Goldman Sachs Account Documents

GOLDMAN SACHS BANK USA AND SUBSIDIARIES
Unaudited Quarterly Report
for the quarter ended March 31, 2018

GOLDMAN SACHS BANK USA AND SUBSIDIARIES
QUARTERLY REPORT FOR THE QUARTER ENDED MARCH 31, 2018

INDEX
Page No.
PART I

Page No.
Report of Independent Auditors

Financial Statements and Supplementary Data (Unaudited)

Supplemental Financial Information

Condensed Consolidated Financial Statements

PART II

Condensed Consolidated Statements of Earnings

Management’s Discussion and Analysis of Financial

Condensed Consolidated Statements of Comprehensive Income

Condensed Consolidated Statements of Financial Condition

Condition and Results of Operations

Introduction

Executive Overview

Business Environment

Condensed Consolidated Statements of Cash Flows

Critical Accounting Policies

Notes to Condensed Consolidated Financial Statements

Recent Accounting Developments

Note 1. Description of Business

Results of Operations

Note 2. Basis of Presentation

Balance Sheet and Funding Sources

Note 3. Significant Accounting Policies

Equity Capital Management and Regulatory Capital

Condensed Consolidated Statements of Changes in
Shareholder’s Equity

Note 4. Financial Instruments Owned and Financial

Regulatory Matters and Developments

Contractual Obligations

Note 5. Fair Value Measurements

Risk Management

Note 6. Cash Instruments

Liquidity Risk Management

Note 7. Derivatives and Hedging Activities

Market Risk Management

Note 8. Fair Value Option

Credit Risk Management

Note 9. Loans Receivable

Operational Risk Management

Note 10. Collateralized Agreements and Financings

Model Risk Management

Note 11. Securitization Activities

Note 12. Variable Interest Entities

Note 13. Other Assets

Note 14. Deposits

Note 15. Unsecured Borrowings

Note 16. Other Liabilities and Accrued Expenses

Note 17. Commitments, Contingencies and Guarantees

Note 18. Regulation and Capital Adequacy

Note 19. Transactions with Related Parties

Note 20. Interest Income and Interest Expense

Note 21. Income Taxes

Note 22. Credit Concentrations

Note 23. Legal Proceedings

Note 24. Subsequent Events

Instruments Sold, But Not Yet Purchased

Cautionary Statement

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

PART I. Financial Statements and Supplementary Data (Unaudited)
Condensed Consolidated Statements of Earnings
(Unaudited)
Three Months
Ended March
2018
2017

$ in millions
Revenues
Interest income
Interest expense
Net interest income

Gains and losses from financial instruments, net
Other revenues
Provision for losses on loans and lending commitments
Total non-interest revenues
Net revenues, including net interest income

1,208
563
645

788
416
372

597
48
(60)
585
1,230

490
31
(30)
491
863

Operating expenses
Compensation and benefits
Service charges
Market development
Professional fees
Brokerage, clearing, exchange and distribution fees
Other expenses
Total operating expenses

125
102
57
31
27
130
472

89
106
25
24
24
75
343

Pre-tax earnings
Provision for taxes
Net earnings

758
183
575

520
186
334

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

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
Three Months
Ended March
2017

2018

$ in millions
Net earnings

575

334

Other comprehensive income/(loss) adjustments, net of tax:
Debt valuation adjustment
Available-for-sale securities
Other comprehensive income/(loss)

(7)

(25)

–
4

(32)

Comprehensive income

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

543

338

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Condensed Consolidated Statements of Financial Condition
(Unaudited)

$ in millions, except per share amounts
Assets
Cash
Collateralized agreements:
Securities purchased under agreements to resell (includes $23,729 and $17,918 at fair value)
Receivables:
Loans receivable
Customers and counterparties, brokers, dealers and clearing organizations
Financial instruments owned (at fair value and includes $758 and $814 pledged as collateral)
Other assets
Total assets
Liabilities and shareholder’s equity
Deposits (includes $4,565 and $4,428 at fair value)
Collateralized financings:
Securities sold under agreements to repurchase (at fair value)
Other secured financings (includes $2,898 and $3,395 at fair value)
Payables to customers and counterparties, brokers, dealers and clearing organizations
Financial instruments sold, but not yet purchased (at fair value)
Unsecured borrowings (includes $178 and $186 at fair value)
Other liabilities and accrued expenses
Total liabilities

As of
March
December
2018
2017
$

49,076

51,528

24,088

18,320

55,473
10,753
30,802
1,537
171,729

50,849
8,318
34,334
1,411
164,760

124,343

115,894
56
3,502
3,593
10,297
4,219
1,653
139,214

49
2,989
3,421
8,565
4,441
1,832
145,640

Commitments, contingencies and guarantees
Shareholder’s equity
Shareholder’s equity (includes common stock, $100 par value; 80,000,000 shares authorized, issued and outstanding)
Total liabilities and shareholder’s equity

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

26,089
171,729

25,546
164,760

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Shareholder’s Equity
(Unaudited)
Three Months Ended
March 2018

$ in millions
Shareholder’s equity
Beginning balance
Net earnings
Capital contribution from The Goldman Sachs Group, Inc.
Dividend paid to The Goldman Sachs Group, Inc.
Other comprehensive loss
Ending balance

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

25,546
575
–
–
(32)
26,089

Year Ended
December 2017
$

24,611
1,414
37
(500)
(16)
25,546

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows
(Unaudited)

$ in millions
Cash flows from operating activities
Net earnings
Adjustments to reconcile net earnings to net cash used for operating activities:
Depreciation and amortization
Deferred income taxes
Share-based compensation
Provision for losses on loans and lending commitments
C
hanges in operating assets and liabilities:
Loans held for sale
Receivables and payables (excluding loans receivable), net
Collateralized transactions (excluding other secured financings), net
Financial instruments owned (excluding available-for-sale securities)
Financial instruments sold, but not yet purchased
Other, net
Net cash used for operating activities
Cash flows from investing activities
Loans receivable, net (excluding loans held for sale)
Purchase of available-for-sale securities
Proceeds from sales and paydowns of available-for-sale securities
Net cash used for investing activities
Cash flows from financing activities
Deposits, net
Repayment of other secured financings
Proceeds from issuance of unsecured borrowings
Repayment of unsecured borrowings
Derivative contracts with a financing element, net
Net cash provided by/(used for) financing activities
Net decrease in cash
Cash, beginning balance
Cash, ending balance

Three Months
Ended March
2018
$

575

334
5
(10)
8
30

5
30
6
60

2017

413
(2,607)
(5,775)
3,289
(1,732)
(272)
(6,008)

(411)
(693)
(2,460)
550
1,651
(511)
(1,507)

(4,944)
–
124
(4,820)

(91)
(15)
–
(106)

8,657
(500)
2,250
(2,034)
3
8,376
(2,452)
51,528
49,076

(4,048)
(500)
–
(33)
1
(4,580)
(6,193)
74,668
68,475

SUPPLEMENTAL DISCLOSURES:
Cash payments for interest were $483 million and $469 million during the three months ended March 2018 and March 2017, respectively. Cash payments for income
taxes, net of refunds, were $2 million and $1 million for the three months ended March 2018 and March 2017, respectively.
Non-cash activities during the three months ended March 2018:
• The Bank received $165 million of loans held for investment in connection with the securitization of financial instruments owned and held for sale loans.
Non-cash activities during the three months ended March 2017:
• The Bank received $23 million of loans held for investment in connection with the securitization of financial instruments owned.

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

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1.

The following describes the activities that are conducted in the
Bank’s primary operating subsidiaries:

Description of Business

Goldman Sachs Mitsui Marine Derivative Products, L.P.
(MMDP), a Delaware limited partnership, is owned 50% by an
external party, Mitsui Sumitomo Insurance Co., Ltd. (Mitsui
Sumitomo). MMDP acts as an intermediary in transactions
involving derivative contracts. MMDP is able to provide credit
rating enhancement to derivative products due to its
partnership with Mitsui Sumitomo.

Goldman Sachs Bank USA, together with its consolidated
subsidiaries (collectively, the Bank), is a New York Statechartered bank and a member of the Federal Reserve System.
The Bank is supervised and regulated by the Board of
Governors of the Federal Reserve System (Federal Reserve
Board or FRB), the New York State Department of Financial
Services (NYDFS) and the U.S. Consumer Financial
Protection Bureau (CFPB), and is a member of the Federal
Deposit Insurance Corporation (FDIC). The Bank’s deposits
are insured by the FDIC up to the maximum amount provided
by law. The Bank is registered as a swap dealer with the U.S.
Commodity Futures Trading Commission (CFTC). The Bank
is also a government securities dealer subject to the rules and
regulations of the U.S. Department of the Treasury (Treasury).

Goldman Sachs Mortgage Company (GSMC), a New York
limited partnership, is a wholly-owned subsidiary of the Bank.
GSMC originates commercial mortgage loans and purchases
commercial and residential mortgage loans and other
consumer loan assets for securitization and market making.
Note 2.

Basis of Presentation

The Bank’s principal office is located in New York, New
York. The Bank operates one domestic branch located in Salt
Lake City, Utah, which is regulated by the Utah Department
of Financial Institutions. The Bank also has a branch in
London, United Kingdom, which is regulated by the Financial
Conduct Authority and the Prudential Regulation Authority.

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

The Bank is a wholly-owned subsidiary of The Goldman
Sachs Group, Inc. (Group Inc.). Group Inc. is a bank holding
company under the U.S. Bank Holding Company Act of 1956
(BHC Act), a financial holding company under amendments to
the BHC Act effected by the U.S. Gramm-Leach-Bliley Act of
1999, and is subject to supervision and examination by the
FRB.

These condensed consolidated financial statements are
unaudited and should be read in conjunction with the audited
consolidated financial statements included in the Bank’s
Annual Report for the year ended December 31, 2017.
References to the “2017 Annual Report” are to the Bank’s
Annual Report for the year ended December 31, 2017. The
condensed consolidated financial information as of December
31, 2017 has been derived from audited consolidated financial
statements not included herein.

The Bank’s primary activities include lending, deposit taking
and engaging in derivatives transactions. The Bank is a lender
to private wealth management (PWM) clients, institutional
and corporate clients and directly to retail clients through its
digital platforms, Marcus: by Goldman Sachs (Marcus) and
Goldman Sachs Private Bank Select (GS Select). The Bank
accepts deposits from PWM clients, retail clients through
Marcus and through deposit sweep programs, and the Bank
issues brokered certificates of deposit. The Bank also enters
into interest rate, credit, currency, commodity and equity
derivatives and certain related products for the purpose of
market making and risk management.

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

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
Consolidation
The Bank consolidates entities in which the Bank has a
controlling financial interest. The Bank 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).

All references to March 2018 and March 2017 refer to the
Bank’s periods ended, or the dates, as the context requires,
March 31, 2018 and March 31, 2017, respectively. All
references to December 2017 refer to the date December 31,
2017. Any reference to a future year refers to a year ending on
December 31 of that year. Certain reclassifications have been
made to previously reported amounts to conform to the current
presentation.

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
Bank has a controlling majority voting interest in a voting
interest entity, the entity is consolidated.

Note 3.

Significant Accounting Policies
The Bank’s significant accounting policies include accounting
for loans and lending commitments at amortized cost net of
allowance for loan losses, when and how to measure the fair
value of assets and liabilities, accounting for deposits and
when to consolidate an entity. See Note 9 for policies on
accounting for loans receivable and lending commitments,
Notes 5 through 8 for policies on fair value measurements,
Note 14 for policies on accounting for deposits, and below and
Note 12 for policies on consolidation accounting. All other
significant accounting policies are either described below or
included in the following footnotes:
Financial Instruments Owned and Financial Instruments
Sold, But Not Yet Purchased

Note 4

Fair Value Measurements

Note 5

Cash Instruments

Note 6

Derivatives and Hedging Activities

Note 7

Fair Value Option

Note 8

Loans Receivable

Note 9

Collateralized Agreements and Financings

Note 10

Securitization Activities

Note 11

Variable Interest Entities

Note 12

Other Assets

Note 13

Deposits

Note 14

Unsecured Borrowings

Note 15

Other Liabilities and Accrued Expenses

Note 16

Commitments, Contingencies and Guarantees

Note 17

Regulation and Capital Adequacy

Note 18

Transactions with Related Parties

Note 19

Interest Income and Interest Expense

Note 20

Income Taxes

Note 21

Credit Concentrations

Note 22

Legal Proceedings

Note 23

Variable Interest Entities. A VIE is an entity that lacks
one or more of the characteristics of a voting interest entity.
The Bank has a controlling financial interest in a VIE when
the Bank has a variable interest or interests that provide it with
(i) the power to direct the activities of the VIE that most
significantly impact the VIE’s economic performance and (ii)
the obligation to absorb losses of the VIE or the right to
receive benefits from the VIE that could potentially be
significant to the VIE. See Note 12 for further information
about VIEs.
Use of Estimates
Preparation of these condensed consolidated financial
statements requires management to make certain estimates and
assumptions, the most important of which relate to the
allowance for losses on loans and lending commitments held
for investment, fair value measurements, discretionary
compensation accruals, income tax expense related to the Tax
Cuts and Jobs Act (Tax Legislation), 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.

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
Receivables from Customers and Counterparties,
Brokers, Dealers and Clearing Organizations
Receivables from customers and counterparties, brokers,
dealers and clearing organizations primarily consist of
collateral posted in connection with certain derivative
transactions and receivables related to unsettled trades.
Receivables from customers and counterparties, brokers,
dealers and clearing organizations are accounted for at
amortized cost net of estimated uncollectible amounts, which
generally approximates fair value. While these receivables are
carried at amounts that approximate fair value, they are not
accounted for at fair value under the fair value option or at fair
value in accordance with other U.S. GAAP and therefore are
not included in the Bank’s fair value hierarchy in Notes 6
through 8. Had these receivables been included in the Bank’s
fair value hierarchy, substantially all would have been
classified in level 2 as of both March 2018 and December
2017. Interest on receivables from customers and
counterparties, brokers, dealers and clearing organizations is
recognized over the life of the transaction and included in
interest income.

Revenue Recognition
Financial Assets and Financial Liabilities at Fair
Value. Financial instruments owned and financial instruments
sold, but not yet purchased are recorded at fair value either
under the fair value option or in accordance with other U.S.
GAAP. In addition, the Bank has elected to account for certain
of its other financial assets and financial liabilities at fair value
by electing the fair value option. The fair value of a financial
instrument is the amount that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date.
Financial assets are marked to bid prices and financial
liabilities are marked to offer prices. Fair value measurements
do not include transaction costs. Fair value gains or losses are
included in gains and losses from financial instruments, net.
See Notes 5 through 8 for further information about fair value
measurements. In addition, the Bank recognizes income
related to the syndication of loans and lending commitments
and other fees from affiliates in gains and losses from
financial instruments, net.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales when
the Bank has relinquished control over the assets transferred.
For transfers of financial assets accounted for as sales, any
gains or losses are recognized in gains and losses from
financial instruments, net. Assets or liabilities that arise from
the Bank’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 financial instruments owned or loans
receivable and the transfer is accounted for as a collateralized
financing, with the related interest expense recognized over
the life of the transaction. See Note 10 for further information
about transfers of financial assets accounted for as
collateralized financings and Note 11 for further information
about transfers of financial assets accounted for as sales.

Payables to Customers and Counterparties, Brokers,
Dealers and Clearing Organizations
Payables to customers and counterparties, brokers, dealers and
clearing organizations primarily consist of collateral received
in connection with certain derivative transactions and payables
related to unsettled trades. Payables to customers and
counterparties, brokers, dealers and clearing organizations are
accounted for at cost plus accrued interest, which generally
approximates fair value. While these payables are carried at
amounts that approximate fair value, they are not accounted for
at fair value under the fair valu
e option or at fair value in
accordance with other U.S. GAAP and therefore are not
included in the Bank’s fair value hierarchy in Notes 6 through 8.
Had these payables been carried at fair value and included in the
Bank’s fair value hierarchy, substantially all would have been
classified in level 2 as of both March 2018 and December 2017.
Interest on payables to customers and counterparties, brokers,
dealers and clearing organizations is recognized over the life of
the transaction and included in interest expense.

Cash
Cash consists of highly liquid overnight deposits held in the
ordinary course of business. As of March 2018 and December
2017, cash included $48.78 billion and $51.08 billion,
respectively, of interest-bearing deposits with banks. The
Bank segregates cash for regulatory and other purposes related
to client activity. As of March 2018 and December 2017, $201
million and $291 million, respectively, of cash was segregated
for regulatory and other purposes.

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
Offsetting Assets and Liabilities
To reduce credit exposures on derivatives and securities
financing transactions, the Bank 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 nondefaulting 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
Bank 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 nondefaulting 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 Bank’s right of
setoff under netting and credit support agreements, the Bank
evaluates various factors including applicable bankruptcy
laws, local statutes and regulatory provisions in the
jurisdiction of the parties to the agreement.

Foreign Currency Translation
Assets and liabilities denominated in non-U.S. currencies are
translated at rates of exchange prevailing on the date of the
condensed consolidated statements of financial condition and
revenues and expenses are translated at average rates of
exchange for the period. Foreign currency remeasurement
gains or losses on transactions in nonfunctional currencies are
recognized in earnings.
Recent Accounting Developments
Revenue from Contracts with Customers (ASC 606).
In May 2014, the FASB issued ASU No. 2014-09, “Revenue
from Contracts with Customers (Topic 606).” This ASU, as
amended, provides comprehensive guidance on the
recognition of revenue earned from contracts with customers
arising from the transfer of goods and services, guidance on
accounting for certain contract costs and new disclosures.
The Bank adopted this ASU in January 2018 under a modified
retrospective approach. The ASU had no impact on the Bank’s
results of operations upon adoption.
The Bank also prospectively changed the presentation of
certain costs from a net presentation within revenues to a gross
basis. Beginning in 2018, certain expenses related to loan
securitizations which were included in gains and losses from
financial instruments, net are presented gross as operating
expenses. For the three months ended March 2018,
implementation of this ASU resulted in an increase in both net
revenues and operating expenses of $18 million.

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

The Bank’s net revenues subject to this ASU were not
material for the three months ended March 2018.
Recognition and Measurement of Financial Assets
and Financial Liabilities (ASC 825). In January 2016, the
FASB issued ASU No. 2016-01, “Financial Instruments
(Topic 825) — Recognition and Measurement of Financial
Assets and Financial Liabilities.” This ASU amends certain
aspects of recognition, measurement, presentation and
disclosure of financial instruments. It includes a requirement
to present separately in other comprehensive income changes
in fair value attributable to a Bank’s own credit spreads (debt
valuation adjustment or DVA), net of tax, on financial
liabilities for which the fair value option was elected.

In the condensed consolidated statements of financial
condition, derivatives are reported net of cash collateral
received and posted under enforceable credit support
agreements, when transacted under an enforceable netting
agreement. In the condensed consolidated statements of
financial condition, resale and repurchase agreements are not
reported net of the related cash and securities received or
posted as collateral. Certain other receivables and payables
with affiliates that meet the criteria of offsetting are reported
on a net basis in the condensed consolidated statements of
financial condition. See Note 10 for further information about
collateral received and pledged, including rights to deliver or
repledge collateral. See Notes 7 and 10 for further information
about offsetting.
9

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
In January 2016, the Bank early adopted this ASU for the
requirements related to DVA and reclassified the cumulative
DVA from retained earnings to accumulated other
comprehensive loss. The adoption of the remaining provisions
of the ASU in January 2018 did not have a material impact on
the Bank’s financial condition, results of operations or cash
flows.

Under CECL, the allowance for losses for financial assets that
are measured at amortized cost reflects management’s
estimate of credit losses over the remaining expected life of
the financial assets. Expected credit losses for newly
recognized financial assets, as well as changes to expected
credit losses during the period, would be recognized in
earnings. For certain purchased financial assets with
deterioration in credit quality since origination, an initial
allowance would be recorded for expected credit losses and
recognized as an increase to the purchase price rather than as
an expense. Expected credit losses, including losses on offbalance-sheet exposures such as lending commitments, will be
measured based on historical experience, current conditions
and forecasts that affect the collectability of the reported
amount.

Leases (ASC 842). In February 2016, the FASB issued
ASU No. 2016-02, “Leases (Topic 842).” This ASU requires
that, for leases longer tha
n one year, a lessee recognize in the
statements of financial condition 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. In
addition, this ASU requires expanded disclosures about the
nature and terms of lease agreements.

The ASU is effective for the Bank in January 2020 under a
modified retrospective approach. Early adoption is permitted
in January 2019. Adoption of the ASU will result in earlier
recognition of credit losses and an increase in the recorded
allowance for certain purchased loans with deterioration in
credit quality since origination with a corresponding increase
to their gross carrying value. The Bank is currently in the
process of identifying and developing the changes to the
Bank’s existing allowance models and processes that will be
required under CECL. The impact of adoption of this ASU on
the Bank’s financial condition, results of operations and cash
flows will depend on, among other things, the economic
environment and the type of financial assets held by the Bank
on the date of adoption.

The ASU is effective for the Bank in January 2019 under a
modified retrospective approach. Early adoption is permitted.
The Bank’s implementation efforts include reviewing the
terms of existing leases and service contracts with affiliates,
which may include embedded leases. Based on the
implementation efforts to date, the Bank does not expect the
amount of the potential gross up to have a material impact on
its financial condition.
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 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.

Classification of Certain Cash Receipts and Cash
Payments (ASC 230). In August 2016, the FASB issued
ASU No. 2016-15, “Statement of Cash Flows (Topic 230) —
Classification of Certain Cash Receipts and Cash Payments.”
This ASU provides guidance on the disclosure and
classification of certain items within the statements of cash
flows.
The Bank adopted this ASU in January 2018 under a
retrospective approach. The impact of adoption was an
increase of $23 million to net cash used for operating activities
and a decrease of $23 million to net cash used for investing
activities for the three months ended March 2017.

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 4.

Clarifying the Definition of a Business (ASC 805). In
January 2017, the FASB issued ASU No. 2017-01, “Business
Combinations (Topic 805) – Clarifying the Definition of a
Business.” The ASU amends the definition of a business and
provides a threshold which must be considered to determine
whether a transaction is an acquisition (or disposal) of an asset
or a business.

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

The Bank adopted this ASU in January 2018 under a
prospective approach. Adoption of the ASU did not have a
material impact on the Bank’s financial condition, results of
operations or cash flows. The Bank expects that fewer
transactions will be treated as acquisitions (or disposals) of
businesses as a result of adopting this ASU.

The table below presents the Bank’s financial instruments
owned and financial instruments sold, but not yet purchased.
Financial
Instruments

Targeted Improvements to Accounting for Hedging
Activities (ASC 815). In August 2017, the FASB issued
ASU No. 2017-12, “Derivatives and Hedging (Topic 815) —
Targeted Improvements to Accounting for Hedging
Activities.” The ASU amends certain rules for hedging
relationships, expands the types of strategies that are eligible
for hedge accounting treatment to more closely align the
results of hedge accounting with risk management activities
and amends disclosure requirements related to fair value and
net investment hedges.

Financial
$ in millions

Sold, But

Instruments

Not Yet

Owned

Purchased

As of March 2018
Government and agency obligations:
U.S.
Non-U.S.

$ 11,966

2,922

–

795

–

Loans and securities backed by:
Commercial real estate
Residential real estate
Corporate debt instruments

1,385

412

–

Other debt obligations

139

–

Equity securities

300

–

State and municipal obligations

The Bank early adopted this ASU in January 2018 under a
modified retrospective approach for hedge accounting
treatment, and under a prospective approach for the amended
disclosure requirements. Adoption of this ASU did not have a
material impact on the Bank’s financial condition, results of
operations or cash flows. See Note 7 for further information.

7,592

Investments in funds at NAV
Subtotal
Derivatives
Total

–

22,228

3,344

8,574

5,221

$ 30,802

8,565

$ 15,261

4,004

As of December 2017
Government and agency obligations:

Reclassification of Certain Tax Effects from
Accumulated Other Comprehensive Income (ASC
220). In February 2018, the FASB issued ASU No. 2018-02,
“Income Statement – Reporting Comprehensive Income
(Topic 220) – Reclassification of Certain Tax Effects from
Accumulated Other Comprehensive Income.” This ASU
permits a reporting entity to reclassify the income tax effects
of Tax Legislation on items within accumulated other
comprehensive income to retained earnings.

U.S.
Non-U.S.

–

952

–

Loans and securities backed by:
Commercial real estate
Residential real estate
Corporate debt instruments
State and municipal obligations

220

–

205

–

Equity securities

293

–

Subtotal
Derivatives
Total

–

1,628

Other debt obligations
Investments in funds at NAV

The ASU is effective for the Bank in January 2019 under a
retrospective or a modified retrospective approach. Early
adoption is permitted. Since this ASU only permits
reclassification within shareholders’ equity, adoption of this
ASU will not have a material impact on the Bank’s financial
condition.

6,855

–

25,258

4,230

9,076
$ 34,334

6,067
$

10,297

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial
Statements
(Unaudited)
In the table above:

Note 5.

 Corporate debt instruments includes corporate loans and
debt securities.

Fair Value Measurements

 Substantially all of equity securities is equity investments
made as part of the Bank’s Community Reinvestment Act
(CRA) activities.

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 Bank
measures certain financial assets and financial liabilities as a
portfolio (i.e., based on its net exposure to market and/or
credit risks).

Gains and Losses from Financial Instruments, Net
The table below presents gains and losses from financial
instruments, net.
Three Months

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).

Ended March
Interest rates

2017

2018

$ in millions
$

Currencies
Credit

182

846

(473)

356

139

Equities

(20)

Commodities

(2)

Total

597

(2)
$

490

In the table above:
 Gains/(losses) include both realized and unrealized gains
and losses, and are primarily related to the Bank’s financial
instruments owned and financial instruments sold, but not
yet purchased, including both derivative and non-derivative
financial instruments and the syndication of loans and
lending commitments.

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. The fair value hierarchy is as follows:

 Gains/(losses) exclude related interest income and interest
expense. See Note 20 for further information about interest
income and interest expense.
 Gains/(losses) are not representative of the manner in which
the Bank manages its business activities because many of
the Bank’s market making, lending and other activities
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,
certain of the Bank’s interest rate derivatives are sensitive to
changes in foreign currency exchange rates and may be
economically hedged with foreign currency contracts.

Level 1. Inputs are unadjusted quoted prices in active markets
to which the Bank 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.

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
The fair values for substantially all of the Bank’s financial
assets and the majority of the Bank’s financial liabilities are
based on observable prices and inputs and are classified in
levels 1 and 2 of the fair value hierarchy. Certain level 2 and
level 3 financial assets and financial liabilities may require
appropriate valuation adjustments that a market participant
would require to arrive at fair value for factors such as
counterparty and the Bank or its affiliates’ credit quality,
funding risk, transfer restrictions, liquidity and bid/offer
spreads. Valuation adjustments are generally based on market
evidence.

Note 6.

Cash Instruments
Cash instruments include U.S. government and agency
obligations, non-U.S. government and agency obligations,
mortgage-backed loans and securities, corporate debt
instruments, equity securities, investments in funds at net asset
value (NAV), and other non-derivative financial instruments
owned and financial instruments sold, but not yet purchased.
See below for the types of cash instruments included in each
level of the fair value hierarchy and the valuation techniques
and significant inputs used to determine their fair values. See
Note 5 for an overview of the Bank’s fair value measurement
policies.

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

Level 1 Cash Instruments
Level 1 cash instruments include U.S. government obligations.
These instruments are valued using quoted prices for identical
unrestricted instruments in active markets.

The table below presents financial assets and financial
liabilities accounted for at fair value under the fair value
option or in accordance with other U.S. GAAP.

The Bank defines active markets for debt instruments based on
both the average daily trading volume and the number of days
with trading activity.

As of
$ in millions
Total level 1 financial assets

March

December

2018

2017

4,633

6,964

Total level 2 financial assets

74,612

68,474

Total level 3 financial assets

2,190

1,966

Investments in funds at NAV

Counterparty and cash collateral netting

Level 2 Cash Instruments
Level 2 cash instruments include U.S. government agency and
non-U.S. government obligations, most mortgage-backed
loans and securities, most corporate debt instruments, other
debt obligations and certain equity securities.

31
(25,183)

(26,937)

Total financial assets at fair value

54,531

$ 52,252

Total assets

$ 171,729

$ 164,760

Total assets

1.3%

1.2%

Total financial assets at fair value

4.0%

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

Total level 3 financial assets divided by:

Total level 1 financial liabilities

2,922

3.8%
$

4,004

Total level 2 financial liabilities

23,270

Total level 3 financial liabilities

4,125

3,902

(14,062)

(14,537)

Count
erparty and cash collateral netting
Total financial liabilities at fair value

24,993

16,255

$ 18,362

25.4%

21.3%

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

Total level 3 financial liabilities divided by
total financial liabilities at fair value

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 of the fair
value hierarchy.
13

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

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

 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);

Valuation Techniques and Significant Inputs of Level
3 Cash Instruments
Valuation techniques of level 3 cash 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 cash instrument are described below:

Equity Securities. Substantially all of equity securities is
equity investments made as part of the Bank’s CRA activities.
Recent third-party completed or pending transactions (e.g.,
merger proposals, tender offers, debt restructurings) are
considered to be the best evidence for any change in fair
value. When these are not available, the following valuation
methodologies are used, as appropriate:

 Current performance and recovery assumptions and, where
the Bank uses credit default swaps to value the related cash
instrument, the cost of borrowing the underlying reference
obligation; and
 Duration.

 Transactions in similar instruments; and

Loans and Securities Backed by Commercial Real
Estate. Loans and securities backed by commercial real
estate are directly or indirectly collateralized by a single
commercial real estate 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:

 Discounted cash flow techniques.
The Bank also considers changes in the outlook for the
relevant industry and financial performance of the issuer as
compared to projected performance. Significant inputs include
discount rates and capitalization rates.

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

Other Cash Instruments. Other cash instruments consists
of state and municipal obligations. Significant inputs are
generally determined based on relative value analyses, which
incorporate comparisons both to prices of credit default swaps
that reference the same or similar underlying instrument or
entity and to other debt instruments for the same issuer for
which observable prices or broker quotations are available.
Significant inputs include market yields implied by
transactions of similar or related assets and/or current levels
and trends of market indices.

 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).
Corporate Debt Instruments. Corporate debt instruments
includes corporate loans and debt securities. 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 issuer for which observable prices or
broker quotations are available. Significant inputs include:

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
Fair Value of Cash Instruments by Level
The tables below present cash instrument assets and liabilities
at fair value by level within the fair value hierarchy.

In the tables above:
 Cash instrument assets and liabilities are included in
financial instruments owned and financial instruments sold,
but not yet purchased, respectively.

As of March 2018
$ in millions

Level 1

Level 2

Level 3

Total

–

$11,966

 Cash instrument assets are shown as positive amounts and
cash instrument liabilities are shown as negative amounts.

Assets
U.S. government and agency
obligations

$ 4,633 $ 7,333

 Corporate debt instruments includes corporate loans and
debt securities.

Loans and securities backed by:
Commercial real estate

–

666

129

795

Residential real estate

–

7,592

–

7,592

Corporate debt instruments

–

1,257

128

1,385

State and municipal obligations

–

Other debt obligations

–

139

–

139

–

278

300

$ 4,633 $ 17,009

$ 553

$22,195

Equity securities
Subtotal
Investments in funds at NAV

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 the Bank’s level 3 cash instruments.
Level 3 Assets and Range of Significant

Total cash instrument assets

Unobservable Inputs (Weighted Average) as of

$22,228

Liabilities
Government and agency obligations:
U.S.

–

$ (2,922) $

–

$ (2,922)

–

(7)

–

(7)

residential real estate

–

(3)

–

(3)

Corporate debt instruments

–

(398)

(14)

(412)

(408)

$ (14)

$ (3,344)

Non-U.S.

Loans and securities backed by commercial real estate
Level 3 assets
$129
Yield

Loans and securities backed by

Total cash instrument liabilities

$ (2,922) $

Level 3 assets
Yield
Recovery rate

As of December 2017
Level 1

Level 2

Level 3

$ 8,326

Commercial real estate

–

833

Residential real estate

–

$ 15,261

N.M.

0.7 to 1.5 (1.1)

Discount rate/yield

$278
5.6% to 18.7% (15.2%)

$267
6.7% to 17.7% (15.3%)

Capitalization rate

4.8% to 6.5% (5.0%)

119

952

$18
N.M.

$33
4.3% to 6.2% (5.3%)

Level 3 assets< br />–

6,855

–

6,855

Corporate debt instruments

–

1,490

138

1,628

State and municipal obligations

–

Other debt obligations

–

205

–

205

Equity securities

–

267

293

$ 557

$ 25,227

$ 6,935

$17,735

Investments in funds at NAV

Total cash instrument assets

$ 25,258

Yield

In the table above:
 Ranges represent the significant unobservable inputs that
were used in the valuation of each type of cash instrument.
 Weighted averages are calculated by weighting each input
by the relative fair value of the cash instruments.

Liabilities

 The ranges and weighted averages of these inputs are not
representative of the appropriate inputs to use when
calculating the fair value of any one cash instrument. For
example, the highest 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 the Bank’s level 3 cash
instruments.

Government and agency obligations:
U.S.
Non-U.S.
Corporate debt instruments
Total cash instrument liabilities

$ (4,004)

–

(6)

–

(211)

$ (4,004)

$ (217)

–
–

$138
4.2% to 17.7% (5.7%)

Other cash instruments

Loans and securities backed by:

Subtotal

$128
4.4% to 8.8% (5.3%)
51.1% to 70.0% (59.2%)

Level 3 assets

U.S. government and agency
$ 6,935

$119
4.6% to 10.2% (8.7%)

Equity securities
Total

Assets
obligations

5.0% to 10.6% (9.2%)

Corporate debt instruments

Duration (years)
$ in millions

December
2017

March
2018

$ in millions

$ (4,004)
(6)

(9)

(220)

(9)

$ (4,230)

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Increases in yield, discount rate, capitalization rate, or
duration used in the valuation of the Bank’s level 3 cash
instruments would result in a lower fair value measurement,
while increases in recovery rate would result in a higher fair
value measurement. Due to the distinctive nature of each of
the Bank’s level 3 cash instruments, the interrelationship of
inputs is not necessarily uniform within each product type.

Level 3 Rollforward
The table below presents a summary of the changes in fair
value for level 3 cash instrument assets and liabilities.

 Loans and securities backed by commercial real estate,
corporate debt instruments and other cash instruments are
valued using discounted cash flows, and equity securities
are valued using market comparables and discounted cash
flows.

Total cash instrument assets

Three Months
Ended March

Beginning balance

 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.

2017

2018

$ in millions

557

782

Net realized gains/(losses)

Net unrealized gains/(losses)

–

Purchases

Sales

(9)

(23)

(82)

Settlements
Transfers into level 3
Transfers out of level 3
Ending balance

(18)

(19)

553

804

(24)

Total cash instrument liabilities

 Significant unobservable input types which are only
relevant to a single instrument, or where there is no range,
are not meaningful and therefore have been excluded.

Beginning balance

–

Net unrealized gains/(losses)

Purchases
Sales

Transfers Between Levels of the Fair Value
Hierarchy
Transfers between levels of the fair value hierarchy are
reported at the beginning of the reporting period in which they
occur. There were no transfers between level 1 and level 2
cash instrument assets or liabilities during both the three
months ended March 2018 and March 2017. See “Level 3
Rollforward” below for information about transfers between
level 2 and level 3.

Settlements
Transfers into level 3
Transfers out of level 3
Ending balance

(9)

Net realized gains/(losses)

(5)

(13)

–

(3)

(5)

–

(14)

(24)

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
In the table above:

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

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

Three Months

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

Ended March
2017

2018

$ in millions
Loans and securities backed by commercial real estate

 Purchases includes originations and secondary purchases.

Beginning balance

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

Net realized gains/(losses)

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

Transfers out of level 3

119

171

Net unrealized gains/(losses)

(1)

Purchases

Settlements

(3)

(4)

Ending balance

–

(15)

129

162

138

305

Corporate debt instruments
Beginning balance
Net realized gains/(losses)
Net unrealized gains/(losses)
Purchases

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

1
(1)

–

Sales

(9)

Settlements

(6)

(71)

Transfers into level 3
Transfers out of level 3
Ending balance

(4)

(18)
$

128

314

267

192

Equity securities
Beginning balance
Net unrealized gains/(losses)

Purchases

Ending balance

16
1

278

209

114

Other cash instruments
Beginning balance

–

Net realized gains/(losses)
Net unrealized gains/(losses)
Purchases
Settlements
Ending balance

(1)

–

14
(7)

(14)
$

119

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Other available-for-sale securities includes corporate debt
securities and other debt obligations that were classified in
level 2 of the fair value hierarchy as of March 2018. As of
December 2017, other available-for-sale securities includes
corporate debt securities, other debt obligations and securities
backed by commercial real estate that were classified in level
2 of the fair value hierarchy.

Level 3 Rollforward Commentary
Three Months Ended March 2018. The net realized gains
on level 3 cash instrument assets of $2 million for the three
months ended March 2018 were reported in gains and losses
from financial instruments, net.
The net unrealized gains on level 3 cash instrument assets for
the three months ended March 2018 were not material.

 The gross unrealized losses included in accumulated other
comprehensive loss were $67 million as of March 2018 and
related to U.S. government obligations, which were in a
continuous unrealized loss position for less than a year. Such
losses were not material as of December 2017.

Transfers into and out of level 3 cash instrument assets during
the three months ended March 2018 were not material.
Three Months Ended March 2017. The net realized and
unrealized gains on level 3 cash instrument assets of $24
million (reflecting $8 million of net realized gains and $16
million of net unrealized gains) for the three months ended
March 2017 were reported in gains and losses from financial
instruments, net.

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
over-the-counter (OTC) derivatives. Certain of the Bank’s
OTC derivatives are cleared and settled through central
clearing counterparties (OTC-cleared), while others are
bilateral contracts between two counterparties (bilateral OTC).

The net unrealized gains on level 3 cash instrument assets for
the three months ended March 2017 were not material.
Transfers into and out of level 3 cash instrument assets during
the three months ended March 2017 were not material.
Available-for-Sale Securities
The table below presents details about cash instruments that
are accounted for as available-for-sale.

Market Making. As a market maker, the Bank enters into
derivative transactions to provide liquidity to clients and to
facilitate the transfer and hedging of their risks. In this role,
the Bank typically acts as principal and is required to commit
capital to provide execution, and maintains inventory in
response to, or in anticipation of, client demand.

Weighted
$ in millions

Amortized

Fair

Average

Cost

Value

Yield

$ 2,501 $ 2,434

1.85%

As of March 2018
Less than 5 years
Total U.S. government obligations

2,501

2,434

1.85%

Greater than 5 years

109

111

5.26%

Total other available-for sale securities

109

111

5.26%

$ 2,610 $ 2,545

1.99%

Total available-for-sale securities

Risk Management. The Bank also enters into derivatives to
actively manage risk exposures that arise from its market
making and lending activities in derivative and cash
instruments. The Bank’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. In addition, the
Bank may enter into derivatives designated as hedges under
U.S. GAAP. These derivatives are used to manage interest rate
exposure in certain deposits.

As of December 2017
Less than 5 years
Total U.S. government obligations

$ 2,511 $ 2,477

1.85%

2,511

2,477

Greater than 5 years

233

235

4.72%

Total other available-for sale securities

233

235

4.72%

$ 2,744 $ 2,712

2.10%

Total available-for-sale securities

1.85%

In the table above:

The Bank enters into various types of derivatives, including:

 U.S. government obligations were classified in level 1 of the
fair value hierarchy as of both March 2018 and December
2017.

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

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
 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, currencies or indices.

As of December 2017

As of March 2018
Derivative Derivative
Assets

$ in millions

Derivative

Assets

Liabilities

Not accounted for as hedges
Exchange-traded

 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 or currencies within a
defined time period for a specified price.

975

533 $

588

314

337

Bilateral OTC

459,754

448,717

458,593

447,320

Total interest rates

461,177

449,708

459,463

447,919

47,867

43,694

46,971

45,539

Credit – Bilateral OTC

3,209

3,257

3,155

3,147

Equities – Bilateral OTC

1,683

1,056

1,654

1,002

161

159

190

188

514,097

497,874

511,433

497,795

Bilateral OTC

Total interest rates

Currencies – Bilateral OTC

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

1,109 $

OTC-cleared

Commodities – Bilateral OTC
Subtotal
Accounted for as hedges

Total gross fair value

$ 511,451 $ 497,796

$ 514,104 $ 497,876

Offset in condensed consolidated statements of financial condition
Bilateral OTC

$(479,409) $ (479,409)

$ (477,847) $ (477,847)

(479,409)

(477,847)

Bilateral OTC

(26,121)

(13,246)

(24,528)

(13,882)

Cash collateral netting

(26,121)

(13,246)

(24,528)

(13,882)

Counterparty netting

Total amounts offset

$(505,530) $ (492,655)

$ (502,375) $ (491,729)

Included in condensed consolidated statements of financial condition
Exchange-traded

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
condensed consolidated statements of financial condition, as
well as cash and securities collateral posted and received
under enforceable credit support agreements that do not meet
the criteria for netting under U.S. GAAP.

1,109 $

975

533 $

588

OTC-cleared

314

337

Bilateral OTC

7,151

4,230

8,206

5,468

8,574 $

5,221

9,076 $

6,067

Total

Not offset in condensed consolidated statements of financial condition
Cash collateral

Securities collateral
Total

(42) $
(767)

7,765 $

(258)

4,412

(99) $

(196)

(944)

(551)
$

(609)

8,033 $

5,262

Notional Amounts as of
$ in millions

March

December

2018

2017

Not accounted for as hedges
Exchange-traded

$ 13,193,300

9,130,538

OTC-cleared

8,912,789

7,324,681

Bilateral OTC

26,880,953

22,290,511

Total interest rates

48,987,042

38,745,730

2,511,387

2,401,770

160,561

148,354

58,658

38,865

Currencies – Bilateral OTC
Credit – Bilateral OTC
Equities – Bilateral OTC
Commodities – Bilateral OTC

8,108

7,660

51,725,756

41,342,379

OTC-cleared

9,633

Bilateral OTC

731

10,364

Subtotal
Accounted for as hedges

Total interest rates
Total notional amounts

$ 51,736,120

41,352,743

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
 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.

In the tables above:
 Gross fair values exclude the effects of both counterparty
netting and collateral, and therefore are not representative of
the Bank’s exposure.
 Where the Bank 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 Bank’s derivative activity and do not
represent anticipated losses.
 Total gross fair value of derivatives included derivative
assets and derivative liabilities of $1.50 billion and $1.42
billion, respectively, as of March 2018, and derivative assets
and derivative liabilities of $2.73 billion and $1.47 billion,
respectively, as of December 2017, which are not subject to
an enforceable netting agreement or are subject to a netting
agreement that the Bank has not yet determined to be
enforceable.

 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.

Valuation Techniques for Derivatives
The Bank’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.

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

 Interest Rate. In general, the key inputs used to value
interest rate derivatives are transparent, even for most longdated 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.

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

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

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

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

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

Subsequent to the initial valuation of a level 3 derivative, the
Bank updates the level 1 and level 2 inputs to reflect
obs
ervable 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
Bank cannot verify the model value by reference to market
transactions, it is possible that a different valuation model
could produce a materially different estimate of fair value. See
below for further information about significant unobservable
inputs used in the valuation of level 3 derivatives.

Valuation 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.

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

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

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

 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). In addition, for level
3 interest rate derivatives, significant unobservable inputs
include specific interest rate volatilities.
 For level 3 credit derivatives, significant unobservable
inputs include illiquid credit spreads, which are unique to
specific reference obligations and reference entities.
 For level 3 equity derivatives, significant unobservable
inputs generally include 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.

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
Fair Value of Derivatives by Level
The tables below present the fair value of derivatives on a
gross basis by level and major product type, as well as the
impact of netting, included in the condensed consolidated
statements of financial condition.

As of December 2017

Level 1

Level 2

–

$ 460,862

Currencies

–

Credit

Level 3

Interest rates

Total

$ 459,178

–

46,679

292

46,971

Credit

–

2,258

897

3,155

Equities

–

1,088

566

1,654

Commodities

–

183

190

509,386

2,036

511,451

$ 461,184

47,397

470

47,867

–

2,253

956

3,209

Equities

–

Cash collateral netting

1,132

551

1,683

Commodities

–

Net fair value

155

161

Gross fair value

–

511,799

2,305

Counterparty netting in levels

–

(477,925)

–

33,874

$ 1,637

Subtotal

Interest rates

35,511
(816)

Cash collateral netting

(26,121)

Net fair value

8,574

Liabilities
$

–

(125)

(45,539)

Credit

–

(2,486)

(661)

(3,147)

Equities

–

(995)

(7)

(1,002)

Commodities

–

(183)

(5)

(188)

Gross fair value

–

(496,244)

(1,552)

(497,796)

Subtotal

(115)

(43,694)

(2,514)

(743)

(3,257)

Equities

–

Cash collateral netting

(1,043)

(13)

(1,056)

Commodities

–

Net fair value

(154)

(5)

(159)

Gross fair value

–

(496,243)

(1,633)

(497,876)

Counterparty netting in levels

–

477,925

–

476,565
$ (19,679) $

627

477,192

(925) $ (20,604)
655
13,882
$

(6,067)

In the tables above:
 The gross fair values exclude the effects of both
counterparty netting and collateral netting, and therefore are
not representative of the Bank’s exposure.

$ (18,318) $ (965) $ (19,283)
816
13,246
$

–
$

(754) $ (447,920)

Cross-level counterparty netting

478,593

Cash collateral netting

9,076

(45,414)

(43,579)

Net fair value

(655)

$ (447,166) $

–

34,259

–

(477,192)

–

Credit

Cross-level counterparty netting

(627)
$ 1,409 $

Currencies

Subtotal

(476,565)
$ 32,821

(24,528)

Counterparty netting in levels
$ (448,953) $ (757) $ (449,710)

668

274 $ 459,481

Liabilities

(478,593)
$

–
$

Cross-level counterparty netting

514,104

(668)

Cross-level counterparty netting

Interest rates

Counterparty netting in levels
$

Total

322

Subtotal

Level 3

Currencies

Gross fair value

Assets
Interest rates

Level 2

Assets

As of March 2018
$ in millions

Level 1

$ in millions

(5,221)

 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.

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Interest rates, currencies and equities derivatives are valued
using option pricing models, and credit derivatives are
valued using option pricing and discounted cash flow
models.

Significant Unobserva
ble Inputs
The table below presents the amount of level 3 assets
(liabilities), and ranges, averages and medians of significant
unobservable inputs used to value substantially all of the
Bank’s level 3 derivatives.

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

Level 3 Assets (Liabilities) and Range of Significant
Unobservable Inputs (Average/Median) as of
March
December
$ in millions
Interest rates, net
Correlation
Volatility (bps)
Currencies, net
Correlation
Credit, net
Credit spreads (bps)
Equities, net
Correlation

2018

2017

$(435)

$(480)

(10)% to 86% (63%/78%)

31 to 150 (84/57)

$355

$167

43% to 72% (55%/59%)

$213

$236

1 to 507 (128/110)

1 to 633 (136/106)

$538

$559

17% to 74% (34%/31%)

20% to 77% (37%/36%)

 Correlation within currencies and equities includes crossproduct type correlation.
Range of Significant Unobservable Inputs
The following is information about the ranges of significant
unobservable inputs used to value the Bank’s level 3
derivative instruments:
 Correlation. Ranges for correlation cover a variety of
underliers both within one product type (e.g., currency rates)
and across product types (e.g., correlation of an interest rate
and a currency), as well as across regions. Generally, crossproduct type correlation inputs are used to value more
complex instruments and are lower than correlation inputs
on assets within the same derivative product type.

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.

 Volatility. Ranges for volatility cover numerous underliers
across a variety of markets, maturities and strike prices.

 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 spread inputs indicates that the
majority of the inputs fall in the lower end of the range.

 Credit spreads. The ranges for credit spreads 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.

 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 the Bank’s level 3 derivatives.

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
Sensitivity of Fair Value Measurement to Changes in
Significant Unobservable Inputs
The following is a description of the directional sensitivity of
the Bank’s level 3 fair value measurements to changes in
significant unobservable inputs, in isolation:

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.

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

 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. Transfers between levels are reported at the
beginning of the reporting period in which they occur.

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

 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.

 Credit spreads. In general, the fair value of purchased
credit protection increases as credit spreads increase. Credit
spreads 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.

 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.

Due to the distinctive nature of each of the Bank’s level 3
derivatives, the interrelationship of inputs is not necessarily
uniform within each product type.

 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 cash
instruments. As a result, gains/(losses) included in the level
3 rollforward below do not necessarily represent the overall
impact on the Bank’s results of operations, liquidity or
capital resources.

Level 3 Rollforward
The table below presents a summary of the changes in fair
value for all level 3 derivatives.
Three Months
Ended March
2017

2018

$ in millions
Total level 3 derivatives
Beginning balance

484

1,011

Net realized gains/(losses)

(39)

(67)

Net unrealized gains/(losses)

186

(64)

Purchases

Sales

(4)

(11)

Settlements

Transfers into level 3

(8)

(14)

Transfers out of level 3
Ending balance

(24)

5
$

672

The table below disaggregates, by major product type, the
information for level 3 derivatives included in the summary
table above.

913

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
Level 3 Rollforward Commentary
Three Months Ended March 2018. The net realized and
unrealized gains on level 3 derivatives of $147 million
(reflecting $39 million of net realized losses and $186 million
of net unrealized gains) for the three months ended March
2018 were
reported in gains and losses from financial
instruments, net.

Three Months
Ended March
2017

2018

$ in millions
Interest rates, net
Beginning balance

Net realized gains/(losses)
Net unrealized gains/(losses)
Purchases
Sales
Settlements
Transfers into level 3
Transfers out of level 3
Ending balance

(480)

(453)

(19)

(26)

(1)

(8)

(9)

(14)

(435)

(361)

167

466

The net unrealized gains on level 3 derivatives for the three
months ended March 2018 were primarily attributable to gains
on certain currency derivatives, reflecting the impact of
changes in foreign exchange rates.

Currencies, net
Beginning balance
Net realized gains/(losses)

(17)

(31)

Net unrealized gains/(losses)

189

(36)

Purchases

Sales

–

(9)

Settlements

–

Transfers out of level 3
Ending balance

Transfers into and out of level 3 derivatives during the three
months ended March 2018 were not material.
Three Months Ended March 2017. The net realized and
unrealized losses on level 3 derivatives of $131 million
(reflecting $67 million of net realized losses and $64 million
of net unrealized losses) for the three months ended March
2017 were reported in gains and losses from financial
instruments, net.

(1)

355

431

236

578

Credit, net
Beginning balance
Net realized gains/(losses)
Net unrealized gains/(losses)
Purchases

(6)

(16)

(26)

(122)

Sales

(2)

(1)

Settlements

(35)

Transfers into level 3

–

(5)

Transfers out of level 3

–

Ending balance

The net unrealized losses on level 3 derivatives for the three
months ended March 2017 were primarily attributable to
losses on certain credit derivatives, reflecting the impact of
tighter credit spreads.

–

(1)

213

398

559

418

Transfers into and out of level 3 derivatives during the three
months ended March 2017 were not material.

Equities, net
Beginning balance
Net realized gains/(losses)

(33)

Purchases

Sales

(1)

–

Settlements

(4)

(7)

Net unrealized gains/(losses)

Transfers out of level 3
Ending balance

(8)

(2)
$

Credit Derivatives
The Bank enters into a broad array of credit derivatives in
locations around the world to facilitate client transactions and to
manage the credit risk associated with its activities. Credit
derivatives are actively managed based on the Bank’s net risk
position.

538

443

Commodities, net
Beginning balance

Net unrealized gains/(losses)
Ending balance

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.

–

(1)
$

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
The Bank enters into the following types of credit derivatives:

The Bank economically hedges its exposure to written credit
derivatives primarily by entering into offsetting purchased
credit derivatives with identical underliers. Substantially all of
the Bank’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 Bank 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.

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

As of March 2018, written and purchased credit derivatives
had total gross notional amounts of $71.77 billion and $88.79
billion, respectively, for total net notional purchased
protection of $17.02 billion. As of December 2017, written
and purchased credit derivatives had total gross notional
amounts of $67.20 billion and $81.15 billion, respectively, for
total net notional purchased protection of $13.95 billion.
Substantially all of the Bank’s written and purchased credit
derivatives are credit default swaps.

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

The table below presents certain information about credit
derivatives.

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

Credit Spread on Underlier (basis points)
Greater
251 501 than
0 -250
500
1,000
1,000

$ in millions
Total
As of March 2018
Maximum Payout/Notional Amount of Written Credit Derivatives by Tenor
Less than 1 year
$ 15,723 $
173 $
229 $
348 $
16,473
1 – 5 years
37,583
2,160
1,768
1,381
42,892
Greater than 5 years
10,916
1,293
179
18
12,406
Total
$ 64,222 $ 3,626 $ 2,176 $ 1,747 $
71,771
Maximum Payout/Notional Amount of Purchased Credit Derivatives
Offsetting
$ 52,171 $ 2,224 $ 1,959 $ 1,503 $
57,857
Other
29,423
838
326
346
30,933
Fair Value of Written Credit Derivatives
Asset
$ 1,588 $
196 $
93 $
57 $
1,934
Liability
341
23

77
304
745
Net asset/(liability) $ 1,247 $
173 $
16 $
(247) $
1,189

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

As of December 2017
Maximum Payout/Notional Amount of Written Credit Derivatives by Tenor
Less than 1 year
$ 17,331 $
424 $
131 $
394 $
18,280
1 – 5 years
33,988
1,744
1,458
1,079
38,269
Greater than 5 years
9,940
421
170
123
10,654
Total
$ 61,259 $ 2,589 $ 1,759 $ 1,596 $
67,203
Maximum Payout/Notional Amount of Purchased Credit Derivatives
Offsetting
$ 47,440 $ 1,935 $ 1,460 $ 1,284 $
52,119
Other
26,833
1,358
363
478
29,032
Fair Value of Written Credit Derivatives
Asset
$ 1,826 $
120 $
88 $
59 $
2,093
Liability
253
41
67
249
610
Net asset/(liability)
$ 1,573 $
79 $
21 $
(190) $
1,483

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
In the table above:

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

 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 Bank’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 Bank is less likely to pay or otherwise be required to
perform where the credit spread and the tenor are lower.

As of
March

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

December
2017

2018

$ in millions
Net derivative liabilities under bilateral agreements

5,162

5,140

Collateral posted

4,511

4,013

One-notch downgrade

146

174

Two-notch downgrade

431

304

Additional collateral or termination payments:

Hedge Accounting
The Bank applies hedge accounting for certain interest rate
swaps used to manage the interest rate exposure of certain
fixed-rate certificates of deposit.

 Other purchased credit derivatives represent the notional
amount of all other purchased credit derivatives not
included in offsetting.
Impact of Credit Spreads on Derivatives
On an ongoing basis, the Bank realizes gains or losses relating
to changes in credit risk through the unwind of derivative
contracts and changes in credit mitigants.

To qualify for hedge accounting, the hedging instrument must
be highly effective at reducing the risk from the exposure
being hedged. Additionally, the Bank 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.

The net gain, including hedges, attributable to the impact of
changes in credit exposure and credit spreads (of the Bank’s
counterparties as well as of the Bank or its affiliates) on
derivatives was $58 million and $17 million for the three
months ended March 2018 and March 2017, respectively.

Fair Value Hedges
The Bank designates certain interest rate swaps as fair value
hedges of certain 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)), effectively converting a substantial
portion of fixed-rate obligations into floating-rate obligations.

Derivatives with Credit-Related Contingent Features
Certain of the Bank’s derivatives have been transacted under
bilateral agreements with counterparties who may require the
Bank to post collateral or terminate the transactions based on
changes in the credit ratings of the Bank and/or Group Inc.
Typically, such requirements are based on the credit ratings of
Group Inc. The Bank 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 Bank and/or
Group Inc. at the time of the downgrade, may have an impact
which is comparable to the impact of a downgrade by all
rating agencies.

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

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 8.

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 20 for further information about interest
income and interest expense.

Fair Value Option
Other Financial Assets and Financial Liabilities at
Fair Value
In addition to all cash and derivative instruments included in
financial instruments owned and financial instruments sold,
but not yet purchased, the Bank accounts for certain of its
other financial assets and financial liabilities at fair value,
substantially all of which are accounted for at fair value under
the fair value option. The primary reasons for electing the fair
value option are to:

The table below presents the gains/(losses) from interest rate
derivatives accounted for as hedges and the related hedged
deposits, and the Bank’s total interest expense.

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

Three Months
Ended March
2017

2018

$ in millions
Interest rate hedges

(165)

Hedged deposits

161

(58)
50

Interest expense

563

416

 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).

In the table above, hedge ineffectiveness for the three months
ended March 2017 was $8 million.
As of March 2018, the carrying amount of deposits designated
in a hedging relationship was $9.91 billion and the related
cumulative hedging adjustment from current and prior hedging
relationships was a decrease of $263 million. There were no
hedging adjustments from prior hedging relationships that
were de-designated. In addition, as of March 2018, cumulative
hedging adjustments for deposits no longer designated in a
hedging relationship were not material.

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). The Bank has not elected to bifurcate
hybrid financial instruments and accounts for the entire hybrid
financial instrument at fair value under the fair value option.
Other financial assets and financial liabilities accounted for at
fair value under the fair value option include:
 Repurchase agreements
agreements;

and

substantially

all

resale

 Substantially all other secured financings, including
advances from the Federal Home Loan Bank of New York
(FHLB);
 Certain unsecured borrowings; 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.

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
Fair Value of Other Financial Assets and Financial
Liabilities by Level
The table below presents, by level within the fair value
hierarchy, other financial assets and financial liabilities at fair
value, substantially all of which are accounted for at fair value
under the fair value option.
$ in millions
As of March 2018

Level 1

Level 2

Level 3

Resale and Repurchase Agreements. The significant
inputs to the valuation of resale and repurchase agreements are
funding spreads, the amount and timing of expected future
cash flows and interest rates. As of both March 2018 and
December 2017, the Bank had no level 3 resale or repurchase
agreements. See Note 10 for further information about
collateralized agreements and financings.

Total

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 Bank’s other derivative
instruments. See Note 7 for further information about
derivatives and Note 14 for further information about deposits.

Assets
Securities purchased under
agreements to resell
Total

–

$ 23,729

–

$ 23,729

–

$ 23,729

–

$ 23,729

–

$ (3,146)

Liabilities
Deposits
Securities sold under
agreements to repurchase
Other secured financings

(4,565)

–

(49)

–

(49)

–

(2,898)

–

(2,898)

–
–

agreements to resell
Total
Liabilities

$
$

–
–

Deposits

–

Unsecured borrowings
Total

(1,419)

–
$ (3,146)

$ 17,918
$ 17,918

$
$

$ 17,918
$ 17,918

$ (2,968)

(178)
(4,544)

The Bank’s deposits 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, these
inputs are incorporated in the Bank’s derivative disclosures
related to unobservable inputs in Note 7.

(178)
(7,690)

As of December 2017
Assets
Securities purchased under

(1,460)

–
–

Securities sold under
agreements to repurchase

–

(56)

–

(56)

Other secured financings
Unsecured borrowings

–
–

(3,395)
(186)

–
–

(3,395)
(186)

Total

–

(5,097)

$ (2,968)

Other Secured Financings. The significant inputs to the
valuation of other secured financings at fair value are the
amount and timing of expected future cash flows, interest
rates, funding spreads, the fair value of the collateral delivered
by the Bank (which is determined using the amount and
timing of expected future cash flows, market prices, market
yields and recovery assumptions) and the frequency of
additional collateral calls. As of both March 2018 and
December 2017, the Bank had no level 3 other secured
financings.

(4,428)

(8,065)

In the table above, other financial assets are shown as positive
amounts and other financial liabilities are shown as negative
amounts.
Valuation Techniques and Significant Inputs
Other financial assets and financial liabilities at fair value are
generally valued based on discounted cash flow techniques,
which incorporate inputs with reasonable levels of price
transparency, and are generally classified in level 2 because
the inputs are observable. Valuation adjustments may be made
for liquidity and for counterparty and the Bank’s credit
quality.

Unsecured Borrowings. The significant inputs to the
valuation of unsecured borrowings at fair value are the amount
and timing of expected future cash flows and interest rates.
The inputs used to value the embedded derivative component
of hybrid financial instruments are consistent with the inputs
used to value the Bank’s other derivative instruments. As of
both March 2018 and December 2017, the Bank had no level 3
unsecured borrowings. See Note 7 for further information
about derivatives and Note 15 for further information about
unsecured borrowings.

See below for information about the significant inputs used to
value other financial assets and financial liabilities at fair
value.

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
Transfers Between Levels of the Fair Value
Hierarchy
Transfers between levels of the fair value hierarchy are
reported at the beginning of the reporting period in which they
occur. There were no transfers of other financial assets and
financial liabilities between level 1 and level 2 during both the
three months ended March 2018 and March 2017. See “Level
3 Rollforward” below for information about transfers between
leve
l 2 and level 3.

Level 3 Rollforward Commentary
Three Months Ended March 2018. The net realized and
unrealized gains on level 3 other financial liabilities of $45
million (reflecting $3 million of net realized losses and $48
million of net unrealized gains) for the three months ended
March 2018 included gains of $53 million reported in gains
and losses from financial instruments, net in the condensed
consolidated statements of earnings, and losses of $8 million
reported in debt valuation adjustment in the condensed
consolidated statements of comprehensive income.

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.

The net unrealized gains on level 3 other financial liabilities
for the three months ended March 2018 primarily reflected
gains on certain hybrid financial instruments included in
deposits, principally due to the impact of a decrease in the
market value of the underlying assets.

Three Months
Ended March
$ in millions

2018

2017

Transfers into level 3 of other financial liabilities during the
three months ended March 2018 were not material. There
were no transfers out of level 3 of other financial liabilities
during the three months ended March 2018.

Deposits
Beginning balance

$ (2,968)

$ (3,173)

Net realized gains/(losses)

(3)

(1)

Net unrealized gains/(losses)

(28)

(216)

(172)

Issuances
Settlements
Transfers into level 3
Ending balance

(16)

–

$ (3,146)

Three Months Ended March 2017. The net realized and
unrealized losses on level 3 other financial liabilities of $29
million (reflecting $1 million of net realized losses and $28
million of net unrealized losses) for the three months ended
March 2017 included losses of approximately $35 million
reported in gains and losses from financial instruments, net in
the condensed consolidated statements of earnings, and gains
of $6 million reported in debt valuation adjustment in the
condensed consolidated statements of comprehensive income.

$ (3,348)

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 instruments that were
still held at period-end.

The net unrealized losses on level 3 other financial liabilities
for the three months ended March 2017 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.

 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.

There were no transfers into or out of level 3 of other financial
liabilities during the three months ended March 2017.

 Level 3 other financial liabilities are frequently
economically hedged with cash instruments and derivatives.
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 cash instruments or derivatives. As a result, gains or
losses included in the level 3 rollforward above do not
necessarily represent the overall impact on the Bank’s
results of operations, liquidity or capital resources.

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
Loans at Fair Value Under the Fair Value Option
The Bank originates loans to provide financing to clients.
These loans are typically longer-term in nature. The Bank’s
lending activities include lending to investment-grade and
non-investment-grade corporate borrowers. The Bank’s
lending activities also include extending loans to borrowers
that are secured by commercial and residential real estate. In
addition, the Bank extends loans to PWM clients and
substantially all are secured by residential real estate or other
assets.

Gains and Losses on Financial Assets and Financial
Liabilities Accounted for at Fair Value Under the Fair
Value Option
The table below presents the gains and losses recognized in
earnings as a result of the Bank electing to apply the fair value
option to certain financial assets and financial liabilities.
Three Months
Ended March
Deposits
Other
Total

2017

2018

$ in millions
$

(37)
(22)

8
$

The Bank accounts for certain loans at fair value under the fair
value option which are included in financial instruments
owned. See Note 6 for a discussion of the techniques and
significant inputs used in the valuation of loans. See Note 9
for information about loans receivable not accounted for at fair
value.

(59)

In the table above:
 Gains/(losses) are included in gains and losses from
financial instruments, net.
 Gains/(losses) exclude contractual interest, which is
included in interest income and interest expense, for all
instruments other than hybrid financial instruments. See
Note 20 for further information about interest income and
interest expense.

The table below presents details about loans at fair value.
As of
March

December
2017

2018

$ in millions

 Gains/(losses) included in deposits are related to the
embedded derivative component of hybrid financial
instruments for the three months ended March 2018 and
March 2017. These gains and losses would have been
recognized under other U.S. GAAP even if the Bank had not
elected to account for the entire hybrid financial instrument
at fair value.

Corporate loans

 Other primarily consists of gains/(losses) on certain
unsecured borrowings and FHLB advances.

 Loans to PWM clients includes $6.65 billion and $6.85
billion of loans secured by residential real estate, $141
million and $161 million secured by investments in real or
financial assets, and $64 million and $65 million of loans
secured by commercial real estate as of March 2018 and
December 2017, respectively.

Loans to PWM clients

1,157

1,287

6,859

7,081

Loans backed by commercial real estate

730

872

Loans backed by residential real estate

945

–

106

Other loans
Total

9,751

9,346

In the table above:

Excluding the gains and losses on the instruments accounted
for under the fair value option described above, gains and
losses from financial instruments, net primarily represents
gains and losses on financial instruments owned, financial
instruments sold, but not yet purchased and the syndication of
loans and lending commitments.

 The aggregate contractual principal amount of loans for
which the fair value option was elected exceeded the related
fair value by $297 million and $149 million as of March
2018 and December 2017, respectively.
 Included in these amounts are loans in nonaccrual status
(including loans more than 90 days past due) with a
contractual principal balance of $66 million and a fair value
of $39 million as of March 2018, and a contractual principal
balance of $60 million and a fair value of $36 million as of
December 2017.

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
Lending Commitments at Fair Value Under the Fair
Value Option
The table below presents details about the contractual amount
of lending commitments that are held at fair value under the
fair value option.

$ in millions
Corporate
Other
Total

In the table above:
 DVA (net of tax) is included in debt valuation adjustment in
the condensed consolidated statements of comprehensive
income.
 The gains/(losses) reclassified to earnings from accumulated
other comprehensive loss upon extinguishment of such
financial liabilities were not material for both the three
months ended March 2018 and March 2017.

As of
March
December
2018
2017
$ 4,360
$ 4,201
461
149
$ 4,821
$ 4,350

Note 9.

In the table above:

Loans Receivable

 Corporate lending commitments relates to bank and bridge
lending activities.

Loans receivable consists of loans held for investment that are
accounted for at amortized cost net of allowance for loan
losses and loans held for sale that are accounted for at the
lower of cost or fair value. Interest on loans receivable is
recognized over the life of the loan and is recorded on an
accrual basis.

 The fair value of lending commitments were liabilities of $6
million and $5 million as of March 2018 and December
2017, respectively.
Impact of Credit Spreads on Loans and Lending
Commitments
The estimated net gain attributable to changes in instrumentspecific credit spreads on loans and lending commitments for
which the fair value option was elected was $10 million and
$24 million for the three months ended March 2018 and
March 2017, respectively. The Bank 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.

The table below presents details about loans receivable.
As of
$ in millions
Corporate loans
Loans to PWM clients
Loans backed by commercial real estate
Loans backed by residential real estate
Marcus loans
Other loans
Total loans receivable, gross
Allowance for loan losses
Total loans receivable

The table below presents details about the net DVA
gains/(losses) on such financial liabilities.

$
$

December
2017

$ 25,152

$ 21,657

14,508

14,485

7,078
3,080

6,854

2,384
3,636

1,912

55,838
(365)

51,203

$ 55,473

2,769
3,526
(354)
$ 50,849

In the table above, loans to PWM clients includes $12.17
billion and $12.12 billion of loans secured by investments in
real or financial assets, $2.23 billion and $2.23 billion of loans
secured by commercial real estate and $108 million and $130
million of loans secured by residential real estate as of March
2018 and December 2017, respectively.

Debt Valuation Adjustment
The Bank 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 Bank’s credit
spreads.

$ in millions
DVA (pre-tax)
DVA (net of tax)

March
2018

Three Months
Ended March
2018
2017
(10)
$
7
(7)
$
4

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
Loans Held for Investment
Included in loans receivable are loans held for investment
which are accounted for at amortized cost net of allowance for
loan losses. The carrying value of such loans, net of allowance
for loan losses was $52.82 billion and $47.76 billion as of
March 2018 and December 2017, respectively. As of March
2018 and December 2017, the fair value of loans held for
investment was $52.83 billion and $47.83 billion, respectively.
Had these loans been carried at fair value and included in the
fair value hierarchy, $29.07 billion and $26.92 billion would
have been classified in level 2, and $23.76 billion and $20.91
billion would have been classified in level 3, as of March 2018
and December 2017, respectively.

The following is a description of the captions in the table
above:
 Corporate Loans. Corporate loans includes term loans,
revolving lines of credit, letter of credit facilities and bridge
loans, and are principally used for operating liquidity and
general corporate purposes, or in connection with
acquisitions. Corporate loans also includes loans originated
as part of the Bank’s CRA activities. Corporate loans may
be secured or unsecured, depending on the loan purpose, the
risk profile of the borrower and other factors. Loans
receivable related to the Bank’s relationship lending
activities are reported within corporate loans.
 Loans to PWM Clients. Loans to PWM clients includes
loans used by clients to finance private asset purchases,
employ leverage for strategic investments in real or
financial assets, bridge cash flow timing gaps or provide
liquidity for other needs. Such loans are primarily secured
by securities or other assets.

Loans Held for Sale
Included in loans receivable are loans held for sale which are
accounted for at the lower of cost or fair value. The carrying
value of such loans was $2.65 billion and $3.09 billion as of
March 2018 and December 2017, respectively. As of both
March 2018 and December 2017, the carrying value of loans
held for sale generally approximated fair value. Had these
items been included in the fair value hierarchy, they primarily
would have been classified in level 2 as of both March 2018
and December 2017.

 Loans Backed by Commercial Real Estate. Loans
backed by commercial real estate includes loans extended
by the Bank that are directly or indirectly secured by hotels,
retail stores, multifamily housing complexes and
commercial and industrial properties. Loans backed by
commercial real estate also includes loans purchased by the
Bank and loans originated as part of the Bank’s CRA
activities.

Lending Commitments Held for Investment
The table below presents details about lending commitments
that are held for investment and accounted for on an accrual
basis.

 Loans Backed by Residential Real Estate. Loans
backed by residential real estate primarily includes loans
extended by the Bank to clients who warehouse assets that
are directly or indirectly secured by residential real estate.
Loans backed by residential real estate also includes loans
purchased by the Bank.

$ in millions
Corporate
Other
Total

 Marcus Loans. Marcus loans represents unsecured loans
to retail clients.

As of
March
December
2018
2017
$ 102,087
$ 92,217
5,082
5,017
$ 107,169
$ 97,234

In the table above:
 Corporate lending commitments primarily relates to the
Bank’s relationship lending activities.

 Other Loans. Other loans primarily includes loans
extended to clients who warehouse assets that are directly or
indirectly secured by retail loans, including auto loans, and
pri
vate student loans and other assets.

 Other lending commitments primarily relates to lending
commitments extended by the Bank to clients who
warehouse assets backed by real estate and other assets.
 The carrying value of lending commitments were liabilities
of $292 million (including allowance for losses of $190
million) and $298 million (including allowance for losses of
$193 million) as of March 2018 and December 2017,
respectively.

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
 The estimated fair value of such lending commitments were
liabilities of $1.97 billion and $1.82 billion, as of March
2018 and December 2017, respectively. Had these lending
commitments been carried at fair value and included in the
Bank’s fair value hierarchy, $624 million and $641 million
would have been classified in level 2, and $1.35 billion and
$1.18 billion would have been classified in level 3, as of
March 2018 and December 2017, respectively.

The Bank enters into economic hedges to mitigate credit risk
on certain loans receivable and corporate lending
commitments (both of which are held for investment) related
to the Bank’s relationship lending activities. Such hedges are
accounted for at fair value. See Note 17 for further
information about these lending commitments and associated
hedges.
The table below presents gross loans receivable (excluding
Marcus loans of $2.38 billion and $1.91 billion as of March
2018 and December 2017, respectively) and lending
commitments by the Bank’s internally determined public
rating agency equivalent and by regulatory risk rating.

Lending Commitments Held for Sale
The table below presents details about lending commitments
that are held for sale and accounted for at the lower of cost or
fair value.

$ in millions
Corporate
Other
Total

As of
March
December
2018
2017
$ 9,211
$ 6,354
661
614
$ 9,872
$ 6,968

Lending
Loans

$ in millions

Commitments

Total

Credit Rating Equivalent
As of March 2018
Investment-grade

Non-investment-grade

In the table above:

Total

 Corporate lending commitments primarily relates to bank
and bridge lending activities.

As of December 2017
Investment-grade

 Substantially all other lending commitments relates to
lending commitments extended to clients for the purchase of
commercial and residential real estate.

Non-investment-grade

 The carrying value of lending commitments held for sale
were liabilities of $66 million and $50 million as of March
2018 and December 2017, respectively. Had these lending
commitments been included in the fair value hierarchy, they
primarily would have been classified in level 3 as of both
March 2018 and December 2017.

As of March 2018

Total

23,256

30,198

82,735

105,991

34,306

64,504

53,454

117,041

170,495

22,461

73,224

95,685

26,830

30,978

57,808

49,291

104,202

153,493

52,412

114,343

166,755

Regulatory Risk Rating
Non-criticized/pass
Criticized
Total

1,042

2,698

3,740

53,454

117,041

170,495

48,246

100,226

148,472

153,493

As of December 2017
Non-criticized/pass
Criticized
Total

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

1,045
$

49,291

3,976
$

104,202

5,021

In the table above:
 Loans and lending commitments includes loans and lending
commitments held for investment and held for sale.
 Non-criticized/pass loans and lending commitments
represent loans and lending commitments that are
performing and/or do not demonstrate adverse
characteristics that are likely to result in a credit loss.

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
Allowance for Losses on Loans and Lending
Commitments
The Bank’s allowance for loan losses consists of specific loanlevel reserves and portfolio level reserves as described below:

For Marcus loans, 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 refreshed
periodically by the Bank to assess the updated
creditworthiness of the borrower. As of March 2018 and
December 2017, greater than 80% of the Marcus loans
receivable had an underlying FICO credit score above 660
(with a weighted average FICO credit score in excess of 700).

 Specific loan-level reserves are determined on loans that
exhibit credit quality weakness and are therefore
individually evaluated for impairment.
 Portfolio level reserves are determined on loans not
evaluated for specific loan-level reserves by aggregating
groups of loans with similar risk characteristics and
estimating the probable loss inherent in the portfolio.

Impaired Loans. Loans receivable are determined to be
impaired when it is probable that the Bank will not be able to
collect all principal and interest due under the contractual
terms of the loan. At that time, loans are generally placed on
nonaccrual status and all accrued but uncollected interest is
reversed against interest income and interest subsequently
collected is recognized on a cash basis to the extent the loan
balance is deemed collectible. Otherwise, all cash received is
used to reduce the outstanding loan balance.

The allowance for loan losses is determined using various risk
factors, including industry default and loss data, current
macroeconomic indicators, borrower’s capacity to meet its
financial obligations, borrower’s country of risk, loan seniority
and collateral type. 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 Marcus loans include FICO
credit scores and delinquency status.

In certain circumstances, the Bank may also modify the
original terms of a loan agreement by granting a concession to
a borrower experiencing financial difficulty. Such
modifications are considered troubled debt restructurings and
typically include interest rate reductions, payment extensions,
and modification of loan covenants. Loans modified in a
troubled debt restructuring are considered impaired and are
subject to specific loan-level reserves.

Management’s estimate of loan losses entails judgment about
loan collectabi
lity at the reporting dates, and there are
uncertainties inherent in those judgments. While management
uses the best information available to determine this estimate,
future adjustments to the allowance may be necessary based
on, among other things, changes in the economic environment
or variances between actual results and the original
assumptions used. Loans are charged off against the allowance
for loan losses when deemed to be uncollectible.

As of March 2018 and December 2017, the gross carrying
value of impaired loans receivable on nonaccrual status was
$289 million and $284 million, respectively. As of both March
2018 and December 2017, the Bank did not have any loans or
lending commitments that were modified in a troubled debt
restructuring.

The Bank also records an allowance for losses on lending
commitments that are held for investment and accounted for
on an accrual basis. Such allowance is determined using the
same methodology as the allowance for loan losses, while also
taking into consideration the probability of drawdowns or
funding, and is included in other liabilities and accrued
expenses.

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
The table below presents gross loans held for investment and
lending commitments held for investment by impairment
methodology.
$ in millions
Specific
Portfolio
As of March 2018
Loans Held for Investment
$
69 $ 23,946
Corporate loans
131
14,378
Loans to PWM Clients
Loans backed by:
–
6,680
Commercial real estate
89
2,614
Residential real estate
–
2,384
Marcus loans
–
2,894
Other loans
Total
$
289 $ 52,896
Lending Commitments Held for Investment
$
13 $ 102,074
Corporate
–
5,082
Other
Total
$
13 $ 107,156
As of December 2017
Loans Held for Investment
Corporate loans
$
Loans to PWM Clients
Loans backed by:
Commercial real estate
Residential real estate
Marcus loans
Other loans
Total
$
Lending Commitments Held for Investment
Corporate
$
Other
Total
$

In the table above:
 The provision for losses on loans and lending commitments
was primarily related to Marcus loans for the three months
ended March 2018 and primarily related to corporate loans
and lending commitments and Marcus loans for the year
ended December 2017.

Total

24,015
14,509

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

6,680
2,703
2,384
2,894
53,185

 Portfolio level reserves were primarily related to corporate
loans and Marcus loans and specific loan-level reserves
were primarily related to corporate loans.

$ 102,087
5,082
$ 107,169

121
163

$ 21,047 $
14,322

21,168
14,485

–
–
–
–
284

5,517
2,149
1,912
2,885
$ 47,832 $

5,517
2,149
1,912
2,885
48,116

28
–
28

$ 92,189 $
5,017
$ 97,206 $

92,217
5,017
97,234

 Substantially all of the allowance for losses on lending
commitments were related to corporate lending
commitments.
Note 10.

Collateralized Agreements and Financings
Collateralized agreements are securities purchased under
agreements to resell (resale agreements). Collateralized
financings are securities sold under agreements to repurchase
(repurchase agreements) and other secured financings. The
Bank enters into these transactions in order to, among other
things, facilitate client activities, invest excess cash and
finance certain Bank activities.

In the table above, gross loans held for investment and lending
commitments held for investment, subject to specific loanlevel reserves, included $220 million and $124 million of
impaired loans and lending commitments as of March 2018
and December 2017, respectively, which did not require a
reserve as the loan was deemed to be recoverable.

Collateralized agreements and financings are presented on a
net-by-counterparty basis when a legal right of setoff exists.
Interest on collateralized agreements and collateralized
financings is recognized over the life of the transaction and
included in interest income and interest expense, respectively.
See Note 20 for further information about interest income and
interest expense.

The table below presents changes in the allowance for loan
losses and the allowance for losses on lending commitments,
as well as details by impairment methodology.

$ in millions

The table below presents the carrying value of resale and
repurchase agreements.

Year Ended

Three Months Ended
March 2018

December 2017

Loans
Lending
Receivable Commitments

As of
March

Changes in the allowance for losses
Beginning balance

Net charge-offs
Provision
Other
Ending balance

354

193

219

163

(17)

–

(158)

–

Securities purchased under agreements to resell

297

Securities sold under agreements to repurchase

(29)

(6)

365

190

(4)
$

Portfolio
Total

348
$

365

354

307

186
$

190

354

2017

24,088

18,320

(8)

In the table above:

193

Allowance for losses by impairment methodology
Specific

December

2018

$ in millions

 All repurchase agreements are carried at fair value under the
fair value option.

10
183

193

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
 As of March 2018 and December 2017, $23.73 billion and
$17.92 billion of resale agreements were at fair value,
respectively.

Offsetting Arrangements
The table below presents the gross and net resale and
repurchase agreements and the related amount of counterparty
netting included in the condensed consolidated statements of
financial condition, as well as the amounts of counterparty
netting and cash and securities collateral, not offset in the
condensed consolidated statements of financial condition.

See Note 8 for further information about the valuation
techniques and significant inputs used to determine fair value.
Resale and Repurchase Agreements
A resale agreement is a transaction in which the Bank
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.

$ in millions

Assets

Liabilities

Resale

Repurchase

agreements

As of March 2018
Included in condensed consolidated statements of financial condition
Gross carrying value

A repurchase agreement is a transaction in which the Bank
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 bu
yer at a stated price plus accrued
interest at a future date.

25,271

Counterparty netting

(1,183)

Total

24,088

1,232
(1,183)
49

Amounts not offset
Counterparty netting

(48)

Collateral
Total

(48)
–

(24,028)
$

As of December 2017
Included in condensed consolidated statements of financial condition
Gross carrying value

Even though repurchase and resale agreements 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 obligations.

19,700

Counterparty netting

(1,380)

Total

18,320

1,436
(1,380)
56

Amounts not offset
Counterparty netting

(55)

Collateral
Total

(55)

(18,242)
$

–
$

In the table above:
The Bank receives financial instruments purchased under
resale agreements and makes delivery of financial instruments
sold under repurchase agreements. To mitigate credit
exposure, the Bank 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 Bank typically requires collateral with a fair value
approximately equal to the carrying value of the relevant
assets in the condensed consolidated statements of financial
condition.

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

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
FHLB Advances. As a member of the FHLB, the Bank can
draw under a funding arrangement secured by eligible
collateral. As of March 2018 and December 2017, outstanding
borrowings from the FHLB were $2.90 billion and $3.40
billion, respectively. As of March 2018, interest rates ranged
from 3-month LIBOR plus 0.09% to 0.36% with a weighted
average rate of 3-month LIBOR plus 0.19%. As of December
2017, interest rates ranged from 3-month LIBOR plus 0.09%
to 0.36% with a weighted average rate of 3-month LIBOR
plus 0.15%. These borrowings are carried at fair value under
the fair value option in the Bank’s fair value hierarchy. See
Note 8 for further information about borrowings accounted for
at fair value. Outstanding FHLB advances include $2.40
billion and $2.90 billion of short-term borrowings as of March
2018 and December 2017, respectively, and $501 million and
$500 million of long-term borrowings as of March 2018 and
December 2017, respectively.

Gross Carrying Value of Repurchase Agreements
The table below presents the gross carrying value of
repurchase agreements by class of collateral pledged.
Repurchase agreements as of
December

March
Money market instruments

U.S. government and agency obligations

49
1,183

1,232

46
1,302

–

Corporate debt securities
Total

2017

2018

$ in millions

88
$

1,436

As of both March 2018 and December 2017, all of the Bank’s
repurchase agreements were either overnight or had no stated
maturity.
Other Secured Financings
In addition to repurchase agreements, the Bank funds certain
assets through the use of other secured financings and pledges
financial instruments and other assets as collateral in these
transactions. These other secured financings consist of:

Other. As of March 2018 and December 2017, other secured
financings, excluding FHLB advances, were $91 million and
$107 million, respectively. As of both March 2018 and
December 2017, all of the amounts outstanding had a
contractual maturity of greater than one year.

 FHLB advances; and
 Transfers of assets accounted for as financings rather than
sales (primarily collateralized by bank loans and mortgage
whole loans).

Collateral Received and Pledged
The Bank receives cash and securities (e.g., U.S. government
and agency obligations, other sovereign and corporate
obligations) as collateral, primarily in connection with resale
agreements, derivative transactions and customer margin
loans. The Bank 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.

Other secured financings includes arrangements that are
nonrecourse. As of March 2018 and December 2017,
nonrecourse other secured financings were $91 million and
$107 million, respectively.
The Bank has elected to apply the fair value option to
substantially all other secured financings because the use of
fair value eliminates non-economic volatility in earnings that
would arise from using different measurement attributes. See
Note 8 for further information about other secured financings
that are accounted for at fair value.

In many cases, the Bank is permitted to deliver or repledge
financial instruments received as collateral when entering into
repurchase agreements or collateralized derivative transactions.

Other secured financings that are not recorded at fair value are
recorded based on the amount of cash received plus accrued
interest, which generally approximates fair value. While these
financings are carried at amounts that approximate fair value,
they are not accounted for at fair value under the fair value
option or at fair value in accordance with other U.S. GAAP
and therefore are not included in the Bank’s fair value
hierarchy in Notes 6 through 8. Had these financings been
included in the Bank’s fair value hierarchy, they would have
been primarily classified in level 3 as of both March 2018 and
December 2017.

The Bank also pledges certain financial instruments owned
and loans receivable in connection with repurchase
agreements and other secured financings. These assets are
pledged to counterparties who may or may not have the right
to deliver or repledge them.

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
The table below presents financial instruments at fair value
received as collateral that were available to be delivered or
repledged and were delivered or repledged by the Bank.
As of
March
December
2018
2017

$ in millions
Collateral available to be delivered or repledged
Collateral that was delivered or repledged

The Bank 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 loans receivable.

$
$

28,013
20,921

< p>The primary risks from the Bank’s continuing involvement
with securitization vehicles are the performance of the
underlying collateral and the position of the Bank’s
investment in the capital structure of the securitization vehicle.
Substantially all of these retained interests are accounted for at
amortized cost net of allowance for loan losses. Had these
interests been included in the Bank’s fair value hierarchy, they
would have primarily been classified in level 3 as of March
2018 and substantially all would have been classified as level
3 as of December 2017. See Note 9 for further information
about loans receivable.

$ 22,217
$ 16,106

The table below presents information about assets pledged.
As of
March
December
$ in millions

2017

2018

Financial instruments owned pledged to counterparties that:
Had the right to deliver or repledge
$
758
$
Did not have the right to deliver or repledge
6,759
Other assets pledged to counterparties that
$
did not have the right to deliver or repledge
91

814

6,577

107

The table below presents the amount of financial assets
securitized and the cash flows received on retained interests in
securitization entities in which the Bank had continuing
involvement as of the end of the period.

Note 11.

Securitization Activities
The Bank securitizes residential and commercial mortgages
and other financial assets by selling these assets to
securitization vehicles (e.g., trusts, corporate entities and
limited liability companies) or through a resecuritization. An
affiliate acts as the underwriter of the beneficial interests that
are sold to investors.

Three Months
$ in millions
Residential mortgages
Commercial mortgages
Other financial assets
Total
Retained interests cash flows

Beneficial interests issued by securitization entities are debt or
equity instruments that give the investors rights to receive all
or portions of specified cash inflows to a securitization vehicle
and include senior and subordinated interests in principal,
interest and/or other cash inflows. The proceeds from the sale
of beneficial interests are used to pay the transferor for the
financial assets sold to the securitization vehicle or to purchase
securities which serve as collateral.

$
$

Ended March
2018
1,893
$
1,723
234
3,850
$
2

2017
–
1,062
–
1,062
–

The table below presents the Bank’s continuing involvement
in nonconsolidated securitization entities to which the Bank
sold assets, as well as the total outstanding principal amount of
transferred assets in which the Bank has continuing
involvement.
Outstanding

The Bank accounts for a securitization as a sale when it has
relinquished control over the transferred financial assets. Prior
to securitization, the Bank generally accounts for assets
pending transfer at fair value and therefore does not typically
recognize significant gains or losses upon the transfer of
assets.

$ in millions

Principal

Retained

Amount

Interests

As of March 2018
Residential mortgage-backed

Commercial mortgage-backed

8,561

Other asset-backed
Total

1,893

89
243

563

11,017

356

Commercial mortgage-backed

6,839

199

Total

6,839

199

As of December 2017

For transfers of financial assets that are not accounted for as
sales, the assets remain in financial instruments owned and the
transfer is accounted for as a collateralized financing, with the
related interest expense recognized over the life of the
transaction. See Notes 10 and 20 for further information about
collateralized financings and interest expense, respectively.
39

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
In the table above:

As of March 2018, the Bank has other retained interests not
reflected in the table above with a fair value of $24 million
and a weighted average life of 4.1 years. 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 March 2018. The Bank’s maximum exposure
to adverse changes in the value of these interests is the
carrying value of $24 million as of March 2018. As of
December 2017, the Bank had no other retained interests.

 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 Bank’s
risk of loss.
 The Bank’s risk of loss from retained interests is limited to
the carrying value of these interests.
 All of the total outstanding principal amount and total
retained interests relate to securitizations during 2017 and
thereafter.
 The fair value of retained interests was $352 million and
$186 million as of March 2018 and December 2017,
respectively.

Note 12.

The table below presents the weighted average key economic
assumptions used in measuring the fair value of mortgagebacked retained interests and the sensitivity of this fair value
to immediate adverse changes of 10% and 20% in those
assumptions.

A variable interest in a VIE is an investment (e.g., debt or
equity securities) or other interest (e.g., derivatives or loans
and lending commitments) that will absorb portions of the
VIE’s expected losses and/or receive portions of the VIE’s
expected residual returns.

As of
March
December
2018
2017
328
$
186
5.9
5.3
10.0%
–
–
$
–
(1)
$
–
6.4%
6.4%
(8)
$
(4)
(16)
$
(8)

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 Bank’s involvement with VIEs
includes securitization of financial assets, as described in Note
11, and investments in and loans to other types of VIEs, as
described below. See Note 11 for further information about
securitization activities, including the definition of beneficial
interests. See Note 3 for the Bank’s consolidation policies,
including the definition of a VIE.

$ in millions
Fair value of retained interests
Weighted average life (years)
Constant prepayment rate
Impact of 10% adverse change
Impact of 20% adverse change
Discount rate
Impact of 10% adverse change
Impact of 20% adverse change

$
$
$
$

Variable Interest Entities

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.

The Bank enters into derivatives with certain mortgage-backed
and corporate debt and other asset backed VIEs and sells loans
to certain mortgage-backed and corporate debt and other assetbacked VIEs. The Bank also makes investments in and lends
to VIEs that hold real estate and distressed loans and enters
into basis swaps on assets held by other asset-backed VIEs.
The Bank generally enters into derivatives with othercounterparties to mitigate its risk from derivatives with these
VIEs.

 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.
 Expected credit loss assumptions are reflected in the
discount rate for the retained interests.
40

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
VIE Consolidation Analysis
The enterprise with a controlling financial interest in a VIE is
known as the primary beneficiary and consolidates the VIE.
The Bank determines whether it is the primary beneficiary of a
VIE by performing an analysis that principally considers:

In the table above:
 The Bank’s exposure to the obligations of VIEs is generally
limited to its interests in these entities. In certain instances,
the Bank provides guarantees, including derivative
guarantees, to VIEs or holders of variable interests in VIEs.

 Which variable interest holder has the power to direct the
activities of the VIE that most significantly impact the
VIE’s economic performance;

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

 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 maximum exposure to loss from retained interests and
loans and investments is the carrying value of these
interests.

 The VIE’s purpose and design, including the risks the VIE
was designed to create and pass through to its variable
interest holders;

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

 The 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 table below disaggregates the information for
nonconsolidated VIEs included in the summary table above.

The Bank reassesses its evaluation of whether an entity is a
VIE when certain reconsideration events occur. The Bank
reassesses its determination of whether it is the primary
beneficiary of a VIE on an ongoing basis based on current
facts and circumstances.

$ in millions
Mortgage-backed
Assets in VIEs
Carrying value of variable interests – assets
Maximum exposure to loss:
Retained interests
Derivatives
Total maximum exposure to loss
Corporate debt and other asset-backed
Assets in VIEs
Carrying value of variable interests – assets
Carrying value of variable interests – liabilities
Maximum exposure to loss:
Retained interests
Commitments and guarantees
Derivatives
Loans and investments
Total maximum exposure to loss
Real estate, credit-related and other investing
Assets in VIEs
Carrying value of variable interests – assets
Maximum exposure to loss:
Commitments and guarantees
Loans and investments
Total maximum exposure to loss

Nonconsolidated VIEs
The table below presents a summary of the nonconsolidated
VIEs in which the Bank holds variable interests. The nature of
the Bank’s variable interests can take different forms, as
described in the rows under maximum exposure to loss.

$ in millions
Total nonconsolidated VIEs
Assets in VIEs
Carrying value of variable interests – assets
Carrying value of variable interests – liabilities
Maximum exposure to loss:
Retained interests
Commitments and guarantees
Derivatives
Loans and investments
Total maximum exposure to loss

March
2018
$

$

20,926
2,128
225
356
1,660
4,593
1,621
8,230

As of
December
2017
$

$

16,848
1,751
168
199
1,803
4,607
1,237
7,846

41

March
2018

As of
December
2017

$ 10,553
335

$
$

$
$

$

332
98
430
7,460
1,268
225
24
1,356
4,495
1,096
6,971
2,913
525
304
525
829

$

$
$

$
$

$

6,939
209
199
99
298
7,066
1,023
168
–
1,504
4,508
718
6,730
2,843
519
299
519
818

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
The carrying values of the Bank’s variable interests in
nonconsolidated VIEs are included in the condensed
consolidated statements of financial condition as follows:

Note 14.

 Mortgage-backed: As of both March 2018 and December
2017, substantially all assets were included in loans
receivable.

The table below presents the types and sources of the Bank’s
deposits.

Deposits

Savings and

 Corporate debt and other asset-backed: As of March 2018
assets were included in financial instruments owned and
loans receivable and liabilities were included in financial
instruments sold, but not yet purchased. As of December
2017, assets were included in financial instruments owned
and liabilities were included in financial instruments sold,
but not yet purchased.

Demand

$ in millions

Time

Total

As of March 2018
Private bank deposits

$

Marcus deposits
Brokered certificates of deposit
Deposit sweep programs
Institutional deposits
Total

 Real estate, credit-related and other investing: As of March
2018 and December 2017, assets were included in financial
instruments owned and other assets.

43,271

$

278

$

43,549

15,967

4,345

20,312

–

38,463

38,463

15,960

–

15,960

2,805

3,254

$

78,003

$

$

41,902

$

6,059

46,340

$

124,343

281

$

42,183

As of December 2017
Private bank deposits
Marcus deposits

Consolidated VIEs
As of both March 2018 and December 2017, the Bank had no
consolidated VIEs.

Brokered certificates of deposit
Deposit sweep programs
Institutional deposits
Total

$

13,787

3,330

17,117

–

35,859

35,859

16,019

–

16,019

1,713

3,003

73,421

$

42,473

4,716
$

115,894

Note 13.

In the table above:

Other Assets

 Substantially all of the Bank’s deposits are interest-bearing
and are held in the U.S.

Other assets are generally less liquid assets. The table below
presents other assets by type.

 Savings and demand accounts consist of money market
deposit accounts, negotiable order of withdrawal accou
nts,
and demand deposit accounts that have no stated maturity or
expiration date. Savings account holders may be required by
the Bank to give written notice of intended withdrawals not
less than seven days before such withdrawals are made and
may be limited on the number of withdrawals made within a
month. Demand account holders are not subject to
restrictions with respect to the timing and number of
transactions that deposit holders may execute.

As of
March
FRB shares

December
2017

2018

$ in millions
$

414

$

413

Receivables from affiliates

404

211

Investments in qualified affordable housing projects

294

302

Income tax-related assets

174

193

FHLB shares

156

179

Miscellaneous receivables and other
Total

113

95
$

1,537

$

1,411

 Time deposits consist primarily of brokered certificates of
deposit which have stipulated maturity dates and rates of
interest. Early withdrawals of brokered time deposits are
generally prohibited.
 Time deposits included $4.57 billion and $4.43 billion as of
March 2018 and December 2017, respectively, of deposits
accounted for at fair value under the fair value option. See
below and Note 8 for further information about deposits
accounted for at fair value.
 Time deposits had a weighted average maturity of
approximately 2.2 years and 2.4 years as of March 2018
and December 2017, respectively.
42

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Deposit sweep programs represent long-term contractual
agreements with several U.S. broker-dealers who sweep
client cash to FDIC-insured deposits. Pursuant to the
external deposit sweep program agreements, each third
party broker-dealer agrees, for a prescribed term, to place a
certain minimum amount of deposits from their clients with
the Bank. Each client’s deposit may be withdrawn at any
time. As of both March 2018 and December 2017, the Bank
had eight deposit sweep program contractual arrangements.

The table below presents time deposits accounted for under
the fair value option by tenor.

 As of both March 2018 and December 2017, institutional
deposits were from Goldman Sachs Funding LLC (Funding
IHC), a wholly-owned subsidiary of Group Inc. formed in
2017.

Maturity ≤ 1 year

Principal

$ in millions

Fair Value

As of March 2018
Maturity ≤ 1 year

$

Maturity > 1 year
Total

416

$

418

3,920
$

4,147

4,336

$

448

$

4,565

As of December 2017
$

Maturity > 1 year
Total

449

3,678
$

3,979

4,126

$

4,428

Note 15.

 Deposits insured by the FDIC as of March 2018 and
December 2017 were approximately $80.51 billion and
$75.02 billion, respectively.

Unsecured Borrowings
The table below presents details about the Bank’s unsecured
borrowings.

The table below presents the Bank’s time deposits by
contractual maturity.

As of
March

As of
14,724

Unsecured short-term borrowings

2019

10,795

Unsecured long-term borrowings

2020

6,155

2021

3,951

2022

4,909

2023

2,388

Remainder of 2018

$

2024 – thereafter
Total

Total

$

57

2017
$

2,134

4,384
$

4,441

2,085

$

4,219

Subordinated Borrowings
As of both March 2018 and December 2017, the Bank had a
$5.00 billion revolving subordinated loan agreement with
Funding IHC, which expires in 2039. As of March 2018,
outstanding subordinated borrowings under this agreement
were $4.25 billion, of which $2.25 billion matures in 2028 and
$2.00 billion matures in 2024. As of December 2017,
outstanding subordinated borrowings under this agreement
were $2.00 billion, maturing in 2024. The carrying value of
the subordinated borrowings generally approximates fair
value. As of both March 2018 and December 2017,
outstanding borrowings bear interest at the overnight bank
funding rate plus 1.85% per annum. Any amounts payable
under the agreement would be subordinate to the claims of
certain other creditors of the Bank, including depositors and
regulatory agencies. In April 2018, this subordinated loan
agreement with Funding IHC was amended to remove the
$5.00 billion borrowing limit.

3,418
$

December

2018

$ in millions

March 2018

$ in millions

46,340

As of March 2018, deposits included $5.15 billion of time
deposits that were greater than $250,000.
The Bank’s savings and demand deposits are recorded based
on the amount of cash received plus accrued interest, which
approximates fair value. In addition, the Bank 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 March 2018 and December 2017. While
these savings and demand deposits and most time deposits are
carried at amounts that approximate fair value, they are not
accounted for at fair value under the fair value option or at fair
value in accordance with other U.S. GAAP and therefore are
not included in the Bank’s fair value hierarchy in Notes 6
through 8. Had these deposits been included in the Bank’s fair
value hierarchy, they would have been classified in level 2 as
of both March 2018 and December 2017.

43

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
Senior Unsecured Borrowings
The Bank has a senior unsecured facility, committed on an
intraday basis up to $4.00 billion with Group Inc. This facility
automatically renews each business day for a period of six
months with a final maturity date in February 2020. As of
March 2018, there were no outstanding borrowings under this
facility. As of December 2017, outstanding borrowings were
$15 million.

Note 17.

Commitments, Contingencies and
Guarantees
Commitments
The table below presents the Bank’s commitments by type.
As of

The Bank has a senior debt facility consisting of an
uncommitted term unsecured line of credit with Funding IHC
which matures in 2019. As of March 2018, there were no
outstanding borrowings under this facility. As of December
2017, outstanding short-term borrowings were $2.00 billion
under this facility.

March
2018

December
2017

$ 81,015

$ 70,913

36,243

32,313

$ in millions
Commercial lending:
Investment-grade
Non-investment-grade
Warehouse financing

4,604

5,326

121,862

108,552

1
–

532
915

752
1,022

1,898
493

$ 123,637

$ 112,390

Total commitments to extend credit
Contingent and forward starting collateralized
agreements
Forward starting collateralized financings

Other Unsecured Borrowings
The Bank held $191 million and $204 million of other
unsecured borrowings as of March 2018 and December 2017,
respectively, substantially all of which were hybrid financial
instruments. As of March 2018, $57 million was classified as
short-term borrowings and $134 million was classified as
long-term borrowings. As of December 2017, $70 million was
classi
fied as short-term borrowings and $134 million was
classified as long-term borrowings.

Investment commitments
Other
Total commitments

The table below presents the Bank’s commitments by period
of expiration.
As of March 2018
$ in millions

The Bank accounts for hybrid financial instruments at fair
value under the fair value option. See Note 8 for further
information about hybrid financial instruments that are
accounted for at fair value.

Remainder

2019 –

of 2018

2020

2021 –

2023 –

$ 12,834

$ 27,340

$ 34,060

1,350

8,752

15,371

10,770

624

2,067

1,345

568

14,808

38,159

50,776

18,119

1

–

–

–

47

–

2

703

2022 Thereafter

Commercial lending:
Investment-grade
Non-investment-grade
Warehouse financing

$

6,781

Total commitments to
extend credit

Note 16.

Contingent and forward starting

Other Liabilities and Accrued Expenses

collateralized agreements
Investment commitments
Other

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

Total commitments

March
Income tax-related liabilities

$

996

Payables to affiliates

225

Accrued expenses and other

611

Total

December
2017

2018

$

1,832

$

860
146
647

$

–

–

–

$ 38,159

$ 50,778

$ 18,822

Commitments to Extend Credit
The Bank’s commitments to extend credit 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 Bank may
syndicate all or substantial additional portions of these
commitments. In addition, commitments can expire unused or
be reduced or cancelled at the counterparty’s request.

As of
$ in millions

1,022
$ 15,878

1,653

44

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
Warehouse Financing. The Bank provides financing to
clients who warehouse financial assets. These arrangements
are secured by the warehoused assets, substantially all of
which consist of retail and corporate loans.

As of March 2018 and December 2017, $107.17 billion and
$97.23 billion, respectively, of the Bank’s lending
commitments were held for investment and were accounted
for on an accrual basis. In addition, as of March 2018 and
December 2017, $9.87 billion and $6.97 billion, respectively,
of the Bank’s lending commitments were held for sale and
were accounted for at the lower of cost or fair value. See Note
9 for further information about such commitments. The Bank
accounts for the remaining commitments to extend credit at
fair value. Losses, if any, are generally recorded net of any
fees in gains and losses from financial instruments, net.

Contingent and Forward Starting Collateralized
Agreements / Forward Starting Collateralized
Financings
Contingent and forward starting collateralized agreements
includes resale agreements, and forward starting collateralized
financings includes repurchase and secured lending
agreements that settle at a future date, generally within three
business days. The Bank also enters into commitments to
provide contingent financing to its clients and counterparties
through resale agreements. The Bank’s funding of these
commitments depends on the satisfaction of all contractual
conditions to the resale agreement and these commitments can
expire unused.

Commercial Lending. The Bank’s commercial lending
commitments are extended to investment-grade and noninvestment-grade corporate borrowers. Commitments to
investment-grade corporate borrowers are principally used for
operating liquidity and general corporate purposes. The Bank
also extends lending commitments in connection with
contingent acquisition financing and other types of corporate
lending, as well as commercial real estate financing.
Commitments that are extended for contingent acquisition
financing are often intended to be short-term in nature, as
borrowers often seek to replace them with other funding
sources.

Investment Commitments
Investment commitments includes commitments to invest in
securities, real estate and other assets.
Contingencies
Legal Proceedings. See Note 23 for information about
legal proceedings.

Sumitomo Mitsui Financial Group, Inc. (SMFG) provides the
Bank and its affiliates with credit loss protection on certain
approved loan commitments (primarily investment-grade
commercial lending commitments). The notional amount of
such loan commitments was $25.23 billion and $25.70 billion
as of March 2018 and December 2017, respectively,
substantially all of which was in the Bank. The credit loss
protection on loan commitments provided by SMFG is
generally limited to 95% of the first loss the Bank and its
affiliates realize on such commitments, up to a maximum of
approximately $950 million. In addition, subject to the
satisfaction of certain conditions, upon the Bank’s request,
SMFG will provide protection for 70% of additional losses on
such commitments, up to a maximum of $1.13 billion, of
which $550 million of protection had been provided as of both
March 2018 and December 2017. The Bank also uses other
financial instruments to mitigate credit risks related to certain
commitments not covered by SMFG. These instruments
primarily include credit default swaps that reference the same
or similar underlying instrument or entity, or credit default
swaps that reference a market index.

Certain Mortgage-Related Contingencies. There are
multiple areas of focus by regulators, governmental agencies
and others within the mortgage market that may impact
originators, issuers, servicers and investors. There remains
significant uncertainty surrounding the nature and extent of
any potential exposure for participants in this market.
The Bank has not been a significant originator of residential
mortgage loans. The Bank did purchase loans originated by
others and generally received loan-level representations.
During the period 2005 through 2008, the Bank sold
approximately $10 billion of loans to government-sponsored
enterprises and approximately $11 billion of loans to other
third parties. In addition, the Bank transferred loans to trusts
and other mortgage securitization vehicles. In connection with
both sales of loans and securitizations, the Bank provided
loan-level representations and/or assigned the loan-level
representations from the party from whom the Bank purchased
the loans.

45

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
The Bank’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 Bank entered into with trustees representing
certain trusts. Based upon the large number of defaults in
residential mortgages, including those sold or securitized by
the Bank, there is a potential for repurchase claims. However,
the Bank is not in
a position to make a meaningful estimate of
that exposure at this time.

Derivative Guarantees. The Bank enters into various
derivatives that meet the definition of a guarantee under U.S.
GAAP, including 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 Bank’s overall risk related to its derivative
activities. Disclosures about derivatives are not required if
they may be cash settled and the Bank has no basis to
conclude it is probable that the counterparties held the
underlying instruments at inception of the contract. The Bank
has concluded that these conditions have been met for certain
large, internationally active commercial and investment bank
counterparties, central clearing counterparties and certain
other counterparties. Accordingly, the Bank has not included
such contracts in the table above. In addition, see Note 7 for
information about credit derivatives that meet the definition of
a guarantee, which are not included in the table above.

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

$ in millions
As of March 2018
Carrying Value of Net Liability

Derivatives

Securities

Other

lending
indemnifications

financial
guarantees

–

$

7

Maximum Payout/Notional Amount by Period of Expiration
$ 47,810
$
42,313
Remainder of 2018

$

365

$

2019 – 2020
2021 – 2022
2023 – thereafter
Total

1,841

$

–
–

149,111
68,223
12,529
$ 277,673

–
42,313

655
1,080
$

37
2,137

Carrying Value of Net Liability
$
1,222
$
–
Maximum Payout/Notional Amount by Period of Expiration

$

7

2018
2019 – 2020

$

413
853

$

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 Bank, 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 $43.43 billion and
$44.01 billion as of March 2018 and December 2017,
respectively. Because the contractual nature of these
arrangements requires the Bank 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.

As of December 2017

2021 – 2022
2023 – thereafter
Total

$

70,979
38,509

$

11,303
9,846
$ 130,637

42,927
–
–
–

$

42,927

1,037
–
$

2,303

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 commitments to extend
credit. See the tables in “Commitments” above for a
summary of the Bank’s commitments.

Other Financial Guarantees. In the ordinary course of
business, the Bank 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).
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.

 The carrying value for derivatives included derivative assets
of $68 million and $58 million and derivative liabilities of
$1.91 billion and $1.28 billion as of March 2018 and
December 2017, respectively.

46

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
Indemnities and Guarantees of Service Providers. In
the ordinary course of business, the Bank 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 Bank.

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 Bank is
unable to develop an estimate of the maximum payout under
these guarantees and indemnifications. However, management
believes that it is unlikely the Bank will have to make any
material payments under these arrangements, and no material
liabilities related to these arrangements have been recognized
in the condensed consolidated statements of financial
condition as of both March 2018 and December 2017.

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

Note 18.

Regulation and Capital Adequacy
The Bank is regulated as described in Note 1, and is subject to
consolidated regulatory capital requirements as described
below. For purposes of assessing the adequacy of its capital,
the Bank calculates its capital requirements in accordance with
the regulatory capital requirements applicable to state member
banks based on the FRB’s regulations (Capital Framework).

The Bank is unable to develop an estimate of the maximum
payout under these guarantees and indemnifications. However,
management believes that it is unlikely the Bank 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 condensed
consolidated statements of financial condition as of both
March 2018 and December 2017.

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 Bank’s regulators and could limit the Bank’s ability to
distribute capital, including dividend payments, and to make
certain discretionary compensation payments. The Bank’s
capital levels are also subject to qualitative judgments by the
regulators a
bout components of capital, risk weightings and
other factors.

Other
Representations,
Warranties
and
Indemnifications. The Bank 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 Bank 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 borrowings or
derivatives.

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 U.S. Dodd-Frank Wall Street Reform
and Consumer Protection Act (Dodd-Frank Act). Under the
Capital Framework, the Bank is an “Advanced approach”
banking organization.

In addition, the Bank 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.

47

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
The table below presents the minimum ratios and the “wellcapitalized” minimum ratios required for the Bank.

The Capital Framework includes risk-based capital buffers
that phase in ratably, becoming fully effective on January 1,
2019. The Capital Framework also requires deductions from
regulatory capital that phased in ratably per year from 2014 to
2018.

Minimum Ratio as of
March
December ”Well-capitalized”
2018
Minimum Ratio
2017
Risk-based capital ratios
CET1 ratio
Tier 1 capital ratio
Total capital ratio
Leverage ratios
Tier 1 leverage ratio
SLR

The Bank calculates its Common Equity Tier 1 (CET1), 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 Basel III Advanced
Rules). The lower of each risk-based capital ratio calculated in
(i) and (ii) is the ratio against which the Bank’s compliance
with its minimum risk-based ratio requirements is assessed.
Under the Capital Framework, the Bank is also subject to Tier
1 leverage requirements established by the FRB. The Capital
Framework also introduced a supplementary leverage ratio
(SLR) which became effective January 1, 2018.

6.375%
7.875%
9.875%

5.750%
7.250%
9.250%

6.5%
8.0%
10.0%

4.000%
3.000%

4.000%
N/A

5.0%
6.0%

In the table above:
 The minimum risk-based capital ratios as of March 2018
reflect (i) the 75% phase-in of the capital conservation
buffer of 2.5% and (ii) the countercyclical capital buffer of
zero percent, each described below.
 The minimum risk-based capital ratios as of December 2017
reflect (i) the 50% phase-in of the capital conservation
buffer of 2.5% and (ii) the countercyclical capital buffer of
zero percent, each described below.

Minimum Ratios and Buffers. The U.S. Federal Deposit
Insurance Corporation Improvement Act of 1991 (FDICIA),
among other things, requires the federal bank regulatory
agencies to take “prompt corrective action” in respect of
depository institutions that do not meet specified capital
requirements. FDICIA establishes five capital categories for
FDIC-insured banks: well-capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized.

The Bank’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 these capital
requirements, including a breach of the buffers described
above, could result in restrictions being imposed by the
Bank’s regulators.

Under the regulatory framework for prompt corrective action
applicable to the Bank, in order to meet the quantitative
requirements for being a “well-capitalized” depository
institution, the Bank must meet higher minimum requirements
than the minimum ratios in the table below. In addition, under
the FRB rules, commencing on January 1, 2018, in order to be
considered a “well-capitalized” depository institution, the
Bank must meet the SLR requirement of 6.0% or greater.

The capital conservation buffer, which consists entirely of
capital that qualifies as CET1, began to phase in on January 1,
2016 and will continue to do so in increments of 0.625% per
year until it reaches 2.5% of RWAs on January 1, 2019.
The Capital Framework also provides for a countercyclical
capital buffer, which is an extension of the capital
conservation buffer, of up to 2.5% (consisting entirely of
CET1) intended to counteract systemic vulnerabilities. As of
March 2018, the FRB has set the countercyclical capital buffer
at zero percent.

As of both March 2018 and December 2017, the Bank was in
compliance with its minimum risk-based capital and leverage
requirements and the “well-capitalized” minimum ratios.

48

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
 For credit RWAs calculated in accordance with the Basel III
Advanced Rules, the Bank computes risk-weights for
wholesale and retail credit exposures in accordance with the
Advanced Internal Ratings-Based approach. This approach
is based on internal assessments of the creditworthiness of
counterparties, with key inputs being the probability of
default, loss given default and the effective maturity. The
Capital Framework requires that a BHC, inclusive of certain
of its subsidiaries, obtain prior written agreement from its
regulators before using internal models for such purposes.
The Bank utilizes internal models to measure exposure for
derivatives and securities financing transactions.

Definition of Risk-Weighted Assets. RWAs are
calculated in accordance with both the Standardized Capital
Rules and the Basel III Advanced Rules. The following is a
comparison of RWA calculations under these rules:
 RWAs for credit risk in accordance with the Standardized
Capital Rules are calculated in a different manner than the
Basel III Advanced Rules. The primary difference is that the
Standardized Capital Rules do not contemplate the use of
internal models to compute exposure for credit risk on
derivatives and securities financing transactions, whereas
the Basel III Advanced Rules permit the use of such models,
subject to supervisory approval. In addition, credit RWAs
calculated in accordance with the Standardized Capital
Rules utilize prescribed risk-weights which depend largely
on the type of counterparty, rather than on internal
assessments of the creditworthiness of such counterparties;

Market Risk
Market RWAs are calculated based on measures of exposure
which include Value-at-Risk (VaR), stressed VaR,
incremental risk and comprehensive risk based on internal
models, and a standardized measurement method for specific
risk. The market risk regulatory capital rules require that a
BHC, inclusive of certain of its
subsidiaries, obtain prior
written agreement from its regulators before using any internal
model to calculate its risk-based capital requirement. The
following is further information regarding the measures of
exposure for market RWAs calculated in accordance with the
Standardized Capital Rules and Basel III Advanced Rules:

 RWAs for market risk in accordance with the Standardized
Capital Rules and the Basel III Advanced Rules are
generally consistent; and
 RWAs for operational risk are not required by the
Standardized Capital Rules, whereas the Basel III Advanced
Rules do include such a requirement.
Credit Risk
Credit RWAs are calculated based upon measures of exposure,
which are then risk weighted. The following is a description of
the calculation of credit RWAs in accordance with the
Standardized Capital Rules and the Basel III Advanced Rules:

 VaR is the potential loss in value of inventory positions, as
well as certain other financial assets and financial liabilities,
due to adverse market movements over a defined time
horizon with a specified confidence level. For both risk
management purposes and regulatory capital calculations
the Bank uses a single VaR model which captures risks
including those related to interest rates, equity prices and
currency rates. However, VaR used for regulatory capital
requirements (regulatory VaR) differs from risk
management VaR due to different time horizons and
confidence levels (10-day and 99% for regulatory VaR vs.
one-day and 95% for risk management VaR), as well as
differences in the scope of positions on which VaR is
calculated. The Bank’s positional losses observed on a
single day exceeded its 99% one-day regulatory VaR twice
during the three months ended March 2018 and did not
exceed its 99% one-day regulatory VaR during the year
ended December 2017. There was no change in the VaR
multiplier used to calculate Market RWAs;

 For credit RWAs calculated in accordance with the
Standardized Capital Rules, the Bank utilizes prescribed
risk-weights which depend largely on the type of
counterparty (e.g., whether the counterparty is a sovereign,
bank, broker-dealer or other entity). The exposure measure
for derivatives is based on a combination of positive net
current exposure and a percentage of the notional amount of
each derivative. The exposure measure for securities
financing transactions is calculated to reflect adjustments for
potential price volatility, the size of which depends on
factors such as the type and maturity of the security, and
whether it is denominated in the same currency as the other
side of the financing transaction. The Bank utilizes specific
required formulaic approaches to measure exposure for
securitizations; and

49

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
 Stressed VaR is the potential loss in value of inventory
positions, as well as certain other financial assets and
financial liabilities, during a period of significant market
stress;

The table below presents the Bank’s ratios calculated in
accordance with both the Standardized Capital Rules and
Basel III Advanced Rules.
As of

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

$ in millions
Common Equity Tier 1
Tier 1 capital
Standardized Tier 2 and Total capital
Tier 1 capital
Qualifying subordinated debt
Allowance for losses on loans and lending
commitments
Standardized Tier 2 capital
Standardized Total capital

 Comprehensive risk is the potential loss in value, due to
price risk and defaults, within the Bank’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 riskweighting factors after applicable netting is performed.

Basel III Advanced Tier 2 and Total capital
Tier 1 capital
Standardized Tier 2 capital
Allowance for losses on loans and lending
commitments
Basel III Advanced Tier 2 capital
Basel III Advanced Total capital

Operational Risk
Operational RWAs are only required to be included under the
Basel III Advanced Rules. The Bank calculates operational
RWAs in accordance with the “Advanced Measurement
Approach,” and therefore utilizes an internal risk-based model
to quantify Operational RWAs.

RWAs
Standardized
Basel III Advanced

Risk-based Capital Ratios and RWAs. Each of the riskbased capital ratios calculated in accordance with the
Standardized Capital Rules was lower than that calculated in
accordance with the Basel III Advanced Rules and therefore
the Standardized Capital ratios were the ratios that applied to
the Bank as of both March 2018 and December 2017.

$
$

$

$

$

$

March
2018
25,895
25,895

December
2017
$
25,343
$
25,343

25,895
4,250

$

555
4,805
30,700

25,895
4,805
(555)
4,250
30,145

$ 237,915
$ 164,071

$

$

$

$
$

25,343
2,000
547
2,547
27,890

25,343
2,547
(547)
2,000
27,343

229,775
164,602

CET1 ratio
Standardized
Basel III Advanced

10.9%
15.8%

11.0%
15.4%

Tier 1 capital ratio
Standardized
Basel III Advanced

10.9%
15.8%

11.0%
15.4%

Total capital ratio
Standardized
Basel III Advanced

12.9%
18.4%

12.1%
16.6%

In the table above:
 The Bank’s Standardized and Basel III Advanced CET1
ratios and Tier 1 capital ratios remain essentially unchanged
from December 2017 to March 2018. The increase in the
Bank’s Standardized and Basel III Advanced Total capital
ratios from December 2017 to March 2018 is primarily due
to an increase in Total capital, principally due to the
issuance of subordinated debt.
 Qualifying subordinated debt is subordinated debt issued by
the Bank 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 15 for further information about the
Bank’s subordinated debt.

50

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
The tables below present the components of RWAs calculated
in accordance with the Standardized Capital Rules and Basel
III Advanced Rules.

The table below presents changes in RWAs calculated in
accordance with the Standardized Capital Rules and Basel III
Advanced Rules.
Three Months Ended

Standardized Capital Rules as of
$ in millions

March

December

2018

2017

March 2018
Basel III
$ in millions

Credit RWAs
Derivatives

$

Commitments, guarantees and loans
Securities financing transactions
Equity investments
Other
Total Credit RWAs

89,655

$

99,613

7,296

7,198

829

835

6,525

6,331

212,620

201,529

2,903

2,696

16,697

19,486

776

1,143

Beginning balance
Credit RWAs

Incremental
risk
Comprehensive risk
Specific risk
Total Market RWAs
Total RWAs

743

799

4,176

4,122
$

Credit RWAs
Derivatives
Commitments, guarantees and loans

$

21,435

$

Stressed VaR
Incremental risk
Comprehensive risk
Specific risk
Change in Market RWAs
Operational RWAs

1,897

1,731

Equity investments
Other

1,038
3,887

1,056
4,074

Total Credit RWAs
Market RWAs
Regulatory VaR
Stressed VaR

124,788

122,306

2,903

2,696
19,486

Incremental risk
Comprehensive risk

776

16,697
743

1,143
799

4,176
25,295

4,122
28,246

13,988
$ 164,071

$

Change in operational risk
Change in Operational RWAs

26,239

Securities financing transactions

Total Operational RWAs
Total RWAs

7,325
166

Regulatory VaR

December
2017

March
2018

89,206

Total Market RWAs

(4,804)

8,702
98
(6)

(18)

194

(187)

11,091

2,482

Change in:

229,775

96,531

Specific risk

2,103

Other
Change in Credit RWAs
Market RWAs

Basel III Advanced Rules as of
$ in millions

164,602

Commitments, guarantees and loans
Securities financing transactions

28,246

25,295
$ 237,915

$

Derivatives

Equity investments

Stressed VaR

$ 229,775

Change in:

Market RWAs
Regulatory VaR

Advanced

Risk-Weighted Assets

87,552

108,315

Standardized

Ending balance

207

207

(2,789)
(367)

(2,789)
(367)

(56)
54

(56)
54

(2,951)

(2,951)

–
–
$ 237,915

(62)
(62)
$

164,071

Standardized Credit RWAs as of March 2018 increased by
$11.09 billion compared with December 2017, primarily
reflecting an increase in commitments, guarantees and loans,
principally due to increased lending activity. Standardized
Market RWAs as of March 2018 decreased by $2.95 billion
compared with December 2017, primarily reflecting a
decrease in stressed VaR as a result of changes in risk
exposures.

14,050
164,602

Basel III Advanced Credit RWAs as of March 2018 increased
by $2.48 billion compared with December 2017, primarily
reflecting an increase in commitments, guarantees and loans,
principally due to increased lending activity, partially offset by
a decrease in derivatives, principally due to decreased
exposure. Basel III Advanced Market RWAs as of March
2018 decreased by $2.95 billion compared with December
2017, primarily reflecting a decrease in stressed VaR as a
result of changes in risk exposures.

In the tables above:
 Securities financing transactions represent resale and
repurchase agreements.
 Other includes receivables, certain debt securities, cash and
other assets.

51

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
Leverage Ratios
The table below presents the Bank’s Tier 1 leverage ratio and
SLR.

The table below presents changes in RWAs calculated in
accordance with the Standardized Capital Rules and Basel III
Advanced Rules.
Year Ended

For the Three Months

December 2017

Ended or as of
March
December

Basel III
$ in millions

Standardized

Advanced

Beginning balance

$

204,232

$

131,051

Credit RWAs
Change in:
Derivatives

(3,682)

Commitments, guarantees and loans

17,483

335

Securities financing transactions

216

Equity investments

130

135

Other

789

1,408

14,936

23,395

Change in Credit RWAs

$

25,895

$

25,343

Average total assets

$

177,520

$

168,854

Deductions from Tier 1 capital

(96)

(12)

Average adjusted total assets

177,424

168,842

Total supplementary leverage exposure

(656)

Tier 1 leverage ratio
SLR

176,892

187,729
$

365,153

$

345,734

14.6%

15.0%

7.1%

7.3%

In the table above:

Market RWAs
Change in:
Regulatory VaR

(829)

Stressed VaR
Comprehensive risk
Specific risk
Change in Market RWAs

 Tier 1 capital and deductions from Tier 1 capital are
calculated on a transitional basis as of December 2017.

(829)

10,048

Incremental risk

10,048

(170)

(170)

149

136

1,409

1,409

10,607

10,594

 Average total assets represents the daily average assets for
the quarter.
 Off-balance-sheet exposures represents the monthly average
and consists of derivatives, securities financing transactions,
commitments and guarantees.

Operational RWAs
Change in operational risk

–

Change in Operational RWAs

–

Ending balance

Tier 1 capital

Off-balance-sheet exposures

22,173

2017

2018

$ in millions

Risk-Weighted Assets

$

229,775

(438)
(438)
$

 Tier 1 leverage ratio is defined as Tier 1 capital divided by
average adjusted total assets.

164,602

Standardized Credit RWAs as of December 2017 increased by
$14.94 billion compared with December 2016, primarily
reflecting an increase in commitments, guarantees and loans,
principally due to increased lending activity. Standardized
Market RWAs as of December 2017 increased by $10.61
billion compared with December 2016, primarily reflecting an
increase in stressed VaR, as a result of increased risk
exposures.

 SLR is defined as Tier 1 capital divided by supplementary
leverage exposure.
Required Reserves
The deposits of the Bank are insured by the FDIC to the extent
provided by law. The FRB requires that the Bank maintain
cash reserves with the Federal Reserve Bank of New York.
The amount deposited by the Bank at the Federal Reserve
Bank of New York was $48.45 billion and $50.86 billion as of
March 2018 and December 2017, respectively, which
exceeded regulatory reserve requirements of $65 million and
$115 million by $48.39 billion and $50.74 billion as of March
2018 and December 2017, respectively.

Basel III Advanced Credit RWAs as of December 2017
increased by $23.40 billion compared with December 2016,
primarily reflecting an increase in commitments, guarantees
and loans, principally due to increased lending activity. Basel
III Advanced Market RWAs as of December 2017 increased
by $10.59 billion compared with December 2016, primarily
reflecting an increase in stressed VaR, as a result of increased
risk exposures.

52

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 19.

Transactions with Related Parties
Transactions between the Bank and its affiliates are regulated
by the FRB. These regulations generally limit the types and
amounts of transactions (including credit extensions from the
Bank) that may take place and generally require those
transactions to be on terms that are at least as favorable to the
Bank as prevailing terms for comparable transactions with
non-affiliates. These regulations generally do not apply to
transactions within the Bank.

Other Transactions
The Bank enters into various activities with affiliated entities
and transfers revenues to, and receives revenues from, such
affiliates
for their participation. The Bank transferred net
revenues to affiliates of $86 million for the three months
ended March 2018 and $89 million for the three months ended
March 2017. These amounts are included in gains and losses
from financial instruments, net.

The table below presents amounts outstanding to/from
affiliates, as defined by U.S. GAAP.

The Bank is subject to service charges from affiliates. The
Bank reimbursed affiliates $102 million for the three months
ended March 2018 and $106 million for the three months
ended March 2017 for employment related costs of dual
employees and employees of affiliates pursuant to a Master
Services Agreement supplemented by Service Level
Agreements (collectively, the Master Services Agreement).
These amounts are included in service charges.

As of
$ in millions

March

December

2018

2017

Assets
Cash
Securities purchased under agreements to resell

$

134

$

186

21,393

15,859

3,641

2,121

Financial instruments owned

274

302

Other assets

404

211

$ 25,846

$ 18,679

$ 6,317

$

Receivables from customers and counterparties,
brokers, dealers and clearing organizations

Total

The Bank receives operational and administrative support and
management services from affiliates and is charged costs for
these services. In addition, the Bank provides similar support
and services to affiliates and charges costs to these affiliates
for the services provided. These amounts are reflected net in
the applicable expense captions in the condensed consolidated
statements of earnings.

Liabilities
Deposits due to affiliates
Securities sold under agreements to repurchase

–

4,894
9

Payables to customers and counterparties,
brokers, dealers and clearing organizations

263

102

Financial instruments sold, but not yet purchased

590

1,734

4,438

4,206

Unsecured borrowings
Other liabilities and accrued expenses
Total

225

146

$ 11,833

$ 11,091

The Bank enters into derivative contracts with Group Inc. and
its affiliates in the normal course of business. As of March
2018 and December 2017, the net outstanding derivative
contracts with Group Inc. and affiliates was $274 million and
$302 million, respectively, in financial instruments owned,
and $590 million and $1.73 billion, respectively, in financial
instruments sold, but not yet purchased.

Group Inc. General Guarantee
Group Inc. has guaranteed the payment obligations of the
Bank, subject to certain limitations.

In connection with its partnership interest in MMDP, the Bank
has provided to Mitsui Sumitomo additional protection in the
form of assets held in a VIE which could be liquidated for the
benefit of Mitsui Sumitomo under certain circumstances.

Interest Income and Interest Expense
The Bank recognizes interest income and interest expense in
connection with various affiliated transactions. These
transactions include securities purchased under agreements to
resell, securities sold under agreements to repurchase, deposits
due to affiliates, collateral posted and received, other liabilities
and accrued expenses, and unsecured borrowings. For the
three months ended March 2018, the Bank recorded net
interest income from affiliates of $66 million. For the three
months ended March 2017, the Bank recorded net interest
expense to affiliates of $49 million.

Equity Transactions
During the three months ended March 2018 and March 2017,
there were no equity contributions or dividends between the
Bank and Group Inc.

53

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 20.

Note 21.

Interest Income and Interest Expense

Income Taxes

Interest is recorded over the life of the instrument on an
accrual basis based on contractual interest rates. The table
below presents the Bank’s sources of interest income and
interest expense.

Tax Legislation
The provision for taxes in 2017 reflected an increase in
income tax expense of $114 million, primarily representing
the estimated impact of Tax Legislation enacted on December
22, 2017 due to the effects of the remeasurement of U.S.
deferred tax assets at lower enacted tax rates.

Three Months
Ended March
2017

2018

$ in millions

While the estimated impact of Tax Legislation was calculated
to account for all available information, the Bank anticipates
modification to this amount may occur as a result of (i)
refinement of the Bank’s calculations based on updated
information, (ii) changes in the Bank’s interpretations and
assumptions, (iii) updates from issuance of future legislative
guidance and (iv) actions the Bank or Group Inc. may take as
a result of Tax Legislation. During the three months ended
March 2018, the Bank did not make any material adjustments
to this estimate.

Interest income
Deposits with banks

$

Collateralized agreements

252

$

142

56

32

Financial instruments owned

213

219

Loans receivable (excluding loans held for sale)

576

326

Other interest

111

69

1,208

788

457

249

Total interest income
Interest expense
Deposits
Collateralized financings

14

9

Financial instruments sold, but not yet purchased

18

14

Borrowings

42

20

Other interest

32

124

Total interest expense
Net interest income

416

563
$

645

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 Bank
reports interest expense related to income tax matters in
provision for taxes and income tax penalties in other expenses.

$

372

In the table above:
 Collateralized agreements consists of securities purchased
under agreements to resell.

The Bank’s results of operations are included in the
consolidated federal and certain state tax returns of GS Group.
The Bank computes its tax liability as if it was filing a tax
return on a modified separate company basis and settles such
liability with Group Inc. pursuant to a tax sharing agreement.
To the extent the Bank generates tax benefits from losses, it
will be reimbursed by Group Inc. pursuant to a tax sharing
agreement at such time as GS Group would have been able to
utilize such losses.

 Other interest income includes interest income on collateral
balances posted to counterparties, loans accounted for as
held for sale and other interest-earning assets.
 Borrowings includes interest expense from other secured
financings and unsecured borrowings, which primarily
relates to interest incurred on the Bank’s affiliate
borrowings from Group Inc. and Funding IHC as well as
FHLB advances.
 Collateralized financings consists of securities sold under
agreements to repurchase.
 Other interest expense primarily includes interest expense
on collateral balances received from counterparties and
interest expense on funding facilities.

54

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
Deferred Income Taxes
Deferred income taxes reflect the net tax effects of tem
porary
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. Tax assets
and liabilities are presented as a component of other assets and
other liabilities and accrued expenses, respectively.

All years including and subsequent to the years detailed above
remain open to examination by the taxing authorities. The
Bank believes that the liability for unrecognized tax benefits it
has established is adequate in relation to the potential for
additional assessments.
Note 22.

Credit Concentrations
The Bank’s concentrations of credit risk arise from its lending,
market making, cash management and other activities, and
may be impacted by changes in economic, industry or political
factors. These activities expose the Bank to many different
industries and counterparties, and may also subject the Bank
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 Bank seeks
to mitigate credit risk by actively monitoring exposures and
obtaining collateral from counterparties as deemed
appropriate.

Unrecognized Tax Benefits
The Bank recognizes tax positions in the condensed
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 condensed consolidated financial statements.

The Bank measures and monitors its credit exposure based on
amounts owed to the Bank after taking into account risk
mitigants that management 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 Bank to offset receivables and payables
with such counterparties and/or enable the Bank to obtain
collateral on an upfront or contingent basis.

Regulatory Tax Examinations
The Bank is subject to examination by the U.S. Internal
Revenue Service (IRS), as part of GS Group, and other taxing
authorities in jurisdictions where the Bank has significant
business operations such as New York State and City. The tax
years under examination vary by jurisdiction. The Bank does
not expect completion of these audits to have a material
impact on the Bank’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.

As of March 2018 and December 2017, the Bank had
exposure in cash instruments of $11.97 billion or 7.0% of total
assets, and $15.26 billion or 9.3% of total assets, respectively,
related to U.S. government and agency obligations. These are
included in financial instruments owned. In addition, as of
March 2018 and December 2017, the Bank had $48.45 billion
and $50.86 billion, respectively, of cash deposits held at the
Federal Reserve Bank of New York. These cash deposits are
included in cash. As of both March 2018 and December 2017,
the Bank did not have credit exposure to any other external
counterparty that exceeded 2% of total assets.

U.S. Federal examinations of 2011 and 2012 began in 2013.
GS Group has been accepted into the Compliance Assurance
Process program by the IRS for each of the tax years from
2013 through 2018. This program allows GS Group to work
with the IRS to identify and resolve potential U.S. federal tax
issues before the filing of tax returns. The 2013 through 2016
tax years remain subject to post-filing review.
New York State and City examinations of Bank tax filings for
fiscal 2007 through calendar 2014 have been completed. All
years including and subsequent to 2015 for New York State
and City remain open to examination by the taxing authorities.
All years including and subsequent to 2007 for all other
significant states, excluding New York State and City, remain
open to examination by the taxing authorities.

Collateral obtained by the Bank related to derivative assets is
principally cash and is held by the Bank or a third-party
custodian. Collateral obtained by the Bank related to resale
agreements is primarily U.S. government and agency
obligations. See Note 10 for further information about
collateralized agreements and financings.

55

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
Interest Rate Swap Antitrust Litigation. The Bank and
certain affiliates (including Group Inc.) 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 Bank and certain affiliates
(including Group Inc.) also are among the defendants named
in an antitrust action relating to the trading of interest rate
swaps filed in the U.S. District Court for the Southern District
of New York in April 2016 by two operators of swap
execution facilities and certain of their affiliates. These actions
have been consolidated for pretrial proceedings. The second
consolidated amended complaint in both actions, filed on
December 9, 2016, generally asserts 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 complaint in the
individual action also asserts 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 both actions on January 20, 2017. On July
28, 2017, the district court issued a decision dismissing the
state common law claims asserted by the plaintiffs in the
individual action and otherwise limiting the antitrust claims in
both actions and the state common law claim in the putative
class action to the period from 2013 to 2016.

The Bank had $22.59 billion and $17.22 billion of U.S.
government and agency obligations that collateralize resale
agreements as of March 2018 and December 2017,
respectively. Given that the Bank’s primary credit exposure on
such transactions is to the counterparty to the transaction, the
Bank would be exposed to the collateral issuer only in the
event of counterparty default.
Note 23.

Legal Proceedings
The Bank is involved in a number of judicial, regulatory and
other proceedings (including those described below)
concerning matters arising in connection with the conduct of
the Bank’s businesses. Many of these proceedings are in early
stages, and involve an indeterminate amount of damages.
With respect to matters described below, management is
unable to estimate a range of reasonably possible loss for
matters in which the Bank is involved due to various factors,
including where (i) actual or potential plaintiffs have not
claimed a
n 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.

Credit Default Swap Antitrust Litigation. The Bank and
certain affiliates (including Group Inc.) are among the
defendants named in an antitrust action relating to the trading
of credit default swaps filed in the U.S. District Court for the
Southern District of New York on June 8, 2017 by the
operator of a swap execution facility and certain of its
affiliates. The complaint generally asserts claims under federal
and state antitrust laws and state common law in connection
with an alleged conspiracy among the defendants to preclude
trading of credit default swaps on the plaintiffs’ swap
execution facility. The complaint seeks declaratory and
injunctive relief, as well as treble damages in an unspecified
amount. Defendants moved to dismiss on September 11, 2017.

Management does not believe, based on currently available
information, that the outcomes of any such matters will have a
material adverse effect on the Bank’s financial condition,
though the outcomes could be material to the Bank’s operating
results for any particular period, depending, in part, upon the
operating results for such period.

56

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)
Regulatory Investigations and Reviews and Related
Litigation. The Bank and certain of its affiliates (including
Group Inc.) are subject to a number of 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 relating to such matters in each
case relating to the Bank’s current and past businesses and
operations, including, but not limited to residential mortgage
servicing, lending and compliance with related consumer
laws; the sales, trading, execution and clearance of derivatives,
currencies and other financial products and related
communications and activities, including trading activities and
communications in connection with the establishment of
benchmark rates, such as currency rates, and activities in U.S.
Treasury securities; and transactions involving governmentrelated financings and other matters, including those related
to 1Malaysia Development Berhad (1MDB), a sovereign
wealth fund in Malaysia. The Bank is cooperating with all
such regulatory investigations and reviews.

In addition, governmental and other investigations, reviews,
actions and litigation involving the Bank’s affiliates and such
affiliates’ businesses and operations, including without
limitation various matters referred to above, may have an
impact on the Bank’s businesses and operations.
Note 24.

Subsequent Events
In April 2018, the Bank acquired Clarity Money, a personal
financial management app that expands the Bank’s digital
platform for retail clients.
The Bank evaluated subsequent events through May 17, 2018,
the date the condensed consolidated financial statements were
issued, and determined that there were no other material
events or transactions that would require recognition or
additional disclosure in these condensed consolidated financial
statements.

57

i

pwc
Report ofIndependent Auditors

To the Board of Directors and Shareholder of
Goldman Sachs Bank USA and Subsidiaries:
We have reviewed the accompanying condensed
consolidated interim financial information of
Goldman Sachs Bank USA and its subsidiaries (the
“Bank”), which comprise the condensed consolidated
statement offinancial condition as of March 31, 2oi8,
the related condensed consolidated statements of
earnings for the three-month periods ended March 3i,
2018 and 201, the condensed consolidated
statements of comprehensive income for the threemonth periods ended March 3i, 2018 and 2oi~, the
condensed consolidated statement of changes in
shareholder’s equity forthethree-month period ended
March 3i, 2oi8, and the condensed consolidated
statements of cash flows for the three-month periods
ended March 31, 2oi8 and 201 .
Management’s
Responsibility for
the
Condensed Consolidated Interim Financial
Information
The Bank’s management is responsible for the
preparation and fair presentation of the condensed
consolidated interim financial information in
accordance with accounting principles generally
accepted in the United States of America; this
responsibility includes the design, implementation,
and maintenance of internal control sufficient to
provide a reasonable basis for the preparation and fair
presentation of the condensed consolidated interim
financial information in accordance with accounting
principles generally accepted in the United States of
America.

the objective of which is the expression of an opinion
regarding the financial information taken as a whole.
Accordingly, we do not express such an opinion.
Conclusion
Based on our review, we are not aware of any material
modifications that should be made to the
accompanying condensed consolidated interim
financial information for it to be in accordance with
accounting principles generally accepted in the United
States of America.
Other Matter
We previously audited, in accordance with auditing
standards generally accepted in the United States of
America, the consolidated statement of financial
condition ofthe Bank as of December gi,2oi~,and the
related consolidated statements of earnings,
comprehensive income, changes in shareholder’s
equity and cash flows for the year then ended
(not presented herein), and in our report dated
March ~, 2oi8, we e~ressed an unmodified opinion
on those consolidated financial statements. In our
opinion, the information set forth in the
accompanying condensed consolidated statement of
financial condition as of December 3i, 2oi~, and the
condensed consolidated statement of changes in
shareholder’s equity for the year ended December 31,
2oi~, is consistent, in all material respects, with the
audited consolidated financial statements from which
it has been derived.

Auditors’Responsibility
Our responsibility is to conduct our review in
accordance with auditing standards generally
accepted in the United States of America applicable to
reviews of interim financial information. 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 auditing standards
generally accepted in the United States ofAmerica,

‘
May i~, 2oi8

58

PricewaterhouseCoopers LLP,PricewaterhouseCoopers Center,goo Madison Avenue,New York,NYiooi~
T.• (646)47i 3000,F.•(Sig)286 6000,www.pwc.com/us

~~t

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Supplemental Financial Information
Distribution of Assets,
Shareholder’s Equity

Liabili
ties

and

Annualized Average Rate

The tables below present a summary of average balances,
interest and interest rates.

for the Three Months
Ended March

Average Balance for the
Ended March

Deposits with banks

2017

2018
$

Collateralized agreements

68,113

$

72,134

9,085

4,411

Financial instruments owned

27,116

27,057

Loans receivable (excluding loans held for sale)

50,459

36,149

Other interest-earning assets

10,750

8,998

165,523

148,749

257

226

11,783

11,185

Total interest-earning assets
Cash and due from banks
Other non-interest-earning assets
Total assets

$ 177,563

$

$ 123,188

Collateralized financings

$

160,160
111,023

876

1,109

Financial instruments sold, but not yet purchased

3,904

2,979

Borrowings

7,436

4,696

Other interest-bearing liabilities

4,091

4,957

Total interest-bearing liabilities

139,495

124,764

Non-interest bearing deposits

3,939

3,351

Other non-interest-bearing liabilities

8,415

7,286

Total liabilities

$ 151,849

Shareholder’s equity
Total liabilities and shareholder’s equity

$

135,401

$

160,160

$ 177,563

Ended March

Deposits with banks

$

Collateralized agreements

252

2017
$

32

Financial instruments owned

213

219

Loans receivable (excluding loans held for sale)

576

326

Other interest-earning assets

111

69

$

1,208

$

788

3.25%

Loans receivable (excluding loans held for sale)

4.58%

3.62%

Other interest-earning assets

4.14%

3.08%

Total interest-earning assets

2.93%

2.12%

Interest-bearing deposits

1.49%

0.90%

Collateralized financings

6.41%

3.26%

Financial instruments sold, but not yet purchased

1.85%

1.88%

Borrowings

2.27%

1.71%

Other interest-bearing liabilities

3.14%

10.03%

Total interest-bearing liabilities

1.62%

1.34%

Net interest margin

1.56%

1.00%

$

457

$

249

 Loans receivable consists of loans held for investment that
are accounted for at amortized cost net of allowance for loan
losses. Interest on loans receivable is recognized over the
life of the loan and is recorded on an accrual basis. See Note
9 to the condensed consolidated financial statements and
“Results of Operations” in Part II of this Quarterly Report
for further information about loans receivable and related
interest.

Liabilities
Interest-bearing deposits

3.15%

 See Notes 4 through 8 to the condensed consolidated
financial statements and “Results of Operations” in Part II
of this Quarterly Report for further information about
financial instruments owned, and financial instruments sold,
but not yet purchased and related interest.

142

56

Total interest-earning assets

2.91%

Financial instruments owned

 Collateralized agreements consists of securities purchased
under agreements to resell. Collateralized financings
consists of securities sold under agreements to repurchase.
See Note 10 to the condensed consolidated financial
statements and “Results of Operations” in Part II of this
Quarterly Report for further information about collateralized
agreements and collateralized financings and related
interest.

Three Months
2018

0.79%

2.47%

 Deposits with banks primarily consist of deposits held at the
Federal Reserve Bank of New York.

Interest for the

$ in millions
Assets

1.48%

Collateralized agreements

In the tables above:

24,759

25,714

Deposits with banks

Liabilities

Liabilities
Interest-bearing deposits

2017

Assets

Three Months
$ in millions
Assets

2018

Collateralized financings

14

9

Financial instruments sold, but not yet purchased

18

14

Borrowings

42

20

Other interest-bearing liabilities

32

124

Total interest-bearing liabilities

$

563

$

416

Net interest income

$

645

$

372

59

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Supplemental Financial Information
 Other interest-earning assets and interest-bearing liabilities
primarily consists of certain receivables and payables from
customers and counterparties and loans held for sale that are
accounted for at the lower of cost or fair value.

 Borrowings include subordinated borrowings and other
secured financings. See Notes 10 and 15 to the condensed
consolidated financial statements and “Balance Sheet
Analysis and Metrics” in Part II of this Quarterly Report for
further information about short-term and long-term
borrowings and related interest.

 Derivative instruments are included in other non-interestearning assets and other non-interest-bearing liabilities. See
Note 7 to the condensed consolidated financial statements
and “Results of Operations” in Part II of this Quarterly
Report for further information about derivatives.

 See Note 20 to the condensed consolidated financial
statements for further information about interest income and
interest expense.

 Interest-bearing deposits primarily consists of deposits from
private wealth management clients, through deposit sweep
agreements with third-party broker-dealers, through the
issuances of term certificates of deposit and directly from
retail clients through Marcus. See Note 14 to the condensed
consolidated financial statements and “Results of
Operations” in Part II of this Quarterly Report for further
information about deposits and related interest.

60

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Management’s Discussion and Analysis

PART II. Management’s Discussion
and Analysis of Financial Condition
and Results of Operations
Introduction
All references to “the condensed consolidated financial
statements” or “Supplemental Financial Information” are to
Part I of this Quarterly Report. All references to March 2018
and March 2017 refer to our periods ended, or the dates, as the
context requires, March 31, 2018 and March 31, 2017,
respectively. All references to December 2017 refer to the date
December 31, 2017. Any reference to a future year refers to a
year ending on December 31 of that year. Certain
reclassifications have been made to previously reported
amounts to conform to the current presentation.

Goldman Sachs Bank USA, together with its consolidated
subsidiaries (collectively, the Bank), is a New York Statechartered bank and a member of the Federal Reserve System.
The Bank is supervised and regulated by the Board of
Governors of the Federal Reserve System (Federal Reserve
Board or FRB), the New York State Department of Financial
Services (NYDFS) and the U.S. Consumer Financial
Protection Bureau (CFPB), and is a member of the Federal
Deposit Insurance Corporation (FDIC). The Bank’s deposits
are insured by the FDIC up to the maximum amount provided
by law. The Bank is registered as a swap dealer with the U.S.
Commodity Futures Trading Commission (CFTC). The Bank
is also a government securities dealer subject to the rules and
regulations of the U.S. Department of the Treasury (U.S.
Treasury).

Our principal office is located in New York,
New York. We
operate one domestic branch located in Salt Lake City, Utah,
which is regulated by the Utah Department of Financial
Institutions. We also have a branch in London, United
Kingdom, which is regulated by the Financial Conduct
Authority and the Prudential Regulation Authority.

When we use the terms “the Bank,” “we,” “us” and “our,” we
mean Goldman Sachs Bank USA and its consolidated
subsidiaries. When we use the term “GS Group,” or
“firmwide” we are referring to The Goldman Sachs Group,
Inc. (Group Inc.) and its consolidated subsidiaries, including
us. References to revenue-producing units and control and
support functions include activities performed by our
employees, by dual employees (who are employees who
perform services for both us and another GS Group
subsidiary) and by affiliate employees under Bank supervision
pursuant to a Master Services Agreement supplemented by
Service Level Agreements (collectively, the Master Services
Agreement) between us and our affiliates.

We are a wholly-owned subsidiary of Group Inc. Group Inc. is
a bank holding company (BHC) under the U.S. Bank Holding
Company Act of 1956 (BHC Act), a financial holding
company under amendments to the BHC Act effected by the
U.S. Gramm-Leach-Bliley Act of 1999, and is subject to
supervision and examination by the FRB.
Our primary activities include lending, deposit taking and
engaging in derivatives transactions. We are a lender to
private wealth management (PWM) clients, institutional and
corporate clients and directly to retail clients through our
digital platforms, Marcus: by Goldman Sachs (Marcus) and
Goldman Sachs Private Bank Select (GS Select). We accept
deposits from PWM clients, retail clients through Marcus and
through deposit sweep programs, and we also issue brokered
certificates of deposit. We enter into interest rate, credit,
currency, commodity and equity derivatives and certain
related products for the purpose of market making and risk
management.

This Management’s Discussion and Analysis of Financial
Condition and Results of Operations should be read in
conjunction with our Annual Report for the year ended
December 31, 2017. All references to “the 2017 Annual
Report” are to our Annual Report for the year ended
December 31, 2017. All references to “this Quarterly Report,”
of which this Management’s Discussion and Analysis forms a
part, refers to the report dated May 17, 2018 and includes
information relating to our business, the supervision and
regulation to which we are subject, risk factors affecting our
business, our results of operations and financial condition, as
well as our condensed consolidated financial statements.

61

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Management’s Discussion and Analysis
Our Common Equity Tier 1 (CET1) ratio as calculated in
accordance with the Standardized approach and the Basel III
Advanced approach, on a fully phased-in basis, was 10.9%
and 15.8%, respectively, as of March 2018. See Note 18 to the
condensed consolidated financial statements for further
information about our capital ratios.

Executive Overview
We generated net earnings of $575 million for the first quarter
of 2018, an increase of 72% compared with $334 million for
the first quarter of 2017.
Net revenues, including net interest income, were $1.23 billion
for the first quarter of 2018, an increase of 43% compared
with $863 million for the first quarter of 2017, reflecting
significantly higher net interest income and higher net gains
from financial instruments, partially offset by a higher
provision for losses on loans and lending commitments.

Business Environment
United States
In the U.S., real gross domestic product (GDP) growth
decreased compared with the previous quarter, consistent with
a long-standing seasonal weakness in first quarter real GDP
and reflecting declines in the growth rates of domestic demand
and fixed investment. Measures of consumer confidence
strengthened, and the pace of housing starts and home sales
increased compared with the fourth quarter of 2017. The
unemployment rate was 4.1% as of March 2018, unchanged
from the end of 2017, and measures of inflation increased. The
U.S. Federal Reserve increased its target range for the federal
funds rate again in March 2018 by 25 basis points to a range
of 1.50% to 1.75%. The yield on the 10-year U.S. Treasury
note ended the quarter at 2.74%, 34 basis points higher
compared with the end of 2017. The price of crude oil (WTI)
ended the quarter at approximately $65 per barrel, an increase
of 7% from the end of 2017. In equity markets, the NASDAQ
Composite Index increased by 2% compared with the end of
2017, while the Dow Jones Industrial Average and the S&P
500 Index decreased by 2% and 1%, respectively.

Net interest income was $645 million for the first quarter of
2018, an increase of 73% compared with $372 million for the
first quarter of 2017, which resulted in an increase in net
interest margin of 56 basis points to 156 basis points for the
first quarter of 2018, compared with 100 basis points for the
first quarter of 2017. This increase was primarily driven by a
higher interest rate environment leading to a significant
increase in interest income on loans receivable and cash
deposits held at the Federal Reserve Bank of New York
(FRBNY), partially offset by an increase in interest expense
on interest-bearing deposits.
Non-interest revenues were $585 million for the first quarter
of 2018, an increase of 19% compared with $491 million for
the first quarter of 2017, reflecting higher net gains from
financial instruments, partially offset by a higher provision for
losses on loans and lending commitments.

Global
During the first quarter of 2018, real GDP growth appeared to
slow in most major economies. However, the pace of GDP
growth remained relatively high and other indicators of
economic activity indicate growth remained robust. Following
a year of low volatility for global equity markets, volatility
increased substantially during the first quarter of 2018,
particularly in the U.S. The U.S. Federal Reserve followed an
increase in the target federal funds rate in December 2017
with another increase in March 2018.

Operating expenses were $472 million for the first quarter of
2018, an increase of 38% compared with $343 million for the
first quarter of 2017, primarily reflecting higher compensation
and benefits expense, higher expenses related to Marcus and
higher other expenses.
Total assets were $171.73 billion as of March 2018, an
increase of 4% compared with $164.76 billion as of December
2017. This increase primarily reflected increases in securities
purchased under agreements to resell and loans receivable,
partially offset by decreases in financial instruments owned
and cash.

62

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Management’s Discussion and Analysis
Critical Accounting Policies
Fair Value
Fair Value Hierarchy. Financial instruments owned and
financial instruments sold, but not yet purchased (i.e.,
inventory), as well as certain other financial assets and
financial liabilities, are included in our condensed
consolidated statements of financial condition at fair value
(i.e., marked-to-market), with related gains or losses generally
recognized in our condensed consolidated statements of
earnings.

Loans Receivable
Loans receivable in the condensed consolidated statements of
financial condition consists of:
 Loans held
for investment which are accounted for at
amortized cost net of allowance for loan losses.
 Loans held for sale which are accounted for at the lower of
cost or fair value.
We assess our loans for impairment on an ongoing basis
through our credit review process. A credit review is an
independent analysis of the capacity and willingness of a
borrower to meet its financial obligations, resulting in an
internal credit rating. We also assign a regulatory risk rating to
such loans based on the definitions provided by the U.S.
federal bank regulatory agencies. We may also, where
applicable, review certain key metrics, such as delinquency
status, collateral values, Fair Isaac Corporation (FICO) credit
scores and other risk factors. Such loans are determined to be
impaired when it is probable that we will not be able to collect
all principal and interest due under the contractual terms of the
loan. At that time, loans are generally placed on nonaccrual
status, 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.

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
financial 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.

Interest on loans receivable is recognized over the life of the
loan and is recorded on an accrual basis.

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

Our allowance for loan losses consists of specific loan-level
reserves and portfolio level reserves. Specific loan-level
reserves are determined on loans that exhibit credit quality
weakness and are therefore individually evaluated for
impairment. Portfolio level reserves are determined on loans
not evaluated for specific loan-level reserves by aggregating
groups of loans with similar risk characteristics and estimating
the probable loss inherent in the portfolio.
See Note 9 to the condensed consolidated financial statements
for further information about loans receivable.

63

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Management’s Discussion and Analysis
Price Verification. All financial instruments at fair value
classified in levels 1, 2 and 3 of the fair value hierarchy are
subject to an 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
control and support functions include:

Instruments classified in level 3 of the fair value hierarchy are
those which require one or more significant inputs that are not
observable. As of March 2018 and December 2017, level 3
financial assets represented 1.3% and 1.2%, respectively, of
our total assets. See Notes 5 through 8 to the condensed
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:

 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, 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.

 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

 Calibration to Market Comparables. Market-based
transactions are used to corroborate the valuation of
positions with similar characteristics, risks and components.

 Determining appropriate valuation adjustments, including
those related to illiquidity or counterparty credit quality.

 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.

Regardless of the methodology, valuation inputs and
assumptions are only changed when corroborated by
substantive evidence.
Controls Over Valuation of Financial Instruments
We leverage GS Group’s control infrastructure over valuation
of financial instruments, which is described below. Market
makers and investment professionals in revenue-producing
units are responsible for pricing our financial instruments. GS
Group’s control infrastructure is independent of the revenueproducing units and is fundamental to ensuring that all of our
financial instruments are appropriately valued at marketclearing 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
control and support functions. This independent price
verification is critical to ensuring that our financial
instruments are properly valued.

 Collateral Analyses. Margin calls on derivatives are
analyzed to determine implied values, which are used to
corroborate our valuations.
 Execution of Trades. Where appropriate, trading 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 Notes 5 through 8 to the condensed consolidated financial
statements for further information about fair value
measurements.

64

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Management’s Discussion and Analysis
Review of Net Revenues. Independent control and support
functions ensure adherence to GS Group’s 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.

Financial Overview
The table below presents an overview of our financial results
and selected financial ratios.
Three Months
Ended March

Review of Valuation Models. A model risk management
group (Model Risk Management), consisting of quantitative
professionals who are separate from model developers,
performs an independent model review and validation process
of valuation models. New or changed models are reviewed
and approved prior to being put into use. Models are evaluated
and re-approved 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” in Part II of the 2017 Annual Report for further
information about the review and validation of valuation
models.

2017

Net revenues

$

2018
1,230

Pre-tax earnings

$

758

$

Net earnings

$

575

$

$ in millions

$

863
520
334
0.8%

1.3%

Annualized net earnings to average total assets
Annualized return on average shareholder’s equity
Average shareholder’s equity to average total assets

8.9%

5.4%

14.5%

15.5%

In the table above, annualized return on average shareholder’s
equity is calculated by dividing annualized net earnings by
average monthly shareholder’s equity.
Net Revenues
The table below presents our net revenues by line item in the
condensed consolidated statements of earnings, as well as our
net interest margin.
Three Months

Recent Accounting Developments

Ended March
$ in millions
Interest income

See Note 3 to the condensed consolidated financial statements
for information about Recent Accounting Developments.

Results of Operations

$

1,208

$

788

Interest expense

563

416

Net interest income

645

372

Non-interest revenues

585

Net revenues, including net interest income
Net interest margin

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 economic and market
conditions. In addition to transactions entered into with third
parties, we also enter into transactions with affiliates in the
normal course of business, primarily as part of our marketmaking activities. See “Risk Factors” in Part I of the 2017
Annual Report for further information about the impact of
economic and market conditions on our results of operations.

2017

2018

$

1,230
1.56%

491
$

863
1.00%

In the table above:
 Interest income is primarily generated from our lending
portfolio, consisting of corporate lending, private bank
lending, Marcus lending and other lending. Corporate
lending interest income includes income from term loans,
revolving lines of credit, letter of credit facilities and bridge
loans (collectively, bank loans). Private bank lending
interest income includes income from loans to PWM clients,
which are primarily secured by commercial and residential
real estate and other assets. Marcus lending interest income
consists of interest from unsecured, fixed-rate loans. Interest
income is also earned from certain financial instruments
owned and collateralized agreements. In addition, interest is
earned on cash deposits held primarily at the FRBNY and
from collateral balances posted to counterparties.

65

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Management’s Discussion and Analysis
 Interest expense includes the interest associated with
deposit-taking activities, including accepting deposits from
PWM clients, through deposit sweep agreements with thirdparty broker-dealers, through the issuance of term
certificates of deposit and directly from retail clients
through Marcus. Interest expense also includes interest from
certain financial instruments sold, but not yet purchased,
collateralized financings (including interest on advances
from the Federal Home Loan Bank of New York (FHLB)),
unsecured borrowings (including funding facilities primarily
from affiliates) and collateral balances received from
counterparties. We apply hedge accounting to certain
interest rate swaps used to manage the interest rate exposure
of certain fixed-rate term certificates of deposit. For
qualifying fair value hedges, gains and losses on derivatives
are included in interest expense. See Note 7 to the
condensed consolidated financial statements for further
information about hedge accounting.

Interest Income. Interest income in the condensed
consolidated statements of earnings was $1.21 billion for the
first quarter of 2018, 53% higher than the first quarter of 2017.
See below and “Supplemental Financial Information –
Distribution of Assets, Liabilities and Shareholder’s Equity”
for further information about our sources of interest income,
including average balances and rates.
The table below presents our sources of interest income.
Three Months
Ended March
Loans receivable (excluding loans held for sale)

$

576

$

326

Deposits with banks

252

142

Financial instruments owned

213

219

56

32

Collateralized agreements
Other
Total interest income

 Non-interest revenues include net gains and losses from
financial instruments related to market-making and risk
management activities in interest rate, currency, credit,
commodity and equity derivatives and certain related
products which are primarily accounted for at fair value.
Non-interest revenues also include net gains and losses from
loans and lending commitments primarily accounted for at
fair value. In addition, non-interest revenues include fees
earned from relationships with affiliates, loan syndication
fees and other fees, offset by provisions for losses on loans
and lending commitments.

2017

2018

$ in millions

69

111
$

1,208

$

788

In the table above:
 Interest income from loans receivable (excluding loans held
for sale) was $576 million for the first quarter of 2018, 77%
higher than the first quarter of 2017, due to higher average
balances and higher interest
rates. See Note 9 to the
condensed consolidated financial statements for further
information about loans receivable.
 Interest income from deposits with banks was $252 million
for the first quarter of 2018, 77% higher than the first
quarter of 2017, primarily due to higher interest rates on
deposits held at the FRBNY. See Note 3 to the condensed
consolidated financial statements for further information
about our cash.

Three Months Ended March 2018 versus March 2017
Net revenues in the condensed consolidated statements of
earnings, including net interest income, were $1.23 billion for
the first quarter of 2018, an increase of 43% compared with
$863 million for the first quarter of 2017, reflecting
significantly higher net interest income and higher net gains
from financial instruments, partially offset by a higher
provision for losses on loans and lending commitments, which
included an increased provision for losses due to the growth of
our Marcus portfolio.

 Interest income from financial instruments owned was $213
million for the first quarter of 2018, 3% lower than the first
quarter of 2017, due to lower yields. Interest income from
financial instruments owned includes interest income from
U.S. government and agency obligations accounted for at
fair value. See Note 4 to the condensed consolidated
financial statements for further information about financial
instruments owned. Interest income from financial
instruments owned also includes interest income from our
loans and securities accounted for at fair value. See Notes 6
and 8 to the condensed consolidated financial statements for
further information about loans and securities accounted for
at fair value.

Net Interest Income. Net interest income in the condensed
consolidated statements of earnings was $645 million for the
first quarter of 2018, 73% higher than the first quarter of 2017.
Net interest income was 52% of net revenues in the first
quarter of 2018, compared with 43% in the first quarter of
2017. See below for further information about interest income
and interest expense.

 Interest income from collateralized agreements was $56
million for the first quarter of 2018, 75% higher than the
first quarter of 2017, primarily due to higher average
securities purchased under agreements to resell.
66

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Management’s Discussion and Analysis
 Other interest income was $111 million for the first quarter
of 2018, 61% higher than the first quarter of 2017, due to
higher interest rates and higher average balances. Other
interest income includes interest income from loans
accounted for as held for sale and collateral balances posted
to counterparties.

 Other interest expense was $32 million for the first quarter
of 2018, 74% lower than the first quarter of 2017, reflecting
lower expenses on net borrowings from a senior unsecured
facility with Group Inc. Other interest expense primarily
includes interest expense on collateral balances received
from counterparties and interest expense on funding
facilities.

Interest Expense. Interest expense in the condensed
consolidated statements of earnings was $563 million for the
first quarter of 2018, 35% higher than the first quarter of 2017.
See below and “Supplemental Financial Information –
Distribution of Assets, Liabilities and Shareholder’s Equity”
for further information about our sources of interest expense,
including average balances and rates.

Net Interest Margin. Net interest margin increased by 56
basis points to 156 basis points for the first quarter of 2018,
compared with 100 basis points for the first quarter of 2017,
primarily driven by a higher interest rate environment leading
to a significant increase in interest income on loans receivable
and cash deposits held at the FRBNY, partially offset by an
increase in interest expense on interest-bearing deposits.

The table below presents our sources of interest expense.
Non-Interest Revenues. Non-interest revenues were $585
million for the first quarter of 2018, 19% higher than the first
quarter of 2017, reflecting higher net gains from financial
instruments, partially offset by a higher provision for losses on
loans and lending commitments, which included an increased
provision for losses due to the growth of our Marcus portfolio.

Three Months
Ended March
Deposits

2017

2018

$ in millions
$

457

$

249

Borrowings

42

20

Financial instruments sold, but not yet purchased

18

14

Collateralized financings

14

9

Other

32

124

Total interest expense

$

563

$

Operating Expenses
Our operating expenses are primarily influenced by
compensation, headcount and levels of business activity.
Compensation and benefits includes salaries, estimated yearend discretionary compensation, amortization of equity awards
and other items such as benefits. Compensation and benefits
relate to direct Bank employees. Discretionary compensation
is significantly impacted by, among other factors, GS Group’s
overall financial performance, prevailing labor markets,
business mix, the structure of GS Group’s share-based
compensation programs and the external environment.
Another component of our operating expenses is service
charges, which includes employment related costs of dual
employees and employees of affiliates pursuant to the Master
Services Agreement.

416

In the table above:
 Interest expense from deposits was $457 million for the first
quarter of 2018, 84% higher than the first quarter of 2017,
due to higher interest rates and higher average balances.
 Interest expense from borrowings was $42 million for the
first quarter of 2018, 110% higher than the first quarter of
2017, primarily due to higher average balances on
borrowings from Goldman Sachs Funding LLC (Funding
IHC), a wholly-owned subsidiary of Group Inc. formed in
2017, and the FHLB, in addition to higher interest rates. In
May 2017, Group Inc. assigned the $2.00 billion
outstanding subordinated loan agreement to Funding IHC.
 Interest expense from financial instruments sold, but not yet
purchased was $18 million for the first quarter of 2018, 29%
higher than the first quarter of 2017, primarily due to higher
average balances.
 Interest expense from collateralized financings was $14
million for the first quarter of 2018, 56% higher than the
first quarter of 2017, due to higher interest rates, partially
offset by lower average balances.

67

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Management’s Discussion and Analysis
The table below presents our operating expenses and total staff
(including employees, consultants and temporary staff).

Professional fees in the condensed consolidated statements of
earnings were $31 million for the first quarter of 2018, 29%
higher than the first quarter of 2017, reflecting higher
consultant fees.

Three Months
Ended March
$ in millions
Compensation and benefits

2017

2018
$

Service charges

125

$

102

106

Market development

57

25

Professional fees

31

24

Brokerage, clearing, exchange and distribution fees

27

24

Other expenses
Total operating expenses
Total staff at period-end

75

130
$

472
1,592

Brokerage, clearing, exchange and distribution fees in the
condensed consolidated statements of earnings were $27
millio
n for the first quarter of 2018, 13% higher than the first
quarter of 2017, reflecting higher brokerage and clearing
expenses, partially offset by lower distribution fees.

89

$

Other expenses in the condensed consolidated statements of
earnings were $130 million for the first quarter of 2018, 73%
higher than the first quarter of 2017. This increase included
$18 million related to the new revenue recognition standard.
See Note 3 to the condensed consolidated financial statements
for further information about ASU No. 2014-09, “Revenue
from Contracts with Customers (Topic 606).” In addition, the
increase reflected higher non-compensation expenses charged
by affiliates who provide services to us pursuant to the Master
Services Agreement.

343
940

In the table above:
 Compensation and benefits and service charges include
employee-related expenses.
As described above,
compensation and benefits are expenses of direct Bank
employees. Service charges include expenses related to dual
employees and employees of affiliates who provide services
to us pursuant to the Master Services Agreement.
 Other expenses primarily include regulatory and agency
fees, communication and technology, expenses related to the
new revenue recognition standard: ASU No. 2014-09,
“Revenue from Contracts with Customers (Topic 606),” and
non-compensation expenses charged by affiliates who
provide services to us pursuant to the Master Services
Agreement.

We expect operating expenses will continue to increase as we
launch new business initiatives and grow our businesses.
Provision for Taxes
The effective income tax rate for the first quarter of 2018 was
24.1%, down from the full year tax rate of 39.9% for 2017, as
2017 included the estimated impact of the Tax Cuts and Jobs
Act (Tax Legislation), which increased our effective income
tax rate by 485 basis points. Additionally, the decrease
compared with the full year rate for 2017 reflected the impact
of the lower U.S. corporate income tax rate in 2018. The
estimated impact of Tax Legislation was an increase in income
tax expense of $114 million for 2017. The impact of Tax
Legislation may differ from this estimate, possibly materially,
due to, among other things, (i) refinement of our calculations
based on updated information, (ii) changes in our
interpretations and assumptions, (iii) guidance that may be
issued and (iv) actions we or Group Inc. may take as a result
of Tax Legislation. During the three months ended March
2018, we did not make any material adjustments to this
estimate.

Three Months Ended March 2018 versus March 2017
Operating expenses in the condensed consolidated statements
of earnings were $472 million for the first quarter of 2018,
38% higher than the first quarter of 2017. Compensation and
benefits expenses in the condensed consolidated statements of
earnings were $125 million for the first quarter of 2018, 40%
higher than the first quarter of 2017, reflecting increased net
revenue as well as an increase in total staff, primarily related
to new business initiatives.
Service charges in the condensed consolidated statements of
earnings were $102 million for the first quarter of 2018, 4%
lower than the first quarter of 2017, reflecting a decrease in
services received under the Master Services Agreement.
Market development in the condensed consolidated statements
of earnings was $57 million for the first quarter of 2018, 128%
higher than the first quarter of 2017, reflecting additional
expenses primarily related to Marcus.

68

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Management’s Discussion and Analysis
Balance Sheet and Funding Sources
See “Balance Sheet and Funding Sources” in Part II of the
2017 Annual Report for further information about our balance
sheet management process and our funding sources.

Collateralized Financings. We fund certain of our
inventory on a secured basis by entering into collateralized
financing agreements, such as repurchase agreements. We are
also a member of the FHLB. Outstanding borrowings from the
FHLB were $2.90 billion and $3.40 billion as of March 2018
and December 2017, respectively. See Note 10 to the
condensed consolidated financial statements for further
information about collateralized financings.

Balance Sheet Analysis and Metrics
As of March 2018, total assets in our condensed consolidated
statements of financial condition were $171.73 billion, an
increase of $6.97 billion from December 2017, primarily
reflecting increases in securities purchased under agreements
to resell of $5.77 billion and loans receivable of $4.62 billion,
partially offset by decreases in financial instruments owned of
$3.53 billion and cash of $2.45 billion.

We also have access to funding through the Federal Reserve
Bank discount window. While we do not rely on this funding
in our liquidity planning and stress testing, we maintain
policies and procedures necessary to access this funding and
we test the discount window borrowing procedures. The table
below presents our collateralized financings in the condensed
consolidated statements of financial condition.

As of March 2018, total liabilities in our condensed
consolidated statements of financial condition were $145.64
billion, an increase of $6.43 billion from December 2017,
primarily reflecting an increase in deposits.

As of

Funding Sources
Our primary sources of funding are deposits, collateralized
financings, and unsecured borrowings from affiliates. We seek
to maintain broad and diversified funding sources across
products, programs, tenors and creditors to avoid funding
concentrations.

March
Securities sold under agreements to repurchase

Ended March

Time

1.90%

1.40%

607

592
$

3,038

56
2,895

$

3,558

As of March 2018 and December 2017, the Bank had a $5.00
billion revolving subordinated loan agreement with Funding
IHC, which expires in 2039. As of March 2018, outstanding
subordinated borrowings under this agreement were $4.25
billion, of which $2.25 billion matures in 2028 and $2.00
billion matures in 2024. As of December 2017, outstanding
subordinated borrowings under this agreement were $2.00
billion, maturing in 2024. In April 2018, this subordinated
loan agreement with Funding IHC was amended to remove the
$5.00 billion borrowing limit. See Note 15 to the condensed
consolidated financial statements for further information about
our subordinated borrowings.

Three Months
2017
0.64%

2017
$

Unsecured Borrowings. We may raise funding through
unsecured borrowings primarily from Funding IHC and Group
Inc. Group Inc. raises non-deposit unsecured funding and
lends to Funding IHC and other affiliates, including
consolidated subsidiaries, such as us, to meet those entities’
funding needs. This approach enhances the flexibility with
which Funding IHC and Group Inc. can meet our and other
Group Inc. subsidiaries’ funding requirements. See Note 15 to
the condensed consolidated financial statements for further
information about our unsecured borrowings.

The average annualized interest rate on our interest-bearing
deposits was 1.49% and 0.90% for the first quarter of 2018
and 2017, respectively. The table below presents the average
annualized interest rate on each type of deposit.

Savings and demand

49
2,397

Secured long-term borrowings

Deposits. Our deposits provide us with a diversified source
of funding and reduce
our reliance on wholesale funding. A
growing source of our deposit base consists of retail deposits.
Deposits are primarily used to finance lending activity, other
inventory and a portion of our global core liquid assets
(GCLA). As of March 2018 and December 2017, our deposits
were $124.34 billion and $115.89 billion, respectively.

2018
1.29%

$

Secured short-term borrowings
Total

December

2018

$ in millions

See “Supplemental Financial Information — Distributions of
Assets, Liabilities, and Shareholder’s Equity” and Note 14 to
our condensed consolidated financial statements for further
information about deposits.

69

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Management’s Discussion and Analysis
Stress Testing Process
Our stress tests incorporate our internally designed stress
scenarios, including our internally developed severely adverse
scenario, and those required under Dodd-Frank Act Stress
Tests (DFAST), and are designed to capture our specific
vulnerabilities and risks. The rules adopted by the FRB under
the U.S. Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act) require us to conduct stress
tests on an annual basis and publish a summary of our results.
We submitted our 2017 annual DFAST results to the FRB in
April 2017 and published a summary of our results in June
2017. We submitted our 2018 annual DFAST results to the
FRB in April 2018 and expect to publish a summary of our
results in June 2018.

The table below presents our unsecured borrowings.
As of
March
Unsecured short-term borrowings

$

Unsecured long-term borrowings
Total

December
2017

2018

$ in millions

57

$

2,134

4,384
$

4,441

2,085

$

4,219

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. See “Equity Capital Management and Regulatory
Capital” in Part II of the 2017 Annual Report for further
information about our equity capital management processes
and regulatory capital requirement.

Regulatory Matters and Developments
See “Business — Regulation” in Part I of the 2017 Annual
Report for further information about the laws, rules and
regulations and proposed laws, rules and regulations that apply
to us and our operations. In addition, see Note 18 to the
condensed consolidated financial statements for information
about our risk-based capital ratios and leverage ratios.

Restrictions on Payments
Our payment of dividends to Group Inc. is subject to certain
restrictions. In addition to limitations on the payment of
dividends imposed by federal and state laws, the FRB and the
FDIC have the authority to prohibit or limit the payment of
dividends by the banking organizations they supervise if, in
their opinion, payment of a dividend would constitute an
unsafe or unsound practice in light of the financial condition
of the banking organization, pursuant to applicable FRB
regulations (the amount of dividends paid should be limited to
the lesser of the amounts calculated under a recent earnings
test and an undivided profits test). During the first quarter of
2018, we did not pay a dividend to Group Inc. During 2017,
we paid a dividend of $500 million. Under the FRB
regulations referenced above, as of March 2018 and December
2017, we could have declared dividends up to $2.95 billion
and $4.55 billion, respectively, to Group Inc.

Other Regulatory Developments
In April 2018, the FRB issued a proposed rule, jointly with the
Office of the Comptroller of Currency, which would replace
the current 6% supplementary leverage ratio (SLR)
requirement for “well capitalized” status applicable for state
member banks and national bank subsidiaries of global
systemically important banks (G-SIB), including the Bank,
with a requirement equal to 3% and an additional 50% of the
applicable G-SIB surcharge of the subsidiary’s G-SIB parent.
We are currently evaluating the impact of this proposed rule.
In addition, in April 2018, the FRB issued a proposed rule to
establish stress buffer requirements for BHCs, such as Group
Inc., that are subject to the FRB’s Comprehensive Capital
Analysis and Review process. This proposed rule would not
affect the buffer requirements for insured depository
institution subsidiaries of those BHCs, including the Bank.

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 and contractual interest
payments.

70

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Management’s Discussion and Analysis
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 17 to the condensed consolidated financial statements for
further information about such commitments and guarantees.

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 areas of risk and
our risk management processes, see “Risk Factors,”
“Overview and Structure of Risk Management,” “Liquidity
Risk Management,” “Market Risk Management,” “Credit Risk
Management,” “Operational Risk Management” and “Model
Risk Management” in Parts I and II of the 2017 Annual
Report.

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 21 to the
condensed consolidated financial statements for further
information about our unrecognized tax benefits.
The table below presents our contractual obligations by type.
As of
December

March

2017

2018

$ in millions
Time deposits

$

26,175

$

26,360

Secured long-term financings

$

592

$

607

Unsecured long-term borrowings

$

4,384

$

2,134

Contractual interest payments

$

2,039

$

2,089

Liquidity Risk Management
Overview
Liquidity risk is the risk that we will be unable to fund the
Bank or meet our liquidity needs in the event of Bank-specific,
GS Group, broader industry or market liquidity stress events.
Liquidity is of critical importance to us, as most of the failures
of financial institutions have occurred in large part due to
insufficient liquidity. Accordingly, we have in place a
comprehensive and conservative set of liquidity and funding
policies. Our principal objective is to be able to fund the Bank
and to enable our core businesses to continue to serve clients
and generate revenues, even under adverse circumstances. See
“Liquidity Risk Management” in Part II of the 2017 Annual
Report for further information about
our liquidity risk
management process.

The table below presents our contractual obligations by period
of expiration.
As of March 2018
$ in millions

Remainder

2019 –

of 2018

2020

2021 –

2023 –

2022 Thereafter

Time deposits

$

– $ 11,509

$ 8,860

$

Secured long-term financings

$

– $

592

$

–

$

–

Unsecured long-term borrowings

$

– $

134

$

–

$

4,250

Contractual interest payments

$

396 $

927

$

485

$

231

5,806

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
Notes 10 and 15 to the condensed consolidated financial
statements for further information about our short-term
borrowings.

GCLA Metrics
GCLA is liquidity that we maintain to meet a broad range of
potential cash outflows and collateral needs in a stressed
environment. Based on the results of our internal liquidity risk
models as well as our consideration of other factors including,
but not limited to, an assessment of our potential intraday
liquidity needs and a qualitative assessment of GS Group’s,
inclusive of our condition, as well as the financial markets, we
believe our liquidity position as of both March 2018 and
December 2017 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.

 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.
 Contractual interest payments represents estimated future
interest payments related to unsecured long-term
borrowings, secured long-term financings and time deposits
based on applicable interest rates as of March 2018.

71

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Management’s Discussion and Analysis
The table below presents the average fair value of our GCLA
by asset class.

We believe our credit ratings are primarily based on the credit
rating agencies’ assessment of:

Average for the

 Our status within GS Group and likelihood of GS Group
support;

Three Months Ended
December

March
Overnight cash deposits

2017

2018

$ in millions
$

$

67,304

U.S. government obligations

6,927

5,281

U.S. agency obligations

8,993

9,265

174

177

Non-U.S. government obligations
Total

$

$

83,398

 Our liquidity, market,
management practices;

63,570

 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.

Market Risk Management
Overview
Market risk is the risk of loss in the value of our positions, as
well as certain other financial assets and financial liabilities,
due to changes in market conditions. We hold positions
primarily for market making for our clients and for our
lending activities. Our positions, therefore, change based on
client demands and our lending opportunities. See “Market
Risk Management” in Part II of the 2017 Annual Report for
further information about our market risk management
process.

Credit Ratings
Credit ratings are important when we are competing in certain
markets, such as OTC derivatives, and when we seek to
engage in longer-term transactions.

Metrics
We analyze VaR at the Bank level and a variety of more
detailed levels, including by risk category, business, and
region. The tables below present average daily VaR and
period-end VaR, as well as the high and low VaR for the
period. Diversification effect in the tables below represents the
difference between total VaR and the sum of the VaRs for the
two risk categories. This effect arises because the two market
risk categories are not perfectly correlated.

The table below presents our unsecured credit ratings and
outlook by Fitch, Inc. (Fitch), Moody’s Investors Service
(Moody’s), and Standard & Poor’s Ratings Services (S&P).
As of March 2018
Moody’s

S&P

P-1

A-1

Long-term debt

A+

A1

A+

F1+

P-1

N/A

Short-term bank deposits
Long-term bank deposits
Ratings outlook

AA-

A1

N/A

Stable

Negative

Stable

risk

 Our primary businesses, reputation and management;

Liquidity Regulatory Framework
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 to expected net cash outflows under an acute short-term
liquidity stress scenario. We are required to maintain a
minimum LCR of 100%. As of March 2018, our LCR
exceeded the minimum requirement.

F1

operational

 Our capital base;

GCLA is composed of (i) certain overnight U.S. cash deposits,
(ii) 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 (iii) certain non-U.S.
dollar-denominated government obligations.

Short-term debt

and

 The level and variability of our earnings;

78,293

Fitch

credit

The table below presents average daily VaR by risk category.
Three Months Ended

During the first quarter of 2018, Moody’s changed our outlook
from stable to negative.

$ in millions
Interest rates

$

Currency rates
Diversification effect
Total

72

$

March

December

2018

2017

21

$

18

March
2017
$

22

5

4

4

(6)

(4)

(4)

20

$

18

$

22

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Management’s Discussion and Analysis
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.

Our average daily VaR increased to $20 million for the first
quarter of 2018 from $18 million for the fourth quarter of
2017, due to increases in the interest rates and currency rates
categories, partially offset by an increase in the diversification
effect. The overall increase was primarily due to increased
exposures.

10% Sensitivity Measures. The table below presents
market risk for positions, accounted for at fair value, that are
not included in VaR by asset category.

Our average daily VaR decreased to $20 million for the first
quarter of 2018 from $22 million for the first quarter of 2017,
due to a decrease in the interest rates category and an increase
in the diversification effect, partially offset by an increase in
the currency
rates category. The overall decrease was
primarily due to reduced exposures.

As of

$ in millions
Equity

$

Debt

The table below presents period-end VaR by risk category.

Total

March

December

2018

2017

38

$

777

2017
$

740

739
$

38

March

$

778

33
835

$

868

As of
December

March
$ in millions
Interest rates

$

Currency rates
Diversification effect

$

22

20

In the table above:

March

2017

2018

2017
$

 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.

26

5

5

5

(6)

(7)

(6)
25

 Equity positions relate to investments in qualified affordable
housing projects.

Our daily VaR increased to $21 million as of March 2018
from $18 million as of December 2017, due to an increase in
the interest rates category, primarily driven by higher levels of
volatility, in addition to a decrease in the diversification effect.

 Debt positions include loans backed by commercial and
residential real estate, corporate bank loans and other
corporate debt.

Total

$

$

21

18

$

 Equity and debt funded positions are included in our
condensed consolidated statements of financial condition in
financial instruments owned. See Note 6 to the condensed
consolidated financial statements for further information
about cash instruments.

Our daily VaR decreased to $21 million as of March 2018
from $25 million as of March 2017, due to a decrease in the
interest rates category, primarily driven by lower levels of
volatility.

 These measures do not reflect the diversification effect
across asset categories or across other market risk measures.

During the first quarter of 2018, our total VaR risk limit was
not exceeded, raised or reduced.

Interest Rate Sensitivity. Loans receivable that are held
for investment as of March 2018 and December 2017 were
$52.82 billion and $47.76 billion, respectively, substantially
all of which had floating interest rates. As of March 2018 and
December 2017, the estimated sensitivity to a 100 basis point
increase in interest rates on such loans was $447 million and
$441 million, respectively, 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 condensed consolidated financial statements for
further information about loans receivable that are held for
investment.

The table below presents high and low VaR by risk category.
Three Months Ended
March 2018
High

$ in millions

Low

Interest rates

$

27

$

16

Currency rates

$

8

$

4

The high and low total VaR was $25 million and $16 million,
respectively, for the three months ended March 2018.

73

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Management’s Discussion and Analysis
Cash. Our credit exposure on cash arises from our
unrestricted cash, and includes both interest-bearing and noninterest-bearing deposits. To mitigate the risk of credit loss,
we deposit substantially all of our cash at the FRBNY.

Other Market Risk Considerations
As of March 2018 and December 2017, we had commitments
and held loans for which we, and our affiliates, have obtained
credit loss protection from Sumitomo Mitsui Financial Group,
Inc. See Note 17 to the condensed consolidated financial
statements for further information about such lending
commitments.

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.

In addition, we make investments in securities that are
accounted for as available-for-sale and included in financial
instruments owned in the condensed consolidated statements
of financial condition. See Note 6 to the condensed
consolidated financial statements for further information.

Credit Risk Management

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). 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 condensed 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.

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 loans and
lending commitments and OTC derivatives. Credit risk also
comes from cash placed with banks, securities financing
transactions (i.e., resale and repurchase agreements) and
receivables from brokers, dealers, clearing organizations,
customers and counterparties. See “Credit Risk Management”
in Part II of the 2017 Annual Report for further information
about our credit risk management process.
Credit Exposures
As of March 2018, our aggregate credit exposure increased as
compared with December 2017, primarily reflecting an
increase 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) was essentially unchanged as
compared with December 2017. Our credit exposure to
counterparties that defaulted during the three months ended
March 2018 was lower as compared with our credit exposure
to counterparties that defaulted during the same prior year
period, and all of such exposure related to loans and lending
commitments. Our credit exposure to counterparties that
defaulted during the three months ended March 2018
remained low, representing less than 0.5% of our total credit
exposure, and estimated losses were lower compared with the
same prior year period and still not material. Our credit
exposures are described further below.

74

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Management’s Discussion and Analysis
The table below presents our credit exposure from OTC
derivatives, and the related percentage concentration by
industry and region.

In the table above:
 Tenor is based on remaining contractual maturity.
 Counterparty netting within the same tenor category is
included within such tenor category.
Counterparty netting
across tenor categories, as well as cash collateral received
under enforceable credit support agreements, is included in
netting.

As of
December
2017

March
2018

$ in millions
OTC Derivatives

$

7,465

$

8,543

Industry
Consumer, Retail & Healthcare

3%
8%

2%

25%
13%

29%

23%
6%

26%

5%

3%

Technology, Media & Telecommunications

12%

9%

Other (including Special Purpose Vehicles)
Total

5%

8%

100%

100%

Americas

66%

71%

Europe, Middle East and Africa
Asia
Total

30%
4%

26%
3%

100%

100%

Diversified Industrials
Financial Institutions
Funds
Municipalities & Nonprofit
Natural Resources & Utilities
Sovereign

 Net credit exposure represents OTC derivative assets,
included in financial instruments owned, less cash collateral
and the fair value of securities collateral, primarily U.S.
government and agency obligations and non-U.S.
government and agency obligations, received under credit
support agreements, which management considers when
determining credit risk, but such collateral is not eligible for
netting under U.S. GAAP.

7%
10%
6%

The tables below present the distribution of our credit
exposure to OTC derivatives by tenor and our internally
determined public rating agency equivalents.

Region

Investment-Grade
AAA

$ in millions

The table below presents the distribution of our credit
exposure to OTC derivatives by tenor, both before and after
the effect of collateral and netting agreements.
Non-Investment-

Grade

Grade / Unrated

$ in millions

Less than 1 year

$

1 – 5 years
Total

Total

Netting

As of March 2018
Less than 1 year

$

3,755

1 – 5 years

11,569

Greater than 5 years
Total
Netting

$

282

$

4,037

649

12,218

26,537

857

27,394

41,861

1,788

43,649

(36,055)

(129)

$

5,806

$

1,659

$

7,465

Net credit exposure

$

4,941

$

1,653

$

6,594

5,092

1 – 5 years

10,145

Greater than 5 years
Total
Netting

$

207

$

10,741

26,961

798

27,759

42,198

1,601

(35,121)
$

7,077

$

1,466

$

8,543

Net credit exposure

$

5,999

$

1,454

$

7,453

329 $

3,755

7,106

2,895

11,569

498

3,153

16,977

5,909

26,537

1,005

5,334

26,389

9,133

41,861

(3,347)

(23,953)

(8,607)

(36,055)

1,987

$ 2,436 $

526 $

5,806

Net credit exposure

$

787 $

1,631

$

482 $

4,941

$

133 $

1,113

$ 3,257 $

Total

(35,256)

OTC derivative assets

$ 2,306 $

1,232

857 $

Greater than 5 years

43,799

(135)

949

336

$

1 – 5 years

5,299

596

Total

OTC derivative assets

Less than 1 year

As of December 2017
$

171 $

(148)

Netting
Less than 1 year

BBB

2,041 $

As of December 2017

(36,184)

OTC derivative assets

A

As of March 2018

Greater than 5 years
Investment-

AA

75

589 $

5,092

339

461

7,228

2,117

10,145

746

3,759

16,561

5,895

26,961

1,218

5,333

27,046

8,601

42,198

(2,829)

(24,030)

(7,998)

(35,121)

(264)

OTC derivative assets

$

954 $

2,504

$ 3,016 $

603 $

7,077

Net credit exposure

$

954 $

2,051

$ 2,445 $

549 $

5,999

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Management’s Discussion and Analysis
The table below presents our credit exposure from
commercial loans and lending commitments, and the related
percentage concentration by industry, region and credit
quality.

Non-Investment-Grade / Unrated
$ in millions

BB or lower

Unrated

Total

As of March 2018
Less than 1 year

$

164

$

118

$

282

1 – 5 years

649

–

Greater than 5 years

856

1

857

1,669

119

1,788

(129)

–

(129)

Total
Netting

649

OTC derivative assets

$

1,540

$

119

$

1,659

Net credit exposure

$

1,534

$

119

$

1,653

As of

$

164

$

43

$

596

–

596

Greater than 5 years

798

–

798

1,558

43

1,601

(135)

–

Total
Netting

$ 155,545

$ 141,000

Consumer, Retail & Healthcare

22%

22%

Diversified Industrials
Financial Institutions

14%

12%
8%

Loans and Lending Commitments
Industry

207

1 – 5 years

December
2017

$ in millions

As of December 2017
Less than 1 year

March
2018

8%

Funds
Natural Resources & Utilities

13%

4%
15%

(135)

Real Estate
Technology, Media & Telecommunications

9%
19%

10%
18%

OTC derivative assets

$

1,423

$

43

$

1,466

Other (including Special Purpose Vehicles)

Net credit exposure

$

1,411

$

43

$

1,454

Total

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.

12%

11%

100%

100%

Region
Americas

82%

81%

Europe, Middle East and Africa
Asia

16%
2%

17%
2%

100%

100%

2%
5%

2%
6%

20%
33%

19%
32%

Total
Credit Quality (Credit Rating Equivalent)
AAA
AA

 Commercial Lending. Our commercial lending activities
include lending to investment-grade and non-investmentgrade institutional and corporate borrowers. Loans and
lending commitments associated with these activities are
principally used for operating liquidity 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.

3%

A
BBB
BB or lower
Total

40%

41%

100%

100%

 PWM and Retail Lending. We extend loans and lending
commitments to PWM clients that are primarily secured by
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.
In addition, we extend unsecured loans to retail clients
through Marcus. See Note 9 to the condensed consolidated
financial statements for further information about the credit
quality indicators of such loans.
We also have other retail lending exposures which include
purchased loans primarily backed by residential rea
l estate.

76

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Management’s Discussion and Analysis
Other Credit Exposures. We are exposed to credit risk
from our receivables from customers and counterparties,
brokers, dealers and clearing organizations. These receivables
primarily consist of initial cash margin placed with clearing
organizations and receivables related to sales of loans which
have traded, but not yet settled. These receivables generally
have minimal credit risk due to the short-term nature of
receivables related to loan settlements and the low probability
of clearing organization default.

The table below presents our credit exposure from PWM,
Marcus and other retail lending, and the related percentage
concentration by region.
Other
PWM

$ in millions

Marcus

Retail Lending

As of March 2018
Credit Exposure

$

Americas

23,055

$

2,384

$

1,893

98%

100%

100%

Europe, Middle East and Africa

1%

-%

-%

Asia
Total

1%

-%

-%

100%

100%

100%

The table below presents our other credit exposures, and the
related percentage concentration by industry, region and credit
quality.

As of December 2017
Credit Exposure
Americas

$

22,759

$

1,912

$

1,388

98%

100%

100%

Europe, Middle East and Africa

1%

-%

-%

Asia

1%

-%

-%

Total

100%

100%

100%

As of
March
Other Credit Exposures

December
2017

2018

$ in millions
$

2,957

$

2,888

Industry

Securities Financing Transactions. We enter into
securities financing transactions in order to, among other
things, facilitate client activities and acquire securities to cover
short positions. We bear credit risk related to resale
agreements 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 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. government and agency
obligations. We had $21 million and $36 million as of March
2018 and December 2017, respectively, of credit exposure
related to securities financing transactions reflecting both
netting agreements and collateral that management considers
when determining credit risk.

Financial Institutions
Funds
Other (including Special Purpose Vehicles)

92%
4%

94%
4%

4%

2%

100%

100%

6%

18%

90%
4%

82%
-%

100%

100%

2%
89%

1%
85%

A
BBB

6%
1%

13%
1%

BB or lower
Unrated

1%
1%

-%
-%

100%

100%

Total
Region
Americas
Europe, Middle East and Africa
Asia
Total
Credit Quality (Credit Rating Equivalent)
AAA
AA

Total

The table above reflects both netting agreements and collateral
that management considers when determining credit risk.

77

GOLDMAN SACHS BANK USA AND SUBSIDIARIES

Management’s Discussion and Analysis
Operational Risk Management

Cautionary Statement

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. See “Operational Risk Management” in
Part II of the 2017 Annual Report for further information
about our operational risk management process.

In the preceding discussion and analysis of our financial
condition and results of operations, we have included
statements that may constitute “forward-looking statements.”
Forward-looking statements are not historical facts, but
instead represent only our beliefs regarding future events,
many of which, by their nature, are inherently uncertain and
outside our control. These statements include statements other
than historical information or statements of current conditions
and may relate to our future plans and objectives and results,
among other things, and may also include statements about the
effect of changes to the capital, leverage, liquidity and various
legal proceedings, governmental investigations or mortgagerelated contingencies as set forth in Notes 17 and 23,
respectively, to the condensed consolidated financial
statements in Part I of this Quarterly Report. These statements
may also include statements about the results of the DoddFrank Act stress test and our stress tests, statements about the
objectives and effectiveness of our risk management and
liquidity policies, statements about new business initiatives or
trends in or growth opportunities for our businesses,
statements about our future status, activities or reporting under
U.S. or non-U.S. banking and financial regulation and
statements about the estimated effects of Tax Legislation.

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 financial liabilities, to monitor and manage our risk,
and to measure and monitor our regulatory capital. See
“Model Risk Management” in Part II of the 2017 Annual
Report for further information about our model risk
management process.

By identifying these statements for you in this manner, we are
alerting you to the possibility that our actual results and
financial condition may differ, possibly materially, from the
anticipated results and financial condition indicated in these
forward-looking statements. Important factors that could cause
our actual results and financial condition to differ from those
indicated in these forward-looking statements include, among
others, those described in “Risk Factors” in Part I of the 2017
Annual Report.

78

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