##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
  Form 10-K
  ANNUAL REPORT UNDER
    SECTION 13 or 15 (d)
 OF THE SECURITIES EXCHANGE ACT
    OF 1934
 For the fiscal year ended December 31, 2006
  Commission file number 1-13805
 Harris Preferred Capital
    Corporation
 (Exact name of registrant as
    specified in its charter)
  Maryland(State or other
    jurisdiction
    of incorporation or organization)

#36-4183096(I.R.S. Employer
    Identification No.)111 West Monroe Street,
    Chicago, Illinois(Address of principal
    executive offices)

60603(Zip Code)   Registrants telephone number, including area code:
 (312) 461-2121
 Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Each Class

Name of Each Exchange on Which Registered73/8%
    Noncumulative Exchangeable
    Preferred Stock, Series A, par value
    $1.00 per share

New York Stock Exchange   Securities registered pursuant to Section 12(g) of the
    Act:
 None
  o þ
  o þ
  Note
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
  Rule 12b-2
  o o þ
  Rule 12b-2 o þ




---



##### 



Harris
    Preferred Capital Corporation
  TABLE OF
    CONTENTS
  
  Part IItem 1.


Business


2Item 1A.


Risk
    Factors


6Item 1B.


Unresolved Staff
    Comments


11Item 2.


Properties


11Item 3.


Legal
    Proceedings


11Item 4.


Submission of
    Matters to a Vote of Security Holders


11Part IIItem 5.


Market for the
    Registrants Common Equity, Related Stockholder Matters and
    Issuer Purchases of Equity Securities


11Item 6.


Selected Financial
    Data


12Item 7.


Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


13Item 7A.


Quantitative and
    Qualitative Disclosures About Market Risk


17Item 8.


Financial
    Statements and Supplementary Data


17Item 9.


Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


17Item 9A.


Controls and
    Procedures


17Item 9B.


Other
    Information


17Part IIIItem 10.


Directors,
    Executive Officers and Corporate Governance


17Item 11.


Executive
    Compensation


19Item 12.


Security Ownership
    of Certain Beneficial Owners and Management and Related
    Stockholder Matters


19Item 13.


Certain
    Relationships and Related Transactions, and Director
    Independence


20Item 14.


Principal
    Accounting Fees and Services


20Part IVItem 15


Exhibits, Financial
    Statement Schedules


21(a) Exhibits31.1 Certification of Pamela C.
    Piarowski pursuant to Rule 13a - 14(a)31.2 Certification of Paul R.
    Skubic pursuant to Rule 13a - 14(a)32.1 Certification pursuant to
    18 U.S.C. Section 1350(b) Reports on
    Form 8-KNoneSignatures


23Power of AttorneyCertificationCertificationSection 1350 Certification   1




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PART I  Forward-Looking
    Information
  Form 10-K
  ITEM 1.
    BUSINESS  General
    3 8 3 8
   2




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pari passu
        Business
     3




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and/or
   4




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day-to-day
     5




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Employees
    Environmental
    Matters
  clean-up, clean-up clean-up.
  Qualification
    as a REIT
    ITEM 1A.
    RISK
    FACTORS  No. 333-40257)),
  Declining
    interest rates will reduce earnings of the Company
   6




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Dividends
    may not be authorized quarterly and dividends not authorized
    will not be paid
    Automatic
    exchange for Bank Preferred Shares could occur when value of
    Bank Preferred Shares is impaired
      Bank
    Preferred Shares will not be listed on any exchange and markets
    may not be liquid
    Dividends
    and operations of the Company restricted by
    regulation
   7




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TAX
    RISKS
  Adverse
    consequences of failure to qualify as a REIT
      REIT
    requirements with respect to stockholder
    distributions
   8




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##### Table of Contents



Redemption
    upon occurrence of a Tax Event
    Automatic
    exchange upon occurrence of the Exchange Event
  one-for-one
  Relationship
    with the Bank and its affiliates; conflicts of
    interest
  day-to-day and/or and/or
  and/or and/or
  Risk
    of future revisions in policies and strategies by Board of
    Directors
   9




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Possible
    leverage
    Additional
    issuances of preferred stock could have dilutive
    effect
    RISK
    FACTORS RELATING TO THE BANK
    Possible
    adverse effects of economic conditions
    Increase
    in interest rates may adversely affect operating
    results
    Competition
   10




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Government
    regulation
    ITEM 1B.
    UNRESOLVED
    STAFF COMMENTS    ITEM 2.
    PROPERTIES    ITEM 3.
    LEGAL
    PROCEEDINGS    ITEM 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS   PART II  ITEM 5.
    MARKET
    FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
    MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES     11




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ITEM 6.
    SELECTED
    FINANCIAL DATA    For the Years Ended December 312006


2005


2004


2003


2002(In thousands, except per share data)Statement of Operations Data:Interest income

$
21,442


$
19,458


$
16,998


$
17,678


$
19,934Non-interest income










1,062



4,158



2,677Operating expenses:Loan servicing fees


23



31



44



70



131Advisory fees


127



122



124



56



43General and administrative


342



287



362



362



314Total operating expenses


492



440



530



488



488Net income


20,950



19,018



17,530



21,348



22,123Preferred stock dividends


18,438



18,438



18,438



18,438



18,438Net income available (loss
    allocated) to common stockholder

$
2,512


$
580


$
(908
)

$
2,910


$
3,685Basic and diluted earnings (loss)
    per common share

$
2,512


$
580


$
(908
)

$
2,910


$
3,685Distributions per preferred share

$
1.8438


$
1.8438


$
1.8438


$
1.8438


$
1.8438Balance Sheet Data (end of period):Total assets

$
487,340


$
479,875


$
489,022


$
494,318


$
502,042Total liabilities

$
4,731


$
129


$
134


$
84


$
96Total stockholders equity

$
482,609


$
479,746


$
488,888


$
494,234


$
501,946Cash Flows Data:Operating activities

$
20,760


$
19,152


$
15,997


$
18,046


$
19,440Investing activities

$
232


$
(421
)

$
2,826


$
3,120


$
2,440Financing activities

$
(16,408
)

$
(18,438
)

$
(19,342
)

$
(20,968
)

$
(21,658
)  12




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##### Table of Contents



ITEM 7.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS    Summary
  Year
    Ended December 31, 2006 Compared to December 31,
    2005
    available-for-sale
        Year
    Ended December 31, 2005 Compared to December 31,
    2004
    available-for-sale
 13




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available-for-sale
  10-K
      Quarter
    Ended December 31, 2006 Compared to Quarter Ended
    December 31, 2005
    available-for-sale
      Allowance
    for Loan Losses
    Concentrations
    of Credit Risk
   14




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Interest
    Rate Risk
    Competition
    Liquidity
    Risk Management
          available-for-sale available-for-sale. available-for-sale
 15




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available-for-sale,
  Accounting
    Pronouncements
  available-for-sale
        Considering the Effects of Prior Year
    Misstatements When Quantifying Current Year Misstatements
  Other
    Matters
   16




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ITEM 7A.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK        ITEM 8.
    FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA    ITEM 9.
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURE    ITEM 9A.
    CONTROLS
    AND PROCEDURES    ITEM 9B.
    OTHER
    INFORMATION    PART III  ITEM 10.
    DIRECTORS,
    EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE  and/or
 17




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##### Table of Contents



Name

Age

Position and Offices HeldPaul R. Skubic


58



Chairman of the Board, PresidentPamela C. Piarowski


47



Chief Financial OfficerFrank M. Novosel


60



Treasurer, DirectorTeresa L. Patton


59



Vice President of OperationsMargaret M. Sulkin


48



Assistant TreasurerDelbert J. Wacker


75



DirectorDavid J. Blockowicz


64



DirectorForrest M. Schneider


59



Director                     Independent
    Directors
   18




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Audit
    Committee
    Compensation
    of Directors and Officers
      Section 16(a)
    Beneficial Ownership Reporting Compliance
    ITEM 11.
    EXECUTIVE
    COMPENSATION    ITEM 12.
    SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
    RELATED STOCKHOLDER MATTERS  (a)
    Security
    ownership of certain beneficial owners  3 8
  (b)
    Security
    Ownership of Management  3 8
  Name of

