##### Table of Contents



United States
 Securities And Exchange
    Commission
 Washington, D.C.
    20549
   Form 10-Q
  QUARTERLY REPORT UNDER
    SECTION 13 OR 15(d)
 OF THE SECURITIES EXCHANGE ACT
    OF 1934
  For the quarterly period ended
    March 31, 2007
  Commission file number
    1-13805
   Harris Preferred Capital
    Corporation
   Maryland

# 36-4183096(State or other jurisdiction
    of incorporation or organization)

(I.R.S. Employer
    Identification No.)111 West Monroe Street,
    Chicago, Illinois

60603(Address of principal executive
    offices)

(Zip Code)   Registrants telephone number, including area code:
 (312) 461-2121
  Securities registered pursuant to Section 12(b) of the
    Act:
  Name of each exchange onTitle of each class

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
    þ o
  Rule 12b-2
  Large
    accelerated filer o
    Accelerated
    filer o
    Non-accelerated
    filer þ  Rule 12b-2
 o þ




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##### 



HARRIS
    PREFERRED CAPITAL CORPORATION
  TABLE OF
    CONTENTS
  
  Part I

FINANCIAL
    INFORMATIONItem 1.

Financial
    Statements:Consolidated
    Balance Sheets


2Consolidated
    Statements of Income and Comprehensive Income


3Consolidated
    Statements of Changes in Stockholders Equity


4Consolidated
    Statements of Cash Flows


5Notes to
    Consolidated Financial Statements


6Item 2.

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


6Item 3.

Quantitative and
    Qualitative Disclosures about Market Risk


17Item 4.

Controls and
    Procedures


17Part II

OTHER
    INFORMATIONItem 6.

Exhibits


17Signatures


18Section 302 CertificationSection 302 CertificationSection 906 Certification




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##### Table of Contents



Part I.
    FINANCIAL INFORMATION  Item 1.
    Financial
    Statements  HARRIS
    PREFERRED CAPITAL CORPORATION
  CONSOLIDATED
    BALANCE SHEETS
  March 31,


December 31,


March 31,2007


2006


2006(unaudited)





(unaudited)(in thousands, except share data)AssetsCash on deposit with Harris
    N.A.

$
368


$
5,284


$
403Securities purchased from Harris
    N.A. under agreement to resell


8,223



9,854



23,525Notes receivable from Harris
    N.A.


5,923



6,512



7,832Securities
    available-for-sale:Mortgage-backed


399,229



404,075



353,866U.S. Treasury


69,912



59,948



89,962Other assets


1,663



1,667



1,391Total assets

$
485,318


$
487,340


$
476,979Liabilities and
    Stockholders EquityAccrued expenses

$
116


$
120


$
118Preferred dividends payable






4,611



Total liabilities

$
116


$
4,731


$
118Commitments and contingencies










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


250,000



250,000



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


1



1



1Additional paid-in capital


240,733



240,733



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


822



(71
)


403Accumulated other comprehensive
    loss  net unrealized losses on
    available-for-sale
    securities


(6,354
)


(8,054
)


(14,276
)Total stockholders
    equity


485,202



482,609



476,861Total liabilities and
    stockholders equity

$
485,318


$
487,340


$
476,979   The accompanying notes are an integral part of these
    financial statements.
 2




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HARRIS
    PREFERRED CAPITAL CORPORATIONCONSOLIDATED STATEMENTS OF INCOME
    AND COMPREHENSIVE INCOME(Unaudited)
  Quarter Ended March 312007


2006(in thousands, except share data)Interest income:Securities purchased from Harris
    N.A. under agreement to resell

$
859


$
1,014Notes receivable from Harris
    N.A.


97



131Securities
    available-for-sale:Mortgage-backed


4,592



3,894U.S. Treasury


70



98Total interest income


5,618



5,137Operating expenses:Loan servicing fees paid to Harris
    N.A.


5



6Advisory fees paid to Harris
    N.A.


