—
 —
 276
 6
 276
 6
Total$21,664
 $150
 $9,373
 $239
 $31,037
 $389


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STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


The following table presents contractual maturities of debt investment securities by carrying amount as of March 31, 2018.2019. The maturities of certain ABS, MBS, and CMOs are based on expected principal payments. Actual maturities may differ from these expected maturities since certain borrowers have the right to prepay obligations with or without prepayment penalties.
 As of March 31, 2019
(In millions)Under 1 Year 1 to 5 Years 6 to 10 Years Over 10 Years Total
Available-for-sale:         
U.S. Treasury and federal agencies:         
Direct obligations$235
 $806
 $—
 $—
 $1,041
Mortgage-backed securities44
 991
 2,490
 16,518
 20,043
Total U.S. Treasury and federal agencies279
 1,797
 2,490
 16,518
 21,084
Asset-backed securities:        
Student loans94
 160
 161
 66
 481
Credit cards200
 297
 89
 —
 586
Collateralized loan obligations—
 418
 423
 45
 886
Total asset-backed securities294
 875
 673
 111
 1,953
Non-U.S. debt securities:        
Mortgage-backed securities266

552

171

528
 1,517
Asset-backed securities368

561

446

136
 1,511
Government securities3,178

6,802

2,592

—
 12,572
Other1,141

4,860

554

21
 6,576
Total non-U.S. debt securities4,953
 12,775
 3,763
 685
 22,176
State and political subdivisions180

791

525

444
 1,940
Collateralized mortgage obligations—

—

—

129
 129
Other U.S. debt securities152

1,292

276

—
 1,720
Total$5,858
 $17,530
 $7,727
 $17,887
 $49,002
Held-to-maturity:         
U.S. Treasury and federal agencies:         
Direct obligations$3,225

$10,096

$11

$37
 $13,369
Mortgage-backed securities31

236

1,538

20,763
 22,568
Total U.S. Treasury and federal agencies3,256
 10,332
 1,549
 20,800
 35,937
Asset-backed securities:









 

Student loans7

255

383

2,641
 3,286
Credit cards—

—

—

—
 —
Other—

—

—

1
 1
Total asset-backed securities7
 255
 383
 2,642
 3,287
Non-U.S. debt securities:        
Mortgage-backed securities134

40

7

394
 575
Asset-backed securities98

—

—

—
 98
Government securities286

113

—

—
 399
Other44

—

—

—
 44
Total non-U.S. debt securities562
 153
 7
 394
 1,116
Collateralized mortgage obligations1

313

14

477
 805
Total$3,826
 $11,053
 $1,953
 $24,313
 $41,145
March 31, 2018
Under 1
Year
 
1 to 5
Years
 
6 to 10
Years
 
Over 10
Years
 Total
(In millions)    
Available-for-sale:         
U.S. Treasury and federal agencies:         
Direct obligations$11
 $—
 $—
 $78
 $89
Mortgage-backed securities112
 647
 2,899
 6,632
 10,290
Total U.S. Treasury and federal agencies123
 647
 2,899
 6,710
 10,379
Asset-backed securities:         
Student loans216
 395
 374
 758
 1,743
Credit cards—
 1,280
 151
 —
 1,431
CLOs—
 406
 400
 20
 826
Total asset-backed securities216
 2,081
 925
 778
 4,000
Non-U.S. debt securities:         
Mortgage-backed securities302

2,054

194

402
 2,952
Asset-backed securities172

1,103

233

125
 1,633
Government securities2,296

3,115

4,556

908
 10,875
Other992

2,783

718

38
 4,531
Total non-U.S. debt securities3,762
 9,055
 5,701
 1,473
 19,991
State and political subdivisions443

2,063

3,569

1,232
 7,307
Collateralized mortgage obligations2

22

—

323
 347
Other U.S. debt securities268

1,154

857

1
 2,280
Total$4,814
 $15,022
 $13,951
 $10,517
 $44,304
Held-to-maturity:         
U.S. Treasury and federal agencies:         
Direct obligations$2,939

$13,898

$13

$53
 $16,903
Mortgage-backed securities—

219

1,470

16,190
 17,879
Total U.S. Treasury and federal agencies2,939
 14,117
 1,483
 16,243
 34,782
Asset-backed securities:









  
Student loans25

262

249

2,437
 2,973
Credit cards173

536

—

—
 709
Other—

—

—

1
 1
Total asset-backed securities198
 798
 249
 2,438
 3,683
Non-U.S. debt securities:         
Mortgage-backed securities63

172

42

514
 791
Asset-backed securities13

246

—

—
 259
Government securities287

124

—

—
 411
Other—

49

—

—
 49
Total non-U.S. debt securities363
 591
 42
 514
 1,510
Collateralized mortgage obligations4

138

343

698
 1,183
Total$3,504
 $15,644
 $2,117
 $19,893
 $41,158

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STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The following table presents a roll-forward with respect to net impairment losses that have been recognized in income for the periods indicated.
  Three Months Ended March 31,
(In millions) 2018 2017
Balance, beginning of period $64
 $66
Additions:    
Losses for which OTTI was previously recognized 1
 —
Balance, end of period $65
 $66

Interest income related to debt securities is recognized in our consolidated statement of income using the effective interest method, or on a basis approximating a level rate of return over the contractual or estimated life of the security. The level rate of return considers any non-refundable fees or costs, as well as purchase premiums or discounts, resulting in amortization or accretion, accordingly.
For certain debt securities acquired which are considered to be beneficial interests in securitized financial assets, the excess of our estimate of undiscounted future cash flows from these securities over their initial recorded investment is accreted into interest income on a level-yield basis over the securities’ estimated remaining terms. Subsequent decreases in these securities’ expected future cash flows are either recognized prospectively through an adjustment of the yields on the securities over their remaining terms, or are evaluated for OTTI. Increases in expected future cash flows are recognized prospectively over the securities’ estimated remaining terms through the recalculation of their yields.

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Table of ContentsSTATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Impairment
The following table presents a roll-forward with respect to net impairment losses that have been recognized in income for the periods indicated:
  Three Months Ended March 31,
(In millions) 2019 2018
Balance, beginning of period $78
 $77
Additions(1):
    
Other-than-temporary-impairment recognized 1
 1
Balance, end of period $79
 $78
(1) Additions represent securities with a first time credit impairment realized or when a subsequent credit impairment has occurred.
We conduct periodic reviews of individual securities to assess whether OTTI exists. For additional information about the review of securities for impairment, refer to pages 142 to 144 to146 in Note 3 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 20172018 Form 10-K.
We recorded approximately $1 million of OTTI in both the three months ended March 31,first quarter of 2019 and 2018, and less than $1 million of OTTI in the three months ended March 31, 2017,on non-U.S. residential MBS, which resulted from adverse changes in the timing of expected future cash flows from the securities.
After a review of the investment portfolio, taking into consideration current economic conditions, adverse situations that might affect our ability to fully collect principal and interest, the timing of future payments, the credit quality and performance of the collateral underlying MBS and ABS and other relevant factors, management considers the aggregate decline in fair value of the investment securities portfolio and
the resulting gross pre-tax unrealized losses of $1.26 billion$574 million related to 1,338832 securities as of March 31, 20182019 to be temporary, and not the result of any material changes in the credit characteristics of the securities.
Note 4.    Loans and Leases
We segregate our loans and leases into threetwo segments: commercial and financial loans and commercial real estate loans and lease financing.loans. We further classify commercial and financial loans as loans to investment funds, senior secured bank loans, loans to municipalities and other. These classifications reflect their risk characteristics, their initial measurement attributes and the methods we use to monitor and assess credit risk. For additional information on our loans and leases, including our internal risk-rating system used to assess our risk of credit loss for each loan or lease, refer to pages 147145 to 149147 in Note 4 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 20172018 Form 10-K.
The following table presents our recorded investment in loans and leases, by segment, as of the dates indicated:
(In millions)March 31, 2019 December 31, 2018
Domestic:   
Commercial and financial:   
Loans to investment funds$11,935
 $15,050
Senior secured bank loans3,516
 3,490
Loans to municipalities966
 902
Other34
 37
Commercial real estate976
 874
Total domestic17,427
 20,353
Non-U.S.:   
Commercial and financial:   
Loans to investment funds4,989
 4,505
Senior secured bank loans965
 931
Total non-U.S.5,954
 5,436
Total loans and leases23,381
 25,789
Allowance for loan and lease losses(70) (67)
Loans and leases, net of allowance$23,311
 $25,722
(In millions)March 31, 2018 December 31, 2017
Domestic:   
Commercial and financial:   
Loans to investment funds$18,524
 $13,618
Senior secured bank loans3,065
 2,923
Loans to municipalities1,946
 2,105
Other46
 50
Commercial real estate257
 98
Lease financing261
 267
Total domestic24,099
 19,061
Non-U.S.:   
Commercial and financial:   
Loans to investment funds4,289
 3,213
Senior secured bank loans791
 624
Lease financing403
 396
Total non-U.S.5,483
 4,233
Total loans and leases29,582
 23,294
Allowance for loan and lease losses(54) (54)
Loans and leases, net of allowance$29,528
 $23,240

The commercial and financial segment is composed primarily of primarily floating-rate loans to mutual fund clients, purchased senior secured bank loans and loans to municipalities. Investment fund lending is composed of short-duration revolving credit lines providing liquidity to fund clients in support of their transaction flows associated with securities' settlement activities.
Certain loans are pledged as collateral for access to the Federal Reserve's discount window. As of March 31, 20182019 and December 31, 2017,2018, the loans pledged as collateral totaled $3.0$7.2 billion and $1.9$6.5 billion, respectively.

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STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The following tables present our recorded investment in each class of loans and leases by credit quality indicator as of the dates indicated:
March 31, 2019Commercial and Financial Commercial Real Estate Total Loans and Leases
(In millions)
Investment grade(1)
$17,128
 $976
 $18,104
Speculative(2)
5,277
 —
 5,277
Total$22,405
 $976
 $23,381
March 31, 2018Commercial and Financial Commercial Real Estate 
Lease
Financing
 Total Loans and Leases
(In millions)
Investment grade(1)
$23,565
 $257
 $664
 $24,486
Speculative(2)
5,096
 —
 —
 5,096
Total(4)
$28,661
 $257
 $664
 $29,582
December 31, 2017Commercial and Financial Commercial Real Estate 
Lease
Financing
 Total Loans and Leases
December 31, 2018Commercial and Financial Commercial Real Estate Total Loans and Leases
(In millions)Commercial and Financial Commercial Real Estate 
Lease
Financing
 Total Loans and Leases
Investment grade(1)
$19,599
 $874
 $20,473
Speculative(2)
4,638
 —
 —
 4,638
5,308
 —
 5,308
Special mention(3)
29
 —
 —
 29
Substandard(3)
8
 —
 8
Total(4)
$22,533
 $98
 $663
 $23,294
$24,915
 $874
 $25,789
    
(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 Substandard loans and leases consist of counterparties with potential weaknesswell-defined weaknesses that if uncorrected, may result in deteriorationjeopardize repayment with the possibility we will sustain some loss.

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Table of repayment prospects.ContentsSTATE STREET CORPORATION
(4) For those portfolios where there are a small number of loans each with a large balance, we review each loan annually for indicators of impairment. For those loans where no such indicators are identified, the loans are collectively evaluated for impairment. As of March 31, 2018 and December 31, 2017, no loans were individually evaluated for impairment.CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

As of March 31, 20182019 and December 31, 2017,2018, we had no impaired loans and leases, no loans or leases on non-accrual status and no loans or leases 90 days or more contractually past due.
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. There were no loans modified in troubled debt restructurings during the three months endedas of both March 31, 20182019 and the year ended December 31, 2017.2018.

We review all loans individually for indicators of impairment. Loans where indicators exist are evaluated individually for impairment at least quarterly. For those loans where no such indicators are identified, the loans are collectively evaluated for impairment. As of March 31, 2019, there were no indicators of impairment and no impaired loans. As of December 31, 2018, we had one impaired loan for $8 million in the commercial and financial segment that was individually evaluated for impairment and deemed to be impaired. This loan was subsequently paid in full in January 2019.
Allowance for loanLoan and lease lossesLease Losses
The following table presents activity in the allowance for loan and lease lossesALLL for the periods indicated:
 Three Months Ended March 31,
(In millions)2019 2018
Allowance for loan and lease losses:  
Beginning balance$67
 $54
Provision for loan and lease losses(1)
4

—
Other(2)
(1)
—
Ending balance$70
 $54
    
 Total Loans and Leases
 Three Months Ended March 31,
(In millions)2018 2017
Allowance for loan and lease losses(1):
  
Beginning balance$54
 $53
Provision for loan and lease losses—
 (2)
Ending balance$54
 $51
(1)The provisions and charge-offs for loans and leases were primarily attributable to exposure to purchased senior secured loans to non-investment grade borrowers, purchased in connection with our participation in syndicated loans.
(2) Consists primarily of FX translation.
Loans and leases are reviewed on a regular basis, and any provisions for loan and lease losses that are recorded reflect management's estimate of the amount necessary to maintain the allowance for loan and leaseALLL losses at a level considered appropriate to absorb estimated incurred losses in the loan and lease portfolio.



State Street Corporation | 6468


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


Note 5.    Goodwill and Other Intangible Assets
The following table presents changes in the carrying amount of goodwill during the periods indicated:
(In millions)
Investment
Servicing(1)
 
Investment
Management
 Total
Goodwill:     
Ending balance December 31, 2017$5,752
 $270
 $6,022
Acquisitions(1)
1,512
 —
 1,512
Foreign currency translation(84) (4) (88)
Ending balance December 31, 20187,180
 266
 7,446
Acquisitions(2)
121
 —
 121
Foreign currency translation(18) —
 (18)
Ending balance March 31, 2019$7,283
 $266
 $7,549
(In millions)
Investment
Servicing
 
Investment
Management
 Total
Goodwill:     
Ending balance December 31, 2016$5,550
 $264
 $5,814
Acquisitions17
 —
 17
Divestitures and other reductions(9) —
 (9)
Foreign currency translation194
 6
 200
Ending balance December 31, 2017$5,752
 $270
 $6,022
Foreign currency translation45
 1
 46
Ending balance March 31, 2018$5,797
 $271
 $6,068
(1) Investment Servicing includes our acquisition of CRD.
(2) We have completed the purchase price accounting for the CRD acquisition as of March 31, 2019. Upon completion of valuation procedures related to the acquired assets and assumed liabilities, primarily the identifiable intangible assets, we recorded measurement period adjustments in the first quarter of 2019, resulting in an increase in the goodwill of $112 million.
The following table presents changes in the net carrying amount of other intangible assets during the periods indicated:
(In millions)
Investment
Servicing(1)
 
Investment
Management
 Total
Other intangible assets:     
Ending balance December 31, 2017$1,432
 $181
 $1,613
Acquisitions(1)
1,007
 —
 1,007
Amortization(196) (30) (226)
Foreign currency translation(25) —
 (25)
Ending balance December 31, 20182,218
 151
 2,369
Acquisitions(2)
(93) —
 (93)
Amortization(53) (7) (60)
Foreign currency translation(8) —
 (8)
Ending balance March 31, 2019$2,064
 $144
 $2,208
(In millions)
Investment
Servicing
 
Investment
Management
 Total
Other intangible assets:     
Ending balance December 31, 2016$1,539
 $211
 $1,750
Acquisitions16
 —
 16
Divestitures(11) —
 (11)
Amortization(183) (31) (214)
Foreign currency translation and other, net71
 1
 72
Ending balance December 31, 2017$1,432
 $181
 $1,613
Amortization(43) (7) (50)
Foreign currency translation and other, net15
 —
 15
Ending balance March 31, 2018$1,404
 $174
 $1,578
(1) Investment Servicing includes our acquisition of CRD.

