What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-04-30 compared with 2023-11-02 · 365 added, 533 removed, 989 unchanged (48% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

2024 December 31,

5 unchanged sentences

Loans and interest receivable, held for sale 307 563

Loans and interest receivable, net of allowances of $ 555 and $ 598 as of September 30, 2023 and December 31, 2022, respectively

Loans and interest receivable, net of allowances of $ 465 and $ 540 as of March 31, 2024 and December 31, 2023, respectively

Funds receivable and customer accounts 38,353 38,935

12 unchanged sentences

Accrued expenses and other current liabilities 8,385 6,392

Income taxes payable 1,137 813

Total current liabilities 49,846 48,466

Deferred tax liability and other long-term liabilities 2,618 2,925

Other long-term liabilities 3,116 2,973

Long-term debt 9,683 9,676

3 unchanged sentences

4,000 shares authorized;

1,080 and 1,136 shares outstanding as of September 30, 2023 and December 31, 2022, respectively

1,053 and 1,072 shares outstanding as of March 31, 2024 and December 31, 2023, respectively

Preferred stock, $ 0.0001 par value;

100 shares authorized, unissued

Treasury stock at cost, 237 and 173 shares as of September 30, 2023 and December 31, 2022, respectively

Treasury stock at cost, 270 and 245 shares as of March 31, 2024 and December 31, 2023, respectively

( 22,552 ) ( 21,045 )

7 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Three Months Ended March 31,

(In millions, except per share data)

7 unchanged sentences

General and administrative 464 507

Restructuring and other charges 39 56 227 182

Restructuring and other 212 164

Total operating expenses 6,531 6,041

13 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Three Months Ended March 31,

(In millions)

5 unchanged sentences

Unrealized gains (losses) on cash flow hedges, net 96 ( 111 )

109 138 ( 25 ) 348

Tax (expense) benefit on unrealized gains (losses) on cash flow hedges, net ( 5 ) 6

( 6 ) ( 7 ) 1 ( 18 )

Unrealized gains (losses) on investments, net 110 ( 157 ) 298 ( 614 )

Tax (expense) benefit on unrealized gains (losses) on investments, net ( 26 ) 41 ( 70 ) 146

Unrealized gains on available-for-sale debt securities, net 83 175

Tax expense on unrealized gains on available-for-sale debt securities, net ( 20 ) ( 41 )

Other comprehensive income (loss), net of tax 87 30

11 unchanged sentences

Tax expense on net investment hedges CTA gains, net — — — ( 23 ) — ( 23 )

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

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

Unrealized gains on investments, net — — — 175 — 175

Tax expense on unrealized gains on investments, net — — — ( 41 ) — ( 41 )

Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes 5 — ( 157 ) — — ( 157 )

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

Stock-based compensation — — 359 — — 359

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

Net income — — — — 1,029 1,029

Foreign CTA — — — ( 216 ) — ( 216 )

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

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

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

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

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

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

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

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

Stock-based compensation — — 375 — — 375

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

Net income — — — — 1,020 1,020

Foreign CTA — — — ( 70 ) — ( 70 )

Net investment hedge CTA gains, net — — — 35 — 35

Tax expense on net investment hedges CTA gains, net — — — ( 8 ) — ( 8 )

Unrealized gains on cash flow hedges, net — — — 96 — 96

Tax expense on unrealized gains on cash flow hedges, net — — — ( 5 ) — ( 5 )

Unrealized gains on investments, net

— — — 110 — 110

Tax expense on unrealized gains on investments, net

— — — ( 26 ) — ( 26 )

Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes 1 — ( 28 ) — — ( 28 )

Unrealized gains on available-for-sale debt securities, net — — — 83 — 83

Tax expense on unrealized gains on available-for-sale debt securities, net — — — ( 20 ) — ( 20 )

Common stock and stock-based awards issued, net of shares withheld for employee taxes 6 — ( 193 ) — — ( 193 )

Common stock repurchased ( 25 ) ( 1,511 ) — — ( 1,511 )

Treasury stock reissuance — 4 — — — 4

Stock-based compensation — — 376 — — 376

Balances at September 30, 2023 1,080 $ ( 20,513 ) $ 19,307 $ ( 852 ) $ 21,798 $ 19,740

PayPal Holdings, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY—(continued)

Balances at March 31, 2024 1,053 $ ( 22,552 ) $ 19,825 $ ( 659 ) $ 24,088 $ 20,702

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

7 unchanged sentences

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

Unrealized losses on investments, net — — — ( 293 ) — ( 293 )

Tax benefit on unrealized losses on investments, net — — — 67 — 67

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

Unrealized gains on available-for-sale debt securities, net — — — 175 — 175

Tax expense on unrealized gains on available-for-sale debt securities, net — — — ( 41 ) — ( 41 )

Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes 5 — ( 157 ) — — ( 157 )

1 unchanged sentence

Stock-based compensation — — 359 — — 359

Other — — 1 — — 1

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

Net loss — — — — ( 341 ) ( 341 )

Foreign CTA — — — ( 300 ) — ( 300 )

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

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

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

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

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

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

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

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

Stock-based compensation — — 324 — — 324

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

Net income — — — — 1,330 1,330

Foreign CTA — — — ( 206 ) — ( 206 )

Net investment hedges CTA gains, net — — — 97 — 97

Tax expense on net investment hedges CTA gains, net — — — ( 23 ) — ( 23 )

Unrealized gains on cash flow hedges, net — — — 138 — 138

Tax expense on unrealized gains on cash flow hedges, net — — — ( 7 ) — ( 7 )

Unrealized losses on investments, net — — — ( 157 ) — ( 157 )

Tax benefit on unrealized losses on investments, net — — — 41 — 41

Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes 1 — ( 14 ) — — ( 14 )

Common stock repurchased ( 10 ) ( 939 ) — — — ( 939 )

Stock-based compensation — — 237 — — 237

Balances at September 30, 2022 1,147 $ ( 15,069 ) $ 17,981 $ ( 681 ) $ 18,033 $ 20,264

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

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30,

Three Months Ended March 31,

(In millions)

7 unchanged sentences

Net (gains) losses on strategic investments 49 ( 48 )

Accretion of discounts on investments, net of amortization of premiums ( 75 ) ( 69 )

Adjustments to loans and interest receivable, held for sale 37 —

1 unchanged sentence

Originations of loans receivable, held for sale ( 5,345 ) —

Proceeds from repayments of loans receivable, originally classified as held for sale 3,676 —

Proceeds from repayments and sales of loans receivable, originally classified as held for sale 5,232 —

Changes in assets and liabilities:

1 unchanged sentence

Accounts payable ( 22 ) 3

Income taxes payable ( 31 ) 109

Other assets and liabilities 176 ( 475 )

4 unchanged sentences

Purchases and originations of loans receivable ( 4,779 ) ( 8,267 )

Proceeds from repayments of loans receivable, originally classified as held for investment 21,319 17,164

Proceeds from repayments and sales of loans receivable, originally classified as held for investment 4,827 8,063

Purchases of investments ( 7,081 ) ( 6,100 )

3 unchanged sentences

Other investing activities 20 8

Net cash provided by (used in) investing activities 1,286 ( 3,289 )

Net cash provided by investing activities 980 153

Cash flows from financing activities:

6 unchanged sentences

Collateral received related to derivative instruments, net 33 ( 129 )

Other financing activities — 1

Net cash (used in) provided by financing activities ( 5,993 ) ( 1,985 )

Net cash used in financing activities ( 2,362 ) ( 2,781 )

PayPal Holdings, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS—(continued)

Nine Months Ended September 30,

Three Months Ended March 31,

(In millions)

17 unchanged sentences

PayPal Holdings, Inc.

