##### 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
    September 30, 2007
  Commission file number
    1-13805
  Harris Preferred Capital
    Corporation
   Maryland

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

(I.R.S. EmployerIndentification 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


18Signatures


19Certification of Pamela C. Piarowski Pursuant to Rule 13a-14(a)Certification of Paul R. Skubic Pursuant to Rule 13a-14(a)Certification Pursuant to 18 U.S.C. Section 1350




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##### Table of Contents



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


December 31,


September 30,2007


2006


2006(unaudited)


(audited)


(unaudited)(in thousands)AssetsCash on deposit with Harris N.A

$
5,201


$
5,284


$
1,026Securities purchased from Harris N.A. under agreement to resell


9,421



9,854



12,083Notes receivable from Harris N.A.


5,531



6,512



6,722Securities available-for-sale:Mortgage-backed


379,555



404,075



396,917U.S. Treasury


89,936



59,948



64,926Other assets


1,597



1,667



1,646Total assets

$
491,241


$
487,340


$
483,320LiabilitiesAccrued expenses

$
75


$
120


$
51Preferred dividends payable


4,609



4,611



Total liabilities

$
4,684


$
4,731


$
51Commitments and contingencies










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


2,324



(71
)


1,673Accumulated other comprehensive loss  net unrealized
    losses on available-for-sale securities


(6,501
)


(8,054
)


(9,138
)Total stockholders equity


486,557



482,609



483,269Total liabilities and stockholders equity

$
491,241


$
487,340


$
483,320   The accompanying notes are an integral part of these
    consolidated financial statements.
 2




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##### Table of Contents



HARRIS
    PREFERRED CAPITAL CORPORATION
  CONSOLIDATED STATEMENTS OF INCOME
 AND COMPREHENSIVEV INCOME
 (Unaudited)
  Quarter Ended September 30,


Nine Months Ended September 30,2007


2006


2007


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

$
1,002


$
1,090


$
2,860


$
3,360Notes receivable from Harris N.A.


89



111



278



360Securities available-for-sale:Mortgage-backed


4,549



4,118



13,671



11,809U.S. Treasury


75



104



223



307Total interest income


5,715



5,423



17,032



15,836Operating expenses:Loan servicing fees paid to Harris N.A.


5



5



14



17Advisory fees


36



32



103



93General and administrative


54



59



181



223Total operating expenses


95



96



298



333Net income


5,620



5,327



16,734



15,503Preferred dividends


4,609



4,609



13,827



13,828Net income available to common stockholder

$
1,011


$
718


$
2,907


$
1,675Basic and diluted earnings per common share

$
1,011.00


$
718.00


$
2,907.00


$
1,675.00Net income

$
5,620


$
5,327


$
16,734


$
15,503Other comprehensive income  net unrealized gains on
    available-for-sale securities


4,209



7,912



1,553



1,848Comprehensive income

$
9,829


$
13,239


$
18,287


$
17,351   The accompanying notes are an integral part of these
    consolidated financial statements.
 3




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##### Table of Contents



HARRIS
    PREFERRED CAPITAL CORPORATION
  CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS
    EQUITY
 (Unaudited)
  Nine Months Ended September 30,2007


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

$
482,609


$
479,746Net income


16,734



15,503Other comprehensive income


1,553



1,848Dividends  (common stock $511.85 per share)


(512
)


Dividends  (preferred stock $0.4609 per share)


(13,827
)


(13,828
)Balance at September 30

$
486,557


$
483,269   The accompanying notes are an integral part of these
    consolidated financial statements.
 4




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##### Table of Contents



HARRIS
    PREFERRED CAPITAL CORPORATION
  CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
  Nine Months Ended September 30,2007


2006(in thousands)Operating Activities:Net Income

$
16,734


$
15,503Adjustments to reconcile net income to net cash provided by
    operating activities:Decrease (increase) in other assets


70



(185
)Net decrease in accrued expenses and other liabilities


(47
)


(79
)Net cash provided by operating activities


16,757



15,239Investing Activities:Decrease in securities purchased from Harris N.A. under
    agreement to resell


433



8,417Repayments of notes receivable from Harris N.A.


981



1,962Purchases of securities available-for-sale


(258,795
)


(333,447
)Proceeds from maturities of securities available-for-sale


254,880



321,983Net cash used in investing activities


(2,501
)


(1,085
)Financing Activities:Cash dividends paid on common stock


(512
)


Cash dividends paid on preferred stock


(13,827
)


(13,828
)Net cash used in financing activities


(14,339
)


(13,828
)Net (decrease) increase in cash on deposit with Harris N.A.


