Profits rose nearly 3% at Discover Financial Services in the second quarter thanks to solid loan growth and a one-time tax benefit.

But the Riverwoods, Ill.-based lender also reported an uptick in delinquencies and chargeoffs in its flagship credit card business, which has been buoyed by a long run of strong credit performance.

Discover reported net income of $616 million, or $1.47 per diluted share. During the same period a year earlier, Discover's net income was $599 million, or $1.33 per diluted share.

The company's total loans rose by 4%, and credit card loans grew at the same rate.

"During the second quarter, we achieved loan growth within our target range and delivered strong profitability," Chief Executive Officer David Nelms said Tuesday in a press release.

But Discover also reported that the percentage of its credit card loans that were more than 30 days past due rose by eight basis points to 1.63%, and the net chargeoff rate in the company's credit card business increased by 11 basis points to 2.39%.

Discover increased its provision for loan losses to $411 million, up $105 million.

Last month Discover President and Chief Operating Officer Roger Hochschild said that the credit quality of the firm's loan portfolio was sound.

"So at some point, losses will start to go up," Hochschild said at a conference on June 14. "On the other hand, there continues to be no sign of deterioration, and we're very pleased with the credit performance we're seeing."

Several other performance measures were positive for Discover during the second quarter.

The company's net interest income rose by 7% to $115 million. Its net interest margin rose by 32 basis points to 9.95%.

The interest yield on Discover's credit card loans was 12.42%, up 38 basis points.

The firm's expenses fell by 2%, which Discover attributed mostly to its decision to close its mortgage origination business. The decline in mortgage expenses was partially offset by higher costs related to regulatory compliance.

Discover recorded a $44 million benefit in the second quarter that the company said was related to the resolution of certain unspecified tax matters. That one-time benefit contributed 11 cents to the firm's quarterly earnings per share.

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