(“PayPal,” the “Company,” “we,” “us,” or “our”) was incorporated in Delaware in January 2015 and is a leading technology platform that enables digital payments and simplifies commerce experiences on behalf of merchants and consumers worldwide.

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

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

(“PayPal,” the “Company,” “we,” “us,” or “our”) was incorporated in Delaware in January 2015 and is a leading technology platform that enables digital payments and personalizes commerce experiences on behalf of merchants and consumers worldwide.

PayPal’s mission is to revolutionize commerce globally by creating innovative experiences that are designed to make moving money, selling, and shopping simple, personalized, and secure.

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

12 unchanged sentences

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

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

As of September 30, 2023 and December 31, 2022, the carrying value of our investments in nonconsolidated VIEs was $ 160 million and $ 128 million, respectively, and is included as non-marketable equity securities applying the equity method of accounting in long-term investments on our condensed consolidated balance sheets.

Our maximum exposure to loss related to our nonconsolidated VIEs, which represents funded commitments and any future funding commitments, was $ 246 million and $ 232 million as of September 30, 2023 and December 31, 2022, respectively.

As of March 31, 2024 and December 31, 2023, no VIEs qualified for consolidation as the structures of these entities do not provide us with the ability to direct activities that would significantly impact their economic performance.

As of March 31, 2024 and December 31, 2023, the carrying value of our investments in nonconsolidated VIEs was $ 178 million and $ 175 million, respectively, and is included as non-marketable equity securities applying the equity method of accounting in long-term investments on our condensed consolidated balance sheets.

The investments in nonconsolidated VIEs are primarily investments in funds that are limited partnerships or similar structures which are focused on increasing access to capital for underserved communities.

Our maximum exposure to loss related to our nonconsolidated VIEs, which represents funded commitments and any future funding commitments, was $ 246 million as of March 31, 2024 and December 31, 2023.

These condensed consolidated financial statements and accompanying notes should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”) filed with the United States (“U.S.”) Securities and Exchange Commission (“SEC”) on February 8, 2024.

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

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

Certain amounts for prior periods have been reclassified to conform to the financial statement presentation as of and for the three months ended March 31, 2024.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

Nine Months Ended September 30, 2022

(In millions)

As Previously Reported (1)

Adjustments Reclassified

Net cash provided by (used in):

Operating activities (2)

$ 4,656 $ ( 434 ) $ 4,222

Investing activities (3)

( 3,286 ) ( 3 ) ( 3,289 )

Financing activities (4)

( 2,422 ) 437 ( 1,985 )

Effect of exchange rates on cash, cash equivalents, and restricted cash ( 253 ) — ( 253 )

Net decrease in cash, cash equivalents, and restricted cash $ ( 1,305 ) $ — $ ( 1,305 )

(1) As reported in our Form 10-Q for the quarter ended September 30, 2022 filed with the SEC on November 4, 2022.

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

(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

1 unchanged sentence

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 condensed 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.

Actual results could materially differ from these estimates.

Loans and interest receivable, held for sale

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

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

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

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

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

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

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

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

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

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

Recently adopted accounting guidance

In March 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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.”

Recent accounting guidance

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 condensed consolidated financial statements.

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 condensed 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 condensed consolidated financial statements.

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

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

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

NOTE 2— REVENUE

3 unchanged sentences

transaction revenues and revenues from other value added services.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

DISAGGREGATION OF REVENUE

3 unchanged sentences

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 CONDENSED 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:

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Three Months Ended March 31,

(In millions)

2 unchanged sentences

Other countries (1)

3,161 2,868 9,131 8,623

Total net revenues (2)

6 unchanged sentences

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

(2) Total net revenues include $ 433 million and $ 391 million for the three months ended September 30, 2023 and 2022, respectively, and $ 1.3 billion and $ 874 million for the nine months ended September 30, 2023 and 2022, respectively, which do not represent revenues recognized in the scope of Accounting Standards Codification Topic 606, Revenue from contracts with customers .

Such revenues relate to interest and fees earned on loans and interest receivable, including loans and interest receivable held for sale, hedging gains or losses, and interest earned on certain assets underlying customer balances.

(2) Total net revenues include $ 468 million and $ 451 million for the three months ended March 31, 2024 and 2023, 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

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

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

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

2 unchanged sentences

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

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Three Months Ended March 31,

(In millions, except per share amounts)

6 unchanged sentences

Diluted $ 0.83 $ 0.70

Common stock equivalents excluded from income (loss) per diluted share because their effect would have been anti-dilutive or potentially dilutive 22 14 20 13

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

NOTE 4— BUSINESS COMBINATIONS AND DIVESTITURES

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

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

In September 2023, we entered into a definitive agreement to sell Happy Returns to United Parcel Services, Inc.

for approximately $ 465 million in cash.

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

The transaction closed in the fourth quarter of 2023, and we expect to record a pre-tax gain of approximately $ 329 million, net of expected transaction costs, in restructuring and other charges on the condensed consolidated statements of income (loss) in that period.

We concluded that Happy Returns meets the criteria to be classified as held for sale and measured at the lower of its carrying amount or fair value less cost to sell as of September 30, 2023.

The assets held for sale consist primarily of $ 81 million of goodwill and $ 13 million of net intangible assets, which are presented within prepaid expenses and other current assets on our condensed consolidated balance sheets as of September 30, 2023.

No impairment charges were required in the three months ended September 30, 2023.

The sale does not represent a strategic shift that would have a major effect on our operations and financial results, and therefore is not reported as a discontinued operation.

There were no acquisitions accounted for as business combinations or divestitures completed in the three months ended March 31, 2024 and 2023.

NOTE 5— GOODWILL AND INTANGIBLE ASSETS

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

2022 Goodwill Acquired Adjustments September 30,

The following table presents goodwill balances and adjustments to those balances during the three months ended March 31, 2024:

2023 Goodwill Acquired Adjustments March 31,

(In millions)

Total goodwill $ 11,026 $ — $ ( 110 ) $ 10,916

The adjustments to goodwill during the nine months ended September 30, 2023 pertained to foreign currency translation adjustments and reclassification of $ 81 million of goodwill to assets held for sale described in “Note 4—Business Combinations and Divestitures.”

The adjustments to goodwill during the three months ended March 31, 2024 pertained to foreign currency translation adjustments.

INTANGIBLE ASSETS

The components of identifiable intangible assets were as follows:

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Gross Carrying Amount Accumulated Amortization

9 unchanged sentences

Intangible assets, net $ 3,339 $ ( 2,874 ) $ 465 $ 3,379 $ ( 2,842 ) $ 537

In the three and nine months ended September 30, 2023, we reclassified approximately $ 36 million of gross intangible assets, with a net carrying amount of $ 13 million as assets held for sale as described in “Note 4—Business Combinations and Divestitures.” In the three months ended September 30, 2023, we retired approximately $ 49 million of fully amortized intangible assets, of which $ 35 million and $ 14 million were included in developed technology and customer lists and user base, respectively.

In the nine months ended September 30, 2023, we retired approximately $ 141 million of fully amortized intangible assets, of which $ 79 million and $ 62 million were included in customer lists and user base and developed technology, respectively.

Amortization expense for intangible assets was $ 57 million and $ 118 million for the three months ended September 30, 2023 and 2022, respectively.

Amortization expense for intangible assets was $ 172 million and $ 356 million for the nine months ended September 30, 2023 and 2022, respectively.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

Amortization expense for intangible assets was $ 56 million and $ 57 million for the three months ended March 31, 2024 and 2023, respectively.

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

Expected future intangible asset amortization as of March 31, 2024 was as follows (in millions):

Fiscal years:

Remaining 2024 $ 130

Thereafter 43

NOTE 6— LEASES

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.

PayPal also enters into computer equipment finance leases.

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.

3 unchanged sentences

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

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

The components of lease expense were as follows:

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Three Months Ended March 31,

(In millions)

Lease expense

Operating lease expense $ 37 $ 41

Sublease income ( 3 ) ( 2 )

Lease expense, net $ 37 $ 41 $ 113 $ 122

Supplemental cash flow information related to leases was as follows:

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Total lease expense, net (1)

(1) During the three months ended March 31, 2024, finance lease expense was de minimis.

Supplemental cash flow information related to leases during the three months ended March 31, 2024 and 2023 were as follows:

Three Months Ended March 31, 2024

(In millions)

2 unchanged sentences

Right-of-use (“ROU”) lease assets obtained in exchange for new operating lease liabilities

Other non-cash ROU lease asset activity (1)

$ ( 15 ) $ ( 11 ) $ ( 40 ) $ ( 36 )

(1) ROU lease asset impairment.

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

ROU lease assets obtained in exchange for new finance lease liabilities $ 16

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Three Months Ended March 31, 2023

(In millions)

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases $ 43

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

Other non-cash ROU lease asset activity (1)

(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:

September 30,

2023 December 31,

March 31, 2024 December 31, 2023

(In millions, except weighted-average figures)

Operating ROU lease assets $ 423 $ 574

Current operating lease liabilities 147 151

Operating lease liabilities 449 569

Total operating lease liabilities $ 596 $ 720

Weighted-average remaining lease term — operating leases

5.0 years 5.7 years

Weighted-average discount rate — operating leases

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

Operating leases (1)

Finance leases (2)

Operating leases (1)

Finance leases (2)

ROU lease assets $ 505 $ 16 $ 390 $ —

Current lease liabilities 144 9 144 —

Long-term lease liabilities 524 7 416 —

Total lease liabilities $ 668 $ 16 $ 560 $ —

Weighted-average remaining lease term 5.8 years 4.9 years 5.0 years —

Weighted-average discount rate 4 % 2 % 4 % — %

(1) ROU assets for operating leases are included in “other assets” and lease liabilities for operating leases are included in “accrued expenses and other current liabilities” and “other long-term liabilities” on our condensed consolidated balance sheets.

(2) ROU assets for finance leases are included in “property and equipment, net” and lease liabilities for finance leases are included in “accrued expenses and other current liabilities” and “other long-term liabilities” on our condensed consolidated balance sheets.

Future minimum lease payments for our leases as of March 31, 2024 were as follows:

Operating leases Finance leases

Fiscal years:

2 unchanged sentences

Thereafter 181 —

Total $ 752 $ 16

present value discount ( 84 ) —

1 unchanged sentence

Operating lease amounts include minimum lease payments under our non-cancelable operating leases primarily for office and data center facilities.

Finance lease amounts include minimum lease payments under our non-cancelable finance leases primarily for computer equipment.

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

As of September 30, 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 $ 244 million and lease terms ranging from five to eight years .

As of March 31, 2024, we have additional operating leases, primarily for data centers, which will commence in the second quarter of 2024 or later with minimum lease payments aggregating to $ 102 million and lease terms ranging from four to eight years .

As of March 31, 2024, we have additional finance leases for computer equipment, which will commence in the second quarter of 2024 or later with minimum lease payments aggregating to $ 62 million and lease terms of five years .

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 7— OTHER FINANCIAL STATEMENT DETAILS

5 unchanged sentences

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

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

As of March 31, 2024, 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.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

2 unchanged sentences

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

As of September 30, 2023, the Company has not incurred any safeguarding loss events, and therefore, the crypto asset safeguarding liability and corresponding safeguarding asset were recorded at the same value.

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 September 30, 2023 and December 31, 2022:

September 30,

As of March 31, 2024 and December 31, 2023, 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.

2024 December 31, 2023

4 unchanged sentences

Crypto asset safeguarding asset $ 2,846 $ 1,241

PayPal Holdings, Inc.

NOTES TO CONDENSED 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 three months ended September 30, 2023:

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

The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the three months ended March 31, 2024:

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

Foreign Currency

5 unchanged sentences

Other comprehensive income (loss) before reclassifications 96 41 ( 143 ) 99 ( 48 ) 45

Amount of gain reclassified from accumulated other comprehensive income (loss) (“AOCI”) 7 — — — — 7

Net current period other comprehensive income (loss) 109 110 ( 70 ) 35 ( 40 ) 144

Ending balance $ 86 $ ( 293 ) $ ( 881 ) $ 230 $ 6 $ ( 852 )

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

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

Net Investment Hedges CTA Gains (Losses)

Estimated Tax (Expense) Benefit Total

(In millions)

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

Other comprehensive income (loss) before reclassifications 294 ( 157 ) ( 206 ) 97 11 39

Amount of gain reclassified from AOCI 156 — — — — 156

Amount of loss reclassified from accumulated other comprehensive income (loss) (“AOCI”) — ( 42 ) — — — ( 42 )

Net current period other comprehensive income (loss) 96 83 ( 143 ) 99 ( 48 ) 87

Ending balance $ 40 $ ( 51 ) $ ( 874 ) $ 290 $ ( 64 ) $ ( 659 )

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

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

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

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

Net Investment Hedges CTA Gains (Losses)

6 unchanged sentences

Ending balance $ — $ ( 416 ) $ ( 595 ) $ 26 $ 87 $ ( 898 )

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

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

Net Investment Hedges CTA Gains (Losses)

Estimated Tax (Expense) Benefit Total

(In millions)

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

Other comprehensive income (loss) before reclassifications 658 ( 614 ) ( 601 ) 253 69 ( 235 )

Amount of gain reclassified from AOCI 310 — — — — 310

Net current period other comprehensive income (loss) 348 ( 614 ) ( 601 ) 253 69 ( 545 )

Ending balance $ 547 $ ( 701 ) $ ( 871 ) $ 277 $ 67 $ ( 681 )

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

1 unchanged sentence

Affected Line Item in the Statements of Income (Loss)

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Three Months Ended March 31,

(In millions)

6 unchanged sentences

Total reclassifications for the period $ ( 42 ) $ 51 Net income (loss)

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

OTHER INCOME (EXPENSE), NET

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

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Three Months Ended March 31,

(In millions)

2 unchanged sentences

Net gains (losses) on strategic investments ( 49 ) 48

Other 11 4 25 ( 49 )

Other income (expense), net $ 41 $ 75

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 8— FUNDS RECEIVABLE AND CUSTOMER ACCOUNTS AND INVESTMENTS

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

September 30,

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 March 31, 2024 and December 31, 2023:

2024 December 31,

(In millions)

Cash and cash equivalents (1)

$ 9,693 $ 9,081

Funds receivable and customer accounts:

Cash and cash equivalents (2)

$ 12,579 $ 12,750

Time deposits 80 82

12 unchanged sentences

Total long-term investments $ 3,409 $ 3,273

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

September 30, 2023 (1)

(1) Includes $ 1.5 billion and $ 777 million of available-for-sale debt securities with original maturities of three months or less as of March 31, 2024 and December 31, 2023, respectively.

