What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-08-03 compared with 2023-05-09 · 371 added, 192 removed, 1073 unchanged (34% of the section changed)

8 unchanged sentences

Accounts receivable, net 928 963

Loans and interest receivable, net of allowances of $ 638 and $ 598 as of March 31, 2023 and December 31, 2022, respectively

Loans and interest receivable, held for sale 1,903 —

Loans and interest receivable, net of allowances of $ 617 and $ 598 as of June 30, 2023 and December 31, 2022, respectively

Funds receivable and customer accounts 33,643 36,264

20 unchanged sentences

4,000 shares authorized;

1,122 and 1,136 shares outstanding as of March 31, 2023 and December 31, 2022, respectively

1,102 and 1,136 shares outstanding as of June 30, 2023 and December 31, 2022, respectively

Preferred stock, $ 0.0001 par value;

100 shares authorized, unissued

Treasury stock at cost, 192 and 173 shares as of March 31, 2023 and December 31, 2022, respectively

Treasury stock at cost, 214 and 173 shares as of June 30, 2023 and December 31, 2022, respectively

( 19,064 ) ( 16,079 )

7 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

(In millions, except per share data)

23 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

(In millions)

4 unchanged sentences

Tax expense on net investment hedges CTA gains, net ( 39 ) ( 31 ) ( 45 ) ( 36 )

Unrealized losses on cash flow hedges, net ( 111 ) ( 3 )

Tax benefit on unrealized losses on cash flow hedges, net 6 —

Unrealized (losses) gains on cash flow hedges, net ( 23 ) 213 ( 134 ) 210

Tax benefit (expense) on unrealized (losses) gains on cash flow hedges, net 1 ( 11 ) 7 ( 11 )

Unrealized gains (losses) on investments, net 13 ( 164 ) 188 ( 457 )

19 unchanged sentences

Common stock repurchased ( 19 ) ( 1,443 ) — — — ( 1,443 )

Excise tax on common stock repurchased — ( 11 ) — — — ( 11 )

Stock-based compensation — — 359 — — 359

Balances at March 31, 2023 1,122 $ ( 17,522 ) $ 18,529 $ ( 898 ) $ 19,749 $ 19,858

Net income — — — — 1,029 1,029

Foreign CTA — — — ( 216 ) — ( 216 )

Net investment hedges CTA gains, net — — — 169 — 169

Tax expense on net investment hedges CTA gains, net — — — ( 39 ) — ( 39 )

Unrealized losses on cash flow hedges, net — — — ( 23 ) — ( 23 )

Tax benefit on unrealized losses on cash flow hedges, net — — — 1 — 1

Unrealized gains on investments, net — — — 13 — 13

Tax expense on unrealized gains on investments, net — — — ( 3 ) — ( 3 )

Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes 2 — 39 — — 39

Common stock repurchased ( 22 ) ( 1,542 ) — — — ( 1,542 )

Stock-based compensation — — 375 — — 375

Balances at June 30, 2023 1,102 $ ( 19,064 ) $ 18,943 $ ( 996 ) $ 20,778 $ 19,661

PayPal Holdings, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY—(continued)

Common Stock Shares Treasury Stock Additional Paid-In Capital Accumulated Other

14 unchanged sentences

Balances at March 31, 2022 1,161 $ ( 13,380 ) $ 17,383 $ ( 444 ) $ 17,044 $ 20,603

Net loss — — — — ( 341 ) ( 341 )

Foreign CTA — — — ( 300 ) — ( 300 )

Net investment hedges CTA gains, net — — — 135 — 135

Tax expense on net investment hedges CTA gains, net — — — ( 31 ) — ( 31 )

Unrealized gains on cash flow hedges, net — — — 213 — 213

Tax expense on unrealized gains on cash flow hedges, net — — — ( 11 ) — ( 11 )

Unrealized losses on investments, net — — — ( 164 ) — ( 164 )

Tax benefit on unrealized losses on investments, net — — — 38 — 38

Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes 3 — 51 — — 51

Common stock repurchased ( 8 ) ( 750 ) — — — ( 750 )

Stock-based compensation — — 324 — — 324

Balances at June 30, 2022 1,156 $ ( 14,130 ) $ 17,758 $ ( 564 ) $ 16,703 $ 19,767

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

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31,

Six Months Ended June 30,

(In millions)

7 unchanged sentences

Net (gains) losses on strategic investments ( 181 ) 658

Adjustments to loans and interest receivable, held for sale 34 —

Other ( 276 ) 295

Originations of loans receivable, held for sale ( 1,521 ) —

Proceeds from repayments of loans receivable, originally classified as held for sale 302 —

Changes in assets and liabilities:

8 unchanged sentences

Purchases and originations of loans receivable ( 15,167 ) ( 12,300 )

Principal repayment of loans receivable 8,063 5,054

Proceeds from repayments of loans receivable, originally classified as held for investment 15,990 10,910

Purchases of investments ( 10,523 ) ( 13,151 )

13 unchanged sentences

Other financing activities — 1

Net cash used in financing activities ( 2,662 ) ( 669 )

Net cash (used in) provided by financing activities ( 6,054 ) 986

PayPal Holdings, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS—(continued)

Six Months Ended June 30,

(In millions)

Effect of exchange rate changes on cash, cash equivalents, and restricted cash ( 50 ) ( 136 )

2 unchanged sentences

Cash, cash equivalents, and restricted cash at end of period $ 15,615 $ 16,684

PayPal Holdings, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS—(continued)

Three Months Ended March 31,

(In millions)

Supplemental cash flow disclosures:

29 unchanged sentences

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

As of March 31, 2023 and December 31, 2022, no VIEs qualified for consolidation as the structures of these entities do not provide us with the ability to direct activities that would significantly impact their economic performance.

As of March 31, 2023 and December 31, 2022, the carrying value of our investments in nonconsolidated VIEs was $ 135 million and $ 128 million, respectively, and is included as non-marketable equity securities applying the equity method of accounting in long-term investments on our condensed consolidated balance sheets.

Our maximum exposure to loss related to our nonconsolidated VIEs, which represents funded commitments and any future funding commitments, was $ 233 million and $ 232 million as of March 31, 2023 and December 31, 2022, respectively.

As of June 30, 2023 and December 31, 2022, no VIEs qualified for consolidation as the structures of these entities do not provide us with the ability to direct activities that would significantly impact their economic performance.

As of June 30, 2023 and December 31, 2022, the carrying value of our investments in nonconsolidated VIEs was $ 146 million and $ 128 million, respectively, and is included as non-marketable equity securities applying the equity method of accounting in long-term investments on our condensed consolidated balance sheets.

These condensed consolidated financial statements and accompanying notes should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”) filed with the United States (“U.S.”) Securities and Exchange Commission (“SEC”) on February 10, 2023.

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

Certain amounts for prior periods have been reclassified to conform to the financial statement presentation as of and for the three months ended March 31, 2023.

Certain amounts for prior periods have been reclassified to conform to the financial statement presentation as of and for the three and six months ended June 30, 2023.

PayPal Holdings, Inc.

6 unchanged sentences

The following table presents the effects of the changes on the presentation of these cash flows to the previously reported condensed consolidated statements of cash flows:

Three Months Ended March 31, 2022

Six Months Ended June 30, 2022

(In millions)

7 unchanged sentences

Financing activities (4)

( 695 ) 26 ( 669 )

Effect of exchange rates on cash, cash equivalents, and restricted cash ( 136 ) — ( 136 )

Net decrease in cash, cash equivalents, and restricted cash $ ( 1,345 ) $ — $ ( 1,345 )

(1) As reported in our Form 10-Q for the quarter ended March 31, 2022 filed with the SEC on April 28, 2022.

(1) As reported in our Form 10-Q for the quarter ended June 30, 2022 filed with the SEC on August 3, 2022.

(2) Financial statement line impacted in operating activities was “Other assets and liabilities.”

7 unchanged sentences

Actual results could materially differ from these estimates.

Loans and interest receivable, held for sale

Loans and interest receivable, held for sale, represents a portion of our installment consumer receivables that we intend to sell.

This portfolio includes the substantial majority of the United Kingdom (“U.K.”) and other European buy now, pay later loan receivables.

In June 2023, we entered into a multi-year agreement with a global investment firm to sell up to € 40 billion of U.K.

and other European buy now, pay later loan receivables, consisting of eligible loans and interest receivable, held for sale at the closing of the transaction and a forward-flow arrangement for the sale of future originations of eligible loans over a 24 -month commitment period (together, “eligible consumer installment receivables”).

Following the closing of this transaction, which is expected to occur in the second half of 2023, the global investment firm will become the owner of the eligible consumer installment receivables and we will no longer hold an ownership interest in these receivables.

We will maintain the servicing rights and receive a servicing fee for the entire pool of the eligible consumer installment receivables outstanding.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Loans and interest receivable, held for sale are recorded at the lower of cost or fair value, determined on an aggregate basis, with valuation changes and any associated charge-offs recorded in restructuring and other charges on our condensed consolidated statements of income (loss).

Prior to the decision to sell, this portfolio was reported at outstanding principal balances, net of allowances, including unamortized deferred origination costs and estimated collectible interest and fees.

At the time of reclassification, any previously recorded allowance for credit losses for loans and interest receivable outstanding was reversed, resulting in a decrease of approximately $ 33 million in transaction and credit losses in our condensed consolidated statements of income (loss) for the three and six months ended June 30, 2023.

Interest income on interest bearing held-for-sale loans is accrued and recognized based on the contractual rate of interest.

Recently adopted accounting guidance

8 unchanged sentences

For additional information, see “Note 11—Loans and Interest Receivable.”

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

11 unchanged sentences

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.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following table presents our revenue disaggregated by primary geographical market and category:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

(In millions)

2 unchanged sentences

Other countries (1)

3,077 2,943 5,970 5,755

Total net revenues (2)

6 unchanged sentences

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

(2) Total net revenues include $ 451 million and $ 187 million for the three months ended March 31, 2023 and 2022, 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.

(2) Total net revenues include $ 452 million and $ 296 million for the three months ended June 30, 2023 and 2022, respectively, and $ 903 million and $ 483 million for the six months ended June 30, 2023 and 2022, 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, including loans and interest receivable held for sale, 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 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.

Basic 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 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.

2 unchanged sentences

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.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

(In millions, except per share amounts)

7 unchanged sentences

Common stock equivalents excluded from income (loss) per diluted share because their effect would have been anti-dilutive or potentially dilutive 25 20 19 12

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 4— BUSINESS COMBINATIONS

There were no acquisitions accounted for as business combinations or divestitures completed in the three months ended March 31, 2023 and 2022.

There were no acquisitions accounted for as business combinations or divestitures completed in the three and six months ended June 30, 2023 and 2022.

NOTE 5— GOODWILL AND INTANGIBLE ASSETS

The following table presents goodwill balances and adjustments to those balances during the three months ended March 31, 2023:

2022 Goodwill Acquired Adjustments March 31,

The following table presents goodwill balances and adjustments to those balances during the six months ended June 30, 2023:

2022 Goodwill Acquired Adjustments June 30,

(In millions)

Total goodwill $ 11,209 $ — $ ( 142 ) $ 11,067

The adjustments to goodwill during the three months ended March 31, 2023 pertained to foreign currency translation adjustments.

The adjustments to goodwill during the six months ended June 30, 2023 pertained to foreign currency translation adjustments.

INTANGIBLE ASSETS

The components of identifiable intangible assets were as follows:

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Gross Carrying Amount Accumulated Amortization

9 unchanged sentences

Intangible assets, net $ 3,446 $ ( 2,806 ) $ 640 $ 3,596 $ ( 2,808 ) $ 788

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

In the three months ended March 31, 2023, we retired approximately $ 84 million of fully amortized intangible assets, of which $ 65 million and $ 19 million were included in customer lists and user base and developed technology, respectively.

Amortization expense for intangible assets was $ 57 million and $ 118 million for the three months ended March 31, 2023 and 2022, respectively.

Expected future intangible asset amortization as of March 31, 2023 was as follows (in millions):

In the three months ended June 30, 2023, we retired approximately $ 8 million of fully amortized intangible assets, all of which were included in developed technology.

In the six months ended June 30, 2023, we retired approximately $ 92 million of fully amortized intangible assets, of which $ 65 million and $ 27 million were included in customer lists and user base and developed technology, respectively.

Amortization expense for intangible assets was $ 58 million and $ 120 million for the three months ended June 30, 2023 and 2022, respectively.

Amortization expense for intangible assets was $ 115 million and $ 238 million for the six months ended June 30, 2023 and 2022, respectively.

Expected future intangible asset amortization as of June 30, 2023 was as follows (in millions):

Fiscal years:

1 unchanged sentence

Thereafter 46

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 6— LEASES

6 unchanged sentences

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

As of March 31, 2023, we had no finance leases.

As of June 30, 2023, we had no finance leases.

The components of lease expense were as follows:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

(In millions)

3 unchanged sentences

Lease expense, net $ 37 $ 41 $ 76 $ 81

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Supplemental cash flow information related to leases was as follows:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

(In millions)

13 unchanged sentences

Weighted-average discount rate — operating leases

Future minimum lease payments for our operating leases as of March 31, 2023 were as follows:

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Future minimum lease payments for our operating leases as of June 30, 2023 were as follows:

Operating Leases

7 unchanged sentences

The amounts presented are consistent with contractual terms and are not expected to differ significantly from actual results under our existing leases.

In the three months ended March 31, 2023 and 2022, we incurred asset impairment charges of $ 39 million and $ 16 million, respectively, within restructuring and other charges on our condensed consolidated statements of income (loss).

The impairments included a reduction to our ROU lease assets in the amount of $ 21 million and $ 10 million, respectively, which was attributed to certain leased space we are no longer utilizing for our business operations, a portion of which is being subleased.

As of March 31, 2023, we entered into additional operating leases primarily for real estate, which will commence in the second quarter of 2023 or later, with minimum lease payments aggregating to $ 13 million and lease terms ranging from four to six years .

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

In the three and six months ended June 30, 2023, we incurred asset impairment charges of $ 4 million and $ 43 million, respectively, within restructuring and other charges on our condensed consolidated statements of income (loss).

The impairments in the three and six months ended June 30, 2023 included a reduction to our ROU lease assets in the amount of $ 4 million and $ 25 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.

In the three and six months ended June 30, 2022, we incurred asset impairment charges of $ 19 million and $ 35 million, respectively, within restructuring and other charges on our condensed consolidated statements of income (loss).

The impairments in the three and six months ended June 30, 2022 included a reduction to our ROU lease assets in the amount of $ 15 million and $ 25 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.

NOTE 7— OTHER FINANCIAL STATEMENT DETAILS

3 unchanged sentences

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.

Our third-party custodians hold 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.

As of March 31, 2023, we utilize one third-party custodian;

as such, there is concentration risk in the event the custodian is not able to perform in accordance with our agreement.

As of June 30, 2023, we utilize two third-party custodians;

as such, there is concentration risk in the event these custodians are not able to perform in accordance with our agreement.

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 condensed consolidated balance sheets.

2 unchanged sentences

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

As of March 31, 2023, 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 March 31, 2023 and December 31, 2022:

As of June 30, 2023, 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.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

2023 December 31, 2022

5 unchanged sentences

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the three months ended March 31, 2023:

The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the three months ended June 30, 2023:

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

6 unchanged sentences

Other comprehensive income (loss) before reclassifications 11 13 ( 216 ) 169 ( 41 ) ( 64 )

Amount of gain (loss) reclassified from accumulated other comprehensive income (loss) (“AOCI”) 76 ( 25 ) — — — 51

Amount of gain reclassified from accumulated other comprehensive income (loss) (“AOCI”) 34 — — — — 34

Net current period other comprehensive income (loss) ( 23 ) 13 ( 216 ) 169 ( 41 ) ( 98 )

Ending balance $ ( 23 ) $ ( 403 ) $ ( 811 ) $ 195 $ 46 $ ( 996 )

The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the three months ended June 30, 2022:

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

Net Investment Hedges CTA Gains (Losses)

Estimated Tax (Expense) Benefit Total

(In millions)

Beginning balance $ 196 $ ( 380 ) $ ( 365 ) $ 45 $ 60 $ ( 444 )

Other comprehensive income (loss) before reclassifications 320 ( 164 ) ( 300 ) 135 ( 4 ) ( 13 )

Amount of gain reclassified from AOCI 107 — — — — 107

Net current period other comprehensive income (loss) 213 ( 164 ) ( 300 ) 135 ( 4 ) ( 120 )

Ending balance $ 409 $ ( 544 ) $ ( 665 ) $ 180 $ 56 $ ( 564 )

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the three months ended March 31, 2022:

The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the six months ended June 30, 2023:

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

4 unchanged sentences

Other comprehensive income (loss) before reclassifications ( 24 ) 163 ( 236 ) 196 ( 82 ) 17

Amount of gain (loss) reclassified from AOCI 110 ( 25 ) — — — 85

Net current period other comprehensive income (loss) ( 134 ) 188 ( 236 ) 196 ( 82 ) ( 68 )

Ending balance $ ( 23 ) $ ( 403 ) $ ( 811 ) $ 195 $ 46 $ ( 996 )

The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the six months ended June 30, 2022:

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

Net Investment Hedges CTA Gains (Losses)

Estimated Tax (Expense) Benefit Total

(In millions)

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

Other comprehensive income (loss) before reclassifications 364 ( 457 ) ( 395 ) 156 58 ( 274 )

Amount of gain reclassified from AOCI 154 — — — — 154

4 unchanged sentences

Affected Line Item in the Statements of Income (Loss)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

(In millions)

6 unchanged sentences

Total reclassifications for the period $ 34 $ 107 $ 85 $ 154 Net income (loss)

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

OTHER INCOME (EXPENSE), NET

The following table reconciles the components of other income (expense), net for the periods presented below:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

(In millions)

4 unchanged sentences

Other income (expense), net $ 170 $ ( 715 ) $ 245 $ ( 797 )

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 8— FUNDS RECEIVABLE AND CUSTOMER ACCOUNTS AND INVESTMENTS

The following table summarizes the assets underlying our funds receivable and customer accounts, short-term investments, and long-term investments as of March 31, 2023 and December 31, 2022:

The following table summarizes the assets underlying our funds receivable and customer accounts, short-term investments, and long-term investments as of June 30, 2023 and December 31, 2022:

2023 December 31,

16 unchanged sentences

Total long-term investments $ 4,543 $ 5,018

As of March 31, 2023 and December 31, 2022, the estimated fair value of our available-for-sale debt securities included within funds receivable and customer accounts, short-term investments, and long-term investments was as follows:

March 31, 2023 (1)

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

As of June 30, 2023 and December 31, 2022, the estimated fair value of our available-for-sale debt securities included within funds receivable and customer accounts, short-term investments, and long-term investments was as follows:

June 30, 2023 (1)

Losses Estimated

23 unchanged sentences

Refer to “Note 9 — Fair Value Measurement of Assets and Liabilities.”

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 2022 (1)

24 unchanged sentences

Refer to “Note 9 — Fair Value Measurement of Assets and Liabilities.”

Gross amortized cost and estimated fair value balances exclude accrued interest receivable on available-for-sale debt securities, which totaled $ 80 million and $ 65 million at March 31, 2023 and December 31, 2022, respectively, and were included in other current assets on our condensed consolidated balance sheets.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

As of March 31, 2023 and December 31, 2022, 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:

March 31, 2023 (1)

Gross amortized cost and estimated fair value balances exclude accrued interest receivable on available-for-sale debt securities, which totaled $ 88 million and $ 65 million at June 30, 2023 and December 31, 2022, respectively, and were included in other current assets on our condensed consolidated balance sheets.

As of June 30, 2023 and December 31, 2022, 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:

June 30, 2023 (1)

Less than 12 months 12 months or longer Total

54 unchanged sentences

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

During the three months ended March 31, 2023, we received $ 1.1 billion in proceeds from the sale of available-for-sale debt securities incurring gross realized losses of $ 25 million, which were determined using the specific identification method.

During the three months ended June 30, 2023, we received $ 749 million in proceeds from the sale of available-for-sale debt securities, incurring gross realized gains and losses which were de minimis and determined using the specific identification method.

During the six months ended June 30, 2023, we received $ 1.8 billion in proceeds from the sale of available-for-sale debt securities, incurring gross realized losses of $ 25 million, which were determined using the specific identification method.

PayPal Holdings, Inc.

1 unchanged sentence

Our available-for-sale debt securities included within funds receivable and customer accounts, short-term investments, and long-term investments classified by date of contractual maturity were as follows:

March 31, 2023

June 30, 2023

Amortized Cost Fair Value

8 unchanged sentences

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

Marketable equity securities totaled $ 398 million and $ 323 million as of March 31, 2023 and December 31, 2022, respectively.

Marketable equity securities totaled $ 513 million and $ 323 million as of June 30, 2023 and December 31, 2022, respectively.

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

As of March 31, 2023 and December 31, 2022, we had non-marketable equity securities of $ 142 million and $ 136 million, respectively, where we have the ability to exercise significant influence, but not control, over the investee.

The carrying value of our non-marketable equity securities totaled $ 1.8 billion as of June 30, 2023 and December 31, 2022.

As of June 30, 2023 and December 31, 2022, we had non-marketable equity securities of $ 154 million and $ 136 million, respectively, where we have the ability to exercise significant influence, but not control, over the investee.

We account for these equity securities using the equity method of accounting.

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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 condensed consolidated statements of income (loss).

The carrying value of our non-marketable equity securities totaled $ 1.8 billion for both March 31, 2023 and December 31, 2022.

Measurement Alternative adjustments

The adjustments to the carrying value of our non-marketable equity securities accounted for under the Measurement Alternative in the three months ended March 31, 2023 and 2022 were as follows:

Three Months Ended March 31,

The adjustments to the carrying value of our non-marketable equity securities accounted for under the Measurement Alternative in the three and six months ended June 30, 2023 and 2022 were as follows:

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

(In millions)

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Carrying amount, end of period $ 1,691 $ 1,574 $ 1,691 $ 1,574

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

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

PayPal Holdings, Inc.

NOTES TO CONDENSED 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, held at March 31, 2023 and December 31, 2022, respectively:

2023 December 31,

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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 March 31, 2023 and 2022, respectively:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

(In millions)

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

The following tables summarize our financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022:

March 31, 2023 Quoted Prices in

The following tables summarize our financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2023 and December 31, 2022:

June 30, 2023 Quoted Prices in

Active Markets for

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Funds receivable and customer accounts (3) :

Cash and cash equivalents 26 — 26

government and agency securities 8,951 — 8,951

72 unchanged sentences

A majority of our derivative instruments are valued using pricing models that take into account the contract terms as well as multiple inputs where applicable, such as currency rates, interest rate yield curves, option volatility, and equity prices.

Our derivative instruments are primarily short-term in nature, generally one month to one year in duration.

As of March 31, 2023 and December 31, 2022, we did not have any assets or liabilities requiring measurement at fair value on a recurring basis with significant unobservable inputs that would require a high level of judgment to determine fair value (Level 3).

As of June 30, 2023 and December 31, 2022, we did not have any assets or liabilities requiring measurement at fair value on a recurring basis with significant unobservable inputs 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 condensed 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 March 31, 2023 and December 31, 2022:

2023 December 31,

(In millions)

The following table summarizes the estimated fair value and amortized cost of our available-for-sale debt securities under the fair value option as of June 30, 2023 and December 31, 2022:

June 30, 2023 December 31, 2022

Amortized Cost Fair Value Amortized Cost Fair Value

(In millions) (In millions)

Funds receivable and customer accounts $ 442 $ 504 $ 441 $ 481

The following table summarizes the gains (losses) from fair value changes recognized in other income (expense), net related to the available-for-sale debt securities under the fair value option for the three months ended March 31, 2023 and 2022:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

(In millions)

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

The following tables summarize our assets held as of March 31, 2023 and December 31, 2022 for which a non-recurring fair value measurement was recorded during the three months ended March 31, 2023 and the year ended December 31, 2022, respectively:

The following tables summarize our assets held as of June 30, 2023 and December 31, 2022 for which a non-recurring fair value measurement was recorded during the six months ended June 30, 2023 and the year ended December 31, 2022, respectively:

2023 Significant Other

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(In millions)

Loans and interest receivable, held for sale $ 1,903 $ — $ 1,903

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

$ 138 $ 100 $ 38

Other assets (2)

Total $ 2,151 $ 208 $ 1,943

(1) Excludes non-marketable equity securities of $ 1.5 billion accounted for under the Measurement Alternative for which no observable price changes occurred during the three months ended March 31, 2023.

(2) Consists of ROU lease assets recorded at fair value pursuant to impairment charges that occurred during the three months ended March 31, 2023.

(1) Excludes non-marketable equity securities of $ 1.5 billion accounted for under the Measurement Alternative for which no observable price changes occurred during the six months ended June 30, 2023.

(2) Consists of ROU lease assets recorded at fair value pursuant to impairment charges that occurred during the six months ended June 30, 2023.

See “Note 6—Leases” for additional information.

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See “Note 6—Leases” for additional information.

The fair value of loans and interest receivables held for sale is classified within Level 3 as we estimate fair value using significant unobservable inputs.

The significant unobservable input is the price at which the Company expects to sell the loans based upon our agreement with the global investment firm that will purchase these loans.

The price is determined based upon certain loan and risk classifications of the portfolio.

The following table presents the valuation techniques covering the majority of Level 3 non-recurring fair value measurements and the most significant unobservable inputs used in those measurements as of June 30, 2023:

(In millions) Methodology Input Low (1)

Weighted Average (1)(2)

Loans and interest receivable, held for sale $ 1,903 Price-based Price $ 0.98 $ 0.99 $ 0.99

(1) Prices are measured in relation to $ 1.00 par.

(2) Weighted average is calculated based on the fair value of the loans.

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.

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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 $ 444 million and fair value of approximately $ 351 million as of March 31, 2023.

Our notes receivable had a carrying value of approximately $ 461 million and fair value of approximately $ 389 million as of June 30, 2023.

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

Our 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 for both March 31, 2023 and December 31, 2022.

Our term debt (including current portion) in the form of fixed rate notes had a carrying value of approximately $ 10.5 billion and fair value of approximately $ 9.7 billion as of June 30, 2023.

Our 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.

If these financial instruments were measured at fair value in the financial statements, cash would be classified as Level 1;

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and the remaining financial instruments would be classified as Level 3 in the fair value hierarchy.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 10— DERIVATIVE INSTRUMENTS

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

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Cash flow hedges

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 12 months or less, to reduce the volatility of cash flows primarily related to forecasted revenues denominated in foreign currencies.

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

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dollar/foreign currency exchange rate.

These derivative instruments are designated as cash flow hedges and accordingly, the derivative’s gain or loss is initially reported as a component of AOCI and subsequently reclassified into revenue in the same period the forecasted transaction affects earnings.

These derivative instruments are designated as cash flow hedges and accordingly, the derivative’s gain or loss is initially reported as a component of AOCI and subsequently reclassified into revenue or applicable expense line item in the condensed consolidated statements of income (loss) in the same period the forecasted transaction affects earnings.

We evaluate the effectiveness of our foreign currency exchange contracts on a quarterly basis by comparing the critical terms of the derivative instruments with the critical terms of the forecasted cash flows of the hedged item;

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Accordingly, the cash flows associated with derivatives designated as cash flow hedges are classified in cash flows from operating activities on our condensed consolidated statements of cash flows.

As of March 31, 2023, we estimated that net derivative gains related to our cash flow hedges included in AOCI, which are expected to be reclassified into earnings within the next 12 months, were de minimis.

During the three months ended March 31, 2023 and 2022, we did not discontinue any cash flow hedges because it was probable that the original forecasted transaction would not occur and as such, did not reclassify any gains or losses to earnings prior to the occurrence of the hedged transaction.

As of June 30, 2023, we estimated that $ 23 million of net derivative losses related to our cash flow hedges included in AOCI are expected to be reclassified into earnings within the next 12 months.

During the three and six months ended June 30, 2023 and 2022, we did not discontinue any cash flow hedges because it was probable that the original forecasted transaction would not occur and as such, did not reclassify any gains or losses to earnings prior to the occurrence of the hedged transaction.

If we elect to discontinue our cash flow hedges and it is probable that the original forecasted transaction will occur, we continue to report the derivative’s gain or loss in AOCI until the forecasted transaction affects earnings, at which point we also reclassify it into earnings.

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

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Foreign currency exchange contracts not designated as hedging instruments

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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 condensed consolidated statements of cash flows.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

FAIR VALUE OF DERIVATIVE CONTRACTS

The fair value of our outstanding derivative instruments as of March 31, 2023 and December 31, 2022 was as follows:

Balance Sheet Location March 31,

The fair value of our outstanding derivative instruments as of June 30, 2023 and December 31, 2022 was as follows:

Balance Sheet Location June 30,

2023 December 31,

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

Rights of set-off associated with our foreign currency exchange contracts represented a potential offset to both assets and liabilities of $ 62 million as of March 31, 2023 and $ 70 million as of December 31, 2022.

Rights of set-off associated with our foreign currency exchange contracts represented a potential offset to both assets and liabilities of $ 52 million as of June 30, 2023 and $ 70 million as of December 31, 2022.

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.

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EFFECT OF DERIVATIVE CONTRACTS ON CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Three Months Ended March 31,

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

Three Months Ended June 30,

(In millions)

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Total amounts presented in the condensed consolidated statements of income (loss) in which the effects of cash flow hedges and net investment hedges are recorded $ 7,287 $ 170 $ 6,806 $ ( 715 )

Gains on derivatives in cash flow hedging relationship:

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

Amount of gains on foreign currency exchange contracts reclassified from AOCI 34 — 107 —

Gains on derivatives in net investment hedging relationship:

Gains (losses) on derivatives in net investment hedging relationship:

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

Losses on derivatives not designated as hedging instruments:

Amount of losses on foreign currency exchange contracts — ( 75 ) — ( 39 )

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

Amount of (losses) gains on foreign currency exchange contracts — ( 81 ) — 147

Total gains (losses) $ 34 $ ( 52 ) $ 107 $ 164

Six Months Ended June 30,

(In millions)

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

Total amounts presented in the condensed consolidated statements of income (loss) in which the effects of cash flow hedges and net investment hedges are recorded $ 14,327 $ 245 $ 13,289 $ ( 797 )

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

Amount of gains on foreign exchange contracts reclassified from AOCI 110 — 154 —

Gains (losses) 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 (losses) gains on foreign exchange contracts — ( 156 ) — 108

Total gains (losses) $ 110 $ ( 97 ) $ 154 $ 134

PayPal Holdings, Inc.

NOTES TO CONDENSED 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):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

(In millions)

Unrealized (losses) gains on foreign exchange contracts designated as cash flow hedges $ ( 35 ) $ 44

Unrealized gains (losses) on foreign exchange contracts designated as cash flow hedges $ 11 $ 320 $ ( 24 ) $ 364

Unrealized gains on foreign exchange contracts designated as net investment hedges 169 135 196 156

Total unrealized (losses) gains recognized from derivative contracts designated as hedging instruments in the condensed consolidated statements of comprehensive income (loss) $ ( 8 ) $ 65

Total unrealized gains recognized from derivative contracts designated as hedging instruments in the condensed consolidated statements of comprehensive income (loss) $ 180 $ 455 $ 172 $ 520

NOTIONAL AMOUNTS OF DERIVATIVE CONTRACTS

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Total $ 16,376 $ 18,989

NOTE 11— LOANS AND INTEREST RECEIVABLE

LOANS AND INTEREST RECEIVABLE, HELD FOR SALE

In June 2023, we entered into a multi-year agreement with a global investment firm to sell up to € 40 billion of our eligible consumer installment receivables portfolio including those held on our balance sheet at closing of the transaction and a forward-flow arrangement for the sale of future originations.

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

During the six months ended June 30, 2023, we reclassified approximately $ 1.2 billion of eligible consumer installment receivables from loans and interest receivable, net to loans and interest receivable, held for sale.

As of June 30, 2023, the total outstanding balance in our held for sale portfolio was $ 1.9 billion, including loans reclassified as held for sale and loans originated as held for sale.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 11— LOANS AND INTEREST RECEIVABLE

LOANS AND INTEREST RECEIVABLE, NET

Consumer receivables

We offer revolving and installment credit products as a funding option for consumers in certain checkout transactions on our payments platform.

Our revolving credit product consists of PayPal Credit in the United Kingdom (“U.K.”), which is made available to consumers as a funding source in their PayPal wallet once they are approved for credit.

Our revolving credit product consists of PayPal Credit in the U.K., which is made available to consumers as a funding source in their PayPal wallet once they are approved for credit.

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.

We offer non interest-bearing installment credit products in these markets as well as interest-bearing installment credit products in the U.S.

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

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

consumers by an independent chartered financial institution (“partner institution”) and are responsible for servicing functions related to that portfolio.

During the three months ended March 31, 2023, we purchased approximately $ 268 million in consumer receivables.

As of March 31, 2023 and December 31, 2022, the outstanding balance of consumer receivables, which consisted of revolving and installment loans and interest receivable, was $ 6.1 billion and $ 5.9 billion, respectively, net of the participation interest sold to the partner institution of $ 23 million and $ 17 million, respectively.

consumers by an independent chartered financial institution (“partner institution”) and are responsible for the servicing functions related to that portfolio.

During the six months ended June 30, 2023 and 2022, we purchased approximately $ 514 million and nil in consumer receivables, respectively.

As of June 30, 2023 and December 31, 2022, the outstanding balance of consumer receivables, which consisted of revolving and installment loans and interest receivable, was $ 4.5 billion and $ 5.9 billion, respectively, net of the participation interest sold to the partner institution of $ 26 million and $ 17 million, respectively.

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

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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.

Consumer receivables delinquency and allowance

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

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The “current” category represents balances that are within 29 days of the billing date or contractual repayment date, as applicable.

March 31, 2023

June 30, 2023

(In millions, except percentages)

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$ 2,089 $ 1,699 $ 662 $ 46 $ — $ — $ 4,496 100 %

Gross charge-offs for the three months ended March 31, 2023

Gross charge-offs for the six months ended June 30, 2023

$ 61 $ 4 $ 101 $ 3 $ — $ — $ 169

(1) Excludes receivables from other consumer credit products of $ 11 million at March 31, 2023.

(1) Excludes receivables from other consumer credit products of $ 4 million at June 30, 2023.

PayPal Holdings, Inc.

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

The following table summarizes the activity in the allowance for consumer loans and interest receivable for the three months ended March 31, 2023 and 2022:

March 31, 2023 March 31, 2022

The following table summarizes the activity in the allowance for consumer loans and interest receivable for the six months ended June 30, 2023 and 2022:

June 30, 2023 June 30, 2022

Consumer Loans Receivable Interest Receivable Total Allowance (1), (2)

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

Reversal of allowance due to reclassification of loans and interest receivable to held for sale ( 33 ) — ( 33 ) — — —

Provisions 182 13 195 118 4 122

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Ending balance $ 337 $ 24 $ 361 $ 254 $ 28 $ 282

(1) Excludes allowances from other consumer credit products of nil and $ 3 million at March 31, 2023 and 2022, respectively.

(1) Excludes allowances from other consumer credit products of nil and $ 3 million at June 30, 2023 and 2022, respectively.

(2) Beginning balances, provisions and charge-offs include amounts related to loans and interest receivable prior to their reclassification to loan and interest receivable, held for sale.

(3) Includes amounts related to foreign currency remeasurement.

The provision for the three months ended March 31, 2023 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 three months ended March 31, 2023 compared to the same period in the prior year was due to the expansion of our installment credit products.

The provision for the six months ended June 30, 2023 was primarily attributable to growth in the U.S.

installment loans and U.K.

revolving loans within our consumer receivable portfolio.

In the second quarter of 2023, we updated our expected credit loss models for the consumer receivables.

The expected credit loss models utilize certain macroeconomic factors such as forecasted trends in household disposable income and retail e-commerce sales, and no longer consider unemployment.

These changes did not have a material impact on our provision recorded in the period.

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

The increase in charge-offs for the six months ended June 30, 2023 compared to the same period in the prior year was due to the expansion of our installment products and growth of revolving credit products.

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

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

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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.

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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.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Merchant receivables

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

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

During the three months ended March 31, 2023 and 2022, we purchased approximately $ 666 million and $ 605 million in merchant receivables, respectively.

As of both March 31, 2023 and December 31, 2022, the total outstanding balance in our pool of merchant loans, advances, and interest and fees receivable was $ 2.1 billion, net of the participation interest sold to the partner institution of $ 91 million and $ 97 million, respectively.

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

During the six months ended June 30, 2023 and 2022, we purchased approximately $ 975 million and $ 1.4 billion in merchant receivables, respectively.

As of June 30, 2023 and December 31, 2022, the total outstanding balance in our pool of merchant loans, advances, and interest and fees receivable was $ 1.7 billion and $ 2.1 billion, respectively, net of the participation interest sold to the partner institution of $ 69 million and $ 97 million, respectively.

Through our PPWC product, merchants can borrow a certain percentage of their annual payment volume processed by PayPal and are charged a fixed fee for the loan or advance based on the overall credit assessment of the merchant.

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The “current” category represents balances that are within 29 days of the expected repayment date or contractual repayment date, as applicable.

March 31, 2023

June 30, 2023

(In millions, except percentages)

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Total $ 961 $ 608 $ 17 $ 44 $ 34 $ 1,664 100 %

Gross charge-offs for the three months ended March 31, 2023

Gross charge-offs for the six months ended June 30, 2023

$ — $ 109 $ 10 $ 10 $ 3 $ 132

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

The following table summarizes the activity in the allowance for merchant loans, advances, and interest and fees receivable for the three months ended March 31, 2023 and 2022:

March 31, 2023 March 31, 2022

The following table summarizes the activity in the allowance for merchant loans, advances, and interest and fees receivable for the six months ended June 30, 2023 and 2022:

June 30, 2023 June 30, 2022

Merchant Loans and Advances Interest and Fees Receivable Total Allowance Merchant Loans and Advances Interest and Fees Receivable Total Allowance

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Ending balance $ 232 $ 24 $ 256 $ 161 $ 9 $ 170

The provision for the three months ended March 31, 2023 was primarily attributable to originations in the merchant portfolio and a deterioration in credit quality of loans outstanding.

Qualitative adjustments were made to account for uncertainty around the financial health of our borrowers including the effectiveness of loan modification programs made available to merchants in previous years.

The provision for the six months ended June 30, 2023 was primarily attributable to a deterioration in credit quality of loans outstanding.

Qualitative adjustments were made to account for limitations in our current expected credit loss models due to uncertainty around the financial health of our borrowers including the effectiveness of loan modification programs made available to merchants.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The increase in the charge-offs for the three months ended March 31, 2023 compared to the same period in the prior year was due to the expansion of acceptable risk parameters in 2022, which resulted in a deterioration of the overall credit quality of loans outstanding.

The increase in the charge-offs for the six months ended June 30, 2023 compared to the same period in the prior year was due to the expansion of acceptable risk parameters in 2022, which resulted in a deterioration of the overall credit quality of loans outstanding.

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.

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FIXED RATE NOTES

In June 2023, we issued fixed rate notes with varying maturity dates for an aggregate principal amount of ¥ 90 billion (approximately $ 622 million as of June 30, 2023).

Interest on these notes is payable on June 9 and December 9 of each year, beginning on December 9, 2023.

In May 2022, May 2020, and September 2019, we issued fixed rate notes with varying maturity dates for an aggregate principal amount of $ 3.0 billion, $ 4.0 billion and $ 5.0 billion, respectively.

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.”

As of both March 31, 2023 and December 31, 2022, we had an outstanding aggregate principal amount of $ 10.4 billion related to the Notes.

The notes issued from the June 2023, 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 (except for the June 2023 notes), 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, 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 condensed consolidated statements of income (loss).

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

As of June 30, 2023 and December 31, 2022, we had an outstanding aggregate principal amount of $ 10.6 billion and $ 10.4 billion, respectively, related to the Notes.

The following table summarizes the Notes:

Maturities Effective Interest Rate March 31,

Maturities Effective Interest Rate June 30,

2023 December 31,

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6/1/2062 5.34 % 500 500

June 2023 debt issuance (1) :

¥ 30 billion fixed-rate 0.813 % notes

6/9/2025 0.89 % 207 —

¥ 23 billion fixed-rate 0.972 % notes

6/9/2026 1.06 % 159 —

¥ 37 billion fixed-rate 1.240 % notes

6/9/2028 1.31 % 256 —

Total term debt $ 10,622 $ 10,418

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current portion of term debt (2)

( 418 ) ( 418 )

Total carrying amount of term debt $ 10,549 $ 9,926

(1) Principal amounts represent the U.S.

dollar equivalent as of June 30, 2023 and December 31, 2022, respectively.

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

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 $ 83 million and $ 166 million for the three and six months ended June 30, 2023, respectively.

The interest expense recorded for the Notes, including amortization of the debt discount, debt issuance costs, and debt extinguishment net gains, was $ 67 million and $ 123 million for the three and six months ended June 30, 2022, respectively.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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, debt issuance costs, and debt extinguishment net gains, was $ 83 million and $ 56 million for the three months ended March 31, 2023 and 2022, respectively.

CREDIT FACILITIES

Five-year revolving credit facility

In June 2023, we entered into a credit agreement (the “Credit Agreement”) that provides for an unsecured $ 5.0 billion, five-year revolving credit facility and terminated the facility entered into in September 2019.

The Credit Agreement includes a $ 150 million letter of credit sub-facility and a $ 600 million swingline sub-facility, with available borrowings under the revolving credit facility reduced by the amount of any letters of credit and swingline borrowings outstanding from time to time.

Loans borrowed under the Credit Agreement are available in U.S.

dollar, Euro, British pound, and Australian dollar, and in each case subject to the sub-limits and other limitations provided in the Credit Agreement.

We may also, subject to the agreement of the applicable lenders and satisfaction of specified conditions, increase the commitments under the revolving credit facility by up to $ 2.0 billion.

Subject to specific conditions, we may designate one or more of our subsidiaries as additional borrowers under the Credit Agreement, provided PayPal Holdings, Inc.

guarantees the portion of borrowings made available and other obligations of any such subsidiaries under the Credit Agreement.

As of June 30, 2023, certain subsidiaries were designated as additional borrowers.

Funds borrowed under the Credit Agreement may be used for working capital, capital expenditures, acquisitions, and other purposes not in contravention of the Credit Agreement.

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 will bear interest at either (i) the applicable term benchmark rate plus a margin (based on the Company's public debt ratings) ranging from 0.750 % to 1.250 %, (ii) the applicable Risk-Free Rate (Sterling Overnight Index Average for loans denominated in pounds sterling and Euro Short-Term Rate for loans denominated in euros) rate plus a margin (based on the Company's public debt ratings) ranging from 0.750 % to 1.250 %, (iii) the applicable overnight rate plus a margin (based on the Company's public debt ratings) ranging from 0.750 % to 1.250 % or (iv) a formula based on the prime rate, the federal funds effective rate or the adjusted term Secured Overnight Financing Rate plus a margin (based on the Company's public debt ratings) ranging from zero to 0.250 %.

Subject to certain conditions stated in the Credit Agreement, the Company and any subsidiaries designated as additional borrowers may borrow, prepay and reborrow amounts under the revolving credit facility at any time during the term of the Credit Agreement.

The Credit Agreement will terminate and all amounts owing thereunder will be due and payable on June 7, 2028, unless (a) the commitments are terminated earlier, either at the request of the Company or, if an event of default occurs, by the lenders (or automatically in the case of certain bankruptcy-related events), or (b) the maturity date is extended upon the request of the Company, subject to the agreement of the lenders.

The 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 the incurrence of subsidiary indebtedness, in each case subject to certain exceptions.

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

As of June 30, 2023, no borrowings or letters of credit were outstanding under the Credit Agreement.

Accordingly, at June 30, 2023, $ 5.0 billion of borrowing capacity was available for the purposes permitted by the Credit Agreement, subject to customary conditions to borrowing.

Paidy credit agreement

In February 2022, we entered into a credit agreement (the “Paidy Credit Agreement”) with Paidy as co-borrower, which provided for an unsecured revolving credit facility of ¥ 60.0 billion, which was modified in September 2022 to increase the borrowing capacity by ¥ 30.0 billion for a total borrowing capacity of ¥ 90.0 billion (approximately $ 678 million as of March 31, 2023).

As of March 31, 2023 and December 31, 2022, ¥ 73.3 billion (approximately $ 553 million) and ¥ 64.3 billion (approximately $ 491 million), respectively, were outstanding under the Paidy Credit Agreement, which was recorded in long-term debt on our condensed consolidated balance sheet.

At March 31, 2023, ¥ 16.7 billion (approximately $ 125 million) of borrowing capacity was available for the purposes permitted by the Paidy Credit Agreement, subject to customary conditions to borrowing.

During the three months ended March 31, 2023 and 2022, the total interest expense and fees we recorded related to the Paidy Credit Agreement were de minimis.

In June 2023, we repaid borrowings on the Paidy Credit Agreement using proceeds from the June 2023 debt issuance.

As of June 30, 2023, no borrowings were outstanding, and as of December 31, 2022, ¥ 64.3 billion (approximately $ 491 million) was outstanding under the Paidy Credit Agreement, which was recorded in long-term debt on our condensed consolidated balance sheets.

At June 30, 2023, ¥ 90.0 billion (approximately $ 622 million) of borrowing capacity was available for the purposes permitted by the Paidy Credit Agreement, subject to customary conditions to borrowing.

During the three and six months ended June 30, 2023 and 2022, the total interest expense and fees we recorded related to the Paidy Credit Agreement were de minimis.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

FUTURE PRINCIPAL PAYMENTS

As of March 31, 2023, the future principal payments associated with our term debt were as follows (in millions):

As of June 30, 2023, the future principal payments associated with our term debt were as follows (in millions):

Remaining 2023 $ —

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NOTE 13— COMMITMENTS AND CONTINGENCIES

As of March 31, 2023 and December 31, 2022, approximately $ 5.3 billion and $ 4.9 billion, respectively, of unused credit was available to PayPal Credit account holders in the U.K.

As of June 30, 2023 and December 31, 2022, approximately $ 5.6 billion and $ 4.9 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.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

LITIGATION AND REGULATORY MATTERS

We are involved in legal and regulatory proceedings on an ongoing basis.

Many of these proceedings are in early stages and may seek an indeterminate amount of damages or penalties or may require us to change or adopt certain business practices.

Certain of these proceedings are in early stages and may seek an indeterminate amount of damages or penalties or may require us to change or adopt certain business practices.

If we believe that a loss arising from such matters is probable and can be reasonably estimated, we accrue the estimated liability in our financial statements at that time.

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With respect to the matters disclosed in this Note 13, we are unable to estimate the possible loss or range of losses that could potentially result from the application of such non-monetary remedies.

Amounts accrued for legal and regulatory proceedings for which we believe a loss is probable and reasonably estimable were not material as of March 31, 2023.

Amounts accrued for legal and regulatory proceedings for which we believe a loss is probable and reasonably estimable were not material as of June 30, 2023.

Except as otherwise noted for the proceedings described in this Note 13, we have concluded, based on currently available information, that reasonably possible losses arising directly from the proceedings (i.e., monetary damages or amounts paid in judgment or settlement) in excess of our recorded accruals are also not material.

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If any of our estimates and assumptions change or prove to have been incorrect, it could have a material adverse effect on our business, financial position, results of operations, or cash flows.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Regulatory proceedings

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PPAU is required to deliver an Assurance Action Plan (“AAP”) under the enforceable undertaking to demonstrate that the governance and oversight arrangements following the remedial work completed by PPAU are sustainable and appropriate.

The enforceable undertaking requires PPAU to appoint an external auditor by June 30, 2023 to assess the appropriateness, sustainability and efficacy of the actions to be taken under the AAP.

The enforceable undertaking requires PPAU to appoint an external auditor.

The external auditor was appointed on June 22, 2023 and will assess and report on the appropriateness, sustainability and efficacy of the actions to be taken under the AAP.

The external auditor’s final report to PPAU and AUSTRAC is due on or before April 16, 2024.

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Any failure to comply with the enforceable undertaking could result in penalties or require us to change our business practices.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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.

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We are cooperating with the CFPB in connection with these CIDs.

We are responding to subpoenas and requests for information received from the U.S.

We have responded to subpoenas and requests for information from the U.S.

Securities and Exchange Commission (“SEC”) Enforcement Division relating to whether the interchange rates paid to the bank that issues debit cards bearing our licensed brands were consistent with Regulation II of the Board of Governors of the Federal Reserve System, and to the reporting of marketing fees earned from the PayPal-branded card programs (the “SEC Debit Card Program Matter”).

We are cooperating with the SEC Enforcement Division in connection with this investigation.

We have been informed by the SEC that this matter has been formally closed without action.

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.

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We are cooperating with the FCO in connection with this proceeding.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Legal proceedings

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On April 27, 2023, the Court granted Defendants’ motion and dismissed the SAC in its entirety with prejudice.

Plaintiffs’ deadline to file a notice of appeal is May 30, 2023.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Plaintiffs’ deadline to file an appeal has passed and the matter is now closed.

On December 16, 2021 and January 19, 2022, two related putative shareholder derivative actions captioned Pang v.

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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.

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 (“Exchange Act”), and seek to recover damages on behalf of the Company.

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 June 29, 2023, following the final dismissal of the Kang Securities Action, the Court so-ordered a stipulation dismissing the California Derivative Actions, without prejudice.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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.

6 unchanged sentences

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 alleged violations of Sections 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) against the Company, as well as its Chief Executive Officer, Chief Strategy, Growth and Data Officer, and former Chief Financial Officer (collectively, the “Individual Defendants,” and together with the Company, “Defendants”), and for alleged violations of Sections 20(a) and 20A of the Exchange Act against the Individual Defendants.

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 alleged violations of Sections 10(b) of the Exchange Act against the Company, as well as its Chief Executive Officer, Chief Strategy, Growth and Data Officer, and former Chief Financial Officer (collectively, the “Individual Defendants,” and together with the Company, “Defendants”), and for alleged violations of Sections 20(a) and 20A of the Exchange Act against the Individual Defendants.

The complaint alleges that certain public statements made by Defendants 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.

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On November 2, 2022, a putative shareholder derivative action captioned Shah v.

Daniel Schulman, et al., Case No.

Daniel Schulman, et al.

22-cv-1445, was filed in the U.S.

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Daniel Schulman, et.

al., Case No.

23-cv-01913, was filed in the U.S.

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The Shah and Nelson Actions are based on the same alleged facts and circumstances as the PPH 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 Shah and Nelson Actions allege claims for breach of fiduciary duty, aiding and abetting breach of fiduciary duty, unjust enrichment, waste of corporate assets, gross mismanagement and violations of the Securities Exchange Act of 1934, and seek to recover damages on behalf of the Company.

The Shah and Nelson Actions allege claims for breach of fiduciary duty, aiding and abetting breach of fiduciary duty, unjust enrichment, waste of corporate assets, gross mismanagement and violations of the Exchange Act, and seek to recover damages on behalf of the Company.

The Shah and Nelson Actions have been stayed pending further developments in the PPH Securities Action.

On December 20, 2022, a civil lawsuit captioned State of Hawai‘i, by its Office of Consumer Protection, v.

PayPal, Inc., and PayPal Holdings, Inc., Case No.

1CCV-22-0001610, was filed in the Circuit Court of the First Circuit of the State of Hawai‘i (the “Hawai‘i Action”).

The Hawai‘i Action asserts claims for unfair and deceptive acts and practices under Hawai‘i Revised Statutes Sections 480-2(a) and 481A-3(a).

Plaintiff seeks injunctive relief as well as unspecified penalties and other monetary relief.

On July 14, 2023, the court denied Defendants’ motion to dismiss the complaint.

General matters

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OFF-BALANCE SHEET ARRANGEMENTS

As of March 31, 2023 and December 31, 2022, 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.

As of June 30, 2023 and December 31, 2022, 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.

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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.

At March 31, 2023 and December 31, 2022, the allowance for transaction losses was $ 58 million and $ 66 million, respectively.

The allowance for negative customer balances was $ 260 million and $ 212 million at March 31, 2023 and December 31, 2022, respectively.

The following table shows changes in the allowance for transaction losses and negative customer balances related to our protection programs for the three months ended March 31, 2023 and 2022:

Three Months Ended March 31,

At June 30, 2023 and December 31, 2022, the allowance for transaction losses was $ 58 million and $ 66 million, respectively.

The allowance for negative customer balances was $ 288 million and $ 212 million at June 30, 2023 and December 31, 2022, respectively.

The following table shows changes in the allowance for transaction losses and negative customer balances related to our protection programs for the three and six months ended June 30, 2023 and 2022:

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

(in millions)

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NOTE 14— STOCK REPURCHASE PROGRAMS

During the three months ended March 31, 2023, we repurchased approximately 19 million shares of our common stock for approximately $ 1.4 billion at an average price of $ 76.60 , excluding excise tax.

During the six months ended June 30, 2023, we repurchased approximately 41 million shares of our common stock for approximately $ 3.0 billion at an average price of $ 72.42 , excluding excise tax.

These shares were purchased in the open market under our stock repurchase programs authorized in July 2018 and June 2022.

As of March 31, 2023, a total of approximately $ 14.4 billion remained available for future repurchases of our common stock under our June 2022 stock repurchase program.

As of June 30, 2023, a total of approximately $ 12.9 billion remained available for future repurchases of our common stock under our June 2022 stock repurchase program.

The Inflation Reduction Act of 2022 imposed a nondeductible 1% excise tax on the net value of certain stock repurchases made after December 31, 2022.

Beginning in the first quarter of 2023, we reflected the applicable excise tax in treasury stock on our condensed consolidated balance sheet.

During the six months ended June 30, 2023, we recorded $ 24 million in excise tax within treasury stock on our condensed consolidated balance sheet.

NOTE 15— STOCK-BASED PLANS

In May 2023, our stockholders approved an additional authorization of 34.6 million shares to the Amended and Restated PayPal Holdings, Inc.

2015 Equity Incentive Award Plan (the “Plan”).

In June 2023, the Company filed a post-effective amendment to the 2022 Inducement Plan registration statement that enabled 2.6 million shares previously issuable under the 2022 Inducement Plan to be included in the 34.6 million additional shares issuable under the Plan.

STOCK-BASED COMPENSATION EXPENSE

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The impact on our results of operations of recording stock-based compensation expense under our equity incentive plans for the three months ended March 31, 2023 and 2022 was as follows:

Three Months Ended March 31,

The impact on our results of operations of recording stock-based compensation expense under our equity incentive plans for the three and six months ended June 30, 2023 and 2022 was as follows:

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

(In millions)

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NOTE 16— INCOME TAXES

Our effective tax rate for the three months ended March 31, 2023 and 2022 was 26 % and 19 %, respectively.

Our effective tax rate for the three and six months ended June 30, 2023 was 21 % and 23 %, respectively.

Our effective tax rate for the three and six months ended June 30, 2022 was 796 % and 75 %, respectively.

The difference between our effective tax rate and the U.S.

federal statutory rate of 21% in both periods was primarily the result of foreign income taxed at different rates and discrete tax adjustments, including tax expense related to stock-based compensation.

federal statutory rate of 21% in the current periods was primarily the result of foreign income taxed at different rates and discrete tax adjustments, including tax expense related to stock-based compensation.

The difference between our effective tax rate and the U.S.

federal statutory rate of 21% for the three and six months ended June 30, 2022 was primarily due to tax expense related to the intra-group transfer of intellectual property.

NOTE 17— RESTRUCTURING AND OTHER CHARGES

During the first quarter of 2023, management initiated a global workforce reduction intended to focus resources on core strategic priorities, and improve our cost structure and operating efficiency.

The associated restructuring charges during the three months ended March 31, 2023 were $ 117 million.

The associated restructuring charges during the three and six months ended June 30, 2023 were nil and $ 117 million, respectively.

We primarily incurred employee severance and benefits costs, substantially all of which have been accrued for as of March 31, 2023.

The following table summarizes the restructuring reserve activity during the three months ended March 31, 2023:

The following table summarizes the restructuring reserve activity during the six months ended June 30, 2023:

Employee Severance and Benefits and Other Associated Costs

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Payments ( 121 )

Accrued liability as of March 31, 2023

Accrued liability as of June 30, 2023

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 during the three months ended March 31, 2022 were $ 20 million.

The associated restructuring charges during the three and six months ended June 30, 2022 were $ 71 million and $ 91 million, respectively.

We primarily incurred employee severance and benefits costs, as well as associated consulting costs under this strategic reduction.

The strategic actions associated with this plan were substantially completed by the fourth quarter of 2022.

Additionally, we are continuing to review our facility needs due to our new and evolving work models.

In the three months ended March 31, 2023 and 2022, we incurred asset impairment charges of $ 39 million and $ 16 million, respectively, due to exiting of certain leased properties, which resulted in a reduction of ROU lease assets and related leasehold improvements.

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 $ 4 million and $ 43 million in the three and six months ended June 30, 2023, respectively, and $ 19 million and $ 35 million in the three and six months ended June 30, 2022, 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.

We also incurred a loss of $ 8 million upon designation of an owned property as held for sale in the three months ended March 31, 2023.

We recognized a gain of $ 14 million due to the sale of an owned property in the three and six months ended June 30, 2023.

We also incurred a loss of $ 8 million upon designation of another owned property as held for sale in the six months ended June 30, 2023.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

During the three and six months ended June 30, 2023, approximately $ 34 million of losses were recorded in restructuring and other charges in order to measure loans and interest receivable, held for sale, at the lower of cost or fair value.

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-Q

Item 1. Financial Statements