STATE STREET CORP (STT) FY 2022 MD&A

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

This Management's Discussion and Analysis should be read in conjunction with our consolidated financial statements and accompanying notes in this Form 10-K. Certain previously reported amounts presented in this Form 10-K have been reclassified to conform to current-period presentation.

As of December 31, 2022, we had consolidated total assets of $301.45 billion, consolidated total deposits of $235.46 billion, consolidated total shareholders' equity of $25.19 billion and approximately 42,000 employees. Through our two lines of business, Investment Servicing and Investment Management, we operate in more than 100 geographic markets worldwide, including the U.S., Canada, Latin America, Europe, the Middle East and Asia.

For the description of our lines of business, refer to "Lines of Business” in Item 1 in this Form 10-K. For financial and other information about our lines of business, refer to “Line of Business Information” in this Management's Discussion and Analysis and Note 24 to the consolidated financial statements in this Form 10-K.

We prepare our consolidated financial statements in conformity with U.S. GAAP. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions in its application of certain accounting policies that materially affect the reported amounts of assets, liabilities, equity, revenue and expenses.

Information about 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 is included under “Significant Accounting Estimates” in this Management's Discussion and Analysis and in Note 1 to the consolidated financial statements in this Form 10-K.

Certain financial information provided in this Form 10-K, including this Management's Discussion and Analysis, is presented using 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 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 as superior to,

financial information prepared in conformity with U.S. GAAP. Any non-GAAP financial information presented in this Form 10-K, including this Management’s Discussion and Analysis, is reconciled to its most directly comparable currently applicable regulatory ratio or U.S. GAAP-basis measure. As part of our non-GAAP-basis measures, we present a fully taxable-equivalent NII that reports non-taxable revenue, such as interest income associated with tax-exempt investment securities, on a fully taxable-equivalent basis, which we believe facilitates an investor's understanding and analysis of our underlying financial performance and trends.

In this Management’s Discussion and Analysis, where we describe the effects of changes in foreign currency translation, those effects are determined by applying applicable weighted average FX rates from the relevant 2021 period to the relevant 2022 period results.

This Management's Discussion and Analysis contains statements that are considered "forward-looking statements" within the meaning of U.S. securities laws. These forward-looking statements involve certain risks and uncertainties which could cause actual results to differ materially. Additional information about forward-looking statements and related risks and uncertainties is provided in "Forward-Looking Statements", "Risk Factors Summary" and "Risk Factors" in this Form 10-K.

Information regarding additional disclosures and materials available on our corporate website is provided under "Additional Information" in Item 1 in this Form 10-K.

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OVERVIEW OF FINANCIAL RESULTS

(1) Additional information about our preferred stock dividends is provided in Note 15 to the consolidated financial statements in this Form 10-K.

(2) 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.

The following section provides information related to significant events, as well as highlights of our consolidated financial results for the year ended December 31, 2022 presented in Table 1: Overview of Financial Results. More detailed information about our consolidated financial results, including the comparison of our financial results for the year ended December 31, 2022 to those of the year ended December 31, 2021, is provided under “Consolidated Results of Operations”, "Line of Business Information" and "Capital" sections which follow “Financial Results and Highlights”, as well as in our consolidated financial statements in this Form 10-K.

The comparison of our financial results for the year ended December 31, 2021 to those of the year ended December 31, 2020 is included in the Management's Discussion and Analysis in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 17, 2022.

Financial Results and Highlights

•2022 financial performance:

◦EPS of $7.19, flat compared to 2021.

◦Total revenue increased 1% compared to 2021, as higher NII was partially offset by lower fee revenue and the impact of currency translation, which decreased total revenue by 2% in 2022 relative to the same period in 2021.

◦Total expenses decreased 1% compared to 2021, as continued productivity and optimization savings, as well as the benefit from currency translation were partially offset by ongoing business investments and merit increases, professional fees, recoverable client-related expenses, marketing and travel costs. Currency translation reduced expenses by 3% in 2022 compared to 2021.

◦Return on equity of 11.1% increased from 10.7% in 2021, primarily due to an increase in net income available to common shareholders. Pre-tax margin of 27.4% increased from 26.4% in 2021, primarily due to the increase in total revenue and lower expenses.

◦Positive operating leverage of 2.0% points. Operating leverage represents the difference between the percentage change in total revenue and the percentage change in total expenses, in each case relative to the prior year period.

◦Negative fee operating leverage of 3.1% points. Fee operating leverage represents the difference between the percentage change in total fee revenue and the percentage change in total expenses, in each case relative to the prior year period.

◦Returned approximately $2.4 billion to our shareholders in the form of common stock dividends and common share repurchases compared to approximately $1.7 billion in 2021.

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Revenue

•Total fee revenue decreased 4% compared to 2021, primarily driven by lower servicing fees, management fees, and other fee revenue, partially offset by higher foreign exchange trading services revenue and software and processing fees. Currency translation negatively impacted both total revenue and total fee revenue by 2% each in 2022 compared to 2021.

•Servicing fee revenue decreased 8% compared to 2021, primarily due to normal pricing headwinds, lower average market levels and lower client activity and adjustments, partially offset by net new business. Currency translation contributed 3% to the decrease in servicing fee revenue in 2022 compared to 2021.

•Management fee revenue decreased 6% compared to 2021, primarily due to lower average equity and fixed income market levels, a previously reported client-specific pricing adjustment and institutional net outflows, partially offset by the absence of the impact of money market fee waivers and net inflows from cash and ETFs. Currency translation contributed 2% to the decrease in management fee revenue in 2022 compared to 2021.

•Foreign exchange trading services revenue increased 14% compared to 2021, primarily reflecting higher FX spreads and a revenue- related recovery from a 2018 FX benchmark litigation resolution, partially offset by lower client FX volumes.

•Securities finance revenue was flat compared to 2021, reflecting higher spreads, offset by lower agency and enhanced custody balances.

▪Software and processing fees revenue increased 7% compared to 2021, primarily due to higher front office software and data revenue associated with CRD, partially offset by lower lending fees.

