Zions Bancorp is back in the black after 2½ years of steady recession-related losses.

The Salt Lake City-based parent of eight western banks on Monday posted a surprise first-quarter profit of $14.8 million, or 8 cents per share, as improving loan losses allowed it to set aside less money for future losses.

The unexpected profit amazed analysts and Zions executives alike.

"All of our results beat our own internal forecasts," Zions chief financial officer Doyle Arnold said during a conference call with securities analysts.

Analysts polled by Thomson Reuters had expected Zions to lose 17 cents per share. They were certain Zions wouldn't swing back to the black until at least the third quarter.

"The primary driver of this is the ... improvement in loan-loss provision expense, and this was made possible by a significant reduction in net loan charge-offs," Zions CEO Harris Simmons said during the conference call. Banks charge off a loan when they determine it is no longer collectable.

The last time Zions made money was in the third quarter 2008, when it banked $33.4 million, or 31 cents per share.

After that, the company sank into a long period of losses spanning nine quarters as sour construction and land development loans mounted across its 10-state region, especially in Arizona, California and Nevada.

Simmons declared the profit wasn't an aberration. He said the improved credit trends "are sustainable, and will lead to continued operating profitability through the remainder of the year."

He pointed to several factors to buttress his confidence:

• Loan charge-offs fell 44 percent, $141 million in the first quarter from $251 million in the fourth quarter of last year.

• The bank set aside $60 million for future loan losses. The provision was down 65 percent from $173 million in the last quarter of 2010.

• Demand for commercial, real estate and consumer loans picked up in the first quarter, largely offsetting continued reductions in construction and land development loans.

"The first quarter marked a shift in the number of promising [economic] signs in just a few of our major markets to positive trends across nearly our entire footprint" Simmons said.

Lending will continue to strengthen at a modest rate, he said.

Joseph Morford, an analyst with RBC Capital Markets in San Francisco, had expected Zions' problem loans would produce a 10th quarterly loss.

"I think overall they posted very encouraging results, obviously led by better-than-expected improvement in credit quality," Morford said.

"They also showed positive signs of a growing loan demand, particularly in the commercial portfolio. It seemed increasingly broad-based across all the markets they serve," Morford said.

Zions released its results after the stock market closed. Anticipating another loss, investors drove Zions' stock down fell 23 cents, or 1 percent, to $22.96 a share, in regular trading.

In after-market trading, the stock jumped 70 cents, closing at $23.66 a share, up 3.1 percent.

pbeebe@sltrib.com