Discover Financial Services

(DFS) - Get Report

posted a second quarter profit, but thanks shouldn't go to credit card customers.

It should go to the lawyers.

This morning, the company said it posted a net income of $225.8 million, or 43 cents per share, which is off the 234.1 million, or 48 cents per share, posted in the year-ago period. But earnings for continuing operations ticked upwards to $225.8 million from $201.5 million, or 42 cents per share.

The company stayed in the black thanks to a boost of $473 million in pre-tax settlement dollars, or $295 million in after-tax. The money came from an anti-trust case against

Visa

(V) - Get Report

and

Mastercard

(MA) - Get Report

that settled for $2.75 billion. Without it, Discover Financial would have reported a loss. But many were expecting worse.

Expenses also fell this quarter as a result of cuts and layoffs. Add it all up, and investors sent Discover Financial shares up after the announcement, rising 4.4% by late afternoon.

The credit card industry has struggled with an ailing customer base during the economic downturn. Credit card lenders have seen increasing account delinquencies. Discover Financial said that the percentage of customers more than 30 days delinquent fell 17 basis points from the first quarter to 5.08%. But that's still higher than the 3.81% at the same time last year.

Charge-off rates for credit cards jumped to 7.79%, up from 6.48% in the year-ago.

Because of charge-offs, the reserve for bad loans also swelled 91% to $530 million this quarter from last year.

"While the rise in unemployment continued to have a significant impact on our financial results, I am pleased with our strong relative performance in both credit management and sales volumes," CEO David Nelms said in a release. "We continue to focus on reducing expenses and maintaining a strong capital position as we manage through these challenging times."

Back in March, the company accepted $1.2 billion in rescue funds from the federal government's Troubled Asset Relief Program.

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