(2) We have completed the purchase price accounting for the CRD acquisition as of March 31, 2019. Upon completion of valuation procedures related to the acquired assets and assumed liabilities, primarily the identifiable intangible assets, we recorded measurement period adjustments in the first quarter of 2019, resulting in a decrease in the fair value of intangible assets of $93 million, with a corresponding increase to goodwill.
The following table presents the gross carrying amount, accumulated amortization and net carrying amount of other intangible assets by type as of the dates indicated:
 March 31, 2019 December 31, 2018
(In millions)
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Other intangible assets:           
Client relationships$3,144
 $(1,639) $1,505
 $3,262
 $(1,605) $1,657
Technology403
 (60) 343
 389
 (49) 340
Core deposits673
 (356) 317
 676
 (350) 326
Other100
 (57) 43
 103
 (57) 46
Total$4,320
 $(2,112) $2,208
 $4,430
 $(2,061)
$2,369

 March 31, 2018 December 31, 2017
(In millions)
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Other intangible assets:           
Client relationships$2,686
 $(1,515) $1,171
 $2,669
 $(1,470) $1,199
Core deposits692
 (332) 360
 686
 (320) 366
Other142
 (95) 47
 142
 (94) 48
Total$3,520
 $(1,942) $1,578
 $3,497
 $(1,884) $1,613


State Street Corporation | 6569


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


Note 6.    Other Assets
The following table presents the components of other assets as of the dates indicated:
(In millions)March 31, 2018 December 31, 2017March 31, 2019 December 31, 2018
Securities Financing pledged assets and collateral received(1)
$20,957
 $19,404
Securities borrowed(1)
$23,929
 $19,575
Derivative instruments, net3,952
 4,013
4,178
 5,189
Bank-owned life insurance3,263
 3,242
3,345
 3,323
Investments in joint ventures and other unconsolidated entities(2)
2,718
 2,259
2,668
 2,882
Receivable for securities settlement969
 531
Collateral, net929
 473
903
 1,354
Right-of-use assets(3)
899
 —
Accounts receivable554
 348
760
 343
Prepaid expenses439
 364
520
 493
Receivable for securities settlement419
 188
Income taxes receivable100
 129
Deferred tax assets, net of valuation allowance(4)
100
 113
Deposits with clearing organizations129
 120
58
 58
Deferred tax assets, net of valuation allowance(3)
107
 113
Income taxes receivable44
 97
Other(4)
484
 397
Other470
 414
Total$33,995
 $31,018
$38,899
 $34,404
  
(1) Refer to Note 8, for further information on the impact of collateral on our financial statement presentation of securities borrowing and securities lending transactions.
(2) Includes certain equity securities held at fair value through profit and loss that were transferred from AFS as part of our adoption of ASU 2016-01.
(3) We adopted ASU 2016-02, Leases (Topic 842) and relevant amendments, effective January 1, 2019. Refer to Note 1 for further information on this new accounting standard.
(3)(4) Deferred tax assets and liabilities recorded in our consolidated statement of condition are netted within the same tax jurisdiction.
(4) In 2017, includes amounts held in escrow accounts at third parties related to the negotiated settlements in the transition management legal matter presented in Note 10.
Note 7. Derivative Financial Instruments
We use derivative financial instruments to support our clients' needs and to manage our interest-rateinterest rate and currency risk. In undertaking these activities, we assume positionsrisks. These financial instruments consist of FX contracts such as forwards, futures and options contracts; interest rate contracts such as interest rate swaps (cross currency and single currency) and futures; and other derivative contracts. Derivative instruments used for risk management purposes that are highly effective in bothoffsetting the foreign exchangerisk being hedged are generally designated as hedging instruments in hedge accounting relationships while others are economic hedges and interest-rate markets by buying and selling cash instruments and usingnot designated in hedge accounting relationships. For additional information on our derivative financial instruments, including foreign exchange forward contracts, foreign exchange options and interest-rate contracts. For information on our derivativederivatives not designated as hedging instruments, including the related accounting policies, refer to pages 153 to 159page 152 in Note 10 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 20172018 Form 10-K.
Derivative financial instruments are also subject to credit and counterparty risk, which we manage by performing credit reviews, maintaining individual counterparty limits, entering into netting arrangements and requiring the receipt of collateral. Cash collateral received from and provided to counterparties in connection with derivative financial instruments is recorded in accrued expenses and other liabilities and other assets, respectively, in our consolidated statement of condition. As of March 31, 2018 and
December 31, 2017, we had recorded approximately $1.45 billion and $2.55 billion, respectively, of cash collateral received from counterparties and approximately $2.07 billion and $869 million, respectively, of cash collateral provided to counterparties in connection with derivative financial instruments in our consolidated statement of condition.
Certain of our derivative assets and liabilities as of March 31, 2018 and December 31, 2017 are subject to master netting agreements with our derivative counterparties. Certain of these agreements contain credit risk-related contingent features in which the counterparty has the right to declare us in default and accelerate cash settlement of our net derivative liabilities with the counterparty in the event that our credit rating falls below specified levels. The aggregate fair value of all derivative instruments with credit risk-related contingent features that were in a net liability position as of March 31, 2018 totaled approximately $1.57 billion, against which we provided $28 million in underlying collateral. If our credit rating were downgraded below levels specified in the agreements, the maximum additional amount of payments related to termination events that could have been required pursuant to these contingent features, assuming no change in fair value, as of March 31, 2018 was approximately $1.54 billion. Such accelerated settlement would be at fair value and therefore not affect our consolidated results of operations.
Derivatives Not Designated as Hedging Instruments
In connection with our trading activities, we use derivative financial instruments in our role as a financial intermediary and as both a manager and servicer of financial assets, in order to accommodate our clients' investment and risk management needs. In addition, we use derivative financial instruments for risk management purposes as economic hedges, which are not formally designated as accounting hedges, in order to contribute to our overall corporate earnings and liquidity. These activities are designed to generate trading services revenue and to manage volatility in our NII. The level of market risk that we assume is a function of our overall objectives and liquidity needs, our clients' requirements and market volatility. For additional information on derivatives not designated as hedging instruments, refer to pages 154 to 155 in Note 10 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 2017 Form 10-K.
Derivatives Designated as Hedging Instruments
In connection with our asset and liability management activities, we use derivative financial instruments to manage our interest rate risk and foreign currency risk. Interest rate risk, defined as the

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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. Interest rate swap agreements alter the interest-rate characteristics of specific balance sheet assets or liabilities. We use foreign exchange forward and swap contracts to hedge foreign exchange exposure to various foreign currencies with respect to certain assets and liabilities. Our hedging relationships are formally designated, and qualify for hedge accounting, as fair value, cash flow or net investment hedges. For additional information on our derivatives designated as hedging instruments, including our risk management objectives and hedging documentation
methodologies, refer to pages 155152 to 159153 in Note 10 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 20172018 Form 10-K.
Fair Value Hedges
We have entered into interest rate swap agreements to modify our interest income from certain AFS investment securities from a fixed rate to a floating rate. The hedged AFS investment securities included hedged trusts that had a weighted-average life of approximately 3.9 years as of March 31, 2018, compared to 4.6 years as of December 31, 2017.
We have entered into interest rate swap agreements to modify our interest expense on eight senior notes and one subordinated note from fixed rates to floating rates. The senior and subordinated notes are hedged with interest rate swap contracts with notional amounts, maturities and fixed-rate coupon terms that effectively hedge the fixed-rate notes. The table below summarizes the maturities and the fixed interest rates paid for the hedged senior and subordinated notes:
March 31, 2018
Maturity Fixed Interest Rate Paid
Senior Notes
2020 2.55%
2021 4.38
2021 1.95
2022 2.65
2023 3.70
2024 3.30
2025 3.55
2026 2.65
Subordinated Notes
2023 3.10

As of January 1, 2018, we prospectively changed the presentation of gains (losses) on hedging instruments and hedge itemsDerivatives designated as fair value hedges are utilized to mitigate the risk of changes in the fair values of recognized assets and liabilities, including long-term debt, AFS securities, and foreign currency investment securities. We use interest rate risk, and any resulting hedge ineffectiveness, from processing fees and other revenueor FX contracts in this manner to NII. The change was made prospectively and prior periods have not been adjusted.
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 mitigatingmanage our exposure to fluctuationschanges in the fair value of hedged items caused by changes in interest rates or FX rates.
Changes in the fair value of the securitiesderivative and deposits attributablechanges in fair value of the hedged item due to changes in foreign exchange rates.the hedged risk are recognized in earnings in the same line item. If a hedge is terminated, all remaining adjustments to the carrying amount of the hedged item shall be amortized over a period that is consistent with the amortization of other discounts or premiums associated with the hedged item.
Cash Flow Hedges
Derivatives designated as cash flow hedges are utilized to offset the variability of cash flows of recognized assets or liabilities or forecasted transactions. We have entered into foreign exchangeFX contracts to hedge the change in cash flows attributable to foreign exchangeFX movements in foreign currency denominated investment securities. These foreign exchange contracts convert the foreign currency risk to U.S. dollars, thereby mitigating our exposure to fluctuations in the cash flows of the securities attributable to changes in foreign exchange rates.
WeAdditionally, we have entered into an interest rate swap agreementagreements to hedge the forecasted cash flows associated with LIBOR-indexedLondon Interbank Offered Rate (LIBOR) indexed floating-rate loans. The interest rate swaps synthetically convert the loan interest receipts from a variable-rate to a fixed-rate, thereby mitigating the risk attributable to changes in the LIBOR benchmark rate.
Changes in fair value of the derivatives designated as cash flow hedges are initially recorded in AOCI and then reclassified into earnings in the same period or periods during which the hedged forecasted transaction affects earnings and are presented in the same income statement line item as the earnings effect of the hedged item. If the hedge relationship is terminated, the change in fair value on the derivative recorded in AOCI is reclassified into earnings consistent with the timing of the hedged item. For hedge relationships that are discontinued because a forecasted transaction is not expected to occur according to the original hedge terms, any related derivative values recorded in AOCI are immediately recognized in earnings. As of March 31, 2018,2019, the maximum maturity date of the underlying loans is approximately 4.23 years.

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Net Investment Hedges
We haveDerivatives categorized as net investment hedges are entered into foreign exchange contracts to protect the net investment in our foreign operations against adverse changes in exchange rates. TheseWe use FX forward contracts to convert the foreign currency risk to U.S. dollars thereby mitigatingto mitigate our exposure to fluctuations in the fair value of our net investments in our foreign operations attributable to changes in foreign exchangeFX rates. The changes in fair value of the foreign exchangeFX forward contracts are recorded, net of taxes, in the foreign currency translation component of other comprehensive income.  Effectiveness of net investment hedges is based on the overall changes in the fair value of the forward contracts.OCI.

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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The following table presents the aggregate contractual, or notional, amounts of derivative financial instruments including those entered into in connection with ourfor trading and asset-and-liability management activities as of the dates indicated:
(In millions)March 31,
2018		 December 31, 2017March 31, 2019 December 31, 2018
Derivatives not designated as hedging instruments:      
Interest-rate contracts:   
Interest rate contracts:   
Futures$1,942
 $2,392
$4,387
 $2,348
Foreign exchange contracts:      
Forward, swap and spot2,219,600
 1,679,976
2,284,676
 2,238,819
Options purchased778
 350
797
 578
Options written553
 302
505
 576
Futures2
 50
414
 49
Commodity and equity contracts:  
Commodity(1)
13
 16
Equity(1)
33
 50
Other:      
Stable value contracts25,881
 26,653
Stable value contracts(1)
26,991
 26,634
Deferred value awards(2)
619
 473
559
 434
Derivatives designated as hedging instruments:      
Interest-rate contracts:   
Interest rate contracts:   
Swap agreements11,025
 11,047
10,596
 10,596
Foreign exchange contracts:      
Forward and swap10,231
 28,913
3,050
 3,412


(1)Primarily composed The notional value of positions held by a consolidated sponsored investment fund, more fully described in Note 11.the stable value contracts generally represents our maximum exposure. However, exposure to various stable value contracts is contractually limited to substantially lower amounts than the notional values, which represent the total assets of the stable value funds.
(2) Represents grants ofFor additional information on our derivatives not designated as hedging instruments, including deferred value awards, to employees; refer to refer to pages 154 to 155page 152 in Note 10 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 20172018 Form 10-K10-K.


.
In connection with our asset and liability management activities, we have entered into interest-rate contracts designatedNotional amounts are provided here as fair value and cash flow hedges to manage our interest rate risk. The following tables present the aggregate notional amounts of these interest rate contracts and the related assets or liabilities being hedged asan indication of the dates indicated:
 March 31, 2018
(In millions)Fair Value Hedges Cash
Flow
Hedges		 Total
Investment securities available-for-sale$1,232
 $—
 $1,232
Long-term debt(1)
8,493
 —
 8,493
Floating-rate loans—
 1,300
 1,300
Total$9,725
 $1,300
 $11,025
 December 31, 2017
(In millions)Fair Value Hedges Cash
Flow
Hedges		 Total
Investment securities available-for-sale$1,254
 $—
 $1,254
Long-term debt(1)
8,493
 —
 8,493
Floating rate loans—
 1,300
 1,300
Total$9,747
 $1,300
 $11,047
(1) Asvolume of March 31, 2018, theseour derivative activity and serve as a reference to calculate the fair value hedges decreased the carrying value of LTD presented in our consolidated statement of condition by $251 million. As of December 31, 2017, these fair value hedges decreased the carrying value of long-term debt presented in our consolidated statement of condition by $87 million.

The following table presents the contractual and weighted average interest rates for long-term debt, which include the effectsvalues of the fair value hedges presented in the table above, for the periods indicated:
 Three Months Ended March 31,
 2018 2017
 
Contractual
Rates
 
Rate 
Including
Impact of Hedges
 
Contractual
Rates
 
Rate 
Including
Impact of Hedges
Long-term debt3.69% 3.37% 3.40% 2.56%

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derivative.
The following tables present the fair value of derivative financial instruments, excluding the impact of master netting agreements, recorded in our consolidated statement of condition as of the dates indicated. The impact of master netting agreements is provided in Note 8 to the consolidated financial statements in this Form 10-Q.8.
Derivative Assets(1)
Fair ValueMarch 31, 2019 December 31, 2018 March 31, 2019 December 31, 2018
(In millions)March 31,
2018		 December 31, 2017
Derivative Assets(1)
 
Derivative Liabilities(2)
Derivatives not designated as hedging instruments:Derivatives not designated as hedging instruments:Derivatives not designated as hedging instruments:    
Foreign exchange contracts$11,013
 $11,477
$11,123
 $16,369
 $11,240
 $16,434
Other derivative contracts1
 1
—
 —
 228
 214
Total$11,014
 $11,478
$11,123
 $16,369
 $11,468
 $16,648
          
Derivatives designated as hedging instruments:Derivatives designated as hedging instruments:Derivatives designated as hedging instruments:    
Foreign exchange contracts$36
 $120
$21
 $17
 $60
 $88
Interest-rate contracts4
 8
Interest rate contracts—
 13
 69
 71
Total$40
 $128
$21
 $30
 $129
 $159
  
(1)Derivative assets are included within other assets in our consolidated statement of condition.
 
Derivative Liabilities(1)
 Fair Value
(In millions)March 31,
2018		 December 31, 2017
Derivatives not designated as hedging instruments:
Foreign exchange contracts$11,014
 $11,361
Other derivative contracts288
 284
Total$11,302
 $11,645
    
Derivatives designated as hedging instruments:
Foreign exchange contracts$159
 $107
Interest-rate contracts96
 100
Total$255
 $207
(1)(2) Derivative liabilities are included within other liabilities in our consolidated statement of condition.




