Goldman Sachs Group Inc (GS) SEC Quarterly Report (10-Q) for Q3 2015

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 September 30, 2015

¨	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 October 16, 2015, there were 426,536,163 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 SEPTEMBER 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 nine months ended September 30, 2015 and September 30, 2014	2

	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2015 and September 30, 2014	3

	Condensed Consolidated Statements of Financial Condition as of September 30, 2015 and December 31, 2014	4

	Condensed Consolidated Statements of Changes in Shareholders' Equity for the nine months ended September 30, 2015 and year ended December 31, 2014	5

	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and September 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	24

	Note 8. Fair Value Option	38

	Note 9. Loans Receivable	45

	Note 10. Collateralized Agreements and Financings	47

	Note 11. Securitization Activities	52

	Note 12. Variable Interest Entities	55

	Note 13. Other Assets	58

	Note 14. Deposits	61

	Note 15. Short-Term Borrowings	61

	Note 16. Long-Term Borrowings	62

	Note 17. Other Liabilities and Accrued Expenses	64

	Note 18. Commitments, Contingencies and Guarantees	65

	Note 19. Shareholders' Equity	71

	Note 20. Regulation and Capital Adequacy	73

	Note 21. Earnings Per Common Share	82

	Note 22. Transactions with Affiliated Funds	82

	Note 23. Interest Income and Interest Expense	83

	Note 24. Income Taxes	83

	Note 25. Business Segments	85

	Note 26. Credit Concentrations	87

	Note 27. Legal Proceedings	88

	Report of Independent Registered Public Accounting Firm	96

	Statistical Disclosures	97

Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	99

Item 3	Quantitative and Qualitative Disclosures About Market Risk	167

Item 4	Controls and Procedures	167

PART II	OTHER INFORMATION	167

Item 1	Legal Proceedings	167

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	167

Item 6	Exhibits	168

SIGNATURES		169


		Goldman Sachs September 2015 Form 10-Q		1

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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 September

Nine Months
Ended September

in millions, except per share amounts

2015

2014

2015

2014

Revenues

Investment banking

$1,556

$1,464

$ 5,480

$ 5,024

Investment management

1,331

1,386

4,400

4,262

Commissions and fees

859

783

2,517

2,441

Market making

1,730

2,087

7,964

6,911

Other principal transactions

543

1,618

3,822

5,116

Total non-interest revenues

6,019

7,338

24,183

23,754

Interest income

2,119

2,297

6,304

7,470

Interest expense

1,277

1,248

3,940

4,384

Net interest income

842

1,049

2,364

3,086

Net revenues, including net interest income

6,861

8,387

26,547

26,840

Operating expenses

Compensation and benefits

2,351

2,801

10,619

10,736

Brokerage, clearing, exchange and distribution fees

665

624

1,950

1,832

Market development

123

129

409

408

Communications and technology

200

190

601

576

Depreciation and amortization

222

301

706

985

Occupancy

182

212

572

627

Professional fees

253

220

714

656

Other expenses

819

605

3,270

1,873

Total non-compensation expenses

2,464

2,281

8,222

6,957

Total operating expenses

4,815

5,082

18,841

17,693

Pre-tax earnings

2,046

3,305

7,706

9,147

Provision for taxes

620

1,064

2,388

2,836

Net earnings

1,426

2,241

5,318

6,311

Preferred stock dividends

324

266

Net earnings applicable to common shareholders

$1,330

$2,143

$ 4,994

$ 6,045

Earnings per common share

Basic

$ 2.95

$ 4.69

$ 11.03

$ 13.05

Diluted

2.90

4.57

10.84

12.69

Dividends declared per common share

$ 0.65

$ 0.55

$ 1.90

$ 1.65

Average common shares outstanding

Basic

449.0

455.5

451.2

461.8

Diluted

458.6

469.2

460.9

476.5

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


2		Goldman Sachs September 2015 Form 10-Q

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THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)


	Three Months Ended September					Nine Months Ended September
$ in millions		2015		2014			2015		2014
Net earnings		$1,426		$2,241			$5,318		$6,311

Other comprehensive income/(loss) adjustments, net of tax:
Currency translation		(39	)	(44	)		(94	)	(103	)

Pension and postretirement liabilities		36		(7	)		(74	)	(21	)

Cash flow hedges		-		3			-		5
Other comprehensive loss		(3	)	(48	)		(168	)	(119	)
Comprehensive income		$1,423		$2,193			$5,150		$6,192

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


		Goldman Sachs September 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		September 2015		December 2014
Assets
Cash and cash equivalents		$ 65,575		$ 57,600

Cash and securities segregated for regulatory and other purposes (includes $38,044 and $34,291 at fair value as of September 2015 and December 2014, respectively)		58,168		51,716

Collateralized agreements:
Securities purchased under agreements to resell and federal funds sold (includes $125,265 and $126,036 at fair value as of September 2015 and December 2014, respectively)		126,903		127,938

Securities borrowed (includes $68,481 and $66,769 at fair value as of September 2015 and December 2014, respectively)		173,315		160,722

Receivables:
Brokers, dealers and clearing organizations		46,986		30,671

Customers and counterparties (includes $6,346 and $6,944 at fair value as of September 2015 and December 2014, respectively)		52,016		63,808

Loans receivable		42,189		28,938

Financial instruments owned, at fair value (includes $52,029 and $64,473 pledged as collateral as of September 2015 and December 2014, respectively)		290,487		312,248

Other assets		24,920		22,201
Total assets		$880,559		$855,842
Liabilities and shareholders' equity
Deposits (includes $14,802 and $13,523 at fair value as of September 2015 and December 2014, respectively)		$ 91,458		$ 82,880

Collateralized financings:
Securities sold under agreements to repurchase, at fair value		89,481		88,215

Securities loaned (includes $1,081 and $765 at fair value as of September 2015 and December 2014, respectively)		3,519		5,570

Other secured financings (includes $23,787 and $21,450 at fair value as of September 2015 and December 2014, respectively)		25,222		22,809

Payables:
Brokers, dealers and clearing organizations		6,956		6,636

Customers and counterparties		215,822		206,936

Financial instruments sold, but not yet purchased, at fair value		125,428		132,083

Unsecured short-term borrowings, including the current portion of unsecured long-term borrowings (includes $16,390 and $18,826 at fair value as of September 2015 and December 2014, respectively)		41,331		44,539

Unsecured long-term borrowings (includes $20,820 and $16,005 at fair value as of September 2015 and December 2014, respectively)		175,817		167,302

Other liabilities and accrued expenses (includes $1,446 and $831 at fair value as of September 2015 and December 2014, respectively)		17,822		16,075
Total liabilities		792,856		773,045

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 September 2015 and December 2014, respectively		11,200		9,200

Common stock, par value $0.01 per share; 4,000,000,000 shares authorized, 863,546,793 and 852,784,764 shares issued as of September 2015 and December 2014, respectively, and 427,904,332 and 430,259,102 shares outstanding as of September 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		51,281		50,049

Retained earnings		83,105		78,984

Accumulated other comprehensive loss		(911	)	(743	)

Stock held in treasury, at cost, par value $0.01 per share; 435,642,463 and 422,525,664 shares as of September 2015 and December 2014, respectively		(60,992	)	(58,468	)
Total shareholders' equity		87,703		82,797
Total liabilities and shareholders' equity		$880,559		$855,842

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


4		Goldman Sachs September 2015 Form 10-Q

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THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Shareholders' Equity

(Unaudited)


$ in millions	Nine Months Ended September 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	2,147		2,079

Delivery of common stock underlying share-based awards	(1,738	)	(1,725	)

Forfeiture of share-based awards	(70	)	(92	)

Exercise of share-based awards	(94	)	(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	2,037		2,206

Cancellation of share-based awards in satisfaction of withholding tax requirements	(1,185	)	(1,922	)

Preferred stock issuance costs	(7	)	(20	)

Excess net tax benefit related to share-based awards	388		788

Cash settlement of share-based awards	(1	)	(1	)
Balance, end of period	51,281		50,049

Retained earnings
Balance, beginning of year	78,984		71,961

Net earnings	5,318		8,477

Dividends and dividend equivalents declared on common stock and share-based awards	(873	)	(1,054	)

Dividends declared on preferred stock	(324	)	(400	)
Balance, end of period	83,105		78,984

Accumulated other comprehensive loss
Balance, beginning of year	(743	)	(524	)

Other comprehensive loss	(168	)	(219	)
Balance, end of period	(911	)	(743	)

Stock held in treasury, at cost
Balance, beginning of year	(58,468	)	(53,015	)

Repurchased	(2,545	)	(5,469	)

Reissued	29		49

Other	(8	)	(33	)
Balance, end of period	(60,992	)	(58,468	)
Total shareholders' equity	$ 87,703		$ 82,797

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


		Goldman Sachs September 2015 Form 10-Q		5

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THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Nine Months Ended September
$ in millions		2015		2014
Cash flows from operating activities
Net earnings		$ 5,318		$ 6,311

Adjustments to reconcile net earnings to net cash provided by/(used for) operating activities
Depreciation and amortization		706		985

Share-based compensation		2,107		1,931

Gain related to extinguishment of junior subordinated debt		(34	)	(270	)

Changes in operating assets and liabilities
Cash and securities segregated for regulatory and other purposes		(6,452	)	5,480

Receivables and payables (excluding loans receivable), net		4,524		12,952

Collateralized transactions (excluding other secured financings), net		(12,902	)	(52,273	)

Financial instruments owned, at fair value		18,366		13,228

Financial instruments sold, but not yet purchased, at fair value		(6,753	)	4,580

Other, net		(4,714	)	(5,515	)
Net cash provided by/(used for) operating activities		166		(12,591	)

Cash flows from investing activities
Purchase of property, leasehold improvements and equipment		(1,205	)	(508	)

Proceeds from sales of property, leasehold improvements and equipment		120		17

Business acquisitions, net of cash acquired		(1,684	)	(626	)

Proceeds from sales of investments		714		1,127

Loans receivable, net		(12,692	)	(10,601	)
Net cash used for investing activities		(14,747	)	(10,591	)

Cash flows from financing activities
Unsecured short-term borrowings, net		(1,228	)	1,417

Other secured financings (short-term), net		(492	)	417

Proceeds from issuance of other secured financings (long-term)		10,772		5,700

Repayment of other secured financings (long-term), including the current portion		(7,360	)	(5,562	)

Proceeds from issuance of unsecured long-term borrowings		36,031		30,402

Repayment of unsecured long-term borrowings, including the current portion		(22,513	)	(19,940	)

Purchase of trust preferred securities		(1	)	(1,429	)

Derivative contracts with a financing element, net		(89	)	550

Deposits, net		8,578		7,144

Common stock repurchased		(2,545	)	(4,219	)

Dividends and dividend equivalents paid on common stock, preferred stock and share-based awards		(1,197	)	(1,045	)

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		220		79

Excess tax benefit related to share-based awards		388		706

Cash settlement of share-based awards		(1	)	(1	)
Net cash provided by financing activities		22,556		16,199
Net increase/(decrease) in cash and cash equivalents		7,975		(6,983	)

Cash and cash equivalents, beginning of year		57,600		61,133
Cash and cash equivalents, end of period		$ 65,575		$ 54,150

SUPPLEMENTAL DISCLOSURES:

Cash payments for interest, net of capitalized interest, were $4.09 billion and $5.45 billion during the nine months ended September 2015 and September 2014, respectively.

Cash payments for income taxes, net of refunds, were $2.20 billion and $2.51 billion during the nine months ended September 2015 and September 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 nine months ended September 2015. Following the exchange, this junior subordinated debt was extinguished.

The firm exchanged $1.59 billion of Trust Preferred Securities, common beneficial interests and senior guaranteed trust securities held by the firm for $1.86 billion of the firm's junior subordinated debt held by the issuing trusts during the nine months ended September 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 September 2015 Form 10-Q

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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 September 2015, June 2015 and September 2014 refer to the firm's periods ended, or the dates, as the context requires, September 30, 2015, June 30, 2015 and September 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 September 2015 Form 10-Q		7

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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 September 2015 Form 10-Q

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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 September 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 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 September 2015 and December 2014, "Cash and cash equivalents" included $6.85 billion and $5.79 billion, respectively, of cash and due from banks, and $58.73 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 September 2015 and December 2014, the firm's receivables from customers and counterparties included $1.63 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 September 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 September 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 September 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 September 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 September 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 September 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 August 2015, the FASB issued ASU No. 2015-14, which deferred the effective date of ASU No. 2014-09 by one year, to annual reporting periods beginning after December 15, 2017. Early adoption is 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 ASU No. 2014-11 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 September 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 the fourth quarter of 2015. Adoption of ASU No. 2015-02 will not 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. ASU No. 2015-03 is required to be applied retrospectively to all periods presented beginning in the year of adoption. Early adoption is permitted. The firm early adopted ASU No. 2015-03 in September 2015. In accordance with ASU No. 2015-03, previously reported amounts have been conformed to the current presentation, as reflected in Notes 13 through 16. The impact of adoption as of September 2015 and December 2014 was a reduction to both total assets and total liabilities of $444 million and $398 million, respectively.

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. Early adoption is permitted. 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.

Simplifying the Accounting for Measurement-Period Adjustments (ASC 805). In September 2015, the FASB issued ASU No. 2015-16, "Business Combinations (Topic 805) - Simplifying the Accounting for Measurement-Period Adjustments." ASU No. 2015-16 eliminates the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively. ASU No. 2015-16 is effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period. Adoption of ASU No. 2015-16 will not materially affect the firm's financial condition, results of operations, or cash flows.

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 September 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 September 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		$ 4,636		$ -

U.S. government and federal agency obligations		51,357		11,163

Non-U.S. government and agency obligations		31,666		18,483

Loans and securities backed by commercial real estate		5,904	1	-

Loans and securities backed by residential real estate		13,212	2	-

Bank loans and bridge loans		11,844		434

Corporate debt securities		17,492		5,726

State and municipal obligations		1,570		-

Other debt obligations		1,862	3	1

Equities and convertible debentures		81,091		38,124

Commodities		3,466		435

Investments in funds measured at NAV		7,896		-
Subtotal		231,996		74,366

Derivatives		58,491		51,062
Total		$290,487		$125,428

	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

Loans and securities backed by commercial real estate		7,140	1	1

Loans and securities backed by residential real estate		11,717	2	-

Bank loans and bridge loans		14,171		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 $3.74 billion and $4.97 billion of loans backed by commercial real estate as of September 2015 and December 2014, respectively.

2.	Includes $9.79 billion and $6.43 billion of loans backed by residential real estate as of September 2015 and December 2014, respectively.

3.	Includes $410 million and $618 million of loans backed by consumer loans and other assets as of September 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	Three Months Ended September					Nine Months Ended September
Product Type		2015		2014			2015	2014
Interest rates		$ (132	)	$(2,811	)		$ 146	$ (3,267	)

Credit		298		497			1,218	2,699

Currencies		(656	)	3,689			1,135	4,545

Equities		1,968		498			4,671	1,725

Commodities		252		214			794	1,209
Market making		1,730		2,087			7,964	6,911
Other principal transactions 1		543		1,618			3,822	5,116
Total		$2,273		$ 3,705			$11,786	$12,027

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 September 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		September 2015		June 2015		December 2014
Total level 1 financial assets		$124,475		$143,808		$139,484

Total level 2 financial assets		464,679		423,629		466,030

Total level 3 financial assets		27,213		32,412		35,780

Investments in funds measured at NAV		7,896		8,956		9,610

Counterparty and cash collateral netting		(95,640	)	(90,510	)	(104,616	)
Total financial assets at fair value		$528,623		$518,295		$546,288
Total assets 1		$880,559		$859,454		$855,842

Total level 3 financial assets as a percentage of total assets		3.1%		3.8%		4.2%

Total level 3 financial assets as a percentage of total financial assets at fair value		5.1%		6.3%		6.5%
Total level 1 financial liabilities		$ 65,269		$ 63,772		$ 59,697

Total level 2 financial liabilities		256,247		247,883		253,364

Total level 3 financial liabilities		16,949		18,353		15,904

Counterparty and cash collateral netting		(45,230	)	(39,075	)	(37,267	)
Total financial liabilities at fair value		$293,235		$290,933		$291,698

Total level 3 financial liabilities as a percentage of total financial liabilities at fair value		5.8%		6.3%		5.5%

1.	Includes $856 billion as of September 2015, and $834 billion as of both June 2015 and December 2014, 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		September 2015	June 2015	December 2014
Cash instruments		$ 20,305	$ 26,195	$ 28,650

Derivatives		6,866	6,175	7,074

Other financial assets		42	42	56
Total		$ 27,213	$ 32,412	$ 35,780


		Goldman Sachs September 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 September 2015 decreased compared with June 2015 and 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 September 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, related costs and subsequent recoveries
	• 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 and LCDX
	• 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 September 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 September 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 ($2.11 billion and $3.28 billion of level 3 assets as of September 2015 and December 2014, respectively)		Discounted cash flows:
	• Yield		3.1% to 20.0% (11.1%)		3.2% to 20.0% (10.5%)
	• Recovery rate		31.6% to 96.4% (57.6%)		24.9% to 100.0% (68.3%)
	• Duration (years)		0.2 to 5.5 (2.2)		0.3 to 4.7 (2.0)
	• Basis		(9) points to 4 points ((2) 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 ($1.64 billion and $2.55 billion of level 3 assets as of September 2015 and December 2014, respectively)		Discounted cash flows:
	• Yield		2.9% to 12.0% (7.4%)		1.9% to 17.5% (7.6%)
	• Cumulative loss rate		6.0% to 41.6% (27.0%)		0.0% to 95.1% (24.4%)
	• Duration (years)		1.5 to 13.1 (7.0)		0.5 to 13.0 (4.3)
Bank loans and bridge loans ($3.76 billion and $6.97 billion of level 3 assets as of September 2015 and December 2014, respectively)		Discounted cash flows:
	• Yield		1.4% to 27.8% (9.8%)		1.4% to 29.5% (8.7%)
	• Recovery rate		16.9% to 85.1% (52.6%)		26.6% to 92.5% (60.6%)
	• Duration (years)		0.4 to 6.2 (2.4)		0.3 to 7.8 (2.5)
Non-U.S. government and agency obligations Corporate debt securities State and municipal obligations Other debt obligations ($2.96 billion and $4.75 billion of level 3 assets as of September 2015 and December 2014, respectively)		Discounted cash flows:
	• Yield		1.0% to 19.3% (10.1%)		0.9% to 24.4% (9.2%)
	• Recovery rate		0.0% to 71.7% (62.1%)		0.0% to 71.9% (59.2%)
	• Duration (years)		1.3 to 12.8 (4.9)		0.5 to 19.6 (3.7)
Equities and convertible debentures (including private equity investments and investments in real estate entities) ($9.84 billion and $11.11 billion of level 3 assets as of September 2015 and December 2014, respectively)		Market comparables and discounted cash flows:
	• Multiples		0.8x to 21.0x (4.8x)		0.8x to 16.6x (6.5x)
	• Discount rate/yield		6.0% to 20.0% (14.4%)		3.7% to 30.0% (14.4%)
	• Long-term growth rate/ compound annual growth rate		3.0% to 9.9% (5.2%)		1.0% to 10.0% (6.0%)
	• Capitalization rate		5.3% to 12.5% (7.5%)		3.8% to 13.0% (7.6%)


18		Goldman Sachs September 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 September 2015						As of December 2014
$ in millions		Level 1	Level 2	Level 3		Total		Level 1	Level 2	Level 3		Total
Commercial paper, certificates of deposit, time deposits and other money market instruments		$ 961	$ 3,675	$ -		$ 4,636		$ -	$ 3,654	$ -		$ 3,654

U.S. government and federal agency obligations		23,201	28,156	-		51,357		18,540	29,462	-		48,002

Non-U.S. government and agency obligations		26,873	4,780	13		31,666		30,255	6,668	136		37,059

Loans and securities backed by commercial real estate		-	3,799	2,105		5,904		-	3,865	3,275		7,140

Loans and securities backed by residential real estate		-	11,572	1,640		13,212		-	9,172	2,545		11,717

Bank loans and bridge loans		-	8,083	3,761		11,844		-	7,198	6,973		14,171

Corporate debt securities		264	14,910	2,318		17,492		249	17,537	3,633		21,419

State and municipal obligations		-	1,481	89		1,570		-	1,093	110		1,203

Other debt obligations		-	1,321	541		1,862		-	2,387	870		3,257

Equities and convertible debentures		60,036	11,217	9,838	2	81,091		68,974	7,818	11,108	2	87,900

Commodities		-	3,466	-		3,466		-	3,846	-		3,846
Subtotal		$111,335	$92,460	$20,305		$224,100		$118,018	$92,700	$28,650		$239,368

Investments in funds measured at NAV						7,896						9,610
Total 1						$231,996						$248,978

	Cash Instrument Liabilities at Fair Value
	As of September 2015						As of December 2014
$ in millions		Level 1	Level 2	Level 3		Total		Level 1	Level 2	Level 3		Total
U.S. government and federal agency obligations		$ 11,143	$ 20	$ -		$ 11,163		$ 12,746	$ 16	$ -		$ 12,762

Non-U.S. government and agency obligations		16,703	1,780	-		18,483		19,256	1,244	-		20,500

Loans and securities backed by commercial real estate		-	-	-		-		-	1	-		1

Bank loans and bridge loans		-	305	129		434		-	286	178		464

Corporate debt securities		4	5,720	2		5,726		-	5,741	59		5,800

Other debt obligations		-	-	1		1		-	-	2		2

Equities and convertible debentures		37,391	646	87		38,124		27,587	722	5		28,314

Commodities		-	435	-		435		-	1,224	-		1,224
Total		$ 65,241	$ 8,906	$ 219		$ 74,366		$ 59,589	$ 9,234	$ 244		$ 69,067

Includes collateralized debt obligations (CDOs) and collateralized loan obligations (CLOs) backed by real estate and corporate obligations of $313 million in level 2 and $915 million in level 3 as of September 2015, and $234 million in level 2 and $1.34 billion in level 3 as of December 2014, respectively.

Includes $9.09 billion of private equity investments, $327 million of investments in real estate entities and $423 million of convertible debentures as of September 2015, and $10.25 billion of private equity investments, $294 million of investments in real estate entities and $562 million of convertible debentures as of December 2014.

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 September 2015:

•

Transfers into level 2 from level 1 of cash instruments were $95 million, reflecting transfers of public equity securities primarily due to decreased market activity in these instruments.

•

Transfers into level 1 from level 2 of cash instruments were $113 million, reflecting transfers of public equity securities due to increased market activity in these instruments.

During the nine months ended September 2015:

•

Transfers into level 2 from level 1 of cash instruments were $138 million, reflecting transfers of public equity securities primarily due to decreased market activity in these instruments.

•

Transfers into level 1 from level 2 of cash instruments were $264 million, reflecting transfers of public equity securities due to increased market activity in these instruments.

During the three months ended September 2014:

•

Transfers into level 2 from level 1 of cash instruments were $25 million, reflecting transfers of public equity securities due to decreased market activity in these instruments.

•

Transfers into level 1 from level 2 of cash instruments were $1 million, reflecting transfers of public equity securities due to increased market activity in these instruments.