Amount of


PercentTitle of Class

Beneficial Owner

Beneficial Ownership


of ClassPreferred Stock

Paul R. Skubic


1,300 Shares



.013
%Preferred Stock

Forrest Schneider


2,200 Shares



.022
%Preferred Stock

David J. Blockowicz


1,000 Shares



.01
%  19




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##### Table of Contents



ITEM 13.
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
    INDEPENDENCE  (a)
    Transactions
    with Related Persons  -
        (b)
    Review,
    Approval or Ratification of Transactions with Related
    Persons    (c)
    Director
    Independence    ITEM 14.
    PRINCIPAL
    ACCOUNTING FEES AND SERVICES  Audit
    Fees
  Form 10-Q Form 10-Q
  Audit-Related
    Fees
    Tax
    Fees
   20




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All Other
    Fees
    Pre-Approval
    Policies and Procedures
   PART IV  ITEM 15.
    EXHIBITS,
    FINANCIAL STATEMENT SCHEDULES        Form 10-K
    *3(a)(I)

Articles of Incorporation of the
    Company*3(a)(ii)

Form of Articles of Amendment and
    Restatement of the Company establishing the Series A
    Preferred Shares*3(b)

Bylaws of the Company*4

Specimen of certificate
    representing Series A Preferred Shares*10(a)

Form of Servicing Agreement
    between the Company and the Bank*10(b)

Form of Advisory Agreement between
    the Company and the Bank*10(c)

Form of Bank Loan Agreement
    between the Company and the Bank*10(d)

Form of Mortgage
    Loan Assignment Agreement between the Company and the Bank14

Code of Ethics for Senior Officers
    (Incorporated by reference to Exhibit 14 to the
    Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2003)24

Power of attorney31.1

Certification of Pamela C.
    Piarowski pursuant to Rule 13a  14(a)31.2

Certification of Paul R. Skubic
    pursuant to Rule 13a  14(a)32.1

Certification pursuant to
    18 U.S.C. Section 1350     *
    
    Incorporated by reference to the exhibit of the same number
    filed with the Companys Registration Statement on
    Form S-11
    (Securities and Exchange Commission file
    number 333-40257) 21




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Index to
    Consolidated Financial Statements
  Form 10-K:
  Harris Preferred Capital Corporation
                Harris N.A.
                     22




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##### Table of Contents



SIGNATURES    PAUL
    R. SKUBIC
     PAMELA
    C. PIAROWSKI
     attorney-in-fact
  David J. Blockowicz

Forrest M. SchneiderFrank M. Novosel

Delbert J. Wacker    Attorney-In-Fact
     23




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REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
           
    24




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Harris
    Preferred Capital Corporation
  Consolidated
    Balance Sheets
  December 312006


2005(In thousands, except share data)ASSETSCash on deposit with Harris
    N.A.

$
5,284


$
700Securities purchased from Harris
    N.A. under agreement to resell


9,854



20,500Notes receivable from Harris N.A


6,512



8,684Securities
    available-for-sale:Mortgage-backed


404,075



373,584U.S. Treasury


59,948



74,921Other assets


1,667



1,486Total assets

$
487,340


$
479,875LIABILITIES AND
    STOCKHOLDERS EQUITYAccrued expenses

$
120


$
129Preferred dividends payable


4,611



Total liabilities

$
4,731


$
129Commitments and contingencies






Stockholders
    Equity73/8%
    Noncumulative Exchangeable Preferred Stock, Series A
    ($1 par value); liquidation value of $250,000;
    20,000,000 shares authorized, 10,000,000 shares issued
    and outstanding


250,000



250,000Common stock ($1 par value);
    1,000 shares authorized, issued and outstanding


1



1Additional paid-in capital


240,733



240,733Distributions in excess of earnings


(71
)


(2
)Accumulated other comprehensive
    loss  net unrealized losses on
    available-for-sale
    securities


(8,054
)


(10,986
)Total stockholders
    equity


482,609



479,746Total liabilities and
    stockholders equity

$
487,340


$
479,875    25




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##### Table of Contents



Harris
    Preferred Capital Corporation
  Consolidated
    Statements of Income
 and
    Comprehensive Income
  For the Years Ended December 312006


2005


2004(In thousands, except share data)Interest income:Securities purchased from Harris
    N.A. under agreement to resell

$
4,132


$
1,618


$
1,060Notes receivable from Harris
    N.A.


466



655



907Securities
    available-for-sale:Mortgage-backed


16,475



17,097



14,973U.S. Treasury


369



88



58Total interest income


21,442



19,458



16,998Non-interest income:Gain on sale of securities










1,062







1,062Operating expenses:Loan servicing fees paid to Harris
    N.A.


23



31



44Advisory fees paid to Harris
    N.A.


127



122



124General and administrative


342



287



362Total operating expenses


492



440



530Net income


20,950



19,018



17,530Preferred stock dividends


18,438



18,438



18,438Net income available (loss
    allocated) to common stockholder

$
2,512


$
580


$
(908
)Basic and diluted earnings (loss)
    per common share

$
2,512


$
580


$
(908
)Net income

$
20,950


$
19,018


$
17,530Other comprehensive income
    (loss)  net unrealized gains (losses) on
    available-for-sale
    securities


2,932



(9,722
)


(3,534
)Comprehensive income

$
23,882


$
9,296


$
13,990    26




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##### Table of Contents



Harris
    Preferred Capital Corporation
  Consolidated
    Statements of Changes in Stockholders Equity
 For the
    Years Ended December 31, 2006, 2005 and 2004
  (Distributions inExcess of


AccumulatedAdditional


Earnings) Earnings


Other


TotalPreferred


Common


Paid-in


in Excess of


Comprehensive


StockholdersStock


Stock


Capital


Distributions


Income (Loss)


Equity(In thousands except per share data)Balance at December 31,
    2003

$
250,000


$
1


$
240,733


$
1,230


$
2,270


$
494,234Net income














17,530







17,530Other comprehensive loss


















(3,534
)


(3,534
)Dividends declared on common stock
    ($904 per share)














(904
)






(904
)Dividends declared on preferred
    stock ($1.8438 per share)














(18,438
)






(18,438
)Balance at December 31,
    2004

$
250,000


$
1


$
240,733


$
(582
)

$
(1,264
)

$
488,888Net income














19,018







19,018Other comprehensive loss


















(9,722
)


(9,722
)Dividends declared on preferred
    stock ($1.8438 per share)














(18,438
)






(18,438
)Balance at December 31,
    2005

$
250,000


$
1


$
240,733


$
(2
)

$
(10,986
)

$
479,746Net income














20,950







20,950Other comprehensive income


















2,932



2,932Dividends declared on common stock
    ($2,581.00 per share














(2,581
)






(2,581
)Dividends declared on preferred
    stock ($1.8438 per share)














(18,438
)






(18,438
)Balance at December 31,
    2006

$
250,000


$
1


$
240,733


$
(71
)

$
(8,054
)

$
482,609    27




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##### Table of Contents



Harris
    Preferred Capital Corporation
  Consolidated
    Statements of Cash Flows
  For the Years Ended December 312006


2005


2004(In thousands)Operating Activities:Net income

$
20,950


$
19,018


$
17,530Adjustments to reconcile net
    income to net cash provided by operating activities:Gain on sale of securities










(1,062
)Net (increase) decrease in other
    assets


(181
)


139



(521
)Net (decrease) increase in accrued
    expenses


(9
)


(5
)


50Net cash provided by operating
    activities


20,760



19,152



15,997Investing Activities:Net decrease (increase) in
    securities purchased from Harris N.A. under agreement to resell


10,646



(10,000
)


1,000Repayments of notes receivable
    from Harris N.A.


2,172



3,445



4,418Decrease in securing mortgage
    collections due from Harris N.A.






53



336Purchases of securities
    available-for-sale


(418,311
)


(248,441
)


(676,706
)Proceeds from sales of securities
    available-for-sale










51,458Proceeds from
    maturities/redemptions of securities
    available-for-sale


405,725



254,522



622,320Net cash provided by (used in)
    investing activities


232



(421
)


2,826Financing Activities:Cash dividends paid on preferred
    stock


(13,827
)


(18,438
)


(18,438
)Cash dividends paid on common stock


(2,581
)






(904
)Net cash used in financing
    activities


(16,408
)


(18,438
)


(19,342
)Net increase (decrease) in cash on
    deposit with Harris N.A


4,584



293



(519
)Cash on deposit with Harris N.A.
    at beginning of year


700



407



926Cash on deposit with Harris N.A.
    at end of year

$
5,284


$
700


$
407    28




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##### Table of Contents



Harris
    Preferred Capital Corporation
  Notes
    to Consolidated Financial Statements
  1.
    Organization
    and Basis of Presentation  Sections 856-860. 3 8
    2.
    Summary
    of Significant Accounting Policies  Cash
    and Cash Equivalents
    Allowance
    for Probable Loan Losses
    Income
    Taxes
  Sections 856-860
   29




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##### Table of Contents



Harris
    Preferred Capital Corporation
  Notes
    to Consolidated Financial
    Statements (Continued)
   Securities
  available-for-sale, Available-for-sale
      available-for-sale
  other-than-temporary
  New
    Accounting Pronouncements
  available-for-sale
   30




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##### Table of Contents



Harris
    Preferred Capital Corporation
  Notes
    to Consolidated Financial
    Statements (Continued)
       Considering the Effects of Prior Year
    Misstatements When Quantifying Current Year Misstatements
  Managements
    Estimates
    3.
    Notes Receivable
    from the Bank     31




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##### Table of Contents



Harris
    Preferred Capital Corporation
  Notes
    to Consolidated Financial
    Statements (Continued)
           4.
    Securities  available-for-sale
  December 31, 2006


December 31, 2005Amortized


Unrealized


Unrealized


Fair


Amortized


Unrealized


Unrealized


FairCost


Gains


Losses


Value


Cost


Gains


Losses


Value(In thousands)Available-for-Sale
    SecuritiesMortgage-backed

$
412,128



643


$
8,696


$
404,075


$
384,570






$
10,986


$
373,584U.S. Treasury Bills


59,949







1



59,948



74,921











74,921Total Securities

$
472,077


$
643


$
8,697


$
464,023


$
459,491


$



$
10,986


$
448,505    32




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##### Table of Contents



Harris
    Preferred Capital Corporation
  Notes
    to Consolidated Financial
    Statements (Continued)
  other-than-temporarily
  December 31,
    2006
  Length of Continuous Unrealized Loss PositionLess Than 12 Months


12 Months or Longer


TotalUnrealized





Unrealized





UnrealizedFair Value


Loss


Fair Value


Losses


Fair Value


Losses(In thousands)U.S. Treasury bills

$
59,948


$
1


$



$



$
59,948


$
1Mortgage-backed










309,534



8,696



309,534



8,696Total

$
59,948


$
1


$
309,534


$
8,696


$
369,482


$
8,697   December 31,
    2005
  Length of Continuous Unrealized Loss PositionLess Than 12 Months


12 Months or Longer


TotalUnrealized





Unrealized





UnrealizedFair Value


Losses


Fair Value


Losses


Fair Value


Losses(In thousands)Mortgage-backed

$
89,256


$
1,791


$
284,328


$
9,195


$
373,584


$
10,986   available-for-sale
  December 31, 2006Amortized


FairCost


ValueMaturities:Within 1 year

$
59,949


$
59,9481 to 5 years


89,677



88,0875 to 10 years


47,669



46,468Over 10 years


274,782



269,520Total Securities

$
472,077


$
464,023   5.
    Common
    and Preferred Stock  Form S-11.
  3 8
 33




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##### Table of Contents



Harris
    Preferred Capital Corporation
  Notes
    to Consolidated Financial
    Statements (Continued)
      6.
    Transactions
    with Affiliates  day-to-day
        7.
    Operating
    Segment    8.
    Commitments
    and Contingencies   34




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##### Table of Contents



Harris
    Preferred Capital Corporation
  Notes
    to Consolidated Financial
    Statements (Continued)
   9.
    Quarterly
    Financial Information (unaudited)    Year Ended December 31, 2006


Year Ended December 31, 2005First


Second


Third


Fourth


First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter


Quarter


Quarter


Quarter


Quarter(In thousands except per share data)Total interest income

$
5,137


$
5,276


$
5,423


$
5,606


$
4,775


$
4,862


$
4,891


$
4,930Total operating expenses


123



114



96



159



134



82



88



136Net income


5,014



5,162



5,327



5,447



4,641



4,780



4,803



4,794P referred dividends


4,609



4,609



4,609



4,611



4,609



4,609



4,609



4,611Net income available to common
    stockholder

$
405


$
553


$
718


$
836


$
32


$
171


$
194


$
183Basic and diluted earnings per
    common share

$
405.00


$
553.00


$
718.00


$
836.00


$
32.00


$
171.00


$
194.00


$
183.00   Financial
    Statements of Harris N.A.
      pooling-of-interests
 35




---



##### Table of Contents



HARRIS
    N.A.
  Certain
    Information Regarding Harris N.A.
                   36




---



##### Table of Contents



MANAGEMENTS
    DISCUSSION AND ANALYSIS OF
    FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  2006
    Compared to 2005
  Summary
                 37




---



##### Table of Contents



2005
    Compared to 2004
  Summary
                 38




---



##### Table of Contents



INDEPENDENT
    AUDITORS REPORT
           
    39




---



##### Table of Contents



Harris
    N.A. and Subsidiaries
  Consolidated
    Statements of Condition
  December 312006


2005(In thousands except share data)ASSETSCash and demand balances due from
    banks

$
1,084,959


$
1,399,415Money market assets:Interest-bearing deposits at banks


944,116



1,007,667Federal funds sold


672,760



258,915Securities
    available-for-sale
    (including $5.15 billion and $3.80 billion of
    securities pledged as collateral for repurchase agreements at
    December 31, 2006 and December 31, 2005, respectively)


10,713,910



6,573,222Trading account assets


220,716



181,121Loans


25,402,554



24,347,528Allowance for loan losses


(322,742
)


(331,838
)Net loans


25,079,812



24,015,690Loans held for sale


34,451



32,364Premises and equipment


474,073



448,144Bank-owned insurance


1,155,925



1,115,172Goodwill and other intangible
    assets


395,140



416,498Other assets


989,965



810,818Total assets

$
41,765,827


$
36,259,026LIABILITIESDeposits in domestic
    offices  noninterest-bearing

$
6,232,744


$
6,480,021 interest-bearing


22,855,715



17,882,772Deposits in foreign
    offices  interest-bearing


1,030,838



1,270,741Total deposits


30,119,297



25,633,534Federal funds purchased


476,000



927,990Securities sold under agreement to
    repurchase


3,475,839



2,488,493Short-term borrowings


1,261,679



2,037,770Short-term senior notes


100,000



800,000Accrued interest, taxes and other
    expenses


205,942



159,854Accrued pension and post-retirement


170,853



97,577Other liabilities


1,070,554



247,505Minority interest 
    preferred stock of subsidiary


250,000



250,000Long-term notes  senior


996,500



250,000Long-term notes 
    subordinated


292,750



292,750Total liabilities


38,419,414



33,185,473Stockholders
    EquityCommon stock ($10 par value);
    authorized 40,000,000 shares; issued and outstanding
    14,303,361 and 14,016,361 shares at December 31, 2006
    and December 31, 2005, respectively


143,034



140,164Surplus


1,489,521



1,327,828Retained earnings


1,811,497



1,675,548Accumulated other comprehensive
    loss


(97,639
)


(69,987
)Total stockholders
    equity


3,346,413



3,073,553Total liabilities and
    stockholders equity

$
41,765,827


$
36,259,026    40




---



##### Table of Contents



Harris
    N.A. and Subsidiaries
  Consolidated
    Statements of Income
  For the Years Ended December 312006


2005


2004(In thousands)Interest IncomeLoans

$
1,572,148


$
1,268,435


$
969,450Money market assets:Deposits at banks


14,497



10,680



5,421Federal funds sold


36,362



8,608



3,451Trading account assets


10,085



5,203



2,396Securities
    available-for-sale:U.S. Treasury and federal
    agency


297,007



174,305



136,771State and municipal


23,651



20,299



19,619Other


22,060



16,945



11,028Total interest income


1,975,810



1,504,475



1,148,136Interest ExpenseDeposits


741,873



458,114



259,664Short-term borrowings


307,646



159,114



55,966Short-term senior notes


17,106



14,555



3,238Minority interest 
    dividends on preferred stock of subsidiary


18,437



18,437



18,438Long-term notes  senior


36,662



5,123



Long-term notes 
    subordinated


16,063



10,758



8,437Total interest expense


1,137,787



666,101



345,743Net Interest Income


838,023



838,374



802,393Provision for loan losses


21,698



19,522



23,845Net Interest Income after
    Provision for Loan Losses


816,325



818,852



778,548Noninterest IncomeTrust and investment management fees


79,445



95,600



93,256Money market and bond trading


14,204



8,026



11,994Foreign exchange


4,600



5,635



5,850Service charges and fees


136,029



129,946



131,250Securities gains (losses)


30,817



(415
)


26,026Bank-owned insurance


44,938



42,754



40,355Gain from loan restructuring










7,131Letter of credit fees


19,035



20,230



23,360Syndication fees


16,044



10,375



11,655Other


72,459



100,164



113,703Total noninterest income


417,571



412,315



464,580Noninterest ExpensesSalaries and other compensation


362,140



369,925



367,374Pension, profit sharing and other
    employee benefits


110,760



112,496



106,794Net occupancy


80,071



75,456



61,182Equipment


63,688



57,864



56,501Marketing


42,951



38,504



37,266Communication and delivery


25,306



24,108



24,326Expert services


32,212



27,883



24,659Contract programming


31,219



33,406



31,137Intercompany services


57,847



42,977



33,542Other


113,044



115,283



106,040Amortization of intangibles


21,521



21,547



18,282Total noninterest expenses


940,759



919,449



867,103Income before income taxes


293,137



311,718



376,025Applicable income taxes


85,188



96,839



122,184Net Income

$
207,949


$
214,879


$
253,841    41




---



##### Table of Contents



Harris
    N.A. and Subsidiaries
  Consolidated
    Statements of Comprehensive Income
  For the Years Ended December 312006


2005


2004(In thousands)Net income

$
207,949


$
214,879


$
253,841Other comprehensive income (loss):Cash flow hedges:Net unrealized loss on derivative
    instruments, net of tax benefit $2,715 in 2006, $10,757 in 2005
    and $3,098 in 2004


(6,137
)


(18,316
)


(5,274
)Less reclassification adjustment
    for losses included in net income, net of tax benefit of $4,129
    in 2006, $2,636 in 2005 and $0 in 2004


7,030



4,488



Minimum pension liability
    adjustment net of tax (benefit) expense of $0 in 2006, $877 in
    2005 and $6,231 in 2004






2,337



4,829Unrealized losses on
    available-for-sale
    securities:Unrealized holding gains (losses)
    arising during period, net of tax (expense) benefit of ($19,498)
    in 2006, $7,828 in 2005 and $29,501 in 2004


32,647



(14,317
)


(47,828
)Less reclassification adjustment
    for (gains) losses included in net income, net of tax (expense)
    benefit of ($12,019) in 2006, $162 in 2005 and ($10,150) in 2004


(18,798
)


253



(15,876
)Other comprehensive income (loss)


14,742



(25,555
)


(64,149
)Comprehensive income

$
222,691


$
189,324


$
189,692    42




---



##### Table of Contents



Harris
    N.A. and Subsidiaries
  Statements
    of Changes in Stockholders Equity
  AccumulatedOther


TotalCommon





Retained


Comprehensive


StockholdersStock


Surplus


Earnings


Income (Loss)


Equity(In thousands except per sharedata)Balance at December 31,
    2003

$
133,873


$
1,020,205


$
1,344,483


$
19,717


$
2,518,278Stock option exercise






7,311











7,311Tax benefit from stock option
    exercise






5,068











5,068Contribution of parents
    banking assets


5,678



242,354



71,593



668



320,293Net income










253,841







253,841Dividends 
    ($9.90 per common share)










(133,150
)






(133,150
)Dividends 
    ($0.025 per preferred share)










(124
)






(124
)Adjustment of prior quarters
    preferred dividends










766







766Non-cash dividend of subsidiary










(5,357
)






(5,357
)Other comprehensive loss














(64,817
)


(64,817
)Balance at December 31,
    2004


139,551



1,274,938



1,532,052



(44,432
)


2,902,109Stock option exercise






3,004











3,004Tax benefit from stock option
    exercise






6,882











6,882Contribution of parents
    banking assets


613



43,004



18,679







62,296Net income










214,879







214,879Dividends 
    ($6.67 per common share)










(90,000
)






(90,000
)Dividends 
    ($0.025 per preferred share)










(62
)






(62
)Other comprehensive loss














(25,555
)


(25,555
)Balance at December 31,
    2005


140,164



1,327,828



1,675,548



(69,987
)


3,073,553Stock option exercise






2,743











2,743Tax benefit from stock option
    exercise






11,820











11,820Net income










207,949







207,949Dividends 
    ($5.17 per common share)










(72,000
)






(72,000
)Issuance of common stock


2,870



147,130











150,000Other comprehensive income














14,742



14,742Adoption to initially apply SFAS
    No. 158, net of tax of $22,446














(42,394
)


(42,394
)Balance at December 31,
    2006

$
143,034


$
1,489,521


$
1,811,497


$
(97,639
)

$
3,346,413    43




---



##### Table of Contents



Harris
    N.A. and Subsidiaries
  Consolidated
    Statements of Cash Flows
  For the Years Ended December 312006


2005


2004(In thousands)Operating Activities:Net Income

$
207,949


$
214,879


$
253,841Adjustments to reconcile net income
    to net cash provided by operating activities:Provision for loan losses


21,698



19,522



23,845Depreciation and amortization,
    including intangibles


61,173



99,882



115,898Deferred tax expense (benefit)


23,668



(4,792
)


8,605Tax benefit from stock options
    exercise


11,820



6,882



5,068Net securities (gains) losses


(30,817
)


415



(26,026
)Increase in bank-owned insurance


(40,753
)


(42,666
)


(39,560
)Trading account net cash sales
    (purchases)


486,822



(52,948
)


(27,550
)(Increase) decrease in accrued
    interest receivable


(52,694
)


(33,085
)


(8,423
)Increase (decrease) in accrued
    interest payable


28,488



26,803



1,927Increase (decrease) in other
    accrued expenses


19,907



(31,759
)


13,496Origination of loans held for sale


(271,446
)


(440,026
)


(338,782
)Proceeds from sale of loans held
    for sale


271,193



453,856



465,839Net gain on loans held for sale


(1,834
)


(2,771
)


(1,576
)Net change in pension and post
    retirement benefits


8,437



(4,247
)


701Net change in due from parent


90,072



(33,671
)


(17,529
)Recoveries on charged-off loans


26,171



27,813



33,874Other, net


63,321



(106,306
)


48,853Net cash provided by operating
    activities


923,175



97,781



512,501Investing Activities:Net decrease (increase) in
    interest-bearing deposits at banks


63,551



(302,351
)


(280,751
)Net increase in Federal funds sold


(413,845
)


(148,435
)


(16,908
)Proceeds from sales of securities
    available-for-sale


3,357,587



216,318



2,610,520Proceeds from maturities of
    securities
    available-for-sale


11,943,422



5,553,039



3,099,331Purchases of securities
    available-for-sale


(19,365,471
)


(4,865,064
)


(4,940,694
)Net increase in loans


(1,111,523
)


(2,717,021
)


(3,498,571
)(Purchases) sales of premises and
    equipment


(84,653
)


44,973



(122,611
)Other, net










2,139Net cash used in by investing
    activities


(5,610,932
)


(2,218,541
)


(3,147,545
)Financing Activities:Cash (disbursed) received in
    contribution of parents banking assets






(5,935
)


199,047Net increase in deposits


4,485,763



1,106,327



2,478,524Net increase (decrease) in Federal
    funds purchased and securities sold under agreement to repurchase


535,356



(1,079,589
)


162,065Net (decrease) increase in other
    short-term borrowings


(776,091
)


1,756,556



(172,467
)Net (decrease) increase in
    short-term senior notes


(700,000
)


600,000



200,000Proceeds from issuance of long-term
    senior notes


746,500



250,000



Proceeds from issuance of long-term
    subordinated notes










206,250Repayment of long-term subordinated
    notes










(225,000
)Proceeds from issuance of common
    stock


150,000







Cash dividends paid on common stock


(72,000
)


(90,000
)


(133,150
)Cash dividends paid on preferred
    stock






(62
)


Retirement of preferred stock






(5,000
)


Net proceeds from stock options
    exercise


2,743



3,004



7,311Excess tax benefit from stock
    options exercise


1,030







Cash portion of dividend of
    non-bank subsidiary










(5,066
)Net cash provided by financing
    activities


4,373,301



2,535,301



2,717,514Net (decrease) increase in cash and
    demand balances due from banks


(314,456
)


414,541



82,470Cash and demand balances due from
    banks at January 1


1,399,415



984,874



902,404Cash and demand balances due from
    banks at December 31

$
1,084,959


$
1,399,415


$
984,874Supplemental Disclosures of Cash
    Flow Information:Cash paid during the year for:Interest

$
1,109,299


$
639,298


$
343,815Income taxes

$
116,617


$
56,807


$
43,651Financing activity affecting
    assets and liabilities but not resulting in cash
    flows:Net increase in assets and
    liabilities due to contribution of parents banking assets

$



$
68,231


$
121,246    44




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes to Consolidated
    Financial Statements
  1.
    Summary
    of Significant Accounting Policies  Principles
    of consolidation and nature of operations
      not-for-profit
  Basis
    of accounting
    Foreign
    currency and foreign exchange contracts
    Derivative
    financial instruments
       45




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes to Consolidated
    Financial Statements  (Continued)
              Securities
  available-for-sale. available-for-sale,
 46




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes to Consolidated
    Financial Statements  (Continued)
   Available-for-sale
  other-than-temporary
  Loans,
    loan fees and commitment fees
         47




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes to Consolidated
    Financial Statements  (Continued)
          03-3,
  Allowance
    for loan losses
    Premises
    and equipment
    Bank-owned
    insurance
   48




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes to Consolidated
    Financial Statements  (Continued)
    Goodwill
    and other intangible assets
      Other
    assets
    Retirement
    and other postemployment benefits
         49




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes to Consolidated
    Financial Statements  (Continued)
   Income
    taxes
      Managements
    estimates
  other-than-temporary
  Impact
    of new accounting standards
  available-for-sale
     50




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes to Consolidated
    Financial Statements  (Continued)
       2.
    Securities  available-for-sale
  December 31, 2006


December 31, 2005Amortized


Unrealized


Unrealized


Fair


Amortized


Unrealized


Unrealized


FairCost


Gains


Losses


Value


Cost


Gains


Losses


Value(In thousands)


(In thousands)U.S. Treasury

$
946,950


$



$
7,172


$
939,778


$
777,729


$



$
6,386


$
771,343Federal agency


6,322,086



1,414



11,436



6,312,064



4,339,883



249



40,319



4,299,813Mortgage-backed


2,143,824



5,353



13,964



2,135,213



184,690



1,814



482



186,022State and municipal


749,852



6,006



2,063



753,795



609,412



6,224



2,741



612,895Non-mortgage asset backed


413,906



61



112



413,855



559,693



4



2,443



557,254Other


159,218







13



159,205



144,941



954







145,895Total securities

$
10,735,836


$
12,834


$
34,760


$
10,713,910


$
6,616,348


$
9,245


$
52,371


$
6,573,222  51




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes to Consolidated
    Financial Statements  (Continued)
  available-for-sale other-than-temporarily
  Length of Continuous Unrealized Loss PositionLess Than 12 Months


12 Months or Longer


TotalUnrealized





Unrealized


Number of





UnrealizedFair Value


Losses


Fair Value


Losses


Securities


Fair Value


Losses(Dollars in thousands)December 31,
    2006U.S. Treasury

$
622,793


$
5,010


$
316,986


$
2,162



19


$
939,779


$
7,172Federal agency


1,389,329



2,318



1,487,098



9,118



103



2,876,427



11,436Mortgage-backed


1,018,101



4,681



348,283



9,283



53



1,366,384



13,964State and municipal


210,473



585



157,558



1,478



672



368,031



2,063Non-mortgage asset backed


236,846



86



5,551



26



3



242,397



112Other


159,205



13















159,205



13Temporarily impaired
    securities 
    available-for-sale

$
3,636,747


$
12,693


$
2,315,476


$
22,067



850


$
5,952,223


$
34,760December 31,
    2005U.S. Treasury

$
650,722


$
5,272


$
44,660


$
1,114



4


$
695,382


$
6,386Federal agency


3,006,145



27,580



877,425



12,739



34



3,883,570



40,319Mortgage-backed


80,337



451



9,848



31



4



90,185



482State and municipal


287,576



2,214



21,292



527



113



308,868



2,741Non-mortgage asset backed


543,123



2,443















543,123



2,443Other


























Temporarily impaired
    securities 
    available-for-sale

$
4,567,903


$
37,960


$
953,225


$
14,411



155


$
5,521,128


$
52,371   available-for-sale
 52




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes to Consolidated
    Financial Statements  (Continued)
   available-for-sale
  December 31, 2006Amortized


FairCost


Value(In thousands)Maturities:Within 1 year

$
4,733,996


$
4,725,7831 to 5 years


3,504,624



3,497,2155 to 10 years


86,743



87,479Over 10 years


106,820



108,404Mortgage-backed


2,143,824



2,135,213Other securities without stated
    maturity


159,829



159,816Total securities

$
10,735,836


$
10,713,910   available-for-sale
  3.
    Loans    December 31, 20062006


2005(In thousands)Domestic loans:Commercial, financial,
    agricultural, brokers and dealers

$
6,371,261


$
7,017,315Real estate construction


1,406,848



1,043,764Real estate mortgages


12,445,143



11,477,597Installment


4,874,845



4,524,415Direct lease financing (unearned
    disc of $341 million and $345 million for
    December 31, 2006 and December 31, 2005, respectively)


28,725



35,051Foreign loans:Other, primarily commercial and
    industrial


276,200



250,093Total loans


25,403,022



24,348,235Less unearned income


468



707Loans, net of unearned income


25,402,554



24,347,528Less allowance for loan losses


322,742



331,838Loans, net of allowance for loan
    losses

$
25,079,812


$
24,015,690  53




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes to Consolidated
    Financial Statements  (Continued)
    Years Ended December 312006


2005(In thousands)Nonaccrual loans

$
153,916


$
135,795Restructured loans


4,979



Total nonperforming loans


158,895



135,795Other assets received in
    satisfaction of debt


4,943



2,871Total nonperforming assets

$
163,838


$
138,666Gross amount of interest income
    that would have been recorded if year-end nonperforming loans
    had been accruing interest at their original terms

$
11,641


$
10,989Interest income actually recognized


9,805



9,723Interest shortfall

$
1,836


$
1,26690-day
    past due loans, still accruing interest (all domestic )

$
38,156


$
59,421     03-3,
           54




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes to Consolidated
    Financial Statements  (Continued)
  4.
    Allowance
    for Loan Losses    Years Ended December 312006


2005(In thousands)Balance, beginning of year

$
331,838


$
326,672Charge-offs


(56,965
)


(44,283
)Recoveries


26,171



27,813Net charge-offs


(30,794
)