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The following tables present the impact of our use of derivative financial instruments on our consolidated statement of income for the periods indicated:
   Three Months Ended March 31,
   2019
2018
(In millions)
Location of Gain (Loss) on
Derivative in Consolidated
Statement of Income
 Amount of Gain (Loss) on Derivative Recognized in Consolidated Statement of Income
Derivatives not designated as hedging instruments:    
Foreign exchange contractsForeign exchange trading services revenue $160
 $184
Foreign exchange contracts
Interest expense(1)
 (39) (15)
Interest rate contractsForeign exchange trading services revenue (1) (2)
Other derivative contractsForeign exchange trading services revenue —
 1
Other derivative contractsCompensation and employee benefits (74) (65)
Total  $46
 $103
(1) In the first quarter of 2018, approximately $15 million of swap costs were reclassified from processing fees and other revenue within fee revenue to net interest income to conform to current presentation.
The following table shows the carrying amount and associated cumulative basis adjustments related to the application of hedge accounting that is included in the carrying amount of hedged assets and liabilities in fair value hedging relationships:
 March 31, 2019
 Hedged Items Currently Designated 
Hedged Items No Longer Designated(1)
(In millions)
Carrying Amount of Assets and Liabilities(2)
 Cumulative Hedge Accounting Basis Adjustments Carrying Amount of Assets and Liabilities Cumulative Hedge Accounting Basis Adjustments
Long-term debt$8,271
 $(23) $1,198
 $(17)
Available-for-sale securities1,553
 76
 50
 1
Total$9,824
 $53
 $1,248
 $(16)
        
 December 31, 2018
 Hedged Items Currently Designated 
Hedged Items No Longer Designated(1)
(In millions)
Carrying Amount of Assets and Liabilities(2)
 Cumulative Hedge Accounting Basis Adjustments Carrying Amount of Assets and Liabilities Cumulative Hedge Accounting Basis Adjustments
Long-term debt$8,270
 $(137) $1,197
 $(20)
Available-for-sale securities1,496
 72
 50
 1
Total$9,766
 $(65) $1,247
 $(19)
(1) Represents hedged items no longer designated in qualifying fair value hedging relationships for which an associated basis adjustment exists at the balance sheet date.
(2) Does not include the carrying amount of hedged items when only foreign currency risk is the designated hedged risk. The carrying amount excluded for investment securities was zero and $458 million for March 31, 2019 and December 31, 2018, respectively.

As of both March 31, 2019 and December 31, 2018, the total notional amount of the interest rate swaps of fair value hedges was $9.30 billion.

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The following tables present the impact of our use of derivative financial instruments on our consolidated statement of income for the periods indicated:
 
Location of Gain (Loss) on
Derivative in Consolidated
Statement of Income
 
Amount of Gain (Loss) on Derivative Recognized
in Consolidated Statement of Income
   Three Months Ended March 31,
(In millions)  2018 2017
Derivatives not designated as hedging instruments:    
Foreign exchange contractsTrading services revenue $184
 $163
Foreign exchange contractsProcessing fees and other revenue (15) —
Interest-rate contractsTrading services revenue (2) 1
Other derivative contractsTrading services revenue 1
 —
Other derivative contractsCompensation and employee benefits (65) (66)
Total  $103
 $98
  Amount of Gain (Loss) on Derivative Recognized in Other Comprehensive Income   Amount of Gain (Loss) Reclassified from OCI to Consolidated Statement of Income   Amount of Gain (Loss) on Derivatives Recognized in Consolidated Statement of Income
  Three Months Ended March 31,   Three Months Ended March 31,   Three Months Ended March 31,
(In millions) 2018 2017   2018 2017   2018 2017
Derivatives designated as cash flow hedges:           
Interest-rate contracts $(21) $—
 Net interest income $—
 $—
 Net interest income $1
 $—
Foreign exchange contracts (95) (106) Net interest income —
 —
 Net interest income 7
 6
                 
Derivatives designated as net investment hedges:          
Foreign exchange contracts (36) (14) Gains (Losses) related to investment securities, net —
 —
 Gains (Losses) related to investment securities, net —
 —
Total $(152) $(120) Total $—
 $—
 Total $8
 $6


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Differences between the gains (losses) on foreign exchange contracts and the gains (losses) on the hedged item, excluding any accrued interest, represent hedge ineffectiveness. Similarly, differences between the gains (losses) on interest rate contracts and the gains (losses) on the hedged item represent hedge ineffectiveness.
Location of Gain (Loss) on Derivative in Consolidated Statement of Income 
Amount of Gain
(Loss) on Derivative
Recognized in
Consolidated
Statement of Income
 Hedged Item in Fair Value Hedging Relationship Location of Gain (Loss) on Hedged Item in Consolidated Statement of Income 
Amount of Gain
(Loss) on Hedged
Item Recognized in
Consolidated
Statement of Income
 Three Months Ended March 31, Three Months Ended March 31,
 Three Months Ended March 31, Three Months Ended March 31, 2019 2018 2019 2018
(In millions) 2018 2017 2018 2017Location 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
Derivatives designated as fair value hedges:Derivatives designated as fair value hedges:      Derivatives designated as fair value hedges:
Foreign exchange contractsProcessing fees and
other revenue		 $(13) $(2) Investment securities Processing fees and
other revenue		 $13
 $2
Processing fees and other revenue $—
 $(13) Investment securities 
Processing fees and other revenue


 $—
 $13
Foreign exchange contractsProcessing fees and other revenue 248
 979
 FX deposit Processing fees and other revenue (248) (980)
Processing fees and other revenue

 —
 248
 Foreign exchange deposit 
Processing fees and other revenue


 —
—
(248)
Interest-rate contracts(1)
Net interest income 21
 —
 Available-for-sale securities Net interest income (21) —
Interest-rate contracts(1)
Net interest income (167) —
 Long-term debt Net interest income 156
 —
Interest-rate contracts(1)
Processing fees and
other revenue		 —
 12
 Available-for-sale securities 
Processing fees and
other revenue(2)
 —
 (11)
Interest-rate contracts(1)
Processing fees and other revenue —
 (20) Long-term debt Processing fees and other revenue —
 19
Interest rate contractsNet interest income 106
 21
 
Available-for-sale securities(1)
 Net interest income (102)—
(21)
Interest rate contractsNet interest income (3) (167) Long-term debt Net interest income 4
—
156
Total $89
 $969
 $(100) $(970) $103

$89
 $(98)

$(100)
    
(1) As of January 1, 2018, we prospectively changed the presentation of gains (losses) on hedging instruments and hedge items designated as fair value hedges of interest rate risk, and any resulting hedge ineffectiveness, from processing fees and other revenue to NII.
(2)In the three months ended March 31, 2018 and 2017, $4first quarter of 2019, $2 million and $6 million, respectively, of net unrealized (losses) gainslosses on AFS investment securities designated in fair value hedges werewas recognized in OCI.OCI compared to $18 million of net unrealized gains in the same period in 2018.

 Three Months Ended March 31,   Three Months Ended March 31,
 2019 2018   2019 2018
(In millions)Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivative Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income
Derivatives designated as cash flow hedges:         
Interest rate contracts$10
 $(20) Net interest income $(2) $1
Foreign exchange contracts27
 (88) Net interest income 7
 7
Total derivatives designated as cash flow hedges$37
 $(108)   $5
 $8
          
Derivatives designated as net investment hedges:         
Foreign exchange contracts$20
 $(36) Gains (losses) related to investment securities, net $—
 $—
Total derivatives designated as net investment hedges$20
 $(36)   $—
 $—
          
Total$57
 $(144)   $5
 $8


Derivatives Netting and Credit Contingencies

Netting

Derivatives receivable and payable as well as cash collateral from the same counterparty are netted in the consolidated statement of condition for those counterparties with whom we have legally binding master netting agreements in place. In addition to cash collateral received and transferred presented on a net basis, we also receive and transfer collateral in the form of securities, which mitigate credit risk but are not eligible for netting. Additional information on netting is provided in Note 8.

Credit Contingencies
Certain of our derivatives are subject to master netting agreements with our derivative counterparties containing credit risk-related contingent features, which
requires us to maintain an investment grade credit rating with the various credit rating agencies. If our rating falls below investment grade, we would be in violation of the provisions, and counterparties to the derivatives could request immediate payment or demand full overnight collateralization on derivatives instruments in net liability positions. The aggregate fair value of all derivatives with credit contingent features and in a liability position as of March 31, 2019 totaled approximately $1.7 billion, against which we provided $1.0 billion of collateral in the normal course of business. If our credit related contingent features underlying these agreements were triggered as of March 31, 2019, the maximum additional collateral we would be required to post to our counterparties is approximately $0.7 billion.


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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


Note 8. Offsetting Arrangements
 We manage credit and counterparty risk by entering into enforceable netting agreements and other collateral arrangements with counterparties to derivative contracts and secured financing transactions, including resale and repurchase agreements, and principal securities borrowing and lending agreements. These netting agreements mitigate our counterparty credit risk by providing for a single net settlement with a counterparty of all financial transactions covered by the agreement in an event of default as defined under such agreement. In limited cases, a netting agreement may also provide for the periodic netting of settlement payments with respect to
multiple different transaction types in the normal course of business. For additional information on our offsetting arrangements, refer to pages 160 to 163page 157 in Note 11 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 20172018 Form 10-K.
As of March 31, 20182019 and December 31, 2017,2018, the value of securities received as collateral from third parties where we are permitted to transfer or re-pledge
the securities totaled $4.82$11.74 billion and $2.47$11.69 billion, respectively, and the fair value of the portion that had been transferred or re-pledged as of the same dates was $0$7.99 billion and $5.31 million, and $15 million, respectively.
The following tables present information about the offsetting of assets related to derivative contracts and secured financing transactions, as of the dates indicated:
Assets: March 31, 2018 March 31, 2019
       Gross Amounts Not Offset in Statement of Condition 
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 Not Offset in Statement of Condition
(In millions) 
Gross Amounts of Recognized Assets(1)(2)
 
Gross Amounts Offset in Statement of Condition(3)
 Net Amounts of Assets Presented in Statement of Condition 
Cash and Securities Received(4)
 
Net Amount(5)
 
Cash and Securities Received(4)
 
Net Amount(5)
Derivatives:Derivatives:      Derivatives:      
Foreign exchange contracts $11,049
 $(6,325) $4,725
   $4,725
 $11,144
 $(6,327) $4,817
 $—
 $4,817
Interest-rate contracts(6)
 4
 —
 4
   4
Other derivative contracts 1
 —
 —
   —
Cash collateral and securities netting NA
 (777) (777) $(259) (1,036) NA
 (639) (639) (468) (1,107)
Total derivatives 11,054
 (7,102) 3,952
 (259) 3,693
 11,144
 (6,966) 4,178
 (468) 3,710
Other financial instruments:Other financial instruments:      Other financial instruments:      
Resale agreements and securities borrowing(7)
 62,561
 (36,468) 26,093
 (26,093) —
Resale agreements and securities borrowing(6)
 103,293
 (77,842) 25,451
 (24,487) 964
Total derivatives and other financial instruments $73,615
 $(43,570) $30,045
 $(26,352) $3,693
 $114,437
 $(84,808) $29,629
 $(24,955) $4,674


Assets: December 31, 2017 December 31, 2018
       Gross Amounts Not Offset in Statement of Condition 
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 Not Offset in Statement of Condition
(In millions) 
Gross Amounts of Recognized Assets(1)(2)
 
Gross Amounts Offset in Statement of Condition(3)
 Net Amounts of Assets Presented in Statement of Condition 
Cash and Securities Received(4)
 
Net Amount(5)
 
Cash and Securities Received(4)
 
Net Amount(5)
Derivatives:                    
Foreign exchange contracts $11,597
 $(5,548) $6,049
   $6,049
 $16,386
 $(10,223) $6,163
 $—
 $6,163
Interest-rate contracts(6)
 8
 —
 8
   8
Other derivative contracts 1
 —
 1
   1
Interest rate contracts(7)
 13
 —
 13
 —
 13
Cash collateral and securities netting NA
 (2,045) (2,045) $(124) (2,169) NA
 (987) (987) (220) (1,207)
Total derivatives 11,606
 (7,593) 4,013
 (124) 3,889
 16,399
 (11,210) 5,189
 (220) 4,969
Other financial instruments:                    
Resale agreements and securities borrowing(7)
 70,079
 (47,434) 22,645
 (22,645) —
Resale agreements and securities borrowing(6)
 116,143
 (91,889) 24,254
 (22,872) 1,382
Total derivatives and other financial instruments $81,685
 $(55,027) $26,658
 $(22,769) $3,889
 $132,542
 $(103,099) $29,443
 $(23,092) $6,351
     
(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 valueRefer to Note 1 and securities financing amounts are carried at amortized cost, exceptNote 2 for securities collateral which is also carried at fair value. For additional information about the measurement basis of these instruments, refer to pages 127 to 138 in Notes 1 and 2 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 2017 Form 10-K.derivative 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) Includes securities in connection with our securities borrowing transactions.
(5) Includes amounts secured by collateral not determined to be subject to enforceable netting arrangements.
(6) Variation margin payments presented as settlements rather than collateral.
(7) Included in the $26,093 million$25.45 billion as of March 31, 20182019 were $5,136 million$1.52 billion of resale agreements and $20,957 million$23.93 billion of collateral provided related to securities borrowing. Included in the $22,645 million$24.25 billion as of December 31, 20172018 were $3,241 million$4.68 billion of resale agreements and $19,404 million$19.58 billion 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 9 for additional information with respect to principal securities finance transactions.
(7) Variation margin payments presented as settlements rather than collateral.
NA Not applicable


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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


The following tables present information about the offsetting of liabilities related to derivative contracts and secured financing transactions, as of the dates indicated:
Liabilities: March 31, 2019
  
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 Not Offset in Statement of Condition
(In millions)    
Cash and Securities Received(4)
 
Net Amount(5)
Derivatives:      
Foreign exchange contracts $11,300
 $(6,327) $4,973
 $—
 $4,973
Interest rate contracts(6)
 69
 —
 69
 —
 69
Other derivative contracts 228
 —
 228
 —
 228
Cash collateral and securities netting NA
 (1,192) (1,192) (633) (1,825)
Total derivatives 11,597
 (7,519) 4,078
 (633) 3,445
Other financial instruments:      
Repurchase agreements and securities lending(7)
 93,272
 (77,842) 15,430
 (14,103) 1,327
Total derivatives and other financial instruments $104,869
 $(85,361) $19,508
 $(14,736) $4,772
Liabilities: March 31, 2018
        Gross Amounts Not Offset in Statement of Condition
(In millions) 
Gross Amounts of Recognized Liabilities(1)(2)
 
Gross Amounts Offset in Statement of Condition(3)
 Net Amounts of Liabilities Presented in Statement of Condition 
Cash and Securities Provided(4)
 
Net Amount(5)
Derivatives:      
Foreign exchange contracts $11,173
 $(6,325) $4,848
   $4,848
Interest-rate contracts(6)
 96
 —
 96
   96
Other derivative contracts 288
 —
 288
   288
Cash collateral and securities netting NA
 (1,315) (1,315) $(105) (1,420)
Total derivatives 11,557
 (7,640) 3,917
 (105) 3,812
Other financial instruments:      
Repurchase agreements and securities lending(7)
 50,051
 (36,468) 13,583
 (13,052) 531
Total derivatives and other financial instruments $61,608
 $(44,108) $17,500
 $(13,157) $4,343

Liabilities: December 31, 2017 December 31, 2018
       Gross Amounts Not Offset in Statement of Condition 
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 Not Offset in Statement of Condition
(In millions) 
Gross Amounts of Recognized Liabilities(1)(2)
 
Gross Amounts Offset in Statement of Condition(3)
 Net Amounts of Liabilities Presented in Statement of Condition 
Cash and Securities Provided(4)
 
Net Amount(5)
 
Cash and Securities Received(4)
 
Net Amount(5)
Derivatives:                    
Foreign exchange contracts $11,467
 $(5,548) $5,919
   $5,919
 $16,522
 $(10,223) $6,299
 $—
 $6,299
Interest-rate contracts(6)
 100
 —
 100
   100
Interest rate contracts(6)
 71
 —
 71
 —
 71
Other derivative contracts 285
 —
 285
   285
 214
 —
 214
 —
 214
Cash collateral and securities netting NA
 (422) (422) $(450) (872) NA
 (1,341) (1,341) (215) (1,556)
Total derivatives 11,852
 (5,970) 5,882
 (450) 5,432
 16,807
 (11,564) 5,243
 (215) 5,028
Other financial instruments:                    
Repurchase agreements and securities lending(7)
 54,127
 (47,434) 6,693
 (4,299) 2,394
 104,494
 (91,889) 12,605
 (11,543) 1,062
Total derivatives and other financial instruments $65,979
 $(53,404) $12,575
 $(4,749) $7,826
 $121,301
 $(103,453) $17,848
 $(11,758) $6,090
     
(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 valueRefer to Note 1 and securities financing amounts are carried at amortized cost, exceptNote 2 for securities collateral which is also carried at fair value. For additional information about the measurement basis of these instruments, refer to pages 127 to 138 in Notes 1 and 2 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 2017 Form 10-K.derivative 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) Includes securities provided in connection with our securities lending transactions.
(5) Includes amounts secured by collateral not determined to be subject to enforceable netting arrangements.
(6) Variation margin payments presented as settlements rather than collateral.
(7) Included in the $13,583 million$15.43 billion as of March 31, 20182019 were $2,020 million$1.42 billion of repurchase agreements and $11,563 million$14.01 billion of collateral received related to securities lending transactions. Included in the $6,693 million$12.60 billion as of December 31, 20172018 were $2,842 million$1.08 billion of repurchase agreements and $3,851 million$11.52 billion of collateral received related to securities lending transactions. 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 9 for additional information with respect to principal securities finance transactions.
NANot applicable





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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The securities transferred under resale and repurchase agreements typically are U.S. Treasury, agency and agency MBS. In our principal securities borrowing and lending arrangements, the securities transferred are predominantly equity securities and some corporate debt securities. The fair value of the securities transferred may increase in value to an amount greater than the amount received under our
repurchase and securities lending arrangements, which exposes the Company withus to 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.

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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The following table summarizes our enhanced custody repurchase agreements and securities lending transactions by category of collateral pledged and remaining maturity of these agreements as of the periods indicated:
  
Remaining Contractual Maturity of the Agreements (1)
(In millions) As of March 31, 2018 As of December 31, 2017
Repurchase agreements:    
U.S. Treasury and agency securities $33,442
 $43,072
Total 33,442
 43,072
Securities lending transactions:    
US Treasury and agency securities 640
 —
Corporate debt securities 103
 35
Equity securities 10,116
 11,020
Others 5,750
 —
Total 16,609
 11,055
Gross amount of recognized liabilities for repurchase agreements and securities lending $50,051
 $54,127
  As of March 31, 2019 As of December 31, 2018
(In millions) Overnight and Continuous Up to 30 Days Total Overnight and Continuous Up to 30 Days Total
Repurchase agreements:            
U.S. Treasury and agency securities $74,346
 $—
 $74,346
 $88,904
 $—
 $88,904
Total 74,346
 —
 74,346
 88,904
 —
 88,904
Securities lending transactions:            
US Treasury and agency securities 136
 —
 136
 249
 —
 249
Corporate debt securities 433
 —
 433
 278
 —
 278
Equity securities 9,733
 124
 9,857
 6,426
 137
 6,563
Other(1)
 8,500
 —
 8,500
 8,500
 —
 8,500
Total 18,802
 124
 18,926
 15,453
 137
 15,590
Gross amount of recognized liabilities for repurchase agreements and securities lending $93,148
 $124
 $93,272
 $104,357
 $137
 $104,494
     
(1)All balances as of March 31, 2018 Represents a security interest in underlying client assets related to our enhanced custody business, which assets clients have allowed us to transfer and December 31, 2017 reflect overnight and continuous maturities.



re-pledge.
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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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Note 9.    Commitments and Guarantees
For additional information abouton our commitments and guarantees, refer to pages 164 to 165page 160 in Note 12 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 20172018 Form 10-K.
The following table presents the aggregate gross contractual amounts of our off-balance sheet commitments and off-balance sheet guarantees as of the dates indicated.indicated:
(In millions)March 31, 2018 December 31, 2017March 31, 2019 December 31, 2018
Commitments:      
Unfunded credit facilities(1)$26,830
 $26,488
$29,951
 $28,951
   
Guarantees(1):
   
Guarantees(2):
   
Indemnified securities financing$399,064
 $381,817
$387,314
 $342,337
Stable value protection25,881
 26,653
Standby letters of credit2,957
 3,158
2,973
 2,985
  
(1) As of March 31, 2019, approximately 75% of our unfunded commitments to extend credit expire within one year.
(2)The potential losses associated with these guarantees equal the gross contractual amounts and do not consider the value of any collateral or reflect any participations to independent third parties.
Unfunded Credit Facilities
Unfunded credit facilities consist of liquidity facilities for our fund and municipal lending clients and undrawn lines of credit related to senior secured bank loans.
As of March 31, 2018, approximately 73% of our unfunded commitments to extend credit expire within one year. Since many of these commitments are expected to expire or renew without being drawn upon, the gross contractual amounts do not necessarily represent our future cash requirements.
Indemnified Securities Financing
On behalf ofFor additional information on our clients, we lend their securities, as agent,Indemnified Securities Financing, refer to brokerspage 160 in Note 12 to the consolidated financial statements included under Item 8, Financial Statements and other institutions. In most circumstances, we indemnifySupplementary Data, in our clients for the fair market value of those securities against a failure of the borrower to return such securities.

2018 Form 10-K.
 
The following table summarizes the aggregate fair values of indemnified securities financing and related collateral, as well as collateral invested in indemnified repurchase agreements, as of the dates indicated:
(In millions)March 31, 2019 December 31, 2018
Fair value of indemnified securities financing$387,314
 $342,337
Fair value of cash and securities held by us, as agent, as collateral for indemnified securities financing405,299
 357,893
Fair value of collateral for indemnified securities financing invested in indemnified repurchase agreements47,560
 42,610
Fair value of cash and securities held by us or our agents as collateral for investments in indemnified repurchase agreements50,351
 45,064
(In millions)March 31, 2018 December 31, 2017
Fair value of indemnified securities financing$399,064
 $381,817
Fair value of cash and securities held by us, as agent, as collateral for indemnified securities financing416,860
 400,828
Fair value of collateral for indemnified securities financing invested in indemnified repurchase agreements59,784
 61,270
Fair value of cash and securities held by us or our agents as collateral for investments in indemnified repurchase agreements63,848
 65,272

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 our client or a broker/dealer. Our right to receive and obligation to return collateral in connection with our securities lending transactions are recorded in other assets and other liabilities, respectively, in our consolidated statement of condition. As of March 31, 20182019 and December 31, 2017,2018, we had approximately$20.96approximately $23.93 billion and $19.40$19.58 billion, respectively, of collateral provided and approximately $11.56$14.01 billion and $3.85$11.52 billion, respectively, of collateral received from clients in connection with our participation in principal securities finance transactions.
Stable Value Protection
In the normal course of our business, we offer products that provide book-value protection, primarily to plan participants in stable value funds managed by non-affiliated investment managers of post-retirement defined contribution benefit plans, particularly 401(k) plans. The book-value protection is provided on portfolios of intermediate investment grade fixed-income securities, and is intended to provide safety and stable growth of principal invested. The protection is intended to cover any shortfall in the event that a significant number of plan participants withdraw funds when book value exceeds market value and the liquidation of the assets is not sufficient to redeem the participants. The investment parameters of the underlying portfolios, combined with structural protections, are designed to provide cushion and guard against payments even under extreme stress scenarios.


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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


These contingencies are individually accounted for as derivative financial instruments. The notional amounts of the stable value contracts are presented as “derivatives not designated as hedging instruments” in the table of aggregate notional amounts of derivative financial instruments provided in Note 7 to the consolidated financial statements in this Form 10-Q. We have not made a payment under these contingencies that we consider material to our consolidated financial condition, and management believes that the probability of payment under these contingencies in the future, that we would consider material to our consolidated financial condition, is remote.
Standby Letters of Credit
Standby letters of credit provide credit enhancement to our municipal clients to support the issuance of capital markets financing.
Note 10.    Contingencies
Legal and Regulatory Matters
In the ordinary course of business, we and our subsidiaries are involved in disputes, litigation, and governmental or regulatory inquiries and investigations, both pending and threatened. These matters, if resolved adversely against us or settled, may result in monetary awards or payments, 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 or development 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 and regulatory proceedings on a case-by-case basis. When we have a liability that we deem probable, and we deem the amount of such liability can be reasonably estimated as of the date of our consolidated financial statements, we accrue our estimate of the amount of 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 legal and regulatory proceedings and the amount of reasonably estimable loss (or range thereof) are inherently difficult to predict, especially in the early stages of proceedings. Even if a loss is probable, an
amount (or range) of loss might not be reasonably estimated until the later stages of the proceeding due to many factors such as the presence of complex or novel legal theories, the discretion of governmental authorities in seeking sanctions or negotiating resolutions in civil and criminal matters, the pace and timing of discovery and other assessments of facts and the procedural posture of the matter (collectively, "factors influencing reasonable estimates").
As of March 31, 2018,2019, our aggregate accruals for loss contingencies for legal and regulatory matters totaled approximately $15$53 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. Any such ultimate financial exposure, or proceedings to which we may become subject in the future, could have a material adverse effect on our
businesses, on our future consolidated financial statements or on our reputation. Except where otherwise noted below,
As of March 31, 2019, for those matters for which we have not established significant accruals with respect toaccrued probable loss contingencies (including the claims discussed.
We have identified certainInvoicing Matter described below) and for other matters for which loss is reasonably possible (but not probable) in future periods, whether in excess of an accrued liability or where there is no accrued liability, and for which we are able to estimate a range of reasonably possible loss. As of March 31, 2018,loss, our estimate of the range ofaggregate reasonably possible loss for these matters is from zero(in excess of any accrued amounts) ranges up to approximately $30 million in the aggregate.$300 million. Our estimate with respect to the aggregate range of reasonably possible loss is based upon currently available information and is subject to significant judgment and a variety of assumptions and known and unknown uncertainties. Theuncertainties, which may change quickly and significantly from time to time, particularly if and as we engage with applicable governmental agencies or plaintiffs in connection with a proceeding. Also, the matters underlying the estimated rangereasonably possible loss will change from time to time, andtime. As a result, actual results may vary significantly from the current estimate.
In certain other pending matters, including the invoicing matter, Federal Reserve/Massachusetts Division of Banks written agreement and shareholder litigation matters discussed below, it is not currently feasible to reasonably estimate the amount or a range of reasonably possible loss, (including reasonably possible loss in excess of amounts accrued), and such losses, which may be significant, are not included in the estimate of reasonably possible loss discussed above. This is due to, among other factors, the factors influencing reasonable estimates described above. These factors are particularly prevalent in governmental and regulatory inquiries and investigations. As a result, reasonably possible loss estimates often are not feasible until the later stages of the inquiry or

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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investigation or of any related legal or regulatory proceeding. An adverse outcome in one or more of the matters for which we have not estimated the amount or a range of reasonably possible loss, individually or in the aggregate, could have a material adverse effect on our businesses, on our future consolidated financial statements or on our reputation. Given that our actual losses from any legal or regulatory proceeding for which we have provided an estimate of the reasonably possible loss could significantly exceed such estimate, and given that we cannot estimate reasonably possible loss for all legal and regulatory proceedings as to which we may be subject now or in the future, including matters that if adversely concluded may present material financial, regulatory and reputational risks, no conclusion as to theour ultimate exposure from current pending or potential legal or regulatory proceedings should be drawn from the current estimate of reasonably possible loss.
The following discussion provides information with respect to significant legal, governmental and regulatory matters.
Invoicing Matter
In December 2015, we announced a review of the manner in which we invoiced certain expenses to some of our Investment Servicing clients, primarily in the United States, during an 18-year period going back to 1998, and our determinationdetermined that we had incorrectly invoiced clients for certain expenses. We continue to implementhave reimbursed most of our affected customers for those expenses, and we have implemented enhancements to our billing processes, and we are reviewing the conduct of our employees and have taken appropriate steps to address conduct inconsistent with our standards, including, in some cases, termination of employment.processes. In connection with our enhancements to our billing processes, we continue to review historical billing practices and may from time to time identify additional remediation. In 2017, we identified an additional area of incorrect expense billing

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

associated with mailing services in our retirement services business. The accrual for loss contingencies as of March 31, 2019 included an estimate of the amount we anticipate reimbursing clients due to that error. We currently expect the cumulative total of our payments to customers for these mattersinvoicing errors, including the error in the retirement services business, to be at least $360 million.$380 million, all of which has been paid or is accrued. However, we may identify additional remediation costs.
In March 2017, a purported class action was commenced against us alleging that our invoicing practices violated duties owed to retirement plan customers under ERISA.the Employee Retirement Income Security Act. In addition, we have received a purported class action demand letter alleging that our invoicing practices were unfair and deceptive under Massachusetts law. A class of customers, or particular customers, may assert that we have not paid to them all amounts incorrectly invoiced, and may seek double or treble damages under Massachusetts law.
We are also responding to requests for information from, and are cooperating with investigations by governmental and regulatory authorities on these matters, including the civil and criminal divisions of the DOJ, the SEC, the DOLDepartment of Labor and the Massachusetts Attorney General, which could result in significant fines or other sanctions, civil and criminal, against us. If these governmental or regulatory authorities were to conclude that all or a portion of the billing errors merited civil or criminal sanctions, any fine or other penalty could be a
significant percentage, or a multiple of, the portion of the overcharging serving as the basis of such a claim or of the full amount overcharged. The governmental and regulatory authorities have significant discretion in civil and criminal matters as to the fines and other penalties they may seek to impose. The severity of such fines or other penalties could take into account factors such as the amount and duration of our incorrect invoicing, the government’s or regulator's assessment of the conduct of our employees, as well as prior conduct such as that which resulted in our January 2017 deferred prosecution agreement in connection with transition management services and our recent settlement of civil claims regarding our indirect foreign exchangeFX business. The staff of the SEC has informed us that it intends to ask the SEC for permission to bring an action against us asserting that we overcharged clients that are registered investment companies for custody expenses in violation of §§ 31(a), 34(b) and 37 of the Investment Company Act of 1940, and Rules 31a-1(a) and 31a-1(b) thereunder. The Massachusetts Attorney General's office has also asserted a claim under state law. We have reached an agreement in principle with respect to the approximate financial terms of a settlement with each of the SEC and the Massachusetts Attorney General to resolve such claims and, at March 31, 2019, our aggregate accruals for loss contingencies for legal matters include the
amount of penalties reflected in such proposed settlements. There can be no assurance that any settlement, whether with the SEC or other governmental authorities, will be reached or, if so, the amount of the settlement or its impact on other claims relating to these matters. It is likely that discussions will commence in 2019 with the DOJ regarding a potential resolution of their investigation regarding this matter, which will then enable us to better assess the potential penalties and/or other sanctions they will be seeking. The aggregate amount of penalties that may potentially be imposed upon us in connection with the resolution of all outstanding investigations into our historical billing practices could be significant multiples of the potential penalties as to which we have reached an agreement in principle with the staff of the SEC.
The outcome of any of these proceedings and, in particular, any criminal sanction could materially adversely affect our results of operations and could have significant collateral consequences for our business and reputation.
Federal Reserve/Massachusetts Division of Banks Written Agreement
On June 1, 2015, we entered into a written agreement with the Federal Reserve and the Massachusetts Division of Banks relating to deficiencies identified in our compliance programs with the requirements of the Bank Secrecy Act, AMLAnti-Money Laundering regulations and U.S. economic sanctions regulations promulgated by OFAC.the Office of Foreign Assets Control. As part of this enforcement action, we have been 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 to evaluate whether any suspicious activity was not previously reported.programs. 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.
Shareholder Litigation
A State Street shareholder of ours has filed a purported class action complaint against the Companyus alleging that the Company’sour financial statements in itsour annual reports for the 2011-2014 period were misleading due to the inclusion of revenues associated with the invoicing matter referenced above and the facts surrounding our 2017 settlements with the U.S. government relating to our transition management business. In addition,The Court approved a State Street shareholder has filed a derivative complaint against the Company's past and present officers and directors to recover alleged losses incurred by the Company relating to the invoicingclass settlement in this matter and to our Ohio public retirement plans matter.for $4.9 million in April 2019.

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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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

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or the allocation of taxable income among tax jurisdictions. We recognize a tax benefit when it is more likely than not that our position will result in a tax deduction or credit. Unrecognized tax benefits of approximately $83$103 million as of March 31, 20182019 decreased from $94$108 million as of December 31, 2017.2018.
We are presently under audit by a number of tax authorities, and the Internal Revenue Service is currently reviewing our U.S. income tax returns for the tax years 2014 and 2015. The earliest tax year open to examination in jurisdictions where we have material operations is 2011.2012. Management believes that we have sufficiently accrued liabilities as of March 31, 20182019 for potential tax exposures.
Note 11.    Variable Interest Entities
For additional information on our VIEs, refer to pages 167163 to 168164 in Note 14 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, "Variable Interest Entities", in our 20172018 Form 10-K.
Tax Exempt Investment Program
In the normal course of our business, we structure and sell certificated interests in pools of tax exempt investment grade assets, principally to our mutual fund clients. We structure these pools as partnership trusts, and the assets and liabilities of the trusts are recorded in our consolidated statement of condition as AFS investment securities and other short term borrowings. As of March 31, 20182019 and December 31, 2017,2018, we carried AFS investment securities, composed of securities related to state and political subdivisions, with a fair value of $1.21$1.06 billion and $1.25$1.05 billion, respectively, and other short term borrowings of $1.06$0.93 billion and $1.08 billion, respectively,in both periods, in our consolidated statement of condition in connection with these trusts. The interest income and interest expense generated by the investments and certificated interests, respectively, are recorded as components of NII when earned or incurred.
The trusts had a weighted average life of approximately 3.93.4 years and 3.6 years as of March 31, 2018, compared to approximately 4.6 years as of2019 and December 31, 2017.2018, respectively.
 
Interests in Investment Funds
As of March 31, 2018, the aggregate assets and liabilities of our consolidated sponsored investment funds totaled $147 million and $46 million, respectively. As of December 31, 2017, the aggregate assets and liabilities of our consolidated sponsored investment funds totaled $149 million and $50 million, respectively.
As of March 31, 2018, our potential maximum total exposure associated with the consolidated sponsored investment funds totaled $100 million and represented the value of our economic ownership interest in the funds.
As of March 31, 20182019 and December 31, 2017,2018, we did not have any consolidated investment funds. We managed certain funds, considered VIEs, in which we held a variable interest but for which we were not deemed to be the primary beneficiary. Our potential maximum loss exposure related to these unconsolidated funds totaled $75 million and $72$37 million as of March 31, 20182019 and $70 million as of December 31, 2017, respectively,2018, and represented the carrying value of our investments, which are recorded in either AFS investment securities or other assets in our consolidated statement of condition. The amount of loss we may recognize during any period is limited to the carrying amount of our investments in the unconsolidated funds.


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STATE STREET CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


Note 12.    Shareholders' Equity
Preferred Stock
The following table summarizes selected terms of each of the series of the preferred stock issued and outstanding as of March 31, 2018:2019:
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)
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):
Preferred Stock(2):
         
Preferred Stock(2):
         
Series CAugust 2012 20,000,000
 1/4,000th $100,000
 $25
 $488
 September 15, 2017August 2012 20,000,000
 1/4,000th $100,000
 $25
 $488
 September 15, 2017
Series DFebruary 2014 30,000,000
 1/4,000th 100,000
 25
 742
 March 15, 2024February 2014 30,000,000
 1/4,000th 100,000
 25
 742
 March 15, 2024
Series ENovember 2014 30,000,000
 1/4,000th 100,000
 25
 728
 December 15, 2019November 2014 30,000,000
 1/4,000th 100,000
 25
 728
 December 15, 2019
Series FMay 2015 750,000
 1/100th 100,000
 1,000
 742
 September 15, 2020May 2015 750,000
 1/100th 100,000
 1,000
 742
 September 15, 2020
Series GApril 2016 20,000,000
 1/4,000th 100,000
 25
 493
 March 15, 2026April 2016 20,000,000
 1/4,000th 100,000
 25
 493
 March 15, 2026
Series HSeptember 2018 500,000
 1/100th 100,000
 1,000
 494
 December 15, 2023
    
(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 indicated:
 Three Months Ended March 31,
 2018 2017
 Dividends Declared per Share Dividends Declared per Depositary Share 
Total
(In millions)(1)
 Dividends Declared per Share Dividends Declared per Depositary Share 
Total
(In millions)
Preferred Stock:           
Series C$1,313
 $0.33
 $6
 $1,313
 $0.33
 $6
Series D1,475
 0.37
 11
 1,475
 0.37
 11
Series E1,500
 0.38
 11
 1,500
 0.38
 11
Series F2,625
 26.25
 20
 2,625
 26.25
 20
Series G1,338
 0.33
 7
 1,338
 0.33
 7
Total    $55
     $55
 Three Months Ended March 31,
 2019 2018
(Dollars in millions, except per share amounts)Dividends Declared per Share Dividends Declared per Depositary Share 
Total(1)
 Dividends Declared per Share Dividends Declared per Depositary Share Total
Preferred Stock:           
Series C$1,313
 $0.33
 $6
 $1,313
 $0.33
 $6
Series D1,475
 0.37
 11
 1,475
 0.37
 11
Series E1,500
 0.38
 11
 1,500
 0.38
 11
Series F2,625
 26.25
 20
 2,625
 26.25
 20
Series G1,338
 0.33
 7
 1,338
 0.33
 7
Series H—
 —
 —
 —
 —
 —
Total    $55
     $55
    
(1)Dividends were paid in March 2018.2019
Common Stock
In June 2017, our Board approved a common stock purchase program authorizing the purchase of up to $1.4 billionWe repurchased $300 million of our common stock through June 30,in the first quarter of 2019 and may repurchase up to $300 million of our common stock in the second quarter of 2019 under the 2018 (the 2017 Program). Program.
The table below presents the activity under the 2017 Programour common stock purchase program during the period indicated:
 Three Months Ended March 31, 2019
 Shares Acquired
(In millions)		 Average Cost per Share Total Acquired
(In millions)
2018 Program4.2
 $70.93
 $300

 Three Months Ended March 31, 2018
 Shares Acquired
(In millions)		 Average Cost per Share Total Acquired
(In millions)
2017 Program3.3
 $105.31
 $350




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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


The table below presents the dividends declared on common stock for the periods indicated:
 Three Months Ended March 31,
 2019 2018
 Dividends Declared per Share 
Total
(In millions)
 Dividends Declared per Share 
Total
(In millions)
Common Stock$0.47
 $177
 $0.42
 $154

 Three Months Ended March 31,
 2018 2017
 Dividends Declared per Share 
Total
(In millions)
 Dividends Declared per Share 
Total
(In millions)
Common Stock$0.42
 $154
 $0.38
 $144
Accumulated Other Comprehensive Income (Loss)
The following table presents the after-tax components of AOCI as of the dates indicated:
(In millions)March 31, 2019 December 31, 2018
Net unrealized (losses) on cash flow hedges$(71) $(89)
Net unrealized gains (losses) on available-for-sale securities portfolio114
 (193)
Net unrealized gains related to reclassified available-for-sale securities58
 58
Net unrealized gains (losses) on available-for-sale securities172
 (135)
Net unrealized (losses) on available-for-sale securities designated in fair value hedges(56) (40)
Net unrealized gains on hedges of net investments in non-U.S. subsidiaries36
 16
Other-than-temporary impairment on held-to-maturity securities related to factors other than credit(3) (2)
Net unrealized (losses) on retirement plans(179) (143)
Foreign currency translation(1,079) (963)
Total$(1,180) $(1,356)
(In millions)March 31, 2018 December 31, 2017
Net unrealized gains (losses) on cash flow hedges$(153) $(56)
Net unrealized gains (losses) on available-for-sale securities portfolio10
 148
Net unrealized gains (losses) related to reclassified available-for-sale securities22
 19
Net unrealized gains (losses) on available-for-sale securities32
 167
Net unrealized gains (losses) on available-for-sale securities designated in fair value hedges(60) (64)
Net unrealized gains (losses) on hedges of net investments in non-U.S. subsidiaries(101) (65)
Other-than-temporary impairment on held-to-maturity securities related to factors other than credit(6) (6)
Net unrealized gains (losses) on retirement plans(158) (170)
Foreign currency translation(628) (815)
Total$(1,074) $(1,009)

The following table presents changes in AOCI by component, net of related taxes, for the periods indicated:
 Three Months Ended March 31, 2019
(In millions)Net Unrealized Gains (Losses) on Cash Flow Hedges Net Unrealized Gains (Losses) on Available-for-Sale Securities Net Unrealized Gains (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, 2018$(89) $(175) $16
 $(2) $(143) $(963) $(1,356)
Other comprehensive income (loss) before reclassifications24
 270
 23
 1
 —
 (49) 269
Reclassification of certain tax effects(1)
(6)
21

(3)
(1)
(28)
(67)
(84)
Amounts reclassified into (out of) earnings—
 —
 —
 (1) (8) —
 (9)
Other comprehensive income (loss)18
 291
 20
 (1) (36) (116) 176
Balance as of March 31, 2019$(71) $116
 $36
 $(3) $(179) $(1,079) $(1,180)
 Three Months Ended March 31, 2018
(In millions)Net Unrealized Gains (Losses) on Cash Flow Hedges Net Unrealized Gains (Losses) on Available-for-Sale Securities Net Unrealized Gains (Losses) on Hedges of Net Investments in Non-U.S. Subsidiaries Other-Than-Temporary Impairment on Held-to-Maturity Securities Net Unrealized Losses on Retirement Plans Foreign Currency Translation Total
Balance as of December 31, 2017$(56) $103
 $(65) $(6) $(170) $(815) $(1,009)
Other comprehensive income (loss) before reclassifications(97) (130) (36) 1
 25
 187
 (50)
Amounts reclassified into (out of) earnings—
 (1) —
 (1) (13) —
 (15)
Other comprehensive income (loss)(97) (131) (36) —
 12
 187
 (65)
Balance as of March 31, 2018$(153) $(28) $(101) $(6) $(158) $(628) $(1,074)


 Three Months Ended March 31, 2018
(In millions)Net Unrealized Gains (Losses) on Cash Flow Hedges Net Unrealized Gains (Losses) on Available-for-Sale Securities Net Unrealized Gains (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, 2017$(56) $103
 $(65) $(6) $(170) $(815) $(1,009)
Other comprehensive income (loss) before reclassifications(97) (130) (36) 1
 —
 187
 (75)
Amounts reclassified into (out of) earnings—
 (1) —
 (1) 12
 —
 10
Other comprehensive income (loss)(97) (131) (36) —
 12
 187
 (65)
Balance as of March 31, 2018$(153) $(28) $(101) $(6) $(158) $(628) $(1,074)
 Three Months Ended March 31, 2017
(In millions)Net Unrealized Gains (Losses) on Cash Flow Hedges Net Unrealized Gains (Losses) on Available-for-Sale Securities Net Unrealized Gains (Losses) on Hedges of Net Investments in Non-U.S. Subsidiaries Other-Than-Temporary Impairment on Held-to-Maturity Securities Net Unrealized Losses on Retirement Plans Foreign Currency Translation Total
Balance as of December 31, 2016$229
 $(286) $95
 $(9) $(194) $(1,875) $(2,040)
Other comprehensive income (loss) before reclassifications(70) 231
 (14) 1
 —
 105
 253
Amounts reclassified into (out of) earnings—
 (24) —
 —
 6
 —
 (18)
Other comprehensive income (loss)(70) 207
 (14) 1
 6
 105
 235
Balance as of March 31, 2017$159
 $(79) $81
 $(8) $(188) $(1,770) $(1,805)


(1) Represents the reclassification from accumulated other comprehensive income into retained earnings as a result of our adoption of ASU 2018-02 - Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income in the first quarter of 2019.


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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


The following table presents after-tax reclassifications into earnings for the periods indicated:
 Three Months Ended March 31,  
 2019 2018  
(In millions)Amounts Reclassified into
(out of) Earnings		 Affected Line Item in Consolidated Statement of Income
Available-for-sale securities:     
Net realized gains (losses) from sales of available-for-sale securities, net of related taxes of zero and ($1), respectively$—
 $(1) Net gains (losses) from sales of available-for-sale securities
Held-to-maturity securities:     
Other-than-temporary impairment on held-to-maturity securities related to factors other than credit, net of related taxes of zero and zero, respectively(1) (1) Losses reclassified (from) to other comprehensive income
Retirement plans:     
Amortization of actuarial losses, net of related taxes of ($4) and $3, respectively(8) 12
 Compensation and employee benefits expenses
Total reclassifications out of Accumulated other comprehensive loss$(9) $10
  
 Three Months Ended March 31,  
 2018 2017  
(In millions)
Amounts Reclassified into
(out of) Earnings
 Affected Line Item in Consolidated Statement of Income
Cash flow hedges:     
Available-for-sale securities:     
Net realized gains (losses) from sales of available-for-sale securities, net of related taxes of $(1) and $16, respectively$(1) $(24) Net gains (losses) from sales of available-for-sale securities
Held-to-maturity securities:     
Other-than-temporary impairment on held-to-maturity securities related to factors other than credit(1) —
 Losses reclassified (from) to other comprehensive income
Retirement plans:     
Amortization of actuarial losses, net of related taxes of ($28) and ($3), respectively(13) 6
 Compensation and employee benefits expenses
Total reclassifications (out of) into AOCI$(15) $(18)  

Note 13.    Regulatory Capital
We are subject to variousFor additional information on our regulatory capital, including the regulatory capital requirements administered by federal banking agencies. Failure to meet minimum regulatory capital requirements can initiate certain mandatoryagencies, and discretionary actions by regulators that, if undertaken, could have a direct material effect on our consolidated financial condition. Under current regulatory capital adequacy guidelines, we must meet specified capital requirements that involve quantitative measures of our consolidated assets, liabilities and off-balance sheet exposures calculated in conformity with regulatory accounting practices. Our capital components and their classifications are subject to qualitative judgments by regulators about components, risk weightings and other factors. For additional information on regulatory capital, and the requirements to which we are subject, refer to pages 171 to 172page 167 in Note 16 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 20172018 Form 10-K.
As required by the Dodd-Frank Act, State Street and State Street Bank, as advanced approaches banking organizations, are subject to a permanent "capital floor" in the calculation and assessment of regulatory capital adequacy by U.S. banking regulators. Beginning on January 1, 2015, we were required to calculate our risk-based capital ratios using both the advanced approaches and the standardized approach. As a result, from January 1, 2015 going forward, our risk-based capital ratios for regulatory assessment purposes are the lower of each ratio calculated under the standardized approach and the advanced approaches.
The methods for the calculation of our and State Street Bank's risk-based capital ratios will change as the provisions of the Basel III final rule related to the numerator (capital) and denominator (risk-weighted assets) are phased in, and as we begin calculating our risk-weighted assets using the advanced approaches. These ongoing methodological changes will result in differences in our reported capital ratios from one reporting period to the next that are independent of applicable changes to our capital base, our asset composition, our off-balance sheet exposures or our risk profile.
As of March 31, 2018, State Street2019, we and State Street Bank exceeded all regulatory capital adequacy requirements to which theywe were subject. As of March 31, 2018,2019, State Street Bank was categorized as “well capitalized” under the applicable regulatory capital adequacy framework, and exceeded all “well capitalized” ratio guidelines to
which it was subject. Management believes that no conditions or events have occurred since March 31, 20182019 that have changed the capital categorization of State Street Bank.
The following table presents the regulatory capital structure, total risk-weighted assets,RWA, related regulatory capital ratios and the minimum required regulatory capital ratios for State Streetus 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 arewere phased in, the ratios presented in the table for each period-end are not directly comparable. Refer to the footnotes following the table.


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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


   State Street State Street Bank
(In millions) 
Basel III Advanced Approaches March 31, 2018(1)
 
Basel III Standardized Approach March 31, 2018(2)
 
Basel III Advanced Approaches December 31, 2017(1)
 
Basel III Standardized Approach December 31, 2017(2)
 
Basel III Advanced Approaches March 31, 2018(1)
 
Basel III Standardized Approach March 31, 2018(2)
 
Basel III Advanced Approaches December 31, 2017(1)
 
Basel III Standardized Approach December 31, 2017(2)
  Common shareholders' equity:               
Common stock and related surplus$10,300
 $10,300
 $10,302
 $10,302
 $11,612
 $11,612
 $11,612
 $11,612
Retained earnings 19,311
 19,311
 18,856
 18,856
 12,442
 12,442
 12,312
 12,312
Accumulated other comprehensive income (loss)(1,040) (1,040) (972) (972) (898) (898) (809) (809)
Treasury stock, at cost (9,334) (9,334) (9,029) (9,029) —
 —
 —
 —
Total  19,237

19,237
 19,157
 19,157
 23,156
 23,156
 23,115
 23,115
Regulatory capital adjustments:               
Goodwill and other intangible assets, net of associated deferred tax liabilities(3) 
(7,169) (7,169) (6,877) (6,877) (6,859) (6,859) (6,579) (6,579)
Other adjustments (118) (118) (76) (76) (1) (1) (5) (5)
  Common equity tier 1 capital11,950

11,950
 12,204
 12,204
 16,296
 16,296
 16,531
 16,531
Preferred stock3,196
 3,196
 3,196
 3,196
 —
 —
 —
 —
Trust preferred capital securities subject to phase-out from tier 1 capital—
 —
 —
 —
 —
 —
 —
 —
Other adjustments —
 —
 (18) (18) —
 —
 —
 —
  Tier 1 capital15,146

15,146
 15,382
 15,382
 16,296
 16,296
 16,531
 16,531
Qualifying subordinated long-term debt961
 961
 980
 980
 962
 962
 983
 983
Trust preferred capital securities phased out of tier 1 capital—
 —
 —
 —
 —
 —
 —
 —
ALLL and other—
 72
 4
 72
 —
 72
 —
 72
Other adjustments —
 —
 1
 1
 —
 —
 —
 —
  Total capital$16,107

$16,179
 $16,367
 $16,435
 $17,258
 $17,330
 $17,514
 $17,586
  Risk-weighted assets:                
Credit risk$48,843
 $108,946
 $49,976
 $101,349
 $46,164
 $106,132
 $47,448
 $98,433
Operational risk(4)
46,039
 NA
 45,822
 NA
 45,488
 NA
 45,295
 NA
Market risk(5)
3,630
 1,531
 3,358
 1,334
 3,632
 1,531
 3,375
 1,334
Total risk-weighted assets $98,512
 $110,477
 $99,156
 $102,683
 $95,284
 $107,663
 $96,118
 $99,767
Adjusted quarterly average assets$219,582
 $219,582
 $209,328
 $209,328
 $216,922
 $216,922
 $206,070
 $206,070
                  
Capital Ratios:
2018 Minimum Requirements Including Capital Conservation Buffer and
G-SIB Surcharge(6)
2017 Minimum Requirements Including Capital Conservation Buffer and
G-SIB Surcharge(7)
               
Common equity tier 1 capital7.5%6.5%12.1% 10.8% 12.3% 11.9% 17.1% 15.1% 17.2% 16.6%
Tier 1 capital9.0
8.0
15.4
 13.7
 15.5
 15.0
 17.1
 15.1
 17.2
 16.6
Total capital11.0
10.0
16.4
 14.6
 16.5
 16.0
 18.1
 16.1
 18.2
 17.6
Tier 1 leverage4.0
4.0
6.9
 6.9
 7.3
 7.3
 7.5
 7.5
 8.0
 8.0
 State Street State Street Bank
(Dollars in millions)Basel III Advanced Approaches March 31, 2019 Basel III Standardized Approach March 31, 2019 
Basel III Advanced Approaches December 31, 2018(1)
 
Basel III Standardized Approach December 31, 2018(1)
 Basel III Advanced Approaches March 31, 2019 Basel III Standardized Approach March 31, 2019 
Basel III Advanced Approaches December 31, 2018(1)
 
Basel III Standardized Approach December 31, 2018(1)
 Common shareholders' equity:               
Common stock and related surplus$10,586
 $10,586
 $10,565
 $10,565
 $12,894
 $12,894
 $12,894
 $12,894
Retained earnings20,911
 20,911
 20,606
 20,606
 14,273
 14,273
 14,261
 14,261
Accumulated other comprehensive income (loss)(1,168) (1,168) (1,332) (1,332) (954) (954) (1,112) (1,112)
Treasury stock, at cost(8,969) (8,969) (8,715) (8,715) —
 —
 —
 —
Total21,360

21,360
 21,124
 21,124
 26,213
 26,213
 26,043
 26,043
Regulatory capital adjustments:               
Goodwill and other intangible assets, net of associated deferred tax liabilities(9,294) (9,294) (9,350) (9,350) (9,016) (9,016) (9,073) (9,073)
Other adjustments(2)
(167) (167) (194) (194) (1) (1) (29) (29)
 Common equity tier 1 capital11,899

11,899
 11,580
 11,580
 17,196
 17,196
 16,941
 16,941
Preferred stock3,690
 3,690
 3,690
 3,690
 —
 —
 —
 —
 Tier 1 capital15,589

15,589
 15,270
 15,270
 17,196
 17,196
 16,941
 16,941
Qualifying subordinated long-term debt787
 787
 778
 778
 785
 785
 776
 776
Allowance for loan and lease losses and other
10
 84
 14
 83
 6
 83
 11
 83
 Total capital$16,386

$16,460
 $16,062
 $16,131
 $17,987
 $18,064
 $17,728
 $17,800
 Risk-weighted assets:               
Credit risk(3)
$49,451
 $102,284
 $47,738
 $97,303
 $47,106
 $99,673
 $45,565
 $94,776
Operational risk(4)
47,213
 NA
 46,060
 NA
 44,416
 NA
 44,494
 NA
Market risk1,359
 1,359
 1,517
 1,517
 1,359
 1,359
 1,517
 1,517
Total risk-weighted assets$98,023
 $103,643
 $95,315
 $98,820
 $92,881
 $101,032
 $91,576
 $96,293
Adjusted quarterly average assets$210,099
 $210,099
 $211,924
 $211,924
 $207,417
 $207,417
 $209,413
 $209,413
                  
Capital Ratios:
2019 Minimum Requirements Including Capital Conservation Buffer and G-SIB Surcharge(5)
2018 Minimum Requirements Including Capital Conservation Buffer and G-SIB Surcharge(6)
               
Common equity tier 1 capital8.5%7.5%12.1% 11.5% 12.1% 11.7% 18.5% 17.0% 18.5% 17.6%
Tier 1 capital10.0
9.0
15.9
 15.0
 16.0
 15.5
 18.5
 17.0
 18.5
 17.6
Total capital12.0
11.0
16.7
 15.9
 16.9
 16.3
 19.4
 17.9
 19.4
 18.5
  

(1) Under the applicable bank regulatory rules, we are not required to and, accordingly, did not revise previously-filed reported capital metrics and ratios following the change in accounting for LIHTC.
(2) Other adjustments within CET1 capital, tier 1 capital and total capital ratios as of March 31, 2018 and December 31, 2017 were calculated in conformity withprimarily include the advanced approaches provisionsoverfunded portion of the Basel III final rule. Tier 1 leverage ratio asfirm’s defined benefit pension plan obligation net of March 31, 2018associated deferred tax liabilities, disallowed deferred tax assets, and December 31, 2017 were calculatedother required credit risk based deductions.
(3) Includes a CVA which reflects the risk of potential fair value adjustments for credit risk reflected in our valuation of OTC derivative contracts. We used a simple CVA approach in conformity with the Basel III final rule.advanced approaches.
(2) CET1 capital, tier 1 capital and total capital ratios as of March 31, 2018 and December 31, 2017 were calculated in conformity with the standardized approach provisions of the Basel III final rule. Tier 1 leverage ratio as of March 31, 2018 and December 31, 2017 were calculated in conformity with the Basel III final rule.
(3) Amounts for State Street and State Street Bank as of March 31, 2018 consisted of goodwill, net of associated deferred tax liabilities, and 100% of other intangible assets, net of associated deferred tax liabilities. Amounts for State Street and State Street Bank as of December 31, 2017 consisted of goodwill, net of deferred tax liabilities and 80% of other intangible assets, net of associated deferred tax liabilities. Intangible assets, net of associated deferred tax liabilities is phased in as a deduction from capital, in conformity with the Basel III final rule.
(4) Under the current advanced approaches rules and regulatory guidance concerning operational risk models, RWA attributable to operational risk can vary substantially from period-to-period, without direct correlation to the effects of a particular loss event on our results of operations and financial condition and impacting dates and periods that may differ from the dates and periods as of and during which the loss event is reflected in our financial statements, with the timing and categorization dependent on the processes for model updates and, if applicable, model revalidation and regulatory review and related supervisory processes. An individual loss event can have a significant effect on the output of our operational risk RWA under the advanced approaches depending on the severity of the loss event and its categorization among the seven Basel-defined UOMs.
(5) Market risk risk-weighted assets reported in conformity with the Basel III advanced approaches included a CVA which reflected the risk of potential fair value adjustments for credit risk reflected in our valuation of over-the-counter derivative contracts.  The CVA was not provided for in the final market risk capital rule; however, it was required by the advanced approaches provisions of the Basel III final rule.  We used a simple CVA approach in conformity with the Basel III advanced approaches.
(6) Minimum requirements will bewere phased in up towith full implementation beginning on January 1, 2019; minimum requirements listed are as of March 31, 2018.2019.
(7)(6) Minimum requirements will bewere phased in up towith full implementation beginning on January 1, 2019; minimum requirements listed are as of December 31, 2017.2018.
NA Not applicable




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Note 14.    Net Interest Income
The following table presents the components of interest income and interest expense, and related NII, for the periods indicated:
 Three Months Ended March 31,
(In millions)2019 
2018(1)
Interest income:   
Interest-bearing deposits with banks$119
 $82
Investment securities:   
U.S. Treasury and federal agencies369
 255
State and political subdivisions12
 52
Other investments122
 159
Securities purchased under resale agreements98
 77
Loans and leases198
 155
Other interest-earning assets109
 77
Total interest income1,027
 857
Interest expense:   
Interest-bearing deposits171
 63
Securities sold under repurchase agreements12
 —
Other short-term borrowings4
 3
Long-term debt106
 97
Other interest-bearing liabilities61
 51
Total interest expense354
 214
Net interest income$673
 $643

 Three Months Ended March 31,
(In millions)2018 2017
Interest income:   
Deposits with banks$82
 $34
Investment securities:   
U.S. Treasury and federal agencies255
 212
State and political subdivisions52
 59
Other investments159
 160
Securities purchased under resale agreements77
 46
Loans and leases155
 105
Other interest-earning assets77
 34
Total interest income857
 650
Interest expense:   
Deposits48
 44
Short-term borrowings3
 2
Long-term debt97
 73
Other interest-bearing liabilities51
 21
Total interest expense199
 140
Net interest income$658
 $510
(1)In the first quarter of 2018, approximately $15 million of swap costs were reclassified from processing fees and other revenue within fee revenue to net interest income to conform to current presentation.

Note 15.    Expenses
The following table presents the components of other expenses for the periods indicated:
 Three Months Ended March 31,
(In millions)2019 2018
Professional services$80
 $79
Sales advertising public relations27
 26
Insurance22
 32
Regulatory fees and assessments18
 27
Bank operations11
 17
Other117
 99
Total other expenses$275
 $280

Acquisition Costs
We recorded $13 million of acquisition costs in the first quarter of 2019 primarily related to our acquisition of CRD. As we integrate CRD into our business, we expect to incur approximately $200 million of acquisition costs, including merger and integration costs, through 2021.
 Three Months Ended March 31,
(In millions)2018 2017
Insurance$32
 $30
Regulatory fees and assessments27
 27
Securities processing11
 8
Other131
 86
Total other expenses$201
 $151
Restructuring and Repositioning Charges
Repositioning Charges
In the three months ended March 31, 2018, we initiated a new expense program to accelerate efforts to become a higher-performing organization and help navigate challenging market and industry conditions.
Beacon
In the first quarter of 2019, we released $4 million of restructuring accruals related to Beacon. We recorded no restructuring charges compared to $17in the same period in 2018.
The following table presents aggregate activity for the periods indicated:
(In millions)Employee
Related Costs		 Real Estate
Actions		 Asset and Other Write-offs Total
Accrual balance at December 31, 2017$166

$32

$3

$201
Accruals for Beacon—
 —
 —
 —
Payments and other adjustments(22) (4) —
 (26)
Accrual balance at March 31, 2018$144

$28

$3

$175
Accrual balance at December 31, 2018$303
 $37
 $1
 341
Accruals for Beacon(4) —
 —
 (4)
Payments and other adjustments(53) (25) —
 (78)
Accrual balance at March 31, 2019$246
 $12
 $1
 $259

Note 16.Occupancy Expense and Information Systems and Communications Expense
Upon adoption of Topic 842 on January 1, 2019, we recognized right-of-use assets of approximately $0.91 billion and lease liabilities of approximately $1.06 billion.
Occupancy expense and information systems and communications expense include depreciation of buildings, leasehold improvements, computer hardware and software, equipment, furniture and fixtures, and amortization of lease right-of-use assets. Total depreciation and amortization was $205 million in the first quarter of 2017,2019.
We use our incremental borrowing rate to determine the present value of the lease payments for finance and operating leases described below. Additionally, we do not separate nonlease components such as real estate taxes and common area maintenance from base lease payments.
As of March 31, 2019, an aggregate net book value of $94 million for the finance lease related to Beacon.our One Lincoln Street Boston headquarters is recorded in premises and equipment, with the related lease liability of $160 million recorded in long-term debt, in our consolidated statement of condition.
The following table presents aggregate restructuring activity forFinance lease right-of-use asset amortization is recorded in occupancy expense on a straight-line basis in our consolidated statement of income over the periods indicated:
(In millions)Employee
Related Costs		 Real Estate
Actions		 Asset and Other Write-offs Total
Accrual Balance at December 31, 2016$37
 $17
 $2
 $56
Accruals for Beacon186
 32
 27
 245
Payments and Other Adjustments(57) (17) (26) (100)
Accrual Balance at December 31, 2017$166
 $32
 $3
 $201
Accruals for Beacon—
 —
 —
 —
Payments and Other Adjustments(22) (4) —
 (26)
Accrual Balance at March 31, 2018$144
 $28
 $3
 $175


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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


respective lease term. Lease payments are recorded as a reduction of the liability, with a portion recorded as imputed interest expense. In the quarter ended March 31, 2019, interest expense related to the finance lease obligation reflected in NII was $3 million. As of March 31, 2019, accumulated amortization of the finance lease right-of-use asset was $40 million.
Operating lease right-of-use assets with an aggregate net book value of $899 million are recorded in other assets, with the related lease liability of $1.06 billion recorded in accrued expenses and other liabilities in our consolidated statement of condition.
We have entered into non-cancellable operating leases for premises and equipment. Nearly all of these leases include renewal options, and only those reasonably certain of being exercised are included in the term of the lease. Costs for operating leases are recorded on a straight-line basis which includes both interest expense and right-of-use asset amortization. Operating lease costs for office space are recorded in occupancy expense. Costs related to operating leases for equipment are recorded in information systems and communications expense.
As of March 31, 2019, we have additional operating leases, primarily for office space, that have not yet commenced of approximately $497 million of undiscounted future minimum lease payments. These leases will commence between fiscal year 2019 and fiscal year 2023 with lease terms of 11 to 15 years. The majority of these future payments relate to the new Boston headquarters lease executed in the first quarter of 2019, replacing the One Lincoln Street Boston property.
None of our leases contain residual value guarantees.
The following table presents lease costs, sublease rental income, cash flows and new leases arising from lease transactions for the quarter ended March 31, 2019:
(In millions)Three Months Ended March 31, 2019
Finance lease: 
     Amortization of right-of-use assets$5
     Interest on lease liabilities3
Total finance lease expense8
     Sublease income(2)
Net finance lease expense6
Operating lease: 
     Operating lease expense44
     Sublease income(1)
Net operating lease expense43
Net lease expense$49
  