•Other fee revenue decreased $64 million compared to 2021, primarily driven by negative market-related adjustments.

•NII increased 34% compared to 2021, primarily due to higher interest rates from U.S. and international central bank rate hikes, partially offset by lower client deposits.

Provision for Credit Losses

•We recorded a $20 million provision for credit losses, due to a downward shift in management's economic outlook that was

partially offset by a reduction in overall loan portfolio risk, compared to a $33 million release of credit reserves in 2021.

Expenses

•Total expenses decreased 1% compared to 2021, as continued productivity and optimization savings, as well as the benefit from currency translation were partially offset by ongoing business investments and merit increases, professional fees, recoverable client-related expenses, marketing and travel costs. Currency translation reduced expenses by 3% in 2022 compared to 2021.

Notable Items

•The impact of notable items in 2022 includes:

◦Revenue-related recovery of $23 million from settlement proceeds associated with the 2018 FX benchmark litigation resolution, which is reflected in foreign exchange trading services revenue;

◦Repositioning charges of approximately $78 million, consisting of $50 million of compensation and benefits expenses primarily related to streamlining the Investment Services organization, and $20 million of occupancy charges related to real estate footprint optimization and $8 million of BBH-related repositioning charges; and

◦Acquisition and restructuring costs of approximately $65 million related to the BBH Investor Services acquisition transaction we are no longer pursuing.

•The impact of notable items in 2021 includes:

◦Gain on the sale of a majority share of our Wealth Management Services (WMS) business of $53 million recorded in other income;

◦Gain on sale of investment securities of $58 million related to a one-time transfer of LIBOR and Euro Interbank Offered Rate based securities from HTM to AFS, and the subsequent sale of the majority of those securities in 2021;

◦Net repositioning release of approximately $3 million, consisting of $32 million release of previously accrued severance charges, partially offset by $29 million of occupancy charges related to footprint optimization;

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◦Deferred compensation expense acceleration of approximately $147 million associated with an amendment of certain outstanding deferred cash incentive compensation awards;

◦Acquisition and restructuring costs of approximately $65 million, of which $53 million related to CRD and $13 million related to the BBH Investor Services acquisition transaction we are no longer pursuing;

◦Net legal and other expenses of approximately $18 million, including $20 million in information systems and communications, $8 million in transaction processing services and $1 million in other expenses, partially offset by a legal accrual release of approximately $11 million associated with a settlement related to the invoicing matter; and

◦Costs of $5 million due to the partial redemption of outstanding Series F non-cumulative perpetual preferred stock representing the difference between the redemption value and the net carrying value of the preferred stock.

AUC/A and AUM

•AUC/A of $36.74 trillion as of December 31, 2022 decreased 16% compared to December 31, 2021, primarily due to lower market levels, a previously disclosed client transition and the impact of currency translation, partially offset by new business installations. In 2022, newly announced asset servicing mandates totaled approximately $1.9 trillion. Servicing assets remaining to be installed in future periods totaled approximately $3.60 trillion as of December 31, 2022.

•AUM of $3.48 trillion as of December 31, 2022 decreased 16% compared to December 31, 2021, primarily due to lower market levels, institutional net outflows and the impact of currency translation, partially offset by net inflows from ETFs.

Capital

•In 2022, we returned approximately $2.4 billion to our shareholders in the form of

common stock dividends and common share repurchases compared to approximately $1.7 billion in 2021.

•We declared aggregate common stock dividends of $2.40 per share, totaling $871 million compared to $2.18 per share, totaling $779 million in 2021.

•We did not repurchase any common stock during the first three quarters of 2022. In October 2022, we resumed our share repurchases under the 2021 Program, and purchased an aggregate of 19.5 million shares of common stock, at an average per share cost of $76.81 and an aggregate cost of approximately $1.5 billion in the fourth quarter of 2022.

•In January 2023, our Board approved a share repurchase program authorizing the purchase of up to $4.5 billion of our common stock through December 31, 2023.

•Our standardized CET1 capital ratio decreased to 13.6% as of December 31, 2022, compared to 14.3% as of December 31, 2021, primarily reflecting lower AOCI related to AFS securities, largely recognized in the first half of 2022 driven by the significant increase in interest rates across the yield curve and the resumption of common share repurchases in the fourth quarter of 2022, partially offset by higher retained earnings and episodically lower RWA. However, we anticipate RWA to increase over the coming quarter as market volatility levels normalize and we efficiently deploy capital to our businesses. Our Tier 1 leverage ratio decreased to 6.0% as of December 31, 2022 compared to 6.1% as of December 31, 2021, primarily driven by lower AOCI and resumption of share repurchases in the fourth quarter of 2022, partially offset by a decline in consolidated average assets. During 2022, we completed a number of actions designed to mitigate additional AOCI risk in the current environment including a $23.56 billion transfer of securities from AFS to HTM. Given the current global economic environment, we currently expect our CET1 and Tier 1 leverage capital ratios to move into our target ranges of 10-11% and 5.25-5.75%, respectively.

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Debt Issuances and Redemptions

•On February 7, 2022, we issued $300 million aggregate principal amount of 1.746% fixed-to-floating rate senior notes due 2026, $650 million aggregate principal amount of 2.203% fixed-to-floating rate senior notes due 2028 and $550 million aggregate principal amount of 2.623% fixed-to-floating rate senior notes due 2033.

•On March 30, 2022, we redeemed $750 million aggregate principal amount of 2.825% Fixed-to-Floating Rate Senior Notes due 2023.

•On May 13, 2022, we issued $500 million aggregate principal amount of 4.421% fixed-to-floating rate senior notes due 2033.

•On May 15, 2022, we redeemed $750 million aggregate principal amount of 2.653% fixed-to-floating rate senior notes due 2023.

•On August 4, 2022, we issued $750 million aggregate principal amount of 4.164% fixed-to-floating rate senior notes due 2033.

•On November 4, 2022, we issued $500 million aggregate principal amount of 5.751% fixed-to-floating rate senior notes due 2026 and $500 million aggregate principal amount of 5.820% fixed-to-floating rate senior notes due 2028.

•On January 26, 2023, we issued $500 million aggregate principal amount of 4.857% fixed-to-floating rate senior notes due 2026 and $750 million aggregate principal amount of 4.821% fixed-to-floating rate senior notes due 2034.

CONSOLIDATED RESULTS OF OPERATIONS

This section discusses our consolidated results of operations for 2022 compared to 2021 and should be read in conjunction with the consolidated financial statements and accompanying notes to the consolidated financial statements in this Form 10-K.

Total Revenue

(1) In the first quarter of 2022, we reclassified certain fee revenue in our Consolidated Statement of Operations, primarily moving revenues that are not directly associated with software and processing fees to a new Other fee revenue line item. In addition, we provided a disaggregation of servicing fees into Back office services and Middle office services and of software and processing fees into Front office software and data and Lending related and other fees. Prior periods have been revised to reflect these changes.

nm Not meaningful

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Fee Revenue

Table 2: Total Revenue, provides the breakout of fee revenue for the years ended December 31, 2022, 2021 and 2020. Servicing and management fees collectively made up approximately 73%, 76% and 74% of the total fee revenue in 2022, 2021 and 2020, respectively.

Servicing Fee Revenue

Servicing fees, as presented in Table 2: Total Revenue, decreased 8% in 2022 compared to 2021 primarily due to normal pricing headwinds, lower average market levels and lower client activity and adjustments, partially offset by net new business. Currency translation decreased servicing fee revenue by 3% in 2022 relative to 2021.

Servicing fees generated outside the U.S. were approximately 46% of total servicing fees in 2022, compared to approximately 48% in 2021.

Servicing fee revenue comprises revenue from both back office and middle office services. 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, which we refer to collectively as back office services and middle office services. The nature and mix of services provided and the asset classes for which the services are performed affect our servicing fees. The basis for fees will differ across regions and clients.

Changes in Market Valuations

Our servicing fee revenue is impacted by both our levels and the geographic and product mix of 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. For certain asset classes where the valuation process is more complex, including alternative investments, or where our valuation is dependent on third party information, AUC/A is reported on a time lag, typically one-month. For those asset classes, the impact of market levels on our reported AUC/A does not reflect current period-end market levels.

We estimate that worldwide market valuations impacted our servicing fee revenues by approximately (2)% and 7% in 2022 and 2021, respectively. Over the five years ended December 31, 2022, we estimate this impact was 2% on average with a range of (2)% to 7% annually. See Table 3: Daily Averages, Month-End Averages and Year-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.

Assuming that all other factors remain constant, including client activity, asset flows and pricing, we estimate, using relevant information as of December 31, 2022, 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 multiple quarters, of approximately 3%. We estimate, similarly assuming all other factors remain constant and using relevant information as of December 31, 2022, that changes in worldwide fixed income markets, which on a weighted average basis and over time are typically less volatile than worldwide equity markets, have a significantly smaller impact on our servicing fee revenues on average and over time.

(1) The index names listed in the table are service marks of their respective owners.

(1) The index names listed in the table are service marks of their respective owners.

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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, asset levels and asset classes in 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. We estimate that client activity and asset flows, together, impacted our servicing fee revenues by approximately (2)% and 0% in 2022 and 2021, respectively. Over the five years ended December 31, 2022, we estimate this impact was 0% on average with a range of (2)% to 2% annually. See Table 5: 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.

(1) Industry data is provided for illustrative purposes only. It is not intended to reflect our activity or our clients' activity and is indicative of only segments of the entire industry.

(2) Source: Morningstar. The data includes long-term mutual funds, ETFs and money market funds. 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 Fund of Funds, Feeder funds and Obsolete funds were excluded from the series to prevent double counting. Data is from the Morningstar Direct Asset Flows database.

(3) The year ended December 31, 2022 data for North America (US domiciled) includes Morningstar direct actuals for January 2022 through November 2022 and Morningstar direct estimates for December 2022.

(4) The long-term fund flows reported by Morningstar direct in North America are composed of US domiciled market flows mainly in Equities, Allocation and Fixed-Income asset classes. The long-term fund flows reported by Morningstar direct in EMEA are composed of the European market flows mainly in Equities, Allocation and Fixed-Income asset classes.

(5) The year ended December 31, 2022 data for Europe is on a rolling twelve month basis for December 2021 through November 2022, sourced by Morningstar.

Net New Business

Net new business, which includes business both won and lost, has affected our servicing fee revenues by approximately 1% in both 2022 and 2021. Over the five years ended December 31, 2022, this impact was 0% on average with a range of 0% to 1% annually. Gross investment servicing mandates were $1.94 trillion in 2022 and $2.00 trillion per year on average over the past five years. Over the five years ended December 31, 2022, gross annual investment servicing mandates ranged from approximately $0.79 trillion to $3.52 trillion.

Servicing fee revenue 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.

Revenues associated with new mandates are not reflected in our servicing fee revenue until the assets have been installed. Our installation timeline, in general, can range from 6 to 36 months, with the average installation timeline being approximately 9 to 12 months over the past 2 years. Our more complex installations, including new State Street Alpha mandates, will generally be on the longer end of that range. With respect to the current asset mandates of approximately $3.61 trillion that are yet to be installed as of December 31, 2022, we expect the conversion will occur over the coming 36 months.

Pricing

The industry in which we operate has historically faced pricing pressure, and our servicing fee revenues are also affected by such pressures today. Consequently, no assumption should be drawn as to future revenue run rate from announced servicing wins, as the amount of revenue associated with AUC/A, once installed, can vary materially. We estimate that pricing pressure with respect to existing clients has impacted our servicing fees by approximately (2)% in both 2022 and 2021. On average, over the five years ended December 31, 2022, this impact

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was approximately (3)% annually, with the impact ranging from (2)% 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 term 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 anticipated additional services, and the amount of revenue generated, may differ from expectations due to the impact of pricing concessions on existing services due to the necessary time required to onboard those new services, the nature of those services and client investment practices and other factors. These same market pressures also impact the fees we negotiate when we win business from new clients.

In order to offset the typical client attrition and normal pricing headwinds, we estimate that we need at least $1.5 trillion of new AUC/A per year; although, notwithstanding increases in AUC/A, servicing fees remain subject to several factors, including changes in market valuations, client activity and asset flows, the manner in which we price our services, the nature of the assets being serviced and the type of services and the other factors described in this Form 10-K.

Historically, and based on an indicative sample of revenue, we estimate that approximately 60%, on average, of our servicing fee revenues have been variable due to changes in asset valuations including changes in daily average valuations of AUC/A; another 15%, on average, of our servicing fees are impacted by the volume of activity in the funds we serve; and the remaining approximately 25% of our servicing fees tend not to be variable in nature nor impacted by market fluctuations or values.

Based on the impact of the above, client activity and asset flows, net new business and pricing, noted drivers of our servicing fee revenue will vary depending on the mix of products and services we provide to our clients. The full impact of changes in market valuations and the volume of activity in the funds may not be fully reflected in our servicing fee revenues in the periods in which the changes occur, particularly in periods of higher volatility.

(1) Certain previously reported amounts presented have been reclassified to conform to current-period presentation.

(2) Consistent with past practice, AUC/A values for certain asset classes are based on a lag, typically one-month.

(3) Geographic mix is generally based on the domicile of the entity servicing the funds and is not necessarily representative of the underlying asset mix.

Asset servicing mandates newly announced in 2022 totaled approximately $1.94 trillion. Servicing assets remaining to be installed in future periods totaled approximately $3.61 trillion as of December 31, 2022, which will be reflected in AUC/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 as the assets are installed and additional services are added over that period.

New asset servicing mandates may be subject to completion of definitive agreements, approval of applicable boards and shareholders and customary regulatory approvals. 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 permission to publicly disclose and 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

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servicing mandates and reflected in servicing assets remaining to be installed in the period in which the client provides its permission. 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, which may from time to time be significant.

With respect to these new servicing mandates, once installed we may provide various services, including back office services such as custody and safekeeping, transaction processing and trade settlement, fund administration, reporting and record keeping, security servicing, fund accounting, middle office services such as investment book of records (IBOR), transaction management, loans, cash derivatives and collateral services, recordkeeping, client reporting and investment analytics, markets services such as FX trading services, liquidity solutions, currency and collateral management and securities finance, and front office services such as portfolio management solutions, risk analytics, scenario analysis, performance and attribution, trade order and execution management, pre-trade compliance and ESG investment tools. Revenues associated with new servicing mandates may vary based on the breadth of services provided, the timing of installation, and the types of assets.

As previously disclosed, in early 2021, due to a decision to diversify providers, one of our large asset servicing clients has advised us it expects to move a significant portion of its ETF assets currently with State Street to one or more other providers, pending necessary approvals. We expect to continue as a significant service provider for this client after this transition and for the client to continue to be meaningful to our business. The transition began in 2022, but will principally occur in 2023 and 2024 and will impact our fee revenue and income growth trends through 2025. For the year ended December 31, 2022, the fee revenue associated with the assets yet to transition represented approximately 1.7% of our total fee revenue. The actual total revenue and income impact of this transition will reflect a range of factors, including potential growth in our continuing business with the client and expense reductions associated with the transition.

Management Fee Revenue

Management fees decreased 6% in 2022 compared to 2021, primarily due to lower average equity and fixed income market levels, a previously reported client-specific pricing adjustment and institutional net outflows, partially offset by the absence of the impact of money market fee waivers and net inflows from cash and ETFs.

Management fees generated outside the U.S. were approximately 26% of total management fees in both 2022 and 2021.

Management fees generally are affected by our level of AUM, which we report based on month-end 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. From the second half of 2020 through the first quarter of 2022, we were in a prolonged low-interest rate environment, and waived certain fees for our clients for money market products. Following the Federal Reserve rate hikes in March and September 2022, money market fee waivers did not have a significant impact on our management fee revenue in the last three quarters of 2022.

Asset-based management fees for passively managed products, to which our AUM is currently primarily weighted, are generally charged at a lower fee on AUM than for actively managed 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 account's performance.

In light of the above, we estimate, using relevant information as of December 31, 2022 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 management fees are calculated, would result in a corresponding change in our total management fee revenues, on average and over multiple quarters, of approximately 5%; and

•changes in worldwide fixed income markets, which on a weighted average basis and over time are typically less volatile than worldwide equity markets, will have a significantly smaller impact on our management fee revenues on average and over time.

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Daily averages, month-end averages and year-end indices demonstrate worldwide changes in equity and debt markets that affect our management fee revenue. Year-end indices affect the values of AUM as of those dates. See Table 3: Daily Averages, Month-End Averages and Year-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.

(1) The implementation of an improved internal data management system for product level data in the first quarter of 2021 resulted in some AUM reclassifications between the categories presented for prior periods to align with the current presentation. There was no impact to the total level of reported AUM.

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

(3) Includes real estate investment trusts, currency and commodities, including SPDR® Gold Shares and SPDR® Gold MiniSharesSM Trust. We are not the investment manager for the SPDR® Gold Shares and SPDR®Gold MiniSharesSM Trust, but act as the marketing agent.

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

.

(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 and SPDR® Gold MiniSharesSM Trust. We are not the investment manager for the SPDR® Gold Shares and SPDR®Gold MiniSharesSM Trust, but act as the marketing agent.

(3) The implementation of an improved internal data management system for product level data in the first quarter of 2021 resulted in some AUM reclassifications between the categories presented for prior periods to align with the current presentation. There was no impact to the total level of reported AUM.

nm Not meaningful

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(1) The implementation of an improved internal data management system for product level data in the first quarter of 2021 resulted in some AUM reclassifications between the categories presented for prior periods to align with the current presentation. There was no impact to the total level of reported AUM.