(16,470
)Provisions charged to operations


21,698



19,522Acquired reserve






2,114Balance, end of year

$
322,742


$
331,838     Impaired Loans


Impaired Loansfor Which There


for Which There


Totalis a Related


is No Related


ImpairedAllowance


Allowance


Loans(In thousands)December 31, 2006Balance

$
78,308


$
80,587


$
158,895Related allowance


38,056







38,056Balance, net of allowance

$
40,252


$
80,587


$
120,839December 31, 2005Balance

$
95,348


$
40,447


$
135,795Related allowance


44,817







44,817Balance, net of allowance

$
50,531


$
40,447


$
90,978   Years Ended December 312006


2005(In thousands)Average impaired loans

$
141,376


$
148,786Total interest income on impaired
    loans recorded on a cash basis

$
9,805


$
9,723  55




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes to Consolidated
    Financial Statements  (Continued)
  5.
    Premises
    and Equipment    December 312006


2005(In thousands)Land

$
88,420


$
82,988Premises


255,497



237,273Equipment


522,423



476,165Leasehold improvements


73,005



65,790Total


939,345



862,216Accumulated depreciation and
    amortization


465,272



414,072Premises and equipment

$
474,073


$
448,144           6.
    Goodwill
    and Other Intangible Assets       56




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes to Consolidated
    Financial Statements  (Continued)
    2006


2005(In thousands)Goodwill at beginning of year

$
305,121


$
266,455Acquisitions during the year






38,386Other(1)


163



280Goodwill at end of year

$
305,284


$
305,121     (1)
    
    Includes the effect of purchase accounting adjustments related
    to prior year acquisitions.      December 31December 31, 2006


2006


2005Gross Carrying


Accumulated


Net Carrying


Net CarryingAmount


Amortization


Value


Value(In thousands)Branch network

$
145,000


$
(101,500
)

$
43,500


$
53,167Core deposits


92,859



(47,120
)


45,739



57,324Other


1,310



(693
)


617



886Total finite life intangibles

$
239,169


$
(149,313
)

$
89,856


$
111,377       Mortgage
    servicing rights
     57




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes to Consolidated
    Financial Statements  (Continued)
    7.
    Deposits    December 312006


2005(Dollars in thousands)Demand deposits

$
6,232,744


$
6,480,021Interest-bearing checking deposits


181,979



847,297Money market accounts


9,388,250



5,420,282Statement savings accounts


3,420,541



3,903,980Savings certificates


5,682,702



4,562,418Time deposits


4,182,243



3,148,795Deposits in foreign offices


1,030,838



1,270,741Total deposits

$
30,119,297


$
25,633,534     8.
    Securities
    Sold Under Agreement to Repurchase    Securities
    sold under agreement to repurchase
  2006


2005(Dollars in thousands)Amount outstanding at end of year

$
3,475,839


$
2,488,493Highest amount outstanding as of
    any month-end during the year

$
5,030,467


$
3,323,696Daily average amount outstanding
    during the year

$
3,661,317


$
2,977,409Daily average annualized rate of
    interest


4.91
%


3.03
%  58




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes to Consolidated
    Financial Statements  (Continued)
  9.
    Senior
    Notes and Long-Term Notes    December 312006


2005(In thousands)Floating rate subordinated note to
    Bankcorp due December 23, 2012

$
28,500


$
28,500Floating rate subordinated note to
    Bankcorp due May 30, 2013


34,000



34,000Floating rate subordinated note to
    Bankcorp due November 26, 2013


24,000



24,000Floating rate subordinated note to
    Bankcorp due February 26, 2014


6,250



6,250Floating rate subordinated note to
    Bankcorp due May 31, 2014


100,000



100,000Floating rate subordinated note to
    Bankcorp due May 31, 2016


100,000



100,000Total subordinated notes


292,750



292,750Floating rate senior note to BMO
    subsidiary due June 15, 2010


250,000



250,000Floating rate senior note to BMO
    subsidiary due June 13, 2011


746,500



Total senior notes


996,500



250,000Total subordinated and senior notes

$
1,289,250


$
542,750        59




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes to Consolidated
    Financial Statements  (Continued)
   10.
    Fair
    Value of Financial Instruments  item-by-item
  available-for-sale
                   60




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes to Consolidated
    Financial Statements  (Continued)
     December 312006


2005Carrying


Fair


Carrying


FairValue


Value


Value


Value(In thousands)AssetsCash and demand balances due from
    banks

$
1,084,959


$
1,084,959


$
1,399,415


$
1,399,415Money market assets:Interest-bearing deposits at banks


944,116



944,116



1,007,667



1,007,667Federal funds sold


672,760



672,760



258,915



258,915Securities
    available-for-sale


10,713,910



10,713,910



6,573,222



6,573,222Trading account assets


220,716



220,716



181,121



181,121Loans, net of unearned income and
    allowance for loan losses


25,079,812



24,982,752



24,015,690



23,920,258Loans held for sale


34,451



35,016



32,364



32,897Accrued interest receivable


216,479



216,479



163,785



163,785Bank-owned insurance


1,155,925



1,155,925



1,115,172



1,115,172Total on-balance-sheet financial
    assets

$
40,123,128


$
40,026,633


$
34,747,351


$
34,652,452LiabilitiesDeposits:Demand deposits

$
19,200,318


$
19,200,318


$
16,510,714


$
16,510,714Time deposits


10,918,979



10,951,437



9,122,820



9,122,820Federal funds purchased


476,000



476,000



927,990



927,990Securities sold under agreement to
    repurchase


3,475,839



3,475,839



2,488,493



2,488,493Short-term borrowings


1,261,679



1,261,679



2,037,770



2,037,770Short-term senior notes


100,000



100,000



800,000



800,000Accrued interest payable


89,445



89,445



60,957



60,957Minority interest 
    preferred stock of subsidiary


250,000



250,000



250,000



250,000Long-term notes  senior


996,500



996,500



250,000



250,000Long-term notes 
    subordinated


292,750



292,750



292,750



292,750Total on-balance-sheet financial
    liabilities

$
37,061,510


$
37,093,968


$
32,741,494


$
32,741,494Off-Balance-Sheet Credit
    Facilities (positive positions/(obligations))Loan commitments

$
22,044


$
22,044


$
1,406


$
1,406Standby letters of credit


(1,486
)


(1,486
)


(1,709
)


(1,709
)Total off-balance-sheet credit
    facilities

$
20,558


$
20,558


$
(303
)

$
(303
)  61




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes to Consolidated
    Financial Statements  (Continued)
  11.
    Financial
    Instruments with Off-Balance-Sheet Risk    Credit
    facilities
        case-by-case
      Financial
    Guarantees
     62




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes to Consolidated
    Financial Statements  (Continued)
        Securities
    activities
        Commitments
    to Invest in Equity Securities
    12.
    Derivative
    Financial Instruments       63




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes to Consolidated
    Financial Statements  (Continued)
     Dealer
    and trading activity
  Interest
    rate contracts
      value-at-risk
  Value-at-risk
       64




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes to Consolidated
    Financial Statements  (Continued)
     Foreign
    exchange contracts
          Equity
    contracts
    Commodity
    contracts
    Risk
    management activity
   65




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes to Consolidated
    Financial Statements  (Continued)
         Fair
    value hedges
      Cash flow
    hedges
  available-for-sale
     66




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes to Consolidated
    Financial Statements  (Continued)
         13.
    Concentrations
    of Credit Risk in Financial Instruments    Midwestern
    Geographic Area
      14.
    Employee
    Benefit Plans       67




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes to Consolidated
    Financial Statements  (Continued)
          out-of-pocket
  No. 106-2,
 68




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes to Consolidated
    Financial Statements  (Continued)
     Pension Benefits


Postretirement Medical Benefits2006**


2005**


2004**


2006**


2005**


2004**(In thousands)Change in benefit
    obligation*Benefit obligation at beginning of
    year

$
443,553


$
399,900


$
384,344


$
64,687


$
57,598


$
64,849Service cost


21,706



19,934



21,717



2,638



2,231



2,536Interest cost


24,115



24,445



21,890



3,563



3,198



3,481Transfer Adjustments


2,859



















Acquisitions/transfers










125











Medicare drug legislation














6,222



(7,491
)


(11,971
)Benefits paid (net of participant
    contributions)


(37,991
)


(29,851
)


(31,500
)


(2,624
)


(2,624
)


(2,264
)Actuarial (gain) or loss


(8,038
)


29,125



3,324



4,395



11,775



967Benefit obligation at end of year

$
446,204


$
443,553


$
399,900


$
78,881


$
64,687


$
57,598Change in plan assetsFair value of plan assets at
    beginning of year

$
293,836


$
247,480


$
225,830


$
50,314


$
43,208


$
37,258Actual return on plan assets


34,201



41,435



34,564



(3,707
)


7,106



5,950Acquisitions/transfers


5,264







358











Employer contribution


27,031



34,772



18,228











Benefits paid


(37,991
)


(29,851
)


(31,500
)










Fair value of plan assets at end
    of year ***

$
322,341


$
293,836


$
247,480


$
46,607


$
50,314


$
43,208Funded Status

$
(123,862
)

$
(149,717
)

$
(152,334
)

$
(32,275
)

$
(14,372
)

$
(14,390
)Contributions made between
    measurement date (September 30) and end of year






6,041















Unrecognized actuarial (gain) or
    loss


106,521



133,361



139,031



12,990



(5,092
)


(5,634
)Unrecognized transition (asset) or
    obligation














10,036



11,787



13,890Unrecognized prior service cost


3,296



3,395



3,116



488



657



846Net amount at year-end

$
(14,045
)

$
(6,920
)

$
(10,187
)

$
(8,761
)

$
(7,020
)

$
(5,288
) 69




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes to Consolidated
    Financial Statements  (Continued)
  Pension Benefits


Postretirement Medical Benefits2006**


2005**


2004**


2006**


2005**


2004**(In thousands)Amounts recognized in the
    Statement of Condition consist of:Prepaid benefit cost

$



$



$



$



$



$
Accrued benefit liability


(96,687
)


(45,203
)


(51,950
)


(20,420
)


(7,166
)


(5,288
)Intangible asset






3,392



3,114











Accumulated other comprehensive
    income (gross of tax)


82,642



35,054



38,649



11,743







Net amount recognized at year-end

$
(14,045
)

$
(6,757
)

$
(10,187
)

$
(8,677
)

$
(7,166
)

$
(5,288
)Other comprehensive income
    attributable to change in additional minimum liability (gross of
    tax)

$
47,588


$
(3,595
)

$
(11,116
)

$
11,743


$



$
Components of net periodic
    benefit costService cost

$
21,706


$
19,934


$
21,717


$
2,638


$
2,232


$
2,536Interest cost


24,115



24,446



21,890



3,563



3,198



3,481Expected return on plan assets


(20,922
)


(15,302
)


(15,794
)


(4,025
)


(2,913
)


(2,939
)Amortization of prior service cost


98



(279
)


(279
)


169



169



169Amortization of transition (asset)
    or obligation














1,751



1,751



1,751Amortization of actuarial (gain)
    or loss


9,322



8,747



7,444



(81
)






(8
)Net periodic benefit cost

$
34,319


$
37,546


$
34,978


$
4,015


$
4,437


$
4,990     *
    
    Benefit obligation is projected for Pension Benefits and
    accumulated for Postretirement Medical Benefits.  **
    
    Plan assets and obligation measured as of September 30.***
    
    The actual allocation of plan assets by category are as follows:  2006


2005


2004Pension:Equity securities


73
%


68
%


72
%Fixed income securities


27
%


30
%


28
%Cash Equivalents






2
%


Postretirement Medical:Equity securities


73
%


68
%


72
%Fixed income securities


27
%


30
%


28
%Cash Equivalents






2
%


  70




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes to Consolidated
    Financial Statements  (Continued)
      Equity securities


65
%Fixed income securities


35
%   Pension Benefits


Postretirement Medical Benefits2006


2005


2004


2006


2005


2004Weighted-average assumptions
    used to determine benefit obligations as of
    December 31Discount rate


5.75
%


5.50
%


6.00
%


5.75
%


5.50
%


6.00
%Rate of compensation increase


3.80
%


3.80
%


3.80
%


N/A



N/A



N/AWeighted-average assumptions
    used to determine net benefit cost for years ended
    December 31Discount rate


5.50
%


6.00
%


6.00
%


5.50
%


6.00
%


6.00
%Expected return on plan assets


8.00
%


8.00
%


8.00
%


8.00
%


8.00
%


8.00
%Rate of compensation increase


3.80
%


3.80
%


3.80
%


N/A



N/A



N/A       1-Percentage


1-PercentagePoint Increase


Point Decrease(In thousands)Effect on total of service and
    interest cost components

$
1,477


$
(1,154
)Effect on postretirement benefit
    obligation

$
12,582


$
(10,098
)  71




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes to Consolidated
    Financial Statements  (Continued)
    Supplemental Unfunded Retirement Benefits2006


2005


2004(In thousands)Change in benefit
    obligationBenefit obligation at beginning of
    year

$
16,941


$
17,063


$
15,803Service cost


1,620



1,364



1,507Interest cost


785



916



744Settlement loss










Plan amendments/merger










Benefits paid (net of participant
    contributions)


(1,840
)


(2,367
)


(3,784
)Settlement payments










Actuarial (gain) or loss


1,464



(35
)


2,793Benefit obligation at end of year

$
18,970


$
16,941


$
17,063Change in plan assetsFair value of plan assets at
    beginning of year

$



$



$
Actual return on plan assets










Employer contribution


1,840



2,367



3,784Benefits paid


(1,840
)


(2,367
)


(3,784
)Fair value of plan assets at end
    of year

$



$



$
Funded Status

$
(18,970
)

$
(16,941
)

$
(17,063
)Contributions made between
    measurement date (September 30) and end of year


623



575



28Unrecognized actuarial (gain) or
    loss


6,864



5,510



5,667Unrecognized transition (asset) or
    obligation










Unrecognized prior service cost


(2,341
)


(2,671
)


(3,001
)(Accrued) prepaid benefit cost

$
(13,824
)

$
(13,527
)

$
(14,369
)Components of net periodic
    benefit costService cost

$
1,620


$
1,364


$
1,507Interest cost


785



916



744Expected return on plan assets










Amortization of prior service cost


(330
)


(330
)


23Amortization of transition (asset)
    or obligation










Amortization of actuarial (gain)
    or loss


98



122



67Net periodic benefit cost

$
2,173


$
2,072


$
2,341Additional loss recognized due
    to:
    Settlement

$



$



$
 72




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes to Consolidated
    Financial Statements  (Continued)
  Supplemental Unfunded Retirement Benefits2006


2005


2004(In thousands)Weighted-average assumptions
    used to determine benefit obligations as of
    December 31Discount rate


5.00
%


4.75
%


5.25
%Rate of compensation increase


3.80
%


3.80
%


3.80
%Weighted-average assumptions
    used to determine net benefit cost for years ended
    December 31Discount rate


4.75
%


5.25
%


5.25
%Rate of compensation increase


3.80
%


3.80
%


3.80
%     Postretirement


Supplemental UnfundedYear

Pension Benefits


Medical Benefits


Retirement Benefits(In thousands)2007

$
25,329


$
3,878


$
1,5822008


26,721



4,089



1,5222009


28,905



4,296



1,8782010


30,103



4,450



1,5812011


32,865



4,671



2,1772012-2016


197,247



25,973



11,114       Before Adoption





After Adoptionof FAS 158


Adjustments


of FAS 158(In thousands)Other assets

$
970,531


$
19,434


$
989,965Total Assets


41,746,393



19,434



41,765,827Accrued pension and post-retirement


109,025



61,828



170,853Total liabilities


38,357,586



61,828



38,419,414Accumulated other comprehensive
    income


(140,033
)


(42,394
)


(97,639
)Total stockholders equity


3,388,807



(42,394
)


3,346,413Total liabilities and
    stockholders equity


41,746,393



19,434



41,765,827   15.
    Stock-Based
    Compensation Plans   73




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes to Consolidated
    Financial Statements  (Continued)
      Stock
    Option Program
           74




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes to Consolidated
    Financial Statements  (Continued)
     Year Ended December 31, 2006Wtd. Avg.Wtd. Avg.


Aggregate Intrinsic


RemainingOptions

Shares


Exercise Price


Value (in millions)


Contractual LifeOutstanding at beginning of year


3,967,370


$
32.67Granted


104,300



59.19Exercised


(837,507
)


28.03Forfeited, cancelled


(23,017
)


40.49Expired


(8,900
)


17.09Outstanding at December 31,
    2006


3,202,246



34.76


$
221.0



5.00 yearsOptions exercisable at
    December 31, 2006.


2.679.264


$
31.43


$
184.9



4.34       Wtd. Avg.Grant DateFair ValueOptions

Shares


per ShareNonvested at beginning of year


622,290


$
8.05Granted


104,300



6.85Vested


(162,021
)


8.73Forfeited, cancelled


(10,826
)


9.10Nonvested at December 31, 2006


553,743


$
8.07     2006


2005


2004Risk-free interest rate


3.98
%


4.00
%


4.51
%Expected life, in years


7.1



7.1



7.0Expected volatility


15.23
%


20.12
%


23.08
%Compound annual dividend growth


14.56
%


11.95
%


9.45
%   Mid-Term
    Incentive Plans
     75




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes to Consolidated
    Financial Statements  (Continued)
         Employee
    Share Purchase Plan
    16.
    Lease
    Expense and Obligations      (In thousands)2007

$
29,1642008


28,8782009


28,7392010


28,1452011


28,0712012 and thereafter


315,721Total minimum future rentals

$
458,718    76




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes to Consolidated
    Financial Statements  (Continued)
   17.
    Income
    Taxes    Federal


State


Total(In thousands)2006:Current

$
56,894


$
3,596


$
60,490Deferred


24,912



(214
)


24,698Total

$
81,806


$
3,382


$
85,1882005:Current

$
91,123


$
10,508


$
101,631Deferred


(2,380
)


(2,412
)


(4,792
)Total

$
88,743


$
8,096


$
96,8392004:Current

$
100,561


$
13,018


$
113,579Deferred


7,351



1,254



8,605Total

$
107,912


$
14,272


$
122,184     December 312006


2005


2004(In thousands)Deferred tax assets:Allowance for loan losses

$
133,881


$
133,933


$
129,912Deferred expense and prepaid income


15,409



28,193



13,560Deferred employee compensation


23,644



22,436



24,955Pension and medical trust


14,644



10,901



2,232Amortizable intangibles


8,639



12,837



13,237Other assets










261Gross deferred tax assets


196,217



208,300



184,157Deferred tax liabilities:Depreciable assets


(72,288
)


(58,702
)


(42,542
)Other liabilities


(1,980
)


(2,435
)


(5,234
)Gross deferred tax liabilities


(74,268
)


(61,137
)


(47,776
)Deferred tax assets


121,949



147,163



136,381Tax effect of fair value
    adjustments on
    available-for-sale
    securities and minimum pension liabilities recorded directly to
    stockholders equity


52,575



38,589



24,005Net deferred tax assets

$
174,524


$
185,752


$
160,386    77




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##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes to Consolidated
    Financial Statements  (Continued)
      Years Ended December 312006


2005


2004Percent of





Percent of





Percent ofPretax





Pretax





PretaxAmount


Income


Amount


Income


Amount


Income(Dollars in thousands)Computed tax expense

$
102,598



35.0
%

$
109,101



35.0
%

$
131,610



35.0
%Increase (reduction) in income tax
    expense due to:Tax-exempt income from loans and
    investments net of municipal interest expense disallowance


(8,820
)


(3.0
)


(8,278
)


(2.6
)


(7,073
)


(1.9
)Bank-owned insurance


(15,697
)


(5.4
)


(14,964
)


(4.8
)


(14,082
)


(3.7
)State income taxes


2,199



0.8



5,411



1.7



9,765



2.6Other, net


4,908



1.7



5,569



1.8



1,964



0.5Actual tax expense

$
85,188



29.1
%

$
96,839



31.1
%

$
122,184



32.5
%   18.
    Regulatory
    Capital         78




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##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes to Consolidated
    Financial Statements  (Continued)
        3 8
    To Be Well CapitalizedFor Capital


Under Prompt CorrectiveActual


Adequacy Purposes


Action ProvisionsCapital


Capital


Capital


Capital


Capital


CapitalAmount


Ratio


Amount


Ratio


Amount


Ratio(In thousands)As of December 31, 2006:Total Capital to Risk-Weighted
    Assets

$
3,913,455



11.49
%

3 $
2,724,773



3 8.00
%

3 $
3,405,966



3 10.00
%Tier 1 Capital to
    Risk-Weighted Assets

$
3,297,963



9.69
%

3 $
1,361,388



3 4.00
%

3 $
2,042,082



3 6.00
%Tier 1 Capital to
    Average Assets

$
3,297,963



8.06
%

3 $
1,636,706



3 4.00
%

3 $
2,045,883



3 5.00
%As of December 31, 2005Total Capital to Risk-Weighted
    Assets

$
3,623,902



11.57
%

3 $
2,505,723



3 8.00
%

3 $
3,132,154



3 10.00
%Tier 1 Capital to
    Risk-Weighted Assets

$
2,998,885



9.57
%

3 $
1,253,452



3 4.00
%

3$
1,880,179



3 6.00
%Tier 1 Capital to
    Average Assets

$
2,998,885



8.66
%

3 $
1,385,166



3 4.00
%

3 $
1,731,458



3 5.00
%   19.
    Investments
    in Subsidiaries and Statutory Restrictions     79




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##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes to Consolidated
    Financial Statements  (Continued)
      20.
    Contingent
    Liabilities    21.
    Other
    Comprehensive Income    Unrealized


Minimum


UnrealizedLoss on


Pension


Loss on


OtherAvailable-for-


Liability


Hedge


ComprehensiveSale Securities


Adjustment


Activity


Income (Loss)(In thousands)Balance at December 31, 2004

$
(14,036
)

$
(25,122
)

$
(5,274
)

$
(44,432
)Balance at December 31, 2005

$
(28,100
)

$
(22,785
)

$
(19,102
)

$
(69,987
)Balance at December 31, 2006

$
(14,251
)

$
(22,785
)

$
(18,209
)

$
(55,245
)  80




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes to Consolidated
    Financial Statements  (Continued)
  22.  Foreign
    Activities (by Domicile of Customer)
    Foreign


Domestic


Consolidated(In thousands)2006Total operating income

$
28,031


$
2,365,350


$
2,393,381Total expenses


126,604



1,973,640



2,100,244(Loss) income before taxes


(98,573
)


391,710



293,137Applicable income taxes


(39,178
)


124,366



85,188Net (loss) income

$
(59,395
)

$
267,344


$
207,949Identifiable assets at year-end

$
1,221,055


$
40,544,772


$
41,765,8272005Total operating income

$
19,846


$
1,896,944


$
1,916,790Total expenses


78,420



1,526,652



1,605,072(Loss) income before taxes


(58,574
)


370,292



311,718Applicable income taxes


(23,280
)


120,119



96,839Net (loss) income

$
(35,294
)

$
250,173


$
214,879Identifiable assets at year-end

$
1,274,658


$
34,984,368


$
36,259,0262004Total operating income

$
15,772


$
1,596,944


$
1,612,716Total expenses


68,483



1,168,208



1,236,691(Loss) income before taxes


(52,711
)


428,736



376,025Applicable income taxes


(20,950
)


143,134



122,184Net (loss) income

$
(31,761
)

$
285,602


$
253,841Identifiable assets at year-end

$
756,654


$
32,500,043


$
33,256,697     23.
    Business
    Combinations     81




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes to Consolidated
    Financial Statements  (Continued)
       24.
    Related
    Party Transactions           82




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes to Consolidated
    Financial Statements  (Continued)
       25.  Subsequent
    Events
             83