(Reuters) -Zions Bancorp reported a rise in third-quarter profit on Monday, helped by stronger interest income and despite taking a hefty loss on two loans, sending shares of the bank up 2% in after-market trading.

Zions disclosed last week that it would take a $50 million loss in the third quarter on two commercial and industrial loans from its California division. 

The statement from the bank, combined with separate disclosures from Western Alliance and Jefferies about a fraud lawsuit involving Cantor Group V and exposure to bankrupt auto parts maker First Brands, respectively, led to a decline in banks' shares on Thursday as investor concerns over lending intensified.

LOAN LOSSES AN ISOLATED INCIDENT

"We are confident this was an isolated incident in our portfolio," Zions Chief Credit Officer Derek Steward said in an analyst call.

CEO Harris Simmons said in a statement that excluding the loss "remaining net charge-offs were very benign at $6 million, or 4 basis points of average loans on an annualized basis."

U.S. bank shares rebounded on Friday, recovering some of the sharp losses from the previous day and easing jitters around the sector.

"Third-quarter earnings results for several U.S. regional banks did not show outsized or unexpected credit losses, and management teams are providing a reassuring outlook for the fourth quarter," Terry McEvoy, analyst at Stephens, said. "Such trends support the idea that the stress at a handful of companies is more of a one-off than an emerging trend."

Broader loan growth has helped banks rake in more from interest income.

Net interest income - the difference between what banks earn on loans and pay on deposits - rose to $672 million from $620 million in the year-ago quarter.

Net income applicable to the bank's shareholders was $221 million, or $1.48 per share, in the three months ended September 30, compared with $204 million, or $1.37 per share, a year earlier.   

(Reporting by Pritam Biswas in Bengaluru; Editing by Alan Barona and Lincoln Feast.)