Cash paid for amounts included in the measurement of lease liabilities:
     Operating cash flows from finance leases$3
     Operating cash flows from operating leases51
     Financing cash flows from finance leases31
Right-of-use assets obtained in exchange for new lease obligations:
     Operating leases$29
     Finance leases—

The following table presents future minimum lease payments under non-cancellable leases as of March 31, 2019:
(In millions)Operating Leases Finance Leases Total
2019 (excluding the first quarter of 2019)$144
 $31
 $175
2020185
 42
 227
2021174
 42
 216
2022151
 42
 193
2023131
 30
 161
Thereafter400
 —
 400
Total future minimum lease payments1,185
 187
 1,372
Less imputed interest(125) (27) (152)
     Total$1,060
 $160
 $1,220

The following table presents details related to remaining lease terms and discount rate for the quarter ended March 31, 2019:
Three Months Ended March 31, 2019
Weighted-average remaining lease term (in years):
     Finance leases4.5
     Operating leases7.8
Weighted-average discount rate:
     Finance leases7%
     Operating leases3


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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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Note 16.17. Earnings Per Common Share
Basic EPS is calculated pursuantFor additional information on our earnings per share calculation methodologies, refer to page 175 in Note 23 to the “two-class” method, by dividingconsolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 2018 Form 10-K.
The following table presents the computation of basic and diluted earnings per common share for the periods indicated:
 Three Months Ended March 31,
(Dollars in millions, except per share amounts)2019
2018
Net income$508
 $659
Less:   
Preferred stock dividends(55) (55)
Dividends and undistributed earnings allocated to participating securities(1)
(1) (1)
Net income available to common shareholders$452
 $603
Average common shares outstanding (In thousands):   
Basic average common shares377,915
 367,439
Effect of dilutive securities: equity-based awards3,788
 5,180
Diluted average common shares381,703
 372,619
Anti-dilutive securities(2)
1,951
 —
Earnings per common share:   
Basic$1.20
 $1.64
Diluted(3)
1.18
 1.62

(1) Represents the portion of net income available to common shareholders by the weighted-average common shares outstanding during the period. Diluted EPS is calculated pursuantequity allocated 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 equity-based awards. The effect of equity-based awards is excluded from the calculation of diluted EPS in periods in which their effect would be anti-dilutive.
The two-class method requires the allocation of undistributed net income between common and participating shareholders. Net income available to common shareholders, presented separately in our consolidated statement of income, is the basis for the calculation of both basic and diluted EPS. Participating securities, are composed of unvested and fully vested SERP (Supplemental executive retirement plans) 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.
The following table presents the computation of basic and diluted earnings per common share for the periods indicated:
 Three Months Ended March 31,
(Dollars in millions, except per share amounts)2018
2017
Net income$661
 $502
Less:   
Preferred stock dividends(55) (55)
Dividends and undistributed earnings allocated to participating securities(1)
(1) (1)
Net income available to common shareholders$605
 $446
Average common shares outstanding (In thousands):   
Basic average common shares367,439
 381,224
Effect of dilutive securities: equity-based awards5,180
 5,193
Diluted average common shares372,619
 386,417
Anti-dilutive securities(2)
—
 580
Earnings per Common Share:   
Basic$1.65
 $1.17
Diluted(3)
1.62
 1.15
(1) Represents the portion of net income available to common equity allocated to participating securities, composed of unvested and fully vested SERP shares and fully vested deferred director stock awards, which are equity-based awards that contain non-forfeitable rights to dividends, and are considered to participate with the common stock in undistributed earnings.
(2) Represents equity-based awards outstanding but not included in the computation of diluted average common shares, because their effect was anti-dilutive. For additionalAdditional information about equity-based awards referis provided on pages 169 to pages 173 to 175171 in Note 18 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 20172018 Form 10-K.
(3) Calculations reflect allocation of earnings to participating securities using the two-class method, as this computation is more dilutive than the treasury stock method.

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Note 17.18.    Line of Business Information
Our operations are organized into two lines of business: Investment Servicing and Investment Management, which are defined based on products and services provided. The results of operations for these lines of business are not necessarily comparable with those of other companies, including companies in the financial services industry. For information about our two lines of business, as well as revenues, expenses and capital allocation methodologies associated with them, refer to pages 179175 to 181176 in Note 24 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in our 20172018 Form 10-K.
The following is a summary of our line-of-businessline of business results for the periods indicated. The "Other" column representscolumns represent costs incurred that are not allocated to a specific line of business, including certain severance and restructuring costs, acquisition costs and certain provisions for legal contingencies.
 Three Months Ended March 31,
 Investment
Servicing		 Investment
Management		 Other Total
(Dollars in millions)2019 2018 2019 2018 2019 2018 2019 2018
Servicing fees$1,251
 $1,421
 $—
 $—
 $—
 $—
 $1,251
 $1,421
Management fees—
 —
 420
 472
 —
 —
 420
 472
Foreign exchange trading services246
 274
 34
 30
 —
 —
 280
 304
Securities finance117
 141
 1
 —
 —
 —
 118
 141
Processing fees and other180
 77
 11
 —
 —
 —
 191
 77
Total fee revenue1,794
 1,913
 466
 502
 —
 —
 2,260
 2,415
Net interest income679
 648
 (6) (5) —
 —
 673
 643
Gains (losses) related to investment securities, net(1) (2) —
 —
 —
 —
 (1) (2)
Total revenue2,472
 2,559
 460
 497
 —
 —
 2,932
 3,056
Total expenses1,864
 1,870
 406
 398
 23
 —
 2,293
 2,268
Income before income tax expense$604
 $689
 $54
 $99
 $(23) $—
 $635
 $788
Pre-tax margin24% 27% 12% 20%     22% 26%

 Three Months Ended March 31,
 Investment
Servicing		 Investment
Management		 Other Total
(Dollars in millions)2018 2017 2018 2017 2018 2017 2018 2017
Servicing fees$1,421
 $1,296
 $—
 $—
 $—
 $—
 $1,421
 $1,296
Management fees—
 —
 472
 382
 —
 —
 472
 382
Trading services274
 257
 30
 18
 —
 —
 304
 275
Securities finance141
 133
 —
 —
 —
 —
 141
 133
Processing fees and other25
 106
 —
 6
 —
 —
 25
 112
Total fee revenue1,861
 1,792
 502
 406
 —
 —
 2,363
 2,198
Net interest income663
 509
 (5) 1
 —
 —
 658
 510
Gains (losses) related to investment securities, net(2) (40) —
 —
 —
 —
 (2) (40)
Total revenue2,522
 2,261
 497
 407
 —
 —
 3,019
 2,668
Provision for loan losses—
 (2) —
 —
 —
 —
 —
 (2)
Total expenses1,858
 1,728
 398
 329
 —
 29
 2,256
 2,086
Income before income tax expense$664
 $535
 $99
 $78
 $—
 $(29) $763
 $584
Pre-tax margin26% 24% 20% 19%     25% 22%


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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


Note 18.19.  Revenue from Contracts with Customers
We account forFor additional information on our revenue from contracts with customers, including revenues associated with both our Investment Servicing and Investment Management lines of business, refer to pages 177 to 178 in accordance with Topic 606, which we adopted on January 1, 2018. See Note 1 for further discussion of our adoption, including25 to the impact on our consolidated financial statements.
The amount of revenue that we recognize is measured based on the consideration specifiedstatements included under Item 8, Financial Statements and Supplementary Data, in contracts with our customers, and excludes taxes collected from customers subsequently remitted to governmental authorities. We recognize revenue when a performance obligation is satisfied over time as the services are performed or at a point in time depending on the nature of the services provided as further discussed below. Revenue recognition guidance related to contracts with customers excludes our NII, revenue earned on security lending transactions entered into as principal, realized gains/losses on securities, revenue earned on foreign exchange activity, loans and related fees, and gains/ losses on hedging and derivatives, to which we apply other applicable U.S. GAAP guidance.
For contracts with multiple performance obligations, or contracts that have been combined, we allocate the contracts' transaction price to each performance obligation using our best estimate of the standalone selling price. Our contractual fees are negotiated on a customer by customer basis and are representative of standalone selling price utilized for allocating revenue when there are multiple performance obligations.
Substantially all of our services are provided as a distinct series of daily performance obligations that the customer simultaneously benefits from as they are performed. Payments may be made to third party service providers and the expense is recognized gross when we control those services as we are deemed the principal.
Contract durations may vary from short to long term or may be open ended. Termination notice periods are in line with general market practice and typically do not include termination penalties. Therefore for substantially all of our revenues, the duration of the contract and the enforceable rights and obligations do not extend beyond the services that are performed daily or at the transaction level. In instances where we have substantive termination penalties, the duration of the contract may extend through the date of substantive termination penalties.
Investment Servicing
Revenue from contracts with customers related to servicing fees is recognized over time as our customers benefit from the custody, administration, accounting, transfer agency and other related asset services as they are performed. At contract inception no revenue is estimated as the fees are dependent on assets under custody and administration and/or actual transactions which are susceptible to market factors outside of our control. Therefore, revenue is recognized using a time-based output method as the customers benefit from the services over time and as the assets under custody or transactions are known or determinable during each reporting period based on contractual fee schedules. Payments made to third party service providers, such as sub-custodians, are generally recognized gross as State Street controls those services and is deemed to be a principal in such arrangements.
Trading services revenue includes revenue generated from providing access and use of electronic trading platforms and other trading, transition management and brokerage services. Electronic FX services are dependent on the volume of actual transactions initiated through our electronic exchange platforms. Revenue is recognized over time using a time-based measure as access to, and use of, the electronic exchange platforms is made available to the customer and the activity is determinable. Revenue related to other trading, transition management and brokerage services is recognized when the customer obtains the benefit of such services which may be over time or at a point in time upon trade execution.
Securities finance revenue is related to services for providing agency lending programs to SSGA-managed investment funds and third-party investment managers and asset owners. This securities finance revenue is recognized over time using a time-based measure as our customers benefit from these lending services over time.

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Investment Management
Revenue from contracts with customers related to investment management, investment research and investment advisory services provided through SSGA is recognized over time as our customers benefit from the services as they are performed. Substantially all of our investment management fees are determined by the value of assets under management and the investment strategies employed. At contract inception, no revenue is estimated as the fees are dependent on assets under management which are susceptible to market factors outside of our control.
Therefore, substantially all of our Investment Management services revenue is recognized using a time-based output method as the customers benefit from the services over time and as the assets under management are known or determinable during each reporting period based on contractual fee schedules. Payments made to third party service providers, such as payments to others in unitary fee arrangements, are generally recognized on a gross basis when SSGA controls those services and is deemed to be a principal in such transactions.2018 Form 10-K.
Revenue by category
In the following table, revenue is disaggregated by our two lines of business and by revenue stream for which the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
  Three Months Ended March 31, 2019
  Investment Servicing Investment Management Total
(Dollars in millions) Topic 606 revenue All other revenue Total Topic 606 revenue All other revenue Total 2019
Servicing fees $1,251
 $—
 $1,251
 $—
 $—
 $—
 $1,251
Management fees —
 —
 —
 420
 —
 420
 420
Foreign exchange trading services 86
 160
 246
 34
 —
 34
 280
Securities finance 70
 47
 117
 —
 1
 1
 118
Processing fees and other 116
 64
 180
 —
 11
 11
 191
Total fee revenue 1,523
 271
 1,794
 454
 12
 466
 2,260
Net interest income —
 679
 679
 —
 (6) (6) 673
Gains (losses) related to investment securities, net
 —
 (1) (1) —
 —
 —
 (1)
Total revenue $1,523
 $949
 $2,472
 $454
 $6
 $460
 $2,932
               
  Three Months Ended March 31, 2018
  Investment Servicing Investment Management Total
(Dollars in millions) Topic 606 revenue All other revenue Total Topic 606 revenue All other revenue Total 2018
Servicing fees $1,421
 $—
 $1,421
 $—
 $—
 $—
 $1,421
Management fees —
 —
 —
 472
 —
 472
 472
Foreign exchange trading services 95
 179
 274
 30
 —
 30
 304
Securities finance 77
 64
 141
 —
 —
 —
 141
Processing fees and other(1)
 19
 58
 77
 —
 —
 —
 77
Total fee revenue 1,612
 301
 1,913
 502
 —
 502
 2,415
Net interest income(1)
 —
 648
 648
 —
 (5) (5) 643
Gains (losses) related to investment securities, net
 —
 (2) (2) —
 —
 —
 (2)
Total revenue $1,612
 $947
 $2,559
 $502
 $(5) $497
 $3,056
  Three Months Ended March 31, 2018
  Investment Servicing Investment Management Total
(Dollars in millions) Topic 606 revenue All other revenue Total Topic 606 revenue All other revenue Total 2018
Servicing fees $1,421
 $—
 $1,421
 $—
 $—
 $—
 $1,421
Management fees —
 —
 —
 472
 —
 472
 472
Trading services 95
 179
 274
 30
 —
 30
 304
Securities finance 77
 64
 141
 —
 —
 —
 141
Processing fees and other 19
 6
 25
 —
 —
 —
 25
Total fee revenue 1,612
 249
 1,861
 502
 —
 502
 2,363
               
Net interest income —
 663
 663
 —
 (5) (5) 658
Securities gains/ (losses) —
 (2) (2) —
 —
 —
 (2)
Total revenue $1,612
 $910
 $2,522
 $502
 $(5) $497
 $3,019
1) In the first quarter of 2018, approximately $15 million of swap costs were reclassified from processing fees and other revenue within fee revenue to net interest income to conform to current presentation.
Contract balances and contract costs
As of DecemberMarch 31, 20172019 and MarchDecember 31, 2018, net receivables of $2.6$2.80 billionand $2.7$2.75 billion, respectively, are included in Accruedaccrued interest and fees receivable, representing amounts billed or currently billable to or due from our customers related to revenue from contracts with customers. As performance obligations are satisfied, we have an unconditional right to payment following whichand billing is generally performed monthly andmonthly; therefore, doeswe do not give rise tohave significant contract assets or liabilities.
No adjustments are made to the promised amount of consideration for the effects of a significant financing component as the period between when we transfer a promised service to a customer and when the customer pays for that service is expected to be one year or less.



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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


Note 19.20.    Non-U.S. Activities
We define our non-U.S. activities as those revenue-producing business activities that arise from clients which are generally serviced or managed outside the U.S. Due to the integrated nature of our business, precise segregation of our U.S. and non-U.S. activities is not possible.
Subjective estimates, assumptions and other judgments are applied to quantify the financial results and assets related to our non-U.S. activities, including our application of funds transfer pricing, our asset and liability management policies and our allocation of certain indirect corporate expenses. Management periodically reviews and updates its processes for quantifying the financial results and assets related to our non-U.S. activities.
The following table presents our U.S. and non-U.S. financial results for the periods indicated:
 Three Months Ended March 31,
 2019 2018
(In millions)
Non-U.S.(1)
 U.S. Total 
Non-U.S.(1)
 U.S. Total
Total revenue$1,231
 $1,701
 $2,932
 $1,321
 $1,735
 $3,056
Income before income tax expense249
 386
 635
 395
 393
 788
 Quarters Ended March 31,
 2018 2017
(In millions)Non-U.S. U.S. Total Non-U.S. U.S. Total
Total revenue$1,321
 $1,698
 $3,019
 $1,096
 $1,572
 $2,668
Income before income taxes395
 368
 763
 262
 322
 584
(1) Geographic mix is generally based on the domicile of the entity servicing the funds and is not necessarily representative of the underlying asset mix.
Non-U.S. assets were $78.5$77.73 billion and $71.6$78.49 billion as of March 31, 20182019 and 2017,2018, respectively.


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Report of Contents
Ernst & Young LLP, Independent Registered Public Accounting Firm

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


The Shareholders and Board of Directors of
State Street Corporation
Results of Review of Interim Financial Statements
We have reviewed the accompanying consolidated statement of condition of State Street Corporation (the “Corporation”) as of March 31, 2018,2019, and the related consolidated statements of income and comprehensive income, changes in shareholders'shareholders’ equity and cash flows for the three-month periods ended March 31, 20182019 and 2017,2018, and the related condensed notes (collectively referred to as the "condensed“condensed consolidated interim financial statements"statements”). Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated interim financial statements for them to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”("PCAOB"), the consolidated statement of condition of the Corporation as of December 31, 2017,2018, the related consolidated statements of income, comprehensive income, changes in shareholders' equity and cash flows for the year then ended, and the related notes (not presented herein); and in our report dated February 26, 2018,21, 2019, we expressed an unqualified audit opinion on those consolidated financial statements. In our opinion,As described in Note 1 to the information set forthCorporation’s unaudited interim condensed consolidated financial statements, the Corporation elected to change its method of accounting for investments in low income housing tax credits from the accompanyingequity method of accounting to the proportional amortization method of accounting effective January 1, 2019 and applied the change on a retrospective basis resulting in revision of the December 31, 2018 consolidated statement of condition as of December 31, 2017, is fairly stated, in all material respects, in relation tocondition. We have not audited and reported on the consolidatedrevised statement of condition from which it has been derived.reflecting the adoption of the proportional amortization method of accounting.
Basis for Review Results
These financial statements are the responsibility of the Corporation’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Corporation in accordance with the U.S. federal securities laws and the applicable rules and regulations of the SEC and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.






/s/ Ernst & Young LLP
Boston, Massachusetts
May 3, 20181, 2019




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ACRONYMS
    
2017 Form 10-KState Street Corporation Annual Report on Form 10-K for the year ended December 31, 2017OTCOver-the-counter
ABSAsset-backed securitiesOTTIG-SIBOther-than-temporary-impairmentGlobal systemically important bank
AFSAvailable-for-saleParent CompanyHQLAState Street Corporation
AIFMDAlternative Investment Fund Managers DirectivePCAPrompt corrective action
AIRB(1)
Advanced Internal Ratings-Based ApproachP&LProfit-and-lossHigh-quality liquid assets
ALLLAllowance for loanloans and leaseleases lossesRCHTMRisk Committee
AMAAdvanced Measurement ApproachROEReturn on average common equity
AMLAnti-money laundering
RWA(1)
Risk-weighted assetsHeld-to-maturity
AOCIAccumulated other comprehensive income (loss)LCRLiquidity coverage ratio
ASUAccounting Standards UpdateLIHTCLow income housing tax credits
AUC/AAssets under custody and/or administrationLTDLong-term debt
AUMAssets under managementMBSMortgage-backed securities
bpsBasis pointsNIINet interest income
CET1Common equity tier 1NIMNet interest margin
CMOCollateralized mortgage obligationsOCIOther comprehensive income (loss)
CVACredit valuation adjustmentOTTIOther-than-temporary-impairment
DOJDepartment of JusticePCAOBPublic Company Accounting Oversight Board
EPSEarnings per share
RWA(1)
Risk-weighted assets
ETFExchange-traded fundSECSecurities and Exchange Commission
ASUEVEAccounting Standards UpdateEconomic value of equitySERPSupplemental executive retirement plans
AUCAAssets under custody and administration
SLR(1)
Supplementary leverage ratio
AUMFDICAssets under managementFederal Deposit Insurance CorporationSPDRSpider; Standard and Poor's depository receipt
FHLBFederal Home Loan Bank of BostonSPOE StrategySingle Point of Entry Strategy
BCBSFTEBasel Committee on Banking SupervisionFully taxable-equivalentSSGAState Street Global Advisors
BoardBoard of DirectorsSSIFState Street Intermediate Funding, LLC
bpsBasis pointsState Street BankState Street Bank and Trust Company
CCARComprehensive Capital Analysis and Review
TLAC(1)
Total loss-absorbing capacity
CDCertificates of depositTMRCTrading and Markets Risk Committee
CET1(1)
Common equity tier 1UCITSUndertakings for Collective Investments in Transferable Securities
CLOCollateralized loan obligationsUOMUnit of measure
CMOCollateralized mortgage obligationsVaRValue-at-Risk
CRECommercial real estateVIEVariable interest entity
CVACredit valuation adjustment
Dodd-Frank ActDodd-Frank Wall Street Reform and Consumer Protection Act
DOJDepartment of Justice
DOLDepartment of Labor
ECBEuropean Central Bank
EPSEarnings per share
ERISAEmployee Retirement Income Security Act
ERMEnterprise Risk Management
ETFExchange-Traded Fund
EVEEconomic value of equity
FCAFinancial Conduct Authority
FDICFederal Deposit Insurance Corporation
Federal ReserveBoard of Governors of the Federal Reserve System
FHLBFederal Home Loan Bank of Boston
Form 10-QState Street Corporation Quarterly Report on Form 10-Q
FRBBFederal Reserve Bank of Boston
FSBFinancial Stability Board
FXForeign exchangeUOMUnit of measure
GAAPGenerally accepted accounting principlesVaR
GEAMGeneral Electric Asset Management
G-SIBGlobal systemically important bank
HQLA(1)
High-quality liquid assets
HTMHeld-to-maturity
IDIInsured depository institution
LCR(1)
Liquidity coverage ratio
LTDLong term debt
MBSMortgage-backed securities
MiFID IIMarkets in Financial Instruments Directive II
MiFIRMarkets in Financial Instruments Regulation
MRACManagement Risk and Capital Committee
NIINet interest income
NIMNet interest margin
NSFR(1)
Net stable funding ratio
OCIOther comprehensive income (loss)
OCIOOutsourced Chief Investment Officer
OFACOffice of Foreign Assets Control
Value-at-Risk
    
(1) As defined by the applicable U.S. regulations.



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GLOSSARY
  
  
2018 Form 10-K: State Street Corporation Form 10-K for the year ended December 31, 2018.

Asset-backed securities: A financial security backed by collateralized assets, other than real estate or mortgage backed securities.



Assets under custody andand/or administration:Assets that we hold directly or indirectly on behalf of clients under a safekeeping or custody arrangement or for which we provide administrative services for clients. To the extent that we provide more than one AUCAAUC/A service for a client’s assets, the value of the asset is only counted once in the total amount of AUCA.

AUC/A.

Assets under management: The total market value of client assets for which we provide investment management strategy services, advisory services and/or distribution services generating management fees based on a percentage of the assets’ market values. These client assets are not included on our balance sheet.



Beacon: A multi-year program, announced in October 2015, to create cost efficiencies through changes in our operational processes and to further digitize our processes and interfaces with our clients.



Certificates of deposit: A savings certificate with a fixed maturity date, specified fixed interest rate and can be issued in any denomination aside from minimum investment requirements. A CD restricts access to the funds until the maturity date of the investment.



Collateralized loan obligations:A security backed by a pool of debt, primarily senior secured leveraged loans. CLOs are similar to collateralized mortgage obligations, except for the different type of underlying loan. With a CLO, the investor receives scheduled debt payments from the underlying loans, assuming most of the risk in the event borrowers default, but is offered greater diversity and the potential for higher-than-average returns.



Commercial real estate: Property intended to generate profit from capital gains or rental income. Our CRE loans are primarily composedterm loans secured by commercial and multifamily properties. We seek CRE loans with strong competitive positions in major domestic markets, stable cash flows, modest leverage and experienced institutional ownership.

Deposit beta: A measure of how much of an interest rate increase is expected to be passed on to client interest-bearing accounts, on average.

Depot bank: A German term, specified by the country's law on investment companies, which essentially corresponds to 'custodian'.

Doubtful: Doubtful loans acquiredand leases meet the same definition of substandard loans and leases (i.e., well-defined weaknesses that jeopardize repayment with the possibility that we will sustain some loss) with the added characteristic that the weaknesses make collection or liquidation in 2008 pursuant to indemnified repurchase agreements with an affiliate of Lehman Brothers.
full highly questionable and improbable.

Economic value of equity: Long-term interest rate risk A measure designed to estimate the fair value of assets, liabilities and off-balance sheet instruments based on a discounted cash flow model.



Exchange-Traded Fund:A type of exchange-traded investment product that offer investors a way to pool their money in a fund that makes investments in stocks, bonds, or other assets and, in return, to receive an interest in that investment pool. ETF shares are traded on a national stock exchange and at market prices that may or may not be the same as the net asset value.



Exposure-at-default: A measure used in the calculation of regulatory capital under Basel III. It can be defined as the expected amount of loss a bank may be exposed to upon default of an obligor.

Global systemically important bank:A financial institution whose distress or disorderly failure, because of its size, complexity and systemic interconnectedness, would cause significant disruption to the wider financial system and economic activity, which will be subject to additional capital requirements.



Held-to-maturity investment securities: We classify investments in debt securities as held-to-maturity only if we have the positive intent and ability to hold those securities to maturity. Investments in debt securities classified as held-to-maturity are measured subsequently at amortized cost in the statement of financial position.



High-quality liquid assets: Cash or assets that can be converted into cash at little or no loss of value in private markets and are considered unencumbered.
Investment-grade: Loans

Investment grade: A rating of loans and leases that consist ofto counterparties with strong credit quality and low expected credit risk and probability of default. Ratings applyIt applies to counterparties with a strong capacity to support the timely repayment of any financial commitment.



Liquidity coverage ratio: The ratio of encumbered high-quality liquid assets divided by expected total net cash outflows over a 30-day stress period. A Basel III framework requirement for banks and bank holding companies to measure liquidity. Itliquidity, it is designed to ensure that certain banking institutions, including us, maintain a minimum amount of unencumbered HQLA sufficient to withstand the net cash outflow under a hypothetical standardized acute liquidity stress scenario for a 30-day stress period. The ratio of our encumbered high-quality liquid assets divided by our total net cash outflows over a 30-day stress period.



Net asset value: The amount of net assets attributable to each share of capital stock (other than senior securities, such as, preferred stock) outstanding at the closeshare/unit of the period.

fund at a specific date or time.

Net stable funding ratio: The ratio of the amount of available stable funding relative to the amount of required stable funding. This ratio should be equal to at least 100% on an ongoing basis.



Other-than-temporary-impairment: Impairment charge taken on a security whose fair value has fallen below its carrying value on balance sheet and its value is not expected to recover through the holding period of the security.

Probability-of-default: An internal risk rating that indicates

Probability of default: A measure of the likelihood that a credit obligor will enter into default status.



Qualified financial contracts: Securities contracts, commodity contracts, forward contracts, repurchase agreements, swap agreements and any other contract determined by the FDIC to be a qualified financial contract.

Risk-weighted assets: A measurement used to quantify risk inherent in our on and off-balance sheet assets by adjusting the asset value for risk. RWA is used in the calculation of our risk-based capital ratios.



Special mention: Loans and leases that consist of counterparties with potential weaknesses that, if uncorrected, may result in deterioration of repayment prospects.



Speculative: Loans and leases that 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.



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



Supplementary leverage ratio: The ratio of our tier 1 capital to our total leverage exposure, which measures our capital adequacy relative to our on and off-balance sheet assets.



Total loss-absorbing capacity: The sum of our tier 1 regulatory capital plus eligible external long-term debt issued by us.



Value-at-Risk: Statistical model used to measure the potential loss in value of a portfolio that could occur in normal markets condition, over a defined holding period, within a certain confidence level.



Variable interest entity: An entity that: (1) lacks enough equity investment at risk to permit the entity to finance its activities without additional financial support from other parties; (2) has equity owners that lack the right to make significant decisions affecting the entity’s operations; and/or (3) has equity owners that do not have an obligation to absorb or the right to receive the entity’s losses or return.





























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PART II. OTHER INFORMATION
ITEM 2.     UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(c) In June 2017,2018, our Board approved a common stock purchase program authorizing the purchase of up to $1.4$1.2 billion of our common stock through June 30, 2019 (the 2018 (the 2017 Program).
Stock purchases may be made using various types of mechanisms, including open market purchases, accelerated share repurchases 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, financial
performance and investment opportunities. Our common stock purchase programs do not have specific price targets and may be suspended at any time.
The following table presents purchases of our common stock under the 2017 Program and related information for each of the months in the quarter ended March 31, 2018. We may employ third-party broker/dealers to acquire shares on the open market in connection with our common stock purchase programs. We repurchased $300 million shares in the first quarter of 2019 and may repurchase up to $300 million in the second quarter of 2019 under the 2018 Program.
The following table presents purchases of our common stock under the 2018 Program and related information for each of the months in the quarter ended March 31, 2019.

(Dollars in millions, except per share amounts, shares in thousands) Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Program Approximate Dollar Value of Shares That May Yet be Purchased Under Publicly Announced Program
Period:        
January 1 - January 31, 2018 —
 $—
 —
 $700
February 1 - February 28, 2018 477
 108.04
 477
 649
March 1 - March 31, 2018 2,847
 104.85
 2,847
 350
Total 3,324
 $105.31
 3,324
 $350
 Total Number of Shares Purchased (In thousands) Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Program (In thousands) Approximate Dollar Value of Shares That May Yet be Purchased Under Publicly Announced Program (In millions)
Period:       
January 1 - January 31, 20191,297
 $71.34
 1,297
 $508
February 1 - February 28, 20192,933
 70.74
 2,933
 300
March 1 - March 31, 2019—
 —
 —
 300
Total4,230
 $70.93
 4,230
 $300



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ITEM 6.    EXHIBITS
Exhibit No. Exhibit Description
    
 
10.1†

 
Form of Employment Agreementamended and restated employment agreement entered into on December 13, 2018 with each of Joseph L. Hooley, Eric W. Aboaf, Andrew Erickson,Jeff D. Conway, Karen C. Keenan and Ronald P. O'Hanley, and Cyrus TaraporevalaO’Hanley
    
 
10.2†

Supplemental Cash Incentive Plan, as amended, First and Second Amendments thereto, and form of award agreement thereunder

10.3†

State Street's 2017 Stock Incentive Plan, and forms of award agreement thereunder

10.4†

Transition and Separation Agreement entered into with Jeff D. Conway dated March 20, 2019

10.5†

State Street’s Management Supplemental Savings Plan, Amended and Restated, as amended

15
 
Employment Letter Agreements entered into with Andrew Erickson dated August 21, 2012, November 19, 2012, and May 25, 2016regarding unaudited interim financial information
    
 
10.3†18.1
 
Supplemental Cash Incentive Plan, as amended, First Amendment thereto, and form of award agreement thereunderLetter regarding change in accounting principle
    
 
10.4†31.1
 
State Street's 2017 Stock Incentive Plan,Rule 13a-14(a)/15d-14(a) Certification of Chairman and forms of award agreements thereunderChief Executive Officer
    
 
10.5†31.2
 
Amended and Restated SSGA Long Term Incentive Plan, First Amendment thereto, and formRule 13a-14(a)/15d-14(a) Certification of award agreement thereunderChief Financial Officer
    
 
1232
 
Statement of Ratios of Earnings to Fixed ChargesSection 1350 Certifications
    
 
15
Letter regarding unaudited interim financial information
31.1
Rule 13a-14(a)/15d-14(a) Certification of Chairman and Chief Executive Officer
31.2
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32
Section 1350 Certifications
*101.INS The instance document does not appear in the interactive data file because its XBRL Instance Documenttags are embedded within the inline XBRL 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 arrangmentarrangement

* Submitted electronically herewith


Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) consolidated statement of income for the three months ended March 31, 20182019 and 2017,2018, (ii) consolidated statement of comprehensive income for the three months ended March 31, 20182019 and 2017,2018, (iii) consolidated statement of condition as of March 31, 20182019 and December 31, 2017,2018, (iv) consolidated statement of changes in shareholders' equity for the three months ended March 31, 20182019 and 2017,2018, (v) consolidated statement of cash flows for the three months ended March 31, 20182019 and 2017,2018, and (vi) notes to consolidated financial statements.




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SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. 
     STATE STREET CORPORATION
     (Registrant)
      
      
Date:May 3, 20181, 2019 By: 
/s/ ERIC W. ABOAF
     Eric W. Aboaf,
     Executive Vice President and Chief Financial Officer (Principal Financial Officer)
      
      
Date:May 3, 20181, 2019 By: 
/s/ ELIZABETH MIAN W. SCHAEFER APPLEYARD
     Elizabeth M. Schaefer,Ian W. Appleyard,
     
SeniorExecutive Vice President, DeputyGlobal Controller and Chief Accounting Officer (Interim)
(Principal Accounting Officer)
      




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