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
    June 30, 2008
  Commission file number
    1-13805
  Harris Preferred Capital
    Corporation
    Maryland

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

(I.R.S. EmployerIdentification 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
     Large accelerated
    filer o

Accelerated
    filer o

Non-accelerated
    filer þ
    (Do not check if a smaller reporting company)

Smaller reporting
    company o    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


7Item 3.


Quantitative and Qualitative Disclosures about Market Risk


22Item 4.


Controls and Procedures


22PART II


OTHER INFORMATIONItem 6.


Exhibits


23Signatures


24




---



##### 



Part I.
    FINANCIAL INFORMATION  Item 1.
    Financial
    Statements  HARRIS
    PREFERRED CAPITAL CORPORATION
  CONSOLIDATED
    BALANCE SHEETS
  June 30,


December 31,


June 30,2008


2007


2007(unaudited)





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

$
640


$
356


$
5,199Securities purchased from Harris N.A. under agreement to resell


11,710



16,509



9,665Notes receivable from Harris N.A.


4,755



5,335



5,651Securities available-for-sale:Mortgage-backed


469,357



369,244



394,404U.S. Treasury






99,950



69,934Other assets


2,063



1,529



1,666Total assets

$
488,525


$
492,923


$
486,519Liabilities and Stockholders EquityAccrued expenses

$
58


$
129


$
61Dividends payable






3,000



4,609Total liabilities

$
58


$
3,129


$
4,670Commitments 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 distributions


1,352



67



1,825Accumulated other comprehensive loss  net unrealized
    losses on available-for-sale securities


(3,619
)


(1,007
)


(10,710
)Total stockholders equity


488,467



489,794



481,849Total liabilities and stockholders equity

$
488,525


$
492,923


$
486,519   The accompanying notes are an integral part of these
    financial statements.
 2




---



##### 



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


Six Months EndedJune 30


June 302008


2007


2008


2007(in thousands, except share data)Interest income:Securities purchased from Harris N.A. under agreement to resell

$
174


$
998


$
808


$
1,858Notes receivable from Harris N.A.


78



92



160



189Securities available-for-sale:Mortgage-backed


5,114



4,531



9,788



9,122U.S. Treasury


1



78



16



148Total interest income


5,367



5,699



10,772



11,317Operating expenses:Loan servicing fees paid to Harris N.A.


4



5



8



9Advisory fees paid to Harris N.A.


62



36



102



67General and administrative


63



46



159



127Total operating expenses


129



87



269



203Net income


5,238



5,612



10,503



11,114Preferred dividends


4,609



4,609



9,218



9,218Net income available to common stockholder

$
629


$
1,003


$
1,285


$
1,896Basic and diluted earnings per common share

$
629.00


$
1,003.00


$
1,285.00


$
1,896.00Net income

$
5,238


$
5,612


$
10,503


$
11,114Other comprehensive income  net unrealzied loss:On available-for-sale securitiesNet unrealized holding losses arising during the period


(6,985
)


(4,356
)


(2,612
)


(2,656
)Less reclassification adjustment for realized (gains) losses
    included in net income














Comprehensive (loss) income

$
(1,747
)

$
1,256


$
7,891


$
8,458   The accompanying notes are an integral part of these
    financial statements.
 3




---



##### 



HARRIS
    PREFERRED CAPITAL CORPORATION
  CONSOLIDATED
    STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
 (Unaudited)
  Six Months EndedJune 302008


2007(in thousands,except per share data)Balance at January 1

$
489,794


$
482,609Net income


10,503



11,114Other comprehensive income


(2,612
)


(2,656
)Dividends (preferred stock $0.4609 per share)


(9,218
)


(9,218
)Balance at June 30

$
488,467


$
481,849   The accompanying notes are an integral part of these
    financial statements.
 4




---



##### 



HARRIS
    PREFERRED CAPITAL CORPORATION
 CONSOLIDATED
    STATEMENTS OF CASH FLOWS

(Unaudited) Six Months EndedJune 302008


2007(in thousands)Operating Activities:Net Income

$
10,503


$
11,114Adjustments to reconcile net income to net cash provided by
    operating activities:Net (increase) decrease in other assets


(534
)


1Net decrease in accrued expenses


(71
)


(61
)Net cash provided by operating activities


9,898



11,054Investing Activities:Repayments of notes receivable from Harris N.A.