(2) Includes $ 931 million and $ 399 million of available-for-sale debt securities with original maturities of three months or less as of March 31, 2024 and December 31, 2023, respectively.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

As of March 31, 2024 and December 31, 2023, 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:

March 31, 2024 (1)

Losses Estimated

(In millions)

Cash and cash equivalents:

government and agency securities $ 1,296 $ — $ — $ 1,296

Commercial paper 200 — — 200

Funds receivable and customer accounts:

26 unchanged sentences

(In millions)

Cash and cash equivalents:

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

Commercial paper 349 — — 349

Funds receivable and customer accounts:

21 unchanged sentences

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

Gross amortized cost and estimated fair value balances exclude accrued interest receivable on available-for-sale debt securities, which totaled $ 94 million and $ 65 million at September 30, 2023 and December 31, 2022, respectively, and were included in other current assets on our condensed consolidated balance sheets.

Gross amortized cost and estimated fair value balances exclude accrued interest receivable on available-for-sale debt securities, which totaled $ 108 million and $ 101 million at March 31, 2024 and December 31, 2023, respectively, and were included in other current assets on our condensed consolidated balance sheets.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

As of September 30, 2023 and December 31, 2022, the gross unrealized losses and estimated fair value of our available-for-sale debt securities included within funds receivable and customer accounts, short-term investments, and long-term investments for which an allowance for credit losses was not deemed necessary in the current period, aggregated by the length of time those individual securities have been in a continuous loss position, was as follows:

September 30, 2023 (1)

As of March 31, 2024 and December 31, 2023, 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:

March 31, 2024 (1)

Less than 12 months 12 months or longer Total

3 unchanged sentences

(In millions)

Cash and cash equivalents:

government and agency securities $ 897 $ — $ — $ — $ 897 $ —

Commercial paper 200 — — — 200 —

Funds receivable and customer accounts:

26 unchanged sentences

(In millions)

Cash and cash equivalents:

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

Funds receivable and customer accounts:

21 unchanged sentences

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

During the three months ended September 30, 2023, we received $ 772 million in proceeds from the sale of available-for-sale debt securities and incurred gross realized gains and losses which were de minimis and determined using the specific identification method.

During the nine months ended September 30, 2023, we received $ 2.7 billion in proceeds from the sale of available-for-sale debt securities and incurred gross realized losses of $ 25 million and de minimis gross realized gains, which were determined using the specific identification method.

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:

September 30, 2023

During the three months ended March 31, 2024, we received $ 11.3 billion in proceeds from the sale and maturity of available-for-sale debt securities and incurred gross realized losses of $ 42 million.

During the three months ended March 31, 2023, we received $ 6.4 billion in proceeds from the sale and maturity of available-for-sale debt securities and incurred gross realized losses of $ 25 million.

Gross realized gains and losses were determined using the specific identification method.

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:

March 31, 2024

Amortized Cost Fair Value

8 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Supplemental cash flow information related to investments

Non-cash investing transactions that are not reflected in the condensed consolidated statement of cash flows for the three months ended March 31, 2024 include the purchase of investments not yet settled of $ 413 million.

STRATEGIC INVESTMENTS

1 unchanged sentence

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

Marketable equity securities totaled $ 541 million and $ 323 million as of September 30, 2023 and December 31, 2022, respectively.

Marketable equity securities totaled $ 21 million and $ 24 million as of March 31, 2024 and December 31, 2023, respectively.

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

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

As of September 30, 2023 and December 31, 2022, we had non-marketable equity securities of $ 168 million and $ 136 million, respectively, where we have the ability to exercise significant influence, but not control, over the investee.

The carrying value of our non-marketable equity securities totaled $ 1.8 billion as of March 31, 2024 and December 31, 2023.

As of March 31, 2024 and December 31, 2023, we had non-marketable equity securities of $ 185 million and $ 182 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.

2 unchanged sentences

Measurement Alternative adjustments

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

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

The adjustments to the carrying value of our non-marketable equity securities accounted for under the Measurement Alternative in the three months ended March 31, 2024 and 2023 were as follows:

Three Months Ended March 31,

(In millions)

6 unchanged sentences

(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 September 30, 2023 and December 31, 2022, respectively:

September 30,

The following table summarizes the cumulative gross unrealized gains and cumulative gross unrealized losses and impairment related to non-marketable equity securities accounted for under the Measurement Alternative, held at March 31, 2024 and December 31, 2023, respectively:

2024 December 31,

2 unchanged sentences

Cumulative gross unrealized losses and impairments $ ( 329 ) $ ( 283 )

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

The following table summarizes the net unrealized gains (losses) on marketable and non-marketable equity securities, excluding those accounted for using the equity method, held at September 30, 2023 and 2022, respectively:

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Three Months Ended March 31,

(In millions)

4 unchanged sentences

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

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

September 30, 2023 Quoted Prices in

The following tables summarize our financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2024 and December 31, 2023:

March 31, 2024 Quoted Prices in

Active Markets for

4 unchanged sentences

Cash and cash equivalents (1)

$ 677 $ — $ 677

government and agency securities $ 1,296 $ — $ 1,296

Commercial paper 200 — 200

Total cash and cash equivalents 1,496 — 1,496

Short-term investments (2) :

6 unchanged sentences

Funds receivable and customer accounts (3) :

Cash and cash equivalents 398 — 398

government and agency securities 8,014 — 8,014

7 unchanged sentences

Crypto asset safeguarding asset (4)

2,846 — 2,846

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

7 unchanged sentences

Derivatives (4)

$ 42 $ — $ 42

Crypto asset safeguarding liability (4)

2,846 — 2,846

Total financial liabilities $ 2,888 $ — $ 2,888

2 unchanged sentences

(3) Excludes cash, time deposits, and funds receivable of $ 23.3 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 CONDENSED 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 condensed 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 condensed consolidated balance sheets.

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

December 31, 2023 Quoted Prices in

5 unchanged sentences

Cash and cash equivalents (1)

$ 932 $ — $ 932

government and agency securities $ 428 $ — $ 428

Commercial paper 349 — 349

Money market fund 160 — 160

Total cash and cash equivalents 937 — 937

Short-term investments (2) :

6 unchanged sentences

Funds receivable and customer accounts (3) :

Cash and cash equivalents 192 — 192

government and agency securities 8,478 — 8,478

7 unchanged sentences

Crypto asset safeguarding asset (4)

1,241 — 1,241

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

7 unchanged sentences

Derivatives (4)

$ 131 $ — $ 131

Crypto asset safeguarding liability (4)

1,241 — 1,241

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

2 unchanged sentences

(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.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

3 unchanged sentences

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).

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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.

As of September 30, 2023 and December 31, 2022, we did not have any assets or liabilities requiring measurement at fair value on a recurring basis with significant unobservable inputs that would require a high level of judgment to determine fair value (Level 3).

A majority of our derivative instruments are valued using pricing models that take into account the contract terms as well as multiple observable inputs where applicable, such as currency rates, interest rate yield curves, option volatility, and equity prices (Level 2).

