UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

x    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For The Quarterly Period Ended September 30, 2003March 31, 2004

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. 0-5108

STATE STREET CORPORATION

(Exact name of registrant as specified in its charter)

617-786-3000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yesx    No¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yesx    No¨

The number of shares of the Registrant’s Common Stock outstanding on October 31, 2003April 30, 2004 was 334,213,804.335,919,316.

STATE STREET CORPORATION

Table of Contents

PART I.    ITEM 1.

FINANCIAL STATEMENTS

Consolidated Statement of Income—State Street Corporation (Unaudited)

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

PART I.    ITEM 1.

FINANCIAL STATEMENTS (continued)

Consolidated Statement of Income—State Street Corporation (Unaudited)

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

PART I.    ITEM 1.

FINANCIAL STATEMENTS (continued)

Consolidated Statement of Condition—State Street Corporation

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

PART I.    ITEM 1.

FINANCIAL STATEMENTS (continued)

Consolidated Statement of Changes in Stockholders’ Equity—State Street Corporation (Unaudited)

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

PART I.    ITEM 1.

FINANCIAL STATEMENTS (continued)

Consolidated Statement of Cash Flows—State Street Corporation (Unaudited)

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

PART I.    ITEM 1.

FINANCIAL STATEMENTS (continued)

Notes to Consolidated Financial Statements—State Street Corporation (Unaudited)

Note 1—Basis of Presentation

Organization and Nature of Operations

State Street Corporation (“State Street” or the “Corporation”) is a financial holding company thatand reports two lines of business. Investment Servicing provides services for U.S. mutual funds, collective funds worldwide, corporate and public retirement plans, insurance companies, foundations, endowments, and other investment pools. Products include custody, accounting, daily pricing and administration; master trust and master custody; investment management; trusteeship and recordkeeping; foreign exchange; securities lending; cash management; trading; and information services to clients worldwide. State Street reports two lines of business. Investment Servicing includes custody, accounting, daily pricing and administration; master trust and master custody; trusteeship and recordkeeping; foreign exchange and trading services; securities lending; deposit and short-term investment facilities; loans and lease financing; investmentwealth manager and hedge fund manager operations outsourcing;services; and performance, risk and compliance analytics to support institutional investors. Investment Management offers a broad array of services for managing financial assets, including investment management and investment research services, primarily for both institutions and individualinstitutional investors worldwide; these services include activepassive and passiveactive U.S. and non-U.S. equity and fixed income strategies, and other related services, such as securities lending.

The consolidated financial statements include the accountsBasis of State Street and its subsidiaries, including its principal subsidiary, State Street Bank and Trust Company (“State Street Bank”).

All significant intercompany balances and transactions have been eliminated upon consolidation. The results of operations of businesses purchased are included from the date of acquisition. Investments in affiliates in which the Corporation has the ability to exercise significant influence, but not control, are accounted for using the equity method.Presentation

In the opinion of management, all adjustments, consisting of normal recurring accruals, which are necessary for a fair presentation of the financial position of State Street and subsidiaries at September 30, 2003March 31, 2004 and December 31, 2002,2003, its cash flows for the ninethree months ended September 30,March 31, 2004 and 2003, and 2002, and consolidated results of its operations for the three-three months ended March 31, 2004 and nine-months ended September 30, 2003, and 2002, have been made. Operating results for the three- and nine-month periodsthree months ended September 30, 2003,March 31, 2004, are not necessarily indicative of the results that may be expected for the year ending December 31, 2003.2004. These statements should be read in conjunction with the financial statements and other information included in State Street’s latest annual report on Form 10-K.

The Statement of Condition at December 31, 2002,2003, has been developed from the audited financial statements at that date, but does not include all footnotes required by generally accepted accounting principles for complete financial statements.

Principles of Consolidation

The consolidated financial statements include the accounts of State Street and its subsidiaries, including its principal subsidiary, State Street Bank and Trust Company (“State Street Bank”). All significant intercompany balances and transactions have been eliminated upon consolidation.

The assets and liabilities of non-U.S. operations are translated at month-end exchange rates, and revenue and expenses are translated at rates that approximate average monthly exchange rates. Gains or losses from the translation of the net assets of non-U.S. subsidiaries and branches, net of related taxes, are reported in accumulated other comprehensive income.

Use of Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Certain previously reported amounts have been reclassified to conform to the current method of presentation.Investments in Affiliates

Investments in affiliates in which the Corporation has the ability to exercise significant influence, but not control, are accounted for using the equity method, unless the affiliate is determined to be a variable interest entity (“VIE”) of which State Street absorbs the majority of expected losses, in which case State Street consolidates the VIE.

PART I.    ITEM 1.

FINANCIAL STATEMENTS (continued)

Notes to Consolidated Financial Statements—State Street Corporation (Unaudited)

Note 1—Basis of Presentation (continued)

Revenue Recognition

Revenues from investmentRevenue recorded as servicing fees, management fees, securities lending fees, foreign exchange trading, brokerage fees and certain types of revenue recorded in processing arefees and other is recognized when earned based on contractual terms and areis accrued based on estimates, or areis recognized as transactions occur or services are provided and collectibility is reasonably assured. Revenue on interest-earning assets is recognized based on the effective yield of the financial instrument.

