April 25 (Reuters) - Capital One Financial's ( COF )

first-quarter profit rose 35% as customers paid more on the

company's credit-card loans amid higher interest rates.

Net interest income (NII) - the difference between what it

makes on loans and pays out on deposits - rose 4% to $7.49

billion in the quarter, the McLean, Virginia-based company said

on Thursday.

Credit card business makes up nearly half of the loan

portfolio of Capital One, which is the third-largest issuer of

Visa and Mastercard ( MA ) credit cards in the United

States by balances.

Capital One, which is acquiring Discover Financial

for $35.3 billion in an all-stock deal, said provision for

credit losses fell to $2.68 billion from $2.80 billion a year

earlier.

Net charge-offs, or debts that are unlikely to be recovered,

jumped 54% to $2.62 billion, it said.

Capital One's non-interest income, which primarily consists

of interchange income, net of reward expenses, service charges

and other customer-related fees, jumped 11% to $1.91 billion in

the quarter.

The lender also incurred an expense of $42 million related

to the additional special assessment fee that it had pay to

replenish the Federal Deposit Insurance Corp's deposit insurance

fund.

Capital One's net income available to common stockholders

rose to $1.20 billion, or $3.13 per share, in the three months

ended March 31, from $887 million, or $2.31 per share, a year

earlier.

(Reporting by Arasu Kannagi Basil in Bengaluru; Editing by

Sriraj Kalluvila)