As of March 31, 2024 and December 31, 2023, we did not have any assets or liabilities requiring measurement at fair value on a recurring basis with significant unobservable inputs that would require a high level of judgment to determine fair value (Level 3).

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

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

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

September 30, 2023 December 31, 2022

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 March 31, 2024 and December 31, 2023:

March 31, 2024 December 31, 2023

Amortized Cost Fair Value Amortized Cost Fair Value

1 unchanged sentence

Funds receivable and customer accounts $ 656 $ 650 $ 625 $ 618

The following table summarizes the gains (losses) from fair value changes recognized in other income (expense), net related to the available-for-sale debt securities under the fair value option for the three and nine months ended September 30, 2023 and 2022:

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Three Months Ended March 31,

(In millions)

Funds receivable and customer accounts $ ( 7 ) $ 7

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

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

September 30,

2023 Significant Other

The following tables summarize our assets held as of March 31, 2024 and December 31, 2023 for which a non-recurring fair value measurement was recorded during the three months ended March 31, 2024 and the year ended December 31, 2023, respectively:

March 31, 2024 Significant Other

Observable Inputs

3 unchanged sentences

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

Other assets (2)

Total $ 319 $ 307 $ 12

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

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

See “Note 6—Leases” for additional information.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(1) Excludes non-marketable equity securities of $ 1.6 billion accounted for under the Measurement Alternative for which no observable price changes occurred during the three months ended March 31, 2024.

December 31, 2023 Significant Other

2 unchanged sentences

(In millions)

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

Loans and interest receivable, held for sale (1)

$ 563 $ — $ 563

Non-marketable equity investments measured using the Measurement Alternative (2)

Other assets (3)

Total $ 1,115 $ 243 $ 872

(1) Excludes non-marketable equity securities of $ 565 million accounted for under the Measurement Alternative for which no observable price changes occurred during the year ended December 31, 2022.

(1) As of December 31, 2023, loans and interest receivable, held for sale were valued using a price-based model.

The price was the significant unobservable input and was determined based upon certain loan and risk classifications of the portfolio.

Low, high and weighted average prices were all $ 0.99 , measured in relation to $ 1.00 par.

(2) 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.

(3) 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.

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 September 30, 2023:

(In millions) Methodology Input Low (1)

Weighted Average (1)(2)

Loans and interest receivable, held for sale $ 2,165 Price-based Price $ 0.98 $ 1.00 $ 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.

Beginning with the first quarter of 2024, we measure loans and interest receivable, held for sale using observable inputs, such as the most recent executed prices for comparable loans sold to the global investment firm.

Accordingly, loans and interest receivable, held for sale are classified within Level 2 in the fair value hierarchy.

Refer to “Note 11—Loans and interest receivable” for additional information on loans and interest receivable, held for sale.

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.

3 unchanged sentences

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.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

FINANCIAL ASSETS AND LIABILITIES NOT MEASURED AND RECORDED AT FAIR VALUE

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

Our notes receivable had a carrying value of approximately $ 479 million and fair value of approximately $ 406 million as of September 30, 2023.

Our notes receivable had a carrying value of approximately $ 508 million and fair value of approximately $ 465 million as of March 31, 2024.

Our notes receivable had a carrying value of approximately $ 513 million and fair value of approximately $ 474 million as of December 31, 2023.

Our term debt (including current portion) in the form of fixed rate notes had a carrying value of approximately $ 10.5 billion and fair value of approximately $ 9.5 billion as of September 30, 2023.

Our term debt (including current portion) in the form of fixed rate notes had a carrying value of approximately $ 10.5 billion and fair value of approximately $ 9.8 billion as of March 31, 2024.

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.

2 unchanged sentences

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

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 10— DERIVATIVE INSTRUMENTS

17 unchanged sentences

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

As of September 30, 2023, we estimated that $ 86 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.

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

As of March 31, 2024, we estimated that $ 40 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.

During the three months ended March 31, 2024 and 2023, we did not discontinue any cash flow hedges because it was probable that the original forecasted transaction would not occur and as such, did not reclassify any gains or losses to earnings prior to the occurrence of the hedged transaction.

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

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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Net investment hedges

5 unchanged sentences

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

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Foreign currency exchange contracts not designated as hedging instruments

4 unchanged sentences

FAIR VALUE OF DERIVATIVE CONTRACTS

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

Balance Sheet Location September 30,

The fair value of our outstanding derivative instruments as of March 31, 2024 and December 31, 2023 was as follows:

Balance Sheet Location March 31,

2024 December 31,

7 unchanged sentences

Foreign currency exchange contracts designated as hedging instruments Other current liabilities $ 12 $ 64

Foreign currency exchange contracts designated as hedging instruments Other long-term liabilities — 133

Foreign currency exchange contracts not designated as hedging instruments Other current liabilities 30 67

3 unchanged sentences

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

Rights of set-off associated with our foreign currency exchange contracts represented a potential offset to both assets and liabilities of $ 29 million as of September 30, 2023 and $ 70 million as of December 31, 2022.

Rights of set-off associated with our foreign currency exchange contracts represented a potential offset to both assets and liabilities of $ 33 million as of March 31, 2024 and $ 38 million as of December 31, 2023.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 posted and received:

September 30,

2024 December 31,

4 unchanged sentences

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

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

EFFECT OF DERIVATIVE CONTRACTS ON CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Three Months Ended September 30,

Three Months Ended March 31,

(In millions)

6 unchanged sentences

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

Amount of gains on foreign currency exchange contracts

Amount of losses on equity derivative contracts (1)

— — — ( 174 )

Total gains (losses) $ 7 $ 74 $ 156 $ ( 95 )

(1) During the three months ended September 30, 2022, equity derivative contracts were entered into and matured in association with the sale of marketable equity securities related to a strategic investment.

Nine Months Ended September 30,

(In millions)

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

Total amounts presented in the condensed consolidated statements of income (loss) in which the effects of cash flow hedges and net investment hedges are recorded $ 21,745 $ 318 $ 20,135 $ ( 337 )

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

Amount of gains on foreign exchange contracts reclassified from AOCI 117 — 310 —

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

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

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

Amount of (losses) gains on foreign exchange contracts — ( 102 ) — 160

Amount of losses on equity derivative contracts (1)

— — — ( 174 )

Amount of gains (losses) on foreign currency exchange contracts — 21 — ( 75 )

Total gains (losses) $ — $ 41 $ 76 $ ( 45 )

(1) During the nine months ended September 30, 2022, equity derivative contracts were entered into and matured in association with the sale of marketable equity securities related to a strategic investment.

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

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Three Months Ended March 31,

(In millions)

Unrealized gains on foreign exchange contracts designated as cash flow hedges

$ 116 $ 294 $ 92 $ 658

Unrealized gains (losses) on foreign exchange contracts designated as cash flow hedges $ 96 $ ( 35 )

Unrealized gains on foreign exchange contracts designated as net investment hedges 99 27

Total unrealized gains recognized from derivative contracts designated as hedging instruments in the condensed consolidated statements of comprehensive income (loss) $ 151 $ 391 $ 323 $ 911

Total unrealized gains (losses) recognized from derivative contracts designated as hedging instruments in the condensed consolidated statements of comprehensive income (loss) $ 195 $ ( 8 )

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTIONAL AMOUNTS OF DERIVATIVE CONTRACTS

3 unchanged sentences

The following table provides the notional amounts of our outstanding derivatives:

September 30,

2024 December 31,

5 unchanged sentences

LOANS AND INTEREST RECEIVABLE, HELD FOR SALE

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

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

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

As of September 30, 2023, the total outstanding balance in our held for sale portfolio was $ 2.2 billion, including loans reclassified as held for sale and loans originated as held for sale.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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.

