The Quarterly
GS 2014 10-K

Goldman Sachs Group Inc (GS) SEC Quarterly Report (10-Q) for Q2 2015

GS Q3 2015 10-Q
GS 2014 10-K GS Q3 2015 10-Q
Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2015

or

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                                             to

Commission File Number: 001-14965

The Goldman Sachs Group, Inc.

(Exact name of registrant as specified in its charter)

Delaware 13-4019460

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

200 West Street, New York, N.Y. 10282
(Address of principal executive offices) (Zip Code)

(212) 902-1000

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x  Yes ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x  Yes  ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

  Large accelerated filer   x                      Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)        Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

¨  Yes  x  No

APPLICABLE ONLY TO CORPORATE ISSUERS

As of July 17, 2015, there were 432,870,999 shares of the registrant's common stock outstanding.

Table of Contents

THE GOLDMAN SACHS GROUP, INC.

QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2015

INDEX

Form 10-Q Item Number Page No.

PART I

FINANCIAL INFORMATION

2

Item 1

Financial Statements (Unaudited)

2

Condensed Consolidated Statements of Earnings for the three and six months ended June 30,  2015 and June 30, 2014

2

Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June  30, 2015 and June 30, 2014

3

Condensed Consolidated Statements of Financial Condition as of June 30, 2015 and December  31, 2014

4

Condensed Consolidated Statements of Changes in Shareholders' Equity for the six months ended June  30, 2015 and year ended December 31, 2014

5

Condensed Consolidated Statements of Cash Flows for the six months ended June 30,  2015 and June 30, 2014

6

Notes to Condensed Consolidated Financial Statements

7

Note 1.        Description of Business

7

Note 2.        Basis of Presentation

7

Note 3.        Significant Accounting Policies

8

Note 4.         Financial Instruments Owned, at Fair Value and Financial Instruments Sold,

But Not Yet Purchased, at Fair Value

13

Note 5.        Fair Value Measurements

15

Note 6.        Cash Instruments

16

Note 7.        Derivatives and Hedging Activities

26

Note 8.        Fair Value Option

40

Note 9.        Loans Receivable

49

Note 10.      Collateralized Agreements and Financings

51

Note 11.      Securitization Activities

56

Note 12.      Variable Interest Entities

59

Note 13.      Other Assets

62

Note 14.      Deposits

65

Note 15.      Short-Term Borrowings

65

Note 16.      Long-Term Borrowings

66

Note 17.      Other Liabilities and Accrued Expenses

68

Note 18.      Commitments, Contingencies and Guarantees

69

Note 19.      Shareholders' Equity

75

Note 20.      Regulation and Capital Adequacy

77

Note 21.      Earnings Per Common Share

85

Note 22.      Transactions with Affiliated Funds

86

Note 23.      Interest Income and Interest Expense

86

Note 24.      Income Taxes

87

Note 25.      Business Segments

88

Note 26.      Credit Concentrations

90

Note 27.      Legal Proceedings

91

Report of Independent Registered Public Accounting Firm

100

Statistical Disclosures

101

Item 2

Management's Discussion and Analysis of Financial Condition and Results of Operations

103

Item 3

Quantitative and Qualitative Disclosures About Market Risk

172

Item 4

Controls and Procedures

172

PART II

OTHER INFORMATION

172

Item 1

Legal Proceedings

172

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

172

Item 6

Exhibits

173

SIGNATURES

174

Goldman Sachs June 2015 Form 10-Q 1
Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Earnings

(Unaudited)

Three Months

Ended June

Six Months

Ended June

in millions, except per share amounts 2015 2014 2015 2014

Revenues

Investment banking

$2,019 $1,781 $  3,924 $  3,560

Investment management

1,566 1,378 3,069 2,876

Commissions and fees

805 786 1,658 1,658

Market making

2,309 2,185 6,234 4,824

Other principal transactions

1,707 1,995 3,279 3,498

Total non-interest revenues

8,406 8,125 18,164 16,416

Interest income

2,150 2,579 4,185 5,173

Interest expense

1,487 1,579 2,663 3,136

Net interest income

663 1,000 1,522 2,037

Net revenues, including net interest income

9,069 9,125 19,686 18,453

Operating expenses

Compensation and benefits

3,809 3,924 8,268 7,935

Brokerage, clearing, exchange and distribution fees

647 613 1,285 1,208

Market development

147 141 286 279

Communications and technology

203 186 401 386

Depreciation and amortization

265 294 484 684

Occupancy

186 205 390 415

Professional fees

250 224 461 436

Other expenses

1,836 717 2,451 1,268

Total non-compensation expenses

3,534 2,380 5,758 4,676

Total operating expenses

7,343 6,304 14,026 12,611

Pre-tax earnings

1,726 2,821 5,660 5,842

Provision for taxes

678 784 1,768 1,772

Net earnings

1,048 2,037 3,892 4,070

Preferred stock dividends

132 84 228 168

Net earnings applicable to common shareholders

$   916 $1,953 $  3,664 $  3,902

Earnings per common share

Basic

$  2.01 $  4.21 $    8.07 $    8.36

Diluted

1.98 4.10 7.93 8.13

Dividends declared per common share

$  0.65 $  0.55 $    1.25 $    1.10

Average common shares outstanding

Basic

451.4 461.7 452.3 465.1

Diluted

461.6 475.9 462.1 480.1

The accompanying notes are an integral part of these condensed consolidated financial statements.

2 Goldman Sachs June 2015 Form 10-Q
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

Three Months

Ended June

Six Months

Ended June

$ in millions 2015 2014 2015 2014

Net earnings

$1,048 $2,037 $3,892 $4,070

Other comprehensive income/(loss) adjustments, net of tax:

Currency translation

(30 (30 (55 (59

Pension and postretirement liabilities

(107 (6 (110 (14

Cash flow hedges

- 1 - 2

Other comprehensive loss

(137 (35 (165 (71

Comprehensive income

$   911 $2,002 $3,727 $3,999

The accompanying notes are an integral part of these condensed consolidated financial statements.

Goldman Sachs June 2015 Form 10-Q 3
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THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Financial Condition

(Unaudited)

As of
$ in millions, except per share amounts

June

2015



December
2014

Assets

Cash and cash equivalents

$  60,845 $  57,600

Cash and securities segregated for regulatory and other purposes (includes $17,395 and $34,291 at fair value as of June 2015 and December 2014, respectively)

35,340 51,716

Collateralized agreements:

Securities purchased under agreements to resell and federal funds sold (includes $122,354 and $126,036 at fair value as of June 2015 and December 2014, respectively)

123,619 127,938

Securities borrowed (includes $69,369 and $66,769 at fair value as of June 2015 and December 2014, respectively)

177,978 160,722

Receivables:

Brokers, dealers and clearing organizations

38,336 30,671

Customers and counterparties (includes $5,714 and $6,944 at fair value as of June 2015 and December 2014, respectively)

56,349 63,808

Loans receivable

38,397 28,938

Financial instruments owned, at fair value (includes $57,529 and $64,473 pledged as collateral as of June 2015 and December 2014, respectively)

303,463 312,248

Other assets

25,552 22,599

Total assets

$859,879 $856,240

Liabilities and shareholders' equity

Deposits (includes $15,309 and $13,523 at fair value as of June 2015 and December 2014, respectively)

$  89,064 $  83,008

Collateralized financings:

Securities sold under agreements to repurchase, at fair value

87,642 88,215

Securities loaned (includes $1,091 and $765 at fair value as of June 2015 and December 2014, respectively)

7,262 5,570

Other secured financings (includes $22,537 and $21,450 at fair value as of June 2015 and December 2014, respectively)

23,952 22,809

Payables:

Brokers, dealers and clearing organizations

8,007 6,636

Customers and counterparties

198,105 206,936

Financial instruments sold, but not yet purchased, at fair value

124,304 132,083

Unsecured short-term borrowings, including the current portion of unsecured long-term borrowings (includes $18,865 and $18,826 at fair value as of June 2015 and December 2014, respectively)

46,378 44,540

Unsecured long-term borrowings (includes $20,000 and $16,005 at fair value as of June 2015 and December 2014, respectively)

170,259 167,571

Other liabilities and accrued expenses (includes $1,185 and $831 at fair value as of June 2015 and December 2014, respectively)

17,252 16,075

Total liabilities

772,225 773,443

Commitments, contingencies and guarantees

Shareholders' equity

Preferred stock, par value $0.01 per share; aggregate liquidation preference of $11,200 and $9,200 as of June 2015 and December 2014, respectively

11,200 9,200

Common stock, par value $0.01 per share; 4,000,000,000 shares authorized, 863,046,524 and 852,784,764 shares issued as of June 2015 and December 2014, respectively, and 432,768,039 and 430,259,102 shares outstanding as of June 2015 and December 2014, respectively

9 9

Share-based awards

4,011 3,766

Nonvoting common stock, par value $0.01 per share; 200,000,000 shares authorized, no shares issued and outstanding

- -

Additional paid-in capital

51,210 50,049

Retained earnings

82,072 78,984

Accumulated other comprehensive loss

(908 (743

Stock held in treasury, at cost, par value $0.01 per share; 430,278,487 and 422,525,664 shares as of June 2015 and December 2014, respectively

(59,940 (58,468

Total shareholders' equity

87,654 82,797

Total liabilities and shareholders' equity

$859,879 $856,240

The accompanying notes are an integral part of these condensed consolidated financial statements.

4 Goldman Sachs June 2015 Form 10-Q
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Shareholders' Equity

(Unaudited)

$ in millions
Six Months Ended
June 2015


Year Ended
December 2014

Preferred stock

Balance, beginning of year

$   9,200 $   7,200

Issued

2,000 2,000

Balance, end of period

11,200 9,200

Common stock

Balance, beginning of year

9 8

Issued

- 1

Balance, end of period

9 9

Share-based awards

Balance, beginning of year

3,766 3,839

Issuance and amortization of share-based awards

1,997 2,079

Delivery of common stock underlying share-based awards

(1,615 (1,725

Forfeiture of share-based awards

(49 (92

Exercise of share-based awards

(88 (335

Balance, end of period

4,011 3,766

Additional paid-in capital

Balance, beginning of year

50,049 48,998

Delivery of common stock underlying share-based awards

1,904 2,206

Cancellation of share-based awards in satisfaction of withholding tax requirements

(1,101 (1,922

Preferred stock issuance costs

(7 (20

Excess net tax benefit related to share-based awards

366 788

Cash settlement of share-based awards

(1 (1

Balance, end of period

51,210 50,049

Retained earnings

Balance, beginning of year

78,984 71,961

Net earnings

3,892 8,477

Dividends and dividend equivalents declared on common stock and share-based awards

(576 (1,054

Dividends declared on preferred stock

(228 (400

Balance, end of period

82,072 78,984

Accumulated other comprehensive loss

Balance, beginning of year

(743 (524

Other comprehensive loss

(165 (219

Balance, end of period

(908 (743

Stock held in treasury, at cost

Balance, beginning of year

(58,468 (53,015

Repurchased

(1,495 (5,469

Reissued

29 49

Other

(6 (33

Balance, end of period

(59,940 (58,468

Total shareholders' equity

$ 87,654 $ 82,797

The accompanying notes are an integral part of these condensed consolidated financial statements.

Goldman Sachs June 2015 Form 10-Q 5
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

Six Months

Ended June

$ in millions 2015 2014

Cash flows from operating activities

Net earnings

$   3,892 $   4,070

Adjustments to reconcile net earnings to net cash provided by/(used for) operating activities

Depreciation and amortization

484 684

Share-based compensation

1,972 1,775

Gain related to extinguishment of junior subordinated debt

(34 -

Changes in operating assets and liabilities

Cash and securities segregated for regulatory and other purposes

16,376 9,003

Receivables and payables (excluding loans receivable), net

(7,825 6,772

Collateralized transactions (excluding other secured financings), net

(11,818 (14,645

Financial instruments owned, at fair value

7,140 (4,531

Financial instruments sold, but not yet purchased, at fair value

(7,779 (3,279

Other, net

(3,540 (3,541

Net cash used for operating activities

(1,132 (3,692

Cash flows from investing activities

Purchase of property, leasehold improvements and equipment

(698 (353

Proceeds from sales of property, leasehold improvements and equipment

49 10

Business acquisitions, net of cash acquired

(1,583 (449

Proceeds from sales of investments

275 469

Loans receivable, net

(9,459 (6,490

Net cash used for investing activities

(11,416 (6,813

Cash flows from financing activities

Unsecured short-term borrowings, net

(1,276 1,077

Other secured financings (short-term), net

(1,117 1,141

Proceeds from issuance of other secured financings (long-term)

7,376 3,413

Repayment of other secured financings (long-term), including the current portion

(5,247 (4,840

Proceeds from issuance of unsecured long-term borrowings

27,077 19,804

Repayment of unsecured long-term borrowings, including the current portion

(17,256 (15,320

Purchase of trust preferred securities

(1 (1,362

Derivative contracts with a financing element, net

(96 574

Deposits, net

6,056 2,943

Common stock repurchased

(1,495 (2,969

Dividends and dividend equivalents paid on common stock, preferred stock and share-based awards

(804 (691

Proceeds from issuance of preferred stock, net of issuance costs

1,993 1,980

Proceeds from issuance of common stock, including exercise of share-based awards

218 56

Excess tax benefit related to share-based awards

366 550

Cash settlement of share-based awards

(1 (1

Net cash provided by financing activities

15,793 6,355

Net increase/(decrease) in cash and cash equivalents

3,245 (4,150

Cash and cash equivalents, beginning of year

57,600 61,133

Cash and cash equivalents, end of period

$ 60,845 $ 56,983

SUPPLEMENTAL DISCLOSURES:

Cash payments for interest, net of capitalized interest, were $2.51 billion and $3.26 billion during the six months ended June 2015 and June 2014, respectively.

Cash payments for income taxes, net of refunds, were $1.91 billion and $2.06 billion during the six months ended June 2015 and June 2014, respectively.

Non-cash activities:

The firm exchanged $262 million of Trust Preferred Securities and common beneficial interests held by the firm for $296 million of the firm's junior subordinated debt held by the issuing trust during the six months ended June 2015. Following the exchange, this junior subordinated debt was extinguished.

The firm exchanged $175 million of senior guaranteed trust securities held by the firm for $175 million of the firm's junior subordinated debt securities held by the issuing trust during the six months ended June 2014. Following the exchange, this junior subordinated debt was extinguished.

The accompanying notes are an integral part of these condensed consolidated financial statements.

6 Goldman Sachs June 2015 Form 10-Q
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1.

Description of Business

The Goldman Sachs Group, Inc. (Group Inc. or parent company), a Delaware corporation, together with its consolidated subsidiaries (collectively, the firm), is a leading global investment banking, securities and investment management firm that provides a wide range of financial services to a substantial and diversified client base that includes corporations, financial institutions, governments and high-net-worth individuals. Founded in 1869, the firm is headquartered in New York and maintains offices in all major financial centers around the world.

The firm reports its activities in the following four business segments:

Investment Banking

The firm provides a broad range of investment banking services to a diverse group of corporations, financial institutions, investment funds and governments. Services include strategic advisory assignments with respect to mergers and acquisitions, divestitures, corporate defense activities, restructurings, spin-offs and risk management, and debt and equity underwriting of public offerings and private placements, including local and cross-border transactions, as well as derivative transactions directly related to these activities.

Institutional Client Services

The firm facilitates client transactions and makes markets in fixed income, equity, currency and commodity products, primarily with institutional clients such as corporations, financial institutions, investment funds and governments. The firm also makes markets in and clears client transactions on major stock, options and futures exchanges worldwide and provides financing, securities lending and other prime brokerage services to institutional clients.

Investing & Lending

The firm invests in and originates loans to provide financing to clients. These investments and loans are typically longer-term in nature. The firm makes investments, some of which are consolidated, directly and indirectly through funds that the firm manages, in debt securities and loans, public and private equity securities, and real estate entities.

Investment Management

The firm provides investment management services and offers investment products (primarily through separately managed accounts and commingled vehicles, such as mutual funds and private investment funds) across all major asset classes to a diverse set of institutional and individual clients. The firm also offers wealth advisory services, including portfolio management and financial counseling, and brokerage and other transaction services to high-net-worth individuals and families.

Note 2.

Basis of Presentation

These condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) and include the accounts of Group Inc. and all other entities in which the firm has a controlling financial interest. Intercompany transactions and balances have been eliminated.

These condensed consolidated financial statements are unaudited and should be read in conjunction with the audited consolidated financial statements included in the firm's Annual Report on Form 10-K for the year ended December 31, 2014. References to "the 2014 Form 10-K" are to the firm's Annual Report on Form 10-K for the year ended December 31, 2014. The condensed consolidated financial information as of December 31, 2014 has been derived from audited consolidated financial statements not included herein.

These unaudited condensed consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. These adjustments are of a normal, recurring nature. Interim period operating results may not be indicative of the operating results for a full year.

All references to June 2015, March 2015 and June 2014 refer to the firm's periods ended, or the dates, as the context requires, June 30, 2015, March 31, 2015 and June 30, 2014, respectively. All references to December 2014 refer to the date December 31, 2014. Any reference to a future year refers to a year ending on December 31 of that year. Certain reclassifications have been made to previously reported amounts to conform to the current presentation.

Goldman Sachs June 2015 Form 10-Q 7
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 3.

Significant Accounting Policies

The firm's significant accounting policies include when and how to measure the fair value of assets and liabilities, accounting for goodwill and identifiable intangible assets, and when to consolidate an entity. See Notes 5 through 8 for policies on fair value measurements, Note 13 for policies on goodwill and identifiable intangible assets, and below and Note 12 for policies on consolidation accounting. All other significant accounting policies are either discussed below or included in the following footnotes:

Financial Instruments Owned, at Fair Value and

Financial Instruments Sold, But Not Yet Purchased,

at Fair Value

Note 4

Fair Value Measurements

Note 5

Cash Instruments

Note 6

Derivatives and Hedging Activities

Note 7

Fair Value Option

Note 8

Loans Receivable

Note 9

Collateralized Agreements and Financings

Note 10

Securitization Activities

Note 11

Variable Interest Entities

Note 12

Other Assets, including Goodwill and

Identifiable Intangible Assets

Note 13

Deposits

Note 14

Short-Term Borrowings

Note 15

Long-Term Borrowings

Note 16

Other Liabilities and Accrued Expenses

Note 17

Commitments, Contingencies and Guarantees

Note 18

Shareholders' Equity

Note 19

Regulation and Capital Adequacy

Note 20

Earnings Per Common Share

Note 21

Transactions with Affiliated Funds

Note 22

Interest Income and Interest Expense

Note 23

Income Taxes

Note 24

Business Segments

Note 25

Credit Concentrations

Note 26

Legal Proceedings

Note 27

Consolidation

The firm consolidates entities in which the firm has a controlling financial interest. The firm determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity or a variable interest entity (VIE).

Voting Interest Entities. Voting interest entities are entities in which (i) the total equity investment at risk is sufficient to enable the entity to finance its activities independently and (ii) the equity holders have the power to direct the activities of the entity that most significantly impact its economic performance, the obligation to absorb the losses of the entity and the right to receive the residual returns of the entity. The usual condition for a controlling financial interest in a voting interest entity is ownership of a majority voting interest. If the firm has a majority voting interest in a voting interest entity, the entity is consolidated.

Variable Interest Entities. A VIE is an entity that lacks one or more of the characteristics of a voting interest entity. The firm has a controlling financial interest in a VIE when the firm has a variable interest or interests that provide it with (i) the power to direct the activities of the VIE that most significantly impact the VIE's economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. See Note 12 for further information about VIEs.

Equity-Method Investments. When the firm does not have a controlling financial interest in an entity but can exert significant influence over the entity's operating and financial policies, the investment is accounted for either (i) under the equity method of accounting or (ii) at fair value by electing the fair value option available under U.S. GAAP. Significant influence generally exists when the firm owns 20% to 50% of the entity's common stock or in-substance common stock.

In general, the firm accounts for investments acquired after the fair value option became available, at fair value. In certain cases, the firm applies the equity method of accounting to new investments that are strategic in nature or closely related to the firm's principal business activities, when the firm has a significant degree of involvement in the cash flows or operations of the investee or when cost-benefit considerations are less significant. See Note 13 for further information about equity-method investments.

8 Goldman Sachs June 2015 Form 10-Q
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Investment Funds. The firm has formed numerous investment funds with third-party investors. These funds are typically organized as limited partnerships or limited liability companies for which the firm acts as general partner or manager. Generally, the firm does not hold a majority of the economic interests in these funds. These funds are usually voting interest entities and generally are not consolidated because third-party investors typically have rights to terminate the funds or to remove the firm as general partner or manager. Investments in these funds are included in "Financial instruments owned, at fair value." See Notes 6, 18 and 22 for further information about investments in funds.

Use of Estimates

Preparation of these condensed consolidated financial statements requires management to make certain estimates and assumptions, the most important of which relate to fair value measurements, accounting for goodwill and identifiable intangible assets, discretionary compensation accruals and the provisions for losses that may arise from litigation, regulatory proceedings and tax audits. These estimates and assumptions are based on the best available information but actual results could be materially different.

Revenue Recognition

Financial Assets and Financial Liabilities at Fair Value. Financial instruments owned, at fair value and Financial instruments sold, but not yet purchased, at fair value are recorded at fair value either under the fair value option or in accordance with other U.S. GAAP. In addition, the firm has elected to account for certain of its other financial assets and financial liabilities at fair value by electing the fair value option. The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices and financial liabilities are marked to offer prices. Fair value measurements do not include transaction costs. Fair value gains or losses are generally included in "Market making" for positions in Institutional Client Services and "Other principal transactions" for positions in Investing & Lending. See Notes 5 through 8 for further information about fair value measurements.

Investment Banking. Fees from financial advisory assignments and underwriting revenues are recognized in earnings when the services related to the underlying transaction are completed under the terms of the assignment. Expenses associated with such transactions are deferred until the related revenue is recognized or the assignment is otherwise concluded. Expenses associated with financial advisory assignments are recorded as non-compensation expenses, net of client reimbursements. Underwriting revenues are presented net of related expenses.

Investment Management. The firm earns management fees and incentive fees for investment management services. Management fees for mutual funds are calculated as a percentage of daily net asset value and are received monthly. Management fees for hedge funds and separately managed accounts are calculated as a percentage of month-end net asset value and are generally received quarterly. Management fees for private equity funds are calculated as a percentage of monthly invested capital or commitments and are received quarterly, semi-annually or annually, depending on the fund. All management fees are recognized over the period that the related service is provided. Incentive fees are calculated as a percentage of a fund's or separately managed account's return, or excess return above a specified benchmark or other performance target. Incentive fees are generally based on investment performance over a 12-month period or over the life of a fund. Fees that are based on performance over a 12-month period are subject to adjustment prior to the end of the measurement period. For fees that are based on investment performance over the life of the fund, future investment underperformance may require fees previously distributed to the firm to be returned to the fund. Incentive fees are recognized only when all material contingencies have been resolved. Management and incentive fee revenues are included in "Investment management" revenues.

The firm makes payments to brokers and advisors related to the placement of the firm's investment funds. These payments are computed based on either a percentage of the management fee or the investment fund's net asset value. Where the firm is principal to the arrangement, such costs are recorded on a gross basis and included in "Brokerage, clearing, exchange and distribution fees," and where the firm is agent to the arrangement, such costs are recorded on a net basis in "Investment management" revenues.

Goldman Sachs June 2015 Form 10-Q 9
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Commissions and Fees. The firm earns "Commissions and fees" from executing and clearing client transactions on stock, options and futures markets, as well as over-the-counter (OTC) transactions. Commissions and fees are recognized on the day the trade is executed.

Transfers of Assets

Transfers of assets are accounted for as sales when the firm has relinquished control over the assets transferred. For transfers of assets accounted for as sales, any related gains or losses are recognized in net revenues. Assets or liabilities that arise from the firm's continuing involvement with transferred assets are recognized at fair value. For transfers of assets that are not accounted for as sales, the assets remain in "Financial instruments owned, at fair value" and the transfer is accounted for as a collateralized financing, with the related interest expense recognized over the life of the transaction. See Note 10 for further information about transfers of assets accounted for as collateralized financings and Note 11 for further information about transfers of assets accounted for as sales.

Cash and Cash Equivalents

The firm defines cash equivalents as highly liquid overnight deposits held in the ordinary course of business. As of June 2015 and December 2014, "Cash and cash equivalents" included $6.78 billion and $5.79 billion, respectively, of cash and due from banks, and $54.07 billion and $51.81 billion, respectively, of interest-bearing deposits with banks.

Receivables from Customers and Counterparties

Receivables from customers and counterparties generally relate to collateralized transactions. Such receivables are primarily comprised of customer margin loans, certain transfers of assets accounted for as secured loans rather than purchases at fair value and collateral posted in connection with certain derivative transactions. Substantially all of these receivables are accounted for at amortized cost net of estimated uncollectible amounts. Certain of the firm's receivables from customers and counterparties are accounted for at fair value under the fair value option, with changes in fair value generally included in "Market making" revenues. See Note 8 for further information about receivables from customers and counterparties accounted for at fair value under the fair value option. In addition, as of June 2015 and December 2014, the firm's receivables from customers and counterparties included $2.39 billion and $400 million, respectively, of loans held for sale, accounted for at the lower of cost or fair value. See Note 5 for an overview of the firm's fair value measurement policies.

As of June 2015 and December 2014, the carrying value of receivables not accounted for at fair value generally approximated fair value. While these items are carried at amounts that approximate fair value, they are not accounted for at fair value under the fair value option or at fair value in accordance with other U.S. GAAP and therefore are not included in the firm's fair value hierarchy in Notes 6 through 8. Had these items been included in the firm's fair value hierarchy, substantially all would have been classified in level 2 as of June 2015 and December 2014. Interest on receivables from customers and counterparties is recognized over the life of the transaction and included in "Interest income."

Receivables from and Payables to Brokers, Dealers and Clearing Organizations

Receivables from and payables to brokers, dealers and clearing organizations are accounted for at cost plus accrued interest, which generally approximates fair value. While these receivables and payables are carried at amounts that approximate fair value, they are not accounted for at fair value under the fair value option or at fair value in accordance with other U.S. GAAP and therefore are not included in the firm's fair value hierarchy in Notes 6 through 8. Had these receivables and payables been included in the firm's fair value hierarchy, substantially all would have been classified in level 2 as of June 2015 and December 2014.