(83
)


326Cash on deposit with Harris N.A. at beginning of period


5,284



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

$
5,201


$
1,026   The accompanying notes are an integral part of these
    consolidated 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
  Third
    Quarter 2007 Compared with Third Quarter 2006
                Nine
    Months Ended September 30, 2007 compared with
    September 30, 2006
   7




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##### Table of Contents



HARRIS
    PREFERRED CAPITAL CORPORATION
        Liquidity
    Risk Management
       8




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##### Table of Contents



HARRIS
    PREFERRED CAPITAL CORPORATION
      Market
    Risk Management
    Accounting
    Pronouncements
      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
  September 30


December 31


September 302007


2006


2006(unaudited)


audited


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

$
1,362,213


$
1,084,959


$
1,170,152Money market assets:Interest-bearing deposits at banks


936,792



944,116



932,474Federal funds sold and securities purchased under agreement to
    resell


769,393



672,760



1,378,494Securities available-for-sale (including $5.82 billion,
    $5.15 billion, and $5.83 billion of securities pledged
    as collateral for repurchase agreements at September 30,
    2007, December 31, 2006 and September 30, 2006,
    respectively)


11,178,434



10,713,910



8,393,139Trading account assets


207,927



293,353



205,776Loans


25,273,204



25,402,554



25,395,031Allowance for loan losses


(315,640
)


(322,742
)


(323,687
)Net loans

$
24,957,564


$
25,079,812


$
25,071,344Loans held for sale


50,279



34,451



26,966Premises and equipment


490,297



474,073



473,780Bank-owned insurance


1,236,095



1,168,744



1,157,696Goodwill and other intangible assets


550,866



395,140



400,513Other assets


1,213,403



912,004



1,414,115Total assets

$
42,953,263


$
41,773,322


$
40,624,449LIABILITIESDeposits in domestic
    offices  noninterest-bearing

$
5,706,170


$
6,232,744


$
5,833,858 interest-bearing


23,376,406



22,855,715



20,666,415Deposits in foreign
    offices   interest-bearing


855,978



1,030,838



1,186,451Total deposits

$
29,938,554


$
30,119,297


$
27,686,724Federal funds purchased


327,330



476,000



297,200Securities sold under agreement to repurchase


4,068,896



3,475,839



4,080,622Short-term borrowings


690,101



1,261,679



1,959,570Short-term senior notes


410,000



100,000



100,000Accrued interest, taxes and other expenses


278,457



205,942



218,493Accrued pension and post-retirement


165,508



170,853



99,627Other liabilities


704,742



1,078,049



1,307,613Minority interest  preferred stock of subsidiary


250,000



250,000



250,000Long-term notes  senior


2,096,500



996,500



996,500Long-term notes  subordinated


292,750



292,750



292,750Total liabilities

$
39,222,838


$
38,426,909


$
37,289,099STOCKHOLDERS EQUITYCommon stock ($10 par value); authorized
    40,000,000 shares; issued and outstanding 15,514,761,
    14,303,361 and 14,303,361 shares at September 30,
    2007, December 31, 2006 and September 30, 2006,
    respectively

$
155,148


$
143,034


$
143,034Surplus


1,779,230



1,489,521



1,487,188Retained earnings


1,887,690



1,811,497



1,759,656Accumulated other comprehensive loss


(91,643
)


(97,639
)


(54,528
)Total stockholders equity

$
3,730,425


$
3,346,413


$
3,335,350Total liabilities and stockholders equity

$
42,953,263


$
41,773,322


$
40,624,449   The accompanying notes to consolidated financial statements
    are an integral part of these statements.
 10




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##### Table of Contents



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


Nine Months EndedSeptember 30,


September 30,2007


2006


2007


2006(in thousands)


(in thousands)Interest IncomeLoans

$
411,104


$
406,725


$
1,230,717


$
1,165,732Money market assets:Deposits at banks


5,680



3,531



15,772



10,200Federal funds sold and securities purchased under agreement to
    resell


13,252



16,432



23,178



26,492Trading accounts


2,651



1,731



7,149



5,730Securities available-for-sale:U.S. Treasury and federal agency


115,986



79,275



344,553



191,732State and municipal


9,606



5,959



26,097



17,051Other


6,313



5,154



18,926



16,112Total interest income

$
564,592


$
518,807


$
1,666,392


$
1,433,049Interest ExpenseDeposits


261,062



192,398



736,328



517,205Short-term borrowings


53,714



89,785



200,032



218,898Short-term notes  senior


5,678



4,710



17,999



16,465Long-term notes  senior


13,480



4,609



41,508



13,828Long-term notes  subordinated


20,341



13,797



28,831



22,340Minority interest-dividends on preferred stock of subsidiary


4,609



4,277



13,828



11,727Total interest expense

$
358,884


$
309,576


$
1,038,526


$
800,463Net Interest Income


205,708



209,231



627,866



632,586Provision for loan losses


13,000



6,891



26,800



18,198Net Interest Income after Provision for Loan Losses

$
192,708


$
202,340


$
601,066


$
614,388Noninterest IncomeTrust and investment management fees


23,044



20,405



69,030



59,385Money market and bond trading


1,435



5,408



8,521



11,135Foreign exchange


550



1,000



2,625



3,400Service charges and fees


42,661



39,863



124,438



117,860Net securities gains (losses)


142



25,892



(5,683
)


28,244Bank-owned insurance


14,428



12,392



39,214



33,832Letter of credit fees


4,203



4,509



13,985



14,251Syndication fees


267



8,456



1,343



14,321Gains (losses) on sales of fixed assets


1,058



(970
)


973



(824
)Other


15,531



10,846



42,824



37,295Total noninterest income

$
103,319


$
127,801


$
297,270


$
318,899Noninterest ExpensesSalaries and other compensation


90,241



94,320



270,654



270,368Pension, profit sharing and other employee benefits


26,504



25,904



86,627



84,358Net occupancy


21,994



21,489



65,230



60,272Equipment


16,215



15,915



48,520



48,032Marketing


9,881



11,515



27,906



31,761Communication and delivery


6,993



6,455



20,841



19,079Expert services


7,005



8,930



21,391



26,135Contract programming


5,868



9,434



21,615



23,508Intercompany services


11,428



13,677



34,615



43,094Restructuring charge (note 4)










13,376



Other


34,617



30,709



92,581



88,228Amortization of intangibles


6,332



5,385



19,115



16,147Total noninterest expenses

$
237,078


$
243,733


$
722,471


$
710,982Income before income taxes


58,949



86,408



175,865



222,305Applicable income taxes


12,020



25,807



36,375



66,198Net Income

$
46,929


$
60,601


$
139,490


$
156,107   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)
 Nine Months EndedQuarter Ended September 30,


September 30,2007


2006


2007


2006(in thousands)Net income

$
46,929


$
60,601


$
139,490


$
156,107Other comprehensive income:Cash flow hedges:Net unrealized loss on derivative instruments, net of tax
    benefit for the quarter of ($7,160) in 2007 and ($2,103) in 2006
    and net of tax benefit for the year-to-date period of ($7,305)
    in 2007 and ($2,469) in 2006


(13,295
)


(3,756
)


(13,568
)


(4,687
)Less reclassificaiton adjustment for realized loss included in
    net income, net of tax benefit for the quarter of ($1,063) in
    2007 and ($1,138) in 2006 and net of tax benefit for the
    year-to-date period of ($3,246) in 2007 and ($3,120) in 2006


1,973



2,113



6,029



5,795Pension and other postretirement benefit adjustments:Net unrealized gain on pension and other postretirement
    benefits, net of tax expense for the quarter of $717 in 2007 and
    $0 in 2006 and net of tax expense for the year-to-date period of
    $2,149 in 2007 and $0 in 2006


1,330







3,990



Unrealized gain on available-for-sale securities:Net unrealized holding gain arising during the period, net of
    tax expense for the quarter of $23,929 in 2007 and $24,809 in
    2006 and net of tax expense for the year-to-date period of
    $3,229 in 2007 and $18,269 in 2006


44,440



44,896



5,851



32,710Less reclassification adjustment for realized (gain) loss
    included in net income, net of tax expense for the quarter of
    $50 in 2007 and $9,062 in 2006 and net of tax (benefit) expense
    for the year-to-date period of ($1,989) in 2007 and $9,885 in
    2006


(92
)


(16,830
)