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

(3) Includes real estate investment trusts, currency and commodities, including SPDR® Gold Shares and SPDR® Gold MiniSharesSM Trust. We are not the investment manager for the SPDR® Gold Shares and SPDR®Gold MiniSharesSM Trust, but act as the marketing agent.

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

Foreign Exchange Trading Services

Foreign exchange trading services revenue, as presented in Table 2: Total Revenue, increased 14% in 2022 compared to 2021, primarily reflecting higher FX spreads and a revenue- related recovery from a 2018 FX benchmark litigation resolution, partially offset by lower client FX volumes. The negative impact on foreign exchange trading services revenue for fee waivers to money market funds participating on the Fund Connect platform, including State Street Global Advisors funds, was $12 million in 2022, compared to $53 million in 2021. The lower impact in 2022 was driven by the higher interest rate environment.

Foreign exchange trading services revenue comprises revenue generated by FX trading and revenue generated by brokerage and other trading services, which made up 68% and 32%, respectively, of foreign exchange trading services revenue in 2022, and 67% and 33%, respectively in 2021.

We primarily earn FX trading revenue by acting as a principal market-maker through both "direct sales and trading” and “indirect FX 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: Represents FX transactions with clients, for which we are the funds' custodian, or their investment managers, routed to our FX desk through our asset-servicing operation. 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 FX 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

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market-maker, enables our clients to define their FX execution strategy and automate the FX trade execution process, both for funds under custody with us as well as those under custody at another bank.

We also earn foreign exchange trading services revenue through "electronic FX services" and "other trading, transition management and brokerage revenue."

•Electronic FX services: Our clients may choose to execute FX transactions through one of our electronic trading platforms. These transactions generate revenue through a “click” fee.

•Other trading, transition management and brokerage 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, which are not limited to foreign exchange, generate revenue via commissions charged for trades transacted during the management of these portfolios.

Fund Connect is another one of our electronic trading platforms: it is a global trading, analytics and cash management tool with access to more than 400 money market funds from leading providers.

Securities Finance

Securities finance revenue, as presented in Table 2: Total Revenue, was flat in 2022 compared to 2021, primarily driven by higher spreads, offset by lower agency and enhanced custody balances.

Our securities finance business consists of three components:

(1) an agency lending program for State Street Global Advisors managed investment funds with a broad range of investment objectives, which we refer to as the State 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 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 from clients who have designated us as an eligible borrower.

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.

Software and Processing Fees

Software and processing fees revenue, presented in Table 2: Total Revenue, increased 7% in 2022 compared to 2021, primarily driven by higher front office software and data revenue associated with CRD, partially offset by lower lending fees.

Software and processing fees revenue includes diverse types of fees and revenue, including fees from software licensing and maintenance and fees from our structured products business.

Front office software and data revenue, which primarily includes revenue from CRD, Alpha Data Platform and Alpha Data Services, increased 14% in 2022 compared to 2021, primarily driven by higher on-premises renewals and software-enabled revenue.

Revenue related to the front office solutions provided by CRD is primarily driven by the sale of term software licenses and SaaS, including professional services such as consulting and implementation services, software support and maintenance. Approximately 50%-70% of revenue associated with a sale of software to be installed on-premises is recognized at a point in time when the customer benefits from obtaining access to and use of the software license, with the percentage varying based on the length of the contract and other contractual terms. The

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remainder of revenue for on-premise installations is recognized over the length of the contract as maintenance and other services are provided. Upon renewal of an on-premises software contract, the same pattern of revenue recognition is followed with 50%-70% recognized upon renewal and the remaining balance recognized over the term of the contract. Revenue for a SaaS related arrangement, where the customer does not take possession of the software, is recognized over the term of the contract as services are provided. Upon renewal of a SaaS arrangement, revenue continues to be recognized as services are provided under the new contract. As a result of these differences in how portions of CRD revenue are accounted for, CRD revenue may vary more than other business units quarter to quarter.

Lending related and other fees decreased 6% in 2022 compared to 2021, reflecting lower unfunded commitments relating to our municipal and fund finance products, driven by changes in product mix. Lending related and other fees primarily consists of fee revenue associated with our fund finance, leverage loans, municipal finance, insurance and stable value wrap businesses.

Other Fee Revenue

Other fee revenue includes market-related adjustments and income associated with certain tax-advantaged investments and other equity method investments.

Other fee revenue decreased $64 million in 2022, compared to 2021, primarily driven by negative market-related adjustments which impacted other fee revenue by approximately $57 million compared to the same period in 2021.

Additional information about fee revenue is provided under "Line of Business Information" included in this Management's Discussion and Analysis.

Net Interest Income

See Table 2: Total Revenue, for the breakout of interest income and interest expense for the years ended December 31, 2022, 2021 and 2020.

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, loans, resale agreements and other liquid assets, are financed primarily by client deposits, short-term borrowings and long-term debt.

NIM represents the relationship between annualized FTE NII and average total interest-earning assets for the period. It is calculated by dividing FTE NII by average interest-earning assets. Revenue that is exempt from income taxes, mainly earned from certain investment securities (state and political subdivisions), is adjusted to a FTE basis using the U.S. federal and state statutory income tax rates.

NII on an FTE basis increased in 2022 compared to 2021, primarily due to higher interest rates from U.S. and international central bank rate hikes, partially offset by lower client deposits.

Net premium amortization on investment securities, which is included in interest income, was $225 million in 2022, compared to $556 million in 2021 and $575 million in 2020. The decrease in MBS premium amortization is primarily due to lower prepayments from higher long-end interest rates.

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 rate of return considers any non-refundable fees or costs, as well as purchase premiums or discounts, resulting in amortization or accretion, accordingly. The amortization of premiums and accretion of discounts are adjusted for prepayments when they occur, which primarily impact mortgage-backed securities.

The following table presents the investment securities amortizable purchase premium net of discount accretion for the periods indicated:

(1) The investment securities portfolio duration was 2.6 years in 2022, 2.9 years in 2021 and 3.0 years in 2020. Totals exclude premiums or discounts created from the transfer of securities from AFS to HTM. Additional information on the transfer of securities is provided in Note 3 to the consolidated financial statements in this Form 10-K.

(2) Net of discount accretion on MMLF HTM securities.

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See Table 14: Average Balances and Interest Rates - Fully Taxable-Equivalent Basis, for the breakout of NII on a FTE basis for the years ended December 31, 2022, 2021 and 2020.

(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) Negative values reflect the impact of interest rate environments outside of the U.S. where central bank rates were below zero for several major currencies.

(3) Reflects the impact of balance sheet netting under enforceable netting agreements of approximately $71.02 billion, $62.15 billion and $100.45 billion for the years ended December 31, 2022, 2021 and 2020, respectively. Excluding the impact of netting, the average interest rates would be approximately 0.26%, 0.04% and 0.12% for the years ended December 31, 2022, 2021 and 2020, respectively.

(4) Reflects the impact of balance sheet netting under enforceable netting agreements of approximately $5.39 billion, $$5.60 billion and $$5.65 billion for the years ended December 31, 2022, 2021 and 2020, respectively. Excluding the impact of netting, the average interest rates would be approximately 1.46%, 0.06% and 0.32% for the years ended December 31, 2022, 2021 and 2020, respectively.

(5) Average rate includes the impact of FX swap costs of approximately ($20) million, ($68) million and ($63) million for the years ended December 31, 2022, 2021 and 2020, respectively. Average rates for total interest-bearing deposits excluding the impact of FX swap costs were (0.55)%, (0.10)% and (0.03)% for the years ended December 31, 2022, 2021 and 2020, respectively.

(6) Total deposits averaged $222.87 billion, $235.40 billion and $193.23 billion for the years ended December 31, 2022, 2021 and 2020, respectively.

(7) Reflects the impact of balance sheet netting under enforceable netting agreements of approximately $4.59 billion, $5.48 billion and $6.38 billion for the years ended December 31, 2022, 2021 and 2020, respectively. Excluding the impact of netting, the average interest rates would be approximately 2.20%, 0.38% and 0.60% for the years ended December 31, 2022, 2021 and 2020, respectively.

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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 17 to the consolidated financial statements in this Form 10-K.

Average total interest-earning assets were $247.23 billion in 2022 compared to $260.04 billion in 2021. The decrease is primarily due to lower client deposit balances.

Interest-bearing deposits with banks averaged $76.50 billion in 2022 compared to $90.00 billion in 2021. These deposits primarily reflect our maintenance of cash balances at the Federal Reserve, the European Central Bank (ECB) and other non-U.S. central banks. The lower levels of average cash balances reflect lower levels of client deposits.

Securities purchased under resale agreements averaged $2.12 billion in 2022 compared to $4.19 billion in 2021. As a member of FICC, we may net securities sold under repurchase agreements against those purchased under resale agreements with counterparties that are also members of the clearing organization, when specific netting criteria are met. The impact of balance sheet netting was $71.02 billion on average in 2022 compared to $62.15 billion in 2021, primarily driven by an increase in FICC repo volumes.

We are a direct and sponsoring member of FICC. As a sponsoring member within FICC, we enter into repurchase and resale transactions in eligible securities with sponsored clients and with other FICC members and, pursuant to FICC Government Securities Division rules, submit, novate and net the transactions. We may sponsor clients to clear their eligible repurchase transactions with FICC, backed by our guarantee to FICC of the prompt and full payment and performance of our sponsored member clients’ respective obligations. We generally obtain a security interest from our sponsored clients in the high quality securities collateral that they receive, which is designed to mitigate our potential exposure to FICC.

Additionally, as a member of FICC, we may be required to pay a pro rata share of the losses incurred by the organization and provide liquidity support in the event of the default of another member to the extent that the defaulting member’s clearing fund obligation and the prescribed loss allocation to FICC is depleted. It is difficult to estimate our maximum possible exposure under the membership agreement, since this would require an assessment of future claims that may be made against us that have not yet occurred. At December 31, 2022 and 2021, we did not record any liabilities under these arrangements.

Average investment securities increased to $111.93 billion in 2022 from $111.73 billion in 2021,

primarily driven by growth in U.S. Treasuries, MBS and CMBS balances, partially offset by a reduction in credit-sensitive assets.

Loans averaged $35.12 billion in 2022 compared to $31.01 billion in 2021. Average core loans, which exclude overdrafts and highlight our efforts to grow our lending portfolio, averaged $29.10 billion in 2022 compared to $26.76 billion in 2021. The increase is primarily due to growth in CLOs in loan form and consumer real estate loans, partially offset by a decline in leveraged loans. Additional information about these loans is provided in Note 4 to the consolidated financial statements in this Form 10-K.

Average other interest-earning assets, largely associated with our enhanced custody business, decreased to $20.85 billion in 2022 from $22.36 billion in 2021, primarily driven by a decrease in the level of cash collateral posted. Enhanced custody is our securities financing business where we act as principal with respect to our custody clients and generate securities finance revenue.

Aggregate average total interest-bearing deposits decreased to $175.09 billion in 2022 from $186.97 billion in 2021. The decrease is driven by higher market rates from central bank rate hikes, the impact of quantitative tightening, currency translation and equity market declines. Future deposit levels will be influenced by the underlying asset servicing business, client deposit behavior and market conditions, including the general levels of U.S. and non-U.S. interest rates.

Average other short-term borrowings increased to $1.19 billion in 2022 from $0.79 billion in 2021.

Average long-term debt was $14.13 billion in 2022 compared to $13.38 billion in 2021. These amounts reflect issuances, redemptions and maturities of senior debt during the respective periods.

Average other interest-bearing liabilities were $2.73 billion in 2022 compared to $5.49 billion in 2021. 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 deposits and funding sources; central 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

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changes in the type and amount of credit or other loans we extend.

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 federal agency MBS, sovereign debt securities and U.S. Treasury and agency securities. The pace at which we 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 impact our reinvestment program and future levels of NII and NIM.

Provision for Credit Losses

We recorded a $20 million provision for credit losses in 2022, due to a downward shift in management's economic outlook that was partially offset by a reduction in overall loan portfolio risk, compared to a $33 million release of credit reserves in 2021.

Additional information is provided under “Loans” in "Financial Condition" in this Management's Discussion and Analysis and in Note 4 to the consolidated financial statements in this Form 10-K.

Expenses

Table 15: Expenses, provides the breakout of expenses for the years ended December 31, 2022, 2021 and 2020. Total expenses decreased 1% compared to 2021, as continued productivity and optimization savings, as well as the benefit from currency translation were partially offset by ongoing business investments and merit increases, professional fees, recoverable client-related expenses, marketing and travel costs. Currency translation reduced expenses by 3% in 2022 compared to 2021.

Compensation and employee benefits expenses decreased 3% in 2022 compared to 2021, primarily due to the impact of currency translation and a decrease in notable items, partially offset by higher headcount and merit increases. Currency translation decreased compensation and employee benefits expenses by 3% in 2022 relative to 2021.

Total headcount increased 9% as of December 31, 2022 compared to December 31, 2021, primarily in global hubs driven by operational support for new business growth segments, as well as technology investments and in-sourcing.

Information systems and communications expenses decreased 2% in 2022 compared to 2021, primarily due to productivity and vendor savings initiatives, partially offset by technology infrastructure investments.

Transaction processing services expenses decreased 5% in 2022 compared to 2021, primarily due to lower sub-custody costs and the impact of currency translation which reduced transaction processing services expenses by 2% in 2022 compare to 2021.

Occupancy expenses decreased 11% in 2022 compared 2021, primarily due to footprint optimization and the impact of currency translation which reduced occupancy expenses by 4% in 2022 compared to 2021.

Amortization of other intangible assets decreased 3% in 2022 compared to 2021, primarily reflecting the impact of currency translation which reduced amortization of other intangible assets by 3% in 2022 compared to 2021.

Other expenses increased 20% in 2022 compared to 2021, primarily due to higher professional services, recoverable client-related expenses, securities processing costs, travel costs and marketing expenses.

Acquisition and Restructuring Costs

Acquisition and restructuring costs were $65 million in 2022, unchanged compared to 2021. We recorded approximately $65 million and $13 million in 2022 and 2021, respectively, of acquisition costs related to the BBH Investor Services acquisition transaction we are no longer pursuing. In addition, in 2021, we also recorded approximately $52 million of acquisition costs related to our 2018 acquisition of CRD for which we no longer distinguished certain costs as acquisition costs starting in 2022.

Repositioning Charges

Expenses for 2022 included repositioning charges of $78 million, consisting of $50 million of compensation and benefits expenses primarily related to streamlining the Investment Services organization, $20 million of occupancy charges

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related to real estate footprint optimization and $8 million of BBH-related repositioning charges. The BBH-related repositioning charges were recognized in acquisition and restructuring expenses. Expenses included a net repositioning release of $3 million in 2021.

The following table presents aggregate activity for repositioning charges and activity related to previous Beacon restructuring charges for the periods indicated:

Income Tax Expense

Income tax expense was $553 million in 2022 compared to $478 million in 2021. Our effective tax rate was 16.6% in 2022 compared to 15.1% in 2021. The 2021 effective tax rate included higher discrete benefits from the completion of tax audits than we experienced in 2022.

Additional information regarding income tax expense, including unrecognized tax benefits and tax contingencies, are provided in Notes 13 and 22 to the consolidated financial statements in this Form 10-K.

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 the description of our lines of business, refer to "Lines of Business” in Item 1 in this Form 10-K. Certain amounts that are not allocated to our two lines of business, including repositioning charges, employee costs, acquisition costs, revenue-related recoveries and certain legal accruals. See Note 24 to the consolidated financial statements in this Form 10-K.

Investment Servicing

nm Not meaningful

Servicing Fees

Servicing fees, as presented in Table 17: Investment Servicing Line of Business Results, decreased 8% in 2022 compared to 2021 primarily due to normal pricing headwinds, lower average market levels and lower client activity and adjustments, partially offset by net new business. Currency translation decreased servicing fees revenue by 3% in 2022 relative to 2021.

For additional information about servicing fees and the impact of worldwide equity and fixed-income valuations on our fee revenue, as 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.

Expenses

Total expenses for Investment Servicing increased 1% in 2022 compared to 2021, as expense growth from higher technology infrastructure investments, higher headcount and merit increases was partially offset by productivity savings, on-going expense management initiatives and the benefit of currency translation, which reduced expenses for Investment Servicing by 3% in 2022 relative to 2021. Seasonal deferred incentive compensation expense and payroll taxes were $143 million in 2022 compared to $124 million in 2021. 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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Investment Management

(1) Includes revenues from SPDR® Gold Shares and SPDR® Gold MiniSharesSM Trust AUM where we are not the investment manager but act as the marketing agent.

(2) Includes revenue for reimbursements received for certain ETFs associated with State Street Global Advisors where we act as the distribution and marketing agent.

(3) Includes other revenue items that are primarily driven by equity market movements.

nm Not meaningful

Investment Management total revenue decreased 6% in 2022 compared to 2021.

Management Fees

Management fees decreased 6% in 2022 compared to 2021, primarily due to lower average equity and fixed income market levels, a previously reported client-specific pricing adjustment and institutional net outflows, partially offset by the absence of the impact of money market fee waivers and net inflows from cash and ETFs. Currency translation decreased management fees by 2% in 2022 relative to 2021.

For additional information about the impact of worldwide equity and fixed-income valuations, as well as other key drivers of our management fees revenue, refer to "Fee Revenue" in "Consolidated Results of Operations" included in this Management's Discussion and Analysis.

Expenses

Total expenses for Investment Management decreased 3% in 2022 compared to 2021, as savings from on-going expense management initiatives and lower incentive compensation were partially offset by merit increases. Currency translation reduced expenses for Investment Management by 2% in 2022 relative to 2021. Seasonal deferred incentive compensation expense and payroll taxes were $65 million in 2022, compared to $52 million in 2021.