Payables to Customers and Counterparties

Payables to customers and counterparties primarily consist of customer credit balances related to the firm's prime brokerage activities. Payables to customers and counterparties are accounted for at cost plus accrued interest, which generally approximates fair value. While these payables are carried at amounts that approximate fair value, they are not accounted for at fair value under the fair value option or at fair value in accordance with other U.S. GAAP and therefore are not included in the firm's fair value hierarchy in Notes 6 through 8. Had these payables been included in the firm's fair value hierarchy, substantially all would have been classified in level 2 as of June 2015 and December 2014. Interest on payables to customers and counterparties is recognized over the life of the transaction and included in "Interest expense."

10 Goldman Sachs June 2015 Form 10-Q
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Offsetting Assets and Liabilities

To reduce credit exposures on derivatives and securities financing transactions, the firm may enter into master netting agreements or similar arrangements (collectively, netting agreements) with counterparties that permit it to offset receivables and payables with such counterparties. A netting agreement is a contract with a counterparty that permits net settlement of multiple transactions with that counterparty, including upon the exercise of termination rights by a non-defaulting party. Upon exercise of such termination rights, all transactions governed by the netting agreement are terminated and a net settlement amount is calculated. In addition, the firm receives and posts cash and securities collateral with respect to its derivatives and securities financing transactions, subject to the terms of the related credit support agreements or similar arrangements (collectively, credit support agreements). An enforceable credit support agreement grants the non-defaulting party exercising termination rights the right to liquidate the collateral and apply the proceeds to any amounts owed. In order to assess enforceability of the firm's right of setoff under netting and credit support agreements, the firm evaluates various factors including applicable bankruptcy laws, local statutes and regulatory provisions in the jurisdiction of the parties to the agreement.

Derivatives are reported on a net-by-counterparty basis (i.e., the net payable or receivable for derivative assets and liabilities for a given counterparty) in the condensed consolidated statements of financial condition when a legal right of setoff exists under an enforceable netting agreement. Resale and repurchase agreements and securities borrowed and loaned transactions with the same term and currency are presented on a net-by-counterparty basis in the condensed consolidated statements of financial condition when such transactions meet certain settlement criteria and are subject to netting agreements.

In the condensed consolidated statements of financial condition, derivatives are reported net of cash collateral received and posted under enforceable credit support agreements, when transacted under an enforceable netting agreement. In the condensed consolidated statements of financial condition, resale and repurchase agreements, and securities borrowed and loaned, are not reported net of the related cash and securities received or posted as collateral. See Note 10 for further information about collateral received and pledged, including rights to deliver or repledge collateral. See Notes 7 and 10 for further information about offsetting.

Share-based Compensation

The cost of employee services received in exchange for a share-based award is generally measured based on the grant-date fair value of the award. Share-based awards that do not require future service (i.e., vested awards, including awards granted to retirement-eligible employees) are expensed immediately. Share-based awards that require future service are amortized over the relevant service period. Expected forfeitures are included in determining share-based employee compensation expense.

The firm pays cash dividend equivalents on outstanding restricted stock units (RSUs). Dividend equivalents paid on RSUs are generally charged to retained earnings. Dividend equivalents paid on RSUs expected to be forfeited are included in compensation expense. The firm accounts for the tax benefit related to dividend equivalents paid on RSUs as an increase to additional paid-in capital.

The firm generally issues new shares of common stock upon delivery of share-based awards. In certain cases, primarily related to conflicted employment (as outlined in the applicable award agreements), the firm may cash settle share-based compensation awards accounted for as equity instruments. For these awards, whose terms allow for cash settlement, additional paid-in capital is adjusted to the extent of the difference between the value of the award at the time of cash settlement and the grant-date value of the award.

Foreign Currency Translation

Assets and liabilities denominated in non-U.S. currencies are translated at rates of exchange prevailing on the date of the condensed consolidated statements of financial condition and revenues and expenses are translated at average rates of exchange for the period. Foreign currency remeasurement gains or losses on transactions in nonfunctional currencies are recognized in earnings. Gains or losses on translation of the financial statements of a non-U.S. operation, when the functional currency is other than the U.S. dollar, are included, net of hedges and taxes, in the condensed consolidated statements of comprehensive income.

Goldman Sachs June 2015 Form 10-Q 11
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Recent Accounting Developments

Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (ASC 205 and ASC 360). In April 2014, the FASB issued ASU No. 2014-08, "Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360) - Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity." ASU No. 2014-08 limits discontinued operations reporting to disposals of components of an entity that represent strategic shifts that have (or will have) a major effect on an entity's operations and financial results. The ASU requires expanded disclosures for discontinued operations and disposals of individually significant components of an entity that do not qualify for discontinued operations reporting. The ASU was effective for disposals and components classified as held for sale that occurred within annual periods beginning on or after December 15, 2014, and interim periods within those years. Early adoption was permitted. The firm early adopted ASU No. 2014-08 in 2014 and adoption did not materially affect the firm's financial condition, results of operations, or cash flows.

Revenue from Contracts with Customers (ASC 606). In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)." ASU No. 2014-09 provides comprehensive guidance on the recognition of revenue from customers arising from the transfer of goods and services. The ASU also provides guidance on accounting for certain contract costs, and requires new disclosures. ASU No. 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. In July 2015, the FASB voted to defer the effective date of ASU No. 2014-09 by one year, to annual reporting periods beginning after December 15, 2017. Early adoption will be permitted for annual reporting periods beginning after December 15, 2016. The firm is still evaluating the effect of the ASU on its financial condition, results of operations, and cash flows.

Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures (ASC 860). In June 2014, the FASB issued ASU No. 2014-11, "Transfers and Servicing (Topic 860) - Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures." ASU No. 2014-11 changes the accounting for repurchase- and resale-to-maturity agreements by requiring that such agreements be recognized as financing arrangements, and requires that a transfer of a financial asset and a repurchase agreement entered into contemporaneously be accounted for separately. ASU No. 2014-11 also requires additional disclosures about certain transferred financial assets accounted for as sales and certain securities financing transactions. The accounting changes and additional disclosures about certain transferred financial assets accounted for as sales were effective for the first interim and annual reporting periods beginning after December 15, 2014. The additional disclosures for certain securities financing transactions were required for annual reporting periods beginning after December 15, 2014 and for interim reporting periods beginning after March 15, 2015. Adoption of the accounting changes in ASU No. 2014-11 on January 1, 2015 did not materially affect the firm's financial condition, results of operations, or cash flows.

Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity (ASC 810). In August 2014, the FASB issued ASU No. 2014-13, "Consolidation (Topic 810) - Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity (CFE)." ASU No. 2014-13 provides an alternative to reflect changes in the fair value of the financial assets and the financial liabilities of the CFE by measuring either the fair value of the assets or liabilities, whichever is more observable. ASU No. 2014-13 provides new disclosure requirements for those electing this approach, and is effective for interim and annual periods beginning after December 15, 2015. Early adoption is permitted. Adoption of ASU No. 2014-13 will not materially affect the firm's financial condition, results of operations, or cash flows.

12 Goldman Sachs June 2015 Form 10-Q
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Amendments to the Consolidation Analysis (ASC 810). In February 2015, the FASB issued ASU No. 2015-02, "Consolidation (Topic 810) - Amendments to the Consolidation Analysis." ASU No. 2015-02 eliminates the deferral of the requirements of ASU No. 2009-17, "Consolidations (Topic 810) - Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities" for certain interests in investment funds and provides a scope exception from Topic 810 for certain investments in money market funds. The ASU also makes several modifications to the consolidation guidance for VIEs and general partners' investments in limited partnerships, as well as modifications to the evaluation of whether limited partnerships are VIEs or voting interest entities. ASU No. 2015-02 is effective for interim and annual reporting periods beginning after December 15, 2015. Early adoption is permitted and the firm intends to early adopt in 2015. Adoption of ASU No. 2015-02 is not expected to materially affect the firm's financial condition, results of operations, or cash flows.

Simplifying the Presentation of Debt Issuance Costs (ASC 835). In April 2015, the FASB issued ASU No. 2015-03, "Interest - Imputation of Interest (Subtopic 835-30) - Simplifying the Presentation of Debt Issuance Costs." ASU No. 2015-03 simplifies the presentation of debt issuance costs by requiring that these costs related to a recognized debt liability be presented in the statement of financial condition as a direct reduction from the carrying amount of that liability. ASU No. 2015-03 is effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period. Early adoption is permitted and the firm intends to early adopt in 2015. ASU No. 2015-03 is required to be applied retrospectively to all periods presented beginning in the year of adoption. Adoption will not materially affect the firm's financial condition, results of operations, or cash flows.

Disclosures for Investments in Certain Entities That Calculate Net Asset Value (NAV) per Share (or Its Equivalent) (ASC 820). In May 2015, the FASB issued ASU No. 2015–07, "Fair Value Measurement (Topic 820) - Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)." ASU No. 2015–07 requires that investments for which the fair value is measured at NAV using the practical expedient (investments in funds measured at NAV) under "Fair Value Measurements and Disclosures" (Topic 820) be excluded from the fair value hierarchy. ASU No. 2015–07 is effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period. ASU No. 2015–07 is required to be applied retrospectively to all periods presented beginning in the period of adoption. The firm early adopted ASU No. 2015–07 in June 2015 and adoption did not affect the firm's financial condition, results of operations, or cash flows. In accordance with ASU No. 2015-07, previously reported amounts have been conformed to the current presentation. See Notes 4 through 6 for the disclosures required by ASU No. 2015-07.

Note 4.

Financial Instruments Owned, at Fair Value and Financial Instruments Sold, But Not Yet Purchased, at Fair Value

Financial instruments owned, at fair value and financial instruments sold, but not yet purchased, at fair value are accounted for at fair value either under the fair value option or in accordance with other U.S. GAAP. See Note 8 for further information about other financial assets and financial liabilities accounted for at fair value primarily under the fair value option.

Goldman Sachs June 2015 Form 10-Q 13
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The tables below present the firm's financial instruments owned, at fair value, and financial instruments sold, but not yet purchased, at fair value.

As of June 2015
$ in millions
Financial
Instruments
Owned


Financial
Instruments
Sold, But
Not Yet
Purchased

Commercial paper, certificates of deposit, time deposits and other money market instruments

$    2,767 $          -

U.S. government and federal agency obligations

52,295 15,103

Non-U.S. government and agency obligations

34,006 21,794

Mortgage and other asset-backed loans and securities:

Loans and securities backed by commercial real estate

4,483  1 1

Loans and securities backed by residential real estate

11,075  2 -

Bank loans and bridge loans

12,064 371

Corporate debt securities

17,383 4,555

State and municipal obligations

1,417 -

Other debt obligations

2,190  3 1

Equities and convertible debentures

98,073 30,049

Commodities

4,253 704

Investments in funds measured at NAV

8,956 -

Subtotal

248,962 72,578

Derivatives

54,501 51,726

Total

$303,463 $124,304
As of December 2014
$ in millions
Financial
Instruments
Owned


Financial
Instruments
Sold, But
Not Yet
Purchased

Commercial paper, certificates of deposit, time deposits and other money market instruments

$     3,654 $          -

U.S. government and federal agency obligations

48,002 12,762

Non-U.S. government and agency obligations

37,059 20,500

Mortgage and other asset-backed loans and securities:

Loans and securities backed by commercial real estate

6,463  1 1

Loans and securities backed by residential real estate

11,717  2 -

Bank loans and bridge loans

14,848 464

Corporate debt securities

21,419 5,800

State and municipal obligations

1,203 -

Other debt obligations

3,257  3 2

Equities and convertible debentures

87,900 28,314

Commodities

3,846 1,224

Investments in funds measured at NAV

9,610 -

Subtotal

248,978 69,067

Derivatives

63,270 63,016

Total

$ 312,248 $132,083

1.

Includes $2.39 billion and $4.29 billion of loans backed by commercial real estate as of June 2015 and December 2014, respectively.

2.

Includes $7.31 billion and $6.43 billion of loans backed by residential real estate as of June 2015 and December 2014, respectively.

3.

Includes $493 million and $618 million of loans backed by consumer loans and other assets as of June 2015 and December 2014, respectively.

Gains and Losses from Market Making and Other Principal Transactions

The table below presents "Market making" revenues by major product type, as well as "Other principal transactions" revenues. These gains/(losses) include both realized and unrealized gains and losses, and are primarily related to the firm's financial instruments owned, at fair value and financial instruments sold, but not yet purchased, at fair value, including both derivative and non-derivative financial instruments. These gains/(losses) exclude related interest income and interest expense. See Note 23 for further information about interest income and interest expense.

The gains/(losses) in the table below are not representative of the manner in which the firm manages its business activities because many of the firm's market-making and client facilitation strategies utilize financial instruments across various product types. Accordingly, gains or losses in one product type frequently offset gains or losses in other product types. For example, most of the firm's longer-term derivatives across product types are sensitive to changes in interest rates and may be economically hedged with interest rate swaps. Similarly, a significant portion of the firm's cash instruments and derivatives across product types has exposure to foreign currencies and may be economically hedged with foreign currency contracts.

$ in millions

Product Type

Three Months

Ended June

Six Months

Ended June

2015 2014 2015 2014

Interest rates

$ 2,864 $  (176 $   278 $  (456

Credit

(12 1,022 920 2,202

Currencies

(1,861 561 1,791 856

Equities

1,041 544 2,703 1,227

Commodities

277 234 542 995

Market making

2,309 2,185 6,234 4,824

Other principal transactions  1

1,707 1,995 3,279 3,498

Total

$ 4,016 $4,180 $9,513 $8,322

1.

Other principal transactions are included in the firm's Investing & Lending segment. See Note 25 for net revenues, including net interest income, by product type for Investing & Lending, as well as the amount of net interest income included in Investing & Lending.

14 Goldman Sachs June 2015 Form 10-Q
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 5.

Fair Value Measurements

The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices and financial liabilities are marked to offer prices. Fair value measurements do not include transaction costs. The firm measures certain financial assets and financial liabilities as a portfolio (i.e., based on its net exposure to market and/or credit risks).

The best evidence of fair value is a quoted price in an active market. If quoted prices in active markets are not available, fair value is determined by reference to prices for similar instruments, quoted prices or recent transactions in less active markets, or internally developed models that primarily use market-based or independently sourced parameters as inputs including, but not limited to, interest rates, volatilities, equity or debt prices, foreign exchange rates, commodity prices, credit spreads and funding spreads (i.e., the spread, or difference, between the interest rate at which a borrower could finance a given financial instrument relative to a benchmark interest rate).

U.S. GAAP has a three-level fair value hierarchy for disclosure of fair value measurements. The fair value hierarchy prioritizes inputs to the valuation techniques used to measure fair value, giving the highest priority to level 1 inputs and the lowest priority to level 3 inputs. A financial instrument's level in the fair value hierarchy is based on the lowest level of input that is significant to its fair value measurement. The fair value hierarchy is as follows:

Level 1. Inputs are unadjusted quoted prices in active markets to which the firm had access at the measurement date for identical, unrestricted assets or liabilities.

Level 2. Inputs to valuation techniques are observable, either directly or indirectly.

Level 3. One or more inputs to valuation techniques are significant and unobservable.

The fair values for substantially all of the firm's financial assets and financial liabilities are based on observable prices and inputs and are classified in levels 1 and 2 of the fair value hierarchy. Certain level 2 and level 3 financial assets and financial liabilities may require appropriate valuation adjustments that a market participant would require to arrive at fair value for factors such as counterparty and the firm's credit quality, funding risk, transfer restrictions, liquidity and bid/offer spreads. Valuation adjustments are generally based on market evidence.

See Notes 6 through 8 for further information about fair value measurements of cash instruments, derivatives and other financial assets and financial liabilities accounted for at fair value primarily under the fair value option (including information about unrealized gains and losses related to level 3 financial assets and financial liabilities, and transfers in and out of level 3), respectively.

The table below presents financial assets and financial liabilities accounted for at fair value under the fair value option or in accordance with other U.S. GAAP. Counterparty and cash collateral netting represents the impact on derivatives of netting across levels of the fair value hierarchy. Netting among positions classified in the same level is included in that level.

As of
$ in millions

June

2015



March

2015



December
2014

Total level 1 financial assets

$143,808 $ 146,659 $ 139,484

Total level 2 financial assets

423,629 448,886 466,030

Total level 3 financial assets

32,412 34,342 35,780

Investments in funds measured at NAV

8,956 9,216 9,610

Counterparty and cash collateral netting

(90,510 (106,649 (104,616

Total financial assets at fair value

$518,295 $ 532,454 $ 546,288

Total assets  1

$859,879 $ 865,458 $ 856,240

Total level 3 financial assets as a percentage of total assets

3.8% 4.0% 4.2%

Total level 3 financial assets as a percentage of total financial assets at fair value

6.3% 6.4% 6.5%

Total level 1 financial liabilities

$  63,772 $   60,609 $   59,697

Total level 2 financial liabilities

247,883 262,860 253,364

Total level 3 financial liabilities

18,353 16,309 15,904

Counterparty and cash collateral netting

(39,075 (46,587 (37,267

Total financial liabilities at fair value

$290,933 $ 293,191 $ 291,698

Total level 3 financial liabilities as a percentage of total financial liabilities at fair value

6.3% 5.6% 5.5%

1.

Includes $834 billion, $842 billion and $834 billion as of June 2015, March 2015 and December 2014, respectively, that is carried at fair value or at amounts that generally approximate fair value.

The table below presents a summary of level 3 financial assets. See Notes 6 through 8 for further information about level 3 financial assets.

Level 3 Financial Assets as of
$ in millions

June

2015



March
2015


December
2014

Cash instruments

$26,195 $27,235 $28,650

Derivatives

6,175 7,069 7,074

Other financial assets

42 38 56

Total

$32,412 $34,342 $35,780

Goldman Sachs June 2015 Form 10-Q 15
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Level 3 financial assets as of June 2015 decreased compared with March 2015, primarily reflecting a decrease in level 3 cash instruments and derivative assets. See Note 6 for further information about changes in level 3 cash instruments. The decrease in level 3 derivative assets was primarily attributable to unrealized losses on certain credit derivative assets, and transfers to level 2 of certain equity derivative assets.

Level 3 financial assets as of June 2015 decreased compared with December 2014, primarily reflecting a decrease in level 3 cash instruments. See Note 6 for further information about changes in level 3 cash instruments.

Note 6.

Cash Instruments

Cash instruments include U.S. government and federal agency obligations, non-U.S. government and agency obligations, bank loans and bridge loans, corporate debt securities, equities and convertible debentures, investments in funds measured at NAV, and other non-derivative financial instruments owned and financial instruments sold, but not yet purchased. See below for the types of cash instruments included in each level of the fair value hierarchy and the valuation techniques and significant inputs used to determine their fair values. See Note 5 for an overview of the firm's fair value measurement policies.

Level 1 Cash Instruments

Level 1 cash instruments include U.S. government obligations and most non-U.S. government obligations, actively traded listed equities, certain government agency obligations and money market instruments. These instruments are valued using quoted prices for identical unrestricted instruments in active markets.

The firm defines active markets for equity instruments based on the average daily trading volume both in absolute terms and relative to the market capitalization for the instrument. The firm defines active markets for debt instruments based on both the average daily trading volume and the number of days with trading activity.

Level 2 Cash Instruments

Level 2 cash instruments include commercial paper, certificates of deposit, time deposits, most government agency obligations, certain non-U.S. government obligations, most corporate debt securities, commodities, certain mortgage-backed loans and securities, certain bank loans and bridge loans, restricted or less liquid listed equities, most state and municipal obligations and certain lending commitments.

Valuations of level 2 cash instruments can be verified to quoted prices, recent trading activity for identical or similar instruments, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. Consideration is given to the nature of the quotations (e.g., indicative or firm) and the relationship of recent market activity to the prices provided from alternative pricing sources.

Valuation adjustments are typically made to level 2 cash instruments (i) if the cash instrument is subject to transfer restrictions and/or (ii) for other premiums and liquidity discounts that a market participant would require to arrive at fair value. Valuation adjustments are generally based on market evidence.

Level 3 Cash Instruments

Level 3 cash instruments have one or more significant valuation inputs that are not observable. Absent evidence to the contrary, level 3 cash instruments are initially valued at transaction price, which is considered to be the best initial estimate of fair value. Subsequently, the firm uses other methodologies to determine fair value, which vary based on the type of instrument. Valuation inputs and assumptions are changed when corroborated by substantive observable evidence, including values realized on sales of financial assets.

16 Goldman Sachs June 2015 Form 10-Q
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Valuation Techniques and Significant Inputs

The table below presents the valuation techniques and the nature of significant inputs. These valuation techniques and

significant inputs are generally used to determine the fair values of each type of level 3 cash instrument.

Level 3 Cash Instruments Valuation Techniques and Significant Inputs

Loans and securities backed by commercial real estate

•   Collateralized by a single commercial real estate property or a portfolio of properties

•   May include tranches of varying levels of subordination

Valuation techniques vary by instrument, but are generally based on discounted cash flow techniques.

Significant inputs are generally determined based on relative value analyses and include:

•   Transaction prices in both the underlying collateral and instruments with the same or similar underlying collateral and the basis, or price difference, to such prices

•   Market yields implied by transactions of similar or related assets and/or current levels and changes in market indices such as the CMBX (an index that tracks the performance of commercial mortgage bonds)

•   A measure of expected future cash flows in a default scenario (recovery rates) implied by the value of the underlying collateral, which is mainly driven by current performance of the underlying collateral, capitalization rates and multiples. Recovery rates are expressed as a percentage of notional or face value of the instrument and reflect the benefit of credit enhancements on certain instruments

•   Timing of expected future cash flows (duration) which, in certain cases, may incorporate the impact of other unobservable inputs (e.g., prepayment speeds)

Loans and securities backed by residential real estate

•   Collateralized by portfolios of residential real estate

•   May include tranches of varying levels of subordination

Valuation techniques vary by instrument, but are generally based on discounted cash flow techniques.

Significant inputs are generally determined based on relative value analyses, which incorporate comparisons to instruments with similar collateral and risk profiles. Significant inputs include:

•   Transaction prices in both the underlying collateral and instruments with the same or similar underlying collateral

•   Market yields implied by transactions of similar or related assets

•   Cumulative loss expectations, driven by default rates, home price projections, residential property liquidation timelines and related costs

•   Duration, driven by underlying loan prepayment speeds and residential property liquidation timelines

Bank loans and bridge loans

Valuation techniques vary by instrument, but are generally based on discounted cash flow techniques.

Significant inputs are generally determined based on relative value analyses, which incorporate comparisons both to prices of credit default swaps that reference the same or similar underlying instrument or entity and to other debt instruments for the same issuer for which observable prices or broker quotations are available. Significant inputs include:

•   Market yields implied by transactions of similar or related assets and/or current levels and trends of market indices such as CDX and LCDX (indices that track the performance of corporate credit and loans, respectively)

•   Current performance and recovery assumptions and, where the firm uses credit default swaps to value the related cash instrument, the cost of borrowing the underlying reference obligation

•   Duration

Commercial paper, certificates of deposit, time deposits and other money market instruments

Non-U.S. government and

agency obligations

Corporate debt securities

State and municipal obligations

Other debt obligations

Valuation techniques vary by instrument, but are generally based on discounted cash flow techniques.

Significant inputs are generally determined based on relative value analyses, which incorporate comparisons both to prices of credit default swaps that reference the same or similar underlying instrument or entity and to other debt instruments for the same issuer for which observable prices or broker quotations are available. Significant inputs include:

•   Market yields implied by transactions of similar or related assets and/or current levels and trends of market indices such as CDX, LCDX and MCDX (an index that tracks the performance of municipal obligations)

•   Current performance and recovery assumptions and, where the firm uses credit default swaps to value the related cash instrument, the cost of borrowing the underlying reference obligation

•   Duration

Equities and convertible debentures (including private equity investments and investments in real estate entities)

Recent third-party completed or pending transactions (e.g., merger proposals, tender offers, debt restructurings) are considered to be the best evidence for any change in fair value. When these are not available, the following valuation methodologies are used, as appropriate:

•   Industry multiples (primarily EBITDA multiples) and public comparables

•   Transactions in similar instruments

•   Discounted cash flow techniques

•   Third-party appraisals

The firm also considers changes in the outlook for the relevant industry and financial performance of the issuer as compared to projected performance. Significant inputs include:

•   Market and transaction multiples

•   Discount rates, long-term growth rates, earnings compound annual growth rates and capitalization rates

•   For equity instruments with debt-like features: market yields implied by transactions of similar or related assets, current performance and recovery assumptions, and duration

Goldman Sachs June 2015 Form 10-Q 17
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Significant Unobservable Inputs

The table below presents the ranges and weighted averages of significant unobservable inputs used to value the firm's level 3 cash instruments. In the table below:

Ranges represent the significant unobservable inputs that were used in the valuation of each type of cash instrument.

Weighted averages are calculated by weighting each input by the relative fair value of the financial instruments.

The ranges and weighted averages of these inputs are not representative of the appropriate inputs to use when calculating the fair value of any one cash instrument. For example, the highest multiple presented in the tables below for private equity investments is appropriate for valuing a specific private equity investment but may not be appropriate for valuing any other private equity investment. Accordingly, the ranges of inputs presented below do not represent uncertainty in, or possible ranges of, fair value measurements of the firm's level 3 cash instruments.

Increases in yield, discount rate, capitalization rate, duration or cumulative loss rate used in the valuation of the firm's level 3 cash instruments would result in a lower fair value measurement, while increases in recovery rate, basis, multiples, long-term growth rate or compound annual growth rate would result in a higher fair value measurement. Due to the distinctive nature of each of the firm's level 3 cash instruments, the interrelationship of inputs is not necessarily uniform within each product type.

The fair value of any one instrument may be determined using multiple valuation techniques. For example, market comparables and discounted cash flows may be used together to determine fair value. Therefore, the level 3 balance encompasses both of these techniques.

Level 3 Cash Instruments

Valuation Techniques and

Significant Unobservable Inputs   

Range of Significant Unobservable Inputs (Weighted Average)

As of June 2015

As of December 2014

Loans and securities backed by commercial real estate

•   Collateralized by a single commercial real estate property or a portfolio of properties

•   May include tranches of varying levels of subordination

($2.13 billion and $3.28 billion of level 3 assets as of June 2015 and December 2014, respectively.)

Discounted cash flows:

•   Yield

3.3% to 20.0% (12.0%)

3.2% to 20.0% (10.5%)

•   Recovery rate

15.1% to 95.3% (54.4%)

24.9% to 100.0% (68.3%)

•   Duration (years)

0.3 to 4.4 (1.9)

0.3 to 4.7 (2.0)

•   Basis

(6) points to 11 points (3 points)

(8) points to 13 points (2 points)

Loans and securities backed by residential real estate

•   Collateralized by portfolios of residential real estate

•   May include tranches of varying levels of subordination

($2.72 billion and $2.55 billion of level 3 assets as of June 2015 and December 2014, respectively.)

Discounted cash flows:

•   Yield

2.8% to 12.0% (6.7%)

1.9% to 17.5% (7.6%)

•   Cumulative loss rate

6.0% to 42.6% (19.4%)

0.0% to 95.1% (24.4%)

•   Duration (years)

1.7 to 13.0 (5.1)

0.5 to 13.0 (4.3)

Bank loans and bridge loans

($5.38 billion and $6.97 billion of level 3 assets as of June 2015 and December 2014, respectively.)

Discounted cash flows:

•   Yield

1.5% to 22.0% (8.6%)

1.4% to 29.5% (8.7%)

•   Recovery rate

15.3% to 88.9% (51.2%)

26.6% to 92.5% (60.6%)

•   Duration (years)

0.4 to 6.5 (2.4)

0.3 to 7.8 (2.5)

Commercial paper, certificates of deposit, time deposits and other money market instruments

Non-U.S. government and agency obligations

Corporate debt securities

State and municipal obligations

Other debt obligations

($3.51 billion and $4.75 billion of level 3 assets as of June 2015 and December 2014, respectively.)

Discounted cash flows:

•   Yield

1.0% to 17.3% (9.4%)

0.9% to 24.4% (9.2%)

•   Recovery rate

0.0% to 71.7% (61.0%)

0.0% to 71.9% (59.2%)

•   Duration (years)

0.5 to 17.0 (4.4)

0.5 to 19.6 (3.7)

Equities and convertible debentures (including private equity investments and investments in real estate entities)

($12.46 billion and $11.11 billion of level 3 assets as of June 2015 and December 2014, respectively.)

Market comparables and discounted cash flows:

•   Multiples

0.7x to 23.2x (6.1x)

0.8x to 16.6x (6.5x)

•   Discount rate/yield

3.7% to 25.0% (14.3%)

3.7% to 30.0% (14.4%)

•   Long-term growth  rate/

    compound annual growth rate

3.0% to 10.7% (5.6%)

1.0% to 10.0% (6.0%)

•   Capitalization rate

5.3% to 11.9% (7.5%)

3.8% to 13.0% (7.6%)

18 Goldman Sachs June 2015 Form 10-Q
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Fair Value of Cash Instruments by Level

The tables below present cash instrument assets and liabilities at fair value by level within the fair value hierarchy. Cash instrument assets and liabilities are

included in "Financial instruments owned, at fair value" and "Financial instruments sold, but not yet purchased, at fair value," respectively.

Cash Instrument Assets at Fair Value as of June 2015
$ in millions Level 1 Level 2 Level 3 Total
Commercial paper, certificates of deposit, time deposits
and other money market instruments
$         69 $  2,687 $       11 $    2,767

U.S. government and federal agency obligations

26,183 26,112 - 52,295

Non-U.S. government and agency obligations

28,255 5,730 21 34,006

Mortgage and other asset-backed loans and securities:

Loans and securities backed by commercial real estate

- 2,349 2,134 4,483

Loans and securities backed by residential real estate

- 8,358 2,717 11,075

Bank loans and bridge loans

- 6,687 5,377 12,064

Corporate debt securities

239 14,549 2,595 17,383

State and municipal obligations

- 1,274 143 1,417

Other debt obligations

- 1,450 740 2,190

Equities and convertible debentures

76,614 9,002 12,457  2 98,073

Commodities

- 4,253 - 4,253

Subtotal

$131,360 $82,451 $26,195 240,006

Investments in funds measured at NAV

8,956

Total  1

$248,962
Cash Instrument Liabilities at Fair Value as of June 2015
$ in millions Level 1 Level 2 Level 3 Total

U.S. government and federal agency obligations

$  15,093 $       10 $       - $  15,103

Non-U.S. government and agency obligations

19,677 2,117 - 21,794

Mortgage and other asset-backed loans and securities:

Loans and securities backed by commercial real estate

- 1 - 1

Bank loans and bridge loans

- 233 138 371

Corporate debt securities

3 4,551 1 4,555

Other debt obligations

- - 1 1

Equities and convertible debentures

28,984 1,027 38 30,049

Commodities

- 704 - 704

Total

$  63,757 $  8,643 $     178 $  72,578

1.

Includes collateralized debt obligations (CDOs) and collateralized loan obligations (CLOs) backed by real estate and corporate obligations of $180 million in level 2 and $1.14 billion in level 3.

2.

Includes $11.67 billion of private equity investments, $315 million of investments in real estate entities and $472 million of convertible debentures.

Goldman Sachs June 2015 Form 10-Q 19
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Cash Instrument Assets at Fair Value as of December 2014
$ in millions Level 1 Level 2 Level 3 Total
Commercial paper, certificates of deposit, time deposits
and other money market instruments
$         - $  3,654 $       - $    3,654

U.S. government and federal agency obligations

18,540 29,462 - 48,002

Non-U.S. government and agency obligations

30,255 6,668 136 37,059

Mortgage and other asset-backed loans and securities:

Loans and securities backed by commercial real estate

- 3,188 3,275 6,463

Loans and securities backed by residential real estate

- 9,172 2,545 11,717

Bank loans and bridge loans

- 7,875 6,973 14,848

Corporate debt securities

249 17,537 3,633 21,419

State and municipal obligations

- 1,093 110 1,203

Other debt obligations

- 2,387 870 3,257

Equities and convertible debentures

68,974 7,818 11,108  2 87,900

Commodities

- 3,846 - 3,846

Subtotal

$118,018 $92,700 $28,650 239,368

Investments in funds measured at NAV

9,610

Total  1

$248,978
Cash Instrument Liabilities at Fair Value as of December 2014
$ in millions Level 1 Level 2 Level 3 Total

U.S. government and federal agency obligations

$  12,746 $       16 $       - $  12,762

Non-U.S. government and agency obligations

19,256 1,244 - 20,500

Mortgage and other asset-backed loans and securities:

Loans and securities backed by commercial real estate

- 1 - 1

Bank loans and bridge loans

- 286 178 464

Corporate debt securities

- 5,741 59 5,800

Other debt obligations

- - 2 2

Equities and convertible debentures

27,587 722 5 28,314

Commodities

- 1,224 - 1,224

Total

$  59,589 $  9,234 $     244 $  69,067

1.

Includes CDOs and CLOs backed by real estate and corporate obligations of $234 million in level 2 and $1.34 billion in level 3.

2.

Includes $10.25 billion of private equity investments, $294 million of investments in real estate entities and $562 million of convertible debentures.

Transfers Between Levels of the Fair Value Hierarchy

Transfers between levels of the fair value hierarchy are reported at the beginning of the reporting period in which they occur. During the three months ended June 2015, transfers into level 2 from level 1 of cash instruments were $480 million, reflecting transfers of public equity securities primarily due to decreased market activity in these instruments. During the three months ended June 2015, transfers into level 1 from level 2 of cash instruments were $211 million, reflecting transfers of public equity securities due to increased market activity in these instruments. During the three months ended June 2014, transfers into level 2 from level 1 of cash instruments were $552 million, including $346 million of public equity securities and $206 million of U.S. government and federal agency obligations primarily due to decreased market activity in these instruments. During the three months ended June 2014, transfers into level 1 from level 2 of cash instruments were $7 million, reflecting transfers of public equity securities due to increased market activity in these instruments.

During the six months ended June 2015, transfers into level 2 from level 1 of cash instruments were $500 million, reflecting transfers of public equity securities primarily due to decreased market activity in these instruments. During the six months ended June 2015, transfers into level 1 from level 2 of cash instruments were $126 million, reflecting transfers of public equity securities due to increased market activity in these instruments. During the six months ended June 2014, transfers into level 2 from level 1 of cash instruments were $67 million, including $49 million of public equity securities and $18 million of U.S. government and federal agency obligations primarily due to decreased market activity in these instruments. During the six months ended June 2014, transfers into level 1 from level 2 of cash instruments were $81 million, reflecting transfers of public equity securities, due to increased market activity in these instruments.

See level 3 rollforward below for information about transfers between level 2 and level 3.

20 Goldman Sachs June 2015 Form 10-Q
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Level 3 Rollforward

The tables below present changes in fair value for all cash instrument assets and liabilities categorized as level 3 as of the end of the period. In the tables below:

If a cash instrument asset or liability was transferred to level 3 during a reporting period, its entire gain or loss for the period is included in level 3.

Purchases include both originations and secondary market purchases.

Level 3 cash instruments are frequently economically hedged with level 1 and level 2 cash instruments and/or level 1, level 2 or level 3 derivatives. Accordingly, gains or losses that are reported in level 3 can be partially offset by gains or losses attributable to level 1 or level 2 cash instruments and/or level 1, level 2 or level 3 derivatives. As a result, gains or losses included in the level 3 rollforward below do not necessarily represent the overall impact on the firm's results of operations, liquidity or capital resources.

Level 3 Cash Instrument Assets at Fair Value for the Three Months Ended June 2015
$ in millions
Balance,
beginning
of period


Net
realized
gains/
(losses)


Net unrealized
gains/(losses)
relating to
instruments
still held at
period-end

Purchases Sales Settlements
Transfers
into
level 3


Transfers
out of
level 3


Balance,
end of
period

Commercial paper, certificates of deposit, time deposits and other money market instruments

$       10 $  - $     - $       1 $       - $       - $     - $       - $       11
Non-U.S. government and
agency obligations
95 2 1 - - (9 1 (69 21

Mortgage and other asset-backed loans and securities:

Loans and securities backed by commercial real estate

2,763 43 65 81 (277 (436 103 (208 2,134

Loans and securities backed by residential real estate

2,773 37 87 179 (248 (71 73 (113 2,717

Bank loans and bridge loans

6,311 122 - 383 (394 (430 180 (795 5,377

Corporate debt securities

2,766 29 (35 387 (112 (196 164 (408 2,595

State and municipal obligations

142 1 1 20 (13 - 19 (27 143

Other debt obligations

886 4 (4 105 (67 (6 35 (213 740

Equities and convertible debentures

11,489 92 1,098 251 (230 (379 584 (448 12,457

Total

$27,235 $330  1 $1,213 1 $1,407 $(1,341 $(1,527 $1,159 $(2,281 $26,195
Level 3 Cash Instrument Liabilities at Fair Value for the Three Months Ended June 2015
$ in millions
Balance,
beginning
of period


Net
realized
(gains)/
losses


Net unrealized
(gains)/losses
relating to
instruments
still held at
period-end

Purchases Sales Settlements
Transfers
into
level 3


Transfers
out of
level 3


Balance,
end of
period

Total

$     162 $    1 $       8 $    (34 $      36 $        2 $        9 $        (6 $     178

1.

The aggregate amounts include gains/(losses) of approximately $(26) million, $1.36 billion and $206 million reported in "Market making," "Other principal transactions" and "Interest income," respectively.

The net unrealized gain on level 3 cash instruments of $1.21 billion (reflecting $1.21 billion of gains on cash instrument assets and $8 million of losses on cash instrument liabilities) for the three months ended June 2015 primarily reflected gains on private equity investments principally driven by strong corporate performance and company-specific events.

Transfers into level 3 during the three months ended June 2015 primarily reflected transfers of certain private equity investments, bank loans and bridge loans and corporate debt securities from level 2 principally due to reduced price transparency as a result of a lack of market evidence, including fewer transactions in these instruments.

Goldman Sachs June 2015 Form 10-Q 21
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Transfers out of level 3 during the three months ended June 2015 primarily reflected transfers of certain bank loans and bridge loans, private equity securities and corporate debt securities to level 2 principally due to

increased price transparency as a result of market evidence, including additional market transactions in these instruments and due to certain unobservable yield and duration inputs no longer being significant to the valuation of these instruments.

Level 3 Cash Instrument Assets at Fair Value for the Six Months Ended June 2015
$ in millions
Balance,
beginning
of period


Net
realized
gains/
(losses)


Net unrealized
gains/(losses)
relating to
instruments
still held at
period-end

Purchases Sales Settlements
Transfers
into
level 3


Transfers
out of
level 3


Balance,
end of
period

Commercial paper, certificates of deposit, time deposits and other money market instruments

$         - $    - $       - $       - $       (1 $        - $     12 $       - $       11
Non-U.S. government and
agency obligations
136 2 - 1 (18 (26 - (74 21

Mortgage and other asset-backed loans and securities:

Loans and securities backed by commercial real estate

3,275 65 67 214 (333 (1,212 335 (277 2,134

Loans and securities backed by residential real estate

2,545 95 67 496 (498 (177 327 (138 2,717

Bank loans and bridge loans

6,973 218 (92 579 (668 (1,258 589 (964 5,377

Corporate debt securities

3,633 62 (46 484 (454 (380 309 (1,013 2,595

State and municipal obligations

110 3 2 14 (1 (1 40 (24 143

Other debt obligations

870 18 3 189 (109 (63 16 (184 740

Equities and convertible debentures

11,108 135 1,560 486 (375 (800 725 (382 12,457

Total

$28,650 $598  1 $1,561  1 $2,463 $(2,457 $(3,917 $2,353 $(3,056 $26,195
Level 3 Cash Instrument Liabilities at Fair Value for the Six Months Ended June 2015
$ in millions
Balance,
beginning
of period


Net
realized
(gains)/
losses


Net unrealized
(gains)/losses
relating to
instruments
still held at
period-end

Purchases Sales Settlements
Transfers
into
level 3


Transfers
out of
level 3


Balance,
end of
period

Total

$     244 $    2 $    (13 $  (112 $      46 $        2 $     46 $     (37 $     178

1.

The aggregate amounts include gains of approximately $4 million, $1.80 billion and $358 million reported in "Market making," "Other principal transactions" and "Interest income," respectively.

The net unrealized gain on level 3 cash instruments of $1.57 billion (reflecting $1.56 billion on cash instrument assets and $13 million on cash instrument liabilities) for the six months ended June 2015 primarily reflected gains on private equity investments principally driven by strong corporate performance and company-specific events.

Transfers into level 3 during the six months ended June 2015 primarily reflected transfers of certain private equity investments, bank loans and bridge loans, loans and securities backed by residential real estate, loans and securities backed by commercial real estate and corporate debt securities from level 2 principally due to reduced price transparency as a result of a lack of market evidence, including fewer transactions in these instruments.

Transfers out of level 3 during the six months ended June 2015 primarily reflected transfers of certain corporate debt securities and bank loans and bridge loans to level 2 principally due to increased price transparency as a result of market evidence, including additional market transactions in these instruments and due to certain unobservable yield and duration inputs no longer being significant to the valuation of these instruments.

22 Goldman Sachs June 2015 Form 10-Q
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Level 3 Cash Instrument Assets at Fair Value for the Three Months Ended June 2014
$ in millions
Balance,
beginning
of period


Net
realized
gains/
(losses)


Net unrealized
gains/(losses)
relating to
instruments
still held at
period-end

Purchases Sales Settlements
Transfers
into
level 3


Transfers
out of
level 3


Balance,
end of
period

Non-U.S. government and
agency obligations
$       45 $     1 $    1 $       9 $       (1 $       (2 $     - $      - $       53
Mortgage and other asset-backed
loans and securities:

Loans and securities backed by commercial real estate

2,518 31 87 114 (155 (305 417 (199 2,508

Loans and securities backed by residential real estate

2,065 34 90 149 (194 (3 27 (129 2,039

Bank loans and bridge loans

6,798 86 102 714 (169 (1,134 662 (779 6,280

Corporate debt securities

2,496 85 32 211 (665 (177 401 (191 2,192

State and municipal obligations

242 1 2 28 (41 - 1 (64 169

Other debt obligations

640 5 32 53 (51 (25 41 (66 629

Equities and convertible debentures

9,808 71 641 223 (416 (181 676 (271 10,551

Total

$24,612 $314  1 $987  1 $1,501 $(1,692 $(1,827 $2,225 $(1,699 $24,421
Level 3 Cash Instrument Liabilities at Fair Value for the Three Months Ended June 2014
$ in millions
Balance,
beginning
of period


Net
realized
(gains)/
losses


Net unrealized
(gains)/losses
relating to
instruments
still held at
period-end

Purchases Sales Settlements
Transfers
into
level 3


Transfers
out of
level 3


Balance,
end of
period

Total

$     204 $    (6 $   (9 $    (49 $      51 $      11 $     15 $     (20 $     197

1.

The aggregate amounts include gains of approximately $232 million, $743 million and $326 million reported in "Market making," "Other principal transactions" and "Interest income," respectively.

The net unrealized gain on level 3 cash instruments of $996 million (reflecting $987 million on cash instrument assets and $9 million on cash instrument liabilities) for the three months ended June 2014 primarily consisted of gains on private equity investments principally driven by company-specific events and strong corporate performance.

Transfers into level 3 during the three months ended June 2014 primarily reflected transfers of certain bank loans and bridge loans, private equity investments, loans and securities backed by commercial real estate and corporate debt securities from level 2 principally due to reduced price transparency as a result of a lack of market evidence, including fewer market transactions in these instruments.

Transfers out of level 3 during the three months ended June 2014 primarily reflected transfers of certain bank loans and bridge loans, private equity investments, loans and securities backed by commercial real estate and corporate debt securities to level 2 principally due to increased price transparency as a result of market evidence, including market transactions in these instruments.

Goldman Sachs June 2015 Form 10-Q 23
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Level 3 Cash Instrument Assets at Fair Value for the Six Months Ended June 2014
$ in millions
Balance,
beginning
of period


Net
realized
gains/
(losses)


Net unrealized
gains/(losses)
relating to
instruments
still held at
period-end

Purchases Sales Settlements
Transfers
into
level 3


Transfers
out of
level 3


Balance,
end of
period

Non-U.S. government and
agency obligations
$       40 $    1 $      - $     22 $     (18 $       (1 $       9 $       - $       53

Mortgage and other asset-backed loans and securities:

Loans and securities backed by commercial real estate

2,515 66 157 366 (259 (388 404 (353 2,508

Loans and securities backed by residential real estate

1,961 68 132 252 (177 (178 199 (218 2,039

Bank loans and bridge loans

6,071 149 179 1,813 (397 (1,406 478 (607 6,280

Corporate debt securities

2,744 155 61 629 (709 (401 88 (375 2,192

State and municipal obligations

257 2 4 34 (82 (2 1 (45 169

Other debt obligations

807 15 38 122 (160 (76 38 (155 629

Equities and convertible debentures

8,671 93 758 1,229 (609 (314 1,436 (713 10,551

Total

$23,066 $549  1 $1,329  1 $4,467 $(2,411 $(2,766 $2,653 $(2,466 $24,421
Level 3 Cash Instrument Liabilities at Fair Value for the Six Months Ended June 2014
$ in millions
Balance,
beginning
of period


Net
realized
(gains)/
losses


Net unrealized
(gains)/losses
relating to
instruments
still held at
period-end

Purchases Sales Settlements
Transfers
into
level 3


Transfers
out of
level 3


Balance,
end of
period

Total

$     297 $   (6 $    (70 $  (110 $      71 $      11 $       5 $       (1 $     197

1.

The aggregate amounts include gains of approximately $400 million, $881 million and $597 million reported in "Market making," "Other principal transactions" and "Interest income," respectively.

The net unrealized gain on level 3 cash instruments of $1.40 billion (reflecting $1.33 billion on cash instrument assets and $70 million on cash instrument liabilities) for the six months ended June 2014 primarily consisted of gains on private equity investments and bank loans and bridge loans, principally driven by company-specific events and strong corporate performance, and gains on loans and securities backed by commercial and residential real estate primarily due to tighter credit spreads.

Transfers into level 3 during the six months ended June 2014 primarily reflected transfers of certain private equity investments, bank loans and bridge loans and loans and securities backed by commercial real estate from level 2 principally due to reduced price transparency as a result of a lack of market evidence, including fewer market transactions in these instruments.

Transfers out of level 3 during the six months ended June 2014 primarily reflected transfers of certain private equity investments, bank loans and bridge loans, corporate debt securities and loans and securities backed by commercial real estate to level 2 principally due to increased price transparency as a result of market evidence, including market transactions in these instruments.

24 Goldman Sachs June 2015 Form 10-Q
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Investments in Funds That Are Measured at Net Asset Value Per Share

Cash instruments at fair value include investments in funds that are measured at NAV of the investment fund. The firm uses NAV to measure the fair value of its fund investments when (i) the fund investment does not have a readily determinable fair value and (ii) the NAV of the investment fund is calculated in a manner consistent with the measurement principles of investment company accounting, including measurement of the underlying investments at fair value. The firm early adopted ASU No. 2015-07 in June 2015 and as required, disclosures in the paragraphs and tables below are limited to only those investments in funds that are measured at NAV. In accordance with ASU No. 2015-07, previously reported amounts have been conformed to the current presentation.

The firm's investments in funds measured at NAV primarily consist of investments in firm-sponsored private equity, credit, real estate and hedge funds where the firm co-invests with third-party investors.

Private equity funds primarily invest in a broad range of industries worldwide in a variety of situations, including leveraged buyouts, recapitalizations, growth investments and distressed investments. Credit funds generally invest in loans and other fixed income instruments and are focused on providing private high-yield capital for mid- to large-sized leveraged and management buyout transactions, recapitalizations, financings, refinancings, acquisitions and restructurings for private equity firms, private family companies and corporate issuers. Real estate funds invest globally, primarily in real estate companies, loan portfolios, debt recapitalizations and property. The private equity, credit and real estate funds are primarily closed-end funds in which the firm's investments are generally not eligible for redemption. Distributions will be received from these funds as the underlying assets are liquidated or distributed.

The firm also invests in hedge funds, primarily multi-disciplinary hedge funds that employ a fundamental bottom-up investment approach across various asset classes and strategies including long/short equity, credit, convertibles, risk arbitrage, special situations and capital structure arbitrage. The firm's investments in hedge funds primarily include interests where the underlying assets are illiquid in nature, and proceeds from redemptions will not be received until the underlying assets are liquidated or distributed.

Many of the funds described above are "covered funds" as defined by the Volcker Rule of the U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The Board of Governors of the Federal Reserve System (Federal Reserve Board) extended the conformance period through July 2016 for investments in, and relationships with, covered funds that were in place prior to December 31, 2013, and indicated that it intends to further extend the conformance period through July 2017. The firm currently expects to be able to exit substantially all such interests in these funds in orderly transactions prior to July 2017, subject to market conditions. However, to the extent that the underlying investments of particular funds are not sold, the firm may be required to sell its interests in such funds. If that occurs, the firm may receive a value for its interests that is less than the then carrying value as there could be a limited secondary market for these investments and the firm may be unable to sell them in orderly transactions.

The firm continues to manage its existing funds, taking into account the conformance period outlined above, and has redeemed $3.09 billion of its interests in hedge funds since March 2012. In order to be compliant with the Volcker Rule, the firm will be required to reduce most of its interests in the funds in the table below by the end of the conformance period.

The tables below present the fair value of the firm's investments in, and unfunded commitments to, funds that are measured at NAV.

As of June 2015
$ in millions
Fair Value of
Investments


Unfunded
Commitments

Private equity funds

$6,095 $2,093

Credit funds

775 363

Hedge funds

744 -

Real estate funds

1,342 302

Total

$8,956 $2,758
As of December 2014
$ in millions
Fair Value of
Investments


Unfunded
Commitments

Private equity funds

$6,307 $2,175

Credit funds

1,008 383

Hedge funds

863 -

Real estate funds

1,432 310

Total

$9,610 $2,868

Goldman Sachs June 2015 Form 10-Q 25
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 7.

Derivatives and Hedging Activities

Derivative Activities

Derivatives are instruments that derive their value from underlying asset prices, indices, reference rates and other inputs, or a combination of these factors. Derivatives may be traded on an exchange (exchange-traded) or they may be privately negotiated contracts, which are usually referred to as OTC derivatives. Certain of the firm's OTC derivatives are cleared and settled through central clearing counterparties (OTC-cleared), while others are bilateral contracts between two counterparties (bilateral OTC).

Market-Making. As a market maker, the firm enters into derivative transactions to provide liquidity to clients and to facilitate the transfer and hedging of their risks. In this capacity, the firm typically acts as principal and is consequently required to commit capital to provide execution. As a market maker, it is essential to maintain an inventory of financial instruments sufficient to meet expected client and market demands.

Risk Management. The firm also enters into derivatives to actively manage risk exposures that arise from its market-making and investing and lending activities in derivative and cash instruments. The firm's holdings and exposures are hedged, in many cases, on either a portfolio or risk-specific basis, as opposed to an instrument-by-instrument basis. The offsetting impact of this economic hedging is reflected in the same business segment as the related revenues. In addition, the firm may enter into derivatives designated as hedges under U.S. GAAP. These derivatives are used to manage interest rate exposure in certain fixed-rate unsecured long-term and short-term borrowings, and deposits, and to manage foreign currency exposure on the net investment in certain non-U.S. operations.

The firm enters into various types of derivatives, including:

Futures and Forwards. Contracts that commit counterparties to purchase or sell financial instruments, commodities or currencies in the future.

Swaps. Contracts that require counterparties to exchange cash flows such as currency or interest payment streams. The amounts exchanged are based on the specific terms of the contract with reference to specified rates, financial instruments, commodities, currencies or indices.

Options. Contracts in which the option purchaser has the right, but not the obligation, to purchase from or sell to the option writer financial instruments, commodities or currencies within a defined time period for a specified price.

Derivatives are reported on a net-by-counterparty basis (i.e., the net payable or receivable for derivative assets and liabilities for a given counterparty) when a legal right of setoff exists under an enforceable netting agreement (counterparty netting). Derivatives are accounted for at fair value, net of cash collateral received or posted under enforceable credit support agreements (cash collateral netting). Derivative assets and liabilities are included in "Financial instruments owned, at fair value" and "Financial instruments sold, but not yet purchased, at fair value," respectively. Realized and unrealized gains and losses on derivatives not designated as hedges under ASC 815 are included in "Market making" and "Other principal transactions" in Note 4.

26 Goldman Sachs June 2015 Form 10-Q
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The table below presents the gross fair value and the notional amount of derivative contracts by major product type, the amounts of counterparty and cash collateral netting in the condensed consolidated statements of financial condition, as well as cash and securities collateral posted and received under enforceable credit support agreements that do not meet the criteria for netting under U.S. GAAP.

In the table below:

Gross fair values exclude the effects of both counterparty netting and collateral, and therefore are not representative of the firm's exposure.

Where the firm has received or posted collateral under credit support agreements, but has not yet determined such agreements are enforceable, the related collateral has not been netted.

Notional amounts, which represent the sum of gross long and short derivative contracts, provide an indication of the volume of the firm's derivative activity and do not represent anticipated losses.

As of June 2015 As of December 2014
$ in millions
Derivative
Assets


Derivative
Liabilities


Notional
Amount


Derivative
Assets


Derivative
Liabilities


Notional
Amount

Derivatives not accounted for as hedges

Exchange-traded

$        265 $        261 $  3,297,942 $          228 $        238 $  3,151,865

OTC-cleared

243,453 220,466 26,297,086 351,801 330,298 30,408,636

Bilateral OTC

361,531 337,954 13,423,822 434,333 409,071 13,552,017

Total interest rates

605,249 558,681 43,018,850 786,362 739,607 47,112,518

OTC-cleared

6,109 5,979 441,067 5,812 5,663 378,099

Bilateral OTC

36,573 32,991 1,847,118 49,036 44,491 2,122,859

Total credit

42,682 38,970 2,288,185 54,848 50,154 2,500,958

Exchange-traded

76 242 19,955 69 69 17,214

OTC-cleared

107 58 12,665 100 96 13,304

Bilateral OTC

95,156 99,549 5,565,689 109,747 108,442 5,535,685

Total currencies

95,339 99,849 5,598,309 109,916 108,607 5,566,203

Exchange-traded

5,324 5,065 322,798 7,683 7,166 321,378

OTC-cleared

185 181 2,368 313 315 3,036

Bilateral OTC

13,149 15,124 287,989 20,994 21,065 345,065

Total commodities

18,658 20,370 613,155 28,990 28,546 669,479

Exchange-traded

9,243 9,055 585,950 9,592 9,636 541,711

Bilateral OTC

44,976 46,124 1,071,701 49,339 49,013 983,784

Total equities

54,219 55,179 1,657,651 58,931 58,649 1,525,495

Subtotal

816,147 773,049 53,176,150 1,039,047 985,563 57,374,653

Derivatives accounted for as hedges

OTC-cleared

1,566 131 39,730 2,713 228 31,109

Bilateral OTC

9,634 11 80,626 11,559 34 95,389

Total interest rates

11,200 142 120,356 14,272 262 126,498

OTC-cleared

2 14 1,154 12 3 1,205

Bilateral OTC

101 35 8,069 113 13 8,431

Total currencies

103 49 9,223 125 16 9,636

Subtotal

11,303 191 129,579 14,397 278 136,134

Total gross fair value/notional amount of derivatives

$ 827,450  1 $ 773,240  1 $53,305,729 $1,053,444  1 $ 985,841  1 $57,510,787

Amounts that have been offset in the condensed
consolidated statements of financial condition

Exchange-traded

$  (12,228 $  (12,228 $    (15,039 $  (15,039

OTC-cleared

(224,199 (224,199 (335,792 (335,792

Bilateral OTC

(447,672 (447,672 (535,839 (535,839

Total counterparty netting

(684,099 (684,099 (886,670 (886,670

OTC-cleared

(26,955 (2,553 (24,801 (738

Bilateral OTC

(61,895 (34,862 (78,703 (35,417

Total cash collateral netting

(88,850 (37,415 (103,504 (36,155

Total counterparty and cash collateral netting

$(772,949 $(721,514 $  (990,174 $(922,825

Amounts included in financial instruments owned/
financial instruments sold, but not yet purchased

Exchange-traded

$     2,680 $     2,395 $       2,533 $     2,070

OTC-cleared

268 77 158 73

Bilateral OTC

51,553 49,254 60,579 60,873

Total amounts included in the condensed consolidated
statements of financial condition

$   54,501 $   51,726 $     63,270 $   63,016

Amounts that have not been offset in the condensed
consolidated statements of financial condition

Cash collateral received/posted

$       (577 $    (1,898 $         (980 $    (2,940

Securities collateral received/posted

(13,358 (11,915 (14,742 (18,159

Total

$   40,566 $   37,913 $     47,548 $   41,917

1.

Includes derivative assets and derivative liabilities of $18.98 billion and $20.53 billion, respectively, as of June 2015, and derivative assets and derivative liabilities of $25.93 billion and $26.19 billion, respectively, as of December 2014, which are not subject to an enforceable netting agreement or are subject to a netting agreement that the firm has not yet determined to be enforceable.

Goldman Sachs June 2015 Form 10-Q 27
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Valuation Techniques for Derivatives

The firm's level 2 and level 3 derivatives are valued using derivative pricing models (e.g., discounted cash flow models, correlation models, and models that incorporate option pricing methodologies, such as Monte Carlo simulations). Price transparency of derivatives can generally be characterized by product type.

Interest Rate. In general, the key inputs used to value interest rate derivatives are transparent, even for most long-dated contracts. Interest rate swaps and options denominated in the currencies of leading industrialized nations are characterized by high trading volumes and tight bid/offer spreads. Interest rate derivatives that reference indices, such as an inflation index, or the shape of the yield curve (e.g., 10-year swap rate vs. 2-year swap rate) are more complex, but the key inputs are generally observable.

Credit. Price transparency for credit default swaps, including both single names and baskets of credits, varies by market and underlying reference entity or obligation. Credit default swaps that reference indices, large corporates and major sovereigns generally exhibit the most price transparency. For credit default swaps with other underliers, price transparency varies based on credit rating, the cost of borrowing the underlying reference obligations, and the availability of the underlying reference obligations for delivery upon the default of the issuer. Credit default swaps that reference loans, asset-backed securities and emerging market debt instruments tend to have less price transparency than those that reference corporate bonds. In addition, more complex credit derivatives, such as those sensitive to the correlation between two or more underlying reference obligations, generally have less price transparency.

Currency. Prices for currency derivatives based on the exchange rates of leading industrialized nations, including those with longer tenors, are generally transparent. The primary difference between the price transparency of developed and emerging market currency derivatives is that emerging markets tend to be observable for contracts with shorter tenors.

Commodity. Commodity derivatives include transactions referenced to energy (e.g., oil and natural gas), metals (e.g., precious and base) and soft commodities (e.g., agricultural). Price transparency varies based on the underlying commodity, delivery location, tenor and product quality (e.g., diesel fuel compared to unleaded gasoline). In general, price transparency for commodity derivatives is greater for contracts with shorter tenors and contracts that are more closely aligned with major and/or benchmark commodity indices.

Equity. Price transparency for equity derivatives varies by market and underlier. Options on indices and the common stock of corporates included in major equity indices exhibit the most price transparency. Equity derivatives generally have observable market prices, except for contracts with long tenors or reference prices that differ significantly from current market prices. More complex equity derivatives, such as those sensitive to the correlation between two or more individual stocks, generally have less price transparency.

Liquidity is essential to observability of all product types. If transaction volumes decline, previously transparent prices and other inputs may become unobservable. Conversely, even highly structured products may at times have trading volumes large enough to provide observability of prices and other inputs. See Note 5 for an overview of the firm's fair value measurement policies.

Level 1 Derivatives

Level 1 derivatives include short-term contracts for future delivery of securities when the underlying security is a level 1 instrument, and exchange-traded derivatives if they are actively traded and are valued at their quoted market price.

Level 2 Derivatives

Level 2 derivatives include OTC derivatives for which all significant valuation inputs are corroborated by market evidence and exchange-traded derivatives that are not actively traded and/or that are valued using models that calibrate to market-clearing levels of OTC derivatives. In evaluating the significance of a valuation input, the firm considers, among other factors, a portfolio's net risk exposure to that input.

28 Goldman Sachs June 2015 Form 10-Q
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The selection of a particular model to value a derivative depends on the contractual terms of and specific risks inherent in the instrument, as well as the availability of pricing information in the market. For derivatives that trade in liquid markets, model selection does not involve significant management judgment because outputs of models can be calibrated to market-clearing levels.

Valuation models require a variety of inputs, such as contractual terms, market prices, yield curves, discount rates (including those derived from interest rates on collateral received and posted as specified in credit support agreements for collateralized derivatives), credit curves, measures of volatility, prepayment rates, loss severity rates and correlations of such inputs. Significant inputs to the valuations of level 2 derivatives can be verified to market transactions, broker or dealer quotations or other alternative pricing sources with reasonable levels of price transparency. Consideration is given to the nature of the quotations (e.g., indicative or firm) and the relationship of recent market activity to the prices provided from alternative pricing sources.

Level 3 Derivatives

Level 3 derivatives are valued using models which utilize observable level 1 and/or level 2 inputs, as well as unobservable level 3 inputs.

For the majority of the firm's interest rate and currency derivatives classified within level 3, significant unobservable inputs include correlations of certain currencies and interest rates (e.g., the correlation between Euro inflation and Euro interest rates) and specific interest rate volatilities.

For level 3 credit derivatives, significant unobservable inputs include illiquid credit spreads and upfront credit points, which are unique to specific reference obligations and reference entities, recovery rates and certain correlations required to value credit and mortgage derivatives (e.g., the likelihood of default of the underlying reference obligation relative to one another).

For level 3 equity derivatives, significant unobservable inputs generally include equity volatility inputs for options that are very long-dated and/or have strike prices that differ significantly from current market prices. In addition, the valuation of certain structured trades requires the use of level 3 correlation inputs, such as the correlation of the price performance of two or more individual stocks or the correlation of the price performance for a basket of stocks to another asset class such as commodities.

For level 3 commodity derivatives, significant unobservable inputs include volatilities for options with strike prices that differ significantly from current market prices and prices or spreads for certain products for which the product quality or physical location of the commodity is not aligned with benchmark indices.

Subsequent to the initial valuation of a level 3 derivative, the firm updates the level 1 and level 2 inputs to reflect observable market changes and any resulting gains and losses are recorded in level 3. Level 3 inputs are changed when corroborated by evidence such as similar market transactions, third-party pricing services and/or broker or dealer quotations or other empirical market data. In circumstances where the firm cannot verify the model value by reference to market transactions, it is possible that a different valuation model could produce a materially different estimate of fair value. See below for further information about significant unobservable inputs used in the valuation of level 3 derivatives.

Valuation Adjustments

Valuation adjustments are integral to determining the fair value of derivative portfolios and are used to adjust the mid-market valuations produced by derivative pricing models to the appropriate exit price valuation. These adjustments incorporate bid/offer spreads, the cost of liquidity, credit valuation adjustments and funding valuation adjustments, which account for the credit and funding risk inherent in the uncollateralized portion of derivative portfolios. The firm also makes funding valuation adjustments to collateralized derivatives where the terms of the agreement do not permit the firm to deliver or repledge collateral received. Market-based inputs are generally used when calibrating valuation adjustments to market-clearing levels.

In addition, for derivatives that include significant unobservable inputs, the firm makes model or exit price adjustments to account for the valuation uncertainty present in the transaction.

Goldman Sachs June 2015 Form 10-Q 29
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Significant Unobservable Inputs

The table below presents the ranges, averages and medians of significant unobservable inputs used to value the firm's level 3 derivatives. In the table below:

Ranges represent the significant unobservable inputs that were used in the valuation of each type of derivative.

Averages represent the arithmetic average of the inputs and are not weighted by the relative fair value or notional of the respective financial instruments. An average greater than the median indicates that the majority of inputs are below the average.

The ranges, averages and medians of these inputs are not representative of the appropriate inputs to use when calculating the fair value of any one derivative. For example, the highest correlation presented in the tables below for interest rate derivatives is appropriate for valuing a specific interest rate derivative but may not be appropriate for valuing any other interest rate derivative. Accordingly, the ranges of inputs presented below do not represent uncertainty in, or possible ranges of, fair value measurements of the firm's level 3 derivatives.

The fair value of any one instrument may be determined using multiple valuation techniques. For example, option pricing models and discounted cash flows models are typically used together to determine fair value. Therefore, the level 3 balance encompasses both of these techniques.

Level 3 Derivative Product Type

Valuation Techniques and

Significant Unobservable Inputs

Range of Significant Unobservable Inputs (Average / Median)
As of June 2015 As of December 2014

Interest rates (consists of $78 million and $40 million of net level 3 liabilities as of June 2015 and December 2014, respectively)

Option pricing models:

Correlation  1

Volatility

(25)% to 86% (53% / 55%)

31 basis points per annum (bpa) to

153 bpa (84 bpa / 57 bpa)

(16)% to 84% (37% / 40%)

36 basis points per annum (bpa) to

156 bpa (100 bpa / 115 bpa)

Credit (consists of $2.97 billion and $3.53 billion of net level 3 assets as of June 2015 and December 2014, respectively)

Option pricing models, correlation models and discounted cash flows models:

Correlation  1

Credit spreads

Upfront credit points

Recovery rates

5% to 97% (68% / 69%)

1 basis points (bps) to 803 bps (120 bps / 97 bps)  2

0 points to 99 points (41 points / 40 points)

10% to 72% (48% / 40%)

5% to 99% (71% / 72%)

1 basis points (bps) to 700 bps (116 bps / 79 bps)  2

0 points to 99 points (40 points / 30 points)

14% to 87% (44% / 40%)

Currencies (consists of $149 million and $267 million of net level 3 liabilities as of June 2015 and December 2014, respectively)

Option pricing models:

Correlation  1

55% to 80% (69% / 73%)

55% to 80% (69% / 73%)

Commodities (consists of $54 million and $1.14 billion of net level 3 liabilities as of June 2015 and December 2014, respectively)

Option pricing models and discounted cash flows models:

Volatility

Spread per million British Thermal units (MMBTU) of natural gas

Spread per Metric Tonne (MT) of coal

Spread per barrel of oil and refined products

15% to 56% (31% / 30%)

$(1.76) to $6.99 ($(0.08) / $(0.05))

$(9.63) to $(4.50) ($(8.07) / $(8.21))

$(8.14) to $56.54 ($10.31 / $1.85)  2

16% to 68% (33% / 32%)

$(1.66) to $4.45 ($(0.13) / $(0.03))

$(10.50) to $3.00 ($(4.04) / $(6.74))

$(15.35) to $80.55 ($22.32 / $13.50)  2

Equities (consists of $2.35 billion and $1.38 billion of net level 3 liabilities as of June 2015 and December 2014, respectively)

Option pricing models:

Correlation  1

Volatility

28% to 99% (63% / 61%)

5% to 83% (25% / 23%)

30% to 99% (62% / 55%)

5% to 90% (23% / 21%)

1.

The range of unobservable inputs for correlation across derivative product types (i.e., cross-asset correlation) was (45)% to 80% (Average: 32% / Median: 40%) as of June 2015, and (34)% to 80% (Average: 33% / Median: 35%) as of December 2014.

2.

The difference between the average and the median for these spread inputs indicates that the majority of the inputs fall in the lower end of the range.

30 Goldman Sachs June 2015 Form 10-Q
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Range of Significant Unobservable Inputs

The following provides further information about the ranges of significant unobservable inputs used to value the firm's level 3 derivative instruments.

Correlation.  Ranges for correlation cover a variety of underliers both within one market (e.g., equity index and equity single stock names) and across markets (e.g., correlation of an interest rate and a foreign exchange rate), as well as across regions. Generally, cross-asset correlation inputs are used to value more complex instruments and are lower than correlation inputs on assets within the same derivative product type.

Volatility.  Ranges for volatility cover numerous underliers across a variety of markets, maturities and strike prices. For example, volatility of equity indices is generally lower than volatility of single stocks.

Credit spreads, upfront credit points and recovery rates. The ranges for credit spreads, upfront credit points and recovery rates cover a variety of underliers (index and single names), regions, sectors, maturities and credit qualities (high-yield and investment-grade). The broad range of this population gives rise to the width of the ranges of significant unobservable inputs.

Commodity prices and spreads. The ranges for commodity prices and spreads cover variability in products, maturities and locations.

Sensitivity of Fair Value Measurement to Changes in Significant Unobservable Inputs

The following provides a description of the directional sensitivity of the firm's level 3 fair value measurements to changes in significant unobservable inputs, in isolation. Due to the distinctive nature of each of the firm's level 3 derivatives, the interrelationship of inputs is not necessarily uniform within each product type.

Correlation. In general, for contracts where the holder benefits from the convergence of the underlying asset or index prices (e.g., interest rates, credit spreads, foreign exchange rates, inflation rates and equity prices), an increase in correlation results in a higher fair value measurement.

Volatility. In general, for purchased options an increase in volatility results in a higher fair value measurement.

Credit spreads, upfront credit points and recovery rates. In general, the fair value of purchased credit protection increases as credit spreads or upfront credit points increase or recovery rates decrease. Credit spreads, upfront credit points and recovery rates are strongly related to distinctive risk factors of the underlying reference obligations, which include reference entity-specific factors such as leverage, volatility and industry, market-based risk factors, such as borrowing costs or liquidity of the underlying reference obligation, and macroeconomic conditions.

Commodity prices and spreads. In general, for contracts where the holder is receiving a commodity, an increase in the spread (price difference from a benchmark index due to differences in quality or delivery location) or price results in a higher fair value measurement.

Goldman Sachs June 2015 Form 10-Q 31
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Fair Value of Derivatives by Level

The tables below present the fair value of derivatives on a gross basis by level and major product type as well as the impact of netting. In the tables below:

The gross fair values exclude the effects of both counterparty netting and collateral netting, and therefore are not representative of the firm's exposure.

Counterparty netting is reflected in each level to the extent that receivable and payable balances are netted within the same level and is included in "Counterparty and cash collateral netting." Where the counterparty netting is across levels, the netting is reflected in "Cross-Level Netting."

Derivative Assets at Fair Value as of June 2015
$ in millions Level 1 Level 2 Level 3
Cross-Level
Netting


Cash Collateral
Netting

Total

Interest rates

$    9 $   616,049 $    391 $       - $            - $  616,449

Credit

- 35,656 7,026 - - 42,682

Currencies

- 95,283 159 - - 95,442

Commodities

- 17,969 689 - - 18,658

Equities

10 53,731 478 - - 54,219

Gross fair value of derivative assets

19 818,688 8,743 - - 827,450

Counterparty and cash collateral netting

- (679,871 (2,568 (1,660 (88,850 (772,949

Fair value included in financial instruments owned

$  19 $   138,817 $ 6,175 $(1,660 $  (88,850 $    54,501
Derivative Liabilities at Fair Value as of June 2015
$ in millions Level 1 Level 2 Level 3
Cross-Level
Netting


Cash Collateral
Netting

Total

Interest rates

$    9 $   558,345 $    469 $       - $            - $  558,823

Credit

- 34,912 4,058 - - 38,970

Currencies

- 99,590 308 - - 99,898

Commodities

- 19,627 743 - - 20,370

Equities

6 52,346 2,827 - - 55,179

Gross fair value of derivative liabilities

15 764,820 8,405 - - 773,240

Counterparty and cash collateral netting

- (679,871 (2,568 (1,660 (37,415 (721,514

Fair value included in financial instruments
sold, but not yet purchased

$  15 $     84,949 $ 5,837 $(1,660 $  (37,415 $    51,726
Derivative Assets at Fair Value as of December 2014
$ in millions Level 1 Level 2 Level 3
Cross-Level
Netting


Cash Collateral
Netting

Total

Interest rates

$123 $   800,028 $    483 $       - $            - $  800,634

Credit

- 47,190 7,658 - - 54,848

Currencies

- 109,891 150 - - 110,041

Commodities

- 28,124 866 - - 28,990

Equities

175 58,122 634 - - 58,931

Gross fair value of derivative assets

298 1,043,355 9,791 - - 1,053,444

Counterparty and cash collateral netting

- (882,841 (2,717 (1,112 (103,504 (990,174
Fair value included in financial instruments
owned
$298 $   160,514 $ 7,074 $(1,112 $(103,504 $    63,270
Derivative Liabilities at Fair Value as of December 2014
$ in millions Level 1 Level 2 Level 3
Cross-Level
Netting


Cash Collateral
Netting

Total

Interest rates

$  14 $   739,332 $    523 $       - $            - $  739,869

Credit

- 46,026 4,128 - - 50,154

Currencies

- 108,206 417 - - 108,623

Commodities

- 26,538 2,008 - - 28,546

Equities

94 56,546 2,009 - - 58,649

Gross fair value of derivative liabilities

108 976,648 9,085 - - 985,841

Counterparty and cash collateral netting

- (882,841 (2,717 (1,112 (36,155 (922,825
Fair value included in financial instruments
sold, but not yet purchased
$108 $     93,807 $ 6,368 $(1,112 $   (36,155 $    63,016

32 Goldman Sachs June 2015 Form 10-Q
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Level 3 Rollforward

The tables below present changes in fair value for all derivatives categorized as level 3 as of the end of the period. In the tables below:

If a derivative was transferred to level 3 during a reporting period, its entire gain or loss for the period is included in level 3. Transfers between levels are reported at the beginning of the reporting period in which they occur.

Negative amounts for transfers into level 3 and positive amounts for transfers out of level 3 represent net transfers of derivative liabilities.

A derivative with level 1 and/or level 2 inputs is classified in level 3 in its entirety if it has at least one significant level 3 input.

If there is one significant level 3 input, the entire gain or loss from adjusting only observable inputs (i.e., level 1 and level 2 inputs) is classified as level 3.

Gains or losses that have been reported in level 3 resulting from changes in level 1 or level 2 inputs are frequently offset by gains or losses attributable to level 1 or level 2 derivatives and/or level 1, level 2 and level 3 cash instruments. As a result, gains/(losses) included in the level 3 rollforward below do not necessarily represent the overall impact on the firm's results of operations, liquidity or capital resources.

Level 3 Derivative Assets and Liabilities at Fair Value for the Three Months Ended June 2015
$ in millions
Asset/
(liability)
balance,
beginning
of period


Net
realized
gains/
(losses)


Net unrealized
gains/(losses)
relating to
instruments
still held at
period-end

Purchases Sales Settlements
Transfers
into
level 3


Transfers
out of
level 3



Asset/

(liability)
balance,
end of
period



Interest rates - net

$     (36 $(10 $   17 $    4 $       (4 $  (14 $  (45 $     10 $     (78

Credit - net

3,589 16 (332 39 (75 (205 (49 (15 2,968

Currencies - net

(182 (12 10 14 (12 32 13 (12 (149

Commodities - net

(1,386 21 136 4 (36 18 (97 1,286 (54

Equities - net

(774 20 (28 44 (1,507 184 (4 (284 (2,349

Total derivatives - net

$ 1,211 $ 35  1 $(197 )  1 $105 $(1,634 $   15 $(182 $   985 $    338

1.

The aggregate amounts include gains/(losses) of approximately $(168) million and $6 million reported in "Market making" and "Other principal transactions," respectively.

The net unrealized loss on level 3 derivatives of $197 million for the three months ended June 2015 was primarily attributable to losses on certain credit derivatives, principally reflecting the impact of an increase in interest rates and changes in foreign exchange rates, partially offset by gains on certain commodity derivatives, primarily reflecting the impact of an increase in commodity prices.

Transfers into level 3 derivatives during the three months ended June 2015 reflected transfers of certain commodity derivative liabilities into level 3, principally due to unobservable volatility inputs becoming significant to the valuation of these derivatives.

Transfers out of level 3 derivatives during the three months ended June 2015 primarily reflected transfers of certain commodity derivative liabilities to level 2, principally due to increased transparency of oil and refined products spread inputs used to value these derivatives and transfers of certain equity derivative assets to level 2, principally due to unobservable inputs no longer being significant to the valuation of these derivatives.

Goldman Sachs June 2015 Form 10-Q 33
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Level 3 Derivative Assets and Liabilities at Fair Value for the Six Months Ended June 2015
$ in millions
Asset/
(liability)
balance,
beginning
of period


Net
realized
gains/
(losses)


Net unrealized
gains/(losses)
relating to
instruments
still held at
period-end

Purchases Sales Settlements
Transfers
into
level 3


Transfers
out of
level 3



Asset/

(liability)
balance,
end of
period



Interest rates - net

$     (40 $  17 $      (4 $    4 $     (33 $     9 $  15 $    (46 $    (78

Credit - net

3,530 134 3 97 (205 (737 261 (115 2,968

Currencies - net

(267 (51 50 24 (17 90 16 6 (149

Commodities - net

(1,142 29 55 27 (13 (87 (40 1,117 (54

Equities - net

(1,375 49 (200 80 (1,825 872 (18 68 (2,349

Total derivatives - net

$    706 $178  1 $    (96 )  1 $232 $(2,093 $ 147 $234 $1,030 $    338

1.

The aggregate amounts include gains/(losses) of approximately $108 million and $(26) million reported in "Market making" and "Other principal transactions," respectively.

The net unrealized loss on level 3 derivatives of $96 million for the six months ended June 2015 reflected losses on certain equity derivatives, primarily due to an increase in equity prices.

Transfers into level 3 derivatives during the six months ended June 2015 reflected transfers of certain credit derivative assets from level 2, principally due to unobservable credit spread inputs becoming significant to the valuation of certain credit derivatives and to the net risk of certain portfolios.

Transfers out of level 3 derivatives during the six months ended June 2015 reflected transfers of certain commodity derivative liabilities to level 2, principally due to increased transparency of oil and refined products spread inputs used to value these derivatives.

Level 3 Derivative Assets and Liabilities at Fair Value for the Three Months Ended June 2014
$ in millions
Asset/
(liability)
balance,
beginning
of period


Net
realized
gains/
(losses)


Net unrealized
gains/(losses)
relating to
instruments
still held at

period-end


Purchases Sales Settlements
Transfers
into
level 3


Transfers
out of

level 3




Asset/
(liability)

balance,

end of
period


Interest rates - net

$     (31 $  (10 $    (51 $    2 $      (6 $     4 $  (5 $   (32 $   (129

Credit - net

3,958 26 233 122 (110 (429 195 (95 3,900

Currencies - net

(143 (17 (36 2 - 120 - (7 (81

Commodities - net

43 5 (42 - (9 (22 (3 21 (7

Equities - net

(1,883 (25 1,004 144 (1,110 2 (23 392 (1,499

Total derivatives - net

$ 1,944 $  (21 )  1 $1,108  1 $270 $(1,235 $(325 $164 $   279 $ 2,184

1.

The aggregate amounts include gains/(losses) of approximately $1.11 billion and $(26) million reported in "Market making" and "Other principal transactions," respectively.

The net unrealized gain on level 3 derivatives of $1.11 billion for the three months ended June 2014 principally resulted from changes in observable inputs and was primarily attributable to the impact of an increase in equity prices on certain equity derivatives.

Transfers into level 3 derivatives during the three months ended June 2014 reflected transfers of certain credit derivative assets from level 2, principally due to unobservable credit spread inputs becoming significant to the valuation of these derivatives and reduced transparency of upfront credit point inputs used to value certain other credit derivatives.

Transfers out of level 3 derivatives during the three months ended June 2014 primarily reflected transfers of certain equity derivative liabilities to level 2, principally due to unobservable inputs no longer being significant to the valuation of these derivatives and transfers of certain credit derivatives to level 2, principally due to unobservable inputs no longer being significant to the net risk of certain portfolios.

34 Goldman Sachs June 2015 Form 10-Q
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Level 3 Derivative Assets and Liabilities at Fair Value for the Six Months Ended June 2014
$ in millions
Asset/
(liability)
balance,
beginning
of period


Net
realized
gains/
(losses)



Net unrealized
gains/(losses)
relating to
instruments
still held at
period-end


Purchases Sales Settlements
Transfers
into
level 3


Transfers
out of
level 3



Asset/
(liability)

balance,

end of
period


Interest rates - net

$    (86 $(34 $    (83 $    4 $        (7 $   81 $ 13 $  (17 $   (129

Credit - net

4,176 69 564 90 (122 (891 117 (103 3,900

Currencies - net

(200 (43 (3 6 (15 177 (2 (1 (81

Commodities - net

60 64 (91 10 (38 39 (12 (39 (7

Equities - net

(959 (33 1,393 155 (2,210 217 (45 (17 (1,499

Total derivatives - net

$2,991 $ 23  1 $1,780  1 $265 $(2,392 $(377 $ 71 $(177 $ 2,184

1.

The aggregate amounts include gains/(losses) of approximately $1.85 billion and $(49) million reported in "Market making" and "Other principal transactions," respectively.

The net unrealized gain on level 3 derivatives of $1.78 billion for the six months ended June 2014 principally resulted from changes in observable inputs and was primarily attributable to the impact of an increase in equity prices on certain equity derivatives.

Transfers into level 3 derivatives during the six months ended June 2014 primarily reflected transfers from level 2 of certain credit derivative assets, principally due to reduced transparency of upfront credit point inputs used to value these derivatives.

Transfers out of level 3 derivatives during the six months ended June 2014 primarily reflected transfers of certain credit derivatives to level 2, principally due to unobservable inputs no longer being significant to the net risk of certain portfolios.

Impact of Credit Spreads on Derivatives

On an ongoing basis, the firm realizes gains or losses relating to changes in credit risk through the unwind of derivative contracts and changes in credit mitigants.

The net gain/(loss), including hedges, attributable to the impact of changes in credit exposure and credit spreads (counterparty and the firm's) on derivatives was $78 million and $56 million for the three months ended June 2015 and June 2014, respectively, and $(21) million and $149 million for the six months ended June 2015 and June 2014, respectively.

Bifurcated Embedded Derivatives

The table below presents the fair value and the notional amount of derivatives that have been bifurcated from their related borrowings. These derivatives, which are recorded at fair value, primarily consist of interest rate, equity and commodity products and are included in "Unsecured short-term borrowings" and "Unsecured long-term borrowings" with the related borrowings. See Note 8 for further information.

As of
$ in millions
June
2015


December
2014

Fair value of assets

$   394 $   390

Fair value of liabilities

850 690

Net liability

$   456 $   300

Notional amount

$7,224 $7,735

Goldman Sachs June 2015 Form 10-Q 35
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

OTC Derivatives

The tables below present the fair values of OTC derivative assets and liabilities by tenor and major product type. In the tables below:

Tenor is based on expected duration for mortgage-related credit derivatives and generally on remaining contractual maturity for other derivatives.

Counterparty netting within the same product type and tenor category is included within such product type and tenor category.

Counterparty netting across product types within the same tenor category is included in "Counterparty and cash collateral netting." Where the counterparty netting is across tenor categories, the netting is reflected in "Cross-Tenor Netting."

OTC Derivative Assets as of June 2015
$ in millions
Less than
1 Year


1 - 5
Years


Greater than
5 Years


Cross-Tenor
Netting


Cash Collateral
Netting

Total

Interest rates

$  5,356 $24,710 $  82,916 $          - $           - $ 112,982

Credit

1,264 5,051 5,139 - - 11,454

Currencies

13,188 8,910 6,321 - - 28,419

Commodities

4,871 3,188 170 - - 8,229

Equities

5,566 7,338 3,642 - - 16,546

Counterparty and cash collateral netting

(3,557 (6,755 (4,961 (21,686 (88,850 (125,809

Total

$26,688 $42,442 $  93,227 $(21,686 $  (88,850 $   51,821
OTC Derivative Liabilities as of June 2015
$ in millions
Less than
1 Year


1 - 5
Years


Greater than
5 Years


Cross-Tenor
Netting


Cash Collateral
Netting

Total

Interest rates

$  6,170 $15,847 $  33,346 $           - $           - $   55,363

Credit

1,655 4,605 1,481 - - 7,741

Currencies

14,128 9,369 9,211 - - 32,708

Commodities

4,784 2,227 3,188 - - 10,199

Equities

8,780 5,497 3,417 - - 17,694

Counterparty and cash collateral netting

(3,557 (6,755 (4,961 (21,686 (37,415 (74,374

Total

$31,960 $30,790 $  45,682 $(21,686 $  (37,415 $   49,331
OTC Derivative Assets as of December 2014
$ in millions
Less than
1 Year


1 - 5
Years


Greater than
5 Years


Cross-Tenor
Netting


Cash Collateral
Netting

Total

Interest rates

$  7,064 $25,049 $  90,553 $         - $           - $ 122,666

Credit

1,696 6,093 5,707 - - 13,496

Currencies

17,835 9,897 6,386 - - 34,118

Commodities

8,298 4,068 161 - - 12,527

Equities

4,771 9,285 3,750 - - 17,806

Counterparty and cash collateral netting

(4,479 (7,016 (4,058 (20,819 (103,504 (139,876

Total

$35,185 $47,376 $102,499 $(20,819 $(103,504 $   60,737
OTC Derivative Liabilities as of December 2014
$ in millions
Less than
1 Year


1 - 5
Years


Greater than
5 Years


Cross-Tenor
Netting


Cash Collateral
Netting

Total

Interest rates

$  7,001 $17,649 $  37,242 $         - $           - $   61,892

Credit

2,154 4,942 1,706 - - 8,802

Currencies

18,549 7,667 6,482 - - 32,698

Commodities

5,686 4,105 2,810 - - 12,601

Equities

7,064 6,845 3,571 - - 17,480

Counterparty and cash collateral netting

(4,479 (7,016 (4,058 (20,819 (36,155 (72,527

Total

$35,975 $34,192 $  47,753 $(20,819 $  (36,155 $   60,946

36 Goldman Sachs June 2015 Form 10-Q
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Derivatives with Credit-Related Contingent Features

Certain of the firm's derivatives have been transacted under bilateral agreements with counterparties who may require the firm to post collateral or terminate the transactions based on changes in the firm's credit ratings. The firm assesses the impact of these bilateral agreements by determining the collateral or termination payments that would occur assuming a downgrade by all rating agencies. A downgrade by any one rating agency, depending on the agency's relative ratings of the firm at the time of the downgrade, may have an impact which is comparable to the impact of a downgrade by all rating agencies.

The table below presents the aggregate fair value of net derivative liabilities under such agreements (excluding application of collateral posted to reduce these liabilities), the related aggregate fair value of the assets posted as collateral, and the additional collateral or termination payments that could have been called at the reporting date by counterparties in the event of a one-notch and two-notch downgrade in the firm's credit ratings.

As of
$ in millions

June

2015



December
2014

Net derivative liabilities under bilateral agreements

$30,199 $35,764

Collateral posted

24,168 30,824
Additional collateral or termination payments
for a one-notch downgrade
988 1,072
Additional collateral or termination payments
for a two-notch downgrade
2,776 2,815

Credit Derivatives

The firm enters into a broad array of credit derivatives in locations around the world to facilitate client transactions and to manage the credit risk associated with market-making and investing and lending activities. Credit derivatives are actively managed based on the firm's net risk position.

Credit derivatives are individually negotiated contracts and can have various settlement and payment conventions. Credit events include failure to pay, bankruptcy, acceleration of indebtedness, restructuring, repudiation and dissolution of the reference entity.

Credit Default Swaps. Single-name credit default swaps protect the buyer against the loss of principal on one or more bonds, loans or mortgages (reference obligations) in the event the issuer (reference entity) of the reference obligations suffers a credit event. The buyer of protection pays an initial or periodic premium to the seller and receives protection for the period of the contract. If there is no credit event, as defined in the contract, the seller of protection makes no payments to the buyer of protection. However, if a credit event occurs, the seller of protection is required to make a payment to the buyer of protection, which is calculated in accordance with the terms of the contract.

Credit Indices, Baskets and Tranches. Credit derivatives may reference a basket of single-name credit default swaps or a broad-based index. If a credit event occurs in one of the underlying reference obligations, the protection seller pays the protection buyer. The payment is typically a pro-rata portion of the transaction's total notional amount based on the underlying defaulted reference obligation. In certain transactions, the credit risk of a basket or index is separated into various portions (tranches), each having different levels of subordination. The most junior tranches cover initial defaults and once losses exceed the notional amount of these junior tranches, any excess loss is covered by the next most senior tranche in the capital structure.

Total Return Swaps. A total return swap transfers the risks relating to economic performance of a reference obligation from the protection buyer to the protection seller. Typically, the protection buyer receives from the protection seller a floating rate of interest and protection against any reduction in fair value of the reference obligation, and in return the protection seller receives the cash flows associated with the reference obligation, plus any increase in the fair value of the reference obligation.

Goldman Sachs June 2015 Form 10-Q 37
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Credit Options. In a credit option, the option writer assumes the obligation to purchase or sell a reference obligation at a specified price or credit spread. The option purchaser buys the right, but does not assume the obligation, to sell the reference obligation to, or purchase it from, the option writer. The payments on credit options depend either on a particular credit spread or the price of the reference obligation.

The firm economically hedges its exposure to written credit derivatives primarily by entering into offsetting purchased credit derivatives with identical underliers. Substantially all of the firm's purchased credit derivative transactions are with financial institutions and are subject to stringent collateral thresholds. In addition, upon the occurrence of a specified trigger event, the firm may take possession of the reference obligations underlying a particular written credit derivative, and consequently may, upon liquidation of the reference obligations, recover amounts on the underlying reference obligations in the event of default.

As of June 2015, written and purchased credit derivatives had total gross notional amounts of $1.12 trillion and $1.17 trillion, respectively, for total net notional purchased protection of $49.33 billion. As of December 2014, written and purchased credit derivatives had total gross notional amounts of $1.22 trillion and $1.28 trillion, respectively, for total net notional purchased protection of $59.35 billion. Substantially all of the firm's written and purchased credit derivatives are in the form of credit default swaps.

The table below presents certain information about credit derivatives. In the table below:

Fair values exclude the effects of both netting of receivable balances with payable balances under enforceable netting agreements, and netting of cash received or posted under enforceable credit support agreements, and therefore are not representative of the firm's credit exposure.

Tenor is based on expected duration for mortgage-related credit derivatives and on remaining contractual maturity for other credit derivatives.

The credit spread on the underlier, together with the tenor of the contract, are indicators of payment/performance risk. The firm is less likely to pay or otherwise be required to perform where the credit spread and the tenor are lower.

Maximum Payout/Notional Amount

of Written Credit Derivatives by Tenor

Maximum Payout/Notional

Amount of Purchased

Credit Derivatives

Fair Value of

Written Credit Derivatives

$ in millions
Less than
1 Year


1 - 5

Years



Greater than
5 Years

Total
Offsetting
Purchased
Credit
Derivatives

 1

Other
Purchased
Credit
Derivatives

2
Asset Liability
Net
Asset/
(Liability)

As of June 2015

Credit spread on underlier

(basis points)

0 - 250

$232,797 $716,153 $69,499 $1,018,449 $   920,862 $144,214 $22,975 $  3,318 $ 19,657

251 - 500

4,225 42,433 6,158 52,816 48,224 7,442 1,424 1,909 (485

501 - 1,000

3,025 13,071 1,513 17,609 15,374 3,438 281 940 (659

Greater than 1,000

6,691 22,282 1,669 30,642 26,147 3,140 148 9,105 (8,957

Total

$246,738 $793,939 $78,839 $1,119,516 $1,010,607 $158,234 $24,828 $15,272 $   9,556

As of December 2014

Credit spread on underlier

(basis points)

0 - 250

$261,591 $775,784 $68,830 $1,106,205 $1,012,874 $152,465 $28,004 $  3,629 $ 24,375

251 - 500

7,726 37,255 5,042 50,023 41,657 8,426 1,542 2,266 (724

501 - 1,000

8,449 18,046 1,309 27,804 26,240 1,949 112 1,909 (1,797

Greater than 1,000

8,728 26,834 1,279 36,841 33,112 3,499 82 13,943 (13,861

Total

$286,494 $857,919 $76,460 $1,220,873 $1,113,883 $166,339 $29,740 $21,747 $   7,993

1.

Offsetting purchased credit derivatives represent the notional amount of purchased credit derivatives that economically hedge written credit derivatives with identical underliers.

2.

This purchased protection represents the notional amount of all other purchased credit derivatives not included in "Offsetting Purchased Credit Derivatives."

38 Goldman Sachs June 2015 Form 10-Q
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Hedge Accounting

The firm applies hedge accounting for (i) certain interest rate swaps used to manage the interest rate exposure of certain fixed-rate unsecured long-term and short-term borrowings and certain fixed-rate certificates of deposit and (ii) certain foreign currency forward contracts and foreign currency-denominated debt used to manage foreign currency exposures on the firm's net investment in certain non-U.S. operations.

To qualify for hedge accounting, the derivative hedge must be highly effective at reducing the risk from the exposure being hedged. Additionally, the firm must formally document the hedging relationship at inception and test the hedging relationship at least on a quarterly basis to ensure the derivative hedge continues to be highly effective over the life of the hedging relationship.

Fair Value Hedges

The firm designates certain interest rate swaps as fair value hedges. These interest rate swaps hedge changes in fair value attributable to the designated benchmark interest rate (e.g., London Interbank Offered Rate (LIBOR) or Overnight Index Swap Rate (OIS)), effectively converting a substantial portion of fixed-rate obligations into floating-rate obligations.

The firm applies a statistical method that utilizes regression analysis when assessing the effectiveness of its fair value hedging relationships in achieving offsetting changes in the fair values of the hedging instrument and the risk being hedged (i.e., interest rate risk). An interest rate swap is considered highly effective in offsetting changes in fair value attributable to changes in the hedged risk when the regression analysis results in a coefficient of determination of 80% or greater and a slope between 80% and 125%.

For qualifying fair value hedges, gains or losses on derivatives are included in "Interest expense." The change in fair value of the hedged item attributable to the risk being hedged is reported as an adjustment to its carrying value and is subsequently amortized into interest expense over its remaining life. Gains or losses resulting from hedge ineffectiveness are included in "Interest expense." When a derivative is no longer designated as a hedge, any remaining difference between the carrying value and par value of the hedged item is amortized to interest expense over the remaining life of the hedged item using the effective interest method. See Note 23 for further information about interest income and interest expense.

The table below presents the gains/(losses) from interest rate derivatives accounted for as hedges, the related hedged borrowings and bank deposits, and the hedge ineffectiveness on these derivatives, which primarily consists of amortization of prepaid credit spreads resulting from the passage of time.

Three Months
Ended June

Six Months

Ended June

$ in millions 2015 2014 2015 2014

Interest rate hedges

$(2,465 $ 361 $(1,523 $    856

Hedged borrowings and bank deposits

2,140 (583 1,090 (1,204

Hedge ineffectiveness

$   (325 $(222 $   (433 $   (348

Net Investment Hedges

The firm seeks to reduce the impact of fluctuations in foreign exchange rates on its net investment in certain non-U.S. operations through the use of foreign currency forward contracts and foreign currency-denominated debt. For foreign currency forward contracts designated as hedges, the effectiveness of the hedge is assessed based on the overall changes in the fair value of the forward contracts (i.e., based on changes in forward rates). For foreign currency-denominated debt designated as a hedge, the effectiveness of the hedge is assessed based on changes in spot rates.

For qualifying net investment hedges, the gains or losses on the hedging instruments, to the extent effective, are included in "Currency translation" within the condensed consolidated statements of comprehensive income.

The table below presents the gains/(losses) from net investment hedging.

Three Months
Ended June

Six Months

Ended June

$ in millions 2015 2014 2015 2014
Foreign currency forward
contract hedges
$(197 $(159 $247 $(271

Foreign currency-denominated debt hedges

29 (39 31 (78

The gain/(loss) related to ineffectiveness and the gain/(loss) reclassified to earnings from accumulated other comprehensive income/(loss) were not material for the three and six months ended June 2015 or June 2014.

As of June 2015 and December 2014, the firm had designated $2.16 billion and $1.36 billion, respectively, of foreign currency-denominated debt, included in "Unsecured long-term borrowings" and "Unsecured short-term borrowings," as hedges of net investments in non-U.S. subsidiaries.

Goldman Sachs June 2015 Form 10-Q 39
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Cash Flow Hedges

During 2013, the firm designated certain commodities-related swap and forward contracts as cash flow hedges. These swap and forward contracts hedged the firm's exposure to the variability in cash flows associated with the forecasted sales of certain energy commodities by one of the firm's consolidated investments. During the fourth quarter of 2014, the firm de-designated these swaps and forward contracts as cash flow hedges as it became probable that the hedged forecasted sales would not occur.

Prior to de-designation, the firm applied a statistical method that utilized regression analysis when assessing hedge effectiveness. A cash flow hedge was considered highly effective in offsetting changes in forecasted cash flows attributable to the hedged risk when the regression analysis resulted in a coefficient of determination of 80% or greater and a slope between 80% and 125%.

For qualifying cash flow hedges, the gains or losses on derivatives, to the extent effective, were included in "Cash flow hedges" within the condensed consolidated statements of comprehensive income. Such gains or losses were reclassified to "Other principal transactions" within the condensed consolidated statements of earnings when it became probable that the hedged forecasted sales would not occur. Gains or losses resulting from hedge ineffectiveness were included in "Other principal transactions."

The effective portion of the gains recognized on these cash flow hedges, gains reclassified to earnings from accumulated other comprehensive income and gains related to hedge ineffectiveness were not material for the three and six months ended June 2014. There were no gains/(losses) excluded from the assessment of hedge effectiveness for the three and six months ended June 2014.

Note 8.

Fair Value Option

Other Financial Assets and Financial Liabilities at Fair Value

In addition to all cash and derivative instruments included in "Financial instruments owned, at fair value" and "Financial instruments sold, but not yet purchased, at fair value," the firm accounts for certain of its other financial assets and financial liabilities at fair value primarily under the fair value option. The primary reasons for electing the fair value option are to:

Reflect economic events in earnings on a timely basis;

Mitigate volatility in earnings from using different measurement attributes (e.g., transfers of financial instruments owned accounted for as financings are recorded at fair value whereas the related secured financing would be recorded on an accrual basis absent electing the fair value option); and

Address simplification and cost-benefit considerations (e.g., accounting for hybrid financial instruments at fair value in their entirety versus bifurcation of embedded derivatives and hedge accounting for debt hosts).

Hybrid financial instruments are instruments that contain bifurcatable embedded derivatives and do not require settlement by physical delivery of non-financial assets (e.g., physical commodities). If the firm elects to bifurcate the embedded derivative from the associated debt, the derivative is accounted for at fair value and the host contract is accounted for at amortized cost, adjusted for the effective portion of any fair value hedges. If the firm does not elect to bifurcate, the entire hybrid financial instrument is accounted for at fair value under the fair value option.

40 Goldman Sachs June 2015 Form 10-Q
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Other financial assets and financial liabilities accounted for at fair value under the fair value option include:

Repurchase agreements and substantially all resale agreements;

Securities borrowed and loaned within Fixed Income, Currency and Commodities Client Execution;

Substantially all other secured financings, including transfers of assets accounted for as financings rather than sales;

Certain unsecured short-term borrowings, consisting of all promissory notes and commercial paper and certain hybrid financial instruments;

Certain unsecured long-term borrowings, including certain prepaid commodity transactions and certain hybrid financial instruments;

Certain receivables from customers and counterparties, including transfers of assets accounted for as secured loans rather than purchases and certain margin loans;

Certain time deposits issued by the firm's bank subsidiaries (deposits with no stated maturity are not eligible for a fair value option election), including structured certificates of deposit, which are hybrid financial instruments; and

Certain subordinated liabilities issued by consolidated VIEs.

These financial assets and financial liabilities at fair value are generally valued based on discounted cash flow techniques, which incorporate inputs with reasonable levels of price transparency, and are generally classified as level 2 because the inputs are observable. Valuation adjustments may be made for liquidity and for counterparty and the firm's credit quality.

See below for information about the significant inputs used to value other financial assets and financial liabilities at fair value, including the ranges of significant unobservable inputs used to value the level 3 instruments within these categories. These ranges represent the significant unobservable inputs that were used in the valuation of each type of other financial assets and financial liabilities at fair value. The ranges and weighted averages of these inputs are not representative of the appropriate inputs to use when calculating the fair value of any one instrument. For example, the highest yield presented below for other secured financings is appropriate for valuing a specific agreement in that category but may not be appropriate for valuing any other agreements in that category. Accordingly, the ranges of inputs presented below do not represent uncertainty in, or possible ranges of, fair value measurements of the firm's level 3 other financial assets and financial liabilities.

Resale and Repurchase Agreements and Securities Borrowed and Loaned. The significant inputs to the valuation of resale and repurchase agreements and securities borrowed and loaned are funding spreads, the amount and timing of expected future cash flows and interest rates. As of both June 2015 and December 2014, there were no level 3 resale agreements, securities borrowed or securities loaned. As of both June 2015 and December 2014, the firm's level 3 repurchase agreements were not material. See Note 10 for further information about collateralized agreements and financings.

Goldman Sachs June 2015 Form 10-Q 41
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Other Secured Financings. The significant inputs to the valuation of other secured financings at fair value are the amount and timing of expected future cash flows, interest rates, funding spreads, the fair value of the collateral delivered by the firm (which is determined using the amount and timing of expected future cash flows, market prices, market yields and recovery assumptions) and the frequency of additional collateral calls. The ranges of significant unobservable inputs used to value level 3 other secured financings are as follows:

As of June 2015:

Funding spreads: 32 bps to 325 bps (weighted average: 196 bps)

Yield: 0.6% to 10.0% (weighted average: 2.6%)

Duration: 1.5 to 9.3 years (weighted average: 3.0 years)

As of December 2014:

Funding spreads: 210 bps to 325 bps (weighted average: 278 bps)

Yield: 1.1% to 10.0% (weighted average: 3.1%)

Duration: 0.7 to 3.8 years (weighted average: 2.6 years)

Generally, increases in funding spreads, yield or duration, in isolation, would result in a lower fair value measurement. Due to the distinctive nature of each of the firm's level 3 other secured financings, the interrelationship of inputs is not necessarily uniform across such financings. See Note 10 for further information about collateralized agreements and financings.

Unsecured Short-term and Long-term Borrowings. The significant inputs to the valuation of unsecured short-term and long-term borrowings at fair value are the amount and timing of expected future cash flows, interest rates, the credit spreads of the firm, as well as commodity prices in the case of prepaid commodity transactions. The inputs used to value the embedded derivative component of hybrid financial instruments are consistent with the inputs used to value the firm's other derivative instruments. See Note 7 for further information about derivatives. See Notes 15 and 16 for further information about unsecured short-term and long-term borrowings, respectively.

Certain of the firm's unsecured short-term and long-term instruments are included in level 3, substantially all of which are hybrid financial instruments. As the significant unobservable inputs used to value hybrid financial instruments primarily relate to the embedded derivative component of these borrowings, these inputs are incorporated in the firm's derivative disclosures related to unobservable inputs in Note 7.

Receivables from Customers and Counterparties. Receivables from customers and counterparties at fair value are primarily comprised of transfers of assets accounted for as secured loans rather than purchases. The significant inputs to the valuation of such receivables are commodity prices, interest rates, the amount and timing of expected future cash flows and funding spreads. As of both June 2015 and December 2014, the firm's level 3 receivables from customers and counterparties were not material.

Deposits. The significant inputs to the valuation of time deposits are interest rates and the amount and timing of future cash flows. The inputs used to value the embedded derivative component of hybrid financial instruments are consistent with the inputs used to value the firm's other derivative instruments. See Note 7 for further information about derivatives. See Note 14 for further information about deposits.

The firm's deposits that are included in level 3 are hybrid financial instruments. As the significant unobservable inputs used to value hybrid financial instruments primarily relate to the embedded derivative component of these deposits, these inputs are incorporated in the firm's derivative disclosures related to unobservable inputs in Note 7.

42 Goldman Sachs June 2015 Form 10-Q
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Fair Value of Other Financial Assets and Financial Liabilities by Level

The tables below present, by level within the fair value hierarchy, other financial assets and financial liabilities

accounted for at fair value primarily under the fair value option.

Other Financial Assets at Fair Value as of June 2015
$ in millions Level 1 Level 2 Level 3 Total

Securities segregated for regulatory and other purposes  1

$12,429 $    4,966 $       - $  17,395

Securities purchased under agreements to resell

- 122,354 - 122,354

Securities borrowed

- 69,369 - 69,369

Receivables from customers and counterparties

- 5,672 42 5,714

Total

$12,429 $202,361 $       42 $214,832
Other Financial Liabilities at Fair Value as of June 2015
$ in millions Level 1 Level 2 Level 3 Total

Deposits

$       - $  13,629 $  1,680 $  15,309

Securities sold under agreements to repurchase

- 87,560 82 87,642

Securities loaned

- 1,091 - 1,091

Other secured financings

- 21,058 1,479 22,537

Unsecured short-term borrowings

- 14,375 4,490 18,865

Unsecured long-term borrowings

- 16,538 3,462 20,000

Other liabilities and accrued expenses

- 40 1,145 1,185

Total

$       - $154,291 $12,338 $166,629
Other Financial Assets at Fair Value as of December 2014
$ in millions Level 1 Level 2 Level 3 Total

Securities segregated for regulatory and other purposes  1

$21,168 $  13,123 $       - $  34,291

Securities purchased under agreements to resell

- 126,036 - 126,036

Securities borrowed

- 66,769 - 66,769

Receivables from customers and counterparties

- 6,888 56 6,944

Total

$21,168 $212,816 $       56 $234,040
Other Financial Liabilities at Fair Value as of December 2014
$ in millions Level 1 Level 2 Level 3 Total

Deposits

$       - $  12,458 $  1,065 $  13,523

Securities sold under agreements to repurchase

- 88,091 124 88,215

Securities loaned

- 765 - 765

Other secured financings

- 20,359 1,091 21,450

Unsecured short-term borrowings

- 15,114 3,712 18,826

Unsecured long-term borrowings

- 13,420 2,585 16,005

Other liabilities and accrued expenses

- 116 715 831

Total

$       - $150,323 $  9,292 $159,615

1.

Includes securities segregated for regulatory and other purposes accounted for at fair value under the fair value option, which consists of securities borrowed and resale agreements. In addition, level 1 consists of U.S. Treasury securities segregated for regulatory and other purposes accounted for at fair value under other U.S. GAAP.

Transfers Between Levels of the Fair Value Hierarchy

Transfers between levels of the fair value hierarchy are reported at the beginning of the reporting period in which they occur. There were no transfers of other financial assets and financial liabilities between level 1 and level 2 during

the three and six months ended June 2015 and June 2014. The tables below present information about transfers between level 2 and level 3.

Goldman Sachs June 2015 Form 10-Q 43
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Level 3 Rollforward

The tables below present changes in fair value for other financial assets and financial liabilities accounted for at fair value categorized as level 3 as of the end of the period. In the tables below:

If a financial asset or financial liability was transferred to level 3 during a reporting period, its entire gain or loss for the period is included in level 3.

Level 3 other financial assets and liabilities are frequently economically hedged with cash instruments and derivatives. Accordingly, gains or losses that are reported in level 3 can be partially offset by gains or losses attributable to level 1, 2 or 3 cash instruments or derivatives. As a result, gains or losses included in the level 3 rollforward below do not necessarily represent the overall impact on the firm's results of operations, liquidity or capital resources.

Level 3 Other Financial Assets at Fair Value for the Three Months Ended June 2015
$ in millions
Balance,
beginning
of period


Net
realized
gains/
(losses)


Net unrealized
gains/(losses)
relating to
instruments
still held at
period-end

Purchases Sales Issuances Settlements
Transfers
into
level 3


Transfers
out of
level 3


Balance,
end of
period

Receivables from customers and counterparties

$      38 $- $  - $  4 $- $     - $       - $   - $    - $       42

Total

$      38 $- $  - $  4 $- $     - $       - $   - $    - $       42
Level 3 Other Financial Liabilities at Fair Value for the Three Months Ended June 2015
$ in millions
Balance,
beginning
of period


Net
realized
(gains)/
losses



Net unrealized

(gains)/losses
relating to
instruments
still held at
period-end



Purchases Sales Issuances Settlements
Transfers
into
level 3


Transfers
out of
level 3


Balance,
end of
period

Deposits

$  1,350 $  2 $ (74 $- $- $   404 $       (2 $   - $    - $  1,680

Securities sold under agreements to repurchase

83 - 1 - - - (2 - - 82

Other secured financings

1,066 8 25 - - 250 (55 235 (50 1,479

Unsecured short-term borrowings

4,009 (5 78 - - 1,503 (1,170 189 (114 4,490

Unsecured long-term borrowings

2,903 1 (95 - - 934 (157 44 (168 3,462

Other liabilities and accrued expenses

878 (1 276 - - 1 (9 - - 1,145

Total

$10,289 $  5  1 $211  1 $- $- $3,092 $(1,395 $468 $(332 $12,338

1.

The aggregate amounts include (gains)/losses of approximately $(216) million, $424 million and $8 million reported in "Market making," "Other principal transactions" and "Interest expense," respectively.

The net unrealized loss on level 3 other financial liabilities of $211 million for the three months ended June 2015 primarily reflected losses on certain subordinated liabilities included in other liabilities and accrued expenses, principally due to changes in the market value of the related underlying investments.

Transfers into level 3 of other financial liabilities during the three months ended June 2015 primarily reflected transfers of certain hybrid financial instruments included in other secured financings and unsecured short-term borrowings from level 2, principally due to reduced transparency of certain yield, correlation and volatility inputs used to value these instruments.

Transfers out of level 3 of other financial liabilities during the three months ended June 2015 primarily reflected transfers of certain hybrid financial instruments included in unsecured long-term and short-term borrowings to level 2, principally due to increased transparency of certain correlation and volatility inputs used to value these instruments.

44 Goldman Sachs June 2015 Form 10-Q
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Level 3 Other Financial Assets at Fair Value for the Six Months Ended June 2015
$ in millions
Balance,
beginning
of period


Net
realized
gains/
(losses)


Net unrealized
gains/(losses)
relating to
instruments
still held at
period-end

Purchases Sales Issuances Settlements
Transfers
into
level 3


Transfers
out of
level 3


Balance,
end of
period

Receivables from customers and counterparties

$     56 $  1 $   (4 $  4 $- $      - $     (22 $       7 $    - $       42

Total

$     56 $  1  1 $   (4 )  1 $  4 $- $      - $     (22 $       7 $    - $       42

1.

The aggregate amounts include gains/(losses) of approximately $1 million and $(4) million included in "Market making" and "Other principal transactions," respectively.

Level 3 Other Financial Liabilities at Fair Value for the Six Months Ended June 2015
$ in millions
Balance,
beginning
of period


Net
realized
(gains)/
losses



Net unrealized

(gains)/losses
relating to
instruments
still held at
period-end



Purchases Sales Issuances Settlements
Transfers
into
level 3


Transfers
out of
level 3


Balance,
end of
period

Deposits

$1,065 $  3 $  (53 $- $- $   703 $     (38 $     - $    - $  1,680

Securities sold under agreements to repurchase

124 - 1 - - - (43 - - 82

Other secured financings

1,091 15 (20 - - 253 (227 420 (53 1,479

Unsecured short-term borrowings

3,712 5 167 - - 1,936 (1,533 564 (361 4,490

Unsecured long-term borrowings

2,585 2 (137 - - 1,771 (633 251 (377 3,462

Other liabilities and accrued expenses

715 - 439 - - 1 (10 - - 1,145

Total

$9,292 $25  1 $ 397  1 $- $- $4,664 $(2,484 $1,235 $(791 $12,338

1.

The aggregate amounts include (gains)/losses of approximately $(215) million, $621 million and $16 million reported in "Market making," "Other principal transactions" and "Interest expense," respectively.

The net unrealized loss on level 3 other financial assets and liabilities of $401 million (reflecting $4 million of losses on other financial assets and $397 million of losses on other financial liabilities) for the six months ended June 2015 primarily reflected losses on certain subordinated liabilities included in other liabilities and accrued expenses, principally due to changes in the market value of the related underlying investments, and certain hybrid financial instruments included in unsecured short-term borrowings, principally due to an increase in equity prices, partially offset by gains on certain hybrid financial instruments included in unsecured long-term borrowings, principally due to the impact of wider credit spreads and changes in interest and foreign exchange rates.

Transfers into level 3 of other financial liabilities during the six months ended June 2015 reflected transfers of certain hybrid financial instruments included in unsecured short-term and long-term borrowings and other secured financings from level 2, principally due to reduced transparency of certain correlation, volatility and yield inputs used to value these instruments and transfers from level 3 unsecured long-term borrowings to level 3 unsecured short-term borrowings, as these borrowings neared maturity.

Transfers out of level 3 of other financial liabilities during the six months ended June 2015 primarily reflected transfers of certain hybrid financial instruments included in unsecured long-term and short-term borrowings to level 2, principally due to increased transparency of certain correlation and volatility inputs used to value these instruments and transfers to level 3 unsecured short-term borrowings from level 3 unsecured long-term borrowings, as these borrowings neared maturity.

Goldman Sachs June 2015 Form 10-Q 45
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Level 3 Other Financial Assets at Fair Value for the Three Months Ended June 2014

$ in millions

Balance,

beginning

of period

Net

realized

gains/

(losses)


Net unrealized

gains/(losses)

relating to

instruments

still held

at period-end


Purchases Sales

Issuances

Settlements

Transfers

into

level 3

Transfers

out of

level 3

Balance,

end of

period

Securities purchased under agreements to resell

$     63 $ - $  - $- $- $  - $  (13 $  - $   - $     50

Receivables from customers and counterparties

34 1 - 22 - - (2 - - 55

Total

$     97 $  1  1 $  - $22 $- $  - $  (15 $  - $   - $   105

1.

Included in "Market making."

Level 3 Other Financial Liabilities at Fair Value for the Three Months Ended June 2014
$ in millions
Balance,
beginning
of period


Net
realized
(gains)/
losses


Net unrealized
(gains)/losses
relating to
instruments
still held at
period-end

Purchases Sales Issuances Settlements
Transfers
into
level 3


Transfers
out of
level 3


Balance,
end of
period

Deposits

$   435 $ - $  10 $- $- $  82 $    (2 $  - $   - $   525

Securities sold under agreements to repurchase

785 - 2 - - - (232 - - 555

Other secured financings

1,132 5 (6 - - 15 (99 - (12 1,035

Unsecured short-term borrowings

3,392 4 121 (3 - 321 (468 332 (642 3,057

Unsecured long-term borrowings

1,789 11 12 (2 - 322 (104 238 (103 2,163

Other liabilities and accrued expenses

333 4 94 - - - 1 - - 432

Total

$7,866 $24  1 $233  1 $ (5 $- $740 $(904 $570 $(757 $7,767

1.

The aggregate amounts include losses of approximately $113 million, $138 million and $6 million reported in "Market making," "Other principal transactions" and "Interest expense," respectively.

The net unrealized loss on level 3 other financial liabilities of $233 million for the three months ended June 2014 primarily reflected losses on certain hybrid financial instruments included in unsecured short-term borrowings, principally due to an increase in global equity prices, and certain subordinated liabilities included in other liabilities and accrued expenses, principally due to changes in the market value of the related underlying investments.

Transfers into level 3 of other financial liabilities during the three months ended June 2014 primarily reflected transfers of certain hybrid financial instruments included in unsecured short-term and long-term borrowings from level 2, principally due to unobservable inputs being significant to the valuation of these instruments.

Transfers out of level 3 of other financial liabilities during the three months ended June 2014 primarily reflected transfers of certain hybrid financial instruments included in unsecured short-term borrowings to level 2, principally due to unobservable inputs not being significant to the valuation of these instruments.

46 Goldman Sachs June 2015 Form 10-Q
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Level 3 Other Financial Assets at Fair Value for the Six Months Ended June 2014
$ in millions
Balance,
beginning
of period


Net

realized

gains/

(losses)



Net unrealized
gains/(losses)
relating to
instruments
still held

at period-end


Purchases Sales Issuances Settlements
Transfers
into
level 3


Transfers
out of
level 3


Balance,
end of
period

Securities purchased under
agreements to resell
$     63 $   - $  - $  - $- $      - $    (13 $      - $      - $     50
Receivables from customers
and counterparties
235 1 3 22 - - (26 - (180 55

Total

$   298 $    1  1 $   3  1 $ 22 $- $      - $    (39 $      - $  (180 $   105

1.

The aggregate amounts include gains of approximately $4 million reported in "Market making."

Level 3 Other Financial Liabilities at Fair Value for the Six Months Ended June 2014
$ in millions
Balance,
beginning
of period


Net
realized
(gains)/
losses


Net unrealized
(gains)/losses
relating to
instruments
still held

at period-end


Purchases Sales Issuances Settlements
Transfers
into
level 3


Transfers
out of
level 3


Balance,
end of
period

Deposits

$   385 $- $  16 $  - $- $   128 $       (4 $      - $       - $   525
Securities sold under
agreements to repurchase
1,010 - 2 - - - (457 - - 555

Other secured financings

1,019 9 (6 - - 407 (231 29 (192 1,035

Unsecured short-term borrowings

3,387 8 79 (3 - 1,033 (1,239 500 (708 3,057

Unsecured long-term borrowings

1,837 20 42 (2 - 448 (203 905 (884 2,163
Other liabilities and
accrued expenses
26 5 100 - - - - 301 - 432

Total

$7,664 $42 1 $233  1 $  (5 $- $2,016 $(2,134 $1,735 $(1,784 $7,767

1.

The aggregate amounts include losses of approximately $120 million, $144 million and $11 million reported in "Market making," "Other principal transactions" and "Interest expense," respectively.

The net unrealized loss on level 3 other financial assets and liabilities of $230 million (reflecting $3 million of gains on other financial assets and $233 million of losses on other financial liabilities) for the six months ended June 2014 primarily reflected losses on certain subordinated liabilities included in other liabilities and accrued expenses, principally due to changes in the market value of the related underlying investments, and certain hybrid financial instruments included in unsecured short-term borrowings, principally due to an increase in global equity prices.

Transfers out of level 3 of other financial assets during the six months ended June 2014 primarily reflected transfers of certain secured loans included in receivables from customers and counterparties to level 2, principally due to unobservable inputs not being significant to the net risk of the portfolio.

Transfers into level 3 of other financial liabilities during the six months ended June 2014 primarily reflected transfers of certain hybrid financial instruments included in unsecured short-term and long-term borrowings from level 2, principally due to unobservable inputs being significant to the valuation of these instruments.

Transfers out of level 3 of other financial liabilities during the six months ended June 2014 primarily reflected transfers of certain hybrid financial instruments included in unsecured short-term and long-term borrowings to level 2, principally due to unobservable inputs not being significant to the valuation of these instruments.

Goldman Sachs June 2015 Form 10-Q 47
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Gains and Losses on Financial Assets and Financial Liabilities Accounted for at Fair Value Under the Fair Value Option

The table below presents the gains and losses recognized as a result of the firm electing to apply the fair value option to certain financial assets and financial liabilities. These gains and losses are included in "Market making" and "Other principal transactions." The table below also includes gains and losses on the embedded derivative component of hybrid financial instruments included in unsecured short-term borrowings, unsecured long-term borrowings and deposits. These gains and losses would have been recognized under other U.S. GAAP even if the firm had not elected to account for the entire hybrid financial instrument at fair value.

The amounts in the table exclude contractual interest, which is included in "Interest income" and "Interest expense," for all instruments other than hybrid financial instruments. See Note 23 for further information about interest income and interest expense.

Gains/(Losses) on Financial Assets

and Financial Liabilities at

Fair Value Under the Fair Value Option

Three Months

Ended June

Six Months

Ended June

$ in millions 2015 2014 2015 2014

Unsecured short-term borrowings  1

$(193 $   (723 $(898 $   (800

Unsecured long-term borrowings  2

539 (500 473 (776

Other liabilities and accrued expenses  3

(275 (98 (439 (79

Other  4

162 (115 (62 (114

Total

$ 233 $(1,436 $(926 $(1,769

1.

Includes losses on the embedded derivative component of hybrid financial instruments of $216 million and $698 million for the three months ended June 2015 and June 2014, respectively, and $911 million and $766 million for the six months ended June 2015 and June 2014, respectively.

2.

Includes gains/(losses) on the embedded derivative component of hybrid financial instruments of $566 million and $(490) million for the three months ended June 2015 and June 2014, respectively, and $533 million and $(775) million for the six months ended June 2015 and June 2014, respectively.

3.

Includes gains/(losses) on certain subordinated liabilities issued by consolidated VIEs.

4.

Primarily consists of gains/(losses) on securities borrowed, receivables from customers and counterparties, deposits and other secured financings.

Excluding the gains and losses on the instruments accounted for under the fair value option described above, "Market making" and "Other principal transactions" primarily represent gains and losses on "Financial instruments owned, at fair value" and "Financial instruments sold, but not yet purchased, at fair value."

Loans and Lending Commitments

The table below presents the difference between the aggregate fair value and the aggregate contractual principal amount for loans and long-term receivables for which the fair value option was elected.

As of
$ in millions
June
2015


December
2014

Performing loans and long-term
receivables

Aggregate contractual principal in excess
of the related fair value
$     888 $  1,699

Loans on nonaccrual status and/or
more than 90 days past due  1

Aggregate contractual principal in excess
of the related fair value (excluding
loans carried at zero fair value and
considered uncollectible)
12,191 13,106
Aggregate fair value of loans on
nonaccrual status and/or more than
90 days past due
3,131 3,333

1.

The aggregate contractual principal amount of these loans exceeds the related fair value primarily because the firm regularly purchases loans, such as distressed loans, at values significantly below contractual principal amounts.

As of June 2015 and December 2014, the fair value of unfunded lending commitments for which the fair value option was elected was a liability of $214 million and $402 million, respectively, and the related total contractual amount of these lending commitments was $18.90 billion and $26.19 billion, respectively. See Note 18 for further information about lending commitments.

48 Goldman Sachs June 2015 Form 10-Q
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Long-Term Debt Instruments

The aggregate contractual principal amount of long-term other secured financings for which the fair value option was elected exceeded the related fair value by $96 million and $203 million as of June 2015 and December 2014, respectively. The aggregate contractual principal amount of unsecured long-term borrowings for which the fair value option was elected exceeded the related fair value by $405 million and $163 million as of June 2015 and December 2014, respectively. The amounts above include both principal and non-principal-protected long-term borrowings.

Impact of Credit Spreads on Loans and Lending Commitments

The estimated net gain attributable to changes in instrument-specific credit spreads on loans and lending commitments for which the fair value option was elected was $295 million and $597 million for the three months ended June 2015 and June 2014, respectively, and $670 million and $1.21 billion for the six months ended June 2015 and June 2014, respectively. Changes in the fair value of loans and lending commitments are primarily attributable to changes in instrument-specific credit spreads. Substantially all of the firm's performing loans and lending commitments are floating-rate.

Impact of Credit Spreads on Borrowings

The table below presents the net gains/(losses) attributable to the impact of changes in the firm's own credit spreads on borrowings for which the fair value option was elected. The firm calculates the fair value of borrowings by discounting future cash flows at a rate which incorporates the firm's credit spreads.

Three Months
Ended June
Six Months
Ended June
$ in millions 2015 2014 2015 2014

Net gains/(losses) including hedges

$185 $(19 $141 $(4

Net gains/(losses) excluding hedges

186 (20 141 (6

Not e 9.

Loans Receivable

Loans receivable is comprised of loans held for investment that are accounted for at amortized cost net of allowance for loan losses. Interest on such loans is recognized over the life of the loan and is recorded on an accrual basis.

The table below presents details about loans receivable.

As of
$ in millions

June

2015



December
2014

Corporate loans

$18,843 $15,044

Loans to private wealth management clients

13,084 11,289

Loans backed by commercial real estate

2,890 1,705

Other loans

3,854 1,128

Subtotal

38,671 29,166

Allowance for loan losses

(274 (228

Total loans receivable

$38,397 $28,938

As of June 2015 and December 2014, the fair value of loans receivable was $38.26 billion and $28.90 billion, respectively. As of June 2015, had these loans been carried at fair value and included in the fair value hierarchy, $18.17 billion and $20.09 billion would have been classified in level 2 and level 3, respectively. As of December 2014, had these loans been carried at fair value and included in the fair value hierarchy, $13.75 billion and $15.15 billion would have been classified in level 2 and level 3, respectively.

The firm also extends lending commitments that are held for investment and accounted for on an accrual basis. As of June 2015 and December 2014, such lending commitments were $87.56 billion and $66.22 billion, respectively, substantially all of which were extended to corporate borrowers. The carrying value and the estimated fair value of such lending commitments were liabilities of $245 million and $2.20 billion, respectively, as of June 2015, and $199 million and $1.86 billion, respectively, as of December 2014. Had these commitments been included in the firm's fair value hierarchy, they would have primarily been classified in level 3 as of both June 2015 and December 2014.

Goldman Sachs June 2015 Form 10-Q 49
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Below is a description of the captions in the table above.

Corporate Loans. Corporate loans include term loans, revolving lines of credit, letter of credit facilities and bridge loans, and are principally used for operating liquidity and general corporate purposes, or in connection with acquisitions. Corporate loans may be secured or unsecured, depending on the loan purpose, the risk profile of the borrower and other factors. The majority of these loans have maturities between one year and five years and carry a floating interest rate.

Loans to Private Wealth Management Clients. Loans to the firm's private wealth management clients include loans used by clients to finance private asset purchases, employ leverage for strategic investments in real or financial assets, bridge cash flow timing gaps or provide liquidity for other needs. Such loans are primarily secured by securities or other assets. The majority of these loans are demand or short-term loans and carry a floating interest rate.

Loans Backed by Commercial Real Estate. Loans backed by commercial real estate include loans collateralized by hotels, retail stores, multifamily housing complexes and commercial and industrial properties. The majority of these loans have maturities between one year and five years and carry a floating interest rate.

Other Loans. Other loans primarily include loans secured by consumer loans, residential real estate and other assets. The majority of these loans have maturities between one year and five years and carry a floating interest rate.

Credit Quality

The firm's risk assessment process includes evaluating the credit quality of its loans receivable. The firm performs credit reviews which include initial and ongoing analyses of its borrowers. A credit review is an independent analysis of the capacity and willingness of a borrower to meet its financial obligations, resulting in an internal credit rating. The determination of internal credit ratings also incorporates assumptions with respect to the nature of and outlook for the borrower's industry, and the economic environment. The firm also assigns a regulatory risk rating to such loans based on the definitions provided by the U.S. federal bank regulatory agencies.

As of June 2015 and December 2014, loans receivable were primarily extended to non-investment-grade borrowers and lending commitments held for investment and accounted for on an accrual basis were primarily extended to investment-grade borrowers. Substantially all of these loans and lending commitments align with the U.S. federal bank regulatory agencies' definition of Pass. Loans and lending commitments meet the definition of Pass when they are performing and/or do not demonstrate adverse characteristics that are likely to result in a credit loss.

Impaired Loans and Loans on Non-Accrual Status

A loan is determined to be impaired when it is probable that the firm will not be able to collect all principal and interest due under the contractual terms of the loan. At that time, loans are placed on non-accrual status and all accrued but uncollected interest is reversed against interest income and interest subsequently collected is recognized on a cash basis to the extent the loan balance is deemed collectible. Otherwise all cash received is used to reduce the outstanding loan balance. As of June 2015 and December 2014, impaired loans receivable in non-accrual status were not material.

Allowance for Losses on Loans and Lending Commitments

The firm's allowance for loan losses is comprised of two components: specific loan level reserves and a collective, portfolio level reserve. Specific loan level reserves are determined on loans that exhibit credit quality weakness and are therefore individually evaluated for impairment. Portfolio level reserves are determined on the remaining loans, not deemed impaired, by aggregating groups of loans with similar risk characteristics and estimating the probable loss inherent in the portfolio. As of June 2015 and December 2014, substantially all of the firm's loans receivable were evaluated for impairment at the portfolio level.

50 Goldman Sachs June 2015 Form 10-Q
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The allowance for loan losses is determined using various inputs, including industry default and loss data, current macroeconomic indicators, borrower's capacity to meet its financial obligations, borrower's country of risk, loan seniority, and collateral type. Management's estimate of loan losses entails judgment about loan collectability based on information at the reporting dates, and there are uncertainties inherent in those judgments. While management uses the best information available to determine this estimate, future adjustments to the allowance may be necessary based on, among other things, changes in the economic environment or variances between actual results and the original assumptions used. Loans are charged off against the allowance for loan losses when deemed to be uncollectible.

The firm also records an allowance for losses on lending commitments that are held for investment and accounted for on an accrual basis. Such allowance is determined using the same methodology as the allowance for loan losses, while also taking into consideration the probability of drawdowns or funding and is included in "Other liabilities and accrued expenses" in the condensed consolidated statements of financial condition. As of June 2015 and December 2014, substantially all of such lending commitments were evaluated for impairment at the portfolio level.

The tables below present changes in the allowance for loan losses and the allowance for losses on lending commitments.

$ in millions

Allowance for loan losses


Six Months Ended
June 2015


Year Ended
December 2014

Balance, beginning of period

$228 $139

Charge-offs

(1 (3

Provision for loan losses

47 92

Balance, end of period

$274 $228

$ in millions

Allowance for losses on

lending commitments


Six Months Ended
June 2015


Year Ended
December 2014

Balance, beginning of period

$  86 $  57
Provision for losses
on lending commitments
47 29

Balance, end of period

$133 $  86

The provision for losses on loans and lending commitments is included in "Other principal transactions" in the condensed consolidated statements of earnings. As of June 2015 and December 2014, substantially all of the allowance for loan losses and allowance for losses on lending commitments were related to corporate loans and corporate lending commitments. Substantially all of these allowances were determined at the portfolio level.

Note 10.

Collateralized Agreements and Financings

Collateralized agreements are securities purchased under agreements to resell (resale agreements) and securities borrowed. Collateralized financings are securities sold under agreements to repurchase (repurchase agreements), securities loaned and other secured financings. The firm enters into these transactions in order to, among other things, facilitate client activities, invest excess cash, acquire securities to cover short positions and finance certain firm activities.

Collateralized agreements and financings are presented on a net-by-counterparty basis when a legal right of setoff exists. Interest on collateralized agreements and collateralized financings is recognized over the life of the transaction and included in "Interest income" and "Interest expense," respectively. See Note 23 for further information about interest income and interest expense.

The table below presents the carrying value of resale and repurchase agreements and securities borrowed and loaned transactions.

As of
$ in millions
June
2015


December
2014

Securities purchased under
agreements to resell  1
$123,619 $127,938

Securities borrowed  2

177,978 160,722
Securities sold under
agreements to repurchase  1
87,642 88,215

Securities loaned  2

7,262 5,570

1.

Substantially all resale agreements and all repurchase agreements are carried at fair value under the fair value option. See Note 8 for further information about the valuation techniques and significant inputs used to determine fair value.

2.

As of June 2015 and December 2014, $69.37 billion and $66.77 billion of securities borrowed, and $1.09 billion and $765 million of securities loaned were at fair value, respectively.

Goldman Sachs June 2015 Form 10-Q 51
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Resale and Repurchase Agreements

A resale agreement is a transaction in which the firm purchases financial instruments from a seller, typically in exchange for cash, and simultaneously enters into an agreement to resell the same or substantially the same financial instruments to the seller at a stated price plus accrued interest at a future date.

A repurchase agreement is a transaction in which the firm sells financial instruments to a buyer, typically in exchange for cash, and simultaneously enters into an agreement to repurchase the same or substantially the same financial instruments from the buyer at a stated price plus accrued interest at a future date.

The financial instruments purchased or sold in resale and repurchase agreements typically include U.S. government and federal agency, and investment-grade sovereign obligations.

The firm receives financial instruments purchased under resale agreements and makes delivery of financial instruments sold under repurchase agreements. To mitigate credit exposure, the firm monitors the market value of these financial instruments on a daily basis, and delivers or obtains additional collateral due to changes in the market value of the financial instruments, as appropriate. For resale agreements, the firm typically requires collateral with a fair value approximately equal to the carrying value of the relevant assets in the condensed consolidated statements of financial condition.

Even though repurchase and resale agreements (including "repos- and reverses-to-maturity") involve the legal transfer of ownership of financial instruments, they are accounted for as financing arrangements because they require the financial instruments to be repurchased or resold at the maturity of the agreement. A repo-to-maturity is a transaction in which the firm transfers a security under an agreement to repurchase the security where the maturity date of the repurchase agreement matches the maturity date of the underlying security. Prior to January 2015, repos-to-maturity were accounted for as sales. The firm had no repos-to-maturity as of June 2015 and December 2014. See Note 3 for information about changes to the accounting for repos-to-maturity which became effective in January 2015.

Securities Borrowed and Loaned Transactions

In a securities borrowed transaction, the firm borrows securities from a counterparty in exchange for cash or securities. When the firm returns the securities, the counterparty returns the cash or securities. Interest is generally paid periodically over the life of the transaction.

In a securities loaned transaction, the firm lends securities to a counterparty in exchange for cash or securities. When the counterparty returns the securities, the firm returns the cash or securities posted as collateral. Interest is generally paid periodically over the life of the transaction.

The firm receives securities borrowed and makes delivery of securities loaned. To mitigate credit exposure, the firm monitors the market value of these securities on a daily basis, and delivers or obtains additional collateral due to changes in the market value of the securities, as appropriate. For securities borrowed transactions, the firm typically requires collateral with a fair value approximately equal to the carrying value of the securities borrowed transaction.

Securities borrowed and loaned within Fixed Income, Currency and Commodities Client Execution are recorded at fair value under the fair value option. See Note 8 for further information about securities borrowed and loaned accounted for at fair value.

Securities borrowed and loaned within Securities Services are recorded based on the amount of cash collateral advanced or received plus accrued interest. As these arrangements generally can be terminated on demand, they exhibit little, if any, sensitivity to changes in interest rates. Therefore, the carrying value of such arrangements approximates fair value. While these arrangements are carried at amounts that approximate fair value, they are not accounted for at fair value under the fair value option or at fair value in accordance with other U.S. GAAP and therefore are not included in the firm's fair value hierarchy in Notes 6 through 8. Had these arrangements been included in the firm's fair value hierarchy, they would have been classified in level 2 as of June 2015 and December 2014.

52 Goldman Sachs June 2015 Form 10-Q
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Offsetting Arrangements

The tables below present the gross and net resale and repurchase agreements and securities borrowed and loaned transactions, and the related amount of counterparty netting included in the condensed consolidated statements of financial condition. The tables below also present the amounts not offset in the condensed consolidated statements of financial condition including counterparty netting that does not meet the criteria for netting under U.S. GAAP and the fair value of cash or securities collateral received or posted subject to enforceable credit support agreements.

As of June 2015
Assets Liabilities
$ in millions
Resale
agreements


Securities
borrowed


Repurchase
agreements


Securities
loaned

Amounts included in the condensed consolidated statements of financial condition

Gross carrying value

$ 160,793 $ 182,946 $121,568 $10,512

Counterparty netting

(33,926 (3,250 (33,926 (3,250

Total

126,867  1 179,696  1 87,642 7,262

Amounts not offset in the condensed consolidated statements of financial condition

Counterparty netting

(3,305 (1,222 (3,305 (1,222

Collateral

(119,066 (168,915 (79,337 (5,606

Total

$     4,496 $     9,559 $    5,000 $     434
As of December 2014
Assets Liabilities
$ in millions
Resale
agreements


Securities
borrowed


Repurchase
agreements


Securities
loaned

Amounts included in the condensed consolidated statements of financial condition

Gross carrying value

$ 160,644 $ 171,384 $114,879 $  9,150

Counterparty netting

(26,664 (3,580 (26,664 (3,580

Total

133,980  1 167,804  1 88,215 5,570

Amounts not offset in the condensed consolidated statements of financial condition

Counterparty netting

(3,834 (641 (3,834 (641

Collateral

(124,528 (154,058 (78,457 (4,882

Total

$     5,618 $   13,105 $    5,924 $       47

1.

As of June 2015 and December 2014, the firm had $3.25 billion and $6.04 billion, respectively, of securities received under resale agreements, and $1.72 billion and $7.08 billion, respectively, of securities borrowed transactions that were segregated to satisfy certain regulatory requirements. These securities are included in "Cash and securities segregated for regulatory and other purposes."

In the tables above:

Substantially all of the gross carrying values of these arrangements are subject to enforceable netting agreements.

Where the firm has received or posted collateral under credit support agreements, but has not yet determined such agreements are enforceable, the related collateral has not been netted.

Gross Carrying Value of Repurchase Agreements and Securities Loaned

The tables below present the gross carrying value of repurchase agreements and securities loaned by class of collateral pledged.

As of June 2015
$ in millions
Repurchase
agreements


Securities
loaned

Commercial paper, certificates of deposit, time deposits and other money market instruments

$    1,168 $       -

U.S. government and federal agency obligations

57,771 296

Non-U.S. government and agency obligations

29,602 3,177

Mortgage and other asset-backed securities:

Securities backed by commercial real estate

493 -

Securities backed by residential real estate

1,851 -

Corporate debt securities

6,765 47

State and municipal obligations

534 -

Other debt obligations

487 -

Equities and convertible debentures

22,897 6,992

Total

$121,568 $10,512
As of December 2014
$ in millions
Repurchase
agreements


Securities
loaned

Commercial paper, certificates of deposit, time deposits and other money market instruments

$       900 $       -

U.S. government and federal agency obligations

56,788 123

Non-U.S. government and agency obligations

27,169 3,463

Mortgage and other asset-backed securities:

Securities backed by commercial real estate

419 -

Securities backed by residential real estate

1,574 -

Corporate debt securities

8,028 26

State and municipal obligations

984 -

Other debt obligations

562 -

Equities and convertible debentures

18,455 5,538

Total

$114,879 $  9,150

Goldman Sachs June 2015 Form 10-Q 53
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The table below presents the gross carrying value of repurchase agreements and securities loaned by maturity date.

As of June 2015
$ in millions
Repurchase
agreements


Securities
loaned

No stated maturity and overnight

$  41,661 $  7,797

2 - 30 days

31,197 1,636

31 - 90 days

14,668 -

91 days - 1 year

26,751 1,079

Greater than 1 year

7,291 -

Total

$121,568 $10,512

In the table above:

Repurchase agreements and securities loaned that are repayable prior to maturity at the option of the firm are reflected at their contractual maturity dates.

Repurchase agreements and securities loaned that are redeemable prior to maturity at the option of the holders are reflected at the earliest dates such options become exercisable.

Other Secured Financings

In addition to repurchase agreements and securities loaned transactions, the firm funds certain assets through the use of other secured financings and pledges financial instruments and other assets as collateral in these transactions. These other secured financings consist of:

Liabilities of consolidated VIEs;

Transfers of assets accounted for as financings rather than sales (primarily collateralized central bank financings, pledged commodities, bank loans and mortgage whole loans); and

Other structured financing arrangements.

Other secured financings include arrangements that are nonrecourse. As of June 2015 and December 2014, nonrecourse other secured financings were $2.81 billion and $1.94 billion, respectively.

The firm has elected to apply the fair value option to substantially all other secured financings because the use of fair value eliminates non-economic volatility in earnings that would arise from using different measurement attributes. See Note 8 for further information about other secured financings that are accounted for at fair value.

Other secured financings that are not recorded at fair value are recorded based on the amount of cash received plus accrued interest, which generally approximates fair value. While these financings are carried at amounts that approximate fair value, they are not accounted for at fair value under the fair value option or at fair value in accordance with other U.S. GAAP and therefore are not included in the firm's fair value hierarchy in Notes 6 through 8. Had these financings been included in the firm's fair value hierarchy, they would have been primarily classified in level 2 as of June 2015 and December 2014.

54 Goldman Sachs June 2015 Form 10-Q
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The tables below present information about other secured financings.

As of June 2015
$ in millions
U.S.
Dollar


Non-U.S.
Dollar

Total

Other secured financings (short-term):

At fair value

$  7,156 $  4,971 $12,127

At amortized cost

20 100 120

Weighted average interest rates

3.05% 7.38%

Other secured financings (long-term):

At fair value

5,593 4,817 10,410

At amortized cost

751 544 1,295

Weighted average interest rates

2.88% 1.77%

Total  1

$13,520 $10,432 $23,952

Amount of other secured financings collateralized by:

Financial instruments  2

$12,702 $  9,195 $21,897

Other assets

818 1,237 2,055
As of December 2014
$ in millions
U.S.
Dollar


Non-U.S.
Dollar

Total

Other secured financings (short-term):

At fair value

$  7,887 $  7,668 $15,555

At amortized cost

5 - 5

Weighted average interest rates

4.33% -%

Other secured financings (long-term):

At fair value

3,290 2,605 5,895

At amortized cost

580 774 1,354

Weighted average interest rates

2.69% 2.31%

Total  1

$11,762 $11,047 $22,809

Amount of other secured financings collateralized by:

Financial instruments  2

$11,460 $10,483 $21,943

Other assets

302 564 866

1.

Includes $340 million and $974 million related to transfers of financial assets accounted for as financings rather than sales as of June 2015 and December 2014, respectively. Such financings were collateralized by financial assets included in "Financial instruments owned, at fair value" of $343 million and $995 million as of June 2015 and December 2014, respectively.

2.

Includes $11.89 billion and $10.24 billion of other secured financings collateralized by financial instruments owned, at fair value as of June 2015 and December 2014, respectively, and includes $10.01 billion and $11.70 billion of other secured financings collateralized by financial instruments received as collateral and repledged as of June 2015 and December 2014, respectively.

In the tables above:

Short-term secured financings include financings maturing within one year of the financial statement date and financings that are redeemable within one year of the financial statement date at the option of the holder.

Weighted average interest rates exclude secured financings at fair value and include the effect of hedging activities. See Note 7 for further information about hedging activities.

The table below presents other secured financings by maturity date.

$ in millions
As of
June 2015

Other secured financings (short-term)

$12,247

Other secured financings (long-term):

2016

4,057

2017

3,126

2018

2,178

2019

1,078

2020

858

2021 - thereafter

408

Total other secured financings (long-term)

11,705

Total other secured financings

$23,952

In the table above:

Long-term secured financings that are repayable prior to maturity at the option of the firm are reflected at their contractual maturity dates.

Long-term secured financings that are redeemable prior to maturity at the option of the holders are reflected at the earliest dates such options become exercisable.

Collateral Received and Pledged

The firm receives cash and securities (e.g., U.S. government and federal agency, other sovereign and corporate obligations, as well as equities and convertible debentures) as collateral, primarily in connection with resale agreements, securities borrowed, derivative transactions and customer margin loans. The firm obtains cash and securities as collateral on an upfront or contingent basis for derivative instruments and collateralized agreements to reduce its credit exposure to individual counterparties.

Goldman Sachs June 2015 Form 10-Q 55
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

In many cases, the firm is permitted to deliver or repledge financial instruments received as collateral when entering into repurchase agreements and securities loaned transactions, primarily in connection with secured client financing activities. The firm is also permitted to deliver or repledge these financial instruments in connection with other secured financings, collateralized derivative transactions and firm or customer settlement requirements.

The firm also pledges certain financial instruments owned, at fair value in connection with repurchase agreements, securities loaned transactions and other secured financings, and other assets (primarily real estate and cash) in connection with other secured financings to counterparties who may or may not have the right to deliver or repledge them.

The table below presents financial instruments at fair value received as collateral that were available to be delivered or repledged and were delivered or repledged by the firm.

As of
$ in millions
June
2015


December
2014

Collateral available to be delivered or repledged  1

$665,251 $630,046

Collateral that was delivered or repledged

502,847 474,057

1.

As of June 2015 and December 2014, amounts exclude $3.25 billion and $6.04 billion, respectively, of securities received under resale agreements, and $1.72 billion and $7.08 billion, respectively, of securities borrowed transactions that contractually had the right to be delivered or repledged, but were segregated to satisfy certain regulatory requirements.

The table below presents information about assets pledged.

As of
$ in millions
June
2015


December
2014

Financial instruments owned, at fair value pledged to counterparties that:

Had the right to deliver or repledge

$  57,529 $  64,473

Did not have the right to deliver or repledge

64,367 68,027

Other assets pledged to counterparties that:

Did not have the right to deliver or repledge

2,638 1,304

Note 11.

Securitization Activities

The firm securitizes residential and commercial mortgages, corporate bonds, loans and other types of financial assets by selling these assets to securitization vehicles (e.g., trusts, corporate entities and limited liability companies) or through a resecuritization. The firm acts as underwriter of the beneficial interests that are sold to investors. The firm's residential mortgage securitizations are substantially all in connection with government agency securitizations.

Beneficial interests issued by securitization entities are debt or equity securities that give the investors rights to receive all or portions of specified cash inflows to a securitization vehicle and include senior and subordinated interests in principal, interest and/or other cash inflows. The proceeds from the sale of beneficial interests are used to pay the transferor for the financial assets sold to the securitization vehicle or to purchase securities which serve as collateral.

The firm accounts for a securitization as a sale when it has relinquished control over the transferred assets. Prior to securitization, the firm accounts for assets pending transfer at fair value and therefore does not typically recognize significant gains or losses upon the transfer of assets. Net revenues from underwriting activities are recognized in connection with the sales of the underlying beneficial interests to investors.

For transfers of assets that are not accounted for as sales, the assets remain in "Financial instruments owned, at fair value" and the transfer is accounted for as a collateralized financing, with the related interest expense recognized over the life of the transaction. See Notes 10 and 23 for further information about collateralized financings and interest expense, respectively.

56 Goldman Sachs June 2015 Form 10-Q
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The firm generally receives cash in exchange for the transferred assets but may also have continuing involvement with transferred assets, including ownership of beneficial interests in securitized financial assets, primarily in the form of senior or subordinated securities. The firm may also purchase senior or subordinated securities issued by securitization vehicles (which are typically VIEs) in connection with secondary market-making activities.

The primary risks included in beneficial interests and other interests from the firm's continuing involvement with securitization vehicles are the performance of the underlying collateral, the position of the firm's investment in the capital structure of the securitization vehicle and the market yield for the security. These interests are accounted for at fair value, are included in "Financial instruments owned, at fair value" and are substantially all classified in level 2 of the fair value hierarchy. See Notes 5 through 8 for further information about fair value measurements.

The table below presents the amount of financial assets securitized and the cash flows received on retained interests in securitization entities in which the firm had continuing involvement.

Three Months
Ended June

Six Months

Ended June

$ in millions 2015 2014 2015 2014

Residential mortgages

$4,921 $5,477 $  9,531 $11,698

Commercial mortgages

4,130 1,040 5,380 1,040

Other financial assets

- 481 - 481

Total

$9,051 $6,998 $14,911 $13,219
Cash flows on
retained interests
$     66 $   114 $     117 $     177

The tables below present the firm's continuing involvement in nonconsolidated securitization entities to which the firm sold assets, as well as the total outstanding principal amount of transferred assets in which the firm has continuing involvement.

As of June 2015
$ in millions
Outstanding
Principal
Amount


Fair Value of
Retained
Interests


Fair Value of
Purchased
Interests

U.S. government
agency-issued collateralized
mortgage obligations
$45,223 $1,370 $ -

Other residential mortgage-backed

2,369 176 -
Other commercial
mortgage-backed
7,164 123 55

CDOs, CLOs and other

2,932 48 9

Total

$57,688 $1,717 $64
As of December 2014
$ in millions
Outstanding
Principal
Amount


Fair Value of
Retained
Interests


Fair Value of
Purchased
Interests

U.S. government
agency-issued collateralized
mortgage obligations
$56,792 $2,140 $ -

Other residential mortgage-backed

2,273 144 5

Other commercial mortgage-backed

3,313 86 45

CDOs, CLOs and other

4,299 59 17

Total

$66,677 $2,429 $67

In the tables above:

The outstanding principal amount is presented for the purpose of providing information about the size of the securitization entities in which the firm has continuing involvement and is not representative of the firm's risk of loss.

For retained or purchased interests, the firm's risk of loss is limited to the fair value of these interests.

Purchased interests represent senior and subordinated interests, purchased in connection with secondary market-making activities, in securitization entities in which the firm also holds retained interests.

Goldman Sachs June 2015 Form 10-Q 57
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

In addition, the outstanding principal and fair value of retained interests in the tables above relate to the following types of securitizations and vintage as described:

The outstanding principal amount and fair value of retained interests for U.S. government agency-issued collateralized mortgage obligations as of June 2015 primarily relate to securitizations during 2015 and 2014, and as of December 2014 primarily relate to securitizations during 2014 and 2013.

The outstanding principal amount and fair value of retained interests for other residential mortgage-backed obligations as of June 2015 primarily relate to resecuritizations during 2015 and 2014, and prime and Alt-A securitizations during 2007, and as of December 2014 primarily relate to resecuritizations during 2014, and prime and Alt-A securitizations during 2007.

The outstanding principal amount and fair value of retained interests for other commercial mortgage-backed obligations as of June 2015 primarily relate to securitizations during 2015 and 2014, and as of December 2014 primarily relate to securitizations during 2014.

The outstanding principal amount and fair value of retained interests for CDOs, CLOs and other as of June 2015 primarily relate to securitizations during 2014 and 2007, and as of December 2014 primarily relate to securitizations during 2014 and 2007.

In addition to the interests in the tables above, the firm had other continuing involvement in the form of derivative transactions with certain nonconsolidated VIEs. The carrying value of these derivatives was a net asset of $110 million and $115 million as of June 2015 and December 2014, respectively. The notional amounts of these derivatives are included in maximum exposure to loss in the nonconsolidated VIE table in Note 12.

The tables below present the weighted average key economic assumptions used in measuring the fair value of retained interests and the sensitivity of this fair value to immediate adverse changes of 10% and 20% in those assumptions.

As of June 2015
Type of Retained Interests
$ in millions Mortgage-Backed Other  1

Fair value of retained interests

$  1,669 $     48

Weighted average life (years)

8.6 3.8

Constant prepayment rate

10.4% N.M.

Impact of 10% adverse change

$      (28 N.M.

Impact of 20% adverse change

(52 N.M.

Discount rate

4.9% N.M.

Impact of 10% adverse change

$      (43 N.M.

Impact of 20% adverse change

(84 N.M.
As of December 2014
Type of Retained Interests
$ in millions Mortgage-Backed Other  1

Fair value of retained interests

$  2,370 $    59

Weighted average life (years)

7.6 3.6

Constant prepayment rate

13.2% N.M.

Impact of 10% adverse change

$      (33 N.M.

Impact of 20% adverse change

(66 N.M.

Discount rate

4.1% N.M.

Impact of 10% adverse change

$      (50 N.M.

Impact of 20% adverse change

(97 N.M.

1.

Due to the nature and current fair value of certain of these retained interests, the weighted average assumptions for constant prepayment and discount rates and the related sensitivity to adverse changes are not meaningful as of June 2015 and December 2014. The firm's maximum exposure to adverse changes in the value of these interests is the carrying value of $48 million and $59 million as of June 2015 and December 2014, respectively.

In the tables above:

Amounts do not reflect the benefit of other financial instruments that are held to mitigate risks inherent in these retained interests.

Changes in fair value based on an adverse variation in assumptions generally cannot be extrapolated because the relationship of the change in assumptions to the change in fair value is not usually linear.

The impact of a change in a particular assumption is calculated independently of changes in any other assumption. In practice, simultaneous changes in assumptions might magnify or counteract the sensitivities disclosed above.

The constant prepayment rate is included only for positions for which it is a key assumption in the determination of fair value.

The discount rate for retained interests that relate to U.S. government agency-issued collateralized mortgage obligations does not include any credit loss.

Expected credit loss assumptions are reflected in the discount rate for the remainder of retained interests.

58 Goldman Sachs June 2015 Form 10-Q
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 12.

Variable Interest Entities

VIEs generally finance the purchase of assets by issuing debt and equity securities that are either collateralized by or indexed to the assets held by the VIE. The debt and equity securities issued by a VIE may include tranches of varying levels of subordination. The firm's involvement with VIEs includes securitization of financial assets, as described in Note 11, and investments in and loans to other types of VIEs, as described below. See Note 11 for additional information about securitization activities, including the definition of beneficial interests. See Note 3 for the firm's consolidation policies, including the definition of a VIE.

The firm is principally involved with VIEs through the following business activities:

Mortgage-Backed VIEs and Corporate CDO and CLO VIEs. The firm sells residential and commercial mortgage loans and securities to mortgage-backed VIEs and corporate bonds and loans to corporate CDO and CLO VIEs and may retain beneficial interests in the assets sold to these VIEs. The firm purchases and sells beneficial interests issued by mortgage-backed and corporate CDO and CLO VIEs in connection with market-making activities. In addition, the firm may enter into derivatives with certain of these VIEs, primarily interest rate swaps, which are typically not variable interests. The firm generally enters into derivatives with other counterparties to mitigate its risk from derivatives with these VIEs.

Certain mortgage-backed and corporate CDO and CLO VIEs, usually referred to as synthetic CDOs or credit-linked note VIEs, synthetically create the exposure for the beneficial interests they issue by entering into credit derivatives, rather than purchasing the underlying assets. These credit derivatives may reference a single asset, an index, or a portfolio/basket of assets or indices. See Note 7 for further information about credit derivatives. These VIEs use the funds from the sale of beneficial interests and the premiums received from credit derivative counterparties to purchase securities which serve to collateralize the beneficial interest holders and/or the credit derivative counterparty. These VIEs may enter into other derivatives, primarily interest rate swaps, which are typically not variable interests. The firm may be a counterparty to derivatives with these VIEs and generally enters into derivatives with other counterparties to mitigate its risk.

Real Estate, Credit-Related and Other Investing VIEs. The firm purchases equity and debt securities issued by and makes loans to VIEs that hold real estate, performing and nonperforming debt, distressed loans and equity securities. The firm typically does not sell assets to, or enter into derivatives with, these VIEs.

Other Asset-Backed VIEs. The firm structures VIEs that issue notes to clients, and purchases and sells beneficial interests issued by other asset-backed VIEs in connection with market-making activities. In addition, the firm may enter into derivatives with certain other asset-backed VIEs, primarily total return swaps on the collateral assets held by these VIEs under which the firm pays the VIE the return due to the note holders and receives the return on the collateral assets owned by the VIE. The firm generally can be removed as the total return swap counterparty. The firm generally enters into derivatives with other counterparties to mitigate its risk from derivatives with these VIEs. The firm typically does not sell assets to the other asset-backed VIEs it structures.

Principal-Protected Note VIEs. The firm structures VIEs that issue principal-protected notes to clients. These VIEs own portfolios of assets, principally with exposure to hedge funds. Substantially all of the principal protection on the notes issued by these VIEs is provided by the asset portfolio rebalancing that is required under the terms of the notes. The firm enters into total return swaps with these VIEs under which the firm pays the VIE the return due to the principal-protected note holders and receives the return on the assets owned by the VIE. The firm may enter into derivatives with other counterparties to mitigate the risk it has from the derivatives it enters into with these VIEs. The firm also obtains funding through these VIEs.

Other VIEs. Other primarily includes nonconsolidated power-related and investment fund VIEs. The firm purchases debt and equity securities issued by VIEs that hold power-related assets, and may provide commitments to these VIEs. The firm also makes equity investments in certain of the investment fund VIEs it manages, and is entitled to receive fees from these VIEs. The firm typically does not sell assets to, or enter into derivatives with, these VIEs.

Goldman Sachs June 2015 Form 10-Q 59
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

VIE Consolidation Analysis

A variable interest in a VIE is an investment (e.g., debt or equity securities) or other interest (e.g., derivatives or loans and lending commitments) in a VIE that will absorb portions of the VIE's expected losses and/or receive portions of the VIE's expected residual returns.

The firm's variable interests in VIEs include senior and subordinated debt in residential and commercial mortgage-backed and other asset-backed securitization entities, CDOs and CLOs; loans and lending commitments; limited and general partnership interests; preferred and common equity; derivatives that may include foreign currency, equity and/or credit risk; guarantees; and certain of the fees the firm receives from investment funds. Certain interest rate, foreign currency and credit derivatives the firm enters into with VIEs are not variable interests because they create rather than absorb risk.

The enterprise with a controlling financial interest in a VIE is known as the primary beneficiary and consolidates the VIE. The firm determines whether it is the primary beneficiary of a VIE by performing an analysis that principally considers:

Which variable interest holder has the power to direct the activities of the VIE that most significantly impact the VIE's economic performance;

Which variable interest holder has the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE;

The VIE's purpose and design, including the risks the VIE was designed to create and pass through to its variable interest holders;

The VIE's capital structure;

The terms between the VIE and its variable interest holders and other parties involved with the VIE; and

Related-party relationships.

The firm reassesses its initial evaluation of whether an entity is a VIE when certain reconsideration events occur. The firm reassesses its determination of whether it is the primary beneficiary of a VIE on an ongoing basis based on current facts and circumstances.

Nonconsolidated VIEs

The table below presents information about nonconsolidated VIEs in which the firm holds variable interests.

Nonconsolidated VIEs as of
$ in millions

June

2015



December
2014

Mortgage-backed  1

Assets in VIE

$66,446 $  78,107

Carrying value of variable interests - assets

3,072 4,348

Maximum Exposure to Loss

Retained interests

1,669 2,370

Purchased interests

1,402 1,978

Derivatives

222 392

Total

$  3,293 $    4,740

Corporate CDOs and CLOs

Assets in VIE

$  7,586 $    8,317

Carrying value of variable interests - assets

575 463

Carrying value of variable interests - liabilities

3 3

Maximum Exposure to Loss

Retained interests

3 4

Purchased interests

275 184

Derivatives

2,204 2,053

Total

$  2,482 $    2,241

Real estate, credit-related and other investing

Assets in VIE

$  9,414 $    8,720

Carrying value of variable interests - assets

3,349 3,051

Carrying value of variable interests - liabilities

2 3

Maximum Exposure to Loss

Commitments and guarantees

541 604

Loans and investments

3,349 3,051

Total

$  3,890 $    3,655

Other asset-backed

Assets in VIE

$  5,000 $    8,253

Carrying value of variable interests - assets

236 509

Carrying value of variable interests - liabilities

67 16

Maximum Exposure to Loss

Retained interests

45 55

Purchased interests

87 322

Commitments and guarantees

213 213

Derivatives

3,507 3,221

Total

$  3,852 $    3,811

Other

Assets in VIE

$  4,562 $    5,677

Carrying value of variable interests - assets

269 290

Maximum Exposure to Loss

Commitments and guarantees

327 307

Derivatives

6 88

Loans and investments

269 290

Total

$     602 $       685

Total

Assets in VIE

$93,008 $109,074

Carrying value of variable interests - assets

7,501 8,661

Carrying value of variable interests - liabilities

72 22

Maximum Exposure to Loss

Retained interests

1,717 2,429

Purchased interests

1,764 2,484

Commitments and guarantees

1,081 1,124

Derivatives  2

5,939 5,754

Loans and investments

3,618 3,341

Total

$14,119 $  15,132

1.

Assets in VIE and maximum exposure to loss include $4.17 billion and $523 million, respectively, as of June 2015, and $3.57 billion and $662 million, respectively, as of December 2014, related to CDOs backed by mortgage obligations.

2.

Includes $1.28 billion and $1.64 billion as of June 2015 and December 2014, respectively, related to derivative transactions with VIEs to which the firm transferred assets.

60 Goldman Sachs June 2015 Form 10-Q
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The firm's exposure to the obligations of VIEs is generally limited to its interests in these entities. In certain instances, the firm provides guarantees, including derivative guarantees, to VIEs or holders of variable interests in VIEs.

In the table above, nonconsolidated VIEs are aggregated based on principal business activity. The nature of the firm's variable interests can take different forms, as described in the rows under maximum exposure to loss. In the table above:

The maximum exposure to loss excludes the benefit of offsetting financial instruments that are held to mitigate the risks associated with these variable interests.

For retained and purchased interests, and loans and investments, the maximum exposure to loss is the carrying value of these interests.

For commitments and guarantees, and derivatives, the maximum exposure to loss is the notional amount, which does not represent anticipated losses and also has not been reduced by unrealized losses already recorded. As a result, the maximum exposure to loss exceeds liabilities recorded for commitments and guarantees, and derivatives provided to VIEs.

The carrying values of the firm's variable interests in nonconsolidated VIEs are included in the condensed consolidated statement of financial condition as follows:

Substantially all assets held by the firm related to mortgage-backed and corporate CDO and CLO VIEs are included in "Financial instruments owned, at fair value." Substantially all liabilities held by the firm related to corporate CDO and CLO VIEs are included in "Financial instruments sold, but not yet purchased, at fair value;"

Substantially all assets held by the firm related to other asset-backed VIEs are included in "Financial instruments owned, at fair value" and "Loans Receivable." Substantially all liabilities held by the firm related to other asset-backed VIEs are included in "Financial instruments sold, but not yet purchased, at fair value;"

Substantially all assets held by the firm related to real estate, credit-related and other investing VIEs are included in "Financial instruments owned, at fair value," "Loans receivable," and "Other assets." Substantially all liabilities held by the firm related to real estate, credit-related and other investing VIEs are included in "Financial Instruments sold, but not yet purchased, at fair value" and "Other liabilities and accrued expenses;" and

Substantially all assets held by the firm related to other VIEs are included in "Financial instruments owned, at fair value."

Consolidated VIEs

The table below presents the carrying amount and classification of assets and liabilities in consolidated VIEs, excluding the benefit of offsetting financial instruments that are held to mitigate the risks associated with the firm's variable interests.

Consolidated VIEs as of
$ in millions
June
2015


December
2014

Real estate, credit-related and other investing

Assets

Cash and cash equivalents

$   271 $   218

Cash and securities segregated for regulatory and other purposes

16 19

Loans receivable

1,095 589

Financial instruments owned, at fair value

2,991 2,608

Other assets

390 349

Total

$4,763 $3,783

Liabilities

Other secured financings

$   334 $   419

Financial instruments sold, but not yet purchased, at fair value

258 10

Unsecured long-term borrowings

- 12

Other liabilities and accrued expenses

1,217 906

Total

$1,809 $1,347

CDOs, mortgage-backed and other asset-backed

Assets

Financial instruments owned, at fair value

$     88 $   121

Total

$     88 $   121

Liabilities

Other secured financings

$     87 $     99

Financial instruments sold, but not yet purchased, at fair value

1 8

Total

$     88 $   107

Principal-protected notes

Assets

Cash and securities segregated for regulatory and other purposes

$      - $     31

Financial instruments owned, at fair value

184 276

Total

$   184 $   307

Liabilities

Other secured financings

$   300 $   439

Unsecured short-term borrowings, including the current portion of unsecured long-term borrowings

349 1,090

Unsecured long-term borrowings

480 103

Total

$1,129 $1,632

Total

Assets

Cash and cash equivalents

$   271 $   218

Cash and securities segregated for regulatory and other purposes

16 50

Loans receivable

1,095 589

Financial instruments owned, at fair value

3,263 3,005

Other assets

390 349

Total

$5,035 $4,211

Liabilities

Other secured financings

$   721 $   957

Financial instruments sold, but not yet purchased, at fair value

259 18

Unsecured short-term borrowings, including the current portion of unsecured long-term borrowings

349 1,090

Unsecured long-term borrowings

480 115

Other liabilities and accrued expenses

1,217 906

Total

$3,026 $3,086

Goldman Sachs June 2015 Form 10-Q 61
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

In the table above:

Consolidated VIEs are aggregated based on principal business activity and their assets and liabilities are presented net of intercompany eliminations. The majority of the assets in principal-protected notes VIEs are intercompany and are eliminated in consolidation.

VIEs in which the firm holds a majority voting interest are excluded if (i) the VIE meets the definition of a business and (ii) the VIE's assets can be used for purposes other than the settlement of its obligations.

Substantially all the assets can only be used to settle obligations of the VIE. The liabilities of real estate, credit-related and other investing VIEs, and CDOs, mortgage-backed and other asset-backed VIEs do not have recourse to the general credit of the firm.

Note 13.

Other Assets

Other assets are generally less liquid, non-financial assets. The table below presents other assets by type.

As of
$ in millions
June
2015


December
2014

Property, leasehold improvements and equipment

$11,600 $  9,344

Goodwill and identifiable intangible assets

4,166 4,160

Income tax-related assets

5,866 5,181

Equity-method investments  1

287 360

Miscellaneous receivables and other  2

3,633 3,554

Total

$25,552 $22,599

1.

Excludes investments accounted for at fair value under the fair value option where the firm would otherwise apply the equity method of accounting of $7.43 billion and $6.62 billion as of June 2015 and December 2014, respectively, substantially all of which are included in "Financial instruments owned, at fair value." The firm has generally elected the fair value option for such investments acquired after the fair value option became available.

2.

Includes $545 million and $461 million of investments in qualified affordable housing projects as of June 2015 and December 2014, respectively.

Property, Leasehold Improvements and Equipment

Property, leasehold improvements and equipment in the table above is net of accumulated depreciation and amortization of $8.23 billion and $8.98 billion as of June 2015 and December 2014, respectively. Property, leasehold improvements and equipment included $5.77 billion and $5.81 billion as of June 2015 and December 2014, respectively, related to property, leasehold improvements and equipment that the firm uses in connection with its operations. The remainder is held by investment entities, including VIEs, consolidated by the firm. Substantially all property and equipment are depreciated on a straight-line basis over the useful life of the asset. Leasehold improvements are amortized on a straight-line basis over the useful life of the improvement or the term of the lease, whichever is shorter. Certain costs of software developed or obtained for internal use are capitalized and amortized on a straight-line basis over the useful life of the software.

Goodwill and Identifiable Intangible Assets

The tables below present the carrying values of goodwill and identifiable intangible assets.

Goodwill as of
$ in millions
June
2015


December
2014

Investment Banking:

Financial Advisory

$     98 $     98

Underwriting

183 183

Institutional Client Services:

Fixed Income, Currency and Commodities Client Execution

269 269

Equities Client Execution

2,403 2,403

Securities Services

105 105

Investment Management

587 587

Total

$3,645 $3,645
Identifiable Intangible Assets as of
$ in millions
June
2015


December
2014

Institutional Client Services:

Fixed Income, Currency and Commodities Client Execution

$   111 $   138

Equities Client Execution

219 246

Investing & Lending

86 18

Investment Management

105 113

Total

$   521 $   515

62 Goldman Sachs June 2015 Form 10-Q
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Goodwill. Goodwill is the cost of acquired companies in excess of the fair value of net assets, including identifiable intangible assets, at the acquisition date.

Goodwill is assessed annually in the fourth quarter for impairment or more frequently if events occur or circumstances change that indicate an impairment may exist. When assessing goodwill for impairment, first, qualitative factors are assessed to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If results of the qualitative assessment are not conclusive, a quantitative test would be performed. The quantitative goodwill impairment test consists of two steps:

The first step compares the estimated fair value of each reporting unit with its estimated net book value (including goodwill and identifiable intangible assets). If the reporting unit's fair value exceeds its estimated net book value, goodwill is not impaired.

If the estimated fair value of a reporting unit is less than its estimated net book value, the second step of the goodwill impairment test is performed to measure the amount of impairment, if any. An impairment is equal to the excess of the carrying amount of goodwill over its fair value.

The firm performed a quantitative goodwill impairment test during the fourth quarter of 2012 (2012 quantitative goodwill test). When performing this test, the firm estimated the fair value of each reporting unit and compared it to the respective reporting unit's net book value (estimated carrying value). The reporting units were valued using relative value and residual income valuation techniques because the firm believes market participants would use these techniques to value the firm's reporting units. The net book value of each reporting unit reflected an allocation of total shareholders' equity and represented the estimated amount of shareholders' equity required to support the activities of the reporting unit under guidelines issued by the Basel Committee on Banking Supervision (Basel Committee) in December 2010. In performing its 2012 quantitative goodwill test, the firm determined that goodwill was not impaired, and the estimated fair value of the firm's reporting units, in which substantially all of the firm's goodwill is held, significantly exceeded their estimated carrying values.

During the fourth quarter of 2014, the firm assessed goodwill for impairment. Multiple factors were assessed with respect to each of the firm's reporting units to determine whether it was more likely than not that the fair value of any of the reporting units was less than its carrying amount. The qualitative assessment also considered changes since the 2012 quantitative goodwill test.

As a result of the 2014 qualitative assessment, the firm determined that it was more likely than not that the fair value of each of the reporting units exceeded its respective carrying amount. Therefore, the firm determined that goodwill was not impaired and that a quantitative goodwill impairment test was not required.

There were no events or changes in circumstances during the six months ended June 2015 that would indicate that it was more likely than not that the fair value of each of the reporting units did not exceed its respective carrying amount as of June 2015.

Goldman Sachs June 2015 Form 10-Q 63
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Identifiable Intangible Assets. The table below presents the gross carrying amount, accumulated amortization and net carrying amount of identifiable intangible assets and their weighted average remaining useful lives.

As of
$ in millions
June
2015

Weighted Average
Remaining Useful
Lives (years)

December
2014

Customer lists

Gross carrying amount

$1,036 $1,036

Accumulated amortization

(745 (715

Net carrying amount

291 6 321

Commodities-related

Gross carrying amount

188 216

Accumulated amortization

(77 (78

Net carrying amount

111  1 8 138

Other

Gross carrying amount

267 200

Accumulated amortization

(148 (144

Net carrying amount

119  2 6 56

Total

Gross carrying amount

1,491 1,452

Accumulated amortization

(970 (937

Net carrying amount

$   521 6 $   515

1.

Primarily includes commodities-related transportation rights.

2.

Primarily includes intangible assets related to acquired leases.

Substantially all of the firm's identifiable intangible assets are considered to have finite useful lives and are amortized over their estimated useful lives using the straight-line method or based on economic usage for certain commodities-related intangibles.

The tables below present amortization for the three and six months ended June 2015 and June 2014, and the estimated future amortization through 2020 for identifiable intangible assets.

Three Months
Ended June
Six Months
Ended June
$ in millions 2015 2014 2015 2014

Amortization

$27 $38 $70 $86

$ in millions

Estimated future amortization


As of
June 2015

Remainder of 2015

$  61

2016

122

2017

111

2018

100

2019

65

2020

18

Impairments

The firm tests property, leasehold improvements and equipment, identifiable intangible assets and other assets for impairment whenever events or changes in circumstances suggest that an asset's or asset group's carrying value may not be fully recoverable. To the extent the carrying value of an asset exceeds the projected undiscounted cash flows expected to result from the use and eventual disposal of the asset or asset group, the firm determines the asset is impaired and records an impairment equal to the difference between the estimated fair value and the carrying value of the asset or asset group. In addition, the firm will recognize an impairment prior to the sale of an asset if the carrying value of the asset exceeds its estimated fair value.

During the first half of 2015, the firm recorded impairments of $77 million attributable to consolidated investments. The impairments reflected challenging market conditions for certain companies in the energy industry resulting from continued low energy commodity prices. These impairments consisted of $55 million related to property, leasehold improvements and equipment, which was included in "Depreciation and amortization," and $22 million related to other assets, which was included in "Other Expenses."

During the first half of 2014, as a result of continued deterioration in market and operating conditions, the firm determined that certain assets, substantially all of which related to a consolidated investment in Latin America, were impaired and recorded impairments of $194 million. These impairments consisted of $180 million related to property, leasehold improvements and equipment and $14 million related to identifiable intangible assets, and were included within "Depreciation and amortization."

The impairments, all of which were included within the firm's Investing & Lending segment, represented the excess of the carrying values of these assets over their estimated fair values, substantially all of which are calculated using level 3 measurements. These fair values were calculated using a combination of discounted cash flow analyses and relative value analyses, including the estimated cash flows expected to result from the use and eventual disposition of these assets.

64 Goldman Sachs June 2015 Form 10-Q
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 14.

Deposits

The table below presents deposits held in U.S. and non-U.S. offices, substantially all of which were interest-bearing. Substantially all U.S. deposits were held at Goldman Sachs Bank USA (GS Bank USA) and substantially all non-U.S. deposits were held at Goldman Sachs International Bank (GSIB).

As of
$ in millions
June
2015


December
2014

U.S. offices

$73,923 $69,270

Non-U.S. offices

15,141 13,738

Total

$89,064 $83,008

The table below presents maturities of time deposits held in U.S. and non-U.S. offices.

As of June 2015
$ in millions U.S. Non-U.S. Total

Remainder of 2015

$  3,795 $7,987 $11,782

2016

5,725 1,393 7,118

2017

5,534 - 5,534

2018

3,254 - 3,254

2019

3,422 - 3,422

2020

2,039 - 2,039

2021 - thereafter

6,593 39 6,632

Total

$30,362  1 $9,419  2 $39,781  3

1.

Includes $1.65 billion greater than $100,000, of which $699 million matures within three months, $391 million matures within three to six months, $294 million matures within six to twelve months, and $266 million matures after twelve months.

2.

Includes $6.70 billion greater than $100,000.

3.

Includes $15.31 billion of time deposits accounted for at fair value under the fair value option. See Note 8 for further information about deposits accounted for at fair value.

As of June 2015 and December 2014, deposits include $49.28 billion and $49.29 billion, respectively, of savings and demand deposits, which have no stated maturity, and were recorded based on the amount of cash received plus accrued interest, which approximates fair value. In addition, the firm designates certain derivatives as fair value hedges to convert substantially all of its time deposits not accounted for at fair value from fixed-rate obligations into floating-rate obligations. Accordingly, the carrying value of time deposits approximated fair value as of June 2015 and December 2014. While these savings and demand deposits and time deposits are carried at amounts that approximate fair value, they are not accounted for at fair value under the fair value option or at fair value in accordance with other U.S. GAAP and therefore are not included in the firm's fair value hierarchy in Notes 6 through 8. Had these deposits been included in the firm's fair value hierarchy, they would have been classified in level 2 as of June 2015 and December 2014.

Note 15.

Short-Term Borrowings

The table below presents details about the firm's short-term borrowings.

As of
$ in millions
June
2015


December
2014

Other secured financings (short-term)

$12,247 $15,560

Unsecured short-term borrowings

46,378 44,540

Total

$58,625 $60,100

See Note 10 for information about other secured financings.

Unsecured short-term borrowings include the portion of unsecured long-term borrowings maturing within one year of the financial statement date and unsecured long-term borrowings that are redeemable within one year of the financial statement date at the option of the holder.

The firm accounts for promissory notes, commercial paper and certain hybrid financial instruments at fair value under the fair value option. See Note 8 for further information about unsecured short-term borrowings that are accounted for at fair value. The carrying value of unsecured short-term borrowings that are not recorded at fair value generally approximates fair value due to the short-term nature of the obligations. While these unsecured short-term borrowings are carried at amounts that approximate fair value, they are not accounted for at fair value under the fair value option or at fair value in accordance with other U.S. GAAP and therefore are not included in the firm's fair value hierarchy in Notes 6 through 8. Had these borrowings been included in the firm's fair value hierarchy, substantially all would have been classified in level 2 as of June 2015 and December 2014.

The table below presents details about the firm's unsecured short-term borrowings.

As of
$ in millions
June
2015


December
2014

Current portion of unsecured long-term borrowings

$27,753 $25,126

Hybrid financial instruments

14,176 14,083

Promissory notes

20 338

Commercial paper

294 617

Other short-term borrowings

4,135 4,376

Total

$46,378 $44,540

Weighted average interest rate 1

1.41% 1.52%

1.

The weighted average interest rates for these borrowings include the effect of hedging activities and exclude financial instruments accounted for at fair value under the fair value option. See Note 7 for further information about hedging activities.

Goldman Sachs June 2015 Form 10-Q 65
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 16.

Long-Term Borrowings

The table below presents details about the firm's long-term borrowings.

As of
$ in millions
June
2015


December
2014

Other secured financings (long-term)

$  11,705 $    7,249

Unsecured long-term borrowings

170,259 167,571

Total

$181,964 $174,820

See Note 10 for information about other secured financings.

The tables below present unsecured long-term borrowings extending through 2061 and consisting principally of senior borrowings.

As of June 2015
$ in millions
U.S.
Dollar


Non-U.S.
Dollar

Total

Fixed-rate obligations  1

$  90,355 $31,406 $121,761

Floating-rate obligations  2

32,390 16,108 48,498

Total

$122,745 $47,514 $170,259
As of December 2014
$ in millions

U.S.

Dollar



Non-U.S.
Dollar

Total

Fixed-rate obligations  1

$  89,477 $34,857 $124,334

Floating-rate obligations  2

27,541 15,696 43,237

Total

$117,018 $50,553 $167,571

1.

Interest rates on U.S. dollar-denominated debt ranged from 1.60% to 10.04% (with a weighted average rate of 4.99%) and 1.55% to 10.04% (with a weighted average rate of 5.08%) as of June 2015 and December 2014, respectively. Interest rates on non-U.S. dollar-denominated debt ranged from 0.33% to 13.00% (with a weighted average rate of 3.87%) and 0.02% to 13.00% (with a weighted average rate of 4.06%) as of June 2015 and December 2014, respectively.

2.

Floating interest rates generally are based on LIBOR or OIS. Equity-linked and indexed instruments are included in floating-rate obligations.

The table below presents unsecured long-term borrowings by maturity date.

$ in millions
As of
June 2015

2016

$    8,185

2017

22,580

2018

23,932

2019

16,073

2020

15,726

2021 - thereafter

83,763

Total  1

$170,259

1.

Includes $8.21 billion of adjustments to the carrying value of certain unsecured long-term borrowings resulting from the application of hedge accounting by year of maturity as follows: $150 million in 2016, $601 million in 2017, $756 million in 2018, $443 million in 2019, $452 million in 2020 and $5.81 billion in 2021 and thereafter.

In the table above:

Unsecured long-term borrowings maturing within one year of the financial statement date and unsecured long-term borrowings that are redeemable within one year of the financial statement date at the option of the holders are excluded from the table as they are included as unsecured short-term borrowings.

Unsecured long-term borrowings that are repayable prior to maturity at the option of the firm are reflected at their contractual maturity dates.

Unsecured long-term borrowings that are redeemable prior to maturity at the option of the holders are reflected at the earliest dates such options become exercisable.

The firm designates certain derivatives as fair value hedges to convert a substantial portion of its fixed-rate unsecured long-term borrowings not accounted for at fair value into floating-rate obligations. Accordingly, excluding the cumulative impact of changes in the firm's credit spreads, the carrying value of unsecured long-term borrowings approximated fair value as of June 2015 and December 2014. See Note 7 for further information about hedging activities. For unsecured long-term borrowings for which the firm did not elect the fair value option, the cumulative impact due to changes in the firm's own credit spreads would be an increase of 1% and 2% in the carrying value of total unsecured long-term borrowings as of June 2015 and December 2014, respectively. As these borrowings are not accounted for at fair value under the fair value option or at fair value in accordance with other U.S. GAAP, their fair value is not included in the firm's fair value hierarchy in Notes 6 through 8. Had these borrowings been included in the firm's fair value hierarchy, substantially all would have been classified in level 2 as of June 2015 and December 2014.

66 Goldman Sachs June 2015 Form 10-Q
Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The table below presents unsecured long-term borrowings, after giving effect to hedging activities that converted a substantial portion of fixed-rate obligations to floating-rate obligations.

As of
$ in millions
June
2015


December
2014

Fixed-rate obligations

At fair value

$       214 $       861

At amortized cost  1

49,770 33,748

Floating-rate obligations

At fair value

19,786 15,144

At amortized cost  1

100,489 117,818

Total

$170,259 $167,571

1.

The weighted average interest rates on the aggregate amounts were 2.80% (4.68% related to fixed-rate obligations and 1.89% related to floating-rate obligations) and 2.68% (5.09% related to fixed-rate obligations and 2.01% related to floating-rate obligations) as of June 2015 and December 2014, respectively. These rates exclude financial instruments accounted for at fair value under the fair value option.

Subordinated Borrowings

Unsecured long-term borrowings include subordinated debt and junior subordinated debt. Junior subordinated debt is junior in right of payment to other subordinated borrowings, which are junior to senior borrowings. As of June 2015 and December 2014, subordinated debt had maturities ranging from 2017 to 2045, and 2017 to 2038, respectively.

The tables below present subordinated borrowings.

As of June 2015
$ in millions
Par
Amount


Carrying
Amount

Rate 1

Subordinated debt

$16,149 $18,879 3.82%

Junior subordinated debt

1,360 1,822 5.99%

Total subordinated borrowings

$17,509 $20,701 3.99%
As of December 2014
$ in millions
Par
Amount


Carrying
Amount

Rate  1

Subordinated debt

$14,254 $17,241 3.77%

Junior subordinated debt

1,582 2,122 6.21%

Total subordinated borrowings

$15,836 $19,363 4.02%

1.

Weighted average interest rates after giving effect to fair value hedges used to convert these fixed-rate obligations into floating-rate obligations. See Note 7 for further information about hedging activities. See below for information about interest rates on junior subordinated debt.

Junior Subordinated Debt

Junior Subordinated Debt Held by 2012 Trusts. In 2012, the Vesey Street Investment Trust I and the Murray Street Investment Trust I (together, the 2012 Trusts) issued an aggregate of $2.25 billion of senior guaranteed trust securities to third parties. The proceeds of that offering were used to purchase $1.75 billion of junior subordinated debt issued by Group Inc. that pays interest semi-annually at a fixed annual rate of 4.647% and matures on March 9, 2017, and $500 million of junior subordinated debt issued by Group Inc. that pays interest semi-annually at a fixed annual rate of 4.404% and matures on September 1, 2016. During 2014, the firm exchanged $175 million of the senior guaranteed trust securities held by the firm for $175 million of junior subordinated debt held by the Murray Street Investment Trust I. Following the exchange, these senior guaranteed trust securities and junior subordinated debt were extinguished.

The 2012 Trusts purchased the junior subordinated debt from Goldman Sachs Capital II and Goldman Sachs Capital III (APEX Trusts). The APEX Trusts used the proceeds from such sales to purchase shares of Group Inc.'s Perpetual Non-Cumulative Preferred Stock, Series E (Series E Preferred Stock) and Perpetual Non-Cumulative Preferred Stock, Series F (Series F Preferred Stock). S