3,694



(18,359
)Other comprehensive income


34,356



26,423



5,996



15,459Comprehensive income

$
81,285


$
87,024


$
145,486


$
171,566   The accompanying notes to consolidated financial statements
    are an integral pert 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


139,490



156,107Contributions to capital surplus


278,260



148,001Issuance of common stock


12,114



2,870Stock option exercise


3,191



1,308Tax benefit from stock option exercise


7,961



10,052Dividends  ($4.22 in 2007 and $5.23 in 2006 per
    common share)


(63,000
)


(72,000
)Other comprehensive income


5,996



15,459Balance at September 30

$
3,730,425


$
3,335,350   The accompanying notes to consolidated financial statements
    are an integral part of these statements.
 13




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##### Table of Contents



HARRIS
    N.A. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
 (Unaudited)
  Nine Months Ended September 30,2007


2006(in thousands)Operating Activities:Net Income

$
139,490


$
156,107Adjustments to reconcile net income to net cash (used in)
    provided by operating activities:Provision for loan losses


26,800



18,198Depreciation and amortization, including intangibles


25,851



57,890Deferred tax (benefit) expense


(10,000
)


66,198Tax benefit from stock options exercise


7,961



10,052Net securities losses (gains)


5,683



(28,244
)Increase in bank-owned insurance


(32,152
)


(30,423
)Trading account net cash (purchases) sales


(530,621
)


316,388Increase in accrued interest receivable


(15,163
)


(26,024
)Increase in accrued interest payable


59,312



19,795Origination of loans held for sale


(254,531
)


(196,595
)Proceeds from sale of loans held for sale


241,184



203,236Net gain on loans held for sale


(2,481
)


(1,243
)Net (decrease) increase in pension and post retirement benefits


(3,504
)


2,050Net decrease in undistributed loan principal


(5,749
)


(4,855
)Recoveries on charged-off loans


24,915



21,295Net (increase) decrease in marked to market hedging derivatives


(27,862
)


14,264Other, net


(15,833
)


(15,582
)Net cash (used in) provided by operating activities

$
(366,700
)

$
582,507Investing Activities:Net decrease in interest-bearing deposits at banks


70,933



59,622Net increase in Federal funds sold and securities purchased
    under agreement to resell


(96,633
)


(1,119,579
)Proceeds from sales of securities available-for-sale


7,768,788



2,875,170Proceeds from maturities of securities available-for-sale


14,928,974



5,535,986Purchases of securities available-for-sale


(22,889,426
)


(10,172,950
)Net decrease (increase) in loans


938,726



(1,094,677
)Purchases of premises and equipment


(35,439
)


(70,337
)Net (gain) loss on sale of premises and equipment


(973
)


824Acquisition, net of cash acquired


19,602



Net cash provided by (used in) investing activities

$
704,552


$
(3,985,941
)Financing Activities:Net (decrease) increase in deposits


(1,129,344
)


2,158,502Net increase in Federal funds purchased and securities sold
    under agreement to repurchase


290,973



961,339Net decrease in short-term borrowings


(571,578
)


(78,200
)Net increase in short-term senior notes


1,310,000



1,700,000Repayment of short-term senior notes


(1,000,000
)


(2,400,000
)Proceeds from issuance of long-term senior notes


1,100,000



746,500Proceeds from issuance of common stock






150,000Cash dividends paid on common stock


(63,000
)


(72,000
)Net proceeds from stock options exercise


3,191



1,308Excess tax expense from stock options exercise


(840
)


(930
)Net cash (used in) provided by financing activities

$
(60,598
)

$
3,166,519Net increase (decrease) in cash and demand balances due from
    banks


277,254



(236,915
)Cash and demand balances due from banks at January 1


1,084,959



1,407,067Cash and demand balances due from banks at September 30

$
1,362,213


$
1,170,152   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
  Third
    Quarter 2007 Compared with Third Quarter 2006
  Summary
                 16




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##### Table of Contents



Nine
    Months ended September 30, 2007 Compared with Nine Months
    ended September 30, 2006
  Summary
          inter-company
  Item 3.
    Quantitative
    and Qualitative Disclosures About Market Risk    Item 4.
    Controls
    and Procedures   17




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##### Table of Contents



Part II.
    OTHER INFORMATION
  Items 1,
    1A, 2, 3, 4 and 5 of Part II 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
 18




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##### Table of Contents



SIGNATURES
    Paul
    R. Skubic
     Pamela
    C. Piarowski
    19