NEW YORK (CNNMoney) -- Strength in investment banking helped Goldman Sachs report earnings and revenue that easily topped Wall Street's expectations.
First-quarter investment banking results were driven by strong activity in commercial mortgages and so-called leveraged finance, the risky, or high-yield, debt behind private equity transactions.
The bank reported a first-quarter profit of $2.26 billion, or $4.29 per share, on $10.1 billion of revenue. Profits jumped by 7% from the prior year but were down 22% from the fourth quarter.
Investment banking revenue jumped 36% from the previous year and 12% from the fourth quarter of 2012.
But Goldman warned that its transaction backlog was lower than last quarter, which could slow investing banking revenue growth.
Despite an overall increase in revenue and dealmaking, CEO Lloyd Blankfein noted that the bank witnessed a wariness among its clients. "The potential for macro-economic instability...constrained overall corporate and investor activity," Blankfein said in a statement.
Goldman Sachs generated $2.1 billion of revenue by trading and lending with the bank's capital. That's 8% higher than a year ago.
While the bank has shut down so-called proprietary trading, or short-term bets with its own capital, some critics point to Goldman's investing and lending division as an example of how banks could remain compliant while still engaging in risky bets -- something the Volcker Rule was designed to eliminate.
The Volcker Rule was designed to keep banks from making the type of risky bets that put the global financial system at risk during 2008 and 2009 with customer deposits.
Goldman's investing and lending division engages in longer-term debt and equity investing, but those types of bets can still produce big losses.
Blankfein said the bank remains committed to controlling costs in a challenging environment. Overall expenses dipped by 1% from last year but rose 36% from last quarter.
Average compensation per employee for the quarter edged up to $135,625. The bank set aside $4.34 billion for compensation expenses, unchanged from last year, but total staff decreased by 1%, to 32,000.
Goldman's stock, which has gained 15% so far this year, slipped 1.5% in early trading.
Goldman Sachs is the fourth major bank to report earnings, following JPMorgan Chase, Wells Fargo and Citigroup. Morgan Stanley and Bank of America are due out later this week.