During the nine months ended September 2014:

•

Transfers into level 2 from level 1 of cash instruments were $65 million, including $47 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.

•

Transfers into level 1 from level 2 of cash instruments were $80 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.


		Goldman Sachs September 2015 Form 10-Q		19

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. For level 3 cash instrument assets, increases are shown as positive amounts, while decreases are shown as negative amounts. For level 3 cash instrument liabilities, increases are shown as negative amounts, while decreases are shown as positive amounts.

•

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.

•

See "Level 3 Rollforward Commentary" below for an explanation of the net unrealized gains/(losses) on level 3 cash instruments, and the activity related to transfers into and transfers out of level 3.

Level 3 Cash Instrument Assets and Liabilities at Fair Value

$ 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

Three Months Ended September 2015

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

$ 11

$ -

$ (10

)

$ (1

)

$ -

Non-U.S. government and agency obligations

)

Loans and securities backed by
commercial real estate

2,134

232

(100

)

(131

)

(167

)

2,105

Loans and securities backed by
residential real estate

2,717

(238

)

(76

)

(976

)

1,640

Bank loans and bridge loans

5,377

(77

)

243

(43

)

(574

)

152

(1,372

)

3,761

Corporate debt securities

2,595

(34

)

(153

)

(19

)

161

(378

)

2,318

State and municipal obligations

143

)

(64

)

Other debt obligations

740

(63

)

(102

)

(56

)

541

Equities and convertible debentures

12,457

)

177

(93

)

(514

)

212

(2,476

)

9,838

Total cash instrument assets

$26,195

$231

$ (52

) 1

$ 861

$ (709

)

$(1,426

)

$ 694

$(5,489

)

$20,305

Total cash instrument liabilities

$ (178

)

$ 13

$ (31

)

$ 102

$ (35

)

$ 3

$ (98

)

$ 5

$ (219

)

Nine Months Ended September 2015

Non-U.S. government and agency obligations

$ 136

$ 9

$ -

$ 1

$ (35

)

$ (24

)

$ -

$ (74)

$ 13

Loans and securities backed by
commercial real estate

3,275

120

429

(605

)

(1,332

)

340

(213

)

2,105

Loans and securities backed by
residential real estate

2,545

115

387

(639

)

(255

)

158

(690

)

1,640

Bank loans and bridge loans

6,973

228

(177

)

760

(833

)

(1,481

)

389

(2,098

)

3,761

Corporate debt securities

3,633

128

(58

)

455

(448

)

(399

)

345

(1,338

)

2,318

State and municipal obligations

110

(21

)

(26

)

Other debt obligations

870

(192

)

(82

)

(174

)

541

Equities and convertible debentures

11,108

197

962

676

(489

)

(1,313

)

885

(2,188

)

9,838

Total cash instrument assets

$28,650

$821

$844

$2,810

$(3,262

)

$(4,888

)

$2,131

$(6,801

)

$20,305

Total cash instrument liabilities

$ (244

)

$ 12

$ (26

)

$ 170

$ (45

)

$ (6

)

$ (121

)

$ 41

$ (219

)

The aggregate amounts include gains/(losses) of approximately $(39) million, $(18) million and $236 million reported in "Market making," "Other principal transactions" and "Interest income," respectively, for the three months ended September 2015, and approximately $(10) million, $1.13 billion and $547 million reported in "Market making," "Other principal transactions" and "Interest income," respectively, for the nine months ended September 2015.


20		Goldman Sachs September 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 and Liabilities at Fair Value
$ 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
Three Months Ended September 2014
Non-U.S. government and agency obligations		$ 53		$ 1		$ -		$ 87	$ (6	)	$ (11	)	$ -		$ -		$ 124

Loans and securities backed by commercial real estate		2,508		56		(7	)	108	(62	)	(165	)	877		(125	)	3,190

Loans and securities backed by residential real estate		2,039		37		37		373	(167	)	(125	)	155		(49	)	2,300

Bank loans and bridge loans		6,280		109		(46	)	1,697	(355	)	(1,099	)	880		(435	)	7,031

Corporate debt securities		2,192		83		(42	)	1,793	(491	)	(557	)	697		(239	)	3,436

State and municipal obligations		169		2		(1	)	3	(35	)	-		27		(34	)	131

Other debt obligations		629		5		2		102	(12	)	(68	)	44		(91	)	611

Equities and convertible debentures		10,551		33		358		460	(232	)	(215	)	705		(922	)	10,738
Total cash instrument assets		$24,421		$ 326	1	$ 301	1	$ 4,623	$(1,360	)	$(2,240	)	$3,385		$(1,895	)	$27,561
Total cash instrument liabilities		$ (197	)	$ (6	)	$ (20	)	$ 76	$ (31	)	$ 7		$ (29	)	$ 11		$ (189	)
Nine Months Ended September 2014
Non-U.S. government and agency obligations		$ 40		$ 4		$ 2		$ 93	$ (19	)	$ (4	)	$ 8		$ -		$ 124

Loans and securities backed by commercial real estate		2,515		112		127		1,318	(373	)	(472	)	178		(215	)	3,190

Loans and securities backed by residential real estate		1,961		145		148		648	(289	)	(329	)	232		(216	)	2,300

Bank loans and bridge loans		6,071		450		47		3,667	(696	)	(2,590	)	375		(293	)	7,031

Corporate debt securities		2,744		233		22		2,277	(926	)	(872	)	380		(422	)	3,436

State and municipal obligations		257		3		3		31	(112	)	(1	)	-		(50	)	131

Other debt obligations		807		45		62		99	(187	)	(106	)	18		(127	)	611

Equities and convertible debentures		8,671		189		1,046		2,097	(873	)	(537	)	1,236		(1,091	)	10,738
Total cash instrument assets		$23,066		$1,181	1	$1,457	1	$10,230	$(3,475	)	$(4,911	)	$2,427		$(2,414	)	$27,561
Total cash instrument liabilities		$ (297	)	$ 2		$ 47		$ 171	$ (89	)	$ (27	)	$ (19	)	$ 23		$ (189	)

The aggregate amounts include gains of approximately $27 million, $325 million and $275 million reported in "Market making," "Other principal transactions" and "Interest income," respectively, for the three months ended September 2014, and approximately $464 million, $1.40 billion and $771 million reported in "Market making," "Other principal transactions" and "Interest income," respectively, for the nine months ended September 2014.


		Goldman Sachs September 2015 Form 10-Q		21

Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Level 3 Rollforward Commentary

Three Months Ended September 2015. The net unrealized loss on level 3 cash instruments of $83 million (reflecting $52 million on cash instrument assets and $31 million on cash instrument liabilities) for the three months ended September 2015 primarily reflected losses on bank loans and bridge loans, principally reflecting the impact of wider credit spreads.

Transfers into level 3 during the three months ended September 2015 primarily reflected transfers of certain private equity investments, corporate debt securities and bank loans and bridge loans 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 September 2015 primarily reflected transfers of certain private equity investments and loans and securities backed by residential real estate to level 2 principally due to increased price transparency as a result of market evidence, including market transactions in these instruments, and transfers of certain bank loans and bridge loans to level 2 principally due to certain unobservable yield and duration inputs not being significant to the valuation of these instruments.

Nine Months Ended September 2015. The net unrealized gain on level 3 cash instruments of $818 million (reflecting $844 million of gains on cash instrument assets and $26 million of losses on cash instrument liabilities) for the nine months ended September 2015 primarily reflected gains on private equity investments principally driven by strong corporate performance and company-specific events.

Transfers into level 3 during the nine months ended September 2015 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 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 nine months ended September 2015 primarily reflected transfers of certain private equity investments, corporate debt securities and loans and securities backed by residential real estate to level 2 principally due to increased price transparency as a result of market evidence, including market transactions in these instruments, and transfers of certain bank loans and bridge loans to level 2 principally due to certain unobservable yield and duration inputs not being significant to the valuation of these instruments.

Three Months Ended September 2014. The net unrealized gain on level 3 cash instruments of $281 million (reflecting $301 million of gains on cash instrument assets and $20 million of losses on cash instrument liabilities) for the three months ended September 2014 reflected gains on private equity investments principally driven by company-specific events and strong corporate performance.

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

Nine Months Ended September 2014. The net unrealized gain on level 3 cash instruments of $1.50 billion (reflecting $1.46 billion on cash instrument assets and $47 million on cash instrument liabilities) for the nine months ended September 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 nine months ended September 2014 primarily reflected transfers of certain private equity investments, corporate debt securities and bank loans and bridge loans 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 nine months ended September 2014 primarily reflected transfers of certain private equity investments, 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 market transactions in these instruments.


22		Goldman Sachs September 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 $3.18 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 September 2015
$ in millions		Fair Value of Investments	Unfunded Commitments
Private equity funds		$5,290	$2,068

Credit funds		667	375

Hedge funds		614	-

Real estate funds		1,325	296
Total		$7,896	$2,739

	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 September 2015 Form 10-Q		23

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.


24		Goldman Sachs September 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 September 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		$ 365		$ 389		$ 4,365,237		$ 228		$ 238		$ 3,151,865

OTC-cleared		272,253		250,611		23,715,996		351,801		330,298		30,408,636

Bilateral OTC		380,259		356,608		13,083,131		434,333		409,071		13,552,017
Total interest rates		652,877		607,608		41,164,364		786,362		739,607		47,112,518
OTC-cleared		5,732		6,087		453,464		5,812		5,663		378,099

Bilateral OTC		36,903		32,609		1,740,633		49,036		44,491		2,122,859
Total credit		42,635		38,696		2,194,097		54,848		50,154		2,500,958
Exchange-traded		332		248		26,526		69		69		17,214

OTC-cleared		215		164		18,174		100		96		13,304

Bilateral OTC		102,439		107,568		5,668,553		109,747		108,442		5,535,685
Total currencies		102,986		107,980		5,713,253		109,916		108,607		5,566,203
Exchange-traded		5,235		5,274		297,402		7,683		7,166		321,378

OTC-cleared		226		233		2,888		313		315		3,036

Bilateral OTC		16,271		17,701		272,286		20,994		21,065		345,065
Total commodities		21,732		23,208		572,576		28,990		28,546		669,479
Exchange-traded		11,202		10,284		651,206		9,592		9,636		541,711

Bilateral OTC		44,975		43,384		999,681		49,339		49,013		983,784
Total equities		56,177		53,668		1,650,887		58,931		58,649		1,525,495
Subtotal		876,407		831,160		51,295,177		1,039,047		985,563		57,374,653
Derivatives accounted for as hedges
OTC-cleared		2,224		72		42,149		2,713		228		31,109

Bilateral OTC		10,223		11		72,868		11,559		34		95,389
Total interest rates		12,447		83		115,017		14,272		262		126,498
OTC-cleared		22		4		1,191		12		3		1,205

Bilateral OTC		219		9		8,165		113		13		8,431
Total currencies		241		13		9,356		125		16		9,636
Subtotal		12,688		96		124,373		14,397		278		136,134
Total gross fair value/notional amount of derivatives		$ 889,095	1	$ 831,256	1	$51,419,550		$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		$ (13,298	)	$ (13,298	)			$ (15,039	)	$ (15,039	)

OTC-cleared		(254,089	)	(254,089	)			(335,792	)	(335,792	)

Bilateral OTC		(469,322	)	(469,322	)			(535,839	)	(535,839	)
Total counterparty netting		(736,709	)	(736,709	)			(886,670	)	$(886,670	)
OTC-cleared		(26,205	)	(2,973	)			(24,801	)	(738	)

Bilateral OTC		(67,690	)	(40,512	)			(78,703	)	(35,417	)
Total cash collateral netting		(93,895	)	(43,485	)			(103,504	)	(36,155	)
Total counterparty and cash collateral netting		$(830,604	)	$(780,194	)			$ (990,174	)	$(922,825	)
Amounts included in financial instruments owned/financial instruments sold, but not yet purchased
Exchange-traded		$ 3,836		$ 2,897				$ 2,533		$ 2,070

OTC-cleared		378		109				158		73

Bilateral OTC		54,277		48,056				60,579		60,873
Total amounts included in the condensed consolidated statements of financial condition		$ 58,491		$ 51,062				$ 63,270		$ 63,016
Amounts that have not been offset in the condensed consolidated statements of financial condition
Cash collateral received/posted		$ (1,011	)	$ (2,047	)			$ (980	)	$ (2,940	)

Securities collateral received/posted		(15,084	)	(12,472	)			(14,742	)	(18,159	)
Total		$ 42,396		$ 36,543				$ 47,548		$ 41,917

Includes derivative assets and derivative liabilities of $19.87 billion and $18.64 billion, respectively, as of September 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 September 2015 Form 10-Q		25

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.


26		Goldman Sachs September 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 September 2015 Form 10-Q		27

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 September 2015	As of December 2014
Interest rates ($200 million and $40 million of net level 3 liabilities as of September 2015 and December 2014, respectively)	Option pricing models: • Correlation 1 • Volatility	(25)% to 92% (56% / 61%) 31 basis points per annum (bpa) to 152 bpa (84 bpa / 57 bpa)	(16)% to 84% (37% / 40%) 36 basis points per annum (bpa) to 156 bpa (100 bpa / 115 bpa)
Credit ($3.29 billion and $3.53 billion of net level 3 assets as of September 2015 and December 2014, respectively)	Option pricing models, correlation models and discounted cash flows models: • Correlation 1 • Credit spreads • Upfront credit points • Recovery rates	44% to 99% (70% / 70%) 1 basis points (bps) to 660 bps (145 bps / 108 bps) 2 0 points to 99 points (40 points / 33 points) 11% to 71% (45% / 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 ($160 million of net level 3 assets and $267 million of net level 3 liabilities as of September 2015 and December 2014, respectively)	Option pricing models: • Correlation 1	55% to 80% (69% / 73%)	55% to 80% (69% / 73%)
Commodities ($23 million of net level 3 assets and $1.14 billion of net level 3 liabilities as of September 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	13% to 61% (35% / 34%) $(1.63) to $6.82 ($0.00 / $(0.03)) $(8.00) to $(5.00) ($(7.08) / $(7.46)) $(8.39) to $55.46 ($7.37 / $0.11) 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 ($884 million and $1.38 billion of net level 3 liabilities as of September 2015 and December 2014, respectively)	Option pricing models: • Correlation 1 • Volatility	28% to 94% (62% / 60%) 3% to 103% (28% / 26%)	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 (30)% to 80% (Average: 35% / Median: 43%) as of September 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.


28		Goldman Sachs September 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

Below is 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

Below is 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 September 2015 Form 10-Q		29

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 netting within levels." Where the counterparty netting is across levels, the netting is reflected in "Cross-level counterparty netting."

Derivative Assets at Fair Value

as of September 2015

$ in millions

Level 1

Level 2

Level 3

Total

Interest rates

$ 5

$ 664,814

$ 505

$ 665,324

Credit

35,911

6,724

42,635

Currencies

102,870

357

103,227

Commodities

21,037

695

21,732

Equities

55,498

675

56,177

Gross fair value of derivative assets

880,130

8,956

889,095

Counterparty netting within levels

(732,874

)

(2,090

)

(734,964

)

Subtotal

$ 9

$ 147,256

$ 6,866

$ 154,131

Cross-level counterparty netting

(1,745

)

Cash collateral netting

(93,895

)

Fair value included
in financial
instruments
owned

$ 58,491

Derivative Liabilities at Fair Value

as of September 2015

$ in millions

Level 1

Level 2

Level 3

Total

Interest rates

$13

$ 606,973

$ 705

$ 607,691

Credit

35,266

3,430

38,696

Currencies

107,796

197

107,993

Commodities

22,536

672

23,208

Equities

52,094

1,559

53,668

Gross fair value of derivative assets

824,665

6,563

831,256

Counterparty netting within levels

(732,874

)

(2,090

)

(734,964

)

Subtotal

$28

$ 91,791

$ 4,473

$ 96,292

Cross-level counterparty netting

(1,745

)

Cash collateral netting

(43,485

)

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

$ 51,062


	Derivative Assets at Fair Value as of December 2014
$ in millions		Level 1	Level 2		Level 3		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 netting within levels		-	(882,841	)	(2,717	)	(885,558	)
Subtotal		$298	$ 160,514		$ 7,074		$ 167,886

Cross-level counterparty netting							(1,112	)

Cash collateral netting							(103,504	)
Fair value included in financial instruments owned							$ 63,270

	Derivative Liabilities at Fair Value as of December 2014
$ in millions		Level 1	Level 2		Level 3		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 assets		108	976,648		9,085		985,841

Counterparty netting within levels		-	(882,841	)	(2,717	)	(885,558	)
Subtotal		$108	$ 93,807		$ 6,368		$ 100,283

Cross-level counterparty netting							(1,112	)

Cash collateral netting							(36,155	)
Fair value included in financial instruments sold, but not yet purchased							$ 63,016


30		Goldman Sachs September 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 table below presents changes in fair value for all derivatives categorized as level 3 as of the end of the period. In the table 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.

•

Positive amounts for transfers into level 3 and negative amounts for transfers out of level 3 represent net transfers of derivative assets. 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.

•

See "Level 3 Rollforward Commentary" below for an explanation of the net unrealized gains/(losses) on level 3 derivative assets and liabilities, and the activity related to transfers into and transfers out of level 3.


	Level 3 Derivative Assets and Liabilities at Fair Value
$ 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
Three Months Ended September 2015
Interest rates - net		$ (78	)	$ (27	)	$ 1		$ 2	$ (1	)	$ 10		$(112	)	$ 5		$ (200	)

Credit - net		2,968		39		416		32	(46	)	109		(5	)	(219	)	3,294

Currencies - net		(149	)	(18	)	183		4	-		37		(4	)	107		160

Commodities - net		(54	)	1		(27	)	2	(56	)	(4	)	7		154		23

Equities - net		(2,349	)	(17	)	318		39	(407	)	1,513		(88	)	107		(884	)
Total derivatives - net		$ 338		$ (22	) 1	$ 891	1	$ 79	$ (510	)	$ 1,665		$(202	)	$ 154		$ 2,393
Nine Months Ended September 2015
Interest rates - net		$ (40	)	$ (10	)	$ (4	)	$ 5	$ (32	)	$ 31		$(105	)	$ (45	)	$ (200	)

Credit - net		3,530		147		553		56	(151	)	(700	)	127		(268	)	3,294

Currencies - net		(267	)	(71	)	301		31	(8	)	108		(19	)	85		160

Commodities - net		(1,142	)	9		(68	)	-	(87	)	(95	)	(20	)	1,426		23

Equities - net		(1,375	)	83		185		105	(694	)	942		(148	)	18		(884	)
Total derivatives - net		$ 706		$ 158	1	$ 967	1	$197	$ (972	)	$ 286		$(165	)	$1,216		$ 2,393
Three Months Ended September 2014
Interest rates - net		$ (129	)	$ (28	)	$ 6		$ 1	$ (1	)	$ 21		$ 27		$ 5		$ (98	)

Credit - net		3,900		9		170		11	(36	)	(512	)	(116	)	(106	)	3,320

Currencies - net		(81	)	(22	)	(256	)	6	-		61		9		(3	)	(286	)

Commodities - net		(7	)	6		61		27	(20	)	4		126		(9	)	188

Equities - net		(1,499	)	13		(175	)	36	(2,939	)	340		(212	)	1,009		(3,427	)
Total derivatives - net		$ 2,184		$ (22	) 2	$(194	) 2	$ 81	$(2,996	)	$ (86	)	$(166	)	$ 896		$ (303	)

Nine Months Ended September 2014
Interest rates - net		$ (86	)	$ (57	)	$ (63	)	$ 4	$ (8	)	$ 103		$ 33		$ (24	)	$ (98	)

Credit - net		4,176		(18	)	803		174	(139	)	(1,491	)	(102	)	(83	)	3,320

Currencies - net		(200	)	(60	)	(210	)	15	(24	)	188		8		(3	)	(286	)

Commodities - net		60		130		73		38	(37	)	(58	)	41		(59	)	188

Equities - net		(959	)	(27	)	(253	)	187	(3,204	)	111		(150	)	868		(3,427	)
Total derivatives - net		$ 2,991		$ (32	) 2	$ 350	2	$418	$(3,412	)	$(1,147	)	$(170	)	$ 699		$ (303	)

The aggregate amounts include gains of approximately $647 million and $222 million reported in "Market making" and "Other principal transactions," respectively, for the three months ended September 2015, and approximately $945 million and $180 million reported in "Market making" and "Other principal transactions," respectively, for the nine months ended September 2015.

The aggregate amounts include gains/(losses) of approximately $(243) million and $27 million reported in "Market making" and "Other principal transactions," respectively, for the three months ended September 2014, and approximately $394 million and $(76) million reported in "Market making" and "Other principal transactions," respectively, for the nine months ended September 2014.


		Goldman Sachs September 2015 Form 10-Q		31

Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Level 3 Rollforward Commentary

Three Months Ended September 2015. The net unrealized gain on level 3 derivatives of $891 million for the three months ended September 2015 was primarily attributable to gains on certain credit derivatives, reflecting the impact of a decrease in interest rates, wider credit spreads, and changes in foreign exchange rates, and gains on certain equity derivatives, reflecting the impact of decreases in global equity prices.

Transfers into level 3 derivatives during the three months ended September 2015 primarily reflected transfers of certain interest rate liabilities from level 2, principally due to certain unobservable inputs becoming significant to the valuation of these derivatives, and transfers of certain equity derivative liabilities from level 2, primarily due to unobservable volatility inputs becoming significant to the valuation of these derivatives.

Transfers out of level 3 derivatives during the three months ended September 2015 primarily reflected transfers of certain commodity derivative liabilities to level 2, principally due to increased transparency of volatility inputs used to value these derivatives, transfers of certain equity derivative liabilities and currency derivative liabilities to level 2, primarily due to certain unobservable inputs no longer being significant to the valuation of these derivatives, and transfers of certain credit derivative assets to level 2, principally due to unobservable credit spread inputs not being significant to the net risk of certain portfolios.

Nine Months Ended September 2015. The net unrealized gain on level 3 derivatives of $967 million for the nine months ended September 2015 was primarily attributable to gains on certain credit derivatives, principally reflecting the impact of wider credit spreads and a decrease in interest rates, and gains on certain currency derivatives, reflecting the impact of changes in foreign exchange rates.

Transfers into level 3 derivatives during the nine months ended September 2015 primarily reflected transfers of certain equity derivative liabilities from level 2, primarily due to reduced transparency of volatility inputs used to value these derivatives, transfers of certain interest rate derivative liabilities from level 2, primarily due to unobservable inputs becoming significant to the valuations of these derivatives, and transfers of certain credit derivative assets from level 2, principally due to unobservable credit spread inputs becoming significant to the valuation of these derivatives.

Transfers out of level 3 derivatives during the nine months ended September 2015 primarily reflected transfers of certain commodity derivative liabilities to level 2, principally due to increased transparency of oil and refined product spread inputs used to value these derivatives, and transfers of certain credit derivative assets to level 2, principally due to unobservable credit spread inputs not being significant to the net risk of certain portfolios.

Three Months Ended September 2014. The net unrealized loss on level 3 derivatives of $194 million for the three months ended September 2014 principally resulted from changes in observable inputs and was primarily attributable to the impact of changes in foreign exchange rates on certain currency derivatives and a decrease in equity prices on certain equity derivatives, partially offset by the impact of wider credit spreads on certain credit derivatives.

Transfers into level 3 derivatives during the three months ended September 2014 primarily reflected transfers of certain equity derivative liabilities from level 2, principally due to reduced transparency of volatility inputs used to value these derivatives, transfers of certain credit derivative liabilities from level 2, primarily due to reduced transparency of upfront credit point inputs used to value these derivatives, and transfers of certain commodity derivative assets from level 2, reflecting the impact of unobservable volatility inputs becoming significant to the valuation of these derivatives.

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

Nine Months Ended September 2014. The net unrealized gain on level 3 derivatives of $350 million for the nine months ended September 2014 principally resulted from changes in observable inputs and was primarily attributable to the impact of tighter credit spreads and a decrease in interest rates on certain credit derivatives, partially offset by the impact of changes in foreign exchange rates on certain currency derivatives and a decrease in equity prices on certain equity derivatives.

Transfers into level 3 derivatives during the nine months ended September 2014 primarily reflected transfers of certain equity derivative liabilities from level 2, principally due to reduced transparency of volatility inputs used to value these derivatives, and transfers of certain credit derivative liabilities from level 2, primarily due to reduced transparency of upfront credit point inputs used to value these derivatives.


32		Goldman Sachs September 2015 Form 10-Q

Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Transfers out of level 3 derivatives during the nine months ended September 2014 primarily reflected transfers of certain equity derivative liabilities to level 2, principally due to unobservable correlation inputs no longer being significant to the valuation of these derivatives.

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 netting within tenors." Where the counterparty netting is across tenor categories, the netting is reflected in "Cross-tenor counterparty netting."

OTC Derivative Assets as of September 2015

$ in millions

Less than

1 Year

1 - 5

Years

Greater than

5 Years

Total

Interest rates

$ 6,182

$24,494

$86,704

$117,380

Credit

1,224

4,424

6,275

11,923

Currencies

13,366

9,355

6,698

29,419

Commodities

4,978

4,769

101

9,848

Equities

7,913

6,605

3,360

17,878

Counterparty netting within tenors

(3,905

)

(6,938

)

(5,833

)

(16,676

)

Subtotal

$29,758

$42,709

$97,305

$169,772

Cross-tenor counterparty netting

(21,222

)

Cash collateral netting

(93,895

)

Total

$ 54,655

OTC Derivative Liabilities as of September 2015

$ in millions

Less than

1 Year

1 - 5

Years

Greater than

5 Years

Total

Interest rates

$ 5,420

$17,056

$37,248

$ 59,724

Credit

1,919

3,964

2,101

7,984

Currencies

12,728

10,972

10,569

34,269

Commodities

5,156

3,449

2,680

11,285

Equities

7,084

5,640

3,562

16,286

Counterparty netting within tenors

(3,905

)

(6,938

)

(5,833

)

(16,676

)

Subtotal

$28,402

$34,143

$50,327

$112,872

Cross-tenor counterparty netting

(21,222

)

Cash collateral netting

(43,485

)

Total

$ 48,165


	OTC Derivative Assets as of December 2014
$ in millions		Less than 1 Year		1 - 5 Years		Greater than 5 Years		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 netting within tenors		(4,479	)	(7,016	)	(4,058	)	(15,553	)
Subtotal		$35,185		$47,376		$102,499		$185,060

Cross-tenor counterparty netting								(20,819	)

Cash collateral netting								(103,504	)
Total								$ 60,737

	OTC Derivative Liabilities as of December 2014
$ in millions		Less than 1 Year		1 - 5 Years		Greater than 5 Years		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 netting within tenors		(4,479	)	(7,016	)	(4,058	)	(15,553	)
Subtotal		$35,975		$34,192		$ 47,753		$117,920

Cross-tenor counterparty netting								(20,819	)

Cash collateral netting								(36,155	)
Total								$ 60,946


		Goldman Sachs September 2015 Form 10-Q		33

Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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.

The firm enters into the following types of credit derivatives:

•

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.

•

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 September 2015, written and purchased credit derivatives had total gross notional amounts of $1.07 trillion and $1.12 trillion, respectively, for total net notional purchased protection of $55.20 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.


34		Goldman Sachs September 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 certain information about credit derivatives. In the tables 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.

•

Offsetting purchased credit derivatives represent the notional amount of purchased credit derivatives that economically hedge written credit derivatives with identical underliers and are included in "Offsetting."

•

Other purchased credit derivatives represent the notional amount of all other purchased credit derivatives not included in "Offsetting."

As of September 2015

Credit Spread on Underlier (basis points)

$ in millions

0 - 250

251 -

500

501 -

1,000

Greater
than
1,000

Total

Maximum Payout/Notional Amount of Written Credit Derivatives by Tenor

Less than 1 year

$ 213,120

$ 5,479

$ 2,996

$ 9,721

$ 231,316

1 – 5 years

620,419

59,098

17,704

25,823

723,044

Greater than 5 years

92,863

14,981

4,199

3,101

115,144

Total

$ 926,402

$79,558

$24,899

$ 38,645

$1,069,504

Maximum Payout/Notional Amount of Purchased Credit Derivatives

Offsetting

$ 861,969

$72,341

$21,659

$ 33,700

$ 989,669

Other

118,099

7,238

5,074

4,621

135,032

Fair Value of Written Credit Derivatives

Asset

$ 18,213

$ 1,597

$ 272

$ 166

$ 20,248

Liability

3,761

3,650

1,415

10,816

19,642

Net asset/(liability)

$ 14,452

$ (2,053

)

$ (1,143

)

$(10,650

)

$ 606

As of December 2014

Credit Spread on Underlier (basis points)

$ in millions

0 - 250

251 -

500

501 -

1,000

Greater
than
1,000

Total

Maximum Payout/Notional Amount of Written Credit Derivatives by Tenor

Less than 1 year

$ 261,591

$ 7,726

$ 8,449

$ 8,728

$ 286,494

1 – 5 years

775,784

37,255

18,046

26,834

857,919

Greater than 5 years

68,830

5,042

1,309

1,279

76,460

Total

$1,106,205

$50,023

$27,804

$ 36,841

$1,220,873

Maximum Payout/Notional Amount of Purchased Credit Derivatives

Offsetting

$1,012,874

$41,657

$26,240

$ 33,112

$1,113,883

Other

152,465

8,426

1,949

3,499

166,339

Fair Value of Written Credit Derivatives

Asset

$ 28,004

$ 1,542

$ 112

$ 82

$ 29,740

Liability

3,629

2,266

1,909

13,943

21,747

Net asset/(liability)

$ 24,375

$ (724

)

$ (1,797

)

$(13,861

)

$ 7,993

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 $89 million and $24 million for the three months ended September 2015 and September 2014, respectively, and $68 million and $173 million for the nine months ended September 2015 and September 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		September 2015	December 2014
Fair value of assets		$ 497	$ 390

Fair value of liabilities		787	690
Net liability		$ 290	$ 300
Notional amount		$7,874	$7,735


		Goldman Sachs September 2015 Form 10-Q		35

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		September 2015	December 2014
Net derivative liabilities under bilateral agreements		$32,651	$35,764

Collateral posted		27,160	30,824

Additional collateral or termination payments for a one-notch downgrade		1,092	1,072

Additional collateral or termination payments for a two-notch downgrade		2,787	2,815

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 hedging instrument 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 hedging instrument 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 September					Nine Months Ended September
$ in millions		2015		2014			2015		2014
Interest rate hedges		$ 1,277		$(564	)		$(246	)	$ 292

Hedged borrowings and bank deposits		(1,363	)	438			(273	)	(766	)
Hedge ineffectiveness		$ (86	)	$(126	)		$(519	)	$(474	)


36		Goldman Sachs September 2015 Form 10-Q

Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Net Investment Hedges

The firm seeks to reduce the impact of fluctuations in foreign exchange rates on its net investments 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 September				Nine Months Ended September
$ in millions		2015		2014		2015		2014
Foreign currency forward contract hedges		$380		$494		$627		$223

Foreign currency-denominated debt hedges		(45	)	155		(14	)	77

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 nine months ended September 2015 or September 2014.

As of September 2015 and December 2014, the firm had designated $2.21 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.

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 nine months ended September 2014. There were no gains/(losses) excluded from the assessment of hedge effectiveness for the three and nine months ended September 2014.


		Goldman Sachs September 2015 Form 10-Q		37

Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Not e 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.

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.


38		Goldman Sachs September 2015 Form 10-Q

Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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 September 2015 and December 2014, there were no level 3 resale agreements, securities borrowed or securities loaned. As of both September 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.

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 September 2015:

•

Funding spreads: 21 bps to 250 bps (weighted average: 199 bps)

•

Yield: 0.6% to 10.0% (weighted average: 2.7%)

•

Duration: 1.3 to 9.1 years (weighted average: 2.8 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 September 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.


		Goldman Sachs September 2015 Form 10-Q		39

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. In the tables below:

•

Securities segregated for regulatory and other purposes include segregated securities accounted for at fair value under the fair value option and consists of securities borrowed and resale agreements.

•

Level 1 other financial assets at fair value include U.S. Treasury securities segregated for regulatory and other purposes accounted for at fair value under other U.S. GAAP.

Other Financial Assets at Fair Value

as of September 2015

$ in millions

Level 1

Level 2

Level 3

Total

Securities segregated for regulatory and other purposes

$13,131

$ 24,913

$ -

$ 38,044

Securities purchased under agreements to resell

125,265

Securities borrowed

68,481

Receivables from customers and counterparties

6,304

6,346

Total

$13,131

$224,963

$ 42

$238,136

Other Financial Liabilities at Fair Value

as of September 2015

$ in millions

Level 1

Level 2

Level 3

Total

Deposits

$ -

$ 12,843

$ 1,959

$ 14,802

Securities sold under agreements to repurchase

89,415

89,481

Securities loaned

1,081

Other secured financings

22,006

1,781

23,787

Unsecured short-term borrowings

11,951

4,439

16,390

Unsecured long-term borrowings

16,858

3,962

20,820

Other liabilities and accrued expenses

1,396

1,446

Total

$ -

$155,550

$12,257

$167,807


	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		$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

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 nine months ended September 2015 and September 2014. The tables below present information about transfers between level 2 and level 3.


40		Goldman Sachs September 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 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. For level 3 other financial assets, increases are shown as positive amounts, while decreases are shown as negative amounts. For level 3 other financial liabilities, increases are shown as negative amounts, while decreases are shown as positive amounts.

•

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.

•

See "Level 3 Rollforward Commentary" below for an explanation of the net unrealized gains/(losses) on level 3 other financial assets and liabilities, and the activity related to transfers into and transfers out of level 3.


	Level 3 Other Financial Assets and Liabilities at Fair Value
$ 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
Three Months Ended September 2015
Receivables from customers and counterparties		$ 42		$ -		$ -		$ 2		$ (3	)	$ -		$ 1		$ -		$ -	$ 42
Total other financial assets		$ 42		$ -		$ -		$ 2		$ (3	)	$ -		$ 1		$ -		$ -	$ 42
Deposits		$ (1,680	)	$ (3	)	$ 11		$ -		$ -		$ (295	)	$ 8		$ -		$ -	$ (1,959	)

Securities sold under agreements to repurchase		(82	)	-		-		-		-		-		16		-		-	(66	)

Other secured financings		(1,479	)	(4	)	64		(10	)	-		(125	)	84		(312	)	1	(1,781	)

Unsecured short-term borrowings		(4,490	)	66		548		-		-		(1,023	)	552		(154	)	62	(4,439	)

Unsecured long-term borrowings		(3,462	)	(2	)	155		-		-		(586	)	98		(227	)	62	(3,962	)

Other liabilities and accrued expenses		(1,145	)	1		(8	)	-		-		(1	)	1		(23	)	1,125	(50	)
Total other financial liabilities		$(12,338	)	$ 58	1	$770	1	$(10	)	$ -		$(2,030	)	$ 759		$ (716	)	$1,250	$(12,257	)
Nine Months Ended September 2015
Receivables from customers and counterparties		$ 56		$ 1		$ (4	)	$ 6		$ (3	)	$ -		$ (21	)	$ 7		$ -	$ 42
Total other financial assets		$ 56		$ 1	2	$ (4	) 2	$ 6		$ (3	)	$ -		$ (21	)	$ 7		$ -	$ 42
Deposits		$ (1,065	)	$ (6	)	$ 64		$ -		$ -		$ (997	)	$ 45		$ -		$ -	$ (1,959	)

Securities sold under agreements to repurchase		(124	)	-		(1	)	-		-		-		59		-		-	(66	)

Other secured financings		(1,091	)	(20	)	84		(10	)	32		(630	)	290		(481	)	45	(1,781	)

Unsecured short-term borrowings		(3,712	)	62		356		-		-		(2,735	)	1,882		(669	)	377	(4,439	)

Unsecured long-term borrowings		(2,585	)	(4	)	292		-		-		(2,364	)	726		(421	)	394	(3,962	)

Other liabilities and accrued expenses		(715	)	4		(8	)	-		-		(1	)	7		(23	)	686	(50	)
Total other financial liabilities		$ (9,292	)	$ 36	1	$787	1	$(10	)	$ 32		$(6,727	)	$3,009		$(1,594	)	$1,502	$(12,257	)

The aggregate amounts include gains/(losses) of approximately $786 million, $46 million and $(4) million reported in "Market making," "Other principal transactions" and "Interest expense," respectively, for the three months ended September 2015, and approximately $977 million, $(134) million and $(20) million reported in "Market making," "Other principal transactions" and "Interest expense," respectively, for the nine months ended September 2015.

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


		Goldman Sachs September 2015 Form 10-Q		41

Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)


	Level 3 Other Financial Assets and Liabilities at Fair Value
$ 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
Three Months Ended September 2014
Securities purchased under agreements to resell		$ 50		$ -		$ -		$ -		$-	$ -		$ -		$ -		$ -		$ 50

Receivables from customers and counterparties		55		1		-		7		-	-		(1	)	-		-		62
Total other financial assets		$ 105		$ 1	1	$ -		$ 7		$-	$ -		$ (1	)	$ -		$ -		$ 112
Deposits		$ (525	)	$ -		$ 2		$ 2		$-	$ (107	)	$ 1		$ -		$ 27		$ (600	)

Securities sold under agreements to repurchase		(555	)	-		(8	)	-		-	-		167		-		-		(396	)

Other secured financings		(1,035	)	(2	)	14		(18	)	-	-		221		(47	)	12		(855	)

Unsecured short-term borrowings		(3,057	)	(36	)	(19	)	(9	)	7	(720	)	435		(255	)	923		(2,731	)

Unsecured long-term borrowings		(2,163	)	(47	)	179		(1	)	-	(372	)	177		(157	)	159		(2,225	)

Other liabilities and accrued expenses		(432	)	-		(121	)	-		-	-		19		-		-		(534	)
Total other financial liabilities		$(7,767	)	$ (85	) 2	$ 47	2	$(26	)	$ 7	$(1,199	)	$1,020		$ (459	)	$1,121		$(7,341	)
Nine Months Ended September 2014
Securities purchased under agreements to resell		$ 63		$ 1		$ -		$ -		$-	$ -		$ (14	)	$ -		$ -		$ 50

Receivables from customers and counterparties		235		2		3		29		-	-		(27	)	-		(180	)	62
Total other financial assets		$ 298		$ 3	3	$ 3	3	$ 29		$-	$ -		$ (41	)	$ -		$ (180	)	$ 112
Deposits		$ (385	)	$ -		$ (14	)	$ 2		$-	$ (235	)	$ 5		$ -		$ 27		$ (600	)

Securities sold under agreements to repurchase		(1,010	)	-		(3	)	-		-	-		617		-		-		(396	)

Other secured financings		(1,019	)	(14	)	19		(26	)	-	(402	)	446		(66	)	207		(855	)

Unsecured short-term borrowings		(3,387	)	(41	)	(76	)	(6	)	7	(1,524	)	1,564		(508	)	1,240		(2,731	)

Unsecured long-term borrowings		(1,837	)	(123	)	181		1		-	(810	)	383		(1,062	)	1,042		(2,225	)

Other liabilities and accrued expenses		(26	)	(5	)	(220	)	-		-	-		18		(301	)	-		(534	)
Total other financial liabilities		$(7,664	)	$(183	) 2	$(113	) 2	$(29	)	$ 7	$(2,971	)	$3,033		$(1,937	)	$2,516		$(7,341	)

1.	Included in "Market making."

The aggregate amounts include gains/(losses) of approximately $94 million, $(129) million and $(3) million reported in "Market making," "Other principal transactions" and "Interest expense," respectively, for the three months ended September 2014, and approximately $(5) million, $(276) million and $(15) million reported in "Market making," "Other principal transactions" and "Interest expense," respectively, for the nine months ended September 2014.

3.	The aggregate amounts include gains of approximately $5 million and $1 million reported in "Market making" and "Interest income," respectively.

Level 3 Rollforward Commentary

Three Months Ended September 2015. The net unrealized gain on level 3 other financial liabilities of $770 million for the three months ended September 2015 primarily reflected gains on certain hybrid financial instruments included in unsecured short-term borrowings and unsecured long-term borrowings, principally due to a decrease in global equity prices and the impact of wider credit spreads.

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


42		Goldman Sachs September 2015 Form 10-Q

Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Transfers out of level 3 of other financial liabilities during the three months ended September 2015 primarily reflected transfers of certain subordinated liabilities included in other liabilities and accrued expenses to level 2, principally due to increased price transparency as a result of market transactions in the related underlying investments.

Nine Months Ended September 2015. The net unrealized gain on level 3 other financial assets and liabilities of $783 million (reflecting $4 million of losses on other financial assets and $787 million of gains on other financial liabilities) for the nine months ended September 2015 primarily reflected gains on certain hybrid financial instruments included in unsecured short-term borrowings and long-term borrowings, principally due to a decrease in global equity prices and the impact of wider credit spreads.

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

Transfers out of level 3 of other financial liabilities during the nine months ended September 2015 primarily reflected transfers of certain subordinated liabilities included in other liabilities and accrued expenses to level 2, principally due to increased price transparency as a result of market transactions in the related underlying investments, 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.

Three Months Ended September 2014. The net unrealized gain on level 3 other financial liabilities of $47 million for the three months ended September 2014 primarily reflected gains on certain hybrid financial instruments included in unsecured long-term borrowings, principally due to the impact of wider credit spreads, partially offset by 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 September 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 September 2014 primarily reflected transfers of certain hybrid financial instruments included in unsecured short-term borrowings to level 2, principally due to increased transparency of certain volatility and correlation inputs used to value these instruments and certain unobservable inputs no longer being significant to the valuation of other hybrid financial instruments.

Nine Months Ended September 2014. The net unrealized loss on level 3 other financial assets and liabilities of $110 million (reflecting $3 million of gains on other financial assets and $113 million of losses on other financial liabilities) for the nine months ended September 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 a decrease in interest rates, partially offset by gains on certain hybrid financial instruments included in unsecured long-term borrowings, principally due to the impact of wider credit spreads.

Transfers out of level 3 of other financial assets during the nine months ended September 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 nine months ended September 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 nine months ended September 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 September 2015 Form 10-Q		43

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 September					Nine Months Ended September
$ in millions		2015		2014			2015		2014
Unsecured short-term borrowings 1		$1,845		$(470	)		$ 947		$(1,270	)

Unsecured long-term borrowings 2		273		372			746		(404	)

Other liabilities and accrued expenses 3		(237	)	(103	)		(676	)	(182	)

Other 4		34		22			(28	)	(92	)
Total		$1,915		$(179	)		$ 989		$(1,948	)

Includes gains/(losses) on the embedded derivative component of hybrid financial instruments of $1.84 billion and $(505) million for the three months ended September 2015 and September 2014, respectively, and $925 million and $(1.27) billion for the nine months ended September 2015 and September 2014, respectively.

Includes gains/(losses) on the embedded derivative component of hybrid financial instruments of $112 million and $324 million for the three months ended September 2015 and September 2014, respectively, and $645 million and $(451) million for the nine months ended September 2015 and September 2014, respectively.

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

4.	Primarily consists of gains/(losses) on resale and repurchase agreements, 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		September 2015	December 2014
Performing loans and long-term receivables
Aggregate contractual principal in excess of the related fair value		$ 767	$ 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)		11,115	13,106

Aggregate fair value of loans on nonaccrual status and/or more than 90 days past due		2,729	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 September 2015 and December 2014, the fair value of unfunded lending commitments for which the fair value option was elected was a liability of $258 million and $402 million, respectively, and the related total contractual amount of these lending commitments was $15.86 billion and $26.19 billion, respectively. See Note 18 for further information about lending commitments.


44		Goldman Sachs September 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 $227 million and $203 million as of September 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 $814 million and $163 million as of September 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 $165 million and $278 million for the three months ended September 2015 and September 2014, respectively, and $835 million and $1.49 billion for the nine months ended September 2015 and September 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 September

Nine Months
Ended September

$ in millions

2015

2014

2015

2014

Net gains/(losses) including hedges

$182

$66

$323

$62

Net gains/(losses) excluding hedges

182

323

Note 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		September 2015		December 2014
Corporate loans		$19,806		$14,310

Loans to private wealth management clients		13,707		11,289

Loans backed by commercial real estate		3,931		2,425

Other loans		5,078		1,142
Subtotal		42,522		29,166

Allowance for loan losses		(333	)	(228	)
Total loans receivable		$42,189		$28,938

As of September 2015 and December 2014, the fair value of loans receivable was $42.03 billion and $28.90 billion, respectively. As of September 2015, had these loans been carried at fair value and included in the fair value hierarchy, $19.88 billion and $22.15 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 September 2015 and December 2014, such lending commitments were $87.58 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 $273 million and $2.93 billion, respectively, as of September 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 September 2015 and December 2014.


		Goldman Sachs September 2015 Form 10-Q		45

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 directly or indirectly secured 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 directly or indirectly 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 September 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 September 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 September 2015 and December 2014, substantially all of the firm's loans receivable were evaluated for impairment at the portfolio level.


46		Goldman Sachs September 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 September 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	Nine Months Ended September 2015		Year Ended December 2014
Balance, beginning of period	$228		$139

Charge-offs	(1	)	(3	)

Provision for loan losses	106		92
Balance, end of period	$333		$228

$ in millions Allowance for losses on lending commitments	Nine Months Ended September 2015		Year Ended December 2014
Balance, beginning of period	$ 86		$ 57

Provision for losses on lending commitments	78		29
Balance, end of period	$164		$ 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 September 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. These allowances were primarily 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		September 2015	December 2014
Securities purchased under agreements to resell 1		$126,903	$127,938

Securities borrowed 2		173,315	160,722

Securities sold under agreements to repurchase 1		89,481	88,215

Securities loaned 2		3,519	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 September 2015 and December 2014, $68.48 billion and $66.77 billion of securities borrowed, and $1.08 billion and $765 million of securities loaned were at fair value, respectively.


		Goldman Sachs September 2015 Form 10-Q		47

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 September 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 September 2015 and December 2014.


48		Goldman Sachs September 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 September 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		$ 169,859		$ 186,607			$117,303		$ 7,032

Counterparty netting		(27,822	)	(3,513	)		(27,822	)	(3,513	)
Total		142,037	1	183,094	1		89,481		3,519
Amounts not offset in the condensed consolidated statements of financial condition
Counterparty netting		(4,904	)	(1,413	)		(4,904	)	(1,413	)

Collateral		(132,168	)	(173,162	)		(80,971	)	(2,001	)
Total		$ 4,965		$ 8,519			$ 3,606		$ 105

	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

As of September 2015 and December 2014, the firm had $15.13 billion and $6.04 billion, respectively, of securities received under resale agreements, and $9.78 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 September 2015
$ in millions		Repurchase agreements	Securities loaned
Commercial paper, certificates of deposit, time deposits and other money market instruments		$ 1,831	$ -

U.S. government and federal agency obligations		51,860	110

Non-U.S. government and agency obligations		31,071	3,502

Securities backed by commercial real estate		323	-

Securities backed by residential real estate		1,792	-

Corporate debt securities		7,038	41

State and municipal obligations		547	-

Other debt obligations		472	-

Equities and convertible debentures		22,369	3,379
Total		$117,303	$7,032

	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

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 September 2015 Form 10-Q		49

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 September 2015
$ in millions		Repurchase agreements	Securities loaned
No stated maturity and overnight		$ 32,961	$4,254

2 - 30 days		32,207	1,699

31 - 90 days		16,882	-

91 days - 1 year		27,193	1,079

Greater than 1 year		8,060	-
Total		$117,303	$7,032

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 September 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 September 2015 and December 2014.

The tables below present information about other secured financings.

As of September 2015

$ in millions

U.S.

Dollar

Non-U.S.
Dollar

Total

Other secured financings (short-term):

At fair value

$ 8,474

$ 5,146

$13,620

At amortized cost

263

297

560

Weighted average interest rates

2.50%

3.99%

Other secured financings (long-term):

At fair value

5,396

4,771

10,167

At amortized cost

510

365

875

Weighted average interest rates

3.13%

1.47%

Total 1

$14,643

$10,579

$25,222

Amount of other secured financings collateralized by:

Financial instruments 2

$13,652

$ 9,411

$23,063

Other assets

991

1,168

2,159

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

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

Includes $374 million and $974 million related to transfers of financial assets accounted for as financings rather than sales as of September 2015 and December 2014, respectively. Such financings were collateralized by financial assets included in "Financial instruments owned, at fair value" of $374 million and $995 million as of September 2015 and December 2014, respectively.

Includes $12.41 billion and $10.24 billion of other secured financings collateralized by financial instruments owned, at fair value as of September 2015 and December 2014, respectively, and includes $10.65 billion and $11.70 billion of other secured financings collateralized by financial instruments received as collateral and repledged as of September 2015 and December 2014, respectively.


50		Goldman Sachs September 2015 Form 10-Q

Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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 September 2015
Other secured financings (short-term)			$14,180

Other secured financings (long-term):
2016			2,049

2017			4,130

2018			2,197

2019			1,155

2020			955

2021 - thereafter			556
Total other secured financings (long-term)			11,042
Total other secured financings			$25,222

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.

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		September 2015	December 2014
Collateral available to be delivered or repledged 1		$659,010	$630,046

Collateral that was delivered or repledged		511,959	474,057

As of September 2015 and December 2014, amounts exclude $15.13 billion and $6.04 billion, respectively, of securities received under resale agreements, and $9.78 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		September 2015	December 2014
Financial instruments owned, at fair value pledged to counterparties that:
Had the right to deliver or repledge		$ 52,029	$ 64,473

Did not have the right to deliver or repledge		61,969	68,027

Other assets pledged to counterparties that:
Did not have the right to deliver or repledge		2,996	1,304


		Goldman Sachs September 2015 Form 10-Q		51

Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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 primarily 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.

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. Substantially all of these interests are accounted for at fair value, are included in "Financial instruments owned, at fair value" and are 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 September

Nine Months
Ended September

$ in millions

2015

2014

2015

2014

Residential mortgages

$2,056

$6,499

$11,258

$17,080

Commercial mortgages

3,506

543

8,255

543

Other financial assets

478

481

Total

$6,040

$7,042

$19,991

$18,104

Cash flows on retained interests

$ 64

$ 108

$ 142

$ 220


52		Goldman Sachs September 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 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 September 2015

$ in millions

Outstanding
Principal
Amount

Fair Value of
Retained
Interests

Fair Value of
Purchased
Interests

U.S. government agency-issued collateralized mortgage obligations

$43,872

$1,440

$ 4

Other residential mortgage-backed

2,455

182

Other commercial mortgage-backed

8,844

320

CDOs, CLOs and other

3,280

Total

$58,451

$1,997

$75

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

Other commercial mortgage-backed

3,313

CDOs, CLOs and other

4,299

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.

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 September 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 September 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 September 2015 primarily relate to securitizations during 2015, 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 September 2015 primarily relate to securitizations during 2015, 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 and commitments with certain nonconsolidated VIEs. The carrying value of these derivatives and commitments was a net asset of $114 million and $115 million as of September 2015 and December 2014, respectively. The notional amounts of these derivatives and commitments are included in maximum exposure to loss in the nonconsolidated VIE table in Note 12.


		Goldman Sachs September 2015 Form 10-Q		53

Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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 September 2015
	Type of Retained Interests
$ in millions		Mortgage-Backed		Other 1
Fair value of retained interests		$ 1,942		$ 55

Weighted average life (years)		7.3		4.6

Constant prepayment rate		10.5%		N.M.

Impact of 10% adverse change		$ (28	)	N.M.

Impact of 20% adverse change		(54	)	N.M.

Discount rate		4.4%		N.M.

Impact of 10% adverse change		$ (40	)	N.M.

Impact of 20% adverse change		(79	)	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.

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 September 2015 and December 2014. The firm's maximum exposure to adverse changes in the value of these interests is the carrying value of $55 million and $59 million as of September 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.


54		Goldman Sachs September 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 September 2015 Form 10-Q		55

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		September 2015	December 2014
Mortgage-backed 1
Assets in VIE		$68,832	$ 78,107

Carrying value of variable interests - assets		3,447	4,348

Maximum Exposure to Loss
Retained interests		1,942	2,370

Purchased interests		1,505	1,978

Commitments and guarantees		22	-

Derivatives		222	392
Total maximum exposure to loss		$ 3,691	$ 4,740
Corporate CDOs and CLOs
Assets in VIE		$ 7,558	$ 8,317

Carrying value of variable interests - assets		758	463

Carrying value of variable interests - liabilities		8	3

Maximum Exposure to Loss
Retained interests		3	4

Purchased interests		384	184

Derivatives		2,331	2,053
Total maximum exposure to loss		$ 2,718	$ 2,241
Real estate, credit-related and other investing
Assets in VIE		$ 9,413	$ 8,720

Carrying value of variable interests - assets		3,235	3,051

Carrying value of variable interests - liabilities		4	3

Maximum Exposure to Loss
Commitments and guarantees		546	604

Loans and investments		3,235	3,051
Total maximum exposure to loss		$ 3,781	$ 3,655
Other asset-backed
Assets in VIE		$ 5,248	$ 8,253

Carrying value of variable interests - assets		168	509

Carrying value of variable interests - liabilities		196	16

Maximum Exposure to Loss
Retained interests		52	55

Purchased interests		23	322

Commitments and guarantees		213	213

Derivatives		3,516	3,221
Total maximum exposure to loss		$ 3,804	$ 3,811
Other
Assets in VIE		$ 4,067	$ 5,677

Carrying value of variable interests - assets		260	290

Maximum Exposure to Loss
Commitments and guarantees		304	307

Derivatives		6	88

Loans and investments		260	290
Total maximum exposure to loss		$ 570	$ 685
Total nonconsolidated VIEs
Assets in VIE		$95,118	$109,074

Carrying value of variable interests - assets		7,868	8,661

Carrying value of variable interests - liabilities		208	22

Maximum Exposure to Loss
Retained interests		1,997	2,429

Purchased interests		1,912	2,484

Commitments and guarantees 2		1,085	1,124

Derivatives 2		6,075	5,754

Loans and investments		3,495	3,341
Total maximum exposure to loss		$14,564	$ 15,132

1.	Assets in VIE and maximum exposure to loss include $4.21 billion and $563 million, respectively, as of September 2015, and $3.57 billion and $662 million, respectively, as of December 2014, related to CDOs backed by mortgage obligations.

2.	Includes $1.53 billion and $1.64 billion as of September 2015 and December 2014, respectively, related to derivative transactions and commitments with VIEs to which the firm transferred assets.


56		Goldman Sachs September 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 "Other liabilities and accrued expenses" and "Financial Instruments sold, but not yet purchased, at fair value;" 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		September 2015	December 2014
Real estate, credit-related and other investing
Assets
Cash and cash equivalents		$ 167	$ 218

Cash and securities segregated for regulatory and other purposes		19	19

Loans receivable		1,239	589

Financial instruments owned, at fair value		3,139	2,608

Other assets		482	349
Total		$5,046	$3,783
Liabilities
Other secured financings		$ 345	$ 419

Payables to brokers, dealers and clearing organizations		35	-

Financial instruments sold, but not yet purchased, at fair value		224	10

Unsecured long-term borrowings		-	12

Other liabilities and accrued expenses		1,470	906
Total		$2,074	$1,347
CDOs, mortgage-backed and other asset-backed
Assets
Financial instruments owned, at fair value		$ 191	$ 121

Other assets		68	-
Total		$ 259	$ 121
Liabilities
Other secured financings		$ 175	$ 99

Payables to customers and counterparties		84	-

Financial instruments sold, but not yet purchased, at fair value		-	8
Total		$ 259	$ 107
Principal-protected notes
Assets
Cash and securities segregated for regulatory and other purposes		$ -	$ 31

Financial instruments owned, at fair value		132	276
Total		$ 132	$ 307
Liabilities
Other secured financings		$ 424	$ 439

Unsecured short-term borrowings, including the current portion of unsecured long-term borrowings		293	1,090

Unsecured long-term borrowings		471	103
Total		$1,188	$1,632
Total consolidated VIEs
Assets
Cash and cash equivalents		$ 167	$ 218

Cash and securities segregated for regulatory and other purposes		19	50

Loans receivable		1,239	589

Financial instruments owned, at fair value		3,462	3,005

Other assets		550	349
Total		$5,437	$4,211
Liabilities
Other secured financings		$ 944	$ 957

Payables to brokers, dealers and clearing organizations		35	-

Payables to customers and counterparties		84	-

Financial instruments sold, but not yet purchased, at fair value		224	18

Unsecured short-term borrowings, including the current portion of unsecured long-term borrowings		293	1,090

Unsecured long-term borrowings		471	115

Other liabilities and accrued expenses		1,470	906
Total		$3,521	$3,086


		Goldman Sachs September 2015 Form 10-Q		57

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		September 2015	December 2014
Property, leasehold improvements and equipment		$11,671	$ 9,344

Goodwill and identifiable intangible assets		4,168	4,160

Income tax-related assets		5,536	5,181

Equity-method investments 1		276	360

Miscellaneous receivables and other 2		3,269	3,156
Total		$24,920	$22,201

Excludes investments accounted for at fair value under the fair value option where the firm would otherwise apply the equity method of accounting of $7.91 billion and $6.62 billion as of September 2015 and December 2014, respectively, 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 $558 million and $461 million of investments in qualified affordable housing projects as of September 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 $8.30 billion and $8.98 billion as of September 2015 and December 2014, respectively. Property, leasehold improvements and equipment included $5.76 billion and $5.81 billion as of September 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		September 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		594	587
Total		$3,652	$3,645

	Identifiable Intangible Assets as of
$ in millions		September 2015	December 2014
Institutional Client Services:
Fixed Income, Currency and Commodities Client Execution		$ 102	$ 138

Equities Client Execution		206	246

Investing & Lending		73	18

Investment Management		135	113
Total		$ 516	$ 515


58		Goldman Sachs September 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 nine months ended September 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 September 2015.


		Goldman Sachs September 2015 Form 10-Q		59

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		September 2015		Weighted Average Remaining Useful Lives (years)	December 2014
Customer lists
Gross carrying amount		$1,070			$1,036

Accumulated amortization		(760	)		(715	)
Net carrying amount		310		6	321

Commodities-related
Gross carrying amount		186			216

Accumulated amortization		(84	)		(78	)
Net carrying amount		102	1	7	138

Other
Gross carrying amount		257			200

Accumulated amortization		(153	)		(144	)
Net carrying amount		104	2	6	56

Total
Gross carrying amount		1,513			1,452

Accumulated amortization		(997	)		(937	)
Net carrying amount		$ 516		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 nine months ended September 2015 and September 2014, and the estimated future amortization through 2020 for identifiable intangible assets.

Three Months
Ended September

Nine Months
Ended September

$ in millions

2015

2014

2015

2014

Amortization

$28

$91

$98

$177


$ in millions Estimated future amortization	As of September 2015
Remainder of 2015		$ 35

2016		127

2017		115

2018		99

2019		68

2020		21

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 nine months of 2015, the firm recorded impairments of $78 million attributable to consolidated investments, all of which were included in the firm's Investing & Lending segment. The impairments reflected challenging market conditions for certain companies in the energy industry resulting from continued low energy commodity prices. These impairments consisted of $56 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 nine months of 2014, as a result of continued deterioration in market and operating conditions, the firm determined that certain assets were impaired and recorded impairments of $250 million, all of which were included in "Depreciation and amortization." These impairments consisted of $180 million related to property, leasehold improvements and equipment, substantially all of which was attributable to a consolidated investment in Latin America, and $70 million related to identifiable intangible assets, primarily attributable to the firm's exchange-traded fund lead market maker rights. The impairments related to property, leasehold improvements and equipment were included within the firm's Investing & Lending segment and the impairments related to identifiable intangible assets were principally included within the firm's Institutional Client Services segment.

The impairments 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.


60		Goldman Sachs September 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		September 2015	December 2014
U.S. offices		$76,480	$69,142

Non-U.S. offices		14,978	13,738
Total		$91,458	$82,880

The table below presents maturities of time deposits held in U.S. and non-U.S. offices.

As of September 2015

$ in millions

U.S.

Non-U.S.

Total

Remainder of 2015

$ 2,371

$4,803

$ 7,174

2016

6,684

3,830

10,514

2017

5,774

5,789

2018

3,559

2019

3,734

2020

2,696

2021 - thereafter

7,619

7,685

Total

$32,437

$8,714

$41,151

1.	Includes $2.05 billion greater than $100,000, of which $852 million matures within three months, $545 million matures within three to six months, $526 million matures within six to twelve months, and $127 million matures after twelve months.

2.	Includes $6.36 billion greater than $100,000.

3.	Includes $14.80 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 September 2015 and December 2014, deposits include $50.31 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 September 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 September 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		September 2015	December 2014
Other secured financings (short-term)		$14,180	$15,560

Unsecured short-term borrowings		41,331	44,539
Total		$55,511	$60,099

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 September 2015 and December 2014.

The table below presents details about the firm's unsecured short-term borrowings.


	As of
$ in millions		September 2015	December 2014
Current portion of unsecured long-term borrowings		$24,656	$25,125

Hybrid financial instruments		12,370	14,083

Promissory notes		-	338

Commercial paper		342	617

Other short-term borrowings		3,963	4,376
Total		$41,331	$44,539
Weighted average interest rate 1		1.39%	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 September 2015 Form 10-Q		61

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		September 2015	December 2014
Other secured financings (long-term)		$ 11,042	$ 7,249

Unsecured long-term borrowings		175,817	167,302
Total		$186,859	$174,551

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 September 2015

$ in millions

U.S.

Dollar

Non-U.S.
Dollar

Total

Fixed-rate obligations 1

$ 91,660

$32,302

$123,962

Floating-rate obligations 2

32,931

18,924

51,855

Total

$124,591

$51,226

$175,817

As of December 2014

$ in millions

U.S.

Dollar

Non-U.S.
Dollar

Total

Fixed-rate obligations 1

$ 89,317

$34,780

$124,097

Floating-rate obligations 2

27,533

15,672

43,205

Total

$116,850

$50,452

$167,302

Interest rates on U.S. dollar-denominated debt ranged from 1.60% to 10.04% (with a weighted average rate of 4.96%) and 1.55% to 10.04% (with a weighted average rate of 5.08%) as of September 2015 and December 2014, respectively. Interest rates on non-U.S. dollar-denominated debt ranged from 0.40% to 13.00% (with a weighted average rate of 3.78%) and 0.02% to 13.00% (with a weighted average rate of 4.06%) as of September 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 September 2015
2016			$ 5,622

2017			24,604

2018			24,964

2019			15,995

2020			16,815

2021 - thereafter 1			87,817
Total 2			$175,817

1.	Includes $1.33 billion of unsecured long-term borrowings which were redeemed by the firm on November 2, 2015.

Includes $9.31 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: $125 million in 2016, $537 million in 2017, $746 million in 2018, $522 million in 2019, $522 million in 2020 and $6.86 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 majority of the amount 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 September 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 a decrease of 1% and an increase of 2% in the carrying value of total unsecured long-term borrowings as of September 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 September 2015 and December 2014.


62		Goldman Sachs September 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 majority of the amount of fixed-rate obligations to floating-rate obligations.


	As of
$ in millions		September 2015	December 2014
Fixed-rate obligations
At fair value		$ 106	$ 861

At amortized cost 1		51,981	33,672

Floating-rate obligations
At fair value		20,714	15,144

At amortized cost 1		103,016	117,625
Total		$175,817	$167,302

The weighted average interest rates on the aggregate amounts were 2.67% (4.41% related to fixed-rate obligations and 1.80% 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 September 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 September 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 September 2015

$ in millions

Par

Amount

Carrying
Amount

Rate

Subordinated debt

$16,029

$18,984

3.67%

Junior subordinated debt

1,359

1,819

5.85%

Total subordinated borrowings

$17,388

$20,803

3.84%

As of December 2014

$ in millions

Par
Amount

Carrying
Amount

Rate

Subordinated debt

$14,254

$17,236

3.77%

Junior subordinated debt

1,582

2,121

6.21%

Total subordinated borrowings

$15,836

$19,357

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). See Note 19 for more information about the Series E and Series F Preferred Stock.

The 2012 Trusts are required to pay distributions on their senior guaranteed trust securities in the same amounts and on the same dates that they are scheduled to receive interest on the junior subordinated debt they hold, and are required to redeem their respective senior guaranteed trust securities upon the maturity or earlier redemption of the junior subordinated debt they hold.

The firm has the right to defer payments on the junior subordinated debt, subject to limitations. During any such deferral period, the firm will not be permitted to, among other things, pay dividends on or make certain repurchases of its common or preferred stock. However, as Group Inc. fully and unconditionally guarantees the payment of the distribution and redemption amounts when due on a senior basis on the senior guaranteed trust securities issued by the 2012 Trusts, if the 2012 Trusts are unable to make scheduled distributions to the holders of the senior guaranteed trust securities, under the guarantee, Group Inc. would be obligated to make those payments. As such, the $2.08 billion of junior subordinated debt held by the 2012 Trusts for the benefit of investors, included in "Unsecured long-term borrowings" in the condensed consolidated statements of financial condition, is not classified as subordinated borrowings.


		Goldman Sachs September 2015 Form 10-Q		63

Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The APEX Trusts and the 2012 Trusts are Delaware statutory trusts sponsored by the firm and wholly-owned finance subsidiaries of the firm for regulatory and legal purposes but are not consolidated for accounting purposes.

The firm has covenanted in favor of the holders of Group Inc.'s 6.345% junior subordinated debt due February 15, 2034, that, subject to certain exceptions, the firm will not redeem or purchase the capital securities issued by the APEX Trusts or shares of Group Inc.'s Series E or Series F Preferred Stock prior to specified dates in 2022 for a price that exceeds a maximum amount determined by reference to the net cash proceeds that the firm has received from the sale of qualifying securities.

Junior Subordinated Debt Issued in Connection with Trust Preferred Securities. Group Inc. issued $2.84 billion of junior subordinated debt in 2004 to Goldman Sachs Capital I (Trust), a Delaware statutory trust. The Trust issued $2.75 billion of guaranteed preferred beneficial interests (Trust Preferred Securities) to third parties and $85 million of common beneficial interests to Group Inc. and used the proceeds from the issuances to purchase the junior subordinated debt from Group Inc. During 2014 and the first quarter of 2015, the firm purchased $1.43 billion (par amount) of Trust Preferred Securities and delivered these securities, along with $44.2 million of common beneficial interests, to the Trust in exchange for a corresponding par amount of the junior subordinated debt. Following the exchanges, these Trust Preferred Securities, common beneficial interests and junior subordinated debt were extinguished. Subsequent to these extinguishments, the outstanding par amount of junior subordinated debt held by the Trust was $1.36 billion and the outstanding par amount of Trust Preferred Securities and common beneficial interests issued by the Trust was $1.32 billion and $40.8 million, respectively. The Trust is a wholly-owned finance subsidiary of the firm for regulatory and legal purposes but is not consolidated for accounting purposes.

The firm pays interest semi-annually on the junior subordinated debt at an annual rate of 6.345% and the debt matures on February 15, 2034. The coupon rate and the payment dates applicable to the beneficial interests are the same as the interest rate and payment dates for the junior subordinated debt. The firm has the right, from time to time, to defer payment of interest on the junior subordinated debt, and therefore cause payment on the Trust's preferred beneficial interests to be deferred, in each case up to ten consecutive semi-annual periods. During any such deferral period, the firm will not be permitted to, among other things, pay dividends on or make certain repurchases of its common stock. The Trust is not permitted to pay any distributions on the common beneficial interests held by Group Inc. unless all dividends payable on the preferred beneficial interests have been paid in full.

Note 17.

Other Liabilities and Accrued Expenses

The table below presents other liabilities and accrued expenses by type.


	As of
$ in millions		September 2015	December 2014
Compensation and benefits		$ 8,042	$ 8,368

Noncontrolling interests 1		418	404

Income tax-related liabilities		1,470	1,533

Employee interests in consolidated funds		160	176

Subordinated liabilities issued by consolidated VIEs		1,421	843

Accrued expenses and other 2		6,311	4,751
Total		$17,822	$16,075

1.	Primarily relates to consolidated investment funds.

2.	Substantially all of the increase in the first nine months of 2015 relates to net provisions for mortgage-related litigation and regulatory matters.


64		Goldman Sachs September 2015 Form 10-Q

Table of Contents

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 18.

Commitments, Contingencies and Guarantees

Commitments

The table below presents the firm's commitments.

Commitment Amount by Period

of Expiration as of September 2015

Total Commitments

as of

$ in millions

Remainder
of 2015

2016 -
2017

2018 -
2019

2020 -
Thereafter

September
2015

December
2014

Commitments to extend credit

Commercial lending:

Investment-grade

$ 2,030

$21,737

$26,441

$19,362

$ 69,570

$ 63,634

Non-investment-grade

536

8,920

12,667

13,553

35,676

29,605

Warehouse financing

150

1,964

431

1,070

3,615

2,710

Total commitments to extend credit

2,716

32,621

39,539

33,985

108,861

95,949

Contingent and forward starting resale and securities borrowing agreements

48,598

2,264

50,862

35,225

Forward starting repurchase and secured lending agreements

10,507

8,180

Letters of credit

166

233

308

Investment commitments

2,207

2,822

1,092

6,138

5,164

Other

5,798

138

6,045

6,321

Total commitments

$69,876

$38,011

$39,622

$35,137

$182,646