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 condensed consolidated statements of income (loss).

As of March 31, 2024 and December 31, 2023, loans and interest receivable, held for sale was $ 307 million and $ 563 million, respectively.

During the three months ended March 31, 2024, we sold $ 4.8 billion of loans and interest receivable in connection with this agreement.

LOANS AND INTEREST RECEIVABLE, NET

4 unchanged sentences

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

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

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

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

During the nine months ended September 30, 2023 and 2022, we purchased approximately $ 643 million and $ 106 million in consumer receivables, respectively.

As of September 30, 2023 and December 31, 2022, the outstanding balance of consumer receivables, which consisted of revolving and installment loans and interest receivable, was $ 4.2 billion and $ 5.9 billion, respectively, net of the participation interest sold to the partner institution of $ 22 million and $ 17 million, respectively.

During the three months ended March 31, 2024 and 2023, we purchased approximately $ 25 million and $ 268 million in consumer receivables, respectively.

As of March 31, 2024 and December 31, 2023, the outstanding balance of consumer receivables, which consisted of revolving and installment loans and interest receivable, was $ 4.5 billion and $ 4.8 billion, respectively, net of the participation interest sold to the partner institution of $ 9 million and $ 14 million, respectively.

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

2 unchanged sentences

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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Consumer receivables delinquency and allowance

2 unchanged sentences

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

September 30, 2023

March 31, 2024

(In millions, except percentages)

7 unchanged sentences

90 - 179 Days 41 — 41 4 — — 86 1.9 %

$ 2,072 $ 1,698 $ 435 $ 13 $ — $ — $ 4,218 100 %

Gross charge-offs for the nine months ended September 30, 2023

Total $ 2,279 $ 1,198 $ 802 $ 199 $ — $ — $ 4,478 100 %

Gross charge-offs for the three months ended March 31, 2024

$ 34 $ — $ 58 $ 7 $ — $ — $ 99

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 2023

8 unchanged sentences

90 - 179 Days 41 55 8 1 — — 105 2.2 %

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

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

$ 125 $ 101 $ 140 $ 5 $ — $ — $ 371

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

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

September 30, 2023 September 30, 2022

Consumer Loans Receivable Interest Receivable Total Allowance (1)

Consumer Loans Receivable Interest Receivable Total Allowance (2)

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following table summarizes the activity in the allowance for consumer loans and interest receivable for the three months ended March 31, 2024 and 2023:

March 31, 2024 March 31, 2023

Consumer Loans Receivable Interest Receivable Total Allowance Consumer Loans Receivable Interest Receivable Total Allowance

(In millions)

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

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

Provisions 44 5 49 95 6 101

3 unchanged sentences

Ending balance $ 313 $ 21 $ 334 $ 357 $ 24 $ 381

(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 $ 2 million at September 30, 2022.

(1) Includes amounts related to foreign currency remeasurement.

The provision for the nine months ended September 30, 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.

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

revolving loan product.

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

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

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

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

The provision for the three months ended March 31, 2024 for our consumer receivable portfolio was primarily attributable to loan originations during the period for installment loans in Japan and revolving loans in the U.K.

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

The increase in charge-offs for the three months ended March 31, 2024 compared to the same period in the prior year was due to credit quality deterioration of our U.S.

interest-bearing installment credit products and the growth of U.K.

revolving credit products and installment credit products in Japan.

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

1 unchanged sentence

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

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

6 unchanged sentences

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

During the nine months ended September 30, 2023 and 2022, we purchased approximately $ 1.3 billion and $ 2.3 billion in merchant receivables, respectively.

As of September 30, 2023 and December 31, 2022, the total outstanding balance in our pool of merchant loans, advances, and interest and fees receivable was $ 1.4 billion and $ 2.1 billion, respectively, net of the participation interest sold to the partner institution of $ 55 million and $ 97 million, respectively.

During the three months ended March 31, 2024 and 2023, we purchased approximately $ 419 million and $ 666 million in merchant receivables, respectively.

As of March 31, 2024 and December 31, 2023, the total outstanding balance in our pool of merchant loans, advances, and interest and fees receivable was $ 1.2 billion, net of the participation interest sold to the partner institution of $ 43 million and $ 44 million, respectively.

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

2 unchanged sentences

PPBL repayments are collected through periodic payments until the balance has been satisfied.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The interest or fee is fixed at the time the loan or advance is extended and is recognized as deferred revenue in accrued expenses and other current liabilities on our condensed consolidated balance sheets.

10 unchanged sentences

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

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Merchant receivables delinquency and allowance

2 unchanged sentences

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

September 30, 2023

March 31, 2024

(In millions, except percentages)

2022 2021 2020 2019 Total Percent

2023 2022 2021 2020 Prior Total Percent

Merchant loans, advances, and interest and fees receivable:

5 unchanged sentences

Total $ 560 $ 507 $ 84 $ 5 $ 20 $ 13 $ 1,189 100 %

Gross charge-offs for the nine months ended September 30, 2023

Gross charge-offs for the three months ended March 31, 2024

$ — $ 28 $ 21 $ 1 $ 2 $ 1 $ 53

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 31, 2023

8 unchanged sentences

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

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

September 30, 2023 September 30, 2022

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

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

The following table summarizes the activity in the allowance for merchant loans, advances, and interest and fees receivable for the three months ended March 31, 2024 and 2023:

March 31, 2024 March 31, 2023

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

5 unchanged sentences

Ending balance $ 123 $ 8 $ 131 $ 235 $ 22 $ 257

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

The provision for the three months ended March 31, 2024 was primarily attributable to loan originations during the period partially offset by improvement in credit quality of the PPBL portfolio.

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.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

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

7 unchanged sentences

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

Modifications during the three and nine months ended September 30, 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 September 30, 2023 that were modified through a term extension to a merchant experiencing financial difficulty during the three and nine months ended September 30, 2023, and the financial effect of these modifications:

Three Months Ended September 30, 2023 Nine Months Ended September 30, 2023

Merchant loans, advances, and interest and fees receivables:

Amortized cost basis (in millions) $ 37 $ 107

Modifications as % of merchant loans, advances, and interest and fees receivables 3 % 8 %

Weighted average term extension (months) 25 24

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Modifications to loans for merchants experiencing financial difficulty during the three months ended March 31, 2024 and 2023 increased the term while moving the delinquency status to current.

These modifications were not material.

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 September 30, 2023 that have been modified during the nine months ended September 30, 2023:

September 30, 2023

The following table depicts the performance of merchant loans, advances, and interest and fees receivable as of March 31, 2024 that were modified during the 12 months ended March 31, 2024:

March 31, 2024

(In millions)

4 unchanged sentences

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 three and nine months ended September 30, 2023.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Merchant loans, advances, and interest and fees receivable modified during the 12 months ended March 31, 2024 that subsequently defaulted were not material.

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.

3 unchanged sentences

FIXED RATE NOTES

In June 2023, we issued fixed rate notes with varying maturity dates for an aggregate principal amount of ¥ 90 billion (approximately $ 603 million as of September 30, 2023).

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

In June 2023, we issued fixed rate notes with varying maturity dates for an aggregate principal amount of ¥ 90 billion (approximately $ 595 million as of March 31, 2024).