Additional information about expenses is provided under "Expenses" in "Consolidated Results of Operations" included in this Management's Discussion and Analysis.

For additional information about our two lines of business, as well as the revenues, expenses and capital allocation methodologies associated with them, refer to Note 24 to the consolidated financial statements in this Form 10-K.

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 the volume, mix and currency denomination of our assets and liabilities. 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.

Additional information on our financial condition is presented in Table 14: Average Balances and Interest Rates - Fully Taxable-Equivalent Basis. We believe the average statement of condition is a better measure of the balance

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sheet trends as period-end balances can be impacted by the timing of client activities including deposits and withdrawals.

Investment Securities

(1) As of December 31, 2022, 2021 and 2020, the fair value non-U.S. collateralized loan obligations of $0.86 billion, $0.83 billion and $0.96 billion, respectively.

(2) As of December 31, 2022, 2021 and 2020, the fair value includes non-U.S. corporate bonds of $1.14 billion, $1.53 billion and $1.88 billion, respectively.

(3) Primarily comprised of securities guaranteed by the federal government with respect to at least 97% of defaulted principal and accrued interest on the underlying loans.

(4) Excludes collateralized loan obligations in loan form. Refer to Note 4 to the consolidated financial statements in this Form 10-K for additional information.

(5) Consists entirely of non-agency CMBS as of December 31, 2022, 2021 and 2020.

(6) As of December 31, 2022, 2021 and 2020, the fair value of U.S. corporate bonds was $1.01 billion, $2.44 billion and $3.44 billion, respectively.

(7) As of December 31, 2022, 2021 and 2020, the total amortized cost included $133 million, $292 million and $464 million, respectively, of non-agency CMBS and $9 million, $14 million and $90 million, respectively, of non-agency RMBS.

(8) As of December 31, 2020, we recognized an allowance for credit losses on all HTM securities of $3 million, inclusive of $1 million related to HTM securities purchased under the money market mutual fund liquidity facility.

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

We manage our investment securities portfolio to align with the interest rate and duration characteristics of our client liabilities and in the context of the overall structure of our consolidated statement of condition, in consideration of the global interest rate environment. We consider a well-diversified, high-credit quality investment securities portfolio to be an important element in the management of our consolidated statement of condition.

In 2022, we completed a number of actions to mitigate additional AOCI risk in the current environment including a $23.56 billion transfer of securities from AFS to HTM. While these measures may serve to mitigate additional AOCI risk, we continue to be exposed to risks associated with sudden or significant AOCI deterioration, particularly in an environment of continuing significant, and potentially, historic interest rate increases. There can be no assurance that we will not experience further, potentially material AOCI deterioration.

Average duration of our investment securities portfolio was 2.6 years and 2.9 years as of December 31, 2022 and 2021, respectively.

Approximately 95% of the carrying value of the portfolio was rated “AA” or higher as of both December 31, 2022 and 2021 as follows:

(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 and also includes Agency MBS securities which are not explicitly rated but which have an explicit or assumed guarantee from the U.S. government.

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As of December 31, 2022 and 2021, the investment portfolio was diversified with respect to asset class composition. The following table presents the composition of these asset classes.

Non-U.S. Debt Securities

Approximately 25% and 28% of the aggregate carrying value of our investment securities portfolio was non-U.S. debt securities as of December 31, 2022 and 2021, respectively.

(1) Geography is determined primarily based on the domicile of collateral or issuer.

(2) As of December 31, 2022, other non-U.S. investments include $5.7 billion supranational bonds in AFS securities and $2.9 billion supranational bonds in HTM securities.

Approximately 86% and 81% of the aggregate carrying value of these non-U.S. debt securities was rated “AAA” or “AA” as of December 31, 2022 and 2021, respectively. The majority of these securities comprised senior positions within the security structures; these positions have a level of protection provided through subordination and other forms of credit protection. As of December 31, 2022 and 2021, approximately 26% and 24%, respectively, of the aggregate carrying value of these non-U.S. debt securities was floating-rate.

As of December 31, 2022, our non-U.S. debt securities had an average market-to-book ratio of 96.5%, and an aggregate pre-tax net unrealized loss of $937 million, composed of gross unrealized gains of $1 million and gross unrealized losses of $938 million. These unrealized amounts included:

•a pre-tax net unrealized loss of $633 million, composed of gross unrealized gains of $1 million and gross unrealized losses of $634 million, associated with non-U.S. AFS debt securities; and

•a pre-tax net unrealized loss of $304 million associated with non-U.S. HTM debt securities.

As of December 31, 2022, the underlying collateral for non-U.S. MBS and ABS primarily included mortgages in Australia, the U.K., the Netherlands and Italy. The securities listed under “Canada” were composed of Canadian government securities and provincial bonds, corporate debt and non-U.S. agency securities. The securities listed under “France” were composed of sovereign bonds, corporate debt, covered bonds, ABS and Non-U.S. agency securities. The securities listed under “Japan” were substantially composed of Japanese government securities.

Municipal Obligations

We carried approximately $0.82 billion of municipal securities classified as state and political subdivisions in our investment securities portfolio as of December 31, 2022, as shown in Table 19: Carrying Values of Investment Securities, all of which were classified as AFS. As of December 31, 2022, we also provided approximately $6.98 billion of credit and liquidity facilities to municipal issuers.

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(1) Represented 5% or more of our aggregate municipal credit exposure of approximately $7.81 billion and $10.22 billion across our businesses as of December 31, 2022 and 2021, respectively.

(2) Includes municipal loans which are also presented within Table 25: U.S. and Non-U.S. Loans .

Our aggregate municipal securities exposure presented in Table 23: State and Municipal Obligors, was concentrated primarily with highly-rated counterparties, with approximately 93% of the obligors rated “AA” or higher as of December 31, 2022. As of that date, approximately 31% and 69% 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 impairment of our municipal securities is provided in Note 3 to the consolidated financial statements in this Form 10-K.