31



32General and administrative


80



85Total operating expenses


116



123Net income


5,502



5,014Preferred dividends


4,609



4,609Net income available to common
    stockholder

$
893


$
405Basic and diluted earnings per
    common share

$
893.00


$
405.00Net income

$
5,502


$
5,014Other comprehensive income
    (loss)  net change in unrealized gains (losses) on
    available-for-sale
    securities


1,700



(3,290
)Comprehensive income

$
7,202


$
1,724   The accompanying notes are an integral part of these
    financial statements.
 3




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##### Table of Contents



HARRIS
    PREFERRED CAPITAL CORPORATION



CONSOLIDATED
    STATEMENTS OF CHANGE IN STOCKHOLDERS EQUITY

(Unaudited)  Quarter EndedMarch 312007


2006(in thousands,except per share data)Balance at January 1

$
482,609


$
479,746Net income


5,502



5,014Other comprehensive income (loss)


1,700



(3,290
)Dividends (preferred stock
    $0.4609 per share)


(4,609
)


(4,609
)Balance at March 31

$
485,202


$
476,861   The accompanying notes are an integral part of these
    financial statements.
 4




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##### Table of Contents



HARRIS
    PREFERRED CAPITAL CORPORATION
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
 (Unaudited)
  Quarter EndedMarch 312007


2006(in thousands)Operating Activities:Net Income

$
5,502


$
5,014Adjustments to reconcile net
    income to net cash provided by operating activities:Net decrease in other assets


4



26Net decrease in accrued expenses


(4
)


(11
)Net cash provided by operating
    activities


5,502



5,029Investing Activities:Net decrease (increase) in
    securities purchased from Harris N.A. under agreement to resell


1,631



(3,025
)Repayments of notes receivable
    from Harris N.A.


589



852Purchases of securities
    available-for-sale


(79,524
)


(89,901
)Proceeds from maturities of
    securities
    available-for-sale


76,106



91,357Net cash used by investing
    activities


(1,198
)


(717
)Financing Activities:Cash dividends paid on preferred
    stock


(9,220
)


(4,609
)Net decrease in cash on deposit
    with Harris N.A.


(4,916
)


(297
)Cash on deposit with Harris N.A.
    at beginning of period


5,284



700Cash on deposit with Harris N.A.
    at end of period

$
368


$
403   The accompanying notes are an integral part of these
    financial statements.
 5




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##### Table of Contents



HARRIS
    PREFERRED CAPITAL CORPORATION
  NOTES
    TO CONSOLIDATED FINANCIAL STATEMENTS
  1.
    Basis of
    Presentation    Form 10-K.
    2.
    Commitments
    and Contingencies    Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Forward-Looking
    Information
  Form 10-Q Form 10-K Form S-11 No. 333-40257),
 6




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##### Table of Contents



HARRIS
    PREFERRED CAPITAL CORPORATION
  Results
    of Operations
  First
    Quarter 2007 Compared with First Quarter 2006
    available-for-sale
          available-for-sale. Available-for-sale available-for-sale
  other-than-temporary
 7




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##### Table of Contents



HARRIS
    PREFERRED CAPITAL CORPORATION
    Liquidity
    Risk Management
          available-for-sale. available-for-sale. available-for-sale available-for-sale
  Market
    Risk Management
    Accounting
    Pronouncements
    available-for-sale
 8




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##### Table of Contents



HARRIS
    PREFERRED CAPITAL CORPORATION
    Other
    Matters
    Financial
    Statements of Harris N.A.
   9




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##### Table of Contents



HARRIS
    N.A. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CONDITION
 (Unaudited)
  March 31


December 31


March 312007


2006


2006(in thousands except share data)ASSETSCash and demand balances due from
    banks

$
1,095,100


$
1,084,959


$
1,109,497Money market assets:Interest-bearing deposits at banks


894,412



944,116



1,277,453Federal funds sold and securities
    purchased under agreement to resell


85,341



672,760



188,927Securities
    available-for-sale
    (including $5.18 billion, $5.15 billion, and
    $4.33 billion of securities pledged as collateral for
    repurchase agreements at March 31, 2007, December 31,
    2006 and March 31, 2006, respectively)


10,509,999



10,713,910



7,011,412Trading account assets


143,471



220,716



130,124Loans


24,905,633



25,402,554



25,123,803Allowance for loan losses


(317,357
)


(322,742
)


(328,745
)Net loans

$
24,588,276


$
25,079,812


$
24,795,058Loans held for sale


33,912



34,451



30,718Premises and equipment


466,985



474,073



452,152Bank-owned insurance


1,165,243



1,155,925



1,125,756Goodwill and other intangible assets


389,950



395,140



411,922Other assets


898,612



989,965



664,679Total Assets

$
40,271,301


$
41,765,827


$
37,197,698LIABILITIESDeposits in domestic
    offices  noninterest-bearing

$
5,552,764


$
6,232,744


$
6,615,003 interest-bearing


22,029,462



22,855,715



17,943,478Deposits in foreign
    offices   interest-bearing


836,384



1,030,838



1,725,092Total deposits

$
28,418,610


$
30,119,297


$
26,283,573Federal funds purchased


616,755



476,000



385,731Securities sold under agreement to
    repurchase


3,601,650



3,475,839



3,041,452Short-term borrowings


1,874,984



1,261,679



1,832,971Short-term senior notes


100,000



100,000



835,000Accrued interest, taxes and other
    expenses


199,979



205,942



150,452Accrued pension and post-retirement


163,874



170,853



101,369Other liabilities


392,116



1,070,554



689,801Minority interest 
    preferred stock of subsidiary


250,000



250,000



250,000Long-term notes  senior


996,500



996,500



250,000Long-term notes 
    subordinated


292,750



292,750



292,750Total Liabilities

$
36,907,218


$
38,419,414


$
34,113,099Stockholders
    EquityCommon stock ($10 par value);
    authorized 40,000,000 shares; issued and outstanding
    14,303,361, 14,303,361 and 13,946,361 shares at
    March 31, 2007, December 31, 2006 and March 31,
    2006, respectively

$
143,034


$
143,034


$
139,464Surplus


1,493,058



1,489,521



1,316,361Retained earnings


1,820,410



1,811,497



1,703,592Accumulated other comprehensive loss


(92,419
)


(97,639
)


(74,818
)Total Stockholders
    Equity

$
3,364,083


$
3,346,413


$
3,084,599Total Liabilities and
    Stockholders Equity

$
40,271,301


$
41,765,827


$
37,197,698   The accompanying notes to consolidated financial statements
    are an integral part of these statements.
 10




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HARRIS
    N.A. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF INCOME
 (Unaudited)
  Quarter EndedMarch 312007


2006(in thousands)Interest IncomeLoans

$
392,947


$
368,758Money market assets:Deposits at banks


4,802



3,304Federal funds sold and securities
    purchased under agreement to resell


4,081



2,982Trading accounts


1,781



1,664Securities
    available-for-sale:U.S. Treasury and federal
    agency


111,219



51,774State and municipal


7,293



5,323Other


6,034



5,174Total interest income

$
528,157


$
438,979Interest ExpenseDeposits


226,454



152,808Short-term borrowings


75,841



55,680Short-term notes  senior


1,331



7,771Long-term notes  senior


13,728



3,470Long-term notes 
    subordinated


4,225



3,546Minority interest 
    dividends on preferred stock of subsidiary


4,609



4,609Total interest expense

$
326,188


$
227,884Net Interest Income


201,969



211,095Provision for loan losses


3,000



5,646Net Interest Income after
    Provision for Loan Losses

$
198,969


$
205,449Noninterest IncomeTrust and investment management fees


21,992



15,987Money market and bond trading


2,857



1,551Foreign exchange


1,150



1,200Service charges and fees


32,288



33,273Net securities losses


(528
)


(103
)Bank-owned insurance


12,333



10,584Letter of credit fees


5,233



5,011Syndication fees


726



1,698Other


21,953



17,695Total noninterest income

$
98,004


$
86,896Noninterest ExpensesSalaries and other compensation


88,481



87,432Pension, profit sharing and other
    employee benefits


33,319



31,205Net occupancy


20,966



19,236Equipment


15,417



15,665Marketing


9,818



10,679Communication and delivery


6,777



6,282Expert services


7,669



9,384Contract programming


7,686



7,590Intercompany services


17,334



15,342Restructuring charge (note 4)


13,678



Other


27,357



26,556Amortization of intangibles


5,190



5,462Total noninterest expenses

$
253,692


$
234,833Income before income taxes


43,281



57,512Applicable income taxes


6,553



14,729Net Income

$
36,728


$
42,783   The accompanying notes to consolidated financial statements
    are an integral part of these statements.
 11




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##### Table of Contents



HARRIS
    N.A. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF COMPREHENSIVE INCOME
 (Unaudited)
  Quarter Ended March 312007


2006(in thousands)Net income

$
36,728


$
42,783Other comprehensive income (loss):Cash flow hedges:Net unrealized loss on derivative
    instruments, net of tax benefit of $2,171 in 2007 and $703 in
    2006


(3,906
)


(1,197
)Less reclassification adjustment
    for realized loss included in net income, net of tax benefit of
    $1,232 in 2007 and $1,072 in 2006


2,099



1,824Unrealized gain (loss) on
    available-for-sale
    securities:Unrealized holding gain (loss)
    arising during the period, net of tax expense of $3,577 in 2007
    and net of tax benefit of $2,963 in 2006


6,705



(5,520
)Less reclassification adjustment
    for realized loss included in net income, net of tax benefit of
    $206 in 2007 and $40 in 2006


322



63Other comprehensive income (loss)

$
5,220


$
(4,830
)Comprehensive Income

$
41,948


$
37,953   The accompanying notes to consolidated financial statements
    are an integral part of these statements.
 12




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##### Table of Contents



HARRIS
    N.A. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
 (Unaudited)
  2007


2006(in thousands)Balance at January 1

$
3,346,413


$
3,073,553Net income


36,728



42,783Stock option exercise


541



429Tax benefit from stock option
    exercise


3,181



1,793Capital contribution






871Dividends  common stock


(28,000
)


(30,000
)Other comprehensive gain (loss)


5,220



(4,830
)Balance at
    March 31

$
3,364,083


$
3,084,599   The accompanying notes to consolidated financial statements
    are an integral part of these statements.
 13




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HARRIS
    N.A. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
 (Unaudited)
  Quarter Ended March 31,2007


2006(in thousands)Operating Activities:Net Income

$
36,728


$
42,783Adjustments to reconcile net income
    to net cash provided by operating activities:Provision for loan losses


3,000



5,646Depreciation and amortization,
    including intangibles


6,024



22,854Deferred tax expense


8,111



8,269Tax benefit from stock options
    exercise


3,181



1,793Net securities losses


528



103Increase in bank-owned insurance


(9,318
)


(10,584
)Trading account net cash
    (purchases) sales


(475,616
)


536,357Decrease (increase) in accrued
    interest receivable


11,230



(1,608
)Increase (decrease) in accrued
    interest payable


9,516



(16
)Decrease in other accrued expenses


(18,225
)


(8,390
)Origination of loans held for sale


(77,206
)


(64,952
)Proceeds from sale of loans held
    for sale


78,735



67,038Net gain on loans held for sale


(990
)


(440
)Net change in pension and post
    retirement benefits


(6,979
)


3,792Net change in due from parent


172



88,656Recoveries on charged-off loans


5,311



6,383Net increase in dividend payable


23,391



Net decrease in settlement clearing
    account


(50,523
)


Net decrease (increase) in marked
    to market hedging derivatives


(13,728
)


8,892Other, net


(36,655
)


(3,759
)Net cash (used in) provided by
    operating activities

$
(503,313
)

$
702,817Investing Activities:Net decrease (increase) in
    interest-bearing deposits at banks


49,704



(269,786
)Net decrease in Federal funds sold
    and securities purchased under agreement to resell


587,419



69,988Proceeds from sales of securities
    available-for-sale


509,817



257Proceeds from maturities of
    securities
    available-for-sale


5,681,985



776,553Purchases of securities
    available-for-sale


(5,969,908
)


(1,221,744
)Net decrease (increase) in loans


483,225



(791,488
)Purchases of premises and equipment


(8,601
)


(18,129
)Net cash provided by (used in)
    investing activities

$
1,333,641


$
(1,454,349
)Financing Activities:Net (decrease) increase in deposits


(1,700,687
)


650,039Net increase in Federal funds
    purchased and securities sold under agreement to repurchase


266,566



10,700Net increase (decrease) in
    short-term borrowings


613,305



(204,799
)Net increase in short-term senior
    notes






35,000Cash dividends paid on common stock






(30,000
)Net proceeds from stock options
    exercise


541



429Excess tax benefit from stock
    options exercise


88



245Net cash (used in) provided by
    financing activities

$
(820,187
)

$
461,614Net increase (decrease) in cash
    and demand balances due from banks


10,141



(289,918
)Cash and demand balances due
    from banks at January 1


1,084,959



1,399,415Cash and demand balances due
    from banks at March 31

$
1,095,100


$
1,109,497   The accompanying notes to consolidated financial statements
    are an integral part of these statements.
 14




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##### Table of Contents



HARRIS
    N.A. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
  1.
    Basis of
    Presentation            2.
    Legal
    Proceedings    3.
    Cash
    Flows    4.
    Restructuring
    Charge         15




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##### Table of Contents



HARRIS
    N.A. AND SUBSIDIARIES
  FINANCIAL
    REVIEW
  First
    Quarter 2007 Compared with First Quarter 2006
  Summary
                 16




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##### Table of Contents



Item 3.
    Quantitative
    and Qualitative Disclosures About Market Risk    Item 4.
    Controls
    and Procedures   Part II.
    OTHER INFORMATION  Items 1,
    1A, 2, 3, 4 and 5 are being omitted from this Report
    because such items are not applicable to the reporting
    period.
  Item 6.
    Exhibits  31.1 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, as adopted pursuant to Section 906 of
    the Sarbanes- Oxley Act of 2002
 17




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##### Table of Contents



SIGNATURES    /s/  Paul
    R. Skubic     /s/  Pamela
    C. Piarowski    18