Edgar Filing: ZIONS BANCORPORATION /UT/

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2006

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

COMMISSION FILE NUMBER 001-12307

ZIONS BANCORPORATION

(Exact name of registrant as specified in its charter)


UTAH		87-0227400
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

ONE SOUTH MAIN, SUITE 1134 SALT LAKE CITY, UTAH		84111
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (801) 524-4787

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x Accelerated filer Non-accelerated filer

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Common Stock, without par value, outstanding at October 31, 2006		106,925,913 shares

ZIONS BANCORPORATION AND SUBSIDIARIES

INDEX


		Page
PART I.	FINANCIAL INFORMATION

ITEM 1.	Financial Statements (Unaudited)

	Consolidated Balance Sheets	3

	Consolidated Statements of Income	4

	Consolidated Statements of Changes in Shareholders’ Equity and Comprehensive Income	5

	Consolidated Statements of Cash Flows	6

	Notes to Consolidated Financial Statements	8

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	44

ITEM 4.	Controls and Procedures	44

PART II.	OTHER INFORMATION

ITEM 1.	Legal Proceedings	45

ITEM 1A.	Risk Factors	45

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45

ITEM 6.	Exhibits	46

SIGNATURES		47

PART I.

FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS (Unaudited)

ZIONS BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


(In thousands, except share amounts)	September 30, 2006		December 31, 2005		September 30, 2005
	(Unaudited)				(Unaudited)
ASSETS
Cash and due from banks	$	1,616,910	$	1,706,590	$	1,109,202
Money market investments:
Interest-bearing deposits		39,882		22,179		13,350
Federal funds sold		72,036		414,281		460,167
Security resell agreements		272,643		230,282		528,763
Investment securities:
Held to maturity, at cost (approximate market value $655,170, $642,258 and $641,737)		662,547		649,791		642,687
Available for sale, at market		5,062,409		5,305,859		3,997,593
Trading account, at market (includes $60,331, $43,444 and $141,535 transferred as collateral under repurchase agreements)		92,615		101,562		352,059

		5,817,571		6,057,212		4,992,339
Loans:
Loans held for sale		268,305		256,236		213,223
Loans and leases		33,583,499		29,996,022		23,823,715

		33,851,804		30,252,258		24,036,938
Less:
Unearned income and fees, net of related costs		145,694		125,322		106,921
Allowance for loan losses		356,342		338,399		287,237

Loans and leases, net of allowance		33,349,768		29,788,537		23,642,780
Other noninterest-bearing investments		1,005,989		938,515		708,368
Premises and equipment, net		587,807		564,745		410,800
Goodwill		1,884,328		1,887,588		639,120
Core deposit and other intangibles		168,135		199,166		47,670
Other real estate owned		9,986		19,966		15,176
Other assets		952,692		950,578		854,966

	$	45,777,747	$	42,779,639	$	33,422,701

LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing demand	$	9,750,064	$	9,953,833	$	7,725,179
Interest-bearing:
Savings and money market		15,824,048		16,055,754		13,442,012
Time under $100,000		2,154,894		1,938,789		1,554,064
Time $100,000 and over		3,613,164		2,514,596		1,892,210
Foreign		2,298,821		2,179,436		786,276

		33,640,991		32,642,408		25,399,741
Securities sold, not yet purchased		53,802		64,654		331,891
Federal funds purchased		2,286,561		1,255,662		1,262,646
Security repurchase agreements		1,108,771		1,027,658		756,631
Other liabilities		657,657		592,599		571,583
Commercial paper		265,769		167,188		149,089
Federal Home Loan Bank advances and other borrowings:
One year or less		313,259		18,801		13,063
Over one year		132,854		234,488		226,482
Long-term debt		2,633,759		2,511,366		1,685,683

Total liabilities		41,093,423		38,514,824		30,396,809

Minority interest		41,158		27,551		26,719
Shareholders’ equity:
Capital stock:
Preferred stock, without par value; authorized 3,000,000 shares; issued and outstanding, none		–		–		–
Common stock, without par value; authorized 350,000,000 shares; issued and outstanding 106,804,606, 105,147,562 and 90,067,016 shares		2,240,458		2,156,732		971,002
Retained earnings		2,501,625		2,179,885		2,084,439
Accumulated other comprehensive loss		(89,292)		(83,043)		(52,088)
Deferred compensation		(9,625)		(16,310)		(4,180)

Total shareholders’ equity		4,643,166		4,237,264		2,999,173

	$	45,777,747	$	42,779,639	$	33,422,701

See accompanying notes to consolidated financial statements.

ZIONS BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


(In thousands, except per share amounts)	Three Months Ended September 30,				Nine Months Ended September 30,
	2006		2005		2006		2005
Interest income:
Interest and fees on loans	$	638,610	$	406,319	$	1,772,533	$	1,137,487
Interest on loans held for sale		4,275		2,462		12,376		6,683
Lease financing		4,690		3,980		13,316		12,069
Interest on money market investments		6,431		7,723		18,188		18,402
Interest on securities:
Held to maturity – taxable		2,217		1,827		6,641		5,465
Held to maturity – nontaxable		5,732		6,066		16,946		18,057
Available for sale – taxable		66,078		49,339		204,177		145,361
Available for sale – nontaxable		2,089		808		6,547		2,498
Trading account		1,621		4,753		5,690		15,832

Total interest income		731,743		483,277		2,056,414		1,361,854

Interest expense:
Interest on savings and money market deposits		109,410		59,539		293,164		149,511
Interest on time and foreign deposits		86,635		31,536		213,544		75,980
Interest on short-term borrowings		46,968		23,213		118,421		67,994
Interest on long-term debt		42,219		28,337		125,600		81,838

Total interest expense		285,232		142,625		750,729		375,323

Net interest income		446,511		340,652		1,305,685		986,531
Provision for loan losses		14,363		12,107		45,897		32,907

Net interest income after provision for loan losses		432,148		328,545		1,259,788		953,624

Noninterest income:
Service charges and fees on deposit accounts		41,991		32,233		123,443		94,421
Loan sales and servicing income		10,972		21,649		41,861		56,507
Other service charges, commissions and fees		44,711		28,877		127,058		83,662
Trust and investment management income		5,549		3,923		15,557		11,994
Income from securities conduit		7,741		8,553		24,639		25,989
Dividends and other investment income		10,403		6,954		29,558		22,398
Market making, trading and nonhedge derivative income		3,641		4,069		13,510		14,362
Equity securities gains (losses), net		13,180		1,089		11,966		(3,076)
Fixed income securities gains, net		1,563		276		6,970		422
Other		5,578		2,872		16,766		12,647

Total noninterest income		145,329		110,495		411,328		319,326

Noninterest expense:
Salaries and employee benefits		190,554		142,590		562,052		418,960
Occupancy, net		25,807		19,048		74,437		56,005
Furniture and equipment		20,361		16,979		66,102		49,158
Legal and professional services		11,386		8,575		28,900		24,792
Postage and supplies		8,313		6,510		24,674		19,796
Advertising		6,566		5,875		19,365		15,303
Impairment losses on long-lived assets		–		–		1,304		633
Restructuring charges		–		–		17		92
Merger related expense		2,549		207		18,262		207
Amortization of core deposit and other intangibles		10,716		3,684		32,101		10,813
Provision for unfunded lending commitments		1,045		435		517		3,148
Other		52,731		43,815		159,780		130,095

Total noninterest expense		330,028		247,718		987,511		729,002

Income before income taxes and minority interest		247,449		191,322		683,605		543,948
Income taxes		83,790		68,200		237,869		194,279
Minority interest		9,985		152		9,119		(2,345)

Net income	$	153,674	$	122,970	$	436,617	$	352,014

Weighted average shares outstanding during the period:
Basic shares		106,285		89,980		105,922		89,901
Diluted shares		108,061		91,605		107,950		91,606

Net income per common share:
Basic	$	1.45	$	1.37	$	4.12	$	3.92
Diluted		1.42		1.34		4.04		3.84

See accompanying notes to consolidated financial statements.

ZIONS BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

(Unaudited)


(In thousands)	Common stock		Retained earnings		Accumulated other comprehensive income (loss)		Deferred compensation		Total shareholders’ equity
Balance, December 31, 2005	$	2,156,732	$	2,179,885	$	(83,043)	$	(16,310)	$	4,237,264
Comprehensive income:
Net income for the period				436,617						436,617
Other comprehensive loss, net of tax:
Net realized and unrealized holding losses on investments and retained interests						(11,134)
Foreign currency translation						646
Reclassification for net realized gains on investments recorded in operations						(2,424)
Net unrealized gains on derivative instruments						6,663

Other comprehensive loss						(6,249)				(6,249)

Total comprehensive income										430,368
Stock redeemed and retired		(1,439)								(1,439)
Net stock options exercised		79,014								79,014
Reclassification of deferred compensation, adoption of SFAS 123R		(11,111)						11,111		–
Share-based compensation		17,262								17,262
Cash dividends – common, $1.08 per share				(114,877)						(114,877)
Change in deferred compensation								(4,426)		(4,426)

Balance, September 30, 2006	$	2,240,458	$	2,501,625	$	(89,292)	$	(9,625)	$	4,643,166


Balance, December 31, 2004	$	972,065	$	1,830,064	$	(7,932)	$	(4,218)	$	2,789,979
Comprehensive income:
Net income for the period				352,014						352,014
Other comprehensive loss, net of tax:
Net realized and unrealized holding losses on investments and retained interests						(9,122)
Foreign currency translation						(1,313)
Reclassification for net realized gains on investments recorded in operations						(323)
Net unrealized losses on derivative instruments						(33,398)

Other comprehensive loss						(44,156)				(44,156)

Total comprehensive income										307,858
Stock redeemed and retired		(80,795)								(80,795)
Net stock options exercised and restricted stock issued		79,732								79,732
Cash dividends – common, $1.08 per share				(97,639)						(97,639)
Change in deferred compensation								38		38

Balance, September 30, 2005	$	971,002	$	2,084,439	$	(52,088)	$	(4,180)	$	2,999,173

Total comprehensive income for the three months ended September 30, 2006 and 2005 was $212,709 and $83,787, respectively.

See accompanying notes to consolidated financial statements.

ZIONS BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three Months Ended September 30,		Nine Months Ended September 30,
(In thousands)	2006	2005	2006	2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 153,674	$ 122,970	$ 436,617	$	352,014
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Impairment losses on long lived assets	–	–	1,304		633
Provision for loan losses	14,363	12,107	45,897		32,907
Depreciation of premises and equipment	17,097	14,718	56,445		44,160
Amortization	18,345	10,061	43,352		27,116
Deferred income tax benefit	(1,212)	(9,155)	(1,117)		(28,830)
Share-based compensation	6,752	565	17,731		1,020
Excess tax benefits from share-based compensation	(2,729)	–	(12,697)		–
Gain (loss) allocated to minority interest	9,985	152	9,119		(2,345)
Equity securities losses (gains), net	(13,180)	(1,089)	(11,966)		3,076
Fixed income securities gains, net	(1,563)	(276)	(6,970)		(422)
Net decrease (increase) in trading securities	(21,969)	(69,977)	8,947		(61,989)
Principal payments on and proceeds from sales of loans held for sale	249,065	233,122	862,072		703,106
Additions to loans held for sale	(264,261)	(224,648)	(854,320)		(684,140)
Net gains on sales of loans, leases and other assets	(3,577)	(15,131)	(20,702)		(36,495)
Net increase in cash surrender value of bank owned life insurance	(7,239)	(4,372)	(19,978)		(13,581)
Undistributed earnings of affiliates	(2,106)	(1,702)	(5,048)		(6,169)
Change in accrued income taxes	27,115	20,631	42,477		26,364
Change in accrued interest receivable	(17,985)	4,448	(27,978)		(202)
Change in other assets	176,738	(119,792)	38,058		(118,519)
Change in other liabilities	(181,253)	(745)	(13,638)		113,158
Change in accrued interest payable	20,402	7,308	32,785		9,507
Other, net	17,972	6,357	35,592		(96)

Net cash provided by (used in) operating activities	194,434	(14,448)	655,982		360,273

CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease (increase) in money market investments	191,070	(401,622)	282,181		(409,193)
Proceeds from maturities of investment securities held to maturity	25,982	39,795	86,624		95,245
Purchases of investment securities held to maturity	(48,852)	(32,525)	(99,128)		(96,064)
Proceeds from sales of investment securities available for sale	721,554	1,016,707	2,745,840		1,672,979
Proceeds from maturities of investment securities available for sale	457,115	162,697	1,605,643		1,129,569
Purchases of investment securities available for sale	(1,131,722)	(1,214,851)	(4,132,068)		(2,622,369)
Proceeds from sales of loans and leases	46,073	880,965	188,043		1,100,060
Net increase in loans and leases	(1,067,187)	(1,001,829)	(3,829,526)		(2,435,084)
Net increase in other noninterest-bearing investments	(2,966)	(2,815)	(40,840)		(3,808)
Proceeds from sales of premises and equipment	1,137	1,170	5,992		3,158
Purchases of premises and equipment	(33,078)	(16,889)	(87,761)		(49,640)
Proceeds from sales of other real estate owned	9,264	1,114	34,172		11,666
Net cash paid for acquisitions	–	(200)	(1,691)		(200)
Net cash paid for net liabilities on branches sold	–	–	–		(16,076)

Net cash used in investing activities	(831,610)	(568,283)	(3,242,519)		(1,619,757)

ZIONS BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2006		2005		2006		2005
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits	$	386,781	$	1,001,206	$	998,583	$	2,131,330
Net change in short-term funds borrowed		(28,190)		(516,755)		1,494,199		(503,045)
Proceeds from FHLB advances and other borrowings over one year		–		–		150		–
Payments on FHLB advances and other borrowings over one year		(596)		(557)		(101,784)		(1,670)
Proceeds from issuance of long-term debt		145,000		–		395,000		–
Payments on long-term debt		(37)		–		(254,193)		–
Proceeds from issuance of common stock		13,089		8,795		68,521		69,507
Payments to redeem common stock		(101)		(737)		(1,439)		(80,795)
Excess tax benefits from share-based compensation		2,729		–		12,697		–
Dividends paid		(38,418)		(32,546)		(114,877)		(97,639)

Net cash provided by financing activities		480,257		459,406		2,496,857		1,517,688

Net increase (decrease) in cash and due from banks		(156,919)		(123,325)		(89,680)		258,204
Cash and due from banks at beginning of period		1,773,829		1,232,527		1,706,590		850,998

Cash and due from banks at end of period	$	1,616,910	$	1,109,202	$	1,616,910	$	1,109,202

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest	$	266,766	$	133,205	$	718,386	$	361,239
Income taxes		56,435		55,438		207,005		189,471
Noncash items:
Loans transferred to other real estate owned		2,058		5,835		19,909		16,329

See accompanying notes to consolidated financial statements.

ZIONS BANCORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

September 30, 2006

1. BASIS OF PRESENTATION AND CHANGES IN ACCOUNTING ESTIMATES

The accompanying unaudited consolidated financial statements of Zions Bancorporation (“the Parent”) and its majority-owned subsidiaries (collectively “the Company,” “we,” “our,” “us”) have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Certain prior period amounts have been reclassified to conform to the current period presentation.

Operating results for the three- and nine-month periods ended September 30, 2006 are not necessarily indicative of the results that may be expected in future periods. The balance sheet at December 31, 2005 is from the audited financial statements at that date, but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in Zions Bancorporation’s Annual Report on Form 10-K for the year ended December 31, 2005.

The Company provides a full range of banking and related services through banking subsidiaries in ten states as follows: Zions First National Bank (“Zions Bank”), in Utah and Idaho; California Bank & Trust (“CB&T”); Amegy Corporation (“Amegy”), in Texas; National Bank of Arizona (“NBA”); Nevada State Bank (“NSB”); Vectra Bank Colorado (“Vectra”), in Colorado and New Mexico; The Commerce Bank of Washington (“TCBW”); and The Commerce Bank of Oregon (“TCBO”). Amegy was acquired effective December 3, 2005 as discussed in Note 3. TCBO was opened in October 2005 and is not expected to have a material effect on consolidated operations for several years.

As discussed more fully in the management’s discussion and analysis section of this filing, during the three months ended September 30, 2006 the Company adjusted its valuation assumptions for retained beneficial interests from securitization transactions. The Company recognized a pretax impairment loss of $4.1 million on the carrying value of certain of these retained interests, which has been charged in the statement of income to loans sales and servicing income.

2. CERTAIN RECENT ACCOUNTING PRONOUNCEMENTS

On September 20, 2006, the Emerging Issues Task Force (“EITF”) of the Financial Accounting Standards Board (“FASB”) ratified EITF Issue No. 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements, and EITF Issue No. 06-5, Accounting for Purchases of Life Insurance – Determining the Amount That Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4, Accounting for Purchases of Life Insurance. EITF 06-4 provides that an employer should recognize a liability for future benefits based on the substantive agreement with the employee. The Issue should be applied to fiscal years beginning after December 15, 2007, with earlier application permitted. EITF 06-5 provides that in determining the amount recognized as an asset, a policyholder should consider the cash surrender value as well as any additional amounts included in the contractual terms of the policy that will be paid upon surrender. The amount that could be realized should be calculated at the individual policy level and consider any probable contractual limitations, including the exclusion of any additional amounts paid for the surrender of an entire group of policies. The Issue is effective for fiscal years beginning after December 15, 2006. Certain banking subsidiaries of the Company have life insurance arrangements that may be affected by these Issues. Management is evaluating the impact these Issues may have on the Company’s financial statements.

ZIONS BANCORPORATION AND SUBSIDIARIES

On September 29, 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R). SFAS 158 requires an entity to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status through other comprehensive income in the years in which changes occur. The Statement also requires an entity to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. While the Statement does not change the determination of net periodic benefit cost included in net income, it does expand disclosure requirements about certain effects on net periodic benefit cost that may arise in subsequent fiscal years. The recognition and disclosure requirements are effective for fiscal years ending after December 15, 2006 for public entities. The measurement requirement is effective for fiscal years ending after December 15, 2008. Early adoption is encouraged, but must apply to all of an entity’s benefit plans. Management is evaluating the impact this Statement may have on the Company’s financial statements. However, due to the frozen status of the Company’s pension and postretirement plans, as disclosed in Note 8 and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005, and other factors, management believes that the recognition and disclosure requirements of this Statement will not have a material impact on the Company’s financial statements.

On September 15, 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements. SFAS 157 provides enhanced guidance for using fair value to measure assets and liabilities and expands disclosures about fair value measurements. The Statement applies under other accounting pronouncements that require or permit fair value measurements; however, it does not expand the use of fair value measurements in any new circumstances. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Early adoption is permitted. Management is evaluating the impact this Statement may have on the Company’s financial statements.

In July 2006, the FASB issued FASB Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes that a tax position must meet a minimum more-likely-than-not threshold before it can be recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure, and transition. In addition, FIN 48 removes income taxes from the scope of SFAS No. 5, Accounting for Contingencies. FIN 48 is effective for fiscal years beginning after December 15, 2006, or January 1, 2007 for calendar year-end companies. Management is evaluating the impact this Interpretation may have on the Company’s financial statements.

In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets, an amendment of FASB Statement No. 140. This Statement permits entities to choose to either subsequently measure recorded servicing rights at fair value and report changes in fair value in earnings, or amortize servicing rights in proportion to the estimated net servicing income or loss and assess the rights for impairment or the need for an increased obligation. In addition, the Statement, among other things, clarifies when a servicer should separately recognize servicing assets and liabilities, and requires initial fair value measurement, if practicable, of such recognized assets and liabilities.

In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 140. This Statement amends SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, to require evaluation of all interests in securitized financial assets under SFAS 133, eliminating a previous exemption under SFAS 133 for such financial instruments. Entities must now distinguish interests that are freestanding derivatives, hybrid financial instruments containing embedded derivatives requiring bifurcation, or hybrid financial instruments containing embedded derivatives that do not require bifurcation. In addition, the Statement permits fair value remeasurement for any hybrid instrument (on an instrument-by-instrument basis) that contains an embedded derivative that would otherwise require bifurcation. The Statement also amends SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, by eliminating the prohibition on a qualifying special-purpose entity (“QSPE”) from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument.

ZIONS BANCORPORATION AND SUBSIDIARIES

In general, both SFAS 155 and SFAS 156 are effective as of the beginning of an entity’s fiscal year after September 15, 2006, or January 1, 2007 for calendar year-end companies. Management is evaluating the impact both of these Statements may have on the Company’s financial statements.

The Company’s adoption of SFAS No. 123R, Share-Based Payment, is discussed in Note 6.

3. MERGER AND ACQUISITION ACTIVITY

On September 11, 2006, the Company announced that it had signed a definitive agreement to acquire The Stockmen’s Bancorp, Inc. (“Stockmen’s”), headquartered in Kingman, Arizona. As of September 30, 2006, Stockmen’s had approximately $1.2 billion of total assets, $1.1 billion of total deposits, and 32 branches in Arizona and 11 in central California. Consideration of approximately $206 million will consist of approximately 2.6 million shares of the Company’s common stock. The merger is subject to approval by regulators and by Stockmen’s shareholders. Upon completion of the transaction, which is expected in the first quarter of 2007, Stockmen’s parent company will merge into the Company and the banking subsidiary will merge into the Company’s NBA subsidiary.

Effective December 3, 2005, we acquired 100% of the outstanding stock of Amegy Bancorporation, Inc. headquartered in Houston, Texas. The tax-free merger included the formation of a new holding company, Amegy Corporation (“Amegy”), which became a wholly-owned subsidiary of the Company. The merger expanded the Company’s banking presence into Texas. Amegy’s results of operations for the month of December 2005 and for the nine months ended September 30, 2006 were included with the Company’s results of operations.

Details of the merger, including the allocation of the purchase price, are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005. The allocation of the purchase price is subject to change when the determination of Amegy’s asset and liability values is finalized within one year from the merger date. As of September 30, 2006, the allocation had not changed from December 31, 2005. Management currently anticipates that any changes will not be significant.

ZIONS BANCORPORATION AND SUBSIDIARIES

The following unaudited pro forma condensed combined financial information presents the Company’s results of operations assuming the merger had taken place as of January 1, 2005. Also shown for comparative purposes are the historical results of operations for the Company without Amegy (in thousands, except per share amounts):


	Three Months Ended September 30, 2005				Nine Months Ended September 30, 2005
	Pro forma combined		Zions historical without Amegy		Pro forma combined		Zions historical without Amegy
Net interest income	$	399,725	$	340,652	$	1,160,764	$	986,531
Provision for loan losses		14,007		12,107		39,407		32,907
Noninterest income		140,939		110,495		409,669		319,326
Noninterest expense		317,063		247,718		940,847		729,002
Income before income taxes and minority interest		209,594		191,322		590,179		543,948
Net income		136,797		122,970		387,706		352,014

Net income per common share:
Basic	$	1.31	$	1.37	$	3.72	$	3.92
Diluted		1.28		1.34		3.64		3.84

Weighted average shares outstanding during the period:
Basic		104,331		89,980		104,252		89,901
Diluted		106,622		91,605		106,603		91,606

The above pro forma amounts do not reflect cost savings or revenue enhancements anticipated from the acquisition, and are not necessarily indicative of what actually would have occurred if the acquisition had been completed as of the beginning of the period presented, nor are they necessarily indicative of future consolidated results.

Merger related expenses for this merger of $2.5 million and $18.3 million for the three- and nine-month periods ended September 30, 2006 consisted of systems integration and related charges of $0.2 million and $10.3 million, and severance and other employee-related costs of $2.3 million and $8.0 million, respectively.

At September 30, 2006, Amegy’s unpaid accrual for certain exit and termination costs as of the merger date was approximately $3.8 million.

4. LONG-TERM DEBT

On March 31, 2006, we filed an “automatic shelf registration statement” with the Securities and Exchange Commission (“SEC”) as a “well-known seasoned issuer.” The shelf registration replaced a previous shelf registration and covers security issuances of the Company, Zions Capital Trust C and Zions Capital Trust D.

On April 27, 2006 under the new shelf registration, we issued $250 million of floating rate senior notes due April 15, 2008. The notes require quarterly interest payments at three-month LIBOR plus 0.12%. They are not redeemable prior to maturity and are not listed on any national securities exchange. Proceeds from the notes were used to retire all of the $150 million of 2.70% senior notes due May 1, 2006 and all of the remaining $104.2 million of 6.95% subordinated notes due May 15, 2011 and redeemable May 15, 2006.

ZIONS BANCORPORATION AND SUBSIDIARIES

On September 28, 2006 under the new shelf registration, we issued $145 million of floating rate senior notes due September 15, 2008. The notes require quarterly interest payments at three-month LIBOR plus 0.12%. They are not redeemable prior to maturity and are not listed on any national securities exchange. Proceeds from the notes will be used to retire all of the remaining $98.4 million of 6.50% subordinated notes due October 15, 2011 and redeemable October 15, 2006, and applied to the redemption of the $176.3 million of 8.536% trust preferred securities due December 15, 2026 and redeemable December 15, 2006. The Company will incur a premium of approximately $7.3 million on the expected redemption of the trust preferred securities, which will be charged to the statement of income in the fourth quarter of 2006.

5. SHAREHOLDERS’ EQUITY

Changes in accumulated other comprehensive income (loss) are summarized as follows (in thousands):


	Net unrealized gains (losses) on investments, retained interests and other		Net unrealized gains (losses) on derivative instruments		Minimum pension liability		Total
Nine Months Ended September 30, 2006:
Balance, December 31, 2005	$	(10,772)	$	(50,264)	$	(22,007)	$	(83,043)
Other comprehensive loss, net of tax:
Net realized and unrealized holding losses during the period, net of income tax benefit of $6,897		(11,134)						(11,134)
Foreign currency translation		646						646
Reclassification for net realized gains recorded in operations, net of income tax expense of $1,501		(2,424)						(2,424)
Net unrealized gains on derivative instruments, net of reclassification to operations of $(27,568) and income tax expense of $3,278				6,663				6,663

Other comprehensive income (loss)		(12,912)		6,663		–		(6,249)

Balance, September 30, 2006	$	(23,684)	$	(43,601)	$	(22,007)	$	(89,292)


Nine Months Ended September 30, 2005:
Balance, December 31, 2004	$	19,774	$	(9,493)	$	(18,213)	$	(7,932)
Other comprehensive loss, net of tax:
Net realized and unrealized holding losses during the period, net of income tax benefit of $5,650		(9,122)						(9,122)
Foreign currency translation		(1,313)						(1,313)
Reclassification for net realized gains recorded in operations, net of income tax expense of $200		(323)						(323)
Net unrealized losses on derivative instruments, net of reclassification to operations of $10,618 and income tax benefit of $20,991				(33,398)				(33,398)

Other comprehensive loss		(10,758)		(33,398)		–		(44,156)

Balance, September 30, 2005	$	9,016	$	(42,891)	$	(18,213)	$	(52,088)

ZIONS BANCORPORATION AND SUBSIDIARIES

6. SHARE-BASED COMPENSATION

We have a stock option and incentive plan which allows us to grant stock options and restricted stock to employees and nonemployee directors. The total shares authorized under the plan are 8,900,000 of which 6,679,070 shares are available for future grant as of September 30, 2006.

Prior to January 1, 2006, we accounted for share-based compensation under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25 (“APB 25”), Accounting for Stock Issued to Employees, and related Interpretations, as permitted by SFAS No. 123, Accounting for Stock-Based Compensation. Accordingly, we did not record any compensation expense for stock options, as the exercise price of the option was equal to the quoted market price of the stock on the date of grant.

Effective January 1, 2006, we adopted SFAS No. 123R, Share-Based Payment, which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the statement of income based on their fair values. This accounting utilizes a “modified grant-date” approach in which the fair value of an equity award is estimated on the grant date without regard to service or performance vesting conditions. We adopted SFAS 123R using the “modified prospective” transition method. Under this transition method, compensation expense is recognized beginning January 1, 2006 based on the requirements of SFAS 123R for all share-based payments granted after December 31, 2005, and based on the requirements of SFAS 123 for all awards granted to employees prior to January 1, 2006 that remain unvested as of that date. Results of operations for prior periods have not been restated.

The adoption of SFAS 123R, compared to the previous accounting for share-based compensation under APB 25, reduced the Company’s income before income taxes and minority interest and net income along with the related basic and diluted per common share amounts as follows (in thousands, except per share amounts):


	September 30, 2006
	Three Months Ended		Nine Months Ended
Reduction in:
Income before income taxes and minority interest	$	4,815	$	12,881
Net income		3,597		9,166

Net income per common share:
Basic	$	0.03	$	0.09
Diluted		0.03		0.08

As required by SFAS 123R, upon adoption, we reclassified $11.1 million of unearned compensation related to restricted stock from deferred compensation and common stock.

ZIONS BANCORPORATION AND SUBSIDIARIES

The impact on net income and net income per common share if we had applied the provisions of SFAS 123 to stock options for the three- and nine-month periods ended September 30, 2005 was as follows (in thousands, except per share amounts):


	September 30, 2005
	Three Months Ended			Nine Months Ended
Net income, as reported	$	122,970		$	352,014
Deduct: Total share-based compensation expense determined under fair value based method for stock options, net of related tax effects		(3,002	)		(7,456	)

Pro forma net income	$	119,968		$	344,558

Net income per common share:
Basic – as reported	$	1.37		$	3.92
Basic – pro forma		1.33			3.83

Diluted – as reported		1.34			3.84
Diluted – pro forma		1.31			3.76

We classify all share-based awards as equity instruments and recognize the vesting of the awards ratably over their respective terms. As of September 30, 2006, compensation expense not yet recognized for nonvested share-based awards was approximately $49.2 million, which is expected to be recognized over a weighted average period of 1.4 years.

SFAS 123R also requires the benefits of tax deductions in excess of recognized compensation expense resulting from the exercise of share-based awards to be reported as a financing cash flow. For the three- and nine month periods ended September 30, 2006, this requirement reduced net operating cash flows and increased net financing cash flows by approximately $2.7 million and $12.7 million, respectively.

Stock Options

Options granted to employees vest at the rate of one third each year and expire seven years after the date of grant. Options granted to nonemployee directors vest in increments from six months to three and a half years and expire ten years after the date of grant.

In 2005, we discontinued our broad-based employee stock option plan under which options were made available to substantially all employees; however, existing options continue to vest at the rate of one third each year and expire four years after the date of grant.

For the three- and nine-month periods ended September 30, 2006, the additional compensation expense of $4.8 million and $12.9 million, respectively, for stock options under SFAS 123R is included in salaries and employee benefits in the statements of income with the corresponding increase, excluding the effects of stock option expense on subsidiary stock, included in common stock in shareholders’ equity. The related tax benefit recognized as a reduction of income tax expense was $1.2 million and $3.7 million, respectively, for the same periods.

During the three- and nine-month periods ended September 30, 2006, the amount of cash received from the exercise of stock options was $13.1 million and $68.5 million, respectively, and the tax benefit realized as a reduction of income taxes payable was $3.1 million and $14.4 million, respectively. Of these amounts, $0.4 million and $3.9 million reduced goodwill for the tax benefit of vested share-based awards converted in the Amegy acquisition that were exercised during the three- and nine-month periods, and $2.7 million and $10.5 million, respectively, were included in common stock as part of net stock options exercised.

ZIONS BANCORPORATION AND SUBSIDIARIES

Compensation expense was determined from the estimates of fair values of stock options granted using the Black-Scholes option-pricing model. We granted stock options in the second quarter of 2006, but did not grant any stock options in the first and third quarters of 2006. The following significant assumptions were used for options granted:


Weighted average of fair value for options granted	$	15.02
Weighted average assumptions used:
Expected dividend yield		2.0%
Expected volatility		18.0%
Risk-free interest rate		4.96%
Expected life (in years)		4.1

The methodology used to estimate the fair values of stock options is consistent with the estimates used for the pro forma presentation in periods prior to the adoption of SFAS 123R. The preceding assumptions reflect management’s judgment and include consideration of historical experience. The risk-free interest rate is based on the U. S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option.

The following summarizes our stock option activity for the nine months ended September 30, 2006:


	Number of shares	Weighted average exercise price
Balance at December 31, 2005	7,497,566	$	52.79
Granted	977,024		81.14
Exercised	(1,414,688)		49.23
Expired	(40,663)		52.05
Forfeited	(85,116)		61.81

Balance at September 30, 2006	6,934,123		57.40

Outstanding options exercisable as of September 30, 2006	4,416,162	$	50.33

We issue new authorized shares for the exercise of stock options. During the three- and nine-month periods ended September 30, 2006, the total intrinsic value of options exercised was approximately $7.9 million and $44.3 million, respectively.

ZIONS BANCORPORATION AND SUBSIDIARIES

Additional selected information on stock options at September 30, 2006 follows:


	Outstanding options				Exercisable options
Exercise price range	Number of shares	Weighted average exercise price		Weighted average remaining contractual life (years)	Number of shares	Weighted average exercise price
$ 0.32 to $ 19.99	92,443	$	11.92	0.9 (1)	92,443	$	16.14
$ 20.00 to $ 39.99	189,562		27.76	2.5	189,562		27.76
$ 40.00 to $ 44.99	1,346,599		42.21	2.8	1,347,403		42.21
$ 45.00 to $ 49.99	377,219		48.29	4.7	370,219		48.28
$ 50.00 to $ 54.99	1,044,061		53.72	2.7	1,039,414		53.72
$ 55.00 to $ 59.99	1,629,474		56.95	4.7	924,742		56.97
$ 60.00 to $ 64.99	200,366		61.46	2.8	60,224		62.08
$ 65.00 to $ 69.99	204,350		67.29	6.7	141,398		67.47
$ 70.00 to $ 74.99	765,149		70.86	5.8	249,049		70.89
$ 75.00 to $ 82.92	1,084,900		80.58	6.6	1,708		75.58

	6,934,123		57.40	4.4 (1)	4,416,162		50.33

(1)	The weighted average remaining contractual life excludes 35,023 stock options which expire between the date of termination and one year from the date of termination, depending upon certain circumstances.

For outstanding options at September 30, 2006, the aggregate intrinsic value was $156.7 million. For exercisable options at September 30, 2006, the aggregate intrinsic value was $131.8 million and the weighted average remaining contractual life was 3.6 years.

Restricted Stock

Restricted stock granted vests over four years. During the vesting period, the holder has full voting rights and receives dividend equivalents. For the three- and nine-month periods ended September 30, 2006, compensation expense recognized for issuances of restricted stock and included in salaries and employee benefits in the statement of income was $1.9 million and $4.8 million, respectively. Amounts for the corresponding periods in 2005 were $0.6 million and $1.0 million, respectively. The corresponding increase to shareholders’ equity was included in common stock. Compensation expense was determined based on the number of restricted shares granted and the market price of our common stock at the grant date.

The following summarizes our restricted stock activity for the nine months ended September 30, 2006:


	Number of shares	Weighted average grant price
Nonvested restricted shares at December 31, 2005	203,983	$	68.99
Granted	289,125		80.14
Vested	(51,627)		71.42
Forfeited	(18,044)		75.14

Nonvested restricted shares at September 30, 2006	423,437		77.17

The total fair value of restricted stock vesting during the three- and nine-month periods ended September 30, 2006 was $0.4 million and $4.2 million, respectively. Amounts for the corresponding periods in 2005 were not significant.

ZIONS BANCORPORATION AND SUBSIDIARIES

7. GUARANTEES

The following are guarantees issued by the Company (in thousands):


	September 30, 2006		December 31, 2005
Standby letters of credit:
Financial	$	1,158,028	$	1,015,019
Performance		311,424		240,763

	$	1,469,452	$	1,255,782

The Company’s Annual Report on Form 10-K for the year ended December 31, 2005 contains further information on the nature of these letters of credit along with their terms and collateral requirements. At September 30, 2006, the carrying value recorded by the Company as a liability for these guarantees was $4.7 million.

Certain mortgage loans sold have limited recourse provisions for periods ranging from three months to one year. The amount of losses resulting from the exercise of these provisions has not been significant.

As of September 30, 2006, the Parent has guaranteed approximately $476.1 million of debt issued by affiliated trusts issuing trust preferred securities. The trusts and related trust preferred securities are described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005.

Zions Bank provides a liquidity facility (“Liquidity Facility”) for a fee to Lockhart Funding, LLC (“Lockhart”), a QSPE securities conduit. Lockhart purchases floating rate U.S. Government and AAA-rated securities with funds from the issuance of commercial paper. Zions Bank also provides interest rate hedging support and administrative and investment advisory services for a fee. Pursuant to the Liquidity Facility contract, Zions Bank is required to purchase securities from Lockhart to provide funds for Lockhart to repay maturing commercial paper upon Lockhart’s inability to access the commercial paper market, or upon a commercial paper market disruption as specified in governing documents for Lockhart. Pursuant to the governing documents, including the liquidity agreement, if any security in Lockhart is downgraded below AA-, Zions Bank must either 1) place its letter of credit on the security, 2) obtain credit enhancement from a third party, or 3) purchase the security from Lockhart at book value. At any given time, the maximum commitment of Zions Bank is the book value of Lockhart’s securities portfolio, which is not allowed to exceed the size of the Liquidity Facility commitment. At September 30, 2006, the book value of Lockhart’s securities portfolio was $4.7 billion, which approximated market value, and the size of the Liquidity Facility commitment was $6.12 billion. No amounts were outstanding under the Liquidity Facility at September 30, 2006.

The FASB continues to deliberate other projects that propose to amend SFAS 140 in addition to those discussed in Note 2. These include criteria for legal isolation of transferred assets and restrictions on permitted activities of QSPEs. The proposed amendments, among other things, may require changes to the operating activities of QSPEs and other aspects relating to the transfer of financial assets. Subject to the requirements of any final standards when they are issued, Lockhart’s operations may need to be modified to preserve its off-balance sheet status.

ZIONS BANCORPORATION AND SUBSIDIARIES

8. RETIREMENT PLANS

The following disclosures are required for interim financial statements by SFAS No. 132R, Employers’ Disclosures about Pensions and Other Postretirement Benefits (in thousands):


	Pension benefits				Postretirement benefits				Pension benefits				Postretirement benefits
	Three Months Ended September 30,								Nine Months Ended September 30,
	2006		2005		2006		2005		2006		2005		2006		2005
Service cost (credit)	$	168	$	373	$	(33)	$	29	$	426	$	659	$	32	$	89
Interest cost (credit)		2,900		5,775		(105)		86		7,200		10,044		66		261
Expected return on plan assets		(3,447)		(6,833)		–		–		(8,627)		(12,041)		–		–
Amortization of net actuarial (gain) loss		672		1,238		108		(86)		1,655		1,958		(26)		(261)

Net periodic benefit cost (credit)	$	293	$	553	$	(30)	$	29	$	654	$	620	$	72	$	89

These disclosures include revisions made to the annual estimate of net periodic pension benefit cost by the Company’s actuary in the third quarters of 2006 and 2005.

As disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005, we expect to contribute $634 thousand in 2006 to meet estimated benefit payments to participants in our postretirement health and welfare plan. As of September 30, 2006, we have contributed $472 thousand of this amount and expect to contribute the remaining portion during the rest of 2006. In September 2006, we contributed $10 million to the pension plan. As disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005, the Company’s contributions for individual benefit payments in the postretirement plan were frozen in 2000 and participation and benefit accruals for the pension plan were frozen effective January 1, 2003.

9. OPERATING SEGMENT INFORMATION

We manage our operations and prepare management reports and other information with a primary focus on geographical area. As of September 30, 2006, we operate eight community/regional banks in distinct geographical areas. Performance assessment and resource allocation are based upon this geographical structure. Zions Bank operates 111 branches in Utah and 24 in Idaho. CB&T operates 91 branches in California. Amegy operates 77 branches in Texas. NBA operates 53 branches in Arizona. NSB operates 72 branches in Nevada. Vectra operates 39 branches in Colorado and one branch in New Mexico. TCBW operates one branch in the state of Washington. TCBO operates one branch in Oregon. The operating segment identified as “Other” includes the Parent, certain nonbank financial service and financial technology subsidiaries, other smaller nonbank operating units, TCBO, and eliminations of transactions between segments. Results for Amegy only include the three- and nine month periods ended September 30, 2006.

The accounting policies of the individual operating segments are the same as those of the Company. Transactions between operating segments are primarily conducted at fair value, resulting in profits that are eliminated for reporting consolidated results of operations. Operating segments pay for centrally provided services based upon estimated or actual usage of those services.

ZIONS BANCORPORATION AND SUBSIDIARIES

The following table presents selected operating segment information for the three months ended September 30, 2006 and 2005:


	Zions Bank				CB&T				Amegy				NBA				NSB
(In millions)	2006		2005		2006		2005		2006		2005		2006		2005		2006		2005
CONDENSED INCOME STATEMENT
Net interest income excluding hedge income	$	122.1	$	104.2	$	122.5	$	113.3	$	77.4			$	56.4	$	48.3	$	51.5	$	44.7
Hedge income recorded directly at subsidiary		(0.6)		(0.3)		(5.8)		(0.5)		(0.6)				(1.3)		0.4		(1.3)		0.2
Allocated hedge income		0.3		0.7		–		–		–				(0.1)		(0.2)		–		(0.1)

Net interest income		121.8		104.6		116.7		112.8		76.8				55.0		48.5		50.2		44.8
Provision for loan losses		1.7		6.0		5.0		4.5		2.8				0.9		1.9		1.7		(0.9)

Net interest income after provision for loan losses		120.1		98.6		111.7		108.3		74.0				54.1		46.6		48.5		45.7
Noninterest income		61.1		68.7		22.7		19.1		29.5				7.0		6.0		8.5		7.7
Amortization of core deposit and other intangibles		0.4		0.5		1.9		1.9		7.1				0.4		0.5		0.2		0.2
Other noninterest expense		106.4		97.7		59.7		57.7		65.2				26.2		23.8		28.3		26.6

Income before income taxes and minority interest		74.4		69.1		72.8		67.8		31.2				34.5		28.3		28.5		26.6
Income tax expense (benefit)		25.4		23.1		29.4		27.3		9.6				13.8		11.2		10.0		9.2
Minority interest		–		–		–		–		0.5				–		–		–		–

Net income (loss)	$	49.0	$	46.0	$	43.4	$	40.5	$	21.1			$	20.7	$	17.1	$	18.5	$	17.4

AVERAGE BALANCE SHEET DATA
Assets	$	13,882	$	12,497	$	10,739	$	10,236	$	9,188			$	4,509	$	3,972	$	3,984	$	3,693
Net loans and leases		9,768		8,523		8,139		7,269		5,794				4,005		3,464		3,257		2,791
Deposits		9,945		8,620		8,390		8,627		6,441				3,467		3,420		3,370		3,271
Shareholder’s equity		933		791		1,133		1,048		1,786				339		289		265		234

	Vectra				TCBW				Other				Consolidated Company
(In millions)	2006		2005		2006		2005		2006		2005		2006		2005
CONDENSED INCOME STATEMENT
Net interest income excluding hedge income	$	25.5	$	22.6	$	8.7	$	7.5	$	(4.7)	$	0.2	$	459.4	$	340.8
Hedge income recorded directly at subsidiary		(1.9)		(0.1)		(0.5)		(0.1)		(0.8)		0.2		(12.8)		(0.2)
Allocated hedge income		(0.1)		(0.3)		(0.1)		(0.1)		–		–		–		–

Net interest income		23.5		22.2		8.1		7.3		(5.5)		0.4		446.6		340.6
Provision for loan losses		2.1		0.3		0.2		0.3		–		–		14.4		12.1

Net interest income after provision for loan losses		21.4		21.9		7.9		7.0		(5.5)		0.4		432.2		328.5
Noninterest income		8.0		6.3		0.5		0.4		8.0		2.3		145.3		110.5
Amortization of core deposit and other intangibles		0.5		0.5		–		–		0.2		0.1		10.7		3.7
Other noninterest expense		20.4		21.6		3.4		3.0		9.7		13.6		319.3		244.0

Income before income taxes and minority interest		8.5		6.1		5.0		4.4		(7.4)		(11.0)		247.5		191.3
Income tax expense (benefit)		3.0		2.2		1.6		1.3		(9.0)		(6.1)		83.8		68.2
Minority interest		–		–		–		–		9.5		0.1		10.0		0.1

Net income (loss)	$	5.5	$	3.9	$	3.4	$	3.1	$	(7.9)	$	(5.0)	$	153.7	$	123.0

AVERAGE BALANCE SHEET DATA
Assets	$	2,332	$	2,324	$	800	$	781	$	(754)	$	(285)	$	44,680	$	33,218
Net loans and leases		1,648		1,511		417		375		78		76		33,106		24,009
Deposits		1,654		1,645		457		429		(760)		(1,205)		32,964		24,807
Shareholder’s equity		307		296		54		50		(271)		265		4,546		2,973

ZIONS BANCORPORATION AND SUBSIDIARIES

The following table presents selected operating segment information for the nine months ended September 30, 2006 and 2005:


	Zions Bank				CB&T				Amegy				NBA				NSB
(In millions)	2006		2005		2006		2005		2006		2005		2006		2005		2006		2005
CONDENSED INCOME STATEMENT
Net interest income excluding hedge income	$	344.1	$	300.7	$	365.6	$	330.9	$	227.8			$	162.1	$	134.8	$	149.6	$	123.9
Hedge income recorded directly at subsidiary		(1.6)		2.6		(12.9)		2.4		(0.6)				(2.1)		1.3		(2.5)		1.1
Allocated hedge income		0.4		(0.5)		–		–		–				(0.1)		0.1		–		–

Net interest income		342.9		302.8		352.7		333.3		227.2				159.9		136.2		147.1		125.0
Provision for loan losses		15.6		19.7		11.5		7.0		5.1				3.5		4.8		6.6		(0.4)

Net interest income after provision for loan losses		327.3		283.1		341.2		326.3		222.1				156.4		131.4		140.5		125.4
Noninterest income		185.4		200.1		61.0		56.7		85.4				19.0		16.5		23.3		23.4
Amortization of core deposit and other intangibles		1.4		1.5		5.6		5.6		21.3				1.3		1.5		0.4		0.4
Other noninterest expense		306.7		284.7		180.0		177.3		191.2				76.8		70.5		83.3		77.5

Income before income taxes and minority interest		204.6		197.0		216.6		200.1		95.0				97.3		75.9		80.1		70.9
Income tax expense (benefit)		69.1		65.2		87.8		80.7		29.4				38.6		30.2		27.9		24.5
Minority interest		(0.1)		(0.1)		–		–		0.5				–		–		–		–

Net income (loss)	$	135.6	$	131.9	$	128.8	$	119.4	$	65.1			$	58.7	$	45.7	$	52.2	$	46.4

AVERAGE BALANCE SHEET DATA
Assets	$	13,516	$	12,367	$	10,908	$	10,165	$	9,176			$	4,375	$	3,809	$	3,872	$	3,518
Net loans and leases		9,213		8,265		7,980		7,163		5,591				3,863		3,297		3,109		2,679
Deposits		9,656		8,335		8,437		8,450		6,490				3,522		3,255		3,281		3,086
Shareholder’s equity		874		771		1,113		1,044		1,786				317		279		251		228

	Vectra				TCBW				Other				Consolidated Company
(In millions)	2006		2005		2006		2005		2006		2005		2006		2005
CONDENSED INCOME STATEMENT
Net interest income excluding hedge income	$	74.7	$	64.7	$	26.2	$	21.5	$	(16.9)	$	(0.6)	$	1,333.2	$	975.9
Hedge income recorded directly at subsidiary		(4.2)		1.5		(1.3)		0.1		(2.3)		1.6		(27.5)		10.6
Allocated hedge income		(0.2)		0.3		(0.1)		0.1		–		–		–		–

Net interest income		70.3		66.5		24.8		21.7		(19.2)		1.0		1,305.7		986.5
Provision for loan losses		2.9		0.9		0.6		0.9		0.1		–		45.9		32.9

Net interest income after provision for loan losses		67.4		65.6		24.2		20.8		(19.3)		1.0		1,259.8		953.6
Noninterest income		20.7		19.8		1.4		1.2		15.1		1.6		411.3		319.3
Amortization of core deposit and other intangibles		1.6		1.6		–		–		0.5		0.2		32.1		10.8
Other noninterest expense		62.4		63.8		10.2		9.2		44.8		35.2		955.4		718.2

Income before income taxes and minority interest		24.1		20.0		15.4		12.8		(49.5)		(32.8)		683.6		543.9
Income tax expense (benefit)		8.7		7.1		5.0		3.9		(28.6)		(17.3)		237.9		194.3
Minority interest		–		–		–		–		8.7		(2.3)		9.1		(2.4)

Net income (loss)	$	15.4	$	12.9	$	10.4	$	8.9	$	(29.6)	$	(13.2)	$	436.6	$	352.0

AVERAGE BALANCE SHEET DATA
Assets	$	2,314	$	2,302	$	796	$	761	$	(1,246)	$	(390)	$	43,711	$	32,532
Net loans and leases		1,595		1,480		409		373		75		86		31,835		23,343
Deposits		1,623		1,592		455		425		(1,073)		(1,198)		32,391		23,945
Shareholder’s equity		301		312		52		50		(266)		208		4,428		2,892

ZIONS BANCORPORATION AND SUBSIDIARIES

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS

FINANCIAL HIGHLIGHTS

(Unaudited)


(In thousands, except per share and ratio data)	Three Months Ended September 30,					Nine Months Ended September 30,
(In thousands, except per share and ratio data)	2006		2005		% Change	2006		2005		% Change

EARNINGS
Taxable-equivalent net interest income	$	452,606	$	345,826	30.88%	$	1,323,691	$	1,002,034	32.10%
Taxable-equivalent revenue		597,935		456,321	31.03%		1,735,019		1,321,360	31.31%
Net interest income		446,511		340,652	31.08%		1,305,685		986,531	32.35%
Noninterest income		145,329		110,495	31.53%		411,328		319,326	28.81%
Provision for loan losses		14,363		12,107	18.63%		45,897		32,907	39.47%
Noninterest expense		330,028		247,718	33.23%		987,511		729,002	35.46%
Income before income taxes and minority interest		247,449		191,322	29.34%		683,605		543,948	25.67%
Income taxes		83,790		68,200	22.86%		237,869		194,279	22.44%
Minority interest		9,985		152	6,469.08%		9,119		(2,345)	488.87%
Net income		153,674		122,970	24.97%		436,617		352,014	24.03%

PER COMMON SHARE
Net income (diluted)		1.42		1.34	5.97%		4.04		3.84	5.21%
Dividends		0.36		0.36	–		1.08		1.08	–
Book value							43.47		33.30	30.54%

SELECTED RATIOS
Return on average assets		1.36%		1.47%			1.34%		1.45%
Return on average common equity		13.41%		16.41%			13.18%		16.27%
Efficiency ratio		55.19%		54.29%			56.92%		55.17%
Net interest margin		4.58%		4.59%			4.64%		4.57%

ZIONS BANCORPORATION AND SUBSIDIARIES

FINANCIAL HIGHLIGHTS (Continued)

(Unaudited)


(In thousands, except share and ratio data)	Three Months Ended September 30,					Nine Months Ended September 30,
(In thousands, except share and ratio data)	2006		2005		% Change	2006		2005		% Change

AVERAGE BALANCES
Total assets	$	44,680,382	$	33,218,477	34.50%	$	43,710,533	$	32,531,725	34.36 %
Securities		5,605,249		4,993,735	12.25%		5,849,953		5,091,701	14.89 %
Net loans and leases		33,105,716		24,009,024	37.89%		31,834,510		23,343,316	36.38 %
Goodwill		1,881,708		638,957	194.50%		1,884,462		640,151	194.38 %
Core deposit and other intangibles		175,259		52,276	235.26%		185,619		53,964	243.97 %
Total deposits		32,964,029		24,807,387	32.88%		32,390,954		23,945,430	35.27 %
Core deposits (1)		29,427,975		23,029,389	27.78%		29,394,957		22,376,328	31.37 %
Minority interest		37,854		26,220	44.37%		31,556		25,270	24.88 %
Shareholders’ equity		4,545,990		2,972,615	52.93%		4,428,182		2,892,162	53.11 %

Weighted average common and common- equivalent shares outstanding		108,061,423		91,605,279	17.96%		107,949,894		91,606,315	17.84 %

AT PERIOD END
Total assets						$	45,777,747	$	33,422,701	36.97 %
Securities							5,817,571		4,992,339	16.53 %
Net loans and leases							33,706,110		23,930,017	40.85 %
Sold loans being serviced (2)							2,796,644		3,561,818	(21.48)%
Allowance for loan losses							356,342		287,237	24.06 %
Allowance for unfunded lending commitments							18,637		15,830	17.73 %
Goodwill							1,884,328		639,120	194.83 %
Core deposit and other intangibles							168,135		47,670	252.71 %
Total deposits							33,640,991		25,399,741	32.45 %
Core deposits (1)							30,027,827		23,507,531	27.74 %
Minority interest							41,158		26,719	54.04 %
Shareholders’ equity							4,643,166		2,999,173	54.81 %

Common shares outstanding							106,804,606		90,067,016	18.58 %

Average equity to average assets		10.17%		8.95%			10.13%		8.89%
Common dividend payout		25.00%		26.47%			26.31%		27.74%
Tangible common equity ratio							5.92%		7.06%
Nonperforming assets							74,815		83,101	(9.97)%
Accruing loans past due 90 days or more							20,407		15,836	28.86 %
Nonperforming assets to net loans and leases and other real estate owned at period end							0.22%		0.35%

(1)	Amount consists of total deposits excluding time deposits $100,000 and over.

(2)	Amount represents the outstanding balance of loans sold and being serviced by the Company, excluding conforming first mortgage residential real estate loans.

ZIONS BANCORPORATION AND SUBSIDIARIES

FORWARD-LOOKING INFORMATION

Statements in Management’s Discussion and Analysis that are based on other than historical data are forward-looking, within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations or forecasts of future events and include, among others:

•

statements with respect to the Company’s beliefs, plans, objectives, goals, guidelines, expectations, anticipations, and future financial condition, results of operations and performance;

•

statements preceded by, followed by or that include the words “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “projects,” or similar expressions.

These forward-looking statements are not guarantees of future performance, nor should they be relied upon as representing management’s views as of any subsequent date. Forward-looking statements involve significant risks and uncertainties and actual results may differ materially from those presented, either expressed or implied, in Management’s Discussion and Analysis. Factors that might cause such differences include, but are not limited to:

•

the Company’s ability to successfully execute its business plans, manage its risks, and achieve its objectives;

•

changes in political and economic conditions, including the economic effects of terrorist attacks against the United States and related events;

•

changes in financial market conditions, either nationally or locally in areas in which the Company conducts its operations, including without limitation, reduced rates of business formation and growth, commercial real estate development and real estate prices;

•

fluctuations in the equity and fixed-income markets;

•

changes in interest rates, the quality and composition of the loan and securities portfolios, demand for loan products, deposit flows and competition;

•

acquisitions and integration of acquired businesses;

•

increases in the levels of losses, customer bankruptcies, claims and assessments;

•

changes in fiscal, monetary, regulatory, trade and tax policies and laws, including policies of the U.S. Treasury and the Federal Reserve Board;

•

continuing consolidation in the financial services industry;

•

new litigation or changes in existing litigation;

•

success in gaining regulatory approvals, when required;

•

changes in consumer spending and savings habits;

•

increased competitive challenges and expanding product and pricing pressures among financial institutions;

•

demand for financial services in Zions’ market areas;

•

inflation and deflation;

•

technological changes and Zions’ implementation of new technologies;

•

Zions’ ability to develop and maintain secure and reliable information technology systems;

•

legislation or regulatory changes which adversely affect the Company’s operations or business;

•

the Company’s ability to comply with applicable laws and regulations; and

•

changes in accounting policies or procedures as may be required by the Financial Accounting Standards Board or regulatory agencies.

Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in the 2005 Annual Report on Form 10-K of Zions Bancorporation filed with the Securities and Exchange Commission (“SEC”) and available at the SEC’s Internet site (http://www.sec.gov).

ZIONS BANCORPORATION AND SUBSIDIARIES

The Company specifically disclaims any obligation to update any factors or to publicly announce the result of revisions to any of the forward-looking statements included herein to reflect future events or developments.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES

The Company has made no significant changes in its critical accounting policies and significant estimates from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2005, except as noted below.

Share-Based Compensation

Note 6 of the Notes to Consolidated Financial Statements discusses the Company’s adoption on January 1, 2006 of SFAS No. 123R, Share-Based Payment (“SFAS 123R”), which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the statement of income based on their fair values. The Company adopted SFAS 123R using the “modified prospective” transition method and did not restate results of operations for prior periods. Rather, the Company presented the pro forma effect on operations as if it had adopted the provisions of SFAS 123.

The Company uses the Black-Scholes option-pricing model to estimate the fair value of stock options granted under SFAS 123R and for the pro forma presentations in prior periods. Use of the assumptions described in Note 6 is subjective and requires judgment. The adoption of SFAS 123R decreased income before income taxes and net income by approximately $4.8 million and $3.6 million, respectively, for the three months ended September 30, 2006, or $0.03 per diluted share, and $12.9 million and $9.2 million, respectively for the nine months ended September 30, 2006, or $0.08 per diluted share. The Company currently estimates that the adoption of SFAS 123R will reduce 2006 pretax income by approximately $17 million. In 2005, the Company began granting shares of restricted stock in connection with the adoption of a new stock option and incentive plan. See Note 6 for additional information on stock options and restricted stock.

Securitization Transactions

During the third quarter of 2006, the Company adjusted its valuation assumptions for retained beneficial interests under the rules contained in Emerging Issues Task Force Issue No. 99-20, Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets, (“EITF 99-20”). These rules require the Company to periodically update its assumptions used to compute estimated cash flows for its retained beneficial interests and compare the net present value of these cash flows to the carrying value. The Company complies with EITF 99-20 by evaluating and updating its default assumption as compared to the historical credit losses and the credit loss expectation of the portfolio and its prepayment speed assumption as compared to the historical prepayment speeds and prepayment rate expectation. During this re-evaluation, the Company also decreased its discount rate from 15% to a range of 13%-14% on the eight SBA retained interest securities based on an analysis as required by EITF 99-20. An impairment charge is required under EITF 99-20 if the estimated market yield is lower than the current accretable yield and the security has a market value less than its carrying value.

The Company’s portfolio has eight SBA retained interest securities and four of the securities required impairment charges at September 30, 2006 following the application of EITF 99-20. As a result, the Company recorded an impairment loss on the value of the retained beneficial interests of $4.1 million before income taxes resulting in a $2.5 million reduction of net income or $(0.02) per diluted share. The primary factor that influenced the impairment of the four securities was higher prepayment speeds than was previously estimated.

ZIONS BANCORPORATION AND SUBSIDIARIES

RESULTS OF OPERATIONS

As previously disclosed, the Company completed its acquisition of Amegy Bancorporation, Inc. in December 2005. All comparisons to 2005 periods reflect the effects of the Amegy acquisition.

Zions Bancorporation (“the Parent”) and subsidiaries (collectively “Zions,” “the Company,” “we,” “our”) reported net income of $153.7 million, or $1.42 per diluted share for the third quarter of 2006 compared with $123.0 million, or $1.34 per diluted share for the third quarter of 2005. The annualized return on average assets was 1.36% for the third quarter of 2006 compared to 1.47% for the third quarter of 2005. For the same comparative periods, the annualized return on average common equity was 13.41% compared to 16.41%. The efficiency ratio for the third quarter of 2006 was 55.2% compared to 57.4% for the second quarter of 2006 and 54.3% for the third quarter of 2005. However, the efficiency ratio this quarter was favorably impacted by the inclusion in revenue of the full amount of venture capital gains discussed under “Noninterest Income.” When adjusted to exclude from revenue the minority interest related to these venture capital gains, the efficiency ratio would be 56.1%.

Net income for the first nine months of 2006 was $436.6 million or $4.04 per diluted share, compared to $352.0 million or $3.84 per diluted share for the first nine months of 2005. For the first nine months of 2006, the annualized return on average assets was 1.34% compared to 1.45% for the same period of 2005. For the same comparative periods, the annualized return on average common equity was 13.18% compared to 16.27%. The efficiency ratio for the first nine months of 2006 was 56.9% compared to 55.2% for 2005.

Net Interest Income, Margin and Interest Rate Spreads

Taxable-equivalent net interest income for the third quarter of 2006 increased 30.9% to $452.6 million compared with $345.8 million for the comparable period of 2005. The increase reflects primarily the acquisition of Amegy and strong growth in the loan portfolio. For the first nine months of 2006, net interest income on a fully taxable-equivalent basis was $1.3 billion, an increase of 32.1% compared to $1.0 billion in 2005. The incremental tax rate used for calculating all taxable-equivalent adjustments is 35% for all periods presented.

The Company’s net interest margin was 4.58% for the third quarter of 2006, compared to 4.64% for the second quarter of 2006 and 4.59% for the third quarter of 2005. The net interest margin has remained relatively stable during the last twelve months, although the strong loan growth coupled with weaker low-cost deposit growth has required the use of alternative, more expensive sources of funding in recent quarters. This has placed downward pressure on the net interest margin since its recent peak in the first quarter of 2006.

One of the challenges we continue to face in 2006 is an increase in pricing pressures on both loans and deposits as the economy expands and competition for good business increases. Reflecting this pricing pressure and the changing composition of funding sources just described, the spread on average interest-bearing funds for the third quarter for 2006 was 3.69%, down from 3.81% and 3.93% from the second quarter of 2006 and third quarter of 2005, respectively. The yield on average earning assets increased 21 basis points during the third quarter of 2006 compared to the second quarter and 99 basis points compared to the third quarter of 2005. The average rate paid this quarter on interest-bearing funds increased 33 basis points from the second quarter and 123 basis points from the third quarter of 2005.

The Company expects to continue its efforts to maintain a slightly “asset sensitive” position with regard to interest rate risk. However, our estimates of the Company’s actual position are highly dependent upon changes in both short-term and long-term interest rates, modeling assumptions, and the actions of competitors and customers in response to those changes.

ZIONS BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED AVERAGE BALANCE SHEETS, YIELDS AND RATES

(Unaudited)


	Three Months Ended September 30, 2006					Three Months Ended September 30, 2005
(In thousands)	Average balance		Amount of interest (1)		Average rate	Average balance		Amount of interest (1)		Average rate
ASSETS
Money market investments	$	461,418	$	6,431	5.53%	$	915,954	$	7,723	3.35%
Securities:
Held to maturity		643,942		11,036	6.80%		641,745		11,159	6.90%
Available for sale		4,825,151		69,292	5.70%		3,866,988		50,582	5.19%
Trading account		136,156		1,621	4.72%		485,002		4,753	3.89%

Total securities		5,605,249		81,949	5.80%		4,993,735		66,494	5.28%

Loans:
Loans held for sale		259,540		4,275	6.53%		187,692		2,462	5.20%
Net loans and leases (2)		32,846,176		645,183	7.79%		23,821,332		411,772	6.86%

Total loans and leases		33,105,716		649,458	7.78%		24,009,024		414,234	6.85%

Total interest-earning assets		39,172,383		737,838	7.47%		29,918,713		488,451	6.48%

Cash and due from banks		1,458,223					1,123,297
Allowance for loan losses		(351,495)					(284,423)
Goodwill		1,881,708					638,957
Core deposit and other intangibles		175,259					52,276
Other assets		2,344,304					1,769,657

Total assets	$	44,680,382				$	33,218,477

LIABILITIES
Interest-bearing deposits:
Savings and NOW	$	5,298,397		21,223	1.59%	$	4,341,774		9,498	0.87%
Money market		10,526,512		88,187	3.32%		9,006,189		50,041	2.20%
Time under $100,000		2,093,886		20,664	3.92%		1,522,194		10,941	2.85%
Time $100,000 and over		3,536,054		40,876	4.59%		1,777,998		14,954	3.34%
Foreign		2,043,999		25,095	4.87%		715,838		5,641	3.13%

Total interest-bearing deposits		23,498,848		196,045	3.31%		17,363,993		91,075	2.08%

Borrowed funds:
Securities sold, not yet purchased		62,661		715	4.53%		503,722		4,660	3.67%
Federal funds purchased and security repurchase agreements		2,725,315		31,547	4.59%		2,186,773		16,368	2.97%
Commercial paper		246,220		3,375	5.44%		143,239		1,294	3.58%
FHLB advances and other borrowings:
One year or less		832,503		11,331	5.40%		107,606		891	3.29%
Over one year		133,124		1,859	5.54%		226,786		2,885	5.05%
Long-term debt		2,458,900		40,360	6.51%		1,701,575		25,452	5.93%

Total borrowed funds		6,458,723		89,187	5.48%		4,869,701		51,550	4.20%

Total interest-bearing liabilities		29,957,571		285,232	3.78%		22,233,694		142,625	2.55%

Noninterest-bearing deposits		9,465,181					7,443,394
Other liabilities		673,786					542,554

Total liabilities		40,096,538					30,219,642
Minority interest		37,854					26,220
Total shareholders’ equity		4,545,990					2,972,615

Total liabilities and shareholders’ equity	$	44,680,382				$	33,218,477

Spread on average interest-bearing funds					3.69%					3.93%
Taxable-equivalent net interest income and net yield on interest-earning assets			$	452,606	4.58%			$	345,826	4.59%

(1) Taxable-equivalent rates used where applicable.

(2) Net of unearned income and fees, net of related costs. Loans include nonaccrual and restructured loans.

ZIONS BANCORPORATION AND SUBSIDIARIES

CONSOLIDATED AVERAGE BALANCE SHEETS, YIELDS AND RATES (Continued)

(Unaudited)


	Nine Months Ended September 30, 2006						Nine Months Ended September 30, 2005
(In thousands)	Average balance		Amount of interest (1)		Average rate		Average balance		Amount of interest (1)		Average rate
ASSETS
Money market investments	$	482,621	$	18,188	5.04	%	$	865,182	$	18,402	2.84	%
Securities:
Held to maturity		640,245		32,712	6.83	%		640,090		33,245	6.94	%
Available for sale		5,053,420		214,249	5.67	%		3,919,114		149,204	5.09	%
Trading account		156,288		5,690	4.87	%		532,497		15,832	3.98	%

Total securities		5,849,953		252,651	5.77	%		5,091,701		198,281	5.21	%

Loans:
Loans held for sale		266,050		12,376	6.22	%		190,604		6,683	4.69	%
Net loans and leases (2)		31,568,460		1,791,205	7.59	%		23,152,712		1,153,991	6.66	%

Total loans and leases		31,834,510		1,803,581	7.57	%		23,343,316		1,160,674	6.65	%

Total interest-earning assets		38,167,084		2,074,420	7.27	%		29,300,199		1,377,357	6.29	%

Cash and due from banks		1,479,054						1,073,089
Allowance for loan losses		(345,925)						(278,708)
Goodwill		1,884,462						640,151
Core deposit and other intangibles		185,619						53,964
Other assets		2,340,239						1,743,030

Total assets	$	43,710,533					$	32,531,725

LIABILITIES
Interest-bearing deposits:
Savings and NOW	$	5,050,281		51,566	1.37	%	$	4,322,260		25,498	0.79	%
Money market		10,850,821		241,598	2.98	%		8,890,776		124,013	1.86	%
Time under $100,000		2,012,586		53,998	3.59	%		1,463,881		28,398	2.59	%
Time $100,000 and over		2,995,997		93,296	4.16	%		1,569,102		35,780	3.05	%
Foreign		1,964,021		66,250	4.51	%		573,938		11,802	2.75	%

Total interest-bearing deposits		22,873,706		506,708	2.96	%		16,819,957		225,491	1.79	%

Borrowed funds:
Securities sold, not yet purchased		60,818		2,052	4.51	%		507,137		13,903	3.67	%
Federal funds purchased and security repurchase agreements		2,734,524		86,520	4.23	%		2,314,856		44,783	2.59	%
Commercial paper		215,100		8,217	5.11	%		149,637		3,471	3.10	%
FHLB advances and other borrowings:
One year or less		550,737		21,632	5.25	%		269,859		5,837	2.89	%
Over one year		153,524		6,443	5.61	%		227,319		8,587	5.05	%
Long-term debt		2,479,316		119,157	6.43	%		1,694,642		73,251	5.78	%

Total borrowed funds		6,194,019		244,021	5.27	%		5,163,450		149,832	3.88	%

Total interest-bearing liabilities		29,067,725		750,729	3.45	%		21,983,407		375,323	2.28	%

Noninterest-bearing deposits		9,517,248						7,125,473
Other liabilities		665,822						505,413

Total liabilities		39,250,795						29,614,293
Minority interest		31,556						25,270
Total shareholders’ equity		4,428,182						2,892,162

Total liabilities and shareholders’ equity	$	43,710,533					$	32,531,725

Spread on average interest-bearing funds					3.82	%					4.01	%
Taxable-equivalent net interest income andnet yield on interest-earning assets			$	1,323,691	4.64	%			$	1,002,034	4.57	%

(1) Taxable-equivalent rates used where applicable.

(2) Net of unearned income and fees, net of related costs. Loans include nonaccrual and restructured loans.

ZIONS BANCORPORATION AND SUBSIDIARIES

Provisions for Credit Losses

The provision for loan losses is the amount of expense that, based on our judgment, is required to maintain the allowance for loan losses at an adequate level based upon the inherent risks in the portfolio. The provision for unfunded lending commitments is used to maintain the allowance for unfunded lending commitments at an adequate level. See “Credit Risk Management” for more information on how we determine the appropriate level for the allowances for loan and lease losses and unfunded lending commitments.

The provision for loan losses for the third quarter was $14.4 million compared to $12.1 million for the same period in 2005. On an annualized basis, the provision was 0.17% and 0.20% of average loans for the third quarters of 2006 and 2005, respectively. The provision for unfunded lending commitments was $1.0 million for the third quarter of 2006 compared to $0.4 million for the third quarter of 2005. When combined, the provisions for credit losses for the third quarter of 2006 were $15.4 million compared to $12.5 million for the third quarter of 2005.

The provision for loan losses for the first nine months of 2006 was $45.9 million, 39.5% greater than the $32.9 million provision for the first nine months of 2005. The increased loan loss provision for the nine months is primarily impacted by strong net loan growth of $3.6 billion during the first nine months of 2006, which includes Amegy, as compared to $1.3 billion net loan growth during the first nine months of 2005. The provision for unfunded lending commitments was $0.5 million for the first nine months of 2006 compared to $3.1 million for the same period in 2005. From period to period, the amounts of unfunded lending commitments may be subject to sizeable fluctuation due to changes in the timing and volume of loan originations and fundings. The related provision will generally reflect these fluctuations.

Noninterest Income

Compared with the third quarter of 2005, noninterest income for the third quarter of 2006 increased 31.5%, or $34.8 million. The increases in total and individual categories of noninterest income for the third quarter of 2006 compared to the third quarter of 2005 were mainly due to the Amegy acquisition. Significant changes and trends in noninterest income categories not resulting from the Amegy acquisition are discussed as follows.

Excluding Amegy, loan sales and servicing income decreased $10.0 million for the third quarter of 2006 compared to the third quarter of 2005. The decrease includes a $4.1 million impairment loss on capitalized residual cash flows from certain previous small business loan securitizations and lower servicing income due to lower loan balances being serviced during the third quarter of 2006. In addition, the Company recognized a gain of $2.6 million during the third quarter of 2005 from the securitization of small business loans; however, the Company did not securitize any loans during the third quarter of 2006.

Net equity securities gains increased $12.1 million to $13.2 million for the third quarter of 2006 compared to $1.1 million for the third quarter of 2005. The increase was primarily due to $12.9 million of net gains on venture capital investments. Net of related minority interest of $9.5 million, income taxes and other expenses, venture capital investments contributed $1.7 million to net income in the third quarter of 2006. Fixed income securities gains were $1.6 million for the third quarter of 2006 compared to $0.3 million for the comparative period of 2005.

ZIONS BANCORPORATION AND SUBSIDIARIES

Noninterest income for the first nine months of 2006 of $411.3 million increased 28.8% from $319.3 million for the first nine months of 2005. Explanations previously provided for the quarterly changes also apply to the year-to-date changes. Additional explanations of variances follow.

Trust and investment management income for the first nine months of 2006 increased 29.7% compared to the same period in 2005 as a result of increases in fees from the Amegy acquisition and increased fees from the trust and investment management business. Excluding the Amegy acquisition, trust and investment management income for the first nine months of 2006 increased 11.9%.

Dividends and other investment income for the first nine months of 2006, excluding Amegy, decreased $3.3 million or 14.8% compared with the same period in 2005. The decrease is primarily due to lower equity earnings from various investments in unconsolidated companies.

Noninterest Expense

Noninterest expense for the third quarter of 2006 of $330.0 million increased $82.3 million or 33.2% over the $247.7 million for the third quarter of 2005. The increases in total and individual categories of noninterest expense for the third quarter of 2006 compared to the third quarter of 2005 were mainly due to the Amegy acquisition. The Company’s efficiency ratio was 55.2% for the third quarter of 2006 compared to 54.3% for the same period of 2005. However, the efficiency ratio this quarter was favorably impacted by the inclusion in revenue of the full amount of venture capital gains noted previously. When adjusted to exclude from revenue the minority interest related to these venture capital gains, the efficiency ratio would be 56.1%. The deterioration in the efficiency ratio reflects higher noninterest expenses, including merger related expenses and amortization of intangibles related to the acquisition of Amegy, and a higher cost structure at Amegy. Significant changes and trends in noninterest expense categories not resulting from the Amegy acquisition are discussed as follows.

Salaries and employee benefits increased $48.0 million or 33.6%, compared to the third quarter of 2005. Excluding Amegy-related salaries and employee benefits of $34.1 million and share-based compensation expense of $4.8 million due to the adoption of SFAS 123R, salaries and employee benefits increased $9.1 million or 6.4%. In addition to salary increases and increased staffing levels in selected areas, this increase was also due to increased staffing for sales and business development and to the redeployment of technical staff from the Amegy conversion to other systems conversions.

Noninterest expense for the first nine months of 2006 of $987.5 million increased 35.5% from $729.0 million for the first nine months of 2005. The Company’s efficiency ratio was 56.9% for the first nine months of 2006 compared to 55.2% for the same period of 2005. Explanations previously provided for the quarterly changes also apply to the year-to-date changes. Additional explanations of variances follow.

Excluding the impact of the Amegy acquisition, salaries and employee benefits for the first nine months of 2006 increased $39.2 million or 9.4% when compared to the same period in 2005, primarily as a result of share-based compensation costs due to the adoption of SFAS 123R, salary increases, and increased staffing levels in selected areas.

See Note 3 of Notes to Consolidated Financial Statements for an explanation of the $18.3 million of Amegy merger related expenses incurred during the first nine months of 2006.

At September 30, 2006, the Company had 10,255 full-time equivalent employees, 470 domestic branches, and 575 ATMs, compared to 7,977 full-time equivalent employees, 389 domestic branches, and 475 ATMs at September 30, 2005.

ZIONS BANCORPORATION AND SUBSIDIARIES

Income Taxes

The Company’s income tax expense increased to $83.8 million for the third quarter of 2006 compared to $68.2 million for the same period in 2005. The Company’s effective income tax rates, including the effects of minority interest, were 35.3% and 35.7% for the third quarters of 2006 and 2005, respectively. The effective income tax rates for the first nine months of 2006 and 2005 were 35.3% and 35.6% respectively. As discussed in previous filings, the Company has received federal income tax credits under the Community Development Financial Institutions Fund set up by the U.S. Government that will be recognized over a seven-year period from the year of the investment. The effect of these tax credits was to reduce income tax expense by $3.2 million for the first nine months of 2006 and $2.6 million for the first nine months of 2005. The effective tax rates reflect a lower proportion of tax exempt income to total income, offset by the increased tax credits.

ZIONS BANCORPORATION AND SUBSIDIARIES

BALANCE SHEET ANALYSIS

As previously discussed, the Company completed its acquisition of Amegy Bancorporation, Inc. in December 2005. The Company’s consolidated balance sheets at September 30, 2006 and December 31, 2005 include Amegy.

Interest-Earning Assets

Interest-earning assets are those assets that have interest rates or yields associated with them and consist of money market investments, securities and loans.

Average interest-earning assets increased 30.3% to $38.2 billion for the nine months ended September 30, 2006 compared to $29.3 billion for the comparable period in 2005. Interest-earning assets comprised 87.3% of total average assets for the first nine months of 2006, compared with 90.1% for the comparable period of 2005. The decreased percentage is mainly a result of increased goodwill and other intangible assets from the Amegy acquisition. Average interest-earning assets as a percentage of total average assets for the third quarter of 2006 was 87.7% compared to 87.4% for the second quarter and 86.9% for the first quarter.

Average money market investments, consisting of interest-bearing deposits, federal funds sold and security resell agreements, decreased 44.2% to $482.6 million for the first nine months of 2006 compared to $865.2 million for the first nine months of 2005. Reductions in money market instruments have been used to fund new loan growth. Average net loans and leases for the first nine months of 2006 increased by 36.4% when compared to the same period in 2005.

Investment Securities Portfolio

The following table presents the Company’s held-to-maturity and available-for-sale investment securities:


	September 30, 2006				December 31, 2005				September 30, 2005
(In millions)	Amortized cost		Estimated market value		Amortized cost		Estimated market value		Amortized cost		Estimated market value

HELD TO MATURITY
Municipal securities	$	663	$	655	$	650	$	642	$	643	$	641

AVAILABLE FOR SALE
U.S. Treasury securities		92		92		42		43		35		36
U.S. Government agencies and corporations:
Small Business Administration loan-backed securities		936		931		786		782		748		746
Other agency securities		608		599		688		683		254		251
Municipal securities		224		227		266		267		90		91
Mortgage/asset-backed and other debt securities		2,982		2,952		3,311		3,308		2,593		2,613

		4,842		4,801		5,093		5,083		3,720		3,737

Other securities:
Mutual funds		254		254		217		216		255		254
Stock		6		7		7		7		6		7

		260		261		224		223		261		261

		5,102		5,062		5,317		5,306		3,981		3,998

Total	$	5,765	$	5,717	$	5,967	$	5,948	$	4,624	$	4,639

The amortized cost of investment securities at September 30, 2006 decreased 3.4% from the amount at December 31, 2005 but was up 24.7% from the balance at September 30, 2005 as a result of the Amegy acquisition. During the first nine months of 2006, some proceeds from maturities and prepayments of investment securities were used in part to fund new loan growth.

ZIONS BANCORPORATION AND SUBSIDIARIES

We review investment securities on an ongoing basis for other than temporary impairment taking into consideration current market conditions, offering prices, trends and volatility of earnings, current analysts’ evaluations, our ability and intent to hold investments until a recovery of fair value, which may be maturity, and other factors. Our review did not result in an other than temporary impairment adjustment during the third quarter of 2006.

The investment securities portfolio at September 30, 2006 includes $954 million of nonrated, fixed income securities, compared to $1,035 million at December 31, 2005 and $1,054 million at September 30, 2005. These securities include nonrated municipal securities as well as nonrated, asset-backed subordinated tranches. The securities primarily are a result of the Company’s municipal finance advisory business and its small business loan securitizations.

Loan Portfolio

Net loans and leases at September 30, 2006 were $33.7 billion, an annualized increase of 15.8% from December 31, 2005 and an increase of 40.9% over the balance at September 30, 2005. The Company’s strong loan growth continued in the third quarter with net loans and leases increasing $1.0 billion.

The following table sets forth the loan portfolio by type of loan:


(In millions)	September 30, 2006		December 31, 2005		September 30, 2005
Loans held for sale	$	268	$	256	$	213

Commercial lending:
Commercial and industrial		7,846		7,192		4,885
Leasing		420		373		359
Owner occupied		5,855		4,825		4,063

Total commercial lending		14,121		12,390		9,307

Commercial real estate:
Construction and land development		7,362		6,065		4,471
Term		4,960		4,640		4,051

Total commercial real estate		12,322		10,705		8,522

Consumer:
Home equity credit line and other consumer real estate		1,944		1,831		1,659
1-4 family residential		4,255		4,130		3,574
Bankcard and other revolving plans		281		207		195
Other		458		537		437

Total consumer		6,938		6,705		5,865

Foreign loans		3		5		5

Other receivables		200		191		125

Total loans	$	33,852	$	30,252	$	24,037

The strong loan growth for commercial and commercial real estate lending was widely diversified across our geographical footprint and consistent with the economic activity in that area. However, in recent quarters loan growth rates have slowed at CB&T, NBA and NSB, and have increased at Amegy, Zions Bank and Vectra. Management believes it is likely this loan growth will remain strong, but may slow somewhat in the next few quarters.

ZIONS BANCORPORATION AND SUBSIDIARIES

Sold Loans Being Serviced

Zions performs loan servicing on both loans that it holds in its portfolios and also on loans that are owned by third party investor-owned trusts. In addition, Zions has securitized and sold a portion of the loans that it originates, and in many instances provides the servicing on these loans as a condition of the sale.


	Sold loans being serviced				Residual interests on balance sheet at September 30, 2006
(In millions)	Sales for nine months ended September 30, 2006		Outstanding balance at September 30, 2006		Subordinated retained interests		Capitalized residual cash flows		Total
Home equity credit lines	$	133	$	317	$	9	$	6	$	15
Small business loans		–		1,930		222		85		307
SBA 7(a) loans		22		143		–		2		2
Farmer Mac		33		407		–		5		5

Total	$	188	$	2,797	$	231	$	98	$	329

Securitized loans being serviced for others totaled $2.8 billion at the end of the third quarter of 2006, $3.4 billion at December 31, 2005 and $3.6 billion at September 30, 2005.

As of September 30, 2006, the Company had recorded assets, comprised of subordinated retained interests and capitalized residual cash flows, in the amount of $329 million in connection with the $2.8 billion of sold loans being serviced. As is a common practice with securitized transactions, the Company had retained subordinated interests in the securitized assets that totaled $231 million at September 30, 2006, and represented junior positions to the other investors in the trust securities. The capitalized residual cash flows, which are sometimes referred to as “excess servicing,” of $98 million primarily represent the present value of the excess cash flows that have been projected over the lives of the sold loans.

As of September 30, 2006, conforming long-term first mortgage real estate loans being serviced for others were $1,238 million, compared with $1,274 million at December 31, 2005 and $423 million at September 30, 2005. The increase from September 30, 2005 reflects the acquisition of Amegy.

Other Noninterest-Bearing Investments

As of September 30, 2006, the Company had $1,006 million of other noninterest-bearing investments compared with $939 million at December 31, 2005 and $708 million at September 30, 2005.


(In millions)	September 30, 2006		December 31, 2005		September 30, 2005
Bank-owned life insurance	$	620	$	605	$	417
Federal Home Loan Bank and Federal Reserve stock		187		153		128
SBIC investments (1)		96		80		78
Non-SBIC investment funds		33		27		16
Other public companies		36		39		39
Other nonpublic companies		14		15		14
Trust preferred securities		20		20		16

	$	1,006	$	939	$	708

(1)	Amounts include minority investors’ interests in Zions’ managed SBIC investments of approximately $40 million, $27 million, and $27 million as of the respective dates.

ZIONS BANCORPORATION AND SUBSIDIARIES

The increases in other noninterest-bearing investments at December 31, 2005 compared to September 30, 2005 are mainly the result of the Amegy acquisition.

Deposits

Total deposits at the end of the third quarter of 2006 increased to $33.6 billion, an annualized increase of 4.1% from the balances reported at December 31, 2005, and increased 32.4% over the September 30, 2005 amounts. Core deposits at September 30, 2006 decreased 0.44%, annualized, compared to the December 31, 2005 balance and increased 27.7% compared to the balance at September 30, 2005. Time and foreign deposits accounted for most of the deposit growth during the first nine months of 2006, with noninterest-bearing demand and savings and money market balances declining during the period.

At the end of the third quarter of 2006, demand, savings and money market deposits comprised 76.0% of total deposits, compared with 79.7% and 83.3% as of December 31, 2005 and September 30, 2005, respectively. The decrease in this ratio at December 31, 2005 as compared to September 30, 2005 is primarily a result of the mix of deposits at Amegy. The decrease during 2006 is due to the change in deposit mix as previously described.

We expect deposit growth to continue to be less than loan growth for the foreseeable future. As a result, we will continue to use alternative funding sources as necessary to fund the additional loan growth.

RISK ELEMENTS

Since risk is inherent in substantially all of the Company’s operations, management of risk is an integral part of its operations and is also a key determinant of its overall performance. We apply various strategies to reduce the risks to which the Company’s operations are exposed, including credit, interest rate and market, liquidity, and operational risks.

Credit Risk Management

Effective management of credit risk is essential in maintaining a safe and sound financial institution. We have structured the organization to separate the lending function from the credit administration function, which adds strength to the control over and the independent evaluation of credit activities. Formal loan policies and procedures provide the Company with a framework for consistent underwriting and a basis for sound credit decisions. In addition, the Company has a well-defined set of standards for evaluating its loan portfolio, and management utilizes a comprehensive loan grading system to determine the risk potential in the portfolio. Further, an independent, internal credit examination department periodically conducts examinations of the Company’s lending departments. These examinations are designed to review credit quality, adequacy of documentation, appropriate loan grading administration and compliance with lending policies, and reports thereon are submitted to the Credit Review Committee of the Board of Directors.

ZIONS BANCORPORATION AND SUBSIDIARIES

Both the credit policy and the credit examination functions are managed centrally. Each affiliate bank is permitted to modify corporate credit policy to be more conservative; however, corporate approval must be obtained if a bank wishes to create a more liberal exception to the policy. Historically, only a limited number of such exceptions have been approved. This entire process has been designed to place an emphasis on strong underwriting standards and early detection of potential problem credits so that action plans can be developed and implemented on a timely basis to mitigate any potential losses.

Another aspect of the Company’s credit risk management strategy is to pursue the diversification of the loan portfolio. The Company maintains a diversified loan portfolio with some emphasis in real estate. As set forth in the following table, at September 30, 2006 no single loan type exceeded 23.2% of the Company’s total loan portfolio.


	September 30, 2006			December 31, 2005			September 30, 2005
(In millions)	Amount		% of total loans	Amount		% of total loans	Amount		% of total loans
Commercial lending:
Commercial and industrial	$	7,846	23.2%	$	7,192	23.8%	$	4,885	20.3%
Leasing		420	1.2%		373	1.2%		359	1.5%
Owner occupied		5,855	17.3%		4,825	15.9%		4,063	16.9%

Commercial real estate:
Construction and land development		7,362	21.7%		6,065	20.0%		4,471	18.6%
Term		4,960	14.7%		4,640	15.3%		4,051	16.9%

Consumer:
Home equity credit line and other consumer real estate		1,944	5.7%		1,831	6.1%		1,659	6.9%
1-4 family residential		4,255	12.6%		4,130	13.7%		3,574	14.9%
Bankcard and other revolving plans		281	0.8%		207	0.7%		195	0.8%
Other		458	1.4%		537	1.8%		437	1.8%

Other		471	1.4%		452	1.5%		343	1.4%

Total loans	$	33,852	100.0%	$	30,252	100.0%	$	24,037	100.0%

We believe the Company’s potential risk from concentration in owner occupied commercial loans is reduced by the emphasis we place on lending programs sponsored by the Small Business Administration. On these types of loans, the Small Business Administration bears a major portion of the credit risk. In addition, the Company attempts to avoid the risk of an undue concentration of credits in a particular industry, trade group or property type. The Company also has no significant exposure to highly-leveraged transactions and the majority of the Company’s business activity is with customers located within the geographical footprint of its banking subsidiaries. Finally, the Company has no significant exposure to any individual customer or counterparty.

A more comprehensive discussion of our credit risk management is contained in Zions’ Annual Report on Form 10-K for the year ended December 31, 2005. In addition, as discussed in the following sections, the Company’s level of credit quality continued to be very strong during the third quarter of 2006 compared to historical standards.

ZIONS BANCORPORATION AND SUBSIDIARIES

Nonperforming Assets

Nonperforming assets include nonaccrual loans, restructured loans and other real estate owned. Loans are generally placed on nonaccrual status when the loan is 90 days or more past due as to principal or interest, unless the loan is both well secured and in the process of collection. Consumer loans are not normally placed on a nonaccrual status, inasmuch as they are generally charged off when they become 120 days past due. Loans occasionally may be restructured to provide a reduction or deferral of interest or principal payments. This generally occurs when the financial condition of a borrower deteriorates to the point that the borrower needs to be given temporary or permanent relief from the original contractual terms of the loan. Other real estate owned is acquired primarily through or in lieu of foreclosure on loans secured by real estate.

The following table sets forth the Company’s nonperforming assets:


(Amounts in millions)	September 30, 2006		December 31, 2005		September 30, 2005
Nonaccrual loans	$	65	$	69	$	67
Restructured loans		–		–		1
Other real estate owned		10		20		15

Total	$	75	$	89	$	83

% of net loans and leases* and other real estate owned		0.22%		0.30%		0.35%
Accruing loans past due 90 days or more	$	20	$	17	$	16

% of net loans and leases*		0.06%		0.06%		0.07%

*Includes loans held for sale.

Total nonperforming assets decreased 16.0% as of September 30, 2006 compared with the balance at December 31, 2005. Given the historically low level of nonperforming assets, we do not believe this further decrease is particularly meaningful.

Included in nonaccrual loans are loans that we have determined to be impaired. Loans, other than those included in large groups of smaller-balance homogeneous loans, are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due in accordance with the contractual terms of the loan agreement, including scheduled interest payments. The amount of the impairment is measured based on either the present value of expected cash flows, the observable market price of the loan, or the fair value of the collateral securing the loan.

The Company’s total recorded investment in impaired loans was $43 million at September 30, 2006, compared with $31 million at December 31, 2005 and $35 million at September 30, 2005. Estimated losses on impaired loans are included in the allowance for loan losses. At September 30, 2006, the allowance for loan losses included $6 million for impaired loans with a recorded investment of $23 million. At December 31, 2005, the allowance included $3 million for impaired loans with a recorded investment of $14 million, and at September 30, 2005 the allowance included $4 million for impaired loans with a recorded investment of $14 million.

ZIONS BANCORPORATION AND SUBSIDIARIES

Allowances for Credit Losses

Allowance for Loan Losses – In analyzing the adequacy of the allowance for loan losses, we utilize a comprehensive loan grading system to determine the risk potential in the portfolio and also consider the results of independent internal credit reviews. To determine the adequacy of the allowance, the Company’s loan and lease portfolio is broken into segments based on loan type.

For commercial loans, we use historical loss experience factors by loan segment, adjusted for changes in trends and conditions, to help determine an indicated allowance for each portfolio segment. These factors are evaluated and updated using migration analysis techniques and other considerations based on the makeup of the specific segment. These other considerations include:

•

volumes and trends of delinquencies;

•

levels of nonaccruals, repossessions and bankruptcies;

•

trends in criticized and classified loans;

•

expected losses on real estate secured loans;

•

new credit products and policies;

•

economic conditions;

•

concentrations of credit risk; and

•

experience and abilities of the Company’s lending personnel.

The allowance for consumer loans is determined using historically developed experience rates at which loans migrate from one delinquency level to the next higher level. Using average roll rates for the most recent twelve-month period and comparing projected losses to actual loss experience, the model estimates expected losses in dollars for the forecasted period. By refreshing the model with updated data, it is able to project losses for a new twelve-month period each month, segmenting the portfolio into nine product groupings with similar risk profiles. This methodology is an accepted industry practice, and the Company believes it has a sufficient volume of information to produce reliable projections.

The methodology used by Amegy to estimate its allowance for loan losses has not yet been conformed to the process used by the other affiliate banks. However, the process used by Amegy is not significantly different than the process used by our other affiliate banks.

The Company has initiated a comprehensive review of its allowance for loan losses methodology with a view toward updating and conforming this methodology across all of its banking subsidiaries.

ZIONS BANCORPORATION AND SUBSIDIARIES

The following table shows the changes in the allowance for loan losses and a summary of loan loss experience:


(Amounts in millions)	Nine Months Ended September 30, 2006		Twelve Months Ended December 31, 2005		Nine Months Ended September 30, 2005
Loans* and leases outstanding (net of unearned income) at end of period	$	33,706	$	30,127	$	23,930

Average loans* and leases outstanding (net of unearned income)	$	31,835	$	24,009	$	23,343

Allowance for loan losses:
Balance at beginning of period	$	338	$	271	$	271
Allowance of companies acquired		–		49		–
Provision charged against earnings		46		43		33
Loans and leases charged-off:
Commercial lending		(30)		(20)		(15)
Commercial real estate		(2)		(3)		(1)
Consumer		(10)		(19)		(14)
Other receivables		(1)		(1)		(1)

Total		(43)		(43)		(31)

Recoveries:
Commercial lending		8		12		9
Commercial real estate		2		1		1
Consumer		5		5		4

Total		15		18		14

Net loan and lease charge-offs		(28)		(25)		(17)

Balance at end of period	$	356	$	338	$	287

Ratio of annualized net charge-offs to average loans and leases		0.12%		0.10%		0.10%

Ratio of allowance for loan losses to net loans and leases at end of period		1.06%		1.12%		1.20%

Ratio of allowance for loan losses to nonperforming loans		549.66%		489.74%		422.87%

Ratio of allowance for loan losses to nonaccrual loans and accruing loans past due 90 days or more		418.94%		394.08%		345.72%

*Includes loans held for sale.

Net loan and lease charge-offs, along with their annualized ratios to average loans and leases, are shown in the preceding table for the periods presented. The same respective amounts for the third quarter of 2006 were $6.5 million and 0.08%.

The allowance for loan losses at the end of the first nine months of 2006 increased $17.9 million from the level at year-end 2005. The amount of the allowance for loan losses attributable to the commercial loan portfolio increased $19.3 million when compared to year-end 2005. During the first nine months of 2006, the Company experienced a slight increase in the total amount of its criticized and classified loans; however, as a percentage of total loans, criticized and classified loans declined slightly. As a result, the amount of the allowance for loan losses indicated for criticized and classified loans increased when compared to year-end 2005 by approximately $3.2 million. Both commercial real estate loans and the commercial lending portfolio contributed to this increase. In addition, we had a $16.1 million increase in the level of the allowance indicated for noncriticized and classified loans as a result of $3.3 billion of commercial and commercial real estate loan growth since year-end 2005. The allowance for consumer loans at September 30, 2006 decreased by $1.4 million when compared to the allowance at December 31, 2005, principally as a result of improving consumer loan delinquencies.

ZIONS BANCORPORATION AND SUBSIDIARIES

Allowance for Unfunded Lending Commitments – The Company also estimates an allowance for potential losses associated with off-balance sheet commitments and standby letters of credit. We determine the allowance for unfunded lending commitments using a process that is similar to the one we use for commercial loans. Based on historical experience, we have developed experience-based loss factors that we apply to the Company’s unfunded lending commitments to estimate the potential for loss in that portfolio. These factors are generated from tracking commitments that become funded and develop into problem loans.

The following table sets forth the allowance for unfunded lending commitments:


(In millions)	Nine Months Ended September 30, 2006		Twelve Months Ended December 31, 2005		Nine Months Ended September 30, 2005
Balance at beginning of period	$	18.1	$	12.7	$	12.7
Allowance of company acquired		–		2.0		–
Provision charged against earnings		0.5		3.4		3.1

Balance at end of period	$	18.6	$	18.1	$	15.8

The following table sets forth the combined allowances for credit losses:


(In millions)	September 30, 2006		December 31, 2005		September 30, 2005
Allowance for loan losses	$	356	$	338	$	287
Allowance for unfunded lending commitments		19		18		16

Total allowances for credit losses	$	375	$	356	$	303

Interest Rate and Market Risk Management

Interest rate risk is the potential for loss resulting from adverse changes in the level of interest rates on the Company’s net interest income. Market risk is the potential for loss arising from adverse changes in the prices of fixed income securities, equity securities, other earning assets and derivative financial instruments as a result of changes in interest rates or other factors. As a financial institution that engages in transactions involving an array of financial products, Zions is exposed to both interest rate risk and market risk.

Interest Rate Risk – Interest rate risk is one of the most significant risks to which the Company is regularly exposed. In general, our goal in managing interest rate risk is to have the net interest margin increase slightly in a rising interest rate environment. We refer to this goal as being slightly “asset sensitive.” This approach is based on our belief that in a rising interest rate environment, the market cost of equity, or implied rate at which future earnings are discounted, would also tend to rise. However, in recent months, competitive pressures and market conditions have resulted in higher deposit costs, slower deposit growth, and increases in borrowed funds, resulting in some contraction of the net interest margin.

We attempt to control the effects that changes in interest rates will have on net interest income through the management of maturities and repricing of the Company’s assets and liabilities and also with the use of interest rate swaps. The prime lending rate and the London Interbank Offer Rate (“LIBOR”) curves are the primary indices used for pricing the Company’s loans, and the 91-day Treasury bill rate is the index used for pricing many of the Company’s liabilities. The Company does not hedge the prime/LIBOR/Treasury Bill spread risk through the use of derivative instruments.

ZIONS BANCORPORATION AND SUBSIDIARIES

We monitor interest rate risk through the use of two complementary measurement methods: duration of equity and income simulation. In the duration of equity method, we measure the expected changes in the market values of equity in response to changes in interest rates. In the income simulation method, we analyze the expected changes in income in response to changes in interest rates. For income simulation, Company policy requires that interest sensitive income from a static balance sheet is expected to decline by no more than 10% during one year if rates were to immediately rise or fall in parallel by 200 basis points.

As of the dates indicated, the following table shows the Company’s estimated range of duration of equity and percentage change in interest sensitive income in the first year after the rate change if interest rates were to sustain an immediate parallel change of 200 basis points; the “low” and “high” results differ based on the assumed speed of repricing of administered-rate deposits (money market, interest-on-checking, and savings):


	September 30, 2006				December 31, 2005
	Low		High		Low		High
Duration of equity
Range (in years)	-0.3		1.9		-0.2		2.3
Income simulation – change in interest sensitive income:
Increase interest rates by 200 bp	-1.6	%	1.8	%	-1.1	%	2.4	%
Decrease interest rates by 200 bp	-3.7	%	0.1	%	-4.5	%	-0.7	%

Market Risk – Fixed Income – The Company engages in trading and market making of U.S. Treasury, U.S. Government Agency, municipal and corporate securities. This trading and market making exposes the Company to a risk of loss arising from adverse changes in the prices of these fixed income securities held by the Company.

During the fourth quarter of 2005, the Company closed its London trading office and substantially reduced the size of its trading assets in response to continued narrow margins in its odd-lot electronic bond trading business. At September 30, 2006 the Company had $93 million of trading account assets and $54 million of securities sold, not yet purchased compared with $102 million and $352 million of trading assets and $65 million and $332 million of securities sold, not yet purchased at December 31, 2005 and September 30, 2005, respectively.

The Company monitors risk in fixed income trading and market making through Value-at-Risk (“VAR”). VAR is the worst-case loss expected within a specified confidence level, based on statistical models using historical data. VAR information is not disclosed due to limited risk in fixed income trading and market making after recent reductions in the scale of the Company’s trading operations.

Market Risk – Equity Investments – Through its equity investment activities, the Company owns equity securities that are publicly traded and subject to fluctuations in their market prices or values. In addition, the Company owns equity securities in companies that are not publicly traded and that are accounted for under either the fair value, equity, or full consolidation methods of accounting, depending upon the Company’s ownership position and degree of involvement in influencing the investees’ affairs. In each case, the value of the Company’s investment is subject to fluctuation. Since the market prices or values associated with these securities may fall below the Company’s investment costs, the Company is exposed to the possibility of loss.

The Company conducts minority investing in pre-public venture capital companies in which it does not have strategic involvement, through four funds collectively referred to as Wasatch Venture Funds (“Wasatch”). Wasatch screens investment opportunities and makes investment decisions based on its assessment of business prospects and potential returns. After an investment is made, Wasatch actively monitors the performance of each company in which it has invested, and often has representation on the board of directors of the company.

ZIONS BANCORPORATION AND SUBSIDIARIES

In addition to the program described above, Amegy has in place an alternative investments program. These investments are primarily directed towards equity buyout and mezzanine funds with a key strategy of deriving ancillary commercial banking business from the portfolio companies. Early stage venture capital funds are not part of the strategy since the underlying companies are typically not credit worthy.

The Company also, from time to time, either starts and funds businesses or makes significant investments in companies of strategic interest. These investments may result in either minority or majority ownership positions, and usually give board representation to Zions or its subsidiaries. These strategic investments generally are in companies that are financial services or financial technologies providers.

A more comprehensive discussion of the Company’s interest rate and market risk management is contained in Zions’ Annual Report on Form 10-K for the year ended December 31, 2005.

Liquidity Risk Management

Liquidity is managed centrally for both the Parent and the bank subsidiaries. The Parent’s cash requirements consist primarily of debt service, investment in and advances to subsidiaries, operating expenses, income taxes, dividends to shareholders and share repurchases. The Parent’s cash needs are routinely met through dividends from its subsidiaries, investment income, subsidiaries’ proportionate share of current income taxes, management and other fees, bank lines, equity contributed through the exercise of stock options, and debt issuances.

During the first nine months of 2006, the Parent received $250.0 million in dividends from its subsidiaries. At September 30, 2006, $449.4 million of dividend capacity was available for the subsidiaries to pay to the Parent under regulatory guidelines.

Operational cash flows, while constituting a funding source for the Company, are not large enough to provide funding in the amounts that fulfill the needs of the Parent and the bank subsidiaries. For the first nine months of 2006, operations contributed $656.0 million toward these needs. As a result, the Company utilizes other sources at its disposal to manage its liquidity needs.

On March 31, 2006, the Company filed an “automatic shelf registration statement” with the Securities and Exchange Commission as a “well-known seasoned issuer.” This new type of shelf registration does not require a maximum amount of securities that may be issued to be specified. The shelf registration replaced a previous shelf registration and covers securities of the Company, Zions Capital Trust C and Zions Capital Trust D.

On September 28, 2006 under the new shelf registration, we issued $145 million of floating rate senior notes due September 15, 2008. The notes require quarterly interest payments at three-month LIBOR plus 0.12%. They are not redeemable prior to maturity and are not listed on any national securities exchange. Proceeds from the notes will be used to retire all of the remaining $98.4 million of 6.50% subordinated notes due October 15, 2011 and redeemable October 15, 2006, and applied to the redemption of the $176.3 million of 8.536% trust preferred securities (Zions Institutional Capital Trust A) due December 15, 2026 and redeemable December 15, 2006. The Company will incur a premium of approximately $7.3 million on the expected redemption of the trust preferred securities, which will be charged to the statement of income in the fourth quarter of 2006.

ZIONS BANCORPORATION AND SUBSIDIARIES

The Parent also has a program to issue short-term commercial paper. At September 30, 2006, outstanding commercial paper was $265.8 million. In addition, at September 30, 2006, the Parent had a secured revolving credit facility with a subsidiary bank totaling $40 million. No amount was outstanding on this facility at September 30, 2006.

The subsidiaries’ primary source of funding is their core deposits, consisting of demand, savings and money market deposits, time deposits under $100,000, and foreign deposits. At September 30, 2006, these core deposits, in aggregate, constituted 89.3% of consolidated deposits, compared with 92.3% of consolidated deposits at December 31, 2005. For the first nine months of 2006, increases in deposits resulted in net cash inflows of $1.0 billion.

The Federal Home Loan Bank (“FHLB”) system is also a significant source of liquidity for the Company’s subsidiary banks. Zions Bank and TCBW are members of the FHLB of Seattle. CB&T, NBA and NSB are members of the FHLB of San Francisco. Vectra is a member of the FHLB of Topeka and Amegy is a member of the FHLB of Dallas. The FHLB allows member banks to borrow against their eligible loans to satisfy liquidity requirements. For the first nine months of 2006, the activity in short-term FHLB borrowings resulted in a net cash inflow of approximately $294.5 million. Amounts of unused lines of credit available for additional FHLB advances were approximately $6.4 billion at September 30, 2006.

The Company has used asset securitizations to sell loans, which have provided an alternative source of funding for the subsidiaries and have enhanced flexibility in meeting their funding needs. During the first nine months of 2006, previous loan sales (other than loans held for sale) provided $188.0 million in cash inflows.

At September 30, 2006, the Company managed approximately $2.8 billion of securitized assets that were originated or purchased by its subsidiary banks. Of these, approximately $1.7 billion were credit-enhanced by a third party insurance provider and held in Lockhart Funding, LLC, which is a qualifying special-purpose entity securities conduit and has been an important source of funding for the Company’s loans. Zions Bank provides a Liquidity Facility for a fee to Lockhart, which purchases floating-rate U.S. Government and AAA-rated securities with funds from the issuance of commercial paper. Zions Bank also provides interest rate hedging support and administrative and investment advisory services for a fee. Pursuant to the Liquidity Facility, Zions Bank is required to purchase securities from Lockhart to provide funds for it to repay maturing commercial paper upon Lockhart’s inability to access the commercial paper market, or upon a commercial paper market disruption, as specified in the governing documents of Lockhart. In addition, pursuant to the governing documents, including the Liquidity Facility, if any security in Lockhart is downgraded below AA-, Zions Bank must either 1) place its letter of credit on the security, 2) obtain a credit enhancement on the security from a third party, or 3) purchase the security from Lockhart at book value. At any given time, the maximum commitment of Zions Bank is the book value of Lockhart’s securities portfolio, which is not allowed to exceed the size of the Liquidity Facility.

At September 30, 2006, the book value of Lockhart’s securities portfolio was $4.7 billion, which approximated market value, and the size of the Liquidity Facility commitment was $6.12 billion. No amounts were outstanding under this Liquidity Facility at September 30, 2006, December 31, 2005 or September 30, 2005. Lockhart is limited in size by program agreements, agreements with rating agencies and by the size of the Liquidity Facility.

As described in Note 2 of the Notes to Consolidated Financial Statements, the FASB has recently issued two accounting pronouncements that amend SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. These amendments and other proposals to further amend SFAS

ZIONS BANCORPORATION AND SUBSIDIARIES

No. 140 may require changes to the operating activities of qualifying special-purpose entities and other aspects relating to the transfer of financial assets. As a result of these amendments and proposals, Lockhart’s operations may need to be modified to preserve its off-balance sheet status.

The Company’s investment activities can also provide or use cash. Investment securities activities resulted in a decrease in investment securities holdings and a net increase of cash in the amount of $24.1 million for the third quarter and $206.9 million for the first nine months of 2006.

Maturing balances in the various loan portfolios also provide additional flexibility in managing cash flows. In most cases, however, loan growth has resulted in net cash outflows from a funding standpoint. For the first nine months of 2006, loan growth resulted in a net cash outflow of $3.8 billion.

A more comprehensive discussion of our liquidity management is contained in Zions’ Annual Report on Form 10-K for the year ended December 31, 2005.

Operational Risk Management

Operational risk is the potential for unexpected losses attributable to human error, systems failures, fraud, or inadequate internal controls and procedures. In its ongoing efforts to identify and manage operational risk, the Company has created an Operating Risk Management Group, whose responsibility is to help Company management identify and monitor the key internal controls and processes that the Company has in place to mitigate operational risk.

To manage and minimize its operating risk, the Company has in place transactional documentation requirements, systems and procedures to monitor transactions and positions, regulatory compliance reviews, and periodic reviews by the Company’s internal audit and credit examination departments. In addition, reconciliation procedures have been established to ensure that data processing systems consistently and accurately capture critical data. Further, we maintain contingency plans and systems for operations support in the event of natural or other disasters. We expect to continue efforts to improve the Company’s oversight of operational risk throughout 2006.

CAPITAL MANAGEMENT

Zions has a fundamental financial objective to consistently produce superior risk-adjusted returns on its shareholders’ capital. We believe that a strong capital position is vital to continued profitability and to promoting depositor and investor confidence.

Total shareholders’ equity on September 30, 2006 was $4.6 billion, up 9.6% from $4.2 billion at December 31, 2005 and 54.8% from $3.0 billion at September 30, 2005, reflecting the Amegy acquisition. The Company’s capital ratios were as follows as of the dates indicated:

ZIONS BANCORPORATION AND SUBSIDIARIES


	September 30, 2006	December 31, 2005	September 30, 2005
Tangible common equity ratio	5.92%	5.28%	7.06%

Average common equity to average assets (three months ended)	10.17%	9.32%	8.95%

Risk-based capital ratios:
Tier 1 leverage	7.69%	8.16%	8.67%
Tier 1 risk-based capital	7.87%	7.52%	9.49%
Total risk-based capital	12.53%	12.23%	13.88%

The changes in the average common equity to average assets ratio and the Tier 1 leverage ratios at September 30, 2006 compared to December 31, 2005 both mainly result from the Amegy acquisition. The averages used in determining the ratios at December 31, 2005 only included the impact of Amegy for one month since it was acquired in December 2005.

It is our belief that capital not considered necessary to support current and anticipated business should be returned to the Company’s shareholders through dividends and repurchases of its shares.

In July 2005, the Company announced that it had suspended the repurchase of shares of its common stock in conjunction with its acquisition of Amegy. The Company currently anticipates that it will resume the repurchase of shares early in 2007.

The Parent and its subsidiary banks are required to maintain adequate levels of capital as measured by several regulatory capital ratios. As of September 30, 2006, the Company and each of its banking subsidiaries met the “well capitalized” guidelines under regulatory standards.

The Company paid dividends of $0.36 per common share in both the third quarters of 2006 and 2005. For the three months ended September 30, 2006, the Company paid $38.4 million in common stock dividends compared to $32.5 million in the same period of 2005.

On October 27, 2006, the Company’s Board of Directors declared a dividend of $0.39 per share of common stock payable on November 22, 2006 to shareholders of record on November 8, 2006.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest rate and market risks are among the most significant risks regularly undertaken by the Company, and they are closely monitored as previously discussed. A discussion regarding the Company’s management of interest rate and market risk is included in the section entitled “Interest Rate and Market Risk Management” in this Form 10-Q.

ITEM 4.

CONTROLS AND PROCEDURES

An evaluation was carried out by the Company’s management, with the participation of the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, these disclosure controls and procedures were effective. There have been no changes in the Company’s internal control over financial reporting during the period covered by this report that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

ZIONS BANCORPORATION AND SUBSIDIARIES

PART II.

OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

The Company is a defendant in various legal proceedings arising in the normal course of business. The Company does not believe that the outcome of any such proceedings will have a material effect on its consolidated financial position, operations, or liquidity.

ITEM 1A.

RISK FACTORS

The Company believes there have been no significant changes in risk factors compared to the disclosures contained in Zions Bancorporation’s Annual Report on Form 10-K for the year ended December 31, 2005.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Share Repurchases

The following table summarizes the Company’s share repurchases for the third quarter of 2006.


Period	Total number of shares repurchased (1)	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Approximate dollar value of shares that may yet be purchased under the plan (2)
July	1,225	$	82.95	–	$59,253,657
August	3,083		82.44	–	59,253,657
September	588		80.61	–	59,253,657

Quarter	4,896		82.35	–



(1) Includes 3,700 shares tendered for exercise of stock options.
(2) The Company has suspended the repurchase of shares in conjunction with the acquisition of Amegy Bancorporation, Inc.

ZIONS BANCORPORATION AND SUBSIDIARIES

ITEM 6.

EXHIBITS

Exhibits


Exhibit Number	Description

3.1	Restated Articles of Incorporation of Zions Bancorporation dated November 8, 1993, incorporated by reference to Exhibit 3.1 of Form S-4 filed on November 22, 1993.	*

3.2	Articles of Amendment to the Restated Articles of Incorporation of Zions Bancorporation dated April 30, 1997, incorporated by reference to Exhibit 3.2 of Form 10-K for the year ended December 31, 2002.	*

3.3	Articles of Amendment to the Restated Articles of Incorporation of Zions Bancorporation dated April 24, 1998, incorporated by reference to Exhibit 3.3 of Form 10-K for the year ended December 31, 2003.	*

3.4	Articles of Amendment to Restated Articles of Incorporation of Zions Bancorporation dated April 25, 2001, incorporated by reference to Exhibit 3.6 of Form S-4 filed July 13, 2001.	*

3.5	Restated Bylaws of Zions Bancorporation dated January 27, 2006, incorporated by reference to Exhibit 3.1 of Form 8-K filed on February 2, 2006.	*

10.1	Zions Bancorporation Restated Deferred Compensation Plan (Effective January 1, 2005) (filed herewith).

10.2	Zions Bancorporation Restated Excess Benefit Plan (Effective January 1, 2005) (filed herewith).

10.3	Zions Bancorporation Second Restated Deferred Compensation Plan for Directors (Effective January 1, 2005) (filed herewith).

10.4	Fourth Amended and Restated Amegy Bancorporation, Inc. Non-Employee Directors Deferred Fee Plan (filed herewith).

31.1	Certification by Chief Executive Officer required by Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934 (filed herewith).

31.2	Certification by Chief Financial Officer required by Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934 (filed herewith).

32	Certification by Chief Executive Officer and Chief Financial Officer required by Sections 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 (15 U.S.C. 78m) and 18 U.S.C. Section 1350 (furnished herewith).

	* Incorporated by reference

ZIONS BANCORPORATION AND SUBSIDIARIES

S I G N A T U R E S

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ZIONS BANCORPORATION

/s/ HARRIS H. SIMMONS

Harris H. Simmons, Chairman, President

and Chief Executive Officer

/s/ DOYLE L. ARNOLD

Doyle L. Arnold, Vice Chairman and

Chief Financial Officer

Date: November 9, 2006