Stock-Based Compensation

State Street expenses stock options using the fair value method in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation” using the prospective transition method afforded under SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure,” an amendment to SFAS No. 123. The following table illustrates thepro forma effect on net income and earnings per share as if the fair value method had been applied to all outstanding and unvested stock options in each period:

A total of 768,000 options were exercised during the three months ended March 31, 2004, with a weighted average option price of $29.26 per share. During the three months ended March 31, 2004, 2,200,000 options were granted with a weighted average option price of $52.78 per share.

Reclassification

Certain previously reported amounts have been reclassified to conform to the current method of presentation.

Accounting Changes and Recent Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”). As a result of this Interpretation, State Street deconsolidated the trusts that issued trust preferred capital securities in the fourth quarter of 2003. In December 2003, the FASB issued a revised version of FIN 46 (“FIN 46-R”) that deferred the effective date of

PART I.    ITEM 1.

FINANCIAL STATEMENTS (continued)

Notes to Consolidated Financial Statements—State Street Corporation (Unaudited)

Note 1—Basis of Presentation (continued)

Impact of Recent Accounting Announcements

In November 2002, the FASB issued FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements of Guarantees, Including Guarantees of Indebtedness of Others.” Accounting requirements became effective January 1, 2003, and require all guarantees and indemnifications within its scope to be recorded at fair value as liabilities, and the maximum possible loss to the Corporation under these guarantees and indemnifications to be disclosed. State Street has indemnificationsit related to securities lending clients, certain investment guarantee products, credit enhancements and liquidity facilities, and parent company guaranteestypes of subsidiary’s obligations that fall within the scope of this Interpretation. Each of these guarantees, except the parent company guarantees, is collateralized to some extent, which reduces loss exposure to the Corporation. The liabilities associated with these products are not material to the Corporation.

On January 1, 2003, State Street began expensing stock options using the fair value method in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation.” State Street used the prospective transition method afforded under SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure,” an amendment to SFAS No. 123. The following table illustrates the effect on net income and earnings per share if the fair value method had been applied to all outstanding and unvested stock options in each period:

A total of 394,000 and 873,000 options were exercised during the three- and nine-months ended September 30, 2003, respectively, with a weighted average option price of $31.70 and $24.26 per share, respectively. During the three- and nine-months ended September 30, 2003, 4,211,000 and 4,271,000 options were granted, with a weighted average option price of $45.12 and $45.01 per share, respectively.

On January 17, 2003, the FASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities.” On October 8, 2003, the FASB issued a statement that deferred application of FIN 46 until December 31, 2003. For companies that had consolidated variable interest entities under FIN 46 prior to October 8, 2003, early adoption is

PART I.    ITEM 1.

FINANCIAL STATEMENTS (continued)

Notes to Consolidated Financial Statements—State Street Corporation (Unaudited)

Note 1—Basis of Presentation (continued)

allowed. State Street applied the rules of the interpretation to certain variable interest entities effective July 1, 2003. It was determined that two investments, previously accounted for under the equity method, needed to be consolidated.until March 31, 2004. The impact of consolidating these entities was not material to the financial statements of the Corporation. State Street is still evaluating other off-balance sheet entities. After restructuring of certain contractual obligations in the asset-backed commercial paper program, which is not reflected in the financial statements of State Street, consolidation of these entities is not required under existing guidance. Upon adoption of FIN 46, the Corporation will have to deconsolidate the trusts which issue these Trust Preferred Capital Securities. The impact46-R as of deconsolidating the trusts will be an increase in other assets and long-term debt of $31 million. State Street will continue to monitor the application of FIN 46, and additional actions may be taken.

On April 30, 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” SFAS No. 149 provides criteria for when a contract with an initial net investment should be classified as a derivative, as discussed in SFAS No. 133. In addition, SFAS No. 149 clarifies circumstances requiring special reporting in the statement of cash flows for a derivative with a financing component. SFAS No. 149 is effective on a prospective basis for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. Application of this standardMarch 31, 2004, did not have a materialmaterially impact oneither the financial conditionposition or results of operations of the Corporation.

On May 15, 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.” This statement requires certain freestanding financial instruments be classified as liabilities in the Consolidated Statement of Condition that were classified as equity under previous guidance. This statement does not apply to features embedded in a financial instrument that is not a derivative in its entirety. The majority of the statement is effective for all financial instruments entered into or modified after May 31, 2003, with the remainder effective at the first day of the interim period beginning after June 15, 2003. Application of this standard did not have a material impact on the financial condition or results of operations of the Corporation. The FASB has decided to defer certain provisions of the statement as they apply to mandatorily redeemable non-controlling interests. These provisions include the requirement that ownership interests in finite-lived entities, such as trusts which issue Trust Preferred Securities, be classified as liabilities. State Street currently has Trust Preferred Securities of approximately $1 billion and ownership interests in the trusts of approximately $31 million.