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

The notes issued from the June 2023, May 2022, May 2020, and September 2019 debt issuances are senior unsecured obligations and are collectively referred to as the “Notes.” We may redeem the Notes in whole, at any time, or in part (except for the June 2023 notes), from time to time, prior to maturity, at their redemption prices.

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

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

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

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

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

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

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.”

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

As of March 31, 2024 and December 31, 2023, we had an outstanding aggregate principal amount of $ 10.6 billion related to the Notes.

The following table summarizes the Notes:

Maturities Effective Interest Rate September 30,

Maturities Effective Interest Rate March 31,

2024 December 31,

14 unchanged sentences

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

Fixed-rate 3.250 % notes

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

May 2022 debt issuance:

17 unchanged sentences

current portion of term debt (2)

( 1,249 ) ( 1,249 )

Total carrying amount of term debt $ 9,280 $ 9,321

(1) Principal amounts represent the U.S.

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

dollar equivalent as of March 31, 2024 and December 31, 2023, respectively.

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

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

The interest expense recorded for the Notes, including amortization of the debt discount and debt issuance costs, was $ 84 million and $ 250 million for the three and nine months ended September 30, 2023, respectively.

The interest expense recorded for the Notes, including amortization of the debt discount, debt issuance costs, and debt extinguishment net gains, was $ 83 million and $ 206 million for the three and nine months ended September 30, 2022, respectively.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The interest expense recorded for the Notes, including amortization of the debt discount and debt issuance costs, was $ 84 million and $ 83 million for the three months ended March 31, 2024 and 2023, respectively.

CREDIT FACILITIES

Five-year revolving credit facility

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Paidy credit agreement

In February 2022, we entered into a credit agreement (the “Paidy Credit Agreement”) with Paidy as co-borrower, which provided for an unsecured revolving credit facility of ¥ 60.0 billion, which was modified in September 2022 to increase the borrowing capacity by ¥ 30.0 billion for a total borrowing capacity of ¥ 90.0 billion (approximately $ 603 million as of September 30, 2023).

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

As of September 30, 2023 and December 31, 2022, ¥ 16.0 billion (approximately $ 108 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 condensed consolidated balance sheets.

At September 30, 2023, ¥ 74.0 billion (approximately $ 495 million) of borrowing capacity was available for the purposes permitted by the Paidy Credit Agreement, subject to customary conditions to borrowing.

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

Borrowings under the Paidy Credit Agreement are for use by Paidy for working capital, capital expenditures, and other permitted purposes.

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

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

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

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

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

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

As of March 31, 2024 and December 31, 2023, ¥ 61.0 billion (approximately $ 403 million) and ¥ 50.0 billion (approximately $ 355 million) was drawn down under the Paidy Credit Agreement, respectively, which was recorded in long-term debt on our condensed consolidated balance sheets.

At March 31, 2024, ¥ 29.0 billion (approximately $ 192 million) of borrowing capacity was available for the purposes permitted by the Paidy Credit Agreement, subject to customary conditions to borrowing.

During the three months ended March 31, 2024 and 2023, the total interest expense and fees we recorded related to the Paidy Credit Agreement were de minimis.

Other available facilities

As of March 31, 2024 and December 31, 2023, we had short-term borrowings of $ 41 million and $ 359 million, respectively, due to bank overdrafts, which were recorded in accrued expenses and other liabilities on our condensed consolidated balance sheets.

The weighted average interest rate on the borrowings were 8.19 % and 7.92 % as of March 31, 2024 and December 31, 2023, respectively.

We repaid the borrowing of $ 359 million during the three months ended March 31, 2024.

The total interest expense and fees we recorded related to the borrowings were de minimis.

FUTURE PRINCIPAL PAYMENTS

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

As of March 31, 2024, the future principal payments associated with our term debt were as follows (in millions):

Remaining 2024 $ 1,250

3 unchanged sentences

NOTE 13— COMMITMENTS AND CONTINGENCIES

As of September 30, 2023 and December 31, 2022, approximately $ 5.7 billion and $ 4.9 billion, respectively, of unused credit was available to PayPal Credit account holders in the U.K.

As of March 31, 2024 and December 31, 2023, approximately $ 6.5 billion and $ 6.2 billion, respectively, of unused credit was available to PayPal Credit account holders in the U.K.

While this amount represents the total unused credit available, we have not experienced, and do not anticipate, that all our PayPal Credit account holders will access their entire available credit at any given point in time.

In addition, the individual lines of credit that make up this unused credit are subject to periodic review and termination based on, among other things, account usage and customer creditworthiness.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

LITIGATION AND REGULATORY MATTERS

8 unchanged sentences

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

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

Amounts accrued for legal and regulatory proceedings for which we believe a loss is probable and reasonably estimable were not material as of March 31, 2024.

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

2 unchanged sentences

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

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Regulatory proceedings

9 unchanged sentences

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

PPAU provided the external auditor’s final report to AUSTRAC on 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.

We cannot predict the outcome of AUSTRAC’s decision.

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

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

We have received Civil Investigative Demands (“CIDs”) from the Consumer Financial Protection Bureau (“CFPB”) related to Venmo’s unauthorized funds transfers and collections processes, and related matters, including treatment of consumers who request payments but accidentally designate an unintended recipient.

The CIDs request the production of documents and answers to written questions.

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

The CIDs requested the production of documents and answers to written questions, to which we responded.

In March 2024, the CFPB communicated it was closing this inquiry without enforcement action.

In February 2022, we received a CID from the Federal Trade Commission (“FTC”) related to PayPal’s practices relating to commercial customers that submit charges on behalf of other merchants or sellers, and related activities.

4 unchanged sentences

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

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.

We have received CIDs 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 CIDs request the production of documents and answers to written questions.

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

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

2 unchanged sentences

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

PayPal Holdings, Inc.

NOTES TO CONDENSED 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.

21-cv-09720, and Lalor v.

Daniel Schulman, et al.

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

District Court for the Northern District of California (the “California Derivative Actions”), purportedly on behalf of the Company.

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

Daniel Schulman, et al.

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 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.

9 unchanged sentences

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.

9 unchanged sentences

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

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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

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

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”).

2 unchanged sentences

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

Trial is scheduled to begin in August 2024.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Trial is scheduled to begin in April 2025.

General matters

17 unchanged sentences

It is not possible to determine the maximum potential loss under these indemnification provisions due to our limited history of prior indemnification claims and the unique facts and circumstances involved in each particular situation.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

PayPal has participated in the U.S.

4 unchanged sentences

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 CONDENSED 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 March 31, 2024, the current outstanding balances of the loans sold was $ 2.4 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.

OFF-BALANCE SHEET ARRANGEMENTS

As of September 30, 2023 and December 31, 2022, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures, or capital resources.

As of March 31, 2024 and December 31, 2023, 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.

PROTECTION PROGRAMS

4 unchanged sentences

These protection programs are considered assurance-type warranties under applicable accounting standards for which we estimate and record associated costs in transaction and credit losses during the period the payment transaction is completed.

At September 30, 2023 and December 31, 2022, the allowance for transaction losses was $ 67 million and $ 66 million, respectively.

The allowance for negative customer balances was $ 230 million and $ 212 million at September 30, 2023 and December 31, 2022, respectively.

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

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

At March 31, 2024 and December 31, 2023, the allowance for transaction losses was $ 62 million and $ 64 million, respectively.

