What changed in this filing

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Item 9A. Controls and Procedures

2023-02-10 compared with 2022-02-03 · 628 added, 479 removed, 1638 unchanged (40% of the section changed)

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Based on its evaluation under the framework in Internal Control - Integrated Framework , our management concluded that our internal control over financial reporting was effective as of December 31, 2022.

In October 2021, we completed our acquisition of Paidy, Inc.

Based upon Securities and Exchange Commission staff guidance, companies are permitted to exclude acquisitions from their assessment of internal control over financial reporting for the first year of acquisition.

We have excluded Paidy from our assessment of internal control over financial reporting as of December 31, 2021.

Paidy is a wholly-owned subsidiary whose total revenue and assets, excluding goodwill and intangibles, represented less than 1% of our total consolidated revenue and consolidated assets for the year ended and as of December 31, 2021.

The effectiveness of our internal control over financial reporting as of December 31, 2022 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears in Item 15(a) of this Form 10-K.

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Consolidated Balance Sheets

Consolidated Statements of Income

Consolidated Statements of Comprehensive Income

Consolidated Statements of Income (Loss)

Consolidated Statements of Comprehensive Income (Loss)

Consolidated Statements of Stockholders’ Equity

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We have audited the accompanying consolidated balance sheets of PayPal Holdings, Inc.

and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of income, of comprehensive income, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2021 listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”).

and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of income (loss), of comprehensive income (loss), of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2022, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2022 listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”).

We also have audited the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

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Changes in Accounting Principles

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for credit losses on financial instruments in 2020 and the manner in which it accounts for leases in 2019.

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for credit losses on financial instruments in 2020.

Basis for Opinions

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We believe that our audits provide a reasonable basis for our opinions.

As described in Management’s report on internal control over financial reporting, management has excluded Paidy, Inc.

from its assessment of internal control over financial reporting as of December 31, 2021 because it was acquired by the Company in a purchase business combination during 2021.

We have also excluded Paidy, Inc.

from our audit of internal control over financial reporting.

is a wholly-owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent less than 1% of the related consolidated financial statement amounts as of and for the year ended December 31, 2021.

Definition and Limitations of Internal Control over Financial Reporting

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As described in Notes 1 and 11 to the consolidated financial statements, as of December 31, 2022, the Company recorded total loans and interest receivable of $7,431 million, net of an allowance of $598 million.

The allowance for loans receivable is primarily based on expectations of credit losses based on historical lifetime loss data as well as macroeconomic forecasts applied to the portfolio, which is segmented by factors such as geographic region, delinquency and vintage.

Management applies macroeconomic factors such as forecasted trends in unemployment rates, which are sourced externally, using a single scenario to reflect the economic conditions applicable to a particular period.

The allowance for loans receivable is primarily based on expectations of credit losses based on historical lifetime loss data as well as macroeconomic forecasts applied to the portfolio.

The loss models incorporate various portfolio attributes, as well as macroeconomic factors such as forecasted trends in unemployment, retail e-commerce sales, and household disposable income.

The forecasted macroeconomic factors are sourced externally, using a single scenario to reflect the economic conditions applicable to a particular period.

Management also includes qualitative adjustments that incorporate incremental information not captured in the expected credit loss models.

The principal considerations for our determination that performing procedures relating to the allowance for loans receivable is a critical audit matter are (i) the high degree of auditor subjectivity and effort in performing procedures and evaluating audit evidence relating to certain models which apply macroeconomic forecasts to estimate expected credit losses;

and (ii) the audit effort involved the use of professionals with specialized skill and knowledge.

and (ii) the audit effort involved in the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

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Accumulated other comprehensive income (loss) ( 928 ) ( 136 )

Total PayPal stockholders’ equity 21,727 20,019

Noncontrolling interest — 44

Total equity 20,274 21,727

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PayPal Holdings, Inc.

CONSOLIDATED STATEMENTS OF INCOME

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

Year Ended December 31,

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Income before income taxes 3,366 4,099 5,065

Income tax (benefit) expense ( 70 ) 863 539

Net income $ 4,169 $ 4,202 $ 2,459

Net income per share:

Income tax expense (benefit) 947 ( 70 ) 863

Net income (loss) $ 2,419 $ 4,169 $ 4,202

Net income (loss) per share:

Basic $ 2.10 $ 3.55 $ 3.58

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PayPal Holdings, Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Year Ended December 31,

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(In millions)

Net income $ 4,169 $ 4,202 $ 2,459

Net income (loss) $ 2,419 $ 4,169 $ 4,202

Other comprehensive income (loss), net of reclassification adjustments:

Foreign currency translation adjustments (“CTA”) ( 305 ) ( 72 ) ( 48 )

Net investment hedge CTA gain (loss) — 55 ( 31 )

Unrealized gains (losses) on cash flow hedges, net 522 ( 329 ) ( 176 )

Tax (expense) benefit on unrealized gains (losses) on cash flow hedges, net ( 26 ) 4 3

Net investment hedges CTA (losses) gains, net ( 25 ) — 55

Tax benefit on net investment hedges CTA losses, net 6 — —

Unrealized (losses) gains on cash flow hedges, net ( 88 ) 522 ( 329 )

Tax benefit (expense) on unrealized (losses) gains on cash flow hedges, net 4 ( 26 ) 4

Unrealized (losses) gains on investments, net ( 504 ) ( 98 ) 9

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Other comprehensive income (loss), net of tax ( 792 ) 348 ( 311 )

Comprehensive income $ 4,517 $ 3,891 $ 2,208

Comprehensive income (loss) $ 1,627 $ 4,517 $ 3,891

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

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Balances at December 31, 2019 1,173 $ ( 6,872 ) $ 15,588 $ ( 173 ) $ 8,342 $ 44 $ 16,929

Adoption of lease accounting standard — — — — 3 — 3

Net income — — — — 2,459 — 2,459

Foreign CTA — — — ( 57 ) — — ( 57 )

Net investment hedge CTA loss — — — ( 31 ) — — ( 31 )

Unrealized losses on cash flow hedges, net — — — ( 176 ) — — ( 176 )

Tax benefit on unrealized losses on cash flow hedges, net — — — 3 — — 3

Unrealized gains on investments, net — — — 15 — — 15

Tax expense on unrealized gains on investments, net — — — ( 5 ) — — ( 5 )

Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes 13 — ( 365 ) — — — ( 365 )

Common stock repurchased ( 14 ) ( 1,361 ) ( 45 ) — — — ( 1,406 )

Stock-based compensation — — 1,059 — — — 1,059

Purchase of noncontrolling interest — — — — — 44 44

Balances at December 31, 2019 1,173 $ ( 6,872 ) $ 15,588 $ ( 173 ) $ 8,342 $ 44 $ 16,929

Adoption of current expected credit loss standard — — — — ( 178 ) — ( 178 )

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Balances at December 31, 2021 1,168 $ ( 11,880 ) $ 17,208 $ ( 136 ) $ 16,535 $ — $ 21,727

Net income — — — — 2,419 — 2,419

Foreign CTA — — — ( 305 ) — — ( 305 )

Net investment hedge CTA losses, net — — — ( 25 ) — — ( 25 )

Tax benefit on net investment hedges CTA losses, net — — — 6 — — 6

Unrealized losses on cash flow hedges, net — — — ( 88 ) — — ( 88 )

Tax benefit on unrealized losses on cash flow hedges, net — — — 4 — — 4

Unrealized losses on investments, net — — — ( 504 ) — — ( 504 )

Tax benefit on unrealized losses on investments, net — — — 120 — — 120

Common stock and stock-based awards issued, net of shares withheld for employee taxes 9 — ( 195 ) — — — ( 195 )

Common stock repurchased ( 41 ) ( 4,199 ) — — — — ( 4,199 )

Stock-based compensation — — 1,313 — — — 1,313

Other — — 1 — — — 1

Balances at December 31, 2022 1,136 $ ( 16,079 ) $ 18,327 $ ( 928 ) $ 18,954 $ — $ 20,274

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

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Cash flows from operating activities:

Net income $ 4,169 $ 4,202 $ 2,459

Adjustments to reconcile net income to net cash provided by operating activities:

Net income (loss) $ 2,419 $ 4,169 $ 4,202

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Transaction and credit losses 1,572 1,060 1,741

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Deferred income taxes ( 811 ) ( 482 ) 165

Net gains on strategic investments ( 46 ) ( 1,914 ) ( 208 )

Net (gains) losses on strategic investments 304 ( 46 ) ( 1,914 )

Other 205 100 47

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Accounts receivable ( 163 ) ( 222 ) ( 100 )

Changes in loans and interest receivable held for sale, net — — 4

Transaction loss allowance for cash losses, net ( 1,230 ) ( 1,178 ) ( 1,120 )

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Proceeds from sales of property and equipment 5 5 120

Changes in principal loans receivable, net ( 1,594 ) 294 ( 1,631 )

Purchases and originations of loans receivable ( 28,170 ) ( 13,420 ) ( 6,098 )

Principal repayment of loans receivable 24,903 11,826 6,392

Purchases of investments ( 20,219 ) ( 40,116 ) ( 41,513 )

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Funds receivable ( 2,813 ) 193 ( 1,552 )

Collateral posted related to derivative instruments, net ( 19 ) 336 ( 327 )

Other investing activities 187 — —

Net cash used in investing activities ( 3,421 ) ( 5,149 ) ( 16,545 )

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Funds payable and amounts due to customers 1,498 3,572 10,597

Collateral received related to derivative instruments, net ( 6 ) 207 ( 38 )

Other financing activities 1 — ( 52 )

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PayPal is committed to democratizing financial services to help improve the financial health of individuals and to increase economic opportunity for entrepreneurs and businesses of all sizes around the world.

Our goal is to enable our merchants and consumers to manage and move their money anywhere in the world in the markets we serve, anytime, on any platform, and using any device when sending payments or getting paid, including person-to-person (“P2P”) payments.

We operate globally and in a rapidly evolving regulatory environment characterized by a heightened focus by regulators globally on all aspects of the payments industry, including countering terrorist financing, anti-money laundering, privacy, cybersecurity, and consumer protection.

The laws and regulations applicable to us, including those enacted prior to the advent of digital payments, are continuing to evolve through legislative and regulatory action and judicial interpretation.

New or changing laws and regulations, including the changes to their interpretation and implementation, as well as increased penalties and enforcement actions related to non-compliance, could have a material adverse impact on our business, results of operations, and financial condition.

The laws and regulations applicable to us, including those enacted prior to the advent of digital payments, continue to evolve through legislative and regulatory action and judicial interpretation.

New or changing laws and regulations, including changes to their interpretation and implementation, as well as increased penalties and enforcement actions related to non-compliance, could have a material adverse impact on our business, results of operations, and financial condition.

We monitor these areas closely and are focused on designing compliant solutions for our customers.

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All intercompany balances and transactions have been eliminated in consolidation.

The noncontrolling interest reported in the prior period was a component of equity on our consolidated balance sheets and represented the equity interests not owned by PayPal, and was recorded for consolidated entities we controlled and of which we owned less than 100%.

Noncontrolling interest was not presented separately on our consolidated statements of income as the amount was de minimis.

The noncontrolling interest reported in a prior period was a component of equity on our consolidated balance sheets and represented the equity interests not owned by PayPal, and was recorded for consolidated entities we controlled and of which we owned less than 100%.

Noncontrolling interest was not presented separately on our consolidated statements of income (loss) as the amount was de minimis.

Investments in entities where we have the ability to exercise significant influence, but not control, over the investee are accounted for using the equity method of accounting.

For such investments, our share of the investee’s results of operations is included in other income (expense), net on our consolidated statements of income.

Investments in entities where we do not have the ability to exercise significant influence over the investee are accounted for at fair value or cost minus impairment, if any, adjusted for changes resulting from observable price changes, which are included in other income (expense), net on our consolidated statements of income.

For such investments, our share of the investee’s results of operations is included in other income (expense), net on our consolidated statements of income (loss).

Our investment balance is included in long-term investments on our consolidated balance sheets.

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If we determine an investment is in a VIE, we then assess if we are the primary beneficiary, which would require consolidation.

We have consolidated two VIEs that provide financing for and hold loans receivable of Paidy, Inc.

We are the primary beneficiary of the VIEs as we perform the servicing and collection for the loans receivable which are the activities that most significantly impact the VIE's economic performance and we have the obligation to absorb the losses and/or the right to receive the benefits of the VIE that could potentially be significant to these entities.

The financial results of our consolidated VIEs are included in the consolidated financial statements.

The carrying value of the assets and liabilities of our consolidated VIEs is included as short-term investments of $ 87 million, loans and interest receivable, net of $ 21 million, and long-term debt of $ 98 million as of December 31, 2021.

Cash of $ 87 million, included in short-term investments, is restricted to settle the debt obligations.

As of December 31, 2021, we had consolidated two VIEs that provided financing for and held loans receivable of Paidy, Inc.

We were the primary beneficiary of the VIEs as we performed the servicing and collection for the loans receivable, which were the activities that most significantly impacted the VIE’s economic performance, and we had the obligation to absorb the losses and/or the right to receive the benefits of the VIE that could potentially be significant to these entities.

The financial results of these VIEs were included in our consolidated financial statements.

As of December 31, 2021, the carrying value of the assets and liabilities of our consolidated VIEs was included as short-term investments of $ 87 million, loans and interest receivable, net of $ 21 million, and long-term debt of $ 98 million.

Cash of $ 87 million, included in short-term investments, was restricted to settle the debt obligations.

In the first quarter of 2022, we terminated Paidy’s legacy debt structure and replaced it with a new credit agreement executed in February 2022.

As a result, we no longer have any consolidated VIEs as of December 31, 2022.

See “Note 12—Debt” for additional information.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The carrying value of our investments that are in nonconsolidated VIEs is included as non-marketable equity securities applying the equity method of accounting in long-term investments on our consolidated balance sheets.

As of December 31, 2022 and December 31, 2021, the carrying value of our investments in nonconsolidated VIEs was $ 128 million and $ 74 million, respectively, and is included as non-marketable equity securities applying the equity method of accounting in long-term investments on our consolidated balance sheets.

Our maximum exposure to loss related to our nonconsolidated VIEs, which represents funded commitments and any future funding commitments, was $ 232 million and $ 205 million as of December 31, 2022 and 2021, respectively.

In the opinion of management, these consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair statement of the consolidated financial statements for all periods presented.

In the opinion of management, these consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of the consolidated financial statements for all periods presented.

Certain amounts for prior years have been reclassified to conform to the financial statement presentation as of and for the year ended December 31, 2022.

Reclassifications

Beginning with the fourth quarter of 2022, we reclassified certain cash flows related to our collateral security arrangements for derivative instruments from cash flows from operating activities to cash flows from investing activities and cash flows from financing activities within the consolidated statements of cash flows.

Prior period amounts have been reclassified to conform to the current period presentation.

The current period presentation classifies all changes in collateral posted and collateral received related to derivative instruments on our consolidated statements of cash flows as cash flows from investing activities and cash flows from financing activities, respectively.

We believe that the current period presentation provides a more meaningful representation of the nature of the cash flows and allows for greater transparency as the cash flows related to the derivatives impact operating cash flows upon settlement exclusive of the offsetting cash flows from collateral.

The following tables present the effects of the changes on the presentation of these cash flows to the previously reported consolidated statements of cash flows:

Year Ended December 31, 2021

(In millions)

As Previously Reported (1)

Adjustments Reclassified

Net cash provided by (used in):

Operating activities (2)

$ 6,340 $ ( 543 ) $ 5,797

Investing activities (3)

( 5,485 ) 336 ( 5,149 )

Financing activities (4)

( 764 ) 207 ( 557 )

Effect of exchange rates on cash, cash equivalents, and restricted cash ( 102 ) — ( 102 )

Net decrease in cash, cash equivalents, and restricted cash $ ( 11 ) $ — $ ( 11 )

(1) As reported in our 2021 Form 10-K filed with the SEC on February 3, 2022.

(2) Financial statement lines impacted in operating activities were “Other current assets and non-current assets” and “Other current liabilities and non-current liabilities,” which decreased by $ 336 million and $ 207 million, respectively, to arrive at the reclassified amounts.

(3) Financial statement line impacted in investing activities was “Collateral posted related to derivative instruments, net.”

(4) Financial statement line impacted in financing activities was “Collateral received related to derivative instruments, net.”

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Year Ended December 31, 2020

(In millions)

As Previously Reported (1)

Adjustments Reclassified

Net cash provided by (used in):

Operating activities (2)

$ 5,854 $ 365 $ 6,219

Investing activities (3)

( 16,218 ) ( 327 ) ( 16,545 )

Financing activities (4)

12,492 ( 38 ) 12,454

Effect of exchange rates on cash, cash equivalents, and restricted cash 169 — 169

Net increase in cash, cash equivalents, and restricted cash $ 2,297 $ — $ 2,297

(1) As reported in our 2021 Form 10-K filed with the SEC on February 3, 2022.

(2) Financial statement lines impacted in operating activities were “other current assets and non-current assets” and “other current liabilities and non-current liabilities,” which increased by $ 327 million and $ 38 million, respectively, to arrive at the reclassified amounts.

(3) Financial statement line impacted in investing activities was “Collateral posted related to derivative instruments, net.”

(4) Financial statement line impacted in financing activities was “Collateral received related to derivative instruments, net.”

Use of estimates

The preparation of consolidated financial statements in conformity with United States (“U.S.”) generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

On an ongoing basis, we evaluate our estimates, including those related to provisions for transaction and credit losses, income taxes, loss contingencies, revenue recognition, and the valuation of goodwill and intangible assets.

On an ongoing basis, we evaluate our estimates, including those related to provisions for transaction and credit losses, income taxes, loss contingencies, revenue recognition, the valuation of goodwill and intangible assets, and the valuation of strategic investments.

We base our estimates on historical experience and various other assumptions which we believe to be reasonable under the circumstances.

These estimates may change as new events occur, and as additional information surrounding the continued impact of the novel coronavirus (“COVID-19”) pandemic becomes available.

Actual results could differ from these estimates and any such differences may be material to our financial statements.

Actual results could materially differ from these estimates.

Cash and cash equivalents

Cash and cash equivalents are short-term, highly liquid investments with original maturities of three months or less when purchased and are composed of primarily bank deposits, government and agency securities, and commercial paper.

Cash and cash equivalents are short-term, highly liquid investments with original maturities of three months or less when purchased and are comprised of primarily bank deposits, government and agency securities, and commercial paper.

Short-term investments include time deposits and available-for-sale debt securities with original maturities of greater than three months but less than one year when purchased or maturities of one year or less on the reporting date.

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We elect to account for available-for-sale debt securities denominated in currencies other than the functional currency of our subsidiaries, underlying funds receivable and customer accounts, short-term investments, and long-term investments, under the fair value option as further discussed in “Note 9—Fair Value Measurement of Assets and Liabilities.” The changes in fair value related to initial measurement and subsequent changes in fair value are included in earnings as a component of other income (expense), net.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Our strategic investments consist of marketable equity securities, which are publicly traded, and non-marketable equity securities, which are primarily investments in privately held companies.

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Non-marketable equity securities also include our investments where we have the ability to exercise significant influence, but not control, over the investee and account for these securities using the equity method of accounting.

All gains and losses on these investments, realized and unrealized, and our share of earnings or losses from investments accounted for using the equity method are recognized in other income (expense), net on our consolidated statements of income.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

We assess whether an impairment loss on our non-marketable equity securities and an other-than-temporary impairment loss on our equity method investments (and prior to January 1, 2020, available-for-sale debt securities) has occurred due to declines in fair value or other market conditions.

If any impairment is identified for non-marketable equity securities or impairment is considered other-than-temporary for our equity method investments (and prior to January 1, 2020, available-for-sale debt securities), we write down the investment to its fair value and record the corresponding charge through other income (expense), net in our consolidated statements of income.

Prior to January 1, 2020, this assessment with respect to our available-for-sale debt securities took into account the severity and duration of the decline in value, our intent to sell the security, whether it was more likely than not we would be required to sell the security before recovery of its amortized cost basis, and whether we expected to recover the entire amortized cost basis of the security (that is, whether a credit loss existed).

Beginning January 1, 2020, our available-for-sale debt securities in an unrealized loss position are written down to fair value through a charge to other income (expense), net in our consolidated statements of income if we intend to sell the security or it is more likely than not we will be required to sell the security before recovery of its amortized cost basis.

We assess whether an impairment loss on our non-marketable, measurement alternative investments has occurred based on qualitative factors such as the companies’ financial condition and business outlook, industry performance, regulatory, economic or technological environment, and other relevant events and factors affecting the company.

We assess whether an other-than-temporary impairment loss on our equity method investments has occurred due to declines in fair value or other market conditions.

When indicators of impairment exist, we estimate the fair value of our non-marketable equity securities using the market approach and/or the income approach.

Estimating fair value requires judgment and use of estimates such as discount rates, forecasted cash flows, and market data of comparable companies, among others.

If any impairment is identified for non-marketable equity securities or impairment is considered other-than-temporary for our equity method investments, we write down the investment to its fair value and record the corresponding charge through other income (expense), net in our consolidated statements of income (loss).

Our available-for-sale debt securities in an unrealized loss position are written down to fair value through a charge to other income (expense), net in our consolidated statements of income (loss) if we intend to sell the security or it is more likely than not we will be required to sell the security before recovery of its amortized cost basis.

For the remaining available-for-sale debt securities in an unrealized loss position, if we identify that the decline in fair value has resulted from credit losses, taking into consideration changes to the rating of the security by rating agencies, implied yields versus benchmark yields, and the extent to which fair value is less than amortized cost, among other factors, we estimate the present value of cash flows expected to be collected.

If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded, limited by the amount that the fair value is less than the amortized cost basis.

Any portion of impairment not related to credit losses is recognized in other comprehensive income.

Any portion of impairment not related to credit losses is recognized in other comprehensive income (loss).

Loans and interest receivable, net

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PayPal Credit consists of revolving credit products.

In the U.S., PPWC and PPBL products are provided under a program agreement we have with WebBank, an independent chartered financial institution.

WebBank extends credit to merchants for the PPWC and PPBL products and we are able to purchase the related receivables originated by WebBank.

In the U.S., PPWC, PPBL, and consumer interest-bearing installment products are provided under a program agreement we have with an independent chartered financial institution (“partner institution”).

The partner institution extends credit to merchants for the PPWC and PPBL products and to consumers for interest-bearing installment products and we purchase the related receivables originated by the partner institution.

For our merchant finance products outside the U.S., we extend working capital advances and loans in Europe through our Luxembourg banking subsidiary, and working capital loans in Australia through an Australian subsidiary.

In the U.S., we extend installment loans to consumers through a U.S.

In the U.S., we extend certain short-term, interest-free, installment loans to consumers through a U.S.

For our international consumer credit products, we extend credit in Europe through our Luxembourg banking subsidiary, and in Australia and Japan, through local subsidiaries.

As part of our arrangement with WebBank in the U.S., we sell back a participation interest in the pool of merchant receivables for the PPWC and PPBL products.

WebBank has no recourse against us related to their participation interests for failure of debtors to pay when due.

The participation interests held by WebBank have the same priority to the interests held by us and are subject to the same credit, prepayment, and interest rate risk associated with this pool of merchant receivables.

As part of our arrangement with the partner institution in the U.S., we sell back a participation interest in the pool of receivables for the PPWC, PPBL, and consumer interest-bearing installment products.

The partner institution has no recourse against us related to their participation interests for failure of debtors to pay when due.

The participation interests held by the partner institution have the same priority to the interests held by us and are subject to the same credit, prepayment, and interest rate risk associated with this pool of receivables.

All risks of loss are shared pro rata based on participation interests held among all participating stakeholders.

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For this arrangement, gains or losses on the sale of the participation interests are not material as the carrying amount of the participation interest sold approximates the fair value at time of transfer.

In instances where a merchant is able to demonstrate that it is experiencing financial difficulty, there may be a modification of the loans or advances and the related interest receivable for which it is probable that, without modification, we will be unable to collect all amounts due, therefore resulting in a troubled debt restructuring (“TDR”).

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In certain instances where a merchant is able to demonstrate that it is experiencing financial difficulty, there may be a modification of the loan or advance and the related interest or fee receivable for which it is probable that, without modification, we would be unable to collect all amounts due, therefore resulting in a troubled debt restructuring (“TDR”).

Refer to “Note 11—Loans and Interest Receivable” for further information related to TDRs.

Loans, advances, and interest and fees receivable are reported at their outstanding balances, net of any participation interests sold and pro rata current expected credit losses, including unamortized deferred origination costs.

Loans, advances, and interest and fees receivable are reported at their outstanding balances, net of any participation interests sold and unamortized deferred origination costs.

We maintain the servicing rights for the entire pool of consumer and merchant receivables outstanding and receive a market-based service fee for servicing the assets underlying the participation interest sold.

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Due to the relatively small dollar amount of individual loans and interest receivable, we do not require collateral on these balances.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Synchrony Bank is the exclusive issuer of the PayPal Credit consumer financing program in the U.S.

Another partner institution is the exclusive issuer of the PayPal Credit consumer financing program in the U.S.

We do not hold an ownership interest in the receivables generated through the program and therefore, do not record these receivables on our consolidated financial statements.

PayPal earns a revenue share on the portfolio of consumer receivables owned by Synchrony, which is recorded in revenues from other value added services on our consolidated statements of income.

PayPal earns a revenue share on the portfolio of consumer receivables owned by the partner institution, which is recorded in revenues from other value added services on our consolidated statements of income (loss).

Allowance for loans and interest receivable

The allowance for loans and interest receivable represents our estimate of current expected credit losses inherent in our portfolio of loans and interest receivables.

Increases to the allowance for loans receivable are reflected as a component of transaction and credit losses on our consolidated statements of income.

Increases to the allowance for interest and fees receivable are reflected as a reduction of net revenues on our consolidated statements of income, or as a reduction of deferred revenue when interest and fees are billed at the inception of a loan or advance.

Increases to the allowance for loans receivable are reflected as a component of transaction and credit losses on our consolidated statements of income (loss).

Increases to the allowance for interest and fees receivable are reflected as a reduction of net revenues on our consolidated statements of income (loss), or as a reduction of deferred revenue when interest and fees are billed at the inception of a loan or advance.

The evaluation process to assess the adequacy of allowances is subject to numerous estimates and judgments.

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Measurement of Credit Losses on Financial Instruments (“CECL”) effective January 1, 2020.

The allowance for loans and interest receivable is primarily based on expectations of credit losses based on historical lifetime loss data as well as macroeconomic forecasts applied to the portfolio, which is segmented by factors such as geographic region, delinquency, and vintage.

Loss curves are generated using historical loss data for each loan portfolio and are applied to segments of each portfolio, categorized by factors such as geographic region, first borrowing versus repeat borrowing, delinquency, credit rating, and vintage, which vary by portfolio.

We then apply macroeconomic factors such as forecasted trends in unemployment and benchmark credit card charge-off rates, which are sourced externally, using a single scenario that we believe is most appropriate to the economic conditions applicable to a particular period.

We utilize externally sourced macroeconomic scenario data to supplement our historical information due to the limited period in which our credit product offerings have been in existence.

Projected loss rates, inclusive of historical loss data and macroeconomic factors, are applied to the principal amount of our consumer and merchant receivables.

The allowance for merchant loans, advances, and interest and fees receivable is primarily based on expectations of credit losses based on historical lifetime loss data as well as macroeconomic forecasts applied to the portfolio.

In the third quarter of 2022, our expected credit loss models for our merchant receivables were updated.

These changes did not have a material impact on our provision recorded in the year ended December 31, 2022.

The merchant loss models incorporate various portfolio attributes including geographic region, first borrowing versus repeat borrowing, delinquency, internally developed risk ratings, and vintage, as well as macroeconomic factors such as forecasted trends in unemployment and retail e-commerce sales (and through the second quarter of 2022, benchmark credit card charge-off rates.) The forecasted macroeconomic factors are sourced externally, using a single scenario that we believe is most appropriate to the economic conditions applicable to a particular period.

The reasonable and supportable forecast period for merchant products that we have included in our projected loss rates for 2022 and 2021, which approximates the estimated life of the loans, is approximately 2.5 to 3.5 years.

Projected loss rates, inclusive of historical loss data and macroeconomic factors, are applied to the principal amount of our merchant receivables.

We also include qualitative adjustments that incorporate incremental information not captured in the quantitative estimates of our current expected credit losses.

Our consumer receivables consist of revolving products, which do not have a contractual term, and installment products.

The reasonable and supportable forecast period for revolving products, installment products, and merchant products that we have included in our projected loss rates, which approximates the estimated life of the loans, is approximately 2 years, approximately 7 months to 2.5 years, and approximately 2.5 to 3.5 years, respectively.

In 2020, the reasonable and supportable forecast period for revolving consumer products was based only on externally sourced data due to the lack of availability of historical data, and in 2021, it was updated to reflect historical loss experience with the portfolio.

This change did not result in a material impact to the reserve.

The allowance for current expected credit losses on interest and fees receivable is determined primarily by applying loss curves to each portfolio by geography, delinquency, and period of origination, among other factors.

Prior to January 1, 2020, the allowance for our consumer loans receivable was primarily based on forecasted principal balance delinquency rates (“roll rates”).

Roll rates are the percentage of balances which we estimate would migrate from one stage of delinquency to the next based on our historical experience, as well as external factors such as estimated bankruptcies and levels of unemployment.

Roll rates were applied to the principal amount of our consumer receivables for each stage of delinquency, from current to 179 days past the payment due date, to estimate the principal loans which had incurred losses and were probable to be charged off.

For merchant loans and advances receivable, the allowance was primarily based on principal balances, forecasted delinquency rates, and recoveries through the use of a vintage-based loss forecasting model.

The determination of delinquency, from current to 179 days past due, for principal balances related to merchant receivables outstanding was based on the current expected or contractual repayment period of the loan or advance and interest or fixed fee as compared to the original expected or contractual repayment period.

The allowance for loss against interest receivable was primarily determined by applying historical average customer account roll rates to the interest receivable balance in each stage of delinquency to project the value of accounts that had incurred losses and were probable to be charged off.

The allowance for fees receivable was primarily based on fee balances, forecasted delinquency rates, and recoveries through the use of a vintage-based loss forecasting model.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The allowance for consumer loans and interest receivable is primarily based on expectations of credit losses based on historical lifetime loss data.

The allowance for loans and interest receivable for our revolving credit product also incorporates macroeconomic forecasts applied to the portfolio.

The consumer loss models incorporate various portfolio attributes including geographic region, loan term, delinquency, credit rating, vintage, and for the revolving credit portfolio macroeconomic factors such as forecasted trends in unemployment and household disposable income.

The forecasted macroeconomic factors are sourced externally, using a single scenario that we believe is most appropriate to the economic conditions applicable to a particular period.

The reasonable and supportable forecast period for revolving products and installment products that we have included in our projected loss rates for 2022, which approximates the estimated life of the loans, is approximately 2 years and approximately 7 months to 3.5 years, respectively.

In 2021, the reasonable and supportable forecast periods were consistent with 2022 except for installment products, which had an estimated life of 7 months to 2.5 years.

Projected loss rates, inclusive of historical loss data and, for the revolving credit portfolio macroeconomic factors, are derived based on and applied to the principal amount of our consumer receivables.

We also include qualitative adjustments that incorporate incremental information not captured in the quantitative estimates of our current expected credit losses, such as expectations of macroeconomic conditions not captured in the loss models for our installment products.

Customer accounts

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dollar funds which are deposited at one or more third-party financial institutions insured by the Federal Deposit Insurance Corporation (“FDIC”) and are eligible for FDIC pass-through insurance (subject to applicable limits).

We act as an agent in facilitating cryptocurrency transactions on behalf of our customers.

Cryptocurrencies held on behalf of our customers are not PayPal’s assets and therefore are not reflected on our consolidated balance sheets.

In June 2018, the Luxembourg Commission de Surveillance du Secteur Financier (the “CSSF”) agreed that PayPal’s management may designate up to 35 % of European customer balances held in our Luxembourg banking subsidiary to be used for European and U.S.

Under applicable accounting standards, we are an agent when facilitating cryptocurrency transactions on behalf of our customers.

Cryptocurrencies held on behalf of our customers are not PayPal’s assets and therefore, are not reflected as cryptocurrency assets on our consolidated balance sheets;

however, we recognize a crypto asset safeguarding liability with a corresponding safeguarding asset to reflect our obligation to safeguard the cryptocurrencies held on behalf of our customers.

credit activities.

During the year ended December 31, 2021, an additional $ 700 million was approved to fund such credit activities.

As of December 31, 2021, the cumulative amount approved by management to be designated for credit activities aggregated to $ 2.7 billion and represented approximately 27 % of European customer balances that have been made available for our corporate use at that date as determined by applying financial regulations maintained by the CSSF.

In August 2022, the CSSF approved PayPal’s management designating up to 50 % of such balances to fund our credit activities through the end of February 2023.

During the year ended December 31, 2022, an additional $ 1.1 billion was approved to fund our credit activities.

As of December 31, 2022, the cumulative amount approved by management to be designated to fund credit activities aggregated to $ 3.8 billion and represented approximately 37 % of European customer balances made available for our corporate use at that date as determined by applying financial regulations maintained by the CSSF.

At the time PayPal’s management designates the European customer balances held in our Luxembourg banking subsidiary to be used to extend credit, the balances are classified as cash and cash equivalents and no longer classified as customer accounts on our consolidated balance sheets.

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We present changes in funds receivable and customer accounts as cash flows from investing activities in our consolidated statements of cash flows based on the nature of the activity underlying our customer accounts.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Funds receivable and funds payable

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generally, one to four years for computer equipment and software, including capitalized software and website development costs, three years for furniture and fixtures, up to 30 years for buildings and building improvements, and the shorter of five years or the non-cancelable term of the lease for leasehold improvements.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Direct costs incurred to develop software for internal use and website development costs, including those costs incurred in expanding and enhancing our payments platform, are capitalized and amortized generally over an estimated useful life of three years and are recorded as amortization within the financial statement captions aligned with the internal organizations that are the primary beneficiaries of such assets.

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If the evaluation indicates that the carrying amount of the ROU assets may not be recoverable, any potential impairment is measured based upon the fair value of the related ROU asset or asset group as determined by appropriate valuation techniques.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

We have lease agreements with lease and non-lease components.

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We apply a single portfolio approach to account for the ROU assets and lease liabilities.

The Company adopted ASU 2016-02, Leases (Topic 842) effective January 1, 2019, using a modified retrospective basis and applied the optional practical expedients related to the transition.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Goodwill and intangible assets

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Intangible assets consist of acquired customer list and user base intangible assets, marketing related intangibles, developed technology, and other intangible assets.

Intangible assets are amortized over the period of estimated benefit using the straight-line method and estimated useful lives ranging from one to seven years .

Intangible assets are amortized over the period of estimated benefit using the straight-line method and estimated useful lives ranging from two to seven years .

No significant residual value is estimated for intangible assets.

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We are exposed to transaction losses due to credit card and other payment misuse as well as nonperformance from sellers who accept payments through PayPal.

We establish an allowance for estimated losses arising from completing customer transactions, such as chargebacks for unauthorized credit card use and merchant-related chargebacks due to non-delivery or unsatisfactory delivery of purchased items, buyer protection program claims, and account takeovers.

We establish an allowance for estimated losses arising from completing customer transactions, such as chargebacks for unauthorized credit card use and merchant-related chargebacks due to non-delivery or unsatisfactory delivery of purchased items, purchase protection program claims, and account takeovers.

This allowance represents an accumulation of the estimated amounts of probable transaction losses as of the reporting date, including those which we have not yet identified.

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The allowance is based on known facts and circumstances, internal factors including experience with similar cases, historical trends involving loss payment patterns, and the mix of transaction and loss types, as applicable.

Additions to the allowance are reflected as a component of transaction and credit losses on our consolidated statements of income.

Additions to the allowance are reflected as a component of transaction and credit losses on our consolidated statements of income (loss).

The allowance for transaction losses is included in accrued expenses and other current liabilities on our consolidated balance sheets.

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Negative customer balances are included in other current assets, net of the allowance on our consolidated balance sheets.

Adjustments to the allowance for negative customer balances are recorded as a component of transaction and credit losses on our consolidated statements of income.

Adjustments to the allowance for negative customer balances are recorded as a component of transaction and credit losses on our consolidated statements of income (loss).

Derivative instruments

See “Note 10—Derivative Instruments” for information related to the derivative instruments.

Fair value of financial instruments

Our financial assets and liabilities are valued using market prices on both active markets (Level 1) and less active markets (Level 2).

Level 1 instrument valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets.

Level 2 instrument valuations are obtained from quoted prices for identical instruments in less active markets, readily available pricing sources for comparable instruments, or models using market observable inputs.

Fair value measurements

We measure certain financial assets and liabilities at fair value on a recurring basis and certain financial and non-financial assets and liabilities at fair value on a non-recurring basis when a change in fair value or impairment is evidenced.

Fair value is defined as the price received to sell an asset or paid to transfer a liability in the principal market for the asset or liability in an orderly transaction between market participants on the measurement date.

Fair value is estimated by maximizing the use of observable inputs and minimizing the use of unobservable inputs.

The categorization within the following three-level fair value hierarchy for our recurring and non-recurring fair value measurements is based upon the lowest level of input that is available and significant to the fair value measurement:

• Level 1 - Observable inputs, such as unadjusted quoted prices in active markets for identical assets or liabilities.

• Level 2 - Observable inputs other than Level 1 quoted prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be market-corroborated.

• Level 3 - Unobservable inputs that cannot be directly corroborated by observable market data and that typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

See “Note 9—Fair Value Measurement of Assets and Liabilities” for additional information related to our fair value measurements.

Crypto asset safeguarding liability and corresponding safeguarding asset

See “Note 7—Other Financial Statement Details” for information related to our crypto asset safeguarding liability and corresponding safeguarding asset.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Concentrations of risk

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Our long-term notes receivable is derived from deferred proceeds associated with the sale of our U.S.

consumer credit receivables portfolio to Synchrony Bank in 2018.

consumer credit receivables portfolio to a partner institution in 2018.

As of December 31, 2022 and 2021, one customer accounted for 20 % and 25 % of net accounts receivables, respectively.

No customer accounted for more than 10% of net loans receivable as of December 31, 2022 and 2021.

At December 31, 2021 and 2020, one partner accounted for our long-term notes receivable balance, which represented 22 % and 28 % of other assets, respectively.

At December 31, 2022 and 2021, one partner institution accounted for our long-term notes receivable balance, which represented 18 % and 22 % of other assets, respectively.

During the years ended December 31, 2022, 2021, and 2020, no customer accounted for more than 10% of net revenues.

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See “Note 2—Revenue” for information related to our revenue recognition.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Advertising expense

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Stock-based compensation

We determine compensation expense associated with restricted stock units, performance based restricted stock units, and restricted stock awards based on the fair value of our common stock on the date of grant.

We determine compensation expense associated with restricted stock units, performance based restricted stock units, and restricted stock awards based on the estimated fair value of our common stock on the date of grant.

We determine compensation expense associated with stock options based on the estimated grant date fair value method using the Black-Scholes valuation model.

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When estimating forfeitures, we consider voluntary termination behavior of our employees as well as trends of actual forfeitures.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Foreign currency

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Gains and losses resulting from these translations are recorded as a component of accumulated other comprehensive income (loss) (“AOCI”).

Gains and losses from the remeasurement of foreign currency transactions into the functional currency are recognized as other income (expense), net in our consolidated statements of income.

Gains and losses from the remeasurement of foreign currency transactions into the functional currency are recognized as other income (expense), net in our consolidated statements of income (loss).

We account for income taxes using an asset and liability approach which requires the recognition of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the financial statements or tax returns.

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Other income (expense), net includes:

(i) interest income, which consists of interest earned on corporate cash and cash equivalents and short-term and long-term investments, (ii) interest expense, which consists of interest expense, fees, and amortization of debt discount on our long-term debt (including current portion) and credit facilities, (iii) realized and unrealized gains (losses) on strategic investments, which includes changes in fair value related to our marketable equity securities and observable price changes on our non-marketable equity securities, and (iv) other, which primarily includes foreign currency exchange gains and losses due to remeasurement of certain foreign currency denominated monetary assets and liabilities, and fair value changes on the derivative contracts not designated as hedging instruments.

(i) interest income, which consists of interest earned on corporate cash and cash equivalents and short-term and long-term investments, (ii) interest expense, which consists of interest expense, fees, and amortization of debt discount on our long-term debt (including current portion) and credit facilities, (iii) realized and unrealized gains (losses) on strategic investments, which includes changes in fair value related to our marketable equity securities and observable price changes and impairments on our non-marketable equity securities, and (iv) other, which primarily includes foreign currency exchange gains and losses due to remeasurement of certain foreign currency denominated monetary assets and liabilities, and fair value changes on the derivative contracts not designated as hedging instruments.

Recent accounting guidance

In March 2022, the Financial Accounting Standards Board (“FASB”) issued ASU 2022-02, Troubled Debt Restructurings (“TDRs”) and Vintage Disclosures (Topic 326):

Financial Instruments – Credit Losses .

This amended guidance will eliminate the accounting designation of a loan modification as a TDR, including eliminating the measurement guidance for TDRs.

The amendments also enhance existing disclosure requirements and introduce new requirements related to modifications of receivables due from borrowers experiencing financial difficulty.

Additionally, this guidance requires entities to disclose gross write-offs by year of origination for financing receivables, such as loans and interest receivable.

The amended guidance is effective for fiscal years beginning after December 15, 2022 and is required to be applied prospectively, except for the recognition and measurement of TDRs, which can be applied on a modified retrospective basis.

We have concluded that our financial statements were not materially impacted upon adoption.

We adopted this guidance effective January 1, 2023 on a prospective basis and will provide additional disclosures as required.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Recent accounting guidance

In 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting .

This amended guidance provides transition relief for the accounting impact of reference rate reform.

For a limited period, this guidance provides optional expedients and exceptions for applying GAAP to certain contract modifications, hedging relationships, and other transactions affected by a reference rate expected to be discontinued due to reference rate reform.

The amended guidance is effective through December 31, 2022.

Our exposure to London Interbank Offered Rate (“LIBOR”) is primarily limited to an insignificant portion of our available-for-sale debt securities and, accordingly, we do not expect reference rate reform to have a material impact on our consolidated financial statements.

Recently adopted accounting guidance

In March 2022, the SEC released Staff Accounting Bulletin No.

121 (“SAB 121”), which provides guidance for an entity to consider when it has obligations to safeguard customers’ crypto assets, whether directly or through an agent or another third party acting on its behalf.

The interpretive guidance requires a reporting entity to record a liability to reflect its obligation to safeguard the crypto assets held for its platform users with a corresponding safeguarding asset.

The crypto asset safeguarding liability and the corresponding safeguarding asset will be measured at the fair value of the crypto assets held for the platform users with the measurement of the safeguarding asset taking into account any potential loss events.

SAB 121 also requires disclosures related to the entity’s safeguarding obligations for crypto assets held for its platform users.

SAB 121 was effective in the first interim or annual financial statements ending after June 15, 2022 with retrospective application as of the beginning of the fiscal year.

We adopted this guidance for the quarter ended June 30, 2022 with retrospective application as of January 1, 2022.

As of June 30, 2022, we recorded $ 596 million for both the crypto asset safeguarding liability and corresponding safeguarding asset, which were classified as accrued expenses and other current liabilities and prepaid expenses and other current assets, respectively, on our condensed consolidated balance sheet.

For additional information, see “Note 7—Other Financial Statement Details.”

There are other new accounting pronouncements issued by the FASB that we have adopted or will adopt, as applicable.

We do not believe any of these accounting pronouncements have had, or will have, a material impact on our consolidated financial statements or disclosures.

We do not believe any of these new accounting pronouncements have had, or will have, a material impact on our consolidated financial statements or disclosures.

NOTE 2— REVENUE

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The volume of activity processed on our payments platform, which results in transaction revenue, is referred to as Total Payment Volume (“TPV”).

We earn additional fees on transactions where we perform currency conversion, when we enable cross-border transactions (i.e., transactions where the merchant and consumer are in different countries), to facilitate the instant transfer of funds for our customers from their PayPal or Venmo account to their debit card or bank account, to facilitate the purchase and sale of cryptocurrencies, and other miscellaneous fees.

We earn additional fees from merchants and consumers on transactions where we perform currency conversion, when we enable cross-border transactions (i.e., transactions where the merchant and consumer are in different countries), to facilitate the instant transfer of funds for our customers from their PayPal or Venmo account to their bank account or debit card, to facilitate the purchase and sale of cryptocurrencies, as contractual compensation from sellers that violate our contractual terms (for example, through fraud or counterfeiting), and other miscellaneous fees.

Our transaction revenues are also reduced by certain incentives provided to our customers.

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When we authorize a transaction, we become obligated to our customer to complete the payment transaction.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

We recognize fees charged to our customers primarily on a gross basis as transaction revenue when we are the principal in respect of completing a payment transaction.

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We are also responsible for providing customer support.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

To promote engagement and acquire new users on our platform, we may provide incentives to merchants and consumers in various forms including discounts on fees, rebates, rewards, and coupons.

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Incentives that are determined to be consideration payable to a customer or paid on behalf of a customer are recognized as a reduction of revenue.

Certain incentives paid to users that are not customers are classified as sales and marketing expense.

Certain incentives paid to users that are not our customers are classified as sales and marketing expense.

We provide merchants and consumers with protection programs for certain transactions completed on our payments platform.

These programs are intended to protect both merchants and consumers from loss primarily due to fraud and counterparty performance.

Our buyer protection program provides protection to consumers for qualifying purchases by reimbursing the consumer for the full amount of the purchase if the purchased item is not received or does not match the seller’s description.

Our seller protection programs provide protection to merchants against claims that a transaction was not authorized by the buyer or claims that a purchased item was not received by covering the seller for the full amount of the payment on eligible sales.

These protection programs do not provide a separate service to our customers and we estimate and record associated costs in transaction and credit losses during the period the payment transaction is completed.

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however, for some agreements, it may be necessary to estimate the transaction price using the expected value method.

In our partnership agreement with Synchrony, in addition to the revenue share we earn, we also recognized revenue for transition servicing activities which we performed on their behalf through the second quarter of 2019 using a relative selling price determined through the adjusted market assessment approach.

We record revenue earned in revenues from other value added services on a net basis when we are considered the agent with respect to processing transactions.

We also earn revenues from interest and fees earned primarily on our portfolio of loans receivable, and interest earned on certain assets underlying customer balances.

Revenue earned from other value added services is recorded on a net basis when we are considered the agent with respect to processing transactions.

We also earn revenues from interest and fees earned on our portfolio of loans receivable and interest earned on certain assets underlying customer balances.

Interest and fees earned on the portfolio of loans receivable are computed and recognized based on the effective interest method and are presented net of any required reserves and amortization of deferred origination costs.

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We determine operating segments based on how our chief operating decision maker (“CODM”) manages the business, makes operating decisions around the allocation of resources, and evaluates operating performance.

Our CODM is our Chief Executive Officer, who reviews our operating results on a consolidated basis.

Our CODM is our Chief Executive Officer, who regularly reviews our operating results on a consolidated basis.

We operate as one segment and have one reportable segment.

Based on the information provided to and reviewed by our CODM, we believe that the nature, amount, timing, and uncertainty of our revenue and cash flows and how they are affected by economic factors are most appropriately depicted through our primary geographical markets and type of revenue categories (transaction revenues and revenues from other value added services).

Based on the information provided to and reviewed by our CODM, we believe that the nature, amount, timing, and uncertainty of our revenue and cash flows and how they are affected by economic factors are most appropriately depicted through our primary geographical markets and types of revenue categories (transaction revenues and revenues from other value added services).

Revenues recorded within these categories are earned from similar products and services for which the nature of associated fees and the related revenue recognition models are substantially the same.

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(1) No single country included in the other countries category generated more than 10% of total revenue.

(2) Total net revenues include $ 425 million, $ 597 million, and $ 1.1 billion for the years ended December 31, 2021, 2020, and 2019, respectively, which do not represent revenues recognized in the scope of Accounting Standards Codification Topic 606, Revenue from contracts with customers.

Such revenues relate to interest, fees, and gains earned on loans and interest receivable, as well as hedging gains or losses, and interest earned on certain assets underlying customer balances.

Net revenues are attributed to the country in which the merchant is located, or in the case of a cross-border transaction, may be attributed to the country in which the consumer and the merchant respectively reside.

Revenues earned from other value added services are typically attributed to the country in which either the customer or partner reside.

NOTE 3— NET INCOME PER SHARE

Basic net income per share is computed by dividing net income for the period by the weighted average number of common shares outstanding during the period.

Diluted net income per share is computed by dividing net income for the period by the weighted average number of shares of common stock and potentially dilutive common stock outstanding for the period.

The dilutive effect of outstanding equity incentive awards is reflected in diluted net income per share by application of the treasury stock method.

The calculation of diluted net income per share excludes all anti-dilutive common shares.

The following table sets forth the computation of basic and diluted net income per share for the periods indicated:

(2) Total net revenues include $ 1.3 billion, $ 425 million, and $ 597 million for the years ended December 31, 2022, 2021, and 2020, respectively, which do not represent revenues recognized in the scope of Accounting Standards Codification Topic 606, Revenue from contracts with customers.

Such revenues relate to interest and fees earned on loans and interest receivable, as well as hedging gains or losses, and interest earned on certain assets underlying customer balances.

Net revenues are attributed to the country in which the party paying our PayPal fee is located.

NOTE 3— NET INCOME (LOSS) PER SHARE

Basic net income (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of common shares outstanding during the period.

Diluted net income (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of shares of common stock and potentially dilutive common stock outstanding for the period.

The dilutive effect of outstanding equity incentive awards is reflected in diluted net income (loss) per share by application of the treasury stock method.

The calculation of diluted net income (loss) per share excludes all anti-dilutive common shares.

During periods when we report net loss, diluted net loss per share is the same as basic net loss per share because the effects of potentially dilutive items would decrease the net loss per share.

The following table sets forth the computation of basic and diluted net income (loss) per share for the periods indicated:

Year Ended December 31,

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(In millions, except per share amounts)

Net income $ 4,169 $ 4,202 $ 2,459

Net income (loss) $ 2,419 $ 4,169 $ 4,202

Weighted average shares of common stock — basic

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1,158 1,186 1,187

Net income per share:

Net income (loss) per share:

Basic $ 2.10 $ 3.55 $ 3.58

Diluted $ 2.09 $ 3.52 $ 3.54

Common stock equivalents excluded from income per diluted share because their effect would have been anti-dilutive 2 1 2

Common stock equivalents excluded from net income (loss) per diluted share because their effect would have been anti-dilutive or potentially dilutive 13 2 1

PayPal Holdings, Inc.

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NOTE 4— BUSINESS COMBINATIONS

There were no acquisitions accounted for as business combinations or divestitures completed in 2022.

ACQUISITIONS COMPLETED IN 2021

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Paidy is a two-sided payments platform that primarily provides buy now, pay later solutions (installment credit offerings) in Japan.

With the acquisition of Paidy, we intend to expand our capabilities and relevance in Japan.

The following table summarizes the preliminary allocation of the purchase consideration to the fair value of the assets acquired and liabilities assumed:

With the acquisition of Paidy, we expanded our capabilities and relevance in Japan.

The following table summarizes the final allocation of the purchase consideration to the fair value of the assets acquired and liabilities assumed:

(In millions)

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Total purchase price $ 2,571

The intangible assets acquired consist primarily of merchant contracts, trade name/trademarks, and developed technology with estimated useful lives of three to seven years .

Contractual gross loans and interest receivables acquired were $ 216 million.

The intangible assets acquired consist primarily of merchant contracts, trade names/trademarks, and developed technology with estimated useful lives of three to seven years .

Contractual gross loans and interest receivable acquired were $ 216 million.

We expect to collect substantially all of these receivables.

The excess of the purchase consideration, including the fair value of our initial equity investment, over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill and is attributable to the workforce of Paidy and the synergies expected to arise from the acquisition, including continued customer acquisition.

We do not expect goodwill to be deductible for income tax purposes.

The allocation of the purchase price for this acquisition has been prepared on a preliminary basis and changes to the allocation to certain assets, liabilities, and tax estimates may occur as additional information becomes available.

The excess of the purchase consideration, including the fair value of our equity investment, over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill and is attributable to the workforce of Paidy and the synergies expected to arise from the acquisition, including continued customer acquisition.

Goodwill was not deductible for income tax purposes.

In connection with the acquisition, we issued restricted stock and restricted stock units with an approximate grant date fair value of $ 161 million, which represents post-business combination expense.

The equity granted is a combination of shares issued to certain former Paidy employees subject to a holdback arrangement and assumed Paidy employee grants, which vest over a period of up to approximately four years and are subject to continued employment.

The equity granted is a combination of shares issued to certain former Paidy employees subject to a holdback arrangement and assumed Paidy employee equity grants, which vest over a period of up to approximately four years subject to continued employment.

PayPal Holdings, Inc.

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The total purchase price for these acquisitions was $ 542 million, consisting primarily of cash consideration.

The allocation of purchase consideration resulted in approximately $ 90 million of technology, customer, and marketing related intangible assets with estimated useful lives ranging from approximately one to seven years , net assets of $ 15 million, and initial goodwill of approximately $ 437 million attributable to the workforce of the acquired companies and the synergies expected to arise from these acquisitions, including the integration of the acquired technology with our existing product offerings.

We do not expect goodwill to be deductible for income tax purposes.

The allocation of the purchase price for these acquisitions has been prepared on a preliminary basis and changes to the allocation to certain assets, liabilities, and tax estimates may occur as additional information becomes available.

The allocation of purchase consideration resulted in approximately $ 90 million of technology, customer, and marketing-related intangible assets with estimated useful lives ranging from approximately one to seven years , net assets of $ 17 million, and goodwill of approximately $ 435 million attributable to the workforce of the acquired companies and the synergies expected to arise from these acquisitions, including the integration of the acquired technology with our existing product offerings.

Goodwill was not considered deductible for income tax purposes.

ACQUISITIONS COMPLETED IN 2020

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We completed our acquisition of Honey Science Corporation (“Honey”) in January 2020 by acquiring all outstanding shares for total consideration of approximately $ 4.0 billion, consisting of approximately $ 3.6 billion in cash and approximately $ 400 million in assumed restricted stock, restricted stock units, and stock options, subject to vesting conditions.

We believe our acquisition of Honey will enhance our value proposition by allowing us to further simplify and personalize shopping experiences for consumers while driving conversion and increasing consumer engagement and sales for merchants.

Honey was acquired to enhance our value proposition by allowing us to further simplify and personalize shopping experiences for consumers while driving conversion and increasing consumer engagement and sales for merchants.

The following table summarizes the final allocation of the purchase consideration to the fair value of the assets acquired and liabilities assumed:

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In connection with the acquisition, we assumed restricted stock, restricted stock units, and options with an approximate grant date fair value of $ 400 million, which represents post-business combination expense.

The equity granted is a combination of shares issued to certain former Honey employees subject to a holdback arrangement and assumed Honey employee grants, which vest over a period of up to four years and are subject to continued employment.

ACQUISITIONS COMPLETED IN 2019

There were no acquisitions accounted for as business combinations or divestitures completed in 2019.

The equity granted was a combination of shares issued to certain former Honey employees subject to a holdback arrangement and assumed Honey employee grants, which vest over a period of up to four years and are subject to continued employment.

PayPal Holdings, Inc.

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Prior to acquisition, we held minority interests in certain of the companies we acquired in 2021.

We remeasured these investments immediately before the completion of the respective acquisitions at an acquisition-date fair value of $ 64 million, which resulted in a gain of $ 36 million recognized as other income (expense), net in our consolidated statements of income.

We remeasured these investments immediately before the completion of the respective acquisitions at a total acquisition-date fair value of $ 64 million, which resulted in an aggregate gain of $ 36 million recognized as other income (expense), net in our consolidated statements of income (loss).

The acquisition-date fair value was derived using the value paid less a control premium based on market analysis performed by a third party.

We included the financial results of the acquired businesses in our consolidated financial statements from the date of acquisition.

Revenues and expenses related to the acquisition and pro forma results of operations were not presented for the years ended December 31, 2021, 2020, and 2019 because the effects of these acquisitions were not material to our overall operations.

NOTE 5— GOODWILL AND INTANGIBLE ASSETS

The following table presents goodwill balances and adjustments to those balances for the years ended December 31, 2021 and 2020:

The following table presents goodwill balances and adjustments to those balances during the years ended December 31, 2022 and 2021:

December 31, 2020 Goodwill

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Total goodwill $ 9,135 2,355 ( 36 ) $ 11,454 — ( 245 ) $ 11,209

The goodwill acquired during 2021 and 2020 was attributable to the five acquisitions completed within 2021 and our acquisition of Honey in 2020, respectively, as described further in “Note 4—Business Combinations.” The adjustments to goodwill during 2021 and 2020 pertained to foreign currency translation adjustments.

The goodwill acquired during 2021 was attributable to the five acquisitions completed within 2021 as described in “Note 4—Business Combinations.” The adjustments to goodwill during 2022 and 2021 pertained primarily to foreign currency translation adjustments.

INTANGIBLE ASSETS

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Amortization expense for intangible assets was $ 471 million, $ 443 million, and $ 451 million for the years ended December 31, 2022, 2021, and 2020, respectively.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Expected future intangible asset amortization as of December 31, 2022 was as follows:

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Thereafter 50

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 6— LEASES

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We use these properties for executive and administrative offices, data centers, product development offices, customer services and operations centers, and warehouses.

While a majority of our lease agreements do not contain an explicit interest rate, we have certain lease agreements that are subject to changes based on the Consumer Price Index or another referenced index.

While a majority of our lease agreements do not contain an explicit interest rate, certain of our lease agreements are subject to changes based on the Consumer Price Index or another referenced index.

In the event of changes to the relevant index, lease liabilities are not remeasured and instead are treated as variable lease payments and recognized in the period in which the obligation for those payments is incurred.

The short-term lease exemption has been adopted for all leases with a duration of less than 12 months.

PayPal’s lease portfolio contains a small number of subleases.

PayPal’s lease portfolio includes a small number of subleases.

A sublease situation can arise when currently leased real estate space is available and is surplus to operational requirements.

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Operating cash flows from operating leases $ 172 $ 167 $ 159

ROU lease assets obtained in exchange for operating lease liabilities (1)

ROU lease assets obtained in exchange for new operating lease liabilities

$ 131 $ 124 $ 345

(1) Includes opening balance additions of $ 498 million for operating leases as a result of the adoption of the new lease accounting guidance effective January 1, 2019.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Other non-cash ROU lease asset activity $ ( 52 ) $ ( 21 ) $ ( 23 )

Supplemental balance sheet information related to leases was as follows:

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Operating ROU lease assets $ 574 $ 659

Other current operating lease liabilities 142 144

Current operating lease liabilities 151 142

Operating lease liabilities 569 620

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Weighted-average discount rate — operating leases

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Future minimum lease payments for our operating leases as of December 31, 2022 were as follows:

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In the first quarter of 2020, we entered into a sale-leaseback arrangement as the seller-lessee for a data center as the buyer-lessor obtained control of the facility.

We sold the data center and simultaneously entered into an operating lease agreement with the purchaser for the right to use the facility for eight years .

We sold the data center and simultaneously entered into an operating lease agreement with the purchaser for the right to use the facility for 8 years.

The Company received proceeds of approximately $ 119 million, net of selling costs, which resulted in a de minimis net gain on the sale transaction.

In the years ended December 31, 2021 and 2020, we incurred asset impairment charges of $ 26 million and $ 30 million, respectively, within restructuring and other charges on our consolidated statements of income.

The impairments included a reduction to our ROU lease assets in the amount of $ 21 million and $ 23 million, respectively, which were attributed to certain leased space we are no longer utilizing for our core business operations, a portion of which is being subleased.

As of December 31, 2021, we have additional operating leases, primarily for real estate and data centers, which will commence in 2022 with minimum lease payments aggregating to $ 15 million and lease terms ranging from three to nine years .

In the years ended December 31, 2022, 2021 and 2020, we incurred asset impairment charges of $ 81 million, $ 26 million, and $ 30 million, respectively, within restructuring and other charges on our consolidated statements of income (loss).

The impairments included a reduction to our ROU lease assets in the amount of $ 52 million, $ 21 million, and $ 23 million, respectively, which were attributed to certain leased space we are no longer utilizing for our business operations, a portion of which is being subleased.

As of December 31, 2022, we entered into an additional operating lease for real estate, which will commence in the second quarter of 2023 or later with minimum lease payments aggregating to $ 12 million and a lease term of 6 years.

NOTE 7— OTHER FINANCIAL STATEMENT DETAILS

CRYPTO ASSET SAFEGUARDING LIABILITY AND CORRESPONDING SAFEGUARDING ASSET

We allow our customers in certain markets to buy, hold, sell, receive, and send certain cryptocurrencies as well as use the proceeds from sales of cryptocurrencies to pay for purchases at checkout.

These cryptocurrencies consist of Bitcoin, Ethereum, Bitcoin Cash, and Litecoin (collectively, “our customers’ crypto assets”).

We engage third parties, which are licensed trust companies, to provide certain custodial services, including holding our customers’ cryptographic key information, securing our customers’ crypto assets, and protecting them from loss or theft, including indemnification against certain types of losses such as theft.

Our third-party custodian holds the crypto assets in a custodial account in PayPal’s name for the benefit of PayPal’s customers.

We maintain the internal recordkeeping of our customers’ crypto assets, including the amount and type of crypto asset owned by each of our customers in that custodial account.

Given that we currently utilize one third-party custodian, there is concentration risk in the event the custodian is not able to perform in accordance with our agreement.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 7— OTHER FINANCIAL STATEMENT DETAILS

Due to the unique risks associated with cryptocurrencies, including technological, legal, and regulatory risks, we recognize a crypto asset safeguarding liability to reflect our obligation to safeguard the crypto assets held for the benefit of our customers, which is recorded in accrued expenses and other current liabilities on our consolidated balance sheet.

We also recognize a corresponding safeguarding asset which is recorded in prepaid expenses and other current assets on our consolidated balance sheet.

The crypto asset safeguarding liability and corresponding safeguarding asset are measured and recorded at fair value on a recurring basis using prices available in the market we determine to be the principal market at the balance sheet date.

The corresponding safeguarding asset may be adjusted for loss events, as applicable.

As of December 31, 2022, the Company has not incurred any safeguarding loss events, and therefore, the crypto asset safeguarding liability and corresponding safeguarding asset were recorded at the same value.

The following table summarizes the significant crypto assets we hold for the benefit of our customers and the crypto asset safeguarding liability and corresponding safeguarding asset as of December 31, 2022 (in millions):

Bitcoin $ 291

Crypto asset safeguarding liability $ 604

Crypto asset safeguarding asset $ 604

PROPERTY AND EQUIPMENT, NET

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Depreciation and amortization expense was $ 846 million, $ 822 million, and $ 738 million for the years ended December 31, 2022, 2021, and 2020, respectively.

Non-cash investing activities involving property and equipment included in net changes to accounts payable as reflected in the consolidated statements of cash flows was a decrease of $ 27 million in 2021, an increase of $ 17 million in 2020, and a decrease of $ 42 million in 2019.

Net changes in accounts payable on our consolidated statements of cash flows includes non-cash investing activities associated with property and equipment;

the impact of which was a decrease of $ 36 million and $ 27 million in 2022 and 2021, respectively, and an increase of $ 17 million in 2020.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Geographical information

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and other countries are based upon the country in which the asset is located or owned.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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Net Investment

Hedge CTA Gain Estimated Tax

Hedges CTA Gains (Losses) Estimated Tax

(Expense) Benefit Total

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Other comprehensive income (loss) before reclassifications 374 ( 499 ) ( 305 ) ( 25 ) 130 ( 325 )

Amount of loss reclassified from AOCI ( 190 ) — — — — ( 190 )

Amount of gain reclassified from AOCI 462 5 — — — 467

Net current period other comprehensive income (loss) ( 88 ) ( 504 ) ( 305 ) ( 25 ) 130 ( 792 )

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The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the year ended December 31, 2021:

Unrealized Gains (Losses) on Cash Flow Hedges Unrealized Gains on Investments

Unrealized Gains (Losses) on Cash Flow Hedges Unrealized Gains (Losses) on Investments

Net Investment

Hedge CTA Gain (Loss) Estimated Tax

Benefit Total

Hedges CTA Gains (Losses) Estimated Tax

(Expense) Benefit Total

(In millions)

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Other comprehensive income (loss) before reclassifications 332 ( 98 ) ( 72 ) — ( 4 ) 158

Amount of gain reclassified from AOCI 20 — — — — 20

Amount of loss reclassified from AOCI ( 190 ) — — — — ( 190 )

Net current period other comprehensive income (loss) 522 ( 98 ) ( 72 ) — ( 4 ) 348

Ending balance $ 199 $ ( 87 ) $ ( 270 ) $ 24 $ ( 2 ) $ ( 136 )

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the year ended December 31, 2020:

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Net Investment

Hedge CTA Loss Estimated Tax

(Expense) Benefit Total

Hedges CTA Gains (Losses) Estimated Tax (Expense)

Benefit Total

(In millions)

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Other comprehensive income (loss) before reclassifications ( 309 ) 9 ( 48 ) 55 2 ( 291 )

Amount of gain (loss) reclassified from AOCI 238 ( 1 ) — — — 237

Amount of gain reclassified from AOCI 20 — — — — 20

Net current period other comprehensive income (loss) ( 329 ) 9 ( 48 ) 55 2 ( 311 )

Ending balance $ ( 323 ) $ 11 $ ( 198 ) $ 24 $ 2 $ ( 484 )

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table provides details about reclassifications out of AOCI for the periods presented below:

Details about AOCI Components Amount of (Losses) Gains Reclassified from AOCI

Affected Line Item in the Statements of Income

Details about AOCI Components Amount of Gains (Losses) Reclassified from AOCI

Affected Line Item in the Statements of Income (Loss)

Year Ended December 31,

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(In millions)

(Losses) gains on cash flow hedges — foreign exchange contracts

Gains (losses) on cash flow hedges — foreign currency exchange contracts

$ 462 $ ( 190 ) $ 20 Net revenues

Unrealized losses on investments — — ( 1 ) Other income (expense), net

Unrealized gains (losses) on investments 5 — — Other income (expense), net

467 ( 190 ) 20 Income before income taxes

— — — Income tax expense

Total reclassifications for the period $ ( 190 ) $ 20 $ 237 Net income

— — — Income tax expense (benefit)

Total reclassifications for the period $ 467 $ ( 190 ) $ 20 Net income (loss)

OTHER INCOME (EXPENSE), NET

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Interest expense ( 304 ) ( 232 ) ( 209 )

Net gains on strategic investments 46 1,914 208

Net gains (losses) on strategic investments ( 304 ) 46 1,914

Other ( 37 ) ( 34 ) ( 17 )

21 unchanged sentences

Available-for-sale debt securities 2,817 3,545

Restricted cash — 7

Strategic investments 2,146 3,207

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Municipal securities 410 — ( 3 ) 407

Commercial paper 3,702 1 ( 14 ) 3,689

Short-term investments:

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Asset-backed securities 415 — ( 9 ) 406

Commercial paper 324 — — 324

Long-term investments:

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Corporate debt securities 3,377 — ( 15 ) 3,362

Asset-backed securities 1,552 — ( 3 ) 1,549

Municipal securities 535 — — 535

3 unchanged sentences

Corporate debt securities 2,285 — — 2,285

Asset-backed securities 278 — ( 1 ) 277

Long-term investments:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As of December 31, 2021 and 2020, the gross unrealized losses and estimated fair value of our available-for-sale debt securities included within funds receivable and customer accounts, short-term investments, and long-term investments for which an allowance for credit losses has not been deemed necessary in the current period, aggregated by length of time those individual securities have been in a continuous loss position, was as follows:

As of December 31, 2022 and 2021, the gross unrealized losses and estimated fair value of our available-for-sale debt securities included within funds receivable and customer accounts, short-term investments, and long-term investments for which an allowance for credit losses was not deemed necessary in the current period, aggregated by the length of time those individual securities have been in a continuous loss position, was as follows:

December 31, 2022 (1)

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Municipal securities 264 ( 3 ) 50 — 314 ( 3 )

Commercial paper 3,079 ( 14 ) — — 3,079 ( 14 )

Short-term investments:

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Asset-backed securities 175 ( 2 ) 217 ( 7 ) 392 ( 9 )

Commercial paper 224 — — — 224 —

Long-term investments:

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(1) “—” Denotes gross unrealized loss or fair value of less than $1 million in a given position.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2021 (1)

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Corporate debt securities 1,816 ( 15 ) — — 1,816 ( 15 )

Asset-backed securities 1,302 ( 3 ) — — 1,302 ( 3 )

Municipal securities 50 — — — 50 —

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Corporate debt securities 336 — — — 336 —

Asset-backed securities 273 ( 1 ) — — 273 ( 1 )

Long-term investments:

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(1) “—” Denotes gross unrealized loss or fair value of less than $1 million in a given position.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Unrealized losses have not been recognized into income as we neither intend to sell, nor anticipate that it is more likely than not that we will be required to sell, the securities before recovery of their amortized cost basis.

The decline in fair value is due primarily to changes in market conditions, rather than credit losses.

The decline in fair value is due primarily to changes in market interest rates, rather than credit losses.

We will continue to monitor the performance of the investment portfolio and assess whether impairment due to expected credit losses has occurred.

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Our strategic investments include marketable equity securities, which are publicly traded, and non-marketable equity securities, which are primarily investments in privately held companies.

Our marketable equity securities have readily determinable fair values and are recorded as long-term investments on our consolidated balance sheets at fair value with changes in fair value recorded in other income (expense), net on our consolidated statements of income.

Marketable equity securities totaled $ 1.9 billion and $ 2.4 billion as of December 31, 2021 and 2020, respectively.

Marketable equity securities totaled $ 323 million and $ 1.9 billion as of December 31, 2022 and 2021, respectively, including the impact of the sale of marketable equity securities during the year ended December 31, 2022.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Our non-marketable equity securities are recorded in long-term investments on our consolidated balance sheets.

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The remaining non-marketable equity securities do not have a readily determinable fair value and we measure these equity investments at cost minus impairment, if any, and adjust for changes resulting from observable price changes in orderly transactions for an identical or similar investment in the same issuer.

The carrying value of our non-marketable equity securities totaled $ 1.3 billion and $ 789 million as of December 31, 2021 and 2020, respectively.

The carrying value of our non-marketable equity securities totaled $ 1.8 billion and $ 1.3 billion as of December 31, 2022 and 2021, respectively.

Measurement Alternative adjustments

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(1) Net additions include purchases, reductions due to sales of securities, and reclassifications when Measurement Alternative is subsequently elected or no longer applies.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table summarizes the cumulative gross unrealized gains and cumulative gross unrealized losses and impairment related to non-marketable equity securities accounted for under the Measurement Alternative for investments held at December 31, 2021 and 2020:

The following table summarizes the cumulative gross unrealized gains and cumulative gross unrealized losses and impairment related to non-marketable equity securities accounted for under the Measurement Alternative, held at December 31, 2022 and 2021, respectively:

2022 December 31,

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Cumulative gross unrealized gains $ 1,137 $ 733

Cumulative gross unrealized losses and impairment $ ( 27 ) $ ( 27 )

Cumulative gross unrealized losses and impairments $ ( 131 ) $ ( 27 )

Unrealized gains (losses) on strategic investments, excluding those accounted for using the equity method

The following table summarizes the net unrealized gains (losses) on marketable and non-marketable equity securities, excluding those accounted for using the equity method, held at December 31, 2021 and 2020:

Year Ended December 31,

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Asset-backed securities 406 — 406

Commercial paper 324 — 324

Total short-term investments 2,593 — 2,593

6 unchanged sentences

Municipal securities 407 — 407

Commercial paper 3,689 — 3,689

Total funds receivable and customer accounts 17,541 — 17,541

Derivatives 244 — 244

Crypto asset safeguarding asset 604 — 604

Long-term investments (2),(4) :

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Derivatives $ 298 $ — $ 298

Crypto asset safeguarding liability 604 — 604

Total financial liabilities $ 902 $ — $ 902

(1) Excludes cash of $ 6.8 billion not measured and recorded at fair value.

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Corporate debt securities 2,285 — 2,285

Asset-backed securities 277 — 277

Total short-term investments 3,604 — 3,604

4 unchanged sentences

Corporate debt securities 3,439 — 3,439

Asset-backed securities 1,549 — 1,549

Municipal securities 535 — 535

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(1) Excludes cash of $ 4.8 billion not measured and recorded at fair value.

(2) Excludes restricted cash of $ 88 million and time deposits of $ 1.6 billion not measured and recorded at fair value.

(2) Excludes restricted cash of $ 109 million and time deposits of $ 635 million not measured and recorded at fair value.

(3) Excludes cash, time deposits, and funds receivable of $ 17.2 billion underlying funds receivable and customer accounts not measured and recorded at fair value.

(4) Excludes non-marketable equity securities of $ 789 million measured using the Measurement Alternative or equity method accounting.

(4) Excludes non-marketable equity securities of $ 1.3 billion measured using the Measurement Alternative or equity method accounting.

Our marketable equity securities are valued using quoted prices for identical assets in active markets (Level 1).

There are no active markets for our crypto asset safeguarding liability or the corresponding safeguarding asset.

Accordingly, we have valued the asset and liability using quoted prices on the active exchange that has been identified as the principal market for the underlying crypto assets (Level 2).

All other financial assets and liabilities are valued using quoted prices for identical instruments in less active markets, readily available pricing sources for comparable instruments, or models using market observable inputs (Level 2).

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Certain foreign currency contracts designated as cash flow hedges may have a duration of up to 18 months.

As of December 31, 2021 and 2020, we did not have any assets or liabilities requiring measurement at fair value without observable market values that would require a high level of judgment to determine fair value (Level 3).

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As of December 31, 2022 and 2021, we did not have any assets or liabilities requiring measurement at fair value on a recurring basis without observable market values that would require a high level of judgment to determine fair value (Level 3).

We elect to account for available-for-sale debt securities denominated in currencies other than the functional currency of our subsidiaries under the fair value option.

Election of the fair value option allows us to recognize any gains and losses from fair value changes on such investments in other income (expense), net on the consolidated statements of income to significantly reduce the accounting asymmetry that would otherwise arise when recognizing the corresponding foreign exchange gains and losses relating to customer liabilities.

Election of the fair value option allows us to recognize any gains and losses from fair value changes on such investments in other income (expense), net on the consolidated statements of income (loss) to significantly reduce the accounting asymmetry that would otherwise arise when recognizing the corresponding foreign exchange gains and losses relating to customer liabilities.

The following table summarizes the estimated fair value of our available-for-sale debt securities under the fair value option as of December 31, 2022 and 2021:

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Short-term investments $ — $ ( 30 )

FINANCIAL ASSETS MEASURED AND RECORDED AT FAIR VALUE ON A NON-RECURRING BASIS

The following tables summarize our financial assets held as of December 31, 2021 and 2020 for which a non-recurring fair value measurement was recorded during the years ended December 31, 2021 and 2020, respectively:

December 31, 2021 Significant Other Observable Inputs (Level 2)

ASSETS MEASURED AND RECORDED AT FAIR VALUE ON A NON-RECURRING BASIS

The following tables summarize our assets held as of December 31, 2022 and 2021 for which a non-recurring fair value measurement was recorded during the years ended December 31, 2022 and 2021, respectively:

December 31, 2022 Significant Other Observable Inputs (Level 2) Significant Other Unobservable Inputs (Level 3)

(In millions)

Non-marketable equity investments measured using the Measurement Alternative (1)

Non-marketable equity securities measured using the Measurement Alternative (1)

$ 987 $ 589 $ 398

Other assets (2)

Total $ 1,152 $ 754 $ 398

(1) Excludes non-marketable equity investments of $ 657 million accounted for under the Measurement Alternative for which no observable price changes occurred during the year ended December 31, 2021.

(2) Consists of ROU lease assets recorded at fair value pursuant to impairment charges that occurred in 2021.

(1) Excludes non-marketable equity securities of $ 700 million accounted for under the Measurement Alternative for which no observable price changes occurred during the year ended December 31, 2022.

(2) Consists of ROU lease assets recorded at fair value pursuant to impairment charges that occurred during the year ended December 31, 2022.

See “Note 6—Leases” for additional information.

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(In millions)

Non-marketable equity investments measured using the Measurement Alternative (1)

Non-marketable equity securities measured using the Measurement Alternative (1)

Other assets (2)

(1) Excludes non-marketable equity investments of $ 444 million accounted for under the Measurement Alternative for which no observable price changes occurred during the year ended December 31, 2020.

(2) Consists of ROU lease assets recorded at fair value pursuant to impairment charges that occurred in 2020.

Total $ 697 $ 697

(1) Excludes non-marketable equity securities of $ 657 million accounted for under the Measurement Alternative for which no observable price changes occurred during the year ended December 31, 2021.

(2) Consists of ROU lease assets recorded at fair value pursuant to impairment charges that occurred during the year ended December 31, 2021.

See “Note 6—Leases” for additional information.

We measure the non-marketable equity investments accounted for under the Measurement Alternative at cost minus impairment, if any, adjusted for observable price changes in orderly transactions for an identical or similar investment in the same issuer.

Impairment losses on ROU lease assets related to office operating leases are calculated initially using estimated rental income per square foot derived from observable market data.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

We measure the non-marketable equity securities accounted for under the Measurement Alternative at cost minus impairment, if any, adjusted for observable price changes in orderly transactions for an identical or similar investment in the same issuer.

Non-marketable equity securities that have been remeasured during the period based on observable price changes are classified within Level 2 in the fair value hierarchy because we estimate the fair value based on valuation methods which only include significant inputs that are observable, such as the observable transaction price at the transaction date.

The fair value of non-marketable equity securities that have been remeasured due to impairment are classified within Level 3 as we estimate fair value using significant unobservable inputs such as discount rates, forecasted cash flows, and market data of comparable companies, among others.

We evaluate ROU assets related to leases for indicators of impairment whenever events or changes in circumstances indicate that the carrying amount of an ROU asset may not be recoverable.

Impairment losses on ROU lease assets related to office operating leases are calculated initially using estimated rental income per square foot derived from observable market data, and the impaired asset is classified within Level 2 in the fair value hierarchy.

FINANCIAL ASSETS AND LIABILITIES NOT MEASURED AND RECORDED AT FAIR VALUE

Our financial instruments, including cash, restricted cash, time deposits, loans and interest receivable, net, certain customer accounts, notes receivable, and long-term debt related to borrowings on our credit facilities are carried at amortized cost, which approximates their fair value.

Our financial instruments, including cash, restricted cash, time deposits, loans and interest receivable, net, certain customer accounts, and long-term debt related to borrowings on our credit facilities are carried at amortized cost, which approximates their fair value.

Our notes receivable had a carrying value of approximately $ 441 million and fair value of approximately $ 396 million as of December 31, 2022.

Our notes receivable had a carrying value of approximately $ 381 million and fair value of approximately $ 424 million as of December 31, 2021.

Our long-term debt (including current portion) in the form of fixed rate notes had a carrying value of approximately $ 10.3 billion and fair value of approximately $ 9.5 billion as of December 31, 2022.

10 unchanged sentences

We do not use any derivative instruments for trading or speculative purposes.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Cash flow hedges

We have significant international revenues and costs denominated in foreign currencies, which subjects us to foreign currency risk.

We have significant international revenues and costs denominated in foreign currencies, which subjects us to foreign currency exchange risk.

We have a foreign currency exposure management program in which we designate certain foreign currency exchange contracts, generally with maturities of 18 months or less, to reduce the volatility of cash flows primarily related to forecasted revenues denominated in foreign currencies.

The objective of the foreign currency exchange contracts is to help mitigate the risk that the U.S.

The objective of these foreign currency exchange contracts is to help mitigate the risk that the U.S.

dollar-equivalent cash flows are adversely affected by changes in the applicable U.S.

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Gains and losses on derivatives held after we discontinue our cash flow hedges and on derivative instruments that are not designated as cash flow hedges are recorded in the same financial statement line item to which the derivative relates.

Net investment hedge

We used a forward foreign currency exchange contract, which matured in 2020, to reduce the foreign currency exchange risk related to our investment in a foreign subsidiary.

This derivative was designated as a net investment hedge and accordingly, the derivative’s gains and losses were recorded in AOCI as part of foreign currency translation.

The accumulated gains and losses associated with this instrument will remain in AOCI until the foreign subsidiary is sold or substantially liquidated, at which point they will be reclassified into earnings.

The cash flow associated with the derivative designated as a net investment hedge is classified in cash flows from investing activities on our consolidated statements of cash flows.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

During the years ended December 31, 2020 and 2019, we recognized $ 55 million in unrealized gains and $ 31 million in unrealized losses, respectively, on the foreign currency exchange contract designated as a net investment hedge.

As of December 31, 2021, we did no t have a net investment hedge.

We have no t reclassified any gains or losses related to the net investment hedge from AOCI into earnings during any of the periods presented.

Net investment hedges

We use forward foreign currency exchange contracts to reduce the foreign currency exchange risk related to our investment in certain foreign subsidiaries.

These derivatives are designated as net investment hedges and accordingly, the gains and losses on the portion of the derivatives included in the assessment of hedge effectiveness is recorded in AOCI as part of foreign currency translation.

We exclude forward points from the assessment of hedge effectiveness and recognize them in other income (expense), net on a straight-line basis over the life of the hedge.

The accumulated gains and losses associated with these instruments will remain in AOCI until the foreign subsidiaries are sold or substantially liquidated, at which point they will be reclassified into earnings.

The cash flows associated with derivatives designated as a net investment hedge are classified in cash flows from investing activities on our consolidated statements of cash flows.

We have no t reclassified any gains or losses related to net investment hedges from AOCI into earnings during any of the periods presented.

Foreign currency exchange contracts not designated as hedging instruments

3 unchanged sentences

The cash flows associated with our non-designated derivatives used to hedge foreign currency denominated monetary assets and liabilities are classified in cash flows from operating activities on our consolidated statements of cash flows.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FAIR VALUE OF DERIVATIVE CONTRACTS

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Total derivative liabilities $ 298 $ 130

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MASTER NETTING AGREEMENTS - RIGHTS OF SET-OFF

Under master netting agreements with respective counterparties to our foreign currency exchange contracts, subject to applicable requirements, we are allowed to net settle transactions of the same type with a single net amount payable by one party to the other.

Under master netting agreements with certain counterparties to our foreign currency exchange contracts, subject to applicable requirements, we are allowed to net settle transactions of the same type with a single net amount payable by one party to the other.

However, we have elected to present the derivative assets and derivative liabilities on a gross basis on our consolidated balance sheets.

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We have entered into collateral security arrangements that provide for collateral to be received or posted when the net fair value of certain financial instruments fluctuates from contractually established thresholds.

The following table provides the collateral exchanged:

The following table provides the collateral exchanged posted and received:

2022 December 31,

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(2) Obligation to return counterparty cash collateral related to our derivative assets recognized in other current liabilities on our consolidated balance sheets.

EFFECT OF DERIVATIVE CONTRACTS ON CONSOLIDATED STATEMENTS OF INCOME

The following table provides the location in the consolidated statements of income and amount of recognized gains or losses related to our derivative instruments designated as hedging instruments:

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

EFFECT OF DERIVATIVE CONTRACTS ON CONSOLIDATED FINANCIAL STATEMENTS

The following table provides the location in the consolidated statements of income (loss) and amount of recognized gains or losses related to our derivative instruments:

Year Ended December 31,

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(In millions)

Total amounts presented in the consolidated statements of income in which the effects of cash flow hedges are recorded $ 25,371 $ 21,454 $ 17,772

(Losses) gains on foreign exchange contracts designated as cash flow hedges reclassified from AOCI $ ( 190 ) $ 20 $ 238

The following table provides the location in the consolidated statements of income and amount of recognized gains or losses related to our derivative instruments not designated as hedging instruments:

Year Ended December 31,

Net revenues Other income (expense), net Net revenues Other income (expense), net Net revenues Other income (expense), net

Total amounts presented in the consolidated statements of income (loss) in which the effects of derivatives are recorded $ 27,518 $ ( 471 ) $ 25,371 $ ( 163 ) $ 21,454 $ 1,776

Gains (losses) on derivatives in cash flow hedging relationship:

Amount of gains (losses) on foreign exchange contracts reclassified from AOCI 462 — ( 190 ) — 20 —

Gains on derivatives in net investment hedging relationship:

Amount of gains on foreign exchange contracts excluded from the assessment of effectiveness

Gains (losses) on derivatives not designated as hedging instruments:

Amount of gains (losses) on foreign exchange contracts — 118 — 144 — ( 110 )

Amount of losses on equity derivative contracts (1)

— ( 174 ) — — — ( 64 )

(In millions)

Gains (losses) on foreign exchange contracts recognized in other income (expense), net $ 144 $ ( 110 ) $ 24

Losses on equity derivative contracts recognized in other income (expense), net (1)

Total gains (losses) recognized from contracts not designated as hedging instruments $ 144 $ ( 174 ) $ 24

(1) During the year ended December 31, 2020, equity derivative contracts were entered into and matured which related to the sale of a portion of a strategic investment.

Total gains (losses) $ 462 $ 28 $ ( 190 ) $ 144 $ 20 $ ( 174 )

(1) During the years ended December 31, 2022 and December 31, 2020, equity derivative contracts were entered into and matured which related to the sale of marketable equity securities related to a strategic investment.

The cash flows associated with the equity derivative contracts were classified in cash flows from investing activities on our consolidated statements of cash flows.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table provides the amount of pre-tax unrealized gains or losses included in the assessment of hedge effectiveness related to our derivative instruments designated as hedging instruments that are recognized in other comprehensive income (loss):

Year Ended December 31,

2022 2021 2020

(In millions)

Unrealized gains (losses) on foreign exchange contracts designated as cash flow hedges $ 374 $ 332 $ ( 309 )

Unrealized (losses) gains on foreign exchange contracts designated as net investment hedges ( 25 ) — 55

Total unrealized gains (losses) recognized from derivative contracts designated as hedging instruments in the consolidated statements of comprehensive income (loss) $ 349 $ 332 $ ( 254 )

NOTIONAL AMOUNTS OF DERIVATIVE CONTRACTS

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Our revolving credit product consists of PayPal Credit in the U.K.

Once a consumer is approved for credit, it is made available to them as a funding source.

Additionally, we offer installment credit products (known as buy now, pay later) at the time of checkout in various locations including the U.S., Europe, Australia, and Japan.

The majority of the installment loans allow consumers to pay for a product over periods of 12 months or less.

As of December 31, 2021 and 2020, the outstanding balance of consumer receivables, which consisted of revolving and installment loans and interest receivable, was $ 3.8 billion and $ 2.2 billion, respectively.

Once a consumer is approved for credit, it is made available to them as a funding source in their PayPal wallet.

Additionally, we offer installment credit products at the time of checkout in various markets, including the U.S., several markets across Europe, Australia, and Japan.

The majority of the installment loans allow consumers to pay for purchases over periods of 12 months or less.

Beginning in June 2022, we purchase receivables related to interest-bearing installment loans extended to U.S.

consumers by a partner institution and are responsible for servicing functions related to that portfolio.

During the year ended December 31, 2022, we purchased approximately $ 381 million in consumer receivables.

As of December 31, 2022 and 2021, the outstanding balance of consumer receivables, which consisted of revolving and installment loans and interest receivable, was $ 5.9 billion and $ 3.8 billion, respectively, net of the participation interest sold to the partner institution of $ 17 million and nil , respectively.

See “Note 1—Overview and Summary of Significant Accounting Policies” for additional information on this participation arrangement.

We closely monitor the credit quality of our consumer receivables to evaluate and manage our related exposure to credit risk.

Credit risk management begins with initial underwriting and continues through to full repayment of a loan.

To assess a consumer who requests a loan, we use, among other indicators, internally developed risk models using detailed information from external sources, such as credit bureaus where available, and internal historical experience, including the consumer’s prior repayment history with our credit products where available.

We use delinquency status and trends to assist in making new and ongoing credit decisions, to adjust our models, to plan our collection practices and strategies, and in determining our allowance for consumer loans and interest receivable.

Credit risk management begins with initial underwriting and continues through the full repayment of a loan.

To assess a consumer who requests a loan, we use, among other indicators, internally developed risk models using detailed information from external sources, such as credit bureaus where available, and internal data, including the consumer’s prior repayment history with our credit products where available.

We use delinquency status and trends to assist in making (or, for interest-bearing installment loans in the U.S., to assist the partner institution in making) new and ongoing credit decisions, to adjust our models, to plan our collection practices and strategies, and in determining our allowance for consumer loans and interest receivable.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following tables present the delinquency status of consumer loans and interest receivable by year of origination.

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(In millions, except percentages)

Installment Loans Amortized Cost Basis

Revolving Loans

Amortized Cost Basis 2021 2020 2019 2018 2017 Total Percent

Amortized Cost Basis Installment Loans Amortized Cost Basis

2022 2021 2020 2019 2018 Total Percent

Current $ 1,850 $ 3,726 $ 123 $ — $ — $ — $ 5,699 97.1 %

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(1) Excludes receivables from other consumer credit products of $ 11 million at December 31, 2022.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2021

(In millions, except percentages)

Installment Loans Amortized Cost Basis

Revolving Loans

Amortized Cost Basis 2020 2019 2018 2017 2016 Total Percent

Amortized Cost Basis Installment Loans Amortized Cost Basis

2021 2020 2019 2018 2017 Total Percent

Current $ 1,790 $ 1,939 $ 3 $ — $ — $ — $ 3,732 97.0 %

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90 - 179 Days 27 28 1 — — — 56 1.5 %

Total (1), (2)

$ 1,847 $ 1,996 $ 4 $ — $ — $ — $ 3,847 100 %

(1) Excludes receivables from other consumer credit products of $ 44 million at December 31, 2021.

(2) Balances at December 31, 2020 include the impact of payment holidays provided primarily in the second quarter of 2020 by the Company to certain consumers as a part of our COVID-19 payment relief initiatives.

The following table summarizes the activity in the allowance for consumer loans and interest receivable for the years ended December 31, 2022 and 2021:

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Beginning balance $ 243 $ 43 $ 286 $ 299 $ 53 $ 352

Adjustment for adoption of CECL — — — 24 4 28

Provisions 292 15 307 20 10 30

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( 18 ) ( 4 ) ( 22 ) 12 — 12

12 — 12 23 3 26

Ending balance $ 322 $ 25 $ 347 $ 243 $ 43 $ 286

(1) Excludes allowances from other consumer credit products of $ 3 million and $ 4 million at December 31, 2022 and 2021, respectively.

(2) The recoveries for the year ended December 31, 2020 were primarily related to fully charged-off U.S.

consumer credit receivables not subject to the sale to Synchrony Bank.

(2) Includes amounts related to foreign currency remeasurement and, for the year ended December 31, 2021, initial allowance for purchased credit deteriorated (“PCD”) loans acquired during the period.

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As such, we recorded current expected credit losses on the PCD loans.

The provision for the year ended December 31, 2021 was primarily attributable to originations in the consumer portfolio, partially offset by improvements in the credit quality of the consumer portfolio and current and projected macroeconomic conditions.

Qualitative adjustments were made to account for limitations in our current expected credit loss models due to continued volatility with respect to macroeconomic conditions and uncertainty around the impact the continuation of COVID-19 may have on consumers ability to make payments on amounts outstanding.

The increase in charge-offs for the year ended December 31, 2021 compared to 2020 was due to growth in the consumer portfolio driven by the expansion of our installment products.

The provision for current expected credit losses relating to our consumer loans receivable portfolio is recognized in transaction and credit losses on our consolidated statements of income.

The provision for interest receivable for interest earned on our consumer loans receivable portfolio is recognized in revenues from other value added services as a reduction to revenue.

Loans receivable continue to accrue interest until they are charged off.

We charge off consumer receivable balances in the month in which a customer’s balance becomes 180 days past the billing date or contractual repayment date.

Bankrupt accounts are charged off within 60 days after receipt of notification of bankruptcy.

Charge-offs that are recovered are recorded as a reduction to our allowance for loans and interest receivable.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The provision for the year ended December 31, 2022 was primarily attributable to growth in the consumer receivable portfolio.

Qualitative adjustments were made to account for limitations in our current expected credit loss models due to uncertainty with respect to macroeconomic conditions and the financial health of our borrowers.

The increase in charge-offs for the year ended December 31, 2022 compared to the same period in the prior year was due to the expansion of our short-term installment products.

The provision for current expected credit losses relating to our consumer receivable portfolio is recognized in transaction and credit losses on our consolidated statements of income (loss).

The provision for interest receivable for interest earned on our consumer receivable portfolio is recognized in revenues from other value added services as a reduction to revenue.

Loans receivable continue to accrue interest until they are charged off.

We charge off consumer receivable balances in the month in which a customer’s balance becomes 180 days past the billing date or contractual repayment date, except for the U.S.

consumer interest-bearing installment receivables, which are charged off 120 days past the contractual repayment date.

Bankrupt accounts are charged off within 60 days after receipt of notification of bankruptcy.

Charge-offs are recorded as a reduction to our allowance for loans and interest receivable and subsequent recoveries, if any, are recorded as an increase to the allowance for loans and interest receivable.

MERCHANT RECEIVABLES

We offer access to merchant finance products for certain small and medium-sized businesses through the PPWC and PPBL products, which we collectively refer to as the merchant finance offerings.

We offer access to merchant finance products for certain small and medium-sized businesses through our PPWC and PPBL products, which we collectively refer to as our merchant finance offerings.

We purchase receivables related to credit extended to U.S.

merchants by WebBank and are responsible for servicing functions related to that portfolio.

We purchased approximately $ 1.8 billion in credit receivables in both the years ended December 31, 2021 and 2020.

The total outstanding balance in our pool of merchant loans, advances, and interest and fees receivable was $ 1.4 billion for both December 31, 2021 and 2020, net of the participation interest sold to WebBank of $ 63 million and $ 59 million, respectively.

merchants by a partner institution and are responsible for servicing functions related to that portfolio.

During the years ended December 31, 2022 and 2021, we purchased approximately $ 3.2 billion and $ 1.8 billion in merchant receivables, respectively.

As of December 31, 2022 and 2021, the total outstanding balance in our pool of merchant loans, advances, and interest and fees receivable was $ 2.1 billion and $ 1.4 billion, respectively, net of the participation interest sold to the partner institution of $ 97 million and $ 63 million, respectively.

See “Note 1—Overview and Summary of Significant Accounting Policies” for additional information on this participation arrangement.

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The fixed interest or fee is amortized into revenues from other value added services based on the amount repaid over the repayment period.

We estimate the repayment period for PPWC based on the merchant’s payment processing history with PayPal, where available.

We estimate the repayment period for PPWC based on the merchant’s payment processing history with PayPal.

For PPWC, there is a general requirement that at least 10 % of the original amount of the loan or advance plus the fixed fee must be repaid every 90 days.

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Primary drivers of the models include the merchant’s annual payment volume, payment processing history with PayPal, prior repayment history with PayPal’s credit products where available, information sourced from consumer and business credit bureau reports, and other information obtained during the application process.

We use delinquency status and trends to assist in making (or, in the U.S., to assist WebBank in making) ongoing credit decisions, to adjust our internal models, to plan our collection strategies, and in determining our allowance for these loans and advances.

We use delinquency status and trends to assist in making (or, in the U.S., to assist the partner institution in making) ongoing credit decisions, to adjust our internal models, to plan our collection strategies, and in determining our allowance for these loans, advances, and interest and fees receivable.

PayPal Holdings, Inc.

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Merchant receivables delinquency and allowance

The following tables present the delinquency status of the merchant loans, advances, and interest and fees receivable by year of origination.

The following tables present the delinquency status of merchant loans, advances, and interest and fees receivable by year of origination.

The amounts are based on the number of days past the expected or contractual repayment date for amounts outstanding.

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$ 1,979 $ 42 $ 69 $ 54 $ 2 $ 2,146 100 %

(1) Balances include the impact of modification programs offered by the Company as a part of our COVID-19 payment relief initiatives (as discussed further below).

December 31, 2021

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$ 1,144 $ 164 $ 132 $ 6 $ — $ 1,446 100 %

(1) Balances include the impact of payment holidays provided primarily during the second quarter of 2020 and modification programs offered by the Company as a part of our COVID-19 payment relief initiatives (as discussed further below).

(1) Balances include the impact of modification programs offered by the Company as a part of our novel coronavirus (“COVID-19”) pandemic payment relief initiatives (as discussed further below).

The following table summarizes the activity in the allowance for merchant loans, advances, and interest and fees receivable, for the years ended December 31, 2022 and 2021:

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Beginning balance $ 192 $ 9 $ 201 $ 440 $ 43 $ 483

Adjustment for adoption of CECL — — — 165 17 182

Provisions 109 18 127 ( 116 ) ( 22 ) ( 138 )

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Ending balance $ 230 $ 18 $ 248 $ 192 $ 9 $ 201

The benefit for the year ended December 31, 2021 was primarily attributable to improvements in current and projected macroeconomic conditions, and to a lesser extent, improvements in the credit quality of our merchant portfolio.

This was partially offset by provisions for originations during the period and the impact of qualitative adjustments to account for varying degrees of expected merchant performance in the current environment and in future periods due to macroeconomic conditions and uncertainty around the impact the continuation of COVID-19 may have on merchants ability to make payments on amounts outstanding and uncertainty around the effectiveness of loan modification programs made available to merchants, as described further below.

The provision for the year ended December 31, 2022 was primarily attributable to originations in the merchant portfolio and a slight deterioration in credit quality of loans outstanding.

Qualitative adjustments were made to account for uncertainty around the effectiveness of loan modification programs made available to merchants in previous years, as described further below.

The decrease in the charge-offs for the year ended December 31, 2022 compared to the prior year was due to the charge-off of accounts in 2021 that experienced financial difficulties as a result of the COVID-19 pandemic.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The decrease in the charge-offs for the year ended December 31, 2021 compared to 2020 was due to improved portfolio performance.

Additionally, charge offs increased in the year ended December 31, 2020 due to accounts that experienced financial difficulties as a result of the COVID-19 pandemic.

For merchant loans and advances, the determination of delinquency is based on the current expected or contractual repayment period of the loan or advance and fixed interest or fee payment as compared to the original expected or contractual repayment period.

We charge off the receivables outstanding under our PPBL product when the repayments are 180 days past the contractual repayment date.

We charge off the receivables outstanding under our PPWC product when the repayments are 180 days past our expectation of repayments and the merchant has not made a payment in the last 60 days, or when the repayments are 360 days past due regardless of whether the merchant has made a payment within the last 60 days.

Bankrupt accounts are charged off within 60 days of receiving notification of bankruptcy.

The provision for credit losses on merchant loans and advances is recognized in transaction and credit losses, and the provision for interest and fees receivable is recognized as a reduction of deferred revenue in accrued expenses and other current liabilities on our consolidated balance sheets.

Charge-offs that are recovered are recorded as a reduction to our allowance for loans and interest receivable.

The provision for credit losses on merchant loans and advances is recognized in transaction and credit losses on our consolidated statements of income (loss), and the provision for interest and fees receivable is recognized as a reduction of deferred revenue in accrued expenses and other current liabilities on our consolidated balance sheets.

Troubled debt restructurings

In instances where a merchant is able to demonstrate that it is experiencing financial difficulty, there may be a modification of the loan or advance and the related interest or fee receivable for which it is probable that, without modification, we will be unable to collect all amounts due.

These modifications are intended to provide merchants with financial relief, and help enable us to mitigate losses.

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Alternatively, certain loans and advances have been modified to replace the initial fixed fee structure at the time the loan or advance was extended with a fixed annual percentage rate applied over the amended remaining term, which will continue to accrue interest at the fixed rate until the earlier of maturity or charge-off.

These modifications had a de minimis impact on our consolidated statements of income in the years ended December 31, 2021 and 2020.

These modifications had a de minimis impact on our consolidated statements of income (loss) in the years ended December 31, 2022 and 2021.

Allowances for TDRs are assessed separately from other loans and advances within our portfolio and are determined by estimating current expected credit losses utilizing the modified term and interest rate assumptions.

1 unchanged sentence

Further, we may include qualitative adjustments that incorporate incremental information not captured in the quantitative estimates of our current expected credit losses.

The following tables show the merchant loans and interest receivables which have been modified as TDRs in the years ended December 31, 2021 and 2020:

Year Ended December 31, 2021

Number of Accounts

(in thousands) Outstanding Balances (1)

(in millions)

Weighted Average Payment Term Extensions

Loans and interest receivable 3 $ 45 36

During the year ended December 31, 2022, merchant loans, advances, and interest and fees receivables which have been modified as TDRs were de minimis.

The following table shows merchant loans, advances and interest and fees receivables which were modified as TDRs in the year ended December 31, 2021:

Year Ended December 31, 2021

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(1) Balances are as of modification date.

A merchant is considered in payment default after a modification when the merchant’s payment is 60 days past their expected or contractual repayment date.

For loans that have defaulted after being modified, the increased estimate of current expected credit loss is factored into overall expected credit losses.

In the years ended December 31, 2021 and 2020, the amount of merchant loans and interest receivables classified as TDRs that have subsequently defaulted on payments was de minimis.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

A merchant is considered in payment default after a modification when the merchant’s payment becomes 60 days past their expected or contractual repayment date.

For loans or advances that have defaulted after being modified, the increased estimate of current expected credit loss is factored into overall expected credit losses.

In the years ended December 31, 2022 and 2021, the amount of merchant loans, advances, and interest and fees receivables classified as TDRs that have subsequently defaulted on payments was de minimis.

NOTE 12— DEBT

FIXED RATE NOTES

On May 18, 2020, we issued fixed rate notes with varying maturity dates for an aggregate principal amount of $ 4.0 billion.

In May 2022, we issued fixed rate notes with varying maturity dates for an aggregate principal amount of $ 3.0 billion.

Interest on these notes is payable on June 1 and December 1 of each year, beginning on December 1, 2022.

On September 26, 2019, we issued fixed rate notes with varying maturity dates for an aggregate principal amount of $ 5.0 billion.

Interest on these notes is payable in arrears semiannually (payable March 26 and September 26 for the notes due in 2022 and payable April 1 and October 1 for the remaining notes).

The notes issued from the May 2020 and September 2019 debt issuances are senior unsecured obligations and are collectively referred to as the “Notes.” We may redeem these Notes in whole, at any time, or in part, from time to time, prior to maturity, at their redemption prices.

In May 2020, we issued fixed rate notes with varying maturity dates for an aggregate principal amount of $ 4.0 billion.

Interest on these notes is payable on June 1 and December 1 of each year, beginning on December 1, 2020.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In September 2019, we issued fixed rate notes with varying maturity dates for an aggregate principal amount of $ 5.0 billion.

Interest on these notes is payable in arrears semiannually (payable on April 1 and October 1).

The notes issued from the May 2022, May 2020, and September 2019 debt issuances are senior unsecured obligations and are collectively referred to as the “Notes.” We may redeem the Notes in whole, at any time, or in part, from time to time, prior to maturity, at their redemption prices.

Upon the occurrence of both a change of control of the Company and a downgrade of the Notes below an investment grade rating, we will be required to offer to repurchase each series of Notes at a price equal to 101 % of the then outstanding principal amounts, plus accrued and unpaid interest.

The Notes are subject to covenants, including limitations on our ability to create liens on our assets, enter into sale and leaseback transactions, and merge or consolidate with another entity, in each case subject to certain exceptions, limitations, and qualifications.

Proceeds from the issuance of these Notes may be used for general corporate purposes, which may include funding the repayment or redemption of outstanding debt, share repurchases, ongoing operations, capital expenditures, and possible acquisitions of businesses, assets, or strategic investments.

As of both December 31, 2021 and 2020, we had an outstanding aggregate principal amount of $ 9.0 billion related to the Notes.

Proceeds from the issuance of these Notes may be used for general corporate purposes, which may include funding the repayment or redemption of outstanding debt, share repurchases, ongoing operations, capital expenditures, acquisitions of businesses, assets, or strategic investments.

In May 2022, we repurchased certain Notes under the September 2019 and May 2020 debt issuances prior to maturity through tender offers.

In addition, in June 2022, we redeemed the outstanding balance of the notes maturing in September 2022 through a make-whole redemption.

We repurchased and redeemed $ 1.6 billion of outstanding Notes, as described above, which resulted in de minimis debt extinguishment net gains that were recorded as interest expense within other income (expense), net on our consolidated statements of income (loss).

As of December 31, 2022 and 2021, we had an outstanding aggregate principal amount of $ 10.4 billion and $ 9.0 billion, respectively, related to the Notes.

The following table summarizes the Notes:

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6/1/2050 3.33 % 1,000 1,000

May 2022 debt issuance of $ 3.0 billion:

Fixed-rate 3.900 % notes

6/1/2027 4.06 % 500 —

Fixed-rate 4.400 % notes

6/1/2032 4.53 % 1,000 —

Fixed-rate 5.050 % notes

6/1/2052 5.14 % 1,000 —

Fixed-rate 5.250 % notes

6/1/2062 5.34 % 500 —

Total term debt $ 10,418 $ 9,000

Unamortized premium (discount) and issuance costs, net ( 74 ) ( 50 )

current portion of long-term debt (1)

Total carrying amount of long-term debt $ 7,951 $ 8,939

(1) The current portion of long-term debt is included within accrued expenses and other current liabilities on our consolidated balance sheets.

current portion of term debt (1)

( 418 ) ( 999 )

Total carrying amount of term debt $ 9,926 $ 7,951

(1) The current portion of term debt is included within accrued expenses and other current liabilities on our consolidated balance sheets.

PayPal Holdings, Inc.

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The effective interest rates for the Notes include interest on the Notes, amortization of debt issuance costs, and amortization of the debt discount.

The interest expense recorded for the Notes, including amortization of the debt discount and debt issuance costs, was $ 224 million, $ 190 million, and $ 35 million for the years ended December 31, 2021, 2020, and 2019, respectively.

The interest expense recorded for the Notes, including amortization of the debt discount, debt issuance costs, and debt extinguishment net gains, was $ 290 million, $ 224 million, and $ 190 million for the years ended December 31, 2022, 2021, and 2020, respectively.

CREDIT FACILITIES

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We are obligated to pay interest on loans under the Credit Agreement and other customary fees for a credit facility of this size and type, including an upfront fee and an unused commitment fee based on our debt rating.

Loans under the Credit Agreement bear interest at either (i) the applicable eurocurrency rate plus a margin (based on our public debt ratings) ranging from 0.875 percent to 1.375 percent, (ii) the applicable overnight rate plus a margin (based on our public debt ratings) ranging from 0.875 percent to 1.375 percent, (iii) a formula based on the prime rate, the federal funds effective rate, or LIBOR plus a margin (based on our public debt ratings) ranging from zero to 0.375 percent, or (iv) a formula based on the Euro Short-Term Rate (“ESTR”) or the Sterling Overnight Index Average (“SONIA”) rate plus a margin (based on our public debt ratings) ranging from 0.875 to 1.375 percent.

Loans under the Credit Agreement bear interest at either (i) the applicable eurocurrency rate plus a margin (based on our public debt ratings) ranging from 0.875 % to 1.375 %, (ii) the applicable overnight rate plus a margin (based on our public debt ratings) ranging from 0.875 % to 1.375 %, (iii) a formula based on the prime rate, the federal funds effective rate, or London Interbank Offered Rate plus a margin (based on our public debt ratings) ranging from zero to 0.375 %, or (iv) a formula based on the Euro Short-Term Rate (“ESTR”) or the Sterling Overnight Index Average (“SONIA”) rate plus a margin (based on our public debt ratings) ranging from 0.875 % to 1.375 %.

In January 2022, an amendment to the agreement was signed which provides for the additional borrowing rate option of utilizing SONIA or ESTR rates.

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The total interest expense and fees we recorded related to the Credit Agreement was approximately $ 16 million for the year ended December 31, 2020.

364 -day revolving credit facility

In September 2019, we entered into a 364 -Day credit agreement that provided for an unsecured $ 1.0 billion 364 -Day revolving credit facility, which terminated in September 2020.

Amended credit agreement

In the fourth quarter of 2018, we entered into an amended credit agreement (“Amended Credit Agreement”), which amended and restated in its entirety the previous agreement entered into in 2017.

The Amended Credit Agreement provided for an unsecured $ 5.0 billion, 364 -day delayed-draw term loan credit facility, which was available in up to four separate borrowings until April 6, 2019.

As of December 31, 2018, $ 2.0 billion was outstanding under the Amended Credit Agreement.

On April 5, 2019, the Company drew down an additional $ 500 million under the Amended Credit Agreement.

On September 26, 2019, the Amended Credit Agreement was terminated and we repaid $ 2.5 billion of borrowings outstanding under that agreement.

The total interest expense and fees we recorded related to the Amended Credit Agreement was $ 69 million for the year ended December 31, 2019.

Paidy credit agreement

In February 2022, we entered into a credit agreement (the “Paidy Credit Agreement”) with Paidy as co-borrower, which provides for an unsecured revolving credit facility of ¥ 60.0 billion.

In September 2022, the Paidy Credit Agreement was modified to increase the borrowing capacity by ¥ 30.0 billion for a total borrowing capacity of ¥ 90.0 billion (approximately $ 686 million as of December 31, 2022.) Borrowings under the Paidy Credit Agreement are for use by Paidy for working capital, capital expenditures, and other permitted purposes.

Loans under the Paidy Credit Agreement bear interest at the Tokyo Interbank Offered Rate plus a margin (based on our public debt rating) ranging from 0.40 % to 0.60 %.

The Paidy Credit Agreement will terminate and all amounts owed thereunder will be due and payable in February 2027, unless the commitments are terminated earlier.

The Paidy Credit Agreement contains customary representations, warranties, affirmative and negative covenants, including a financial covenant, events of default, and indemnification provisions in favor of the lenders.

The negative covenants include restrictions regarding the incurrence of liens and subsidiary indebtedness, in each case subject to certain exceptions.

The financial covenant requires us to meet a quarterly financial test with respect to a maximum consolidated leverage ratio.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Paidy revolving credit facility

In October 2021, we assumed a credit agreement through our acquisition of Paidy (the “Paidy Credit Agreement”).

The Paidy Credit Agreement provides for a secured revolving credit facility of approximately $ 198 million.

Borrowings under the Paidy Credit Agreement must be used to fund the origination of loan receivables.

We are obligated to pay interest on loans under the Paidy Credit Agreement.

Loans under the Paidy Credit Agreement bear interest at JPY LIBOR plus a margin of either 2.00 percent or 4.25 percent (based on the loan receivable).

The Paidy Credit Agreement will terminate and all amounts owed thereunder will be due and payable in October 2024, unless the commitments are terminated earlier.

The Paidy Credit Agreement contains representations, warranties, affirmative and negative covenants, which require us to meet a quarterly financial test with respect to certain liquidity measures and a maximum leverage ratio.

As of December 31, 2021, approximately $ 98 million was outstanding under the Paidy Credit Agreement, which was recorded in long-term debt on our consolidated balance sheet.

Accordingly, at December 31, 2021, approximately $ 100 million of borrowing capacity was available for the purposes permitted by the Paidy Credit Agreement, subject to customary conditions to borrowing.

The total interest expense and fees we recorded related to the Paidy Credit Agreement were de minimis for the year ended December 31, 2021.

In the year ended December 31, 2022, ¥ 64.3 billion (approximately $ 491 million) was drawn down under the Paidy Credit Agreement, which was recorded in long-term debt on our consolidated balance sheet.

Accordingly, at December 31, 2022, ¥ 25.7 billion (approximately $ 195 million) of borrowing capacity was available for the purposes permitted by the Paidy Credit Agreement, subject to customary conditions to borrowing.

During the year ended December 31, 2022, the total interest expense and fees we recorded related to the Paidy Credit Agreement were de minimis.

Prior credit agreement

In October 2021, we assumed a credit agreement through our acquisition of Paidy (the “Prior Credit Agreement”), which provided for a secured revolving credit facility of ¥ 22.8 billion (approximately $ 198 million at acquisition).

As of December 31, 2021, ¥ 11.3 billion (approximately $ 98 million) was outstanding under the Prior Credit Agreement, which was recorded in long-term debt on our consolidated balance sheet.

In the first quarter of 2022, we terminated the Prior Credit Agreement and repaid all outstanding borrowings.

The total interest expense and fees we recorded related to the Prior Credit Agreement were de minimis for the year ended December 31, 2022.

Other available facilities

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NOTE 13— COMMITMENTS AND CONTINGENCIES

As of December 31, 2021 and 2020, approximately $ 4.1 billion and $ 3.0 billion, respectively, of unused credit was available to PayPal Credit account holders.

Substantially all of our PayPal Credit account holders with unused credit are in the U.K.

While this amount represents the total unused credit available, we have not experienced, and do not anticipate, that all of our PayPal Credit account holders will access their entire available credit at any given point in time.

As of December 31, 2022 and 2021, approximately $ 4.9 billion and $ 4.1 billion, respectively, of unused credit was available to PayPal Credit account holders in the U.K.

While this amount represents the total unused credit available, we have not experienced, and do not anticipate, that all our PayPal Credit account holders will access their entire available credit at any given point in time.

In addition, the individual lines of credit that make up this unused credit are subject to periodic review and termination based on, among other things, account usage and customer creditworthiness.

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Regulatory proceedings

We are required to comply with U.S.

economic and trade sanctions administered by the U.S.

Department of the Treasury’s Office of Foreign Assets Control (“OFAC”).

In March 2015, we reached a settlement with OFAC regarding possible violations arising from our sanctions compliance practices between 2009 and 2013, prior to the implementation of our real-time transaction scanning program.

Subsequently, we have self-reported additional transactions that were inadvertently processed but subsequently identified as possible violations, and we have received new subpoenas from OFAC seeking additional information about certain of these transactions.

Such self-reported transactions could result in claims or actions against us, including litigation, injunctions, damage awards, fines or penalties, or require us to change our business practices in a manner that could result in a material loss, require significant management time, result in the diversion of significant operational resources, or otherwise harm our business.

We routinely report to the U.S.

Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) on payments we have rejected or blocked pursuant to legal requirements under OFAC sanctions regulations.

Between January 2013 and January 2022, we voluntarily disclosed to OFAC transactions that were inadvertently processed and identified as possible violations of OFAC sanctions regulations and responded to subpoenas and information requests related to certain of these transactions.

In January 2023, OFAC notified us that it had completed its review of these matters and closed them with the issuance of a cautionary letter with no monetary penalties or sanctions.

PayPal Australia Pty Limited (“PPAU”) self-reported a potential violation to the Australian Transaction Reports and Analysis Centre (“AUSTRAC”) on May 22, 2019.

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In the event an adverse outcome arises from any associated enforcement proceeding, or other further matter initiated by AUSTRAC, including in relation to AUSTRAC’s determination of reportable IFTIs, then this could result in enforceable undertakings, injunctions, damage awards, fines or penalties, or require us to change our business practices in a manner that could result in a material loss, require significant management time, result in the diversion of significant operational resources, or otherwise harm our business.

We have received Civil Investigative Demands (“CIDs”) from the Consumer Financial Protection Bureau (“CFPB”) related to Venmo’s unauthorized funds transfers and collections processes, and related matters, including treatment of consumers who request payments but accidentally designate an unintended recipient.

The CIDs request the production of documents and answers to written questions.

We are cooperating with the CFPB in connection with these CIDs.

We have received a CID from the CFPB related to the marketing and use of PayPal Credit in connection with certain merchants that provide educational services (the “CFPB PayPal Credit Matter”).

The CID requests the production of documents, written reports, and answers to written questions.

We are cooperating with the CFPB in connection with this CID.

We previously received a CID from the CFPB related to the marketing and use of PayPal Credit in connection with certain merchants that provide educational services (the “CFPB PayPal Credit Matter”).

The CID requested the production of documents, written reports, and answers to written questions.

We have been informed by the CFPB that this matter has been formally closed without action.

We are responding to subpoenas and requests for information received from the U.S.

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We are cooperating with the SEC Enforcement Division in connection with this investigation.

In February 2022, we received a CID from the Federal Trade Commission (“FTC”) related to PayPal’s practices relating to commercial customers that submit charges on behalf of other merchants or sellers, and related activities.

The CID requests the production of documents and answers to written questions.

We are cooperating with the FTC in connection with this CID.

In January 2023, we received notice of an administrative proceeding and a related request for information from the German Federal Cartel Office (“FCO”) related to terms in PayPal (Europe) S.à.r.l.

et Cie, S.C.A.’s contractual terms with merchants in Germany prohibiting surcharging and requiring parity presentation of PayPal relative to other payment methods.

We are cooperating with the FCO in connection with this proceeding.

Legal proceedings

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21-cv-06468, was filed in the U.S.

District Court for the Northern District of California (the “Securities Action”).

The Securities Action asserts claims relating to our disclosure of the CFPB PayPal Credit Matter and the SEC Debit Card Program Matter in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021.

The Securities Action purports to be brought on behalf of purchasers of the Company’s stock between February 9, 2017 and July 28, 2021 (the “Class Period”), and asserts claims for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 against the Company, its Chief Executive Officer, and Chief Financial Officer.

District Court for the Northern District of California (the “Kang Securities Action”).

The Kang Securities Action asserts claims relating to our disclosure of the CFPB PayPal Credit Matter and the SEC Debit Card Program Matter in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021.

The Kang Securities Action purports to be brought on behalf of purchasers of the Company’s stock between February 9, 2017 and July 28, 2021 (the “Class Period”), and asserts claims for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 against the Company, its Chief Executive Officer, and former Chief Financial Officer.

The complaint alleges that certain public statements made by the Company during the Class Period were rendered materially false and misleading (which, allegedly, caused the Company’s stock to trade at artificially inflated prices) by the defendants’ failure to disclose that, among other things, PayPal’s business practices with respect to PayPal Credit and regarding interchange rates paid to its bank partner related to its bank-issued co-branded debit cards were non-compliant with applicable laws and/or regulations.

The Securities Action seeks unspecified compensatory damages on behalf of the putative class members.

The Kang Securities Action seeks unspecified compensatory damages on behalf of the putative class members.

On November 2, 2021, the court appointed a Lead Plaintiff, and on January 25, 2022, the Lead Plaintiff filed an amended complaint.

The amended complaint alleges a class period between April 27, 2016 and July 28, 2021 (the “Amended Class Period”), and in addition to the Company, its Chief Executive Officer, and Chief Financial Officer, also names other Company executives as defendants.

The amended complaint alleges a class period between April 27, 2016 and July 28, 2021 (the “Amended Class Period”), and in addition to the Company, its Chief Executive Officer, and former Chief Financial Officer, also names other Company executives as defendants.

The amended complaint alleges that various statements made by the defendants during the Amended Class Period were rendered materially false and misleading, in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, by PayPal’s alleged violations of the 2015 consent order with the CFPB, federal consumer financial laws, and Regulation II.

Defendants’ motion to dismiss the amended complaint is due on March 28, 2022.

On August 8, 2022, the court granted Defendants’ motion to dismiss the amended complaint in its entirety, and granted Lead Plaintiff’s request for leave to file a further amended complaint.

On September 16, 2022, Lead Plaintiff filed a Second Amended Complaint (the “SAC”), which asserts the same claims against the same Defendants based on the same alleged conduct as the prior complaint.

Defendants moved to dismiss the SAC on November 3, 2022, and briefing is ongoing.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

On December 16, 2021 and January 19, 2022, two related putative shareholder derivative actions captioned Pang v.

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22-cv-00370, respectively, were filed in the U.S.

District Court for the Northern District of California (the “Derivative Actions”), purportedly on behalf of the Company.

The Derivative Actions are based on the same alleged facts and circumstances as the Securities Action, and name certain of our officers, including our Chief Executive Officer and Chief Financial Officer, and members of our Board of Directors, as defendants.

District Court for the Northern District of California (the “California Derivative Actions”), purportedly on behalf of the Company.

On August 2, 2022, a related putative shareholder derivative action captioned Jefferson v.

Daniel Schulman, et al., No.

2022-0684, was filed in the Court of Chancery for the State of Delaware (the “Delaware Derivative Action,” and collectively with the California Derivative Actions, the “Derivative Actions”), purportedly on behalf of the Company.

The Derivative Actions are based on the same alleged facts and circumstances as the Kang Securities Action, and name certain of our officers, including our Chief Executive Officer and former Chief Financial Officer, and members of our Board of Directors, as defendants.

The Derivative Actions allege claims for breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, waste of corporate assets, and violations of the Securities Exchange Act of 1934, and seek to recover damages on behalf of the Company.

On February 1, 2022, the court entered an order consolidating the Derivative Actions and staying them until all motions to dismiss in the Securities Action are resolved.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

On February 1, 2022, the court entered an order consolidating the two California Derivative Actions and staying them until all motions to dismiss in the Kang Securities Action are resolved.

On October 4, 2022, a putative securities class action captioned Defined Benefit Plan of the Mid-Jersey Trucking Industry and Teamsters Local 701 Pension and Annuity Fund v.

PayPal Holdings, Inc., et al., Case No.

22-cv-5864, was filed in the U.S.

District Court for the District of New Jersey.

On January 11, 2023, the Court appointed Caisse de dépôt et placement du Québec as lead plaintiff and renamed the action In re PayPal Holdings, Inc.

Securities Litigation (“PPH Securities Action”).

The PPH Securities Action asserts claims relating to our public statements with respect to net new active accounts (“NNA”) results and guidance, and the detection of illegitimately created accounts.

The PPH Securities Action purports to be brought on behalf of purchasers of the Company’s stock between February 3, 2021 and February 1, 2022 (the “Class Period”), and asserts claims for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 against the Company, its Chief Executive Officer, and former Chief Financial Officer.

The complaint alleges that certain public statements made by the Company during the Class Period were rendered materially false and misleading (which, allegedly, caused the Company’s stock to trade at artificially inflated prices) by the defendants’ failure to disclose that, among other things, the Company’s incentive campaigns were susceptible to fraud and led to the creation of illegitimate accounts, which allegedly affected the Company’s NNA results and guidance.

The PPH Securities Action seeks unspecified compensatory damages on behalf of the putative class members.

On November 2, 2022, a putative shareholder derivative action captioned Shah v.

Daniel Schulman, et al., Case No.

22-cv-1445, was filed in the U.S.

District Court for the District of Delaware (the “Shah Action”), purportedly on behalf of the Company.

The Shah Action is based on the same alleged facts and circumstances as the PPH Securities Action, and names certain of our officers, including our Chief Executive Officer and former Chief Financial Officer, and members of our Board of Directors, as defendants.

The Shah Action alleges claims for breach of fiduciary duty, aiding and abetting breach of fiduciary duty, unjust enrichment, waste of corporate assets, and violations of the Securities Exchange Act of 1934, and seeks to recover damages on behalf of the Company.

General matters

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Intellectual property claims, whether meritorious or not, are time-consuming and costly to defend and resolve, could require expensive changes in our methods of doing business, or could require us to enter into costly royalty or licensing agreements on unfavorable terms or make substantial payments to settle claims or to satisfy damages awarded by courts.

From time to time, we are involved in other disputes or regulatory inquiries that arise in the ordinary course of business, including suits by our customers (individually or as class actions) alleging, among other things, improper disclosure of our prices, rules, or policies, that our practices, prices, rules, policies, or customer/user agreements violate applicable law, or that we have acted unfairly and/or not acted in conformity with such prices, rules, policies, or agreements.

In addition to these types of disputes and regulatory inquiries, our operations are also subject to regulatory and/or legal review and/or challenges that may reflect the increasing global regulatory focus to which the payments industry is subject and, when taken as a whole with other regulatory and legislative action, such actions could result in the imposition of costly new compliance burdens on our business and customers and may lead to increased costs and decreased transaction volume and revenue.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

From time to time, we are involved in other disputes or regulatory inquiries that arise in the ordinary course of business, including suits by our customers (individually or as class actions) or regulators alleging, among other things, improper disclosure of our prices, rules, or policies, that our practices, prices, rules, policies, or customer/user agreements violate applicable law, or that we have acted unfairly or not acted in conformity with such prices, rules, policies, or agreements.

In addition to these types of disputes and regulatory inquiries, our operations are also subject to regulatory and legal review and challenges that may reflect the increasing global regulatory focus to which the payments industry is subject and, when taken as a whole with other regulatory and legislative action, such actions could result in the imposition of costly new compliance burdens on our business and customers and may lead to increased costs and decreased transaction volume and revenue.

Further, the number and significance of these disputes and inquiries are increasing as our business has grown and expanded in scale and scope, including the number of active accounts and payments transactions on our platform, the range and increasing complexity of the products and services that we offer, and our geographical operations.

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Under these contracts, we generally indemnify, hold harmless, and agree to reimburse the indemnified party for losses suffered or incurred by the indemnified party in connection with claims by any third party with respect to our domain names, trademarks, logos, and other branding elements to the extent that such marks are related to the subject agreement.

We have provided an indemnity for other types of third-party claims, which are indemnities related primarily to intellectual property rights, confidentiality, willful misconduct, data privacy obligations, and certain breach of contract claims.

We have provided an indemnity for other types of third-party claims, which may include indemnities related to intellectual property rights, confidentiality, willful misconduct, data privacy obligations, and certain breach of contract claims, among others.

We have also provided an indemnity to our payments processors in the event of card association fines against the processor arising out of conduct by us or our customers.

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Loans made under this program are funded by an independent chartered financial institution that we partner with.

We receive a fee for providing services in connection with these loans and retain operational risk related to those activities.

We receive a fee for providing services in connection with these loans and retain operational and audit risk related to those activities.

We have agreed, under certain circumstances, to indemnify the chartered financial institution and its assignee of a portion of these loans in connection with the services provided for loans made under this program.

To date, no significant costs have been incurred, either individually or collectively, in connection with our indemnification provisions.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

OFF-BALANCE SHEET ARRANGEMENTS

As of December 31, 2022 and 2021, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures, or capital resources.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

PROTECTION PROGRAMS

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These programs are intended to protect both merchants and consumers from loss primarily due to fraud and counterparty performance.

Our buyer protection program provides protection to consumers for qualifying purchases by reimbursing the consumer for the full amount of the purchase if a purchased item does not arrive or does not match the seller’s description.

Our Purchase Protection Program provides protection to consumers for qualifying purchases by reimbursing the consumer for the full amount of the purchase if a purchased item does not arrive or does not match the seller’s description.

Our Seller Protection Programs provide protection to merchants against claims that a transaction was not authorized by the buyer or claims that an item was not received by covering the seller for the full amount of the payment on eligible sales.

Additionally, in some instances we provide protection for cryptocurrencies held in PayPal accounts in case of loss directly resulting from service provider insolvency or in the event the service provider’s private keys are compromised.

These protection programs are considered assurance-type warranties under applicable accounting standards for which we estimate and record associated costs in transaction and credit losses during the period the payment transaction is completed.

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This program became effective in the first quarter of 2020 upon completion of the April 2017 stock repurchase program.

In June 2022, our Board of Directors authorized an additional stock repurchase program that provides for the repurchase of up to $ 15 billion of our common stock, with no expiration from the date of authorization.

Our stock repurchase programs are intended to offset the impact of dilution from our equity compensation programs and, subject to market conditions and other factors, may also be used to make opportunistic repurchases of our common stock to reduce outstanding share count.

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These shares were purchased in the open market under our stock repurchase program authorized in July 2018.

As of December 31, 2022, a total of approximately $ 861 million and $ 15.0 billion remained available for future repurchases of our common stock under our July 2018 and June 2022 stock repurchase programs, respectively.

During the year ended December 31, 2021, we repurchased approximately 15 million shares of our common stock for approximately $ 3.4 billion at an average cost of $ 219.75 .

These shares were purchased in the open market under our stock repurchase program authorized in July 2018.

As of December 31, 2021, a total of approximately $ 5.1 billion remained available for future repurchases of our common stock under our July 2018 stock repurchase program.

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As of December 31, 2020, a total of approximately $ 8.4 billion remained available for future repurchases of our common stock under our July 2018 stock repurchase program.

During the year ended December 31, 2019, we repurchased approximately 14 million shares of our common stock for approximately $ 1.4 billion at an average cost of $ 101.11 , including approximately $ 656 million in the open market and approximately $ 750 million pursuant to an accelerated share repurchase agreement under our April 2017 stock repurchase program.

Shares of common stock repurchased for the periods presented were recorded as treasury stock for the purposes of calculating earnings per share and were accounted for under the cost method.

Shares of common stock repurchased for the periods presented were recorded as treasury stock for the purposes of calculating net income (loss) per share and were accounted for under the cost method.

No repurchased shares of common stock have been retired.

NOTE 15— STOCK-BASED AND EMPLOYEE SAVINGS PLANS

EQUITY INCENTIVE PLAN

EQUITY INCENTIVE PLANS

Under the terms of the Amended and Restated PayPal Holdings, Inc.

2015 Equity Incentive Award Plan (the “Plan”), equity awards, including stock options, restricted stock units (“RSUs”), restricted stock awards, performance based restricted stock units (“PBRSUs”), deferred stock units, and stock payments, may be granted to our directors, officers, and employees.

At December 31, 2021, 57 million shares were authorized under the Plan and 41 million shares were available for future grant.

2015 Equity Incentive Award Plan (the “Plan”), equity awards, including restricted stock units (“RSUs”), restricted stock awards, performance based restricted stock units (“PBRSUs”), stock options, deferred stock units, and stock payments, may be granted to our directors, officers, and employees.

At December 31, 2022, 47 million shares were authorized under the Plan and approximately 31 million shares were available for future grant.

Shares issued as a result of stock option exercises and the release of stock awards were funded primarily with the issuance of new shares of common stock.

All stock options granted under the Plan generally vest 12.5 % six months from the date of grant or 25 % one year from the date of grant with the remainder vesting at a rate of 2.08 % per month thereafter, and generally expire seven years from the date of grant.

The cost of stock options is determined using the Black-Scholes option pricing model on the date of grant.

We discontinued granting stock options in January 2016.

In 2022, the Company adopted a plan for which equity-based incentive awards may be granted to new employees (the “Inducement Plan”).

Grants under the Inducement Plan are in addition to the Plan mentioned above.

As of December 31, 2022, 5 million shares were authorized under the Inducement Plan and approximately 3 million shares were available for future grant.

RSUs are granted to eligible employees under the Plan.

RSUs generally vest in equal annual installments over a period of three years , are subject to an employee’s continuing service to us, and do not have an expiration date.

RSUs issued prior to January 1, 2022 generally vest in equal annual installments over a period of three years .

RSUs issued on or after January 1, 2022 generally vest over three years at a rate of 33 % after one year , then in equal quarterly installments thereafter.

RSUs are subject to an employee’s continuing service to us, and do not have an expiration date.

The cost of RSUs granted is determined using the fair market value of PayPal’s common stock on the date of grant.

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Depending on the probability of achieving the pre-established performance targets, the number of PBRSUs issued could range from 0 % to 200 % of the target amount.

All stock options under the Plan were assumed in connection with acquisitions on the same terms and conditions (including vesting) applicable to such acquired companies’ equity awards.

The cost of stock options was determined using the Black-Scholes option pricing model.

EMPLOYEE STOCK PURCHASE PLAN

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Employees may contribute between 2 % and 10 % of their gross compensation during an offering period to purchase shares, but not more than the statutory limitation of $25,000 per year.

All company stock purchased through the ESPP is considered outstanding and is included in the weighted-average outstanding shares for purposes of computing basic and diluted earnings per share.

All company stock purchased through the ESPP is considered outstanding and is included in the weighted-average outstanding shares for purposes of computing basic and diluted net income (loss) per share.

For the years ended December 31, 2022, 2021, and 2020, our employees purchased 1.9 million, 1.4 million, and 1.7 million shares under the ESPP at an average per share price of $ 73.20 , $ 114.36 , and $ 80.36 , respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

RSU, PBRSU, AND RESTRICTED STOCK ACTIVITY

The following table summarizes RSU, PBRSU, and restricted stock activity under the Plan and the Inducement Plan as of December 31, 2022 and changes during the year ended December 31, 2022:

Units Weighted Average Grant-Date

(In thousands, except per share amounts)

Outstanding at January 1, 2022 17,534 $ 172.55

Awarded and assumed (1)

17,238 $ 105.20

( 9,930 ) $ 145.75

Forfeited/cancelled (2)

( 5,254 ) $ 147.81

Outstanding at December 31, 2022 19,588 $ 133.27

Expected to vest 17,507

(1) Includes approximately 0.5 million of additional PBRSUs issued during 2022 due to the achievement of company performance metrics on awards granted in previous years.

(2) Includes approximately 1.0 million of PBRSUs cancelled during 2022 resulting from a change in the method of payout of the Company portion of our Annual Incentive Plan from equity to cash for certain employees.

During the years ended December 31, 2022, 2021, and 2020, the aggregate intrinsic value of RSUs and PBRSUs vested under the Plan was $ 935 million, $ 3.4 billion, and $ 1.7 billion, respectively.

In the year ended December 31, 2022, the Company granted 1.5 million PBRSUs with a one-year performance period (fiscal 2022) of which 1.0 million were subsequently cancelled due to the change in method of payout as mentioned above.

As such, 0.5 million will become fully vested following the completion of the performance period in February 2023 ( one year from the annual incentive award cycle grant date).

In the year ended December 31, 2022, the Company also granted 1.1 million PBRSUs with a three-year performance period.

In the year ended December 31, 2021, the Company granted 0.7 million PBRSUs with a one-year performance period (fiscal 2021), which became fully vested following the completion of the performance period in February 2022 ( one year from the annual incentive award cycle grant date), and 0.5 million PBRSUs with a three-year performance period.

STOCK OPTION ACTIVITY

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Exercised ( 190 ) $ 20.62

Forfeited/expired/canceled ( 9 ) $ 5.65

Forfeited/expired/cancelled ( 11 ) $ 13.66

Outstanding at December 31, 2022 141 $ 14.56 4.93 $ 8,080

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Options exercisable 117 $ 12.60 4.40 $ 6,875

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The weighted average grant date fair value of options assumed from acquisitions during the years ended December 31, 2022, 2021, and 2020 was $ 147.92 , $ 237.26 and $ 108.61 , respectively.

No options were granted or assumed in 2019.

The aggregate intrinsic value was calculated as the difference between the exercise price of the underlying options and the quoted price of our common stock at December 31, 2022.

During the years ended December 31, 2022, 2021, and 2020, the aggregate intrinsic value of options exercised under the Plan was $ 16 million, $ 81 million, and $ 66 million, respectively, determined as of the date of option exercise.

At December 31, 2021, all outstanding options were in-the-money.

RSU, PBRSU, AND RESTRICTED STOCK ACTIVITY

The following table summarizes RSU, PBRSU, and restricted stock activity under the Plan as of December 31, 2021 and changes during the year ended December 31, 2021:

Units Weighted Average Grant-Date

(In thousands, except per share amounts)

Outstanding at January 1, 2021 23,164 $ 107.13

Awarded and assumed (1), (2)

9,266 $ 239.34

( 12,858 ) $ 105.32

Forfeited ( 2,038 ) $ 155.60

Outstanding at December 31, 2021 17,534 $ 172.55

Expected to vest 15,918

(1) Includes approximately 1.8 million of additional PBRSUs issued during 2021 due to the achievement of company performance metrics on awards granted in previous years.

(2) Includes approximately 0.6 million in RSUs assumed from acquisitions in 2021.

During the years ended December 31, 2021, 2020, and 2019, the aggregate intrinsic value of RSUs and PBRSUs vested under the Plan was $ 3.4 billion, $ 1.7 billion, and $ 1.6 billion, respectively.

In the year ended December 31, 2021, the Company granted 0.7 million PBRSUs with a one-year performance period (fiscal 2021), which will become fully vested following the completion of the performance period in February 2022 ( one year from the annual incentive award cycle grant date), and 0.5 million PBRSUs with a three-year performance period.

In the year ended December 31, 2020, the Company granted 1.4 million PBRSUs with a one-year performance period (fiscal 2020), which became fully vested following the completion of the performance period in February 2021 ( one year from the annual incentive award cycle grant date), and 0.7 million PBRSUs with a three-year performance period.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

At December 31, 2022, substantially all outstanding options were in-the-money.

STOCK-BASED COMPENSATION EXPENSE

Stock-based compensation expense for the Plan is measured based on estimated fair value at the time of grant, and recognized over the award’s vesting period.

Stock-based compensation expense for the Plan and the Inducement Plan is measured based on estimated fair value at the time of grant, and recognized over the award’s vesting period.

T he impact on our results of operations of recording stock-based compensation expense under the Plan for the years ended December 31, 2022, 2021, and 2020 was as follows:

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employees may contribute up to 50 % of their eligible compensation, but not more than statutory limits.

Under the PayPal plan, eligible employees received one dollar for each dollar contributed, up to 4 % of each employee’s eligible salary, subject to a maximum employer contribution per employee of $ 11,600 in both 2021 and 2020 and $ 11,200 in 2019.

employees are covered by other savings plans.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The income tax (benefit) expense is composed of the following:

The income tax expense (benefit) is composed of the following:

Year Ended December 31,

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Foreign ( 147 ) ( 36 ) ( 62 )

Total deferred portion of income tax (benefit) expense ( 482 ) 165 ( 269 )

Income tax (benefit) expense $ ( 70 ) $ 863 $ 539

Total deferred portion of income tax expense (benefit) ( 811 ) ( 482 ) 165

Income tax expense (benefit) $ 947 $ ( 70 ) $ 863

The following is a reconciliation of the difference between the effective income tax rate and the federal statutory rate:

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Effective income tax rate 28.1 % ( 1.7 ) % 17.0 %

For the year ended December 31, 2021, the difference between the effective income tax rate and the U.S.

For the year ended December 31, 2022, the difference between the effective income tax rate of 28.1 % and the U.S.

federal statutory rate of 21% to income before income taxes was primarily the result of tax expense related to the intra-group transfer of intellectual property and non-deductible stock-based compensation, partially offset by foreign income taxed at different rates.

For the year ended December 31, 2021, the difference between the effective income tax rate of ( 1.7 )% and the U.S.

federal statutory rate of 21% to income before income taxes was primarily the result of foreign income taxed at different rates and stock-based compensation deductions.

For the year ended December 31, 2020, the difference between the effective income tax rate and the U.S.

For the year ended December 31, 2020, the difference between the effective income tax rate of 17.0 % and the U.S.

federal statutory rate of 21% to income before income taxes was primarily the result of foreign income taxed at different rates, partially offset by tax expense related to the intra-group transfer of intellectual property.

For the year ended December 31, 2019, the difference between the effective income tax rate and the federal statutory rate of 21% to income before income taxes was primarily the result of foreign income taxed at different rates and stock-based compensation deductions, partially offset by tax expense related to the intra-group transfer of intellectual property.

PayPal Holdings, Inc.

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Net unrealized losses 151 23

Acquired intangibles 38 —

Fixed assets and other intangibles 655 84

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Unremitted foreign earnings $ ( 42 ) $ ( 35 )

Fixed assets and other intangibles — ( 70 )

Acquired intangibles — ( 240 )

ROU lease assets ( 138 ) ( 154 )

Partnership investment ( 12 ) —

Net unrealized gains ( 135 ) ( 351 )

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If not utilized, the federal net operating loss carryforwards will begin to expire in 2025, and the state net operating loss carryforwards will begin to expire in 2023.

Approximately $ 119 million of the foreign net operating loss carryforwards will begin to expire in 2022, $ 136 million will begin to expire in 2024, $ 57 million will begin to expire in 2034, and $ 213 million has no expiration date and may be carried forward indefinitely.

Approximately $ 197 million of the foreign net operating loss carryforwards will begin to expire in 2024, $ 191 million will begin to expire in 2034, and $ 246 million may be carried forward indefinitely.

As of December 31, 2022, our federal and state tax credit carryforwards for income tax purposes were approximately $ 24 million and $ 374 million, respectively.

If not utilized, the federal tax credits will begin to expire in 2029.

Approximately $ 19 million of the state tax credits will begin to expire in 2022, $ 26 million will begin to expire in 2028, $ 8 million will begin to expire in 2037, and $ 279 million may be carried forward indefinitely.

Approximately $ 49 million of the state tax credits will begin to expire from 2023 through 2028, $ 8 million will begin to expire in 2038, and $ 317 million may be carried forward indefinitely.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that all or some portion of the deferred tax assets will not be realized.

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state income and foreign withholding taxes on the $ 11.0 billion of undistributed foreign earnings.

We benefit from agreements concluded in certain jurisdictions, most significantly Singapore and, through 2019, Luxembourg.

We benefit from agreements concluded in certain jurisdictions, most significantly Singapore.

In December 2019, a new agreement was concluded in Singapore.

The new agreement took effect January 1, 2021 and will be in effect from 2021 through 2030.

In December 2019, the Luxembourg government passed legislation confirming that tax agreements granted before January 1, 2015 will no longer be binding after December 31, 2019.

These agreements result in significantly lower rates of taxation on certain classes of income and require various thresholds of investment and employment in those jurisdictions.

We review our compliance on an annual basis to ensure we continue to meet our obligations under these agreements.

These agreements resulted in tax savings of approximately $ 327 million, $ 596 million, and $ 472 million in 2021, 2020, and 2019, respectively.

The benefit of these agreements on our net income per share (diluted) was approximately $ 0.28 , $ 0.50 , and $ 0.40 in 2021, 2020, and 2019, respectively.

This agreement results in significantly lower rates of taxation on certain classes of income and requires various thresholds of investment and employment in those jurisdictions.

We review our compliance on an annual basis to ensure we continue to meet our obligations under this agreement.

This agreement resulted in tax savings of approximately $ 510 million, $ 327 million, and $ 596 million in 2022, 2021, and 2020, respectively.

The benefit of this agreement on our net income (loss) per share (diluted) was approximately $ 0.44 , $ 0.28 , and $ 0.50 in 2022, 2021, and 2020, respectively.

The following table reflects changes in unrecognized tax benefits for the periods presented below:

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For the years ended December 31, 2022, 2021, and 2020, we recognized net interest and penalties of $ 119 million, $ 6 million, and $ 40 million, respectively, related to uncertain tax positions in income tax expense.

This expense is reflected in the “Other” line of our effective income tax rate schedule.

The amount of interest and penalties accrued as of December 31, 2022 and 2021 was approximately $ 342 million and $ 212 million, respectively.

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The material jurisdictions in which we are subject to examination by tax authorities for tax years after 2009 primarily include the U.S.

(Federal and California), Germany, India, Israel, and Singapore.

During 2021, we settled income tax audits in various jurisdictions including Germany and India.

(Federal and California), Australia, Germany, India, Israel, and Singapore.

We believe that adequate amounts have been reserved for any adjustments that may ultimately result from our open examinations.

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NOTE 17— RESTRUCTURING AND OTHER CHARGES

In the first quarter of the year ended December 31, 2020, management approved a strategic reduction of the existing global workforce, which resulted in restructuring charges of $ 27 million and $ 109 million in 2021 and 2020, respectively.

In the first quarter of the year ended December 31, 2019, management approved strategic reductions of the existing global workforce, which resulted in a restructuring charge of $ 78 million.

The approved strategic reduction in 2020 was part of a multiphase process to reorganize our workforce concurrently with the redesign of our operating structure, which spanned multiple quarters.

We primarily incurred employee severance and benefits costs, as well as other associated consulting costs under the 2020 strategic reduction, substantially all of which have been accrued as of the second quarter of 2021.

During the first quarter of 2022, management initiated a strategic reduction of the existing global workforce intended to streamline and optimize our global operations to enhance operating efficiency.

This effort focused on reducing redundant operations and simplifying our organizational structure.

The associated restructuring charges in 2022 were $ 121 million.

We primarily incurred employee severance and benefits costs, as well as associated consulting costs under the 2022 strategic reduction.

The strategic actions associated with this plan were substantially completed by the fourth quarter of 2022.

The following table summarizes the restructuring reserve activity during the year ended December 31, 2022:

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Accrued liability as of December 31, 2022

Additionally, in 2021 and 2020, we incurred asset impairment charges of $ 26 million and $ 30 million, respectively, due to the exiting of certain leased properties which resulted in a reduction of certain ROU lease assets and related leasehold improvements.

During the first quarter of 2020, management approved a strategic reduction of the existing global workforce as part of a multiphase process to reorganize our workforce concurrently with the redesign of our operating structure, which spanned multiple quarters.

The associated restructuring charges in 2021 and 2020 were $ 27 million, and $ 109 million, respectively.

We primarily incurred employee severance and benefits costs, as well as associated consulting costs under the 2020 strategic reduction, which was substantially completed in 2021.

Additionally, we are continuing to review our real estate and facility capacity requirements due to our new and evolving work models.

We incurred asset impairment charges of $ 81 million, $ 26 million, and $ 30 million in 2022, 2021, and 2020, respectively, due to exiting of certain leased properties which resulted in a reduction of ROU lease assets and related leasehold improvements.

See “Note 6—Leases” for additional information.

The approved strategic reductions for 2019 were intended to better align our teams to support key business priorities and included the transfer of certain operational functions between geographies, as well as the impact of the transition servicing activities provided to Synchrony, which ended in the second quarter of 2019.

We primarily incurred employee severance and benefits expenses under the 2019 strategic reductions, which were substantially completed by the end of the first quarter of 2020.

NOTE 18— SUBSEQUENT EVENTS

In January 2023, management initiated a global workforce reduction intended to focus resources on core strategic priorities, and improve our cost structure and operating efficiency.

We estimate that this reduction will impact approximately 7 % of our employees and will result in approximately $ 100 million of restructuring charges, primarily related to employee severance and benefits costs.

The actions associated with this plan are expected to be substantially completed by the first quarter of 2023.

FINANCIAL STATEMENT SCHEDULE

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Year Ended December 31, 2020 $ 258 $ 689 $ 210 $ ( 319 ) $ 838

$ 172 $ 325 $ — $ ( 239 ) $ 258

Year Ended December 31, 2021 $ 838 $ ( 104 ) $ — $ ( 243 ) $ 491

Year Ended December 31, 2022 $ 491 $ 437 $ — $ ( 330 ) $ 598

(1) Allowance for loans and interest receivable for the year end December 31, 2019 was based on accounting guidance which was superseded by the adoption of the Accounting Standards Update 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (“CECL”), effective January 1, 2020.

(2) The amount is related to the impact of the adjustment recorded for adoption of CECL.

Exhibit Index

(1) The amount is related to the impact of the adjustment recorded for adoption of the current expected credit loss standard.

INDEX OF EXHIBITS

Incorporated by Reference

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10-12B/A 6/26/2015

Purchase and Sale Agreement, dated as of November 10, 2017, by and between Synchrony Bank and Bill Me Later, Inc.

8-K 11/16/2017

Purchase and Sale Agreement, dated as of November 10, 2017, by and between Synchrony Bank and PayPal (Europe) S.à r.l.

8-K 11/16/2017

Amendment No.

1 to the Purchase and Sale Agreement, dated as of April 12, 2018, by and between Synchrony Bank and Bill Me Later, Inc.

10-Q 7/26/2018

Amendment No.

1 to the Purchase and Sale Agreement, dated as of April 12, 2018, by and between Synchrony Bank and PayPal (Europe) S.à r.l.

10-Q 7/26/2018

PayPal Holdings, Inc.

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Form of 2050 Note (included in Exhibit 4.08) 8-K 5/18/2020

Officer’s Certificate, dated as of May 23, 2022, pursuant to the Indenture, dated as of September 26, 2019, by and between PayPal Holdings, Inc.

and Wells Fargo Bank, National Association, as Trustee 8-K 5/23/2022

Form of 2027 Note (included in Exhibit 4.2) 8-K 5/23/2022

Form of 2032 Note (included in Exhibit 4.2) 8-K 5/23/2022

Form of 2052 Note (included in Exhibit 4.2) 8-K 5/23/2022

Form of 2062 Note (included in Exhibit 4.2) 8-K 5/23/2022

Tax Matters Agreement by and between eBay Inc.

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364-Day Credit Agreement, dated as of September 11, 2019, among PayPal Holdings, Inc., the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent 8-K 9/12/2019

PayPal Employee Incentive Plan, as amended and restated.

DEF 14A 4/14/2016

PayPal Employee Incentive Plan, as amended and restated DEF 14A 4/14/2016

PayPal Holdings, Inc.

Amended and Restated 2015 Equity Incentive Award Plan 8-K 5/25/2018

Incorporated by Reference

Number Exhibit Description Filed with this Form 10-K Form Date Filed

PayPal Holdings, Inc.

Amended and Restated Deferred Compensation Plan effective November 6, 2018 10-K 2/7/2019

Incorporated by Reference

Number Exhibit Description Filed with this Form 10-K Form Date Filed

PayPal Holdings, Inc.

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10-Q 11/9/2021

PayPal Holdings, Inc.

2022 Inducement Plan 10-Q 8/2/2022

Offer Letter dated September 29, 2014 between eBay Inc.

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10-Q 4/25/2019

Letter Agreement effective July 13, 2022, between Blake Jorgensen and PayPal Holdings, Inc.

10-Q 8/2/2022

Letter Agreement dated June 15, 2022 between Gabrielle Rabinovitch and PayPal Holdings, Inc.

8-K 6/17/2022

Letter Agreement dated September 27, 2022 between Gabrielle Rabinovitch and PayPal Holdings, Inc.

8-K 10/3/2022

Letter Agreement dated September 1, 2022 between John Kim and PayPal Holdings, Inc.

10-Q 11/3/2022

Independent Director Compensation Policy 10-K 2/5/2021

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Executive Change in Control and Severance Plan, as amended and restated 10-Q 7/29/2021

Incorporated by Reference

Number Exhibit Description Filed with this Form 10-K Form Date Filed

First Amendment, dated as of March 23, 2020, to the Credit Agreement, dated as of September 11, 2019, among PayPal Holdings, Inc., the Designated Borrowers party thereto, the Lenders party thereto and JPMorgan Chase Bank, N.A., J.P.

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First Amendment, dated as of March 23, 2020, to the 364-Day Credit Agreement, dated as of September 11, 2019, among PayPal Holdings, Inc., the Lenders party thereto and JPMorgan Chase Bank, N.A., as the Administrative Agent 10-Q 5/7/2020

Incorporated by Reference

Number Exhibit Description Filed with this Form 10-K Form Date Filed

Joinder Agreement, dated as of March 25, 2020, among PayPal International Treasury Centre S.à r.l., PayPal Holdings, Inc., and J.P.

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Morgan Securities Australia Limited, JPMorgan Chase Bank, N.A., Toronto Branch, and J.P.

Morgan AG, as the Administrative Agents X

Morgan AG, as the Administrative Agents 10-K 2/3/2022

List of Subsidiaries X

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Certification of PayPal Holdings, Inc.’s Chief Executive Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002 X

Certification of PayPal Holdings, Inc.’s Chief Financial Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002 X

Incorporated by Reference

Number Exhibit Description Filed with this Form 10-K Form Date Filed

Certification of PayPal Holdings, Inc.’s Chief Financial Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002 X

101 The following financial information related to the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, formatted in iXBRL (Inline Extensible Business Reporting Language):

(i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows;

(i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income (Loss), (iii) the Consolidated Statements of Comprehensive Income (Loss), (iv) the Consolidated Statements of Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows;

and (vi) the related Notes to Consolidated Financial Statements X

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KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Daniel H.

Schulman, John D.

Rainey, Bimal Patel, Brian Y.

Schulman, Gabrielle Rabinovitch, Bimal Patel, Brian Y.

Yamasaki and Jeffrey W.

Karbowski, and each or any one of them, each with the power of substitution, his or her attorney-in-fact, to sign any amendments to this report, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.

Karbowski, and each or any one of them, each with the power of substitution, his or her attorney-in-fact, to sign any amendments to this report, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on February 9, 2023.

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/s/ Daniel H.

Schulman John D.

President, Chief Executive Officer and Director Chief Financial Officer and Executive Vice President, Global Customer Operations

/s/ Gabrielle Rabinovitch

Schulman Gabrielle Rabinovitch

President, Chief Executive Officer and Director Acting Chief Financial Officer and Senior Vice President, Investor Relations and Treasurer

Principal Accounting Officer:

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures