By Saabira Chaudhuri 

Goldman Sachs Group Inc. said first-quarter net income fell 10%, but results comfortably topped analysts' estimates, sending the stock higher in premarket trading.

The New York investment bank saw a slump in trading that overshadowed a drop in expenses. Still, the better-than-expected results driven by strength in investment banking pushed shares higher 1.1% in recent premarket trading.

Goldman Sachs noted its investment-banking revenues hit the highest quarterly level since 2007.

Goldman posted net income of $2.03 billion, compared with year-earlier net income of $2.26 billion. Earnings per share--reflecting the payment of preferred dividends--were $4.02, while net revenue fell 7.6% to $9.33 billion. Analysts polled by Thomson Reuters had expected per-share earnings of $3.45 on revenue of $8.7 billion.

Goldman's results come as its executives continue to navigate a difficult regulatory environment in which banks have been pushed out of riskier businesses. Historically, Goldman has made much of its profits taking calculated risks while brokering deals for clients, a philosophy encapsulated by a past Goldman executive as being "long-term greedy."

Goldman's FICC trading business, a crucial profit engine for more than a decade, has faced headwinds similar to those buffeting rivals. Fretting over turmoil in emerging markets, many investors have pulled back from taking risks, analysts say.

That was apparent in Goldman's first-quarter fixed-income trading revenue, which fell 11% from a year earlier to $2.85 billion. Still, FICC revenue climbed 65% from the fourth quarter.

Goldman Sachs said the year-over-year FICC decline reflects "significantly lower net revenues in interest rate products, currencies and mortgages, as well as lower net revenues in credit products." Commodities were a relative bright spot, rising when compared with the first-quarter of 2013.

The results come after rival Morgan Stanley earlier on Thursday reported a surprise increase in FICC trading from a year earlier, reflecting what the company said was a "strong performance in commodities and solid results in credit and securitized products, despite lower volumes across most fixed income businesses."

Several U.S. banks results have logged declines in the FICC business. At J.P. Morgan Chase & Co., fixed-income revenue fell 21% from the year earlier and at Citigroup Inc. it fell 18%. Bank of America Corp., whose fixed income results took a hit a year ago thanks to a settlement with bond insurer MBIA Inc., had reported revenue from its fixed-income unit jumped 6.2% from the year earlier, but fell 1.7% once adjusted for debt. Meanwhile, at Morgan Stanley fixed-income revenue rose 35%, or 9.2% on an adjusted basis.

Total equities revenue at Goldman Sachs--which includes trading and its prime brokerage operations--dropped 17% from a year earlier to $1.6 billion amid what the investment bank called "challenging market-making conditions, particularly in Japan and certain emerging markets."

In Goldman's investing and lending segment--which is made up of the firm's portfolio of investments in public and private equities and debt--revenue dropped 26% from a year earlier and from the prior quarter to $1.53 billion.

Overall, investment banking revenue rose 13% from a year earlier and 3.6% from the fourth quarter to $1.78 billion. Advisory revenue at Goldman Sachs was a bright spot, rising 41% from a year earlier to $682 million, which the firm said reflected increased client activity in Europe.

Analysts at Credit Suisse recently said they expect Goldman Sachs "to post its best first quarter M&A results post crisis, significantly outperforming the broader industry."

Equity underwriting rose 12% from a year earlier but revenue from debt underwriting fell 4.9%, which Goldman said reflected "significantly lower net revenues from commercial mortgage-related activity."

Goldman has attempted to counter its trading shortfall by reducing expenses, including the amount it sets aside for compensation. For the quarter, the bank's compensation and benefits expense fell 7.6% from a year earlier to $4.01 billion. As of the quarter's end, Goldman had a total of 32,600 employees, up from the 32,000 a year ago, but lower than the 32,900 reported for the previous quarter.

For the first quarter, Goldman reported net provisions for litigation and regulatory proceedings of $115 million, compared with $110 million and $561 million reported for the year earlier and the fourth quarter respectively. Overall operating expenses dropped 6.1% from the year earlier, although they climbed 21% from the fourth quarter to $6.31 billion.

Investors have been paying close attention to the returns offered by investment banks as being indicative of a broader upswing in the operating environment. But on Thursday, Goldman reported its annualized return on equity for the quarter was down at 10.9% from 12.4% a year earlier and 12.7% in the prior quarter.

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com and Justin Baer at justin.baer@wsj.com

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