UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended March 31,June 30, 2009

or

For the transition period from                      to                     

Commission File No. 001-07511

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.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  x    Accelerated filer  ¨    Non-accelerated filer  ¨    Smaller reporting company  ¨

(Do not check if a smaller reporting company)

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

The number of shares of State Street’s common stock outstanding on April 30,July 31, 2009 was 434,772,087.494,489,413

STATE STREET CORPORATION

Quarterly Report on Form 10-Q for the Quarterly Period Ended March 31,June 30, 2009

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

GENERAL

State Street Corporation is a financial holding company headquartered in Boston, Massachusetts. Through its subsidiaries, including its principal bank subsidiary, State Street Bank and Trust Company, which we refer to as State Street Bank, State Street Corporation provides a full range of products and services to meet the needs of institutional investors worldwide. Unless otherwise indicated or unless the context requires otherwise, all references in this Management’s Discussion and Analysis to “State Street,” “we,” “us,” “our” or similar terms mean State Street Corporation and its subsidiaries on a consolidated basis. All references in this Form 10-Q to the parent company are to State Street Corporation. Our principal banking subsidiary, State Street Bank and Trust Company, is referred to as State Street Bank. At March 31,June 30, 2009, we had consolidated total assets of $142.14$153.42 billion, consolidated total deposits of $83.92$85.58 billion, consolidated total shareholders’ equity of $13.86$12.10 billion, and employed 27,500.26,950.

Our customers include mutual funds, collective investment funds and other investment pools, corporate and public retirement plans, insurance companies, foundations, endowments and investment managers. Our two lines of business, Investment Servicing and Investment Management, provide products and services including custody, recordkeeping, daily pricing and administration, shareholder services, foreign exchange, brokerage and other trading services, securities finance, deposit and short-term investment facilities, loan and lease financing, investment manager and hedge fund manager operations outsourcing, performance, risk and compliance analytics, investment research and investment management, including passive and active U.S. and non-U.S. equity and fixed-income strategies. We had $11.34$16.39 trillion of assets under custody and $1.40administration (including $12.34 trillion of assets under custody) and $1.56 trillion of assets under management at March 31,June 30, 2009. FinancialInformation about these assets, and financial information about our business lines, is provided later in the “Consolidated Results of Operations—Total Revenue” and “Line of Business Information” sectionsections of this Management’s Discussion and Analysis.

This Management’s Discussion and Analysis is part of our Quarterly Report on Form 10-Q for the second quarter of 2009 which we filed with the SEC, and updates the Management’s Discussion and Analysis in our Annual Report on Form 10-K for the year ended December 31, 2008, which we refer to as the 2008 Form 10-K, and which wein our Quarterly Report on Form 10-Q for the quarter ended March 31, 2009. We previously filed these reports with the SEC. You should read the financial information in this Management’s Discussion and Analysis and elsewhere in this Form 10-Q in conjunction with the financial information contained in that report.those reports. Certain previously reported amounts have been reclassified to conform to current period classifications as presented in this Form 10-Q.

We prepare our consolidated financial statements in accordance with United States generally accepted accounting principles, which we refer to as GAAP, and which require management to make judgments in the application of its accounting policies that involve significant estimates and assumptions about the effect of matters that are inherently uncertain. Accounting policies considered by management to be relatively more significant in this respect are accounting for the fair value of financial instruments, special purpose entities, and goodwill and other intangible assets. Additional information about these accounting policies is included in the “Significant Accounting Estimates” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2008 Form 10-K. Although no significant changes were made to these accounting policies during the first quartersix months of 2009, we have provided updated information with respect to our accounting for the fair value of financial instruments and our accounting for special purpose entities in the “Fair Value Measurements” section of this Management’s Discussion and Analysis.

Certain financial information provided in this Management’s Discussion and Analysis has been prepared on both a GAAP basis and an “operating” basis. Management measures and compares certain financial information

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

on an operating basis, as it believes this presentation supports meaningful comparisons from period to period and the analysis of comparable financial trends with respect to State Street’s normal ongoing business operations. Management believes that operating-basis financial information, which reports revenue from non-taxable sources on a fully taxable-equivalent basis and excludes the impact of revenue and expenses outside of the normal course of our business, facilitates an investor’s understanding and analysis of State Street’s underlying financial performance and trends in addition to financial information prepared in accordance with GAAP.

SIGNIFICANT DEVELOPMENTS

In May 2009, we completed a public offering of approximately 58.97 million shares of our common stock at an offering price of $39 per share, and received aggregate net proceeds from the offering of approximately $2.23 billion. In addition, we completed the issuance of $500 million of 4.30% fixed-rate senior notes due 2014. We completed the offerings primarily in connection with our intention to repurchase the $2 billion of equity issued to the U.S. Treasury in October 2008 under the TARP Capital Purchase Program, as well as for general corporate purposes to the extent that the aggregate proceeds exceeded the repurchase. Additional information about the offerings is provided in notes 7 and 10 to the consolidated financial statements included in this Form 10-Q.