The allowance for negative customer balances was $ 205 million and $ 218 million at March 31, 2024 and December 31, 2023, respectively.

The following table shows changes in the allowance for transaction losses and negative customer balances related to our protection programs for the three months ended March 31, 2024 and 2023:

Three Months Ended March 31,

(in millions)

5 unchanged sentences

NOTE 14— STOCK REPURCHASE PROGRAMS

During the nine months ended September 30, 2023, we repurchased approximately 64 million shares of our common stock for approximately $ 4.4 billion at an average price of $ 69.06 , excluding excise tax.

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

As of September 30, 2023, a total of approximately $ 11.5 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 condensed consolidated balance sheet.

During the nine months ended September 30, 2023, we recorded $ 39 million in excise tax within treasury stock on our condensed consolidated balance sheet.

NOTE 15— STOCK-BASED PLANS

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

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

In June 2023, the Company filed a post-effective amendment to the 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.

During the three months ended March 31, 2024, we repurchased approximately 25 million shares of our common stock for approximately $ 1.5 billion at an average cost of $ 59.18 , excluding excise tax.

These shares were purchased in the open market under our stock repurchase program authorized in June 2022.

As of March 31, 2024, a total of approximately $ 9.4 billion remained available for future repurchases of our common stock under our June 2022 stock repurchase program.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 condensed consolidated balance sheets.

During the three months ended March 31, 2024, we recorded $ 10 million in excise tax within treasury stock on our condensed consolidated balance sheets.

NOTE 15— STOCK-BASED PLANS

STOCK-BASED COMPENSATION EXPENSE

Stock-based compensation expense for our equity incentive plans are measured based on their estimated fair value at the time of grant and recognized over the award’s vesting period.

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

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

The impact on our results of operations of recording stock-based compensation expense under our equity incentive plans for the three months ended March 31, 2024 and 2023 was as follows:

Three Months Ended March 31,

(In millions)

3 unchanged sentences

General and administrative 87 94

Restructuring and other 38 —

Total stock-based compensation expense $ 380 $ 357

Capitalized stock-based compensation expense $ 14 $ 12 $ 38 $ 40

Capitalized as part of internal use software and website development costs $ 12 $ 11

NOTE 16— INCOME TAXES

Our effective tax rate for the three and nine months ended September 30, 2023 was 18 % and 21 %, respectively.

Our effective tax rate for the three and nine months ended September 30, 2022 was 16 % and 34 %, respectively.

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

federal statutory rate of 21% in the three and nine months ended September 30, 2023 was primarily the result of foreign income taxed at different rates and discrete tax adjustments, including tax expense related to stock-based compensation.

Our effective tax rate for the three months ended March 31, 2024 and 2023 was 27 % and 26 %, respectively.

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

federal statutory rate of 21% for the three and nine months ended September 30, 2022 was primarily the result of foreign income taxed at different rates, and for the nine months ended September 30, 2022, tax expense related to the intra-group transfer of intellectual property.

NOTE 17— RESTRUCTURING AND OTHER CHARGES

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

The associated restructuring charges during the three and nine months ended September 30, 2023 were $ 3 million and $ 120 million, respectively.

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

The following table summarizes the restructuring reserve activity during the nine months ended September 30, 2023:

Employee Severance and Benefits and Other Associated Costs

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

Gross unrecognized tax benefits were approximately $ 2.2 billion as of March 31, 2024 and December 31, 2023.

Due to various factors, including uncertainties of the judicial, administrative, and regulatory processes in certain jurisdictions, the timing of the resolution of these unrecognized tax benefits is highly uncertain.

It is reasonably possible that within the next twelve months, we may receive additional tax adjustments by various tax authorities or possibly reach resolution of audits in one or more jurisdictions.

These adjustments or settlements could result in changes to our unrecognized tax benefits related to positions on prior year tax filings.

We also continue to accrue unrecognized tax benefits for certain recurring tax positions.

NOTE 17— RESTRUCTURING AND OTHER

During the first quarter of 2024, management initiated a global workforce reduction intended to streamline operations, focus resources on core strategic priorities, and improve our cost structure.

The associated restructuring charges during the three months ended March 31, 2024 were $ 175 million and included employee severance and benefits costs and stock-based compensation expense.

In connection with this restructuring, we expect to incur additional charges related to employee severance and benefits costs of approximately $ 70 million to $ 90 million, which includes stock-based compensation expense.

We expect the remaining charges to be substantially recognized by the second quarter of 2024.

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following table summarizes the restructuring reserve activity during the three months ended March 31, 2024:

Employee Severance and Benefits Costs

(In millions)

1 unchanged sentence

Payments ( 66 )

Accrued liability as of September 30, 2023

During the first quarter of 2022, management initiated a strategic reduction of the existing global workforce intended to streamline and optimize our global operations to enhance operating efficiency.

This effort focused on reducing redundant operations and simplifying our organizational structure.

The associated restructuring charges during the three and nine months ended September 30, 2022 were $ 23 million and $ 114 million, respectively.

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

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

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Additionally, we are continuing to review our real estate and facility capacity requirements due to our new and evolving work models.

We incurred asset impairment charges of $ 15 million and $ 58 million in the three and nine months ended September 30, 2023, respectively, and $ 29 million and $ 64 million in the three and nine months ended September 30, 2022, respectively, due to exiting of certain leased properties, which resulted in a reduction of ROU lease assets and related leasehold improvements.

See “Note 6—Leases” for additional information.

In the nine months ended September 30, 2023, we recognized a gain of $ 17 million due to the sale of an owned property.

We also incurred a loss of $ 12 million related to another owned property held for sale in the nine months ended September 30, 2023.

During the three and nine months ended September 30, 2023, approximately $ 15 million and $ 49 million, respectively, of losses were recorded in restructuring and other charges in order to measure loans and interest receivable, held for sale, at the lower of cost or fair value.

NOTE 18— SUBSEQUENT EVENTS

As described in “Note 1—Overview and Summary of Significant Accounting Policies,” in June 2023 we entered into a multi-year agreement with a global investment firm to sell up to € 40 billion of eligible consumer installment receivables.

In October 2023, we began selling those receivables and as of October 31, 2023, $ 1.4 billion of such receivables, which were classified as held for sale, have been sold.

Following the sale, the global investment firm became the owner of the receivables sold and we no longer hold an ownership interest in these receivables.

This transaction was accounted for as a sale, based on our determination that it met the necessary criteria for such accounting including legal isolation of transferred assets, ability of the transferee to pledge or exchange the transferred assets without constraint, and the transfer of control.

Accordingly, we no longer record these loan and interest receivables on our consolidated financial statements.

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

Accrued liability as of March 31, 2024 (2)

(1) Excludes stock-based compensation expense of $ 38 million.

(2) Accrued restructuring liability is included in “accrued expenses and other current liabilities” on our condensed consolidated balance sheets.

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

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

We primarily incurred employee severance and benefits costs, which were substantially completed by the fourth quarter of 2023.

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 nil and $ 39 million in the three months ended March 31, 2024 and 2023, respectively, due to exiting of certain leased properties, which resulted in a reduction of ROU lease assets and related leasehold improvements.

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

During the three months ended March 31, 2024, approximately $ 37 million of losses were recorded in restructuring and other, which included net loss on sale of loans and interest receivable previously held for sale and fair value adjustments in order to measure loans and interest receivable, held for sale, at the lower of cost or fair value.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements