Freddie Mac earned $513 million in the first quarter, an increase of 37.5% from the same period last year.

The secondary-market mortgage company also reported that per-share earnings had risen 26%, to 68 cents, 3 cents more than expected.

Thomas O'Donnell, an analyst at Salomon Smith Barney, said Freddie's per-share profit growth was a "very significant positive surprise."

Freddie said the jump in first-quarter profits was driven by growth in its securitization and mortgage investment businesses.

Net interest income on earning assets was up 17%, to $626 million. A $25 billion increase in the average balance of Freddie's retained portfolio fostered the growth in interest income, the company said. During the first quarter the retained portfolio grew by $23 billion, to $278 billion. Freddie had "surging growth" in its retained portfolio, especially in March, when it hit an annualized rate of 36%, Mr. O'Donnell said. He added that Freddie also exhibited "ongoing improvement in credit quality."

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