In May 2009, we elected to take action that resulted in the consolidation onto our balance sheet, for financial reporting purposes, of the assets and liabilities of the third-party owned, special purpose multi-seller asset-backed commercial paper program, or conduits, that we administer. In connection with the consolidation, we recorded the assets and liabilities of the conduits at their then fair values, and recorded a pre-tax extraordinary loss of approximately $6.10 billion, or approximately $3.68 billion after-tax, in our consolidated statement of income. This loss was primarily related to the recognition of the unrealized mark-to-market losses on the conduits’ aggregate assets, which had a book value of approximately $22.7 billion and a fair value of approximately $16.6 billion. In addition to the aggregate assets of $16.6 billion, we added approximately $20.95 billion of aggregate commercial paper issued by the conduits to our consolidated balance sheet.

The difference between the aggregate fair value of the conduits’ investment securities and their par value on the date of consolidation created a discount. Based on a detailed security-by-security analysis, we believe that the vast majority of this discount is related to factors other than credit. To the extent that the projected cash flows of the securities exceed their consolidation date book values, the portion of the discount not related to credit will be accreted into net interest revenue over the securities’ remaining lives. Subsequent to the consolidation, we recorded accretion of approximately $112 million in net interest revenue for the second quarter of 2009 in our consolidated statement of income.

Additional information about the conduit consolidation is provided in note 9 to the consolidated financial statements included in this Form 10-Q.

In June 2009, we repurchased the preferred stock portion of Treasury’s equity investment by redeeming all of the outstanding shares of the preferred stock at its aggregate liquidation amount plus accrued dividends, or approximately $2 billion. The excess of the aggregate liquidation amount over the $1.89 billion carrying value of the preferred stock, which totaled approximately $106 million, was recorded as a reduction of retained earnings, and thus affected earnings available to common shareholders for the second quarter and first six months of 2009. In July 2009, we repurchased the warrant to purchase shares of our common stock originally issued to Treasury as part of its equity investment at its fair value of $60 million. The repurchase reduced shareholders’ equity, but will not affect our earnings available to common shareholders, since it was recorded as a reduction of surplus. Additional information about these transactions is provided in note 10 to the consolidated financial statements included in this Form 10-Q.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

Effective April 1, 2009, we adopted the provisions of FASB Staff Position No. FAS 115-2 and FAS 124-2,Recognition and Presentation of Other-Than-Temporary Impairments. The FSP generally requires that the credit-related portion of other-than-temporary impairment losses recognized during the period for certain debt securities be reflected in results of operations, and that the portion of the losses related to factors other than credit be recognized as a component of other comprehensive income in the balance sheet. Previous guidance required impairment losses not related to credit to be recognized in results of operations.

For the second quarter and first six months of 2009, we identified certain securities that we considered to be other-than-temporarily impaired. The resulting pre-tax losses, defined as the gross difference between the fair value and book value of these securities, were $167 million and $180 million, respectively. Our application of the provisions of the FSP resulted in the identification of $103 million of these pre-tax losses as related to factors other than credit, and these losses remained in other comprehensive income as of June 30, 2009. These losses are netted against the aforementioned gross other-than-temporary impairment losses, and the net losses are presented in our consolidated statement of income. Disclosure of other-than-temporary impairment losses, both related and not related to credit, is provided in note 2 to the consolidated financial statements included in this Form 10-Q.

FORWARD-LOOKING STATEMENTS

This Form 10-Q, particularly this Management’s Discussion and Analysis, contains statements that are considered “forward-looking,”“forward-looking” within the meaning of U.S. securities laws, including statements about industry trends, management’s future expectations and other matters that do not relate strictly to historical facts, are based on assumptions by management, and are often identified by such forward-looking terminology as “expect,” “look,” “believe,” “anticipate,” “estimate,” “seek,” “may,” “will,” “trend,” “target” and “goal,” or similar statements or variations of such terms. Forward-looking statements may include, among other things, statements about State Street’s confidence in its strategies and its expectations about its financial performance, market growth, acquisitions and divestitures, new technologies, services and opportunities, the outcome of legal proceedings and its earnings.

Forward-looking statements are subject to various risks and uncertainties, which change over time, are based on management’s expectations and assumptions at the time the statements are made, and are not guarantees of future results. Management’s expectations and assumptions, and the continued validity of the forward-looking statements, are subject to change due to a broad range of factors affecting the national and global economies, the equity, debt, currency and other financial markets, as well as factors specific to State Street and its subsidiaries, including State Street Bank. Factors that could cause changes in the expectations or assumptions on which forward-looking statements are based include, but are not limited to:

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

Therefore, actual outcomes and results may differ materially from what is expressed in our forward-looking statements and from our historical financial results due to the factors discussed in this Management’s Discussion and Analysis and elsewhere in this Form 10-Q or disclosed in our other SEC filings. Forward-looking statements should not be relied upon as representing our expectations or beliefs as of any time subsequent to the time this Form 10-Q is filed with the SEC. State Street undertakes no obligation to revise the forward-looking statements contained in this Form 10-Q to reflect events after the time it is filed with the SEC. The factors discussed above are not intended to be a complete summary of all risks and uncertainties that may affect our businesses. We cannot anticipate all potential economic, operational and financial developments that may adversely impact our operations and our financial results.