580



861Purchases of securities available-for-sale


(191,612
)


(168,861
)Proceeds from maturities of securities available-for-sale


188,837



165,890Net cash used in by investing activities


(2,195
)


(2,110
)Financing Activities:Cash dividends paid on common stock


(3,000
)


Cash dividends paid on preferred stock


(9,218
)


(9,218
)Net cash used in financing activities


(12,218
)


(9,218
)Net decrease in cash and cash equivalents


(4,515
)


(274
)Cash and cash equivalents at beginning of period


16,865



15,138Cash and cash equivalents at end of period

$
12,350


$
14,864   The accompanying notes are an integral part of these
    financial statements.
 5




---



##### 



HARRIS
    PREFERRED CAPITAL CORPORATION
 NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  1.
    Basis of
    Presentation    Form 10-K.
    2.
    Commitments
    and Contingencies    3.
    Securities    June 30,


June 30,2008


2007Amortized


Unrealized


Unrealized


Fair


Amortized


Unrealized


Unrealized


FairCost


Gains


Losses


Value


Cost


Gains


Losses


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

$
472,976


$
1,494


$
5,113


$
469,357


$
405,117


$



$
10,713


$
394,404U.S. Treasury Bills


















69,930



4







69,934Total Securities

$
472,976


$
1,494


$
5,113


$
469,357


$
475,047


$
4


$
10,713


$
464,338    6




---



##### 



HARRIS
    PREFERRED CAPITAL CORPORATION
  4.
    Fair
    Value Measurements  No. FAS 157-2, FSP 157-2
    Fair Value

Fair Value Measurements UsingJune 30, 2008

Level 1

Level 2

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

$
469,357


$



$
469,357


$
   5.
    Fair
    Value Option    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),
 7




---



##### 



HARRIS
    PREFERRED CAPITAL CORPORATION
  Results
    of Operations
  Second
    Quarter 2008 Compared with Second Quarter 2007
             8




---



##### 



HARRIS
    PREFERRED CAPITAL CORPORATION
  Six
    Months Ended June 30, 2008 compared with June 30,
    2007
    available-for-sale
      Liquidity
    Risk Management
         9




---



##### 



HARRIS
    PREFERRED CAPITAL CORPORATION
  available-for-sale.
  Market
    Risk Management
    Accounting
    Pronouncements
  No. FAS 157-2, FSP 157-2
      Other
    Matters
    Financial
    Statements of Harris N.A.
   10




---



##### 



HARRIS
    N.A. AND SUBSIDIARIES
  CONSOLIDATED STATEMENTS OF CONDITION
  June 30


December 31


June 302008


2007


2007(unaudited)


(audited)


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

$
1,341,470


$
1,179,134


$
1,167,388Money market assets:Interest-bearing deposits at banks


854,610



949,803



852,677Federal funds sold and securities purchased under agreement to
    resell


579,605



1,520,183



1,602,616Total cash and cash equivalents

$
2,775,685


$
3,649,120


$
3,622,681Securities available-for-sale at fair value (amortized cost of
    $8.7 billion, $9.3 billion and $10.4 billion at
    June 30, 2008, December 31, 2007 and June 30,
    2007, respectively)


8,691,846



9,288,595



10,343,762Trading account assets


872,568



288,785



290,859Loans


26,542,990



25,534,487



25,966,154Allowance for loan losses


(439,273
)


(367,525
)


(313,452
)Net loans

$
26,103,717


$
25,166,962


$
25,652,702Loans held for sale


48,226



62,695



52,938Premises and equipment


478,212



485,510



489,115Bank-owned insurance


1,264,829



1,246,156



1,225,098Goodwill and other intangible assets


533,567



544,525



554,969Other assets


823,604



747,935



989,397Total assets

$
41,592,254


$
41,480,283


$
43,221,521LIABILITIESDeposits in domestic offices  noninterest-bearing

$
6,478,283


$
6,478,464


$
6,430,170 interest-bearing


20,599,437



21,905,547



24,295,501Deposits in foreign offices   interest-bearing


751,795



1,149,167



771,685Total deposits

$
27,829,515


$
29,533,178


$
31,497,356Federal funds purchased


816,275



182,625



122,800Securities sold under agreement to repurchase


1,754,410



1,613,529



3,182,283Short-term borrowings


778,324



707,540



858,658Short-term senior notes


930,000



80,000



430,000Accrued interest, taxes and other expenses


188,243



257,415



222,093Accrued pension and post-retirement


54,484



88,415



164,239Other liabilities


389,044



589,989



440,804Minority interest  preferred stock of subsidiary


250,000



250,000



250,000Long-term notes  senior


2,096,500



2,096,500



2,096,500Long-term notes  subordinated


292,750



292,750



292,750Long-term notes  secured


2,375,000



2,000,000



Total liabilities

$
37,754,545


$
37,691,941


$
39,557,483STOCKHOLDERS EQUITYCommon stock ($10 par value); authorized
    40,000,000 shares; issued and outstanding
    15,514,761 shares at June 30, 2008, December 31,
    2007 and June 30, 2007, respectively

$
155,148


$
155,148


$
155,148Surplus


1,782,618



1,780,609



1,786,229Retained earnings


1,924,189



1,879,907



1,848,660Accumulated other comprehensive loss


(24,246
)


(27,322
)


(125,999
)Total stockholders equity

$
3,837,709


$
3,788,342


$
3,664,038Total liabilities and stockholders equity

$
41,592,254


$
41,480,283


$
43,221,521   The accompanying notes to consolidated financial statements
    are an integral part of these statements.
 11




---



##### 



HARRIS
    N.A. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF INCOME
 (Unaudited)
  Quarter Ended June 30,


Six Months Ended June 30,2008


2007


2008


2007(in thousands)Interest IncomeLoans

$
345,276


$
411,202


$
716,673


$
819,613Money market assets:Deposits at banks


4,132



4,990



9,508



10,091Federal funds sold and securities purchased under agreement to
    resell


3,579



5,695



11,094



9,927Trading accounts assets


4,560



2,716



7,068



4,498Securities available-for-sale:U.S. Treasury and federal agency


60,236



115,516



137,583



228,567State and municipal


11,840



8,724



23,502



16,491Other


6,305



6,544



11,062



12,613Total interest income

$
435,928


$
555,387


$
916,490


$
1,101,800Interest ExpenseDeposits

$
128,135


$
241,336


$
315,042


$
475,266Short-term borrowings


14,967



68,920



37,340



146,318Short-term notes  senior


7,031



10,990



12,183



12,320Minority interest  dividends on preferred stock of
    subsidiary


4,609



4,609



9,219



9,219Long-term notes  senior


16,268



14,300



36,699



28,028Long-term notes  subordinated


2,449



4,266



6,010



8,491Long-term notes  secured


16,062







36,724



Total interest expense

$
189,521


$
344,421


$
453,217


$
679,642Net Interest Income

$
246,407


$
210,966


$
463,273


$
422,158Provision for loan losses


128,823



10,800



151,723



13,800Net Interest Income after Provision for Loan Losses

$
117,584


$
200,166


$
311,550


$
408,358Noninterest IncomeTrust and investment management fees

$
22,517


$
23,194


$
45,353


$
45,986Money market and bond trading gains


502



4,230



46



7,086Foreign exchange


1,275



925



2,400



2,075Service charges and fees


45,716



42,315



88,378



81,776Equity securities (losses) gains


(1,424
)






38,372



Securities gains (losses), net


91



(5,297
)


10,928



(5,825
)Bank-owned insurance


14,047



12,098



26,439



24,786Letter of credit fees


3,916



4,549



7,746



9,782Other


17,565



13,867



32,270



28,285Total noninterest income

$
104,205


$
95,881


$
251,932


$
193,951Noninterest ExpensesSalaries and other compensation

$
100,232


$
88,628


$
197,584


$
180,413Pension, profit sharing and other employee benefits


19,854



26,319



53,307



60,123Net occupancy


21,980



21,416



47,477



43,236Equipment


15,858



16,532



31,515



32,305Marketing


10,128



7,958



20,946



18,025Communication and delivery


7,705



6,653



14,917



13,848Expert services


9,097



6,498



18,893



14,386Contract programming


7,966



7,826



15,537



15,747Intercompany services, net


6,978



9,816



11,827



23,187Restructuring (reversal) charge






(303
)


(141
)


13,376Visa indemnification charge (reversal)










(17,000
)


Other


36,761



29,174



71,675



57,963Amortization of intangibles


6,131



6,378



12,295



12,784Total noninterest expenses

$
242,690


$
226,895


$
478,832


$
485,393(Loss) income before income taxes

$
(20,901
)

$
69,152


$
84,650


$
116,916Applicable income taxes (benefit)


(18,233
)


16,244



12,055



24,355Net (loss) income

$
(2,668
)

$
52,908


$
72,595


$
92,561   The accompanying notes to consolidated financial statements
    are an integral part of these statements.
 12




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##### 



HARRIS
    N.A. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF COMPREHENSIVE INCOME
 (Unaudited)
  Quarter Ended June 30,


Six Months Ended June 30,2008


2007


2008


2007(in thousands)Net (loss) income

$
(2,668
)

$
52,908


$
72,595


$
92,561Other comprehensive income (loss):Cash flow hedges:Net unrealized gain (loss) on derivative instruments, net of tax
    expense for the quarter of $17,381 in 2008 and $1,959 in 2007
    and net of tax expense (benefit) for the year-to-date period of
    $2,848 in 2008 and ($146) in 2007


32,279



3,321



5,291



(271
)Less reclassificaiton adjustment for realized loss included in
    net income, net of tax benefit for the quarter of ($1,241) in
    2008 and ($1,018) in 2007 and net of tax benefit for the
    year-to-date period of ($2,879) in 2008 and ($2,184) in 2007


2,304



1,890



5,346



4,055Pension and postretirement medical benefit plans:Net gain and net prior service cost included in net income, net
    of tax expense for the quarter of $0 in 2008 and 2007 and net of
    tax expense for the year-to-date period of $512 in 2008 and $0
    in 2007










949



Less reclassification adjustment for amortization included in
    net income, net of tax expense for the quarter of $215 in 2008
    and $1,432 in 2007 and net of tax expense for the year-to-date
    period of $215 in 2008 and $1,432 in 2007


399



2,660



399



2,660Unrealized loss on available-for-sale securities:Unrealized holding loss arising during the period, net of tax
    benefit for the quarter of ($18,541) in 2008 and ($24,298) in
    2007 and net of tax benefit for the year-to-date period of
    ($972) in 2008 and ($20,700) in 2007


(34,434
)


(45,337
)


(1,806
)


(38,590
)Less reclassification adjustment for realized (gain) loss
    included in net income, net of tax expense (benefit) for the
    quarter of $32 in 2008 and ($1,854) in 2007 and net of tax
    expense (benefit) for the year-to-date period of $3,825 in 2008
    and ($2,039) in 2007


(59
)


3,443



(7,103
)


3,786Other comprehensive income (loss)

$
489


$
(34,023
)

$
3,076


$
(28,360
)Comprehensive (loss) income

$
(2,179
)

$
18,885


$
75,671


$
64,201   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 CHANGES IN STOCKHOLDERS EQUITY
 (Unaudited)
  2008


2007(in thousands)Balance at January 1

$
3,788,342


$
3,346,413Net income


72,595



92,561Contributions to capital surplus


366



280,520Issuance of common stock






12,114Stock option exercise


923



609Tax benefit from stock option exercise


720



2,996Dividends  ($1.80 in 2008 and $2.77 in 2007 per
    common share)


(28,000
)


(43,000
)Adjustment to initially apply FIN 48






185Adjustment to initially apply EITF
    06-4


(313
)


Other comprehensive income (loss)


3,076



(28,360
)Balance at June 30

$
3,837,709


$
3,664,038   The accompanying notes to consolidated financial statements
    are an integral part of these statements.
 14




---



##### 



HARRIS
    N.A. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
 (Unaudited)
  Six Months EndedJune 30,2008


2007(in thousands)Operating Activities:Net Income

$
72,595


$
92,561Adjustments to reconcile net income to net cash used in
    operating activities:Provision for loan losses


151,723



13,800Depreciation and amortization, including intangibles


41,391



17,611Deferred tax (benefit) expense


(25,674
)


5,303Tax benefit from stock options exercise


720



2,996Net securities (gains) losses


(10,928
)


5,825Equity securities gains, net


(38,372
)


Increase in bank-owned insurance


(18,673
)


(23,055
)Trading account net cash purchases


(785,633
)


(620,153
)Net decrease in accrued interest receivable


34,264



18,181Net (increase) decrease in prepaid expenses


(14,411
)


256Net (increase) decrease in account receivables in Muni Sales


(14,686
)


562Net (decrease) increase in accrued interest payable


(40,853
)


20,007Net (decrease) increase in other accrued expenses


(12,460
)


1,966Origination of loans held for sale


(225,125
)


(168,937
)Proceeds from sale of loans held for sale


268,106



152,314Net gains on loans held for sale


(3,029
)


(1,864
)Net losses on sale of premises and equipment


406



Recoveries on charged-off loans


25,907



13,496Net change in pension and post retirement benefits


(32,286
)


(5,386
)Net (decrease) increase in foreign exchange contracts


(35,466
)


8,262Net increase in marked to market hedging derivatives


(12,009
)


(24,892
)Visa indemnification (note 5)


17,000



Other, net


(41,574
)


(63,076
)Net cash used in operating activities

$
(699,067
)

$
(554,223
)Investing Activities:Proceeds from sales of securities available-for-sale

$
1,174,777


$
5,625,624Proceeds from maturities of securities available-for-sale


6,757,042



11,911,041Purchases of securities available-for-sale


(7,333,741
)


(16,903,064
)Net (increase) decrease in loans


(1,114,385
)


255,750Purchases of premises and equipment


(35,482
)


(22,264
)Sales of premises and equipment


9,171



Proceeds from Visa redemption


37,800



Acquisition, net of cash acquired






(222,852
)Net cash (used in) provided by investing activities

$
(504,818
)

$
644,235Financing Activities:Net (decrease) increase in deposits

$
(1,703,663
)

$
425,140Net increase (decrease) in Federal funds purchase and securities
    sold under agreement to repurchase


774,531



(862,284
)Net increase (decrease) in other short-term borrowings


70,784



(403,021
)Net increase (decrease) in short-term notes  senior


850,000



(1,000,000
)Proceeds from issuance long-term notes  secured


375,000



2,430,000Net proceeds from stock options exercise


923



609Excess tax expense from stock options exercise


(272
)


(25
)Capital contributions for acquisitions


366



292,634Cash dividends paid on common stock


(28,000
)


(43,000
)Cash dividends paid on preferred stock


(9,219
)


(9,219
)Net cash provided by financing activities

$
330,450


$
830,834Net (decrease) increase in cash and cash equivalents

$
(873,435
)

$
920,846Cash and cash equivalents at January 1


3,649,120



2,701,835Cash and cash equivalents at June 30

$
2,775,685


$
3,622,681   The accompanying notes to consolidated financial statements
    are an integral part of these statements.
 15




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##### 



HARRIS
    N.A. AND SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
  1.
    Basis of
    Presentation          2.
    Legal
    Proceedings    3.
    Cash
    Flows      4.
    Restructuring
    Charge     16




---



##### 



HARRIS
    N.A. AND SUBSIDIARIES
          5.
    Visa
    Indemnification Charge          6.
    Fair
    Value Measurements  No. FAS 157-2, FSP 157-2
 17




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##### 



HARRIS
    N.A. AND SUBSIDIARIES
    7.
    Fair
    Value Option    8.
    Accounting
    for Endorsement Split-Dollar Life Insurance
    Arrangements  No. 06-04,
 18




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##### 



HARRIS
    N.A. AND SUBSIDIARIES
  FINANCIAL
    REVIEW
  Second
    Quarter 2008 Compared with Second Quarter 2007
  Summary
                 19




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##### 



Six
    Months Ended June 30, 2008 Compared with June 30,
    2007
  Summary
           20




---



##### 



Item 3.
    Quantitative
    and Qualitative Disclosures About Market Risk      July 1, 2008 to


Year Ending December 31,








Fair Value atDec. 31, 2008


2009


2010


2011


2012


Thereafter


Total


June 30, 2008Mortgage-BackedAmortized cost

$



$
56,131


$
45,712


$
24,842


$



$
346,291


$
472,976


$
469,357Average Yield






4.10
%


4.57
%


4.00
%






4.85
%


4.69
%   Item 4T.
    Controls
    and Procedures  (a)
    Evaluation
    of Disclosure Controls and Procedures    (b)
    Changes
    in Internal Control over Financial Reporting   21




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##### 



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
 22




---



##### 



SIGNATURES     Paul
    R. Skubic
      Pamela
    C. Piarowski
    23