Discover Financial Services (DFS) will repay federal funds as soon as it's "prudent" to do so, said Chief Executive David Nelms, during a discussion of the company's quarterly earnings with analysts and investors.

The company last week got $1.2 billion from the U.S. Treasury's Troubled Asset Relief Program in exchange for a stake in the company.

Nelms also said Discover's decision to slash its dividend will bolster the company's capital position in an "uncertain economic environment."

Earlier Thursday, Discover cut its quarterly dividend to 2 cents per share from 6 cents. This move will save $80 million annually.

For the fiscal first quarter ended Feb. 28, Discover posted net income of $120.4 million, or 25 cents a share, up from $81.2 million, or 17 cents a share, a year earlier.

The latest results include an after tax $297 million gain related to an antitrust settlement. Net income a year ago included a $158 million charge on discontinued operations. Excluding this charge, Discover's earnings from continuing operations fell by half compared with a year earlier.

Discover shares recently traded at $7.11, down 13 cents or 1.8%. So far this year, its stock has lost about 26% of its value. Unlike most of its peers, which either issue plastic or process the transactions, Discover does both.

-By Aparajita Saha-Bubna, Dow Jones Newswires; 617-654-6729; aparajita.saha-bubna@dowjones.com