Note 2—Acquisitions and Divestitures

In JuneOn October 31, 2003, State Street entered into a definitive agreement to sellcompleted the sale of its Private Asset Management business to U.S. Trust for approximately $365 million. ThisTrust. Under the terms of the agreement, the transaction was completed on October 31, 2003. See Note 20 for further details.valued at $365 million, about five percent of which is subject to the successful transition of the business over the subsequent 16 months.

On January 31, 2003, State Street completed the primary closing of its acquisition of a substantial part of the Global Securities Services (“GSS”) business of Deutsche Bank AG for approximatelya premium of $1.1 billion. Separate closings for the acquisitions of business units in Italy and Austria were held upon receipt of applicable regulatory approvals. On July 1, 2003, State Street completed the acquisition of the Italian business units of GSS, and on July 31, 2003, completed the acquisition of the Austrian units of the business. The purchase price is subject to adjustments based upon performance of the acquired businesses onbusiness for the one-year anniversary ofyear following the closing. State Street couldmay make additional payments of up to an estimated €360 millionmillion; however, State Street anticipates that the actual payment will be recorded as an adjustment tomuch less.

In connection with the goodwill acquired. Duringacquisition, approximately 2,800 employees of Deutsche Bank became employees of State Street. For the second quarter of 2003,three months ended March 31, 2004, State Street reducedpaid $2.1 million of severance costs related to an overall workforce reduction, primarily in the original purchase price

PART I.    ITEM 1.

FINANCIAL STATEMENTS (continued)U.S., and the severance liability outstanding as of March 31, 2004, was $16.9 million.

Notes to Consolidated Financial Statements—State StreetIn January 2003, the Corporation (Unaudited)

Note 2—Acquisitions and Divestitures (continued)

goodwill by $48 million for a purchase price adjustment related to revenue estimates made for the period prior to closing.

State Street financed $595 million of the initial purchase price through issuance to the public ofissued equity, equity-related and capital securities to the public under an existing shelf registration statement. In January 2003, State Street issued $345$283 million, or 7.2 million7,153,000 shares of common stock, $345 million, or 1.7 million1,725,000 units of SPACES (see Note 19)^SM, and $345 million of floating-rate, medium-term capital securities due 2008 (see Note 8), a portion2008. Proceeds, net of which wasissuance costs, of $595 million from these security issuances were used to partially finance the acquisition.acquisition of the GSS business. The remainder of the purchase price was financed using existing resources.

The acquisition was accounted for under the purchase method of accounting, in accordance with SFAS No. 141, “Business Combinations.” The purchase price of $1.1 billion was allocated as follows: goodwill $724 million, customer relationship intangible $363 million, capitalized software $28 millionNote 3—Investment Securities

Available-for-sale securities and other tangible assets $14 million. The customer relationship intangible asset is being amortized on a straight-line basis over fifteen years. The software is being amortized on a straight-line basis over five years. The resultsheld-to-maturity securities consisted of the GSS acquisition were included infollowing as of the accompanying statement of income for the period from February 1, 2003, through September 30, 2003.dates indicated:

In connection with the acquisition, State Street expects to reduce its overall workforce, primarily in the United States, over a 12- to 18-month period beginning in June 2003, by approximately 1,000 employees. Severance costs of $22 million and transaction costs of $22 million related to these activities were initially recorded as a liability in conjunction with recording the initial purchase of GSS, and were capitalized as part of the goodwill allocated with the GSS business. During the second quarter of 2003, an additional $12 million was recorded for the severance liability and capitalized as goodwill. As of September 30, 2003, $4 million in accrued severance costs and $22 million of transaction costs had been paid. Additionally, State Street incurred $26 million and $81 million of merger and integration costs for the three- and nine-month periods ended September 30, 2003, respectively. These one-time expenses consisted primarily of costs for employee retention, systems conversion and consulting services.

On December 31, 2002, State Street completed the sale of its Corporate Trust business to U.S. Bank, N.A., the lead bank of U.S. Bancorp. The premium received on the sale was $725 million, $75 million of which was placed in escrow pending the successful transition of the business. The Corporate Trust business consisted of $689 billion in bonds under trusteeship, $187 billion in assets under custody and $2.3 billion in client deposits. The bonds under trusteeship transferred to U.S. Bank, N.A. on December 31, 2002. The assets under custody and deposits have transferred in 2003.

In July 2002, State Street completed the cash purchase of International Fund Services (“IFS”), a leading provider of fund accounting and administration as well as securities trade support and operational services for hedge funds, for $80 million. As one of the largest providers of hedge funds services, IFS services over 100 large asset management firms and private equity fund managers, representing more than 350 funds globally. IFS is headquartered in New York City, and has operations centers in New York City and Dublin, Ireland with approximately 500 employees. In connection with this transaction, during the second quarter of 2003 an additional $47 million of the purchase price was paid and recorded based upon certain performance measures.