The Goldman Sachs Group, Inc. (GS) 10-Q 2020 Q3 Quarterly report

0000886982 us-gaap:FairValueInputsLevel3Member gs:LoansAndSecuritiesBackedByCommercialRealEstateMember gs:CashInstrumentsLiabilitiesMember 2019-12-31 0000886982 us-gaap:AccumulatedTranslationAdjustmentMember 2020-06-30

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2020
		or
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from	to

Commission File Number:

001-14965

The Goldman Sachs Group, Inc.

(Exact name of registrant as specified in its charter)

Delaware	13-4019460
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
200 West Street, New York, N.Y.	10282
(Address of principal executive offices)	(Zip Code)

(212)

902-1000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol	Exchange on which registered
Common stock, par value $.01 per share	GS	NYSE
Depositary Shares, Each Representing 1/1,000th Interest in a Share of Floating Rate Non-Cumulative Preferred Stock, Series A	GS PrA	NYSE
Depositary Shares, Each Representing 1/1,000th Interest in a Share of Floating Rate Non-Cumulative Preferred Stock, Series C	GS PrC	NYSE
Depositary Shares, Each Representing 1/1,000th Interest in a Share of Floating Rate Non-Cumulative Preferred Stock, Series D	GS PrD	NYSE
Depositary Shares, Each Representing 1/1,000th Interest in a Share of 5.50% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series J	GS PrJ	NYSE
Depositary Shares, Each Representing 1/1,000th Interest in a Share of 6.375% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series K	GS PrK	NYSE
Depositary Shares, Each Representing 1/1,000th Interest in a Share of 6.30% Non-Cumulative Preferred Stock, Series N	GS PrN	NYSE
5.793% Fixed-to-Floating Rate Normal Automatic Preferred Enhanced Capital Securities of Goldman Sachs Capital II	GS/43PE	NYSE
Floating Rate Normal Automatic Preferred Enhanced Capital Securities of Goldman Sachs Capital III	GS/43PF	NYSE
Medium-Term Notes, Series E, Callable Fixed Rate Notes due 2021 of GS Finance Corp.	GS/21F	NYSE
Medium-Term Notes, Series E, Index-Linked Notes due 2028 of GS Finance Corp.	FRLG	NYSE Arca

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. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in

Rule 12b-2

of the Exchange Act.

Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐

Indicate by check mark whether the registrant is a shell company (as defined in

Rule 12b-2

of the Exchange Act). ☐ Yes ☒ No

As of October 16, 2020 there were 344,067,789 shares of the registrant’s common stock outstanding.

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2020

INDEX

Form 10-Q Item Number	Page No.
PART I
FINANCIAL INFORMATION		1
Item 1
Financial Statements (Unaudited)		1
Consolidated Statements of Earnings		1
Consolidated Statements of Comprehensive Income		1
Consolidated Balance Sheets		2
Consolidated Statements of Changes in Shareholders’ Equity		3
Consolidated Statements of Cash Flows		4
Notes to Consolidated Financial Statements		5
Note 1.  Description of Business		5
Note 2.  Basis of Presentation		5
Note 3.  Significant Accounting Policies		6
Note 4.  Fair Value Measurements		11
Note 5.  Trading Assets and Liabilities		16
Note 6.  Trading Cash Instruments		17
Note 7.  Derivatives and Hedging Activities		20
Note 8.  Investments		30
Note 9.  Loans		35
Note 10. Fair Value Option		45
Note 11. Collateralized Agreements and Financings		50
Note 12. Other Assets		54
Note 13. Deposits		56
Note 14. Unsecured Borrowings		57
Note 15. Other Liabilities		60
Note 16. Securitization Activities		61
Note 17. Variable Interest Entities		63
Note 18. Commitments, Contingencies and Guarantees		66
Note 19. Shareholders’ Equity		70
Note 20. Regulation and Capital Adequacy		73
Note 21. Earnings Per Common Share		81
Note 22. Transactions with Affiliated Funds		81
Note 23. Interest Income and Interest Expense		82
Note 24. Income Taxes		82
Note 25. Business Segments		83
Note 26. Credit Concentrations		85
Note 27. Legal Proceedings		86
Note 28. Subsequent Event		95

	Page No.
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
Introduction		99
Executive Overview		99
Business Environment		100
Critical Accounting Policies		101
Use of Estimates		103
Recent Accounting Developments		103
Results of Operations		103
Balance Sheet and Funding Sources		121
Equity Capital Management and Regulatory Capital		124
Regulatory and Other Matters		129
Off-Balance Sheet Arrangements and Contractual Obligations		132
Risk Management		133
Overview and Structure of Risk Management		133
Liquidity Risk Management		139
Market Risk Management		145
Credit Risk Management		149
Operational Risk Management		156
Model Risk Management		157
Available Information		158
Cautionary Statement Pursuant to the U.S. Private Securities Litigation Reform Act of 1995		159
Item 3
Quantitative and Qualitative Disclosures About Market Risk		161
Item 4
Controls and Procedures		161
PART II
OTHER INFORMATION		161
Item 1
Legal Proceedings		161
Item 1A
Risk Factors		161
Item 2
Unregistered Sales of Equity Securities and Use of Proceeds		162
Item 6
Exhibits		163
SIGNATURES		163

Goldman Sachs September 2020 Form 10-Q

PART I. FINANCIAL INFORMATION

Item 1.    Financial Statements (Unaudited)

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Earnings

(Unaudited)

	Three Months Ended September			Nine Months Ended September
in millions, except per share amounts		2020	2019		2020	2019
Revenues
Investment banking		$  1,934	$1,587		$  6,409	$  4,966
Investment management		1,689	1,562		5,092	4,518
Commissions and fees		804	748		2,699	2,301
Market making		3,327	2,476		12,796	7,678
Other principal transactions		1,943	942		2,482	3,831
Total non-interest revenues		9,697	7,315		29,478	23,294
Interest income		2,932	5,459		10,716	16,816
Interest expense		1,848	4,451		7,375	13,519
Net interest income		1,084	1,008		3,341	3,297
Total net revenues		10,781	8,323		32,819	26,591
Provision for credit losses		278	291		2,805	729
Operating expenses
Compensation and benefits		3,117	2,731		10,830	9,307
Brokerage, clearing, exchange and distribution fees		911	853		2,831	2,438
Market development		70	169		312	539
Communications and technology		340	283		1,006	859
Depreciation and amortization		468	473		1,404	1,240
Occupancy		235	252		706	711
Professional fees		298	350		956	950
Other expenses		765	505		5,031	1,556
Total operating expenses		6,204	5,616		23,076	17,600
Pre-tax earnings		4,299	2,416		6,938	8,262
Provision for taxes		932	539		1,985	1,713
Net earnings		3,367	1,877		4,953	6,549
Preferred stock dividends		134	84		400	376
Net earnings applicable to common shareholders		$  3,233	$1,793		$  4,553	$  6,173
Earnings per common share
Basic		$    9.07	$  4.83		$  12.71	$  16.43
Diluted		$    8.98	$  4.79		$  12.65	$  16.32
Average common shares
Basic		355.9	370.0		356.5	374.7
Diluted		359.9	374.3		360.0	378.2

Consolidated Statements of Comprehensive Income

(Unaudited)

	Three Months Ended September					Nine Months Ended September
$ in millions		2020		2019			2020		2019
Net earnings		$  3,367		$1,877			$  4,953		$  6,549
Other comprehensive income/(loss) adjustments, net of tax:
Currency translation		(13	)	(9	)		(74	)	2
Debt valuation adjustment		(268	)	278			428		(1,450	)
Pension and postretirement liabilities		(2	)	(5	)		1		(14	)
Available-for-sale securities		(11	)	67			494		285
Other comprehensive income/(loss)		(294	)	331			849		(1,177	)
Comprehensive income		$  3,073		$2,208			$  5,802		$  5,372

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

1 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Unaudited)

	As of
$ in millions		September 2020		December 2019
Assets
Cash and cash equivalents		$     153,201		$133,546
Collateralized agreements:
Securities purchased under agreements to resell (at fair value)		101,277		85,691
Securities borrowed (includes $31,680 and $26,279 at fair value)		127,391		136,071
Customer and other receivables (includes $60 and $53 at fair value)		111,181		74,605
Trading assets (at fair value and includes $80,268 and $66,605 pledged as collateral)		408,400		355,332
Investments (includes $74,714 and $57,827 at fair value, and $14,244 and $10,968 pledged as collateral)		80,792		63,937
Loans (net of allowance of $3,714 and $1,441, and includes $13,881 and $14,386 at fair value)		111,843		108,904
Other assets		37,974		34,882
Total assets		$1,132,059		$992,968
Liabilities and shareholders’ equity
Deposits (includes $18,401 and $17,765 at fair value)		$     261,234		$190,019
Collateralized financings:
Securities sold under agreements to repurchase (at fair value)		101,279		117,756
Securities loaned (includes $1,060 and $714 at fair value)		17,288		14,985
Other secured financings (includes $23,565 and $18,071 at fair value)		24,981		19,277
Customer and other payables		187,357		174,817
Trading liabilities (at fair value)		162,141		108,835
Unsecured short-term borrowings (includes $25,930 and $26,007 at fair value)		48,028		48,287
Unsecured long-term borrowings (includes $40,328 and $43,661 at fair value)		213,936		207,076
Other liabilities (includes $336 and $150 at fair value)		23,165		21,651
Total liabilities		1,039,409		902,703
Commitments, contingencies and guarantees
Shareholders’ equity
Preferred stock; aggregate liquidation preference of $11,203 and $11,203		11,203		11,203
Common stock;  901,631,819  and 896,782,650 shares issued, and  344,070,790  and 347,343,184 shares outstanding		9		9
Share-based awards		3,308		3,195
Nonvoting common stock; no shares issued and outstanding		0		0
Additional paid-in capital		55,662		54,883
Retained earnings		109,033		106,465
Accumulated other comprehensive income/(loss)		(635	)	(1,484	)
Stock held in treasury, at cost; 557,561,031 and 549,439,468 shares		(85,930	)	(84,006	)
Total shareholders’ equity		92,650		90,265
Total liabilities and shareholders’ equity		$1,132,059		$992,968

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

Goldman Sachs September 2020 Form 10-Q 2

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Shareholders’ Equity

(Unaudited)

	Three Months Ended September					Nine Months Ended September
$ in millions		2020		2019			2020		2019
Preferred stock
Beginning balance		$  11,203		$  11,203			$  11,203		$  11,203
Issued		0		0			350		500
Redeemed		0		0			(350	)	(500	)
Ending balance		11,203		11,203			11,203		11,203
Common stock
Beginning balance		9		9			9		9
Issued		0		0			0		0
Ending balance		9		9			9		9
Share-based awards
Beginning balance		3,203		2,930			3,195		2,845
Issuance and amortization of share-based awards		176		181			1,770		1,888
Delivery of common stock underlying share-based awards		(33	)	(20	)		(1,597	)	(1,617	)
Forfeiture of share-based awards		(38	)	(39	)		(60	)	(64	)
Ending balance		3,308		3,052			3,308		3,052
Additional paid-in capital
Beginning balance		55,637		54,865			54,883		54,005
Delivery of common stock underlying share-based awards		34		22			1,607		1,610
Cancellation of share-based awards in satisfaction of withholding tax requirements		(9	)	(8	)		(828	)	(739	)
Preferred stock issuance costs, net of reversals upon redemption		0		0			0		3
Ending balance		55,662		54,879			55,662		54,879
Retained earnings
Beginning balance, as previously reported		106,248		103,867			106,465		100,100
Cumulative effect of change in accounting principle for:
Current expected credit losses, net of tax		0		0			(638	)	0
Leases, net of tax		0		0			0		12
Beginning balance, adjusted		106,248		103,867			105,827		100,112
Net earnings		3,367		1,877			4,953		6,549
Dividends and dividend equivalents declared on common stock and share-based awards		(448	)	(466	)		(1,347	)	(1,091	)
Dividends declared on preferred stock		(134	)	(84	)		(399	)	(369	)
Preferred stock redemption premium		0		0			(1	)	(7	)
Ending balance		109,033		105,194			109,033		105,194
Accumulated other comprehensive income/(loss)
Beginning balance		(341	)	(815	)		(1,484	)	693
Other comprehensive income/(loss)		(294	)	331			849		(1,177	)
Ending balance		(635	)	(484	)		(635	)	(484	)
Stock held in treasury, at cost
Beginning balance		(85,930	)	(81,167	)		(84,006	)	(78,670	)
Repurchased		0		(673	)		(1,928	)	(3,173	)
Reissued		1		1			11		12
Other		(1	)	(2	)		(7	)	(10	)
Ending balance		(85,930	)	(81,841	)		(85,930	)	(81,841	)
Total shareholders’ equity		$  92,650		$  92,012			$  92,650		$  92,012

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

3 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended September
$ in millions		2020		2019
Cash flows from operating activities
Net earnings		$    4,953		$    6,549
Adjustments to reconcile net earnings to net cash used for operating activities:
Depreciation and amortization		1,404		1,240
Share-based compensation		1,737		1,852
Gain related to extinguishment of unsecured borrowings		(1	)	0
Provision for credit losses		2,805		729
Changes in operating assets and liabilities:
Customer and other receivables and payables, net		(24,045	)	3,083
Collateralized transactions (excluding other secured financings), net		(21,080	)	28,039
Trading assets		(50,937	)	(67,507	)
Trading liabilities		53,306		7,588
Loans held for sale, net		2,264		(696	)
Other, net		(148	)	(6,840	)
Net cash used for operating activities		(29,742	)	(25,963	)
Cash flows from investing activities
Purchase of property, leasehold improvements and equipment		(4,906	)	(6,397	)
Proceeds from sales of property, leasehold improvements and equipment		1,272		4,561
Net cash used for business acquisitions		(226	)	(803	)
Purchase of investments		(37,516	)	(26,175	)
Proceeds from sales and paydowns of investments		23,200		13,757
Loans (excluding loans held for sale), net		(7,257	)	(5,859	)
Net cash used for investing activities		(25,433	)	(20,916	)
Cash flows from financing activities
Unsecured short-term borrowings, net		6,567		1,137
Other secured financings (short-term), net		1,629		(2,705	)
Proceeds from issuance of other secured financings (long-term)		6,016		5,095
Repayment of other secured financings (long-term), including the current portion		(2,019	)	(6,431	)
Purchase of Trust Preferred securities		(11	)	(61	)
Proceeds from issuance of unsecured long-term borrowings		36,120		18,613
Repayment of unsecured long-term borrowings, including the current portion		(41,042	)	(26,887	)
Derivative contracts with a financing element, net		1,022		2,710
Deposits, net		70,654		23,931
Preferred stock redemption		(350	)	(500	)
Common stock repurchased		(1,928	)	(3,173	)
Settlement of share-based awards in satisfaction of withholding tax requirements		(829	)	(741	)
Dividends and dividend equivalents paid on common stock, preferred stock and share-based awards		(1,744	)	(1,460	)
Proceeds from issuance of preferred stock, net of issuance costs		349		499
Other financing, net		396		399
Net cash provided by financing activities		74,830		10,426
Net increase/(decrease) in cash and cash equivalents		19,655		(36,453	)
Cash and cash equivalents, beginning balance		133,546		130,547
Cash and cash equivalents, ending balance		$153,201		$  94,094
Supplemental disclosures:
Cash payments for interest, net of capitalized interest		$    7,648		$  14,132
Cash payments for income taxes, net		$    1,904		$       946

See Notes 12, 14 and 16 for information about

non-cash

activities.

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

Goldman Sachs September 2020 Form 10-Q 4

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to 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 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 4 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 and spin-offs, and equity and debt underwriting of public offerings and private placements. The firm also provides lending to corporate clients, including relationship lending, middle-market lending and acquisition financing.

Global Markets

The firm facilitates client transactions and makes markets in fixed income, equity, currency and commodity products with institutional clients, such as corporations, financial institutions, investment funds and governments. The firm also makes markets in and clears institutional client transactions on major stock, options and futures exchanges worldwide and provides prime brokerage and other equities financing activities, including securities lending, margin lending and swaps. The firm also provides financing to clients through securities sold under agreements to repurchase (repurchase agreements), as well as through structured credit, warehouse and asset-backed lending.

Asset Management

The firm manages assets 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 clients and a network of third-party distributors around the world. The firm makes equity investments, which include alternative investing activities related to public and private equity investments in corporate, real estate and infrastructure assets, as well as investments through consolidated investment entities, substantially all of which are engaged in real estate investment activities. The firm also invests in corporate debt and provides financing for real estate and other assets.

Consumer & Wealth Management

The firm provides investing and wealth advisory solutions, including financial planning and counseling, executing brokerage transactions and managing assets for individuals in its wealth management business. The firm also provides loans and accepts deposits through its consumer banking digital platform,

Marcus by Goldman Sachs

, and through its private bank, as well as issues credit cards to consumers.

Note 2.

Basis of Presentation

These 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 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, 2019. References to “the 2019

Form 10-K”

are to the firm’s Annual Report on

Form 10-K

for the year ended December 31, 2019. Certain disclosures included in the annual financial statements have been condensed or omitted from these financial statements as they are not required for interim financial statements under U.S. GAAP and the rules of the Securities and Exchange Commission (SEC).

These unaudited 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 2020, June 2020 and September 2019 refer to the firm’s periods ended, or the dates, as the context requires, September 30, 2020, June 30, 2020 and September 30, 2019, respectively. All references to December 2019 refer to the date December 31, 2019. Any reference to a future year refers to a year ending on December 31 of that year.

Beginning in the fourth quarter of 2019, the firm changed its business segments and balance sheet presentation to better reflect the nature of the firm’s activities. See Note 2 in Part II, Item 8 of the 2019

Form 10-K

for further information. Reclassifications have been made to previously reported amounts to conform to the current presentation.

5 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to 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, measuring the allowance for credit losses on loans and lending commitments accounted for at amortized cost, and when to consolidate an entity. See Note 4 for policies on fair value measurements, Note 9 for policies on the allowance for credit losses, and below and Note 17 for policies on consolidation accounting. All other significant accounting policies are either described below or included in the following footnotes:

Fair Value Measurements	Note 4
Trading Assets and Liabilities	Note 5
Trading Cash Instruments	Note 6
Derivatives and Hedging Activities	Note 7
Investments	Note 8
Loans	Note 9
Fair Value Option	Note 10
Collateralized Agreements and Financings	Note 11
Other Assets	Note 12
Deposits	Note 13
Unsecured Borrowings	Note 14
Other Liabilities	Note 15
Securitization Activities	Note 16
Variable Interest Entities	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 controlling 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 17 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 generally accounted for 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 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 8 for further information about equity-method investments.

Goldman Sachs September 2020 Form 10-Q 6

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Investment Funds.

The firm has formed 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 generally measured at net asset value (NAV) and are included in investments. See Notes 8, 18 and 22 for further information about investments in funds.

Use of Estimates

Preparation of these consolidated financial statements requires management to make certain estimates and assumptions, the most important of which relate to fair value measurements, the allowance for credit losses on loans and lending commitments accounted for at amortized cost, discretionary compensation accruals, accounting for goodwill and identifiable intangible assets, provisions for losses that may arise from litigation and regulatory proceedings (including governmental investigations), and provisions for losses that may arise from 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 Liabilities at Fair Value.

Trading assets and liabilities and certain investments 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 loans and other financial assets and 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 or other principal transactions. See Note 4 for further information about fair value measurements.

Revenue from Contracts with Clients.

The firm recognizes revenue earned from contracts with clients for services, such as investment banking, investment management, and execution and clearing (contracts with clients), when the performance obligations related to the underlying transaction are completed.

Revenues from these contracts with clients represent approximately 45% of total

non-interest

revenues for each of the three and nine months ended September 2020 (including approximately 90% of investment banking revenues, approximately 95% of investment management revenues and all commissions and fees), and approximately 50% of total non-interest revenues for the three months ended September 2019 and approximately 45% for the nine months ended September 2019 (including approximately 90% of investment banking revenues, approximately 95% of investment management revenues and all commissions and fees). See Note 25 for information about net revenues by business segment.

Investment Banking

Advisory.

Fees from financial advisory assignments are recognized in revenues when the services related to the underlying transaction are completed under the terms of the assignment.

Non-refundable

deposits and milestone payments in connection with financial advisory assignments are recognized in revenues upon completion of the underlying transaction or when the assignment is otherwise concluded.

Expenses associated with financial advisory assignments are recognized when incurred and are included in other expenses. Client reimbursements for such expenses are included in investment banking revenues.

Underwriting.

Fees from underwriting assignments are recognized in revenues upon completion of the underlying transaction based on the terms of the assignment.

Expenses associated with underwriting assignments are generally deferred until the related revenue is recognized or the assignment is otherwise concluded. Such expenses are included in other expenses.

7 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Investment Management

The firm earns management fees and incentive fees for investment management services, which are included in investment management revenues. The firm makes payments to brokers and advisors related to the placement of the firm’s investment funds (distribution fees), which are included in brokerage, clearing, exchange and distribution fees.

Management Fees.

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 committed capital and are received quarterly, semi-annually or annually, depending on the fund. Management fees are recognized over time in the period the services are provided.

Distribution fees paid by the firm are calculated based on either a percentage of the management fee, the investment fund’s net asset value or the committed capital. Such fees are included in brokerage, clearing, exchange and distribution fees.

Incentive Fees.

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 twelve-month period or over the life of a fund. Fees that are based on performance over a twelve-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 earned from a fund or separately managed account are recognized when it is probable that a significant reversal of such fees will not occur, which is generally when such fees are no longer subject to fluctuations in the market value of investments held by the fund or separately managed account. Therefore, incentive fees recognized during the period may relate to performance obligations satisfied in previous periods.

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. The firm also provides third-party research services to clients in connection with certain soft-dollar arrangements. Third-party research costs incurred by the firm in connection with such arrangements are presented net within commissions and fees.

Remaining Performance Obligations

Remaining performance obligations are services that the firm has committed to perform in the future in connection with its contracts with clients. The firm’s remaining performance obligations are generally related to its financial advisory assignments and certain investment management activities. Revenues associated with remaining performance obligations relating to financial advisory assignments cannot be determined until the outcome of the transaction. For the firm’s investment management activities, where fees are calculated based on the net asset value of the fund or separately managed account, future revenues associated with such remaining performance obligations cannot be determined as such fees are subject to fluctuations in the market value of investments held by the fund or separately managed account.

The firm is able to determine the future revenues associated with management fees calculated based on committed capital. As of September 2020, substantially all future net revenues associated with such remaining performance obligations will be recognized through 2027. Annual revenues associated with such performance obligations average less than $250 million through 2027.

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales when the firm has relinquished control over the assets transferred. For transfers of financial 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 financial assets are initially recognized at fair value. For transfers of financial assets that are not accounted for as sales, the assets are generally included in trading assets and the transfer is accounted for as a collateralized financing, with the related interest expense recognized over the life of the transaction. See Note 11 for further information about transfers of financial assets accounted for as collateralized financings and Note 16 for further information about transfers of financial assets accounted for as sales.

Goldman Sachs September 2020 Form 10-Q 8

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Cash and Cash Equivalents

The firm defines cash equivalents as highly liquid overnight deposits held in the ordinary course of business. Cash and cash equivalents included cash and due from banks of $11.71 billion as of September 2020 and $12.57 billion as of December 2019. Cash and cash equivalents also included interest-bearing deposits with banks of $141.49 billion as of September 2020 and $120.98 billion as of December 2019.

The firm segregates cash for regulatory and other purposes related to client activity. Cash and cash equivalents segregated for regulatory and other purposes were $22.10 billion as of September 2020 and $22.78 billion as of December 2019. In addition, the firm segregates securities for regulatory and other purposes related to client activity. See Note 11 for further information about segregated securities.

Customer and Other Receivables

Customer and other receivables included receivables from customers and counterparties of $62.56 billion as of September 2020 and $50.90 billion as of December 2019, and receivables from brokers, dealers and clearing organizations of $48.62 billion as of September 2020 and $23.71 billion as of December 2019. Such receivables primarily consist of customer margin loans, receivables resulting from unsettled transactions and collateral posted in connection with certain derivative transactions.

Substantially all of these receivables are accounted for at amortized cost net of any allowance for credit losses, which generally approximates fair value. As these receivables are not accounted for at fair value, they are not included in the firm’s fair value hierarchy in Notes 4 through 10. Had these receivables been included in the firm’s fair value hierarchy, substantially all would have been classified in level 2 as of both September 2020 and December 2019. See Note 10 for further information about customer and other receivables accounted for at fair value under the fair value option. Interest on customer and other receivables is recognized over the life of the transaction and included in interest income.

Customer and other receivables includes receivables from contracts with clients and contract assets. Contract assets represent the firm’s right to receive consideration for services provided in connection with its contracts with clients for which collection is conditional and not merely subject to the passage of time. The firm’s receivables from contracts with clients were $2.65 billion as of September 2020 and $2.27 billion as of December 2019. As of both September 2020 and December 2019 contract assets were not material.

Customer and Other Payables

Customer and other payables included payables to customers and counterparties of $176.41 billion as of September 2020 and $170.21 billion as of December 2019, and payables to brokers, dealers and clearing organizations of $10.95 billion as of September 2020 and $4.61 billion as of December 2019. Such payables primarily consist of customer credit balances related to the firm’s prime brokerage activities. Customer and other payables are accounted for at cost plus accrued interest, which generally approximates fair value. As these payables are not accounted for at fair value, they are not included in the firm’s fair value hierarchy in Notes 4 through 10. Had these payables been included in the firm’s fair value hierarchy, substantially all would have been classified in level 2 as of both September 2020 and December 2019. Interest on customer and other payables is recognized over the life of the transaction and included in interest expense.

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.

9 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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 consolidated balance sheets when a legal right of setoff exists under an enforceable netting agreement. Securities purchased under agreements to resell (resale agreements) 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 consolidated balance sheets when such transactions meet certain settlement criteria and are subject to netting agreements.

In the consolidated balance sheets, derivatives are reported net of cash collateral received and posted under enforceable credit support agreements, when transacted under an enforceable netting agreement. In the consolidated balance sheets, 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 11 for further information about collateral received and pledged, including rights to deliver or repledge collateral. See Notes 7 and 11 for further information about offsetting assets and liabilities.

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. Forfeitures are recorded when they occur.

Cash dividend equivalents paid on outstanding restricted stock units (RSUs) are charged to retained earnings. If RSUs that require future service are forfeited, the related dividend equivalents originally charged to retained earnings are reclassified to compensation expense in the period in which forfeiture occurs.

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. The tax effect related to the settlement of share-based awards is recorded in income tax benefit or expense.

Foreign Currency Translation

Assets and liabilities denominated in

non-U.S.

currencies are translated at rates of exchange prevailing on the date of the consolidated balance sheets 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 consolidated statements of comprehensive income.

Recent Accounting Developments

Leases (ASC 842).

In February 2016, the FASB issued ASU

No. 2016-02,

“Leases (Topic 842).” This ASU requires that, for leases longer than one year, a lessee recognize in the balance sheet a

right-of-use

asset, representing the right to use the underlying asset for the lease term, and a lease liability, representing the liability to make lease payments. It also requires that for finance leases, a lessee recognize interest expense on the lease liability, separately from the amortization of the

right-of-use

asset in the statements of earnings, while for operating leases, such amounts should be recognized as a combined expense. It also requires that for qualifying sale-leaseback transactions the seller recognize any gain or loss (based on the estimated fair value of the asset at the time of sale) when control of the asset is transferred instead of amortizing it over the lease period. In addition, this ASU requires expanded disclosures about the nature and terms of lease agreements.

The firm adopted this ASU in January 2019 under a modified retrospective approach. Upon adoption, in accordance with the ASU, the firm elected to not reassess the lease classification or initial direct costs of existing leases, and to not reassess whether existing contracts contain a lease. In addition, the firm has elected to account for each contract’s lease and

non-lease

components as a single lease component. The impact of adoption was a gross up of $1.77 billion on the firm’s consolidated balance sheet and an increase to retained earnings of $12 million (net of tax) as of January 1, 2019.

Goldman Sachs September 2020 Form 10-Q 10

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Measurement of Credit Losses on Financial Instruments (ASC 326).

In June 2016, the FASB issued ASU

No. 2016-13,

“Financial Instruments — Credit Losses (Topic 326) — Measurement of Credit Losses on Financial Instruments.” This ASU amends several aspects of the measurement of credit losses on certain financial instruments, including replacing the existing incurred credit loss model and other models with the Current Expected Credit Losses (CECL) model and amending certain aspects of accounting for purchased financial assets with deterioration in credit quality since origination.

The firm adopted this ASU in January 2020 under a modified retrospective approach. As a result of adopting this ASU, the firm’s allowance for credit losses on financial assets and commitments that are measured at amortized cost reflects management’s estimate of credit losses over the remaining expected life of such assets. Expected credit losses for newly recognized financial assets and commitments, as well as changes to expected credit losses during the period, are recognized in earnings. These expected credit losses are measured based on historical experience, current conditions and forecasts that affect the collectability of the reported amount.

The cumulative effect of measuring the allowance under CECL as a result of adopting this ASU as of January 1, 2020 was an increase in the allowance for credit losses of $848 million. The increase in the allowance is driven by the fact that the allowance under CECL covers expected credit losses over the full expected life of the loan portfolios and also takes into account forecasts of expected future economic conditions. In addition, in accordance with the ASU, the firm elected the fair value option for loans that were previously accounted for as Purchased Credit Impaired (PCI), which resulted in a decrease to the allowance for PCI loans of $169 million. The cumulative effect of adopting this ASU was a decrease to retained earnings of $638 million (net of tax).

Facilitation of the Effects of Reference Rate Reform on Financial Reporting (ASC 848).

In March 2020, the FASB issued ASU

No. 2020-04,

“Reference Rate Reform — Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This ASU provides optional exceptions for applying generally accepted accounting principles to contracts, hedging relationships and other transactions affected by reference rate reform. The firm adopted this ASU in March 2020 and adoption did not have a material impact on the firm’s consolidated financial statements.

Note 4.

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 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 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 hierarchy for disclosure of fair value measurements. This 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 this hierarchy is based on the lowest level of input that is significant to its fair value measurement. In evaluating the significance of a valuation input, the firm considers, among other factors, a portfolio’s net risk exposure to that input. 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 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 liabilities may require 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.

11 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The valuation techniques and nature of significant inputs used to determine the fair value of the firm’s financial instruments are described below. See Notes 5 through 10 for further information about significant unobservable inputs used to value level 3 financial instruments.

Valuation Techniques and Significant Inputs for Trading Cash Instruments, Investments and Loans

Level 1.

Level 1 instruments include U.S. government obligations, most

non-U.S.

government obligations, certain agency obligations, certain corporate debt instruments, certain money market instruments and actively traded listed equities. 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.

Level 2 instruments include certain

non-U.S.

government obligations, most agency obligations, most mortgage-backed loans and securities, most corporate debt instruments, most state and municipal obligations, most money market instruments, most other debt obligations, restricted or less liquid listed equities, certain private equities, commodities and certain lending commitments.

Valuations of level 2 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 instruments (i) if the 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.

Level 3 instruments have one or more significant valuation inputs that are not observable. Absent evidence to the contrary, level 3 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.

Valuation techniques of level 3 instruments vary by instrument, but are generally based on discounted cash flow techniques. The valuation techniques and the nature of significant inputs used to determine the fair values of each type of level 3 instrument are described below:

Loans and Securities Backed by Commercial Real Estate

Loans and securities backed by commercial real estate are directly or indirectly collateralized by a single property or a portfolio of properties, and may include tranches of varying levels of subordination. Significant inputs are generally determined based on relative value analyses and include:

• 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);

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

• 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 and capitalization rates. 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; and

• 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

Loans and securities backed by residential real estate are directly or indirectly collateralized by portfolios of residential real estate and may include tranches of varying levels of subordination. Significant inputs are generally determined based on relative value analyses, which incorporate comparisons to instruments with similar collateral and risk profiles. Significant inputs include:

• Market yields implied by transactions of similar or related assets;

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

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

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

Goldman Sachs September 2020 Form 10-Q 12

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Corporate Debt Instruments

Corporate debt instruments includes corporate loans, debt securities and convertible debentures. Significant inputs for corporate debt instruments 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 or similar 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 the CDX (an index that tracks the performance of corporate credit);

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

• Duration; and

• Market and transaction multiples for corporate debt instruments with convertibility or participation options.

Equity Securities

Equity securities consists of private equities. Recent third-party completed or pending transactions (e.g., merger proposals, debt restructurings, tender offers) are considered 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 and revenue multiples) and public comparables;

• Transactions in similar instruments;

• Discounted cash flow techniques; and

• 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 and capitalization rates; and

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

Other Trading Cash Instruments, Investments and Loans

The significant inputs to the valuation of other instruments, such as

non-U.S.

government obligations and U.S. and

non-U.S.

agency obligations, state and municipal obligations, and other loans and debt obligations 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;

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

• Duration.

Valuation Techniques and Significant Inputs 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, as described below.

• 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.

13 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

• 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 only 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.

Level 1.

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.

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.

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.

Level 3 derivatives are valued using models which utilize observable level 1 and/or level 2 inputs, as well as unobservable level 3 inputs. The significant unobservable inputs used to value the firm’s level 3 derivatives are described below.

• For level 3 interest rate and currency derivatives, 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 and currency 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, and recovery rates.

• 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.

• For level 3 equity derivatives, significant unobservable inputs generally include equity volatility inputs for options that are 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.

Goldman Sachs September 2020 Form 10-Q 14

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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 classified 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 Note 7 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 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.

Valuation Techniques and Significant Inputs for Other Financial Instruments at Fair Value

In addition to trading cash instruments, derivatives, and certain investments and loans, the firm accounts for certain of its other financial assets and liabilities at fair value under the fair value option. Such instruments include repurchase agreements and substantially all resale agreements; securities borrowed and loaned in Fixed Income, Currency and Commodities (FICC) financing; certain customer and other receivables, including certain margin loans; certain time deposits, including structured certificates of deposit, which are hybrid financial instruments; substantially all other secured financings, including transfers of assets accounted for as financings; certain unsecured short- and long-term borrowings, substantially all of which are hybrid financial instruments; and other liabilities. These instruments are generally valued based on discounted cash flow techniques, which incorporate inputs with reasonable levels of price transparency, and are generally classified in level 2 because the inputs are observable. Valuation adjustments may be made for liquidity and for counterparty and the firm’s credit quality. The significant inputs used to value the firm’s other financial instruments are described below.

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.

Customer and Other Receivables.

The significant inputs to the valuation of receivables are interest rates, the amount and timing of expected future cash flows and funding spreads.

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 described above. See Note 7 for further information about derivatives and Note 13 for further information about deposits.

Other Secured Financings.

The significant inputs to the valuation of other secured financings are the amount and timing of expected future cash flows, interest rates, funding spreads, the fair value of the collateral delivered by the firm (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. See Note 11 for further information about other secured financings.

Unsecured Short- and Long-Term Borrowings.

The significant inputs to the valuation of unsecured short- and long-term borrowings are the amount and timing of expected future cash flows, interest rates, the credit spreads of the firm and commodity prices for 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 described above. See Note 7 for further information about derivatives and Note 14 for further information about borrowings.

Other Liabilities.

The significant inputs to the valuation of other liabilities are the amount and timing of expected future cash flows and equity volatility and correlation inputs. 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 described above. See Note 7 for further information about derivatives.

15 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Financial Assets and Liabilities at Fair Value

The table below presents financial assets and liabilities accounted for at fair value.

	As of
$ in millions		September 2020		June 2020		December 2019
Total level 1 financial assets		$  281,667		$   275,444		$242,562
Total level 2 financial assets		391,698		406,880		325,259
Total level 3 financial assets		27,677		29,426		23,068
Investments in funds at NAV		3,517		3,710		4,206
Counterparty and cash collateral netting		(74,547	)	(73,749	)	(55,527	)
Total financial assets at fair value		$  630,012		$   641,711		$539,568
Total assets		$1,132,059		$1,141,523		$992,968
Total level 3 financial assets divided by:
Total assets		2.4%		2.6%		2.3%
Total financial assets at fair value		4.4%		4.6%		4.3%
Total level 1 financial liabilities		$    94,637		$     98,901		$  54,790
Total level 2 financial liabilities		299,520		298,915		293,902
Total level 3 financial liabilities		32,329		30,106		25,938
Counterparty and cash collateral netting		(53,446	)	(57,098	)	(41,671	)
Total financial liabilities at fair value		$  373,040		$   370,824		$332,959
Total liabilities		$1,039,409		$1,051,494		$902,703
Total level 3 financial liabilities divided by:
Total liabilities		3.1%		2.9%		2.9%
Total financial liabilities at fair value		8.7%		8.1%		7.8%

In the table above:

• Counterparty netting among positions classified in the same level is included in that level.

• Counterparty and cash collateral netting represents the impact on derivatives of netting across levels.

The table below presents a summary of level 3 financial assets.

	As of
$ in millions		September 2020	June 2020	December 2019
Trading assets:
Trading cash instruments		$      1,265	$       1,804	$    1,242
Derivatives		6,311	7,047	4,654
Investments		17,274	17,916	15,282
Loans		2,827	2,659	1,890
Total		$    27,677	$     29,426	$  23,068

Level 3 financial assets as of September 2020 decreased compared with June 2020, reflecting a decrease in level 3 trading cash instruments, derivatives and investments. Level 3 financial assets as of September 2020 increased compared with December 2019, primarily reflecting an increase in level 3 investments. See Notes 5 through 10 for further information about level 3 financial assets (including information about unrealized gains and losses related to level 3 financial assets and transfers in and out of level 3).

Note 5.

Trading Assets and Liabilities

Trading assets and liabilities include trading cash instruments and derivatives held in connection with the firm’s market-making or risk management activities. These assets and liabilities are accounted for at fair value either under the fair value option or in accordance with other U.S. GAAP, and the related fair value gains and losses are generally recognized in the consolidated statements of earnings.

The table below presents a summary of trading assets and liabilities.

$ in millions	Trading Assets	Trading Liabilities
As of September 2020
Trading cash instruments	$343,880	$105,443
Derivatives	64,520	56,698
Total	$408,400	$162,141
As of December 2019
Trading cash instruments	$310,080	$  65,033
Derivatives	45,252	43,802
Total	$355,332	$108,835

See Note 6 for further information about trading cash instruments and Note 7 for further information about derivatives.

Gains and Losses from Market Making

The table below presents market making revenues by major product type.

	Three Months Ended September					Nine Months Ended September
$ in millions		2020		2019			2020		2019
Interest rates		$1,732		$  (613	)		$  3,784		$1,379
Credit		578		245			3,571		700
Currencies		(981	)	2,127			(1,674	)	3,549
Equities		1,391		788			5,022		1,963
Commodities		607		(71	)		2,093		87
Total		$3,327		$2,476			$12,796		$7,678

In the table above:

• Gains/(losses) include both realized and unrealized gains and losses. Gains/(losses) exclude related interest income and interest expense. See Note 23 for further information about interest income and interest expense.

• Gains and losses included in market making are primarily related to the firm’s trading assets and liabilities, including both derivative and non-derivative financial instruments.

• Gains/(losses) 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 trading cash instruments and derivatives across product types has exposure to foreign currencies and may be economically hedged with foreign currency contracts.

Goldman Sachs September 2020 Form 10-Q 16

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Note 6.

Trading Cash Instruments

Trading cash instruments consists of instruments held in connection with the firm’s market-making or risk management activities. These instruments are accounted for at fair value and the related fair value gains and losses are recognized in the consolidated statements of earnings.

Fair Value of Trading Cash Instruments by Level

The table below presents trading cash instruments by level within the fair value hierarchy.

$ in millions	Level 1		Level 2		Level 3		Total
As of September 2020
Assets
Government and agency obligations:
U.S.	$  97,256		$  39,289		$       –		$ 136,545
Non-U.S.	60,431		9,991		16		70,438
Loans and securities backed by:
Commercial real estate	–		897		196		1,093
Residential real estate	–		5,503		180		5,683
Corporate debt instruments	809		31,666		782		33,257
State and municipal obligations	–		325		–		325
Other debt obligations	278		2,318		27		2,623
Equity securities	82,638		2,322		64		85,024
Commodities	–		8,892		–		8,892
Total	$241,412		$101,203		$1,265		$ 343,880
Liabilities
Government and agency obligations:
U.S.	$(22,084	)	$        (5	)	$       –		$  (22,089	)
Non-U.S.	(27,700	)	(1,572	)	(1	)	(29,273	)
Loans and securities backed by:
Commercial real estate	–		(7	)	–		(7	)
Residential real estate	–		(1	)	–		(1	)
Corporate debt instruments	(25	)	(8,173	)	(240	)	(8,438	)
Equity securities	(44,772	)	(836	)	(27	)	(45,635	)
Total	$(94,581	)	$(10,594	)	$ (268	)	$(105,443	)
As of December 2019
Assets
Government and agency obligations:
U.S.	$108,200		$  34,714		$     21		$142,935
Non-U.S.	33,709		11,108		22		44,839
Loans and securities backed by:
Commercial real estate	–		2,031		191		2,222
Residential real estate	–		5,794		231		6,025
Corporate debt instruments	1,313		26,768		692		28,773
State and municipal obligations	–		680		–		680
Other debt obligations	409		1,074		10		1,493
Equity securities	78,782		489		75		79,346
Commodities	–		3,767		–		3,767
Total	$222,413		$  86,425		$1,242		$310,080
Liabilities
Government and agency obligations:
U.S.	$   (9,914	)	$        (47	)	$       –		$    (9,961	)
Non-U.S.	(21,213	)	(2,205	)	(6	)	(23,424	)
Loans and securities backed by:
Commercial real estate	–		(31	)	(1	)	(32	)
Residential real estate	–		(2	)	–		(2	)
Corporate debt instruments	(115	)	(7,494	)	(253	)	(7,862	)
State and municipal obligations	–		(2	)	–		(2	)
Equity securities	(23,519	)	(212	)	(13	)	(23,744	)
Commodities	–		(6	)	–		(6	)
Total	$ (54,761	)	$   (9,999	)	$  (273	)	$  (65,033	)

In the table above:

• Trading cash instrument assets are shown as positive amounts and trading cash instrument liabilities are shown as negative amounts.

• Corporate debt instruments includes corporate loans, debt securities, convertible debentures, prepaid commodity transactions and transfers of assets accounted for as secured loans rather than purchases.

• Equity securities includes public equities and exchange-traded funds.

• Other debt obligations includes other asset-backed securities and money market instruments .

See Note 4 for an overview of the firm’s fair value measurement policies and the valuation techniques and significant inputs used to determine the fair value of trading cash instruments.

Significant Unobservable Inputs

The table below presents the amount of level 3 assets, and ranges and weighted averages of significant unobservable inputs used to value level 3 trading cash instruments.

	Level 3 Assets and Range of Significant Unobservable Inputs (Weighted Average) as of
$ in millions		September 2020		December 2019
Loans and securities backed by commercial real estate
Level 3 assets		$196		$191
Yield		2.0% to 22.0% (9.9%	)	2.7% to 21.7% (13.5%	)
Recovery rate		19.7% to 93.8% (61.4%	)	11.4% to 81.1% (55.6%	)
Duration (years)		0.3 to 9.2 (5.3	)	0.3 to 6.6 (2.8	)
Loans and securities backed by residential real estate
Level 3 assets		$180		$231
Yield		1.6% to 14.2% (5.9%	)	1.2% to 12.0% (5.8%	)
Cumulative loss rate		4.7% to 36.6% (19.3%	)	5.4% to 30.4% (16.3%	)
Duration (years)		1.2 to 14.8 (4.8	)	2.3 to 12.4 (5.7	)
Corporate debt instruments
Level 3 assets		$782		$692
Yield		1.2% to 32.5% (11.9%	)	0.1% to 20.4% (7.2%	)
Recovery rate		0.0% to 69.9% (59.0%	)	0.0% to 69.7% (54.9%	)
Duration (years)		1.9 to 6.1 (3.3	)	1.7 to 16.6 (5.1	)

Level 3 government and agency obligations, other debt obligations and equity securities were not material as of both September 2020 and December 2019, and therefore are not included in the table above.

17 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

In the table above:

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

• Weighted averages are calculated by weighting each input by the relative fair value of the trading cash 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 trading cash instrument. For example, the highest recovery rate for corporate debt instruments is appropriate for valuing a specific corporate debt instrument, but may not be appropriate for valuing any other corporate debt instrument. Accordingly, the ranges of inputs do not represent uncertainty in, or possible ranges of, fair value measurements of level 3 trading cash instruments.

• Increases in yield, duration or cumulative loss rate used in the valuation of level 3 trading cash instruments would have resulted in a lower fair value measurement, while increases in recovery rate would have resulted in a higher fair value measurement as of both September 2020 and December 2019. Due to the distinctive nature of each level 3 trading cash instrument, the interrelationship of inputs is not necessarily uniform within each product type.

• Trading cash instruments are valued using discounted cash flows.

Level 3 Rollforward

The table below presents a summary of the changes in fair value for level 3 trading cash instruments.

	Three Months Ended September					Nine Months Ended September
$ in millions		2020		2019			2020		2019
Total trading cash instrument assets
Beginning balance		$1,804		$1,519			$1,242		$1,689
Net realized gains/(losses)		15		3			59		50
Net unrealized gains/(losses)		34		(122	)		(146	)	(75	)
Purchases		244		162			685		547
Sales		(701	)	(207	)		(438	)	(735	)
Settlements		(124	)	(80	)		(264	)	(185	)
Transfers into level 3		157		367			313		280
Transfers out of level 3		(164	)	(207	)		(186	)	(136	)
Ending balance		$1,265		$1,435			$1,265		$1,435
Total trading cash instrument liabilities
Beginning balance		$  (156	)	$  (211	)		$  (273	)	$    (49	)
Net realized gains/(losses)		–		(2	)		–		1
Net unrealized gains/(losses)		(79	)	(72	)		18		(207	)
Purchases		13		15			50		22
Sales		(20	)	(16	)		(35	)	(19	)
Settlements		(3	)	12			(2	)	30
Transfers into level 3		(34	)	(4	)		(28	)	(24	)
Transfers out of level 3		11		38			2		6
Ending balance		$  (268	)	$  (240	)		$  (268	)	$  (240	)

In the table above:

• Changes in fair value are presented for all trading cash instruments that are classified in level 3 as of the end of the period.

• Net unrealized gains/(losses) relates to trading cash instruments that were still held at period-end.

• Transfers between levels of the fair value hierarchy are reported at the beginning of the reporting period in which they occur. If a trading cash instrument was transferred to level 3 during a reporting period, its entire gain or loss for the period is classified in level 3.

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

• Level 3 trading cash instruments are frequently economically hedged with level 1 and level 2 trading cash instruments and/or level 1, level 2 or level 3 derivatives. Accordingly, gains or losses that are classified in level 3 can be partially offset by gains or losses attributable to level 1 or level 2 trading 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.

Goldman Sachs September 2020 Form 10-Q 18

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The table below presents information, by product type, for assets included in the summary table above.

	Three Months Ended September					Nine Months Ended September
$ in millions		2020		2019			2020		2019
Loans and securities backed by commercial real estate
Beginning balance		$ 430		$ 268			$ 191		$ 332
Net realized gains/(losses)		2		11			15		27
Net unrealized gains/(losses)		(2	)	(19	)		(36	)	(36	)
Purchases		7		1			77		40
Sales		(228	)	(35	)		(19	)	(127	)
Settlements		(3	)	(20	)		(55	)	(61	)
Transfers into level 3		7		19			30		57
Transfers out of level 3		(17	)	(1	)		(7	)	(8	)
Ending balance		$ 196		$ 224			$ 196		$ 224
Loans and securities backed by residential real estate
Beginning balance		$ 307		$ 270			$ 231		$ 348
Net realized gains/(losses)		4		5			7		8
Net unrealized gains/(losses)		5		9			17		22
Purchases		78		31			97		130
Sales		(177	)	(104	)		(79	)	(222	)
Settlements		(11	)	(12	)		(33	)	(26	)
Transfers into level 3		4		79			22		4
Transfers out of level 3		(30	)	(36	)		(82	)	(22	)
Ending balance		$ 180		$ 242			$ 180		$ 242
Corporate debt instruments
Beginning balance		$ 764		$ 822			$ 692		$ 912
Net realized gains/(losses)		10		18			28		39
Net unrealized gains/(losses)		25		(30	)		(102	)	13
Purchases		139		69			455		218
Sales		(89	)	(55	)		(256	)	(346	)
Settlements		(103	)	(42	)		(157	)	(71	)
Transfers into level 3		129		126			214		92
Transfers out of level 3		(93	)	(150	)		(92	)	(99	)
Ending balance		$ 782		$ 758			$ 782		$ 758
Other
Beginning balance		$ 303		$ 159			$ 128		$   97
Net realized gains/(losses)		(1	)	(31	)		9		(24	)
Net unrealized gains/(losses)		6		(82	)		(25	)	(74	)
Purchases		20		61			56		159
Sales		(207	)	(13	)		(84	)	(40	)
Settlements		(7	)	(6	)		(19	)	(27	)
Transfers into level 3		17		143			47		127
Transfers out of level 3		(24	)	(20	)		(5	)	(7	)
Ending balance		$ 107		$ 211			$ 107		$ 211

In the table above, other includes U.S. and

non-U.S.

government and agency obligations, other debt obligations and equity securities.

Level 3 Rollforward Commentary

Three Months Ended September 2020.

The net realized and unrealized gains on level 3 trading cash instrument assets of $49 million (reflecting $15 million of net realized gains and $34 million of net unrealized gains) for the three months ended September 2020 included gains of $25 million reported in market making and $24 million reported in interest income.

The drivers of the net unrealized gains on level 3 trading cash instrument assets for the three months ended September 2020 were not material.

Transfers into level 3 trading cash instrument assets during the three months ended September 2020 primarily reflected transfers of certain corporate debt instruments 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 trading cash instrument assets during the three months ended September 2020 primarily reflected transfers of certain corporate debt instruments 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 2020.

The net realized and unrealized losses on level 3 trading cash instrument assets of $87 million (reflecting $59 million of net realized gains and $146 million of net unrealized losses) for the nine months ended September 2020 included gains/(losses) of $(171) million reported in market making and $84 million reported in interest income.

The net unrealized losses on level 3 trading cash instrument assets for the nine months ended September 2020 primarily reflected losses on certain corporate debt instruments, principally driven by corporate performance.

Transfers into level 3 trading cash instrument assets during the nine months ended September 2020 primarily reflected transfers of certain corporate debt instruments 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 trading cash instrument assets during the nine months ended September 2020 primarily reflected transfers of certain corporate debt instruments, 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.

Three Months Ended September 2019.

The net realized and unrealized losses on level 3 trading cash instrument assets of $119 million (reflecting $3 million of net realized gains and $122 million of net unrealized losses) for the three months ended September 2019 included gains/(losses) of $(157) million reported in market making and $38 million reported in interest income.

The drivers of the net unrealized losses on level 3 trading cash instrument assets for the three months ended September 2019 were not material.

19 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Transfers into level 3 trading cash instrument assets during the three months ended September 2019 primarily reflected transfers of certain corporate debt instruments and other debt obligations included in other trading cash instrument assets 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 trading cash instrument assets during the three months ended September 2019 primarily reflected transfers of certain corporate debt instruments 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 2019.

The net realized and unrealized losses on level 3 trading cash instrument assets of $25 million (reflecting $50 million of net realized gains and $75 million of net unrealized losses) for the nine months ended September 2019 included gains/(losses) of $(140) million reported in market making and $115 million reported in interest income.

The drivers of the net unrealized losses on level 3 trading cash instrument assets for the nine months ended September 2019 were not material.

Transfers into level 3 trading cash instrument assets during the nine months ended September 2019 primarily reflected transfers of certain equity securities included in other trading cash instrument assets and corporate debt instruments 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 trading cash instrument assets during the nine months ended September 2019 primarily reflected transfers of certain corporate debt instruments to level 2, principally due to increased price transparency as a result of market evidence, including market transactions in these instruments.

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 role, the firm typically acts as principal and is required to commit capital to provide execution, and maintains market-making positions in response to, or in anticipation of, client demand.

Risk Management.

The firm also enters into derivatives to actively manage risk exposures that arise from its market-making and investing and financing activities. 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 of certain fixed-rate unsecured borrowings and deposits, as well as to manage foreign exchange risk of certain available-for-sale securities and 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 are included in trading assets and derivative liabilities are included in trading liabilities. Realized and unrealized gains and losses on derivatives not designated as hedges are included in market making (for derivatives included in the Global Markets segment), and other principal transactions (for derivatives included in the remaining business segments) in the consolidated statements of earnings. For both the three and nine months ended September 2020 and September 2019, substantially all of the firm’s derivatives were included in the Global Markets segment.

Goldman Sachs September 2020 Form 10-Q 20

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The tables below present the gross fair value and the notional amounts of derivative contracts by major product type, the amounts of counterparty and cash collateral netting in the consolidated balance sheets, 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.

	As of September 2020					As of December 2019
$ in millions		Derivative Assets		Derivative Liabilities			Derivative Assets		Derivative Liabilities
Not accounted for as hedges
Exchange-traded		$        664		$        883			$        476		$        856
OTC-cleared		17,102		15,395			9,958		8,618
Bilateral OTC		346,474		312,065			266,387		242,046
Total interest rates		364,240		328,343			276,821		251,520
OTC-cleared		2,633		2,792			6,551		6,929
Bilateral OTC		14,446		13,080			14,178		13,860
Total credit		17,079		15,872			20,729		20,789
Exchange-traded		71		10			35		10
OTC-cleared		329		457			411		391
Bilateral OTC		86,034		84,153			79,887		81,613
Total currencies		86,434		84,620			80,333		82,014
Exchange-traded		3,814		3,368			2,390		2,272
OTC-cleared		243		227			180		243
Bilateral OTC		10,498		14,002			8,568		13,034
Total commodities		14,555		17,597			11,138		15,549
Exchange-traded		28,592		32,863			13,499		16,976
Bilateral OTC		42,649		46,668			36,162		39,531
Total equities		71,241		79,531			49,661		56,507
Subtotal		553,549		525,963			438,682		426,379
Accounted for as hedges
OTC-cleared		3		–			–		–
Bilateral OTC		1,421		–			3,182		1
Total interest rates		1,424		–			3,182		1
OTC-cleared		10		19			16		57
Bilateral OTC		18		96			16		153
Total currencies		28		115			32		210
Subtotal		1,452		115			3,214		211
Total gross fair value		$ 555,001		$ 526,078			$ 441,896		$ 426,590
Offset in the consolidated balance sheets
Exchange-traded		$  (29,075	)	$  (29,075	)		$  (14,159	)	$  (14,159	)
OTC-cleared		(18,420	)	(18,420	)		(15,565	)	(15,565	)
Bilateral OTC		(369,760	)	(369,760	)		(310,920	)	(310,920	)
Counterparty netting		(417,255	)	(417,255	)		(340,644	)	(340,644	)
OTC-cleared		(1,573	)	(336	)		(1,302	)	(526	)
Bilateral OTC		(71,653	)	(51,789	)		(54,698	)	(41,618	)
Cash collateral netting		(73,226	)	(52,125	)		(56,000	)	(42,144	)
Total amounts offset		$(490,481	)	$(469,380	)		$(396,644	)	$(382,788	)
Included in the consolidated balance sheets
Exchange-traded		$4,066		$8,049			$     2,241		$     5,955
OTC-cleared		327		134			249		147
Bilateral OTC		60,127		48,515			42,762		37,700
Total		$   64,520		$   56,698			$   45,252		$   43,802
Not offset in the consolidated balance sheets
Cash collateral		$    (1,140	)	$    (1,700	)		$       (604	)	$    (1,603	)
Securities collateral		(17,096	)	(11,515	)		(14,196	)	(9,252	)
Total		$   46,284		$  43,483			$   30,452		$   32,947

	Notional Amounts as of
$ in millions		September 2020	December 2019
Not accounted for as hedges
Exchange-traded		$  3,897,833	$  4,757,300
OTC-cleared		16,266,950	13,440,376
Bilateral OTC		13,299,418	11,668,171
Total interest rates		33,464,201	29,865,847
OTC-cleared		547,677	396,342
Bilateral OTC		618,220	707,935
Total credit		1,165,897	1,104,277
Exchange-traded		2,647	4,566
OTC-cleared		177,785	134,060
Bilateral OTC		6,250,229	5,926,602
Total currencies		6,430,661	6,065,228
Exchange-traded		223,284	230,018
OTC-cleared		2,354	2,639
Bilateral OTC		208,868	243,228
Total commodities		434,506	475,885
Exchange-traded		1,102,199	910,099
Bilateral OTC		1,238,886	1,182,335
Total equities		2,341,085	2,092,434
Subtotal		43,836,350	39,603,671
Accounted for as hedges
OTC-cleared		181,135	123,531
Bilateral OTC		6,559	9,714
Total interest rates		187,694	133,245
OTC-cleared		3,274	4,152
Bilateral OTC		9,274	9,247
Total currencies		12,548	13,399
Subtotal		200,242	146,644
Total notional amounts		$44,036,592	$39,750,315

In the tables above:

• 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.

• Total gross fair value of derivatives included derivative assets of $19.33 billion as of September 2020 and $9.15 billion as of December 2019, and derivative liabilities of $20.99 billion as of September 2020 and $14.88 billion as of December 2019, 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.

• During the first quarter of 2020, consistent with the rules of a clearing organization, the firm elected to consider its transactions with that clearing organization as settled each day. The impact of this change would have been a reduction in gross credit derivative assets of $3.97 billion and liabilities of $4.15 billion as of December 2019, and a corresponding decrease in counterparty and cash collateral netting, with no impact to the consolidated balance sheets.

21 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Fair Value of Derivatives by Level

The table below presents derivatives on a gross basis by level and product type, as well as the impact of netting.

$ in millions	Level 1		Level 2		Level 3		Total
As of September 2020
Assets
Interest rates	$ 184		$ 364,601		$      879		$ 365,664
Credit	–		13,315		3,764		17,079
Currencies	–		86,292		170		86,462
Commodities	–		14,010		545		14,555
Equities	23		69,109		2,109		71,241
Gross fair value	207		547,327		7,467		555,001
Counterparty netting in levels	(68	)	(414,710	)	(1,156	)	(415,934	)
Subtotal	$ 139		$ 132,617		$ 6,311		$ 139,067
Cross-level counterparty netting							(1,321	)
Cash collateral netting							(73,226	)
Net fair value							$   64,520
Liabilities
Interest rates	$(109	)	$(327,610	)	$     (624	)	$(328,343	)
Credit	–		(14,094	)	(1,778	)	(15,872	)
Currencies	–		(84,310	)	(425	)	(84,735	)
Commodities	–		(17,247	)	(350	)	(17,597	)
Equities	(15	)	(77,380	)	(2,136	)	(79,531	)
Gross fair value	(124	)	(520,641	)	(5,313	)	(526,078	)
Counterparty netting in levels	68		414,710		1,156		415,934
Subtotal	$  (56	)	$(105,931	)	$(4,157	)	$(110,144	)
Cross-level counterparty netting							1,321
Cash collateral netting							52,125
Net fair value							$  (56,698	)
As of December 2019
Assets
Interest rates	$    3		$ 279,443		$    557		$ 280,003
Credit	–		17,204		3,525		20,729
Currencies	–		80,178		187		80,365
Commodities	–		10,648		490		11,138
Equities	21		48,953		687		49,661
Gross fair value	24		436,426		5,446		441,896
Counterparty netting in levels	–		(340,325	)	(792	)	(341,117	)
Subtotal	$  24		$   96,101		$ 4,654		$ 100,779
Cross-level counterparty netting							473
Cash collateral netting							(56,000	)
Net fair value							$   45,252
Liabilities
Interest rates	$  (3	)	$(251,050	)	$   (468	)	$(251,521	)
Credit	–		(19,141	)	(1,648	)	(20,789	)
Currencies	–		(81,826	)	(398	)	(82,224	)
Commodities	–		(15,306	)	(243	)	(15,549	)
Equities	(26	)	(53,817	)	(2,664	)	(56,507	)
Gross fair value	(29	)	(421,140	)	(5,421	)	(426,590	)
Counterparty netting in levels	–		340,325		792		341,117
Subtotal	$(29	)	$  (80,815	)	$(4,629	)	$  (85,473	)
Cross-level counterparty netting							(473	)
Cash collateral netting							42,144
Net fair value							$  (43,802	)

In the table above:

• 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 in levels. Where the counterparty netting is across levels, the netting is included in cross-level counterparty netting.

• Derivative assets are shown as positive amounts and derivative liabilities are shown as negative amounts.

See Note 4 for an overview of the firm’s fair value measurement policies and the valuation techniques and significant inputs used to determine the fair value of derivatives.

Significant Unobservable Inputs

The table below presents the amount of level 3 derivative assets (liabilities), and ranges, averages and medians of significant unobservable inputs used to value level 3 derivatives.

	Level 3 Assets (Liabilities) and Range of Significant Unobservable Inputs (Average/Median) as of
$ in millions, except inputs		September 2020	December 2019
Interest rates, net		$255	$89
Correlation		(38)% to 81% (52%/60%)	(42)% to 81% (52%/60%)
Volatility (bps)		31 to 150 (65/53)	31 to 150 (70/61)
Credit, net		$1,986	$1,877
Credit spreads (bps)		2 to 748 (124/90)	1 to 559 (96/53)
Upfront credit points		7 to 90 (47/50)	2 to 90 (38/32)
Recovery rates		25% to 90% (48%/40%)	10% to 60% (31%/25%)
Currencies, net		$(255)	$(211)
Correlation		20% to 70% (39%/41%)	20% to 70% (37%/36%)
Volatility		19% to 20% (20%/20%)	N/A
Commodities, net		$195	$247
Volatility		14% to 105% (39%/33%)	9% to 57% (26%/25%)
Natural gas spread		$(1.44) to $1.89  ($(0.12)/$(0.09))	$(1.93) to $1.69  ($(0.16)/$(0.17))
Oil spread		$4.73 to $9.98  ($8.15/$8.33)	$(4.86) to $19.77  ($9.82/$11.15)
Equities, net		$(27)	$(1,977)
Correlation		(70)% to 99% (50%/55%)	(70)% to 99% (42%/45%)
Volatility		3% to 128% (24%/22%)	2% to 72% (14%/7%)

In the table above:

• Derivative assets are shown as positive amounts and derivative liabilities are shown as negative amounts.

• 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. For example, the difference between the average and the median for credit spreads indicates that the majority of the inputs fall in the lower end of the range.

Goldman Sachs September 2020 Form 10-Q 22

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

• 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 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 do not represent uncertainty in, or possible ranges of, fair value measurements of level 3 derivatives.

• Interest rates, currencies and equities derivatives are valued using option pricing models, credit derivatives are valued using option pricing, correlation and discounted cash flow models, and commodities derivatives are valued using option pricing and discounted cash flow models.

• 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.

• Correlation within currencies and equities includes cross-product type correlation.

• Volatility was not significant to the valuation of level 3 currency derivatives as of December 2019.

• Natural gas spread represents the spread per million British thermal units of natural gas.

• Oil spread represents the spread per barrel of oil and refined products.

Range of Significant Unobservable Inputs

The following provides 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 product type (e.g., equity index and equity single stock names) and across product types (e.g., correlation of an interest rate and a currency), as well as across regions. Generally, cross-product type 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 delivery locations.

Sensitivity of Fair Value Measurement to Changes in Significant Unobservable Inputs

The following is a description of the directional sensitivity of the firm’s level 3 fair value measurements to changes in significant unobservable inputs, in isolation, as of each

period-end:

• 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.

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.

23 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Level 3 Rollforward

The table below presents a summary of the changes in fair value for level 3 derivatives.

	Three Months Ended September					Nine Months Ended September
$ in millions		2020		2019			2020		2019
Total level 3 derivatives, net
Beginning balance		$3,060		$ 598			$     25		$ 590
Net realized gains/(losses)		(8	)	75			142		89
Net unrealized gains/(losses)		(315	)	162			1,465		(49	)
Purchases		93		133			345		420
Sales		(288	)	(222	)		181		(607	)
Settlements		(189	)	(44	)		182		220
Transfers into level 3		0		(33	)		(74	)	60
Transfers out of level 3		(199	)	(6	)		(112	)	(60	)
Ending balance		$2,154		$ 663			$2,154		$ 663

In the table above:

• Changes in fair value are presented for all derivative assets and liabilities that are classified in level 3 as of the end of the period.

• Net unrealized gains/(losses) relates to instruments that were still held at period-end.

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

• 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 in level 3.

• Gains or losses that have been classified 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 trading 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.

The table below presents information, by product type, for derivatives included in the summary table above.

	Three Months Ended September					Nine Months Ended September
$ in millions		2020		2019			2020		2019
Interest rates, net
Beginning balance		$   311		$      30			$      89		$   (109	)
Net realized gains/(losses)		3		(21	)		12		(28	)
Net unrealized gains/(losses)		54		103			201		163
Purchases		11		2			18		10
Sales		1		0			(15	)	(12	)
Settlements		(59	)	(51	)		(40	)	41
Transfers into level 3		(53	)	6			(14	)	(15	)
Transfers out of level 3		(13	)	(19	)		4		–
Ending balance		$   255		$      50			$    255		$      50
Credit, net
Beginning balance		$2,327		$ 1,676			$ 1,877		$ 1,672
Net realized gains/(losses)		(1	)	21			6		30
Net unrealized gains/(losses)		(124	)	245			175		264
Purchases		16		23			35		102
Sales		(8	)	(31	)		(23	)	(63	)
Settlements		(189	)	(56	)		(38	)	(207	)
Transfers into level 3		26		37			4		110
Transfers out of level 3		(61	)	(15	)		(50	)	(8	)
Ending balance		$1,986		$ 1,900			$ 1,986		$ 1,900
Currencies, net
Beginning balance		$    (94	)	$     (31	)		$   (211	)	$    461
Net realized gains/(losses)		18		(2	)		8		(23	)
Net unrealized gains/(losses)		(143	)	(147	)		(118	)	(311	)
Purchases		5		6			5		9
Sales		(12	)	(8	)		(7	)	(12	)
Settlements		(34	)	17			77		(293	)
Transfers into level 3		(1	)	(18	)		(2	)	(13	)
Transfers out of level 3		6		(3	)		(7	)	(4	)
Ending balance		$  (255	)	$   (186	)		$   (255	)	$   (186	)
Commodities, net
Beginning balance		$   331		$    134			$    247		$    112
Net realized gains/(losses)		16		1			65		(18	)
Net unrealized gains/(losses)		(84	)	84			38		151
Purchases		1		7			2		27
Sales		(7	)	(16	)		(20	)	(124	)
Settlements		(20	)	(46	)		(64	)	2
Transfers into level 3		(12	)	6			(24	)	–
Transfers out of level 3		(30	)	(9	)		(49	)	11
Ending balance		$   195		$    161			$    195		$    161
Equities, net
Beginning balance		$   185		$(1,211	)		$(1,977	)	$(1,546	)
Net realized gains/(losses)		(44	)	76			51		128
Net unrealized gains/(losses)		(18	)	(123	)		1,169		(316	)
Purchases		60		95			285		272
Sales		(262	)	(167	)		246		(396	)
Settlements		113		92			247		677
Transfers into level 3		40		(64	)		(38	)	(22	)
Transfers out of level 3		(101	)	40			(10	)	(59	)
Ending balance		$    (27	)	$(1,262	)		$     (27	)	$(1,262	)

Level 3 Rollforward Commentary

Three Months Ended September 2020.

The net realized and unrealized losses on level 3 derivatives of $323 million (reflecting $8 million of net realized losses and $315 million of net unrealized losses) for the three months ended September 2020 included losses of $289 million reported in market making and losses of $34 million reported in other principal transactions.

Goldman Sachs September 2020 Form 10-Q 24

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The net unrealized losses on level 3 derivatives for the three months ended September 2020 were primarily attributable to losses on certain currency derivatives (primarily reflecting the impact of changes in foreign exchange rates) and losses on certain credit derivatives (primarily reflecting the impact of tighter credit spreads).

The drivers of transfers into level 3 derivatives during the three months ended September 2020 were not material.

Transfers out of level 3 derivatives during the three months ended September 2020 primarily reflected transfers of certain equity derivative assets to level 2 (principally due to increased transparency of certain volatility inputs used to value these derivatives).

Nine Months Ended September 2020.

The net realized and unrealized gains on level 3 derivatives of $1.61 billion (reflecting $142 million of net realized gains and $1.47 billion of net unrealized gains) for the nine months ended September 2020 included gains of $1.67 billion reported in market making and losses of $61 million reported in other principal transactions.

The net unrealized gains on level 3 derivatives for the nine months ended September 2020 were primarily attributable to gains on certain equity derivatives (primarily reflecting the impact of changes in underlying equity prices) and gains on certain interest rate derivatives (primarily reflecting the impact of a decrease in interest rates).

The drivers of both transfers into level 3 derivatives and out of level 3 derivatives during the nine months ended September 2020 were not material.

Three Months Ended September 2019.

The net realized and unrealized gains on level 3 derivatives of $237 million (reflecting $75 million of net realized gains and $162 million of net unrealized gains) for the three months ended September 2019 included gains/(losses) of $245 million reported in market making and $(8) million reported in other principal transactions.

The net unrealized gains on level 3 derivatives for the three months ended September 2019 were primarily attributable to gains on certain credit and interest rate derivatives (primarily reflecting the impact of a decrease in interest rates), partially offset by losses on certain currency derivatives (primarily reflecting the impact of a decrease in interest rates and changes in foreign exchange rates) and losses on certain equity derivatives (primarily reflecting the impact of an increase in equity prices).

The drivers of both transfers into level 3 derivatives and transfers out of level 3 derivatives during the three months ended September 2019 were not material.

Nine Months Ended September 2019.

The net realized and unrealized gains on level 3 derivatives of $40 million (reflecting $89 million of net realized gains and $49 million of net unrealized losses) for the nine months ended September 2019 included gains/(losses) of $99 million reported in market making and $(59) million reported in other principal transactions.

The net unrealized losses on level 3 derivatives for the nine months ended September 2019 were attributable to losses on certain equity derivatives (reflecting the impact of an increase in equity prices), losses on certain currency derivatives (primarily reflecting the impact of a decrease in interest rates and changes in foreign exchange rates), partially offset by gains on certain credit and interest rate derivatives (primarily reflecting the impact of a decrease in interest rates) and gains on certain commodity derivatives (reflecting the impact of changes in commodity prices).

Transfers into level 3 derivatives during the nine months ended September 2019 primarily reflected transfers of certain credit derivative assets from level 2 (primarily due to unobservable credit spread inputs becoming significant to the net risk of certain portfolios).

The drivers of transfers out of level 3 derivatives during the nine months ended September 2019 were not material.

25 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

OTC Derivatives

The table below presents OTC derivative assets and liabilities by tenor and major product type.

$ in millions	Less than 1 Year		1 - 5 Years		Greater than 5 Years		Total
As of September 2020
Assets
Interest rates	$  8,579		$21,362		$73,807		$103,748
Credit	685		3,532		3,989		8,206
Currencies	11,128		6,001		9,069		26,198
Commodities	3,244		1,916		542		5,702
Equities	8,406		10,223		2,204		20,833
Counterparty netting in tenors	(3,506	)	(4,047	)	(3,365	)	(10,918	)
Subtotal	$ 28,536		$38,987		$86,246		$153,769
Cross-tenor counterparty netting							(20,089	)
Cash collateral netting							(73,226	)
Total OTC derivative assets							$  60,454
Liabilities
Interest rates	$  5,192		$12,242		$48,777		$  66,211
Credit	845		3,577		2,577		6,999
Currencies	11,282		7,237		6,013		24,532
Commodities	2,962		1,862		4,365		9,189
Equities	9,165		12,627		3,058		24,850
Counterparty netting in tenors	(3,506	)	(4,047	)	(3,365	)	(10,918	)
Subtotal	$25,940		$33,498		$61,425		$120,863
Cross-tenor counterparty netting							(20,089	)
Cash collateral netting							(52,125	)
Total OTC derivative liabilities							$  48,649
As of December 2019
Assets
Interest rates	$  5,521		$15,183		$57,394		$  78,098
Credit	678		3,259		3,183		7,120
Currencies	10,236		5,063		6,245		21,544
Commodities	2,507		1,212		302		4,021
Equities	7,332		4,509		1,294		13,135
Counterparty netting in tenors	(3,263	)	(3,673	)	(2,332	)	(9,268	)
Subtotal	$23,011		$25,553		$66,086		$114,650
Cross-tenor counterparty netting							(15,639	)
Cash collateral netting							(56,000	)
Total OTC derivative assets							$  43,011
Liabilities
Interest rates	$  3,654		$  9,113		$36,470		$  49,237
Credit	1,368		4,052		1,760		7,180
Currencies	12,486		6,906		4,036		23,428
Commodities	2,796		1,950		3,804		8,550
Equities	5,755		7,381		3,367		16,503
Counterparty netting in tenors	(3,263	)	(3,673	)	(2,332	)	(9,268	)
Subtotal	$22,796		$25,729		$47,105		$  95,630
Cross-tenor counterparty netting							(15,639	)
Cash collateral netting							(42,144	)
Total OTC derivative liabilities							$  37,847

In the table above:

• Tenor is based on remaining contractual maturity.

• 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 in tenors. Where the counterparty netting is across tenor categories, the netting is included in cross-tenor counterparty netting.

Credit Derivatives

The firm enters into a broad array of credit derivatives to facilitate client transactions and to manage the credit risk associated with market-making and investing and financing activities. Credit derivatives are actively managed based on the firm’s net risk position. Credit derivatives are generally 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 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. If a credit event occurs, the seller of protection is required to make a payment to the buyer, calculated according to the terms of the contract.

• 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.

Goldman Sachs September 2020 Form 10-Q 26

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

• 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.

• 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 a floating rate of interest and protection against any reduction in fair value of the reference obligation, and the protection seller receives the cash flows associated with the reference obligation, plus any increase in the fair value 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 2020, written credit derivatives had a total gross notional amount of $558.19 billion and purchased credit derivatives had a total gross notional amount of $607.73 billion, for total net notional purchased protection of $49.54 billion. As of December 2019, written credit derivatives had a total gross notional amount of $522.57 billion and purchased credit derivatives had a total gross notional amount of $581.76 billion, for total net notional purchased protection of $59.19 billion. The firm’s written and purchased credit derivatives primarily consist of credit default swaps.

The table below presents information about credit derivatives.

	Credit Spread on Underlier (basis points)
$ in millions		0 - 250	251 - 500		501 - 1,000		Greater than 1,000		Total
As of September 2020
Maximum Payout/Notional Amount of Written Credit Derivatives by Tenor
Less than 1 year		$  98,080	$11,545		$  1,550		$  2,408		$113,583
1 – 5 years		296,222	25,444		16,824		12,623		351,113
Greater than 5 years		80,575	6,704		5,313		898		93,490
Total		$474,877	$43,693		$23,687		$15,929		$558,186
Maximum Payout/Notional Amount of Purchased Credit Derivatives
Offsetting		$421,367	$33,354		$20,018		$15,043		$489,782
Other		$100,867	$11,085		$  3,932		$  2,062		$117,946
Fair Value of Written Credit Derivatives
Asset		$    7,598	$       428		$    243		$    171		$    8,440
Liability		1,116	774		1,942		3,357		7,189
Net asset/(liability)		$    6,482	$   (346	)	$(1,699	)	$(3,186	)	$    1,251
As of December 2019
Maximum Payout/Notional Amount of Written Credit Derivatives by Tenor
Less than 1 year		$143,566	$  7,155		$     759		$  2,953		$154,433
1 – 5 years		292,444	10,125		5,482		8,735		316,786
Greater than 5 years		48,109	2,260		427		554		51,350
Total		$484,119	$19,540		$  6,668		$12,242		$522,569
Maximum Payout/Notional Amount of Purchased Credit Derivatives
Offsetting		$395,127	$14,492		$  5,938		$10,543		$426,100
Other		$149,092	$  2,617		$  1,599		$  2,354		$155,662
Fair Value of Written Credit Derivatives
Asset		$  13,103	$     446		$     160		$     202		$  13,911
Liability		1,239	448		372		3,490		5,549
Net asset/(liability)		$  11,864	$        (2	)	$    (212	)	$ (3,288	)	$    8,362

In the table above:

• 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 remaining contractual maturity.

• 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.

• Other purchased credit derivatives represent the notional amount of all other purchased credit derivatives not included in offsetting.

27 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Impact of Credit and Funding Spreads on Derivatives

The firm realizes gains or losses on its derivative contracts. These gains or losses include credit valuation adjustments (CVA) relating to uncollateralized derivative assets and liabilities, which represents the gains or losses (including hedges) attributable to the impact of changes in credit exposure, counterparty credit spreads, liability funding spreads (which includes the firm’s own credit), probability of default and assumed recovery. These gains or losses also include funding valuation adjustments (FVA) relating to uncollateralized derivative assets, which represents the gains or losses (including hedges) attributable to the impact of changes in expected funding exposures and funding spreads.

The table below presents information about CVA and FVA.

	Three Months Ended September				Nine Months Ended September
$ in millions		2020	2019			2020		2019
CVA, net of hedges		$103	$ 40			$ 52		$(158	)
FVA, net of hedges		101	(11	)		(78	)	261
Total		$204	$ 29			$(26	)	$ 103

Bifurcated Embedded Derivatives

The table below presents the fair value and the notional amount of derivatives that have been bifurcated from their related borrowings.

	As of
$ in millions		September 2020		December 2019
Fair value of assets		$  1,475		$  1,148
Fair value of liabilities		(1,094	)	(1,717	)
Net asset/(liability)		$       381		$    (569	)
Notional amount		$12,670		$11,003

In the table above, derivatives that have been bifurcated from their related borrowings are recorded at fair value and primarily consist of interest rate, equity and commodity products. These derivatives are included in unsecured short- and long-term borrowings, as well as other secured financings, with the related borrowings.

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 information about net derivative liabilities under bilateral agreements (excluding collateral posted), the fair value of collateral posted and additional collateral or termination payments that could have been called by counterparties in the event of a

one-

or

two-notch

downgrade in the firm’s credit ratings.

	As of
$ in millions		September 2020	December 2019
Net derivative liabilities under bilateral agreements		$38,819	$32,800
Collateral posted		$34,104	$28,510
Additional collateral or termination payments:
One-notch downgrade		$       406	$     358
Two-notch downgrade		$       912	$  1,268

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- and short-term borrowings and certain fixed-rate certificates of deposit, (ii) foreign exchange forward contracts used to manage the foreign exchange risk of certain available-for-sale securities and (iii) 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 assess 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 of certain fixed-rate unsecured long- and short-term debt and fixed-rate certificates of deposit. These interest rate swaps hedge changes in fair value attributable to the designated benchmark interest rate (e.g., London Interbank Offered Rate (LIBOR), Secured Overnight Financing Rate or Overnight Index Swap Rate), 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 these 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%.

Goldman Sachs September 2020 Form 10-Q 28

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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 (hedging adjustment) and is also 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 and the related hedged borrowings and deposits, and total interest expense.

	Three Months Ended September					Nine Months Ended September
$ in millions		2020		2019			2020		2019
Interest rate hedges		$(1,111	)	$ 2,465			$ 5,829		$  6,054
Hedged borrowings and deposits		$    916		$(2,548	)		$(6,327	)	$(6,366	)
Interest expense		$ 1,848		$ 4,451			$ 7,375		$13,519

In the table above, the difference between gains/(losses) from interest rate hedges and hedged borrowings and deposits was primarily due to the amortization of prepaid credit spreads resulting from the passage of time.

The table below presents the carrying value of deposits and unsecured borrowings that are designated in a hedging relationship and the related cumulative hedging adjustment (increase/(decrease)) from current and prior hedging relationships included in such carrying values.

$ in millions	Carrying Value	Cumulative Hedging Adjustment
As of September 2020
Deposits	$  17,963	$     806
Unsecured short-term borrowings	$    6,685	$       45
Unsecured long-term borrowings	$116,349	$12,799
As of December 2019
Deposits	$  19,634	$     200
Unsecured short-term borrowings	$    6,008	$       28
Unsecured long-term borrowings	$  87,874	$  7,292

In the table above, cumulative hedging adjustment included $5.25 billion as of September 2020 and $3.48 billion as of December 2019 of hedging adjustments from prior hedging relationships that were

de-designated

and substantially all were related to unsecured long-term borrowings.

In addition,cumulative hedging adjustments for items no longer designated in a hedging relationship were $792 million as of September 2020 and $425 million as of December 2019 and substantially all were related to unsecured long-term borrowings.

During the third quarter of 2020, the firm designated certain foreign exchange forward contracts as fair value hedges of the foreign exchange risk of certain available-for-sale securities. The effectiveness of such hedges is assessed based on changes in spot rates. The carrying value of such securities was $635 million as of September 2020. Gains/(losses) included in earnings from such hedges and the related available-for-sale securities were not material for the three months ended September 2020.

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, all gains or losses on the hedging instruments are included in currency translation.

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

	Three Months Ended September				Nine Months Ended September
$ in millions		2020		2019		2020		2019
Hedges:
Foreign currency forward contract		$(255	)	$367		$ 387		$351
Foreign currency-denominated debt		$(102	)	$  26		$(132	)	$ (18	)

Gains or losses on individual net investments in

non-U.S.

operations are reclassified to earnings from accumulated other comprehensive income/(loss) when such net investments are sold or substantially liquidated. The gross and net gains and losses on hedges and the related net investments in

non-U.S.

operations reclassified to earnings from accumulated other comprehensive income/(loss) was not material for the three months ended September 2020 and was $61 million (reflecting a gain of $215 million related to hedges and a loss of $154 million on the related net investments in

non-U.S.

operations) for the nine months ended September 2020. The gain/(loss) reclassified to earnings from accumulated other comprehensive income was not material for both the three and nine months September 2019.

The firm had designated $3.70 billion as of September 2020 and $3.05 billion as of December 2019 of foreign currency-denominated debt, included in unsecured long- and short-term borrowings, as hedges of net investments in

non-U.S.

subsidiaries.

29 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Note 8.

Investments

Investments includes debt instruments and equity securities that are accounted for at fair value and are generally held by the firm in connection with its long-term investing activities. In addition, investments includes debt securities classified as

available-for-sale

and

held-to-maturity

that are generally held in connection with the firm’s asset-liability management activities. Investments also consists of equity securities that are accounted for under the equity method.

The table below presents information about investments.

	As of
$ in millions		September 2020	December 2019
Equity securities, at fair value		$19,102	$22,163
Debt instruments, at fair value		16,533	16,570
Available-for-sale securities, at fair value		39,079	19,094
Investments, at fair value		74,714	57,827
Held-to-maturity securities		5,771	5,825
Equity method investments		307	285
Total investments		$80,792	$63,937

Equity Securities and Debt Instruments, at Fair Value

Equity securities and debt instruments, at fair value are accounted for at fair value either under the fair value option or in accordance with other U.S. GAAP, and the related fair value gains and losses are recognized in earnings.

Equity Securities, at Fair Value.

Equity securities, at fair value consists of the firm’s public and private equity-related investments in corporate and real estate entities.

The table below presents information about equity securities, at fair value.

	As of
$ in millions		September 2020	December 2019
Equity securities, at fair value		$19,102	$22,163
Equity Type
Public equity		15%	11%
Private equity		85%	89%
Total		100%	100%
Asset Class
Corporate		82%	79%
Real estate		18%	21%
Total		100%	100%

In the table above:

• Equity securities, at fair value included investments accounted for at fair value under the fair value option where the firm would otherwise apply the equity method of accounting of $6.72 billion as of September 2020 and $8.23 billion as of December 2019. Gains recognized as a result of changes in the fair value of equity securities for which the fair value option was elected were $101 million for the three months ended September 2020, $256 million for the three months ended September 2019, $277 million for the nine months ended September 2020 and $711 million for the nine months ended September 2019. These gains are included in other principal transactions in the consolidated statements of earnings.

• Equity securities, at fair value included $2.30 billion as of September 2020 and $3.22 billion as of December 2019 of investments in funds that are measured at NAV.

Debt Instruments, at Fair Value.

Debt instruments, at fair value primarily includes mezzanine, senior and distressed debt.

The table below presents information about debt instruments, at fair value.

	As of
$ in millions		September 2020	December 2019
Corporate debt securities		$10,720	$10,838
Securities backed by real estate		1,870	2,619
Money market instruments		2,197	1,681
Other		1,746	1,432
Total		$16,533	$16,570

In the table above:

• Money market instruments includes time deposits, investments in money market funds, commercial paper and certificates of deposit.

• Other included $1.22 billion as of September 2020 and $983 million as of December 2019 of investments in credit funds that are measured at NAV.

Goldman Sachs September 2020 Form 10-Q 30

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Investments in Funds at Net Asset Value Per Share.

Equity securities and debt 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 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 investments at fair value.

Substantially all of the firm’s investments in funds at NAV 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, 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 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. Private equity, credit and real estate funds are

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 timing of which is uncertain.

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. 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, the timing of which is uncertain.

Private equity, hedge and real estate funds described above are primarily “covered funds” as defined in 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 (FRB) extended the conformance period to July 2022 for the firm’s investments in, and relationships with, certain legacy “illiquid funds” (as defined in the Volcker Rule) that were in place prior to December 2013. This extension is applicable to substantially all of the firm’s remaining investments in, and relationships with, such covered funds. Substantially all of the credit funds described above are not covered funds.

The table below presents the fair value of investments in funds at NAV and the related unfunded commitments.

$ in millions	Fair Value of Investments	Unfunded Commitments
As of September 2020
Private equity funds	$1,906	$  553
Credit funds	1,220	756
Hedge funds	101	–
Real estate funds	290	217
Total	$3,517	$1,526
As of December 2019
Private equity funds	$2,767	$   765
Credit funds	983	820
Hedge funds	125	–
Real estate funds	331	196
Total	$4,206	$1,781

Available-for-Sale

Securities

Available-for-sale

securities are accounted for at fair value, and the related unrealized fair value gains and losses are included in accumulated other comprehensive income/(loss) unless designated in a fair value hedging relationship. See Note 7 for information about available-for-sale securities that are designated in a hedging relationship.

The table below presents information about

available-for-sale

securities by tenor.

$ in millions	Amortized Cost	Fair Value	Weighted Average Yield
As of September 2020
Less than 5 years	$29,352	$29,723	0.79%
Greater than 5 years	8,370	8,721	1.09%
Total U.S. government obligations	37,722	38,444	0.84%
Greater than 5 years	635	635	0.18%
Total Non-U.S. government obligations	635	635	0.18%
Total available-for-sale securities	$38,357	$39,079	0.84%
As of December 2019
Less than 5 years	$14,063	$14,041	1.53%
Greater than 5 years	4,974	5,053	2.10%
Total U.S. government obligations	19,037	19,094	1.68%
Total available-for-sale securities	$19,037	$19,094	1.68%

In the table above:

• Available-for-sale securities were classified in level 1 of the fair value hierarchy as of both September 2020 and December 2019.

• Substantially all available-for-sale securities with a tenor of less than 5 years mature within 1-5 years and substantially all available-for-sale securities with a tenor of greater than 5 years mature within 5-10 years as of September 2020.

• The firm sold available-for-sale securities of $3.49 billion (realized gains of $319 million) during the nine months ended September 2020 and $8.08 billion (realized gains of $131 million) during the nine months ended September 2019. Such gains were included in the consolidated statements of earnings.

31 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

• The gross unrealized gains included in accumulated other comprehensive income/(loss) were $724 million as of September 2020 and $137 million as of December 2019. The gross unrealized losses included in accumulated other comprehensive income/(loss) were not material as of both September 2020 and December 2019.

• Beginning in January 2020, available-for-sale securities are reviewed to determine if an allowance for credit losses should be recorded in the consolidated statements of earnings. The firm considers various factors in such determination, including market conditions, changes in issuer credit ratings, severity of the unrealized losses, and the intent and ability to hold the security until recovery. See Note 3 for further information about the adoption of CECL. Prior to January 2020, such securities were reviewed for other-than-temporary impairment. The firm did not record any provision for credit losses on such securities during the nine months ended September 2020 and there was no other-than-temporary impairment during the year ended December 2019.

Fair Value of Investments by Level

The table below presents investments accounted for at fair value by level within the fair value hierarchy.

$ in millions	Level 1	Level 2	Level 3	Total
As of September 2020
Government and agency obligations:
U.S.	$38,444	$        –	$       –	$38,444
Non-U.S.	640	62	–	702
Corporate debt securities	88	4,781	5,851	10,720
Securities backed by real estate	–	940	930	1,870
Money market instruments	771	1,426	–	2,197
Other debt obligations	–	4	455	459
Equity securities	173	6,594	10,038	16,805
Subtotal	$40,116	$13,807	$17,274	$71,197
Investments in funds at NAV				3,517
Total investments				$74,714
As of December 2019
Government and agency obligations:
U.S.	$19,094	$       –	$       –	$19,094
Non-U.S.	–	36	–	36
Corporate debt securities	48	7,325	3,465	10,838
Securities backed by real estate	–	2,024	595	2,619
Money market instruments	732	949	–	1,681
Other debt obligations	–	94	319	413
Equity securities	251	7,786	10,903	18,940
Subtotal	$20,125	$18,214	$15,282	$53,621
Investments in funds at NAV				4,206
Total investments				$57,827

See Note 4 for an overview of the firm’s fair value measurement policies and the valuation techniques and significant inputs used to determine the fair value of investments.

Significant Unobservable Inputs

The table below presents the amount of level 3 investments, and ranges and weighted averages of significant unobservable inputs used to value such investments.

	Level 3 Assets and Range of Significant Unobservable Inputs (Weighted Average) as of
$ in millions		September 2020	December 2019
Corporate debt securities
Level 3 assets		$5,851	$3,465
Yield		4.7% to 33.4% (11.2%)	5.5% to 29.8% (12.0%)
Recovery rate		35.0% to 70.0% (54.3%)	25.0% to 100.0% (68.5%)
Duration (years)		1.8 to 8.0 (4.1)	2.9 to 5.9 (5.0)
Multiples		0.6x to 31.0x (7.4x)	0.6x to 24.4x (7.0x)
Securities backed by real estate
Level 3 assets		$930	$595
Yield		10.0% to 53.7% (18.7%)	9.4% to 20.3% (16.0%)
Recovery rate		N/A	33.1% to 34.4% (33.5%)
Duration (years)		0.6 to 3.7 (2.3)	0.4 to 3.0 (0.9)
Other debt obligations
Level 3 assets		$455	$319
Yield		2.1% to 6.2% (3.4%)	3.4% to 5.2% (4.5%)
Duration (years)		0.5 to 10.3 (6.2)	4.0 to 8.0 (6.7)
Equity securities
Level 3 assets		$10,038	$10,903
Multiples		0.8x to 26.9x (9.9x)	0.8x to 36.0x (8.0x)
Discount rate/yield		4.0% to 31.0% (13.8%)	2.1% to 20.3% (13.4%)
Capitalization rate		3.7% to 15.3% (6.5%)	3.6% to 15.1% (6.1%)

In the table above:

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

• Weighted averages are calculated by weighting each input by the relative fair value of the investment.

• 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 investment. For example, the highest multiple for private equity securities is appropriate for valuing a specific private equity security but may not be appropriate for valuing any other private equity security. Accordingly, the ranges of inputs do not represent uncertainty in, or possible ranges of, fair value measurements of level 3 investments.

• Increases in yield, discount rate, capitalization rate or duration used in the valuation of level 3 investments would have resulted in a lower fair value measurement, while increases in recovery rate or multiples would have resulted in a higher fair value measurement as of both September 2020 and December 2019. Due to the distinctive nature of each level 3 investment, the interrelationship of inputs is not necessarily uniform within each product type.

Goldman Sachs September 2020 Form 10-Q 32

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

• Corporate debt securities, securities backed by real estate and other debt obligations are valued using discounted cash flows, and equity securities are valued using market comparables and discounted cash flows.

• 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 Rollforward

The table below presents a summary of the changes in fair value for level 3 investments.

	Three Months Ended September					Nine Months Ended September
$ in millions		2020		2019			2020		2019
Beginning balance		$17,916		$14,397			$15,282		$13,548
Net realized gains/(losses)		128		46			238		119
Net unrealized gains/(losses)		534		137			(808	)	684
Purchases		405		399			1,250		1,058
Sales		(269	)	(82	)		(1,379	)	(788	)
Settlements		(686	)	(389	)		(1,180	)	(799	)
Transfers into level 3		230		1,001			5,373		2,477
Transfers out of level 3		(984	)	(496	)		(1,502	)	(1,286	)
Ending balance		$17,274		$15,013			$17,274		$15,013

In the table above:

• Changes in fair value are presented for all investments that are classified in level 3 as of the end of the period.

• Net unrealized gains/(losses) relates to investments that were still held at period-end.

• Transfers between levels of the fair value hierarchy are reported at the beginning of the reporting period in which they occur. If an investment was transferred to level 3 during a reporting period, its entire gain or loss for the period is classified in level 3.

• For level 3 investments, increases are shown as positive amounts, while decreases are shown as negative amounts.

The table below presents information, by product type, for investments included in the summary table above.

	Three Months Ended September					Nine Months Ended September
$ in millions		2020		2019			2020		2019
Corporate debt securities
Beginning balance		$  6,572		$  3,048			$  3,465		$  2,540
Net realized gains/(losses)		48		17			115		47
Net unrealized gains/(losses)		142		18			(263	)	114
Purchases		137		156			401		425
Sales		(22	)	(3	)		(215	)	(41	)
Settlements		(386	)	(69	)		(553	)	(177	)
Transfers into level 3		121		440			3,234		725
Transfers out of level 3		(761	)	(139	)		(333	)	(165	)
Ending balance		$  5,851		$  3,468			$  5,851		$  3,468
Securities backed by real estate
Beginning balance		$   880		$     395			$   595		$     457
Net realized gains/(losses)		12		7			32		19
Net unrealized gains/(losses)		16		(2	)		(97	)	–
Purchases		35		6			124		14
Sales		–		(7	)		–		(10	)
Settlements		(11	)	(17	)		(43	)	(70	)
Transfers into level 3		–		59			323		59
Transfers out of level 3		(2	)	(71	)		(4	)	(99	)
Ending balance		$   930		$     370			$   930		$     370
Other debt obligations
Beginning balance		$   429		$     251			$   319		$     216
Net realized gains/(losses)		4		–			10		–
Net unrealized gains/(losses)		3		–			–		1
Purchases		27		60			45		97
Sales		(2	)	(10	)		(4	)	(13	)
Settlements		(6	)	–			(9	)	–
Transfers into level 3		–		–			94		–
Ending balance		$   455		$     301			$   455		$     301
Equity securities
Beginning balance		$10,035		$10,703			$10,903		$10,335
Net realized gains/(losses)		64		22			81		53
Net unrealized gains/(losses)		373		121			(448	)	569
Purchases		206		177			680		522
Sales		(245	)	(62	)		(1,160	)	(724	)
Settlements		(283	)	(303	)		(575	)	(552	)
Transfers into level 3		109		502			1,722		1,693
Transfers out of level 3		(221	)	(286	)		(1,165	)	(1,022	)
Ending balance		$10,038		$10,874			$10,038		$10,874

Level 3 Rollforward Commentary

Three Months Ended September 2020.

The net realized and unrealized gains on level 3 investments of $662 million (reflecting $128 million of net realized gains and $534 million of net unrealized gains) for the three months ended September 2020 included gains of $584 million reported in other principal transactions and $78 million reported in interest income.

The net unrealized gains on level 3 investments for the three months ended September 2020 primarily reflected gains on certain private equity securities and corporate debt securities, principally driven by corporate performance.

33 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Transfers into level 3 investments during the three months ended September 2020 primarily reflected transfers of certain corporate debt securities and private equity securities from level 2, principally due to reduced price transparency as a result of a lack of market evidence, including fewer transactions in these instruments.

Transfers out of level 3 investments during the three months ended September 2020 primarily reflected transfers of certain corporate debt securities to level 2, principally due to certain unobservable yield and duration inputs no longer being significant to the valuation of these instruments, and certain private equity securities 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 2020.

The net realized and unrealized losses on level 3 investments of $570 million (reflecting $238 million of net realized gains and $808 million of net unrealized losses) for the nine months ended September 2020 included gains/(losses) of $(737) million reported in other principal transactions and $167 million reported in interest income.

The net unrealized losses on level 3 investments for the nine months ended September 2020 primarily reflected losses on certain private equity securities and corporate debt securities, principally driven by corporate performance.

Transfers into level 3 investments during the nine months ended September 2020 primarily reflected transfers of certain corporate debt securities and private equity securities from level 2, principally due to reduced price transparency as a result of a lack of market evidence, including fewer transactions in these instruments.

Transfers out of level 3 investments during the nine months ended September 2020 primarily reflected transfers of certain private equity securities to level 2, principally due to increased price transparency as a result of market evidence, including market transactions in these instruments, and certain corporate debt securities to level 2, principally due to certain unobservable yield and duration inputs no longer being significant to the valuation of these instruments.

Three Months Ended September 2019.

The net realized and unrealized gains on level 3 investments of $183 million (reflecting $46 million of net realized gains and $137 million of net unrealized gains) for the three months ended September 2019 included gains of $146 million reported in other principal transactions and $37 million reported in interest income.

The net unrealized gains on level 3 investments for the three months ended September 2019 primarily reflected gains on certain private equity securities, principally driven by corporate performance.

Transfers into level 3 investments during the three months ended September 2019 primarily reflected transfers of certain private equity securities and corporate debt instruments 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 investments during the three months ended September 2019 primarily reflected transfers of certain private equity securities and corporate debt instruments 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 2019.

The net realized and unrealized gains on level 3 investments of $803 million (reflecting $119 million of net realized gains and $684 million of net unrealized gains) for the nine months ended September 2019 included gains of $687 million reported in other principal transactions and $116 million reported in interest income.

The net unrealized gains on level 3 investments for the nine months ended September 2019 primarily reflected gains on certain private equity securities and corporate debt instruments, principally driven by corporate performance and company-specific events.

Transfers into level 3 investments during the nine months ended September 2019 primarily reflected transfers of certain private equity securities and corporate debt instruments 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 investments during the nine months ended September 2019 primarily reflected transfers of certain private equity securities and corporate debt instruments to level 2, principally due to increased price transparency as a result of market evidence, including market transactions in these instruments.

Goldman Sachs September 2020 Form 10-Q 34

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Held-to-Maturity

Securities

Held-to-maturity

securities are accounted for at amortized cost.

The table below presents information about

held-to-maturity

securities by type and tenor.

$ in millions	Amortized Cost	Fair Value	Weighted Average Yield
As of September 2020
Less than 5 years	$3,530	$3,727	2.40%
Greater than 5 years	1,522	1,679	2.25%
Total U.S. government obligations	5,052	5,406	2.35%
Greater than 5 years	719	733	1.11%
Total securities backed by real estate	719	733	1.11%
Total held-to-maturity securities	$5,771	$6,139	2.20%
As of December 2019
Less than 5 years	$3,534	$3,613	2.40%
Greater than 5 years	1,534	1,576	2.25%
Total U.S. government obligations	5,068	5,189	2.35%
Less than 5 years	6	6	4.16%
Greater than 5 years	751	769	1.67%
Total securities backed by real estate	757	775	1.69%
Total held-to-maturity securities	$5,825	$5,964	2.27%

In the table above:

• Substantially all of the securities backed by real estate consist of securities backed by residential real estate.

• As these securities are not accounted for at fair value, they are not included in the firm’s fair value hierarchy in Notes 4 through 10. Had these securities been included in the firm’s fair value hierarchy, U.S. government obligations would have been classified in level 1 and substantially all securities backed by real estate would have been classified in level 2 of the fair value hierarchy as of both September 2020 and December 2019.

• The gross unrealized gains were $372 million as of September 2020 and $141 million as of December 2019. The gross unrealized losses were 0t material as of both September 2020 and December 2019.

• Beginning in January 2020, held-to-maturity securities are reviewed to determine if an allowance for credit loss should be recorded in the consolidated statements of earnings. The firm considers various factors in such determination, including market conditions, changes in issuer credit ratings, historical credit losses and sovereign guarantees. See Note 3 for further information about the adoption of CECL. Prior to January 2020, such securities were reviewed for other-than-temporary impairment. Provision for credit losses on such securities was not material during the nine months ended September 2020 and there was no other-than-temporary impairment during the year ended December 2019.

Note 9.

Loans

Loans include (i) loans held for investment that are accounted for at amortized cost net of allowance for loan losses or at fair value under the fair value option and (ii) loans held for sale that are accounted for at the lower of cost or fair value. Interest on loans is recognized over the life of the loan and is recorded on an accrual basis.

The table below presents information about loans.

$ in millions	Amortized Cost		Fair Value	Held For Sale	Total
As of September 2020
Loan Type
Corporate	$47,583		$  2,856	$1,026	$  51,465
Wealth management	21,799		8,037	–	29,836
Commercial real estate	15,421		1,980	976	18,377
Residential real estate	4,236		446	23	4,705
Consumer:
Installment	4,112		–	–	4,112
Credit cards	2,908		–	–	2,908
Other	3,111		562	481	4,154
Total loans, gross	99,170		13,881	2,506	115,557
Allowance for loan losses	(3,714	)	–	–	(3,714	)
Total loans	$95,456		$13,881	$2,506	$111,843
As of December 2019
Loan Type
Corporate	$41,129		$  3,224	$1,954	$  46,307
Wealth management	20,116		7,824	–	27,940
Commercial real estate	13,258		1,876	2,609	17,743
Residential real estate	6,132		792	34	6,958
Consumer:
Installment	4,747		–	–	4,747
Credit cards	1,858		–	–	1,858
Other	3,396		670	726	4,792
Total loans, gross	90,636		14,386	5,323	110,345
Allowance for loan losses	(1,441	)	–	–	(1,441	)
Total loans	$89,195		$14,386	$5,323	$108,904

The following is a description of the loan types in the table above:

• Corporate. Corporate loans includes term loans, revolving lines of credit, letter of credit facilities and bridge loans, and are principally used for operating 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.

• Wealth Management. Wealth management loans includes loans extended to private bank clients, including wealth management and other clients. These loans are used to finance investments in both financial and nonfinancial assets, bridge cash flow timing gaps or provide liquidity for other needs. Substantially all of such loans are secured by securities, residential real estate, commercial real estate or other assets.

35 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

• Commercial Real Estate. Commercial real estate loans includes loans extended by the firm (other than to private bank clients) that are directly or indirectly secured by hotels, retail stores, multifamily housing complexes and commercial and industrial properties. Commercial real estate loans also includes loans extended to clients who warehouse assets that are directly or indirectly backed by commercial real estate. In addition, commercial real estate includes loans purchased by the firm.

• Residential Real Estate. Residential real estate loans primarily includes loans extended by the firm to clients (other than private bank clients) who warehouse assets that are directly or indirectly secured by residential real estate and loans purchased by the firm.

• Installment. Installment loans are unsecured and are originated by the firm.

• Credit Cards. Credit card loans are loans made pursuant to revolving lines of credit issued to consumers by the firm.

• Other. Other loans primarily includes loans extended to clients who warehouse assets that are directly or indirectly secured by consumer loans, including auto loans and private student loans. Other loans also includes unsecured consumer and credit card loans purchased by the firm.

Loans accounted for at amortized cost included PCI loans with a carrying value of $1.62 billion (outstanding principal balance of $3.23 billion and accretable yield of $220 million) as of December 2019, which were secured by commercial and residential real estate. In January 2020, the firm elected the fair value option for these PCI loans in accordance with ASU

No. 2016-13.

These loans were primarily transferred to trading assets. See Note 3 for further information about adoption of this ASU.

Credit Quality

Risk Assessment.

The firm’s risk assessment process includes evaluating the credit quality of its loans. For corporate loans and a majority of wealth management, real estate and other loans, the firm performs credit reviews which include initial and ongoing analyses of its borrowers, resulting in an internal credit rating. A credit review is an independent analysis of the capacity and willingness of a borrower to meet its financial obligations and is performed on an annual basis or more frequently if circumstances change that indicate that a review may be necessary. 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 table below presents gross loans by an internally determined public rating agency equivalent or other credit metrics and the concentration of secured and unsecured loans.

$ in millions	Investment- Grade	Non-Investment- Grade	Other/ Unrated	Total
As of September 2020
Accounting Method
Amortized cost	$31,487	$57,168	$10,515	$  99,170
Fair value	2,068	5,863	5,950	13,881
Held for sale	466	1,564	476	2,506
Total	$34,021	$64,595	$16,941	$115,557
Loan Type
Corporate	$10,880	$39,972	$       613	$  51,465
Wealth management	19,333	4,923	5,580	29,836
Real estate:
Commercial	1,468	15,922	987	18,377
Residential	689	2,796	1,220	4,705
Consumer:
Installment	–	–	4,112	4,112
Credit cards	–	–	2,908	2,908
Other	1,651	982	1,521	4,154
Total	$34,021	$64,595	$16,941	$115,557
Secured	79%	91%	48%	81%
Unsecured	21%	9%	52%	19%
Total	100%	100%	100%	100%
As of December 2019
Accounting Method
Amortized cost	$30,266	$51,222	$  9,148	$  90,636
Fair value	2,844	5,174	6,368	14,386
Held for sale	323	4,368	632	5,323
Total	$33,433	$60,764	$16,148	$110,345
Loan Type
Corporate	$10,507	$35,509	$     291	$  46,307
Wealth management	20,001	3,576	4,363	27,940
Real estate:
Commercial	306	15,997	1,440	17,743
Residential	244	4,600	2,114	6,958
Consumer:
Installment	–	–	4,747	4,747
Credit cards	–	–	1,858	1,858
Other	2,375	1,082	1,335	4,792
Total	$33,433	$60,764	$16,148	$110,345
Secured	83%	91%	54%	83%
Unsecured	17%	9%	46%	17%
Total	100%	100%	100%	100%

Goldman Sachs September 2020 Form 10-Q 36

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

In the table above, other/unrated loans include installment and credit card loans of $7.02 billion as of September 2020 and $6.61 billion as of December 2019 for which an important credit-quality indicator is the Fair Isaac Corporation (FICO) credit score (which measures a borrower’s creditworthiness by considering factors such as payment and credit history). FICO credit scores are periodically refreshed by the firm to assess the updated creditworthiness of the borrower. See “Vintage” below for information about installment and credit card loans by FICO credit scores. The vast majority of the remaining loans of $9.92 billion as of September 2020 and $9.54 billion as of December 2019 included in the other/unrated category are secured. These loans primarily consist of wealth management loans backed by residential real estate and securities, and purchased real estate-backed loans. The firm’s risk assessment process for such loans includes reviewing certain key metrics, such as

loan-to-value

ratio, delinquency status, collateral values, expected cash flows and other risk factors.

The firm also assigns a regulatory risk rating to its loans based on the definitions provided by the U.S. federal bank regulatory agencies. Total loans included 86% of loans as of September 2020 and 91% as of December 2019 that were rated

pass/non-criticized.

Vintage.

The table below presents gross loans accounted for at amortized cost (excluding installment and credit card loans) by an internally determined public rating agency equivalent or other credit metrics and origination year for term loans.

	As of September 2020
$ in millions		Investment- Grade	Non-Investment- Grade	Other/ Unrated	Total
2020		$  2,355	$  5,465	$  146	$  7,966
2019		995	7,005	–	8,000
2018		2,155	3,797	–	5,952
2017		891	3,276	–	4,167
2016		271	1,495	–	1,766
2015 or earlier		376	2,296	–	2,672
Revolving		3,541	13,428	91	17,060
Corporate		10,584	36,762	237	47,583
2020		372	239	–	611
2019		683	403	–	1,086
2018		413	76	–	489
2017		380	76	–	456
2016		22	21	–	43
2015 or earlier		519	265	–	784
Revolving		15,338	1,851	1,141	18,330
Wealth management		17,727	2,931	1,141	21,799
2020		538	2,217	45	2,800
2019		24	2,096	–	2,120
2018		213	2,170	16	2,399
2017		18	1,779	12	1,809
2016		–	186	9	195
2015 or earlier		–	819	491	1,310
Revolving		127	4,661	–	4,788
Commercial real estate		920	13,928	573	15,421
2020		530	1,063	90	1,683
2019		–	227	256	483
2018		–	143	369	512
2017		8	62	75	145
2016		–	2	–	2
2015 or earlier		–	–	84	84
Revolving		150	1,177	–	1,327
Residential real estate		688	2,674	874	4,236
2020		260	18	502	780
2019		–	76	64	140
2018		–	52	–	52
2017		–	9	–	9
Revolving		1,308	718	104	2,130
Other		1,568	873	670	3,111
Total		$31,487	$57,168	$3,495	$92,150
Percentage of total		34%	62%	4%	100%

In the table above, revolving loans which converted to term loans were not material as of September 2020.

37 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The table below presents gross installment loans by refreshed FICO credit scores and origination year and gross credit card loans by refreshed FICO credit scores.

	As of September 2020
$ in millions		Greater than or equal to 660	Less than 660	Total
2020		$1,116	$       28	$1,144
2019		1,434	145	1,579
2018		984	185	1,169
2017		170	40	210
2016		8	2	10
Installment		3,712	400	4,112
Credit cards		2,175	733	2,908
Total consumer		$5,887	$1,133	$7,020
Percentage of total:
Installment		90%	10%	100%
Credit cards		75%	25%	100%

In the table above, credit card loans consist of revolving lines of credit.

Credit Concentrations.

The table below presents the concentration of gross loans by region.

$ in millions	Carrying Value	Americas	EMEA	Asia	Total
As of September 2020
Corporate	$  51,465	61%	31%	8%	100%
Wealth management	29,836	90%	8%	2%	100%
Commercial real estate	18,377	68%	20%	12%	100%
Residential real estate	4,705	87%	11%	2%	100%
Consumer:
Installment	4,112	100%	–	–	100%
Credit cards	2,908	100%	–	–	100%
Other	4,154	82%	17%	1%	100%
Total	$115,557	74%	20%	6%	100%
As of December 2019
Corporate	$  46,307	60%	31%	9%	100%
Wealth management	27,940	88%	9%	3%	100%
Commercial real estate	17,743	69%	21%	10%	100%
Residential real estate	6,958	90%	9%	1%	100%
Consumer:
Installment	4,747	100%	–	–	100%
Credit cards	1,858	100%	–	–	100%
Other	4,792	87%	12%	1%	100%
Total	$110,345	73%	21%	6%	100%

In the table above, EMEA represents Europe, Middle East and Africa.

The table below presents the concentration of gross corporate loans by industry.

	As of
$ in millions		September 2020	December 2019
Corporate, gross		$51,465	$46,307
Industry
Consumer & Retail		7%	7%
Diversified Industrials		22%	17%
Financial Institutions		10%	10%
Funds		9%	9%
Healthcare		7%	8%
Natural Resources & Utilities		12%	12%
Real Estate		7%	7%
Technology, Media & Telecommunications		17%	17%
Other (including Special Purpose Vehicles)		9%	13%
Total		100%	100%

The table below presents the firm’s credit exposure from originated installment and credit card loans and the concentration by the five most concentrated U.S. states.

	As of
$ in millions		September 2020	December 2019
Installment		$4,112	$4,747
California		12%	12%
Texas		9%	9%
New York		7%	7%
Florida		7%	7%
Illinois		4%	4%
Other		61%	61%
Total		100%	100%
Credit Cards		$2,908	$1,858
California		19%	21%
Texas		9%	9%
New York		8%	8%
Florida		8%	8%
Illinois		4%	4%
Other		52%	50%
Total		100%	100%

Nonaccrual and Past Due Loans.

Loans accounted for at amortized cost (other than credit card loans) are placed on nonaccrual status when it is probable that the firm will not collect all principal and interest due under the contractual terms, regardless of the delinquency status or if a loan is past due for 90 days or more, unless the loan is both well collateralized and in the process of collection. At that time, 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. A loan is considered past due when a principal or interest payment has not been made according to its contractual terms. Credit card loans are not placed on nonaccrual status and accrue interest until the loan is paid in full or is

charged-off.

In certain circumstances, the firm may modify the original terms of a loan agreement by granting a concession to a borrower experiencing financial difficulty, typically in the form of a modification of loan covenants, but may also include forbearance of interest or principal, payment extensions or interest rate reductions. These modifications, to the extent significant, are considered troubled debt restructurings (TDRs). Loan modifications that extend payment terms for a period of less than 90 days are generally considered insignificant and therefore not reported as TDRs.

In response to the global outbreak of the coronavirus

(COVID-19)

pandemic, the firm adopted the relief issued under the Coronavirus Aid, Relief, and Economic Security (CARES) Act and certain interpretive guidance issued by the U.S. banking agencies that provides for certain modified loans that would otherwise meet the definition of a TDR to not be classified as such. As of September 2020, the firm had $222 million of loans accounted for at amortized cost that were not classified as TDRs as a result of this relief and interpretive guidance.

Goldman Sachs September 2020 Form 10-Q 38

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The table below presents information about past due loans.

$ in millions	30-89 days	90 days or more	Total
As of September 2020
Corporate	$     –	$295	$295
Wealth management	1	34	35
Commercial real estate	17	205	222
Residential real estate	4	16	20
Consumer:
Installment	44	14	58
Credit cards	27	24	51
Other	20	3	23
Total	$113	$591	$704
Total divided by gross loans at amortized cost			0.7%
As of December 2019
Corporate	$197	$  42	$239
Wealth management	13	15	28
Commercial real estate	54	123	177
Residential real estate	19	18	37
Consumer:
Installment	71	29	100
Credit cards	35	4	39
Other	6	1	7
Total	$395	$232	$627
Total divided by gross loans at amortized cost			0.7%

The table below presents information about nonaccrual loans.

	As of
$ in millions		September 2020	December 2019
Corporate		$2,804	$1,122
Wealth management		47	52
Commercial real estate		446	175
Residential real estate		27	143
Installment		32	38
Other		187	–
Total		$3,543	$1,530
Total divided by gross loans at amortized cost		3.6%	1.7%

In the table above:

• Nonaccrual loans included $496 million as of September 2020 and $429 million as of December 2019 of loans that were 30 days or more past due.

• Loans that were 90 days or more past due and still accruing were not material as of both September 2020 and December 2019.

• Nonaccrual loans included $382 million as of September 2020 and $251 million as of December 2019 of corporate and commercial real estate loans that were modified in a troubled debt restructuring. The firm’s lending commitments related to these loans were not material as of both September 2020 and December 2019. Installment loans that were modified in a troubled debt restructuring were not material as of both September 2020 and December 2019.

Allowance for Credit Losses

The firm’s allowance for credit losses consists of the allowance for losses on loans and lending commitments accounted for at amortized cost. Loans and lending commitments accounted for at fair value or accounted for at the lower of cost or fair value are not subject to an allowance for credit losses.

The firm adopted ASU

No. 2016-13

in January 2020, which replaced the incurred credit loss model for recognizing credit losses with the CECL model. As a result, the firm’s allowance for credit losses effective January 2020 reflects management’s estimate of credit losses over the remaining expected life of such loans and also considers forecasts of future economic conditions. Prior to January 2020, the allowance for credit losses reflected probable incurred credit losses. See Note 3 for further information about the adoption of CECL.

To determine the allowance for credit losses, the firm classifies its loans and lending commitments accounted for at amortized cost into wholesale and consumer portfolios. Prior to January 2020, the firm also had PCI loans which were classified as a separate portfolio. These portfolios represent the level at which the firm has developed and documented its methodology to determine the allowance for credit losses. The allowance for credit losses is measured on a collective basis for loans that exhibit similar risk characteristics using a modeled approach and asset-specific basis for loans that do not share similar risk characteristics.

Under CECL, the allowance for credit losses takes into account the weighted average of a range of forecasts of future economic conditions over the expected life of the loan and lending commitments. The expected life of each loan or lending commitment is determined based on the contractual term adjusted for extension options or demand features. The forecasts include baseline, favorable and adverse economic scenarios over a three-year period. For loans with expected lives beyond three years, the model reverts to historical loss information based on a

non-linear

modeled approach. The forecasted economic scenarios consider a number of factors relevant to the wholesale and consumer portfolios described below. The firm applies judgment in weighing individual scenarios each quarter based on a variety of factors, including the firm’s internally derived economic outlook, market consensus, recent macroeconomic conditions and industry trends.

The allowance for credit losses also includes qualitative components which allow management to reflect the uncertain nature of economic forecasting and account for model imprecision and concentration risk.

39 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Management’s estimate of credit losses entails judgment about loan collectability at the reporting dates, and there are uncertainties inherent in those judgments. The allowance for credit losses is subject to a governance process that involves review and approval by senior management within the firm’s independent risk oversight and control functions. Personnel within the firm’s independent risk oversight and control functions are responsible for forecasting the economic variables that underlie the economic scenarios that are used in the modeling of expected credit losses. 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.

The table below presents gross loans and lending commitments accounted for at amortized cost by portfolio.

	As of
	September 2020			December 2019
$ in millions		Loans	Lending Commitments		Loans	Lending Commitments
Wholesale
Corporate		$47,583	$116,362		$41,129	$127,226
Wealth management		21,799	2,278		20,116	2,198
Commercial real estate		15,421	3,089		12,803	3,207
Residential real estate		4,236	1,373		4,965	759
Other		3,111	4,057		3,396	3,029
Consumer
Installment		4,112	4		4,747	12
Credit cards		2,908	18,880		1,858	13,669
PCI		–	–		1,622	–
Total		$99,170	$146,043		$90,636	$150,100

In the table above, wholesale loans included $3.51 billion as of September 2020 and $1.49 billion as of December 2019 of nonaccrual loans for which the allowance for credit losses was measured on an asset-specific basis. The allowance for credit losses on these loans was $570 million as of September 2020 and $207 million as of December 2019. These loans included $838 million as of September 2020 and $754 million as of December 2019 of loans which did not require a reserve as the loan was deemed to be recoverable.

See Note 18 for further information about lending commitments.

The following is a description of the methodology used to calculate the allowance for credit losses:

Wholesale.

The allowance for credit losses for wholesale loans and lending commitments that exhibit similar risk characteristics is measured using a modeled approach. These models determine the probability of default and loss given default based on various risk factors, including internal credit ratings, industry default and loss data, expected life, macroeconomic indicators, the borrower’s capacity to meet its financial obligations, the borrower’s country of risk and industry, loan seniority and collateral type. For lending commitments, the methodology also considers probability of drawdowns or funding. In addition, for loans backed by real estate, risk factors include the

loan-to-value

ratio, debt service ratio and home price index. The most significant inputs to the forecast model for wholesale loans and lending commitments include unemployment rates, GDP, credit spreads, commercial and industrial delinquency rates, short- and long-term interest rates, and oil prices.

The allowance for loan losses for wholesale loans that do not share similar risk characteristics, such as nonaccrual loans or loans in a troubled debt restructuring, is calculated using the present value of expected future cash flows discounted at the loan’s original effective rate, the observable market price of the loan or the fair value of the collateral.

Wholesale loans are

charged-off

against the allowance for loan losses when deemed to be uncollectible.

Consumer.

The allowance for credit losses for consumer loans that exhibit similar risk characteristics is calculated using a modeled approach which classifies consumer loans into pools based on borrower-related and exposure-related characteristics that differentiate a pool’s risk characteristics from other pools. The factors considered in determining a pool are generally consistent with the risk characteristics used for internal credit risk measurement and management and include key metrics, such as FICO credit scores, delinquency status, loan vintage and macroeconomic indicators. The most significant inputs to the forecast model for consumer loans include unemployment rates and delinquency rates. The expected life of revolving credit card loans is determined by modeling expected future draws and the timing and amount of repayments allocated to the funded balance. The firm does not recognize an allowance for credit losses on credit card lending commitments as they are cancellable by the firm.

The allowance for credit losses for consumer loans that do not share similar risk characteristics, such as loans in a troubled debt restructuring, is calculated using the present value of expected future cash flows discounted at the loan’s original effective rate.

Installment loans are

charged-off

when they are 120 days past due. Credit card loans are

charged-off

when they are 180 days past due.

Goldman Sachs September 2020 Form 10-Q 40

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Allowance for Credit Losses Rollforward

The table below presents information about the allowance for credit losses.

$ in millions	Wholesale		Consumer		PCI		Total
Nine Months Ended September 2020
Allowance for loan losses
Beginning balance, reported	$     879		$     393		$ 169		$1,441
Impact of CECL adoption	452		444		(169	)	727
Beginning balance, adjusted	1,331		837		–		2,168
Net charge-offs	(501	)	(230	)	–		(731	)
Provision	1,977		525		–		2,502
Other	(225	)	–		–		(225	)
Ending balance	$2,582		$1,132		$     –		$3,714
Allowance ratio	2.8%		16.1%		–		3.7%
Net charge-off ratio	0.7%		4.5%		–		1.0%
Allowance for losses on lending commitments
Beginning balance, reported	$     361		$       –		$     –		$     361
Impact of CECL adoption	(48	)	–		–		(48	)
Beginning balance, adjusted	313		–		–		313
Provision	302		–		–		302
Ending balance	$     615		$       –		$     –		$     615
Year Ended December 2019
Allowance for loan losses
Beginning balance	$   658		$   292		$116		$1,066
Net charge-offs	(121	)	(317	)	(52	)	(490	)
Provision	469		418		103		990
Other	(127	)	–		2		(125	)
Ending balance	$   879		$   393		$169		$1,441
Allowance ratio	1.1%		6.0%		10.4%		1.6%
Net charge-off ratio	0.2%		6.2%		3.2%		0.6%
Allowance for losses on lending commitments
Beginning balance	$   286		$      –		$     –		$   286
Provision	75		–		–		75
Ending balance	$   361		$      –		$     –		$   361

In the table above:

• Other represents the reduction to the allowance related to loans and lending commitments transferred to held for sale.

• The allowance ratio is calculated by dividing the allowance for loan losses by gross loans accounted for at amortized cost.

• The net charge-off ratio is calculated by dividing net charge-offs (annualized for interim periods) by average gross loans accounted for at amortized cost.

Allowance for Credit Losses Rollforward Commentary

Nine Months Ended September 2020.

The allowance for credit losses increased by $2.53 billion during the nine months ended September 2020.

The impact of CECL adoption for wholesale and consumer loans was driven by the fact that the allowance under CECL covers expected credit losses over the full expected life of the loan portfolios and also considers forecasts of expected future economic conditions. The impact of CECL adoption for PCI loans was as a result of the firm electing to apply the fair value option for such loans.

The provision for credit losses for wholesale and consumer loans reflected the continued impact of the

COVID-19

pandemic on economic conditions, which resulted in higher modeled expected losses and lower recoveries. The allowance for loan losses ratio for wholesale loans increased to 2.8% as of September 2020 compared with 1.1% as of December 2019, while the allowance for loan losses ratio for consumer loans increased to 16.1% as of September 2020 compared with 6.0% as of December 2019. The increase in the allowance for loan losses ratios reflected both the impact of adopting the CECL standard, as well as higher provision for credit losses.

When modeling expected credit losses, the firm employs a weighted, multivariate forecast, which includes baseline, adverse and favorable economic scenarios. As of September 2020, the forecasted economic scenarios were most heavily weighted towards the baseline and adverse scenarios. The forecast model incorporated adjustments to reflect the impact of

COVID-19-related

concession programs on delinquency rates and also considered the impact of the CARES Act and other economic support programs provided by national governments.

The table below presents the forecasted range (across the baseline, adverse and favorable scenarios) of the U.S. unemployment and U.S. GDP growth rates used in the forecast model as of September 2020.

	U.S. Unemployment Rate	Growth/(Decline) in U.S. GDP
Forecast for the quarter ended:
December 2020	7.0% to 11.8%	(0.3)% to (8.2)%
June 2021	5.5% to 11.6%	3.5% to (8.0)%
December 2021	4.6% to 8.6%	6.3% to (2.6)%

In the table above:

• U.S. unemployment rate represents the rate forecasted as of the respective quarter-end.

• Growth/(decline) in U.S. GDP represents the change in quarterly U.S. GDP relative to the U.S. GDP for the fourth quarter of 2019 (pre-pandemic levels).

• Recovery of quarterly U.S. GDP to its pre-pandemic levels in the three scenarios ranges from the quarters ending March 2021 to September 2022.

• While the U.S. unemployment and U.S. GDP growth rates are significant inputs to the forecast model, the model contemplates a variety of other inputs across a range of scenarios to provide a forecast of future economic conditions. Given the complex nature of the forecasting process, no single economic variable can be viewed in isolation and independently of other inputs.

41 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

In addition, the provision for credit losses for wholesale loans was impacted by asset-specific provisions and ratings downgrades primarily related to borrowers in the technology, media & communications, diversified industrials, and natural resources industries. Besides the weaker economic outlook related to the

COVID-19

pandemic, the provision for credit losses for consumer loans for the nine months ended September 2020 was also impacted by the continued seasoning of the credit card portfolio.

Net charge-offs for the nine months ended September 2020 for wholesale loans were substantially all related to corporate loans and net charge-offs for consumer loans were primarily related to installment loans.

Year Ended December 2019.

The allowance for credit losses increased by $450 million during the year ended December 2019.

The provision for credit losses for wholesale loans was substantially all related to corporate loans for the year ended December 2019. The provision for credit losses related to consumer loans was primarily related to installment loans for the year ended December 2019.

Net charge-offs for wholesale loans were primarily related to corporate loans for the year ended December 2019. Net charge-offs for consumer loans were substantially all related to installment loans for the year ended December 2019.

Fair Value of Loans by Level

The table below presents loans held for investment accounted for at fair value under the fair value option by level within the fair value hierarchy.

$ in millions	Level 1	Level 2	Level 3	Total
As of September 2020
Loan Type
Corporate	$    –	$  1,853	$1,003	$  2,856
Wealth management	–	7,977	60	8,037
Commercial real estate	–	814	1,166	1,980
Residential real estate	–	177	269	446
Other	–	233	329	562
Total	$    –	$11,054	$2,827	$13,881
As of December 2019
Loan Type
Corporate	$    –	$  2,472	$   752	$  3,224
Wealth management	–	7,764	60	7,824
Commercial real estate	–	1,285	591	1,876
Residential real estate	–	571	221	792
Other	–	404	266	670
Total	$    –	$12,496	$1,890	$14,386

The gains as a result of changes in the fair value of loans held for investment for which the fair value option was elected were $64 million for the three months ended September 2020, $102 million for the three months ended September 2019, $49 million for the nine months ended September 2020, and $404 million for the nine months ended September 2019. These gains were included in other principal transactions.

See Note 4 for an overview of the firm’s fair value measurement policies and the valuation techniques and significant inputs used to determine the fair value of loans.

Significant Unobservable Inputs

The table below presents the amount of level 3 loans, and ranges and weighted averages of significant unobservable inputs used to value such loans.

	Level 3 Assets and Range of Significant Unobservable Inputs (Weighted Average) as of
$ in millions		September 2020		December 2019
Corporate
Level 3 assets		$1,003		$752
Yield		2.1% to 24.4% (8.9%	)	1.9% to 26.3% (9.5%	)
Recovery rate		15.0% to 70.0% (37.5%	)	13.5% to 78.0% (44.4%	)
Duration (years)		3.0 to 5.5 (4.2	)	3.7 to 5.8 (3.9	)
Commercial real estate
Level 3 assets		$1,166		$591
Yield		4.5% to 26.3% (11.1%	)	7.0% to 16.0% (9.3%	)
Recovery rate		3.3% to 98.3% (69.0%	)	5.9% to 85.2% (48.6%	)
Duration (years)		0.1 to 4.3 (2.8	)	0.2 to 5.3 (3.5	)
Residential real estate
Level 3 assets		$269		$221
Yield		1.5% to 14.0% (11.9%	)	1.1% to 14.0% (11.5%	)
Duration (years)		0.7 to 3.1 (1.7	)	1.1 to 4.8 (4.0	)
Wealth management and other
Level 3 assets		$389		$326
Yield		9.0% to 18.7% (9.7%	)	3.9% to 16.0% (9.9%	)
Duration (years)		1.0 to 5.2 (3.0	)	1.6 to 6.7 (3.7	)

In the table above:

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

• Weighted averages are calculated by weighting each input by the relative fair value of the loan.

• 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 loan. For example, the highest yield for residential real estate loans is appropriate for valuing a specific residential real estate loan but may not be appropriate for valuing any other residential real estate loan. Accordingly, the ranges of inputs do not represent uncertainty in, or possible ranges of, fair value measurements of level 3 loans.

• Increases in yield or duration used in the valuation of level 3 loans would have resulted in a lower fair value measurement, while increases in recovery rate would have resulted in a higher fair value measurement as of both September 2020 and December 2019. Due to the distinctive nature of each level 3 loan, the interrelationship of inputs is not necessarily uniform within each product type.

• Loans are valued using discounted cash flows.

Goldman Sachs September 2020 Form 10-Q 42

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Level 3 Rollforward

The table below presents a summary of the changes in fair value for level 3 loans.

	Three Months Ended September					Nine Months Ended September
$ in millions		2020		2019			2020		2019
Beginning balance		$2,659		$2,107			$1,890		$1,990
Net realized gains/(losses)		23		19			60		55
Net unrealized gains/(losses)		76		(10	)		34		34
Purchases		181		55			557		134
Sales		(17	)	(71	)		(31	)	(24	)
Settlements		(221	)	(242	)		(567	)	(600	)
Transfers into level 3		166		126			928		477
Transfers out of level 3		(40	)	(46	)		(44	)	(128	)
Ending balance		$2,827		$1,938			$2,827		$1,938

In the table above:

• Changes in fair value are presented for loans that are classified in level 3 as of the end of the period.

• Net unrealized gains/(losses) relates to loans that were still held at period-end.

• Purchases includes originations and secondary purchases.

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

The table below presents information, by loan type, for loans included in the summary table above.

	Three Months Ended September					Nine Months Ended September
$ in millions		2020		2019			2020		2019
Corporate
Beginning balance		$     939		$ 873			$     752		$ 659
Net realized gains/(losses)		7		6			14		7
Net unrealized gains/(losses)		1		(23	)		(5	)	(29	)
Purchases		132		48			184		111
Sales		(9	)	(67	)		(18	)	(14	)
Settlements		(58	)	(124	)		(110	)	(220	)
Transfers into level 3		23		51			230		248
Transfers out of level 3		(32	)	(42	)		(44	)	(40	)
Ending balance		$1,003		$ 722			$1,003		$ 722
Commercial real estate
Beginning balance		$1,084		$ 642			$     591		$ 677
Net realized gains/(losses)		11		7			38		18
Net unrealized gains/(losses)		43		(15	)		4		(2	)
Purchases		40		2			323		12
Sales		(5	)	(3	)		(10	)	(6	)
Settlements		(120	)	(68	)		(278	)	(200	)
Transfers into level 3		121		34			498		100
Transfers out of level 3		(8	)	(1	)		–		(1	)
Ending balance		$1,166		$ 598			$1,166		$ 598
Residential real estate
Beginning balance		$     268		$ 174			$     221		$ 290
Net realized gains/(losses)		3		2			7		11
Net unrealized gains/(losses)		11		8			8		21
Purchases		1		5			43		11
Sales		(2	)	(1	)		(2	)	(4	)
Settlements		(22	)	(19	)		(57	)	(76	)
Transfers into level 3		10		41			49		41
Transfers out of level 3		0		(3	)		–		(87	)
Ending balance		$     269		$ 207			$     269		$ 207
Wealth management and other
Beginning balance		$     368		$ 418			$     326		$ 364
Net realized gains/(losses)		2		4			1		19
Net unrealized gains/(losses)		21		20			27		44
Purchases		8		–			7		–
Sales		(1	)	–			(1	)	–
Settlements		(21	)	(31	)		(122	)	(104	)
Transfers into level 3		12		–			151		88
Ending balance		$     389		$ 411			$     389		$ 411

Level 3 Rollforward Commentary

Three Months Ended September 2020.

The net realized and unrealized gains on level 3 loans of $99 million (reflecting $23 million of net realized gains and $76 million of net unrealized gains) for the three months ended September 2020 included gains of $86 million reported in other principal transactions and $13 million reported in interest income.

The drivers of the net unrealized gains on level 3 loans for the three months ended September 2020 were not material.

43 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Transfers into level 3 loans during the three months ended September 2020 primarily reflected transfers of certain loans backed by commercial real estate from level 2, principally due to certain unobservable inputs becoming significant to the valuation of these instruments

,

and transfers of certain other loans backed by commercial real estate from level 2, principally due to reduced price transparency as a result of a lack of market evidence, including fewer market transactions in these instruments.

The drivers of transfers out of level 3 loans during the three months ended September 2020 were not material.

Nine Months Ended September 2020.

The net realized and unrealized gains on level 3 loans of $94 million (reflecting $60 million of net realized gains and $34 million of net unrealized gains) for the nine months ended September 2020 included gains of $70 million reported in other principal transactions and $24 million reported in interest income.

The drivers of the net unrealized gains on level 3 loans for the nine months ended September 2020 were not material.

Transfers into level 3 loans during the nine months ended September 2020 primarily reflected transfers of certain loans backed by commercial real estate, corporate loans and wealth management and other 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.

The drivers of transfers out of level 3 loans during the nine months ended September 2020 were not material.

Three Months Ended September 2019.

The net realized and unrealized gains on level 3 loans of $9 million (reflecting $19 million of net realized gains and $10 million of net unrealized losses) for the three months ended September 2019 included gains/(losses) of $(7) million reported in other principal transactions and $16 million reported in interest income.

The drivers of the net unrealized gains on level 3 loans for the three months ended September 2019 were not material.

The drivers of both transfers into level 3 loans and transfers out of level 3 loans during the three months ended September 2019 were not material.

Nine Months Ended September 2019.

The net realized and unrealized gains on level 3 loans of $89 million (reflecting $55 million of net realized gains and $34 million of net unrealized gains) for the nine months ended September 2019 included gains of $56 million reported in other principal transactions and $33 million reported in interest income.

The drivers of the net unrealized gains on level 3 loans for the nine months ended September 2019 were not material.

Transfers into level 3 loans during the nine months ended September 2019 primarily reflected transfers of certain corporate, commercial real estate, and wealth management and other 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 loans during the nine months ended September 2019 primarily reflected transfers of certain loans 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.

Estimated Fair Value

The table below presents the estimated fair value of loans that are not accounted for at fair value and in what level of the fair value hierarchy they would have been classified if they had been included in the firm’s fair value hierarchy.

	Carrying Value		Estimated Fair Value
$ in millions				Level 2	Level 3	Total
As of September 2020
Amortized cost		$95,456		$43,823	$52,792	$96,615
Held for sale		$  2,506		$  1,438	$  1,075	$  2,513
As of December 2019
Amortized cost		$89,195		$52,091	$37,095	$89,186
Held for sale		$  5,323		$  4,157	$  1,252	$  5,409

Goldman Sachs September 2020 Form 10-Q 44

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Note 10.

Fair Value Option

Other Financial Assets and Liabilities at Fair Value

In addition to trading assets and liabilities, and certain investments and loans, the firm accounts for certain of its other financial assets and liabilities at fair value, substantially all 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 assets 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 nonfinancial 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 liabilities accounted for at fair value under the fair value option include:

• Repurchase agreements and resale agreements;

• Securities borrowed and loaned in FICC financing;

• Substantially all other secured financings, including transfers of assets accounted for as financings;

• Certain unsecured short- and long-term borrowings, substantially all of which are hybrid financial instruments;

• Certain customer and other receivables, including certain margin loans; and

• Certain time deposits (deposits with no stated maturity are not eligible for a fair value option election), including structured certificates of deposit, which are hybrid financial instruments.

Fair Value of Other Financial Assets and Liabilities by Level

The table below presents, by level within the fair value hierarchy, other financial assets and liabilities at fair value, substantially all of which are accounted for at fair value under the fair value option.

$ in millions	Level 1	Level 2		Level 3		Total
As of September 2020
Assets
Resale agreements	$    –	$ 101,277		$        –		$ 101,277
Securities borrowed	–	31,680		–		31,680
Customer and other receivables	–	60		–		60
Total	$    –	$ 133,017		$        –		$ 133,017
Liabilities
Deposits	$    –	$  (14,251	)	$  (4,150	)	$  (18,401	)
Repurchase agreements	–	(101,277	)	(2	)	(101,279	)
Securities loaned	–	(1,060	)	–		(1,060	)
Other secured financings	–	(20,502	)	(3,063	)	(23,565	)
Unsecured borrowings:
Short-term	–	(18,356	)	(7,574	)	(25,930	)
Long-term	–	(27,548	)	(12,780	)	(40,328	)
Other liabilities	–	(1	)	(335	)	(336	)
Total	$    –	$(182,995	)	$(27,904	)	$(210,899	)
As of December 2019
Assets
Resale agreements	$    –	$  85,691		$          –		$  85,691
Securities borrowed	–	26,279		–		26,279
Customer and other receivables	–	53		–		53
Total	$    –	$112,023		$          –		$112,023
Liabilities
Deposits	$    –	$(13,742	)	$(4,023	)	$(17,765	)
Repurchase agreements	–	(117,726	)	(30	)	(117,756	)
Securities loaned	–	(714	)	–		(714	)
Other secured financings	–	(17,685	)	(386	)	(18,071	)
Unsecured borrowings:
Short-term	–	(20,300	)	(5,707	)	(26,007	)
Long-term	–	(32,920	)	(10,741	)	(43,661	)
Other liabilities	–	(1	)	(149	)	(150	)
Total	$    –	$(203,088	)	$(21,036	)	$(224,124	)

In the table above, other financial assets are shown as positive amounts and other financial liabilities are shown as negative amounts.

See Note 4 for an overview of the firm’s fair value measurement policies and the valuation techniques and significant inputs used to determine the fair value of other financial assets and liabilities.

Significant Unobservable Inputs

See below for information about the significant unobservable inputs used to value level 3 other financial assets and liabilities at fair value as of both September 2020 and December 2019.

45 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Other Secured Financings.

The ranges and weighted averages of significant unobservable inputs used to value level 3 other secured financings are presented below. These ranges and weighted averages exclude unobservable inputs that are only relevant to a single instrument, and therefore are not meaningful.

As of September 2020:

• Yield: 1.5% to 7.1% (weighted average: 3.1%)

• Duration: 0.9 to 8.3 years (weighted average: 4.2 years)

As of December 2019:

• Yield: 3.3% to 4.2% (weighted average: 3.5%)

• Duration: 0.6 to 2.1 years (weighted average: 1.0 year)

Generally, increases in yield or duration, in isolation, would have resulted in a lower fair value measurement as of

period-end.

Due to the distinctive nature of each of level 3 other secured financings, the interrelationship of inputs is not necessarily uniform across such financings. See Note 11 for further information about other secured financings.

Deposits, Unsecured Borrowings and Other Liabilities.

Substantially all of the firm’s deposits, unsecured short- and long-term borrowings, and other liabilities that are classified 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, unsecured borrowings and other liabilities, these unobservable inputs are incorporated in the firm’s derivative disclosures in Note 7. See Note 13 for further information about deposits, Note 14 for further information about unsecured borrowings and Note 15 for further information about other liabilities.

Repurchase Agreements.

As of both September 2020 and December 2019, the firm’s level 3 repurchase agreements were not material.

Level 3 Rollforward

The table below presents a summary of the changes in fair value for level 3 other financial liabilities accounted for at fair value.

	Three Months Ended September					Nine Months Ended September
$ in millions		2020		2019			2020		2019
Beginning balance		$(25,963	)	$(20,819	)		$(21,036	)	$(19,397	)
Net realized gains/(losses)		(112	)	(135	)		(244	)	(307	)
Net unrealized gains/(losses)		(354	)	(185	)		347		(1,839	)
Issuances		(6,974	)	(3,964	)		(18,633	)	(8,693	)
Settlements		6,911		3,910			14,348		9,509
Transfers into level 3		(1,756	)	(570	)		(2,857	)	(1,112	)
Transfers out of level 3		344		670			171		746
Ending balance		$(27,904	)	$(21,093	)		$(27,904	)	$(21,093	)

In the table above:

• Changes in fair value are presented for all other financial liabilities that are classified in level 3 as of the end of the period.

• Net unrealized gains/(losses) relates to other financial liabilities that were still held at period-end.

• Transfers between levels of the fair value hierarchy are reported at the beginning of the reporting period in which they occur. If a financial liability was transferred to level 3 during a reporting period, its entire gain or loss for the period is classified in level 3.

• For level 3 other financial liabilities, increases are shown as negative amounts, while decreases are shown as positive amounts.

• Level 3 other financial liabilities are frequently economically hedged with trading assets and liabilities. Accordingly, gains or losses that are classified in level 3 can be partially offset by gains or losses attributable to level 1, 2 or 3 trading assets and liabilities. 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.

Goldman Sachs September 2020 Form 10-Q 46

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The table below presents information, by the consolidated balance sheet line items, for liabilities included in the summary table above.

	Three Months Ended September					Nine Months Ended September
$ in millions		2020		2019			2020		2019
Deposits
Beginning balance		$  (4,217	)	$  (3,622	)		$  (4,023	)	$  (3,168	)
Net realized gains/(losses)		(4	)	–			–		(3	)
Net unrealized gains/(losses)		(68	)	(129	)		(142	)	(398	)
Issuances		(124	)	(267	)		(4,054	)	(661	)
Settlements		235		150			4,083		272
Transfers into level 3		(38	)	(136	)		(69	)	(59	)
Transfers out of level 3		66		58			55		71
Ending balance		$  (4,150	)	$  (3,946	)		$  (4,150	)	$  (3,946	)
Repurchase agreements
Beginning balance		$     (10	)	$       (28	)		$     (30	)	$       (29	)
Net unrealized gains/(losses)		–		1			(2	)	(2	)
Settlements		8		2			30		6
Ending balance		$       (2	)	$       (25	)		$       (2	)	$       (25	)
Other secured financings
Beginning balance		$  (1,773	)	$     (202	)		$   (386	)	$     (170	)
Net realized gains/(losses)		7		4			13		19
Net unrealized gains/(losses)		(67	)	(5	)		(12	)	(24	)
Issuances		(10	)	(1	)		(847	)	(20	)
Settlements		79		3			332		14
Transfers into level 3		(1,299	)	(133	)		(2,163	)	(153	)
Ending balance		$  (3,063	)	$     (334	)		$  (3,063	)	$     (334	)
Unsecured short-term borrowings
Beginning balance		$  (6,806	)	$  (5,026	)		$  (5,707	)	$  (4,076	)
Net realized gains/(losses)		(58	)	(50	)		(109	)	(99	)
Net unrealized gains/(losses)		(42	)	34			458		(238	)
Issuances		(4,879	)	(2,147	)		(7,605	)	(4,085	)
Settlements		4,295		1,982			5,571		3,270
Transfers into level 3		(280	)	(159	)		(234	)	(217	)
Transfers out of level 3		196		383			52		462
Ending balance		$  (7,574	)	$  (4,983	)		$  (7,574	)	$  (4,983	)
Unsecured long-term borrowings
Beginning balance		$(12,837	)	$(11,769	)		$(10,741	)	$(11,823	)
Net realized gains/(losses)		(64	)	(96	)		(171	)	(244	)
Net unrealized gains/(losses)		(167	)	(60	)		225		(1,110	)
Issuances		(1,949	)	(1,542	)		(6,099	)	(3,907	)
Settlements		2,294		1,773			4,332		5,947
Transfers into level 3		(139	)	(142	)		(390	)	(683	)
Transfers out of level 3		82		229			64		213
Ending balance		$(12,780	)	$(11,607	)		$(12,780	)	$(11,607	)
Other liabilities
Beginning balance		$   (320	)	$     (172	)		$   (149	)	$     (131	)
Net realized gains/(losses)		7		7			23		20
Net unrealized gains/(losses)		(10	)	(26	)		(180	)	(67	)
Issuances		(12	)	(7	)		(28	)	(20	)
Transfers into level 3		–		–			(1	)	–
Ending balance		$   (335	)	$     (198	)		$   (335	)	$     (198	)

Level 3 Rollforward Commentary

Three Months Ended September 2020.

The net realized and unrealized losses on level 3 other financial liabilities of $466 million (reflecting $112 million of net realized losses and $354 million of net unrealized losses) for the three months ended September 2020 included losses of $289 million reported in market making, $32 million reported in other principal transactions and $7 million reported in interest expense in the consolidated statements of earnings, and $138 million reported in debt valuation adjustment in the consolidated statements of comprehensive income.

The net unrealized losses on level 3 other financial liabilities for the three months ended September 2020 primarily reflected losses on certain hybrid financial instruments included in unsecured long-term borrowings, principally due to an increase in global equity prices, and losses on certain hybrid financial instruments included in deposits and other secured financings, principally due to an increase in the market value of the underlying assets.

Transfers into level 3 other financial liabilities during the three months ended September 2020 primarily reflected transfers of certain other secured financings from level 2, principally due to reduced price transparency of certain yield and duration inputs used to value these instruments, and certain hybrid financial instruments included in unsecured short- and long-term borrowings from level 2, principally due to reduced price transparency of certain volatility and correlation inputs used to value these instruments.

Transfers out of level 3 other financial liabilities during the three months ended September 2020 primarily reflected transfers of certain hybrid financial instruments included in unsecured short-term borrowings to level 2, principally due to increased price transparency of certain volatility and correlation inputs used to value these instruments.

Nine Months Ended September 2020.

The net realized and unrealized gains on level 3 other financial liabilities of $103 million (reflecting $244 million of net realized losses and $347 million of net unrealized gains) for the nine months ended September 2020 included gains/(losses) of $(38) million reported in market making, $27 million reported in other principal transactions and $(12) million reported in interest expense in the consolidated statements of earnings, and $126 million reported in debt valuation adjustment in the consolidated statements of comprehensive income.

The net unrealized gains on level 3 other financial liabilities for the nine months ended September 2020 primarily reflected gains on certain hybrid financial instruments included in unsecured short- and long-term borrowings, principally due to a decrease in global equity prices, partially offset by losses on certain other liabilities and hybrid financial instruments included in deposits, principally due to an increase in the market value of the underlying assets.

Transfers into level 3 other financial liabilities during the nine months ended September 2020 primarily reflected transfers of certain other secured financings from level 2, principally due to reduced price transparency of certain yield and duration inputs used to value these instruments, and certain hybrid financial instruments included in unsecured long- and short-term borrowings from level 2, principally due to reduced price transparency of certain volatility and correlation inputs used to value these instruments.

47 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The drivers of transfers out of level 3 other financial liabilities during the nine months ended September 2020 to level 2 were not material.

Three Months Ended September 2019.

The net realized and unrealized losses on level 3 other financial liabilities of $320 million (reflecting $135 million of net realized losses and $185 million of net unrealized losses) for the three months ended September 2019 included gains/(losses) of $(361) million reported in market making, $4 million reported in other principal transactions and $(4) million reported in interest expense in the consolidated statements of earnings, and $41 million reported in debt valuation adjustment in the consolidated statements of comprehensive income.

The net unrealized losses on level 3 other financial liabilities for the three months ended September 2019 primarily reflected losses on certain hybrid financial instruments included in deposits, principally due to the impact of an increase in the market value of the underlying assets.

Transfers into level 3 other financial liabilities during the three months ended September 2019 reflected transfers of certain hybrid financial instruments included in unsecured short- and long-term borrowings and deposits from level 2, principally due to reduced transparency of certain volatility and correlation inputs used to value these instruments, and transfers of certain hybrid financial instruments included in other secured financings from level 2, principally due to reduced transparency of certain yield inputs used to value these instruments.

Transfers out of level 3 other financial liabilities during the three months ended September 2019 primarily reflected transfers of certain hybrid financial instruments included in unsecured short- and long-term borrowings to level 2, principally due to increased transparency of certain volatility and correlation inputs used to value these instruments.

Nine Months Ended September 2019.

The net realized and unrealized losses on level 3 other financial liabilities of $2.15 billion (reflecting $307 million of net realized losses and $1.84 billion of net unrealized losses) for the nine months ended September 2019 included losses of $1.78 billion reported in market making, $2 million reported in other principal transactions and $4 million reported in interest expense in the consolidated statements of earnings, and $362 million reported in debt valuation adjustment in the consolidated statements of comprehensive income.

The net unrealized losses on level 3 other financial liabilities for the nine months ended September 2019 primarily reflected losses on certain hybrid financial instruments included in unsecured long-term borrowings, principally due to an increase in global equity prices, and losses on certain hybrid financial instruments included in deposits, principally due to the impact of an increase in the market value of the underlying assets.

Transfers into level 3 other financial liabilities during the nine months ended September 2019 primarily reflected transfers of certain hybrid financial instruments included in unsecured long- and short-term borrowings from level 2, principally due to reduced transparency of certain volatility and correlation inputs used to value these instruments.

Transfers out of level 3 other financial liabilities during the nine months ended September 2019 primarily reflected transfers of certain hybrid financial instruments included in unsecured short-term and long-term borrowings to level 2, principally due to increased transparency of certain volatility and correlation inputs used to value these instruments.

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

The table below presents the gains and losses recognized in earnings as a result of the election to apply the fair value option to certain financial assets and liabilities.

	Three Months Ended September					Nine Months Ended September
$ in millions		2020		2019			2020		2019
Unsecured short-term borrowings		$ (406	)	$   (293	)		$ 1,723		$(2,378	)
Unsecured long-term borrowings		(143	)	(929	)		(1,166	)	(5,078	)
Other		(152	)	(152	)		(246	)	(912	)
Total		$   (701	)	$(1,374	)		$     311		$(8,368	)

In the table above:

• Gains/(losses) were substantially all included in market making.

• Gains/(losses) 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) included in unsecured short- and long-term borrowings were substantially all related to the embedded derivative component of hybrid financial instruments for each of the three and nine months ended September 2020 and September 2019. 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.

• Other primarily consists of gains/(losses) on customer and other receivables, deposits, other secured financings and other liabilities.

• Other financial assets and liabilities at fair value are frequently economically hedged with trading assets and liabilities. Accordingly, gains or losses on such other financial assets and liabilities can be partially offset by gains or losses on trading assets and liabilities. As a result, gains or losses on other financial assets and liabilities do not necessarily represent the overall impact on the firm’s results of operations, liquidity or capital resources.

Goldman Sachs September 2020 Form 10-Q 48

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

See Note 8 for information about gains/(losses) on equity securities and Note 9 for information about gains/(losses) on loans which are accounted for at fair value under the fair value option. Gains/(losses) on trading assets and liabilities accounted for at fair value under the fair value option are included in market making. See Note 5 for further information about gains/(losses) from market making.

Long-Term Debt Instruments

The difference between the aggregate contractual principal amount and the related fair value of long-term other secured financings for which the fair value option was elected was not material as of both September 2020 and December 2019.

The difference between the aggregate contractual principal amount and the related fair value of unsecured long-term borrowings for which the fair value option was elected was not material as of September 2020, and the fair value exceeded the aggregate contractual principal amount by $199 million as of December 2019. The amounts above include both principal-protected and

non-principal-protected

long-term borrowings.

Debt Valuation Adjustment

The firm calculates the fair value of financial liabilities for which the fair value option is elected by discounting future cash flows at a rate which incorporates the firm’s credit spreads.

The table below presents information about the net debt valuation adjustment (DVA) gains/(losses) on financial liabilities for which the fair value option was elected.

	Three Months Ended September				Nine Months Ended September
$ in millions		2020		2019		2020	2019
DVA (pre-tax)		$(357	)	$372		$576	$(1,930	)
DVA (net of tax)		$(268	)	$278		$428	$(1,450	)

In the table above:

• DVA (net of tax) is included in debt valuation adjustment in the consolidated statements of comprehensive income.

• The gains/(losses) reclassified to earnings from accumulated other comprehensive income/(loss) upon extinguishment of such financial liabilities were not material for each of the three and nine months ended September 2020 and September 2019.

Loans and Lending Commitments

The table below presents the difference between the aggregate fair value and the aggregate contractual principal amount for loans (included in trading assets and loans on the consolidated balance sheets) for which the fair value option was elected.

	As of
$ in millions		September 2020	December 2019
Performing loans
Aggregate contractual principal in excess of fair value		$  1,096	$   809
Loans on nonaccrual status and/or more than 90 days past due
Aggregate contractual principal in excess of fair value		$10,296	$6,703
Aggregate fair value		$  3,103	$2,776

In the table above, the aggregate contractual principal amount of loans on nonaccrual status and/or more than 90 days past due (which excludes loans carried at zero fair value and considered uncollectible) exceeds the related fair value primarily because the firm regularly purchases loans, such as distressed loans, at values significantly below the contractual principal amounts.

The fair value of unfunded lending commitments for which the fair value option was elected was a liability of $22 million as of September 2020 and $24 million as of December 2019, and the related total contractual amount of these lending commitments was $1.58 billion as of September 2020 and $1.55 billion as of December 2019. See Note 18 for further information about lending commitments.

Impact of Credit Spreads on Loans and Lending Commitments

The estimated net gain/(loss) attributable to changes in instrument-specific credit spreads on loans and lending commitments for which the fair value option was elected was $73 million for the three months ended September 2020, $(22) million for the three months ended September 2019, $(151) million for the nine months ended September 2020 and $161 million for the nine months ended September 2019. The firm generally calculates the fair value of loans and lending commitments for which the fair value option is elected by discounting future cash flows at a rate which incorporates the instrument-specific credit spreads. For floating-rate loans and lending commitments, substantially all changes in fair value are attributable to changes in instrument-specific credit spreads, whereas for fixed-rate loans and lending commitments, changes in fair value are also attributable to changes in interest rates.

49 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Note 11.

Collateralized Agreements and Financings

Collateralized agreements are resale agreements and securities borrowed. Collateralized financings are 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, which is included in interest income, and collateralized financings, which is included in interest expense, is recognized over the life of the transaction. 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 2020	December 2019
Resale agreements		$101,277	$  85,691
Securities borrowed		$127,391	$136,071
Repurchase agreements		$101,279	$117,756
Securities loaned		$  17,288	$  14,985

In the table above:

• Resale agreements and repurchase agreements are carried at fair value under the fair value option. See Note 4 for further information about the valuation techniques and significant inputs used to determine fair value.

• Securities borrowed of $31.68 billion as of September 2020 and $26.28 billion as of December 2019, and securities loaned of $1.06 billion as of September 2020 and $714 million as of December 2019 were at fair value.

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.

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 before or at the maturity of the agreement. The financial instruments purchased or sold in resale and repurchase agreements typically include U.S. government and 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 consolidated balance sheets.

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.

Goldman Sachs September 2020 Form 10-Q 50

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Securities borrowed and loaned within FICC financing are recorded at fair value under the fair value option. See Note 10 for further information about securities borrowed and loaned accounted for at fair value.

Securities borrowed and loaned within Equities financing are recorded based on the amount of cash collateral advanced or received plus accrued interest. As these agreements generally can be terminated on demand, they exhibit little, if any, sensitivity to changes in interest rates. Therefore, the carrying value of such agreements approximates fair value. As these agreements are not accounted for at fair value, they are not included in the firm’s fair value hierarchy in Notes 4 through 10. Had these agreements been included in the firm’s fair value hierarchy, they would have been classified in level 2 as of both September 2020 and December 2019.

Offsetting Arrangements

The table below presents resale and repurchase agreements and securities borrowed and loaned transactions included in the consolidated balance sheets, as well as the amounts not offset in the consolidated balance sheets.

	Assets					Liabilities
$ in millions		Resale agreements		Securities borrowed			Repurchase agreements		Securities loaned
As of September 2020
Included in the consolidated balance sheets
Gross carrying value		$167,540		$ 131,829			$   167,542		$ 21,726
Counterparty netting		(66,263	)	(4,438	)		(66,263	)	(4,438	)
Total		101,277		127,391			101,279		17,288
Amounts not offset
Counterparty netting		(8,789	)	(2,776	)		(8,789	)	(2,776	)
Collateral		(90,529	)	(115,734	)		(91,651	)	(14,311	)
Total		$    1,959		$     8,881			$          839		$        201
As of December 2019
Included in the consolidated balance sheets
Gross carrying value		$152,982		$140,677			$ 185,047		$19,591
Counterparty netting		(67,291	)	(4,606	)		(67,291	)	(4,606	)
Total		85,691		136,071			117,756		14,985
Amounts not offset
Counterparty netting		(3,058	)	(2,211	)		(3,058	)	(2,211	)
Collateral		(78,528	)	(127,901	)		(114,065	)	(12,614	)
Total		$    4,105		$    5,959			$        633		$     160

In the table 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.

• Amounts not offset includes counterparty netting that does not meet the criteria for netting under U.S. GAAP and the fair value of collateral received or posted subject to enforceable credit support agreements.

Gross Carrying Value of Repurchase Agreements and Securities Loaned

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

$ in millions	Repurchase agreements	Securities loaned
As of September 2020
Money market instruments	$         917	$         –
U.S. government and agency obligations	87,602	–
Non-U.S. government and agency obligations	57,060	1,045
Securities backed by commercial real estate	66	–
Securities backed by residential real estate	288	–
Corporate debt securities	8,201	64
State and municipal obligations	21	–
Other debt obligations	18	–
Equity securities	13,369	20,617
Total	$167,542	$21,726
As of December 2019
Money market instruments	$       158	$        –
U.S. government and agency obligations	112,903	–
Non-U.S. government and agency obligations	55,575	1,051
Securities backed by commercial real estate	210	–
Securities backed by residential real estate	1,079	–
Corporate debt securities	6,857	122
State and municipal obligations	242	–
Other debt obligations	196	–
Equity securities	7,827	18,418
Total	$185,047	$19,591

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

	As of September 2020
$ in millions		Repurchase agreements	Securities loaned
No stated maturity and overnight		$103,365	$15,082
2 - 30 days		33,042	3,175
31 - 90 days		8,822	–
91 days - 1 year		19,473	3,469
Greater than 1 year		2,840	–
Total		$167,542	$21,726

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 holder are reflected at the earliest dates such options become exercisable.

51 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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 include:

• Liabilities of consolidated VIEs;

• Transfers of assets accounted for as financings rather than sales (e.g., pledged commodities, bank loans and mortgage whole loans); and

• Other structured financing arrangements.

Other secured financings included nonrecourse arrangements. Nonrecourse other secured financings were $13.03 billion as of September 2020 and $10.91 billion as of December 2019.

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 10 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. As these financings are not accounted for at fair value, they are not included in the firm’s fair value hierarchy in Notes 4 through 10. Had these financings been included in the firm’s fair value hierarchy, they would have been primarily classified in level 3 as of September 2020 and primarily classified in level 2 as of December 2019.

The table below presents information about other secured financings.

$ in millions	U.S. Dollar	Non-U.S. Dollar	Total
As of September 2020
Other secured financings (short-term):
At fair value	$  5,109	$  6,619	$11,728
At amortized cost	–	–	–
Other secured financings (long-term):
At fair value	6,693	5,144	11,837
At amortized cost	716	700	1,416
Total other secured financings	$12,518	$12,463	$24,981
Other secured financings collateralized by:
Financial instruments	$  5,285	$10,105	$15,390
Other assets	$  7,233	$  2,358	$  9,591
As of December 2019
Other secured financings (short-term):
At fair value	$  2,754	$  4,441	$  7,195
At amortized cost	129	–	129
Other secured financings (long-term):
At fair value	7,402	3,474	10,876
At amortized cost	397	680	1,077
Total other secured financings	$10,682	$  8,595	$19,277
Other secured financings collateralized by:
Financial instruments	$  4,826	$  7,189	$12,015
Other assets	$  5,856	$  1,406	$  7,262

In the table above:

• Short-term other secured financings includes 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.

• U.S. dollar-denominated short-term other secured financings at amortized cost had a weighted average interest rate of 4.32% as of December 2019. These rates include the effect of hedging activities.

• U.S. dollar-denominated long-term other secured financings at amortized cost had a weighted average interest rate of 1.13% as of September 2020 and 2.79% as of December 2019. These rates include the effect of hedging activities.

• Total other secured financings included $2.03 billion as of September 2020 and $2.16 billion as of December 2019 related to transfers of financial assets accounted for as financings rather than sales. Such financings were collateralized by financial assets, primarily included in trading assets, of $2.04 billion as of September 2020 and $2.21 billion as of December 2019.

Goldman Sachs September 2020 Form 10-Q 52

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

• Other secured financings collateralized by financial instruments included $10.70 billion as of September 2020 and $9.09 billion as of December 2019 of other secured financings collateralized by trading assets, investments and loans, and included $4.69 billion as of September 2020 and $2.93 billion as of December 2019 of other secured financings collateralized by financial instruments received as collateral and repledged.

The table below presents other secured financings by maturity.

$ in millions	As of September 2020
Other secured financings (short-term)	$11,728
Other secured financings (long-term):
2021	1,090
2022	3,800
2023	1,741
2024	1,499
2025	892
2026 - thereafter	4,231
Total other secured financings (long-term)	13,253
Total other secured financings	$24,981

In the table above:

• Long-term other secured financings that are repayable prior to maturity at the option of the firm are reflected at their contractual maturity dates.

• Long-term other secured financings that are redeemable prior to maturity at the option of the holder 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 agency obligations, other sovereign and corporate obligations, as well as equity securities) 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 trading assets in connection with repurchase agreements, securities loaned transactions and other secured financings, and other assets (substantially all 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.

	As of
$ in millions		September 2020	December 2019
Collateral available to be delivered or repledged		$745,992	$661,490
Collateral that was delivered or repledged		$604,615	$558,634

The table below presents information about assets pledged.

	As of
$ in millions		September 2020	December 2019
Pledged to counterparties that had the right to deliver or repledge
Trading assets		$  80,268	$  66,605
Investments		$  14,244	$  10,968
Pledged to counterparties that did not have the right to deliver or repledge
Trading assets		$110,700	$101,578
Investments		$    2,825	$       849
Loans		$    8,076	$    6,628
Other assets		$  15,488	$  12,337

The firm also segregates securities for regulatory and other purposes related to client activity. Such securities are segregated from trading assets and investments, as well as from securities received as collateral under resale agreements and securities borrowed transactions. Securities segregated by the firm were $40.30 billion as of September 2020 and $26.76 billion as of December 2019.

53 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Note 12.

Other Assets

The table below presents other assets by type.

	As of
$ in millions		September 2020	December 2019
Property, leasehold improvements and equipment		$23,515	$21,886
Goodwill and identifiable intangible assets		4,965	4,837
Operating lease right-of-use assets		2,268	2,360
Income tax-related assets		2,543	2,068
Miscellaneous receivables and other		4,683	3,731
Total		$37,974	$34,882

Property, Leasehold Improvements and Equipment

Property, leasehold improvements and equipment is net of accumulated depreciation and amortization of $10.04 billion as of September 2020 and $9.95 billion as of December 2019. Property, leasehold improvements and equipment included $6.49 billion as of September 2020 and $6.16 billion as of December 2019 that the firm uses in connection with its operations, and $346 million as of September 2020 and $521 million as of December 2019 of foreclosed real estate primarily related to distressed loans that were purchased by the firm. The remainder is held by investment entities, including VIEs, consolidated by the firm. Substantially all property and equipment is depreciated on a straight-line basis over the useful life of the asset. Leasehold improvements are amortized on a straight-line basis over the shorter of the useful life of the improvement or the term of the lease. Capitalized costs of software developed or obtained for internal use are amortized on a straight-line basis over three years.

The firm tests property, leasehold improvements and equipment 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 or asset group 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 or asset group 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 or asset group if the carrying value of the asset or asset group exceeds its estimated fair value.

There were no material impairments during the three months ended September 2020 and there were $132 million of impairments during the nine months ended September 2020. There were no material impairments during both the three and nine months ended September 2019.

Goodwill and Identifiable Intangible Assets

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.

The table below presents the carrying value of goodwill by reporting unit.

	As of
$ in millions		September 2020	December 2019
Investment Banking		$  281	$   281
Global Markets:
FICC		269	269
Equities		2,645	2,508
Asset Management		390	390
Consumer & Wealth Management:
Consumer banking		48	48
Wealth management		700	700
Total		$4,333	$4,196

In the table above, the increase in goodwill in Equities from December 2019 to September 2020 reflects the acquisition of Folio Financial, Inc. in September 2020.

Goodwill is assessed for impairment annually in the fourth quarter or more frequently if events occur or circumstances change that indicate an impairment may exist. When assessing goodwill for impairment, first, a qualitative assessment can be made to determine whether it is more likely than not that the estimated fair value of a reporting unit is less than its estimated carrying value. If the results of the qualitative assessment are not conclusive, a quantitative goodwill test is performed. Alternatively, a quantitative goodwill test can be performed without performing a qualitative assessment.

The quantitative goodwill test 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 estimated fair value exceeds its estimated net book value, goodwill is not impaired. An impairment is recognized if the estimated fair value of a reporting unit is less than its estimated net book value.

Goldman Sachs September 2020 Form 10-Q 54

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

To estimate the fair value of each reporting unit, other than Consumer banking, a relative value technique is used because the firm believes market participants would use this technique to value these reporting units. The relative value technique applies observable

price-to-earnings

multiples or

price-to-book

multiples of comparable competitors to reporting units’ net earnings or net book value. To estimate the fair value of Consumer banking, a discounted cash flow valuation approach is used because the firm believes market participants would use this technique to value that reporting unit given its early stage of development. The estimated net carrying value of each reporting unit reflects an allocation of total shareholders’ equity and represents the estimated amount of total shareholders’ equity required to support the activities of the reporting unit under currently applicable regulatory capital requirements.

In the fourth quarter of 2019, goodwill was tested for impairment using a quantitative test. The estimated fair value of each of the reporting units exceeded its respective net carrying value, and therefore goodwill was not impaired.

During the first half of 2020, the outbreak of the

COVID-19

pandemic broadly impacted the operating environment. Uncertainty about the

COVID-19

pandemic and its continued impact persisted throughout the third quarter of 2020. However, the operating environment continued to recover from the earlier declines in economic and market conditions. Multiple factors, including performance indicators, firm and industry events, macroeconomic indicators and fair value indicators, were qualitatively assessed in the third quarter of 2020 with respect to each of the firm’s reporting units to determine whether it was more likely than not that the estimated fair value of any of these reporting units was less than its estimated carrying value. The qualitative assessment also considered changes since the quantitative test performed in the fourth quarter of 2019. Net revenues for the third quarter of 2020 were strong across the firm’s business segments and their respective reporting units, reflecting the improvement in the operating environment. Based on the qualitative assessment, the firm determined that it was more likely than not that the estimated fair value of each of the reporting units exceeded its respective estimated carrying value, and that the impact of the

COVID-19

pandemic through the end of the third quarter of 2020 was not a triggering event to perform a quantitative test.

Identifiable Intangible Assets.

The table below presents identifiable intangible assets by reporting unit and type.

	As of
$ in millions		September 2020		December 2019
By Reporting Unit
Global Markets:
FICC		$       2		$        3
Equities		46		–
Asset Management		264		265
Consumer & Wealth Management:
Consumer banking		6		7
Wealth management		314		366
Total		$   632		$    641
By Type
Customer lists
Gross carrying value		$ 1,478		$ 1,427
Accumulated amortization		(1,078	)	(1,044	)
Net carrying value		400		383
Acquired leases and other
Gross carrying value		685		790
Accumulated amortization		(453	)	(532	)
Net carrying value		232		258
Total gross carrying value		2,163		2,217
Total accumulated amortization		(1,531	)	(1,576	)
Total net carrying value		$   632		$    641

The firm acquired $125 million of intangible assets during the nine months ended September 2020, primarily related to acquired leases and customer lists, with a weighted average amortization period of 11 years. The firm acquired $515 million of intangible assets during 2019, primarily related to customer lists, with a weighted average amortization period of 10 years.

Substantially all of the firm’s identifiable intangible assets have finite useful lives and are amortized over their estimated useful lives generally using the straight-line method.

The tables below present information about the amortization of identifiable intangible assets.

	Three Months Ended September			Nine Months Ended September
$ in millions		2020	2019		2020	2019
Amortization		$40	$52		$117	$134

$ in millions	As of September 2020
Estimated future amortization
Remainder of 2020	$  30
2021	$105
2022	$  88
2023	$  80
2024	$  64
2025	$  45

55 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The firm tests intangible 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 or asset group 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 or asset group 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 or asset group if the carrying value of the asset or asset group exceeds its estimated fair value. There were no material impairments during each of the three and nine months ended September 2020 and September 2019.

Operating Lease

Right-of-Use

Assets

The firm enters into operating leases for real estate, office equipment and other assets, substantially all of which are used in connection with its operations. For leases longer than one year, the firm recognizes a

right-of-use

asset representing the right to use the underlying asset for the lease term, and a lease liability representing the liability to make payments. The lease term is generally determined based on the contractual maturity of the lease. For leases where the firm has the option to terminate or extend the lease, an assessment of the likelihood of exercising the option is incorporated into the determination of the lease term. Such assessment is initially performed at the inception of the lease and is updated if events occur that impact the original assessment.

An operating lease

right-of-use

asset is initially determined

based

on the operating lease liability, adjusted for initial direct costs, lease incentives and amounts paid at or prior to lease commencement. This amount is then amortized over the lease term. The firm recognized $152 million for the nine months ended September 2020 and $885 million (primarily related to the firm’s new European headquarters in London) for the nine months ended September 2019 of

right-of-use

assets and operating lease liabilities in

non-cash

transactions for leases entered into or assumed. See Note 15 for information about operating lease liabilities.

For leases where the firm will derive no economic benefit from leased space that it has vacated or where the firm has shortened the term of a lease when space is no longer needed, the firm will record an impairment or accelerated amortization of

right-of-use

assets. There were no material impairments or accelerated amortizations during both the nine months ended September 2020 and September 2019.

Miscellaneous Receivables and Other

Miscellaneous receivables and other included:

• Investments in qualified affordable housing projects of $684 million as of September 2020 and $606 million as of December 2019.

• Assets classified as held for sale of $1.33 billion as of September 2020 and $470 million as of December 2019 related to the firm’s consolidated investments within the Asset Management segment, substantially all of which consisted of property and equipment.

Note 13.

Deposits

The table below presents the types and sources of deposits.

$ in millions	Savings and Demand	Time	Total
As of September 2020
Consumer deposits	$  64,645	$30,913	$  95,558
Private bank deposits	63,944	1,608	65,552
Brokered certificates of deposit	–	34,609	34,609
Deposit sweep programs	22,987	–	22,987
Transaction banking	27,582	181	27,763
Other deposits	–	14,765	14,765
Total	$179,158	$82,076	$261,234
As of December 2019
Consumer deposits	$  44,973	$15,023	$  59,996
Private bank deposits	53,726	2,087	55,813
Brokered certificates of deposit	–	39,449	39,449
Deposit sweep programs	17,760	–	17,760
Transaction banking	2,291	235	2,526
Other deposits	–	14,475	14,475
Total	$118,750	$71,269	$190,019

In the table above:

• Substantially all deposits are interest-bearing.

• Savings and demand accounts consist of money market deposit accounts, negotiable order of withdrawal accounts and demand deposit accounts that have no stated maturity or expiration date.

• Time deposits included $18.40 billion as of September 2020 and $17.77 billion as of December 2019 of deposits accounted for at fair value under the fair value option. See Note 10 for further information about deposits accounted for at fair value.

• Time deposits had a weighted average maturity of approximately 1.3 years as of September 2020 and 1.7 years as of December 2019.

• Deposit sweep programs represent long-term contractual agreements with U.S. broker-dealers who sweep client cash to FDIC-insured deposits. As of September 2020, the firm had 12 such deposit sweep program agreements.

Goldman Sachs September 2020 Form 10-Q 56

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

• Transaction banking deposits consists of deposits that the firm raised through its cash management services business for corporate and other institutional clients.

• Other deposits represent deposits from institutional clients.

• Deposits insured by the FDIC were $126.88 billion as of September 2020 and $103.98 billion as of December 2019.

• Deposits insured by the U.K.’s Financial Services Compensation Scheme were $24.99 billion as of September 2020 and $15.86 billion as of December 2019.

The table below presents the location of deposits.

	As of
$ in millions		September 2020	December 2019
U.S. offices		$208,102	$150,759
Non-U.S. offices		53,132	39,260
Total		$261,234	$190,019

In the table above, 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).

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

non-U.S.

offices.

	As of September 2020
$ in millions		U.S.	Non-U.S.	Total
Remainder of 2020		$10,905	$  5,701	$16,606
2021		30,803	8,354	39,157
2022		9,864	85	9,949
2023		6,439	120	6,559
2024		4,168	130	4,298
2025		2,104	250	2,354
2026 - thereafter		2,200	953	3,153
Total		$66,483	$15,593	$82,076

As of September 2020, deposits in U.S. offices included $12.92 billion and deposits in

non-U.S.

offices included $13.41 billion of time deposits in denominations that met or exceeded the applicable insurance limits, or were otherwise not covered by insurance.

The firm’s savings and demand deposits are 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 a portion of its time deposits not accounted for at fair value from fixed-rate obligations into floating-rate obligations. The carrying value of time deposits not accounted for at fair value approximated fair value as of both September 2020 and December 2019. As these savings and demand deposits and time deposits are not accounted for at fair value, they are not included in the firm’s fair value hierarchy in Notes 4 through 10. Had these deposits been included in the firm’s fair value hierarchy, they would have been classified in level 2 as of both September 2020 and December 2019.

Note 14.

Unsecured Borrowings

The table below presents information about unsecured borrowings.

	As of
$ in millions		September 2020	December 2019
Unsecured short-term borrowings		$  48,028	$  48,287
Unsecured long-term borrowings		213,936	207,076
Total		$261,964	$255,363

Unsecured Short-Term Borrowings

Unsecured short-term borrowings includes 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 certain hybrid financial instruments at fair value under the fair value option. See Note 10 for further information about unsecured short-term borrowings that are accounted for at fair value. In addition, the firm designates certain derivatives as fair value hedges to convert a portion of its unsecured short-term borrowings not accounted for at fair value from fixed-rate obligations into floating-rate obligations. 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. As these unsecured short-term borrowings are not accounted for at fair value, they are not included in the firm’s fair value hierarchy in Notes 4 through 10. Had these borrowings been included in the firm’s fair value hierarchy, substantially all would have been classified in level 2 as of both September 2020 and December 2019.

The table below presents information about unsecured short-term borrowings.

	As of
$ in millions		September 2020	December 2019
Current portion of unsecured long-term borrowings		$26,833	$30,636
Hybrid financial instruments		18,065	15,814
Commercial paper		1,098	–
Other unsecured short-term borrowings		2,032	1,837
Total unsecured short-term borrowings		$48,028	$48,287
Weighted average interest rate		2.03%	2.71%

In the table above, the weighted average interest rates for these borrowings include the effect of hedging activities and exclude unsecured short-term borrowings accounted for at fair value under the fair value option. See Note 7 for further information about hedging activities.

57 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Unsecured Long-Term Borrowings​​​​​​​

The table below presents information about unsecured long-term borrowings.

$ in millions	U.S. Dollar	Non-U.S. Dollar	Total
As of September 2020
Fixed-rate obligations	$100,104	$40,078	$140,182
Floating-rate obligations	42,825	30,929	73,754
Total	$142,929	$71,007	$213,936
As of December 2019
Fixed-rate obligations	$  92,846	$36,185	$129,031
Floating-rate obligations	47,850	30,195	78,045
Total	$140,696	$66,380	$207,076

In the table above:

• Unsecured long-term borrowings consists principally of senior borrowings, which have maturities extending through 2067.

• Floating-rate obligations includes equity-linked, credit-linked and indexed instruments. Floating interest rates are generally based on LIBOR or Euro Interbank Offered Rate.

• U.S. dollar-denominated debt had interest rates ranging from 2.00% to 9.30% (with a weighted average rate of 4.18%) as of September 2020 and 2.00% to 10.04% (with a weighted average rate of 3.82%) as of December 2019. These rates exclude unsecured long-term borrowings accounted for at fair value under the fair value option.

• Non-U.S. dollar-denominated debt had interest rates ranging from 0.13% to 13.00% (with a weighted average rate of 2.32%) as of September 2020 and 0.13% to 13.00% (with a weighted average rate of 2.33%) as of December 2019. These rates exclude unsecured long-term borrowings accounted for at fair value under the fair value option.

The table below presents unsecured long-term borrowings by maturity.

$ in millions	As of September 2020
2021	$    9,062
2022	26,512
2023	29,746
2024	19,727
2025	26,433
2026 - thereafter	102,456
Total	$213,936

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 holder are excluded as they are included in 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 holder are reflected at the earliest dates such options become exercisable.

• Unsecured long-term borrowings included $13.55 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: $145 million in 2021, $(14) million in 2022, $252 million in 2023, $738 million in 2024, $979 million in 2025, and $11.45 billion in 2026 and thereafter.

The firm designates certain derivatives as fair value hedges to convert a portion of fixed-rate unsecured long-term borrowings not accounted for at fair value into floating-rate obligations. See Note 7 for further information about hedging activities.

Goldman Sachs September 2020 Form 10-Q 58

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The table below presents unsecured long-term borrowings, after giving effect to such hedging activities.

	As of
$ in millions		September 2020	December 2019
Fixed-rate obligations:
At fair value		$    1,429	$       725
At amortized cost		30,909	47,577
Floating-rate obligations:
At fair value		38,899	42,936
At amortized cost		142,699	115,838
Total		$213,936	$207,076

In the table above, the aggregate amounts of unsecured long-term borrowings had weighted average interest rates of 2.06% (3.61% related to fixed-rate obligations and 1.70% related to floating-rate obligations) as of September 2020 and 2.87% (3.77% related to fixed-rate obligations and 2.48% related to floating-rate obligations) as of December 2019. These rates exclude unsecured long-term borrowings accounted for at fair value under the fair value option.

As of both September 2020 and December 2019, the carrying value of unsecured long-term borrowings for which the firm did not elect the fair value option approximated fair value. As these borrowings are not accounted for at fair value, they are not included in the firm’s fair value hierarchy in Notes 4 through 10. Had these borrowings been included in the firm’s fair value hierarchy, substantially all would have been classified in level 2 as of both September 2020 and December 2019.

Subordinated Borrowings

Unsecured long-term borrowings includes 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. Subordinated debt had maturities ranging from 2021 to 2045 as of both September 2020 and December 2019. Subordinated debt that matures within one year is included in unsecured short-term borrowings.

The table below presents information about subordinated borrowings.

$ in millions	Par Amount	Carrying Value	Rate
As of September 2020
Subordinated debt	$14,019	$18,987	1.83%
Junior subordinated debt	968	1,477	1.39%
Total	$14,987	$20,464	1.80%
As of December 2019
Subordinated debt	$14,041	$16,980	3.46%
Junior subordinated debt	976	1,328	2.85%
Total	$15,017	$18,308	3.42%

In the table above, the rate is the weighted average interest rate for these borrowings (excluding borrowings accounted for at fair value under the fair value option), including the effect of fair value hedges used to convert fixed-rate obligations into floating-rate obligations. See Note 7 for further information about hedging activities.

Junior Subordinated Debt

In 2004, Group Inc. issued $2.84 billion of junior subordinated debt 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. As of September 2020, the outstanding par amount of junior subordinated debt held by the Trust was $968 million and the outstanding par amount of Trust Preferred securities and common beneficial interests issued by the Trust was $939 million and $29 million, respectively. As of December 2019, the outstanding par amount of junior subordinated debt held by the Trust was $976 million and the outstanding par amount of Trust Preferred securities and common beneficial interests issued by the Trust was $947 million and $29 million, respectively.

During the nine months ended September 2020, the firm purchased Trust Preferred securities with a par amount and a carrying value of $7.9 million and $11.0 million and delivered these securities, along with $0.2 million of common beneficial interests, to the Trust in a

non-cash

exchange for junior subordinated debt with a par amount and carrying value of $8.1 million and $12.5 million, respectively. Following the exchange, these Trust Preferred securities, common beneficial interests and junior subordinated debt were extinguished. The Trust is a wholly-owned finance subsidiary of the firm for regulatory and legal purposes but is not consolidated for accounting purposes.

59 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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.

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 Goldman Sachs Capital II and Goldman Sachs Capital III (APEX Trusts) or shares of Group Inc.’s Perpetual

Non-Cumulative

Preferred Stock, Series E (Series E Preferred Stock), Perpetual

Non-Cumulative

Preferred Stock, Series F (Series F Preferred Stock) or Perpetual

Non-Cumulative

Preferred Stock, Series O, if the redemption or purchase results in less than $253 million aggregate liquidation preference of that series outstanding, 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.

The APEX Trusts hold Group Inc.’s Series E Preferred Stock and Series F Preferred Stock. These 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.

Note 15.

Other Liabilities

The table below presents other liabilities by type.

	As of
$ in millions		September 2020	December 2019
Compensation and benefits		$  7,233	$  6,889
Income tax-related liabilities		3,111	2,947
Operating lease liabilities		2,268	2,385
Noncontrolling interests		1,668	1,713
Employee interests in consolidated funds		53	81
Accrued expenses and other		8,832	7,636
Total		$23,165	$21,651

In the table above, accrued expenses and other includes contract liabilities, which represent consideration received by the firm in connection with its contracts with clients, prior to providing the service. As of both September 2020 and December 2019, the firm’s contract liabilities were not material.

Operating Lease Liabilities

For leases longer than one year, the firm recognizes a

right-of-use

asset representing the right to use the underlying asset for the lease term, and a lease liability representing the liability to make payments. See Note 12 for information about operating lease

right-of-use

assets.

The table below presents information about operating lease liabilities.

$ in millions	Operating lease liabilities
As of September 2020
Remainder of 2020	$    70
2021	326
2022	290
2023	255
2024	237
2025	208
2026 - thereafter	1,856
Total undiscounted lease payments	3,242
Imputed interest	(974	)
Total operating lease liabilities	$2,268
Weighted average remaining lease term	16 years
Weighted average discount rate	4.12%
As of December 2019
2020	$    384
2021	308
2022	268
2023	235
2024	219
2025 - thereafter	2,566
Total undiscounted lease payments	3,980
Imputed interest	(1,595	)
Total operating lease liabilities	$ 2,385
Weighted average remaining lease term	18 years
Weighted average discount rate	5.02%

Goldman Sachs September 2020 Form 10-Q 60

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

In the table above, the weighted average discount rate represents the firm’s incremental borrowing rate as of January 2019 for operating leases existing on the date of adoption of ASU

No. 2016-02

and at the lease inception date for leases entered into subsequent to the adoption of this ASU.

Operating lease costs were $116 million for the three months ended September 2020, $132 million for the three months ended September 2019, $339 million for the nine months ended September 2020 and $374 million for the nine months ended September 2019. Variable lease costs, which are included in operating lease costs, were not material for each of the three and nine months ended September 2020 and September 2019.

Operating lease liabilities include obligations for office space held in excess of current requirements. Operating lease costs relating to space held for growth is included in occupancy expenses. Total occupancy expenses for space held in excess of the firm’s current requirements were not material for both the nine months ended September 2020 and September 2019.

Lease payments relating to operating lease arrangements that were signed, but had not yet commenced as of September 2020, were not material.

Note 16.

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.

The firm accounts for a securitization as a sale when it has relinquished control over the transferred financial assets. Prior to securitization, the firm generally 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.

The firm generally receives cash in exchange for the transferred assets but may also have continuing involvement with the transferred financial assets, including ownership of beneficial interests in securitized financial assets, primarily in the form of debt instruments. 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. Interests accounted for at fair value are primarily classified in level 2 of the fair value hierarchy. Interests not accounted for at fair value are carried at amounts that approximate fair value. See Notes 4 through 10 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 as of the end of the period.

	Three Months Ended September			Nine Months Ended September
$ in millions		2020	2019		2020	2019
Residential mortgages		$  7,717	$  4,955		$15,725	$10,258
Commercial mortgages		6,279	5,134		14,062	8,169
Other financial assets		66	218		1,189	564
Total financial assets securitized		$14,062	$10,307		$30,976	$18,991
Retained interests cash flows		$    130	$       91		$    274	$     267

In the table above, financial assets securitized included assets of $132 million during the three months ended September 2020, $185 million during the three months ended September 2019, $435 million during the nine months ended September 2020 and $391 million during the nine months ended September 2019, which were securitized in a

non-cash

exchange for loans and investments.

61 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The table below presents information about nonconsolidated securitization entities to which the firm sold assets and had continuing involvement as of the end of the period.

$ in millions	Outstanding Principal Amount	Retained Interests	Purchased Interests
As of September 2020
U.S. government agency-issued CMOs	$21,836	$1,606	$  4
Other residential mortgage-backed	24,610	1,316	25
Other commercial mortgage-backed	35,442	767	30
Corporate debt and other asset-backed	4,094	159	10
Total	$85,982	$3,848	$69
As of December 2019
U.S. government agency-issued CMOs	$14,328	$1,530	$  3
Other residential mortgage-backed	24,166	1,078	24
Other commercial mortgage-backed	25,588	615	6
Corporate debt and other asset-backed	3,612	149	–
Total	$67,694	$3,372	$33

In the table above:

• CMOs represents collateralized mortgage obligations.

• The outstanding principal amount is presented for the purpose of providing information about the size of the securitization entities and is not representative of the firm’s risk of loss.

• The firm’s risk of loss from retained or purchased interests is limited to the carrying 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.

• Substantially all of the total outstanding principal amount and total retained interests relate to securitizations during 2014 and thereafter.

• The fair value of retained interests was $3.85 billion as of September 2020 and $3.35 billion as of December 2019.

In addition to the interests in the table 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 $83 million as of September 2020 and $57 million as of December 2019, and the notional amount of these derivatives and commitments was $1.47 billion as of September 2020 and $1.20 billion as of December 2019. The notional amounts of these derivatives and commitments are included in maximum exposure to loss in the nonconsolidated VIE table in Note 17.

The table below presents information about the weighted average key economic assumptions used in measuring the fair value of mortgage-backed retained interests.

	As of
$ in millions		September 2020		December 2019
Fair value of retained interests		$ 3,688		$3,198
Weighted average life (years)		4.7		6.0
Constant prepayment rate		16.0%		12.9%
Impact of 10% adverse change		$    (28	)	$    (22	)
Impact of 20% adverse change		$    (52	)	$    (42	)
Discount rate		4.7%		4.7%
Impact of 10% adverse change		$    (53	)	$    (59	)
Impact of 20% adverse change		$  (104	)	$  (117	)

In the table 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 CMOs does not include any credit loss. Expected credit loss assumptions are reflected in the discount rate for the remainder of retained interests.

The firm has other retained interests not reflected in the table above with a fair value of $159 million and a weighted average life of 2.6 years as of September 2020, and a fair value of $149 million and a weighted average life of 3.3 years as of December 2019. Due to the nature and 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 both September 2020 and December 2019. The firm’s maximum exposure to adverse changes in the value of these interests is the carrying value of $159 million as of September 2020 and $149 million as of December 2019.

Goldman Sachs September 2020 Form 10-Q 62

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Note 17.

Variable Interest Entities

A variable interest in a VIE is an investment (e.g., debt or equity) or other interest (e.g., derivatives or loans and lending commitments) 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; 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.

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 16, and investments in and loans to other types of VIEs, as described below. See Note 3 for the firm’s consolidation policies, including the definition of a VIE.

VIE Consolidation Analysis

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 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.

VIE Activities

The firm is principally involved with VIEs through the following business activities:

Mortgage-Backed VIEs.

The firm sells residential and commercial mortgage loans and securities to mortgage-backed VIEs and may retain beneficial interests in the assets sold to these VIEs. The firm purchases and sells beneficial interests issued by mortgage-backed 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.

Real Estate, Credit- and Power-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, power-related assets and equity securities. The firm generally does not sell assets to, or enter into derivatives with, these VIEs.

Corporate Debt and Other Asset-Backed VIEs.

The firm structures VIEs that issue notes to clients, purchases and sells beneficial interests issued by corporate debt and other asset-backed VIEs in connection with market-making activities, and makes loans to VIEs that warehouse corporate debt. Certain of these VIEs synthetically create the exposure for the beneficial interests they issue by entering into credit derivatives with the firm, rather than purchasing the underlying assets. In addition, the firm may enter into derivatives, such as total return swaps, with certain corporate debt and other asset-backed VIEs, under which the firm pays the VIE a return due to the beneficial interest holders and receives the return on the collateral owned by the VIE. The collateral owned by these VIEs is primarily other asset-backed loans and securities. The firm may be removed as the total return swap counterparty and may enter into derivatives with other counterparties to mitigate its risk related to these swaps. The firm may sell assets to the corporate debt and other asset-backed VIEs it structures.

63 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

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 its risk. The firm also obtains funding through these VIEs.

Investments in Funds.

The firm makes equity investments in certain investment fund VIEs it manages and is entitled to receive fees from these VIEs. The firm has generally not sold assets to, or entered into derivatives with, these VIEs.

Nonconsolidated VIEs

The table below presents a summary of the nonconsolidated VIEs in which the firm holds variable interests.

	As of
$ in millions		September 2020	December 2019
Total nonconsolidated VIEs
Assets in VIEs		$145,175	$128,069
Carrying value of variable interests — assets		$    9,746	$    9,526
Carrying value of variable interests — liabilities		$      978	$       619
Maximum exposure to loss:
Retained interests		$    3,848	$    3,372
Purchased interests		1,630	901
Commitments and guarantees		2,806	2,697
Derivatives		8,653	9,010
Debt and equity		3,878	4,806
Total		$  20,815	$  20,786

In the table above:

• The nature of the firm’s variable interests is described in the rows under maximum exposure to loss.

• 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.

• The maximum exposure to loss excludes the benefit of offsetting financial instruments that are held to mitigate the risks associated with these variable interests.

• The maximum exposure to loss from retained interests, purchased interests, and debt and equity is the carrying value of these interests.

• The maximum exposure to loss from commitments and guarantees, and derivatives is the notional amount, which does not represent anticipated losses and has not been reduced by unrealized losses. As a result, the maximum exposure to loss exceeds liabilities recorded for commitments and guarantees, and derivatives.

The table below presents information, by principal business activity, for nonconsolidated VIEs included in the summary table above.

	As of
$ in millions		September 2020	December 2019
Mortgage-backed
Assets in VIEs		$93,867	$75,354
Carrying value of variable interests — assets		$  4,467	$  3,830
Maximum exposure to loss:
Retained interests		$  3,689	$  3,223
Purchased interests		778	607
Commitments and guarantees		45	50
Derivatives		376	66
Total		$  4,888	$  3,946
Real estate, credit- and power-related and other investing
Assets in VIEs		$20,696	$19,602
Carrying value of variable interests — assets		$  3,204	$  3,243
Carrying value of variable interests — liabilities		$         10	$         7
Maximum exposure to loss:
Commitments and guarantees		$  1,304	$  1,213
Derivatives		85	92
Debt and equity		3,204	3,238
Total		$  4,593	$  4,543
Corporate debt and other asset-backed
Assets in VIEs		$14,990	$16,248
Carrying value of variable interests — assets		$  1,666	$  2,040
Carrying value of variable interests — liabilities		$       968	$     612
Maximum exposure to loss:
Retained interests		$       159	$     149
Purchased interests		852	294
Commitments and guarantees		1,378	1,374
Derivatives		8,189	8,849
Debt and equity		265	1,155
Total		$10,843	$11,821
Investments in funds
Assets in VIEs		$15,622	$16,865
Carrying value of variable interests — assets		$       409	$     413
Maximum exposure to loss:
Commitments and guarantees		$         79	$       60
Derivatives		3	3
Debt and equity		409	413
Total		$       491	$     476

Goldman Sachs September 2020 Form 10-Q 64

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

As of both September 2020 and December 2019, the carrying values of the firm’s variable interests in nonconsolidated VIEs are included in the consolidated balance sheets as follows:

• Mortgage-backed: Assets were primarily included in trading assets and loans.

• Real estate, credit- and power-related and other investing: Assets were primarily included in loans and investments and liabilities were included in trading liabilities and other liabilities.

• Corporate debt and other asset-backed: Assets were included in trading assets and loans and liabilities were included in trading liabilities.

• Investments in funds: Assets were included in investments .

Consolidated VIEs

The table below presents a summary of the carrying value and balance sheet classification of assets and liabilities in consolidated VIEs.

	As of
$ in millions		September 2020	December 2019
Total consolidated VIEs
Assets
Cash and cash equivalents		$     255	$   112
Trading assets		57	27
Investments		846	835
Loans		2,077	2,392
Other assets		1,066	1,084
Total		$4,301	$4,450
Liabilities
Other secured financings		$1,945	$1,163
Customer and other payables		25	9
Trading liabilities		257	10
Unsecured short-term borrowings		44	48
Unsecured long-term borrowings		219	214
Other liabilities		945	959
Total		$3,435	$2,403

In the table above:

• Assets and liabilities are presented net of intercompany eliminations and exclude the benefit of offsetting financial instruments that are held to mitigate the risks associated with the firm’s variable interests.

• 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 assets can only be used to settle obligations of the VIE.

The table below presents information, by principal business activity, for consolidated VIEs included in the summary table above.

	As of
$ in millions		September 2020	December 2019
Real estate, credit-related and other investing
Assets
Cash and cash equivalents		$     208	$   112
Trading assets		3	26
Investments		846	835
Loans		2,077	2,392
Other assets		1,066	1,084
Total		$4,200	$4,449
Liabilities
Other secured financings		$     691	$   684
Customer and other payables		25	9
Trading liabilities		36	10
Other liabilities		945	959
Total		$1,697	$1,662
Corporate debt and other asset-backed
Assets
Cash and cash equivalents		$       47	$       –
Total		$       47	$       –
Liabilities
Other secured financings		$     715	$       –
Total		$     715	$       –
Principal-protected notes
Assets
Trading assets		$       54	$       1
Total		$       54	$       1
Liabilities
Other secured financings		$     539	$   479
Trading liabilities		221	–
Unsecured short-term borrowings		44	48
Unsecured long-term borrowings		219	214
Total		$1,023	$   741

In the table above:

• The majority of the assets in principal-protected notes VIEs are intercompany and are eliminated in consolidation.

• Creditors and beneficial interest holders of real estate, credit-related and other investing VIEs do not have recourse to the general credit of the firm.

65 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Note 18.

Commitments, Contingencies and Guarantees

Commitments

The table below presents commitments by type.

	As of
$ in millions		September 2020	December 2019
Commitment Type
Commercial lending:
Investment-grade		$  79,362	$  89,276
Non-investment-grade		53,392	58,718
Warehouse financing		7,973	5,581
Credit cards		18,880	13,669
Total lending		159,607	167,244
Collateralized agreement		83,472	62,093
Collateralized financing		47,614	10,193
Letters of credit		362	456
Investment		5,015	7,879
Other		7,169	6,135
Total commitments		$303,239	$254,000

The table below presents commitments by expiration.

	As of September 2020
$ in millions		Remainder of 2020	2021 - 2022	2023 - 2024	2025 - Thereafter
Commitment Type
Commercial lending:
Investment-grade		$    2,601	$27,050	$40,570	$  9,141
Non-investment-grade		1,299	13,096	26,938	12,059
Warehouse financing		676	4,682	2,302	313
Credit cards		18,880	–	–	–
Total lending		23,456	44,828	69,810	21,513
Collateralized agreement		79,105	4,367	–	–
Collateralized financing		46,335	1,279	–	–
Letters of credit		137	185	–	40
Investment		573	1,152	1,097	2,193
Other		6,976	193	–	–
Total commitments		$156,582	$52,004	$70,907	$23,746

Lending Commitments

The firm’s commercial and warehouse financing lending commitments are agreements to lend with fixed termination dates and depend on the satisfaction of all contractual conditions to borrowing. These commitments are presented net of amounts syndicated to third parties. The total commitment amount does not necessarily reflect actual future cash flows because the firm may syndicate all or substantial portions of these commitments. In addition, commitments can expire unused or be reduced or cancelled at the counterparty’s request. The firm also provides credit to consumers by issuing credit card lines.

The table below presents information about lending commitments.

	As of
$ in millions		September 2020	December 2019
Held for investment		$146,043	$150,100
Held for sale		11,194	15,245
At fair value		2,370	1,899
Total		$159,607	$167,244

In the table above:

• Held for investment lending commitments are accounted for at amortized cost. The carrying value of lending commitments was a liability of $800 million (including allowance for credit losses of $615 million) as of September 2020 and $527 million (including allowance for credit losses of $361 million) as of December 2019. The estimated fair value of such lending commitments was a liability of $4.52 billion as of September 2020 and $3.05 billion as of December 2019. Had these lending commitments been carried at fair value and included in the fair value hierarchy, $1.42 billion as of September 2020 and $1.78 billion as of December 2019 would have been classified in level 2, and $3.10 billion as of September 2020 and $1.27 billion as of December 2019 would have been classified in level 3.

• Held for sale lending commitments are accounted for at the lower of cost or fair value. The carrying value of lending commitments held for sale was a liability of $75 million as of September 2020 and $60 million as of December 2019. The estimated fair value of such lending commitments approximates the carrying value. Had these lending commitments been included in the fair value hierarchy, they would have been primarily classified in level 3 as of September 2020 and primarily classified in level 2 as of December 2019.

• Gains or losses related to lending commitments at fair value, if any, are generally recorded net of any fees in other principal transactions.

Goldman Sachs September 2020 Form 10-Q 66

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Commercial Lending.

The firm’s commercial lending commitments were primarily extended to investment-grade corporate borrowers. Such commitments primarily included $106.08 billion as of September 2020 and $102.50 billion as of December 2019, related to relationship lending activities (principally used for operating and general corporate purposes) and $14.69 billion as of September 2020 and $33.47 billion as of December 2019, related to other investment banking activities (generally extended for contingent acquisition financing and are often intended to be short-term in nature, as borrowers often seek to replace them with other funding sources). The firm also extends lending commitments in connection with other types of corporate lending, as well as commercial real estate financing. See Note 9 for further information about funded loans.

To mitigate the credit risk associated with the firm’s commercial lending activities, the firm obtains credit protection on certain loans and lending commitments through credit default swaps, both single-name and index-based contracts, and through the issuance of credit-linked notes. In addition, Sumitomo Mitsui Financial Group, Inc. (SMFG) provides the firm with credit loss protection on certain approved loan commitments (primarily investment-grade commercial lending

commitments), for which the notional amount

was $3.21 billion as of September 2020 and $5.74 billion as of December 2019. The credit loss protection on loan commitments provided by SMFG is generally limited to 95% of the first loss the firm realizes on such commitments, up to a maximum of approximately $950 million. In addition, subject to the satisfaction of certain conditions, upon the firm’s request, SMFG will provide protection for 70% of additional losses on such commitments, up to a maximum of $750 million, of which 0 protection had been provided as of September 2020 and December 2019.

Warehouse Financing.

The firm provides financing to clients who warehouse financial assets. These arrangements are secured by the warehoused assets, primarily consisting of residential real estate, consumer and corporate loans.

Credit Cards.

The firm’s credit card lending commitments represents credit card lines issued by the firm to consumers. These credit card lines are cancellable by the firm.

Collateralized Agreement Commitments/ Collateralized Financing Commitments

Collateralized agreement commitments includes forward starting resale and securities borrowing agreements, and collateralized financing commitments includes forward starting repurchase and secured lending agreements that settle at a future date, generally within three business days. Collateralized agreement commitments also includes transactions where the firm has entered into commitments to provide contingent financing to its clients and counterparties through resale agreements. The firm’s funding of these commitments depends on the satisfaction of all contractual conditions to the resale agreement and these commitments can expire unused.

Letters of Credit

The firm has commitments under letters of credit issued by various banks which the firm provides to counterparties in lieu of securities or cash to satisfy various collateral and margin deposit requirements.

Investment Commitments

Investment commitments includes commitments to invest in private equity, real estate and other assets directly and through funds that the firm raises and manages. Investment commitments included $1.82 billion as of September 2020 and $2.06 billion as of December 2019, related to commitments to invest in funds managed by the firm. If these commitments are called, they would be funded at market value on the date of investment.

Contingencies

Legal Proceedings.

See Note 27 for information about legal proceedings, including certain mortgage-related matters.

Certain Mortgage-Related Contingencies.

During the period 2005 through 2008 in connection with both sales and securitizations of loans, the firm provided loan-level representations and/or assigned the loan-level representations from the party from whom the firm purchased the loans.

Based on the large number of defaults in residential mortgages, including those sold or securitized by the firm, there is a potential for repurchase claims. However, the firm is not in a position to make a meaningful estimate of that exposure at this time. The firm’s exposure to claims for repurchase of residential mortgage loans based on alleged breaches of representations will depend on a number of factors, such as the extent to which these claims are made within the statute of limitations, taking into consideration the agreements to toll the statute of limitations the firm entered into with trustees representing certain trusts.

67 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Other Contingencies.

In connection with the settlement agreement with the Residential Mortgage-Backed Securities Working Group of the U.S. Financial Fraud Enforcement Task Force, the firm agreed to provide $1.80 billion in consumer relief by January 2021. As of September 2020, approximately $1.70 billion of such relief was provided. This relief was provided in the form of principal forgiveness for underwater homeowners and distressed borrowers; financing for construction, rehabilitation and preservation of affordable housing; and support for debt restructuring, foreclosure prevention and housing quality improvement programs, as well as land banks.

Guarantees

The table below presents derivatives that meet the definition of a guarantee, securities lending indemnifications and certain other financial guarantees.

$ in millions	Derivatives	Securities lending indemnifications	Other financial guarantees
As of September 2020
Carrying Value of Net Liability	$    5,897	$         –	$     256
Maximum Payout/Notional Amount by Period of Expiration
Remainder of 2020	$  22,573	$20,901	$     558
2021 - 2022	102,509	–	2,106
2023 - 2024	31,521	–	3,171
2025 - thereafter	38,180	–	2,055
Total	$194,783	$20,901	$7,890
As of December 2019
Carrying Value of Net Liability	$    3,817	$        –	$     27
Maximum Payout/Notional Amount by Period of Expiration
2020	$  91,814	$17,891	$2,044
2021 - 2022	76,693	–	1,714
2023 - 2024	19,377	–	2,219
2025 - thereafter	36,317	–	149
Total	$224,201	$17,891	$6,126

In the table above:

• The maximum payout is based on the notional amount of the contract and does not represent anticipated losses.

• Amounts exclude certain commitments to issue standby letters of credit that are included in lending commitments. See the tables in “Commitments” above for a summary of the firm’s commitments.

• The carrying value for derivatives included derivative assets of $1.51 billion as of September 2020 and $1.56 billion as of December 2019, and derivative liabilities of $7.41 billion as of September 2020 and $5.38 billion as of December 2019.

Derivative Guarantees.

The firm enters into various derivatives that meet the definition of a guarantee under U.S. GAAP, including written equity and commodity put options, written currency contracts and interest rate caps, floors and swaptions. These derivatives are risk managed together with derivatives that do not meet the definition of a guarantee, and therefore the amounts in the table above do not reflect the firm’s overall risk related to derivative activities. Disclosures about derivatives are not required if they may be cash settled and the firm has no basis to conclude it is probable that the counterparties held the underlying instruments at inception of the contract. The firm has concluded that these conditions have been met for certain large, internationally active commercial and investment bank counterparties, central clearing counterparties, hedge funds and certain other counterparties. Accordingly, the firm has not included such contracts in the table above. See Note 7 for information about credit derivatives that meet the definition of a guarantee, which are not included in the table above.

Derivatives are accounted for at fair value and therefore the carrying value is considered the best indication of payment/performance risk for individual contracts. However, the carrying values in the table above exclude the effect of counterparty and cash collateral netting.

Securities Lending Indemnifications.

The firm, in its capacity as an agency lender, indemnifies most of its securities lending customers against losses incurred in the event that borrowers do not return securities and the collateral held is insufficient to cover the market value of the securities borrowed. Collateral held by the lenders in connection with securities lending indemnifications was $21.50 billion as of September 2020 and $19.14 billion as of December 2019. Because the contractual nature of these arrangements requires the firm to obtain collateral with a market value that exceeds the value of the securities lent to the borrower, there is minimal performance risk associated with these guarantees.

Other Financial Guarantees.

In the ordinary course of business, the firm provides other financial guarantees of the obligations of third parties (e.g., standby letters of credit and other guarantees to enable clients to complete transactions and fund-related guarantees). These guarantees represent obligations to make payments to beneficiaries if the guaranteed party fails to fulfill its obligation under a contractual arrangement with that beneficiary. Other financial guarantees also include a guarantee that the firm has provided to the Government of Malaysia that it will receive at least $1.4 billion in assets and proceeds from assets seized by governmental authorities around the world related to 1Malaysia Development Berhad, a sovereign wealth fund in Malaysia (1MDB). See Note 27 for further information.

Goldman Sachs September 2020 Form 10-Q 68

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Guarantees of Securities Issued by Trusts.

The firm has established trusts, including Goldman Sachs Capital I, the APEX Trusts and other entities, for the limited purpose of issuing securities to third parties, lending the proceeds to the firm and entering into contractual arrangements with the firm and third parties related to this purpose. The firm does not consolidate these entities. See Note 14 for further information about the transactions involving Goldman Sachs Capital I and the APEX Trusts.

The firm effectively provides for the full and unconditional guarantee of the securities issued by these entities. Timely payment by the firm of amounts due to these entities under the guarantee, borrowing, preferred stock and related contractual arrangements will be sufficient to cover payments due on the securities issued by these entities.

Management believes that it is unlikely that any circumstances will occur, such as nonperformance on the part of paying agents or other service providers, that would make it necessary for the firm to make payments related to these entities other than those required under the terms of the guarantee, borrowing, preferred stock and related contractual arrangements and in connection with certain expenses incurred by these entities.

Indemnities and Guarantees of Service Providers.

In the ordinary course of business, the firm indemnifies and guarantees certain service providers, such as clearing and custody agents, trustees and administrators, against specified potential losses in connection with their acting as an agent of, or providing services to, the firm or its affiliates.

The firm may also be liable to some clients or other parties for losses arising from its custodial role or caused by acts or omissions of third-party service providers, including

sub-custodians

and third-party brokers. In certain cases, the firm has the right to seek indemnification from these third-party service providers for certain relevant losses incurred by the firm. In addition, the firm is a member of payment, clearing and settlement networks, as well as securities exchanges around the world that may require the firm to meet the obligations of such networks and exchanges in the event of member defaults and other loss scenarios.

In connection with the firm’s prime brokerage and clearing businesses, the firm agrees to clear and settle on behalf of its clients the transactions entered into by them with other brokerage firms. The firm’s obligations in respect of such transactions are secured by the assets in the client’s account, as well as any proceeds received from the transactions cleared and settled by the firm on behalf of the client. In connection with joint venture investments, the firm may issue loan guarantees under which it may be liable in the event of fraud, misappropriation, environmental liabilities and certain other matters involving the borrower.

The firm is unable to develop an estimate of the maximum payout under these guarantees and indemnifications. However, management believes that it is unlikely the firm will have to make any material payments under these arrangements, and no material liabilities related to these guarantees and indemnifications have been recognized in the consolidated balance sheets as of both September 2020 and December 2019.

Other Representations, Warranties and Indemnifications.

The firm provides representations and warranties to counterparties in connection with a variety of commercial transactions and occasionally indemnifies them against potential losses caused by the breach of those representations and warranties. The firm may also provide indemnifications protecting against changes in or adverse application of certain U.S. tax laws in connection with ordinary-course transactions, such as securities issuances, borrowings or derivatives.

In addition, the firm may provide indemnifications to some counterparties to protect them in the event additional taxes are owed or payments are withheld, due either to a change in or an adverse application of certain

non-U.S.

tax laws.

These indemnifications generally are standard contractual terms and are entered into in the ordinary course of business. Generally, there are no stated or notional amounts included in these indemnifications, and the contingencies triggering the obligation to indemnify are not expected to occur. The firm is unable to develop an estimate of the maximum payout under these guarantees and indemnifications. However, management believes that it is unlikely the firm will have to make any material payments under these arrangements, and no material liabilities related to these arrangements have been recognized in the consolidated balance sheets as of both September 2020 and December 2019.

69 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Guarantees of Subsidiaries.

Group Inc. fully and unconditionally guarantees the securities issued by GS Finance Corp., a wholly-owned finance subsidiary of the firm. Group Inc. has guaranteed the payment obligations of Goldman Sachs & Co. LLC (GS&Co.) and GS Bank USA, subject to certain exceptions. In addition, Group Inc. has provided a guarantee to GS Bank USA related to assets that GS Bank USA has acquired from certain subsidiaries and affiliated funds of Group Inc., and Group Inc. has provided a guarantee to Goldman Sachs International (GSI) related to agreements that GSI has entered into with certain of its counterparties.

Group Inc. guarantees many of the obligations of its other consolidated subsidiaries on a

transaction-by-transaction

basis, as negotiated with counterparties. Group Inc. is unable to develop an estimate of the maximum payout under its subsidiary guarantees. However, because these obligations are also obligations of consolidated subsidiaries, Group Inc.’s liabilities as guarantor are not separately disclosed.

Note 19.

Shareholders’ Equity

Common Equity

As of both September 2020 and December 2019, the firm had 4.00 billion authorized shares of common stock and 200 million authorized shares of nonvoting common stock, each with a par value of $0.01 per share.

The firm’s share repurchase program is intended to help maintain the appropriate level of common equity. The share repurchase program is effected primarily through regular open-market purchases (which may include repurchase plans designed to comply with

Rule 10b5-1

and accelerated share repurchases), the amounts and timing of which are determined primarily by the firm’s current and projected capital position, and capital deployment opportunities, but which may also be influenced by general market conditions and the prevailing price and trading volumes of the firm’s common stock. The firm suspended stock repurchases during the first quarter of 2020 and through the third quarter of 2020. Consistent with the FRB’s requirement for all large bank holding companies (BHCs), the firm has extended the suspension of stock repurchases through the fourth quarter of 2020.

The table below presents information about common stock repurchases.

	September 2020
in millions, except per share amounts		Three Months Ended	Nine Months Ended
Common share repurchases		0	8.2
Average cost per share		$    0	$236.35
Total cost of common share repurchases		$    0	$  1,928

Pursuant to the terms of certain share-based compensation plans, employees may remit shares to the firm or the firm may cancel share-based awards to satisfy statutory employee tax withholding requirements. Under these plans, during the nine months ended September 2020, 3,476 shares were remitted with a total value of $0.9 million and the firm cancelled 3.4 million share-based awards with a total value of $828 million.

The table below presents common stock dividends declared.

	Three Months Ended September			Nine Months Ended September
		2020	2019		2020	2019
Dividends declared per common share		$1.25	$1.25		$3.75	$2.90

On October 13, 2020, the Board of Directors of Group Inc. declared a dividend of $1.25 per common share to be paid on December 30, 2020 to common shareholders of record on December 2, 2020.

Preferred Equity

The tables below present information about the perpetual preferred stock issued and outstanding as of September 2020.

Series	Shares Authorized	Shares Issued	Shares Outstanding	Depositary Shares Per Share
A	50,000	30,000	29,999	1,000
C	25,000	8,000	8,000	1,000
D	60,000	54,000	53,999	1,000
E	17,500	7,667	7,667	N/A
F	5,000	1,615	1,615	N/A
J	46,000	40,000	40,000	1,000
K	32,200	28,000	28,000	1,000
M	80,000	80,000	80,000	25
N	31,050	27,000	27,000	1,000
O	26,000	26,000	26,000	25
P	66,000	60,000	60,000	25
Q	20,000	20,000	20,000	25
R	24,000	24,000	24,000	25
S	14,000	14,000	14,000	25
Total	496,750	420,282	420,280

Goldman Sachs September 2020 Form 10-Q 70

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Series	Earliest Redemption Date	Liquidation Preference	Redemption Value ($ in millions)
A	Currently redeemable	$  25,000	$       750
C	Currently redeemable	$  25,000	200
D	Currently redeemable	$  25,000	1,350
E	Currently redeemable	$100,000	767
F	Currently redeemable	$100,000	161
J	May 10, 2023	$  25,000	1,000
K	May 10, 2024	$  25,000	700
M	Currently redeemable	$  25,000	2,000
N	May 10, 2021	$  25,000	675
O	November 10, 2026	$  25,000	650
P	November 10, 2022	$  25,000	1,500
Q	August 10, 2024	$  25,000	500
R	February 10, 2025	$  25,000	600
S	February 10, 2025	$  25,000	350
Total			$11,203

In the tables above:

• All shares have a par value of $0.01 per share and, where applicable, each share is represented by the specified number of depositary shares.

• The earliest redemption date represents the date on which each share of non-cumulative Preferred Stock is redeemable at the firm’s option.

• Prior to redeeming preferred stock, the firm must receive approval from the FRB.

• In January 2020, the firm issued 14,000 shares of Series S 4.40% Fixed-Rate Reset Non-Cumulative Preferred Stock (Series S Preferred Stock).

• The redemption price per share for Series A through F and Series Q through S Preferred Stock is the liquidation preference plus declared and unpaid dividends. The redemption price per share for Series J through P Preferred Stock is the liquidation preference plus accrued and unpaid dividends. Each share of Series E and Series F Preferred Stock is redeemable at the firm’s option, subject to certain covenant restrictions governing the firm’s ability to redeem the preferred stock without issuing common stock or other instruments with equity-like characteristics. See Note 14 for information about the replacement capital covenants applicable to the Series E and Series F Preferred Stock.

• All series of preferred stock are pari passu and have a preference over the firm’s common stock on liquidation.

• The firm’s ability to declare or pay dividends on, or purchase, redeem or otherwise acquire, its common stock is subject to certain restrictions in the event that the firm fails to pay or set aside full dividends on the preferred stock for the latest completed dividend period.

In the first quarter of 2020, the firm redeemed the remaining 14,000 outstanding shares of its Series L 5.70%

Non-Cumulative

Preferred Stock (Series L Preferred Stock) with a redemption value of $350 million ($25,000 per share), plus accrued and unpaid dividends. The difference between the redemption value and net carrying value at the time of this redemption was $1 million, which was recorded as an addition to preferred stock dividends in 2020.

In 2019, the firm redeemed 38,000 shares of its outstanding Series L Preferred Stock with a redemption value of $950 million ($25,000 per share), plus accrued and unpaid dividends. In addition, in 2019, the firm redeemed the remaining 6,000 outstanding shares of its Series B 6.20%

Non-Cumulative

Preferred Stock (Series B Preferred Stock) with a redemption value of $150 million ($25,000 per share). The difference between the redemption value and net carrying value at the time of these redemptions was $9 million ($7 million of which was recorded during the nine months ended September 2019), which was recorded as an addition to preferred stock dividends in 2019.

The table below presents the dividend rates of perpetual preferred stock as of September 2020.

Series		Per Annum Dividend Rate
A	3 month LIBOR + 0.75%, with floor of 3.75%, payable quarterly
C	3 month LIBOR + 0.75%, with floor of 4.00%, payable quarterly
D	3 month LIBOR + 0.67%, with floor of 4.00%, payable quarterly
E	3 month LIBOR + 0.7675%, with floor of 4.00%, payable quarterly
F	3 month LIBOR + 0.77%, with floor of 4.00%, payable quarterly
J	5.50% to, but excluding, May 10, 2023; 3 month LIBOR + 3.64% thereafter, payable quarterly
K	6.375% to, but excluding, May 10, 2024; 3 month LIBOR + 3.55% thereafter, payable quarterly
M	3 month LIBOR + 3.922%, payable quarterly
N	6.30%, payable quarterly
O	5.30%, payable semi-annually, from issuance date to, but excluding, November 10, 2026; 3 month LIBOR + 3.834%, payable quarterly, thereafter
P	5.00%, payable semi-annually, from issuance date to, but excluding, November 10, 2022; 3 month LIBOR + 2.874%, payable quarterly, thereafter
Q	5.50%, payable semi-annually, from issuance date to, but excluding, August 10, 2024; 5 year treasury rate + 3.623%, payable semi-annually, thereafter
R	4.95%, payable semi-annually, from issuance date to, but excluding, February 10, 2025; 5 year treasury rate + 3.224%, payable semi-annually, thereafter
S	4.40%, payable semi-annually, from issuance date to, but excluding, February 10, 2025; 5 year treasury rate + 2.85%, payable semi-annually thereafter

In the table above, dividends on each series of preferred stock are payable in arrears for the periods specified.

71 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The table below presents preferred stock dividends declared.

	2020			2019
Series		per share	$ in millions		per share	$ in millions
Three Months Ended September
A		$  236.98	$    7		$   244.79	$    7
C		$  252.78	2		$   261.11	2
D		$  252.78	14		$   261.11	14
E		$1,022.22	8		$1,022.22	8
F		$1,022.22	2		$1,022.22	2
J		$  343.75	13		$   343.75	13
K		$  398.44	11		$   398.44	11
L		$            –	–		$   419.68	16
M		$  279.17	22		$           –	–
N		$  393.75	11		$   393.75	11
Q		$  687.50	14		$           –	–
R		$  910.94	22		$           –	–
S		$  586.67	8		$           –	–
Total			$134			$  84
Nine Months Ended September
A		$  708.34	$  21		$   708.34	$  21
B		$            –	–		$   775.00	5
C		$  755.56	6		$   755.55	6
D		$  755.56	41		$   755.55	41
E		$3,044.44	23		$3,044.44	23
F		$3,044.44	5		$3,044.44	5
J		$1,031.25	41		$1,031.25	41
K		$1,195.32	33		$1,195.32	33
L		$  361.54	4		$1,132.18	53
M		$  951.05	76		$   671.88	54
N		$1,181.25	32		$1,181.25	32
O		$  662.50	17		$   662.50	17
P		$  625.00	38		$   625.00	38
Q		$1,577.43	32		$           –	–
R		$  910.94	22		$           –	–
S		$  586.67	8		$           –	–
Total			$399			$369

On October 6, 2020, Group Inc. declared dividends of $239.58 per share of Series A Preferred Stock, $255.56 per share of Series C Preferred Stock, $255.56 per share of Series D Preferred Stock, $343.75 per share of Series J Preferred Stock, $398.44 per share of Series K Preferred Stock, $266.11 per share of Series M Preferred Stock, $393.75 per share of Series N Preferred Stock, $662.50 per share of Series O Preferred Stock and $625.00 per share of Series P Preferred Stock to be paid on November 10, 2020 to preferred shareholders of record on October 26, 2020. In addition, the firm declared dividends of $1,011.11 per share of Series E Preferred Stock and $1,011.11 per share of Series F Preferred Stock to be paid on December 1, 2020 to preferred shareholders of record on November 16, 2020.

Accumulated Other Comprehensive Income/(Loss)

The table below presents changes in the accumulated other comprehensive income/(loss), net of tax, by type.

$ in millions	Beginning balance		Other comprehensive income/(loss) adjustments, net of tax		Ending balance
Three Months Ended September 2020
Currency translation	$  (677	)	$    (13	)	$(690	)
Debt valuation adjustment	124		(268	)	(144	)
Pension and postretirement liabilities	(339	)	(2	)	(341	)
Available-for-sale securities	551		(11	)	540
Total	$  (341	)	$  (294	)	$(635	)
Three Months Ended September 2019
Currency translation	$  (610	)	$       (9	)	$(619	)
Debt valuation adjustment	(221	)	278		57
Pension and postretirement liabilities	(90	)	(5	)	(95	)
Available-for-sale securities	106		67		173
Total	$  (815	)	$    331		$(484	)
Nine Months Ended September 2020
Currency translation	$  (616	)	$    (74	)	$(690	)
Debt valuation adjustment	(572	)	428		(144	)
Pension and postretirement liabilities	(342	)	1		(341	)
Available-for-sale securities	46		494		540
Total	$(1,484	)	$    849		$(635	)
Nine Months Ended September 2019
Currency translation	$  (621	)	$        2		$(619	)
Debt valuation adjustment	1,507		(1,450	)	57
Pension and postretirement liabilities	(81	)	(14	)	(95	)
Available-for-sale securities	(112	)	285		173
Total	$    693		$(1,177	)	$(484	)

Goldman Sachs September 2020 Form 10-Q 72

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Note 20.

Regulation and Capital Adequacy

The FRB is the primary regulator of Group Inc., a BHC under the U.S. Bank Holding Company Act of 1956 and a financial holding company under amendments to this Act. The firm is subject to consolidated regulatory capital requirements which are calculated in accordance with the regulations of the FRB (Capital Framework).

The capital requirements are expressed as risk-based capital and leverage ratios that compare measures of regulatory capital to risk-weighted assets (RWAs), average assets and

off-balance

sheet exposures. Failure to comply with these capital requirements could result in restrictions being imposed by the firm’s regulators and could limit the firm’s ability to repurchase shares, pay dividends and make certain discretionary compensation payments. The firm’s capital levels are also subject to qualitative judgments by the regulators about components of capital, risk weightings and other factors. Furthermore, certain of the firm’s subsidiaries are subject to separate regulations and capital requirements.

Capital Framework

The regulations under the Capital Framework are largely based on the Basel Committee on Banking Supervision’s (Basel Committee) capital framework for strengthening international capital standards (Basel III) and also implement certain provisions of the Dodd-Frank Act. Under the Capital Framework, the firm is an “Advanced approach” banking organization and has been designated as a global systemically important bank

(G-SIB).

The capital requirements calculated in accordance with the Capital Framework include the minimum risk-based capital and leverage ratios. In addition, the risk-based capital requirements include the capital conservation buffer, countercyclical capital buffer and the

G-SIB

surcharge, all of which must consist entirely of capital that qualifies as Common Equity Tier 1 (CET1) capital.

The firm calculates its CET1 capital, Tier 1 capital and Total capital ratios in accordance with (i) the Standardized approach and market risk rules set out in the Capital Framework (together, the Standardized Capital Rules) and (ii) the Advanced approach and market risk rules set out in the Capital Framework (together, the Advanced Capital Rules). The lower of each risk-based capital ratio calculated in (i) and (ii) is the ratio against which the firm’s compliance with its risk-based capital requirements is assessed.

Under the Capital Framework, the firm is also subject to leverage requirements which consist of a minimum Tier 1 leverage ratio and a minimum supplementary leverage ratio (SLR), as well as the SLR buffer.

Consolidated Regulatory Risk-Based Capital and Leverage Ratios

The table below presents the risk-based capital and leverage requirements as of both September 2020 and December 2019.

	Requirements
Risk-based capital requirements
CET1 capital ratio	9.5%
Tier 1 capital ratio	11.0%
Total capital ratio	13.0%
Leverage requirements
Tier 1 leverage ratio	4.0%
SLR	5.0%

Beginning on October 1, 2020, the Standardized capital ratio requirements include the stressed capital buffer (SCB), which has replaced the capital conservation buffer. The SCB is determined by the FRB based on institution-specific Comprehensive Capital Analysis and Review results. As a result, beginning on October 1, 2020, the firm’s Standardized CET1 capital ratio requirement is 13.6%, which includes a minimum of 4.5%, the SCB of 6.6%, the G-SIB surcharge of 2.5% (Method 2) and the countercyclical capital buffer, which the FRB has set to zero percent. In addition, beginning on October 1, 2020, the firm’s Standardized Tier 1 capital ratio requirement is 15.1% and the Standardized Total capital ratio requirement is 17.1%.

In the table above:

• As of both September 2020 and December 2019, the CET1 capital ratio requirement includes a minimum of 4.5%, the Tier 1 capital ratio requirement includes a minimum of 6.0% and the Total capital ratio requirement includes a minimum of 8.0%. The requirements also include the capital conservation buffer of 2.5%, the G-SIB surcharge of 2.5% (Method 2) and the countercyclical capital buffer, which the FRB has set to 0 percent.

• The G-SIB surcharge is updated annually based on financial data from the prior year and is generally applicable for the following year. The G-SIB surcharge is calculated using two methodologies, the higher of which is reflected in the firm’s risk-based capital requirements. The first calculation (Method 1) is based on the Basel Committee’s methodology which, among other factors, relies upon measures of the size, activity and complexity of each G-SIB. The second calculation (Method 2) uses similar inputs but includes a measure of reliance on short-term wholesale funding.

• The Tier 1 leverage ratio requirement is a minimum of 4%. The SLR requirement of 5% includes a   minimum of 3% and a 2% buffer applicable to G-SIBs.

73 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The table below presents information about risk-based capital ratios.

$ in millions	Standardized	Advanced
As of September 2020
CET1 capital	$  77,503	$  77,503
Tier 1 capital	$  88,566	$  88,566
Tier 2 capital	$  16,018	$  14,067
Total capital	$104,584	$102,633
RWAs	$534,557	$599,626
CET1 capital ratio	14.5%	12.9%
Tier 1 capital ratio	16.6%	14.8%
Total capital ratio	19.6%	17.1%
As of December 2019
CET1 capital	$  74,850	$  74,850
Tier 1 capital	$  85,440	$  85,440
Tier 2 capital	$  14,925	$  13,473
Total capital	$100,365	$  98,913
RWAs	$563,575	$544,653
CET1 capital ratio	13.3%	13.7%
Tier 1 capital ratio	15.2%	15.7%
Total capital ratio	17.8%	18.2%

In the table above:

• The lower of the Standardized or Advanced ratio is the ratio against which the firm’s compliance with the capital requirements is assessed under the risk-based Capital Rules, and therefore, the Advanced ratios applied to the firm as of September 2020 and the Standardized ratios applied to the firm as of December 2019.

• As permitted by the FRB, the firm has elected to temporarily delay the estimated effects of adopting CECL on regulatory capital until January 2022 and to subsequently phase-in the effects through January 2025. In addition, during 2020 and 2021, the firm has elected to increase regulatory capital by 25% of the increase in the allowance for credit losses since January 1, 2020, as permitted by the rules issued by the FRB. The impact of this increase will also be phased in over the three-year transition period. Reflecting the full impact of CECL as of September 2020 would not have had a material impact on the firm’s Advanced risk-based capital ratios.

The table below presents information about leverage ratios.

	For the Three Months Ended or as of
$ in millions		September 2020		December 2019
Tier 1 capital		$    88,566		$     85,440
Average total assets		$1,140,901		$   983,909
Deductions from Tier 1 capital		(5,087	)	(5,275	)
Average adjusted total assets		1,135,814		978,634
Impact of SLR temporary amendment		(198,954	)	–
Average off-balance sheet exposures		365,008		396,833
Total leverage exposure		$1,301,868		$1,375,467
Tier 1 leverage ratio		7.8%		8.7%
SLR		6.8%		6.2%

In the table above:

• Average total assets represents the average daily assets for the quarter, and for the three months ended September 2020, reflected the impact of CECL transition.

• Impact of SLR temporary amendment represents the exclusion of average holdings of U.S. Treasury securities and average deposits at the Federal Reserve as permitted by the FRB. The impact of this temporary amendment was an increase in the firm’s SLR by approximately 0.9 percentage points for the three months ended September 2020. This temporary amendment is effective through March 31, 2021.

• Average off-balance sheet exposures represents the monthly average and consists of derivatives, securities financing transactions, commitments and guarantees.

• Tier 1 leverage ratio is calculated as Tier 1 capital divided by average adjusted total assets.

• SLR is calculated as Tier 1 capital divided by total leverage exposure.

Goldman Sachs September 2020 Form 10-Q 74

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Risk-Based Capital.

The table below presents information about risk-based capital.

	As of
$ in millions		September 2020		December 2019
Common shareholders’ equity		$  81,447		$  79,062
Impact of CECL transition		1,100		–
Deduction for goodwill		(3,644	)	(3,529	)
Deduction for identifiable intangible assets		(599	)	(604	)
Other adjustments		(801	)	(79	)
CET1 capital		77,503		74,850
Preferred stock		11,203		11,203
Deduction for investments in covered funds		(129	)	(610	)
Other adjustments		(11	)	(3	)
Tier 1 capital		$  88,566		$  85,440
Standardized Tier 2 and Total capital
Tier 1 capital		$  88,566		$  85,440
Qualifying subordinated debt		12,872		12,847
Junior subordinated debt		188		284
Allowance for credit losses		3,019		1,802
Other adjustments		(61	)	(8	)
Standardized Tier 2 capital		16,018		14,925
Standardized Total capital		$104,584		$100,365
Advanced Tier 2 and Total capital
Tier 1 capital		$  88,566		$  85,440
Standardized Tier 2 capital		16,018		14,925
Allowance for credit losses		(3,019	)	(1,802	)
Other adjustments		1,068		350
Advanced Tier 2 capital		14,067		13,473
Advanced Total capital		$102,633		$  98,913

In the table above:

• Impact of CECL transition represents the impact of adoption as of January 1, 2020 and the impact of increasing regulatory capital by 25% of the increase in allowance for credit losses since January 1, 2020. The allowance for credit losses within Standardized and Advanced Tier 2 capital also reflects the impact of these adjustments.

• Deduction for goodwill was net of deferred tax liabilities of $689 million as of September 2020 and $667 million as of December 2019.

• Deduction for identifiable intangible assets was net of deferred tax liabilities of $33 million as of September 2020 and $37 million as of December 2019.

• Deduction for investments in covered funds represents the firm’s aggregate investments in applicable covered funds, excluding investments that are subject to an extended conformance period. See Note 8 for further information about the Volcker Rule.

• Other adjustments within CET1 capital and Tier 1 capital primarily include credit valuation adjustments on derivative liabilities, the overfunded portion of the firm’s defined benefit pension plan obligation net of associated deferred tax liabilities, disallowed deferred tax assets, debt valuation adjustments and other required credit risk-based deductions. Other adjustments within Advanced Tier 2 capital include eligible credit reserves.

• Qualifying subordinated debt is subordinated debt issued by Group Inc. with an original maturity of five years or greater. The outstanding amount of subordinated debt qualifying for Tier 2 capital is reduced upon reaching a remaining maturity of five years. See Note 14 for further information about the firm’s subordinated debt.

• Junior subordinated debt is debt issued to a Trust. As of September 2020, 20% of this debt was included in Tier 2 capital and 80% was phased out of regulatory capital. As of December 2019, 30% of this debt was included in Tier 2 capital and 70% was phased out of regulatory capital. Junior subordinated debt is reduced by the amount of Trust Preferred securities purchased by the firm and will be fully phased out of Tier 2 capital by 2022 at a rate of 10% per year. See Note 14 for further information about the firm’s junior subordinated debt and Trust Preferred securities.

75 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The table below presents changes in CET1 capital, Tier 1 capital and Tier 2 capital.

$ in millions	Standardized		Advanced
Nine Months Ended September 2020
CET1 capital
Beginning balance	$  74,850		$  74,850
Change in:
Common shareholders’ equity	2,385		2,385
Impact of CECL transition	1,100		1,100
Deduction for goodwill	(115	)	(115	)
Deduction for identifiable intangible assets	5		5
Other adjustments	(722	)	(722	)
Ending balance	$  77,503		$  77,503
Tier 1 capital
Beginning balance	$  85,440		$  85,440
Change in:
CET1 capital	2,653		2,653
Deduction for investments in covered funds	481		481
Other adjustments	(8	)	(8	)
Ending balance	88,566		88,566
Tier 2 capital
Beginning balance	14,925		13,473
Change in:
Qualifying subordinated debt	25		25
Junior subordinated debt	(96	)	(96	)
Allowance for credit losses	1,217		–
Other adjustments	(53	)	665
Ending balance	16,018		14,067
Total capital	$104,584		$102,633
Year Ended December 2019
CET1 capital
Beginning balance	$  73,116		$  73,116
Change in:
Common shareholders’ equity	80		80
Deduction for goodwill	(432	)	(432	)
Deduction for identifiable intangible assets	(307	)	(307	)
Other adjustments	2,393		2,393
Ending balance	$  74,850		$  74,850
Tier 1 capital
Beginning balance	$  83,702		$  83,702
Change in:
CET1 capital	1,734		1,734
Deduction for investments in covered funds	5		5
Other adjustments	(1	)	(1	)
Ending balance	85,440		85,440
Tier 2 capital
Beginning balance	14,926		13,743
Change in:
Qualifying subordinated debt	(300	)	(300	)
Junior subordinated debt	(158	)	(158	)
Allowance for credit losses	449		–
Other adjustments	8		188
Ending balance	14,925		13,473
Total capital	$100,365		$  98,913

RWAs.

RWAs are calculated in accordance with both the Standardized and Advanced Capital Rules.

Credit Risk

Credit RWAs are calculated based on measures of exposure, which are then risk weighted under the Standardized and Advanced Capital Rules:

• The Standardized Capital Rules apply prescribed risk-weights, which depend largely on the type of counterparty. The exposure measure for derivatives and securities financing transactions are based on specific formulas which take certain factors into consideration.

• Under the Advanced Capital Rules, the firm computes risk-weights for wholesale and retail credit exposures in accordance with the Advanced Internal Ratings-Based approach. The exposure measures for derivatives and securities financing transactions are computed utilizing internal models.

• For both Standardized and Advanced credit RWAs, the risk-weights for securitizations and equities are based on specific required formulaic approaches.

Market Risk

RWAs for market risk in accordance with the Standardized and Advanced Capital Rules are generally consistent. Market RWAs are calculated based on measures of exposure which include the following:

• Value-at-Risk (VaR) is the potential loss in value of trading assets and liabilities, as well as certain investments, loans, and other financial assets and liabilities accounted for at fair value, due to adverse market movements over a defined time horizon with a specified confidence level.

Goldman Sachs September 2020 Form 10-Q 76

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

For both risk management purposes and regulatory capital calculations, the firm uses a single VaR model which captures risks, including those related to interest rates, equity prices, currency rates and commodity prices. However, VaR used for risk management purposes differs from VaR used for regulatory capital requirements (regulatory VaR) due to differences in time horizons, confidence levels and the scope of positions on which VaR is calculated. For risk management purposes, a 95%

one-day

VaR is used, whereas for regulatory capital requirements, a 99%

10-day

VaR is used to determine Market RWAs and a 99%

one-day

VaR is used to determine regulatory VaR exceptions. In addition, the daily net revenues used to determine risk management VaR exceptions (i.e., comparing the daily net revenues to the VaR measure calculated as of the end of the prior business day) include intraday activity, whereas the Capital Framework requires that intraday activity be excluded from daily net revenues when calculating regulatory VaR exceptions. Intraday activity includes bid/offer net revenues, which are more likely than not to be positive by their nature. As a result, there may be differences in the number of VaR exceptions and the amount of daily net revenues calculated for regulatory VaR compared to the amounts calculated for risk management VaR.

The firm’s positional losses observed on a single day exceeded its 99%

one-day

regulatory VaR on six occasions during the nine months ended September 2020 (all of which occurred during March 2020) and exceeded its 99%

one-day

regulatory VaR on one occasion during the year ended December 2019. As permitted by the FRB, the firm has permanently excluded the six exceptions that occurred in March 2020 in determining the firm’s VaR multiplier used to calculate Market RWAs;

• Stressed VaR is the potential loss in value of trading assets and liabilities, as well as certain investments, loans, and other financial assets and liabilities accounted for at fair value, during a period of significant market stress;

• Incremental risk is the potential loss in value of non-securitized positions due to the default or credit migration of issuers of financial instruments over a one-year time horizon;

• Comprehensive risk is the potential loss in value, due to price risk and defaults, within the firm’s credit correlation positions; and

• Specific risk is the risk of loss on a position that could result from factors other than broad market movements, including event risk, default risk and idiosyncratic risk. The standardized measurement method is used to determine specific risk RWAs, by applying supervisory defined risk-weighting factors after applicable netting is performed.

Operational Risk

Operational RWAs are only required to be included under the Advanced Capital Rules. The firm utilizes an internal risk-based model to quantify Operational RWAs.

The table below presents information about RWAs.

$ in millions	Standardized	Advanced
As of September 2020
Credit RWAs
Derivatives	$119,176	$112,940
Commitments, guarantees and loans	163,098	136,659
Securities financing transactions	56,441	9,883
Equity investments	45,142	47,305
Other	70,382	83,971
Total Credit RWAs	454,239	390,758
Market RWAs
Regulatory VaR	18,322	18,322
Stressed VaR	38,885	38,885
Incremental risk	5,385	5,385
Comprehensive risk	1,648	1,648
Specific risk	16,078	16,078
Total Market RWAs	80,318	80,318
Total Operational RWAs	0	128,550
Total RWAs	$534,557	$599,626
As of December 2019
Credit RWAs
Derivatives	$120,906	$  72,631
Commitments, guarantees and loans	179,740	134,456
Securities financing transactions	65,867	13,834
Equity investments	56,814	61,892
Other	75,660	78,266
Total Credit RWAs	498,987	361,079
Market RWAs
Regulatory VaR	8,933	8,933
Stressed VaR	30,911	30,911
Incremental risk	4,308	4,308
Comprehensive risk	1,393	1,191
Specific risk	19,043	19,043
Total Market RWAs	64,588	64,386
Total Operational RWAs	–	119,188
Total RWAs	$563,575	$544,653

In the table above:

• Securities financing transactions represents resale and repurchase agreements and securities borrowed and loaned transactions.

• Other includes receivables, certain debt securities, cash and cash equivalents and other assets.

77 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The table below presents changes in RWAs.

$ in millions	Standardized		Advanced
Nine Months Ended September 2020
RWAs
Beginning balance	$563,575		$544,653
Credit RWAs
Change in:
Derivatives	(1,730	)	40,309
Commitments, guarantees and loans	(16,642	)	2,203
Securities financing transactions	(9,426	)	(3,951	)
Equity investments	(11,672	)	(14,587	)
Other	(5,278	)	5,705
Change in Credit RWAs	(44,748	)	29,679
Market RWAs
Change in:
Regulatory VaR	9,389		9,389
Stressed VaR	7,974		7,974
Incremental risk	1,077		1,077
Comprehensive risk	255		457
Specific risk	(2,965	)	(2,965	)
Change in Market RWAs	15,730		15,932
Change in Operational RWAs	0		9,362
Ending balance	$534,557		$599,626
Year Ended December 2019
RWAs
Beginning balance	$547,910		$558,111
Credit RWAs
Change in:
Derivatives	(1,605	)	(9,670	)
Commitments, guarantees and loans	19,435		(8,900	)
Securities financing transactions	(496	)	(4,425	)
Equity investments	3,251		6,738
Other	5,064		8,585
Change in Credit RWAs	25,649		(7,672	)
Market RWAs
Change in:
Regulatory VaR	1,151		1,151
Stressed VaR	2,959		2,959
Incremental risk	(6,161	)	(6,161	)
Comprehensive risk	(1,377	)	(1,579	)
Specific risk	(6,556	)	(6,556	)
Change in Market RWAs	(9,984	)	(10,186	)
Change in Operational RWAs	–		4,400
Ending balance	$563,575		$544,653

RWAs Rollforward Commentary

Nine Months Ended September 2020.

Standardized Credit RWAs as of September 2020 decreased by $44.75 billion compared with December 2019, primarily reflecting a decrease in commitments, guarantees and loans, principally due to reduced lending exposures, a decrease in equity investments, principally due to the sale of certain equity positions, and a decrease in securities financing transactions, principally due to reduced funding exposures. Standardized Market RWAs as of September 2020 increased by $15.73 billion compared with December 2019, primarily reflecting increases in regulatory VaR and stressed VaR, principally due to increased market volatility.

Advanced Credit RWAs as of September 2020 increased by $29.68 billion compared with December 2019, primarily reflecting an increase in derivatives, principally due to the impact of higher levels of volatility and counterparty credit risk. This increase was partially offset by a decrease in equity investments, principally due to the sale of certain equity positions. Advanced Market RWAs as of September 2020 increased by $15.93 billion compared with December 2019, primarily reflecting increases in regulatory VaR and stressed VaR, principally due to increased market volatility. Advanced Operational RWAs as of September 2020 increased by $9.36 billion compared with December 2019. The vast majority of this increase was associated with litigation and regulatory proceedings.

Year Ended December 2019.

Standardized Credit RWAs as of December 2019 increased by $25.65 billion compared with December 2018, primarily reflecting an increase in commitments, guarantees and loans, principally due to an increase in lending activity, and an increase in other credit RWAs, principally due to the recognition of operating lease

right-of-use

assets upon adoption of ASU

No. 2016-02

and an increase in corporate debt exposures. Standardized Market RWAs as of December 2019 decreased by $9.98 billion compared with December 2018, primarily reflecting a decrease in specific risk, principally due to reduced exposures, and a decrease in incremental risk, principally due to reduced exposures and changes in risk measurements.

Advanced Credit RWAs as of December 2019 decreased by $7.67 billion compared with December 2018. Beginning in the fourth quarter of 2019, the firm made changes to the calculation of the loss given default for certain wholesale exposures which resulted in a decrease in credit RWAs, primarily in commitments, guarantees and loans and derivatives. This decrease was partially offset by an increase in other credit RWAs, principally due to the recognition of operating lease

right-of-use

assets upon adoption of ASU

No. 2016-02

and an increase in corporate debt exposures. Advanced Market RWAs as of December 2019 decreased by $10.19 billion compared with December 2018, primarily reflecting a decrease in specific risk, principally due to reduced exposures, and a decrease in incremental risk, principally due to reduced exposures and changes in risk measurements. Advanced Operational RWAs as of December 2019 increased by $4.40 billion compared with December 2018, associated with litigation and regulatory proceedings.

Goldman Sachs September 2020 Form 10-Q 78

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Bank Subsidiaries

Regulatory Capital Ratios.

GS Bank USA, the firm’s primary U.S. bank subsidiary, is an FDIC-insured, New York State-chartered bank and a member of the Federal Reserve System, is supervised and regulated by the FRB, the FDIC, the New York State Department of Financial Services (NYDFS) and the Consumer Financial Protection Bureau, and is subject to regulatory capital requirements that are calculated in substantially the same manner as those for BHCs. To assess the adequacy of its capital, GS Bank USA calculates its risk-based capital and leverage ratios in accordance with the regulatory capital requirements applicable to state member banks, which are based on the Capital Framework. GS Bank USA is an Advanced approach banking organization under the Capital Framework.

Similar to the firm, GS Bank USA is required to calculate the CET1 capital, Tier 1 capital and Total capital ratios in accordance with both the Standardized and Advanced Capital Rules. The lower of each risk-based capital ratio under the Standardized and Advanced Capital Rules is the ratio against which GS Bank USA’s compliance with its risk-based capital requirements is assessed. In addition, under the regulatory framework for prompt corrective action applicable to GS Bank USA, in order to meet the quantitative requirements for a “well-capitalized” depository institution, GS Bank USA must also meet the “well-capitalized” requirements in the table below. GS Bank USA’s capital levels and prompt corrective action classification are also subject to qualitative judgments by the regulators about components of capital, risk weightings and other factors. Failure to comply with the capital requirements, including a breach of the buffers described below, could result in restrictions being imposed by the regulators.

The table below presents GS Bank USA’s risk-based capital, leverage and “well-capitalized” requirements.

	Requirements	“Well-capitalized” Requirements
Risk-based capital requirements
CET1 capital ratio	7.0%	6.5%
Tier 1 capital ratio	8.5%	8.0%
Total capital ratio	10.5%	10.0%
Leverage requirements
Tier 1 leverage ratio	4.0%	5.0%
SLR	3.0%	6.0%

In the table above:

• The CET1 capital ratio requirement includes a minimum of 4.5%, the Tier 1 capital ratio requirement includes a minimum of 6.0% and the Total capital ratio requirement includes a minimum of 8.0%. The requirements also include the capital conservation buffer of 2.5% and the countercyclical capital buffer, which the FRB has set to 0 percent.

• The “well-capitalized” requirements are the binding requirements for leverage ratios.

The table below presents information about GS Bank USA’s risk-based capital ratios.

$ in millions	Standardized	Advanced
As of September 2020
CET1 capital	$  30,441	$  30,441
Tier 1 capital	$  30,441	$  30,441
Tier 2 capital	$    6,235	$    4,852
Total capital	$  36,676	$  35,293
RWAs	$247,064	$160,261
CET1 capital ratio	12.3%	19.0%
Tier 1 capital ratio	12.3%	19.0%
Total capital ratio	14.8%	22.0%
As of December 2019
CET1 capital	$  29,176	$  29,176
Tier 1 capital	$  29,176	$  29,176
Tier 2 capital	$    5,293	$    4,486
Total capital	$  34,469	$  33,662
RWAs	$258,541	$135,596
CET1 capital ratio	11.3%	21.5%
Tier 1 capital ratio	11.3%	21.5%
Total capital ratio	13.3%	24.8%

In the table above:

• The lower of the Standardized or Advanced ratio is the ratio against which GS Bank USA’s compliance with the capital requirements is assessed under the risk-based Capital Rules, and therefore, the Standardized ratios applied to GS Bank USA as of both September 2020 and December 2019.

• As permitted by the FRB, GS Bank USA has elected to temporarily delay the estimated effects of adopting CECL on regulatory capital until January 2022 and to subsequently phase-in the effects through January 2025. In addition, during 2020 and 2021, GS Bank USA has elected to increase regulatory capital by 25% of the increase in the allowance for credit losses since January 1, 2020, as permitted by the rules issued by the FRB. The impact of this increase will also be phased in over the three-year transition period. Reflecting the full impact of CECL as of September 2020 would not have had a material impact on GS Bank USA’s Standardized risk-based capital ratios.

• The Standardized risk-based capital ratios increased from December 2019 to September 2020, reflecting a decrease in Credit RWAs and an increase in capital, principally due to net earnings, partially offset by an increase in Market RWAs. The Advanced risk-based capital ratios decreased from December 2019 to September 2020, reflecting increases in both Credit and Market RWAs, partially offset by an increase in capital, principally due to net earnings.

79 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The table below presents information about GS Bank USA’s leverage ratios.

	For the Three Months Ended or as of
$ in millions		September 2020	December 2019
Tier 1 capital		$  30,441	$  29,176
Average adjusted total assets		$288,159	$220,974
Total leverage exposure		$342,230	$413,852
Tier 1 leverage ratio		10.6%	13.2%
SLR		8.9%	7.0%

In the table above:

• Average adjusted total assets represents the average daily assets for the quarter adjusted for deductions from Tier 1 capital, and for the three months ended September 2020, reflected the impact of CECL transition.

• Total leverage exposure, for the three months ended September 2020, excluded average holdings of U.S. Treasury securities and average deposits at the Federal Reserve as permitted by the FRB. The impact of this temporary amendment was an increase in GS Bank USA’s SLR by approximately 2.4 percentage points for the three months ended September 2020. This temporary amendment is effective through March 31, 2021.

• Tier 1 leverage ratio is calculated as Tier 1 capital divided by average adjusted total assets.

• SLR is calculated as Tier 1 capital divided by total leverage exposure.

The firm’s principal

non-U.S.

bank subsidiary, GSIB, is a wholly-owned credit institution, regulated by the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) and is subject to regulatory capital requirements. As of both September 2020 and December 2019, GSIB was in compliance with its regulatory capital requirements.

Other.

The deposits of GS Bank USA are insured by the FDIC to the extent provided by law. The FRB requires that GS Bank USA maintain cash reserves with the Federal Reserve. The amount deposited by GS Bank USA at the Federal Reserve was $63.69 billion as of September 2020 and $50.55 billion as of December 2019, which exceeded required reserve amounts by $63.69 billion as of September 2020 (as the FRB reduced reserve requirement ratios to zero percent in 2020) and $50.29 billion as of December 2019.

Restrictions on Payments

Group Inc. may be limited in its ability to access capital held at certain subsidiaries as a result of regulatory, tax or other constraints. These limitations include provisions of applicable law and regulations and other regulatory restrictions that limit the ability of those subsidiaries to declare and pay dividends without prior regulatory approval. As a result of GS Bank USA’s election to exclude holdings of U.S. Treasury securities and deposits at the Federal Reserve from its total leverage exposure, any dividend by GS Bank USA during the period from July 1, 2020 through March 31, 2021 is subject to the prior approval of the FRB. Furthermore, the amount of dividends that may be paid by GS Bank USA are limited to the lesser of the amounts calculated under a recent earnings test and an undivided profits test. The FRB, the FDIC and the NYDFS have authority to prohibit or to limit the payment of dividends by the banking organizations they supervise (including GS Bank USA) if, in the regulator’s opinion, payment of a dividend would constitute an unsafe or unsound practice in light of the financial condition of the banking organization.

In addition, subsidiaries not subject to separate regulatory capital requirements may hold capital to satisfy local tax and legal guidelines, rating agency requirements (for entities with assigned credit ratings) or internal policies, including policies concerning the minimum amount of capital a subsidiary should hold based on its underlying level of risk.

Group Inc.’s equity investment in subsidiaries was $99.52 billion as of September 2020 and $95.68 billion as of December 2019, of which Group Inc. was required to maintain $60.88 billion as of September 2020 and $57.58 billion as of December 2019, of minimum equity capital in its regulated subsidiaries in order to satisfy the regulatory requirements of such subsidiaries.

Group Inc.’s capital invested in certain

non-U.S.

subsidiaries is exposed to foreign exchange risk, substantially all of which is managed through a combination of derivatives and

non-U.S.

denominated debt. See Note 7 for information about the firm’s net investment hedges used to hedge this risk.

Goldman Sachs September 2020 Form 10-Q 80

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Note 21.

Earnings Per Common Share

Basic earnings per common share (EPS) is calculated by dividing net earnings to common by the weighted average number of common shares outstanding and RSUs for which the delivery of the underlying common stock is not subject to satisfaction of future service or performance conditions (collectively, basic shares). Diluted EPS includes the determinants of basic EPS and, in addition, reflects the dilutive effect of the common stock deliverable for RSUs for which the delivery of the underlying common stock is subject to satisfaction of future service or performance conditions.

The table below presents information about basic and diluted EPS.

	Three Months Ended September			Nine Months Ended September
in millions, except per share amounts		2020	2019		2020	2019
Net earnings to common		$3,233	$1,793		$4,553	$6,173
Weighted average basic shares		355.9	370.0		356.5	374.7
Effect of dilutive RSUs		4.0	4.3		3.5	3.5
Weighted average diluted shares		359.9	374.3		360.0	378.2
Basic EPS		$  9.07	$  4.83		$12.71	$16.43
Diluted EPS		$  8.98	$  4.79		$12.65	$16.32

In the table above:

• Net earnings to common represents net earnings applicable to common shareholders, which is calculated as net earnings less preferred stock dividends.

• Unvested share-based awards that have non-forfeitable rights to dividends or dividend equivalents are treated as a separate class of securities under the two-class method. Distributed earnings allocated to these securities reduce net earnings to common to calculate EPS under this method. The impact of applying this methodology was a reduction in basic EPS of $0.01 for the three months ended September 2020, $0.02 for the three months ended September 2019, $0.06 for the nine months ended September 2020 and $0.04 for the nine months ended September 2019.

• Diluted EPS does not include antidilutive RSUs of less than 0.1 million for each of the three months ended September 2020, three months ended September 2019 and nine months ended September  2019 , and 0.1 million for the nine months ended September 20 20 .

Note 22.

Transactions with Affiliated Funds

The firm has formed nonconsolidated investment funds with third-party investors. As the firm generally acts as the investment manager for these funds, it is entitled to receive management fees and, in certain cases, advisory fees or incentive fees from these funds. Additionally, the firm invests alongside the third-party investors in certain funds.

The tables below present information about affiliated funds.

	Three Months Ended September			Nine Months Ended September
$ in millions		2020	2019		2020	2019
Fees earned from funds		$816	$739		$2,541	$2,181

	As of
$ in millions		September 2020	December 2019
Fees receivable from funds		$     901	$   780
Aggregate carrying value of interests in funds		$4,875	$5,490

The firm may periodically determine to waive certain management fees on selected money market funds. Management fees waived were $26 million for the three months ended September 2020, $11 million for the three months ended September 2019, $57 million for the nine months ended September 2020 and $32 million for the nine months ended September 2019.

The Volcker Rule restricts the firm from providing financial support to covered funds (as defined in the rule) after the expiration of the conformance period. As a general matter, in the ordinary course of business, the firm does not expect to provide additional voluntary financial support to any covered funds, but may choose to do so with respect to funds that are not subject to the Volcker Rule. However, any such support is not expected to be material to the results of operations of the firm.

In March 2020, GS Bank USA and unaffiliated entities purchased certificates of deposit and commercial paper from two money market funds managed by the firm. These funds are not covered funds under the Volcker Rule. GS Bank USA’s purchase price of these securities was $1.84 billion, of which $439 million was outstanding as of September 2020. These purchases were made to promote liquidity in the short-term credit markets and to increase the funds’ weekly liquid assets. These securities are included within investments in the consolidated balance sheets. Group Inc. has provided a guarantee to GS Bank USA in connection with these securities. See Note 18 for information about guarantees provided by Group Inc. to subsidiaries.

81 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

In addition, the firm had an outstanding guarantee, as permitted under the Volcker Rule, on behalf of its funds of $87 million as of both September 2020 and December 2019. The firm has voluntarily provided this guarantee in connection with a financing agreement with a third-party lender executed by one of the firm’s real estate funds that is not covered by the Volcker Rule. As of and during September 2020 and December 2019, except as noted above, the firm has not provided any additional financial support to its affiliated funds.

In addition, in the ordinary course of business, the firm may also engage in other activities with its affiliated funds, including, among others, securities lending, trade execution, market-making, custody, and acquisition and bridge financing. See Note 18 for information about the firm’s investment commitments related to these funds.

Note 23.

Interest Income and Interest Expense

Interest is recorded over the life of the instrument on an accrual basis based on contractual interest rates.

The table below presents sources of interest income and interest expense.

	Three Months Ended September				Nine Months Ended September
$ in millions		2020		2019		2020	2019
Deposits with banks		$       11		$   287		$       234	$     981
Collateralized agreements		(67	)	1,100		451	3,705
Trading assets		1,176		1,472		4,006	4,390
Investments		404		340		1,196	1,052
Loans		1,153		1,379		3,691	4,075
Other interest		255		881		1,138	2,613
Total interest income		2,932		5,459		10,716	16,816
Deposits		505		945		1,982	2,689
Collateralized financings		50		710		570	2,130
Trading liabilities		345		254		931	935
Short-term borrowings		124		190		423	500
Long-term borrowings		981		1,321		3,217	4,119
Other interest		(157	)	1,031		252	3,146
Total interest expense		1,848		4,451		7,375	13,519
Net interest income		$1,084		$1,008		$  3,341	$  3,297

In the table above:

• Collateralized agreements includes rebates paid and interest income on securities borrowed.

• Loans excludes interest on loans held for sale that are accounted for at the lower of cost or fair value. Such interest is included within other interest.

• Other interest income includes interest income on customer debit balances, other interest-earning assets and loans held for sale that are accounted for at the lower of cost or fair value.

• Collateralized financings consists of repurchase agreements and securities loaned.

• Short- and long-term borrowings include both secured and unsecured borrowings.

• Other interest expense includes rebates received on other interest-bearing liabilities and interest expense on customer credit balances.

Note 24.

Income Taxes

Provision for Income Taxes

Income taxes are provided for using the asset and liability method under which deferred tax assets and liabilities are recognized for temporary differences between the financial reporting and tax bases of assets and liabilities. The firm reports interest expense related to income tax matters in provision for taxes and income tax penalties in other expenses.

Deferred Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences between the financial reporting and tax bases of assets and liabilities. These temporary differences result in taxable or deductible amounts in future years and are measured using the tax rates and laws that will be in effect when such differences are expected to reverse. Valuation allowances are established to reduce deferred tax assets to the amount that more likely than not will be realized and primarily relate to the ability to utilize losses in various tax jurisdictions. Tax assets are included in other assets and tax liabilities are included in other liabilities.

Unrecognized Tax Benefits

The firm recognizes tax positions in the consolidated financial statements only when it is more likely than not that the position will be sustained on examination by the relevant taxing authority based on the technical merits of the position. A position that meets this standard is measured at the largest amount of benefit that will more likely than not be realized on settlement. A liability is established for differences between positions taken in a tax return and amounts recognized in the consolidated financial statements.

Regulatory Tax Examinations

The firm is subject to examination by the U.S. Internal Revenue Service (IRS) and other taxing authorities in jurisdictions where the firm has significant business operations, such as the United Kingdom, Japan, Hong Kong and various states, such as New York. The tax years under examination vary by jurisdiction. The firm does not expect completion of these audits to have a material impact on the firm’s financial condition, but it may be material to operating results for a particular period, depending, in part, on the operating results for that period.

Goldman Sachs September 2020 Form 10-Q 82

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The table below presents the earliest tax years that remain subject to examination by major jurisdiction.

Jurisdiction	As of September 2020
U.S. Federal	2011
New York State	2011
New York City	2015
United Kingdom	2017
Japan	2015
Hong Kong	2014

The firm has been accepted into the Compliance Assurance Process program by the IRS for each of the tax years from 2013 through 2020. This program allows the firm to work with the IRS to identify and resolve potential U.S. Federal tax issues before the filing of tax returns. The fieldwork for tax years 2011 through 2017 has been completed. During the first nine months of 2020, the firm reached an agreement with the IRS on certain items related to tax years through 2017, which did not have a material impact on the effective tax rate. The final resolution of the audit for tax years 2011 through 2017 is not expected to have a material impact on the effective tax rate. The 2018 and 2019 tax years remain subject to post-filing review.

New York State examinations (excluding GS Bank USA) of 2011 through 2014 began in 2017. During the first nine months of 2020, New York City’s examination of the tax years 2011 through 2014 was completed. The resolution of this examination did not have a material impact on the effective tax rate. New York State and City examinations for GS Bank USA have been completed through 2014.

All years, including and subsequent to the years in the table above, remain open to examination by the taxing authorities. The firm believes that the liability for unrecognized tax benefits it has established is adequate in relation to the potential for additional assessments.

Note 25.

Business Segments

The firm reports its activities in four business segments: Investment Banking, Global Markets, Asset Management and Consumer & Wealth Management. See Note 1 for information about the firm’s business segments.

Compensation and benefits expenses in the firm’s segments reflect, among other factors, the overall performance of the firm, as well as the performance of individual businesses. Consequently,

pre-tax

margins in one segment of the firm’s business may be significantly affected by the performance of the firm’s other business segments.

The firm allocates assets (including allocations of global core liquid assets and cash, secured client financing and other assets), revenues and expenses among the four business segments. Due to the integrated nature of these segments, estimates and judgments are made in allocating certain assets, revenues and expenses. The allocation process is based on the manner in which management currently views the performance of the segments.

The allocation of common shareholders’ equity and preferred stock dividends to each segment is based on the estimated amount of equity required to support the activities of the segment under relevant regulatory capital requirements.

Net earnings for each segment is calculated by applying the firmwide tax rate to each segment’s

pre-tax

earnings.

Management believes that this allocation provides a reasonable representation of each segment’s contribution to consolidated net earnings to common, return on average common equity and total assets. Transactions between segments are based on specific criteria or approximate third-party rates.

83 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Segment Results

The table below presents a summary of the firm’s segment results.

	Three Months Ended September				Nine Months Ended September
$ in millions		2020		2019		2020	2019
Investment Banking
Non-interest revenues		$  1,904		$  1,698		$  6,614	$  5,157
Net interest income		65		143		196	378
Total net revenues		1,969		1,841		6,810	5,535
Provision for credit losses		171		91		1,612	258
Operating expenses		1,067		972		4,940	3,027
Pre-tax earnings		$       731		$     778		$       258	$  2,250
Net earnings		$       469		$     607		$       184	$  1,784
Net earnings to common		$       452		$     597		$       133	$  1,738
Average common equity		$11,271		$12,471		$11,251	$11,166
Return on average common equity		16.0%		19.1%		1.6%	20.8%
Global Markets
Non-interest revenues		$  4,093		$  3,227		$15,292	$  9,943
Net interest income		460		316		1,600	1,356
Total net revenues		4,553		3,543		16,892	11,299
Provision for credit losses		(15	)	16		236	15
Operating expenses		2,542		2,377		10,568	7,810
Pre-tax earnings		$  2,026		$  1,150		$  6,088	$  3,474
Net earnings		$  1,904		$     895		$  4,346	$  2,753
Net earnings to common		$  1,816		$     839		$  4,085	$  2,499
Average common equity		$39,960		$38,847		$40,542	$40,670
Return on average common equity		18.2%		8.6%		13.4%	8.2%
Asset Management
Non-interest revenues		$  2,717		$  1,497		$  4,626	$  5,616
Net interest income		51		124		147	346
Total net revenues		2,768		1,621		4,773	5,962
Provision for credit losses		70		81		420	154
Operating expenses		1,358		1,176		3,888	3,526
Pre-tax earnings		$  1,340		$     364		$       465	$  2,282
Net earnings		$       858		$     278		$       332	$  1,809
Net earnings to common		$       839		$     264		$       273	$  1,753
Average common equity		$19,989		$22,320		$20,332	$21,199
Return on average common equity		16.8%		4.7%		1.8%	11.0%
Consumer & Wealth Management
Non-interest revenues		$       983		$     893		$  2,946	$  2,578
Net interest income		508		425		1,398	1,217
Total net revenues		1,491		1,318		4,344	3,795
Provision for credit losses		52		103		537	302
Operating expenses		1,237		1,091		3,680	3,237
Pre-tax earnings		$       202		$     124		$       127	$     256
Net earnings		$       136		$       97		$         91	$     203
Net earnings to common		$       126		$       93		$         62	$     183
Average common equity		$  8,519		$  6,213		$  7,715	$  6,027
Return on average common equity		5.9%		6.0%		1.1%	4.0%
Total
Non-interest revenues		$  9,697		$  7,315		$29,478	$23,294
Net interest income		1,084		1,008		3,341	3,297
Total net revenues		10,781		8,323		32,819	26,591
Provision for credit losses		278		291		2,805	729
Operating expenses		6,204		5,616		23,076	17,600
Pre-tax earnings		$  4,299		$  2,416		$  6,938	$  8,262
Net earnings		$  3,367		$  1,877		$  4,953	$  6,549
Net earnings to common		$  3,233		$  1,793		$  4,553	$  6,173
Average common equity		$79,739		$79,851		$79,840	$79,062
Return on average common equity		16.2%		9.0%		7.6%	10.4%

In the table above:

• Revenues and expenses directly associated with each segment are included in determining pre-tax earnings.

• Net revenues in the firm’s segments include allocations of interest income and expense to specific positions in relation to the cash generated by, or funding requirements of, such positions. Net interest is included in segment net revenues as it is consistent with how management assesses segment performance.

• Total operating expenses included net provisions for litigation and regulatory proceedings of $3.40 billion for the nine months ended September 2020, primarily reflected in Investment Banking and Global Markets.

• Overhead expenses not directly allocable to specific segments are allocated ratably based on direct segment expenses.

The table below presents depreciation and amortization expense by segment.

	Three Months Ended September			Nine Months Ended September
$ in millions		2020	2019		2020	2019
Investment Banking		$  46	$  33		$     128	$     93
Global Markets		160	168		440	475
Asset Management		170	185		553	468
Consumer & Wealth Management		92	87		283	204
Total		$468	$473		$1,404	$1,240

Segment Assets

The table below presents assets by segment.

	As of
$ in millions		September 2020	December 2019
Investment Banking		$     118,309	$  92,009
Global Markets		818,255	725,060
Asset Management		94,897	92,102
Consumer & Wealth Management		100,598	83,797
Total		$1,132,059	$992,968

Goldman Sachs September 2020 Form 10-Q 84

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The table below presents gross loans by segment and loan type.

	As of
$ in millions		September 2020	December 2019
Corporate		$  31,548	$  27,035
Investment Banking		31,548	27,035
Corporate		11,860	11,852
Real estate		14,134	15,671
Other		3,451	3,756
Global Markets		29,445	31,279
Corporate		8,057	7,420
Real estate		8,948	9,030
Other		703	1,036
Asset Management		17,708	17,486
Wealth management		29,836	27,940
Installment		4,112	4,747
Credit cards		2,908	1,858
Consumer & Wealth Management		36,856	34,545
Total loans		$115,557	$110,345

The table below presents the allowance for loan losses by segment.

	As of
$ in millions		September 2020	December 2019
Investment Banking		$    1,413	$       470
Global Markets		403	168
Asset Management		742	385
Consumer & Wealth Management		1,156	418
Total		$    3,714	$    1,441

See Note 9 for further information about loans.

Geographic Information

Due to the highly integrated nature of international financial markets, the firm manages its businesses based on the profitability of the enterprise as a whole. The methodology for allocating profitability to geographic regions is dependent on estimates and management judgment because a significant portion of the firm’s activities require cross-border coordination in order to facilitate the needs of the firm’s clients. Geographic results are generally allocated as follows:

• Investment Banking: location of the client and investment banking team.

• Global Markets: FICC and Equities intermediation: location of the market-making desk; FICC and Equities financing (excluding prime brokerage financing): location of the desk; prime brokerage financing: location of the primary market for the underlying security.

• Asset Management (excluding Equity investments and Lending and debt investments): location of the sales team; Equity investments: location of the investment; Lending and debt investments: location of the client.

• Consumer & Wealth Management: Wealth management: location of the sales team; Consumer banking: location of the client.

The table below presents total net revenues and

pre-tax

earnings by geographic region.

$ in millions	2020			2019
Three Months Ended September
Americas	$  6,873		64%	$  4,941	59%
EMEA	2,470		23%	2,329	28%
Asia	1,438		13%	1,053	13%
Total net revenues	$10,781		100%	$  8,323	100%
Americas	$  2,926		68%	$  1,164	48%
EMEA	935		22%	948	39%
Asia	438		10%	304	13%
Total pre-tax earnings	$  4,299		100%	$  2,416	100%
Nine Months Ended September
Americas	$20,333		62%	$15,838	60%
EMEA	8,031		24%	7,477	28%
Asia	4,455		14%	3,276	12%
Total net revenues	$32,819		100%	$26,591	100%
Americas	$  5,330		77%	$  4,444	54%
EMEA	1,937		28%	2,855	34%
Asia	(329	)	(5)%	963	12%
Total pre-tax earnings	$  6,938		100%	$  8,262	100%

In the table above:

• Asia pre-tax earnings for the nine months ended September 2020 were impacted by net provisions for litigation and regulatory proceedings.

• Substantially all of the amounts in Americas were attributable to the U.S.

• Asia includes Australia and New Zealand.

Note 26.

Credit Concentrations

The firm’s concentrations of credit risk arise from its market making, client facilitation, investing, underwriting, lending and collateralized transactions, and cash management activities, and may be impacted by changes in economic, industry or political factors. These activities expose the firm to many different industries and counterparties, and may also subject the firm to a concentration of credit risk to a particular central bank, counterparty, borrower or issuer, including sovereign issuers, or to a particular clearing house or exchange. The firm seeks to mitigate credit risk by actively monitoring exposures and obtaining collateral from counterparties as deemed appropriate.

The firm measures and monitors its credit exposure based on amounts owed to the firm after taking into account risk mitigants that the firm considers when determining credit risk. Such risk mitigants include netting and collateral arrangements and economic hedges, such as credit derivatives, futures and forward contracts. Netting and collateral agreements permit the firm to offset receivables and payables with such counterparties and/or enable the firm to obtain collateral on an upfront or contingent basis.

85 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The table below presents the credit concentrations included in trading cash instruments and investments.

	As of
$ in millions		September 2020	December 2019
U.S. government and agency obligations		$180,041	$167,097
Percentage of total assets		15.9%	16.8%
Non-U.S. government and agency obligations		$  71,140	$  44,875
Percentage of total assets		6.3%	4.5%

In addition, the firm had $117.30 billion as of September 2020 and $96.97 billion as of December 2019 of cash deposits held at central banks (included in cash and cash equivalents), of which $63.69 billion as of September 2020 and $50.55 billion as of December 2019 was held at the Federal Reserve.

As of both September 2020 and December 2019, the firm did not have credit exposure to any other counterparty that exceeded 2% of total assets.

Collateral obtained by the firm related to derivative assets is principally cash and is held by the firm or a third-party custodian. Collateral obtained by the firm related to resale agreements and securities borrowed transactions is primarily U.S. government and agency obligations and

non-U.S.

government and agency obligations. See Note 11 for further information about collateralized agreements and financings.

The table below presents U.S. government and agency obligations and

non-U.S.

government and agency obligations that collateralize resale agreements and securities borrowed transactions.

	As of
$ in millions		September 2020	December 2019
U.S. government and agency obligations		$56,896	$49,396
Non-U.S. government and agency obligations		$60,885	$55,889

In the table above:

• Non-U.S. government and agency obligations primarily consists of securities issued by the governments of the U.K. and Japan.

• Given that the firm’s primary credit exposure on such transactions is to the counterparty to the transaction, the firm would be exposed to the collateral issuer only in the event of counterparty default.

Note 27.

Legal Proceedings

The firm is involved in a number of judicial, regulatory and arbitration proceedings (including those described below) concerning matters arising in connection with the conduct of the firm’s businesses. Many of these proceedings are in early stages, and many of these cases seek an indeterminate amount of damages.

Under ASC 450, an event is “reasonably possible” if “the chance of the future event or events occurring is more than remote but less than likely” and an event is “remote” if “the chance of the future event or events occurring is slight.” Thus, references to the upper end of the range of reasonably possible loss for cases in which the firm is able to estimate a range of reasonably possible loss mean the upper end of the range of loss for cases for which the firm believes the risk of loss is more than slight.

With respect to matters described below for which management has been able to estimate a range of reasonably possible loss where (i) actual or potential plaintiffs have claimed an amount of money damages, (ii) the firm is being, or threatened to be, sued by purchasers in a securities offering and is not being indemnified by a party that the firm believes will pay the full amount of any judgment, or (iii) the purchasers are demanding that the firm repurchase securities, management has estimated the upper end of the range of reasonably possible loss as being equal to (a) in the case of (i), the amount of money damages claimed, (b) in the case of (ii), the difference between the initial sales price of the securities that the firm sold in such offering and the estimated lowest subsequent price of such securities prior to the action being commenced and (c) in the case of (iii), the price that purchasers paid for the securities less the estimated value, if any, as of September 2020 of the relevant securities, in each of cases (i), (ii) and (iii), taking into account any other factors believed to be relevant to the particular matter or matters of that type. As of the date hereof, the firm has estimated the upper end of the range of reasonably possible aggregate loss for such matters and for any other matters described below where management has been able to estimate a range of reasonably possible aggregate loss to be approximately $0.9 billion in excess of the aggregate reserves for such matters.

Goldman Sachs September 2020 Form 10-Q 86

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Management is generally unable to estimate a range of reasonably possible loss for matters other than those included in the estimate above, including where (i) actual or potential plaintiffs have not claimed an amount of money damages, except in those instances where management can otherwise determine an appropriate amount, (ii) matters are in early stages, (iii) matters relate to regulatory investigations or reviews, except in those instances where management can otherwise determine an appropriate amount, (iv) there is uncertainty as to the likelihood of a class being certified or the ultimate size of the class, (v) there is uncertainty as to the outcome of pending appeals or motions, (vi) there are significant factual issues to be resolved, and/or (vii) there are novel legal issues presented. For example, the firm’s potential liabilities with respect to the investigations and reviews described below in “Regulatory Investigations and Reviews and Related Litigation” generally are not included in management’s estimate of reasonably possible loss. However, management does not believe, based on currently available information, that the outcomes of such other matters will have a material adverse effect on the firm’s financial condition, though the outcomes could be material to the firm’s operating results for any particular period, depending, in part, upon the operating results for such period. See Note 18 for further information about mortgage-related contingencies.

1MDB-Related Matters

Between 2012 and 2013, subsidiaries of the firm acted as arrangers or purchasers of approximately $6.5 billion of debt securities of 1MDB.

On November 1, 2018, the U.S. Department of Justice (DOJ) unsealed a criminal information and guilty plea by Tim Leissner, a former participating managing director of the firm, and an indictment against Ng Chong Hwa, a former managing director of the firm, and Low Taek Jho. Leissner pleaded guilty to a

two-count

criminal information charging him with conspiring to launder money and conspiring to violate the U.S. Foreign Corrupt Practices Act’s (FCPA) anti-bribery and internal accounting controls provisions. Low and Ng were charged in a three-count indictment with conspiring to launder money and conspiring to violate the FCPA’s anti-bribery provisions. On August 28, 2018, Leissner’s guilty plea was accepted by the U.S. District Court for the Eastern District of New York and Leissner was adjudicated guilty on both counts. Ng was also charged in this indictment with conspiring to violate the FCPA’s internal accounting controls provisions. On May 6, 2019, Ng pleaded not guilty to the DOJ’s criminal charges. On February 4, 2020, the FRB disclosed that Andrea Vella, a former participating managing director whom the DOJ had previously referred to as an unindicted

co-conspirator,

had agreed, without admitting or denying the FRB’s allegations, to a consent order that prohibited him from participating in the banking industry. No other penalties were imposed by the consent order.

On December 17, 2018, the Attorney General of Malaysia filed criminal charges in Malaysia against GSI, as the arranger of three offerings of debt securities of 1MDB, aggregating approximately $6.5 billion in principal amount, for alleged disclosure deficiencies in the offering documents relating to, among other things, the use of proceeds for the debt securities, as well as against Goldman Sachs (Asia) LLC (GS Asia) and Goldman Sachs (Singapore) PTE (GS Singapore). Criminal charges have also been filed against Leissner, Low, Ng and Jasmine Loo Ai Swan. In a related press release, the Attorney General of Malaysia indicated that prosecutors in Malaysia will seek criminal fines against the accused in excess of $2.7 billion plus the $600 million of fees received in connection with the debt offerings. On August 9, 2019, the Attorney General of Malaysia announced that criminal charges had also been filed against seventeen current and former directors of GSI, GS Asia and GS Singapore (together with the criminal charges against GSI, GS Asia and GS Singapore, the Malaysian Criminal Proceedings).

The Malaysia Securities Commission (MSC) issued notices to show cause against Goldman Sachs (Malaysia) Sdn Bhd (GS Malaysia) in December 2018 and March 2019 that (i) allege possible violations of Malaysian securities laws and (ii) indicate that the MSC is considering whether to revoke GS Malaysia’s license to conduct corporate finance and fund management activities in Malaysia.

On August 18, 2020, the firm announced that it entered into a settlement agreement with the Government of Malaysia to resolve all the criminal and regulatory proceedings in Malaysia involving the firm, including the Malaysian Criminal Proceedings and the MSC’s notices to show cause. The agreement involves the payment to the Government of Malaysia of $2.5 billion and a guarantee that the Government of Malaysia receives at least $1.4 billion in assets and proceeds from assets seized by governmental authorities around the world related to 1MDB. In addition, the Government of Malaysia agreed to withdraw the Malaysian Criminal Proceedings and agreed that no further charges would be brought against Group Inc., its affiliates and subsidiaries, or any of their directors and officers (excluding Leissner and Ng) related to 1MDB. The firm has paid the $2.5 billion to the Government of Malaysia and the Malaysian Criminal Proceedings have been withdrawn.

87 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

On October 22, 2020, the firm announced that it reached settlements of governmental and regulatory investigations relating to 1MDB with the DOJ, the SEC, the FRB, the NYDFS, the FCA, the PRA, the Singapore Attorney General’s Chambers, the Singapore Commercial Affairs Department, the Monetary Authority of Singapore and the Hong Kong Securities and Futures Commission. Group Inc. entered into a three-year deferred prosecution agreement with the DOJ, in which a charge against the firm, one count of conspiracy to violate the FCPA, was filed and will later be dismissed if the firm abides by the terms of the agreement. In addition, GS Malaysia pleaded guilty to one count of conspiracy to violate the FCPA. The firm will pay total penalties, after crediting, of approximately $2.6 billion in connection with the settlements. A separate obligation to pay $606 million in disgorgement has been credited and satisfied as a result of the firm’s earlier settlement with the Government of Malaysia, described above. This brings the total payments in connection with governmental and regulatory settlements relating to 1MDB to an aggregate of approximately $5.1 billion.

The firm has been working to secure necessary exemptions and authorizations from regulators so that the settlements announced on October 22, 2020, do not impact the firm’s activities or the services that it provides to clients. The firm has already submitted its application to the U.S. Department of Labor to maintain its status as a qualified professional asset manager (QPAM), and expects to obtain the exemption before the sentencing of GS Malaysia.

The firm has received multiple demands, beginning in November 2018, from alleged shareholders under Section 220 of the Delaware General Corporation Law for books and records relating to, among other things, the firm’s involvement with 1MDB and the firm’s compliance procedures. On December 13, 2019, an alleged shareholder filed a lawsuit in the Court of Chancery of the State of Delaware seeking books and records relating to, among other things, the firm’s involvement with 1MDB and the firm’s compliance procedures. The parties have agreed to stay proceedings pending resolution of the books and records demand.

On February 19, 2019, a purported shareholder derivative action relating to 1MDB was filed in the U.S. District Court for the Southern District of New York against Group Inc. and the directors at the time and a former chairman and chief executive officer of the firm. The amended complaint filed on July 12, 2019, which seeks unspecified damages, disgorgement and injunctive relief, alleges breaches of fiduciary duties, including in connection with alleged insider trading by certain current and former directors, unjust enrichment and violations of the anti-fraud provisions of the Exchange Act, including in connection with Group Inc.’s common stock repurchases and solicitation of proxies. Defendants moved to dismiss this action on September 12, 2019.

Beginning in March 2019, the firm has also received demands from alleged shareholders to investigate and pursue claims against certain current and former directors and executive officers based on their oversight and public disclosures regarding 1MDB and related internal controls.

On November 21, 2018, a summons with notice was filed in New York Supreme Court, County of New York, by International Petroleum Investment Company, which guaranteed certain debt securities issued by 1MDB, and its subsidiary Aabar Investments PJS. The summons with notice makes unspecified claims relating to 1MDB and seeks unspecified compensatory and punitive damages and other relief against Group Inc., GSI, GS Asia, GS Singapore, GS Malaysia, Leissner, Ng, and Vella, as well as individuals (who are not current or former employees of the firm) previously associated with the plaintiffs. On October 20, 2020, pursuant to a stipulation between the plaintiffs, the firm and other defendants, the court entered an order discontinuing the action with prejudice.

On December 20, 2018, a putative securities class action lawsuit was filed in the U.S. District Court for the Southern District of New York against Group Inc. and certain former officers of the firm alleging violations of the anti-fraud provisions of the Exchange Act with respect to Group Inc.’s disclosures concerning 1MDB and seeking unspecified damages. The plaintiffs filed the second amended complaint on October 28, 2019, which the defendants moved to dismiss on January 9, 2020.

Mortgage-Related Matters

Beginning in April 2010, a number of purported securities law class actions were filed in the U.S. District Court for the Southern District of New York challenging the adequacy of Group Inc.’s public disclosure of, among other things, the firm’s activities in the collateralized debt obligation market, and the firm’s conflict of interest management.

Goldman Sachs September 2020 Form 10-Q 88

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

The consolidated amended complaint filed on July 25, 2011, which names as defendants Group Inc. and certain current and former officers and employees of Group Inc. and its affiliates, generally alleges violations of Sections 10(b) and 20(a) of the Exchange Act and seeks unspecified damages. The defendants have moved for summary judgment. On April 7, 2020, the Second Circuit Court of Appeals affirmed the district court’s August 14, 2018 grant of class certification, and on June 15, 2020, the Second Circuit Court of Appeals denied defendants’ motion seeking rehearing of the April 7, 2020 decision. On July 16, 2020, the Second Circuit Court of Appeals granted defendants’ motion to stay the proceedings in the litigation, pending the resolution of a petition for writ of certiorari to the United States Supreme Court to seek review of the Second Circuit Court of Appeals’ April 7, 2020 decision.

Complaints were filed in the U.S. District Court for the Southern District of New York on July 25, 2019 and May 29, 2020 against Goldman Sachs Mortgage Company and GS Mortgage Securities Corp. by U.S. Bank National Association, as trustee for two residential mortgage-backed securitization trusts that issued $1.7 billion of securities. The complaints generally allege that mortgage loans in the trusts failed to conform to applicable representations and warranties and seek specific performance or, alternatively, compensatory damages and other relief. Defendants moved to dismiss the complaints on September 23, 2019 and July 13, 2020, respectively.

The firm continues to receive requests for information, including from certain regulators, relating to mortgage-related activities.

Director Compensation-Related Litigation

On May 9, 2017, Group Inc. and certain of its current and former directors were named as defendants in a purported direct and derivative shareholder action in the Court of Chancery of the State of Delaware (a similar purported derivative action, filed in June 2015, alleging excessive director compensation over the period 2012 to 2014 was voluntarily dismissed without prejudice in December 2016). The complaint alleges that excessive compensation has been paid to the

non-employee

director defendants since 2015, and that certain disclosures in connection with soliciting shareholder approval of the stock incentive plans were deficient. The complaint asserts claims for breaches of fiduciary duties and seeks, among other things, rescission or in some cases rescissory damages, disgorgement, and shareholder votes on several matters. On May 31, 2019, the court dismissed the disclosure-related claims, but permitted the

non-employee

director compensation claim to proceed. On August 18, 2020, the court approved a settlement among the parties. As part of the settlement, the firm has agreed to certain changes to its

Non-Employee

Director Compensation Program.

Currencies-Related Litigation

GS&Co. and Group Inc. are among the defendants named in putative class actions filed in the U.S. District Court for the Southern District of New York beginning in September 2016 on behalf of putative indirect purchasers of foreign exchange instruments. On August 5, 2019, the plaintiffs filed a third consolidated amended complaint generally alleging a conspiracy to manipulate the foreign currency exchange markets, asserting claims under various state antitrust laws and state consumer protection laws and seeking treble damages in an unspecified amount. On July 17, 2020, the court preliminarily approved a settlement in principle. The firm has reserved the full amount of its proposed contribution to the settlement.

GS&Co. and Group Inc. are among the defendants named in an action filed in the U.S. District Court for the Southern District of New York on November 7, 2018 by certain direct purchasers of foreign exchange instruments that opted out of a class settlement reached with, among others, GS&Co. and Group Inc. The third amended complaint, filed on August 3, 2020, generally alleges that the defendants violated federal antitrust law and state common law in connection with an alleged conspiracy to manipulate the foreign currency exchange markets and seeks declaratory and injunctive relief, as well as unspecified amounts of compensatory, punitive, treble and other damages.

Financial Advisory Services

Group Inc. and certain of its affiliates are from time to time parties to various civil litigation and arbitration proceedings and other disputes with clients and third parties relating to the firm’s financial advisory activities. These claims generally seek, among other things, compensatory damages and, in some cases, punitive damages, and in certain cases allege that the firm did not appropriately disclose or deal with conflicts of interest.

Underwriting Litigation

Firm affiliates are among the defendants in a number of proceedings in connection with securities offerings. In these proceedings, including those described below, the plaintiffs assert class action or individual claims under federal and state securities laws and in some cases other applicable laws, allege that the offering documents for the securities that they purchased contained material misstatements and omissions, and generally seek compensatory and rescissory damages in unspecified amounts. Certain of these proceedings involve additional allegations.

89 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

SunEdison, Inc.

GS&Co. is among the underwriters named as defendants in several putative class actions and individual actions filed beginning in March 2016 relating to the August 2015 public offering of $650 million of SunEdison, Inc. (SunEdison) convertible preferred stock. The defendants also include certain of SunEdison’s directors and officers. On April 21, 2016, SunEdison filed for Chapter 11 bankruptcy. The pending cases were transferred to the U.S. District Court for the Southern District of New York and on March 17, 2017, plaintiffs in the putative class action filed a consolidated amended complaint. GS&Co., as underwriter, sold 138,890 shares of SunEdison convertible preferred stock in the offering, representing an aggregate offering price of approximately $139 million. On April 10, 2018 and April 17, 2018, certain plaintiffs in the individual actions filed amended complaints. The defendants have reached a settlement with certain plaintiffs in the individual actions and a settlement of the class action, which the court approved on October 25, 2019. The firm has paid the full amount of its contribution to the settlement. Defendants moved to dismiss the remaining individual actions on December 18, 2019.

Valeant Pharmaceuticals International, Inc.

GS&Co. and Goldman Sachs Canada Inc. (GS Canada) are among the underwriters and initial purchasers named as defendants in a putative class action filed on March 2, 2016 in the Superior Court of Quebec, Canada. In addition to the underwriters and initial purchasers, the defendants include Valeant Pharmaceuticals International, Inc. (Valeant), certain directors and officers of Valeant and Valeant’s auditor. As to GS&Co. and GS Canada, the complaint relates to the June 2013 public offering of $2.3 billion of common stock, the June 2013 Rule 144A offering of $3.2 billion principal amount of senior notes, and the November 2013 Rule 144A offering of $900 million principal amount of senior notes. The complaint asserts claims under the Quebec Securities Act and the Civil Code of Quebec. On August 29, 2017, the court certified a class that includes only

non-U.S.

purchasers in the offerings. Defendants’ motion for leave to appeal the certification was denied on November 30, 2017. On August 4, 2020, Valeant entered into a settlement agreement with the plaintiffs, which is subject to court approval. Under the terms of the agreement, the firm will not be required to contribute to the settlement.

GS&Co. and GS Canada, as sole underwriters, sold 5,334,897 shares of common stock in the June 2013 offering to

non-U.S.

purchasers representing an aggregate offering price of approximately $453 million and, as initial purchasers, had a proportional share of sales to

non-U.S.

purchasers of approximately CAD14.2 million in principal amount of senior notes in the June 2013 and November 2013 Rule 144A offerings.

Snap Inc.

GS&Co. is among the underwriters named as defendants in putative securities class actions pending in California Superior Court, County of Los Angeles, and the U.S. District Court for the Central District of California beginning in May 2017, relating to Snap Inc.’s $3.91 billion March 2017 initial public offering. In addition to the underwriters, the defendants include Snap Inc. and certain of its officers and directors. GS&Co. underwrote 57,040,000 shares of common stock representing an aggregate offering price of approximately $970 million. The underwriter defendants, including GS&Co., were voluntarily dismissed from the district court action on September 18, 2018. In the district court action, defendants moved for summary judgment on December 19, 2019, following the court’s November 20, 2019 order approving plaintiffs’ motion for class certification. The state court actions have been stayed. On April 27, 2020, the district court preliminarily approved a settlement among the parties. Also on April 27, 2020, the state court plaintiffs filed a motion for preliminary approval of a settlement of the state court actions. Under the terms of the federal and state court preliminary settlements, the firm will not be required to contribute to either settlement.

Sea Limited.

GS Asia is among the underwriters named as defendants in a putative securities class action filed on November 1, 2018 in New York Supreme Court, County of New York, relating to Sea Limited’s $989 million October 2017 initial public offering of American depositary shares. In addition to the underwriters, the defendants include Sea Limited and certain of its officers and directors. GS Asia underwrote 28,026,721 American depositary shares representing an aggregate offering price of approximately $420 million. On January 25, 2019, the plaintiffs filed an amended complaint. Defendants moved to dismiss on March 26, 2019. On October 17, 2020, the parties entered into a settlement agreement, which is subject to court approval. Under the terms of the agreement, the firm will not be required to contribute to the settlement.

Goldman Sachs September 2020 Form 10-Q 90

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Altice USA, Inc.

GS&Co. is among the underwriters named as defendants in putative securities class actions pending in New York Supreme Court, County of Queens, and the U.S. District Court for the Eastern District of New York beginning in June 2018, relating to Altice USA, Inc.’s (Altice) $2.15 billion June 2017 initial public offering. In addition to the underwriters, the defendants include Altice and certain of its officers and directors. GS&Co. underwrote 12,280,042 shares of common stock representing an aggregate offering price of approximately $368 million. On June 26, 2020, the court dismissed the amended complaint in the state court action, and on September 4, 2020, plaintiffs moved for leave to file a consolidated amended complaint. Plaintiffs in the district court action filed a second amended complaint on October 7, 2020.

Camping World Holdings, Inc.

GS&Co. is among the underwriters named as defendants in several putative securities class actions pending in the U.S. District Court for the Northern District of Illinois, New York Supreme Court, County of New York, and the Circuit Court of Cook County, Illinois, Chancery Division, beginning in December 2018. In addition to the underwriters, the defendants include Camping World Holdings, Inc. (Camping World) and certain of its officers and directors, as well as certain of its stockholders. As to the underwriters, the complaints relate to three offerings of Camping World common stock, a $261 million October 2016 initial public offering, a $303 million May 2017 offering and a $310 million October 2017 offering. GS&Co. underwrote 4,267,214 shares of common stock in the October 2016 initial public offering representing an aggregate offering price of approximately $94 million, 4,557,286 shares of common stock in the May 2017 offering representing an aggregate offering price of approximately $126 million and 3,525,348 shares of common stock in the October 2017 offering representing an aggregate offering price of approximately $143 million. GS&Co. and the other defendants moved to dismiss the Illinois state court action on April 19, 2019 and the Illinois district court action on May 17, 2019. On August 5, 2020, the Illinois district court approved a settlement among the parties to the Illinois district court action. On August 18, 2020, the Illinois state court action was dismissed and on September 8, 2020, the New York state court action was dismissed. Under the terms of the settlement, the firm will not be required to contribute to the settlement.

Alnylam Pharmaceuticals, Inc.

GS&Co. is among the underwriters named as defendants in a putative securities class action filed on September 12, 2019 in New York Supreme Court, County of New York, relating to Alnylam Pharmaceuticals, Inc.’s (Alnylam) $805 million November 2017 public offering of common stock. In addition to the underwriters, the defendants include Alnylam and certain of its officers and directors. GS&Co. underwrote 2,576,000 shares of common stock representing an aggregate offering price of approximately $322 million. On December 20, 2019, defendants moved to dismiss the amended complaint filed on November 7, 2019.

Uber Technologies, Inc.

GS&Co. is among the underwriters named as defendants in several putative securities class actions filed beginning in September 2019 in California Superior Court, County of San Francisco and the U.S. District Court for the Northern District of California, relating to Uber Technologies, Inc.’s (Uber) $8.1 billion May 2019 initial public offering. In addition to the underwriters, the defendants include Uber and certain of its officers and directors. GS&Co. underwrote 35,864,408 shares of common stock representing an aggregate offering price of approximately $1.6 billion. On June 17 and June 30, 2020, defendants in the state court action filed motions to dismiss the consolidated amended complaint filed on February 11, 2020. On August 7, 2020 defendants’ motion to dismiss the district court action was denied. On September 25, 2020, the plaintiffs in the district court action moved for class certification.

91 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Venator Materials PLC.

GS&Co. is among the underwriters named as defendants in putative securities class actions in Texas District Court, Dallas County, New York Supreme Court, New York County, and the U.S. District Court for the Southern District of Texas, filed beginning in February 2019, relating to Venator Materials PLC’s (Venator) $522 million August 2017 initial public offering and $534 million December 2017 secondary equity offering. In addition to the underwriters, the defendants include Venator, certain of its officers and directors and certain of its shareholders. GS&Co. underwrote 6,351,347 shares of common stock in the August 2017 initial public offering representing an aggregate offering price of approximately $127 million and 5,625,768 shares of common stock in the December 2017 secondary equity offering representing an aggregate offering price of approximately $127 million. On January 21, 2020, the Texas Court of Appeals reversed the Texas District Court and dismissed the claims against the underwriter defendants, including GS&Co., in the Texas state court action for lack of personal jurisdiction. On February 18, 2020, defendants moved to dismiss the consolidated complaint in the federal action. On July 1, 2020, defendants’ motion to stay the New York state court action in favor of the federal action was denied.

XP Inc.

GS&Co. is among the underwriters named as defendants in putative securities class actions pending in New York Supreme Court, County of New York, and the U.S. District Court for the Eastern District of York, filed beginning March 19, 2020, relating to XP Inc.’s (XP) $2.3 billion December 2019 initial public offering. In addition to the underwriters, the defendants include XP, certain of its officers and directors and certain of its shareholders. GS&Co. underwrote 19,326,218 shares of common stock in the December 2019 initial public offering representing an aggregate offering price of approximately $522 million. On August 5, 2020, defendants’ motion to stay the state court action in favor of the federal court action was denied, and on August 21, 2020, defendants moved to dismiss the amended complaint filed in the state court action. On September 14, 2020, defendants moved to dismiss the consolidated amended complaint filed in the federal court action.

GoHealth, Inc.

GS&Co. is among the underwriters named as defendants in two putative securities class actions filed on September 21, 2020 and September 28, 2020 in the U.S. District Court for the Northern District of Illinois relating to GoHealth, Inc.’s (GoHealth) $914 million

July

 2020 initial public offering. In addition to the underwriters, the defendants include GoHealth, certain of its officers and directors and certain of its shareholders. GS&Co. underwrote 11,540,550 shares of common stock representing an aggregate offering price of approximately $242 million. A third putative securities class action relating to GoHealth’s initial public offering that does not name the underwriters as defendants was filed in the U.S. District Court for the Northern District of Illinois on September 25, 2020.

Investment Management Services

Group Inc. and certain of its affiliates are parties to various civil litigation and arbitration proceedings and other disputes with clients relating to losses allegedly sustained as a result of the firm’s investment management services. These claims generally seek, among other things, restitution or other compensatory damages and, in some cases, punitive damages.

Securities Lending Antitrust Litigation

Group Inc. and GS&Co. are among the defendants named in a putative antitrust class action and three individual actions relating to securities lending practices filed in the U.S. District Court for the Southern District of New York beginning in August 2017. The complaints generally assert claims under federal and state antitrust law and state common law in connection with an alleged conspiracy among the defendants to preclude the development of electronic platforms for securities lending transactions. The individual complaints also assert claims for tortious interference with business relations and under state trade practices law and, in the second and third individual actions, unjust enrichment under state common law. The complaints seek declaratory and injunctive relief, as well as unspecified amounts of compensatory, treble, punitive and other damages. Group Inc. was voluntarily dismissed from the putative class action on January 26, 2018. Defendants’ motion to dismiss the class action complaint was denied on September 27, 2018. Defendants moved to dismiss the second individual action on December 21, 2018. Defendants’ motion to dismiss the first individual action was granted on August 7, 2019.

Goldman Sachs September 2020 Form 10-Q 92

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Interest Rate Swap Antitrust Litigation

Group Inc., GS&Co., GSI, GS Bank USA and Goldman Sachs Financial Markets, L.P. are among the defendants named in a putative antitrust class action relating to the trading of interest rate swaps, filed in November 2015 and consolidated in the U.S. District Court for the Southern District of New York. The same Goldman Sachs entities also are among the defendants named in two antitrust actions relating to the trading of interest rate swaps, commenced in April 2016 and June 2018, respectively, in the U.S. District Court for the Southern District of New York by three operators of swap execution facilities and certain of their affiliates. These actions have been consolidated for pretrial proceedings. The complaints generally assert claims under federal antitrust law and state common law in connection with an alleged conspiracy among the defendants to preclude exchange trading of interest rate swaps. The complaints in the individual actions also assert claims under state antitrust law. The complaints seek declaratory and injunctive relief, as well as treble damages in an unspecified amount. Defendants moved to dismiss the class and the first individual action and the district court dismissed the state common law claims asserted by the plaintiffs in the first individual action and otherwise limited the state common law claim in the putative class action and the antitrust claims in both actions to the period from 2013 to 2016. On November 20, 2018, the court granted in part and denied in part the defendants’ motion to dismiss the second individual action, dismissing the state common law claims for unjust enrichment and tortious interference, but denying dismissal of the federal and state antitrust claims. On March 13, 2019, the court denied the plaintiffs’ motion in the putative class action to amend their complaint to add allegations related to 2008-2012 conduct, but granted the motion to add limited allegations from 2013-2016, which the plaintiffs added in a fourth consolidated amended complaint filed on March 22, 2019. The plaintiffs in the putative class action moved for class certification on March 7, 2019.

Variable Rate Demand Obligations Antitrust Litigation

GS&Co. is among the defendants named in a putative class action relating to variable rate demand obligations (VRDOs), filed beginning in February 2019 under separate complaints and consolidated in the U.S. District Court for the Southern District of New York. The consolidated amended complaint, filed on May 31, 2019, generally asserts claims under federal antitrust law and state common law in connection with an alleged conspiracy among the defendants to manipulate the market for VRDOs. The complaint seeks declaratory and injunctive relief, as well as unspecified amounts of compensatory, treble and other damages. Defendants moved to dismiss on July 30, 2019.

Commodities-Related Litigation

GSI is among the defendants named in putative class actions relating to trading in platinum and palladium, filed beginning on November 25, 2014 and most recently amended on May 15, 2017, in the U.S. District Court for the Southern District of New York. The amended complaint generally alleges that the defendants violated federal antitrust laws and the Commodity Exchange Act in connection with an alleged conspiracy to manipulate a benchmark for physical platinum and palladium prices and seek declaratory and injunctive relief, as well as treble damages in an unspecified amount. On March 29, 2020, the court granted the defendants’ motions to dismiss and for reconsideration, resulting in the dismissal of all claims. On April 27, 2020, plaintiffs appealed to the Second Circuit Court of Appeals.

93 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

GS&Co., GSI, J. Aron & Company and Metro International Trade Services (Metro), a previously consolidated subsidiary of Group Inc. that was sold in the fourth quarter of 2014, are among the defendants in a number of putative class and individual actions filed beginning on August 1, 2013 and consolidated in the U.S. District Court for the Southern District of New York. The complaints generally allege violations of federal antitrust laws and state laws in connection with the storage of aluminum and aluminum trading. The complaints seek declaratory, injunctive and other equitable relief, as well as unspecified monetary damages, including treble damages. In December 2016, the district court granted defendants’ motions to dismiss and on August 27, 2019, the Second Circuit vacated the district court’s dismissals and remanded the case to district court for further proceedings. On July 23, 2020, the district court denied the class plaintiff’s motion for class certification.

Group Inc., GS&Co., GSI, J. Aron & Company and Metro are among the defendants in an action filed on February 27, 2020 in the High Court of Justice, Business and Property Courts of England and Wales. The particulars of claim seeks unspecified compensatory and exemplary damages based on alleged violations of U.K. and E.U. competition laws in connection with the storage and trading of aluminum.

In connection with the sale of Metro, the firm agreed to provide indemnities to the buyer, including for any potential liabilities for legal or regulatory proceedings arising out of the conduct of Metro’s business while the firm owned it.

U.S. Treasury Securities Litigation

GS&Co. is among the primary dealers named as defendants in several putative class actions relating to the market for U.S. Treasury securities, filed beginning in July 2015 and consolidated in the U.S. District Court for the Southern District of New York. GS&Co. is also among the primary dealers named as defendants in a similar individual action filed in the U.S. District Court for the Southern District of New York on August 25, 2017. The consolidated class action complaint, filed on December 29, 2017, generally alleges that the defendants violated antitrust laws in connection with an alleged conspiracy to manipulate the when-issued market and auctions for U.S. Treasury securities and that certain defendants, including GS&Co., colluded to preclude trading of U.S. Treasury securities on electronic trading platforms in order to impede competition in the bidding process. The individual action alleges a similar conspiracy regarding manipulation of the when-issued market and auctions, as well as related futures and options in violation of the Commodity Exchange Act. The complaints seek declaratory and injunctive relief, treble damages in an unspecified amount and restitution. Defendants moved to dismiss on February 23, 2018.

Corporate Bonds Antitrust Litigation

Group Inc. and GS&Co. are among the dealers named as defendants in a putative class action relating to the secondary market for

odd-lot

corporate bonds, filed on April 21, 2020 in the U.S. District Court for the Southern District of New York. The consolidated complaint, filed on July 14, 2020, asserts claims under federal antitrust law in connection with alleged anti-competitive conduct by the defendants in the secondary market for

odd-lots

of corporate bonds, and seeks declaratory and injunctive relief, as well as unspecified monetary damages, including treble and punitive damages and restitution. Defendants moved to dismiss on September 10, 2020.

Employment-Related Matters

On September 15, 2010, a putative class action was filed in the U.S. District Court for the Southern District of New York by three female former employees. The complaint, as subsequently amended, alleges that Group Inc. and GS&Co. have systematically discriminated against female employees in respect of compensation, promotion and performance evaluations. The complaint alleges a class consisting of all female employees employed at specified levels in specified areas by Group Inc. and GS&Co. since July 2002, and asserts claims under federal and New York City discrimination laws. The complaint seeks class action status, injunctive relief and unspecified amounts of compensatory, punitive and other damages.

On March 30, 2018, the district court certified a damages class as to the plaintiffs’ disparate impact and treatment claims. On September 4, 2018, the Second Circuit Court of Appeals denied defendants’ petition for interlocutory review of the district court’s class certification decision and subsequently denied defendants’ petition for rehearing. On September 27, 2018, plaintiffs advised the district court that they would not seek to certify a class for injunctive and declaratory relief. On March 26, 2020, the Magistrate Judge in the district court granted in part a motion to compel arbitration as to class members who are parties to certain agreements with Group Inc. and/or GS&Co. in which they agreed to arbitrate employment-related disputes. On April 16, 2020, plaintiffs submitted objections to the Magistrate Judge’s order and defendants submitted conditional objections in the event that the district judge overturns any portion of the Magistrate Judge’s order.

Goldman Sachs September 2020 Form 10-Q 94

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

Regulatory Investigations and Reviews and Related Litigation

Group Inc. and certain of its affiliates are subject to a number of other investigations and reviews by, and in some cases have received subpoenas and requests for documents and information from, various governmental and regulatory bodies and self-regulatory organizations and litigation and shareholder requests relating to various matters relating to the firm’s businesses and operations, including:

• The public offering process;

• The firm’s investment management and financial advisory services;

• Conflicts of interest;

• Research practices, including research independence and interactions between research analysts and other firm personnel, including investment banking personnel, as well as third parties;

• Transactions involving government-related financings and other matters, municipal securities, including wall-cross procedures and conflict of interest disclosure with respect to state and municipal clients, the trading and structuring of municipal derivative instruments in connection with municipal offerings, political contribution rules, municipal advisory services and the possible impact of credit default swap transactions on municipal issuers;

• Credit cards, unsecured installment and residential mortgage lending and servicing, and compliance with related consumer laws;

• The offering, auction, sales, trading and clearance of corporate and government securities, currencies, commodities and other financial products and related sales and other communications and activities, as well as the firm’s supervision and controls relating to such activities, including compliance with applicable short sale rules, algorithmic, high-frequency and quantitative trading, the firm’s U.S. alternative trading system (dark pool), futures trading, options trading, when-issued trading, transaction reporting, technology systems and controls, securities lending practices, trading and clearance of credit derivative instruments and interest rate swaps, commodities activities and metals storage, private placement practices, allocations of and trading in securities, and trading activities and communications in connection with the establishment of benchmark rates, such as currency rates;

• Compliance with the FCPA;

• The firm’s hiring and compensation practices;

• The firm’s system of risk management and controls; and

• Insider trading, the potential misuse and dissemination of material nonpublic information regarding corporate and governmental developments and the effectiveness of the firm’s insider trading controls and information barriers.

The firm is cooperating with all such governmental and regulatory investigations and reviews.

Note 28.

Subsequent Event

On October 22, 2020, the firm announced that it has reached settlements of governmental and regulatory investigations relating to 1MDB with the DOJ, the SEC, the FRB, the NYDFS, the FCA, the PRA, the Singapore Attorney General’s Chambers, the Singapore Commercial Affairs Department, the Monetary Authority of Singapore and the Hong Kong Securities and Futures Commission.

The firm will pay total penalties, after crediting, of approximately $2.6 billion in connection with the settlements. A separate obligation to pay $606 million in disgorgement has been credited and satisfied as a result of the firm’s earlier settlement with the Government of Malaysia, in which the firm paid a total of $2.5 billion, in addition to providing a $1.4 billion asset recovery guarantee.

As a result of these settlements, subsequent to the firm’s issuance of its earnings release filed as an exhibit to the Form 8-K dated October 14, 2020 (Form 8-K), the firm recorded an additional provision for litigation and regulatory proceedings of $250 million for the third quarter of 2020, increasing the net provisions to $256 million for the third quarter of 2020.

The table below presents further information about this change.

	Three Months Ended September 2020
in millions, except per share amounts		Form 10-Q	Form 8-K	Change
Pre-tax earnings		$4,299	$4,549	$ (250	)
Provision for taxes		932	932	–
Net earnings		3,367	3,617	(250	)
Preferred stock dividends		134	134	–
Net earnings applicable to common shareholders		$3,233	$3,483	$ (250	)
Earnings per common share
Basic		$  9.07	$  9.77	$(0.70	)
Diluted		$  8.98	$  9.68	$(0.70	)

See Note 27 for further information about these settlements.

95 Goldman Sachs September 2020 Form 10-Q

Report of Independent Registered Public Accounting Firm

Tothe Board of Directors and the Shareholders of The Goldman Sachs Group, Inc.:

Results of Review of Interim Financial Statements

We have reviewed the accompanying consolidated balance sheet of The Goldman Sachs Group, Inc. and its subsidiaries (the Company) as of September 30, 2020, the related consolidated statements of earnings, comprehensive income and changes in shareholders’ equity for the three and nine month periods ended September 30, 2020 and 2019, and the consolidated statements of cash flows for the nine month periods ended September 30, 2020 and 2019, including the related notes (collectively referred to as the “interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2019, and the related consolidated statements of earnings, comprehensive income, changes in shareholders’ equity and cash flows for the year then ended (not presented herein), and in our report dated February 20, 2020, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2019 is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

These interim financial statements are the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

/s/ PricewaterhouseCoopers LLP

New York, New York

October 30, 2020 

Goldman Sachs September 2020 Form 10-Q 96

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Statistical Disclosures

Distribution of Assets, Liabilities and Shareholders’ Equity

The tables below present information about average balances, interest and average interest rates.

	Average Balance for the
	Three Months Ended September			Nine Months Ended September
$ in millions		2020	2019		2020	2019
Assets
U.S.		$    55,851	$  35,782		$    55,314	$  41,812
Non-U.S.		72,055	50,052		68,199	49,360
Total deposits with banks		127,906	85,834		123,513	91,172
U.S.		133,473	160,702		136,144	164,461
Non-U.S.		117,093	124,061		122,170	125,995
Total collateralized agreements		250,566	284,763		258,314	290,456
U.S.		210,276	163,418		200,618	150,382
Non-U.S.		129,300	123,054		118,373	116,315
Total trading assets		339,576	286,472		318,991	266,697
U.S.		60,650	37,704		52,840	36,086
Non-U.S.		17,554	15,025		17,150	14,209
Total investments		78,204	52,729		69,990	50,295
U.S.		93,058	84,236		95,200	84,335
Non-U.S.		19,433	15,326		18,675	12,845
Total loans		112,491	99,562		113,875	97,180
U.S.		56,252	41,544		53,966	39,777
Non-U.S.		44,026	38,364		44,700	36,185
Total other interest-earning assets		100,278	79,908		98,666	75,962
Total interest-earning assets		1,009,021	889,268		983,349	871,762
Cash and due from banks		10,418	12,196		10,687	10,638
Other non-interest-earning assets		120,849	89,785		114,444	84,570
Total assets		$1,140,288	$991,249		$1,108,480	$966,970
Liabilities
U.S.		$  205,202	$133,165		$  183,925	$128,396
Non-U.S.		54,819	36,121		51,863	33,540
Total interest-bearing deposits		260,021	169,286		235,788	161,936
U.S.		72,344	72,348		75,744	62,416
Non-U.S.		32,435	30,572		34,972	32,715
Total collateralized financings		104,779	102,920		110,716	95,131
U.S.		47,664	31,883		41,063	30,794
Non-U.S.		58,180	44,864		53,264	46,115
Total trading liabilities		105,844	76,747		94,327	76,909
U.S.		32,920	37,167		34,811	34,977
Non-U.S.		22,475	17,719		20,528	16,711
Total short-term borrowings		55,395	54,886		55,339	51,688
U.S.		199,900	205,336		200,563	206,889
Non-U.S.		32,624	28,027		30,892	28,438
Total long-term borrowings		232,524	233,363		231,455	235,327
U.S.		123,990	129,656		131,000	129,398
Non-U.S.		65,005	54,715		64,910	54,402
Total other interest-bearing liabilities		188,995	184,371		195,910	183,800
Total interest-bearing liabilities		947,558	821,573		923,535	804,791
Non-interest-bearing deposits		6,931	5,758		6,555	5,346
Other non-interest-bearing liabilities		94,857	72,864		87,347	66,568
Total liabilities		1,049,346	900,195		1,017,437	876,705
Shareholders’ equity
Preferred stock		11,203	11,203		11,203	11,203
Common stock		79,739	79,851		79,840	79,062
Total shareholders’ equity		90,942	91,054		91,043	90,265
Total liabilities and shareholders’ equity		$1,140,288	$991,249		$1,108,480	$966,970
Percentage attributable to non-U.S. operations
Interest-earning assets		39.59%	41.14%		39.59%	40.71%
Interest-bearing liabilities		28.02%	25.81%		27.77%	26.33%

	Interest for the
	Three Months Ended September				Nine Months Ended September
$ in millions		2020		2019		2020		2019
Assets
U.S.		$    24		$   208		$    201		$     746
Non-U.S.		(13	)	79		33		235
Total deposits with banks		11		287		234		981
U.S.		3		981		456		3,324
Non-U.S.		(70	)	119		(5	)	381
Total collateralized agreements		(67	)	1,100		451		3,705
U.S.		805		858		2,794		2,654
Non-U.S.		371		614		1,212		1,736
Total trading assets		1,176		1,472		4,006		4,390
U.S.		261		238		826		723
Non-U.S.		143		102		370		329
Total investments		404		340		1,196		1,052
U.S.		949		1,175		3,093		3,546
Non-U.S.		204		204		598		529
Total loans		1,153		1,379		3,691		4,075
U.S.		210		602		850		1,797
Non-U.S.		45		279		288		816
Total other interest-earning assets		255		881		1,138		2,613
Total interest-earning assets		$2,932		$5,459		$10,716		$16,816
Liabilities
U.S.		$  411		$   819		$  1,628		$  2,357
Non-U.S.		94		126		354		332
Total interest-bearing deposits		505		945		1,982		2,689
U.S.		47		635		504		1,902
Non-U.S.		3		75		66		228
Total collateralized financings		50		710		570		2,130
U.S.		119		63		346		373
Non-U.S.		226		191		585		562
Total trading liabilities		345		254		931		935
U.S.		111		186		392		483
Non-U.S.		13		4		31		17
Total short-term borrowings		124		190		423		500
U.S.		948		1,286		3,122		4,043
Non-U.S.		33		35		95		76
Total long-term borrowings		981		1,321		3,217		4,119
U.S.		(159	)	1,010		106		3,401
Non-U.S.		2		21		146		(255	)
Total other interest-bearing liabilities		(157	)	1,031		252		3,146
Total interest-bearing liabilities		$1,848		$4,451		$  7,375		$13,519
Net interest income
U.S.		$  775		$     63		$  2,122		$     231
Non-U.S.		309		945		1,219		3,066
Net interest income		$1,084		$1,008		$  3,341		$  3,297

97 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Statistical Disclosures

	Annualized Average Rate for the
	Three Months Ended September			Nine Months Ended September
		2020	2019		2020	2019
Assets
U.S.		0.17%	2.26%		0.49%	2.39%
Non-U.S.		(0.07)%	0.61%		0.06%	0.64%
Total deposits with banks		0.03%	1.30%		0.25%	1.44%
U.S.		0.01%	2.37%		0.45%	2.70%
Non-U.S.		(0.24)%	0.37%		(0.01)%	0.40%
Total collateralized agreements		(0.11)%	1.50%		0.23%	1.71%
U.S.		1.52%	2.04%		1.86%	2.36%
Non-U.S.		1.14%	1.94%		1.37%	2.00%
Total trading assets		1.38%	2.00%		1.68%	2.20%
U.S.		1.71%	2.45%		2.09%	2.68%
Non-U.S.		3.24%	2.64%		2.88%	3.10%
Total investments		2.06%	2.50%		2.28%	2.80%
U.S.		4.06%	5.42%		4.34%	5.62%
Non-U.S.		4.18%	5.17%		4.28%	5.51%
Total loans		4.08%	5.38%		4.33%	5.61%
U.S.		1.49%	5.63%		2.10%	6.04%
Non-U.S.		0.41%	2.82%		0.86%	3.02%
Total other interest-earning assets		1.01%	4.28%		1.54%	4.60%
Total interest-earning assets		1.16%	2.38%		1.46%	2.58%
Liabilities
U.S.		0.80%	2.39%		1.18%	2.45%
Non-U.S.		0.68%	1.35%		0.91%	1.32%
Total interest-bearing deposits		0.77%	2.17%		1.12%	2.22%
U.S.		0.26%	3.41%		0.89%	4.07%
Non-U.S.		0.04%	0.95%		0.25%	0.93%
Total collateralized financings		0.19%	2.68%		0.69%	2.99%
U.S.		0.99%	0.77%		1.13%	1.62%
Non-U.S.		1.55%	1.65%		1.47%	1.63%
Total trading liabilities		1.30%	1.29%		1.32%	1.63%
U.S.		1.34%	1.94%		1.50%	1.85%
Non-U.S.		0.23%	0.09%		0.20%	0.14%
Total short-term borrowings		0.89%	1.34%		1.02%	1.29%
U.S.		1.89%	2.43%		2.08%	2.61%
Non-U.S.		0.40%	0.48%		0.41%	0.36%
Total long-term borrowings		1.68%	2.20%		1.86%	2.34%
U.S.		(0.51)%	3.02%		0.11%	3.51%
Non-U.S.		0.01%	0.15%		0.30%	(0.63)%
Total other interest-bearing liabilities		(0.33)%	2.17%		0.17%	2.29%
Total interest-bearing liabilities		0.78%	2.10%		1.07%	2.25%
Interest rate spread		0.38%	0.28%		0.39%	0.33%
U.S.		0.51%	0.05%		0.48%	0.06%
Non-U.S.		0.31%	1.00%		0.42%	1.16%
Net yield on interest-earning assets		0.43%	0.44%		0.45%	0.51%

In the tables above:

• Assets, liabilities and interest are classified as U.S. and non-U.S. based on the location of the legal entity in which the assets and liabilities are held.

• Derivative instruments and commodities are included in other non-interest-earning assets and other non-interest-bearing liabilities.

• Total other interest-earning assets primarily consists of receivables from customers and counterparties.

• Collateralized financings consists of securities sold under agreements to repurchase and securities loaned.

• Substantially all of the total other interest-bearing liabilities consists of payables to customers and counterparties.

• Interest rates for borrowings include the effects of interest rate swaps accounted for as hedges.

• Total loans exclude loans held for sale that are accounted for at the lower of cost or fair value. Such loans are included within other interest-earning assets.

• Total short- and long-term borrowings include both secured and unsecured borrowings.

Goldman Sachs September 2020 Form 10-Q 98

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction

The Goldman Sachs Group, Inc. (Group Inc. or parent company), a Delaware corporation, together with its consolidated subsidiaries, 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 individuals. Founded in 1869, we are headquartered in New York and maintain offices in all major financial centers around the world. We report our activities in four business segments: Investment Banking, Global Markets, Asset Management, and Consumer & Wealth Management. See “Results of Operations” for further information about our business segments.

When we use the terms “we,” “us” and “our,” we mean Group Inc. and its consolidated subsidiaries. When we use the term “our subsidiaries,” we mean the consolidated subsidiaries of Group Inc.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our Annual Report on

Form 10-K

for the year ended December 31, 2019. References to “the 2019

Form 10-K”

are to our Annual Report on

Form 10-K

for the year ended December 31, 2019. References to “this

Form 10-Q”

are to our Quarterly Report on

Form 10-Q

for the quarterly period ended September 30, 2020. All references to “the consolidated financial statements” or “Statistical Disclosures” are to Part I, Item 1 of this

Form 10-Q.

The consolidated financial statements are unaudited. All references to September 2020, June 2020 and September 2019 refer to our periods ended, or the dates, as the context requires, September 30, 2020, June 30, 2020 and September 30, 2019, respectively. All references to December 2019 refer to the date December 31, 2019. Any reference to a future year refers to a year ending on December 31 of that year. Beginning in the fourth quarter of 2019, we changed our business segments and balance sheet presentation to better reflect the nature of our activities. Reclassifications have been made to previously reported amounts to conform to the current presentation. See Note 2 to the consolidated financial statements in Part II, Item 8 of the 2019

Form 10-K

for further information.

Executive Overview

Three Months Ended September 2020 versus September 2019.

We generated net earnings of $3.37 billion for the third quarter of 2020, an increase of 79% compared with $1.88 billion for the third quarter of 2019. Diluted earnings per common share (EPS) was $8.98 for the third quarter of 2020, an increase of 87% compared with $4.79 for the third quarter of 2019. Annualized return on average common shareholders’ equity (ROE) was 16.2% for the third quarter of 2020, compared with 9.0% for the third quarter of 2019. Book value per common share was $228.78 as of September 2020, 4.6% higher compared with September 2019.

Net revenues were $10.78 billion for the third quarter of 2020, 30% higher than the third quarter of 2019, reflecting higher net revenues across all segments, including significant increases in Asset Management, primarily due to significant net gains from investments in public equities, and Global Markets, driven by continued strength in Fixed Income, Currency and Commodities (FICC) and Equities.

Provision for credit losses was $278 million for the third quarter of 2020, 4% lower than the third quarter of 2019, primarily reflecting reserve reductions from paydowns on corporate lines of credit and consumer installment loans, partially offset by reserve increases from individual impairments related to wholesale loans and growth in credit card loans.

Operating expenses were $6.20 billion for the third quarter of 2020, 10% higher than the third quarter of 2019, due to higher compensation and benefits expenses, reflecting significantly higher net revenues, and higher

non-compensation

expenses, driven by significantly higher net provisions for litigation and regulatory proceedings. Our efficiency ratio (total operating expenses divided by total net revenues) for the third quarter of 2020 was 57.5%, compared with 67.5% for the third quarter of 2019.

During the third quarter of 2020, we returned $448 million of capital in common stock dividends. As of September 2020, our Common Equity Tier 1 (CET1) capital ratio was 14.5% under the Standardized Capital Rules and 12.9% under the Advanced Capital Rules. See Note 20 to the consolidated financial statements for further information about our capital ratios.

99 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Nine Months Ended September 2020 versus September 2019.

We generated net earnings of $4.95 billion for the first nine months of 2020, a decrease of 24% compared with $6.55 billion for the first nine months of 2019. Diluted EPS was $12.65 for the first nine months of 2020, a decrease of 22% compared with $16.32 for the first nine months of 2019. Annualized ROE was 7.6% for the first nine months of 2020, compared with 10.4% for the first nine months of 2019.

During the first nine months of 2020, we recorded net provisions for litigation and regulatory proceedings of $3.40 billion, which reduced diluted EPS by $9.46 and annualized ROE by 5.5 percentage points.

Net revenues were $32.82 billion for the first nine months of 2020, 23% higher than the first nine months of 2019. Net revenues were significantly higher in both FICC and Equities within Global Markets, driven by strong client activity, and in Investment Banking, reflecting significantly higher net revenues in both Equity and Debt underwriting. Net revenues in Consumer & Wealth Management were higher, reflecting strength in Wealth management and continued growth in Consumer banking. These increases were partially offset by significantly lower net revenues in Asset Management, due to significantly lower net revenues in both Lending and debt investments and Equity investments, which reflected the impact of a challenging environment earlier this year.

Provision for credit losses was $2.81 billion for the first nine months of 2020, compared with $729 million for the first nine months of 2019. This increase was primarily due to significantly higher provisions related to wholesale loans as a result of forecasts of expected deterioration in the broader economic environment (incorporating the accounting for credit losses under the Current Expected Credit Losses (CECL) standard) reflecting the impact of the global outbreak of the coronavirus

(COVID-19)

pandemic. In addition, the increase in provisions related to wholesale loans reflected the impact of individual impairments and ratings downgrades during the first nine months of 2020. The first nine months of 2020 also included provisions related to credit card loans. See Note 3 to the consolidated financial statements for further information about ASU

No. 2016-13,

“Financial Instruments — Credit Losses (Topic 326) — Measurement of Credit Losses on Financial Instruments.”

Operating expenses were $23.08 billion for the first nine months of 2020, 31% higher than the first nine months of 2019, primarily due to significantly higher net provisions for litigation and regulatory proceedings and higher compensation and benefits expenses (reflecting significantly higher net revenues). In addition, brokerage, clearing, exchange and distribution fees were higher (reflecting an increase in activity levels), expenses related to consolidated investments, including impairments, were significantly higher and technology expenses were higher. These increases were partially offset by significantly lower travel and entertainment expenses. Our efficiency ratio (total operating expenses divided by total net revenues) for the first nine months of 2020 was 70.3%, compared with 66.2% for the first nine months of 2019. Net provisions for litigation and regulatory proceedings increased our efficiency ratio for the first nine months of 2020 by 10.3 percentage points.

During the first nine months of 2020, we returned $3.28 billion of capital to common shareholders, including $1.93 billion of common share repurchases, all during the first quarter, and $1.35 billion in common stock dividends.

Business Environment

Although uncertainty about the

COVID-19

pandemic persisted into the third quarter of 2020, the operating environment continued to recover, as global economic activity rebounded significantly during the quarter following a sharp contraction in the second quarter of 2020 and market volatility declined modestly. The reopening of businesses and relaxation of earlier lockdowns contributed to improving economic indicators, including higher consumer spending and lower U.S. unemployment, and actions from central banks and governments globally remained accommodative. As a result, equity prices increased and credit spreads tightened. During the quarter, the U.S. Federal Reserve affirmed its intentions to keep short-term rates near zero for several years, and extra unemployment benefits were temporarily extended in the U.S. via an executive order. Additionally, the Bank of England signaled it could use negative rates as a potential policy tool, and the European Central Bank continued to intervene with monetary easing measures.

Despite broad improvements in the overall economy since March and April, an increase in new

COVID-19

cases at the beginning of the fourth quarter of 2020 in certain regions of the world heightened concerns about the trajectory of the coronavirus, the reinstitution of lockdown measures, and the impact on the pace of economic recovery going forward. Additionally, the ongoing discussion around additional fiscal stimulus in the U.S. contributed to uncertainty about the economic outlook. See “Results of Operations — Segment Operating Results” for further information about the operating environment for each of our business segments.

Goldman Sachs September 2020 Form 10-Q 100

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Critical Accounting Policies

Fair Value

Fair Value Hierarchy.

Trading assets and liabilities, certain investments and loans, and certain other financial assets and liabilities, are included in our consolidated balance sheets at fair value (i.e.,

marked-to-market),

with related gains or losses generally recognized in our consolidated statements of earnings. The use of fair value to measure financial instruments is fundamental to our risk management practices and is our most critical accounting policy.

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. We measure certain financial assets and liabilities as a portfolio (i.e., based on its net exposure to market and/or credit risks). In determining fair value, the hierarchy under U.S. generally accepted accounting principles (U.S. GAAP) gives (i) the highest priority to unadjusted quoted prices in active markets for identical, unrestricted assets or liabilities (level 1 inputs), (ii) the next priority to inputs other than level 1 inputs that are observable, either directly or indirectly (level 2 inputs), and (iii) the lowest priority to inputs that cannot be observed in market activity (level 3 inputs). In evaluating the significance of a valuation input, we consider, among other factors, a portfolio’s net risk exposure to that input. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to their fair value measurement.

The fair values for substantially all of our financial assets and 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 liabilities may require appropriate valuation adjustments that a market participant would require to arrive at fair value for factors, such as counterparty and our credit quality, funding risk, transfer restrictions, liquidity and bid/offer spreads.

Instruments classified in level 3 of the fair value hierarchy are those which require one or more significant inputs that are not observable. Level 3 financial assets represented 2.4% as of September 2020, 2.6% as of June 2020 and 2.3% as of December 2019, of our total assets. See Notes 4 through 10 to the consolidated financial statements for further information about level 3 financial assets, including changes in level 3 financial assets and related fair value measurements. Absent evidence to the contrary, instruments classified in level 3 of the fair value hierarchy are initially valued at transaction price, which is considered to be the best initial estimate of fair value. Subsequent to the transaction date, we use other methodologies to determine fair value, which vary based on the type of instrument. Estimating the fair value of level 3 financial instruments requires judgments to be made. These judgments include:

• Determining the appropriate valuation methodology and/or model for each type of level 3 financial instrument;

• Determining model inputs based on an evaluation of all relevant empirical market data, including prices evidenced by market transactions, interest rates, credit spreads, volatilities and correlations; and

• Determining appropriate valuation adjustments, including those related to illiquidity or counterparty credit quality.

Regardless of the methodology, valuation inputs and assumptions are only changed when corroborated by substantive evidence.

Controls Over Valuation of Financial Instruments.

Market makers and investment professionals in our revenue-producing units are responsible for pricing our financial instruments. Our control infrastructure is independent of the revenue-producing units and is fundamental to ensuring that all of our financial instruments are appropriately valued at market-clearing levels. In the event that there is a difference of opinion in situations where estimating the fair value of financial instruments requires judgment (e.g., calibration to market comparables or trade comparison, as described below), the final valuation decision is made by senior managers in independent risk oversight and control functions. This independent price verification is critical to ensuring that our financial instruments are properly valued.

Price Verification.

All financial instruments at fair value classified in levels 1, 2 and 3 of the fair value hierarchy are subject to our independent price verification process. The objective of price verification is to have an informed and independent opinion with regard to the valuation of financial instruments under review. Instruments that have one or more significant inputs which cannot be corroborated by external market data are classified in level 3 of the fair value hierarchy. Price verification strategies utilized by our independent risk oversight and control functions include:

• Trade Comparison. Analysis of trade data (both internal and external, where available) is used to determine the most relevant pricing inputs and valuations.

• External Price Comparison. Valuations and prices are compared to pricing data obtained from third parties (e.g., brokers or dealers, IHS Markit, Bloomberg, IDC, TRACE). Data obtained from various sources is compared to ensure consistency and validity. When broker or dealer quotations or third-party pricing vendors are used for valuation or price verification, greater priority is generally given to executable quotations.

101 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

• Calibration to Market Comparables. Market-based transactions are used to corroborate the valuation of positions with similar characteristics, risks and components.

• Relative Value Analyses. Market-based transactions are analyzed to determine the similarity, measured in terms of risk, liquidity and return, of one instrument relative to another or, for a given instrument, of one maturity relative to another.

• Collateral Analyses. Margin calls on derivatives are analyzed to determine implied values, which are used to corroborate our valuations.

• Execution of Trades. Where appropriate, market-making desks are instructed to execute trades in order to provide evidence of market-clearing levels.

• Backtesting. Valuations are corroborated by comparison to values realized upon sales.

See Note 4 to the consolidated financial statements for further information about fair value measurements.

Review of Net Revenues.

Independent risk oversight and control functions ensure adherence to our pricing policy through a combination of daily procedures, including the explanation and attribution of net revenues based on the underlying factors. Through this process, we independently validate net revenues, identify and resolve potential fair value or trade booking issues on a timely basis and seek to ensure that risks are being properly categorized and quantified.

Review of Valuation Models.

Our independent model risk management group (Model Risk), consisting of quantitative professionals who are separate from model developers, performs an independent model review and validation process of our valuation models. New or changed models are reviewed and approved prior to implementation. Models are reviewed annually to assess the impact of any changes in the product or market and any market developments in pricing theories. See “Risk Management — Model Risk Management” for further information about the review and validation of our valuation models.

Allowance for Credit Losses

We estimate and record an allowance for credit losses related to our loans held for investment and accounted for at amortized cost. We adopted ASU

No. 2016-13

in January 2020, which replaced the probable incurred credit loss model for recognizing credit losses with the CECL model. As a result, our allowance for credit losses effective January 2020, reflects our estimate of credit losses over the remaining expected life of such loans and also takes into account forecasts of future economic conditions. See Note 3 to the consolidated financial statements for further information about adoption of ASU

No. 2016-13.

To determine the allowance for credit losses, we classify our loans into wholesale and retail portfolios. These portfolios represent the level at which we have developed and documented our methodology to determine the allowance for credit losses. The allowance for credit losses is measured on a collective basis for loans that exhibit similar risk characteristics using a modeled approach and asset-specific basis for loans that do not share similar risk characteristics. The determination of allowance for credit losses entails significant judgment on various risk factors. Risk factors for wholesale loans include internal credit ratings, industry default and loss data, expected life, macroeconomic indicators, the borrower’s capacity to meet its financial obligations, the borrower’s country of risk and industry, loan seniority and collateral type. In addition, for loans backed by real estate, risk factors include

loan-to-value

ratio, debt service ratio and home price index. Risk factors for installment and credit card loans include Fair Isaac Corporation (FICO) credit scores, delinquency status, loan vintage and macroeconomic indicators.

Our estimate of credit losses entails judgment about collectability at the reporting dates, and there are uncertainties inherent in those judgments. The allowance for credit losses is subject to a governance process that involves review and approval by senior management within our independent risk oversight and control functions. Personnel within our independent risk oversight and control functions are responsible for forecasting the economic variables that underlie the economic scenarios that are used in the modeling of expected credit losses. While we use 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.

We also record an allowance for credit losses on lending commitments which are held for investment and accounted for at amortized cost. 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. See Note 9 to the consolidated financial statements for further information about the allowance for credit losses.

Goldman Sachs September 2020 Form 10-Q 102

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Use of Estimates

U.S. GAAP requires us to make certain estimates and assumptions. In addition to the estimates we make in connection with fair value measurements and the allowance for credit losses on loans and lending commitments held for investment and accounted for at amortized cost, the use of estimates and assumptions is also important in determining discretionary compensation accruals, the accounting for goodwill and identifiable intangible assets, provisions for losses that may arise from litigation and regulatory proceedings (including governmental investigations), and provisions for losses that may arise from tax audits.

A substantial portion of our compensation and benefits represents discretionary compensation, which is finalized at

year-end.

We believe the most appropriate way to allocate estimated

year-end

discretionary compensation among interim periods is in proportion to the net revenues earned in such periods. In addition to the level of net revenues, our overall compensation expense in any given year is also influenced by, among other factors, overall financial performance, prevailing labor markets, business mix, the structure of our share-based compensation programs and the external environment.

Goodwill is assessed for impairment annually in the fourth quarter or more frequently if events occur or circumstances change that indicate an impairment may exist. When assessing goodwill for impairment, first, a qualitative assessment can be made to determine whether it is more likely than not that the estimated fair value of a reporting unit is less than its estimated carrying value. If the results of the qualitative assessment are not conclusive, a quantitative goodwill test is performed. Alternatively, a quantitative goodwill test can be performed without performing a qualitative assessment.

Estimating the fair value of our reporting units requires judgment. Critical inputs to the fair value estimates include projected earnings and allocated equity. There is inherent uncertainty in the projected earnings. The estimated carrying value of each reporting unit reflects an allocation of total shareholders’ equity and represents the estimated amount of total shareholders’ equity required to support the activities of the reporting unit under currently applicable regulatory capital requirements. See Note 12 to the consolidated financial statements for further information about goodwill.

If we experience a prolonged or severe period of weakness in the business environment, financial markets, our performance or our common stock price, or additional increases in capital requirements, our goodwill could be impaired in the future.

Identifiable intangible assets are tested for impairment whenever events or changes in circumstances suggest that an asset’s or asset group’s carrying value may not be fully recoverable. Judgment is required to evaluate whether indications of potential impairment have occurred, and to test intangible assets for impairment, if required. An impairment is recognized if the total of the estimated undiscounted cash flows relating to the asset or asset group is less than the corresponding carrying value. See Note 12 to the consolidated financial statements for further information about identifiable intangible assets.

We also estimate and provide for potential losses that may arise out of litigation and regulatory proceedings to the extent that such losses are probable and can be reasonably estimated. In addition, we estimate the upper end of the range of reasonably possible aggregate loss in excess of the related reserves for litigation and regulatory proceedings where we believe the risk of loss is more than slight. See Notes 18 and 27 to the consolidated financial statements for information about certain judicial, litigation and regulatory proceedings. Significant judgment is required in making these estimates and our final liabilities may ultimately be materially different. Our total estimated liability in respect of litigation and regulatory proceedings is determined on a

case-by-case

basis and represents an estimate of probable losses after considering, among other factors, the progress of each case, proceeding or investigation, our experience and the experience of others in similar cases, proceedings or investigations, and the opinions and views of legal counsel.

In accounting for income taxes, we recognize tax positions in the financial statements only when it is more likely than not that the position will be sustained on examination by the relevant taxing authority based on the technical merits of the position. See Note 24 to the consolidated financial statements for further information about income taxes.

Recent Accounting Developments

See Note 3 to the consolidated financial statements for information about Recent Accounting Developments.

Results of Operations

The composition of our net revenues has varied over time as financial markets and the scope of our operations have changed. The composition of net revenues can also vary over the shorter term due to fluctuations in U.S. and global economic and market conditions. See “Risk Factors” in Part II, Item 1A of this

Form 10-Q

and in Part I, Item 1A of the 2019

Form 10-K

for further information about the impact of economic and market conditions on our results of operations.

103 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Financial Overview

The table below presents an overview of our financial results and selected financial ratios.

	Three Months Ended September			Nine Months Ended September
$ in millions, except per share amounts		2020	2019		2020	2019
Net revenues		$10,781	$8,323		$32,819	$26,591
Pre-tax earnings		$  4,299	$2,416		$  6,938	$  8,262
Net earnings		$  3,367	$1,877		$  4,953	$  6,549
Net earnings to common		$  3,233	$1,793		$  4,553	$  6,173
Diluted EPS		$    8.98	$  4.79		$  12.65	$  16.32
ROE		16.2%	9.0%		7.6%	10.4%
ROTE		17.3%	9.5%		8.1%	11.0%
Net earnings to average total assets		1.2%	0.8%		0.6%	0.9%
Return on average total shareholders’ equity		14.8%	8.2%		7.3%	9.7%
Average equity to average assets		8.0%	9.2%		8.2%	9.3%
Dividend payout ratio		13.9%	26.1%		29.6%	17.8%

In the table above:

• Net earnings to common represents net earnings applicable to common shareholders, which is calculated as net earnings less preferred stock dividends.

• ROE, return on average tangible common shareholders’ equity (ROTE), net earnings to total assets and return on average total shareholders’ equity are annualized amounts.

• Average equity to average assets is calculated by dividing average total shareholders’ equity by average total assets.

• Dividend payout ratio is calculated by dividing dividends declared per common share by diluted EPS.

• Annualized ROE is calculated by dividing annualized net earnings to common by average monthly common shareholders’ equity. Tangible common shareholders’ equity is calculated as total shareholders’ equity less preferred stock, goodwill and identifiable intangible assets. Annualized ROTE is calculated by dividing annualized net earnings to common by average monthly tangible common shareholders’ equity. We believe that tangible common shareholders’ equity is meaningful because it is a measure that we and investors use to assess capital adequacy and that ROTE is meaningful because it measures the performance of businesses consistently, whether they were acquired or developed internally. Tangible common shareholders’ equity and ROTE are non-GAAP measures and may not be comparable to similar non-GAAP measures used by other companies. Annualized return on average total shareholders’ equity is calculated by dividing annualized net earnings by average monthly total shareholders’ equity.

The table below presents our average equity and the reconciliation of average common shareholders’ equity to average tangible common shareholders’ equity.

	Average for the
	Three Months Ended September					Nine Months Ended September
$ in millions		2020		2019			2020		2019
Total shareholders’ equity		$ 90,942		$ 91,054			$ 91,043		$ 90,265
Preferred stock		(11,203	)	(11,203	)		(11,203	)	(11,203	)
Common shareholders’ equity		79,739		79,851			79,840		79,062
Goodwill and identifiable intangible assets		(4,835	)	(4,704	)		(4,825	)	(4,347	)
Tangible common shareholders’ equity		$ 74,904		$ 75,147			$ 75,015		$ 74,715

Net Revenues

The table below presents our net revenues by line item.

	Three Months Ended September			Nine Months Ended September
$ in millions		2020	2019		2020	2019
Investment banking		$   1,934	$   1,587		$   6,409	$   4,966
Investment management		1,689	1,562		5,092	4,518
Commissions and fees		804	748		2,699	2,301
Market making		3,327	2,476		12,796	7,678
Other principal transactions		1,943	942		2,482	3,831
Total non-interest revenues		9,697	7,315		29,478	23,294
Interest income		2,932	5,459		10,716	16,816
Interest expense		1,848	4,451		7,375	13,519
Net interest income		1,084	1,008		3,341	3,297
Total net revenues		$ 10,781	$   8,323		$ 32,819	$ 26,591

In the table above:

• Investment banking consists of revenues (excluding net interest) from financial advisory and underwriting assignments. These activities are included in our Investment Banking segment.

• Investment management consists of revenues (excluding net interest) from providing asset management services across all major asset classes to a diverse set of asset management clients (included in our Asset Management segment), as well as asset management services, wealth advisory services and certain transaction services for wealth management clients (included in our Consumer & Wealth Management segment).

• Commissions and fees consists of revenues from executing and clearing client transactions on major stock, options and futures exchanges worldwide, as well as over-the-counter (OTC) transactions. These activities are included in our Global Markets and Consumer & Wealth Management segments.

• Market making consists of revenues (excluding net interest) from client execution activities related to making markets in interest rate products, credit products, mortgages, currencies, commodities and equity products. These activities are included in our Global Markets segment.

• Other principal transactions consists of revenues (excluding net interest) from our equity investing activities, including revenues related to our consolidated investments (included in our Asset Management segment), and lending activities (included across our four segments).

Goldman Sachs September 2020 Form 10-Q 104

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Operating Environment.

Despite the continued uncertainty from the

COVID-19

pandemic during the third quarter of 2020, continued improvements in the broader economic environment from the earlier impact of the

COVID-19

pandemic positively impacted financial markets, which along with improving sentiment on the pace of the economic recovery, contributed to generally higher global equity prices and fixed income asset prices compared with the end of the second quarter of 2020. Additionally, the continued benefit of monetary and fiscal support from central banks and governments globally and elevated market volatility impacted market-making activities. Investment banking activities benefitted from high levels of industry-wide underwriting volumes, while industry-wide completed mergers and acquisitions volumes significantly decreased, reflecting the impact of the

COVID-19

pandemic on announcements in the first half of 2020.

If the COVID-19 pandemic persists, it may lead to a decline in market-making activity levels, a continued decline in industry-wide completed mergers and acquisitions volumes, or a decline in industry-wide underwriting volumes, and declines in global equity markets or widening of credit spreads. As a result, net revenues and the provision for credit losses would likely be negatively impacted. See “Segment Operating Results” for information about the operating environment and material trends and uncertainties that may impact our results of operations. 

Three Months Ended September 2020 versus September 2019

Net revenues in the consolidated statements of earnings were $10.78 billion for the third quarter of 2020, 30% higher than the third quarter of 2019, primarily reflecting significantly higher other principal transactions, market making and investment banking revenues, and higher investment management revenues.

Non-Interest

Revenues.

Investment banking revenues in the consolidated statements of earnings were $1.93 billion for the third quarter of 2020, 22% higher than the third quarter of 2019, due to significantly higher revenues in equity underwriting, primarily reflecting a significant increase in industry-wide initial public offerings, and higher revenues in debt underwriting, driven by asset-backed and investment-grade activity. These increases were partially offset by significantly lower revenues in financial advisory, reflecting a decrease in industry-wide completed mergers and acquisitions transactions.

Investment management revenues in the consolidated statements of earnings were $1.69 billion for the third quarter of 2020, 8% higher than the third quarter of 2019, due to higher management and other fees, reflecting the impact of higher average assets under supervision (AUS), partially offset by a lower average effective management fee due to shifts in the mix of client assets and strategies.

Commissions and fees in the consolidated statements of earnings were $804 million for the third quarter of 2020, 7% higher than the third quarter of 2019.

Market making revenues in the consolidated statements of earnings were $3.33 billion for the third quarter of 2020, 34% higher than the third quarter of 2019, primarily due to significantly higher revenues in equity products (particularly in derivatives), commodities, currencies and credit products and higher revenues in interest rate products.

Other principal transactions revenues in the consolidated statements of earnings were $1.94 billion for the third quarter of 2020, more than double compared with the third quarter of 2019, reflecting net gains from investments in public equities in the third quarter of 2020 compared with net losses in the third quarter of 2019 and significantly higher net gains from debt investments, reflecting tighter corporate credit spreads during the quarter. These increases were partially offset by significantly lower net gains from investments in private equities and lower results for relationship lending activities, including the impact of changes in credit spreads on hedges.

Net Interest Income.

Net interest income in the consolidated statements of earnings was $1.08 billion for the third quarter of 2020, 8% higher than the third quarter of 2019, reflecting a decrease in interest expense primarily related to other interest-bearing liabilities, collateralized financings and deposits, each reflecting the impact of lower interest rates, partially offset by the impact of higher average balances for deposits. The decrease in interest expense was largely offset by a decrease in interest income primarily related to collateralized agreements and other interest-earning assets reflecting the impact of lower interest rates. See “Statistical Disclosures — Distribution of Assets, Liabilities and Shareholders’ Equity” for further information about our sources of net interest income.

105 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Nine Months Ended September 2020 versus September 2019

Net revenues in the consolidated statements of earnings were $32.82 billion for the first nine months of 2020, 23% higher than the first nine months of 2019, reflecting significantly higher market making and investment banking revenues, and higher investment management revenues and commissions and fees, partially offset by significantly lower other principal transactions revenues.

Non-Interest

Revenues.

Investment banking revenues in the consolidated statements of earnings were $6.41 billion for the first nine months of 2020, 29% higher than the first nine months of 2019, due to significantly higher revenues in both equity and debt underwriting, reflecting a significant increase in industry-wide volumes. These increases were partially offset by lower revenues in financial advisory, reflecting a decrease in industry-wide completed mergers and acquisitions transactions.

Investment management revenues in the consolidated statements of earnings were $5.09 billion for the first nine months of 2020, 13% higher than the first nine months of 2019, due to higher management and other fees, reflecting the impact of higher average AUS and the impact of the consolidation of GS Personal Financial Management, partially offset by a lower average effective management fee due to shifts in the mix of client assets and strategies. In addition, incentive fees were significantly higher, driven by harvesting.

Commissions and fees in the consolidated statements of earnings were $2.70 billion for the first nine months of 2020, 17% higher than the first nine months of 2019, reflecting an increase in our listed cash equity volumes, generally consistent with market volumes.

Market making revenues in the consolidated statements of earnings were $12.80 billion for the first nine months of 2020, 67% higher than the first nine months of 2019, primarily due to significantly higher revenues in equity products (both derivatives and cash products), interest rate products, credit products, currencies, and commodities.

Other principal transactions revenues in the consolidated statements of earnings were $2.48 billion for the first nine months of 2020, 35% lower than the first nine months of 2019, reflecting significantly lower net gains from investments in private equities and net losses across debt investments, partially offset by significantly higher net gains from investments in public equities.

Net Interest Income.

Net interest income in the consolidated statements of earnings was $3.34 billion for the first nine months of 2020, 1% higher than the first nine months of 2019, reflecting a decrease in interest expense primarily related to other interest-bearing liabilities, collateralized financings, long-term borrowings and deposits, each reflecting the impact of lower interest rates, partially offset by the impact of higher average balances for deposits. The decrease in interest expense was largely offset by a decrease in interest income primarily related to collateralized agreements, other interest-earning assets and deposits with banks reflecting the impact of lower interest rates. See “Statistical Disclosures — Distribution of Assets, Liabilities and Shareholders’ Equity” for further information about our sources of net interest income.

Provision for Credit Losses

Provision for credit losses consists of provision for credit losses on loans and lending commitments held for investment and accounted for at amortized cost. See Note 9 to the consolidated financial statements for further information about the provision for credit losses.

The table below presents our provision for credit losses.

	Three Months Ended September			Nine Months Ended September
$ in millions		2020	2019		2020	2019
Provision for credit losses		$278	$291		$2,805	$729

Three Months Ended September 2020 versus September 2019.

Provision for credit losses in the consolidated statements of earnings was $278 million for the third quarter of 2020, 4% lower than the third quarter of 2019, primarily reflecting reserve reductions from paydowns on corporate lines of credit and consumer installment loans, partially offset by reserve increases from individual impairments related to wholesale loans and growth in credit card loans.

Provision for credit losses for wholesale loans included approximately $230 million related to the impact of individual impairments, primarily across the technology, media & telecommunications, diversified industrials and natural resources industries, during the third quarter of 2020. Net charge-offs for consumer loans were approximately $65 million during the third quarter of 2020.

Goldman Sachs September 2020 Form 10-Q 106

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Nine Months Ended September 2020 versus September 2019.

Provision for credit losses in the consolidated statements of earnings was $2.81 billion for the first nine months of 2020, compared with $729 million for the first nine months of 2019. This increase was primarily due to significantly higher provisions related to wholesale loans as a result of forecasts of expected deterioration in the broader economic environment (incorporating the accounting for credit losses under the CECL standard) reflecting the impact of the

COVID-19

pandemic during the first nine months of 2020. In addition, the increase in provisions related to wholesale loans reflected the impact of individual impairments and ratings downgrades during the first nine months of 2020. The first nine months of 2020 also included provisions related to credit card loans. See Note 3 to the consolidated financial statements for further information about ASU

No. 2016-13.

Provision for credit losses for wholesale loans included approximately $960 million related to the impact of individual impairments, primarily across the diversified industrials, technology, media & telecommunications and natural resources industries, during the first nine months of 2020. Net charge-offs for consumer loans were approximately $230 million during the first nine months of 2020.

Operating Expenses

Our operating expenses are primarily influenced by compensation, headcount and levels of business activity. Compensation and benefits includes salaries, estimated

year-end

discretionary compensation, amortization of equity awards and other items such as benefits. Discretionary compensation is significantly impacted by, among other factors, the level of net revenues, overall financial performance, prevailing labor markets, business mix, the structure of our share-based compensation programs and the external environment.

The table below presents our operating expenses by line item and headcount.

	Three Months Ended September			Nine Months Ended September
$ in millions		2020	2019		2020	2019
Compensation and benefits		$  3,117	$  2,731		$10,830	$  9,307
Brokerage, clearing, exchange and distribution fees		911	853		2,831	2,438
Market development		70	169		312	539
Communications and technology		340	283		1,006	859
Depreciation and amortization		468	473		1,404	1,240
Occupancy		235	252		706	711
Professional fees		298	350		956	950
Other expenses		765	505		5,031	1,556
Total operating expenses		$  6,204	$  5,616		$23,076	$17,600
Headcount at period-end		40,900	37,800

Three Months Ended September 2020 versus September 2019.

Operating expenses in the consolidated statements of earnings were $6.20 billion for the third quarter of 2020, 10% higher than the third quarter of 2019. Our efficiency ratio (total operating expenses divided by total net revenues) for the third quarter of 2020 was 57.5%, compared with 67.5% for the third quarter of 2019.

The increase in operating expenses compared with the third quarter of 2019 was due to higher compensation and benefits expenses (reflecting significantly higher net revenues) and higher

non-compensation

expenses. The increase in

non-compensation

expenses reflected significantly higher net provisions for litigation and regulatory proceedings, and higher technology expenses and brokerage, clearing, exchange and distribution fees, partially offset by lower travel and entertainment expenses (included in market development expenses), professional fees and occupancy-related expenses.

Net provisions for litigation and regulatory proceedings for the third quarter of 2020 were $256 million compared with $47 million for the third quarter of 2019.

Headcount increased 5% compared with June 2020, primarily reflecting the timing of campus hires.

Nine Months Ended September 2020 versus September 2019.

Operating expenses in the consolidated statements of earnings were $23.08 billion for the first nine months of 2020, 31% higher than the first nine months of 2019. Our efficiency ratio (total operating expenses divided by total net revenues) for the first nine months of 2020 was 70.3%, compared with 66.2% for the first nine months of 2019. Net provisions for litigation and regulatory proceedings increased our efficiency ratio for the first nine months of 2020 by 10.3 percentage points.

The increase in operating expenses compared with the first nine months of 2019 was primarily due to significantly higher net provisions for litigation and regulatory proceedings and higher compensation and benefits expenses (reflecting significantly higher net revenues). In addition, brokerage, clearing, exchange and distribution fees were higher (reflecting an increase in activity levels), expenses related to consolidated investments, including impairments, were significantly higher (increase was primarily in depreciation and amortization and occupancy expenses), and technology expenses were higher. These increases were partially offset by significantly lower travel and entertainment expenses (included in market development expenses).

Net provisions for litigation and regulatory proceedings for the first nine months of 2020 were $3.40 billion compared with $150 million for the first nine months of 2019.

Headcount increased 7% compared with December 2019, reflecting investments in new business initiatives and an increase in technology professionals.

107 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Provision for Taxes

The effective income tax rate for the first nine months of 2020 was 28.6%, up from the full year tax rate of 20.0% for 2019, primarily due to an increase in provisions for

non-deductible

litigation. The decrease, compared with 39.9% for the first half of 2020, was primarily due to significantly lower

non-deductible

provisions for litigation in the third quarter of 2020 compared with the first half of 2020.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted on March 27, 2020. The CARES Act includes retroactive and prospective provisions enacted to provide income tax relief and liquidity to businesses affected by the

COVID-19

pandemic. The legislation includes corporate income tax provisions that temporarily allow for the carryback of net operating losses and remove limitations on the use of loss carryforwards, increase interest expense deduction limitations and allow accelerated depreciation deductions on certain asset improvements. The CARES Act did not have a material impact on our effective tax rate for the first nine months of 2020.

On July 20, 2020, the U.S. Internal Revenue Service and the U.S. Department of the Treasury released final regulations that include an election to exempt income that is subject to a high rate of tax from Global Intangible Low Taxed Income (GILTI) and proposed regulations that would conform the

high-tax

elections for purposes of GILTI and Subpart F. These final and proposed regulations did not have a material impact on our effective tax rate for the first nine months of 2020. On September 1, 2020, Base Erosion and Anti-Abuse Tax regulations were released finalizing proposed regulations and supplementing final regulations that were released in 2019. These final regulations did not have a material impact on our effective tax rate for the first nine months of 2020.

On July 22, 2020, the U.K. Finance Act 2020 (Finance Act) was enacted. The Finance Act includes a repeal of a two percentage point decrease in the U.K. corporate income tax rate that was scheduled to become effective on April 1, 2020. The impact of this legislation on our provision for income taxes and income tax assets and liabilities was recognized in the third quarter of 2020 and did not have a material impact on our effective tax rate for the first nine months of 2020.

Segment Assets and Operating Results

Segment Assets.

The table below presents assets by segment.

	As of
$ in millions		September 2020	December 2019
Investment Banking		$  118,309	$  92,009
Global Markets		818,255	725,060
Asset Management		94,897	92,102
Consumer & Wealth Management		100,598	83,797
Total		$1,132,059	$992,968

The allocation process for segment assets is based on the activities of these segments. The allocation of assets includes allocation of global core liquid assets (GCLA) (which consists of unencumbered, highly liquid securities and cash), which is generally included within cash and cash equivalents, collateralized agreements and trading assets on our balance sheet. Due to the integrated nature of these segments, estimates and judgments are made in allocating these assets. See “Risk Management — Liquidity Risk Management” for further information about our GCLA.

Segment Operating Results.

The table below presents our segment operating results.

	Three Months Ended September				Nine Months Ended September
$ in millions		2020		2019		2020	2019
Investment Banking
Net revenues		$  1,969		$  1,841		$  6,810	$  5,535
Provision for credit losses		171		91		1,612	258
Operating expenses		1,067		972		4,940	3,027
Pre-tax earnings		$    731		$     778		$    258	$  2,250
Net earnings to common		$    452		$     597		$    133	$  1,738
Average common equity		$11,271		$12,471		$11,251	$11,166
Return on average common equity		16.0%		19.1%		1.6%	20.8%
Global Markets
Net revenues		$  4,553		$  3,543		$16,892	$11,299
Provision for credit losses		(15	)	16		236	15
Operating expenses		2,542		2,377		10,568	7,810
Pre-tax earnings		$  2,026		$  1,150		$  6,088	$  3,474
Net earnings to common		$  1,816		$     839		$  4,085	$  2,499
Average common equity		$39,960		$38,847		$40,542	$40,670
Return on average common equity		18.2%		8.6%		13.4%	8.2%
Asset Management
Net revenues		$  2,768		$  1,621		$  4,773	$  5,962
Provision for credit losses		70		81		420	154
Operating expenses		1,358		1,176		3,888	3,526
Pre-tax earnings		$  1,340		$     364		$    465	$  2,282
Net earnings to common		$    839		$     264		$    273	$  1,753
Average common equity		$19,989		$22,320		$20,332	$21,199
Return on average common equity		16.8%		4.7%		1.8%	11.0%
Consumer & Wealth Management
Net revenues		$  1,491		$  1,318		$  4,344	$  3,795
Provision for credit losses		52		103		537	302
Operating expenses		1,237		1,091		3,680	3,237
Pre-tax earnings		$    202		$     124		$    127	$     256
Net earnings to common		$    126		$       93		$      62	$     183
Average common equity		$  8,519		$  6,213		$  7,715	$  6,027
Return on average common equity		5.9%		6.0%		1.1%	4.0%
Total net revenues		$10,781		$  8,323		$32,819	$26,591
Total provision for credit losses		278		291		2,805	729
Total operating expenses		6,204		5,616		23,076	17,600
Total pre-tax earnings		$  4,299		$  2,416		$  6,938	$  8,262
Net earnings to common		$  3,233		$  1,793		$  4,553	$  6,173
Average common equity		$79,739		$79,851		$79,840	$79,062
Return on average common equity		16.2%		9.0%		7.6%	10.4%

Goldman Sachs September 2020 Form 10-Q 108

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Net revenues in our segments include allocations of interest income and expense to specific positions in relation to the cash generated by, or funding requirements of, such positions. See Note 25 to the consolidated financial statements for further information about our business segments.

The allocation of common shareholders’ equity and preferred stock dividends to each segment is based on the estimated amount of equity required to support the activities of the segment under relevant regulatory capital requirements. Net earnings for each segment is calculated by applying the firmwide tax rate to each segment’s

pre-tax

earnings.

Compensation and benefits expenses within our segments reflect, among other factors, our overall performance, as well as the performance of individual businesses. Consequently,

pre-tax

margins in one segment of our business may be significantly affected by the performance of our other business segments. A description of segment operating results follows.

Investment Banking

Investment Banking generates revenues from the following:

• Financial advisory. Includes strategic advisory assignments with respect to mergers and acquisitions, divestitures, corporate defense activities, restructurings and spin-offs.

• Underwriting. Includes public offerings and private placements, including local and cross-border transactions and acquisition financing, of a wide range of securities and other financial instruments, including loans.

• Corporate lending. Includes lending to corporate clients, including relationship lending, middle-market lending and acquisition financing.

The table below presents our Investment Banking assets.

	As of
$ in millions		September 2020	December 2019
Cash and cash equivalents		$  33,812	$25,301
Collateralized agreements		21,404	13,376
Customer and other receivables		3,450	3,576
Trading assets		26,733	20,737
Investments		1,014	854
Loans		30,135	26,565
Other assets		1,761	1,600
Total		$118,309	$92,009

The table below presents our Investment Banking operating results.

	Three Months Ended September			Nine Months Ended September
$ in millions		2020	2019		2020	2019
Financial advisory		$       507	$     697		$  1,974	$  2,342
Equity underwriting		856	366		2,291	1,104
Debt underwriting		571	524		2,144	1,520
Underwriting		1,427	890		4,435	2,624
Corporate lending		35	254		401	569
Net revenues		1,969	1,841		6,810	5,535
Provision for credit losses		171	91		1,612	258
Operating expenses		1,067	972		4,940	3,027
Pre-tax earnings		731	778		258	2,250
Provision for taxes		262	171		74	466
Net earnings		469	607		184	1,784
Preferred stock dividends		17	10		51	46
Net earnings to common		$       452	$     597		$    133	$  1,738
Average common equity		$11,271	$12,471		$11,251	$11,166
Return on average common equity		16.0%	19.1%		1.6%	20.8%

The table below presents our financial advisory and underwriting transaction volumes.

	Three Months Ended September			Nine Months Ended September
$ in billions		2020	2019		2020	2019
Announced mergers and acquisitions		$       344	$     269		$    633	$  1,067
Completed mergers and acquisitions		$       201	$     435		$    811	$  1,051
Equity and equity-related offerings		$         28	$       17		$      80	$       49
Debt offerings		$         81	$       68		$    289	$     197

In the table above:

• Volumes are per Dealogic.

• Announced and completed mergers and acquisitions volumes are based on full credit to each of the advisors in a transaction. Equity and equity-related offerings and debt offerings are based on full credit for single book managers and equal credit for joint book managers. Transaction volumes may not be indicative of net revenues in a given period. In addition, transaction volumes for prior periods may vary from amounts previously reported due to the subsequent withdrawal or a change in the value of a transaction.

• Equity and equity-related offerings includes Rule 144A and public common stock offerings, convertible offerings and rights offerings.

• Debt offerings includes non-convertible preferred stock, mortgage-backed securities, asset-backed securities and taxable municipal debt. Includes publicly registered and Rule 144A issues and excludes leveraged loans.

109 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Operating Environment.

During the third quarter of 2020, the operating environment for Investment Banking continued to reflect high levels of underwriting activity, as industry-wide volumes for initial public offerings were strong and high-yield debt offerings remained active, while investment-grade volumes normalized following the strong pace of activity during the first half of 2020. Corporate clients continued to pay down funds borrowed earlier in the year under revolving lines of credit, reflecting improving macroeconomic conditions and companies’ ability to access capital markets, while corporate credit spreads tightened during the quarter. In mergers and acquisitions activity, industry-wide announced volumes increased significantly, following a slowdown during the first half of 2020 that resulted from the uncertainty caused by the

COVID-19

pandemic. The impact from the pandemic to announcements earlier in the year continued to weigh on industry-wide completed mergers and acquisitions volumes, which significantly decreased compared with the second quarter of 2020.

In the future, if industry-wide announced mergers and acquisitions volumes decline, or if industry-wide completed mergers and acquisitions volumes continue to decline, or if industry-wide equity and debt underwriting volumes decline, or credit spreads related to hedges on our relationship lending portfolio continue to tighten, net revenues in Investment Banking would likely be negatively impacted. In addition, a deterioration in the creditworthiness of borrowers would negatively impact the provision for credit losses.

Three Months Ended September 2020 versus September 2019.

Net revenues in Investment Banking were $1.97 billion for the third quarter of 2020, 7% higher than the third quarter of 2019, reflecting significantly higher net revenues in Underwriting, partially offset by significantly lower net revenues in Corporate lending and Financial advisory.

The increase in Underwriting net revenues was due to significantly higher net revenues in Equity underwriting, primarily reflecting a significant increase in industry-wide initial public offerings, and higher net revenues in Debt underwriting, driven by asset-backed and investment-grade activity. The decrease in Corporate lending net revenues primarily reflected lower results for relationship lending activities, including the impact of changes in credit spreads on hedges. The third quarter of 2020 included $115 million of net losses related to these hedges. The decrease in Financial advisory net revenues reflected a decrease in industry-wide completed mergers and acquisitions transactions.

Provision for credit losses was $171 million for the third quarter of 2020, 88% higher than the third quarter of 2019, reflecting higher impairments related to middle-market and relationship lending, partially offset by reserve reductions from paydowns on corporate lines of credit.

Operating expenses were $1.07 billion for the third quarter of 2020, 10% higher than the third quarter of 2019, due to higher net provisions for litigation and regulatory proceedings.

Pre-tax

earnings were $731 million for the third quarter of 2020, 6% lower than the third quarter of 2019.

As of September 2020, our investment banking transaction backlog increased significantly compared with June 2020, due to significantly higher estimated net revenues across potential advisory transactions, potential equity underwriting transactions (primarily from initial public offerings), and potential debt underwriting transactions (particularly from asset-backed and leveraged finance transactions).

Our backlog represents an estimate of our net revenues from future transactions where we believe that future revenue realization is more likely than not. We believe changes in our backlog may be a useful indicator of client activity levels which, over the long term, impact our net revenues. However, the time frame for completion and corresponding revenue recognition of transactions in our backlog varies based on the nature of the assignment, as certain transactions may remain in our backlog for longer periods of time, which could occur in light of the impact of the

COVID-19

pandemic on mergers and acquisitions. In addition, our backlog is subject to certain limitations, such as assumptions about the likelihood that individual client transactions will occur in the future. Transactions may be cancelled or modified, and transactions not included in the estimate may also occur, including underwriting transactions for which the time frame from discussion to completion has shortened in the current environment.

Nine Months Ended September 2020 versus September 2019.

Net revenues in Investment Banking were $6.81 billion for the first nine months of 2020, 23% higher than the first nine months of 2019, reflecting significantly higher net revenues in Underwriting, partially offset by lower net revenues in Financial advisory and significantly lower net revenues in Corporate lending.

The increase in Underwriting net revenues was due to significantly higher net revenues in both Equity and Debt underwriting, reflecting a significant increase in industry-wide volumes. The decrease in Financial advisory net revenues reflected a decrease in industry-wide completed transactions. The decrease in Corporate lending net revenues was due to changes in the fair value of corporate loans, including net losses in the first nine months of 2020 compared with net gains in the first nine months of 2019, and significantly lower net interest income, partially offset by the impact of changes in credit spreads on hedges related to relationship lending activities in the prior year period.

Goldman Sachs September 2020 Form 10-Q 110

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Provision for credit losses was $1.61 billion for the first nine months of 2020, compared with $258 million for the first nine months of 2019. This increase reflected forecasts of expected deterioration in the broader economic environment (incorporating the accounting for credit losses under the CECL standard) reflecting the impact of the

COVID-19

pandemic and higher impairments related to relationship and middle-market lending. See Note 3 to the consolidated financial statements for further information about ASU

No. 2016-13.

Operating expenses were $4.94 billion for the first nine months of 2020, 63% higher than the first nine months of 2019, primarily due to significantly higher net provisions for litigation and regulatory proceedings.

Pre-tax

earnings were $258 million for the first nine months of 2020, 89% lower than the first nine months of 2019. Net provisions for litigation and regulatory proceedings reduced annualized ROE by 15.7 percentage points for the first nine months of 2020.

As of September 2020, our investment banking transaction backlog decreased slightly compared with December 2019, reflecting lower estimated net revenues from both potential advisory transactions and potential debt underwriting transactions, particularly from leveraged finance and investment-grade transactions, partially offset by significantly higher estimated net revenues from potential equity underwriting transactions, primarily from initial public offerings.

Global Markets

Our Global Markets segment consists of:

FICC.

FICC generates revenues from intermediation and financing activities.

• FICC intermediation. Includes client execution activities related to making markets in both trading cash and derivative instruments, as detailed below.

Interest Rate Products.

Government bonds (including inflation-linked securities) across maturities, other government-backed securities, and interest rate swaps, options and other derivatives.

Credit Products.

Investment-grade corporate securities, high-yield securities, credit derivatives, exchange-traded funds (ETFs), bank and bridge loans, municipal securities, emerging market and distressed debt, and trade claims.

Mortgages.

Commercial mortgage-related securities, loans and derivatives, residential mortgage-related securities, loans and derivatives (including U.S. government agency-issued collateralized mortgage obligations and other securities and loans), and other asset-backed securities, loans and derivatives.

Currencies.

Currency options, spot/forwards and other derivatives on

G-10

currencies and emerging-market products.

Commodities.

Commodity derivatives and, to a lesser extent, physical commodities, involving crude oil and petroleum products, natural gas, base, precious and other metals, electricity, coal, agricultural and other commodity products.

For further information about market-making activities, see “Market-Making Activities” below.

• FICC financing. Includes providing financing to our clients through securities sold under agreements to repurchase (repurchase agreements), as well as through structured credit, warehouse lending (including residential and commercial mortgage lending) and asset-backed lending, which are typically longer term in nature.

Equities.

Equities generates revenues from intermediation and financing activities.

• Equities intermediation. We make markets in equity securities and equity-related products, including ETFs, convertible securities, options, futures and over-the-counter (OTC) derivative instruments, on a global basis. We also structure and make markets in derivatives on indices, industry sectors, financial measures and individual company stocks. Our exchange-based market-making activities include making markets in stocks and ETFs, futures and options on major exchanges worldwide. In addition, we generate commissions and fees from executing and clearing institutional client transactions on major stock, options and futures exchanges worldwide, as well as OTC transactions. For further information about market-making activities, see “Market-Making Activities” below.

• Equities financing. Includes prime brokerage and other equities financing activities, including securities lending, margin lending and swaps. We earn fees by providing clearing, settlement and custody services globally. We provide services that principally involve borrowing and lending securities to cover institutional clients’ short sales and borrowing securities to cover our short sales and otherwise to make deliveries into the market. In addition, we are an active participant in broker-to-broker securities lending and third-party agency lending activities. We provide financing to our clients for their securities trading activities through margin loans that are collateralized by securities, cash or other acceptable collateral. In addition, we execute swap transactions to provide our clients with exposure to securities and indices.

111 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Market-Making Activities

As a market maker, we facilitate transactions in both liquid and less liquid markets, primarily for institutional clients, such as corporations, financial institutions, investment funds and governments, to assist clients in meeting their investment objectives and in managing their risks. In this role, we seek to earn the difference between the price at which a market participant is willing to sell an instrument to us and the price at which another market participant is willing to buy it from us, and vice versa (i.e., bid/offer spread). In addition, we maintain (i) market-making positions, typically for a short period of time, in response to, or in anticipation of, client demand, and (ii) positions to actively manage our risk exposures that arise from these market-making activities (collectively, inventory). Our inventory is recorded in trading assets (long positions) or trading liabilities (short positions) in our consolidated balance sheets.

Our results are influenced by a combination of interconnected drivers, including (i) client activity levels and transactional bid/offer spreads (collectively, client activity), and (ii) changes in the fair value of our inventory and interest income and interest expense related to the holding, hedging and funding of our inventory (collectively, market-making inventory changes). Due to the integrated nature of our market-making activities, disaggregation of net revenues into client activity and market-making inventory changes is judgmental and has inherent complexities and limitations.

The amount and composition of our net revenues vary over time as these drivers are impacted by multiple interrelated factors affecting economic and market conditions, including volatility and liquidity in the market, changes in interest rates, currency exchange rates, credit spreads, equity prices and commodity prices, investor confidence, and other macroeconomic concerns and uncertainties.

In general, assuming all other market-making conditions remain constant, increases in client activity levels or bid/offer spreads tend to result in increases in net revenues, and decreases tend to have the opposite effect. However, changes in market-making conditions can materially impact client activity levels and bid/offer spreads, as well as the fair value of our inventory. For example, a decrease in liquidity in the market could have the impact of (i) increasing our bid/offer spread, (ii) decreasing investor confidence and thereby decreasing client activity levels, and (iii) widening of credit spreads on our inventory positions.

The table below presents our Global Markets assets.

	As of
$ in millions		September 2020	December 2019
Cash and cash equivalents		$  85,342	$  82,819
Collateralized agreements		188,342	196,278
Customer and other receivables		100,586	63,277
Trading assets		358,753	316,242
Investments		46,553	25,937
Loans		29,042	31,111
Other assets		9,637	9,396
Total		$818,255	$725,060

The table below presents our Global Markets operating results.

	Three Months Ended September				Nine Months Ended September
$ in millions		2020		2019		2020	2019
FICC intermediation		$  2,170		$  1,315		$  8,493	$  4,627
FICC financing		332		364		1,213	992
FICC		2,502		1,679		9,706	5,619
Equities intermediation		1,466		1,080		5,193	3,395
Equities financing		585		784		1,993	2,285
Equities		2,051		1,864		7,186	5,680
Net revenues		4,553		3,543		16,892	11,299
Provision for credit losses		(15	)	16		236	15
Operating expenses		2,542		2,377		10,568	7,810
Pre-tax earnings		2,026		1,150		6,088	3,474
Provision for taxes		122		255		1,742	721
Net earnings		1,904		895		4,346	2,753
Preferred stock dividends		88		56		261	254
Net earnings to common		$  1,816		$     839		$  4,085	$  2,499
Average common equity		$39,960		$38,847		$40,542	$40,670
Return on average common equity		18.2%		8.6%		13.4%	8.2%

The table below presents our Global Markets net revenues by line item in the consolidated statements of earnings.

$ in millions	FICC		Equities		Global Markets
Three Months Ended September 2020
Market making	$1,903		$1,424		$  3,327
Commissions and fees	–		734		734
Other principal transactions	39		(7	)	32
Net interest income	560		(100	)	460
Total	$2,502		$2,051		$  4,553
Three Months Ended September 2019
Market making	$1,376		$1,100		$  2,476
Commissions and fees	–		728		728	��
Other principal transactions	20		3		23
Net interest income	283		33		316
Total	$1,679		$1,864		$  3,543
Nine Months Ended September 2020
Market making	$7,803		$4,993		$12,796
Commissions and fees	–		2,522		2,522
Other principal transactions	(26	)	–		(26	)
Net interest income	1,929		(329	)	1,600
Total	$9,706		$7,186		$16,892
Nine Months Ended September 2019
Market making	$4,372		$3,306		$  7,678
Commissions and fees	–		2,219		2,219
Other principal transactions	(5	)	51		46
Net interest income	1,252		104		1,356
Total	$5,619		$5,680		$11,299

Goldman Sachs September 2020 Form 10-Q 112

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

In the table above:

• The difference between commissions and fees and those in the consolidated statements of earnings represents commissions and fees included in our Consumer & Wealth Management segment.

• See “Net Revenues” for further information about market making revenues, commissions and fees, other principal transactions revenues and net interest income. See Note 25 to the consolidated financial statements for net interest income by business segment.

• The primary driver of net revenues for FICC intermediation was client activity.

Operating Environment.

During the third quarter of 2020, Global Markets operated in an environment characterized by improving macroeconomic conditions and the continued benefit of monetary and fiscal support from central banks and governments globally, amid the persistent uncertainty around the

COVID-19

pandemic. These factors, in conjunction with improved sentiment on the pace of the economic recovery, contributed to generally higher global equity prices during the quarter, as the S&P 500 Index and the MSCI World Index both increased by 8%, and tighter credit spreads, as U.S. investment-grade credit spreads tightened by approximately 20 basis points and U.S. high yield credit spreads tightened by approximately 90 basis points. Additionally, market volatility remained elevated as the average daily VIX was 26 for the third quarter of 2020, higher than the full year 2019 average of 15, although well below levels experienced in March and April 2020. Client activity remained solid during the quarter, as Equities client volumes remained strong, while FICC client volumes declined from the strong levels of activity in the first half of 2020. If macroeconomic conditions lead to a decline in activity levels or volatility, net revenues in Global Markets would likely be negatively impacted.

Three Months Ended September 2020 versus September 2019.

Net revenues in Global Markets were $4.55 billion for the third quarter of 2020, 29% higher than the third quarter of 2019.

Net revenues in FICC were $2.50 billion, 49% higher than the third quarter of 2019, due to significantly higher net revenues in FICC intermediation, reflecting significantly higher net revenues across four of our five major businesses. Net revenues in FICC financing were lower, reflecting lower net revenues in structured credit financing and repurchase agreements.

The increase in FICC intermediation net revenues reflected the impact of improved market-making conditions on our inventory. The following provides information about our FICC intermediation net revenues by business, compared with results in the third quarter of 2019:

• Net revenues in interest rate products were significantly higher, reflecting the impact of improved market-making conditions on our inventory, partially offset by lower client activity.

• Net revenues in mortgages and commodities were significantly higher, driven by the impact of improved market-making conditions on our inventory.

• Net revenues in credit products were significantly higher, primarily reflecting higher client activity.

• Net revenues in currencies were essentially unchanged as the impact of improved market-making conditions on our inventory was offset by lower client activity.

Net revenues in Equities were $2.05 billion, 10% higher than the third quarter of 2019, due to significantly higher net revenues in Equities intermediation, reflecting significantly higher net revenues in derivatives, partially offset by lower net revenues in cash products. In addition, net revenues in Equities financing were significantly lower, due to higher net funding costs, including the impact of lower yields on our GCLA.

Provision for credit losses was $(15) million for the third quarter of 2020, compared with $16 million for the third quarter of 2019.

Operating expenses were $2.54 billion for the third quarter of 2020, 7% higher than the third quarter of 2019, primarily due to higher net provisions for litigation and regulatory proceedings.

Pre-tax

earnings were $2.03 billion for the third quarter of 2020, 76% higher than the third quarter of 2019.

Nine Months Ended September 2020 versus September 2019.

Net revenues in Global Markets were $16.89 billion for the first nine months of 2020, 49% higher than the first nine months of 2019.

Net revenues in FICC were $9.71 billion, 73% higher than the first nine months of 2019, primarily due to significantly higher net revenues in FICC intermediation, reflecting significantly higher net revenues across all major businesses. In addition, net revenues in FICC financing were significantly higher, driven by repurchase agreements.

113 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

The increase in FICC intermediation net revenues reflected significantly higher client activity. The following provides information about our FICC intermediation net revenues by business, compared with results in the first nine months of 2019:

• Net revenues in interest rate products and credit products were significantly higher, reflecting higher client activity, partially offset by the impact of challenging market-making conditions on our inventory.

• Net revenues in commodities were significantly higher, reflecting the impact of improved market-making conditions on our inventory and higher client activity.

• Net revenues in currencies and mortgages were significantly higher, driven by higher client activity.

Net revenues in Equities were $7.19 billion, 27% higher than the first nine months of 2019, due to significantly higher net revenues in Equities intermediation, reflecting significantly higher net revenues in both derivatives and cash products, partially offset by lower net revenues in Equities financing, reflecting higher net funding costs, including the impact of lower yields on our GCLA and the cancellation of dividends in Europe in the first half of 2020.

Provision for credit losses was $236 million for the first nine months of 2020, compared with $15 million for the first nine months of 2019. This increase reflected forecasts of expected deterioration in the broader economic environment (incorporating the accounting for credit losses under the CECL standard) reflecting the impact of the

COVID-19

pandemic. See Note 3 to the consolidated financial statements for further information about ASU

No. 2016-13.

Operating expenses were $10.57 billion for the first nine months of 2020, 35% higher than the first nine months of 2019, reflecting significantly higher net provisions for litigation and regulatory proceedings, significantly higher compensation and benefits expenses (reflecting significantly higher net revenues) and higher brokerage, clearing, exchange and distribution fees.

Pre-tax

earnings were $6.09 billion for the first nine months of 2020, 75% higher than the first nine months of 2019. Net provisions for litigation and regulatory proceedings reduced annualized ROE by 6.1 percentage points for the first nine months of 2020.

Asset Management

We manage client assets across a broad range of investment strategies and asset classes for a diverse set of institutional clients and a network of third-party distributors around the world, including equity, fixed income and alternative investments. We provide investment solutions including those managed on a fiduciary basis by our portfolio managers, as well as those managed by a variety of third-party managers. We offer our investment solutions in a variety of structures, including separately managed accounts, mutual funds, private partnerships and other comingled vehicles. These solutions begin with identifying clients’ objectives and continue through portfolio construction, ongoing asset allocation and risk management and investment realization.

In addition to managing client assets, we invest in alternative investments across a range of asset classes that seek to deliver long-term accretive risk-adjusted returns. Our investing activities, which are typically longer term, include investments in corporate equity, credit, real estate and infrastructure assets.

Asset Management generates revenues from the following:

• Management and other fees. The majority of revenues in management and other fees consists of asset-based fees on client assets that we manage. For further information about AUS, see “Assets Under Supervision” below. The fees that we charge vary by asset class, distribution channel and the types of services provided, and are affected by investment performance, as well as asset inflows and redemptions.

• Incentive fees. In certain circumstances, we also receive incentive fees based on a percentage of a fund’s or a separately managed account’s return, or when the return exceeds a specified benchmark or other performance targets. Such fees include overrides, which consist of the increased share of the income and gains derived primarily from our private equity and credit funds when the return on a fund’s investments over the life of the fund exceeds certain threshold returns. Incentive fees are recognized when it is probable that a significant reversal of such fees will not occur.

• Equity investments. Our alternative investing activities relate to public and private equity investments in corporate, real estate and infrastructure assets. We also make investments through consolidated investment entities (CIEs), substantially all of which are engaged in real estate investment activities.

• Lending and debt investments. We invest in corporate debt and provide financing for real estate and other assets. These activities include investments in mezzanine debt, senior debt and distressed debt securities.

Goldman Sachs September 2020 Form 10-Q 114

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

The table below presents our Asset Management assets.

	As of
$ in millions		September 2020	December 2019
Cash and cash equivalents		$  8,726	$  6,756
Collateralized agreements		5,273	3,433
Customer and other receivables		973	1,579
Trading assets		6,386	5,266
Investments		33,182	37,096
Loans		16,966	17,101
Other assets		23,391	20,871
Total		$94,897	$92,102

The table below presents our Asset Management operating results.

	Three Months Ended September			Nine Months Ended September
$ in millions		2020	2019		2020	2019
Management and other fees		$       728	$     660		$  2,052	$  1,934
Incentive fees		28	24		216	85
Equity investments		1,423	596		2,325	2,900
Lending and debt investments		589	341		180	1,043
Net revenues		2,768	1,621		4,773	5,962
Provision for credit losses		70	81		420	154
Operating expenses		1,358	1,176		3,888	3,526
Pre-tax earnings		1,340	364		465	2,282
Provision for taxes		482	86		133	473
Net earnings		858	278		332	1,809
Preferred stock dividends		19	14		59	56
Net earnings to common		$       839	$     264		$       273	$  1,753
Average common equity		$19,989	$22,320		$20,332	$21,199
Return on average common equity		16.8%	4.7%		1.8%	11.0%

The table below presents our Equity investments net revenues by equity type and asset class.

	Three Months Ended September				Nine Months Ended September
$ in millions		2020	2019			2020	2019
Equity Type
Private equity		$       642	$     863			$  1,392	$  2,675
Public equity		781	(267	)		933	225
Total		$  1,423	$     596			$  2,325	$  2,900
Asset Class
Real estate		$       221	$     582			$  1,259	$  1,347
Corporate		1,202	14			1,066	1,553
Total		$  1,423	$     596			$  2,325	$  2,900

Operating Environment.

During the third quarter of 2020, continued improvements in the broader economic environment from the earlier impact of the

COVID-19

pandemic positively impacted financial markets, which along with improving sentiment on the pace of the economic recovery, contributed to generally higher global equity prices and fixed income asset prices compared with the end of the second quarter of 2020 and provided a more favorable backdrop for asset management activities and investments. If the

COVID-19

pandemic persists, asset prices may decline, credit spreads may widen, and investors may continue to transition to asset classes that typically generate lower fees or investors may continue to withdraw their assets. As a result, net revenues in Asset Management would likely be negatively impacted.

Three Months Ended September 2020 versus September 2019.

Net revenues in Asset Management were $2.77 billion for the third quarter of 2020, 71% higher than the third quarter of 2019, reflecting significantly higher net revenues in Equity investments and Lending and debt investments, and higher Management and other fees from our institutional and third-party distribution asset management clients. Incentive fees were essentially unchanged.

The increase in Equity investments net revenues reflected net gains from investments in public equities in the third quarter of 2020 compared with net losses in the third quarter of 2019. This increase was partially offset by significantly lower net gains from investments in private equities. Net gains from investments in private equities for the third quarter of 2020 were primarily driven by company-specific events, such as fundraisings, capital markets activities and sales.

The increase in Lending and debt investments net revenues was due to significantly higher net gains, reflecting tighter corporate credit spreads during the quarter. Lending and debt investments net revenues included approximately $275 million of net interest income for the third quarter of 2020. The increase in Management and other fees reflected the impact of higher average AUS, partially offset by a lower average effective management fee due to shifts in the mix of client assets and strategies.

Provision for credit losses was $70 million for the third quarter of 2020, 14% lower than the third quarter of 2019.

Operating expenses were $1.36 billion for the third quarter of 2020, 15% higher than the third quarter of 2019, primarily due to higher compensation and benefits expenses (reflecting significantly higher net revenues).

Pre-tax

earnings were $1.34 billion for the third quarter of 2020, compared with $364 million for the third quarter of 2019.

Nine Months Ended September 2020 versus September 2019.

Net revenues in Asset Management were $4.77 billion for the first nine months of 2020, 20% lower than the first nine months of 2019, reflecting significantly lower net revenues in both Lending and debt investments and Equity investments, partially offset by significantly higher Incentive fees and higher Management and other fees from our institutional and third-party distribution asset management clients.

The decrease in Lending and debt investments net revenues reflected net losses across debt investments for the first nine months of 2020, primarily within our multi-strategy investing portfolio. Lending and debt investments net revenues included approximately $725 million of net interest income for the first nine months of 2020.

115 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

The decrease in Equity investments net revenues reflected significantly lower net gains from investments in private equities, partially offset by significantly higher net gains from investments in public equities. Net gains from investments in private equities for the first nine months of 2020 were primarily driven by company-specific events, largely from sales.

The increase in Incentive fees was driven by harvesting and the increase in Management and other fees reflected the impact of higher average AUS, partially offset by a lower average effective management fee due to shifts in the mix of client assets and strategies.

Provision for credit losses was $420 million for the first nine months of 2020, compared with $154 million for the first nine months of 2019. This increase reflected forecasts of expected deterioration in the broader economic environment (incorporating the accounting for credit losses under the CECL standard) reflecting the impact of the

COVID-19

pandemic and higher impairments related to the private credit and real estate portfolios. See Note 3 to the consolidated financial statements for further information about ASU

No. 2016-13.

Operating expenses were $3.89 billion for the first nine months of 2020, 10% higher than the first nine months of 2019, primarily due to higher compensation and benefits expenses and significantly higher expenses related to consolidated investments, including impairments. Pre-tax earnings were $465 million for the first nine months of 2020, 80% lower than the first nine months of 2019. 

Consumer & Wealth Management

Consumer & Wealth Management helps clients achieve their individual financial goals by providing a broad range of wealth advisory and banking services, including financial planning, investment management, deposit taking, and lending. Services are offered through our global network of advisors and via our digital platforms.

Wealth Management.

Wealth management provides tailored wealth advisory services to clients across the wealth spectrum. We operate globally serving individuals, families, family offices, and select foundations and endowments. Our relationships are established directly or introduced through corporations that sponsor financial wellness programs for their employees.

We offer personalized financial planning inclusive of income and liability management, compensation and benefits analysis, trust and estate structuring, tax optimization, philanthropic giving, and asset protection. We also provide customized investment advisory solutions, and offer structuring and execution capabilities in security and derivative products across all major global markets. We leverage a broad, open-architecture investment platform and our global execution capabilities to help clients achieve their investment goals. In addition, we offer clients a full range of private banking services, including a variety of deposit alternatives and loans that our clients use to finance investments in both financial and nonfinancial assets, bridge cash flow timing gaps or provide liquidity and flexibility for other needs.

Wealth management generates revenues from the following:

• Management and other fees. Includes fees related to managing assets, providing investing and wealth advisory solutions, providing financial planning and counseling services via our subsidiary, The Ayco Company, L.P., and executing brokerage transactions for wealth management clients.

• Incentive fees. In certain circumstances, we also receive incentive fees based on a percentage of a fund’s return, or when the return exceeds a specified benchmark or other performance targets. Such fees include overrides, which consist of the increased share of the income and gains derived primarily from our private equity and credit funds when the return on a fund’s investments over the life of the fund exceeds certain threshold returns. Incentive fees are recognized when it is probable that a significant reversal of such fees will not occur.

• Private banking and lending. Includes net interest income allocated to deposit-taking and net interest income earned on lending activities for wealth management clients.

Consumer Banking.

Our Consumer banking business issues unsecured loans, through

Marcus by Goldman Sachs

(Marcus) and credit cards to finance the purchases of goods or services. We also accept deposits through Marcus, primarily through Goldman Sachs Bank USA (GS Bank USA) and Goldman Sachs International Bank (GSIB), that are used as a source of funding. These deposits include savings and time deposits which provide us with a diversified source of funding that reduces our reliance on wholesale funding.

Consumer banking revenues consist of net interest income earned on unsecured loans issued to consumers through Marcus and credit card lending activities, and net interest income allocated to consumer deposits.

Goldman Sachs September 2020 Form 10-Q 116

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

The table below presents our Consumer & Wealth Management assets.

	As of
$ in millions		September 2020	December 2019
Cash and cash equivalents		$  25,321	$18,670
Collateralized agreements		13,649	8,675
Customer and other receivables		6,172	6,173
Trading assets		16,528	13,087
Investments		43	50
Loans		35,700	34,127
Other assets		3,185	3,015
Total		$100,598	$83,797

The table below presents our Consumer & Wealth Management operating results.

	Three Months Ended September			Nine Months Ended September
$ in millions		2020	2019		2020	2019
Management and other fees		$  957	$   881		$2,854	$2,508
Incentive fees		7	21		86	62
Private banking and lending		201	199		538	589
Wealth management		1,165	1,101		3,478	3,159
Consumer banking		326	217		866	636
Net revenues		1,491	1,318		4,344	3,795
Provision for credit losses		52	103		537	302
Operating expenses		1,237	1,091		3,680	3,237
Pre-tax earnings		202	124		127	256
Provision for taxes		66	27		36	53
Net earnings		136	97		91	203
Preferred stock dividends		10	4		29	20
Net earnings to common		$  126	$     93		$    62	$   183
Average common equity		$8,519	$6,213		$7,715	$6,027
Return on average common equity		5.9%	6.0%		1.1%	4.0%

Operating Environment.

During the third quarter of 2020, continued improvements in the broader economic environment from the earlier impact of the

COVID-19

pandemic positively impacted financial markets, which along with improving sentiment on the pace of the economic recovery, contributed to generally higher global equity prices and fixed income asset prices compared with the end of the second quarter of 2020. Additionally, economic indicators, such as retail spending and the unemployment rate in the U.S., continued to generally improve during the quarter. If the

COVID-19

pandemic persists, asset prices may decline, investors may continue to favor asset classes that typically generate lower fees, investors may withdraw their assets and consumers may withdraw their deposits or consumer credit may deteriorate. As a result, net revenues and the provision for credit losses in Consumer & Wealth Management would likely be negatively impacted.

Three Months Ended September 2020 versus September 2019.

Net revenues in Consumer & Wealth Management were $1.49 billion for the third quarter of 2020, 13% higher than the third quarter of 2019.

Net revenues in Wealth management were $1.17 billion, 6% higher than the third quarter of 2019, due to higher Management and other fees, primarily reflecting the impact of higher average AUS and higher transaction volumes, partially offset by a lower average effective management fee due to shifts in the mix of client assets and strategies. Incentive fees were lower, while net revenues in Private banking and lending were essentially unchanged.

Net revenues in Consumer banking were $326 million, 50% higher than the third quarter of 2019, primarily reflecting higher credit card loan balances.

Provision for credit losses was $52 million for the third quarter of 2020, 50% lower than the third quarter of 2019, reflecting reserve reductions from paydowns on consumer installment loans, partially offset by growth in credit card loans.

Operating expenses were $1.24 billion for the third quarter of 2020, 13% higher than the third quarter of 2019, primarily due to higher compensation and benefits expenses (reflecting higher net revenues).

Pre-tax

earnings were $202 million for the third quarter of 2020, 63% higher than the third quarter of 2019.

Nine Months Ended September 2020 versus September 2019.

Net revenues in Consumer & Wealth Management were $4.34 billion for the first nine months of 2020, 14% higher than the first nine months of 2019.

Net revenues in Wealth management were $3.48 billion, 10% higher than the first nine months of 2019, due to higher Management and other fees, primarily reflecting the impact of higher average AUS, the impact of the consolidation of GS Personal Financial Management and higher transaction volumes, partially offset by a lower average effective management fee due to shifts in the mix of client assets and strategies. Incentive fees were also higher, while net revenues in Private banking and lending were lower, primarily reflecting lower interest rates.

Net revenues in Consumer banking were $866 million, 36% higher than the first nine months of 2019, due to higher credit card loan and deposit balances.

Provision for credit losses was $537 million for the first nine months of 2020, 78% higher than the first nine months of 2019, primarily reflecting growth in credit card loans.

Operating expenses were $3.68 billion for the first nine months of 2020, 14% higher than the first nine months of 2019, primarily due to higher expenses related to the impact of the consolidation of GS Personal Financial Management and our credit card activities.

Pre-tax

earnings were $127 million for the first nine months of 2020, 50% lower than the first nine months of 2019.

117 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Assets Under Supervision

AUS includes our institutional clients’ assets and assets sourced through third-party distributors (both included in our Asset Management segment), as well as

high-net-worth

clients’ assets (included in our Consumer & Wealth Management segment), where we earn a fee for managing assets on a discretionary basis. This includes net assets in our mutual funds, hedge funds, credit funds, private equity funds, real estate funds, and separately managed accounts for institutional and individual investors. AUS also includes client assets invested with third-party managers, private bank deposits and advisory relationships where we earn a fee for advisory and other services, but do not have investment discretion. AUS does not include the self-directed brokerage assets of our clients.

The table below presents information about our firmwide

period-end

AUS by segment, asset class, distribution channel, region and vehicle.

	As of September
$ in billions		2020	2019
Segment
Asset Management		$1,461	$1,232
Consumer & Wealth Management		575	530
Total AUS		$2,036	$1,762
Asset Class
Alternative investments		$  182	$   182
Equity		421	392
Fixed income		856	784
Total long-term AUS		1,459	1,358
Liquidity products		577	404
Total AUS		$2,036	$1,762
Distribution Channel
Institutional		$  725	$   679
Wealth management		575	530
Third-party distributed		736	553
Total AUS		$2,036	$1,762
Region
Americas		$1,563	$1,331
EMEA		305	263
Asia		168	168
Total AUS		$2,036	$1,762
Vehicle
Separate accounts		$1,120	$1,044
Public funds		673	540
Private funds and other		243	178
Total AUS		$2,036	$1,762

In the table above:

• Liquidity products includes money market funds and private bank deposits.

• EMEA represents Europe, Middle East and Africa.

Asset classes, such as alternative investment and equity assets, typically generate higher fees relative to fixed income and liquidity product assets. The average effective management fee (which excludes

non-asset-based

fees) we earned on our firmwide AUS was 29 basis points for both the three and nine months ended September 2020 and 32 basis points for both the three and nine months ended September 2019. This decrease primarily reflected shifts in the mix of client assets and strategies.

We earn management fees on client assets that we manage and also receive incentive fees based on a percentage of a fund’s or a separately managed account’s return, or when the return exceeds a specified benchmark or other performance targets. These incentive fees are recognized when it is probable that a significant reversal of such fees will not occur. Our estimated unrecognized incentive fees were $1.41 billion as of September 2020 and $1.63 billion as of December 2019. Such amounts are based on the completion of the funds’ financial statements, which is generally one quarter in arrears. These fees will be recognized, assuming no decline in fair value, if and when it is probable that a significant reversal of such fees will not occur, which is generally when such fees are no longer subject to fluctuations in the market value of the assets of the funds.

The table below presents changes in our AUS.

	Three Months Ended September					Nine Months Ended September
$ in billions		2020		2019			2020		2019
Asset Management
Beginning balance		$1,499		$1,171			$1,298		$1,087
Net inflows/(outflows):
Alternative investments		(3	)	(1	)		(6	)	3
Equity		(5	)	26			–		33
Fixed income		22		11			35		39
Total long-term AUS net inflows/(outflows)		14		36			29		75
Liquidity products		(86	)	12			101		2
Total AUS net inflows/(outflows)		(72	)	48			130		77
Net market appreciation/(depreciation)		34		13			33		68
Ending balance		$1,461		$1,232			$1,461		$1,232
Consumer & Wealth Management
Beginning balance		$  558		$   489			$  561		$   455
Net inflows/(outflows):
Alternative investments		2		9			2		7
Equity		–		15			–		11
Fixed income		2		9			(6	)	13
Total long-term AUS net inflows/(outflows)		4		33			(4	)	31
Liquidity products		(4	)	5			14		5
Total AUS net inflows/(outflows)		–		38			10		36
Net market appreciation/(depreciation)		17		3			4		39
Ending balance		$  575		$   530			$  575		$   530
Firmwide
Beginning balance		$2,057		$1,660			$1,859		$1,542
Net inflows/(outflows):
Alternative investments		(1	)	8			(4	)	10
Equity		(5	)	41			–		44
Fixed income		24		20			29		52
Total long-term AUS net inflows/(outflows)		18		69			25		106
Liquidity products		(90	)	17			115		7
Total AUS net inflows/(outflows)		(72	)	86			140		113
Net market appreciation/(depreciation)		51		16			37		107
Ending balance		$2,036		$1,762			$2,036		$1,762

Goldman Sachs September 2020 Form 10-Q 118

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

In the table above:

• Total AUS net inflows/(outflows) for the three and nine months ended September 2019 included $58 billion of inflows (substantially all in equity and fixed income assets) in connection with the acquisitions of Standard & Poor’s Investment Advisory Services (SPIAS) and GS Personal Financial Management. SPIAS was included in the Asset Management segment and GS Personal Financial Management was included in the Consumer & Wealth Management segment.

• Total AUS net inflows/(outflows) for the nine months ended September 2019 included $13 billion of inflows (substantially all in equity and fixed income assets) in connection with the acquisition of Rocaton Investment Advisors, which was included in the Asset Management segment.

The table below presents information about our average monthly firmwide AUS by segment and asset class.

	Average for the
	Three Months Ended September			Nine Months Ended September
$ in billions		2020	2019		2020	2019
Segment
Asset Management		$1,512	$1,214		$1,412	$1,155
Consumer & Wealth Management		571	514		555	491
Total AUS		$2,083	$1,728		$1,967	$1,646
Asset Class
Alternative investments		$  181	$   177		$  182	$   173
Equity		418	380		398	350
Fixed income		844	771		815	734
Total long-term AUS		1,443	1,328		1,395	1,257
Liquidity products		640	400		572	389
Total AUS		$2,083	$1,728		$1,967	$1,646

In addition to our AUS, we have discretion over alternative investments where we currently do not earn management fees

(non-fee-earning

alternative assets).

The table below presents information about our AUS for alternative assets,

non-fee-earning

alternative assets and total alternative assets.

$ in billions	AUS	Non-fee-earning alternative assets	Total alternative assets
As of September 2020
Corporate equity	$  79	$  42	$121
Credit	18	61	79
Real estate	16	44	60
Hedge funds and multi-asset	69	1	70
Other	–	1	1
Total	$182	$149	$331
As of September 2019
Corporate equity	$  80	$  37	$117
Credit	13	48	61
Real estate	12	44	56
Hedge funds and multi-asset	77	1	78
Other	–	1	1
Total	$182	$131	$313

In the table above:

• Substantially all corporate equity is private equity.

• Total alternative assets included uncalled capital that is available for future investing of $37 billion as of September 2020 and $30 billion as of September 2019.

• Non-fee-earning alternative assets primarily includes investments that we hold on our balance sheet, our unfunded commitments, unfunded commitments of our clients (where we do not charge fees on commitments), credit facilities collateralized by fund assets and employee funds. Our calculation of non-fee-earning alternative assets may not be comparable to similar calculations used by other companies.

The table below presents information about alternative investments in our Asset Management segment that we hold on our balance sheet.

$ in billions	Loans	Debt securities	Equity securities	CIE investments and other	Total
As of September 2020
Corporate equity	$  –	$  –	$16	$  –	$16
Credit	8	11	–	–	19
Real estate	9	2	3	20	34
Other	–	–	–	1	1
Total	$17	$13	$19	$21	$70
As of September 2019
Corporate equity	$  –	$  –	$18	$  –	$18
Credit	7	10	–	–	17
Real estate	9	3	4	17	33
Other	–	–	–	1	1
Total	$16	$13	$22	$18	$69

Loans and Debt Securities.

The table below presents the concentration of loans and debt securities within our alternative investments by accounting classification, region and industry.

$ in billions	As of September 2020
Loans	$17
Debt securities	13
Total	$30
Accounting Classification
Debt securities at fair value	43%
Loans at amortized cost	44%
Loans at fair value	13%
Total	100%
Region
Americas	46%
EMEA	33%
Asia	21%
Total	100%
Industry
Consumers	4%
Financial Institutions	8%
Healthcare	8%
Industrials	16%
Natural Resources & Utilities	4%
Real Estate	35%
Technology, Media & Telecommunications	13%
Other	12%
Total	100%

119 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Equity.

The table below presents the concentration of equity securities within our alternative investments by vintage, region and industry.

$ in billions	As of September 2020
Equity securities	$19
Vintage
2013 or earlier	32%
2014 - 2016	35%
2017 - thereafter	33%
Total	100%
Region
Americas	52%
EMEA	16%
Asia	32%
Total	100%
Industry
Financial Institutions	23%
Healthcare	8%
Industrials	5%
Natural Resources & Utilities	7%
Real Estate	18%
Technology, Media & Telecommunications	33%
Other	6%
Total	100%

In the table above:

• Equity securities included $16 billion of private equity positions and $3 billion of public equity positions that converted from private equity upon the initial public offering of the underlying company.

• Real estate equity securities consisted of 2% of multifamily, 3% of office, 6% of mixed use and 7% of other real estate equity securities.

CIE Investments and Other.

CIE investments and other included assets held by CIEs of $21 billion, which were funded with liabilities of approximately $12 billion as of September 2020. Substantially all such liabilities were nonrecourse, thereby reducing our equity at risk.

The table below presents the concentration of CIE assets, net of financings, within our alternative investments by region and asset class.

$ in billions	As of September 2020
CIE assets, net of financings	$9
Region
Americas	62%
EMEA	21%
Asia	17%
Total	100%
Asset Class
Hospitality	4%
Industrials	8%
Multifamily	24%
Office	30%
Retail	6%
Senior Housing	12%
Student Housing	7%
Other	9%
Total	100%

Geographic Data

See Note 25 to the consolidated financial statements for a summary of our total net revenues and

pre-tax

earnings by geographic region.

Goldman Sachs September 2020 Form 10-Q 120

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Balance Sheet and Funding Sources

Balance Sheet Management

One of our risk management disciplines is our ability to manage the size and composition of our balance sheet. While our asset base changes due to client activity, market fluctuations and business opportunities, the size and composition of our balance sheet also reflects factors, including (i) our overall risk tolerance, (ii) the amount of equity capital we hold and (iii) our funding profile, among other factors. See “Equity Capital Management and Regulatory Capital — Equity Capital Management” for information about our equity capital management process.

Although our balance sheet fluctuates on a

day-to-day

basis, our total assets at

quarter-end

and

year-end

dates are generally not materially different from those occurring within our reporting periods.

In order to ensure appropriate risk management, we seek to maintain a sufficiently liquid balance sheet and have processes in place to dynamically manage our assets and liabilities, which include (i) balance sheet planning, (ii) balance sheet limits, (iii) monitoring of key metrics and (iv) scenario analyses.

Balance Sheet Planning.

We prepare a balance sheet plan that combines our projected total assets and composition of assets with our expected funding sources over a three-year time horizon. This plan is reviewed quarterly and may be adjusted in response to changing business needs or market conditions. The objectives of this planning process are:

• To develop our balance sheet projections, taking into account the general state of the financial markets and expected business activity levels, as well as regulatory requirements;

• To allow Treasury and our independent risk oversight and control functions to objectively evaluate balance sheet limit requests from our revenue-producing units in the context of our overall balance sheet constraints, including our liability profile and equity capital levels, and key metrics; and

• To inform the target amount, tenor and type of funding to raise, based on our projected assets and contractual maturities.

Treasury and our independent risk oversight and control functions, along with our revenue-producing units, review current and prior period information and expectations for the year to prepare our balance sheet plan. The specific information reviewed includes asset and liability size and composition, limit utilization, risk and performance measures, and capital usage.

Our consolidated balance sheet plan, including our balance sheets by business, funding projections and projected key metrics, is reviewed and approved by the Firmwide Asset Liability Committee and the Risk Governance Committee. See “Risk Management — Overview and Structure of Risk Management” for an overview of our risk management structure.

Balance Sheet Limits.

The Firmwide Asset Liability Committee and the Risk Governance Committee have the responsibility to review and approve balance sheet limits. These limits are set at levels which are close to actual operating levels, rather than at levels which reflect our maximum risk appetite, in order to ensure prompt escalation and discussion among our revenue-producing units, Treasury and our independent risk oversight and control functions on a routine basis. Requests for changes in limits are evaluated after giving consideration to their impact on our key metrics. Compliance with limits is monitored by our revenue-producing units and Treasury, as well as our independent risk oversight and control functions.

Monitoring of Key Metrics.

We monitor key balance sheet metrics both by business and on a consolidated basis, including asset and liability size and composition, limit utilization and risk measures. We allocate assets to businesses and review and analyze movements resulting from new business activity, as well as market fluctuations.

Scenario Analyses.

We conduct various scenario analyses, including as part of the Comprehensive Capital Analysis and Review (CCAR) and U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act Stress Tests (DFAST), as well as our resolution and recovery planning. See “Equity Capital Management and Regulatory Capital — Equity Capital Management” for further information about these scenario analyses. These scenarios cover short- and long-term time horizons using various macroeconomic and firm-specific assumptions, based on a range of economic scenarios. We use these analyses to assist us in developing our longer-term balance sheet management strategy, including the level and composition of assets, funding and equity capital. Additionally, these analyses help us develop approaches for maintaining appropriate funding, liquidity and capital across a variety of situations, including a severely stressed environment.

121 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Balance Sheet Analysis and Metrics

As of September 2020, total assets in our consolidated balance sheets were $1.13 trillion, an increase of $139.09 billion from December 2019, primarily reflecting increases in trading assets of $53.07 billion (primarily reflecting the impact of interest rate movements on derivative instruments and increases in our and our clients’ activities in government and agency obligations), customer and other receivables of $36.58 billion (primarily reflecting higher client activity), cash and cash equivalents of $19.66 billion (primarily reflecting our activities), and investments of $16.86 billion (primarily reflecting an increase in U.S. government obligations accounted for as

available-for-sale).

As of September 2020, total liabilities in our consolidated balance sheets were $1.04 trillion, an increase of $136.71 billion from December 2019, primarily reflecting increases in deposits of $71.22 billion (primarily reflecting increases in consumer, transaction banking and private bank deposits), trading liabilities of $53.31 billion (primarily reflecting higher client activity in equities and government obligations and the impact of interest rate movements on derivative instruments), customer and other payables of $12.54 billion (primarily reflecting higher client activity), partially offset by a decrease in collateralized financings of $8.47 billion (primarily reflecting the impact of our and our clients’ activities).

Our total repurchase agreements, accounted for as collateralized financings, were $101.28 billion as of September 2020 and $117.76 billion as of December 2019, which were 15% higher as of September 2020 and 32% higher as of December 2019 than the average daily amount of repurchase agreements over the respective quarters. As of September 2020, the increase in our repurchase agreements relative to the average daily amount of repurchase agreements during the quarter resulted from higher levels of our activity and our clients’ activity at the end of the period.

The level of our repurchase agreements fluctuates between and within periods, primarily due to providing clients with access to highly liquid collateral, such as liquid government and agency obligations, through collateralized financing activities.

The table below presents information about our balance sheet and leverage ratios.

	As of
$ in millions		September 2020	December 2019
Total assets		$1,132,059	$992,968
Unsecured long-term borrowings		$  213,936	$207,076
Total shareholders’ equity		$    92,650	$  90,265
Leverage ratio		12.2x	11.0x
Debt-to-equity ratio		2.3x	2.3x

In the table above:

• The leverage ratio equals total assets divided by total shareholders’ equity and measures the proportion of equity and debt we use to finance assets. This ratio is different from the leverage ratios included in Note 20 to the consolidated financial statements.

• The debt-to-equity ratio equals unsecured long-term borrowings divided by total shareholders’ equity.

The table below presents information about our shareholders’ equity and book value per common share, including the reconciliation of common shareholders’ equity to tangible common shareholders’ equity.

	As of
$ in millions, except per share amounts		September 2020		December 2019
Total shareholders’ equity		$ 92,650		$ 90,265
Preferred stock		(11,203	)	(11,203	)
Common shareholders’ equity		81,447		79,062
Goodwill and identifiable intangible assets		(4,965	)	(4,837	)
Tangible common shareholders’ equity		$ 76,482		$ 74,225
Book value per common share		$ 228.78		$ 218.52
Tangible book value per common share		$ 214.84		$ 205.15

In the table above:

• Tangible common shareholders’ equity is calculated as total shareholders’ equity less preferred stock, goodwill and identifiable intangible assets. We believe that tangible common shareholders’ equity is meaningful because it is a measure that we and investors use to assess capital adequacy. Tangible common shareholders’ equity is a non-GAAP measure and may not be comparable to similar non-GAAP measures used by other companies.

• Book value per common share and tangible book value per common share are based on common shares outstanding and restricted stock units granted to employees with no future service requirements and not subject to performance conditions (collectively, basic shares) of 356.0 million as of September 2020 and 361.8 million as of December 2019. We believe that tangible book value per common share (tangible common shareholders’ equity divided by basic shares) is meaningful because it is a measure that we and investors use to assess capital adequacy. Tangible book value per common share is a non-GAAP measure and may not be comparable to similar non-GAAP measures used by other companies.

Goldman Sachs September 2020 Form 10-Q 122

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Funding Sources

Our primary sources of funding are deposits, collateralized financings, unsecured short- and long-term borrowings, and shareholders’ equity. We seek to maintain broad and diversified funding sources globally across products, programs, markets, currencies and creditors to avoid funding concentrations.

The table below presents information about our funding sources.

	As of
$ in millions		September 2020		December 2019
Deposits		$261,234	35%	$190,019	28%
Collateralized financings		143,548	19%	152,018	22%
Unsecured short-term borrowings		48,028	6%	48,287	7%
Unsecured long-term borrowings		213,936	28%	207,076	30%
Total shareholders’ equity		92,650	12%	90,265	13%
Total		$759,396	100%	$687,665	100%

Our funding is primarily raised in U.S. dollar, Euro, British pound and Japanese yen. We generally distribute our funding products through our own sales force and third-party distributors to a large, diverse creditor base in a variety of markets in the Americas, Europe and Asia. We believe that our relationships with our creditors are critical to our liquidity. Our creditors include banks, governments, securities lenders, corporations, pension funds, insurance companies, mutual funds and individuals. We have imposed various internal guidelines to monitor creditor concentration across our funding programs.

Deposits.

Our deposits provide us with a diversified source of funding and reduce our reliance on wholesale funding. We raise deposits, including savings, demand and time deposits, from private bank clients, consumers, transaction banking clients, other institutional clients, and through internal and third-party broker-dealers. Our deposits are primarily raised through GS Bank USA and GSIB. See Note 13 to the consolidated financial statements for further information about our deposits.

Secured Funding.

We fund a significant amount of inventory and a portion of investments on a secured basis. Secured funding includes collateralized financings in the consolidated balance sheets. We may also pledge our inventory and investments as collateral for securities borrowed under a securities lending agreement. We also use our own inventory and investments to cover transactions in which we or our clients have sold securities that have not yet been purchased. Secured funding is less sensitive to changes in our credit quality than unsecured funding, due to our posting of collateral to our lenders. Nonetheless, we analyze the refinancing risk of our secured funding activities, taking into account trade tenors, maturity profiles, counterparty concentrations, collateral eligibility and counterparty rollover probabilities. We seek to mitigate our refinancing risk by executing term trades with staggered maturities, diversifying counterparties, raising excess secured funding and

pre-funding

residual risk through our GCLA.

We seek to raise secured funding with a term appropriate for the liquidity of the assets that are being financed, and we seek longer maturities for secured funding collateralized by asset classes that may be harder to fund on a secured basis, especially during times of market stress. Our secured funding, excluding funding collateralized by liquid government and agency obligations, is primarily executed for tenors of one month or greater and is primarily executed through term repurchase agreements and securities loaned contracts.

The weighted average maturity of our secured funding included in collateralized financings in the consolidated balance sheets, excluding funding that can only be collateralized by liquid government and agency obligations,exceeded 120 days as of September 2020.

Assets that may be harder to fund on a secured basis during times of market stress include certain financial instruments in the following categories: mortgage and other asset-backed loans and securities,

non-investment-grade

corporate debt securities, equity securities and emerging market securities. Assets that are classified in level 3 of the fair value hierarchy are generally funded on an unsecured basis. See Notes 4 through 10 to the consolidated financial statements for further information about the classification of financial instruments in the fair value hierarchy and “Unsecured Long-Term Borrowings” below for further information about the use of unsecured long-term borrowings as a source of funding.

We also raise financing through other types of collateralized financings, such as secured loans and notes. GS Bank USA has access to funding from the Federal Home Loan Bank. Our outstanding borrowings against the Federal Home Loan Bank were $501 million as of September 2020 and $527 million as of December 2019. Additionally, we have access to funding through the Federal Reserve discount window. However, we do not rely on this funding in our liquidity planning and stress testing.

Unsecured Short-Term Borrowings.

A significant portion of our unsecured short-term borrowings was originally long-term debt that is scheduled to mature within one year of the reporting date. We use unsecured short-term borrowings, including U.S. and

non-U.S.

hybrid financial instruments, to finance liquid assets and for other cash management purposes. In light of regulatory developments, Group Inc. no longer issues debt with an original maturity of less than one year, other than to its subsidiaries. See Note 14 to the consolidated financial statements for further information about our unsecured short-term borrowings.

123 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Unsecured Long-Term Borrowings.

Unsecured long-term borrowings, including structured notes, are raised through syndicated U.S. registered offerings, U.S. registered and Rule 144A medium-term note programs, offshore medium-term note offerings and other debt offerings. We issue in different tenors, currencies and products to maximize the diversification of our investor base.

The table below presents our quarterly unsecured long-term borrowings maturity profile.

$ in millions	First Quarter	Second Quarter	Third Quarter	Fourth Quarter	Total
As of September 2020
2021	$         –	$       –	$       –	$9,062	$    9,062
2022	$  7,004	$6,406	$6,858	$6,244	26,512
2023	$10,293	$6,647	$8,398	$4,408	29,746
2024	$  6,409	$4,201	$6,039	$3,078	19,727
2025	$  7,231	$8,861	$5,849	$4,492	26,433
2026 - thereafter					102,456
Total					$213,936

The weighted average maturity of our unsecured long-term borrowings as of September 2020 was approximately seven years. To mitigate refinancing risk, we seek to limit the principal amount of debt maturing over the course of any monthly, quarterly or annual time horizon. We enter into interest rate swaps to convert a portion of our unsecured long-term borrowings into floating-rate obligations to manage our exposure to interest rates. See Note 14 to the consolidated financial statements for further information about our unsecured long-term borrowings.

Shareholders’ Equity.

Shareholders’ equity is a stable and perpetual source of funding. See Note 19 to the consolidated financial statements for further information about our shareholders’ equity.

Equity Capital Management and Regulatory Capital

Capital adequacy is of critical importance to us. We have in place a comprehensive capital management policy that provides a framework, defines objectives and establishes guidelines to assist us in maintaining the appropriate level and composition of capital in both

business-as-usual

and stressed conditions.

Equity Capital Management

We determine the appropriate amount and composition of our equity capital by considering multiple factors, including our current and future regulatory capital requirements, the results of our capital planning and stress testing process, the results of resolution capital models and other factors, such as rating agency guidelines, subsidiary capital requirements, the business environment and conditions in the financial markets.

We manage our capital requirements and the levels of our capital usage principally by setting limits on the balance sheet and/or limits on risk, in each case at both the firmwide and business levels.

We principally manage the level and composition of our equity capital through issuances and repurchases of our common stock.

We may issue, redeem or repurchase our preferred stock, junior subordinated debt issued to trusts, and other subordinated debt or other forms of capital as business conditions warrant. Prior to such redemptions or repurchases, we must receive approval from the Board of Governors of the Federal Reserve System (FRB). See Notes 14 and 19 to the consolidated financial statements for further information about our preferred stock, junior subordinated debt issued to trusts and other subordinated debt.

Capital Planning and Stress Testing Process.

As part of capital planning, we project sources and uses of capital given a range of business environments, including stressed conditions. Our stress testing process is designed to identify and measure material risks associated with our business activities, including market risk, credit risk and operational risk, as well as our ability to generate revenues.

Goldman Sachs September 2020 Form 10-Q 124

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Our capital planning process incorporates an internal capital adequacy assessment with the objective of ensuring that we are appropriately capitalized relative to the risks in our businesses. We incorporate stress scenarios into our capital planning process with a goal of holding sufficient capital to ensure we remain adequately capitalized after experiencing a severe stress event. Our assessment of capital adequacy is viewed in tandem with our assessment of liquidity adequacy and is integrated into our overall risk management structure, governance and policy framework.

Our stress tests incorporate our internally designed stress scenarios, including our internally developed severely adverse scenario, and those required under CCAR and DFAST, and are designed to capture our specific vulnerabilities and risks. We provide further information about our stress test processes and a summary of the results on our website as described in “Available Information.”

As required by the FRB’s CCAR rules, we submit an annual capital plan for review by the FRB. The purpose of the FRB’s review is to ensure that we have a robust, forward-looking capital planning process that accounts for our unique risks and that permits continued operation during times of economic and financial stress. We submitted our 2020 CCAR capital plan in April 2020 and published a summary of our annual DFAST results in June 2020. See “Available Information.”

The FRB evaluates us based, in part, on whether we have the capital necessary to continue operating under the baseline and severely adverse scenarios provided by the FRB and those developed internally. This evaluation also takes into account our process for identifying risk, our controls and governance for capital planning, and our guidelines for making capital planning decisions. In addition, the FRB evaluates our plan to make capital distributions (i.e., dividend payments and repurchases or redemptions of stock, subordinated debt or other capital securities) and issue capital, across the range of macroeconomic scenarios and firm-specific assumptions. The FRB determines the stressed capital buffer (SCB) applicable to us based on its own annual stress test. The SCB under the Standardized approach is calculated as (i) the difference between our starting and minimum projected CET1 capital ratios under the supervisory severely adverse scenario and (ii) our planned common stock dividends for each of the fourth through seventh quarters of the planning horizon, expressed as a percentage of risk-weighted assets (RWAs).

With respect to our 2020 CCAR submission, the FRB notified us that our SCB beginning on October 1, 2020 is 6.6%, bringing our Standardized CET1 capital ratio requirement to 13.6%. In light of the impact of the

COVID-19

pandemic on the economy, the FRB required all large bank holding companies (BHCs) to suspend stock repurchases through the fourth quarter of 2020 and not to increase common stock dividends or pay common stock dividends in excess of their average net income over the past four quarters. The FRB is also requiring large BHCs to resubmit their capital plans in November 2020 under the updated baseline and severely adverse scenarios, and a new alternative severe scenario. The FRB will use this submission to conduct a second round of stress tests to further evaluate the resiliency of BHCs. The FRB will release firm-specific results by the end of the year. We plan to maintain both common and preferred dividends, while complying with the SCB rule. In addition, we will continue deploying capital to our businesses where returns are accretive and otherwise return it to our shareholders as permitted by the FRB.

GS Bank USA has its own capital planning process, but was not required to conduct its annual stress test in 2020. Based on growth in GS Bank USA’s average balance sheet, it will be subject to this requirement beginning in 2022. Goldman Sachs International (GSI) and GSIB also have their own capital planning and stress testing process, which incorporates internally designed stress tests developed in accordance with the guidelines of the Prudential Regulation Authority (PRA).

Contingency Capital Plan.

As part of our comprehensive capital management policy, we maintain a contingency capital plan. Our contingency capital plan provides a framework for analyzing and responding to a perceived or actual capital deficiency, including, but not limited to, identification of drivers of a capital deficiency, as well as mitigants and potential actions. It outlines the appropriate communication procedures to follow during a crisis period, including internal dissemination of information, as well as timely communication with external stakeholders.

Capital Attribution.

We assess each of our businesses’ capital usage based on our internal assessment of risks, which incorporates an attribution of all of our relevant regulatory capital requirements. These regulatory capital requirements are allocated using our attributed equity framework, which takes into consideration our most binding capital constraints. Our most binding capital constraint is based on the results of the FRB’s annual stress test scenarios which include the Standardized risk-based capital and leverage ratios. See “Segment Assets and Operating Results — Segment Operating Results” for information about our attributed equity by segment.

125 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Share Repurchase Program.

We use our share repurchase program to help maintain the appropriate level of common equity. The repurchase program is effected primarily through regular open-market purchases (which may include repurchase plans designed to comply with

Rule 10b5-1

and accelerated share repurchases), the amounts and timing of which are determined primarily by our current and projected capital position and our capital plan submitted to the FRB as part of CCAR. The amounts and timing of the repurchases may also be influenced by general market conditions and the prevailing price and trading volumes of our common stock.

As of September 2020, the remaining share authorization under our existing repurchase program was 49.7 million shares. See “Unregistered Sales of Equity Securities and Use of Proceeds” in Part II, Item 2 of this

Form 10-Q

and Note 19 to the consolidated financial statements for further information about our share repurchase program, and see above for information about our capital planning and stress testing process.

Resolution Capital Models.

In connection with our resolution planning efforts, we have established a Resolution Capital Adequacy and Positioning framework, which is designed to ensure that our major subsidiaries (GS Bank USA, Goldman Sachs & Co. LLC (GS&Co.), GSI, GSIB, Goldman Sachs Japan Co., Ltd. (GSJCL), Goldman Sachs Asset Management, L.P. and Goldman Sachs Asset Management International) have access to sufficient loss-absorbing capacity (in the form of equity, subordinated debt and unsecured senior debt) so that they are able to wind-down following a Group Inc. bankruptcy filing in accordance with our preferred resolution strategy.

In addition, we have established a triggers and alerts framework, which is designed to provide the Board of Directors of Group Inc. (Board) with information needed to make an informed decision on whether and when to commence bankruptcy proceedings for Group Inc.

Rating Agency Guidelines

The credit rating agencies assign credit ratings to the obligations of Group Inc., which directly issues or guarantees substantially all of our senior unsecured debt obligations. GS&Co. and GSI have been assigned long- and short-term issuer ratings by certain credit rating agencies. GS Bank USA and GSIB have also been assigned long- and short-term issuer ratings, as well as ratings on their long- and short-term bank deposits. In addition, credit rating agencies have assigned ratings to debt obligations of certain other subsidiaries of Group Inc.

The level and composition of our equity capital are among the many factors considered in determining our credit ratings. Each agency has its own definition of eligible capital and methodology for evaluating capital adequacy, and assessments are generally based on a combination of factors rather than a single calculation. See “Risk Management — Liquidity Risk Management — Credit Ratings” for further information about credit ratings of Group Inc., GS Bank USA, GSIB, GS&Co. and GSI.

Consolidated Regulatory Capital

We are subject to consolidated regulatory capital requirements which are calculated in accordance with the regulations of the FRB (Capital Framework). Under the Capital Framework, we are an “Advanced approach” banking organization and have been designated as a global systemically important bank

(G-SIB).

The capital requirements calculated in accordance with the Capital Framework include the risk-based capital buffers and

G-SIB

surcharge. The risk-based capital buffers, applicable to us as of September 2020, include the capital conservation buffer of 2.5% and the countercyclical capital buffer, which the FRB has set to zero percent. Beginning on October 1, 2020, the SCB replaced the capital conservation buffer under the Standardized Capital Rules. See “Equity Capital Management – Capital Planning and Stress Testing Process” for further information about our applicable SCB. In addition, the

G-SIB

surcharge applicable to us for 2020 is 2.5% based on 2018 financial data and 2.5% for 2021 based on 2019 financial data. Based on financial data for the nine months ended September 2020, our current estimate is that we are above the threshold for the 3.0%

G-SIB

surcharge. We expect that our

G-SIB

surcharge may remain above the 3% threshold over the next three years. This increase would be effective on January 1 of the year that is one full calendar year after the increased

G-SIB

surcharge is finalized. The

G-SIB

surcharge and countercyclical buffer in the future may differ due to additional guidance from our regulators and/or positional changes. Our target Standardized CET1 capital ratio over the medium term is between 13.0% and 13.5% (including management buffers)based upon the execution of our previously announced strategic initiatives and achievement of capital efficiencies.

See Note 20 to the consolidated financial statements for further information about our risk-based capital ratios and leverage ratios, and the Capital Framework.

Goldman Sachs September 2020 Form 10-Q 126

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Total Loss-Absorbing Capacity (TLAC)

We are also subject to the FRB’s TLAC and related requirements. Failure to comply with the TLAC and related requirements could result in restrictions being imposed by the FRB and could limit our ability to repurchase shares, pay dividends and make certain discretionary compensation payments.

The table below presents TLAC and external long-term debt requirements.

	Requirements
TLAC to RWAs	22.0%
TLAC to leverage exposure	9.5%
External long-term debt to RWAs	8.5%
External long-term debt to leverage exposure	4.5%

In the table above:

• The TLAC to RWAs requirement includes (i) the 18% minimum, (ii) the 2.5% buffer, (iii) the 1.5% G-SIB surcharge (Method 1) and (iv) the countercyclical capital buffer, which the FRB has set to zero percent.

• The TLAC to leverage exposure requirement includes (i) the 7.5% minimum and (ii) the 2.0% leverage exposure buffer.

• The external long-term debt to RWAs requirement includes (i) the 6% minimum and (ii) the 2.5% G-SIB surcharge (Method 2).

• The external long-term debt to total leverage exposure is the 4.5% minimum.

The table below presents information about our TLAC and external long-term debt ratios.

	As of
$ in millions		September 2020	December 2019
TLAC		$     238,666	$   236,850
External long-term debt		$     138,500	$   141,770
RWAs		$     599,626	$   563,575
Leverage exposure		$1,301,868	$1,375,467
TLAC to RWAs		39.8%	42.0%
TLAC to leverage exposure		18.3%	17.2%
External long-term debt to RWAs		23.1%	25.2%
External long-term debt to leverage exposure		10.6%	10.3%

In the table above:

• TLAC includes common and preferred stock, and eligible long-term debt issued by Group Inc. Eligible long-term debt represents unsecured debt, which has a remaining maturity of at least one year and satisfies additional requirements.

• External long-term debt consists of eligible long-term debt subject to a haircut if it is due to be paid between one and two years.

• RWAs represent Advanced RWAs as of September 2020 and Standardized RWAs as of December 2019. In accordance with the TLAC rules, the higher of Advanced or Standardized RWAs are used in the calculation of TLAC and external long-term debt ratios and applicable requirements.

• Leverage exposure consists of average adjusted total assets and certain off-balance sheet exposures. As of September 2020, leverage exposure excluded average holdings of U.S. Treasury securities and average deposits at the Federal Reserve as permitted by the FRB under a temporary amendment. This temporary amendment is effective through March 31, 2021.

See “Business — Regulation” in Part I, Item 1 of the 2019

Form 10-K

for further information about TLAC.

Subsidiary Capital Requirements

Many of our subsidiaries, including our bank and broker-dealer subsidiaries, are subject to separate regulation and capital requirements of the jurisdictions in which they operate.

Bank Subsidiaries.

GS Bank USA is our primary U.S. banking subsidiary and GSIB is our primary

non-U.S.

banking subsidiary. These entities are subject to regulatory capital requirements. See Note 20 to the consolidated financial statements for further information about the regulatory capital requirements of our bank subsidiaries.

U.S. Regulated Broker-Dealer Subsidiaries.

GS&Co. is our primary U.S. regulated broker-dealer subsidiary and is subject to regulatory capital requirements, including those imposed by the SEC and the Financial Industry Regulatory Authority, Inc. In addition, GS&Co. is a registered futures commission merchant and is subject to regulatory capital requirements imposed by the CFTC, the Chicago Mercantile Exchange and the National Futures Association.

Rule 15c3-1

of the SEC and Rule 1.17 of the CFTC specify uniform minimum net capital requirements, as defined, for their registrants, and also effectively require that a significant part of the registrants’ assets be kept in relatively liquid form. GS&Co. has elected to calculate its minimum capital requirements in accordance with the “Alternative Net Capital Requirement” as permitted by

Rule 15c3-1.

127 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

GS&Co. had regulatory net capital, as defined by

Rule 15c3-1,

of $20.90 billion as of September 2020 and $20.88 billion as of December 2019, which exceeded the amount required by $17.08 billion as of September 2020 and $18.15 billion as of December 2019. In addition to its alternative minimum net capital requirements, GS&Co. is also required to hold tentative net capital in excess of $1 billion and net capital in excess of $500 million in accordance with the market and credit risk standards of Appendix E of

Rule 15c3-1.

GS&Co. is also required to notify the SEC in the event that its tentative net capital is less than $5 billion. As of both September 2020 and December 2019, GS&Co. had tentative net capital and net capital in excess of both the minimum and the notification requirements.

Non-U.S.

Regulated Broker-Dealer Subsidiaries.

Our principal

non-U.S.

regulated broker-dealer subsidiaries include GSI and GSJCL.

GSI, our U.K. broker-dealer, is regulated by the PRA and the Financial Conduct Authority (FCA).GSI is subject to the capital framework for E.U.-regulated financial institutions prescribed in the E.U. Fourth Capital Requirements Directive and the E.U. Capital Requirements Regulation (CRR). These capital regulations are largely based on the Basel Committee on Banking Supervision’s (Basel Committee) capital framework for strengthening international capital standards (Basel III).

The table below presents GSI’s risk-based capital requirements.

	As of
		September 2020	December 2019
Risk-based capital requirements
CET1 capital ratio		8.2%	8.8%
Tier 1 capital ratio		10.2%	10.8%
Total capital ratio		12.7%	13.4%

In the table above, the risk-based capital requirements incorporate capital guidance received from the PRA and could change in the future.

The table below presents information about GSI’s risk-based capital ratios.

	As of
$ in millions		September 2020	December 2019
Risk-based capital and risk-weighted assets
CET1 capital		$  26,013	$  24,142
Tier 1 capital		$  34,313	$  32,442
Tier 2 capital		$    5,377	$    5,374
Total capital		$  39,690	$  37,816
RWAs		$242,669	$206,669
Risk-based capital ratios
CET1 capital ratio		10.7%	11.7%
Tier 1 capital ratio		14.1%	15.7%
Total capital ratio		16.4%	18.3%

In the table above, CET1 capital, Tier 1 capital and Total capital as of September 2020 excluded GSI’s undistributed profits from July 1, 2020 through September 30, 2020, as such profits have not yet been approved to be included as regulatory capital by the PRA.

In November 2016, the European Commission proposed amendments to the CRR to implement a 3% leverage ratio requirement for certain E.U. financial institutions. This leverage ratio compares the CRR’s definition of Tier 1 capital to a measure of leverage exposure, defined as the sum of certain assets plus certain

off-balance

sheet exposures (which include a measure of derivatives, securities financing transactions, commitments and guarantees), less Tier 1 capital deductions. The required leverage ratio is expected to become effective for GSI on June 28, 2021. GSI had a leverage ratio of 4.6% as of both September 2020 and December 2019. GSI’s leverage ratio as of September 2020 excluded GSI’s undistributed profits from July 1, 2020 through September 30, 2020, as such profits have not yet been approved to be included as regulatory capital by the PRA. This leverage ratio is based on our current interpretation and understanding of this rule and may evolve as we discuss the interpretation and application of this rule with GSI’s regulators.

GSI is also subject to a minimum requirement for own funds and eligible liabilities issued to affiliates. This requirement is subject to a transitional period which began to phase in from January 1, 2019 and will become fully effective on January 1, 2022. As of September 2020, GSI was in compliance with this requirement.

GSJCL, our Japanese broker-dealer, is regulated by Japan’s Financial Services Agency. GSJCL and certain other

non-U.S.

subsidiaries are also subject to capital requirements promulgated by authorities of the countries in which they operate. As of both September 2020 and December 2019, these subsidiaries were in compliance with their local capital requirements.

Goldman Sachs September 2020 Form 10-Q 128

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Regulatory and Other Matters

Regulatory Matters

Our businesses are subject to extensive regulation and supervision worldwide. Regulations have been adopted or are being considered by regulators and policy makers worldwide. Given that many of the new and proposed rules are highly complex, the full impact of regulatory reform will not be known until the rules are implemented and market practices develop under the final regulations.

See “Business — Regulation” in Part I, Item 1 of the 2019

Form 10-K

for further information about the laws, rules and regulations and proposed laws, rules and regulations that apply to us and our operations.

Other Matters

Brexit.

In March 2017, the U.K. government commenced the formal proceedings to withdraw from the E.U.

The E.U. and the U.K. agreed to a withdrawal agreement (the Withdrawal Agreement), which became effective on January 31, 2020. The transition period under the Withdrawal Agreement will last until the end of December 2020 to allow the two sides to negotiate a future trade agreement. During the transition period, the U.K. will be treated as if it were a member state of the E.U. and therefore the existing arrangements between the U.K. and the E.U. will not change. The Withdrawal Agreement provides for the possibility of an extension of the transition period for either one or two more years. However, the U.K. formally confirmed to the E.U. in June 2020 that it will not seek an extension period beyond December 31, 2020.

The E.U. and the U.K. have not yet completed their assessments of equivalence, based upon the existing

non-E.U.

country equivalence regimes and there is increasing uncertainty as to the likelihood of those assessments being in place by the end of the transition period. We are monitoring the ongoing development related to Brexit and continue to prepare for a scenario where the U.K. financial services firms will lose access to E.U. markets on December 31, 2020 (a “hard” Brexit) while ensuring we remain flexible and well positioned to allow our clients to benefit from any more favorable scenarios. Our planning also recognizes that after the end of the transition period, we can rely on a degree of continuing access for our U.K. entities pursuant to national cross-border access regimes in certain jurisdictions (for example, based on specific licenses or exemptions). See “Regulatory Matters and Other Developments — Other Developments” in Part II, Item 7 of the 2019

Form 10-K

for further information about our plan to manage a hard Brexit scenario.

Replacement of Interbank Offered Rates (IBORs), including LIBOR.

Central banks and regulators in a number of major jurisdictions (for example, U.S., U.K., E.U., Switzerland and Japan) have convened working groups to find, and implement the transition to, suitable replacements for IBORs. The FCA, which regulates LIBOR, has announced that it will not compel panel banks to contribute to LIBOR after 2021. In the first quarter of 2020, the FCA, alongside the Bank of England and the members of the Working Group on Sterling Risk-Free Reference Rates, issued a statement reaffirming that firms cannot rely on LIBOR being published after 2021. In October 2020, the International Swaps and Derivatives Association (ISDA) launched the IBOR Fallbacks Protocol, which will become effective in January 2021, and will provide derivatives market participants with new fallbacks for legacy and new derivatives contracts. Both counterparties will have to adhere to the Fallbacks Protocol or engage in bilateral amendments for the terms to be effective for derivative contracts. We have adhered to the Fallbacks Protocol for our derivative contracts. We continue to make progress on our LIBOR transition program in line with this deadline. 

We have created a program that focuses on achieving an orderly transition from IBORs to alternative risk-free reference rates for us and our clients. As part of this transition, we continue to actively engage with our regulators and clients, as well as participate in central bank and sector working groups. We have issued debt and deposits linked to the Secured Overnight Financing Rate (SOFR) and Sterling Overnight Index Average (SONIA) and have executed SOFR- and SONIA-based derivative contracts to make markets and facilitate client activities. Where possible, we continue to execute transactions in the market to reduce our LIBOR exposures arising from hedges to our fixed-rate debt issuances and replace with alternative risk-free reference rates exposures. See “Regulatory Matters and Other Developments — Other Developments” in Part II, Item 7 of the 2019

Form 10-K

for further information about our transition program.

129 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Impact of

COVID-19

Pandemic.

The persistence of the

COVID-19

pandemic poses ongoing challenges for the global economy. While economic activity has generally accelerated from earlier in the year when widespread lockdown measures were in place, progress has been uneven across countries and the sustainability of global economic recovery is vulnerable to the risk of a resurgence in infections. Governments and central banks around the world have remained proactive in responding to the crisis through unprecedented accommodative monetary policy and fiscal stimulus.

We have continued to successfully execute on our Business Continuity Planning (BCP) strategy since initially activating it in the first quarter of 2020 in response to the emergence of the

COVID-19

pandemic. Our priority has been to safeguard our employees and to seek to ensure continuity of business operations on behalf of our clients. Our business continuity response to the

COVID-19

pandemic is managed by a central team, which is led by our chief administrative officer and chief medical officer, and includes senior management within Risk and the chief operating officers across all regions and businesses. As a result of our BCP

strategy

, the majority of our employees worked remotely during the third quarter of 2020, as in the second quarter of 2020. We have established policies and protocols that will enable a phased return to office, taking into account the readiness of people, communities and facilities. As communities where we operate began to reopen, we took the necessary steps to enable employees to start to return to the office in a safe manner. We are in constant dialogue with key stakeholders to assess health and safety conditions across all of our office locations and to implement procedures necessary to protect the well-being of employees, such as controls around building access, strict physical distancing measures and enhanced cleaning regimes. We have continued to make measured progress in returning to the office. As of

mid-October,

approximately 60% of employees in Hong Kong and Tokyo were working in the office, approximately 50% in most of Europe, approximately 30% in the U.K. and approximately 20% in New York. Progress going forward for each of our offices around the world will be dictated by the circumstances in each region.

Our systems and infrastructure have continued to support all of our activities. We maintained regular and active communication among senior management, the rest of our employees and the Board. Decision-making continues to occur through a variety of senior management meetings. Since the beginning of the

COVID-19

pandemic, our Management Committee and other senior leaders have met regularly and our executive officers have provided regular and enhanced communications to promote connectivity with our clients and employees worldwide. Furthermore, we have ongoing dialogues with vendors intended to ensure that they continue to meet our criteria for business continuity.

Our liquidity position during the third quarter of 2020 remained strong, as our GCLA averaged $302 billion for the quarter. We continue to access our traditional funding sources in the normal course and service our debt and other obligations on a timely basis. Our CET1 capital ratios under the Standardized approach improved to 14.5% as of the end of the third quarter of 2020, up 120 basis points compared with the second quarter of 2020, as we effectively managed our capital while continuing to support our clients. We suspended stock repurchases during the first quarter of 2020 and through the third quarter of 2020. Consistent with the FRB’s requirement for all large BHCs, we have extended the suspension of stock repurchases through the fourth quarter of 2020. See “Balance Sheet and Funding Sources,” “Equity Capital Management and Regulatory Capital” and “Liquidity Risk Management” for further information.

As a result of the

COVID-19

pandemic, we have had to apply a greater degree of judgment in making certain accounting estimates and assumptions. The ongoing uncertainty regarding future developments associated with the

COVID-19

pandemic and the path of the global economy creates added challenges and complexities in determining the allowance for credit losses, as the process is inherently judgmental and requires estimation of expected credit losses based on economic forecasts and other considerations. The uncertainty regarding the severity and duration of the future economic impacts of the

COVID-19

pandemic also affects the estimation of the fair value for less liquid financial instruments that lack price transparency, where valuation involves judgment regarding estimated future cash flows or other significant unobservable inputs. Although conditions in financial markets normalized following a period of severe disruption early in the pandemic, determining the valuation for certain Level 3 instruments remains challenging in the current environment. See Note 9 to the consolidated financial statements for further information about our allowance for credit losses and Note 4 to the consolidated financial statements for further information about fair value measurements.

Goldman Sachs September 2020 Form 10-Q 130

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

As a result of the ongoing uncertainty in the macroeconomic environment since we last performed a quantitative goodwill impairment test in the fourth quarter of 2019, we assessed goodwill for impairment as of September 2020 and determined that it was not impaired. See Note 12 to the consolidated financial statements for further information about goodwill.

Volatility remains at elevated levels and continues to be a driver of client trading activity. We have remained committed to serving the needs of our clients by deploying our balance sheet in a disciplined manner to intermediate risk. Our average daily

Value-at-Risk

(VaR) for the third quarter of 2020 was $91 million, $33 million higher than the third quarter of 2019. We have maintained our proactive approach to managing market risk levels, which entails ongoing review and monitoring of exposures and focusing on ways to mitigate risk. With respect to credit risk, the gradual reopening of global economies and ongoing actions taken by governments have aided borrowers that have faced significant disruptions due to the

COVID-19

pandemic, such as companies in the oil and gas, gaming and lodging, and airlines industries, but these borrowers still face substantial pressure in trying to manage through the crisis. In relationship lending, drawdowns on credit facilities are returning to more normalized levels, with net paydowns of approximately $7 billion occurring during the third quarter of 2020. However, credit risk, in general, remains elevated across the banking industry. Throughout this crisis, we have remained highly focused on monitoring of credit exposures and management of margin calls and disputes. Our risk positions remained balanced, controlled and adequately provisioned for, both in terms of counterparty risk and sector exposure. See “Market Risk Management” and “Credit Risk Management” for further information.

Our actions in response to the

COVID-19

pandemic have included granting forbearance to certain corporate and other borrowers who have made requests to defer payments. We had approximately $960 million of corporate loans and approximately $290 million of commercial real estate loans under forbearance as of September 2020. We have continued to provide relief to consumers through programs to help them manage the financial challenges that they face as a result of the

COVID-19

pandemic. The accommodations under these programs include providing borrowers of installment and credit card loans the ability to modify or defer payments without incurring interest charges and permitting Marcus depositors to access certificates of deposit early without a penalty. As of September 2020, installment and credit card loans with a gross carrying value of approximately $300 million were enrolled in such programs. In aggregate, loans under forbearance or relief programs represented approximately 1% of total loans.

The

COVID-19

pandemic has created significant uncertainty regarding the operating environment for the future, as the duration and course of the pandemic cannot be predicted at this time. A sustained period of weak economic conditions as a result of the pandemic would be detrimental to our businesses as it would negatively affect factors that are important to our operating performance, such as the level of client activity, creditworthiness of counterparties and borrowers, and the amount of our AUS. We are monitoring the ongoing developments related to the

COVID-19

pandemic and will take further action as may be required by government authorities or that we determine are in the best interests of our employees, clients and counterparties. For further information about the risks associated with the

COVID-19

pandemic, see “Risk Factors” in Part II, Item 1A.

131 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Off-Balance

Sheet Arrangements and Contractual Obligations

Off-Balance

Sheet Arrangements

In the ordinary course of business, we enter into various types of

off-balance

sheet arrangements. Our involvement in these arrangements can take many different forms, including:

• Purchasing or retaining residual and other interests in special purpose entities, such as mortgage-backed and other asset-backed securitization vehicles;

• Holding senior and subordinated debt, interests in limited and general partnerships, and preferred and common stock in other nonconsolidated vehicles;

• Entering into interest rate, foreign currency, equity, commodity and credit derivatives, including total return swaps; and

• Providing guarantees, indemnifications, commitments, letters of credit and representations and warranties.

We enter into these arrangements for a variety of business purposes, including securitizations. The securitization vehicles that purchase mortgages, corporate bonds, and other types of financial assets are critical to the functioning of several significant investor markets, including the mortgage-backed and other asset-backed securities markets, since they offer investors access to specific cash flows and risks created through the securitization process.

We also enter into these arrangements to underwrite client securitization transactions; provide secondary market liquidity; make investments in performing and nonperforming debt, distressed loans, power-related assets, equity securities, real estate and other assets; provide investors with credit-linked and asset-repackaged notes; and receive or provide letters of credit to satisfy margin requirements and to facilitate the clearance and settlement process.

The table below presents where information about our various

off-balance

sheet arrangements may be found in this

Form 10-Q.

In addition, see Note 3 to the consolidated financial statements for information about our consolidation policies.

Off-Balance Sheet Arrangement	Disclosure in Form 10-Q
Variable interests and other obligations, including contingent obligations, arising from variable interests in nonconsolidated variable interest entities (VIEs)	See Note 17 to the consolidated financial statements.
Guarantees, letters of credit, and lending and other commitments	See Note 18 to the consolidated financial statements.
Derivatives	See “Risk Management — Credit Risk Management — Credit Exposures — OTC Derivatives” and Notes 4, 5, 7 and 18 to the consolidated financial statements.

Contractual Obligations

We have certain contractual obligations which require us to make future cash payments. These contractual obligations include our time deposits, secured long-term financings, unsecured long-term borrowings, interest payments and operating lease payments.

Our obligations to make future cash payments also include our commitments and guarantees related to

off-balance

sheet arrangements, which are excluded from the table below. See Note 18 to the consolidated financial statements for further information about such commitments and guarantees.

Due to the uncertainty of the timing and amounts that will ultimately be paid, our liability for unrecognized tax benefits has been excluded from the table below. See Note 24 to the consolidated financial statements for further information about our unrecognized tax benefits.

The table below presents our contractual obligations by type.

	As of
$ in millions		September 2020	December 2019
Time deposits		$  29,255	$  32,273
Financings and borrowings:
Secured long-term		$  13,253	$  11,953
Unsecured long-term		$213,936	$207,076
Interest payments		$  44,605	$  47,649
Operating lease payments		$    3,242	$    3,980

Goldman Sachs September 2020 Form 10-Q 132

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

The table below presents our contractual obligations by expiration.

	As of September 2020
$ in millions		Remainder of 2020	2021 - 2022	2023 - 2024	2025 - Thereafter
Time deposits		$       –	$12,891	$10,857	$    5,507
Financings and borrowings:
Secured long-term		$       –	$  4,890	$  3,240	$    5,123
Unsecured long-term		$       –	$35,574	$49,473	$128,889
Interest payments		$1,471	$10,555	$  8,041	$  24,538
Operating lease payments		$       70	$       616	$       492	$    2,064

In the table above:

• Obligations maturing within one year of our financial statement date or redeemable within one year of our financial statement date at the option of the holders are excluded as they are treated as short-term obligations. See Note 14 to the consolidated financial statements for further information about our short-term borrowings.

• Obligations that are repayable prior to maturity at our option are reflected at their contractual maturity dates and obligations that are redeemable prior to maturity at the option of the holders are reflected at the earliest dates such options become exercisable.

• As of September 2020, unsecured long-term borrowings had maturities extending through 2067, consisted principally of senior borrowings, and included $13.55 billion of adjustments to the carrying value of certain unsecured long-term borrowings resulting from the application of hedge accounting. See Note 14 to the consolidated financial statements for further information about our unsecured long-term borrowings.

• As of September 2020, the difference between aggregate contractual principal amount and the related fair value of long-term other secured financings for which the fair value option was elected was not material.

• As of September 2020, the difference between aggregate contractual principal amount and the related fair value of unsecured long-term borrowings for which the fair value option was elected was not material.

• Interest payments represents estimated future contractual interest payments related to unsecured long-term borrowings, secured long-term financings and time deposits based on applicable interest rates as of September 2020, and includes stated coupons, if any, on structured notes.

• Operating lease payments includes lease commitments for office space that expire on various dates through 2069. Certain agreements are subject to periodic escalation provisions for increases in real estate taxes and other charges. See Note 15 to the consolidated financial statements for further information about our operating lease liabilities.

Risk Management

Risks are inherent in our businesses and include liquidity, market, credit, operational, model, legal, compliance, conduct, regulatory and reputational risks. Our risks include the risks across our risk categories, regions or global businesses, as well as those which have uncertain outcomes and have the potential to materially impact our financial results, our liquidity and our reputation. For further information about our risk management processes, see “Overview and Structure of Risk Management,” and for information about our areas of risk, see “Liquidity Risk Management,” “Market Risk Management,” “Credit Risk Management,” “Operational Risk Management” and “Model Risk Management” and “Risk Factors” in Part II, Item 1A of this

Form 10-Q

and in Part I, Item 1A of the 2019

Form 10-K.

Overview and Structure of Risk Management

Overview

We believe that effective risk management is critical to our success. Accordingly, we have established an enterprise risk management framework that employs a comprehensive, integrated approach to risk management, and is designed to enable comprehensive risk management processes through which we identify, assess, monitor and manage the risks we assume in conducting our activities. Our risk management structure is built around three core components: governance, processes and people.

Governance.

Risk management governance starts with the Board, which both directly and through its committees, including its Risk Committee, oversees our risk management policies and practices implemented through the enterprise risk management framework. The Board is also responsible for the annual review and approval of our risk appetite statement. The risk appetite statement describes the levels and types of risk we are willing to accept or to avoid, in order to achieve our objectives included in our strategic business plan, while remaining in compliance with regulatory requirements. The Board reviews our strategic business plan and is ultimately responsible for overseeing and providing direction about our strategy and risk appetite.

133 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

The Board receives regular briefings on firmwide risks, including liquidity risk, market risk, credit risk, operational risk and model risk from our independent risk oversight and control functions, including the chief risk officer, and on compliance risk and conduct risk from Compliance, on legal and regulatory enforcement matters from the general counsel, and on other matters impacting our reputation from the chair of our Firmwide Client and Business Standards Committee and our Firmwide Reputational Risk Committee. The chief risk officer reports to our chief executive officer and to the Risk Committee of the Board. As part of the review of the firmwide risk portfolio, the chief risk officer regularly advises the Risk Committee of the Board of relevant risk metrics and material exposures, including risk limits and thresholds established in our risk appetite statement.

The implementation of our risk governance structure and core risk management processes are overseen by Enterprise Risk, which reports to our chief risk officer, and is responsible for ensuring that our enterprise risk management framework provides the Board, our risk committees and senior management with a consistent and integrated approach to managing our various risks in a manner consistent with our risk appetite.

Our revenue-producing units, as well as Treasury, Engineering, Human Capital Management, Operations and Services, are considered our first line of defense. They are accountable for the outcomes of our risk-generating activities, as well as for assessing and managing those risks within our risk appetite.

Our independent risk oversight and control functions are considered our second line of defense and provide independent assessment, oversight and challenge of the risks taken by our first line of defense, as well as lead and participate in risk committees. Independent risk oversight and control functions include Compliance, Conflicts Resolution, Controllers, Credit Risk, Enterprise Risk, Legal, Liquidity Risk, Market Risk, Model Risk, Operational Risk and Tax.

Internal Audit is considered our third line of defense and reports to the Audit Committee of the Board and administratively to our chief executive officer. Internal Audit includes professionals with a broad range of audit and industry experience, including risk management expertise. Internal Audit is responsible for independently assessing and validating the effectiveness of key controls, including those within the risk management framework, and providing timely reporting to the Audit Committee of the Board, senior management and regulators.

The three lines of defense structure promotes the accountability of first line risk takers, provides a framework for effective challenge by the second line and empowers independent review from the third line.

Processes.

We maintain various processes that are critical components of our risk management framework, including (i) risk identification and assessment, (ii) risk appetite, limit and threshold setting, (iii) risk reporting and monitoring, and (iv) risk decision-making.

• Risk Identification and Assessment. We believe that the identification and assessment of our risks is a critical step in providing our Board and senior management transparency and insight into the range and materiality of our risks. We have a comprehensive data collection process, including firmwide policies and procedures that require all employees to report and escalate risk events. Our approach for risk identification and assessment is comprehensive across all risk types, is dynamic and forward-looking to reflect and adapt to our changing risk profile and business environment, leverages subject matter expertise, and allows for prioritization of our most critical risks.

To effectively assess our risks, we maintain a daily discipline of marking substantially all of our inventory to current market levels. We carry our inventory at fair value, with changes in valuation reflected immediately in our risk management systems and in net revenues. We do so because we believe this discipline is one of the most effective tools for assessing and managing risk and that it provides transparent and realistic insight into our inventory exposures.

An important part of our risk management process is firmwide stress testing. It allows us to quantify our exposure to tail risks, highlight potential loss concentrations, undertake risk/reward analysis, and assess and mitigate our risk positions. Firmwide stress tests are performed on a regular basis and are designed to ensure a comprehensive analysis of our vulnerabilities and idiosyncratic risks combining financial and nonfinancial risks, including, but not limited to, credit, market, liquidity and funding, operational and compliance, strategic, systemic and emerging risks into a single combined scenario. We also perform ad hoc stress tests in anticipation of market events or conditions. Stress tests are also used to assess capital adequacy as part of our capital planning and stress testing process. See “Equity Capital Management and Regulatory Capital — Equity Capital Management” for further information.

Goldman Sachs September 2020 Form 10-Q 134

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

• Risk Appetite, Limit and Threshold Setting. We apply a rigorous framework of limits and thresholds to control and monitor risk across transactions, products, businesses and markets. The Board, directly or indirectly through its Risk Committee, approves limits and thresholds included in our risk appetite statement at firmwide, business and product levels. In addition, the Firmwide Enterprise Risk Committee is responsible for approving our risk limits framework, subject to the overall limits approved by the Risk Committee of the Board, and monitoring these limits.

The Risk Governance Committee is responsible for approving limits at firmwide, business and product levels. Certain limits may be set at levels that will require periodic adjustment, rather than at levels that reflect our maximum risk appetite. This fosters an ongoing dialogue about risk among our first and second lines of defense, committees and senior management, as well as rapid escalation of

risk-related

matters. Additionally, through delegated authority from the Risk Governance Committee, Market Risk sets limits at certain product and desk levels, and Credit Risk sets limits for individual counterparties, counterparties and their subsidiaries, industries and countries. Limits are reviewed regularly and amended on a permanent or temporary basis to reflect changing market conditions, business conditions or risk tolerance.

• Risk Reporting and Monitoring. Effective risk reporting and risk decision-making depends on our ability to get the right information to the right people at the right time. As such, we focus on the rigor and effectiveness of our risk systems, with the objective of ensuring that our risk management technology systems provide us with complete, accurate and timely information. Our risk reporting and monitoring processes are designed to take into account information about both existing and emerging risks, thereby enabling our risk committees and senior management to perform their responsibilities with the appropriate level of insight into risk exposures. Furthermore, our limit and threshold breach processes provide means for timely escalation. We evaluate changes in our risk profile and our businesses, including changes in business mix or jurisdictions in which we operate, by monitoring risk factors at a firmwide level.

• Risk Decision-Making. Our governance structure provides the protocol and responsibility for decision-making on risk management issues and ensures implementation of those decisions. We make extensive use of risk committees that meet regularly and serve as an important means to facilitate and foster ongoing discussions to manage and mitigate risks.

We maintain strong and proactive communication about risk and we have a culture of collaboration in decision-making among our first and second lines of defense, committees and senior management. While our first line of defense is responsible for management of their risk, we dedicate extensive resources to our second line of defense in order to ensure a strong oversight structure and an appropriate segregation of duties. We regularly reinforce our strong culture of escalation and accountability across all functions.

People.

Even the best technology serves only as a tool for helping to make informed decisions in real time about the risks we are taking. Ultimately, effective risk management requires our people to interpret our risk data on an ongoing and timely basis and adjust risk positions accordingly. The experience of our professionals, and their understanding of the nuances and limitations of each risk measure, guides us in assessing exposures and maintaining them within prudent levels.

We reinforce a culture of effective risk management, consistent with our risk appetite, in our training and development programs, as well as in the way we evaluate performance, and recognize and reward our people. Our training and development programs, including certain sessions led by our most senior leaders, are focused on the importance of risk management, client relationships and reputational excellence. As part of our annual performance review process, we assess reputational excellence, including how an employee exercises good risk management and reputational judgment, and adheres to our code of conduct and compliance policies. Our review and reward processes are designed to communicate and reinforce to our professionals the link between behavior and how people are recognized, the need to focus on our clients and our reputation, and the need to always act in accordance with our highest standards.

135 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Structure

Ultimate oversight of risk is the responsibility of our Board. The Board oversees risk both directly and through its committees, including its Risk Committee. We have a series of committees with specific risk management mandates that have oversight or decision-making responsibilities for risk management activities. Committee membership generally consists of senior managers from both our first and second lines of defense. We have established procedures for these committees to ensure that appropriate information barriers are in place. Our primary risk committees, most of which also have additional

sub-committees

or working groups, are described below. In addition to these committees, we have other risk committees that provide oversight for different businesses, activities, products, regions and entities. All of our committees have responsibility for considering the impact of transactions and activities, which they oversee, on our reputation.

Membership of our risk committees is reviewed regularly and updated to reflect changes in the responsibilities of the committee members. Accordingly, the length of time that members serve on the respective committees varies as determined by the committee chairs and based on the responsibilities of the members.

The chart below presents an overview of our risk management governance structure.

Management Committee.

The Management Committee oversees our global activities. It provides this oversight directly and through authority delegated to committees it has established. This committee consists of our most senior leaders, and is chaired by our chief executive officer. Most members of the Management Committee are also members of other committees. The following are the committees that are principally involved in firmwide risk management.

Firmwide Enterprise Risk Committee.

The Firmwide Enterprise Risk Committee is responsible for overseeing all of our financial and nonfinancial risks. As a part of such oversight, the committee is responsible for the ongoing review, approval and monitoring of our enterprise risk management framework, as well as our risk limits framework. This committee is

co-chaired

by our chief financial officer and our chief risk officer, who are appointed as chairs by our chief executive officer, and reports to the Management Committee. The following are the primary committees that report to the Firmwide Enterprise Risk Committee:

• Firmwide Risk Committee. The Firmwide Risk Committee is responsible for the ongoing monitoring of relevant financial risks and related risk limits at the firmwide, business and product levels. This committee is co-chaired by the chairs of the Firmwide Enterprise Risk Committee.

• Firmwide New Activity Committee. The Firmwide New Activity Committee is responsible for reviewing new activities and for establishing a process to identify and review previously approved activities that are significant and that have changed in complexity and/or structure or present different reputational and suitability concerns over time to consider whether these activities remain appropriate. This committee is co-chaired by the controller and chief accounting officer, and the head of Operations and Operations Engineering for the Global Markets Division, who are appointed as chairs by the chairs of the Firmwide Enterprise Risk Committee.

• Firmwide Operational Risk and Resilience Committee. The Firmwide Operational Risk and Resilience Committee is responsible for overseeing operational risk, and for ensuring our business and operational resilience. To assist the Firmwide Operational Risk and Resilience Committee in carrying out its mandate, other risk committees with dedicated oversight for technology-related risks, including cyber security matters, report into the Firmwide Operational Risk and Resilience Committee. This committee is co-chaired by our chief administrative officer and deputy chief risk officer, who are appointed as chairs by the chairs of the Firmwide Enterprise Risk Committee.

Goldman Sachs September 2020 Form 10-Q 136

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

• Firmwide Conduct Committee. The Firmwide Conduct Committee is responsible for the ongoing approval and monitoring of the frameworks and policies which govern our conduct risks. Conduct risk is the risk that our people fail to act in a manner consistent with our Business Principles and related core values, policies or codes, or applicable laws or regulations, thereby falling short in fulfilling their responsibilities to us, our clients, colleagues, other market participants or the broader community. This committee is co-chaired by a senior advisor (former chair of Compliance) and the head of Regulatory Affairs, who are appointed as chairs by the chairs of the Firmwide Enterprise Risk Committee.

• Risk Governance Committee. The Risk Governance Committee (through delegated authority from the Firmwide Enterprise Risk Committee) is responsible for the ongoing approval and monitoring of risk frameworks and policies related to our core risk management processes, as well as limits, at firmwide, business and product levels. In addition, this committee reviews the results of stress tests and scenario analyses. To assist the Risk Governance Committee in carrying out its mandate, a number of other risk committees with dedicated oversight for stress testing, model risks and Volcker Rule compliance report into the Risk Governance Committee. This committee is chaired by our chief risk officer, who is appointed as chair by the chairs of the Firmwide Enterprise Risk Committee.

Firmwide Client and Business Standards Committee.

The Firmwide Client and Business Standards Committee is responsible for overseeing relationships with our clients, client service and experience, and related business standards, as well as client-related reputational matters. This committee is chaired by our president and chief operating officer, who is appointed as chair by the chief executive officer, and reports to the Management Committee. This committee periodically provides updates to, and receives guidance from, the Public Responsibilities Committee of the Board.

The following committees report jointly to the Firmwide Enterprise Risk Committee and the Firmwide Client and Business Standards Committee:

• Firmwide Reputational Risk Committee. The Firmwide Reputational Risk Committee is responsible for assessing reputational risks arising from transactions that have been identified as having potential heightened reputational risk pursuant to the criteria established by the Firmwide Reputational Risk Committee. This committee is chaired by our president and chief operating officer, and the vice-chairs are the head of Regulatory Affairs and the head of Conflicts Resolution, who are appointed as vice-chairs by the chair of the Firmwide Reputational Risk Committee. This committee periodically provides updates to, and receives guidance from, the Public Responsibilities Committee of the Board.

• Firmwide Suitability Committee. The Firmwide Suitability Committee is responsible for setting standards and policies for product, transaction and client suitability and providing a forum for consistency across functions, regions and products on suitability assessments. This committee also reviews suitability matters escalated from other committees. This committee is co-chaired by our chief compliance officer, and the co-head of EMEA FICC sales, who are appointed as chairs by the chair of the Firmwide Client and Business Standards Committee.

• Firmwide Investment Policy Committee. The Firmwide Investment Policy Committee periodically reviews our investing and lending activities on a portfolio basis, including review of risk management and controls, and sets business standards and policies for these types of investments. This committee is co-chaired by the head of our Merchant Banking Division, a co-head of our Global Markets Division and the chief risk officer, who are appointed as chairs by our president and chief operating officer and our chief financial officer.

• Firmwide Capital Committee. The Firmwide Capital Committee provides approval and oversight of debt-related transactions, including principal commitments of our capital. This committee aims to ensure that business, reputational and suitability standards for underwritings and capital commitments are maintained on a global basis. This committee is co-chaired by the head of Credit Risk and a co-head of the Financing Group, who are appointed as chairs by the chairs of the Firmwide Enterprise Risk Committee.

137 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

• Firmwide Commitments Committee. The Firmwide Commitments Committee reviews our underwriting and distribution activities with respect to equity and equity-related product offerings, and sets and maintains policies and procedures designed to ensure that legal, reputational, regulatory and business standards are maintained on a global basis. In addition to reviewing specific transactions, this committee periodically conducts general strategic reviews of sectors and products and establishes policies in connection with transaction practices. This committee is co-chaired by the co-head of the Industrials Group in our Investment Banking Division, the chief debt underwriting officer for EMEA, and a managing director in our Investment Banking Division, who are appointed as chairs by the chair of the Firmwide Client and Business Standards Committee.

Firmwide Asset Liability Committee.

The Firmwide Asset Liability Committee reviews and approves the strategic direction for our financial resources, including capital, liquidity, funding and balance sheet. This committee has oversight responsibility for asset liability management, including interest rate and currency risk, funds transfer pricing, capital allocation and incentives, and credit ratings. This committee makes recommendations as to any adjustments to asset liability management and financial resource allocation in light of current events, risks, exposures, and regulatory requirements and approves related policies. This committee is

co-chaired

by our chief financial officer and our global treasurer, who are appointed as chairs by our chief executive officer, and reports to the Management Committee.

Conflicts Management

Conflicts of interest and our approach to dealing with them are fundamental to our client relationships, our reputation and our long-term success. The term “conflict of interest” does not have a universally accepted meaning, and conflicts can arise in many forms within a business or between businesses. The responsibility for identifying potential conflicts, as well as complying with our policies and procedures, is shared by all of our employees.

We have a multilayered approach to resolving conflicts and addressing reputational risk. Our senior management oversees policies related to conflicts resolution, and, in conjunction with Conflicts Resolution, Legal and Compliance, the Firmwide Client and Business Standards Committee, and other internal committees, formulates policies, standards and principles, and assists in making judgments regarding the appropriate resolution of particular conflicts. Resolving potential conflicts necessarily depends on the facts and circumstances of a particular situation and the application of experienced and informed judgment.

As a general matter, Conflicts Resolution reviews financing and advisory assignments in Investment Banking and certain of our investing, lending and other activities. In addition, we have various transaction oversight committees, such as the Firmwide Capital, Commitments and Suitability Committees and other committees that also review new underwritings, loans, investments and structured products. These groups and committees work with internal and external counsel and Compliance to evaluate and address any actual or potential conflicts. Conflicts Resolution reports to our president and chief operating officer.

We regularly assess our policies and procedures that address conflicts of interest in an effort to conduct our business in accordance with the highest ethical standards and in compliance with all applicable laws, rules and regulations.

Compliance Risk Management

Compliance risk is the risk of legal or regulatory sanctions, material financial loss or damage to our reputation arising from our failure to comply with the requirements of applicable laws, rules and regulations, and our internal policies and procedures. Compliance risk is inherent in all activities through which we conduct our businesses. Our Compliance Risk Management Program, administered by Compliance, assesses our compliance, regulatory and reputational risk; monitors for compliance with new or amended laws, rules and regulations; designs and implements controls, policies, procedures and training; conducts independent testing; investigates, surveils and monitors for compliance risks and breaches; and leads our responses to regulatory examinations, audits and inquiries. We monitor and review business practices to assess whether they meet or exceed minimum regulatory and legal standards in all markets and jurisdictions in which we conduct business.

Goldman Sachs September 2020 Form 10-Q 138

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Liquidity Risk Management

Overview

Liquidity risk is the risk that we will be unable to fund ourselves or meet our liquidity needs in the event of firm-specific, broader industry or market liquidity stress events. We have in place a comprehensive and conservative set of liquidity and funding policies. Our principal objective is to be able to fund ourselves and to enable our core businesses to continue to serve clients and generate revenues, even under adverse circumstances.

Treasury, which reports to our chief financial officer, has primary responsibility for developing, managing and executing our liquidity and funding strategy within our risk appetite.

Liquidity Risk, which is independent of our revenue-producing units and Treasury, and reports to our chief risk officer, has primary responsibility for assessing, monitoring and managing our liquidity risk through firmwide oversight across our global businesses and the establishment of stress testing and limits frameworks.

Liquidity Risk Management Principles

We manage liquidity risk according to three principles: (i) hold sufficient excess liquidity in the form of GCLA to cover outflows during a stressed period, (ii) maintain appropriate Asset-Liability Management and (iii) maintain a viable Contingency Funding Plan.

GCLA.

GCLA is liquidity that we maintain to meet a broad range of potential cash outflows and collateral needs in a stressed environment. A primary liquidity principle is to

pre-fund

our estimated potential cash and collateral needs during a liquidity crisis and hold this liquidity in the form of unencumbered, highly liquid securities and cash. We believe that the securities held in our GCLA would be readily convertible to cash in a matter of days, through liquidation, by entering into repurchase agreements or from maturities of securities purchased under agreements to resell (resale agreements), and that this cash would allow us to meet immediate obligations without needing to sell other assets or depend on additional funding from credit-sensitive markets.

Our GCLA reflects the following principles:

• The first days or weeks of a liquidity crisis are the most critical to a company’s survival;

• Focus must be maintained on all potential cash and collateral outflows, not just disruptions to financing flows. Our businesses are diverse, and our liquidity needs are determined by many factors, including market movements, collateral requirements and client commitments, all of which can change dramatically in a difficult funding environment;

• During a liquidity crisis, credit-sensitive funding, including unsecured debt, certain deposits and some types of secured financing agreements, may be unavailable, and the terms (e.g., interest rates, collateral provisions and tenor) or availability of other types of secured financing may change and certain deposits may be withdrawn; and

• As a result of our policy to pre-fund liquidity that we estimate may be needed in a crisis, we hold more unencumbered securities and have larger funding balances than our businesses would otherwise require. We believe that our liquidity is stronger with greater balances of highly liquid unencumbered securities, even though it increases our total assets and our funding costs.

We maintain our GCLA across Group Inc., Goldman Sachs Funding LLC (Funding IHC) and Group Inc.’s major broker-dealer and bank subsidiaries, asset types and clearing agents to provide us with sufficient operating liquidity to ensure timely settlement in all major markets, even in a difficult funding environment. In addition to the GCLA, we maintain cash balances and securities in several of our other entities, primarily for use in specific currencies, entities or jurisdictions where we do not have immediate access to parent company liquidity.

Asset-Liability Management.

Our liquidity risk management policies are designed to ensure we have a sufficient amount of financing, even when funding markets experience persistent stress. We manage the maturities and diversity of our funding across markets, products and counterparties, and seek to maintain a diversified funding profile with an appropriate tenor, taking into consideration the characteristics and liquidity profile of our assets.

Our approach to asset-liability management includes:

• Conservatively managing the overall characteristics of our funding book, with a focus on maintaining long-term, diversified sources of funding in excess of our current requirements. See “Balance Sheet and Funding Sources — Funding Sources” for further information;

• Actively managing and monitoring our asset base, with particular focus on the liquidity, holding period and ability to fund assets on a secured basis. We assess our funding requirements and our ability to liquidate assets in a stressed environment while appropriately managing risk. This enables us to determine the most appropriate funding products and tenors. See “Balance Sheet and Funding Sources — Balance Sheet Management” for further information about our balance sheet management process and “— Funding Sources — Secured Funding” for further information about asset classes that may be harder to fund on a secured basis; and

139 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

• Raising secured and unsecured financing that has a long tenor relative to the liquidity profile of our assets. This reduces the risk that our liabilities will come due in advance of our ability to generate liquidity from the sale of our assets. Because we maintain a highly liquid balance sheet, the holding period of certain of our assets may be materially shorter than their contractual maturity dates.

Our goal is to ensure that we maintain sufficient liquidity to fund our assets and meet our contractual and contingent obligations in normal times, as well as during periods of market stress. Through our dynamic balance sheet management process, we use actual and projected asset balances to determine secured and unsecured funding requirements. Funding plans are reviewed and approved by the Firmwide Asset Liability Committee. In addition, our independent risk oversight and control functions analyze, and the Firmwide Asset Liability Committee reviews, our consolidated total capital position (unsecured long-term borrowings plus total shareholders’ equity) so that we maintain a level of long-term funding that is sufficient to meet our long-term financing requirements. In a liquidity crisis, we would first use our GCLA in order to avoid reliance on asset sales (other than our GCLA). However, we recognize that orderly asset sales may be prudent or necessary in a severe or persistent liquidity crisis.

Subsidiary Funding Policies

The majority of our unsecured funding is raised by Group Inc., which lends the necessary funds to Funding IHC and other subsidiaries, some of which are regulated, to meet their asset financing, liquidity and capital requirements. In addition, Group Inc. provides its regulated subsidiaries with the necessary capital to meet their regulatory requirements. The benefits of this approach to subsidiary funding are enhanced control and greater flexibility to meet the funding requirements of our subsidiaries. Funding is also raised at the subsidiary level through a variety of products, including deposits, secured funding and unsecured borrowings.

Our intercompany funding policies assume that a subsidiary’s funds or securities are not freely available to its parent, Funding IHC or other subsidiaries unless (i) legally provided for and (ii) there are no additional regulatory, tax or other restrictions. In particular, many of our subsidiaries are subject to laws that authorize regulatory bodies to block or reduce the flow of funds from those subsidiaries to Group Inc. or Funding IHC. Regulatory action of that kind could impede access to funds that Group Inc. needs to make payments on its obligations. Accordingly, we assume that the capital provided to our regulated subsidiaries is not available to Group Inc. or other subsidiaries and any other financing provided to our regulated subsidiaries is not available to Group Inc. or Funding IHC until the maturity of such financing.

Group Inc. has provided substantial amounts of equity and subordinated indebtedness, directly or indirectly, to its regulated subsidiaries. For example, as of September 2020, Group Inc. had $33.92 billion of equity and subordinated indebtedness invested in GS&Co., its principal U.S. registered broker-dealer; $42.57 billion invested in GSI, a regulated U.K. broker-dealer; $3.44 billion invested in GSJCL, a regulated Japanese broker-dealer; $34.13 billion invested in GS Bank USA, a regulated New York State-chartered bank; and $4.12 billion invested in GSIB, a regulated U.K. bank. Group Inc. also provided, directly or indirectly, $111.70 billion of unsubordinated loans (including secured loans of $35.64 billion) and $14.11 billion of collateral and cash deposits to these entities, substantially all of which was to GS&Co., GSI and GSJCL, as of September 2020. In addition, as of September 2020, Group Inc. had significant amounts of capital invested in and loans to its other regulated subsidiaries.

Contingency Funding Plan.

We maintain a contingency funding plan to provide a framework for analyzing and responding to a liquidity crisis situation or periods of market stress. Our contingency funding plan outlines a list of potential risk factors, key reports and metrics that are reviewed on an ongoing basis to assist in assessing the severity of, and managing through, a liquidity crisis and/or market dislocation. The contingency funding plan also describes in detail our potential responses if our assessments indicate that we have entered a liquidity crisis, which include

pre-funding

for what we estimate will be our potential cash and collateral needs, as well as utilizing secondary sources of liquidity. Mitigants and action items to address specific risks which may arise are also described and assigned to individuals responsible for execution.

The contingency funding plan identifies key groups of individuals and their responsibilities, which include fostering effective coordination, control and distribution of information, implementing liquidity maintenance activities and managing internal and external communication, all of which are critical in the management of a crisis or period of market stress.

Goldman Sachs September 2020 Form 10-Q 140

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Stress Tests

In order to determine the appropriate size of our GCLA, we model liquidity outflows over a range of scenarios and time horizons. One of our primary internal liquidity risk models, referred to as the Modeled Liquidity Outflow, quantifies our liquidity risks over a

30-day

stress scenario. We also consider other factors, including, but not limited to, an assessment of our potential intraday liquidity needs through an additional internal liquidity risk model, referred to as the Intraday Liquidity Model, the results of our long-term stress testing models, our resolution liquidity models and other applicable regulatory requirements and a qualitative assessment of our condition, as well as the financial markets. The results of the Modeled Liquidity Outflow, the Intraday Liquidity Model, the long-term stress testing models and the resolution liquidity models are reported to senior management on a regular basis. We also perform firmwide stress tests. See “Overview and Structure of Risk Management” for information about firmwide stress tests.

Modeled Liquidity Outflow.

Our Modeled Liquidity Outflow is based on conducting multiple scenarios that include combinations of market-wide and firm-specific stress. These scenarios are characterized by the following qualitative elements:

• Severely challenged market environments, which includes low consumer and corporate confidence, financial and political instability, and adverse changes in market values, including potential declines in equity markets and widening of credit spreads; and

• A firm-specific crisis potentially triggered by material losses, reputational damage, litigation and/or a ratings downgrade.

The following are key modeling elements of our Modeled Liquidity Outflow:

• Liquidity needs over a 30-day scenario;

• A two-notch downgrade of our long-term senior unsecured credit ratings;

• Changing conditions in funding markets, which limit our access to unsecured and secured funding;

• No support from additional government funding facilities. Although we have access to various central bank funding programs, we do not assume reliance on additional sources of funding in a liquidity crisis; and

• A combination of contractual outflows, such as upcoming maturities of unsecured debt, and contingent outflows, including, but not limited to, the withdrawal of customer credit balances in our prime brokerage business, increase in variation margin requirements due to adverse changes in the value of our exchange-traded and OTC-cleared derivatives, and withdrawals of deposits that have no contractual maturity.

Intraday Liquidity Model.

Our Intraday Liquidity Model measures our intraday liquidity needs using a scenario analysis characterized by the same qualitative elements as our Modeled Liquidity Outflow. The model assesses the risk of increased intraday liquidity requirements during a scenario where access to sources of intraday liquidity may become constrained.

Long-Term Stress Testing.

We utilize longer-term stress tests to take a forward view on our liquidity position through prolonged stress periods in which we experience a severe liquidity stress and recover in an environment that continues to be challenging. We are focused on ensuring conservative asset-liability management to prepare for a prolonged period of potential stress, seeking to maintain a diversified funding profile with an appropriate tenor, taking into consideration the characteristics and liquidity profile of our assets.

Resolution Liquidity Models.

In connection with our resolution planning efforts, we have established our Resolution Liquidity Adequacy and Positioning framework, which estimates liquidity needs of our major subsidiaries in a stressed environment. The liquidity needs are measured using our Modeled Liquidity Outflow assumptions and include certain additional inter-affiliate exposures. We have also established our Resolution Liquidity Execution Need framework, which measures the liquidity needs of our major subsidiaries to stabilize and wind-down following a Group Inc. bankruptcy filing in accordance with our preferred resolution strategy.

In addition, we have established a triggers and alerts framework, which is designed to provide the Board with information needed to make an informed decision on whether and when to commence bankruptcy proceedings for Group Inc.

Limits

We use liquidity risk limits at various levels and across liquidity risk types to manage the size of our liquidity exposures. Limits are measured relative to acceptable levels of risk given our liquidity risk tolerance. See “Overview and Structure of Risk Management” for information about the limit approval process.

Limits are monitored by Treasury and Liquidity Risk. Liquidity Risk is responsible for identifying and escalating to senior management and/or the appropriate risk committee, on a timely basis, instances where limits have been exceeded.

141 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

GCLA and Unencumbered Metrics

GCLA.

Based on the results of our internal liquidity risk models, described above, as well as our consideration of other factors, including, but not limited to, a qualitative assessment of our condition, as well as the financial markets, we believe our liquidity position as of both September 2020 and December 2019 was appropriate. We strictly limit our GCLA to a narrowly defined list of securities and cash because they are highly liquid, even in a difficult funding environment. We do not include other potential sources of excess liquidity in our GCLA, such as less liquid unencumbered securities or committed credit facilities.

The table below presents information about our GCLA.

	Average for the Three Months Ended
$ in millions		September 2020	June 2020
Denomination
U.S. dollar		$191,892	$186,948
Non-U.S. dollar		109,673	103,061
Total		$301,565	$290,009
Asset Class
Overnight cash deposits		$101,881	$120,850
U.S. government obligations		124,233	99,995
U.S. agency obligations		11,498	17,378
Non-U.S. government obligations		63,953	51,786
Total		$301,565	$290,009
Entity Type
Group Inc. and Funding IHC		$  39,058	$  52,109
Major broker-dealer subsidiaries		106,110	102,535
Major bank subsidiaries		156,397	135,365
Total		$301,565	$290,009

In the table above:

• The U.S. dollar-denominated GCLA consists of (i) unencumbered U.S. government and agency obligations (including highly liquid U.S. agency mortgage-backed obligations), all of which are eligible as collateral in Federal Reserve open market operations and (ii) certain overnight U.S. dollar cash deposits.

• The non-U.S. dollar-denominated GCLA consists of non-U.S. government obligations (only unencumbered German, French, Japanese and U.K. government obligations) and certain overnight cash deposits in highly liquid currencies.

We maintain our GCLA to enable us to meet current and potential liquidity requirements of our parent company, Group Inc., and its subsidiaries. Our Modeled Liquidity Outflow and Intraday Liquidity Model incorporate a requirement for Group Inc., as well as a standalone requirement for each of our major broker-dealer and bank subsidiaries. Funding IHC is required to provide the necessary liquidity to Group Inc. during the ordinary course of business, and is also obligated to provide capital and liquidity support to major subsidiaries in the event of our material financial distress or failure. Liquidity held directly in each of our major broker-dealer and bank subsidiaries is intended for use only by that subsidiary to meet its liquidity requirements and is assumed not to be available to Group Inc. or Funding IHC unless (i) legally provided for and (ii) there are no additional regulatory, tax or other restrictions. In addition, the Modeled Liquidity Outflow and Intraday Liquidity Model also incorporate a broader assessment of standalone liquidity requirements for other subsidiaries and we hold a portion of our GCLA directly at Group Inc. or Funding IHC to support such requirements.

Other Unencumbered Assets.

In addition to our GCLA, we have a significant amount of other unencumbered cash and financial instruments, including other government obligations, high-grade money market securities, corporate obligations, marginable equities, loans and cash deposits not included in our GCLA. The fair value of our unencumbered assets averaged $216.18 billion for the three months ended September 2020 and $194.05 billion for the three months ended June 2020. We do not consider these assets liquid enough to be eligible for our GCLA.

Liquidity Regulatory Framework

As a BHC, we are subject to a minimum Liquidity Coverage Ratio (LCR) under the LCR rule approved by the U.S. federal bank regulatory agencies. The LCR rule requires organizations to maintain an adequate ratio of eligible high-quality liquid assets (HQLA) to expected net cash outflows under an acute short-term liquidity stress scenario. Eligible HQLA excludes HQLA held by subsidiaries that is in excess of their minimum requirement and is subject to transfer restrictions. We are required to maintain a minimum LCR of 100%. We expect that fluctuations in client activity, business mix and the market environment will impact our LCR.

Goldman Sachs September 2020 Form 10-Q 142

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

The table below presents information about our average daily LCR.

	Average for the Three Months Ended
$ in millions		September 2020	June 2020
Total HQLA		$299,050	$283,483
Eligible HQLA		$213,689	$211,255
Net cash outflows		$165,109	$146,814
LCR		130%	144%

In October 2020, the U.S. federal bank regulatory agencies issued a final rule that establishes a net stable funding ratio (NSFR) requirement for large U.S. banking organizations. This rule will become effective on July 1, 2021 and requires banking organizations to ensure they have access to stable funding over a

one-year

time horizon. The rule also requires disclosure of the ratio on a semi-annual basis and a description of the banking organization’s stable funding sources beginning in 2023.

The following provides information about our subsidiary liquidity regulatory requirements:

• GS Bank USA. GS Bank USA is subject to a minimum LCR of 100% under the LCR rule approved by the U.S. federal bank regulatory agencies. As of September 2020, GS Bank USA’s LCR exceeded the minimum requirement. The NSFR requirement described above would also apply to GS Bank USA.

• GSI. GSI is subject to a minimum LCR of 100% under the LCR rule approved by the U.K. regulatory authorities and the European Commission. GSI’s average monthly LCR for the trailing twelve-month period ended September 2020 exceeded the minimum requirement.

• Other Subsidiaries. We monitor local regulatory liquidity requirements of our subsidiaries to ensure compliance. For many of our subsidiaries, these requirements either have changed or are likely to change in the future due to the implementation of the Basel Committee on Banking Supervision’s framework for liquidity risk measurement, standards and monitoring, as well as other regulatory developments.

The implementation of these rules and any amendments adopted by the regulatory authorities could impact our liquidity and funding requirements and practices in the future.

Credit Ratings

We rely on the short- and long-term debt capital markets to fund a significant portion of our

day-to-day

operations and the cost and availability of debt financing is influenced by our credit ratings. Credit ratings are also important when we are competing in certain markets, such as OTC derivatives, and when we seek to engage in longer-term transactions. See “Risk Factors” in Part I, Item 1A of the 2019

Form 10-K

for information about the risks associated with a reduction in our credit ratings.

The table below presents the unsecured credit ratings and outlook of Group Inc.

	As of September 2020
		DBRS		Fitch	Moody’s	R&I	S&P
Short-term debt		R-1 (middle	)	F1	P-2	a-1	A-2
Long-term debt		A (high	)	A	A3	A	BBB+
Subordinated debt		A		BBB+	Baa2	A-	BBB-
Trust preferred		A		BBB-	Baa3	N/A	BB
Preferred stock		BBB (high	)	BBB-	Ba1	N/A	BB
Ratings outlook		Stable		Negative	Stable	Stable	Stable

In the table above:

• The ratings and outlook are by DBRS, Inc. (DBRS), Fitch, Inc. (Fitch), Moody’s Investors Service (Moody’s), Rating and Investment Information, Inc. (R&I), and Standard & Poor’s Ratings Services (S&P).

• The ratings for trust preferred relate to the guaranteed preferred beneficial interests issued by Goldman Sachs Capital I.

• The DBRS, Fitch, Moody’s and S&P ratings for preferred stock include the APEX issued by Goldman Sachs Capital II and Goldman Sachs Capital III.

In October 2020, Moody’s placed on review for upgrade the long-term and short-term debt ratings of Group Inc.

The table below presents the unsecured credit ratings and outlook of GS Bank USA, GSIB, GS&Co. and GSI.

	As of September 2020
		Fitch	Moody’s	S&P
GS Bank USA
Short-term debt		F1	P-1	A-1
Long-term debt		A+	A1	A+
Short-term bank deposits		F1+	P-1	N/A
Long-term bank deposits		AA-	A1	N/A
Ratings outlook		Negative	Stable	Stable
GSIB
Short-term debt		F1	P-1	A-1
Long-term debt		A+	A1	A+
Short-term bank deposits		F1	P-1	N/A
Long-term bank deposits		A+	A1	N/A
Ratings outlook		Negative	Stable	Stable
GS&Co.
Short-term debt		F1	N/A	A-1
Long-term debt		A+	N/A	A+
Ratings outlook		Negative	N/A	Stable
GSI
Short-term debt		F1	P-1	A-1
Long-term debt		A+	A1	A+
Ratings outlook		Negative	Stable	Stable

143 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

We believe our credit ratings are primarily based on the credit rating agencies’ assessment of:

• Our liquidity, market, credit and operational risk management practices;

• Our level and variability of earnings;

• Our capital base;

• Our franchise, reputation and management;

• Our corporate governance; and

• The external operating and economic environment, including, in some cases, the assumed level of government support or other systemic considerations, such as potential resolution.

Certain of our derivatives have been transacted under bilateral agreements with counterparties who may require us to post collateral or terminate the transactions based on changes in our credit ratings. We manage our GCLA to ensure we would, among other potential requirements, be able to make the additional collateral or termination payments that may be required in the event of a

two-notch

reduction in our long-term credit ratings, as well as collateral that has not been called by counterparties, but is available to them.

See Note 7 to the consolidated financial statements for further information about derivatives with credit-related contingent features and the additional collateral or termination payments related to our net derivative liabilities under bilateral agreements that could have been called by counterparties in the event of a

one-

or

two-notch

downgrade in our credit ratings.

Cash Flows

As a global financial institution, our cash flows are complex and bear little relation to our net earnings and net assets. Consequently, we believe that traditional cash flow analysis is less meaningful in evaluating our liquidity position than the liquidity and asset-liability management policies described above. Cash flow analysis may, however, be helpful in highlighting certain macro trends and strategic initiatives in our businesses.

Nine Months Ended September 2020.

Our cash and cash equivalents increased by $19.66 billion to $153.20 billion at the end of the third quarter of 2020, due to net cash provided by financing activities, partially offset by net cash used for operating activities and investing activities. The net cash provided by financing activities primarily reflected an increase in net deposits, reflecting increases in consumer, transaction banking and private bank deposits. The net cash used for operating activities primarily reflected an increase in trading assets, net customer and other receivables and payables, and collateralized transactions (an increase in collateralized agreements and a decrease in collateralized financings), partially offset by an increase in trading liabilities as a result of our activities and our clients’ activities. The net cash used for investing activities reflected an increase in net loans and net purchases of investments, reflecting an increase in U.S. government obligations accounted for as

available-for-sale.

Nine Months Ended September 2019.

Our cash and cash equivalents decreased by $36.45 billion to $94.09 billion at the end of the third quarter of 2019, primarily due to net cash used for operating activities and investing activities, partially offset by net cash provided by financing activities. The net cash used for operating activities primarily reflected an increase in trading assets, partially offset by an increase in collateralized financings included in collateralized transactions. These changes primarily reflected higher client activity. The net cash used for investing activities reflected an increase in net purchases of investments, reflecting an increase in U.S. government and agency obligations accounted for as

available-for-sale

securities. The net cash provided by financing activities primarily reflected increases in consumer deposits, partially offset by net repayments of unsecured long-term borrowings.

Goldman Sachs September 2020 Form 10-Q 144

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Market Risk Management

Overview

Market risk is the risk of loss in the value of our inventory, investments, loans and other financial assets and liabilities accounted for at fair value due to changes in market conditions. We hold such positions primarily for market making for our clients and for our investing and financing activities, and therefore, these positions change based on client demands and our investment opportunities. Since these positions are accounted for at fair value, they fluctuate on a daily basis, with the related gains and losses included in the consolidated statements of earnings. We employ a variety of risk measures, each described in the respective sections below, to monitor market risk. Categories of market risk include the following:

• Interest rate risk: results from exposures to changes in the level, slope and curvature of yield curves, the volatilities of interest rates, prepayment speeds and credit spreads;

• Equity price risk: results from exposures to changes in prices and volatilities of individual equities, baskets of equities and equity indices;

• Currency rate risk: results from exposures to changes in spot prices, forward prices and volatilities of currency rates; and

• Commodity price risk: results from exposures to changes in spot prices, forward prices and volatilities of commodities, such as crude oil, petroleum products, natural gas, electricity, and precious and base metals.

Market Risk, which is independent of our revenue-producing units and reports to our chief risk officer, has primary responsibility for assessing, monitoring and managing our market risk through firmwide oversight across our global businesses.

Managers in revenue-producing units and Market Risk discuss market information, positions and estimated loss scenarios on an ongoing basis. Managers in revenue-producing units are accountable for managing risk within prescribed limits. These managers have

in-depth

knowledge of their positions, markets and the instruments available to hedge their exposures.

Market Risk Management Process

Our process for managing market risk includes the critical components of our risk management framework described in the “Overview and Structure of Risk Management,” as well as the following:

• Monitoring compliance with established market risk limits and reporting our exposures;

• Diversifying exposures;

• Controlling position sizes; and

• Evaluating mitigants, such as economic hedges in related securities or derivatives.

Our market risk management systems enable us to perform an independent calculation of VaR and stress measures, capture risk measures at individual position levels, attribute risk measures to individual risk factors of each position, report many different views of the risk measures (e.g., by desk, business, product type or entity) and produce ad hoc analyses in a timely manner.

Risk Measures

We produce risk measures and monitor them against established market risk limits. These measures reflect an extensive range of scenarios and the results are aggregated at product, business and firmwide levels.

We use a variety of risk measures to estimate the size of potential losses for both moderate and more extreme market moves over both short- and long-term time horizons. Our primary risk measures are VaR, which is used for shorter-term periods, and stress tests. Our risk reports detail key risks, drivers and changes for each desk and business, and are distributed daily to senior management of both our revenue-producing units and our independent risk oversight and control functions.

145 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Value-at-Risk.

VaR is the potential loss in value due to adverse market movements over a defined time horizon with a specified confidence level. For assets and liabilities included in VaR, see “Financial Statement Linkages to Market Risk Measures.” We typically employ a

one-day

time horizon with a 95% confidence level. We use a single VaR model, which captures risks, including interest rates, equity prices, currency rates and commodity prices. As such, VaR facilitates comparison across portfolios of different risk characteristics. VaR also captures the diversification of aggregated risk at the firmwide level.

We are aware of the inherent limitations to VaR and therefore use a variety of risk measures in our market risk management process. Inherent limitations to VaR include:

• VaR does not estimate potential losses over longer time horizons where moves may be extreme;

• VaR does not take account of the relative liquidity of different risk positions; and

• Previous moves in market risk factors may not produce accurate predictions of all future market moves.

To comprehensively capture our exposures and relevant risks in our VaR calculation, we use historical simulations with full valuation of market factors at the position level by simultaneously shocking the relevant market factors for that position. These market factors include spot prices, credit spreads, funding spreads, yield curves, volatility and correlation, and are updated periodically based on changes in the composition of positions, as well as variations in market conditions. We sample from five years of historical data to generate the scenarios for our VaR calculation. The historical data is weighted so that the relative importance of the data reduces over time. This gives greater importance to more recent observations and reflects current asset volatilities, which improves the accuracy of our estimates of potential loss. As a result, even if our positions included in VaR were unchanged, our VaR would increase with increasing market volatility and vice versa.

Given its reliance on historical data, VaR is most effective in estimating risk exposures in markets in which there are no sudden fundamental changes or shifts in market conditions.

Our VaR measure does not include:

• Positions that are best measured and monitored using sensitivity measures; and

• The impact of changes in counterparty and our own credit spreads on derivatives, as well as changes in our own credit spreads on financial liabilities for which the fair value option was elected.

We perform daily backtesting of our VaR model (i.e., comparing daily net revenues for positions included in VaR to the VaR measure calculated as of the prior business day) at the firmwide level and for each of our businesses and major regulated subsidiaries.

Stress Testing.

Stress testing is a method of determining the effect of various hypothetical stress scenarios. We use stress testing to examine risks of specific portfolios, as well as the potential impact of our significant risk exposures. We use a variety of stress testing techniques to calculate the potential loss from a wide range of market moves on our portfolios, including firmwide stress tests, sensitivity analysis and scenario analysis. The results of our various stress tests are analyzed together for risk management purposes. See “Overview and Structure of Risk Management” for information about firmwide stress tests.

Sensitivity analysis is used to quantify the impact of a market move in a single risk factor across all positions (e.g., equity prices or credit spreads) using a variety of defined market shocks, ranging from those that could be expected over a

one-day

time horizon up to those that could take many months to occur. We also use sensitivity analysis to quantify the impact of the default of any single entity, which captures the risk of large or concentrated exposures.

Scenario analysis is used to quantify the impact of a specified event, including how the event impacts multiple risk factors simultaneously. For example, for sovereign stress testing we calculate potential direct exposure associated with our sovereign positions, as well as the corresponding debt, equity and currency exposures associated with our

non-sovereign

positions that may be impacted by the sovereign distress. When conducting scenario analysis, we often consider a number of possible outcomes for each scenario, ranging from moderate to severely adverse market impacts. In addition, these stress tests are constructed using both historical events and forward-looking hypothetical scenarios.

Unlike VaR measures, which have an implied probability because they are calculated at a specified confidence level, there may not be an implied probability that our stress testing scenarios will occur. Instead, stress testing is used to model both moderate and more extreme moves in underlying market factors. When estimating potential loss, we generally assume that our positions cannot be reduced or hedged (although experience demonstrates that we are generally able to do so).

Goldman Sachs September 2020 Form 10-Q 146

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Limits

We use market risk limits at various levels to manage the size of our market exposures. These limits are set based on VaR and on a range of stress tests relevant to our exposures. See “Overview and Structure of Risk Management” for information about the limit approval process.

Market Risk is responsible for monitoring these limits, and identifying and escalating to senior management and/or the appropriate risk committee, on a timely basis, instances where limits have been exceeded (e.g., due to positional changes or changes in market conditions, such as increased volatilities or changes in correlations). Such instances are remediated by a reduction in the positions we hold and/or a temporary or permanent increase to the limit.

Metrics

We analyze VaR at the firmwide level and a variety of more detailed levels, including by risk category, business and region. Diversification effect in the tables below represents the difference between total VaR and the sum of the VaRs for the four risk categories. This effect arises because the four market risk categories are not perfectly correlated.

The table below presents our average daily VaR.

	Three Months Ended							Nine Months Ended September
$ in millions		September 2020		June 2020		September 2019			2020		2019
Categories
Interest rates		$ 72		$   98		$ 49			$ 77		$ 44
Equity prices		55		74		28			57		28
Currency rates		22		39		12			26		11
Commodity prices		26		24		12			20		12
Diversification effect		(84	)	(113	)	(43	)		(82	)	(40	)
Total		$ 91		$ 122		$ 58			$ 98		$ 55

Our average daily VaR decreased to $91 million for the third quarter of 2020 from $122 million for the second quarter of 2020, due to decreases in the interest rates, equity prices and currency rates categories, partially offset by a decrease in the diversification effect and an increase in the commodity prices category. The overall decrease was primarily due to reduced exposures.

Our average daily VaR increased to $91 million for the third quarter of 2020 from $58 million for the third quarter of 2019, due to increases in equity prices, interest rates, commodity prices and currency rates categories, partially offset by an increase in the diversification effect. The overall increase was primarily due to higher levels of volatility.

Our average daily VaR increased to $98 million for the nine months ended September 2020 from $55 million for the nine months ended September 2019, due to increases in interest rates, equity prices, currency rates and commodity prices categories, partially offset by an increase in the diversification effect. The overall increase due to higher levels of volatility and increased exposures.

The table below presents our

period-end

VaR.

	As of
$ in millions		September 2020		June 2020		September 2019
Categories
Interest rates		$ 60		$   99		$ 51
Equity prices		46		68		29
Currency rates		17		29		12
Commodity prices		20		24		12
Diversification effect		(62	)	(101	)	(47	)
Total		$ 81		$ 119		$ 57

Our

period-end

VaR decreased to $81 million as of September 2020 from $119 million as of June 2020, due to decreases in the interest rates, equity prices, currency rates and commodity prices categories, partially offset by a decrease in the diversification effect. The overall decrease was due to lower levels of volatility and reduced exposures.

Our

period-end

VaR increased to $81 million as of September 2020 from $57 million as of September 2019, due to increases in equity prices, interest rates, commodity prices and currency rates categories, partially offset by an increase in the diversification effect. The overall increase was due to higher levels of volatility and increased exposures.

During the nine months ended September 2020 the firmwide VaR risk limit was exceeded on 16 occasions primarily due to higher levels of volatility. There were no permanent changes to the firmwide VaR risk limit during this period. However, there were temporary increases to the firmwide VaR risk limit as a result of the market environment. During the year ended December 2019, the firmwide VaR risk limit was not exceeded, raised or reduced.

The table below presents our high and low VaR.

	Three Months Ended
	September 2020			June 2020			September 2019
$ in millions		High	Low		High	Low		High	Low
Categories
Interest rates		$  99	$59		$120	$80		$60	$40
Equity prices		$  75	$42		$116	$46		$34	$23
Currency rates		$  32	$16		$  49	$27		$22	$  6
Commodity prices		$  37	$17		$  54	$15		$15	$11
Firmwide
VaR		$125	$77		$158	$96		$71	$51

147 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

The chart below presents our daily VaR for the nine months ended September 2020.

The table below presents, by number of business days, the frequency distribution of our daily net revenues for positions included in VaR.

	Three Months Ended September			Nine Months Ended September
$ in millions		2020	2019		2020	2019
>$100		4	5		44	10
$75 - $100		9	3		30	14
$50 - $75		21	15		34	35
$25 - $50		17	14		39	58
$0 - $25		8	13		25	47
$(25) - $0		3	12		9	22
$(50) - $(25)		2	2		4	2
$(75) - $(50)		–	–		2	–
$(100) - $(75)		–	–		2	–
Total		64	64		189	188

Daily net revenues for positions included in VaR are compared with VaR calculated as of the end of the prior business day. Net losses incurred on a single day for such positions did not exceed our 95%

one-day

VaR (i.e., a VaR exception) during both the three months ended September 2020 and September 2019.

During periods in which we have significantly more positive net revenue days than net revenue loss days, we expect to have fewer VaR exceptions because, under normal conditions, our business model generally produces positive net revenues. In periods in which our franchise revenues are adversely affected, we generally have more loss days, resulting in more VaR exceptions. The daily net revenues for positions included in VaR used to determine VaR exceptions reflect the impact of any intraday activity, including bid/offer net revenues, which are more likely than not to be positive by their nature.

Sensitivity Measures

Certain portfolios and individual positions are not included in VaR because VaR is not the most appropriate risk measure. Other sensitivity measures we use to analyze market risk are described below.

10% Sensitivity Measures.

The table below presents our market risk by asset category for positions accounted for at fair value, that are not included in VaR.

	As of
$ in millions		September 2020	June 2020	September 2019
Equity		$1,760	$1,723	$1,938
Debt		2,391	2,316	2,221
Total		$4,151	$4,039	$4,159

In the table above:

• The market risk of these positions is determined by estimating the potential reduction in net revenues of a 10% decline in the value of these positions.

• Equity positions relate to private and restricted public equity securities, including interests in funds that invest in corporate equities and real estate and interests in hedge funds.

• Debt positions include interests in funds that invest in corporate mezzanine and senior debt instruments, loans backed by commercial and residential real estate, corporate bank loans and other corporate debt, including acquired portfolios of distressed loans.

• Funded equity and debt positions are included in our consolidated balance sheets in investments and loans. See Note 8 to the consolidated financial statements for further information about investments and Note 9 to the consolidated financial statements for further information about loans.

• These measures do not reflect the diversification effect across asset categories or across other market risk measures.

Goldman Sachs September 2020 Form 10-Q 148

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Credit and Funding Spread Sensitivity on Derivatives and Financial Liabilities.

VaR excludes the impact of changes in counterparty credit spreads, our own credit spreads and unsecured funding spreads on derivatives, as well as changes in our own credit spreads (debt valuation adjustment) on financial liabilities for which the fair value option was elected. The estimated sensitivity to a one basis point increase in credit spreads (counterparty and our own) and unsecured funding spreads on derivatives (including hedges) was a loss of $3 million as of both September 2020 and June 2020. In addition, the estimated sensitivity to a one basis point increase in our own credit spreads on financial liabilities for which the fair value option was elected was a gain of $26 million as of September 2020 and $28 million as of June 2020. However, the actual net impact of a change in our own credit spreads is also affected by the liquidity, duration and convexity (as the sensitivity is not linear to changes in yields) of those financial liabilities for which the fair value option was elected, as well as the relative performance of any hedges undertaken.

Interest Rate Sensitivity.

Loans accounted for at amortized cost were $95.46 billion as of September 2020 and $100.53 billion as of June 2020, substantially all of which had floating interest rates. The estimated sensitivity to a 100 basis point increase in interest rates on such loans was $685 million as of September 2020 and $735 million as of June 2020 of additional interest income over a twelve-month period, which does not take into account the potential impact of an increase in costs to fund such loans. See Note 9 to the consolidated financial statements for further information about loans accounted for at amortized cost.

Other Market Risk Considerations

As of both September 2020 and June 2020, we had commitments and held loans for which we have obtained credit loss protection from Sumitomo Mitsui Financial Group, Inc. See Note 18 to the consolidated financial statements for further information about such lending commitments.

In addition, we make investments in securities that are accounted for as

available-for-sale,

held-to-maturity

or under the equity method which are included in investments in the consolidated balance sheets. See Note 8 to the consolidated financial statements for further information.

Direct investments in real estate are accounted for at cost less accumulated depreciation. See Note 12 to the consolidated financial statements for further information about other assets.

Financial Statement Linkages to Market Risk Measures

We employ a variety of risk measures, each described in the respective sections above, to monitor market risk across the consolidated balance sheets and consolidated statements of earnings. The related gains and losses on these positions are included in market making, other principal transactions, interest income and interest expense in the consolidated statements of earnings, and debt valuation adjustment in the consolidated statements of comprehensive income.

The table below presents certain assets and liabilities in our consolidated balance sheets and the market risk measures used to assess those assets and liabilities.

Assets or Liabilities	Market Risk Measures
Collateralized agreements, at fair value	VaR
Customer and other receivables, at fair value	10% Sensitivity Measures
Trading assets	VaR Credit Spread Sensitivity
Investments, at fair value	VaR 10% Sensitivity Measures
Loans	VaR 10% Sensitivity Measures Interest Rate Sensitivity
Deposits, at fair value	VaR Credit Spread Sensitivity
Collateralized financings, at fair value	VaR
Trading liabilities	VaR Credit Spread Sensitivity
Unsecured borrowings, at fair value	VaR Credit Spread Sensitivity

Credit Risk Management

Overview

Credit risk represents the potential for loss due to the default or deterioration in credit quality of a counterparty (e.g., an OTC derivatives counterparty or a borrower) or an issuer of securities or other instruments we hold. Our exposure to credit risk comes mostly from client transactions in OTC derivatives and loans and lending commitments. Credit risk also comes from cash placed with banks, securities financing transactions (i.e., resale and repurchase agreements and securities borrowing and lending activities) and customer and other receivables.

149 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Credit Risk, which is independent of our revenue-producing units and reports to our chief risk officer, has primary responsibility for assessing, monitoring and managing our credit risk through firmwide oversight across our global businesses. The Risk Governance Committee reviews and approves credit policies and parameters. In addition, we hold other positions that give rise to credit risk (e.g., bonds and secondary bank loans). These credit risks are captured as a component of market risk measures, which are monitored and managed by Market Risk. We also enter into derivatives to manage market risk exposures. Such derivatives also give rise to credit risk, which is monitored and managed by Credit Risk.

Credit Risk Management Process

Our process for managing credit risk includes the critical components of our risk management framework described in the “Overview and Structure of Risk Management,” as well as the following:

• Monitoring compliance with established credit risk limits and reporting our credit exposures and credit concentrations;

• Establishing or approving underwriting standards;

• Assessing the likelihood that a counterparty will default on its payment obligations;

• Measuring our current and potential credit exposure and losses resulting from a counterparty default;

• Using credit risk mitigants, including collateral and hedging; and

• Maximizing recovery through active workout and restructuring of claims.

We also perform credit reviews, which include initial and ongoing analyses of our counterparties. For substantially all of our credit exposures, the core of our process is an annual counterparty credit review. A credit review is an independent analysis of the capacity and willingness of a counterparty 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 counterparty’s industry, and the economic environment. Senior personnel, with expertise in specific industries, inspect and approve credit reviews and internal credit ratings.

Our risk assessment process may also include, where applicable, reviewing certain key metrics, including, but not limited to, delinquency status, collateral values, FICO credit scores and other risk factors.

Our credit risk management systems capture credit exposure to individual counterparties and on an aggregate basis to counterparties and their subsidiaries. These systems also provide management with comprehensive information about our aggregate credit risk by product, internal credit rating, industry, country and region.

Risk Measures

We measure our credit risk based on the potential loss in the event of

non-payment

by a counterparty using current and potential exposure. For derivatives and securities financing transactions, current exposure represents the amount presently owed to us after taking into account applicable netting and collateral arrangements, while potential exposure represents our estimate of the future exposure that could arise over the life of a transaction based on market movements within a specified confidence level. Potential exposure also takes into account netting and collateral arrangements. For loans and lending commitments, the primary measure is a function of the notional amount of the position.

Stress Tests

We conduct regular stress tests to calculate the credit exposures, including potential concentrations that would result from applying shocks to counterparty credit ratings or credit risk factors (e.g., currency rates, interest rates, equity prices). These shocks cover a wide range of moderate and more extreme market movements, including shocks to multiple risk factors, consistent with the occurrence of a severe market or economic event. In the case of sovereign default, we estimate the direct impact of the default on our sovereign credit exposures, changes to our credit exposures arising from potential market moves in response to the default, and the impact of credit market deterioration on corporate borrowers and counterparties that may result from the sovereign default. Unlike potential exposure, which is calculated within a specified confidence level, stress testing does not generally assume a probability of these events occurring. We also perform firmwide stress tests. See “Overview and Structure of Risk Management” for information about firmwide stress tests.

To supplement these regular stress tests, as described above, we also conduct tailored stress tests on an ad hoc basis in response to specific market events that we deem significant. We also utilize these stress tests to estimate the indirect impact of certain hypothetical events on our country exposures, such as the impact of credit market deterioration on corporate borrowers and counterparties along with the shocks to the risk factors described above. The parameters of these shocks vary based on the scenario reflected in each stress test. We review estimated losses produced by the stress tests in order to understand their magnitude, highlight potential loss concentrations, and assess and mitigate our exposures where necessary.

Goldman Sachs September 2020 Form 10-Q 150

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Limits

We use credit risk limits at various levels, as well as underwriting standards to manage the size and nature of our credit exposures. Limits for industries and countries are based on our risk appetite and are designed to allow for regular monitoring, review, escalation and management of credit risk concentrations. See “Overview and Structure of Risk Management” for information about the limit approval process.

Credit Risk is responsible for monitoring these limits, and identifying and escalating to senior management and/or the appropriate risk committee, on a timely basis, instances where limits have been exceeded.

Risk Mitigants

To reduce our credit exposures on derivatives and securities financing transactions, we may enter into netting agreements with counterparties that permit us to offset receivables and payables with such counterparties. We may also reduce credit risk with counterparties by entering into agreements that enable us to obtain collateral from them on an upfront or contingent basis and/or to terminate transactions if the counterparty’s credit rating falls below a specified level. We monitor the fair value of the collateral to ensure that our credit exposures are appropriately collateralized. We seek to minimize exposures where there is a significant positive correlation between the creditworthiness of our counterparties and the market value of collateral we receive.

For loans and lending commitments, depending on the credit quality of the borrower and other characteristics of the transaction, we employ a variety of potential risk mitigants. Risk mitigants include collateral provisions, guarantees, covenants, structural seniority of the bank loan claims and, for certain lending commitments, provisions in the legal documentation that allow us to adjust loan amounts, pricing, structure and other terms as market conditions change. The type and structure of risk mitigants employed can significantly influence the degree of credit risk involved in a loan or lending commitment.

When we do not have sufficient visibility into a counterparty’s financial strength or when we believe a counterparty requires support from its parent, we may obtain third-party guarantees of the counterparty’s obligations. We may also mitigate our credit risk using credit derivatives or participation agreements.

Credit Exposures

As of September 2020, our aggregate credit exposure increased as compared with December 2019, primarily reflecting increases in cash deposits with central banks and OTC derivatives, partially offset by a decrease in loans and lending commitments. The percentage of our credit exposures arising from

non-investment-grade

counterparties (based on our internally determined public rating agency equivalents) decreased slightly as compared with December 2019, primarily reflecting an increase in investment-grade credit exposure related to cash deposits with central banks. Our credit exposure to counterparties that defaulted during the nine months ended September 2020 was higher as compared with our credit exposure to counterparties that defaulted during the same prior year period, and such exposure was substantially all related to loans and lending commitments. Our credit exposure to counterparties that defaulted during the nine months ended September 2020 remained low, representing approximately 1% of our total credit exposure. Estimated losses associated with these defaults have been recognized in earnings. Our credit exposures are described further below.

Cash and Cash Equivalents.

Our credit exposure on cash and cash equivalents arises from our unrestricted cash, and includes both interest-bearing and

non-interest-bearing

deposits. To mitigate the risk of credit loss, we place substantially all of our deposits with highly rated banks and central banks.

The table below presents our credit exposure from unrestricted cash and cash equivalents, and the concentration by industry, region and credit quality.

	As of
$ in millions		September 2020	December 2019
Cash and Cash Equivalents		$131,104	$110,774
Industry
Financial Institutions		10%	12%
Sovereign		90%	88%
Total		100%	100%
Region
Americas		53%	50%
EMEA		26%	31%
Asia		21%	19%
Total		100%	100%
Credit Quality (Credit Rating Equivalent)
AAA		69%	66%
AA		6%	11%
A		24%	22%
BBB		1%	1%
Total		100%	100%

The table above excludes cash segregated for regulatory and other purposes of $22.10 billion as of September 2020 and $22.78 billion as of December 2019.

151 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

OTC Derivatives.

Our credit exposure on OTC derivatives arises primarily from our market-making activities. As a market maker, we enter into derivative transactions to provide liquidity to clients and to facilitate the transfer and hedging of their risks. We also enter into derivatives to manage market risk exposures. We manage our credit exposure on OTC derivatives using the credit risk process, measures, limits and risk mitigants described above.

We generally enter into OTC derivatives transactions under bilateral collateral arrangements that require the daily exchange of collateral. As credit risk is an essential component of fair value, we include a credit valuation adjustment (CVA) in the fair value of derivatives to reflect counterparty credit risk, as described in Note 7 to the consolidated financial statements. CVA is a function of the present value of expected exposure, the probability of counterparty default and the assumed recovery upon default.

The table below presents our net credit exposure from OTC derivatives and the concentration by industry and region.

	As of
$ in millions		September 2020		December 2019
OTC derivative assets		$ 60,454		$ 43,011
Collateral (not netted under U.S. GAAP)		(18,751	)	(15,420	)
Net credit exposure		$ 41,703		$ 27,591
Industry
Consumer, Retail & Healthcare		5%		4%
Diversified Industrials		18%		7%
Financial Institutions		13%		13%
Funds		12%		11%
Municipalities & Nonprofit		7%		8%
Natural Resources & Utilities		13%		15%
Sovereign		16%		25%
Technology, Media & Telecommunications		11%		9%
Other (including Special Purpose Vehicles)		5%		8%
Total		100%		100%
Region
Americas		59%		44%
EMEA		33%		48%
Asia		8%		8%
Total		100%		100%

In the table above:

• OTC derivative assets, included in the consolidated balance sheets, are reported on a net-by-counterparty basis (i.e., the net receivable for a given counterparty) when a legal right of setoff exists under an enforceable netting agreement (counterparty netting) and are accounted for at fair value, net of cash collateral received under enforceable credit support agreements (cash collateral netting).

• Collateral represents cash collateral and the fair value of securities collateral, primarily U.S. and non-U.S. government and agency obligations, received under credit support agreements, that we consider when determining credit risk, but such collateral is not eligible for netting under U.S. GAAP.

The table below presents the distribution of our net credit exposure from OTC derivatives by tenor.

$ in millions	Investment- Grade		Non-Investment- Grade / Unrated		Total
As of September 2020
Less than 1 year	$  19,558		$   8,978		$   28,536
1 - 5 years	25,406		13,581		38,987
Greater than 5 years	76,543		9,703		86,246
Total	121,507		32,262		153,769
Netting	(98,796	)	(13,270	)	(112,066	)
Net credit exposure	$  22,711		$ 18,992		$   41,703
As of December 2019
Less than 1 year	$  18,764		$4,247		$23,011
1 - 5 years	18,674		6,879		25,553
Greater than 5 years	60,190		5,896		66,086
Total	97,628		17,022		114,650
Netting	(78,081	)	(8,978	)	(87,059	)
Net credit exposure	$  19,547		$8,044		$27,591

In the table above:

• Tenor is based on remaining contractual maturity.

• Netting includes counterparty netting across tenor categories and cash and securities collateral that we consider when determining credit risk (including collateral that is not eligible for netting under U.S. GAAP). Counterparty netting within the same tenor category is included within such tenor category.

The tables below present the distribution of our net credit exposure from OTC derivatives by tenor and internally determined public rating agency equivalents.

	Investment-Grade
$ in millions		AAA		AA		A		BBB		Total
As of September 2020
Less than 1 year		$     649		$   3,283		$ 10,366		$   5,260		$  19,558
1 - 5 years		936		4,334		12,149		7,987		25,406
Greater than 5 years		16,158		7,887		27,540		24,958		76,543
Total		17,743		15,504		50,055		38,205		121,507
Netting		(13,374	)	(10,976	)	(43,277	)	(31,169	)	(98,796	)
Net credit exposure		$  4,369		$   4,528		$   6,778		$   7,036		$  22,711
As of December 2019
Less than 1 year		$326		$2,022		$10,002		$6,414		$  18,764
1 - 5 years		669		3,196		8,635		6,174		18,674
Greater than 5 years		12,381		5,770		22,324		19,715		60,190
Total		13,376		10,988		40,961		32,303		97,628
Netting		(8,146	)	(8,273	)	(35,932	)	(25,730	)	(78,081	)
Net credit exposure		$5,230		$2,715		$5,029		$6,573		$  19,547

	Non-Investment-Grade / Unrated
$ in millions		BB or lower		Unrated		Total
As of September 2020
Less than 1 year		$   8,514		$       464		$   8,978
1 - 5 years		13,299		282		13,581
Greater than 5 years		9,466		237		9,703
Total		31,279		983		32,262
Netting		(13,058	)	(212	)	(13,270	)
Net credit exposure		$ 18,221		$       771		$ 18,992
As of December 2019
Less than 1 year		$3,964		$      283		$  4,247
1 - 5 years		6,772		107		6,879
Greater than 5 years		5,835		61		5,896
Total		16,571		451		17,022
Netting		(8,811	)	(167	)	(8,978	)
Net credit exposure		$7,760		$      284		$  8,044

Goldman Sachs September 2020 Form 10-Q 152

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Lending Activities.

We manage our lending activities using the credit risk process, measures, limits and risk mitigants described above. Other lending positions, including secondary trading positions, are risk-managed as a component of market risk.

• Commercial Lending. Our commercial lending activities include lending to investment-grade and non-investment-grade corporate borrowers. Loans and lending commitments associated with these activities are principally used for operating and general corporate purposes or in connection with contingent acquisitions. Corporate loans may be secured or unsecured, depending on the loan purpose, the risk profile of the borrower and other factors. Our commercial lending activities also include extending loans to borrowers that are secured by commercial and other real estate.

The table below presents our credit exposure from commercial loans and lending commitments, and the concentration by industry, region and credit quality.

	As of
$ in millions		September 2020	December 2019
Loans and Lending Commitments		$207,452	$222,745
Industry
Consumer, Retail & Healthcare		18%	19%
Diversified Industrials		16%	14%
Financial Institutions		8%	8%
Funds		4%	3%
Natural Resources & Utilities		15%	17%
Real Estate		11%	10%
Technology, Media & Telecommunications		16%	16%
Other (including Special Purpose Vehicles)		12%	13%
Total		100%	100%
Region
Americas		72%	73%
EMEA		23%	22%
Asia		5%	5%
Total		100%	100%
Credit Quality (Credit Rating Equivalent)
AAA		1%	1%
AA		3%	5%
A		15%	13%
BBB		27%	27%
BB or lower		54%	54%
Total		100%	100%

• Wealth Management, Residential Real Estate and Other Lending. We extend wealth management loans and lending commitments to private bank clients, substantially all of which are secured by commercial and residential real estate, securities or other assets. The fair value of the collateral received against such loans and lending commitments generally exceeds their carrying value.

We also have residential real estate and other lending exposures, which include purchased residential real estate and installment loans and commitments to purchase such loans (including distressed loans) and securities.

The table below presents our credit exposure from Wealth management, residential real estate and other lending, and the concentration by region.

$ in millions	Wealth Management	Residential Real Estate and Other
As of September 2020
Credit Exposure	$32,864	$  8,501
Americas	90%	75%
EMEA	8%	25%
Asia	2%	–
Total	100%	100%
As of December 2019
Credit Exposure	$30,668	$10,885
Americas	89%	74%
EMEA	9%	26%
Asia	2%	–
Total	100%	100%

• Installment and Credit Card Lending. We originate installment and credit card loans. Our credit exposure to installment loans was $4.11 billion as of September 2020 and $4.75 billion as of December 2019 and our credit exposure to credit card loans was $2.91 billion as of September 2020 and $1.86 billion as of December 2019.

See Note 9 to the consolidated financial statements for further information about U.S. state concentrations and the credit quality indicators of installment and credit card loans.

Securities Financing Transactions.

We enter into securities financing transactions in order to, among other things, facilitate client activities, invest excess cash, acquire securities to cover short positions and finance certain activities. We bear credit risk related to resale agreements and securities borrowed only to the extent that cash advanced or the value of securities pledged or delivered to the counterparty exceeds the value of the collateral received. We also have credit exposure on repurchase agreements and securities loaned to the extent that the value of securities pledged or delivered to the counterparty for these transactions exceeds the amount of cash or collateral received. Securities collateral obtained for securities financing transactions primarily includes U.S. and

non-U.S.

government and agency obligations.

153 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

The table below presents our credit exposure from securities financing transactions and the concentration by industry, region and credit quality.

	As of
$ in millions		September 2020	December 2019
Securities Financing Transactions		$25,682	$26,958
Industry
Financial Institutions		31%	37%
Funds		30%	27%
Municipalities & Nonprofit		6%	5%
Sovereign		29%	28%
Other (including Special Purpose Vehicles)		4%	3%
Total		100%	100%
Region
Americas		27%	38%
EMEA		48%	39%
Asia		25%	23%
Total		100%	100%
Credit Quality (Credit Rating Equivalent)
AAA		16%	15%
AA		24%	27%
A		44%	39%
BBB		9%	9%
BB or lower		3%	6%
Unrated		4%	4%
Total		100%	100%

The table above reflects both netting agreements and collateral that we consider when determining credit risk.

Other Credit Exposures.

We are exposed to credit risk from our receivables from brokers, dealers and clearing organizations and customers and counterparties. Receivables from brokers, dealers and clearing organizations primarily consist of initial margin placed with clearing organizations and receivables related to sales of securities which have traded, but not yet settled. These receivables generally have minimal credit risk due to the low probability of clearing organization default and the short-term nature of receivables related to securities settlements. Receivables from customers and counterparties generally consist of collateralized receivables related to customer securities transactions and generally have minimal credit risk due to both the value of the collateral received and the short-term nature of these receivables.

The table below presents our other credit exposures and the concentration by industry, region and credit quality.

	As of
$ in millions		September 2020	December 2019
Other Credit Exposures		$51,306	$44,931
Industry
Financial Institutions		87%	86%
Funds		8%	8%
Natural Resources & Utilities		1%	1%
Other (including Special Purpose Vehicles)		4%	5%
Total		100%	100%
Region
Americas		51%	49%
EMEA		37%	41%
Asia		12%	10%
Total		100%	100%
Credit Quality (Credit Rating Equivalent)
AAA		4%	2%
AA		52%	56%
A		26%	23%
BBB		8%	7%
BB or lower		9%	11%
Unrated		1%	1%
Total		100%	100%

The table above reflects collateral that we consider when determining credit risk.

Selected Exposures

We have credit and market exposures, as described below, that have had heightened focus due to recent events and broad market concerns. Credit exposure represents the potential for loss due to the default or deterioration in credit quality of a counterparty or borrower. Market exposure represents the potential for loss in value of our long and short positions due to changes in market prices.

Country Exposures.

High inflation in Turkey combined with current account deficits and significant depreciation of the Turkish Lira has led to concerns about its economic stability. As of September 2020, our total credit exposure to Turkey was $1.81 billion, which was substantially all with

non-sovereign

counterparties or borrowers. Such exposure consisted of $1.05 billion related to OTC derivatives, $378 million related to loans and lending commitments and $380 million related to secured receivables. After taking into consideration the benefit of Turkish corporate and sovereign collateral and other risk mitigants provided by Turkish counterparties, our net credit exposure was $569 million. In addition, our total market exposure to Turkey as of September 2020 was not material.

Goldman Sachs September 2020 Form 10-Q 154

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Liquidity pressures prompted the Argentine government to delay payment on certain debt obligations, and announce its intention to restructure most of its bonds, worsening the country’s economic distress. As of September 2020, our total credit exposure to Argentina was $162 million, which was with

non-sovereign

counterparties or borrowers, and was primarily related to loans and lending commitments. Our total market exposure to Argentina as of September 2020 was not material.

The restructuring of Lebanon’s sovereign debt has led to concerns about its financial stability. As of September 2020, our total credit exposure to Lebanon was $197 million, all of which related to loans and lending commitments with

non-sovereign

borrowers. Our total market exposure to Lebanon as of September 2020 was not material.

The potential restructuring of Zambia’s sovereign debt and significant depreciation of the Zambian kwacha has led to concerns about Zambia’s financial stability. As of September 2020, our total credit and market exposure for Zambia was not material.

Venezuela has delayed payments on its sovereign debt and its political situation remains unclear. As of September 2020, our total credit and market exposure for Venezuela was not material.

We have a comprehensive framework to monitor, measure and assess our country exposures and to determine our risk appetite. We determine the country of risk by the location of the counterparty, issuer or underlier’s assets, where they generate revenue, the country in which they are headquartered, the jurisdiction where a claim against them could be enforced, and/or the government whose policies affect their ability to repay their obligations. We monitor our credit exposure to a specific country both at the individual counterparty level, as well as at the aggregate country level. See “Stress Tests” for information about stress tests that are designed to estimate the direct and indirect impact of events involving the above countries.

Industry Exposures.

The decline in oil prices has led to market concerns regarding the creditworthiness of certain companies in the oil and gas industry. As of September 2020, our credit exposure to oil and gas companies related to loans and lending commitments was $12.35 billion ($3.71 billion of loans and $8.64 billion of lending commitments). Such exposure included $5.74 billion of exposure to

non-investment-grade

counterparties ($2.72 billion related to loans and $3.02 billion related to lending commitments), of which 76% was secured. In addition, we have exposure to our clients in the oil and gas industry arising from derivatives. As of September 2020, our credit exposure related to derivatives and receivables with oil and gas companies was $1.99 billion ($498 million with investment-grade counterparties and $1.49 billion with

non-investment-grade

counterparties). After taking into consideration the benefit of $708 million of hedges, our net credit exposure was $13.63 billion. As of September 2020, our market exposure related to oil and gas companies was $(746) million, which was substantially all to investment-grade issuers or underliers. Such exposure consisted of $553 million related to debt, $(1.17) billion related to credit derivatives and $(129) million related to equities.

The sharp decline in economic activity as a result of the

COVID-19

pandemic has resulted in a significant impact to the gaming and lodging industry. As of September 2020, our credit exposure to gaming and lodging companies (including hotel owners and operators) related to loans and lending commitments was $2.11 billion ($945 million of loans and $1.16 billion of lending commitments). Such exposure included $1.66 billion of exposure to

non-investment-grade

counterparties ($790 million related to loans and $867 million related to lending commitments), of which 83% was secured. In addition, we extend loans that are secured by hotel properties. As of September 2020, our exposure related to such loans and lending commitments was $1.74 billion and was to

non-investment-grade

counterparties. In addition, we have exposure to our clients in the gaming and lodging industry arising from derivatives. As of September 2020, our credit exposure related to derivatives and receivables with gaming and lodging companies was $227 million, with

non-investment-grade

counterparties. As of September 2020, our market exposure related to gaming and lodging companies was $171 million, which was primarily to

non-investment-grade

issuers or underliers. Such exposure consisted of $63 million related to debt, $(126) million related to credit derivatives and $234 million related to equities.

155 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Concerns surrounding the

COVID-19

pandemic have resulted in a sharp decline in travel which has significantly impacted the airline industry. As of September 2020, our credit exposure to airline companies related to loans and lending commitments was $3.05 billion ($2.20 billion of loans and $853 million of lending commitments). Such exposure included $2.71 billion of exposure to

non-investment-grade

counterparties ($2.19 billion related to loans and $516 million related to lending commitments), of which 82% was secured. In addition, we have exposure to our clients in the airline industry arising from derivatives. As of September 2020, our credit exposure related to derivatives and receivables with airline companies was $774 million ($319 million with investment-grade counterparties and $455 million with

non-investment-grade

counterparties). After taking into consideration the benefit of $296 million of hedges, our net credit exposure was $3.52 billion. As of September 2020, our market exposure related to airline companies was $(180) million, which was primarily to

non-investment-grade

issuers or underliers. Such exposure consisted of $134 million related to debt, $(310) million related to credit derivatives and $(4) million related to equities.

Operational Risk Management

Overview

Operational risk is the risk of an adverse outcome resulting from inadequate or failed internal processes, people, systems or from external events. Our exposure to operational risk arises from routine processing errors, as well as extraordinary incidents, such as major systems failures or legal and regulatory matters.

Potential types of loss events related to internal and external operational risk include:

• Clients, products and business practices;

• Execution, delivery and process management;

• Business disruption and system failures;

• Employment practices and workplace safety;

• Damage to physical assets;

• Internal fraud; and

• External fraud.

Operational Risk, which is independent of our revenue-producing units and reports to our chief risk officer, has primary responsibility for developing and implementing a formalized framework for assessing, monitoring and managing operational risk with the goal of maintaining our exposure to operational risk at levels that are within our risk appetite.

Operational Risk Management Process

Our process for managing operational risk includes the critical components of our risk management framework described in the “Overview and Structure of Risk Management,” including a comprehensive data collection process, as well as firmwide policies and procedures, for operational risk events.

We combine

top-down

and

bottom-up

approaches to manage and measure operational risk. From a

top-down

perspective, our senior management assesses firmwide and business-level operational risk profiles. From a

bottom-up

perspective, our first and second lines of defense are responsible for risk identification and risk management on a

day-to-day

basis, including escalating operational risks to senior management.

We maintain a comprehensive control framework designed to provide a well-controlled environment to minimize operational risks. The Firmwide Operational Risk and Resilience Committee is responsible for overseeing operational risk, and for ensuring our business and operational resilience.

Our operational risk management framework is in part designed to comply with the operational risk measurement rules under the Capital Framework and has evolved based on the changing needs of our businesses and regulatory guidance.

We have established policies that require all employees to report and escalate operational risk events. When operational risk events are identified, our policies require that the events be documented and analyzed to determine whether changes are required in our systems and/or processes to further mitigate the risk of future events.

We use operational risk management applications to capture and organize operational risk event data and key metrics. One of our key risk identification and assessment tools is an operational risk and control self-assessment process, which is performed by our managers. This process consists of the identification and rating of operational risks, on a forward-looking basis, and the related controls. The results from this process are analyzed to evaluate operational risk exposures and identify businesses, activities or products with heightened levels of operational risk.

Goldman Sachs September 2020 Form 10-Q 156

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Risk Measurement

We measure our operational risk exposure using both statistical modeling and scenario analyses, which involve qualitative and quantitative assessments of internal and external operational risk event data and internal control factors for each of our businesses. Operational risk measurement also incorporates an assessment of business environment factors, including:

• Evaluations of the complexity of our business activities;

• The degree of automation in our processes;

• New activity information;

• The legal and regulatory environment; and

• Changes in the markets for our products and services, including the diversity and sophistication of our customers and counterparties.

The results from these scenario analyses are used to monitor changes in operational risk and to determine business lines that may have heightened exposure to operational risk. These analyses are used in the determination of the appropriate level of operational risk capital to hold. We also perform firmwide stress tests. See “Overview and Structure of Risk Management” for information about firmwide stress tests.

Types of Operational Risks

Increased reliance on technology and third-party relationships has resulted in increased operational risks, such as information and cyber security risk, third-party risk and business resilience risk. We manage those risks as follows:

Information and Cyber Security Risk.

Information and cyber security risk is the risk of compromising the confidentiality, integrity or availability of our data and systems, leading to an adverse impact to us, our reputation, our clients and/or the broader financial system. We seek to minimize the occurrence and impact of unauthorized access, disruption or use of information and/or information systems. We deploy and operate preventive and detective controls and processes to mitigate emerging and evolving information security and cyber security threats, including monitoring our network for known vulnerabilities and signs of unauthorized attempts to access our data and systems. There is increased information risk through diversification of our data across external service providers, including use of a variety of cloud-provided or -hosted services and applications. See “Risk Factors” in Part II, Item 1A of this

Form 10-Q

and Part I, Item 1A of the 2019

Form 10-K

for further information about information and cyber security risk.

Third-Party Risk.

Third-party risk, including vendor risk, is the risk of an adverse impact due to reliance on third parties performing services or activities on our behalf. These risks may include legal, regulatory, information security, reputational, operational or any other risks inherent in engaging a third party. We identify, manage and report key third-party risks and conduct due diligence across multiple risk domains, including information security and cyber security, resilience and additional third-party dependencies. The Third-Party Risk Program monitors, reviews and reassesses third-party risks on an ongoing basis. See “Risk Factors” in Part II, Item 1A of this

Form 10-Q

and Part I, Item 1A of the 2019

Form 10-K

for further information about third-party risk.

Business Resilience Risk.

Business resilience risk is the risk of disruption to our critical processes. We monitor threats and assess risks and seek to ensure our state of readiness in the event of a significant operational disruption to the normal operations of our critical functions or their dependencies, such as, critical facilities, systems, third parties, data and/or personnel. We approach BCP through the lens of business and operational resilience. The resilience framework defines the fundamental principles for BCP and crisis management to ensure that critical functions can continue to operate in the event of a disruption. The business continuity program is comprehensive, consistent firmwide and

up-to-date,

incorporating new information, techniques and technologies as and when they become available, and our resilience recovery plans incorporate and test specific and measurable recovery time objectives in accordance with local market best practices and regulatory requirements, and under specific scenarios. See “Regulatory and Other Matters — Other Matters” for information about the impact of the

COVID-19

pandemic. See “Business — Business Continuity and Information Security” in Part I, Item 1 of the 2019

Form 10-K

for further information about business continuity.

Model Risk Management

Overview

Model risk is the potential for adverse consequences from decisions made based on model outputs that may be incorrect or used inappropriately. We rely on quantitative models across our business activities primarily to value certain financial assets and liabilities, to monitor and manage our risk, and to measure and monitor our regulatory capital.

Model Risk, which is independent of our revenue-producing units, model developers, model owners and model users, and reports to our chief risk officer, has primary responsibility for assessing, monitoring and managing our model risk through firmwide oversight across our global businesses, and provides periodic updates to senior management, risk committees and the Risk Committee of the Board.

157 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Our model risk management framework is managed through a governance structure and risk management controls, which encompass standards designed to ensure we maintain a comprehensive model inventory, including risk assessment and classification, sound model development practices, independent review and model-specific usage controls. The Firmwide Model Risk Control Committee oversees our model risk management framework.

Model Review and Validation Process

Model Risk consists of quantitative professionals who perform an independent review, validation and approval of our models. This review includes an analysis of the model documentation, independent testing, an assessment of the appropriateness of the methodology used, and verification of compliance with model development and implementation standards.

We regularly refine and enhance our models to reflect changes in market or economic conditions and our business mix. All models are reviewed on an annual basis, and new models or significant changes to existing models and their assumptions are approved prior to implementation.

The model validation process incorporates a review of models and trade and risk parameters across a broad range of scenarios (including extreme conditions) in order to critically evaluate and verify:

• The model’s conceptual soundness, including the reasonableness of model assumptions, and suitability for intended use;

• The testing strategy utilized by the model developers to ensure that the models function as intended;

• The suitability of the calculation techniques incorporated in the model;

• The model’s accuracy in reflecting the characteristics of the related product and its significant risks;

• The model’s consistency with models for similar products; and

• The model’s sensitivity to input parameters and assumptions.

See “Critical Accounting Policies — Fair Value — Review of Valuation Models,” “Liquidity Risk Management,” “Market Risk Management,” “Credit Risk Management” and “Operational Risk Management” for further information about our use of models within these areas.

Available Information

Our internet address is

www.goldmansachs.com

and the investor relations section of our website is located at

www.goldmansachs.com/investor-relations

, where we make available, free of charge, our annual reports on

Form 10-K,

quarterly reports on

Form 10-Q

and current reports on

Form 8-K

and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as well as proxy statements, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Also posted on our website, and available in print upon request of any shareholder to our Investor Relations Department (Investor Relations), are our certificate of incorporation and

by-laws,

charters for our Audit, Risk, Compensation, Corporate Governance and Nominating, and Public Responsibilities Committees, our Policy Regarding Director Independence Determinations, our Policy on Reporting of Concerns Regarding Accounting and Other Matters, our Corporate Governance Guidelines and our Code of Business Conduct and Ethics governing our directors, officers and employees. Within the time period required by the SEC, we will post on our website any amendment to the Code of Business Conduct and Ethics and any waiver applicable to any executive officer, director or senior financial officer.

Our website also includes information about (i) purchases and sales of our equity securities by our executive officers and directors; (ii) disclosure relating to certain

non-GAAP

financial measures (as defined in the SEC’s Regulation G) that we may make public orally, telephonically, by webcast, by broadcast or by other means; (iii) DFAST results; (iv) the public portion of our resolution plan submission; (v) our Pillar 3 disclosure; and (vi) our average daily LCR.

Investor Relations can be contacted at The Goldman Sachs Group, Inc., 200 West Street, 29th Floor, New York, New York 10282, Attn: Investor Relations, telephone:

212-902-0300,

e-mail:

gs-investor-relations@gs.com

. We use our website, our Twitter account (

twitter.com/GoldmanSachs

), our Instagram account (

instagram.com/GoldmanSachs

) and other social media channels as additional means of disclosing public information to investors, the media and others. Our officers may use similar social media channels to disclose public information. It is possible that certain information we or our officers post on our website and on social media could be deemed material, and we encourage investors, the media and others interested in Goldman Sachs to review the business and financial information we or our officers post on our website and on the social media channels identified above. The information on our website and those social media channels is not incorporated by reference into this

Form 10-Q.

Goldman Sachs September 2020 Form 10-Q 158

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Cautionary Statement Pursuant to the U.S. Private Securities Litigation Reform Act of 1995

We have included in this

Form 10-Q,

and our management may make, statements that may constitute “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical facts or statements of current conditions, but instead represent only our beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside our control.

These statements may relate to, among other things, (i) our future plans and results, including our target ROE, ROTE, efficiency ratio and CET1 capital ratio, and how they can be achieved,(ii) legal proceedings, governmental investigations or other contingencies as set forth in Notes 27 and 18 to the consolidated financial statements in Part I, Item 1 of this

Form 10-Q,

(iii) the results of stress tests, (iv) the objectives and effectiveness of our BCP strategy, information security program, risk management and liquidity policies, (v) our resolution plan and resolution strategy and their implications for stakeholders, (vi) the design and effectiveness of our resolution capital and liquidity models and triggers and alerts framework, (vii) trends in or growth opportunities for our businesses, including the timing, profitability, benefits and other aspects of business and strategic initiatives and changes in and the importance of our efficiency ratio, (viii) the effect of changes to regulations, and our future status, activities or reporting under banking and financial regulation, (ix) our NSFR, (x) our level of future compensation expense as a percentage of operating expenses, (xi) our investment banking transaction backlog, (xii) our expected tax rate, (xiii) the future state of our liquidity and regulatory capital ratios, and our prospective capital distributions (including dividends), (xiv) our expected interest income, (xv) our credit exposures, (xvi) our expected provisions for credit losses, (xvii) our preparations for Brexit, (xviii) the replacement of LIBOR and other IBORs and our program for the transition to alternative risk-free reference rates, (xix) the adequacy of our allowance for credit losses, (xx) the projected growth of our deposits and related interest expense savings, (xxi) the projected growth of our installment loan and credit card businesses, (xxii) our business initiatives, includingtransaction bankingand new consumer financial products, (xxiii) our expense savings and strategic locations initiatives, (xxiv) our planned 2020 parent vanilla debt issuances, (xxv) the amount of GCLA we expect to hold, (xxvi) our expected SCB and

G-SIB

surcharge,(xxvii) the impact of the

COVID-19

pandemic on our business, results, financial position and liquidity, (xxviii) the settlements relating to 1MDB, including the asset recovery guarantee and our remediation activities and (xxix) expenses we may incur, including future litigation expense and expenses from investing in our installment loan, credit card and transaction banking businesses.

By identifying these statements for you in this manner, we are alerting you to the possibility that our actual results, financial condition and liquidity may differ, possibly materially, from the anticipated results, financial condition and liquidity in these forward-looking statements. Important factors that could cause our results, financial condition and capital actions to differ from those in these statements include, among others, those described below and in “Risk Factors” in Part II, Item 1A of this

Form 10-Q

and in Part I, Item 1A of the 2019

Form 10-K.

Statements about our investment banking transaction backlog are subject to the risk that such transactions may be modified or may not be completed at all and related net revenues may not be realized or may be materially less than expected. Important factors that could have such a result include, for underwriting transactions, a decline or weakness in general economic conditions, an outbreak of hostilities, volatility in the securities markets or an adverse development with respect to the issuer of the securities and, for financial advisory transactions, a decline in the securities markets, an inability to obtain adequate financing, an adverse development with respect to a party to the transaction or a failure to obtain a required regulatory approval. For information about other important factors that could adversely affect our investment banking transactions, see “Risk Factors” in Part II, Item 1A of this

Form 10-Q

and in Part I, Item 1A of the 2019

Form 10-K.

Statements about our future effective income tax rate are subject to the risk that it may differ from the anticipated rate indicated in such statements, possibly materially, due to, among other things, changes in our earnings mix, our profitability and entities in which we generate profits, the assumptions we have made in forecasting our expected tax rate, as well as guidance that may be issued by the U.S. Internal Revenue Service.

Statements about our NSFR and SCB are based on our current interpretation and expectations of the relevant final rules, and reflect significant assumptions about how our NSFR and SCB are calculated. Our actual SCB will depend on the results of the applicable supervisory stress tests, and the methods used to calculate our NSFR and SCB may differ, possibly materially, from those used to calculate our NSFR and SCB for future disclosures.

Statements about the level of compensation expense, including as a percentage of operating expenses, and our efficiency ratio as our platform business initiatives reach scale are subject to the risks that the compensation and other costs to operate our businesses, including platform initiatives, may be greater than currently expected.

159 Goldman Sachs September 2020 Form 10-Q

THE GOLDMAN SACHS GROUP, INC. AND SUBSIDIARIES

Management’s Discussion and Analysis

Statements about our expected provisions for credit losses are subject to the risk that actual credit losses may differ and our expectations may change, possibly materially, from that currently anticipated due to, among other things, changes to the composition of our loan portfolio and changes in the economic environment in future periods and our forecasts of future economic conditions, as well as changes in our models, policies and other management judgments.

Statements about the projected growth of our deposits and associated interest expense savings, and our installment loan and credit card businesses, are subject to the risk that actual growth may differ, possibly materially, from that currently anticipated due to, among other things, changes in interest rates and competition from other similar products.

Statements about our target ROE, ROTE, efficiency ratio, and expense savings, and how they can be achieved, are based on our current expectations regarding our business prospects and are subject to the risk that we may be unable to achieve our targets due to, among other things, changes in our business mix, lower profitability of new business initiatives, increases in technology and other costs to launch and bring new business initiatives to scale, and increases in liquidity requirements.

Statements about our target ROE, ROTE and CET1 capital ratio, and how they can be achieved, are based on our current expectations regarding the capital requirements applicable to us and are subject to the risk that our actual capital requirements may be higher than currently anticipated because of, among other factors, changes in the regulatory capital requirements applicable to us resulting from changes in regulations or the interpretation or application of existing regulations or changes in the nature and composition of our activities.

Statements about the timing, costs, profitability, benefits and other aspects of business and expense savings initiatives, the level and composition of more durable revenues and increases in market share are based on our current expectations regarding our ability to implement these initiatives and actual results may differ, possibly materially, from current expectations due to, among other things, a delay in the timing of these initiatives, increased competition and an inability to reduce expenses and grow businesses with durable revenues.

Statements about planned 2020 parent vanilla debt issuances and the amount of GCLA we expect to hold are subject to the risk that actual issuances and GCLA levels may differ, possibly materially, from that currently expected due to changes in market conditions, business opportunities or our funding and projected liquidity needs.

Statements about the future state of our liquidity and regulatory capital ratios, as well as our prospective capital distributions (including dividends), are subject to the risk that our actual liquidity, regulatory capital ratios and capital distributions may differ, possibly materially, from what is currently expected due to, among other things, the need to use capital to support clients, increased regulatory requirements and changes to the composition of our balance sheet.

Statements about the risk exposure related to the asset recovery guarantee provided to the Government of Malaysia are subject to the risk that the actual value of assets and proceeds from assets seized and returned to the Government of Malaysia may be less than currently anticipated. Statements about the application for and pursuit of exemptions and authorizations from regulatory authorities, including the U.S. Department of Labor, in connection with the settlements relating to 1MDB and the progress or the status of remediation activities relating to 1MDB are based on our expectations regarding the prospects for receiving the exemptions and authorizations and the current remediation plans. Accordingly, our ability to receive the exemptions and authorizations and complete the remediation activities may change, possibly materially, from what is currently expected.

Goldman Sachs September 2020 Form 10-Q 160

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

Quantitative and qualitative disclosures about market risk are set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management” in Part I, Item 2 of this

Form 10-Q.

Item 4.    Controls and Procedures

As of the end of the period covered by this report, an evaluation was carried out by our management, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in

Rule 13a-15(e)

under the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures were effective as of the end of the period covered by this report. In addition, no change in our internal control over financial reporting (as defined in

Rule 13a-15(f)

under the Exchange Act) occurred during the quarter ended September 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.    Legal Proceedings

We are involved in a number of judicial, regulatory and arbitration proceedings concerning matters arising in connection with the conduct of our businesses. Many of these proceedings are in early stages, and many of these cases seek an indeterminate amount of damages. We have estimated the upper end of the range of reasonably possible aggregate loss for matters where we have been able to estimate a range and we believe, based on currently available information, that the results of matters where we have not been able to estimate a range of reasonably possible loss, in the aggregate, will not have a material adverse effect on our financial condition, but may be material to our operating results in a given period. Given the range of litigation and investigations presently under way, our litigation expenses can be expected to remain high. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Use of Estimates” in Part I, Item 2 of this

Form 10-Q.

See Notes 18 and 27 to the consolidated financial statements in Part I, Item 1 of this

Form 10-Q

for information about our reasonably possible aggregate loss estimate and judicial, regulatory and legal proceedings.

Item 1A.    Risk Factors

Our businesses, financial condition, liquidity and results of operations have been, and may in the future be, adversely affected by the

COVID-19

pandemic.

The coronavirus

(COVID-19)

pandemic has created economic and financial disruptions that have in the past adversely affected, and may in the future adversely affect, our business, financial condition, liquidity and results of operations. The extent to which the

COVID-19

pandemic will negatively affect our businesses, financial condition, liquidity and results of operations will depend on future developments, which are highly uncertain and cannot be predicted.

While financial markets have rebounded from the significant declines that occurred earlier in the pandemic and global economic conditions showed signs of improvement in the third quarter of 2020, many of the circumstances that arose or became more pronounced after the onset of the

COVID-19

pandemic persisted at the end of the quarter, including (i) muted levels of business activity across many sectors of the economy, relatively weak consumer confidence and high unemployment; (ii) elevated levels of market volatility; (iii) the federal funds rate and yields on U.S. Treasury securities near zero; (iv) substantial uncertainty about whether previously announced merger and acquisition deals will be completed or restructured; (v) heightened credit risk with regard to industries that have been most severely impacted by the pandemic, including oil and gas, gaming and lodging, and airlines; (vi) greater emphasis by investors on liquidity products, which generate lower fees, relative to risk assets, resulting in these products comprising a higher share of AUS as compared to the

pre-pandemic

composition; and (vii) higher cyber security, information security and operational risks as a result of work-from-home arrangements.

Depending on the duration and severity of the pandemic going forward, as well as the effects of the pandemic on consumer and corporate confidence, the conditions noted above could continue for an extended period and other adverse developments may occur or reoccur, including (i) a repeat, or worse, of the decline in the valuation of equity, fixed-income and commodity markets that occurred at the outset of the pandemic; (ii) further declines in U.S. interest rates, to zero or below; (iii) market dislocations that may make hedging strategies less effective or ineffective; (iv) a reduction in fees on AUS due to declines in the valuation of assets or a protracted trend toward asset classes that generate lower fees; (v) disruption in the new issuance markets for debt and equity, leading to a decline in activity; (vi) a further deterioration in the liquidity profile of corporate borrowers, resulting in additional draws on credit lines; and (vii) greater challenges in valuing derivative positions and associated collateral, leading to significant increases in collateral calls and valuation disputes.

161 Goldman Sachs September 2020 Form 10-Q

The effects of the

COVID-19

pandemic on economic and market conditions have in the past and may in the future also increase demands on our liquidity as we meet client needs. Likewise, these adverse developments have in the past and may in the future affect our capital and leverage ratios. We have ceased purchases of our common stock in order to deploy more capital and liquidity to meet the needs of our clients, and such cessation is now required by the FRB to continue through the fourth quarter. The effects of the

COVID-19

pandemic or FRB requirements may cause us to limit future capital distributions beyond the fourth quarter.

Governmental authorities worldwide have taken increased measures to stabilize the markets and support economic growth. The continued success of these measures is unknown and they may not be sufficient to address future market dislocations or avert severe and prolonged reductions in economic activity. We also face an increased risk of client disputes, litigation and governmental and regulatory scrutiny as a result of the effects of the

COVID-19

pandemic on economic and market conditions.

The length of the pandemic and the efficacy of the extraordinary measures that have been put in place to address it are unknown. Until the pandemic subsides, we may experience draws on lines of credit, reduced activity levels in investment banking, reduced revenues in our asset management and wealth management businesses and increased client defaults, including defaults in unsecured loans. Even after the pandemic subsides, the U.S. economy, as well as most other major economies, may continue to experience a recession, and we anticipate our businesses would be materially and adversely affected by a prolonged recession in the U.S. and other major markets.

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

The table below presents purchases made by or on behalf of Group Inc. or any “affiliated purchaser” (as defined in

Rule 10b-18(a)(3)

under the Exchange Act) of our common stock during the three months ended September 2020.

	Total Shares Purchased	Average Price Paid Per Share	Total Shares Purchased as Part of a Publicly Announced Program	Maximum Shares That May Yet Be Purchased Under the Program
July	–	–	–	49,693,762
August	–	–	–	49,693,762
September	–	–	–	49,693,762
Total	–		–

We suspended stock repurchases during the first quarter of 2020 and through the third quarter of 2020. Consistent with the FRB’s requirement for all large BHCs, we have extended the suspension of stock repurchases through the fourth quarter of 2020.

Since March 2000, our Board has approved a repurchase program authorizing repurchases of up to 605 million shares of our common stock. The repurchase program is effected primarily through regular open-market purchases (which may include repurchase plans designed to comply with

Rule 10b5-1

and accelerated share repurchases), the amounts and timing of which are determined primarily by our current and projected capital position, but which may also be influenced by general market conditions and the prevailing price and trading volumes of our common stock. The repurchase program has no set expiration or termination date.

Goldman Sachs September 2020 Form 10-Q 162

Item 6.    Exhibits

Exhibits

15.1	Letter re: Unaudited Interim Financial Information.
31.1	Rule 13a-14(a) Certifications.
32.1	Section 1350 Certifications (This information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934).
101	Pursuant to Rules 405 and 406 of Regulation S-T, the following information is formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Statements of Earnings for the three and nine months ended September 30, 2020 and September 30, 2019, (ii) the Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2020 and September 30, 2019, (iii) the Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019, (iv) the Consolidated Statements of Changes in Shareholders’ Equity for the three and nine months ended September 30, 2020 and September 30, 2019, (v) the Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and September 30, 2019, (vi) the notes to the Consolidated Financial Statements and (vii) the cover page.
104	Cover Page Interactive Data File (formatted in iXBRL in Exhibit 101).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

THE GOLDMAN SACHS GROUP, INC.
By:	/s/	Stephen M. Scherr
Name:		Stephen M. Scherr
Title:		Chief Financial Officer (Principal Financial Officer)
Date:		October 30, 2020
By:	/s/	Sheara Fredman
Name:		Sheara Fredman
Title:		Chief Accounting Officer (Principal Accounting Officer)
Date:		October 30, 2020

163 Goldman Sachs September 2020 Form 10-Q