Discover Financial Services Inc.'s (DFS) fiscal third-quarter net earnings more than tripled from a year ago, bolstered by a legal settlement and lower expenses.

But the company also said it expected losses from souring card accounts to rise next quarter.

"We believe we've not reached peak loan losses," David Nelms, Discover's chief executive, during a Webcast of a discussion of the company's results announced earlier Thursday.

The quarterly results reported Thursday morning /come as the credit card industry is reeling from credit losses stemming from higher unemployment and a bleak economic outlook. The U.S. unemployment rate rose to 9.7% last month, and most economists believe it is likely to rise further. Cash-strapped card users are increasingly falling behind on payments and cutting back on credit-card spending.

Card issuers are also coping with sweeping U.S. legislation that will take a bite out of their income.

For the quarter ended Aug. 31, Discover posted net income of $577.5 million, or $1.07 a share, up from $180.1 million, or 37 cents a share, a year earlier.

The latest results include an after-tax gain of $287 million related to an antitrust settlement. The company will get another payment related to this settlement.

The company's shares recently traded at $15.85, up 53 cents, or 3.46%. The stock is within striking distance of its 52-week high of $17.70, reached last September.

Unlike most other card companies, which either issue plastic or process the transactions, Discover and bigger rival American Express Co. (AXP) do both. Therefore, in addition to the interest Discover earns on its credit-card loans, a chunk of its revenue comes from fees it charges banks and merchants, such as grocery stores or gas stations, to process card payments.

The Riverwoods, Ill., company reported rising delinquencies and charge-offs, or card loans that the company doesn't expect to collect on. Charge-offs for the third quarter totaled 8.39% of Discover's credit card loans, up from 7.79% in the second quarter and 5.20% a year ago. The charge-off rate for the third quarter, although elevated, is at the lower end of Discover's 8.5%-9% estimate for this period. The company expects credit card loan losses to be between 8.5% and 9% in the fourth quarter.

Borrowers at least a month behind on their card payments totaled 5.10%, up from 5.08% in the prior quarter and 3.85% a year earlier. The delinquency rate, a key gauge of future losses, is important for issuers because higher delinquencies force them to squirrel away capital to reserve for potential losses; ultimately, companies must write off loans if customers can't pay up.

Despite the uptick in delinquencies, Discover's reserve for credit losses, at $924.4 million, fell from the prior quarter's $1.1 billion. This is because the company, taking advantage of a federal program aimed at thawing the consumer debt market, sold to investors $1.5 billion of securities made up of card loans on its books.

In an attempt to offset losses stemming from souring card loans, the company reined in expenses by 14% from the prior year, as it cut its work force and marketing spending.

Investors have taken comfort from Discover's transformation into a bank-holding company. With that status, Discover has participated in government-led efforts aimed at stabilizing the industry. The company got $1.2 billion in March from the U.S. Treasury's Troubled Asset Relief Program in exchange for a stake in the company.

Discover isn't yet repaying the government's investment in the company, said Nelms on Thursday.

"We do have a process we go through with regulators and the board," before the federal funds may be repaid, said Nelms during the Webcast.

While Discover is "feeling increasingly positive" about its ability to successfully sell stock and tap the debt markets in the most recent quarter, it has yet to go through the process that will pave the way for repaying the government, said Nelms.

In July, at the time Discover commenced its $534 million stock offering, the company said it may use a portion of the funds to repay the government.

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

-By Joan E. Solsman, Dow Jones Newswires; 212-416-2291; joan.solsman@dowjones.com