What changed in this filing

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Item 9A. Controls and Procedures

2024-02-08 compared with 2023-02-10 · 645 added, 565 removed, 1701 unchanged (42% of the section changed)

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OTHER INFORMATION

RULE 10B5-1 TRADING PLANS

An equity trading plan is a written document that preestablishes the amounts, prices and dates (or formula for determining the amounts, prices and dates) of future purchases or sales of the Company’s stock, including sales of shares acquired under the Company’s employee and director equity plans.

On December 7, 2023 , Jonathan Auerbach entered into an equity trading plan that is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act.

Auerbach was serving as an executive officer of the Company at the time the trading plan was adopted .

The trading plan has a duration of March 7, 2024 to September 10, 2024 with approximately 85,839 shares (vested and net shares expected to vest over the duration of the trading plan) subject to sale under the plan.

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

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EXECUTIVE COMPENSATION

Incorporated by reference from our Proxy Statement for our 2023 Annual Meeting of Stockholders to be filed with the SEC within 120 days after December 31, 2022.

Incorporated by reference from our Proxy Statement for our 2024 Annual Meeting of Stockholders to be filed with the SEC within 120 days after December 31, 2023 (excluding the information under the subheading “Pay Versus Performance”).

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

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Incorporated by reference from our Proxy Statement for our 2024 Annual Meeting of Stockholders to be filed with the SEC within 120 days after December 31, 2023.

PRINCIPAL ACCOUNTING FEES AND SERVICES

PRINCIPAL ACCOUNTANT FEES AND SERVICES

Incorporated by reference from our Proxy Statement for our 2024 Annual Meeting of Stockholders to be filed with the SEC within 120 days after December 31, 2023.

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

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

and its subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of income (loss), of comprehensive income (loss), of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2023, including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”).

We also have audited the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

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Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Changes in Accounting Principles

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

Basis for Opinions

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

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

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

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

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Accounts receivable, net 1,069 963

Loans and interest receivable, held for sale 563 —

Loans and interest receivable, net of allowances of $ 540 and $ 598 as of December 31, 2023 and 2022, respectively

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Accrued expenses and other current liabilities 6,392 4,868

Income taxes payable 813 236

Total current liabilities 48,466 45,008

Deferred tax liability and other long-term liabilities 2,925 2,998

Other long-term liabilities 2,973 2,925

Long-term debt 9,676 10,417

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General and administrative 2,059 2,099 2,114

Restructuring and other charges 207 62 139

Restructuring and other ( 84 ) 207 62

Total operating expenses 24,743 23,681 21,109

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Foreign currency translation adjustments (“CTA”) ( 156 ) ( 305 ) ( 72 )

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

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

Net investment hedges CTA gains (losses), net

Tax (expense) benefit on net investment hedges CTA gains (losses), net

Unrealized (losses) gains on cash flow hedges, net

( 167 ) ( 88 ) 522

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

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

Tax benefit (expense) on unrealized (losses) gains on investments, net 120 22 ( 2 )

Unrealized gains (losses) on available-for-sale debt securities, net

457 ( 504 ) ( 98 )

Tax (expense) benefit on unrealized gains (losses) on available-for-sale debt securities, net

( 108 ) 120 22

Other comprehensive income (loss), net of tax 182 ( 792 ) 348

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Balances at December 31, 2020 1,172 $ ( 8,507 ) $ 16,644 $ ( 484 ) $ 12,366 $ 44 $ 20,063

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

Net income — — — — 4,169 — 4,169

Foreign CTA — — — ( 72 ) — — ( 72 )

Net investment hedge CTA gain — — — 55 — — 55

Unrealized losses on cash flow hedges, net — — — ( 329 ) — — ( 329 )

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

Unrealized gains on investments, net — — — 9 — — 9

Tax expense on unrealized gains on investments, net — — — ( 2 ) — — ( 2 )

Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes 11 — ( 365 ) — — — ( 365 )

Common stock repurchased ( 12 ) ( 1,635 ) — — — — ( 1,635 )

Stock-based compensation — — 1,421 — — — 1,421

Balances at December 31, 2020 1,172 $ ( 8,507 ) $ 16,644 $ ( 484 ) $ 12,366 $ 44 $ 20,063

Net income — — — — 4,169 — 4,169

Foreign CTA — — — ( 72 ) — — ( 72 )

Unrealized gains on cash flow hedges, net — — — 522 — — 522

Tax expense on unrealized gains on cash flow hedges, net — — — ( 26 ) — — ( 26 )

Unrealized losses on investments, net — — — ( 98 ) — — ( 98 )

Tax benefit on unrealized losses on investments, net — — — 22 — — 22

Unrealized losses on available-for-sale debt securities, net

— — — ( 98 ) — — ( 98 )

Tax benefit on unrealized losses on available-for-sale debt securities, net

— — — 22 — — 22

Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes 11 — ( 881 ) — — — ( 881 )

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

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

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

Unrealized losses on available-for-sale debt securities, net — — — ( 504 ) — — ( 504 )

Tax benefit on unrealized losses on available-for-sale debt securities, net

— — — 120 — — 120

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

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

Net income — — — — 4,246 — 4,246

Foreign CTA — — — ( 156 ) — — ( 156 )

Net investment hedge CTA gains, net

— — — 192 — — 192

Tax expense on net investment hedges CTA gains, net

— — — ( 44 ) — — ( 44 )

Unrealized losses on cash flow hedges, net — — — ( 167 ) — — ( 167 )

Tax benefit on unrealized losses on cash flow hedges, net — — — 8 — — 8

Unrealized gains on available-for-sale debt securities, net

— — — 457 — — 457

Tax expense on unrealized gains on available-for-sale debt securities, net

— — — ( 108 ) — — ( 108 )

Common stock and stock-based awards issued, net of shares withheld for employee taxes 9 — ( 130 ) — — — ( 130 )

Common stock repurchased ( 74 ) ( 5,046 ) — — — — ( 5,046 )

Treasury stock reissuance

1 80 — — — — 80

Stock-based compensation — — 1,445 — — — 1,445

Balances at December 31, 2023 1,072 $ ( 21,045 ) $ 19,642 $ ( 746 ) $ 23,200 $ — $ 21,051

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

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Net (gains) losses on strategic investments ( 201 ) 304 ( 46 )

Gain on divestiture of business, excluding transaction costs

Accretion of discounts on investments, net of amortization of premiums ( 367 ) ( 70 ) 73

Adjustments to loans and interest receivable, held for sale 53 — —

Other ( 104 ) 275 27

Originations of loans receivable, held for sale ( 11,470 ) — —

Proceeds from repayments and sales of loans receivable, originally classified as held for sale 10,795 — —

Changes in assets and liabilities:

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Accounts payable 7 ( 35 ) ( 31 )

Income taxes payable 373 73 ( 230 )

Other current liabilities and non-current liabilities ( 222 ) 856 272

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Purchases and originations of loans receivable ( 25,198 ) ( 28,170 ) ( 13,420 )

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

Proceeds from repayments and sales of loans receivable, originally classified as held for investment 26,660 24,903 11,826

Purchases of investments ( 21,980 ) ( 20,219 ) ( 40,116 )

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Acquisitions, net of cash and restricted cash acquired — — ( 2,763 )

Proceeds from divestiture of business, net of cash divested

Funds receivable ( 2,943 ) ( 2,720 ) 193

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Other investing activities 86 187 —

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

Net cash provided by (used in) investing activities 752 ( 3,328 ) ( 5,149 )

Cash flows from financing activities:

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Other financing activities — 1 —

Net cash (used in) provided by financing activities ( 1,110 ) ( 557 ) 12,454

Effect of exchange rate changes on cash, cash equivalents, and restricted cash ( 155 ) ( 102 ) 169

Net change in cash, cash equivalents, and restricted cash 1,127 ( 11 ) 2,297

Cash, cash equivalents, and restricted cash at beginning of period 18,029 18,040 15,743

Cash, cash equivalents, and restricted cash at end of period $ 19,156 $ 18,029 $ 18,040

PayPal Holdings, Inc.

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(In millions)

Net cash used in financing activities ( 2,993 ) ( 1,203 ) ( 557 )

Effect of exchange rate changes on cash, cash equivalents, and restricted cash 76 ( 155 ) ( 102 )

Net change in cash, cash equivalents, and restricted cash 2,678 1,127 ( 11 )

Cash, cash equivalents, and restricted cash at beginning of period 19,156 18,029 18,040

Cash, cash equivalents, and restricted cash at end of period $ 21,834 $ 19,156 $ 18,029

Supplemental cash flow disclosures:

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All intercompany balances and transactions have been eliminated in consolidation.

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

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

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

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

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

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

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

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

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

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

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

See “Note 12—Debt” for additional information.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As of December 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 December 31, 2023 and December 31, 2022, the carrying value of our investments in nonconsolidated VIEs was $ 175 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 consolidated balance sheets.

Our maximum exposure to loss related to our nonconsolidated VIEs, which represents funded commitments and any future funding commitments, was $ 246 million and $ 232 million as of December 31, 2023 and 2022, respectively.

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

Certain amounts for prior years have been reclassified to conform to the financial statement presentation as of and for the year ended December 31, 2023.

Reclassifications

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

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

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

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

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

Year Ended December 31, 2021

(In millions)

As Previously Reported (1)

Adjustments Reclassified

Net cash provided by (used in):

Operating activities (2)

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

Investing activities (3)

( 5,485 ) 336 ( 5,149 )

Financing activities (4)

( 764 ) 207 ( 557 )

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

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

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

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

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

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

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Year Ended December 31, 2020

(In millions)

As Previously Reported (1)

Adjustments Reclassified

Net cash provided by (used in):

Operating activities (2)

$ 5,854 $ 365 $ 6,219

Investing activities (3)

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

Financing activities (4)

12,492 ( 38 ) 12,454

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

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

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

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

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

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

Use of estimates

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

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

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

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

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Unrealized gains and losses are reported as a component of other comprehensive income (loss), net of related estimated tax provisions or benefits.

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

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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

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

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

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

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

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

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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

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

Accounts receivable, net

Accounts receivable is primarily related to revenue earned from customers and is reduced by an allowance for credit losses.

For the years ended December 31, 2023 and 2022, the allowance for credit losses was not significant.

Accounts receivable deemed uncollectible are charged against the allowance for credit losses when identified.

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 United Kingdom (“U.K.”) and other European buy now, pay later loan receivables, consisting of eligible loans and interest receivable 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 sale, the global investment firm becomes the owner of the eligible consumer installment receivables sold and we no longer hold an ownership interest in these receivables.

These sales of eligible consumer installment receivables to the global investment firm are accounted for as a true sale based on our determination that these receivables met all the necessary criteria for such accounting including legal isolation for transferred assets, ability of the transferee to pledge or exchange the transferred assets without constraint, and the transfer of control, and thus, we no longer record these receivables on our consolidated financial statements.

We also concluded that our continuing involvement in the arrangement does not invalidate this determination.

We maintain the servicing rights for the entire pool of the consumer installment receivables sold and receive a market-based service fee for servicing the assets sold.

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

At the time of reclassification of eligible consumer installment receivables to loans and interest receivable, held for sale in May 2023, any previously recorded allowance for credit losses for loans and interest receivable outstanding was reversed, resulting in a decrease in transaction and credit losses on our consolidated statements of income (loss) for the year ended December 31, 2023.

Loans and interest receivable, held for sale as of December 31, 2023 represents installment consumer receivables that we originated and intend to sell to the global investment firm.

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 on our consolidated statements of income (loss).

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

If PayPal no longer has intent to sell loans and interest receivable, held for sale, such loans would be reclassified to loans and interest receivable, held for investment.

When a loan is reclassified to held for investment, any amounts previously recorded in order to measure the loan at the lower of cost or fair value are reversed on our consolidated statements of income (loss) (recognized within restructuring and other) and the loan is recorded consistent with loans originated as held for investment.

Loans and interest receivable, net

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PayPal Credit consists of revolving credit products.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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

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

For our merchant finance products outside the U.S., we extend working capital advances and loans in the U.K.

and rest of Europe through our U.K.

subsidiary and Luxembourg banking subsidiary, respectively, and working capital loans in Australia through an Australian subsidiary.

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

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

For our international consumer credit products, we extend credit in the U.K and the rest of Europe through our U.K.

subsidiary and Luxembourg banking subsidiary, respectively, and in Australia and Japan, through local subsidiaries.

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

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

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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

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

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

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

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

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

The Company adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326):

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

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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

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

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

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

The reasonable and supportable forecast period for merchant products that we have included in our projected loss rates for 2023 and 2022, which approximates the estimated life of the loans, is approximately 2.5 to 3.5 years.

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

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

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

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

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

The allowance for consumer loans and interest receivable not classified as held for sale is primarily based on expectations of credit losses based on historical lifetime loss data.

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

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

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

These changes did not have a material impact on our provision recorded in the year ended December 31, 2023.

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

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

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

The reasonable and supportable forecast period for revolving products and installment products (not classified as held for sale) that we have included in our projected loss rates for 2023, which approximates the estimated life of the loans, is approximately 5 years and 7 months to 3.5 years, respectively.

In 2022, the reasonable and supportable forecast periods were consistent with 2023 except for revolving products, which had a reasonable and supportable forecast period of 2 years.

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

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

In connection with the sale of our eligible consumer installment receivables, and the reclassification of that portfolio as held for sale, we reversed the previously recorded allowances for credit losses associated with those loans and interest receivable balances.

Charge-offs and any adjustments to the fair value of loans and interest receivable, held for sale, are recorded in restructuring and other on our consolidated statement of income (loss).

Customer accounts

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Certain jurisdictions where PayPal operates require us to hold eligible liquid assets, as defined by applicable regulatory requirements and commercial law in these jurisdictions, equal to at least 100 % of the aggregate amount of all customer balances.

Therefore, we restrict the use of the assets underlying the customer balances to meet these regulatory requirements and separately classify the assets as customer accounts in our consolidated balance sheets.

Therefore, we restrict the use of the assets underlying the customer balances to meet these regulatory requirements and separately classify the assets as customer accounts on our consolidated balance sheets.

We classify the assets underlying the customer balances as current based on their purpose and availability to fulfill our direct obligation under amounts due to customers.

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

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

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

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

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

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Luxembourg Commission de Surveillance du Secteur Financier (the “CSSF”) agreed that PayPal’s management may designate up to 50 % of European customer balances held in our Luxembourg banking subsidiary to fund European, U.K., and U.S.

credit activities.

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

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

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

As of December 31, 2023 and 2022, the total amount approved by management to be designated to fund credit activities was $ 3.0 billion and $ 3.8 billion, respectively, and represented approximately 39 % and 37 % of European customer balances made available for our corporate use as of those respective dates, as determined by applying financial regulations maintained by the CSSF.

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

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Customer balances deposited with our partners on a short-term basis in advance of customer transactions and used to fulfill our direct obligation under amounts due to customers are classified as cash and cash equivalents within our customer accounts classification on our consolidated balance sheets.

See “Note 8—Funds Receivable and Customer Accounts and Investments” for additional information related to customer accounts.

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

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

See “Note 8—Cash and Cash Equivalents, Funds Receivable and Customer Accounts, and Investments” for additional information related to customer accounts.

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

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

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

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

Funds receivable and funds payable

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Costs related to the maintenance of internal use software and website development costs are expensed as incurred.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

We determine whether an arrangement is a lease for accounting purposes at contract inception.

Operating leases are recorded as right-of-use (“ROU”) assets, which are included in other assets, and lease liabilities, which are included in accrued expenses and other current liabilities and deferred tax liability and other long-term liabilities on our consolidated balance sheets.

Operating leases are recorded as right-of-use (“ROU”) assets, which are included in other assets, and lease liabilities, which are included in accrued expenses and other current liabilities and other long-term liabilities on our consolidated balance sheets.

For sale-leaseback transactions, we evaluate the sale and the lease arrangement based on our conclusion as to whether control of the underlying asset has been transferred, and recognize the sale-leaseback as either a sale transaction or under the financing method.

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Lease expense for operating leases is recognized on a straight-line basis over the lease term.

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

We have elected to apply the practical expedient and account for the lease and non-lease components as a single lease component for all leases, where applicable.

In addition, we have elected to apply the practical expedients related to lease classification, hindsight, and land easement.

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

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

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

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

We have elected to apply the practical expedient and account for the lease and non-lease components as a single lease component for all leases, where applicable.

In addition, we have elected to apply the practical expedients related to lease classification, hindsight, and land easement.

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

Goodwill and intangible assets

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

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

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

No significant residual value is estimated for intangible assets.

Impairment of long-lived assets

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

We evaluate long-lived assets (including intangible assets) for impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable.

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

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

This allowance represents an accumulation of the estimated amounts of probable transaction losses as of the reporting date.

The allowance is monitored regularly and is updated based on actual loss data.

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

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Allowance for negative customer balances

Negative customer balances occur primarily when there are insufficient funds in a customer’s PayPal account to cover charges applied for Automated Clearing House returns, debit card transactions, and merchant-related chargebacks due to non-delivery or unsatisfactory delivery of purchased items, which are generally within the scope of our protection programs.

Negative customer balances occur primarily when there are insufficient funds in a customer’s PayPal account to cover charges applied for bank returns and reversals, debit card transactions, and merchant-related chargebacks due to non-delivery or unsatisfactory delivery of purchased items, which are generally within the scope of our protection programs.

Negative customer balances can be cured by the customer by adding funds to their account, receiving payments, or through back-up funding sources.

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

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Concentrations of risk

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consumer credit receivables portfolio to a partner institution in 2018.

Transaction expense is derived from fees paid to payment processors and other financial institutions, located in the U.S.

and internationally, when we draw funds from a customer’s credit or debit card, bank account, or other funding source they have stored in their digital wallet.

As of December 31, 2023 and 2022, one customer accounted for 15 % and 20 % of net accounts receivables, respectively.

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During the years ended December 31, 2023, 2022, and 2021, no customer accounted for more than 10% of net revenues.

During the years ended December 31, 2022, 2021, and 2020, we earned approximately 2 %, 6 %, and 13 % of revenue, respectively, from customers on eBay’s Marketplaces platform.

No other source of revenue represented more than 10% of our revenue.

During the years ended December 31, 2023 and 2022, one payment processor accounted for 60 % and 63 % of transaction expense, respectively.

During the year ended December 31, 2021, two payment processors accounted for 70 % of transaction expense.

Revenue recognition

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We expense the cost of producing advertisements at the time production occurs and expense the cost of communicating advertisements in the period during which the advertising space or airtime is used as sales and marketing expense.

Online advertising expenses are recognized based on the terms of the individual agreements, which are generally over the greater of the ratio of the number of impressions delivered over the total number of contracted impressions, on a pay-per-click basis, or on a straight-line basis over the term of the contract.

Online advertising expenses are recognized based on the terms of the individual agreements, which are generally based on the number of impressions delivered over the total number of contracted impressions, on a pay-per-click basis, or on a straight-line basis over the term of the contract.

Advertising expense totaled $ 364 million, $ 518 million, and $ 740 million for the years ended December 31, 2023, 2022, and 2021, respectively.

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Expenses related to our defined contribution savings plans are recorded when services are rendered by our employees.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Stock-based compensation

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

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Foreign currency

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

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

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

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

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Other income (expense), net includes:

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

• interest income, which consists of interest earned on corporate cash and cash equivalents and short-term and long-term investments,

• interest expense, which consists of interest expense, fees, and amortization of debt discount on our long-term debt (including current portion) and credit facilities,

• realized and unrealized gains (losses) on strategic investments, and

• other, which primarily includes foreign currency exchange gains and losses due to remeasurement of certain foreign currency denominated monetary assets and liabilities, forward points on derivative contracts designated as net investment hedges, and fair value changes on the derivative contracts not designated as hedging instruments.

Recent accounting guidance

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

Financial Instruments – Credit Losses .

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

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

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

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

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

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

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures .

The amended guidance requires incremental reportable segment disclosures, primarily about significant segment expenses.

The amendments also require entities with a single reportable segment to provide all disclosures required by these amendments, and all existing segment disclosures.

The amendments will be applied retrospectively to all prior periods presented in the financial statements and is effective for fiscal years beginning after December 15, 2023, and interim periods in fiscal years beginning after December 15, 2024, with early adoption permitted.

We are evaluating the impact this amended guidance may have on the footnotes to our consolidated financial statements.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In December 2023, the FASB issued ASU 2023-08, Intangibles – Goodwill and Other – Crypto Assets (Subtopic 350-60):

Accounting for and Disclosure of Crypto Assets .

This amended guidance requires fair value measurement of certain crypto assets each reporting period with the changes in fair value reflected in net income.

The amendments also require disclosures of the name, fair value, units held, and cost bases for each significant crypto asset held and annual reconciliations of crypto asset holdings.

The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2024, with early adoption permitted.

We are required to apply these amendments as a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year in which the guidance is adopted.

The adoption of this guidance is not expected to have a material impact on our consolidated financial statements based on our current crypto asset holdings and fair value.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures .

The amended guidance enhances income tax disclosures primarily related to the effective tax rate reconciliation and income taxes paid information.

This guidance requires disclosure of specific categories in the effective tax rate reconciliation and further information on reconciling items meeting a quantitative threshold.

In addition, the amended guidance requires disaggregating income taxes paid (net of refunds received) by federal, state, and foreign taxes.

It also requires disaggregating individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than 5 percent of total income taxes paid (net of refunds received).

The amended guidance is effective for fiscal years beginning after December 15, 2024.

The guidance can be applied either prospectively or retrospectively.

We are evaluating the impact this amended guidance may have on the footnotes to our consolidated financial statements.

Recently adopted accounting guidance

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

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

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

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

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

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

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

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

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

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

Financial Instruments – Credit Losses .

This amended guidance eliminated the accounting designation of a loan modification as a TDR and the measurement guidance for TDRs.

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

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

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

We adopted this guidance effective January 1, 2023 on a prospective basis.

Our financial statements were not materially impacted upon adoption.

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

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

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

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

We generate additional revenues from merchants and consumers:

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

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

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Our contracts with our customers are usually open-ended and can be terminated by either party without a termination penalty after the notice period has lapsed.

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

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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

Incentives based on performance targets are recorded as a reduction to revenue when earned, based on management's estimate of each customer's future performance and incentives not based on performance targets are amortized as a reduction of revenue ratably over the contractual term.

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

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

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

DISAGGREGATION OF REVENUE

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

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

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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 similar.

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

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$ 17,253 $ 15,807 $ 13,712

United Kingdom (“U.K.”) 2,071 2,340 2,340

Other countries (1)

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$ 29,771 $ 27,518 $ 25,371

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

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

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

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

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

(2) Total net revenues include $ 1.8 billion, $ 1.3 billion, and $ 425 million for the years ended December 31, 2023, 2022, and 2021, 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, as well as hedging gains or losses, and interest earned on certain assets underlying customer balances.

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

NOTE 3— NET INCOME (LOSS) PER SHARE

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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 CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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Common stock equivalents excluded from net income (loss) per diluted share because their effect would have been anti-dilutive or potentially dilutive 21 13 2

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 4— BUSINESS COMBINATIONS

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

NOTE 4— BUSINESS COMBINATIONS AND DIVESTITURES

There were no acquisitions accounted for as business combinations completed in 2023 or 2022.

There were no divestitures completed in 2022 or 2021.

DIVESTITURES COMPLETED IN 2023

On November 1, 2023, we completed the sale of Happy Returns to United Parcel Services, Inc.

for approximately $ 466 million in cash, net of cash divested, and derecognized the assets held for sale, consisting primarily of $ 81 million of goodwill and $ 13 million of net intangible assets.

The sale of Happy Returns will help enable us to focus on our core business and priorities.

A pre-tax gain of $ 339 million, net of transaction costs, was included in restructuring and other in the consolidated statements of income (loss) for the year ended December 31, 2023.

ACQUISITIONS COMPLETED IN 2021

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

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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

We expect to collect substantially all of these receivables.

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

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

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Other acquisitions

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Goodwill was not considered deductible for income tax purposes.

ACQUISITIONS COMPLETED IN 2020

During the year ended December 31, 2020, we completed one acquisition reflecting 100 % of the equity interests of the acquired company, for a purchase price of $ 3.6 billion.

Honey Science Corporation

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

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

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

(In millions)

Goodwill $ 2,962

Customer lists and user base 115

Marketing related 30

Developed technology 572

Total intangibles $ 717

Accounts receivable, net 50

Deferred tax liabilities, net ( 58 )

Other net liabilities ( 36 )

Total purchase price $ 3,635

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

The excess of the purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill and is attributable to the workforce of Honey and the synergies expected to arise from the acquisition through continued customer acquisition, cross selling initiatives, and product enhancements.

Goodwill was not deductible for income tax purposes.

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

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

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

OTHER INFORMATION

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

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

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

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 5— GOODWILL AND INTANGIBLE ASSETS

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Total goodwill $ 11,454 — ( 245 ) $ 11,209 — ( 183 ) $ 11,026

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

The adjustments to goodwill during 2023 pertained to foreign currency translation adjustments and a reduction in goodwill associated with the divestiture of Happy Returns.

For additional information, see “Note 4—Business Combinations and Divestitures.” The adjustments to goodwill during 2022 pertained primarily to foreign currency translation adjustments.

INTANGIBLE ASSETS

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Intangible assets, net $ 3,379 $ ( 2,842 ) $ 537 $ 3,596 $ ( 2,808 ) $ 788

In the year ended December 31, 2023, we recorded a reduction of approximately $ 36 million of gross intangible assets, with a net carrying amount of $ 13 million, associated with the divestiture of Happy Returns as described in “Note 4—Business Combinations and Divestitures.” In the year ended December 31, 2023, we retired approximately $ 141 million of fully amortized intangible assets, consisting primarily of $ 79 million in customer lists and user base and $ 62 million in developed technology.

Amortization expense for intangible assets was $ 226 million, $ 471 million, and $ 443 million for the years ended December 31, 2023, 2022, and 2021, respectively.

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(In millions)

Thereafter 50

PayPal Holdings, Inc.

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PayPal enters into various leases, which are primarily real estate operating leases.

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

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

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

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Other non-cash ROU lease asset activity (1)

$ ( 40 ) $ ( 52 ) $ ( 21 )

(1) ROU lease asset impairment.

Refer to “Note 17—Restructuring and Other” for further details.

Supplemental balance sheet information related to leases was as follows:

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Rent expense for the years ended December 31, 2023, 2022, and 2021 totaled $ 183 million, $ 202 million, and $ 192 million, respectively.

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

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

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

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

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

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

As of December 31, 2023, we have additional operating leases, primarily for data centers, which will commence in the first quarter of 2024 or later with minimum lease payments aggregating to $ 242 million and lease terms ranging from five to eight years .

NOTE 7— OTHER FINANCIAL STATEMENT DETAILS

CRYPTO ASSET SAFEGUARDING LIABILITY AND CORRESPONDING SAFEGUARDING ASSET

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

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

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

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

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

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

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.

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

As of December 31, 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 consolidated balance sheets.

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

The crypto asset safeguarding liability and corresponding safeguarding asset are measured and recorded at fair value on a recurring basis using quoted prices for the underlying crypto assets on the active exchange that we have identified as the principal market at the balance sheet date.

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

As of December 31, 2023 and 2022, the Company had 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 CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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

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

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

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

As of December 31,

(In millions)

Bitcoin $ 741 $ 291

Ethereum 412 250

Crypto asset safeguarding liability $ 1,241 $ 604

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

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

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

the impact of which was an increase of $ 7 million in 2023 and a decrease of $ 36 million and $ 27 million in 2022 and 2021, respectively.

Geographical information

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

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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

Unrealized Gains (Losses) on Cash Flow Hedges Unrealized Gains (Losses) on Investments Foreign Currency Translation Adjustment ( “ CTA ”)

Unrealized Gains (Losses) on Cash Flow Hedges Unrealized Gains (Losses) on Available-for-sale Debt Securities

Foreign Currency Translation Adjustment ( “ CTA ”)

Net Investment

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Other comprehensive income (loss) before reclassifications ( 56 ) 434 ( 156 ) 192 ( 144 ) 270

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

Amount of gain (loss) reclassified from AOCI

111 ( 23 ) — — — 88

Net current period other comprehensive income (loss) ( 167 ) 457 ( 156 ) 192 ( 144 ) 182

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

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

Unrealized Gains (Losses) on Cash Flow Hedges Unrealized Gains (Losses) on Available-for-sale Debt Securities

Net Investment

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

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

Amount of gain reclassified from AOCI

462 5 — — — 467

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

Ending balance $ 111 $ ( 591 ) $ ( 575 ) $ ( 1 ) $ 128 $ ( 928 )

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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

Unrealized Gains (Losses) on Cash Flow Hedges Unrealized Gains (Losses) on Available-for-sale Debt Securities

Net Investment

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

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

Amount of loss reclassified from AOCI

( 190 ) — — — — ( 190 )

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

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

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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$ 111 $ 462 $ ( 190 ) Net revenues

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

Losses on available-for-sale debt securities

( 21 ) — — Net revenues

Losses (gains) on available-for-sale debt securities

( 2 ) 5 — Other income (expense), net

88 467 ( 190 ) Income before income taxes

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NOTES TO 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 December 31, 2022 and 2021:

NOTE 8— CASH AND CASH EQUIVALENTS, FUNDS RECEIVABLE AND CUSTOMER ACCOUNTS, AND INVESTMENTS

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

2023 December 31,

(In millions)

Cash and cash equivalents (1)

$ 9,081 $ 7,776

Funds receivable and customer accounts:

Cash and cash equivalents (2)

$ 12,750 $ 11,363

Time deposits 82 95

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Total long-term investments $ 3,273 $ 5,018

As of December 31, 2022 and 2021, 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:

(1) Includes $ 777 million and $ 780 million of available-for-sale debt securities with original maturities of three months or less as of December 31, 2023 and 2022, respectively.

(2) Includes $ 399 million and $ 192 million of available-for-sale debt securities with original maturities of three months or less as of December 31, 2023 and 2022, respectively.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

December 31, 2023 (1)

(In millions)

Cash and cash equivalents:

government and agency securities $ 428 $ — $ — $ 428

Commercial paper 349 — — 349

Funds receivable and customer accounts:

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(In millions)

Cash and cash equivalents:

government and agency securities $ 140 $ — $ — $ 140

Corporate debt securities 100 — — 100

Commercial paper 540 — — 540

Funds receivable and customer accounts:

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Municipal securities 411 — ( 3 ) 408

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

Short-term investments:

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Asset-backed securities 415 — ( 9 ) 406

Commercial paper 324 — — 324

Long-term investments:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

As of December 31, 2023 and 2022, the gross unrealized losses and estimated fair value of our available-for-sale debt securities included within cash and cash equivalents, funds receivable and customer accounts, short-term investments, and long-term investments for which an allowance for credit losses was not deemed necessary in the current period, aggregated by the length of time those individual securities have been in a continuous loss position, was as follows:

December 31, 2023 (1)

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(In millions)

Cash and cash equivalents:

Commercial paper $ 349 $ — $ — $ — $ 349 $ —

Funds receivable and customer accounts:

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(In millions)

Cash and cash equivalents:

Commercial paper $ 519 $ — $ — $ — $ 519 $ —

Funds receivable and customer accounts:

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

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

Short-term investments:

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

Commercial paper 224 — — — 224 —

Long-term investments:

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

Amounts reclassified to earnings from unrealized gains and losses were not material for the years ended December 31, 2022 and 2021.

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:

During the year ended December 31, 2023, we received $ 4.5 billion in proceeds from the sale of available-for-sale debt securities and incurred gross realized losses of $ 26 million and de minimis gross realized gains, which were determined using the specific identification method.

Amounts reclassified to earnings from unrealized gains and losses were not material for the year ended December 31, 2022 and 2021.

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

December 31, 2023

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Total $ 22,639 $ 22,505

Actual maturities may differ from contractual maturities as certain securities may be prepaid.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

STRATEGIC INVESTMENTS

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

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

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Marketable equity securities totaled $ 24 million and $ 323 million as of December 31, 2023 and 2022, respectively, including the impact of the sale of marketable equity securities during the year ended December 31, 2023.

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

As of December 31, 2022 and 2021, we had non-marketable equity securities of $ 136 million and $ 79 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 December 31, 2023 and 2022.

As of December 31, 2023 and 2022, we had non-marketable equity securities of $ 182 million and $ 136 million, respectively, for which 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 consolidated statements of income (loss).

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

Measurement Alternative adjustments

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Carrying amount, end of period $ 1,631 $ 1,687

(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.

The following table summarizes the cumulative gross unrealized gains and cumulative gross unrealized losses and impairment related to non-marketable equity securities accounted for under the Measurement Alternative, held at December 31, 2023 and 2022, respectively:

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Cash and cash equivalents (1) :

$ 932 $ — $ 932

government and agency securities $ 428 $ — $ 428

Commercial paper 349 — 349

Money market fund

Total cash and cash equivalents

Short-term investments (2) :

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Funds receivable and customer accounts (3) :

Cash and cash equivalents 192 — 192

government and agency securities 8,478 — 8,478

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Crypto asset safeguarding asset (4)

1,241 — 1,241

Long-term investments (2),(5) :

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Derivatives (4)

$ 131 $ — $ 131

Crypto asset safeguarding liability (4)

1,241 — 1,241

Total financial liabilities $ 1,372 $ — $ 1,372

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(3) Excludes cash, time deposits, and funds receivable of $ 22.8 billion underlying funds receivable and customer accounts not measured and recorded at fair value.

(4) Excludes non-marketable equity securities of $ 1.8 billion measured using the Measurement Alternative or equity method accounting.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(4) Derivative assets and liabilities are included within “prepaid expenses and other current assets” and “other assets” and “accrued expenses and other current liabilities” and “other long-term liabilities,” respectively, on our consolidated balance sheets.

Crypto safeguarding asset and associated liability are recorded within “prepaid expenses and other current assets” and “accrued expenses and other current liabilities,” respectively, on our consolidated balance sheets.

(5) Excludes non-marketable equity securities of $ 1.8 billion measured using the Measurement Alternative or equity method accounting.

December 31, 2022 Quoted Prices in

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Cash and cash equivalents (1) :

$ 400 $ — $ 400

government and agency securities $ 140 $ — $ 140

Corporate debt securities 100 — 100

Commercial paper 540 — 540

Money market fund

Total cash and cash equivalents

Short-term investments (2) :

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Asset-backed securities 406 — 406

Commercial paper 324 — 324

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

Funds receivable and customer accounts (3) :

Cash and cash equivalents 622 — 622

government and agency securities 8,585 — 8,585

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Municipal securities 408 — 408

Commercial paper 3,689 — 3,689

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

Derivatives (4)

Crypto asset safeguarding asset (4)

Long-term investments (2), (5) :

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Derivatives (4)

$ 298 $ — $ 298

Crypto asset safeguarding liability (4)

Total financial liabilities $ 902 $ — $ 902

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

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(2) Excludes restricted cash of $ 17 million and time deposits of $ 537 million not measured and recorded at fair value.

(3) Excludes cash, time deposits, and funds receivable of $ 18.7 billion underlying funds receivable and customer accounts not measured and recorded at fair value.

(5) Excludes non-marketable equity securities of $ 1.8 billion measured using the Measurement Alternative or equity method accounting.

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

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

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

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

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.

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

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

As of December 31, 2023 and 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 consolidated statements of income (loss) to significantly reduce the accounting asymmetry that would otherwise arise when recognizing the corresponding foreign exchange gains and losses relating to customer liabilities.

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

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 December 31, 2023 and 2022:

December 31, 2023 December 31, 2022

Amortized Cost

(In millions)

Funds receivable and customer accounts $ 625 $ 618 $ 553 $ 540

Short-term investments $ — $ 13

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 years ended December 31, 2023 and 2022 :

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Funds receivable and customer accounts $ 13 $ ( 149 )

Short-term investments $ — $ ( 30 )

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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(In millions)

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

Loans and interest receivable, held for sale

$ 563 $ — $ 563

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

Other assets (2)

Total $ 1,115 $ 243 $ 872

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

(1) Excludes non-marketable equity securities of $ 1.2 billion accounted for under the Measurement Alternative for which no observable price changes occurred during the year ended December 31, 2023.

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

See “Note 6—Leases” for additional information.

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

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

(In millions)

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

$ 1,122 $ 724 $ 398

Other assets (2)

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See “Note 6—Leases” for additional information.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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 to 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 December 31, 2023:

(In millions) Methodology Input Low (1)

Weighted Average (1)(2)

Loans and interest receivable, held for sale $ 563 Price-based Price $ 0.99 $ 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.

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

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

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

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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

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

FINANCIAL ASSETS AND LIABILITIES NOT MEASURED AND RECORDED AT FAIR VALUE

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

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

Our fixed rate notes had a carrying value of approximately $ 9.0 billion and fair value of approximately $ 9.3 billion as of December 31, 2021.

Our term debt (including current portion) in the form of fixed rate notes had a carrying value of approximately $ 10.6 billion and fair value of approximately $ 10.0 billion as of December 31, 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;

restricted cash, time deposits, certain customer accounts, and long-term debt (including current portion) would be classified as Level 2;

restricted cash, time deposits, certain customer accounts, and term debt (including current portion) would be classified as Level 2;

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

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

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Cash flow hedges

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

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

We have significant international revenues and expenses 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 and expenses denominated in certain 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 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 consolidated statements of cash flows.

As of December 31, 2022, we estimated that $ 110 million of net derivative gains related to our cash flow hedges included in AOCI are expected to be reclassified into earnings within the next 12 months.

As of December 31, 2023, we estimated that $ 57 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 years ended December 31, 2023, 2022, and 2021, 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.

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

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Net investment hedges

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

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

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

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 consolidated statements of cash flows.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FAIR VALUE OF DERIVATIVE CONTRACTS

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Total derivative liabilities $ 131 $ 298

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

MASTER NETTING AGREEMENTS - RIGHTS OF SET-OFF

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

The following table provides the collateral exchanged posted and received:

The following table provides the collateral posted and received:

2023 December 31,

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

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

EFFECT OF DERIVATIVE CONTRACTS ON CONSOLIDATED FINANCIAL STATEMENTS

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

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

Total amounts presented in the consolidated statements of income (loss) in which the effects of cash flow hedges and net investment hedges are recorded

$ 29,771 $ 383 $ 27,518 $ ( 471 ) $ 25,371 $ ( 163 )

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

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

— 100 — 84 — —

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

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

Amount of losses on equity derivative contracts (1)

Amount of (losses) gains on foreign exchange contracts

— ( 263 ) — 118 — 144

Amount of gains (losses) on equity derivative contracts (1)

— 44 — ( 174 ) — —

Total gains (losses) $ 111 $ ( 119 ) $ 462 $ 28 $ ( 190 ) $ 144

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

(1) During the years ended December 31, 2023 and 2022, equity derivative contracts were entered into and matured in association with the sale of marketable equity securities related to strategic investments.

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

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(In millions)

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

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

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

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

$ ( 56 ) $ 374 $ 332

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

Total net unrealized gains recognized from derivative contracts designated as hedging instruments in the consolidated statements of comprehensive income (loss)

$ 136 $ 349 $ 332

NOTIONAL AMOUNTS OF DERIVATIVE CONTRACTS

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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 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 year ended December 31, 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 December 31, 2023, the total outstanding balance in our held for sale portfolio was $ 563 million.

During the year ended December 31, 2023, we sold $ 5.5 billion of loans and interest receivable in connection with this agreement.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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 U.K.

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

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.

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

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

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

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

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

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

We purchase receivables related to interest-bearing installment loans extended to U.S.

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

During the years ended December 31, 2023 and 2022, we purchased approximately $ 670 million and $ 381 million, respectively, in consumer receivables.

As of December 31, 2023 and 2022, the outstanding balance of consumer receivables, which consisted of revolving and installment loans and interest receivable, was $ 4.8 billion and $ 5.9 billion, respectively, net of the participation interest sold to the partner institution of $ 14 million and $ 17 million, respectively.

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

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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.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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.

The amounts are based on the number of days past the billing date for revolving loans or contractual repayment date for installment loans.

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2023 2022 2021 2020 2019 Total Percent

Consumer loans and interest receivable:

Current $ 2,225 $ 2,045 $ 289 $ — $ — $ — $ 4,559 95.4 %

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$ 2,313 $ 2,160 $ 305 $ 2 $ — $ — $ 4,780 100 %

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

Gross charge-offs for the year ended December 31, 2023

$ 125 $ 101 $ 140 $ 5 $ — $ — $ 371

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

December 31, 2022

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2022 2021 2020 2019 2018 Total Percent

Consumer loans and interest receivable:

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

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

Changes in allowance due to reclassification of loans and interest receivable to or from held for sale

( 12 ) — ( 12 ) — — —

Provisions 342 26 368 292 15 307

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Ending balance $ 357 $ 23 $ 380 $ 322 $ 25 $ 347

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

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

A portion of the Paidy loan portfolio acquired was determined to be purchase credit deteriorated as the loans were 30 days or more past due.

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

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

(1) 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.

(2) Excludes allowances from other consumer credit products of $ 3 million at December 31, 2022.

(3) Includes amounts related to foreign currency remeasurement.

The provision for the year ended December 31, 2023 for our consumer receivable portfolio was primarily attributable to growth in installment loans in the U.S.

and Japan and U.K.

revolving loans as well as a deterioration in credit quality of installment loans in the U.S.

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

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

The increase in charge-offs for the year ended December 31, 2023 compared to the same period in the prior year was due to the expansion of our installment products, growth of revolving credit products, and credit deterioration of our U.S.

interest-bearing installment credit products.

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

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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 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.

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

During the years ended December 31, 2023 and 2022, we purchased approximately $ 1.7 billion and $ 3.2 billion in merchant receivables, respectively.

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Merchant receivables delinquency and allowance

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

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

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

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2023 2022 2021 2020 2019 Total Percent

Merchant loans, advances, and interest and fees receivable:

Current $ 925 $ 74 $ 3 $ 22 $ 14 $ 1,038 87.0 %

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$ 1,007 $ 134 $ 8 $ 26 $ 18 $ 1,193 100 %

Gross charge-offs for the year ended December 31, 2023

$ 38 $ 228 $ 14 $ 16 $ 4 $ 300

December 31, 2022

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2022 2021 2020 2019 2018 Total Percent

Merchant loans, advances, and interest and fees receivable:

Current $ 1,826 $ 20 $ 57 $ 42 $ 2 $ 1,947 90.7 %

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

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

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

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Ending balance $ 148 $ 12 $ 160 $ 230 $ 18 $ 248

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

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

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

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The provision for the year ended December 31, 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, as described further below.

The increase in the charge-offs for the year ended December 31, 2023 compared to the prior year was due to the expansion of acceptable risk parameters in 2022, which resulted in 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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We charge off the receivables outstanding under our PPWC product when the repayments are 180 days past our expectation of repayments and the merchant has not made a payment in the last 60 days, or when the repayments are 360 days past due regardless of whether the merchant has made a payment in the last 60 days.

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

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

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

Troubled debt restructurings

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

These modifications include an increase in term by approximately 1 to 5.5 years while moving the delinquency status to current.

The fee on certain of these loans or advances remains unchanged over the extended term.

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

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

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

Historical loss estimates are utilized in addition to macroeconomic assumptions to determine expected credit loss rates.

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

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

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

Loan modifications for merchants experiencing financial difficulty

In certain instances, we may modify the merchant loans, advances, and interest and fees receivable for which we determine it is probable that, without modification, we would be unable to collect all amounts due.

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

Modifications during the year ended December 31, 2023 were term extensions.

These modifications increased the term, while moving the delinquency status to current.

The following table details merchant loans, advances, and interest and fees receivable as of December 31, 2023 that were modified through a term extension to a merchant experiencing financial difficulty during the year ended December 31, 2023, and the financial effect of those modifications:

Year Ended December 31, 2023

Number of Accounts

(in thousands) Outstanding Balances (1)

Merchant loans, advances, and interest and fees receivables:

Amortized cost basis (in millions) $ 103

Modifications as % of merchant loans, advances, and interest and fees receivables 9 %

Weighted average term extension (months) 24

We closely monitor the performance of the merchant loans, advances, and interest and fees receivable that were modified to extend the term to understand the effectiveness of these modification efforts.

The following table depicts the performance of merchant loans, advances, and interest and fees receivable as of December 31, 2023 that have been modified during the year ended December 31, 2023:

December 31, 2023

(In millions)

Weighted Average Payment Term Extensions

Loans and interest receivable 3 $ 45 36

(1) Balances are as of modification date.

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

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

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

Merchant loans, advances, and interest and fees receivables:

30 - 59 days past due 9

60 - 89 days past due 7

90 - 179 days past due 12

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

Merchant loans, advances, and interest and fees receivable modified to extend the term since January 1, 2023 that subsequently defaulted were not material during the year ended December 31, 2023.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Allowances for merchant loans, advances, and interest and fees receivable modified due to merchants experiencing financial difficulties are assessed separately from other loans and advances within our portfolio and are determined by estimating current expected credit losses utilizing the modified term.

Historical loss estimates are utilized in addition to macroeconomic assumptions to determine current expected credit losses.

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

NOTE 12— DEBT

FIXED RATE NOTES

In June 2023, we issued fixed rate notes with varying maturity dates for an aggregate principal amount of ¥ 90 billion (approximately $ 638 million as of December 31, 2023).

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

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

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

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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

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

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.

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

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

We repurchased and redeemed $ 1.6 billion of outstanding notes, as described above, which resulted in de minimis debt extinguishment net gains that were recorded as interest expense within other income (expense), net on our consolidated statements of income (loss) for the year ended December 31, 2022.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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(in millions)

September 2019 debt issuance of $ 5.0 billion:

September 2019 debt issuance:

Fixed-rate 2.400 % notes

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10/1/2029 2.96 % 1,500 1,500

May 2020 debt issuance:

Fixed-rate 1.350 % notes

6/1/2023 1.55 % — 418

May 2020 debt issuance of $ 4.0 billion:

Fixed-rate 1.650 % notes

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

May 2022 debt issuance:

Fixed-rate 3.900 % notes

6/1/2027 4.06 % 500 500

May 2022 debt issuance of $ 3.0 billion:

Fixed-rate 4.400 % notes

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6/1/2062 5.34 % 500 500

Fixed-rate 5.250 % notes

June 2023 debt issuance (1) :

¥ 30 billion fixed-rate 0.813 % notes

6/9/2025 0.89 % 213 —

¥ 23 billion fixed-rate 0.972 % notes

6/9/2026 1.06 % 163 —

¥ 37 billion fixed-rate 1.240 % notes

6/9/2028 1.31 % 262 —

Total term debt $ 10,638 $ 10,418

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Total carrying amount of term debt $ 9,321 $ 9,926

(1) Principal amounts represent the U.S.

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

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

PayPal Holdings, Inc.

NOTES TO 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 $ 334 million, $ 290 million, and $ 224 million for the years ended December 31, 2023, 2022, and 2021, respectively.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

CREDIT FACILITIES

Five-year revolving credit facility

In September 2019, we entered into a credit agreement (the “Credit Agreement”) that provides for an unsecured $ 5.0 billion, five-year revolving credit facility that includes a $ 150 million letter of credit sub-facility and a $ 500 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.

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

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.

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As of December 31, 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 with the Credit Agreement.

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

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

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

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

In March 2020, we drew down $ 3.0 billion under the Credit Agreement.

In May 2020, we repaid the $ 3.0 billion using proceeds from the May 2020 debt issuance.

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

As of December 31, 2023, no borrowings or letters of credit were outstanding under the Credit Agreement.

Accordingly, at December 31, 2023, $ 5.0 billion of borrowing capacity was available for the purposes permitted by the Credit Agreement, subject to customary conditions to borrowing.

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

Paidy credit agreement

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

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

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

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

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

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

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

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 $ 638 million as of December 31, 2023).

As of December 31, 2023 and 2022, ¥ 50.0 billion (approximately $ 355 million) and ¥ 64.3 billion (approximately $ 491 million) was drawn down under the Paidy Credit Agreement, respectively, which was recorded in long-term debt on our consolidated balance sheets.

At December 31, 2023, ¥ 40.0 billion (approximately $ 283 million) of borrowing capacity was available for the purposes permitted by the Paidy Credit Agreement, subject to customary conditions to borrowing.

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

Other available facilities

As of December 31, 2023, we had a short-term borrowing of $ 359 million due to a bank overdraft, which was recorded in accrued expenses and other liabilities on our consolidated balance sheet.

The weighted average interest rate on the borrowing was 7.92 %.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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

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

Prior credit agreement

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

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

In the first quarter of 2022, we terminated the Prior Credit Agreement and repaid all outstanding borrowings.

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

Other available facilities

We also maintain uncommitted credit facilities in various regions throughout the world, which had a borrowing capacity of approximately $ 80 million and $ 90 million in the aggregate, as of December 31, 2022 and 2021, respectively.

We also maintain uncommitted credit facilities in various regions throughout the world, which had a borrowing capacity of approximately $ 80 million in the aggregate, as of December 31, 2023 and 2022.

This available credit includes facilities where we can withdraw and utilize the funds at our discretion for general corporate purposes.

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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 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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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 CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Regulatory proceedings

We routinely report to the U.S.

Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) on payments we have rejected or blocked pursuant to legal requirements under OFAC sanctions regulations.

Between January 2013 and January 2022, we voluntarily disclosed to OFAC transactions that were inadvertently processed and identified as possible violations of OFAC sanctions regulations and responded to subpoenas and information requests related to certain of these transactions.

In January 2023, OFAC notified us that it had completed its review of these matters and closed them with the issuance of a cautionary letter with no monetary penalties or sanctions.

PayPal Australia Pty Limited (“PPAU”) self-reported a potential violation to the Australian Transaction Reports and Analysis Centre (“AUSTRAC”) on May 22, 2019.

This self-reported matter relates to PPAU incorrectly filing required international funds transfer instructions (“IFTIs”) over a period of time under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (“AML/CTF Act”).

This self-reported matter relates to PPAU incorrectly filing required international funds transfer instructions over a period of time under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (“AML/CTF Act”).

On September 23, 2019, PPAU received a notice from AUSTRAC requiring that PPAU appoint an external auditor (a partner of a firm which is not our independent auditor) to review certain aspects of PPAU’s compliance with its obligations under the AML/CTF Act.

The external auditor was appointed on November 1, 2019.

As required under the terms of AUSTRAC’s notice, as amended, PPAU issued to AUSTRAC the external auditor’s interim reports on December 31, 2019, March 13, 2020, May 6, 2020, and July 7, 2020 and a final report on August 31, 2020.

AUSTRAC has notified PPAU that its enforcement team is investigating the matters reported upon by the external auditor in its August 31, 2020 final report.

AUSTRAC continues to engage with PPAU regarding the transaction categories it considers reportable under the AML/CTF Act as IFTIs.

PPAU is continuing to cooperate with AUSTRAC in all respects, including remediation activities, ongoing regular engagement with AUSTRAC, and responding to notices and requests for information and documents.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

We cannot estimate the potential impact, if any, on our business or financial statements at this time.

In the event an adverse outcome arises from any associated enforcement proceeding, or other further matter initiated by AUSTRAC, including in relation to AUSTRAC’s determination of reportable IFTIs, then this could result in enforceable undertakings, injunctions, damage awards, fines or penalties, or require us to change our business practices in a manner that could result in a material loss, require significant management time, result in the diversion of significant operational resources, or otherwise harm our business.

AUSTRAC had notified PPAU that its enforcement team was investigating the matters reported upon by the external auditor in its August 31, 2020 final report.

As a resolution of this investigation, on March 17, 2023, AUSTRAC’s Chief Executive Officer accepted an enforceable undertaking from PPAU in relation to the self-reported issues.

The enforceable undertaking does not include a monetary penalty.

The entry into and compliance with the enforceable undertaking will not require a change to our business practices in a manner that could result in a material loss, require significant management time, result in the diversion of significant operational resources, or otherwise adversely affect our business.

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.

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.

The successful completion of the enforceable undertaking is subject to AUSTRAC’s ultimate review and decision based on the external auditor’s final report.

We cannot predict the outcome of the external auditor’s final report or AUSTRAC’s decision.

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

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 previously received a CID from the CFPB related to the marketing and use of PayPal Credit in connection with certain merchants that provide educational services (the “CFPB PayPal Credit Matter”).

The CID requested the production of documents, written reports, and answers to written questions.

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

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

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.

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.

Legal proceedings

On August 20, 2021, a putative securities class action captioned Kang v.

PayPal Holdings, Inc., et al., Case No.

21-cv-06468, was filed in the U.S.

District Court for the Northern District of California (the “Kang Securities Action”).

The Kang Securities Action asserts claims relating to our disclosure of the CFPB PayPal Credit Matter and the SEC Debit Card Program Matter in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021.

The Kang Securities Action purports to be brought on behalf of purchasers of the Company’s stock between February 9, 2017 and July 28, 2021 (the “Class Period”), and asserts claims for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 against the Company, its Chief Executive Officer, and former Chief Financial Officer.

The complaint alleges that certain public statements made by the Company during the Class Period were rendered materially false and misleading (which, allegedly, caused the Company’s stock to trade at artificially inflated prices) by the defendants’ failure to disclose that, among other things, PayPal’s business practices with respect to PayPal Credit and regarding interchange rates paid to its bank partner related to its bank-issued co-branded debit cards were non-compliant with applicable laws and/or regulations.

The Kang Securities Action seeks unspecified compensatory damages on behalf of the putative class members.

On November 2, 2021, the court appointed a Lead Plaintiff, and on January 25, 2022, the Lead Plaintiff filed an amended complaint.

The amended complaint alleges a class period between April 27, 2016 and July 28, 2021 (the “Amended Class Period”), and in addition to the Company, its Chief Executive Officer, and former Chief Financial Officer, also names other Company executives as defendants.

The amended complaint alleges that various statements made by the defendants during the Amended Class Period were rendered materially false and misleading, in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, by PayPal’s alleged violations of the 2015 consent order with the CFPB, federal consumer financial laws, and Regulation II.

On August 8, 2022, the court granted Defendants’ motion to dismiss the amended complaint in its entirety, and granted Lead Plaintiff’s request for leave to file a further amended complaint.

On September 16, 2022, Lead Plaintiff filed a Second Amended Complaint (the “SAC”), which asserts the same claims against the same Defendants based on the same alleged conduct as the prior complaint.

Defendants moved to dismiss the SAC on November 3, 2022, and briefing is ongoing.

In October 2023, we received a CID from the CFPB related to investigation and error-resolution obligations under Regulation E, the presentment of transactions to linked bank accounts, and related matters.

The CID requests the production of documents and answers to written questions.

We are cooperating with the CFPB in connection with this CID.

On November 1, 2023, we received a subpoena from the U.S.

SEC Division of Enforcement relating to PayPal USD stablecoin.

The subpoena requests the production of documents.

We are cooperating with the SEC in connection with this request.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Legal proceedings

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

Daniel Schulman, et al., Case No.

Daniel Schulman, et al.

21-cv-09720, and Lalor v.

Daniel Schulman, et al., Case No.

Daniel Schulman, et al.

22-cv-00370, respectively, were filed in the U.S.

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On August 2, 2022, a related putative shareholder derivative action captioned Jefferson v.

Daniel Schulman, et al., No.

Daniel Schulman, et al.

2022-0684, was filed in the Court of Chancery for the State of Delaware (the “Delaware Derivative Action,” and collectively with the California Derivative Actions, the “Derivative Actions”), purportedly on behalf of the Company.

The Derivative Actions are based on the same alleged facts and circumstances as the Kang Securities Action, and name certain of our officers, including our Chief Executive Officer and former Chief Financial Officer, and members of our Board of Directors, as defendants.

The Derivative Actions allege claims for breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, waste of corporate assets, and violations of the Securities Exchange Act of 1934, and seek to recover damages on behalf of the Company.

The Derivative Actions are based on the same alleged facts and circumstances as the putative securities class action captioned Kang v.

PayPal Holdings, Inc., et al.

21-cv-06468, that was filed in the U.S.

District Court for the Northern District of California (the “Kang Securities Action”), and name certain of our officers, including our former 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 (“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 ordered a stipulation dismissing the California Derivative Actions, without prejudice, and on July 7, 2023, the Court ordered a stipulation dismissing the Delaware Derivative Action, without prejudice.

On October 4, 2022, a putative securities class action captioned Defined Benefit Plan of the Mid-Jersey Trucking Industry and Teamsters Local 701 Pension and Annuity Fund v.

PayPal Holdings, Inc., et al., Case No.

PayPal Holdings, Inc., et al.

22-cv-5864, was filed in the U.S.

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Securities Litigation (“PPH Securities Action”).

On March 13, 2023, the lead plaintiff filed an amended and consolidated complaint.

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 complaint alleges that certain public statements made by the Company during the Class Period were rendered materially false and misleading (which, allegedly, caused the Company’s stock to trade at artificially inflated prices) by the defendants’ failure to disclose that, among other things, the Company’s incentive campaigns were susceptible to fraud and led to the creation of illegitimate accounts, which allegedly affected the Company’s NNA results and guidance.

The PPH Securities Action 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 former Chief Executive Officer, former 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 the 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.

The PPH Securities Action seeks unspecified compensatory damages on behalf of the putative class members.

Defendants have filed a motion to dismiss the PPH Securities Action, which is fully briefed and pending before the court.

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.

District Court for the District of Delaware (the “Shah Action”), purportedly on behalf of the Company.

The Shah Action is based on the same alleged facts and circumstances as the PPH Securities Action, and names certain of our officers, including our Chief Executive Officer and former Chief Financial Officer, and members of our Board of Directors, as defendants.

The Shah Action alleges claims for breach of fiduciary duty, aiding and abetting breach of fiduciary duty, unjust enrichment, waste of corporate assets, and violations of the Securities Exchange Act of 1934, and seeks to recover damages on behalf of the Company.

On April 4, 2023, a putative shareholder derivative action captioned Nelson v.

Daniel Schulman, et.

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

District Court for the District of New Jersey (the “Nelson Action”) purportedly on behalf of the Company.

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 former 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 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.

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.

Trial is scheduled to begin in April 2025.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

General matters

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Intellectual property claims, whether meritorious or not, are time-consuming and costly to defend and resolve, could require expensive changes in our methods of doing business, or could require us to enter into costly royalty or licensing agreements on unfavorable terms or make substantial payments to settle claims or to satisfy damages awarded by courts.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

From time to time, we are involved in other disputes or regulatory inquiries that arise in the ordinary course of business, including suits by our customers (individually or as class actions) or regulators alleging, among other things, improper disclosure of our prices, rules, or policies, that our practices, prices, rules, policies, or customer/user agreements violate applicable law, or that we have acted unfairly or not acted in conformity with such prices, rules, policies, or agreements.

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We have agreed, under certain circumstances, to indemnify the chartered financial institution and its assignee of a portion of these loans in connection with the services provided for loans made under this program.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As part of the agreement to sell a portion of our consumer installment receivables portfolio, in certain circumstances such as breaches in loan warranties, we may be required to indemnify the global investment firm that purchased the loans or repurchase the loans.

The estimate of the maximum potential amount of future payments we may be required to make is equal to the current outstanding balances of the loans sold;

however, the maximum potential amount of the indemnification is not, in our view, representative of the expected future exposure.

As of December 31, 2023, the current outstanding balances of the loans sold was $ 2.2 billion.

The terms of the indemnification align to the maturities of the loans sold.

To date, no significant costs have been incurred, either individually or collectively, in connection with our indemnification provisions.

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As of December 31, 2023 and 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

PROTECTION PROGRAMS

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Ending balance $ 282 $ 278

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 14— STOCK REPURCHASE PROGRAMS

In April 2017, our Board of Directors authorized a stock repurchase program that provided for the repurchase of up to $ 5 billion of our common stock, with no expiration from the date of authorization.

In July 2018, our Board of Directors authorized an additional stock repurchase program that provides for the repurchase of up to $ 10 billion of our common stock, with no expiration from the date of authorization.

This program became effective in the first quarter of 2020 upon completion of the April 2017 stock repurchase program.

In July 2018, our Board of Directors authorized a stock repurchase program that provided for the repurchase of up to $ 10 billion of our common stock, with no expiration from the date of authorization.

In June 2022, our Board of Directors authorized an additional stock repurchase program that provides for the repurchase of up to $ 15 billion of our common stock, with no expiration from the date of authorization.

This program became effective in the first quarter of 2023 upon completion of the July 2018 stock repurchase program.

Our stock repurchase programs are intended to offset the impact of dilution from our equity compensation programs and, subject to market conditions and other factors, may also be used to make opportunistic repurchases of our common stock to reduce outstanding share count.

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During the year ended December 31, 2023, we repurchased approximately 74 million shares of our common stock for approximately $ 5.0 billion at an average cost of $ 67.72 .

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

As of December 31, 2023, a total of approximately $ 10.9 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 have reflected the applicable excise tax in treasury stock on our consolidated balance sheets.

During the year ended December 31, 2023, we recorded $ 44 million in excise tax within treasury stock on our consolidated balance sheets.

During the year ended December 31, 2022, we repurchased approximately 41 million shares of our common stock for approximately $ 4.2 billion at an average cost of $ 103.47 .

These shares were purchased in the open market under our stock repurchase program authorized in July 2018.

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As of December 31, 2021, a total of approximately $ 5.1 billion remained available for future repurchases of our common stock under our July 2018 stock repurchase program.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

During the year ended December 31, 2020, we repurchased approximately 12 million shares of our common stock for approximately $ 1.6 billion at an average cost of $ 136.19 .

These shares were purchased in the open market under our stock repurchase programs authorized in April 2017 and July 2018.

As of December 31, 2020, a total of approximately $ 8.4 billion remained available for future repurchases of our common stock under our July 2018 stock repurchase program.

Shares of common stock repurchased for the periods presented were recorded as treasury stock for the purposes of calculating net income (loss) per share and were accounted for under the cost method.

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2015 Equity Incentive Award Plan (the “Plan”), equity awards, including restricted stock units (“RSUs”), restricted stock awards, performance based restricted stock units (“PBRSUs”), stock options, deferred stock units, and stock payments, may be granted to our directors, officers, and employees.

At December 31, 2022, 47 million shares were authorized under the Plan and approximately 31 million shares were available for future grant.

In May 2023, our stockholders approved an additional authorization of 34.6 million shares to the Plan, and in June 2023, the Company filed a post-effective amendment to the registration statement for the PayPal Holdings, Inc.

2022 Inducement Plan (“Inducement Plan”), which enabled 2.6 million shares previously issuable under the Inducement Plan to be included in the 34.6 million additional shares issuable under the Plan.

At December 31, 2023, approximately 72 million shares were authorized under the Plan and approximately 45 million shares were available for future grant, and no shares were available for future grant under the Inducement Plan.

Shares issued as a result of stock option exercises and the release of stock awards were funded primarily with the issuance of new shares of common stock.

In 2022, the Company adopted a plan for which equity-based incentive awards may be granted to new employees (the “Inducement Plan”).

Grants under the Inducement Plan are in addition to the Plan mentioned above.

As of December 31, 2022, 5 million shares were authorized under the Inducement Plan and approximately 3 million shares were available for future grant.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

RSUs are granted to eligible employees under the Plan.

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As of December 31, 2023, approximately 44 million shares were reserved for future issuance under the ESPP.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

RSU, PBRSU, AND RESTRICTED STOCK ACTIVITY

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(1) Includes approximately 0.3 million of additional PBRSUs issued during 2023 due to the achievement of company performance metrics on awards granted in previous years.

(2) Includes approximately 1.0 million of PBRSUs cancelled during 2022 resulting from a change in the method of payout of the Company portion of our Annual Incentive Plan from equity to cash for certain employees.

During the years ended December 31, 2022, 2021, and 2020, the aggregate intrinsic value of RSUs and PBRSUs vested under the Plan was $ 935 million, $ 3.4 billion, and $ 1.7 billion, respectively.

In the year ended December 31, 2022, the Company granted 1.5 million PBRSUs with a one-year performance period (fiscal 2022) of which 1.0 million were subsequently cancelled due to the change in method of payout as mentioned above.

As such, 0.5 million will become fully vested following the completion of the performance period in February 2023 ( one year from the annual incentive award cycle grant date).

During the years ended December 31, 2023, 2022, and 2021, the aggregate intrinsic value of RSUs and PBRSUs vested under the Plan was $ 752 million, $ 935 million, and $ 3.4 billion, respectively.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In the year ended December 31, 2023, the Company granted 2.3 million PBRSUs with a one-year performance period (fiscal 2023), which which will become fully vested following the completion of the performance period in February 2024 ( one year from the annual incentive award cycle grant date), and 1.8 million PBRSUs with a three-year performance period.

In the year ended December 31, 2022, the Company granted 1.5 million PBRSUs with a one-year performance period (fiscal 2022), of which 1.0 million were subsequently cancelled due to the change in method of payout of the Company portion of our Annual Incentive Plan from equity to cash for certain employees.

As such, 0.5 million PBRSUs became fully vested following the completion of the performance period in February 2023 ( one year from the annual incentive award cycle grant date).

In the year ended December 31, 2022, the Company also granted 1.1 million PBRSUs with a three-year performance period.

In the year ended December 31, 2021, the Company granted 0.7 million PBRSUs with a one-year performance period (fiscal 2021), which became fully vested following the completion of the performance period in February 2022 ( one year from the annual incentive award cycle grant date), and 0.5 million PBRSUs with a three-year performance period.

STOCK OPTION ACTIVITY

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Options exercisable 69 $ 14.28 4.29 $ 3,305

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

No options were granted or assumed during the year ended December 31, 2023.

The weighted average grant date fair value of options assumed from acquisitions during the years ended December 31, 2022 and 2021 was $ 147.92 and $ 237.26 , respectively.

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Stock-based compensation expense for the Plan and the Inducement Plan is measured based on estimated fair value at the time of grant, and recognized over the award’s vesting period.

T he impact on our results of operations of recording stock-based compensation expense under the Plan for the years ended December 31, 2022, 2021, and 2020 was as follows:

T he impact on our results of operations of recording stock-based compensation expense under the equity incentive plans for the years ended December 31, 2023, 2022, and 2021 was as follows:

Year Ended December 31,

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Capitalized as part of internal use software and website development costs $ 52 $ 52 $ 68

Income tax benefit recognized for stock-based compensation arrangements $ 209 $ 221 $ 226

As of December 31, 2022, there was approximately $ 1.4 billion of unearned stock-based compensation estimated to be expensed primarily from 2023 through 2025.

Income tax benefit on total stock-based compensation expense

$ 260 $ 209 $ 221

Income tax benefit realized related to awards vested or exercised

$ 136 $ 182 $ 621

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As of December 31, 2023, there was approximately $ 1.5 billion of unearned stock-based compensation that is expected to be recognized over a weighted average period of 1.80 years.

If there are any modifications or cancellations of the underlying unvested awards, we may be required to accelerate, increase, or cancel all or a portion of the remaining unearned stock-based compensation expense.

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employees may contribute up to 50 % of their eligible compensation, but not more than statutory limits.

Under the PayPal plan, eligible employees received one dollar for each dollar contributed, up to 4 % of each employee’s eligible salary, subject to a maximum employer contribution per employee of $ 12,200 in 2022 and $ 11,600 in both 2021 and 2020.

employees are covered by other savings plans.

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NOTE 16— INCOME TAXES

The components of income before income taxes are as follows:

The components of income before income taxes were as follows:

Year Ended December 31,

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Income before income taxes $ 5,411 $ 3,366 $ 4,099

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The income tax expense (benefit) is composed of the following:

The income tax expense (benefit) was composed of the following:

Year Ended December 31,

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Income tax expense (benefit) $ 1,165 $ 947 $ ( 70 )

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following is a reconciliation of the difference between the effective income tax rate and the federal statutory rate:

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Effective income tax rate 21.5 % 28.1 % ( 1.7 ) %

For the year ended December 31, 2022, the difference between the effective income tax rate of 28.1 % and the U.S.

federal statutory rate of 21% to income before income taxes was primarily the result of tax expense related to the intra-group transfer of intellectual property and non-deductible stock-based compensation, partially offset by foreign income taxed at different rates.

For the year ended December 31, 2021, the difference between the effective income tax rate of ( 1.7 )% and the U.S.

federal statutory rate of 21% to income before income taxes was primarily the result of foreign income taxed at different rates and stock-based compensation deductions.

For the year ended December 31, 2020, the difference between the effective income tax rate of 17.0 % and the U.S.

federal statutory rate of 21% to income before income taxes was primarily the result of foreign income taxed at different rates, partially offset by tax expense related to the intra-group transfer of intellectual property.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Deferred tax assets and liabilities are recognized for the future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax basis using enacted tax rates in effect for the year in which the differences are expected to reverse.

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Net operating loss and credit carryforwards $ 305 $ 355

Accruals, allowances, and prepaids 427 622

Accruals and allowances

Lease liabilities 138 173

Partnership investment — 5

Stock-based compensation 168 154

Net unrealized losses 36 151

Acquired intangibles 38 —

Fixed assets and other intangibles 655 84

Safeguarded crypto liabilities

Capitalized research and development

Total deferred tax assets 3,048 2,420

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Deferred tax liabilities:

Unremitted foreign earnings $ ( 42 ) $ ( 35 )

Acquired intangibles — ( 240 )

ROU lease assets $ ( 96 ) $ ( 138 )

Partnership investment ( 12 ) —

Capitalized software development costs

( 187 ) ( 190 )

Net unrealized gains ( 170 ) ( 135 )

Safeguarded crypto assets

( 319 ) ( 152 )

( 161 ) ( 179 )

Total deferred tax liabilities ( 933 ) ( 794 )

Net deferred tax assets $ 1,839 $ 1,285

The following table shows the deferred tax assets and liabilities within our consolidated balance sheets:

As of December 31,

Balance Sheet Location (In millions)

Total deferred tax assets (non-current) Other assets $ 1,310 $ 547

Total deferred tax liabilities (non-current) Deferred tax liability and other long-term liabilities ( 25 ) ( 186 )

Total net deferred tax assets $ 1,285 $ 361

As of December 31, 2022, our federal, state, and foreign net operating loss carryforwards for income tax purposes were approximately $ 6 million, $ 156 million, and $ 634 million, respectively.

The federal and state net operating loss carryforwards are subject to various limitations under Section 382 of the Code.

If not utilized, the federal net operating loss carryforwards will begin to expire in 2025, and the state net operating loss carryforwards will begin to expire in 2023.

Approximately $ 197 million of the foreign net operating loss carryforwards will begin to expire in 2024, $ 191 million will begin to expire in 2034, and $ 246 million may be carried forward indefinitely.

As of December 31, 2022, our federal and state tax credit carryforwards for income tax purposes were approximately $ 24 million and $ 374 million, respectively.

If not utilized, the federal tax credits will begin to expire in 2029.

Approximately $ 49 million of the state tax credits will begin to expire from 2023 through 2028, $ 8 million will begin to expire in 2038, and $ 317 million may be carried forward indefinitely.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that all or some portion of the deferred tax assets will not be realized.

We have elected the tax law ordering approach to assess the realizability of our net operating losses.

During the years ended December 31, 2022 and 2021, we increased our valuation allowance by $ 67 million and $ 108 million, respectively, and during the year ended December 31, 2020, we decreased our valuation allowance by $ 18 million.

At December 31, 2022, 2021, and 2020, we maintained a valuation allowance with respect to our net deferred tax assets in certain states, operating losses in certain state and foreign jurisdictions, and certain federal and state tax credits that we believe are not likely to be realized.

As of December 31, 2023, our foreign net operating loss carryforwards for income tax purposes were approximately $ 707 million and certain of these amounts are subject to an annual limitation.

If not utilized, a portion of these losses will begin to expire in 2024.

As of December 31, 2023, our California research and development tax credit carryforwards for income tax purposes were approximately $ 264 million, which may be carried forward indefinitely.

It is more likely than not that most of these net operating loss and tax credit carryforwards will not be realized;

therefore we have recorded a valuation allowance against them.

Repatriation of our foreign earnings for use in the United States is generally not expected to result in a significant amount of income taxes;

as a result, the corresponding deferred tax liability we have accrued is not material.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

At December 31, 2022, none of our approximately $ 11.0 billion of unremitted foreign earnings are considered to be indefinitely reinvested.

We have accrued $ 42 million of deferred U.S.

state income and foreign withholding taxes on the $ 11.0 billion of undistributed foreign earnings.

We benefit from agreements concluded in certain jurisdictions, most significantly Singapore.

In December 2019, a new agreement was concluded in Singapore.

The new agreement took effect January 1, 2021 and will be in effect from 2021 through 2030.

This agreement results in significantly lower rates of taxation on certain classes of income and requires various thresholds of investment and employment in those jurisdictions.

The Singapore agreement is effective through 2030, results in significantly lower rates of taxation on certain classes of income and requires various thresholds of investment and employment in that jurisdiction.

We review our compliance on an annual basis to ensure we continue to meet our obligations under this agreement.

This agreement resulted in tax savings of approximately $ 510 million, $ 327 million, and $ 596 million in 2022, 2021, and 2020, respectively.

Before taking into consideration the effects of the U.S.

Tax Cuts and Jobs Act and other indirect tax impacts, this agreement resulted in tax savings of approximately $ 441 million, $ 510 million, and $ 327 million in 2023, 2022, and 2021, respectively.

The benefit of this agreement on our net income (loss) per share (diluted) was approximately $ 0.40 , $ 0.44 , and $ 0.28 in 2023, 2022, and 2021, respectively.

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The material jurisdictions in which we are subject to examination by tax authorities for tax years after 2009 primarily include the U.S.

(Federal and California), Australia, Germany, India, Israel, and Singapore.

(Federal and California), Germany, India, Israel, and Singapore.

We believe that adequate amounts have been reserved for any adjustments that may ultimately result from our open examinations.

Although the timing of the resolution of these audits is uncertain, we do not expect the total amount of unrecognized tax benefits as of December 31, 2022 will materially change in the next 12 months.

However, given the number of years remaining subject to examination and the number of matters being examined, we are unable to estimate the full range of possible adjustments to the balance of gross unrecognized tax benefits.

Due to various factors, including uncertainties of the judicial, administrative, and regulatory processes in certain jurisdictions, the timing of the resolution of these audits is highly uncertain.

It is reasonably possible that within the next twelve months, we will receive additional tax adjustments by various tax authorities or possibly reach resolution of these audits in one or more jurisdictions.

These adjustments or settlements could result in changes to our contingencies related to positions on prior year tax filings.

Given the number of years remaining subject to examination and the number of matters being examined, we are unable to estimate the full range of possible adjustments to the balance of gross unrecognized tax benefits.

In connection with our separation from eBay in 2015, we entered into various agreements that govern the relationship between the parties going forward, including a tax matters agreement.

2 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 17— RESTRUCTURING AND OTHER CHARGES

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.

NOTE 17— RESTRUCTURING AND OTHER

RESTRUCTURING

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 in 2023 were $ 122 million.

We primarily incurred employee severance and benefits costs, as well as associated consulting costs under the 2022 strategic reduction.

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

We primarily incurred employee severance and benefits costs, which were substantially completed by the fourth quarter of 2023.

The following table summarizes the restructuring reserve activity during the year ended December 31, 2023:

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Accrued liability as of December 31, 2023

This effort focused on reducing redundant operations and simplifying our organizational structure.

The associated restructuring charges in 2022 were $ 121 million.

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

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

During the first quarter of 2020, management approved a strategic reduction of the existing global workforce as part of a multiphase process to reorganize our workforce concurrently with the redesign of our operating structure, which spanned multiple quarters.

The associated restructuring charges in 2021 and 2020 were $ 27 million, and $ 109 million, respectively.

The associated restructuring charges in 2021 were $ 27 million.

We primarily incurred employee severance and benefits costs, as well as associated consulting costs under the 2020 strategic reduction, which was substantially completed in 2021.

Additionally, we are continuing to review our real estate and facility capacity requirements due to our new and evolving work models.

We continue to review our real estate and facility capacity requirements due to our new and evolving work models.

We incurred asset impairment charges of $ 61 million, $ 81 million, and $ 26 million in 2023, 2022, and 2021, 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.

In the year ended December 31, 2023, we recognized a gain of $ 17 million due to the sale of an owned property.

We also incurred a loss of $ 14 million related to another owned property, which was previously held for sale in the year ended December 31, 2023.

During the year ended December 31, 2023, approximately $ 74 million of losses were recorded in restructuring and other, which included net loss on sale of loans and interest receivable previously held for sale (inclusive of transaction costs) and fair value adjustments in order to measure loans and interest receivable, held for sale, at the lower of cost or fair value.

In the fourth quarter of 2023, we completed the sale of Happy Returns and recorded a pre-tax gain of $ 339 million, net of transaction costs, in restructuring and other.

For additional information on the divestiture, see “Note 4—Business Combinations and Divestitures”.

PayPal Holdings, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NOTE 18— SUBSEQUENT EVENTS

In January 2023, management initiated a global workforce reduction intended to focus resources on core strategic priorities, and improve our cost structure and operating efficiency.

We estimate that this reduction will impact approximately 7 % of our employees and will result in approximately $ 100 million of restructuring charges, primarily related to employee severance and benefits costs.

In January 2024, management initiated a global workforce reduction intended to streamline operations, focus resources on core strategic priorities, and improve our cost structure.

We estimate this reduction will impact approximately 8 % of our employees and result in approximately $ 120 million of restructuring charges, primarily related to employee severance and benefits costs.

The actions associated with this plan are expected to be substantially completed by the first quarter of 2024.

In addition to this workforce reduction, as a part of this overall strategy, we have also committed to reassess our previous hiring plans with a focus on identifying additional efficiency opportunities, such as the deployment of more automation.

This additional commitment to rationalize growth in employee headcount may not directly result in restructuring charges.

FINANCIAL STATEMENT SCHEDULE

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Year Ended December 31, 2023 $ 598 $ 539 $ — $ ( 597 ) $ 540

(1) The amount is related to the impact of the adjustment recorded for adoption of the current expected credit loss standard.

FORM 10-K SUMMARY

INDEX OF EXHIBITS

7 unchanged sentences

PayPal Holdings, Inc.

Amended and Restated Bylaws effective January 17, 2019 8-K 1/18/2019

Amended and Restated Bylaws effective September 27, 2023

8-K 10/2/2023

Description of Securities 10-K 2/6/2020

12 unchanged sentences

Form of 2050 Note (included in Exhibit 4.08) 8-K 5/18/2020

Officer’s Certificate, dated as of May 23, 2022, pursuant to the Indenture, dated as of September 26, 2019, by and between PayPal Holdings, Inc.

4 unchanged sentences

Form of 2062 Note (included in Exhibit 4.2) 8-K 5/23/2022

Officer's Certificate pursuant to the Indenture, dated as of June 9, 2023

Form of Note for 0.813% Notes due 2025 (included in Exhibit 4.17) 8-K

Form of Note for 0.972% Notes due 2026 (included in Exhibit 4.18)

Form of Note for 1.240% Notes due 2026 (included in Exhibit 4.18)

Tax Matters Agreement by and between eBay Inc.

1 unchanged sentence

dated July 17, 2015 8-K 7/20/2015

Credit Agreement, dated as of September 11, 2019, among PayPal Holdings, Inc., the Designated Borrowers party thereto, the Lenders party thereto and JPMorgan Chase Bank, N.A., J.P.

Morgan Securities Australia Limited, JPMorgan Chase Bank, N.A., Toronto Branch, and J.P.

Morgan Europe Limited, as the Administrative Agents 8-K 9/12/2019

364-Day Credit Agreement, dated as of September 11, 2019, among PayPal Holdings, Inc., the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent 8-K 9/12/2019

PayPal Employee Incentive Plan, as amended and restated DEF 14A 4/14/2016

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Letter dated April 13, 2015 from eBay Inc.

to Louise Pentland 10-K 2/11/2016

Letter dated April 13, 2015 from eBay Inc.

to Jonathan Auerbach 10-K 2/11/2016

Letter Agreement dated July 29, 2015 between John Rainey and PayPal Holdings, Inc.

10-Q 10/29/2015

Letter Agreement, dated April 17, 2016, between Aaron Karczmer and PayPal Holdings, Inc.

10-Q 4/27/2017

Letter Agreement effective February 20, 2019 between Mark Britto and PayPal Holdings, Inc.

10-Q 4/25/2019

Letter Agreement effective July 13, 2022, between Blake Jorgensen and PayPal Holdings, Inc.

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10-Q 11/3/2022

Independent Director Compensation Policy 10-K 2/5/2021

PayPal Holdings, Inc.

Executive Change in Control and Severance Plan, as amended and restated 10-Q 7/29/2021

Letter Agreement by and between PayPal Holdings, Inc.

and Alex Chriss, dated August 10, 2023

Offer Letter, dated October 29, 2023, by and between PayPal Holdings, Inc.

and Jamie Miller

10.25+ ^

Transition Agreement by and between PayPal, Inc.

and Gabrielle Rabinovitch, dated December 21, 2023

Credit Agreement, dated as of June 7, 2023, among PayPal Holdings, Inc.

the Designated Borrowers party thereto, the Lenders party thereto and JPMorgan Chase Bank, N.A.

Morgan Securities Australia Limited, as the Administrative Agents 8-K

Incorporated by Reference

Number Exhibit Description Filed with this Form 10-K Form Date Filed

First Amendment, dated as of March 23, 2020, to the Credit Agreement, dated as of September 11, 2019, among PayPal Holdings, Inc., the Designated Borrowers party thereto, the Lenders party thereto and JPMorgan Chase Bank, N.A., J.P.

Morgan Securities Australia Limited, JPMorgan Chase Bank, N.A., Toronto Branch, and J.P.

Morgan Europe Limited, as the Administrative Agents 10-Q 5/7/2020

First Amendment, dated as of March 23, 2020, to the 364-Day Credit Agreement, dated as of September 11, 2019, among PayPal Holdings, Inc., the Lenders party thereto and JPMorgan Chase Bank, N.A., as the Administrative Agent 10-Q 5/7/2020

Joinder Agreement, dated as of March 25, 2020, among PayPal International Treasury Centre S.à r.l., PayPal Holdings, Inc., and J.P.

Morgan Securities Australia Limited, JPMorgan Chase Bank, N.A., J.P.

Morgan Europe Limited, and JPMorgan Chase Bank, N.A., Toronto Branch, as the Administrative Agents, to the Credit Agreement, dated as of September 11, 2019, among PayPal Holdings, Inc., the Designated Borrowers party thereto, the Lenders party thereto and the Administrative Agents 10-Q 5/7/2020

Joinder Agreement, dated as of March 25, 2020, among PayPal (Europe) S.à r.l.

et Cie, S.C.A., PayPal Holdings, Inc., and J.P.

Morgan Securities Australia Limited, JPMorgan Chase Bank, N.A., J.P.

Joinder Agreement, dated as of March 27, 2020, among PayPal Pte.

Ltd., PayPal Holdings, Inc., and J.P.

Morgan Securities Australia Limited, JPMorgan Chase Bank, N.A., J.P.

Joinder Agreement, dated as of March 31, 2020, among PayPal Australia Pty Limited, PayPal Holdings, Inc., and J.P.

Morgan Securities Australia Limited, JPMorgan Chase Bank, N.A., J.P.

Second Amendment, dated as of January 7, 2022, to the Credit Agreement, dated as of September 11, 2019, among PayPal Holdings, Inc., the Designated Borrowers party thereto, the Lenders party thereto and JPMorgan Chase Bank, N.A., J.P.

Morgan Securities Australia Limited, JPMorgan Chase Bank, N.A., Toronto Branch, and J.P.

Morgan AG, as the Administrative Agents 10-K 2/3/2022

Receivables Purchase Agreement, dated as of June 16, 2023 in the form as amended and restated as of October 13, 2023 by and between PayPal (Europe) S.à r.l.

et Cie, SCA (as Seller and Receivables Manager), Alps Partners S.à r.l.

(as Purchaser), BNY Mellon Corporate Trustee Services limited (as Security Agent), Avega S.à r.l.

(as Back-Up Receivables Manager Facilitator) and Alps Partners (Holding) S.à r.l.

(as Class C Lender)

10-Q 11/2/2023

Receivables Management Agreement, dated as of June 16, 2023 in the form as amended and restated as of October 13, 2023 by and between PayPal (Europe) S.à r.l.

et Cie, SCA (as Seller and Receivables Manager), Alps Partners S.à r.l.

(as Purchaser), Avega S.à r.l.

(as Back-Up Receivables Manager Facilitator) and Alps Partners (Holding) S.à r.l.

(as Class C Lender) 10-Q 11/2/2023

Offer Letter, dated October 23, 2023, by and between PayPal Holdings, Inc.

and Michelle Gill

Offer Letter, dated October 23, 2023, by and between PayPal Holdings, Inc.

and Diego Scotti

Offer Letter, dated December 4, 2023, by and between PayPal Holdings, Inc.

and Suzan Kereere

Independent Director Compensation Policy X

List of Subsidiaries X

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Certification of PayPal Holdings, Inc.’s Chief Executive Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002 X

Incorporated by Reference

Number Exhibit Description Filed with this Form 10-K Form Date Filed

Certification of PayPal Holdings, Inc.’s Chief Financial Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002 X

PayPal Holdings, Inc.

Mandatory Recovery Policy for Executive Officers

101 The following financial information related to the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, formatted in iXBRL (Inline Extensible Business Reporting Language):

(i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income (Loss), (iii) the Consolidated Statements of Comprehensive Income (Loss), (iv) the Consolidated Statements of Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows;

and (vi) the related Notes to Consolidated Financial Statements X

and (vi) the related Notes to Consolidated Financial Statements

104 Cover Page Interactive Data File, formatted in iXBRL and contained in Exhibit 101 X

+ Indicates a management contract or compensatory plan or arrangement.

FORM 10-K SUMMARY

† Certain portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S‑K.

Schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K.

The Registrant agrees to furnish supplementally a copy of any omitted schedule or exhibit to the SEC upon request.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 7, 2024.

PayPal Holdings, Inc.

/s/ Daniel H.

/s/ Alex Chriss

President, Chief Executive Officer and Director

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Daniel H.

Schulman, Gabrielle Rabinovitch, Bimal Patel, Brian Y.

Yamasaki and Jeffrey W.

Karbowski, and each or any one of them, each with the power of substitution, his or her attorney-in-fact, to sign any amendments to this report, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue hereof.

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Alex Chriss, Jamie Miller, Bimal Patel, Brian Y.

Yamasaki and Hasitha Verma, and each or any one of them, each with the power of substitution, his or her attorney-in-fact, to sign any amendments to this report, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on February 7, 2024.

Principal Executive Officer:

Principal Financial Officer:

/s/ Daniel H.

/s/ Gabrielle Rabinovitch

Schulman Gabrielle Rabinovitch

President, Chief Executive Officer and Director Acting Chief Financial Officer and Senior Vice President, Investor Relations and Treasurer

Principal Accounting Officer:

/s/ Jeffrey W.

Vice President, Chief Accounting Officer

Principal Financial Officer and Principal Accounting Officer:

/s/ Alex Chriss

/s/ Jamie Miller

President, Chief Executive Officer and Director

Executive Vice President, Chief Financial Officer

Additional Directors

15 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures