GOLDMAN SACHS GROUP INC

Property, leasehold improvements and equipment is net of accumulated depreciation and amortization of $9.40 billion as of March 2019 and $9.08 billion as of December 2018. Property, leasehold improvements and equipment included $5.70 billion as of March 2019 and $5.57 billion as of December 2018 that the firm uses in connection with its operations, and $780 million as of March 2019 and $896 million as of December 2018 of foreclosed real estate primarily related to PCI loans. The remainder is held by investment entities, including VIEs, consolidated by the firm. Substantially all property and equipment is depreciated on a straight-line basis over the useful life of the asset. Leasehold improvements are amortized on a straight-line basis over the shorter of the useful life of the improvement or the term of the lease. Capitalized costs of software developed or obtained for internal use are amortized on a straight-line basis over three years.

Held-to-Maturity Securities

The firm enters into operating leases for real estate, office equipment and other assets, substantially all of which are used in connection with its operations. The firm adopted ASU No. 2016-02 in January 2019, which required the firm to recognize, for leases longer than one year, a right-of-use asset representing the right to use the underlying asset for the lease term, and a lease liability representing the liability to make payments. The lease term is generally determined based on the contractual maturity of the lease. For leases where the firm has the option to terminate or extend the lease, an assessment of the likelihood of exercising the option is incorporated into the determination of the lease term. Such assessment is initially performed at the inception of the lease and is updated if events occur that impact the original assessment.

For both risk management purposes and regulatory capital calculations the firm uses a single VaR model which captures risks including those related to interest rates, equity prices, currency rates and commodity prices. However, VaR used for 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. In addition, the daily net revenues used to determine risk management VaR exceptions (i.e., comparing the daily net revenues to the VaR measure calculated as of the end of the prior business day) include intraday activity, whereas the FRB’s regulatory capital rules require that intraday activity be excluded from daily net revenues when calculating regulatory VaR exceptions. Intraday activity includes bid/offer net revenues, which are more likely than not to be positive by their nature. As a result, there may be differences in the number of VaR exceptions and the amount of daily net revenues calculated for regulatory VaR compared to the amounts calculated for risk management VaR.

During the first quarter of 2019, global real gross domestic product (GDP) growth appeared to increase compared with the fourth quarter of 2018, reflecting growth in emerging markets and advanced economies, including in the U.S. However, continued concerns about future global growth and a mixed macroeconomic environment led central banks to pivot towards more accommodative monetary policies, contributing to lower volatility across markets, higher global equity prices and tighter corporate credit spreads compared with the end of 2018. In addition, market sentiment in the beginning of the first quarter was impacted by continued political uncertainty, including the U.S. government shutdown. See “Segment Operating Results” for further information about the operating environment of each of our business segments during the quarter.

Statements about corporate cash management are based on our current expectations regarding our ability to implement and effectively conduct this activity. As a result, the timing of our ability to engage in, and the benefits to be received from, corporate cash management may change, possibly materially, from what is currently expected, and we may be unable to generate the revenues or achieve the anticipated expense savings (and operational risk exposure reductions). Corporate cash management is a new business for us and is subject to all the risks associated with new business activities, including the ability to develop new and competitive systems and processes, and hire and retain the personnel needed to run the new business.