##### 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, 2008
  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
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
  Rule 12b-2
  Large accelerated filer o

Accelerated filer o

Non-accelerated filer þ

Smaller reporting company o(Do not check if a smaller reporting company)   Rule 12b-2 o þ




---



##### 





Harris
    Preferred Capital Corporation
  TABLE OF
    CONTENTS
  Part IItem 1.


Business


2Item 1A.


Risk Factors


7Item 1B.


Unresolved Staff Comments


12Item .2


Properties


12Item 3.


Legal Proceedings


13Item 4.


Submission of Matters to a Vote of Security Holders


13Part IIItem 5.


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


13Item 6.


Selected Financial Data


14Item 7.


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


15Item 7A.


Quantitative and Qualitative Disclosures About Market Risk


18Item 8.


Financial Statements and Supplementary Data


18Item 9.


Changes in and Disagreements with Accountants on Accounting and
    Financial Disclosure


18Item 9A.


Controls and Procedures


19Item 9B.


Other Information


19Part IIIItem 10.


Directors, Executive Officers and Corporate Governance


20Item 11.


Executive Compensation


22Item 12.


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


22Item 13.


Certain Relationships and Related Transactions, and Director
    Independence


23Item 14.


Principal Accounting Fees and Services


23Part IVItem 15.


Exhibits, Financial Statement Schedules


24(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


26EX-24EX-31.1EX-31.2EX-32.1   1




---



##### Table of Contents



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




---



##### Table of Contents



pari passu
        Business
   3




---



##### Table of Contents



4




---



##### Table of Contents



and/or
       5




---



##### Table of Contents



Employees
    Environmental
    Matters
  clean-up, clean-up clean-up.
  Qualification
    as a REIT
   6




---



##### Table of Contents



Year Ended December 31, 2008Price














Amount inper share


# of Shares


Declared Date


Record Date


Paid Date


ThousandsPreferred Dividends

$
.46094



10,000,000



03/05/2008



03/15/2008



03/30/2008


$
4,609.46094



10,000,000



05/29/2008



06/15/2008



06/30/2008



4,609.46094



10,000,000



09/03/2008



09/15/2008



09/30/2008



4,609.46094



10,000,000



12/02/2008



12/15/2008



12/30/2008



4,611$
18,438Common Stock Dividends

$
650



1,000



09/03/2008



09/01/2008



09/15/2008


$
6502,000



1,000



12/02/2008



12/15/2008



12/30/2008



2,000$
2,650   Year Ended December 31, 2007Price














Amount inper share


# of Shares


Declared Date


Record Date


Paid Date


ThousandsPreferred Dividends

$
.46094



10,000,000



03/02/2007



03/15/2007



03/30/2007


$
4,609.46094



10,000,000



05/31/2007



06/15/2007



07/02/2007



4,609.46094



10,000,000



08/29/2007



09/15/2007



10/01/2007



4,609.46094



10,000,000



11/29/2007



12/15/2007



12/31/2007



4,611$
18,438Common Stock Dividends

$
511



1,000



08/29/2007



09/01/2007



09/12/2007


$
5113,000



1,000



12/21/2007



12/28/2007



01/04/2008



3,000$
3,511   Recent
    Events
    ITEM 1A.
    RISK
    FACTORS  No. 333-40257)),
  Declining
    interest rates will reduce earnings of the Company
   7




---



##### Table of Contents



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
   8




---



##### Table of Contents



Adverse
    consequences of failure to qualify as a REIT
      REIT
    requirements with respect to stockholder
    distributions
   9




---



##### Table of Contents



Redemption
    upon occurrence of a Tax Event
    Illinois
    Tax Law Change
    Automatic
    exchange upon occurrence of the Exchange Event
    Relationship
    with the Bank and its affiliates; conflicts of
    interest
  and/or and/or
  and/or and/or
 10




---



##### Table of Contents



Risk
    of future revisions in policies and strategies by Board of
    Directors
    Possible
    leverage
    Additional
    issuances of preferred stock could have dilutive
    effect
    RISK
    FACTORS RELATING TO THE BANK
    Possible
    adverse effects of economic conditions
   11




---



##### Table of Contents



Increase
    in interest rates may adversely affect operating
    results
    Competition
    Government
    regulation
    ITEM 1B.
    UNRESOLVED
    STAFF COMMENTS    ITEM 2.
    PROPERTIES   12




---



##### Table of Contents



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       13




---



##### Table of Contents



ITEM 6.
    SELECTED
    FINANCIAL DATA    For the Years Ended December 312008


2007


2006


2005


2004(In thousands, except per share data)Statement of Operations Data:Interest income

$
21,296


$
22,524


$
21,442


$
19,458


$
16,998Non-interest income


















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


15



18



23



31



44Advisory fees paid to Harris N.A.


208



119



127



122



124General and administrative


374



300



342



287



362Total operating expenses

$
597


$
437


$
492


$
440


$
530Net income


20,699



22,087



20,950



19,018



17,530Preferred stock dividends


18,438



18,438



18,438



18,438



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

$
2,261


$
3,649


$
2,512


$
580


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

$
2,261


$
3,649


$
2,512


$
580


$
(908
)Distributions per preferred share

$
1.8438


$
1.8438


$
1.8438


$
1.8438


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

$
501,130


$
492,923


$
487,340


$
479,875


$
489,022Total liabilities

$
886


$
3,129


$
4,731


$
129


$
134Total stockholders equity

$
500,244


$
489,794


$
482,609


$
479,746


$
488,888Cash Flows Data:Net cash provided by operating activities

$
20,326


$
22,235


$
20,760


$
19,152


$
15,997Net Cash (used in) provided by investing activities

$
(6,424
)

$
(3,603
)

$
232


$
(421
)

$
2,826Net cash used in financing activities

$
(24,088
)

$
(23,560
)

$
(16,408
)

$
(18,438
)

$
(19,342
)  14




---



##### Table of Contents



ITEM 7.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS    Summary
  Year
    Ended December 31, 2008 Compared to December 31,
    2007
        Year
    Ended December 31, 2007 Compared to December 31,
    2006
         15




---



##### Table of Contents



Quarter
    Ended December 31, 2008 Compared to Quarter Ended
    December 31, 2007
          Allowance
    for Loan Losses
    Concentrations
    of Credit Risk
      Interest
    Rate Risk
   16




---



##### Table of Contents



Competition
    Liquidity
    Risk Management
            Accounting
    Pronouncements
     17




---



##### Table of Contents



No. FAS 157-2, FSP 157-2 FSP 157-3, FSP 157-3
  Other
    Matters
    ITEM 7A.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK      Year Ending December 31,








Fair Value at2009


2010


2011


2012


2013


Thereafter


Total


December 31, 2008Mortgage-BackedAmortized cost

$
43,936


$
41,881


$
22,902


$



$
18,237


$
350,721


$
477,677


$
488,282Average Yield


4.10
%


4.57
%


4.00
%






4.00
%


4.85
%


4.68
%       ITEM 8.
    FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA    ITEM 9.
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURE   18




---



##### Table of Contents



ITEM 9A.
    CONTROLS
    AND PROCEDURES  Disclosure
    Controls and Procedures
  Rules 13a-15(e) 15d-15(e))
  Managements
    Report on Internal Control over Financial Reporting
  Rule 13a-15(f).
        Changes
    in Internal Control over Financial Reporting
    ITEM 9B.
    OTHER
    INFORMATION   19




---



##### Table of Contents



PART III  ITEM 10.
    DIRECTORS,
    EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE  and/or
      Name

Age

Position and Offices HeldPaul R. Skubic


60


Chairman of the Board, PresidentPamela C. Piarowski


49


Chief Financial Officer, TreasurerMargaret M. Sulkin


50


Assistant TreasurerDelbert J. Wacker


77


DirectorDavid J. Blockowicz


66


DirectorForrest M. Schneider


61


DirectorFrank M. Novosel


62


Director                20




---



##### Table of Contents



Independent
    Directors
      Audit
    Committee
    Investment
    Committee
    Compensation
    of Directors
   21




---



##### Table of Contents



Non-QualifiedNon-Equity


DeferredFees Earned


Stock


Option


Incentive Plan


Compensation


All Otheror Paid in


Awards


Awards


Compensation


Earnings


CompensationName

Cash


($)


($)


($)


($)


($)


TotalDelbert J. Wacker *

$
20,000






















$
20,000David J. Blockowicz *


20,000























20,000Forrest M. Schneider *


20,000























20,000Frank M. Novosel **


9,000























9,000$
69,000






















$
69,000     *
    
    Represents $16,000 in compensation received as Independent
    Director and $4,000 in compensation received as an Audit
    Committee Member.**
    
    Represents $4,000 in compensation received as a Non Bank
    Director and $5,000 in compensation received as an Investment
    Committee Member following his retirement from the Company and
    the Bank in November, 2008.    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

8,625 Shares


.033
%Preferred Stock

Forrest Schneider

8,265 Shares


.032
%Preferred Stock

David J. Blockowicz

2,900 Shares


.011
%Preferred Stock

Frank M. Novosel

3,500 Shares


.013
%Preferred Stock

Delbert Wacker

3,000 Shares


.011
%  22




---



##### 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
   23




---



##### Table of Contents



Tax
    Fees
    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, as amended**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 Exhibit 3.1 filed with the
    Companys
    Form 8-K
    dated March 4, 2009.***
    
    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) 24




---



##### 



Index to
    Consolidated Financial Statements  Form 10-K:
   
 Harris Preferred Capital CorporationConsolidated Financial StatementsReport of Independent Registered Public Accounting FirmConsolidated Balance SheetsConsolidated Statements of Income and Comprehensive IncomeConsolidated Statements of Changes in Stockholders EquityConsolidated Statements of Cash FlowsNotes to Consolidated Financial StatementsHarris N.AFinancial ReviewConsolidated Financial StatementsReport of Independent Registered Public Accounting FirmConsolidated Statements of ConditionConsolidated Statements of IncomeConsolidated Statements of Comprehensive IncomeConsolidated Statements of Changes in Stockholders EquityConsolidated Statements of Cash FlowsNotes to Consolidated Financial Statements     25




---



##### Table of Contents



SIGNATURES
    PAUL
    R. SKUBIC
     PAMELA
    C. PIAROWSKI
       David J. Blockowicz

Forrest M. SchneiderFrank M. Novosel

Delbert J. WackerPaul R. SkubicAttorney-In-Fact      26




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM           
    27




---



##### Table of Contents



Harris
    Preferred Capital Corporation



Consolidated
    Balance Sheets  December 312008


2007(In thousands, except share data)ASSETSCash on deposit with Harris N.A

$
816


$
356Securities purchased from Harris N.A. under agreement to resell


5,863



16,509Total cash and cash equivalents

$
6,679


$
16,865Notes receivable from Harris N.A.


4,284



5,335Securities available-for-sale, at fair valueMortgage-backed


488,282



369,244U.S. Treasury






99,950Other assets


1,885



1,529Total assets

$
501,130


$
492,923LIABILITIES AND STOCKHOLDERS EQUITYAccrued expenses

$
112


$
129Deferred tax liabilities


774



Dividends payable






3,000Total liabilities

$
886


$
3,129Commitments 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



240,733Earnings in excess of (less than) distributions


(322
)


67Accumulated other comprehensive income (loss)  net
    unrealized gains (losses) on available-for-sale securities


9,832



(1,007
)Total stockholders equity

$
500,244


$
489,794Total liabilities and stockholders equity

$
501,130


$
492,923  28




---



##### Table of Contents



Harris
    Preferred Capital Corporation



Consolidated
    Statements of Income

and
    Comprehensive Income  For the Years Ended December 312008


2007


2006(In thousands)Interest income:Securities purchased from Harris N.A. under agreement to resell

$
963


$
3,950


$
4,132Notes receivable from Harris N.A.


302



364



466Securities available-for-sale:Mortgage-backed


20,011



17,929



16,475U.S. Treasury


20



281



369Total interest income

$
21,296


$
22,524


$
21,442Operating expenses:Loan servicing fees paid to Harris N.A.


15



18



23Advisory fees paid to Harris N.A.


208



119



127General and administrative


374



300



342Total operating expenses

$
597


$
437


$
492Net income

$
20,699


$
22,087


$
20,950Preferred stock dividends


18,438



18,438



18,438Net income available to common stockholder

$
2,261


$
3,649


$
2,512Basic and diluted earnings per common share

$
2,261


$
3,649


$
2,512Net income

$
20,699


$
22,087


$
20,950Other comprehensive income:Available-for-sale securities:Unrealized holding gains (losses) arising during the period, net
    of deferred state taxes

$
10,839


$
7,047


$
2,932Less reclassification adjustment for realized (gains) losses
    included in net income

$



$



$
Comprehensive income

$
31,538


$
29,134


$
23,882    29




---



##### Table of Contents



Harris
    Preferred Capital Corporation



Consolidated
    Statements of Changes in Stockholders Equity

For the
    Years Ended December 31, 2008, 2007 and 2006  (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)Net income

$



$



$



$
20,950


$



$
20,950Other comprehensive income


















2,932



2,932Dividends declared on common stock ($2,581 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
)

$
482,609Net income

$



$



$



$
22,087


$



$
22,087Other comprehensive income


















7,047



7,047Dividends declared on common stock ($3,511 per share)














(3,511
)






(3,511
)Dividends declared on preferred stock ($1.8438 per share)














(18,438
)






(18,438
)Balance at December 31, 2007

$
250,000


$
1


$
240,733


$
67


$
(1,007
)

$
489,794Net income

$



$



$



$
20,699


$



$
20,699Other comprehensive income


















10,839



10,839Dividends declared on common stock ($2,650 per share)














(2,650
)






(2,650
)Dividends declared on preferred stock ($1.8438 per share)














(18,438
)






(18,438
)Balance at December 31, 2008

$
250,000


$
1


$
240,733


$
(322
)

$
9,832


$
500,244    30




---



##### Table of Contents



Harris
    Preferred Capital Corporation



Consolidated
    Statements of Cash Flows  For the Years Ended December 312008


2007


2006(In thousands)Operating Activities:Net income

$
20,699


$
22,087


$
20,950Adjustments to reconcile net income to net cash provided by
    operating activities:Net (increase) decrease in other assets


(356
)


139



(181
)Net (decrease) increase in accrued expenses


(17
)


9



(9
)Net cash provided by operating activities

$
20,326


$
22,235


$
20,760Investing Activities:Repayments of notes receivable from Harris N.A.


1,051



1,177



2,172Purchases of securities available-for-sale


(265,238
)


(358,745
)


(418,311
)Proceeds from maturities/redemptions of securities
    available-for-sale


257,763



360,620



405,725Net cash (used in) provided by investing activities

$
(6,424
)

$
3,052


$
(10,414
)Financing Activities:Cash dividends paid on preferred stock

$
(18,438
)

$
(23,049
)

$
(13,827
)Cash dividends paid on common stock


(5,650
)


(511
)


(2,581
)Net cash used in financing activities

$
(24,088
)

$
(23,560
)

$
(16,408
)Net (decrease) increase in cash on deposit with Harris N.A.

$
(10,186
)

$
1,727


$
(6,062
)Cash and cash equivalents with Harris N.A. at beginning of year


16,865



15,138



21,200Cash and cash equivalents with Harris N.A. at end of year

$
6,679


$
16,865


$
15,138    31




---



##### 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 Loan Losses
    Income
    Taxes
  Sections 856-860
 32




---



##### Table of Contents



Harris
    Preferred Capital Corporation
  Notes
    to consolidated Financial
    Statements  (Continued)
      Securities
          In making a determination of temporary vs.
  New
    Accounting Pronouncements
   33




---



##### Table of Contents



Harris
    Preferred Capital Corporation
  Notes
    to consolidated Financial
    Statements  (Continued)
  No. FAS 157-2, FSP 157-2 FSP 157-3, FSP 157-3
  Managements
    Estimates
    3.
    Notes
    Receivable from the Bank           34




---



##### Table of Contents



Harris
    Preferred Capital Corporation
  Notes
    to consolidated Financial
    Statements  (Continued)
    4.
    Securities    December 31, 2008


December 31, 2007Amortized


Unrealized


Unrealized


Fair


Amortized


Unrealized


Unrealized


FairCost


Gains


Losses


Value


Cost


Gains


Losses


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

$
477,678


$
10,720


$
116


$
488,282


$
370,251


$
2,053


$
3,061


$
369,243U.S. Treasury Bills


















99,950











99,950Total Securities

$
477,678


$
10,720


$
116


$
488,282


$
470,201


$
2,053


$
3,061


$
469,193     December 31,
    2008
  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)Mortgage-backed


35,618



112



16,937



4



52,555



116Total

$
35,618


$
112


$
16,937


$
4


$
52,555


$
116   December 31,
    2007
  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)U.S. Treasury bills

$
99,950


$



$



$



$
99,950


$
Mortgage-backed










260,363



3,061



260,363



3,061Total

$
99,950


$



$
260,363


$
3,061


$
360,313


$
3,061  35




---



##### Table of Contents



Harris
    Preferred Capital Corporation
  Notes
    to consolidated Financial
    Statements  (Continued)
    Fair Value


Fair Value Measurements Using12/31/08


Level 1


Level 2


Level 3(In thousands)Available-for-sale securities

$
488,282


$



$
488,282


$
     December 31, 2008Amortized


FairCost


ValueMaturities:Within 1 year

$
43,936


$
43,9771 to 5 years


83,021



83,7025 to 10 years


143,490



147,467Over 10 years


207,231



213,136Total Securities

$
477,678


$
488,282   5.
    Common
    and Preferred Stock  Form S-11.
  3 8
   36




---



##### Table of Contents



Harris
    Preferred Capital Corporation
  Notes
    to consolidated Financial
    Statements  (Continued)
    6.
    Transactions
    with Affiliates          7.
    Operating
    Segment    8.
    Commitments
    and Contingencies   37




---



##### Table of Contents



Harris
    Preferred Capital Corporation
  Notes
    to consolidated Financial
    Statements  (Continued)
  9.
    Quarterly
    Financial Information (unaudited)    Year Ended December 31, 2008


Year Ended December 31, 2007First


Second


Third


Fourth


First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter


Quarter


Quarter


Quarter


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

$
5,406


$
5,367


$
5,274


$
5,250


$
5,618


$
5,699


$
5,715


$
5,492Total operating expenses


141



129



134



193



116



87



95



139Net income

$
5,265


$
5,238


$
5,140


$
5,057


$
5,502


$
5,612


$
5,620


$
5,353Preferred dividends


4,609



4,609



4,610



4,610



4,609



4,609



4,609



4,611Net income available to common stockholder

$
656


$
629


$
530


$
447


$
893


$
1,003


$
1,011


$
742Basic and diluted earnings per common share

$
656


$
629


$
530


$
447


$
893


$
1,003


$
1,011


$
742   10. Subsequent Event  Common Stock
    Issuance
    Financial
    Statements of Harris N.A.
     38




---



##### Table of Contents



MANAGEMENTS
    DISCUSSION AND ANALYSIS OF
    FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  2008
    Compared to 2007
  Summary
                 39




---



##### Table of Contents



2007
    Compared to 2006
  Summary
                 40




---



##### Table of Contents



Independent
    Auditors Report
               41




---



##### Table of Contents



Harris
    N.A. and Subsidiaries



Consolidated
    Statements of Condition  December 312008


2007(In thousands except share date)AssetsCash and demand balances due from banks

$
1,072,255


$
1,179,134Money market assets:Interest-bearing deposits at banks ($24.7 billion held at
    Federal Reserve Bank at December 31, 2008)


26,031,291



949,803Federal funds sold and securities purchased under agreement to
    resell


182,063



1,520,183Total cash and cash equivalents

$
27,285,609


$
3,649,120Securities available-for-sale at fair value (amortized cost of
    $9.2 billion and $9.3 billion at December 31,
    2008 and December 31, 2007, respectively)


9,283,283



9,288,595Trading account assets and derivative instruments


1,367,833



288,785Loans, net of unearned income


26,396,381



25,534,487Allowance for loan losses


(574,224
)


(367,525
)Net loans

$
25,822,157


$
25,166,962Loans held for sale


29,544



62,695Premises and equipment


533,516



485,510Bank-owned insurance


1,304,315



1,246,156Goodwill and other intangible assets


779,444



544,525Other assets


900,354



747,935Total assets

$
67,306,055


$
41,480,283LiabilitiesDeposits in domestic offices  noninterest-bearing

$
28,059,575


$
6,478,464 interest-bearing
    (includes $77.7 million measured at fair value at
    December 31, 2008)


24,374,034



21,905,547Deposits in foreign offices   interest-bearing


920,235



1,149,167Total deposits

$
53,353,844


$
29,533,178Federal funds purchased


78,525



182,625Securities sold under agreement to repurchase


3,501,758



1,613,529Short-term borrowings


359,476



707,540Short-term senior notes


75,000



80,000Accrued interest, taxes and other expenses


247,825



257,415Accrued pension and post-retirement


171,933



88,415Other liabilities


631,487



589,989Noncontrolling interest  preferred stock of subsidiary


250,000



250,000Long-term notes  senior


2,096,500



2,096,500Long-term notes  subordinated


292,750



292,750Long-term notes  secured


2,375,000



2,000,000Total liabilities

$
63,434,098


$
37,691,941Stockholders EquityCommon stock ($10 par value); authorized
    40,000,000 shares; issued and outstanding 17,149,512 and
    15,514,761 shares at December 31, 2008 and
    December 31, 2007, respectively

$
171,495


$
155,148Surplus


2,172,029



1,780,609Retained earnings


1,734,472



1,879,907Accumulated other comprehensive loss


(206,039
)


(27,322
)Total stockholders equity

$
3,871,957


$
3,788,342Total liabilities and stockholders equity

$
67,306,055


$
41,480,283    42




---



##### Table of Contents



Harris
    N.A. and Subsidiaries



Consolidated
    Statements of Income  For The Years Ended December 312008


2007


2006(In thousands)Interest IncomeLoans

$
1,452,034


$
1,627,545


$
1,572,148Money market assets:Deposits at banks


30,469



21,839



14,497Federal funds sold and securities purchased under agreement to
    resell


16,326



41,554



36,362Trading account assets


20,338



8,473



10,085Securities available-for-sale:U.S. Treasury and federal agency


246,674



447,558



297,007State and municipal


52,387



37,162



23,651Other


19,473



25,837



22,060Total interest income

$
1,837,701


$
2,209,968


$
1,975,810Interest ExpenseDeposits

$
609,830


$
978,470


$
741,873Short-term borrowings


61,295



238,924



307,646Short-term senior notes


15,483



21,251



17,106Long-term notes  senior


68,190



86,400



36,662Long-term notes  subordinated


10,795



17,154



16,063Long-term notes  secured


67,621



13,825



Noncontrolling interest  dividends on preferred stock
    of subsidiary


18,438



18,438



18,437Total interest expense

$
851,652


$
1,374,462


$
1,137,787Net Interest Income

$
986,049


$
835,506


$
838,023Provision for loan losses


589,108



90,000



21,698Net Interest Income after Provision for Loan Losses

$
396,941


$
745,506


$
816,325Noninterest IncomeTrust and investment management fees

$
87,164


$
92,827


$
79,445Net money market and bond trading income, including derivative
    activity


7,737



10,422



14,204Foreign exchange


6,900



3,750



4,600Service charges and fees


202,362



187,099



176,350Equity securities gains, net


49,884



5,067



Net securities gains, other than trading


6,385



1,271



30,817Bank-owned insurance


52,054



53,808



44,938Letter of credit fees


16,035



18,682



19,035Loan sale (losses) gains, net


(4,982
)


3,689



1,834Other


39,794



35,579



46,348Total noninterest income

$
463,333


$
412,194


$
417,571Noninterest ExpensesSalaries and other compensation

$
409,751


$
364,110


$
362,140Pension, profit sharing and other employee benefits


103,887



110,490



110,760Net occupancy


99,149



86,304



80,071Equipment


69,137



64,525



63,688Marketing


47,655



37,915



42,951Communication and delivery


31,458



27,648



25,306Professional fees


105,724



81,057



81,892Outside information processing, database and network fees


39,927



34,548



25,068FDIC Insurance


16,165



3,404



3,047Intercompany services, net


20,384



39,672



57,847Restructuring (reversal) charge


(2,664
)


18,760



Visa indemnification (reversal) charge


(16,300
)


34,000



Auction rate security charge


21,825







Other


85,772



64,391



66,468Amortization of intangibles


27,865



25,627



21,521Total noninterest expenses

$
1,059,735


$
992,451


$
940,759(Loss) income before income taxes

$
(199,461
)

$
165,249


$
293,137Applicable income tax (benefit) expense


(96,219
)


22,024



85,188Net (Loss) Income

$
(103,242
)

$
143,225


$
207,949    43




---



##### Table of Contents



Harris
    N.A. and Subsidiaries



Consolidated
    Statements of Comprehensive Income  For The Years Ended December 312008


2007


2006(In thousands)Net (loss) income

$
(103,242
)

$
143,225


$
207,949Other comprehensive (loss) income:Cash flow hedges:Net unrealized loss on derivative instruments, net of tax
    benefit of $68,427 in 2008, $11,936 in 2007 and $2,715 in 2006


(127,075
)


(22,170
)


(6,137
)Less reclassification adjustment for losses included in net
    (loss) income, net of tax benefit of $5,090 in 2008, $4,787 in
    2007 and $4,129 in 2006


9,452



8,889



7,030Pension and postretirement medical benefit plans:Net (loss) gain and net prior service cost, net of tax (benefit)
    expense of ($54,953) in 2008, $26,774 in 2007 and $0 in 2006


(102,256
)


49,724



Less reclassification adjustment for amortization included
    (loss) in net income, net of tax expense of $431 in 2008, $2,865
    in 2007 and $0 in 2006


800



5,320



Unrealized gains on available-for-sale securities:Unrealized holding gains arising during the period, net of tax
    expense of $24,931 in 2008, $15,814 in 2007 and $19,498 in 2006


47,283



29,380



32,647Less reclassification adjustment for realized gains included in
    net (loss) income, net of tax expense of $3,835 in 2008, $445 in
    2007 and $12,019 in 2006


(7,121
)


(826
)


(18,798
)Other comprehensive (loss) income

$
(178,917
)

$
70,317


$
14,742Comprehensive (loss) income

$
(282,159
)

$
213,542


$
222,691    44




---



##### Table of Contents



Harris
    N.A. and Subsidiaries



Statements
    of Changes in Stockholders Equity  AccumulatedOther


TotalCommon





Retained


Comprehensive


StockholdersStock


Surplus


Earnings


Loss


Equity(In thousands except per share data)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 and contribution to capital surplus


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
)

$
3,346,413Stock option exercise






1,601











1,601Tax benefit from stock option exercise






7,464











7,464Net income










143,225







143,225Dividends  ($4.84 per common share)










(75,000
)






(75,000
)Other comprehensive income














70,317



70,317Issuance of common stock and contribution to capital surplus


12,114



280,286











292,400Adoption to initially apply FIN 48






1,737



185



1,922Balance at December 31, 2007

$
155,148


$
1,780,609


$
1,879,907


$
(27,322
)

$
3,788,342Stock option exercise






1,972











1,972Tax benefit from stock option exercise






1,779











1,779Net loss










(103,242
)






(103,242
)Dividends  ($2.37 per common share)










(38,000
)






(38,000
)Other comprehensive loss














(178,917
)


(178,917
)Issuance of common stock and contribution to capital surplus


16,347



387,669











404,016Adoption to initially apply EITF
    06-4










(313
)






(313
)Adoption of measurement date provisions of
    SFAS No. 158, net of tax of $2,090










(3,880
)


200



(3,680
)Balance at December 31, 2008

$
171,495


$
2,172,029


$
1,734,472


$
(206,039
)

$
3,871,957    45




---



##### Table of Contents



Harris
    N.A. and Subsidiaries



Consolidated
    Statements of Cash Flows  For The Years Ended December 312008


2007


2006Operating Activities:Net (loss) income

$
(103,242
)

$
143,225


$
207,949Adjustments to reconcile net (loss) income to net cash (used in)
    provided by operating activities:Provision for loan losses


589,108



90,000



21,698Depreciation and amortization, including intangibles


94,602



43,818



61,173Deferred tax expense (benefit)


1,505



(47,618
)


24,698Tax benefit from stock options exercise


1,779



9,201



11,820Other than temporary impairment on securities


4,571







Net gains on securities, other than trading


(10,956
)


(1,271
)


(30,817
)Net equity investments gains


(49,884
)


(5,067
)


Increase in bank-owned insurance


(39,359
)


(43,937
)


(40,753
)Net (increase) decrease in trading securities


(1,231,304
)


(308,213
)


486,822Decrease (increase) in accrued interest receivable


42,695



36,873



(52,694
)(Decrease) increase in accrued interest payable


(25,945
)


60,888



28,488Increase (decrease) in other accrued expenses


(15,892
)


(34,388
)


19,907Origination of loans held for sale


(417,250
)


(366,363
)


(271,446
)Proceeds from sale of loans held for sale


454,872



341,808



271,193Net gains on loans held for sale


(4,471
)


(3,689
)


(1,834
)Net losses (gains) on sale of premises and equipment


399



(970
)


Net losses on loans sold to affiliates


9,453







Recoveries on charged-off loans


48,160



32,039



26,171Net change in due from parent


741



3,909



90,072Net change in pension and post retirement benefits


(72,462
)


6,790



8,437Visa indemnification (reversal) charge


(16,300
)


34,000



Other, net


12,346



(38,402
)


62,291Net cash (used in) provided by operating activities

$
(726,834
)

$
(47,367
)

$
923,175Investing Activities:Proceeds from sales of securities available-for-sale

$
1,263,951


$
11,051,799


$
3,357,587Proceeds from maturities of securities available-for-sale


10,869,711



19,668,971



11,943,422Purchases of securities available-for-sale


(11,805,326
)


(28,908,032
)


(19,365,471
)Net (increase) decrease in loans


(220,773
)


651,383



(1,111,523
)Proceeds from loan participation to affiliates


472,477







Purchases of premises and equipment


(84,062
)


(77,849
)


(127,048
)Sales of premises and equipment


15,154



27,308



42,395Proceeds from Visa redemption


37,800







Acquisition, net of cash acquired


(285,214
)


(222,852
)


Net cash provided by (used in) investing activities

$
263,718


$
2,190,728


$
(5,260,638
)Financing Activities:Net increase (decrease) in deposits

$
22,182,025


$
(1,539,038
)

$
4,485,763Net increase (decrease) in Federal funds purchased and
    securities sold under agreement to repurchase


1,784,129



(2,371,213
)


535,356Net decrease in other short-term borrowings


(584,916
)


(554,139
)


(776,091
)Net decrease in short-term senior notes


(5,000
)


(20,000
)


(700,000
)Proceeds from issuance long-term notes  senior






1,100,000



746,500Proceeds from issuance long-term notes  secured


375,000



2,000,000



Net proceeds from stock options exercise


1,972



1,601



2,743Excess tax (expense) benefit from stock options exercise


(1,183
)


(7,638
)


1,030Capital contributions for acquisitions


404,016



292,400



150,000Cash dividends paid on common stock


(38,000
)


(75,000
)


(72,000
)Cash dividends paid on preferred stock


(18,438
)


(23,049
)


Net cash provided by (used in) financing activities

$
24,099,605


$
(1,196,076
)

$
4,373,301Net increase in cash and cash equivalents

$
23,636,489


$
947,285


$
35,838Cash and cash equivalents at January 1


3,649,120



2,701,835



2,665,997Cash and cash equivalents at December 31

$
27,285,609


$
3,649,120


$
2,701,835Supplemental Disclosures of Cash Flow Information:Cash paid during the year for:Interest

$
825,709


$
1,350,610


$
1,109,299Income taxes

$
92,410


$
99,710


$
116,617 46




---



##### Table of Contents



Harris
    N.A. and Subsidiaries
  Consolidated
    Statements of Cash Flows  (Continued)
  For The Years Ended December 312008


2007


2006Financing 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

$
285,214


$
222,852


$
Supplemental Disclosures of Noncash Activities:In 2008, the fair values of noncash assets acquired and
    liabilities assumed were $1.4 billion and
    $1.2 billion, respectively, in the acquisition of Merchants
    and Manufacturers Bancorporation, $812.8 million and
    $681.6 million, respectively, in the acquisition of Ozaukee
    Bank.In 2007, the fair values of noncash assets acquired and
    liabilities assumed in the acquistion of First National Bank and
    Trust were $1.4 billion and $1.2 billion, respectively.Noncash transfers to OREO totaled $10.0 million,
    $13.6 million and $3.5 million in 2008, 2007, and
    2006, respectively.    47




---



##### 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
        Basis
    of accounting
    Noncontrolling
    interest in subsidiary preferred stock
    Foreign
    currency and foreign exchange contracts
    Derivative
    financial instruments
     48




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes
    to Consolidated Financial
    Statements  (Continued)
             49




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes
    to Consolidated Financial
    Statements  (Continued)
  Securities
        Loans,
    loan fees and commitment fees
       50




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes
    to Consolidated Financial
    Statements  (Continued)
              03-3,
 51




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes
    to Consolidated Financial
    Statements  (Continued)
  Allowance
    for loan losses / Losses on commitments
      Premises
    and equipment
      Bank-owned
    insurance
    No. 06-04,
  Goodwill
    and other intangible assets
   52




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes
    to Consolidated Financial
    Statements  (Continued)
    Other
    assets
    Retirement
    and other postemployment benefits
          Cash
    flows
    Income
    taxes
   53




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes
    to Consolidated Financial
    Statements  (Continued)
    Managements
    estimates
    Impact
    of new accounting standards
        No. 142-3,
   54




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes
    to Consolidated Financial
    Statements  (Continued)
    No. FAS 157-2, FSP 157-2 FSP 157-3, FSP 157-3
  No. 06-04,
    2.
    Securities    December 31, 2008


December 31, 2007Amortized


Unrealized


Unrealized


Fair


Amortized


Unrealized


Unrealized


FairCost


Gains


Losses


Value


Cost


Gains


Losses


Value(In thousands)


(In thousands)U.S. Treasury

$
172,602


$
27,901


$



$
200,503


$
529,201


$
12,032


$
24


$
541,209Federal agency


3,830,904



34,355



4,907



3,860,352



5,395,190



9,094



2,523



5,401,761U.S. government sponsored mortgage-backed


2,856,034



52,541



619



2,907,956



1,443,120



16,008



3,890



1,455,238State and municipal


1,547,327



24,555



12,337



1,559,545



1,267,617



6,660



2,318



1,271,959Non-mortgage asset backed


444,615



4



3,747



440,872



409,462



234



198



409,498Other


314,055











314,055



208,926



4







208,930Total securities

$
9,165,537


$
139,356


$
21,610


$
9,283,283


$
9,253,516


$
44,032


$
8,953


$
9,288,595  55




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes
    to Consolidated Financial
    Statements  (Continued)
    Length of Continuous Unrealized Loss PositionLess Than12 Months


12 Months or Longer


TotalUnrealized





Unrealized


Number of





UnrealizedFair Value


Losses


Fair Value


Losses


Securities


Fair Value


Losses(Dollars in thousands)December 31, 2008U.S. Treasury

$



$



$



$







$



$
Federal agency


1,052,155



2,238



267,125



2,669



2



1,319,280



4,907U.S. government sponsored mortgage-backed


92,858



506



4,814



113



5



97,672



619State and municipal


241,543



10,975



25,637



1,362



85



267,180



12,337Non-mortgage asset backed


234,492



3,747















234,492



3,747Temporarily impaired
    securities  available-for-sale

$
1,621,048


$
17,466


$
297,576


$
4,144



92


$
1,918,624


$
21,610December 31, 2007U.S. Treasury

$
15,005


$
24


$



$







$
15,005


$
24Federal agency


771,404



1,851



100,158



672



21



871,562



2,523U.S. government sponsored mortgage-backed


57,819



454



278,248



3,436



48



336,067



3,890State and municipal


111,127



983



140,051



1,335



471



251,178



2,318Non-mortgage asset backed


169,486



198















169,486



198Temporarily impaired
    securities  available-for-sale

$
1,124,841


$
3,510


$
518,457


$
5,443



540


$
1,643,298


$
8,953      56




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes
    to Consolidated Financial
    Statements  (Continued)
        December 31, 2008Amortized


FairCost


Value(In thousands)Maturities:Within 1 year

$
3,710,134


$
3,732,4841 to 5 years


2,908,571



2,935,8525 to 10 years


854,170



897,031Over 10 years


1,310,241



1,343,226Other securities without stated maturity


382,421



374,690Total securities

$
9,165,537


$
9,283,283          57




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes
    to Consolidated Financial
    Statements  (Continued)
  3.
    Loans    December 312008


2007(In thousands)Domestic loans:Commercial, financial, agricultural, brokers and dealers

$
4,717,846


$
4,926,890Real estate construction


1,116,379



1,485,189Real estate mortgages


15,574,352



14,042,546Installment


4,789,295



4,849,602Credit card


2,060



Direct lease financing (unearned discount of $0.2 million
    and $0.2 million at December 31, 2008 and
    December 31, 2007, respectively)


18,386



23,932Foreign loans:Other, primarily commercial and industrial


178,357



206,605Total loans

$
26,396,675


$
25,534,764Less unearned income


294



277Loans, net of unearned income

$
26,396,381


$
25,534,487Less allowance for loan losses


574,224



367,525Loans, net of allowance for loan losses

$
25,822,157


$
25,166,962     December 312008


2007(In thousands)Nonaccrual loans

$
317,986


$
290,149Restructured loans






2,182Total nonperforming loans

$
317,986


$
292,331Other assets received in satisfaction of debt


9,921



11,919Total nonperforming assets

$
327,907


$
304,250Gross amount of interest income that would have been recorded if
    year-end nonperforming loans had been accruing interest at their
    original terms

$
15,059


$
17,408Interest income actually recognized


8,048



10,982Interest shortfall

$
7,011


$
6,42690-day past
    due loans, still accruing interest (all domestic)

$
75,045


$
71,767Nonperforming loans to total loans at year-end


1.21
%


1.15
%Nonperforming assets to total loans at year-end


1.25



1.20    58




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes
    to Consolidated Financial
    Statements  (Continued)
    03-3,
    December 312008


2007(In thousands)Contractual outstanding balance

$
86,006


$
1,377Carrying amount


59,761



1,199     2008


2007(In thousands)Contractually required payments receivable at acquisition

$
142,320


$
8,987Cash flows expected to be collected at acquisition


90,392



7,372Fair value at acquisition


90,392



7,372     2008


2007(In thousands)Loans at acquisition date

$
90,392


$
7,372Loans at end of year


59,761



1,199    59




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes
    to Consolidated Financial
    Statements  (Continued)
  4.
    Allowance
    for Loan Losses    Years Ended December 312008


2007(In thousands)Balance, beginning of year

$
367,525


$
322,742Charge-offs


(462,257
)


(81,588
)Recoveries


48,161



32,039Net charge-offs

$
(414,096
)

$
(49,549
)Provisions charged to expense


589,108



90,000Reclassification to liability for off-balance sheet credit losses






(4,592
)Acquired reserve from acquisition


31,687



8,924Balance, end of year

$
574,224


$
367,525     Impaired Loans


Impaired Loansfor Which There


for Which There


Totalis a Related


is No Related


ImpairedAllowance


Allowance


Loans(In thousands)December 31, 2008Balance

$
130,746


$
187,240


$
317,986Related allowance


14,242







14,242Balance, net of allowance

$
116,504


$
187,240


$
303,744December 31, 2007Balance

$
143,476


$
148,855


$
292,331Related allowance


57,751







57,751Balance, net of allowance

$
85,725


$
148,855


$
234,580   Years Ended December 312008


2007(In thousands)Average impaired loans

$
522,006


$
215,784Total interest income on impaired loans recorded on a cash basis

$
8,048


$
10,982     60




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes
    to Consolidated Financial
    Statements  (Continued)
  Years Ended December 312008


2007(In thousands)Balance, beginning of year

$
4,592


$
Charge-offs

$
(777
)

$
Recoveries


446



Net charge-offs

$
(331
)

$
Reclassification from allowance for loan losses






4,592Balance, end of year

$
4,923


$
4,592   5.
    Premises
    and Equipment    December 312008


2007(In thousands)Land

$
105,368


$
94,950Premises


319,062



275,240Equipment


579,942



543,124Leasehold improvements


96,008



84,724Total

$
1,100,380


$
998,038Accumulated depreciation and amortization


566,864



512,528Premises and equipment

$
533,516


$
485,510          61




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes
    to Consolidated Financial
    Statements  (Continued)
  6.
    Goodwill
    and Other Intangible Assets          2008


2007(In thousands)Goodwill at beginning of year

$
449,097


$
305,284Acquisitions during the year


238,746



143,813Other(1)


1,315



Goodwill at end of year

$
689,158


$
449,097     (1)
    
    Includes the effect of purchase accounting adjustments related
    to non-current year acquisitions.      December 31December 31, 2008


2008


2007Gross Carrying


Accumulated


Net Carrying


Net CarryingAmount


Amortization


Value


Value(In thousands)Branch network

$
145,000


$
(120,833
)

$
24,167


$
33,833Core deposits


124,924



(58,879
)


66,045



61,282Other


1,310



(1,236
)


74



313Total finite life intangibles

$
271,234


$
(180,948
)

$
90,286


$
95,428    62




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes
    to Consolidated Financial
    Statements  (Continued)
    Mortgage
    servicing rights
    2008


2007(In thousands)MSR carrying amount at beginning of year

$
17,813


$
17,263Originations


4,690



3,616Acquired in acquisitions


4,195



605Disposals


(249
)


Amortization


(4,386
)


(3,671
)MSR carrying amount at end of year

$
22,063


$
17,813Fair value at beginning of year

$
22,721


$
21,496Fair value at end of year


26,129



22,721   7.
    Deposits    December 312008


2007(In thousands)Demand deposits

$
28,059,575


$
6,478,464Interest-bearing checking deposits


346,981



238,884Money market accounts


8,909,751



9,028,573Statement savings accounts


2,347,111



2,731,544Savings certificates


7,287,605



5,943,138Time deposits


5,482,586



3,963,408Deposits in foreign offices


920,235



1,149,167Total deposits

$
53,353,844


$
29,533,178  63




---



##### Table of Contents



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

Amount2009


10,756,0652010


591,2422011


1,992,9672012


138,9362013


141,116Thereafter


70,100Total

$
13,690,426     step-up
  8.
    Securities
    Purchased Under Agreement to Resell, Securities Sold Under
    Agreement to Repurchase and Federal Funds     64




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes
    to Consolidated Financial
    Statements  (Continued)
      Securities
    purchased under agreement to resell
  2008


2007(Dollars in thousands)Amount outstanding at end of year

$
182,063


$
159,000Highest amount outstanding as of any month-end during the year


1,012,375



1,400,000Daily average amount outstanding during the year


212,550



87,815Daily average annualized rate of interest


1.62
%


4.43
%   Securities
    sold under agreement to repurchase
  2008


2007(Dollars in thousands)Amount outstanding at end of year

$
3,501,758


$
1,613,529Highest amount outstanding as of any month-end during the year


3,501,758



4,068,896Daily average amount outstanding during the year


1,540,383



3,240,378Daily average annualized rate of interest


1.74
%


4.96
%   Federal
    funds sold
  2008


2007(Dollars in thousands)Amount outstanding at end of year

$



$
1,361,183Highest amount outstanding as of any month-end during the year


1,650,304



2,779,415Daily average amount outstanding during the year


448,999



773,468Daily average annualized rate of interest


2.84
%


4.73
%   Federal
    funds purchased
  2008


2007(Dollars in thousands)Amount outstanding at end of year

$
78,525


$
182,625Highest amount outstanding as of any month-end during the year


1,604,347



669,730Daily average amount outstanding during the year


632,295



378,146Daily average annualized rate of interest


2.20
%


5.08
%  65




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes
    to Consolidated Financial
    Statements  (Continued)
  9.
    Senior
    Notes and Long-Term Notes    December 312008


2007


Rate

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

$
28,500


$
28,500


50bps + 90 day LIBOR

QuarterlyFloating rate subordinated note to Bankcorp due May 30, 2013


34,000



34,000


50bps + 90 day LIBOR

QuarterlyFloating rate subordinated note to Bankcorp due
    November 26, 2013


24,000



24,000


50bps + 90 day LIBOR

QuarterlyFloating rate subordinated note to Bankcorp due
    February 26, 2014


6,250



6,250


50bps + 90 day LIBOR

QuarterlyFloating rate subordinated note to Bankcorp due May 31, 2014


100,000



100,000


35bps + 90 day LIBOR

QuarterlyFloating rate subordinated note to Bankcorp due May 31, 2016


100,000



100,000


38bps + 90 day LIBOR

QuarterlyTotal subordinated notes

$
292,750


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

$
250,000


$
250,000


12bps + 90 day LIBOR

QuarterlyFloating rate senior note to BMO subsidiary due June 13,
    2011


746,500



746,500


14bps + 90 day LIBOR

QuarterlyFloating rate senior note to BMO subsidiary due August 14,
    2012


1,100,000



1,100,000


14bps + 90 day LIBOR

QuarterlyTotal senior notes

$
2,096,500


$
2,096,500Floating rate secured note to FHLB due October 30, 2017

$
1,000,000


$
1,000,000


30 day LIBOR

MonthlyFloating rate secured note to FHLB due November 13, 2017


500,000



500,000


30 day LIBOR

MonthlyFloating rate secured note to FHLB due November 28, 2017


500,000



500,000


30 day LIBOR

MonthlyFloating rate secured note to FHLB due February 20, 2018


375,000






30 day LIBOR

MonthlyTotal secured notes

$
2,375,000


$
2,000,000Total subordinated, senior, and secured notes

$
4,764,250


$
4,389,250        66




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes
    to Consolidated Financial
    Statements  (Continued)
      10.
    Fair
    Value of Financial Instruments  item-by-item
           67




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes
    to Consolidated Financial
    Statements  (Continued)
          68




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes
    to Consolidated Financial
    Statements  (Continued)
  December 312008


2007Carrying


Fair


Carrying


FairValue


Value


Value


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

$
1,072,255


$
1,072,255


$
1,179,134


$
1,179,134Money market assets:Interest-bearing deposits at banks


26,031,291



26,031,291



949,803



949,803Federal funds sold and securities purchased under agreement to
    resell


182,063



182,063



1,520,183



1,520,183Securities available-for-sale


9,283,283



9,283,283



9,288,595



9,288,595Trading account assets and derivative instruments


1,367,833



1,367,833



288,785



288,785Loans, net of unearned income and allowance for loan losses


25,822,157



25,862,332



25,166,962



25,108,646Loans held for sale


29,544



30,742



62,695



64,143Accrued interest receivable


148,127



148,127



187,847



187,847Derivative instruments non-trading


14,497



14,497



1,371



1,371Total on-balance-sheet financial assets

$
63,951,050


$
63,992,423


$
38,645,375


$
38,588,507LiabilitiesDeposits:Demand deposits

$
39,638,890


$
39,638,890


$
18,453,540


$
18,453,540Time deposits


13,714,955



13,813,865



11,079,638



11,139,982Federal funds purchased


78,525



78,525



182,625



182,625Securities sold under agreement to repurchase


3,501,758



3,501,758



1,613,529



1,613,529Short-term borrowings


359,476



359,476



707,540



707,540Short-term senior notes


75,000



75,000



80,000



80,000Derivative instruments


484,179



484,179



186,105



186,105Trading account liabilities


177,797



177,797



156,838



156,838Accrued interest payable


87,352



87,352



113,297



113,297Long-term notes  senior


2,096,500



2,096,500



2,096,500



2,096,500Long-term notes  subordinated


292,750



292,750



292,750



292,750Long-term notes  secured


2,375,000



2,375,000



2,000,000



2,000,000Total on-balance-sheet financial liabilities

$
62,882,181


$
62,981,091


$
36,962,362


$
37,022,706Off-Balance-Sheet Credit Facilities (positive
    positions/(obligations))Loan commitments

$
39,565


$
39,565


$
40,440


$
40,440Standby letters of credit


(1,720
)


(1,720
)


(1,606
)


(1,606
)Total off-balance-sheet credit facilities

$
37,845


$
37,845


$
38,834


$
38,834   Fair
    Value Measurements
  No. FAS 157-2, FSP 157-2
 69




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes
    to Consolidated Financial
    Statements  (Continued)
  FSP 157-3, FSP 157-3
           70




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes
    to Consolidated Financial
    Statements  (Continued)
    December 31, 2008Fair Value Measurements Using


Total atLevel 1


Level 2


Level 3


Fair Value(In thousands)AssetsTrading account assets

$



$
1,095,700


$



$
1,095,700Securities available-for-sale


200,503



8,781,061



301,719



9,283,283Derivative instruments






284,197



2,433



286,630Total assets at fair value on recurring basis

$
200,503


$
10,160,958


$
304,152


$
10,665,613LiabilitiesStructured CDs (included in interest-bearing deposits)

$



$
77,668


$



$
77,668Trading account liabilities (included in other liabilities)


177,797











177,797Derivative instruments (included in other liabilities)






483,327



852



484,179Commitment to purchase ARS (included in other liabilities)










2,015



2,015Total liabilities at fair value on recurring basis

$
177,797


$
560,995


$
2,867


$
741,659     Trading


Securities








CommitmentAccount


Available-


Derivative


Derivative


to PurchaseAssets


for-sale


Assets


Liabilities


ARS(In thousands)Fair value at January 1, 2008

$



$
208,926


$



$
396


$
Realized and unrealized gains (losses) included in earnings






(24,760
)


2,433



2,377



(10,804
)Unrealized gains (losses) included in OCI






(7,731
)










Purchases, sales, issuances, settlements






125,284







(1,921
)


12,819Fair value at December 31, 2008

$



$
301,719


$
2,433


$
852


$
2,015Net unrealized gains (losses) relating to assets and liabilities
    held at December 31, 2008

$



$
(7,731
)

$
2,433


$
852


$
    71




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes
    to Consolidated Financial
    Statements  (Continued)
    Carrying Value at December 31, 2008Level 1


Level 2


Level 3


Total(In thousands)AssetsLoans held for sale

$



$
29,544


$



$
29,544Mortgage servicing rights










22,063



22,063Collateral-dependent impaired loans






256,836







256,836Total assets at carrying value on nonrecurring basis

$



$
286,380


$
22,063


$
308,443   11.
    Financial
    Instruments with Off-Balance-Sheet Risk    Credit
    facilities
          case-by-case
   72




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes
    to Consolidated Financial
    Statements  (Continued)
        Financial
    Guarantees
          Securities
    activities
     73




---



##### Table of Contents



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




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes
    to Consolidated Financial
    Statements  (Continued)
  Commitments
    to Invest in Equity Securities
    12.
    Derivative
    Financial Instruments    point-in-time
    Types
    of Derivatives
         74




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes
    to Consolidated Financial
    Statements  (Continued)
  Derivative-Related
    Risks
      value-at-risk
  Uses
    of Derivatives
    No. FIN 39-1,
   75




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes
    to Consolidated Financial
    Statements  (Continued)
      Credit
    derivatives
    Embedded
    derivatives
    Risk
    management activity
             76




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes
    to Consolidated Financial
    Statements  (Continued)
                  13.
    Concentrations
    of Credit Risk in Financial Instruments   77




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes
    to Consolidated Financial
    Statements  (Continued)
  Midwestern
    Geographic Area
        14.
    Employee
    Benefit Plans          ®
 78




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes
    to Consolidated Financial
    Statements  (Continued)
         79




---



##### Table of Contents



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


Postretirement Medical Benefits2008**


2007**


2006**


2008**


2007**


2006**(In thousands)Change in benefit obligation*Benefit obligation at beginning of year

$
430,891


$
446,204


$
443,553


$
60,988


$
78,881


$
64,687Service cost


21,897



21,800



21,706



1,994



3,392



2,638Interest cost


25,071



24,996



24,115



3,639



4,182



3,563Transfer adjustment






(10,350
)


2,859











Plan amendments


















(6,441
)


Benefits paid (net of participant contributions)


(41,771
)


(41,407
)


(37,991
)


(2,624
)


(2,624
)


(2,624
)Medicare drug legislation














841



1,035



6,222Actuarial loss or (gain)


(21,590
)


(10,352
)


(8,038
)


(6,523
)


(17,437
)


4,395Change in measurement date


537











1,408







Benefit obligation at end of year

$
415,035


$
430,891


$
446,204


$
59,723


$
60,988


$
78,881Change in plan assetsFair value of plan assets at beginning of year

$
380,294


$
322,341


$
293,836


$
64,979


$
46,607


$
50,314Actual return on plan assets


(123,769
)


81,284



34,201



(23,181
)


9,674



(3,707
)Transfer adjustment






(6,590
)


5,264







8,698



Employer contribution


99,521



24,666



27,031











Benefits paid


(41,771
)


(41,407
)


(37,991
)










Change in measurement date


(4,563
)










1,253







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

$
309,712


$
380,294


$
322,341


$
43,051


$
64,979


$
46,607Funded Status at end of year

$
(105,322
)

$
(50,597
)

$
(123,862
)

$
(16,672
)

$
3,991


$
(32,275
)Contributions made between measurement date (September
    30) and end of year






















Unrecognized actuarial (gain) or loss










106,521











12,990Unrecognized transition (asset) or obligation






















10,036Unrecognized prior service cost










3,296











488Net amount

$
(105,322
)

$
(50,597
)

$
(14,045
)

$
(16,672
)

$
3,991


$
(8,761
)Assets (liabilities) recognized in the Statement of Condition
    consist of:Other assets

$
24,906


$
24,906


$
24,906


$
4,587


$
4,587


$
4,587Accrued pension and post-retirement liabilities


(130,228
)


(75,503
)


(121,593
)


(21,259
)


(596
)


(25,007
)Net assets (liabilities) recognized

$
(105,322
)

$
(50,597
)

$
(96,687
)

$
(16,672
)

$
3,991


$
(20,420
) 80




---



##### Table of Contents



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


Postretirement Medical Benefits2008**


2007**


2006**


2008**


2007**


2006**(In thousands)Amounts recognized in Accumulated Other Comprehensive Income
    consist of:Net loss or (gain)

$
153,771


$
27,563


$



$
4,843


$
(18,022
)

$
Prior service cost


2,255



2,835















Transition obligation














1,858



2,585



Additional minimum liability










82,642











11,743Amounts recognized in AOCI

$
156,026


$
30,398


$
82,642


$
6,701


$
(15,437
)

$
11,743Components of net periodic benefit costService cost

$
21,897


$
21,800


$
21,706


$
1,994


$
3,392


$
2,638Interest cost


25,071



24,996



24,115



3,639



4,182



3,563Expected return on plan assets


(25,941
)


(22,436
)


(20,922
)


(5,013
)


(4,406
)


(4,025
)Amortization of prior service cost


464



461



98







169



169Amortization of transition obligation














525



1,743



1,751Amortization of actuarial loss or (gain)


1,530



5,998



9,322



(958
)






(81
)Net periodic benefit cost

$
23,021


$
30,819


$
34,319


$
187


$
5,080


$
4,015     *
    
    Benefit obligation is projected for Pension Benefits and
    accumulated for Postretirement Medical Benefits.**
    
    Plan assets and obligation measured as of December 31 for 2008
    and September 30 for 2007 and 2006.***
    
    The actual allocation of plan assets by category are as follows:  2008

2007

2006Pension:Equity securities


54
%


73
%


73
%Fixed income securities


32
%


27
%


27
%Cash Equivalents


14
%






Postretirement Medical:Equity securities


54
%


73
%


73
%Fixed income securities


32
%


27
%


27
%Cash Equivalents


14
%






      81




---



##### 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 Benefits2008


2007


2006


2008


2007


2006Weighted-average assumptions used to determine benefit
    obligations as of December 31Discount rate


6.20
%


6.00
%


5.75
%


6.20
%


6.00
%


5.75
%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


6.00
%


5.75
%


5.50
%


6.00
%


5.75
%


5.50
%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-Percentage2008

Point Increase


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

$
651


$
(562
)Effect on postretirement benefit obligation

$
7,176


$
(6,109
)   SupplementalPostretirement


UnfundedYear Ended December 31, 2008

Pension Benefits


Medical Benfits


Retirement Benefits(In thousands)Other Changes in Plan Assets and Benefit Obligations
    Recognized in Other Comprehensive IncomeNet loss (gain)

$
128,120


$
21,667


$
(1,024
)Amortization of (loss) gain


(1,912
)


1,198



Amortization of prior service (cost) credit


(580
)






412Amortization of transition obligation






(656
)


Total recognized in OCI

$
125,628


$
22,209


$
(612
)  82




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes
    to Consolidated Financial
    Statements  (Continued)
    Supplemental Unfunded Retirement Benefits2008


2007


2006(In thousands)Change in benefit obligationBenefit obligation at beginning of year

$
12,781


$
18,969


$
16,941Service cost


997



1,560



1,620Interest cost


636



911



785Benefits paid (net of participant contributions)


(3,273
)


(3,073
)


(1,840
)Actuarial (gain) or loss


(724
)


(5,586
)


1,464Change in measurement date


(57
)






Benefit obligation at end of year

$
10,360


$
12,781


$
18,970 83




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes
    to Consolidated Financial
    Statements  (Continued)
  Supplemental Unfunded Retirement Benefits2008


2007


2006(In thousands)Change in plan assetsFair value of plan assets at beginning of year

$



$



$
Actual return on plan assets










Employer contribution


3,738



3,073



1,840Benefits paid


(3,273
)


(3,073
)


(1,840
)Change in measurement date


(465
)






Fair value of plan assets at end of year

$



$



$
Funded Status at end of year

$
(10,360
)

$
(12,781
)

$
(18,970
)Contributions made between measurement date (September
    30) and end of year






465



623Unrecognized actuarial loss










6,864Unrecognized prior service cost










(2,341
)$
(10,360
)

$
(12,316
)

$
(13,824
)Liabilities recognized in the Statement of Condition consist
    of:Accrued pension and post retirement liabilities

$
(10,360
)

$
(12,316
)

$
(19,713
)Net liabilities recognized

$
(10,360
)

$
(12,316
)

$
(19,713
)Amounts recognized in Accumulated Other Comprehensive Income
    consist of:Net loss

$
157


$
1,181


$
Prior service credit


(1,599
)


(2,011
)


Additional minimum liability










5,889Amounts recognized in AOCI

$
(1,442
)

$
(830
)

$
5,889Components of net periodic benefit costService cost

$
997


$
1,560


$
1,620Interest cost


636



911



785Expected return on plan assets










Amortization of prior service cost


(330
)


(330
)


(330
)Amortization of actuarial loss






102



98Net periodic benefit cost

$
1,303


$
2,243


$
2,173   84




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes
    to Consolidated Financial
    Statements  (Continued)
  Supplemental UnfundedRetirement Benefits2008


2007Weighted-average assumptions used to determine benefit
    obligation as of December 31Discount rate


5.50
%


5.25
%Rate of compensation increase


3.80
%


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


5.25
%


5.00
%Rate of compensation increase


3.80
%


3.80
%     Postretirement Medical Benefits


SupplementalBefore Medicare


Medicare


RetirementYear

Pension Benefits


Subsidy


Subsidy(1)


Benefits(In thousands)2009

$
26,318


$
3,497


$
388


$
1,0942010


26,190



3,715



429



1,0832011


28,446



3,951



473



1,4792012


30,586



4,125



534



1,4742013


30,012



4,349



591



9582014-2018


182,759



26,355



4,152



6,575     (1)
    
    Medicare subsidies expected to be received.  15.
    Stock-Based
    Compensation Plans    Stock
    Option Program
         85




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes
    to Consolidated Financial
    Statements  (Continued)
        Year Ended December 31, 2008Wtd. Avg.Wtd. Avg.


Aggregate Intrinsic


RemainingOptions

Shares


Exercise Price


Value


Contractual Life(In millions)Outstanding at beginning of year


2,751,938



43.57


$
155.0



4.75 yearsGranted


234,701



27.88Exercised


(348,728
)


27.77Forfeited, cancelled


(63,733
)


24.65Transferred(1)


(79,232
)


49.31Outstanding at December 31, 2008


2,494,946



35.34


$
1.1



4.62 yearsOptions exercisable at December 31, 2008


1,769,740


$
32.51


$
1.1



3.19 years     (1)
    
    Transferred shares represent employees moving between BMO and
    the Bank.  Year Ended December 31, 2007Wtd. Avg.Wtd. Avg.


Aggregate Intrinsic


RemainingOptions

Shares


Exercise Price


Value


Contractual Life(In millions)Outstanding at beginning of year


3,202,246



34.76


$
221.0



5.00 yearsGranted


198,156



60.64Exercised


(710,621
)


36.78Forfeited, cancelled


(9,727
)


61.55Transferred(1)


71,884



39.94Outstanding at December 31, 2007


2,751,938



43.57


$
155.0



4.75 yearsOptions exercisable at December 31, 2007


2,086,021


$
38.08


$
117.5



3.66 years     (1)
    
    Transferred shares represent employees moving between BMO and
    the Bank.  86




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes
    to Consolidated Financial
    Statements  (Continued)
  Wtd. Avg.Grant DateFair ValueOptions

Shares


per ShareNonvested at beginning of year


463,392


$
8.23Granted


234,701



4.50Vested


(215,118
)


8.44Forfeited, cancelled






Transferred(1)


(16,978
)


7.82Nonvested at December 31, 2008


465,997


$
6.31     (1)
    
    Transferred shares represent employees moving between BMO and
    the Bank.    Wtd. Avg.Grant DateFair ValueOptions

Shares


per ShareNonvested at beginning of year


440,892


$
8.27Granted


198,156



8.33Vested


(175,755
)


8.47Forfeited, cancelled


(9,301
)


8.32Transferred(1)


9,400



8.02Nonvested at December 31, 2007


463,392


$
8.23     (1)
    
    Transferred shares represent employees moving between BMO and
    the Bank.    2008


2007


2006Risk-free interest rate


2.61
%


4.11
%


3.98
%Expected life, in years


6.5



7.3



7.1Expected volatility


23.84
%


19.24
%


15.22
%Expected dividend yield


5.85
%


4.20
%


3.40
%   Mid-Term
    Incentive Plans
       87




---



##### 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)2009

$
34,2342010


33,0752011


31,5692012


27,8442013


26,844Thereafter


291,318Total minimum future rentals

$
444,884  88




---



##### Table of Contents



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


State


Total(In thousands)2008:Current

$
(96,539
)

$
(1,185
)

$
(97,724
)Deferred


(14,021
)


15,526



1,505Total

$
(110,560
)

$
14,341


$
(96,219
)2007:Current

$
71,549


$
(1,907
)

$
69,642Deferred


(41,123
)


(6,495
)


(47,618
)Total

$
30,426


$
(8,402
)

$
22,0242006:Current

$
56,894


$
3,596


$
60,490Deferred


24,912



(214
)


24,698Total

$
81,806


$
3,382


$
85,188  89




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes
    to Consolidated Financial
    Statements  (Continued)
    2008


2007


2006(In thousands)Deferred tax assets:Allowance for loan losses

$
233,062


$
153,868


$
133,881Deferred expense and prepaid income


22,586



34,812



15,409Deferred employee compensation


21,979



24,811



23,644Pension and medical trust






15,597



14,644Amortizable intangibles






3,951



8,639State tax loss carryforward


11,971







Other assets


6,532



14



Gross deferred tax assets

$
296,130


$
233,053


$
196,217Valuation Allowance


(26,285
)






Deferred tax assets, net of valuation allowance

$
269,845


$
233,053


$
196,217Deferred tax liabilities:Depreciable assets

$
(48,769
)

$
(60,836
)

$
(72,288
)Pension and medical trust


(10,113
)






Amortizable intangibles


(5,036
)






Other liabilities


(1,332
)


(1,262
)


(1,980
)Gross deferred tax liabilities

$
(65,250
)

$
(62,098
)

$
(74,268
)Deferred tax assets

$
204,595


$
170,955


$
121,949Tax effect of fair value adjustments on available-for-sale
    securities pension liabilities and hedging transactions recorded
    directly to stockholders equity


111,480



14,716



52,575Net deferred tax assets

$
316,075


$
185,671


$
174,524      90




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes
    to Consolidated Financial
    Statements  (Continued)
    Years Ended December 312008


2007


2006Percent of





Percent of





Percent ofPretax





Pretax





PretaxAmount


Loss


Amount


Income


Amount


Income(Dollars in thousands)Computed tax (benefit) expense

$
(69,811
)


35.0
%

$
57,837



35.0
%

$
102,598



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


(17,556
)


8.8



(12,575
)


(7.6
)


(8,820
)


(3.0
)Bank-owned insurance


(18,098
)


9.1



(18,787
)


(11.4
)


(15,697
)


(5.4
)State income taxes, excluding valuation allowance net of federal
    effect


(16,903
)


8.5



(5,461
)


(3.3
)


2,199



0.8Valuation allowance change for state deferred taxes, net of
    federal effect


26,224



(13.2
)














Other, net


(75
)






1,010



0.6



4,908



1.7Actual tax (benefit) expense

$
(96,219
)


48.2
%

$
22,024



13.3
%

$
85,188



29.1
%     2008


2007(In thousands)Gross unrecognized tax benefits at beginning of year

$
5,276


$
3,902Additions based on tax positions related to current year


312



280Additions for tax positions of prior years


596



1,961Reductions for tax positions of prior years


(1,864
)


(520
)Settlements


(2,445
)


(347
)Gross unrecognized tax benefits at end of year

$
1,875


$
5,276Less: Federal tax benefit


(184
)


(566
)Net unrecognized tax benefits at end of year

$
1,691


$
4,710        91




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes
    to Consolidated Financial
    Statements  (Continued)
    18.
    Regulatory
    Capital              3 8
 92




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes
    to Consolidated Financial
    Statements  (Continued)
    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, 2008Total Capital to Risk-Weighted Assets

$
4,309,774



12.69
%

3
    $
2,716,958



3
    8.00
%

3
    $
3,396,197



3
    10.00
%Tier 1 Capital to Risk-Weighted Assets

$
3,590,854



10.57
%

3
    $
1,358,885



3
    4.00
%

3
    $
2,038,328



3
    6.00
%Tier 1 Capital to Average Assets

$
3,590,854



7.24
%

3
    $
1,983,897



3
    4.00
%

3
    $
2,479,872



3
    5.00
%As of December 31, 2007Total Capital to Risk-Weighted Assets

$
4,208,758



12.66
%

3
    $
2,659,563



3
    8.00
%

3
    $
3,324,453



3
    10.00
%Tier 1 Capital to Risk-Weighted Assets

$
3,543,889



10.66
%

3
    $
1,329,789



3
    4.00
%

3
    $
1,994,684



3
    6.00
%Tier 1 Capital to Average Assets

$
3,543,889



8.41
%

3
    $
1,685,560



3
    4.00
%

3
    $
2,106,949



3
    5.00
%   19.
    Investments
    in Subsidiaries and Statutory Restrictions        20.
    Contingent
    Liabilities and Litigation   93




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes
    to Consolidated Financial
    Statements  (Continued)
    21.  Accumulated
    Other Comprehensive Loss
    Unrealized


Unrealized


Unrealizedgain (Loss) on


Loss  on Pension


Loss on


AccumulatedAvailable-for-


and Postretirement


Hedge


OtherSale Securities


Medical Plans


Activity


Comprehensive Loss(In thousands)Balance at December 31, 2008

$
54,463


$
(111,391
)

$
(149,111
)

$
(206,039
)Balance at December 31, 2007

$
14,301


$
(10,135
)

$
(31,488
)

$
(27,322
)Balance at December 31, 2006

$
(14,253
)

$
(65,179
)

$
(18,207
)

$
(97,639
)   22.  Foreign
    Activities (by Domecile of Customer)
    Foreign


Domestic


Consolidated(In thousands)2008Total operating income

$
36,075


$
2,264,959


$
2,301,034Total expenses


93,673



2,406,822



2,500,495(Loss) income before taxes

$
(57,598
)

$
(141,863
)

$
(199,461
)Applicable income taxes


(22,892
)


(73,327
)


(96,219
)Net (loss) income

$
(34,706
)

$
(68,536
)

$
(103,242
)Identifiable assets at year-end

$
1,831,666


$
65,474,389


$
67,306,0552007Total operating income

$
38,631


$
2,583,531


$
2,622,162Total expenses


156,493



2,300,420



2,456,913(Loss) income before taxes

$
(117,862
)

$
283,111


$
165,249Applicable income taxes


(46,844
)


68,868



22,024Net (loss) income

$
(71,018
)

$
214,243


$
143,225Identifiable assets at year-end

$
1,133,241


$
40,347,042


$
41,480,2832006Total 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


$
40,597,883


$
41,818,938  94




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes
    to Consolidated Financial
    Statements  (Continued)
    23.
    Business
    Combinations           95




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes
    to Consolidated Financial
    Statements  (Continued)
    2008


2007Merchants and





FirstManufacturers


Ozaukee


National(In thousands)Cash and cash equivalents

$
36,312


$
52,125


$
68,514Securities


135,116



116,404



295,021Loans, net


1,029,281



525,731



856,270Premises and equipment


35,540



14,552



25,327Bank owned life insurance


9,221



9,579



Goodwill


111,493



127,704



143,813Core deposit premium


10,985



11,736



31,200Other


46,014



9,723



44,691Total assets

$
1,413,962


$
867,554


$
1,464,836Deposits

$
1,045,438


$
593,203


$
952,919Borrowings


154,399



82,453



215,528Accrued expenses


19,746



5,541



5,023Note payable


53,611







Other liabilities


4,071



3,013



Total liabilities

$
1,277,265


$
684,210


$
1,173,470Purchase price

$
136,697


$
183,344


$
291,366   24.
    Related
    Party Transactions     96




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes
    to Consolidated Financial
    Statements  (Continued)
  and/or
         97




---



##### Table of Contents



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


Loan BalanceYear Ended December 31


December 312008


2007


2008


2007


Rate

Reprice(In thousands)Long-term notes  seniorFloating rate senior note to BMO subsidiary due June 15,
    2010

$
8,362


$
13,856


$
250,000


$
250,000


12bps + 90 day LIBOR


QuarterlyFloating rate senior note to BMO subsidiary due June 13,
    2011


25,469



41,074



746,500



746,500


14bps + 90 day LIBOR


QuarterlyFloating rate senior note to BMO subsidiary due August 14,
    2012


34,359



31,470



1,100,000



1,100,000


14bps + 90 day LIBOR


QuarterlyTotal long-term notes  senior

$
68,190


$
86,400


$
2,096,500


$
2,096,500Long-term notes  subordinatedFloating rate subordinated note to Bankcorp due
    December 23, 2012

$
1,108


$
1,682


$
28,500


$
28,500


50bps + 90 day LIBOR


QuarterlyFloating rate subordinated note to Bankcorp due May 30, 2013


1,261



2,025



34,000



34,000


50bps + 90 day LIBOR


QuarterlyFloating rate subordinated note to Bankcorp due
    November 26, 2013


879



1,427



24,000



24,000


50bps + 90 day LIBOR


QuarterlyFloating rate subordinated note to Bankcorp due
    February 26, 2014


229



371



6,250



6,250


50bps + 90 day LIBOR


QuarterlyFloating rate subordinated note to Bankcorp due May 31, 2014


3,557



5,812



100,000



100,000


35bps + 90 day LIBOR


QuarterlyFloating rate subordinated note to Bankcorp due May 31, 2016


3,583



5,837



100,000



100,000


38bps + 90 day LIBOR


QuarterlyFixed rate subordinated note to Bankcorp due March 27, 2018


178











Total long-term notes  subordinated

$
10,617


$
17,154


$
292,750


$
292,750Total long-term notes

$
78,807


$
103,554


$
2,389,250


$
2,389,250   Interest ExpenseYear Ended


Certificate of Deposit BalanceDecember 31


December 312008


2007


2008


2007(In thousands)Certificates of depositCertificate of deposit to BMO subsidiary due on
    September 24, 2007

$



$
13,820


$



$



3.28%


FixedCertificate of deposit to BMO subsidiary due on March 18,
    2008


4,883



27,586







500,000


8bps + 90 day LIBOR


QuarterlyCertificate of deposit to BMO subsidiary due on June 30,
    2008


14,298



28,833







1,000,000


2.84%


FixedCertificate of deposit to BMO subsidiary due on March 31,
    2009


18,713



18,662



427,655



427,655


4.30%


FixedCertificate of deposit to BMO subsidiary due on May 29, 2009


1,038







100,000






35bps + 90 day LIBOR


QuarterlyCertificate of deposit to BMO subsidiary due on June 30,
    2009


1,300







100,000






35bps + 90 day LIBOR


QuarterlyCertificate of deposit to BMO subsidiary due on July 31,
    2009


1,190







100,000






38bps + 90 day LIBOR


Quarterly 98




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes
    to Consolidated Financial
    Statements  (Continued)
  Interest ExpenseYear Ended


Certificate of Deposit BalanceDecember 31


December 312008


2007


2008


2007(In thousands)Certificate of deposit to BMO subsidiary due on August 28,
    2009


2,096







200,000






38bps + 90 day LIBOR


QuarterlyCertificate of deposit to BMO subsidiary due on
    September 28, 2009


36,205



54,506



1,000,000



1,000,000


6bps + 90 day LIBOR


QuarterlyCertificate of deposit to BMO subsidiary due on July 29,
    2011


16,170







950,000



1,000,000


93bps+ 90 day LIBOR


QuarterlyCertificate of deposit to BMO subsidiary due on
    September 29, 2011


12,609







950,000






145bps + 90 day LIBOR


QuarterlyTotal certificates of deposit

$
108,502


$
143,407


$
3,827,655


$
2,927,655   25.
    Restructuring
    Charge              99




---



##### Table of Contents



HARRIS
    N.A AND SUBSIDIARIES
  Notes
    to Consolidated Financial
    Statements  (Continued)
  Severance-related


Premises-relatedcharges


charges


Total(In thousands)Balance at December 31, 2006

$



$



$
Restructuring charge during the year, net of reversals


16,564



2,196



18,760Paid during the year


(9,514
)


(2,196
)


(11,710
)Balance at December 31, 2007

$
7,050


$



$
7,050Restructuring reversals during the year


(2,649
)


(15
)


(2,664
)(Paid), reversed during the year


(3,539
)


15



(3,524
)Balance at December 31, 2008

$
862


$



$
862   26.
    Visa
    Indemnification Charge           100