Discover Financial Services said profits in its fiscal second quarter, which ended May 31, dropped 3.6% from a year earlier, to $226 million, or 43 cents a share.

The Riverwoods, Ill., card company also said Thursday that its portfolio performed slightly better than expected.

The results included an after-tax benefit of $295 million from an antitrust litigation settlement with Visa Inc. and MasterCard Inc.

David Nelms, Discover's chief executive, told investors last month that he expected quarterly losses on its cards to be "about 8%." But on Thursday his company said its managed chargeoff rate increased 131 basis points from the previous quarter and 280 basis points from a year earlier, to 7.79%.

Discover predicted that its loss rates would increase "to be between 8.5% and 9%" this quarter.

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