##### 



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, 2006
  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




---



##### 



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


18Item 4.

Controls and
    Procedures


18Part II

OTHER INFORMATIONItem 6.

Exhibits


18Signatures


19




---



##### 



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


December 31,


September 30,2006


2005


2005(unaudited)


(audited)


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

$
1,026


$
700


$
735Securities purchased from Harris
    N.A. under agreement to resell


12,083



20,500



12,000Notes receivable from Harris
    N.A.


6,722



8,684



9,344Securities
    available-for-sale:Mortgage-backed


396,917



373,584



398,720U.S. Treasury


64,926



74,946



59,970Other assets


1,646



1,461



1,556Total assets

$
483,320


$
479,875


$
482,325Liabilities and
    Stockholders EquityAccrued expenses

$
51


$
129


$
58Commitments 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


1,673



(2
)


(185
)Accumulated other comprehensive
    loss  net unrealized losses on
    available-for-sale
    securities


(9,138
)


(10,986
)


(8,282
)Total stockholders
    equity


483,269



479,746



482,267Total liabilities and
    stockholders equity

$
483,320


$
479,875


$
482,325   The accompanying notes are an integral part of these
    consolidated financial statements.
 2




---



##### 



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


Nine Months EndedSeptember 30,


September 30,2006


2005


2006


2005(in thousands, except per share data)Interest income:Securities purchased from Harris
    N.A. under agreement to resell

$
1,090


$
432


$
3,360


$
883Notes receivable from Harris
    N.A.


111



158



360



514Securities
    available-for-sale:Mortgage-backed


4,118



4,273



11,809



13,068U.S. Treasury


104



28



307



64Total interest income


5,423



4,891



15,836



14,529Operating expenses:Loan servicing fees paid to Harris
    N.A.


5



8



17



24Advisory fees


32



34



93



99General and administrative


59



46



223



181Total operating expenses


96



88



333



304Net income


5,327



4,803



15,503



14,225Preferred dividends


4,609



4,609



13,828



13,828Net income available to common
    stockholder

$
718


$
194


$
1,675


$
397Basic and diluted earnings per
    common share

$
718.00


$
194.00


$
1,675.00


$
397.00Net income

$
5,327


$
4,803


$
15,503


$
14,225Other comprehensive income
    (loss)  net unrealized gains/(losses) on
    available-for-sale
    securities


7,912



(4,776
)


1,848



(7,018
)Comprehensive income

$
13,239


$
27


$
17,351


$
7,207   The accompanying notes are an integral part of these
    consolidated financial statements.
 3




---



##### 



HARRIS
    PREFERRED CAPITAL CORPORATION
  CONSOLIDATED STATEMENTS OF CHANGES IN
    STOCKHOLDERS EQUITY
 (Unaudited)
  Nine Months Ended September 30,2006


2005(in thousands,except per share data)Balance at January 1

$
479,746


$
488,888Net income


15,503



14,225Other comprehensive income (loss)


1,848



(7,018
)Dividends (preferred stock
    $0.4609 per share)


(13,828
)


(13,828
)Balance at September 30

$
483,269


$
486,849   The accompanying notes are an integral part of these
    consolidated financial statements.
 4




---



##### 



HARRIS
    PREFERRED CAPITAL CORPORATION
  CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
  Nine Months Ended September 30,2006


2005(in thousands)Operating Activities:Net Income

$
15,503


$
14,225Adjustments to reconcile net
    income to net cash provided by operating activities:(Increase) decrease in other assets


(185
)


122Net decrease in accrued expenses


(79
)


(76
)Net cash provided by operating
    activities


15,239



14,271Investing Activities:Decrease (increase) in securities
    purchased from Harris N.A. under agreement to resell


8,417



(1,500
)Repayments of notes receivable
    from Harris N.A.


1,962



2,785Purchases of securities
    available-for-sale


(333,447
)


(173,520
)Proceeds from maturities of
    securities
    available-for-sale


321,983



172,120Net cash used by investing
    activities


(1,085
)


(115
)Financing Activities:Cash dividends paid on preferred
    stock


(13,828
)


(13,828
)Net cash used in financing
    activities


(13,828
)


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


326



328Cash on deposit with Harris N.A.
    at beginning of period


700



407Cash on deposit with Harris N.A.
    at end of period

$
1,026


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




---



##### 



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




---



##### 



HARRIS
    PREFERRED CAPITAL CORPORATION
  Results
    of Operations
  Third
    Quarter 2006 Compared with Third Quarter 2005
    available-for-sale
      available-for-sale. Available-for-sale available-for-sale
  Nine
    Months Ended September 30, 2006 compared with
    September 30, 2005
     7




---



##### 



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




---



##### 



HARRIS
    PREFERRED CAPITAL CORPORATION
  available-for-sale
  Market
    Risk Management
    Other
    Matters
    Financial
    Statements of Harris N.A.
   9




---



##### 



HARRIS
    N.A. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CONDITION
 (Unaudited)
  September 30,


December 31,


September 30,2006


2005


2005(unaudited)


(audited)


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

$
1,170,152


$
1,399,415


$
975,179Money market assets:Interest-bearing deposits at banks


932,474



1,007,667



934,442Federal funds sold and securities
    purchased under agreement to resell


1,378,494



258,915



480,282Securities
    available-for-sale
    (including $5.83 billion, $3.80 billion, and
    $3.57 billion of securities pledged as collateral for
    repurchase agreements at September 30, 2006,
    December 31, 2005 and September 30, 2005, respectively)


8,393,139



6,573,222



7,057,888Trading account assets


116,399



181,121



118,133Loans held for sale


26,966



32,364



53,436Loans


25,395,031



24,347,528



23,628,851Allowance for loan losses


(323,687
)


(331,838
)


(320,592
)Net loans


25,071,344



24,015,690



23,308,259Premises and equipment


473,781



448,144



438,536Bank-owned insurance


1,144,988



1,115,172



1,104,840Goodwill and other intangible
    assets


400,513



416,498



377,518Other assets


1,522,491



824,377



799,535Total Assets

$
40,630,741


$
36,272,585


$
35,648,048LIABILITIESDeposits in domestic
    offices  noninterest-bearing

$
5,833,859


$
6,480,021


$
5,887,689 interest-bearing


20,666,415



17,882,772



17,679,856Deposits in foreign
    offices   interest-bearing


1,186,451



1,270,741



1,773,507Total deposits


27,686,725



25,633,534



25,341,052Federal funds purchased and
    securities sold under agreement to repurchase


4,377,822



3,416,483



3,199,282Short-term borrowings


1,959,570



2,037,770



2,386,547Short-term senior notes


100,000



800,000



200,000Accrued interest, taxes and other
    expenses


313,839



257,431



251,409Other liabilities


1,318,185



261,064



501,236Long-term notes  senior


996,500



250,000



250,000Long-term notes 
    subordinated


292,750



292,750



292,750Minority interest 
    preferred stock of subsidiary


250,000



250,000



250,000Total Liabilities


37,295,391



33,199,032



32,672,276Stockholders
    EquityCommon stock ($10 par value);
    authorized 40,000,000 shares; issued and outstanding
    14,303,361, 14,016,361 and 13,955,105 shares at
    September 30, 2006, December 31, 2005 and
    September 30, 2005, respectively


143,034



140,164



139,551Surplus


1,487,188



1,327,828



1,280,446Retained earnings


1,759,656



1,675,548



1,616,558Accumulated other comprehensive
    loss


(54,528
)


(69,987
)


(60,783
)Total Stockholders
    Equity


3,335,350



3,073,553



2,975,772Total Liabilities and
    Stockholders Equity

$
40,630,741


$
36,272,585


$
35,648,048   The accompanying notes to consolidated financial statements
    are an integral part of these statements.
 10




---



##### 



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


Nine Months EndedSeptember 30,


September 30,2006


2005


2006


2005(in thousands)Interest IncomeLoans

$
406,725


$
324,839


$
1,165,732


$
914,368Money market assets:Deposits at banks


3,531



2,997



10,200



8,128Federal funds sold and securities
    purchased under agreement to resell


16,432



2,533



26,492



5,758Trading accounts


1,731



1,268



5,730



3,845Securities
    available-for-sale:U.S. Treasury and federal
    agency


79,275



48,058



191,732



123,890State and municipal


5,959



5,236



17,051



14,845Other


5,154



4,116



16,112



12,879Total interest income


518,807



389,047



1,433,049



1,083,713Interest ExpenseDeposits


192,398



121,734



517,205



321,109Short-term borrowings


89,785



48,216



218,898



111,838Short-term notes  senior


4,710



1,786



16,465



7,673Long-term notes  senior


4,609



4,609



13,828



13,828Long-term notes 
    subordinated


13,797



2,835



22,340



2,835Minority interest 
    dividends on preferred stock of subsidiary


4,277



2,910



11,727



7,490Total interest expense


309,576



182,090



800,463



464,773Net Interest Income


209,231



206,957



632,586



618,940Provision for loan losses


6,891



3,390



18,198



9,182Net Interest Income after
    Provision for Loan Losses


202,340



203,567



614,388



609,758Noninterest IncomeTrust and investment management fees


20,405



23,390



59,385



72,175Money market and bond trading


5,408



1,920



11,135



7,052Foreign exchange


1,000



1,720



3,400



4,360Service charges and fees


34,494



33,485



102,541



99,118Net securities gains (losses)


25,892



(178
)


28,244



(257
)Bank-owned insurance


12,392



12,064



33,832



32,190Letter of credit fees


4,509



4,806



14,251



15,584Syndication fees


8,456



1,149



14,321



7,277Other


15,245



23,143



51,790



78,615Total noninterest income


127,801



101,499



318,899



316,114Noninterest ExpensesSalaries and other compensation


94,320



90,583



270,368



281,581Pension, profit sharing and other
    employee benefits


25,904



27,786



84,358



84,101Net occupancy


21,489



19,975



60,272



56,609Equipment


15,915



14,472



48,032



42,997Marketing


11,515



9,351



31,761



28,782Communication and delivery


6,455



6,565



19,079



18,060Expert services


8,930



7,525



26,135



20,598Contract programming


9,434



10,833



23,508



24,914Intercompany services


13,677



14,710



43,094



31,703Other


30,709



31,160



88,228



85,187238,348



232,960



694,835



674,532Amortization of intangibles


5,385



5,324



16,147



16,141Total noninterest expenses


243,733



238,284



710,982



690,673Income before income taxes


86,408



66,782



222,305



235,199Applicable income taxes


25,807



18,439



66,198



75,632Net Income

$
60,601


$
48,343


$
156,107


$
159,567   The accompanying notes to consolidated financial statements
    are an integral part of these statements.
 11




---



##### 



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


Nine Months Ended September 30,2006


2005


2006


2005(in thousands)Net income

$
60,601


$
48,343


$
156,107


$
159,567Other comprehensive income (loss):Cash flow hedges:Net unrealized loss on derivative
    instruments, net of tax benefit for the quarter of $1,990 in
    2006 and $8,819 in 2005 and net of tax benefit
    year-to-date
    period of $2,648 in 2006 and $8,469 in 2005


(3,386
)


(15,015
)


(4,508
)


(14,420
)Less reclassificaiton adjustment
    for realized loss included in income statement, net of tax
    benefit for the quarter of $1,025 in 2006 and $2,615 in 2005 and
    net of tax benefit
    year-to-date
    period of $3,299 in 2006 and $1,726 in 2005


1,744



4,452



5,616



2,938Unrealized gain (loss) on
    available-for-sale
    securities:Unrealized holding gain (loss)
    arising during the period, net of tax expense (benefit) for the
    quarter of $25,845 in 2006 and ($5,962) in 2005 and net of tax
    expense (benefit) for the
    year-to-date
    period of $19,399 in 2006 and ($2,818) in 2005


43,860



(11,061
)


31,580



(5,026
)Less reclassification adjustment
    for realized (gain) loss included in income statement, net of
    tax expense (benefit) for the quarter of $10,098 in 2006 and
    ($69) in 2005 and net of tax expense (benefit) for the
    year-to-date
    period of $11,015 in 2006 and ($100) in 2005


(15,794
)


108



(17,229
)


157Other comprehensive income (loss)


26,424



(21,516
)


15,459



(16,351
)Comprehensive Income

$
87,025


$
26,827


$
171,566


$
143,216   The accompanying notes to consolidated financial statements
    are an integral part of these statements.
 12




---



##### 



HARRIS
    N.A. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
 (Unaudited)
  2006


2005(in thousands)Balance at January 1

$
3,073,553


$
2,902,109Net income


156,107



159,567Contributions to capital surplus


148,001



Issuance of common stock


2,870



Stock option exercise


11,360



5,509Dividends  preferred
    stock






(62
)Dividends  common stock


(72,000
)


(75,000
)Other comprehensive income (loss)


15,459



(16,351
)Balance at
    September 30

$
3,335,350


$
2,975,772   The accompanying notes to consolidated financial statements
    are an integral part of these statements.
 13




---



##### 



HARRIS
    N.A. AND SUBSIDIARIES
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
 (Unaudited)
  Nine Months Ended September 30,2006


2005(in thousands)Operating Activities:Net Income

$
156,107


$
159,567Adjustments to reconcile net
    income to net cash provided by operating activities:Provision for loan losses


18,198



9,182Depreciation and amortization,
    including intangibles


57,890



78,474Deferred tax expense (benefit)


66,198



(34,347
)Net (gain) loss on sales of
    securities


(28,244
)


257Increase in bank-owned insurance


(29,816
)


(32,180
)Trading account net cash sales


316,391



177,975Net increase in interest receivable


(26,024
)


(20,451
)Net increase (decrease) in
    interest payable


19,795



(17,479
)Origination of loans held for sale


(196,595
)


(311,547
)Proceeds from sale of loans held
    for sale


203,236



303,117Net gain on loans held for sale


(1,243
)


(1,583
)Other, net


21,005



(17,811
)Net cash provided by operating
    activities


576,898



293,174Investing Activities:Net decrease (increase) in
    interest-bearing deposits at banks


59,622



(229,126
)Net increase in Federal funds sold


(1,119,579
)


(378,502
)Proceeds from sales of securities
    available-for-sale


2,875,170



136,560Proceeds from maturities of
    securities
    available-for-sale


5,535,986



4,414,140Purchases of securities
    available-for-sale


(10,172,950
)


(4,164,725
)Net increase in loans


(1,094,677
)


(2,207,805
)Net (purchases) sales of premises
    and equipment


(69,514
)


67,185Net cash used by investing
    activities


(3,985,942
)


(2,362,273
)Financing Activities:Net increase in deposits


2,172,142



1,080,861Net increase (decrease) in Federal
    funds purchased and securities sold under agreement to repurchase


961,339



(1,296,790
)Net (decrease) increase in other
    short-term borrowings


(78,200
)


2,105,333Proceeds from issuance of
    short-term senior notes


1,700,000



1,400,000Repayment of short-term senior
    notes


(2,400,000
)


(1,150,000
)Proceeds from issuance of
    long-term senior notes


746,500



Proceeds from issuance of common
    stock


150,000



Cash dividends paid on common stock


(72,000
)


(75,000
)Retirement of preferred stock






(5,000
)Net cash provided by financing
    activities


3,179,781



2,059,404Net Decrease in Cash and Demand
    Balances due from Banks


(229,263
)


(9,695
)Cash and Demand Balances due
    from Banks at January 1


1,399,415



984,874Cash and Demand Balances due
    from Banks at September 30

$
1,170,152


$
975,179   The accompanying notes to consolidated financial statements
    are an integral part of these statements.
 14




---



##### 



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




---



##### 



HARRIS
    N.A. AND SUBSIDIARIES
  FINANCIAL
    REVIEW
  Third
    Quarter 2006 Compared with Third Quarter 2005
  Summary
                Nine
    Months Ended September 30, 2006 Compared with Nine Months
    Ended September 30, 2005
  Summary
   16




---



##### 



HARRIS
    N.A. AND SUBSIDIARIES
  year-to-date
  year-to-date
     17




---



##### 



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
 18




---



##### 



SIGNATURES      Paul
    R. Skubic
     Pamela
    C. Piarowski
     19