Forward-looking statements should not be viewed as predictions, and should not be the primary basis upon which investors evaluate State Street. Any investor in State Street should consider all risks and uncertainties disclosed in our SEC filings, including our filings under the Securities Exchange Act of 1934, in particular our reports on Form 10-K, Form 10-Q and Form 8-K, or registration statements filed under the Securities Act of 1933, all of which are accessible on the SEC’s website atwww.sec.gov or on our website atwww.statestreet.com. www.statestreet.com.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

OVERVIEW OF FINANCIAL RESULTS

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

Financial Highlights

For the firstsecond quarter of 2009, we recorded a net loss available to common shareholders of $3.31 billion, or $7.12 per diluted common share, which included an after-tax extraordinary loss of $3.68 billion, or $7.91 per diluted common share, related to the previously reported consolidation, for financial reporting purposes, of the asset-backed commercial paper conduits that we administer onto our balance sheet in May 2009. Including the extraordinary loss, the net loss available to common shareholders was $2.87 billion, or $6.37 per diluted common share, for the six months ended June 30, 2009.

Before the after-tax extraordinary loss of $3.68 billion, net income available to common shareholders of $445was $370 million, or $1.02$.79 per diluted common share, for the second quarter of 2009, compared to $530$548 million, or $1.35 per diluted share, for the second quarter of 2008. Net income before the extraordinary loss was $815 million and diluted earnings per share were $1.81 for the first quartersix months of 2009, compared to $1.08 billion and $2.70 for the first six months of 2008. Return on common shareholders’ equity (before the extraordinary loss for the 2009 periods) was 15.7%13.0% compared to 18.7%18.6% for the second quarter of 2008, and 14.4% compared to 18.6% for the first quartersix months of 2008.

Total revenue for the firstsecond quarter of 2009 decreased 22% from21% compared to the firstsecond quarter of 2008, with total fee revenue down 27%24%. Generally, all fee revenue types were down compared to the prior-year quarter, reflecting the impact of the ongoing instability in the global financial markets. Servicing fee and management fee revenue were down 20%19% and 35%31%, respectively, from the year-ago quarter, compared to more significantgenerally greater declines in equity market valuations over the same period as measured by the published indices presented in the “INDEX” table in this Management’s Discussion and Analysis on page 8.11. Trading services revenue decreased primarily as a result of lower trading volumes, partially offset by higher levels of volatility. Securities finance revenue decreased compared to the firstsecond quarter of 2008 primarily from lower lending volumes caused byreflective of lower asset values and lower demand.

Net interest revenue decreased 10%12% for the second quarter of 2009 compared to the firstprior-year second quarter, of 2008, or 8%11% on a fully taxable-equivalent basis ($596611 million compared to $648$685 million, reflecting tax-equivalent adjustments of $32$31 million and $23$28 million, respectively), with a related decrease in net interest margin of 1938 basis points. The decline was generally the result of decreases in interest-bearing deposit volumes and interest rate spreads, reflecting relatively more stable financial markets compared to 2008, as well as the impact of aour more

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

conservative re-investment strategy during 2009 with respect to our investment securities portfolio, partly offset by the discount accretion related to the conduit assets consolidated in May 2009. This investment strategy, which includedis an element of our previously disclosed plan to improve our tangible common equity, includes the investment of excess cash in short-term money market instruments, including interest-bearing deposits at the Federal reserve and other central banks in excess of minimum reserve requirements, in light of the continued disruptionongoing instability in the global financial markets and to increase our overall liquidity.

We recorded a provision for loan losses of $84$98 million during the first quartersix months of 2009, of which $14 million was recorded in the second quarter, related to commercial real estate loans purchased in 2008 from certain customers pursuant to indemnified repurchase agreements. The provision reflected management’s revised expectation of future principal and interest cash flows with respect to certain of these loans. Management’s change in expectation resulted primarily from its assessment of the impact of deteriorating economic conditions in the commercial real estate markets on certain of these loans during the quarter.first half of 2009.

Total expenses of $1.30decreased 26% to $1.36 billion for the firstsecond quarter of 2009 decreased 26% fromcompared to the first2008 quarter, of 2008, primarily the result of a 31%34% reduction in salaries and benefits expense. This decrease was mainly attributable to a reduction in

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

lower accruals of incentive compensation for the first quarter ofin 2009, as well as the impact of our previously announced reduction in force. The decrease in total expenses also reflected the impact of lower transaction processing expenses and lower professional fees. Expenses for the firstsecond quarter of 2009 included $17$12 million of merger and integration costs associated with the 2007 acquisition of Investors Financial, compared to $26$32 million for the firstsecond quarter of 2008.

With the decline in total expenses exceeding the decline in total revenue for the firstsecond quarter of 2009 compared to the firstsecond quarter of 2008, we achieved positive operating leverage. OperatingWe define operating leverage is defined as the difference between the growth rate of total revenue and the growth rate of total expenses.

Results for the firstsecond quarter of 2009 included the following significant items outside of the ordinary course of our business.

At March 31,June 30, 2009, we had aggregate assets under custody and administration of $11.34$16.39 trillion, which decreased $704increased $487 billion, or 6%3%, from $12.04$15.91 trillion at December 31, 2008, and decreased $3.56$3.34 trillion, or 24%17%, from $14.90$19.73 trillion at March 31,June 30, 2008. At March 31,June 30, 2009, we had aggregate assets under management of $1.40$1.56 trillion, which decreased $49increased $113 billion, or 3%8%, from $1.44 trillion at December 31, 2008, and decreased $560$337 billion, or 29%18%, from $1.96$1.89 trillion at March 31,June 30, 2008. The decreases in these assets under custody and assets under management from December 31,June 30, 2008 to March 31,June 30, 2009 were primarily associated with the continuedongoing instability in the global financial markets and resulting declines in asset valuations.

During the first quarterhalf of 2009, we generated approximately $111$458 billion of gross new business in assets to be serviced, for which we will provide various services including accounting, fund administration, custody, foreign exchange, transition management, currency management, securities finance, transfer agency, performance analytics, compliance reporting and monitoring, hedge fund servicing and private equity administration, and investment manager operations outsourcing. With respect to this new business, we expect to earn fee revenue in future periods as we begin to service the assets.

During the first quarterhalf of 2009, we generated approximately $37$41 billion of net new business in assets to be managed, for which we will provide various asset management services including passive index strategies and

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

exchange-traded funds. With respect to this new business, we expect to earn fee revenue in future periods as we manage the customer assets.

Our effective tax raterates for the second quarter and first quartersix months of 2009 was 22.5%were 32.6% and 28.0%, down from 34.0%respectively, compared to 34% for both periods in the 2008 quarter, and we expect it to be about 31.5% for the full year 2009. Consistent with our business strategy, our intent to reinvest the earnings in certain of our non-U.S. subsidiaries allowed us to reduce taxes accrued with respect to 2009 earnings, as well as certain taxes accrued in prior periods, by approximately $63 million.2008.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

CONSOLIDATED RESULTS OF OPERATIONS

This section discusses our consolidated results of operations for the second quarter and first quartersix months of 2009 compared to the same periodperiods in 2008, and should be read in conjunction with the consolidated financial statements and accompanying notes included elsewhere in this Form 10-Q.

TOTAL REVENUE

Fee Revenue

Servicing and management fees collectively comprised approximately 67%65% and 66% of our total fee revenue for the second quarter and first quartersix months of 2009 andcompared to approximately 63% for the first quarter ofboth periods in 2008. These fees are a function of several factors, including the mix and volume of assets under custody and administration and assets under management, securities positions held and the volume of portfolio transactions, and the types of products and services used by customers, and are affected by changes in worldwide equity and fixed-income valuations.

Generally, servicing fees are affected, in part, by changes in daily average valuations of assets under custody and administration, while management fees are affected by changes in month-end valuations of assets under management. Additional factors, such as the level of transaction volumes, changes in service level, balance credits, customer minimum balances, pricing concessions and other factors, may have a significant effect on servicing fee revenue. Generally, management fee revenue is more sensitive to market valuations than servicing fee revenue. Management fees also include performance fees, which amounted to approximatelyless than 1% of management fees for

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

both the second quarter and first quartersix months of 2009 compared to 3%1% and 2% for each of the second quarter and first quartersix months of 2008.2008 respectively. Performance fees are generated when the performance of certain managed funds exceeds benchmarks specified in the management agreements. We experience more volatility with performance fees than with more traditional management fees.

In light of the above, we estimate, assuming all other factors remain constant, that a 10% increase or decrease in worldwide equity values would result in a corresponding change in our total revenue of

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

approximately 2%. If fixed-income security values were to increase or decrease by 10%, we would anticipate a corresponding change of approximately 1% in our total revenue. We would expect the foregoing relationships to exist in normalized financial markets. These relationships were not experienced in 2008 or in the first quartersix months of 2009, in light of the continued disruptionongoing instability in the global financial markets. Those disrupted conditions adversely affected our servicing and management fee revenues for 2008 and the first quartersix months of 2009, which are based, in part, on the value of assets under custody and administration or assets under management as described earlier in this section. In general, our trading services revenue benefited from volatility in the markets, and our securities finance revenue benefited slightly from wider spreads, in spite of a decline in securities lending volumes caused by reduced or suspended participation by some institutional investors in the program. Collectively, these positive trends offset a portion of the market-related impact on certain of our revenue.revenue which, in general, was more significant then we would anticipate in normalized markets. We cannot predict with any certainty what the impact of changes in equity and fixed-income security values will be on our market-driven revenue for full-year 2009.

The following table presents selected equity market indices for the quarters ended March 31,June 30, 2009 and 2008. Daily averages and the averages of month-end indices demonstrate worldwide equity market valuation changes that affect servicing and management fee revenue, respectively. Quarter-end indices affect the value of assets under custody and management at those dates. The index names listed in the table are service marks of their respective owners.

INDEX

Servicing Fees

Servicing fees are derived from custody, product- and participant-level accounting, daily pricing and administration; recordkeeping; investment manager and hedge fund manager operations outsourcing; master trust and master custody; and performance, risk and compliance analytics. The 19% decrease in servicing fees fromfor both the first quarter of 2008 to the first quarter of 2009quarterly and six-month comparisons was primarily attributable to the impact of declines in daily average equity market valuations. The following tables set forth the composition of assets under custody and administration, as well as the composition of assets under custody included in these aggregate amounts.

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AND RESULTS OF OPERATIONS (Continued)

Management Fees

The 35% decrease31% and 33% decreases in management fees for the second quarter and first quartersix months of 2009, respectively, compared to the second quarter and first quartersix months of 2008, primarily resulted from declines in average month-end equity market valuations. Average month-end equity market valuations, individually presented in the foregoing “INDEX” table, were down 42%lower for the firstsecond quarter of 2009 compared to the firstsecond quarter of 2008.

Assets under management consisted of the following:

The following table presents a roll-forward of assets under management for the twelve months ended March 31,June 30, 2009:

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

Trading Services

Trading services revenue, which includes foreign exchange trading revenue and brokerage and other trading fees, decreased 33%slightly for the firstsecond quarter of 2009 compared to the firstsecond quarter of 2008.2008 and decreased 19% in the six-month comparison. Foreign exchange trading revenue for the second quarter and first quartersix months of 2009 totaled $191$190 million and $381 million, respectively, down 28%16% and 23% from $265$227 million inand $492 million, respectively, for the corresponding prior-year quarter.periods. The quarterly decrease was primarily the result of the impact of a 30%20% decline in aggregate customer volumes, both in custody foreign exchange services and foreign exchange trading and sales, partly offset by the impact of a 75%47% increase in currency volatility. The six-month decrease was primarily the result of the impact of a 25% decline in aggregate customer volumes, both in custody foreign exchange services and foreign exchange trading and sales, partly offset by the effect of a 61% increase in currency volatility.

Brokerage and other trading fees totaled $54$120 million for the firstsecond quarter of 2009, down 47%up 29% from $101$93 million for the firstsecond quarter of 2008, primarily due to lowerhigher levels of brokerage and trading services and lower revenuethe impact of improved transition management business. For the first six months of 2009, brokerage and other trading fees were $174 million, down 10% from transitions.$194 million from the corresponding 2008 period, primarily due to a decline in trading profits.

Securities Finance

Securities finance revenue for the firstsecond quarter of 2009 decreased $122$151 million, or 40%43%, compared to the firstparticularly strong second quarter of 2008 and $273 million, or 42%, in the six-month comparison. The decreases in the quarterly and year-to-date comparisons were primarily due to the impact of a 39% decline38% and 40% declines, respectively, in the average quarterly volume of securities on loan. This decrease was slightlyloan, partly offset by wider credit spreads.slightly higher spreads in both comparisons.

Beginning in the third quarter of 2008, a number of institutional investors suspended or limited their participation in our securities lending program, resulting in lower lendinglendable volumes. During 2008, we experienced significant withdrawal activity from the underlying collateral pools, primarily to allow the lending programs to meet daily mark-to-market collateral adjustments caused by significant declines in the values of securities on loan or to satisfy obligations to return collateral upon the return of borrowed securities. This activity, which occurs in the normal course of our business, resulted incontributed to a net reduction of the value of securities on loan from June 30, 2008 to December 31, 2008 of approximately 41%. The value of securities on loan increased approximately 6% between December 31, 2008 and March 31,June 30, 2009.

During this period,the disruption in the global financial markets in 2008 and 2009, we were able to manage the outflows of cash collateral, as well as the impact of the disruptions in the credit markets, in a manner that substantially reduced the risk of loss to our customers. However, we imposed in 2008, and continued to impose during the first quarterhalf of 2009, limitations on withdrawals from our lending programs in order to manage the liquidity in the cash collateral pools. The net asset value of our cash collateral pools, determined using information from independent third parties, has fallen below $1.00 per unit. At March 31,June 30, 2009, the net asset value, based on the market value of our unregistered cash collateral pools, ranged from $0.904$0.91 to $1.00,$1.01, with the weighted-average net asset value on that date equal to $0.947.$0.958, compared to $0.939 at December 31, 2008. However, we continue to transact purchases into and redemptions out of these pools at $1.00 per unit. We are maintaining this practice for a number of reasons, including the fact that none of the securities in the cash collateral pools are currently in default or are considered to be impaired, and our implementation of restrictions on withdrawals.

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AND RESULTS OF OPERATIONS (Continued)

We cannot determine how long the withdrawal limitations will remain in place, nor can we determine how long the valuation of the collateral pools, which we believe to be influenced significantly by market illiquidity, will remain so influenced. The continuation of either trend could materially affect the longer-term prospects for our securities lending business. During the second quarter of 2009, a purported class action was filed regarding certain collateral pools underlying funds managed by SSgA, and we are responding to inquiries from the SEC and other regulatory authorities in connection with our cash collateral pools. Additional information is included in the discussion of risk factors in our Current Report on Form 8-K filed with the SEC on May 18, 2009.

Processing Fees and Other

The 9%78% decrease in processing fees and other revenue forin the first quarterquarterly comparison reflected the impact of 2009 compared to the first quarter of 2008 resulted from a decreasedecline in certain product-related revenue, including a lower level of feespartially offset by favorable market gains from our tax-exempt investment program, partlyprogram. The 50% decrease in the six-month comparison resulted from the impact of a decline in certain product-related revenue, partially offset by an increase in administrative fees related to the State Street-administered commercial paper conduits, andwhich for 2009 were recorded in this line item up to the absence of the write-downs of securities purchased from the conduits during the first quarter of 2008.

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May 15 consolidation.

NET INTEREST REVENUE

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

Net interest revenue is defined as the total of interest revenue earned on interest-earning assets less interest expense incurred on interest-bearing liabilities. Interest-earning assets, which consist of investment securities, loans and leases and other liquid assets, are financed primarily by customer deposits and short-term borrowings. Net interest margin represents the relationship between annualized net interest revenue and average interest-earning assets.assets for the period. Changes in the components of interest-earning assets and interest-bearing liabilities are discussed in more detail below. Additional detail about the components of interest revenue and interest expense is in note 1213 to the consolidated financial statements included in this Form 10-Q.

On a fully taxable-equivalent basis, net interest revenue in the firstsecond quarter of 2009 decreased 8% (10%11% (12% on a GAAP basis) compared to the firstsecond quarter of 2008, and net interest margin decreased to 2.01%1.93% from 2.20%2.31%. This decline wasFor the six months ended June 30, 2009, on a fully taxable-equivalent basis, net interest revenue decreased 9% (11% on a GAAP basis) compared to the corresponding 2008 period, and net interest margin decreased to 1.96% from 2.26%. The declines in both comparisons were generally the result of a declinedeclines in interest-bearing deposit volumes and rate spreads, as well as the impact of a more conservative re-investment strategy with respect to our investment securities portfolio andportfolio. This impact was partially offset by $112 million of discount accretion on the investment of excess cash in short-term money market instruments duesecurities portfolio, described below, which was recorded subsequent to the continued disruption inMay 2009 consolidation of the financial markets.commercial paper conduits. Average interest-bearing deposit volumes decreased 16%15% in the year-over-yearyear-to-date comparison, primarily due to the negative impact of the current low-yield environment and customers’ reallocation of deposits to non-interest bearing accounts to maximize deposit insurance protection.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

Effective May 15, 2009, we elected to take action that resulted in the consolidation onto our balance sheet, for financial reporting purposes, of all of the assets and liabilities of the conduits. Upon consolidation, the aggregate fair value of the conduits’ investment securities was established as their book value, resulting in a discount to the assets’ par value. To the extent that the projected cash flows of the securities exceed their book values, the portion of the discount not related to credit will be accreted into net interest revenue over the remaining lives of the securities. During the second quarter of 2009, we recorded discount accretion in net interest revenue of approximately $112 million, and we currently anticipate that this discount accretion will be a material component of interest revenue for the second half of 2009.

Average federal funds sold and securities purchased under resale agreements decreased 79%69%, or $12.97$10.66 billion, from $16.43$15.53 billion for the firstsecond quarter of 2008 to $3.46$4.86 billion for the firstsecond quarter of 2009.2009, and decreased 74%, or $11.81 billion, to $4.17 billion in the six-month comparison. The decrease was mainly due to ourthe re-allocation of liquidity to U.S. Treasury securities in the investment portfolio and the placement of excess liquidity at the Federal Reserve and other central banks.

Our average investment securities portfolio decreased 4%increased 5% from approximately $73.34$71.69 billion in the firstsecond quarter of 2008 to approximately $70.13$75.48 billion reflectingin the second quarter of 2009, and increased slightly in the six-month comparison. Both comparisons reflect the impact of the conduit consolidation and an increase in U.S. Treasury and Agency securities, partially offset by net run-off and sales of asset- and mortgage-backed securities, as well as lower market valuations in the available-for-sale portfolio.securities. We continued to invest conservatively in “AA” and “AAA” rated securities. Securities rated “AA” and “AAA” comprised approximately 84%80% of the investment securities portfolio, with approximately 73%68% “AAA” rated, at March 31,June 30, 2009.

Loans and leases averaged $8.42$9.37 billion for the firstsecond quarter of 2009, down 33%12% from $12.54$10.64 billion for the firstsecond quarter of 2008. The2008 and $8.89 billion, down $2.70 billion, or 23%, from $11.59 billion, in the six-month comparison. For both periods, the decrease was primarily related to lower levels of short-term liquidity provided torequired by customers. Approximately 44%33% of the loan and lease portfolio was composed of U.S. and non-U.S. short-duration advances that provide liquidity to customers in support of their transaction flows, which averaged approximately $3.67$3.13 billion for the firstsecond quarter of 2009, down $5.16$4.12 billion, or 57%, from $7.25 billion for the corresponding quarter in 2008 and down $4.64 billion, or 58%, in the six month comparison. The lower levels of liquidity we provided to customers during the first half of 2009 were due to a decrease in customer demand and not a reduction in credit availability from, $8.84 billionon committed lines provided by, State Street. As transaction flows returned to more normalized levels compared to the extraordinarily high levels experienced in 2008, customer demand for short-term liquidity declined. The decrease in customer overdrafts was partially offset by the comparable quarteraddition of structured asset-backed loans in 2008.connection with the consolidation of the conduits.

Average other interest-earning assets, composed of interest-bearing deposits with banks, including cash balances held at the Federal Reserve to satisfy reserve requirements, as well as trading account assets and cash collateral deposits, increased 122%73%, or $19.46$15.74 billion, to $35.37$37.27 billion for the firstsecond quarter of 2009 compared to the firstsecond quarter of 2008 and for the first six months of 2009 increased $17.62 billion or 94% compared to the same period in 2008. TheFor both the quarterly and year-to-date periods, the increase was principally due to an increase inresulted from interest-bearing deposits with banks and an increase in commercial paper holdings in trading account assets.banks. An average of $13.82$20.45 billion was held at the Federal Reserve Bank during the firstsecond quarter of 2009, which resulted from our investment of the excess liquidity mentioned above, and which exceeded minimum reserve requirements, due to the continued disruptionongoing instability in the global financial markets. Beginning in the fourth quarter of 2008, reserve balances held at the Federal Reserve Bank earn a minimal level of interest.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

Average interest-bearing deposits decreased $12.58$11.55 billion, or 16%14%, from $79.37$83.10 billion to $66.79$71.55 billion for the firstsecond quarter of 2009 compared to the firstsecond quarter of 2008. The decrease wasFor the six-month period, average interest-bearing deposits decreased $12.05 billion or 15% to $69.18 billion. In both the quarterly and six-month comparisons, the decreases were due to lower levels of U.S. and non-U.S. deposits reflective of the current low-yield interest environment, as well asand customers’ reallocation of their deposits to non-interest bearing accounts to maximize deposit insurance protection.

AverageOur average other short-term borrowings increased $3.77$11.44 billion, or 18%54%, to $24.74$32.44 billion, from $21 billion for the second quarter of 2008, and increased $7.63 billion, or 36%, to $28.61 billion for the first six months of 2009 compared to the corresponding period in 2008. The increases were primarily due to borrowings fromunder the Federal Reserve’s term auction facility, which is a secured lending program available to financial institutions, thatand short-term commercial paper, which was establishedadded in December 2007. Averageconnection with the consolidation of the conduits.

For the second quarter of 2009, average long-term debt increased $1.15$4.51 billion, or 29%109%, to $5.17$8.65 and $2.83 billion or 70% to $6.92 billion, in the six-month comparison, both due to the issuance of an aggregate of approximately $4 billion of unsecured senior notes by State Street and State Street Bank in March 2009 under the FDIC’s Temporary Liquidity Guarantee Program.Program and the issuance by State Street of $500 million of unsecured senior notes in May 2009.

Several factors could affect future levels of our net interest revenue and margin, including the mix of customer liabilities, actions of the various central banks, changes in U.S. and non-U.S. interest rates, and the shapes of the various yield curves around the world. In addition, we expect thatDepending on market conditions and progress on our actionspreviously announced in February 2009 with respect to our plan to improve our tangible common equity which include the reinvestment ofimprovement plan, we may begin to reinvest proceeds from amortizing and maturing securities in highly rated investment securities, paying downsuch as U.S. Treasuries and federal agencies, mortgage-backed securities, asset-backed securities and other similarly-rated securities. The pace at which we reinvest and the securities purchased will depend on market conditions over time. Any such purchases made will generally be in lieu of placing cash with the Federal Reserve or other central banks.

The decision to place the proceeds of amortizing and maturing securities at the Federal Reserve and other central banks during the first half of 2009 into interest-bearing deposits and a resulting reduction in the size ofdid have an adverse impact on our consolidated balance sheet, will continue to reduce net interest revenue and net interest margin for 2009.during that period. Going forward, the pace of reinvestment, the securities purchased and the level of interest rates worldwide will dictate what impact the reinvestment program will have on our net interest revenue and net interest margin in future periods.

Provision for loan lossesGains (Losses) Related to Investment Securities, Net

We recorded a provision for loan lossesnet gains of $84$90 million from sales of available-for-sale securities in the second quarter of 2009 and $119 million during the first six months of 2009, compared to net gains of $9 million and $15 million, respectively, in the 2008 periods. In addition, we recorded losses from other-than-temporary impairment, related to credit, of $64 million and $77 million in the second quarter and first six months of 2009, respectively, compared to $15 million in the first six months of 2008, all recorded in that year’s second quarter, which resulted from our impairment analysis process. For the second quarter of 2009, the losses were composed of $47 million associated with expected credit losses, and $17 million related to changes in ordermanagement’s intention to provide for management’s revised expectationhold impaired securities to their ultimate recovery in value. The majority of future principal and interestthe impairment losses related to non-agency mortgage-backed securities which management concluded, pursuant to its analysis, had experienced credit losses based on the present value of the expected cash flows with respectflows. These securities are classified as asset-backed securities in note 3 to certain commercial realthe consolidated financial statements included in this Form 10-Q.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

Management regularly reviews the investment securities portfolio to determine whether to record other-than-temporary impairment. Historically, we have recognized losses from other-than-temporary impairment of debt and equity securities for either a change in management intention or expected credit losses. These impairment losses, which reflected the entire difference between the fair value and amortized cost basis of each individual security, were recorded in our consolidated results of operations.

Pursuant to FSP FAS No. 115-2 and 124-2, the provisions of which we adopted effective April 1, 2009, impairment related to expected losses represents the difference between the discounted values of the expected future cash flows from the securities compared to their current amortized cost basis, with each discount rate commensurate with the effective yield on the underlying security. For debt securities held to maturity, other-than-temporary impairment remaining after credit-related impairment (recorded in our consolidated results of operations) is recognized as a component of other comprehensive income. For other-than-temporary impairment of debt securities that results from a change in management’s intent or ability not to sell the security prior to its recovery in value, the entire difference between the security’s fair value and its amortized cost basis is recorded in our consolidated results of operations.

Additional information about investment securities, the gross gains and losses that compose the net sale gains/losses and our process to review the portfolio for other-than-temporary impairment, is provided in note 2 to the consolidated financial statements included in this Form 10-Q.

Provision for loan losses

We recorded provisions for loan losses of $14 million during the second quarter of 2009 and $98 million during the first six months of 2009, in order to reflect management’s revised expectation of future principal and interest cash flows with respect to certain of the commercial real estate loans carried on our balance sheet that were purchased in 2008 from certain customers in connection with indemnified repurchase agreements. The change in management’s expectation was primarily based on its assessment of the impact of the deteriorating economic conditions in the commercial real estate markets on certain of these loans during the first quarter.half of 2009. Future changes in expectations with respect to collection of principal and interest on these loans could result in additional provisions for loan losses. The allowance for loan losses related to these loans was reduced by net charge-offs totaling $8 million, all of which were recorded during the first quarter of 2009.

Gains (Losses) Related to Investment Securities, NetMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

We recorded net gains of $29 million from sales of available-for-sale securities in the first quarter of 2009, compared to a net gain of $6 million in the 2008 quarter. In addition, we recorded other-than-temporary impairment of $13 million in the first quarter of 2009, compared to $15 million in the first quarter of 2008, which resulted from our impairment analysis process. Of the total impairment recorded for 2009, $10 million resulted from our intent to sell the securities in response to a tender offer from the issuer. Since management no longer had the intent to hold the securities to their maturity, we recorded impairment to adjust the basis of the securities to their estimated fair value.AND RESULTS OF OPERATIONS (Continued)

Management regularly reviews the investment securities portfolio to determine whether it expects any loss of principal or interest, in light of current market and economic conditions, consideration of pertinent information and related expectations. As a result of this process, management identified securities that it believed were other-than-temporarily impaired. Additional information about available-for-sale securities, and the gross gains and losses that compose the net sale gains/losses, is in the “Financial Condition” section of this Management’s Discussion and Analysis and in note 2 to the consolidated financial statements included in this Form 10-Q.

EXPENSES

Salaries and employee benefits expense decreased in the quarterly comparisonand year-to-date comparisons mainly due to a reduction inlower accruals of incentive compensation in the first quarterand second quarters of 2009, as well as the impact of our previously announced reduction in force, which was substantially completed in the first quarter of 2009, and lower contract services spending. We expect relatively higher salaries and benefits expense during the second half of 2009 compared to this year’s first half, as we accrue incentive compensation commensurate with our financial performance for the remainder of 2009.

The slight increase in informationInformation systems and communications expense was primarily due to an increase infor the second quarter and first six months of 2009 included spending on telecommunications hardware and software, as well as an increase in depreciation of the existing

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

hardware.software. Transaction processing services expense decreased for both the second quarter and first six months due to lower volumes in the investment servicing business.business and lower external contract costs.

The increase in occupancy costs in the quarterly and year-to-date comparisons resulted primarily from the impact of additional leased space acquired to support growth in the hedge funds servicing and investment manager operations outsourcing businesses, as well as higher occupancy costs in support of expansion in Europe, including our new facility in the U.K.

Other expenses decreased significantly in the firstsecond quarter of 2009 compared to the second quarter of 2008, and in the six-month comparison, mainly due to reduced securities processing costs and a reduction inlower professional services fees, partially offset by an increase in regulatory fees and assessments associated with (1) the cost of unlimited insurance protection for non-interest bearing demand deposits instituted by the FDIC during the fourth quarter of 2008, as well as higher deposit insurance rates.and (2) the impact of a special assessment on insured depository institutions instituted by the FDIC during the second quarter of this year.

Income Taxes

We recorded income tax expense of $138$242 million for the firstsecond quarter of 2009, compared to $273$283 million for the firstsecond quarter of 2008. For the first six months of 2009, income tax expense was $380 million, compared

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

to $556 million for the corresponding 2008 period. Our effective tax raterates for the second quarter and first quartersix months of 2009 was 22.5%were 32.6% and 28.0%, down from 34.0% inrespectively, compared to 34% for both the 2008second quarter and we expect it to be about 31.5% for the full year 2009. Consistent with our business strategy, our intent to reinvest the earnings in certainfirst six months of our non-U.S. subsidiaries allowed us to reduce taxes accrued with respect to 2009 earnings, as well as certain taxes accrued in prior periods, by approximately $63 million.2008.

LINE OF BUSINESS INFORMATION

We report two lines of business: Investment Servicing and Investment Management. Given our services and management organization, the results of operations for these lines of business are not necessarily comparable with those of other companies, including companies in the financial services industry. Information about revenue, expense and capital allocation methodologies is in note 24 to the consolidated financial statements included in our 2008 Form 10-K.

The following is a summary of our line of business results. The amounts in the “Divestitures” columncolumns for 2008 represent the operating results of our joint venture interest in CitiStreet prior to its sale in July 2008. The amounts presented in the “Other” columncolumns for 2009 represent the net interest revenue earned in connection with our participation in the AMLF, the provision for loan losses associated with commercial real estate loans purchased in 2008 and the merger and integration costs recorded in connection with our July 2007 acquisition of Investors Financial.Financial, and for the six months ended June 30, 2009, net interest earned in connection with our participation in the Federal Reserve Bank of Boston’s AMLF. The 2008 amount represents the merger and acquisition costs recorded in connection with the acquisition of Investors Financial. The amounts in the “Divestitures” and “Other” columns were not allocated to State Street’s business lines.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)