##### 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
    June 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. 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


17Item 4.

Controls and
    Procedures


17Part II

OTHER
    INFORMATIONItem 6.

Exhibits


18Signatures


19CertificationCertificationCertification




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##### Table of Contents



Part I.
    FINANCIAL INFORMATION  Item 1.
    Financial
    Statements HARRIS
    PREFERRED CAPITAL CORPORATION



CONSOLIDATED
    BALANCE SHEETS  June 30,


December 31,


June 30,2007


2006


2006(unaudited)


(audited)


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

$
5,199


$
5,284


$
1,192Securities purchased from Harris
    N.A. under agreement to resell


9,665



9,854



16,069Notes receivable from Harris
    N.A.


5,651



6,512



7,219Securities available-for-sale:Mortgage-backed


394,404



404,075



343,947U.S. Treasury


69,934



59,948



104,888Other assets


1,666



1,667



1,420Total assets

$
486,519


$
487,340


$
474,735Liabilities and
    Stockholders EquityAccrued expenses

$
61


$
120


$
95Preferred dividends payable


4,609



4,611



Total liabilities

$
4,670


$
4,731


$
95Commitments 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


1,825



(71
)


956Accumulated other comprehensive
    loss  net unrealized losses on available-for-sale
    securities


(10,710
)


(8,054
)


(17,050
)Total stockholders
    equity


481,849



482,609



474,640Total liabilities and
    stockholders equity

$
486,519


$
487,340


$
474,735   The accompanying notes are an integral part of these
    consolidated financial statements.
 2




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##### Table of Contents



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


Six Months EndedJune 30


June 302007


2006


2007


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

$
998


$
1,256


$
1,858


$
2,270Notes receivable from Harris
    N.A.


92



119



189



249Securities available-for-sale:Mortgage-backed


4,531



3,796



9,122



7,691U.S. Treasury


78



105



148



203Total interest income


5,699



5,276



11,317



10,413Operating expenses:Loan servicing fees paid to Harris
    N.A.


5



6



9



12Advisory fees


36



30



67



61General and administrative


46



78



127



164Total operating expenses


87



114



203



237Net income


5,612



5,162



11,114



10,176Preferred dividends


4,609



4,609



9,218



9,218Net income available to common
    stockholder

$
1,003


$
553


$
1,896


$
958Basic and diluted earnings per
    common share

$
1,003.00


$
553.00


$
1,896.00


$
958.00Net income

$
5,612


$
5,162


$
11,114


$
10,176Other comprehensive
    loss  net unrealized losses on available-for-sale
    securities


(4,356
)


(2,774
)


(2,656
)


(6,064
)Comprehensive income

$
1,256


$
2,388


$
8,458


$
4,112   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)
  Six Months Ended June 302007


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

$
482,609


$
479,746Net income


11,114



10,176Other comprehensive loss


(2,656
)


(6,064
)Dividends (preferred stock $0.4609
    per share)


(9,218
)


(9,218
)Balance at June 30

$
481,849


$
474,640   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)
  Six Months Ended June 302007


2006(in thousands)Operating Activities:Net Income

$
11,114


$
10,176Adjustments to reconcile net
    income to net cash provided by operating activities:Decrease in other assets


1



41Net decrease in accrued expenses
    and other liabilities


(61
)


(34
)Net cash provided by operating
    activities


11,054



10,183Investing Activities:Decrease in securities purchased
    from Harris N.A. under agreement to resell


189



4,431Repayments of notes receivable
    from Harris N.A.


861



1,465Purchases of securities
    available-for-sale


(168,861
)


(205,174
)Proceeds from maturities of
    securities available-for-sale


165,890



198,805Net cash used in investing
    activities


(1,921
)


(473
)Financing Activities:Cash dividends paid on preferred
    stock


(9,218
)


(9,218
)Net cash used in financing
    activities


(9,218
)


(9,218
)Net (decrease) increase in cash on
    deposit with Harris N.A.


(85
)


492Cash on deposit with Harris N.A.
    at beginning of period


5,284



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

$
5,199


$
1,192   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
  Second
    Quarter 2007 Compared with Second Quarter 2006
               7




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##### Table of Contents



HARRIS
    PREFERRED CAPITAL CORPORATION
  Six
    Months Ended June 30, 2007 compared with June 30,
    2006
          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
 (Unaudited)
  June 30


December 31


June 302007


2006


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

$
1,167,388


$
1,084,959


$
1,016,177Money market assets:Interest-bearing deposits at banks


852,677



944,116



1,202,013Federal funds sold and securities
    purchased under agreement to resell


1,602,616



672,760



595,010Securities available-for-sale
    (including $4.90 billion, $5.15 billion, and
    $4.21 billion of securities pledged as collateral for
    repurchase agreements at June 30, 2007, December 31,
    2006 and June 30, 2006, respectively)


10,343,762



10,713,910



7,191,246Trading account assets


290,859



220,716



256,747Loans


25,966,154



25,402,554



25,589,646Allowance for loan losses


(313,452
)


(322,742
)


(326,375
)Net loans

$
25,652,702


$
25,079,812


$
25,263,271Loans held for sale


52,938



34,451



34,044Premises and equipment


489,115



474,073



460,708Bank-owned insurance


1,225,098



1,168,568



1,149,047Goodwill and other intangible assets


554,969



395,140



405,898Other assets


989,397



984,816



750,807Total assets

$
43,221,521


$
41,773,321


$
38,324,968LIABILITIESDeposits in domestic
    offices  noninterest-bearing

$
6,430,170


$
6,232,744


$
6,649,466
    interest-bearing


24,295,501



22,855,715



18,896,415Deposits in foreign
    offices   interest-bearing


771,685



1,030,838



1,531,854Total deposits

$
31,497,356


$
30,119,297


$
27,077,735Federal funds purchased


122,800



476,000



591,435Securities sold under agreement to
    repurchase


3,182,283



3,475,839



2,758,233Short-term borrowings


858,658



1,261,679



1,902,456Short-term senior notes


430,000



100,000



500,000Accrued interest, taxes and other
    expenses


222,093



205,942



186,090Accrued pension and post-retirement


164,239



170,853



98,077Other liabilities


440,804



1,078,048



408,364Minority 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

$
39,557,483


$
38,426,908


$
35,061,640STOCKHOLDER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
    June 30, 2007, December 31, 2006 and June 30,
    2006, respectively

$
155,148


$
143,034


$
143,034Surplus


1,786,229



1,489,521



1,482,190Retained earnings


1,848,660



1,811,497



1,719,055Accumulated other comprehensive loss


(125,999
)


(97,639
)


(80,951
)Total stockholders
    equity

$
3,664,038


$
3,346,413


$
3,263,328Total liabilities and
    stockholders equity

$
43,221,521


$
41,773,321


$
38,324,968   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


Six Months EndedJune 30,


June 30,2007


2006


2007


2006(in thousands)


(in thousands)Interest IncomeLoans

$
411,202


$
390,250


$
819,613


$
759,007Money market assets:Deposits at banks


4,990



3,364



10,091



6,669Federal funds sold and securities
    purchased under agreement to resell


5,695



7,078



9,927



10,060Trading accounts


2,716



2,335



4,498



3,999Securities available-for-sale:U.S. Treasury and federal agency


115,516



60,682



228,567



112,457State and municipal


8,724



5,769



16,491



11,091Other


6,544



5,784



12,613



10,958Total interest income

$
555,387


$
475,262


$
1,101,800


$
914,241Interest ExpenseDeposits


241,336



172,000



475,266



324,807Short-term borrowings


68,920



73,433



146,318



129,113Short-term notes  senior


10,990



3,983



12,320



11,754Long-term notes  senior


14,300



5,074



28,028



8,543Long-term notes 
    subordinated


4,266



3,904



8,491



7,450Minority interest-dividends on
    preferred stock of subsidiary


4,609



4,609



9,219



9,219Total interest expense

$
344,421


$
263,003


$
679,642


$
490,886Net Interest Income


210,966



212,259



422,158



423,355Provision for loan losses


10,800



5,661



13,800



11,307Net Interest Income after
    Provision for Loan Losses

$
200,166


$
206,598


$
408,358


$
412,048Noninterest IncomeTrust and investment management fees


23,194



22,992



45,986



38,980Money market and bond trading


4,230



4,176



7,086



5,727Foreign exchange


925



1,200



2,075



2,400Service charges and fees


36,370



34,774



70,342



68,047Net securities (losses) gains


(5,297
)


2,456



(5,825
)


2,352Bank-owned insurance


12,098



10,856



24,786



21,440Letter of credit fees


4,549



4,731



9,782



9,742Syndication fees


350



4,168



1,076



5,866Other


26,114



18,642



49,258



36,337Total noninterest income

$
102,533


$
103,995


$
204,566


$
190,891Noninterest ExpensesSalaries and other compensation


88,628



88,617



180,413



176,049Pension, profit sharing and other
    employee benefits


26,319



27,250



60,123



58,455Net occupancy


21,416



19,547



43,236



38,783Equipment


16,532



16,452



32,305



32,117Marketing


7,958



9,567



18,025



20,245Communication and delivery


6,653



6,275



13,848



12,558Expert services


6,498



7,821



14,386



17,205Contract programming


7,826



6,484



15,747



14,074Intercompany services


16,772



14,075



33,802



29,416Restructuring (recovery) charge
    (note 4)


(303
)






13,376



Other


28,870



30,821



57,963



57,377Amortization of intangibles


6,378



5,300



12,784



10,763Total noninterest expenses

$
233,547


$
232,209


$
496,008


$
467,042Income before income taxes


69,152



78,384



116,916



135,897Applicable income taxes


16,244



25,661



24,355



40,391Net Income

$
52,908


$
52,723


$
92,561


$
95,506   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 EndedJune 30,


Six Months Ended June 30,2007


2006


2007


2006(in thousands)Net income

$
52,908


$
52,723


$
92,561


$
95,506Other comprehensive income (loss):Cash flow hedges:Net unrealized gain (loss) on
    derivative instruments, net of tax expense for the quarter of
    $1,959 in 2007 and $1,123 in 2006 and net of tax (benefit)
    expense for the year-to-date period of ($146) in 2007 and $2,754
    in 2006


3,321



1,894



(271
)


4,863Less reclassificaiton adjustment
    for realized loss (gain) included in income statement, net of
    tax benefit for the quarter of ($1,018) in 2007 and ($124) in
    2006 and net of tax (benefit) expense for the year-to-date
    period of ($2,184) in 2007 and $1,138 in 2006


1,890



230



4,055



(2,112
)Pension and Other Postretirement
    Benefit Adjustments:Net unrealized gain on pension and
    other postretirement benefits, net of tax expense for the
    quarter of $1,432 in 2007 and $0 in 2006 and net of tax expense
    for the year-to-date period of $1,432 in 2007 and $0 in 2006


2,660







2,660



Unrealized loss on
    available-for-sale securities:Unrealized holding loss arising
    during the period, net of tax benefit for the quarter of
    ($24,298) in 2007 and ($3,580) in 2006 and net of tax benefit
    for the year-to-date period of ($20,700) in 2007 and ($6,540) in
    2006


(45,337
)


(6,661
)


(38,590
)


(12,186
)Less reclassification adjustment
    for realized loss (gain) included in income statement, net of
    tax (benefit) expense for the quarter of ($1,854) in 2007 and
    $860 in 2006 and net of tax (benefit) expense for the
    year-to-date period of ($2,039) in 2007 and $823 in 2006


3,443



(1,596
)


3,786



(1,529
)Other comprehensive loss


(34,023
)


(6,133
)


(28,360
)


(10,964
)Comprehensive income

$
18,885


$
46,590


$
64,201


$
84,542   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


92,561



95,506Contributions to capital surplus


280,520



148,001Issuance of common stock


12,114



2,870Stock option exercise


609



866Tax benefit from stock option
    exercise


3,181



5,496Dividends  common stock


(43,000
)


(52,000
)Other comprehensive loss


(28,360
)


(10,964
)Balance at June 30

$
3,664,038


$
3,263,328   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)
  Six Months Ended June 30,2007


2006(in thousands)Operating Activities:Net Income

$
92,561


$
95,506Adjustments to reconcile net income
    to net cash provided by operating activities:Provision for loan losses


13,800



11,307Depreciation and amortization,
    including intangibles


17,611



39,526Deferred tax expense (benefit)


5,118



(5,523
)Tax benefit from stock options
    exercise


3,181



5,496Net securities losses (gains)


5,825



(2,352
)Increase in bank-owned insurance


(21,087
)


(21,774
)Trading account net cash purchases


(620,153
)


(18,298
)Decrease (increase) in accrued
    interest receivable


6,965



(11,546
)Increase in accrued interest payable


20,007



8,253Increase in other accrued expenses


1,966



16,367Origination of loans held for sale


(168,937
)


(122,344
)Proceeds from sale of loans held
    for sale


152,314



121,555Net gain on loans held for sale


(1,864
)


(891
)Net (decrease) increase in pension
    and post retirement benefits


(5,386
)


500Net (decrease) increase in
    undistributed loan principle


(8,250
)


33,720Recoveries on charged-off loans


13,496



14,512Net (decrease) increase in marked
    to market hedging derivatives


(24,892
)


5,441Other, net


40,915



42,610Net cash (used in) provided by
    operating activities

$
(476,810
)

$
212,065Investing Activities:Net decrease (increase) in
    interest-bearing deposits at banks


91,439



(225,343
)Net increase in Federal funds sold
    and securities purchased under agreement to resell


(929,856
)


(336,095
)Proceeds from sales of securities
    available-for-sale


5,625,624



257Proceeds from maturities of
    securities available-for-sale


11,911,041



3,554,053Purchases of securities
    available-for-sale


(17,198,084
)


(4,189,951
)Net increase in loans


(609,199
)


(1,272,578
)Purchases of premises and equipment


(47,591
)


(41,327
)Net cash used in investing
    activities

$
(1,156,626
)

$
(2,510,984
)Financing Activities:Net increase in deposits


1,378,059



1,572,366Net increase in Federal funds
    purchased and securities sold under agreement to repurchase


(646,756
)


(66,815
)Net decrease in short-term
    borrowings


(403,021
)


(135,314
)Net decrease in short-term senior
    notes


(1,000,000
)


(300,000
)Proceeds from issuance of long-term
    senior notes


2,430,000



746,500Proceeds from issuance of common
    stock






150,000Cash dividends paid on common stock


(43,000
)


(52,000
)Net proceeds from stock options
    exercise


608



866Excess tax (expense) benefit from
    stock options exercise


(25
)


78Net cash provided by financing
    activities

$
1,715,865


$
1,915,681Net increase (decrease) in cash
    and demand balances due from banks


82,429



(383,238
)Cash and demand balances due
    from banks at January 1


1,084,959



1,399,415Cash and demand balances due
    from banks at June 30

$
1,167,388


$
1,016,177   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
  Second
    Quarter 2007 Compared with Second Quarter 2006
  Summary
                 16




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##### Table of Contents



Six
    Months ended June 30, 2007 Compared with June 30,
    2006
  Summary
            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 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