XP XP Inc

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 6-K  

 

 

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 

UNDER THE SECURITIES EXCHANGE ACT OF 1934

 

For the month of May 2024

 

Commission File Number: 001-39155 

 

 

XP Inc.

(Exact name of registrant as specified in its charter)

 

 

20, Genesis Close

Grand Cayman, George Town

Cayman Islands KY-1-1208 

+55 (11) 3075-0429

(Address of principal executive office)  

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F: 

 

Form 20-F ☒   Form 40-F ☐ 

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

 

Yes ☐   No ☒

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

 

Yes ☐   No ☒  

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	XP Inc.
	By:	/s/ Bruno Constantino Alexandre Santos
		Name: Bruno Constantino Alexandre Santos
		Title: Chief Financial Officer

 

Date: May 21, 2024

 

EXHIBIT INDEX

 

Exhibit No.		Description
99.1		XP Inc. – Unaudited interim condensed consolidated financial statements for the three months period ended March 31, 2024

 

Exhibit 99.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

XP Inc.

 

Interim condensed consolidated
financial statements at
March 31, 2024
and report on review

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Report on review of interim condensed

 

consolidated financial statements

 

To the Board of Directors and Shareholders

XP Inc.

 

Introduction

 

We have reviewed the accompanying interim condensed consolidated balance sheet of XP Inc. and its subsidiaries ("Company") as at March 31, 2024 and the related interim condensed consolidated statements of income and of comprehensive income, changes in equity and cash flows for the three-month period then ended, and explanatory notes.

 

Management is responsible for the preparation and presentation of these consolidated condensed interim financial statements in accordance with International Accounting Standard (IAS) 34 - Interim Financial Reporting, of the International Accounting Standards Board (IASB). Our responsibility is to express a conclusion on these condensed interim financial statements based on our review.

 

Scope of review

 

We conducted our review in accordance with Brazilian and International Standards on Reviews of Interim Financial Information (NBC TR 2410 - Review of Interim Financial Information Performed by the Independent Auditor of the Entity, and ISRE 2410 - Review of Interim Financial Information Performed by the Independent Auditor of the Entity, respectively). A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Brazilian and International Standards on Auditing and consequently did not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion

 

Based on our review, nothing has come to our attention that causes us to believe that the accompanying consolidated condensed interim financial statements referred to above are not prepared, in all material respects, in accordance with IAS 34 - Interim Financial Reporting, of the International Accounting Standards Board (IASB).

 

 

São Paulo, May 21, 2024     

 

 

 

/s/ PricewaterhouseCoopers

Auditores Independentes Ltda.

CRC 2SP000160/O-5

 

 

 

Marcos Paulo Putini

Contador CRC 1SP212529

 

Assets	Note	March 31, 2024		December 31, 2023
Cash		3,938,578		3,943,307
Financial assets		257,761,295		229,197,214
Fair value through profit or loss		144,887,279		127,015,678
Securities	4	112,185,069		103,282,212
Derivative financial instruments	5	32,702,210		23,733,466
Fair value through other comprehensive income		40,310,404		44,062,950
Securities	4	40,310,404		44,062,950
Evaluated at amortized cost		72,563,612		58,118,586
Securities	4	4,458,663		6,855,421
Securities purchased under resale agreements	3	30,291,271		14,888,978
Securities trading and intermediation	9	2,512,056		2,932,319
Accounts receivable		639,142		681,190
Loan operations	7	29,541,800		28,551,935
Other financial assets	15	5,120,680		4,208,743
Other assets		9,005,592		7,811,962
Recoverable taxes		436,769		245,214
Rights-of-use assets	12	250,711		281,804
Prepaid expenses	8	4,476,586		4,418,263
Other		3,841,526		2,866,681
Deferred tax assets	17	2,183,746		2,104,128
Investments in associates and joint ventures	11	3,114,918		3,108,660
Property and equipment	12	394,788		373,362
Goodwill and Intangible assets	12	2,522,723		2,502,045
Total assets		278,921,640		249,040,678

 

The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.

 

Liabilities and equity	Note	March 31, 2024		December 31, 2023
Financial liabilities		198,443,725		171,237,146
Fair value through profit or loss		51,916,928		45,208,490
Securities	4	17,528,172		20,423,074
Derivative financial instruments	5	34,388,756		24,785,416
Evaluated at amortized cost		146,526,797		126,028,656
Securities sold under repurchase agreements	3	49,054,325		33,340,511
Securities trading and intermediation	9	16,394,818		16,943,539
Financing instruments payable	13	63,037,172		60,365,590
Accounts payables		954,009		948,218
Borrowings	14	2,266,614		2,199,422
Other financial liabilities	15	14,819,859		12,231,376
Other liabilities		59,934,949		58,266,331
Social and statutory obligations		625,433		1,146,127
Taxes and social security obligations		500,996		559,647
Retirement plans and insurance liabilities	16	58,654,362		56,409,075
Provisions and contingent liabilities	20	101,493		97,678
Other		52,665		53,804
Deferred tax liabilities	17	118,193		86,357
Total liabilities		258,496,867		229,589,834
Equity attributable to owners of the Parent company	18	20,421,216		19,449,352
Issued capital		26		26
Capital reserve		19,332,457		19,189,994
Other comprehensive income		186,171		376,449
Treasury shares		(127,454)		(117,117)
Retained earnings		1,030,016		-
Non-controlling interest		3,557		1,492
Total equity		20,424,773		19,450,844
Total liabilities and equity		278,921,640		249,040,678

 

The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.

 

		Three months period ended March 31,
	Note	2024		2023
Net revenue from services rendered	21	1,623,851		1,345,984
Net income/(loss) from financial instruments at amortized cost and at fair value through other comprehensive income	21	227,251		502,113
Net income/(loss) from financial instruments at fair value through profit or loss	21	2,201,754		1,285,892
Total revenue and income		4,052,856		3,133,989
Operating costs	22	(1,218,816)		(1,016,525)
Selling expenses	23	(32,054)		(14,942)
Administrative expenses	23	(1,451,651)		(1,093,939)
Other operating income (expenses), net	24	9,221		18,881
Expected credit losses	10	(96,870)		(67,634)
Interest expense on debt		(181,337)		(162,828)
Share of profit (loss) in joint ventures and associates	11	7,104		19,146
Income before income tax		1,088,453		816,148
Income tax credit (expense)	17	(58,898)		(20,203)
Net income for the period		1,029,555		795,945
Other comprehensive income
Items that can be subsequently reclassified to income
Foreign exchange variation of investees located abroad		14,796		(17,996)
Gains (losses) on net investment hedge		(12,561)		20,871
Changes in the fair value of financial assets at fair value through other comprehensive income		(171,480)		80,384
Other comprehensive income (loss) for the period, net of tax		(169,245)		83,259
Total comprehensive income for the period		860,310		879,204
Net income attributable to:
Owners of the parent company		1,030,016		795,020
Non-controlling interest		(461)		925
Total comprehensive income attributable to:
Owners of the parent company		860,771		878,279
Non-controlling interest		(461)		925
Earnings per share from total income attributable to the ordinary equity holders of the company
Basic earnings per share	26	1.8781		1.4847
Diluted earnings per share	26	1.8503		1.4823

 

The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.

 

			Attributable to owners of the parent
		Issued Capital		Capital reserve				Other comprehensive income and Other		Retained Earnings				Total	Non-Controlling interest		Total Equity
	Notes			Additional paid-in capital		Other Reserves						Treasury Shares
Balances as of December 31, 2022		24		6,986,447		12,169,935		(133,909)		-		(1,986,762)		17,035,735	6,475		17,042,210
Comprehensive income for the period
Net income for the period		-		-		-		-		795,020		-		795,020	925		795,945
Other comprehensive income, net		-		-		-		83,259		-		-		83,259	-		83,259
Transactions with shareholders - contributions and distributions
Share based plan	25	-		-		38,156		-		-		-		38,156	-		38,156
Other changes in equity, net		-		-		-		2,339		-		-		2,339	119		2,458
Treasury shares	18c	-		-		-		-		-		(915,859)		(915,859)	-		(915,859)
Allocations of the net income for the period
Dividends distributed		-		-		-		-		-		-		-	(306)		(306)
Balances as of March 31, 2023		24		6,986,447		12,208,091		(48,311)		795,020		(2,902,621)		17,038,650	7,213		17,045,863
Balances as of December 31, 2023		26		6,417,115		12,772,879		376,449		-		(117,117)		19,449,352	1,492		19,450,844
Comprehensive income for the period
Net income for the period		-		-		-		-		1,030,016		-		1,030,016	(461)		1,029,555
Other comprehensive income, net		-		-		-		(169,245)		-		-		(169,245)	-		(169,245)
Transactions with shareholders - contributions and distributions
Share based plan	25	-		59		142,404		-		-		-		142,463	2,637		145,100
Other changes in equity, net		-		-		-		(21,033)		-		-		(21,033)	-		(21,033)
Treasury shares	18c	-		-		-		-		-		(10,337)		(10,337)	-		(10,337)
Allocations of the net income for the period
Dividends distributed		-		-		-		-		-		-		-	(111)		(111)
Balances as of March 31, 2024		26		6,417,174		12,915,283		186,171		1,030,016		(127,454)		20,421,216	3,557		20,424,773

 

The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.

 

		Three months ended March 31,
	Note	2024		2023
Operating activities
Income before income tax		1,088,453		816,148
Adjustments to reconcile income before income taxes
Depreciation of property, equipment and right-of-use assets	12	28,918		26,516
Amortization of intangible assets	12	39,142		21,326
Loss on write-off of right of use assets, property, equipment and intangible assets and lease, net	12	15,813		5,325
Share of profit or (loss) in joint ventures and associates	11	(7,104)		(19,146)
Income from share in the net income of associates measured at fair value	11	15		-
Expected credit losses on financial assets		96,870		33,881
Provision for contingencies, net	20	(11,572)		34,660
Net foreign exchange differences		159,575		(210,419)
Share based plan	25	145,100		38,156
Interest accrued		182,512		154,183
(Gain) / Loss on the disposal of investments		-		14,083
Changes in assets and liabilities
Securities (assets and liabilities)		(8,709,462)		4,112,334
Derivative financial instruments (assets and liabilities)		622,005		701,030
Securities trading and intermediation (assets and liabilities)		(135,724)		(135,413)
Securities purchased (sold) under resale (repurchase) agreements		1,314,890		(5,969,509)
Accounts receivable		37,352		(8,431)
Loan operations		(1,045,877)		(911,295)
Prepaid expenses		(58,323)		(10,151)
Other assets and other financial assets		(4,256,116)		334,362
Accounts payable		5,210		(32,002)
Financing instruments payable		2,450,655		2,690,874
Social and statutory obligations		(520,694)		(464,824)
Tax and social security obligations		30,481		(13,087)
Retirement plans liabilities		2,245,287		2,072,434
Other liabilities and other financial liabilities		3,214,432		312,033
Cash (used in)/from operations		(3,068,162)		3,593,068
Income tax paid		(268,007)		(157,926)
Contingencies paid	20	(12)		(199)
Interest paid		(10,064)		(6,883)
Net cash flows (used in)/from operating activities		(3,346,245)		3,428,060
Investing activities
Acquisition of property and equipment	12	(32,965)		(1,929)
Acquisition of intangible assets	12	(13,775)		(8,348)
Disposal of investments	11	-		19,338
Acquisition of associates	30(ii)	(670,464)		-
Net cash flows (used in)/from investing activities		(717,204)		9,061
Financing activities
Acquisition of treasury shares	18	(10,337)		(915,859)
Issuance of debt securities	30	-		134,598
Payments of borrowings and lease liabilities	30	(53,441)		(27,477)
Transactions with non-controlling interests		-		119
Dividends paid to non-controlling interests		(111)		(306)
Net cash flows (used in) financing activities		(63,889)		(808,925)
Net increase in cash and cash equivalents		(4,127,338)		2,628,196
Cash and cash equivalents at the beginning of the period		9,210,482		4,967,480
Effects of exchange rate changes on cash and cash equivalents		9,484		(14,005)
Cash and cash equivalents at the end of the period		5,092,628		7,581,671
Cash		3,938,578		3,088,840
Securities purchased under agreements to resell	3	1,005,478		4,126,706
Bank deposit certificates	4	58,572		236,125
Other deposits at Brazilian Central Bank		90,000		130,000

 

The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.

 

1.

Operations

 

XP Inc. (the “Company”) is a Cayman Island exempted company with limited liability, incorporated on August 29, 2019. The registered office of the Company is 20, Genesis Close, in George Town, Grand Cayman.

 

XP Inc. is currently the entity which is registered with the U.S. Securities and Exchange Commission (“SEC”). The common shares are trading on the Nasdaq Global Select Market (“NASDAQ-GS”) under the symbol “XP”.

 

XP Inc. is a holding company controlled by XP Control LLC, which holds 66.5% of voting rights and is controlled by a group of individuals.

 

XP Inc. and its subsidiaries (collectively, “Group” or “XP Group”) is a leading, technology-driven financial services platform and a trusted provider of low-fee financial products and services in Brazil. XP Group are principally engaged in providing its customers, represented by individuals and legal entities in Brazil and abroad, various financial products, services, digital content and financial advisory services, mainly acting as broker-dealer, including securities brokerage, private pension plans, commercial and investment banking products such as loan operations, transactions in the foreign exchange markets and deposits, through our brands that reach clients directly and through network of Independent Financial Advisers (“IFAs”).

 

These unaudited interim condensed consolidated financial statements as of March 31, 2024, were approved by the Board of Director’s meeting on May 13, 2024 and updated by subsequent events through May 21, 2024 as approved by the executive management.

 

1.1

Share buy-back program

 

In May 2022, the Board of Directors approved a share buy-back program. Under the program, XP may repurchase up to the amount in dollars equivalent to R$1.0 billion of its outstanding Class A common shares over a period beginning on May 12, 2022, continuing until the earlier of the completion of the repurchase or May 12, 2023, depending upon market conditions.

 

On November 4, 2022, the Board of Directors approved an amendment to the share buy-back program. Under the amended program, XP Inc may repurchase up to the amount in dollars equivalent to R$2.0 billion of its outstanding Class A common shares (therefore, an increase of the maximum amount of R$1.0 billion compared to the original program). The program period has not been amended, continuing until the earlier of the completion of the repurchase or May 12, 2023, depending upon market conditions.

 

The repurchase limit of R$ 2.0 billion was reached on March 31, 2023, and, therefore, the share buy-back program terminated. At the end of the share buy-back program, the Company repurchased 25,037,192 shares (equivalent to R$ 2,059 million or US$ 394 million), which were acquired at an average price of US$ 15.76 per share, with prices ranging from US$ 10.69 to US$ 24.85.

 

On February 20, 2024, the Board of Directors approved a new share repurchase program, which aims to neutralize future shareholder dilution due to the vesting of Restricted Stock Units (RSUs) from the Company´s long-term incentive plan. The Company proposes to undertake a share repurchase program pursuant to which the Board can annually, in each calendar year, approve the repurchase by the Company of a number of Class A common shares equal to the number of RSUs that have vested or will vest during the current calendar year.

 

Under the approved repurchase program for 2024, XP may repurchase up to 2,500,000 Class A common shares within the period started on February 28, 2024, and ending on December 27, 2024. As of March 31, 2024, the company repurchased 81,250 shares (equivalent to R$ 10 million or US$ 2 million), which were acquired at an average price of US$ 25.48 per share, with prices ranging from US$ 25.04 to US$ 26.11.

 

1.2

Cancellation of treasury shares

 

On April 5, 2023, the Company´s Board of Directors approved the cancellation of 31,267,095 Class A shares, totaling an amount of R$ 2,785,504 (5.6% of total issued shares, on this date) held by the Company in treasury. Total issued shares count, on April 5, 2023, went from 560,534,012 to 529,266,917 after cancellation.

 

1.3

Termination of shareholders agreement between XP Control LLC, General Atlantic (XP) Bermuda, Iupar Group, ITB Holding Ltd. and Itaú Unibanco Holding S.A.

 

On July 10, 2023, XP Inc. announced the termination of its shareholders agreement executed between XP Control LLC, General Atlantic (XP) Bermuda, Iupar Group, ITB Holding Ltd., and Itaú Unibanco Holding S.A., originally expected to continue until October 2026. As a result of the termination, Iupar Group will no longer have the right to nominate members to XP Inc´s board of directors, which was reduced from 11 to 9 members.

 

1.4

Corporate reorganization

 

In order to improve corporate structure, Group´s capital and cash management, XP Inc is conducting entity reorganizations, as follows:

 

i)

Inversion of financial institutions in Brazil. At the end of the reorganization XP CCTVM will become a wholly owned subsidiary of Banco XP. As of March 31, 2024, up to the date of these consolidated financial statements, the corporate reorganization is not fully concluded and is expected to be completed by the end of 2024.

 

ii)

Reorganization of international operations. The entities XP Holding International LLC, XP Advisory US and XP Holding UK Ltd, which are no longer wholly owned subsidiaries of XP Investimentos S.A., and are now directly owned by XP Inc. The transaction was completed on October 20, 2023.

 

No material impacts on Group’s financial position and results of operations are expected due to the previously described corporate reorganization.

 

2.

Basis of preparation and changes to the Group’s accounting policies

 

a)

Basis of preparation

 

The unaudited interim condensed consolidated balance sheet as of March 31, 2024, and the unaudited interim condensed consolidated statements of income and comprehensive income, changes in equity and cash flow for the three months period ended March 2024 and 2023 (the “financial statements”) have been prepared in accordance with IAS 34 Interim Financial Reporting as issued by the International Accounting Standards Board (“IASB”).

 

The unaudited interim condensed consolidated financial statements have been prepared on a historical cost basis, except for financial instruments that have been measured at fair value.

 

The unaudited interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group’s annual consolidated financial statements as of December 31, 2023. The list of notes that were not presented in this unaudited interim condensed is described below:

 

Note to financial statements of December 31, 2023	Description
3.	Summary of significant accounting policies
4.	Significant accounting judgements, estimates and assumptions
5.	Group structure
11.	Accounts receivable
12.	Recoverable taxes
21.	Social and Statutory obligations
22.	Tax and social security obligations
26. (a)	Key-person management compensation

  

The accounting policies adopted are consistent with those of the previous financial year and corresponding interim reporting period, except for the new accounting policies adopted for the current interim reporting period, see Note 2 (b).

 

The unaudited interim condensed consolidated financial statements are presented in Brazilian reais (“R$”), which is the Group’s presentation currency and all amounts disclosed in the financial statements and notes have been rounded off to the nearest thousand currency units unless otherwise stated.

 

b)

New standards, interpretations and amendments

 

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group’s annual consolidated financial statements for the year ended December 31, 2023.

 

IFRS 18 – Presentation and Disclosure of Financial Statements: The standard replaces “IAS 1 Presentations of Financial Statements”, and also changes other standards such as “IAS 7 – Statement of Cash Flows”, “IFRS 12 – Disclosures of Interests in Other Entities”, “IAS 33 – Earnings per Share”, “IAS 34 – Intermediate Statement”, “IAS 8 – Accounting Policies, Estimate Changes and Error Rectification”, and “IFRS 7 – Financial Instruments, Disclosure”, aiming to improve the communication of information in the financial statements, with a special focus on income statements and notes. The mandatory initial adoption of this standard is scheduled for January 1, 2027.

 

Amendments to IAS 1 – Classification of liabilities as current or non-current: The changes aim to promote consistency in the application of the requirements, helping companies to determine whether, in the statement of financial position, debts and other liabilities with an uncertain settlement date should be classified as current (due or potentially due to be settled within one year) or non-current, being effective for annual years beginning on or after January 1, 2024.

 

Amendments to IAS 1 – Non-current Liabilities with Covenants: The amendment clarifies how the conditions that an entity must comply with within twelve months after the reporting period affect the classification of liabilities, being effective for annual reporting periods beginning on or after 1 January 2024.

 

Amendments to IAS 12 – International Tax Reform – Pillar Two Model Rules: The amendment provides a temporary exception from requirements for initial application relating to deferred tax assets and liabilities related to Pillar Two income tax for the interim consolidated financial statements, but is mandatory for annual reporting periods from January 1, 2023. The Group has assessed the impacts of applying these changes and concluded that there are no impacts on these unaudited interim condensed consolidated financial statements.

 

c)

Basis of consolidation

 

There were no changes since December 31, 2023, in the accounting practices adopted for consolidation of the Company’s direct and indirect interests in its subsidiaries for the purposes of these unaudited interim condensed consolidated financial statements.

 

(i)

Subsidiaries

 

Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

 

The acquisition method of accounting is used to account for business combinations by the Group.

 

Intercompany transactions, balances and unrealized gains on transactions between Group companies are eliminated. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

 

Non-controlling interests in the results and equity of subsidiaries are shown separately in the statement of income and of comprehensive income, statement of changes in equity and balance sheet respectively.

 

(ii)

Associates

 

Associates are companies in which the investor has a significant influence but does not hold control. Investments in these companies are initially recognized at cost of acquisition and subsequently accounted for using the equity method. Investments in associates include the goodwill identified upon acquisition, net of any cumulative impairment loss.

 

Under the equity method of accounting, the investments are initially recognized at cost and adjusted thereafter to recognize the Group’s share of the post-acquisition profits or losses of the investee in the Group’s income statement, and the Group’s share of movements in other comprehensive income of the investee in the Group’s other comprehensive income. Dividends received or receivable from associates are recognized as a reduction in the carrying amount of the investment.

 

Unrealized gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in these entities. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of equity-accounted investees have been changed where necessary to ensure consistency with the policies adopted by the Group.

 

If its interest in the associates decreases, but the Group retains significant influence or joint control, only the proportional amount of the previously recognized amounts in other comprehensive income is reclassified in income, when appropriate.

 

(iii)

Interests in associates measured at fair value

 

The Group has investments in associates measured at fair value in accordance with item 18 of IAS 28 – Investments in Associates and Joint Ventures. These investments are held through XP FIP Managers and XP FIP Endor, which are venture capital organizations. In determining whether the funds meet the definition of venture capital organizations, management considers the investment portfolio features and objectives. The portfolio classified in this category has the objective to generate growth in the value of its investments in the medium term and have an exit strategy. Additionally, the performance of these portfolios is evaluated and managed considering a fair value basis of each investment.

 

d)

Business combinations and other developments

 

a)

Business combinations

 

(i)

Banco Modal S.A. (“Banco Modal”)

 

On January 6, 2022, XP Inc entered into a binding agreement to acquire up to 100% of Banco Modal’s total shares, in a non-cash equity exchange transaction.

 

The transaction was approved by Administrative Council for Economic Defense (CADE) in July 2022 and by Brazilian Central Bank (BACEN) in June 2023. The closing occurred on July 1, 2023, the date on which the Group obtained control of 704,200,000 issued shares of Banco Modal S.A. Under the terms of this transaction, on the closing date, Banco Modal’s former shareholders received 18,717,771 of newly issued XP Inc’s BDRs at the price of R$ 112.05 per unit of BDRs, paid in consideration for the acquisition of 100% of Banco Modal’s shares. This quantity of BDRs reflects the initial consideration of 19.5 million BDRs adjusted for the interest on equity amount of R$ 82,052, distributed by Banco Modal between the signing date of the binding agreement and the closing date of the transaction.

 

On the settlement date with Banco Modal’s former shareholders, the transaction was recorded in accordance with Banco Modal’s net assets fair value as of July 1, 2023, with an allocation of the purchase price between (i) the amount of fair value of the identifiable assets acquired and liabilities assumed and (ii) the goodwill arising at this date, corresponding to the difference between the total consideration transferred and the fair value of identifiable assets acquired and liabilities assumed. The total consideration transferred corresponds to the fair value of the 18,717,771 XP Inc BDR’s at the closing date for an amount of R$ 2,097,326. As of March 31, 2024, the goodwill is R$ 1,278,596 and is attributable to the workforce and the high profitability of the acquired business.

 

b)

Other developments

 

(i)

Minority stake acquisitions

 

On December 29, 2023, the Group entered into agreements, through its subsidiary XP Controle 5 Participações Ltda., to acquire minority interests in Monte Bravo JV S.A. (“Monte Bravo”), Blue3 S.A. (“Blue3”), and Ável Participações Ltda. (“Ável”). The total fair value consideration recorded for those acquisitions was R$ 834,743, including preliminary goodwill in a total amount of R$ 537,671. As of March 31, 2024, from the total consideration of R$ 834,743: (i) 45,000 was paid during 2023, (ii) 670,464 was paid during 2024 (including monetary correction on this amount), (iii) there is a remaining amount of R$ 72,163 payable (of which R$ 36,081 will be paid in January 2025 and R$ 36,082 will be paid in January 2026) recorded through accounts payable and (iv) there is an amount equal to R$ 50,000 recorded through contingent consideration (Note 15(b)).

 

(ii)

SPAC Transactions

 

On April 25, 2022, XPAC Acquisition Corp., a special purpose acquisition company sponsored by the Group (“XPAC”), entered into a business combination agreement with a Brazilian biotechnology company (“the Target”).

 

On May 2, 2023, the Target informed XPAC that it had decided to terminate the Business Combination Agreement, due to adverse market conditions, among other factors. Following the termination of the proposed business combination with the Target, the board of directors of XPAC determined that it is in the best interests of XPAC and its shareholders to accelerate the liquidation date of XPAC.

 

Following the announcement about the termination of the Business Combination Agreement and the intention of early liquidation, XPAC’s management was approached by professional investors interested in acquiring and taking control of XPAC. On July 10, 2023, XPAC Acquisition Corp. entered into a Purchase and Sponsor Handover Agreement. Pursuant to the agreement, XPAC Sponsor LLC transferred control of XPAC Acquisition Corp., by selling 4,400,283 Class B ordinary shares and 4,261,485 private placement warrants to acquire 4,261,485 Class A ordinary shares of XPAC held by the Sponsor, for a total purchase price of $250. As a condition to the consummation of the Sponsor Handover, new members of XPAC’s board of directors and a new management team for XPAC were appointed by the existing Board, and the existing Board members and the existing management team have resigned. Furthermore, the name of XPAC Acquisition Corp. was changed to Zalatoris II Acquisition Corp.

 

The Purchase and Sponsor Handover Agreement was approved by the XPAC’s shareholders at an extraordinary general meeting of shareholders on July 27, 2023, the date on which the Group ceases to control XPAC.

 

(iii)

Termination of XTAGE’s client operations

 

On October 18, 2023, XP Inc announced the termination of XTAGE's operations, which took place on December 15, 2023. XTAGE's operations were not considered material to the Group. After termination, XP Inc's customers can continue to have exposure to digital assets through funds (including Exchange-traded Funds, ETFs) regulated by the Brazilian securities commission (CVM). 

 

e)

Segment reporting

 

In reviewing the operational performance of the Group and allocating resources, the chief operating decision maker of the Group (“CODM”), who is the Group’s Chief Executive Officer (“CEO”) and the Board of Directors (“BoD”), represented by statutory directors holders of ordinary shares of the immediate parent of the Company, reviews selected items of the statement of income and of comprehensive income.

 

The CODM considers the whole Group as a single operating and reportable segment, monitoring operations, making decisions on fund allocation and evaluating performance based on a single operating segment. The CODM reviews relevant financial data on a combined basis for all subsidiaries and joint ventures.

 

The Group’s revenue, results and assets for this one reportable segment can be determined by reference to the unaudited interim condensed consolidated statements of income and of comprehensive income and unaudited interim condensed consolidated balance sheet.

 

See Note 21(c) for a breakdown of total revenue and income and selected assets by geographic location.

 

f)

Estimates

 

The preparation of unaudited interim condensed consolidated financial statements of the Group requires management to make judgments and estimates and to adopt assumptions that affect the amounts presented referring to revenues, expenses, assets and liabilities at the reporting date. Actual results may differ from these estimates.

 

In preparing these unaudited interim condensed consolidated financial statements, the significant judgements and estimates made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that are set in the consolidated financial statements for the year ended December 31, 2023.

 

3.

Securities purchased (sold) under resale (repurchase) agreements

 

a)

Securities purchased under resale agreements

 

	March 31, 2024		December 31, 2023
Collateral held	2,472,610		3,891,759
National Treasury Notes (NTNs) (i)	1,780,973		2,013,366
National Treasury Bills (LTNs) (i)	22,065		820,487
Financial Treasury Bills (LFTs) (i)	-		799,417
Debentures (ii)	89,833		89,234
Real Estate Receivable Certificates (CRIs) (ii)	142,761		80,565
Bank Deposit Certificates (CDBs) (ii)	271,690		-
Other	165,288		88,690
Collateral repledge	27,237,455		11,000,022
National Treasury Bills (LTNs) (i)	2,708,148		2,416,143
Financial Treasury Bills (LFTs) (i)	482,531		900,245
National Treasury Notes (NTNs) (i)	14,087,063		116,583
Debentures (ii)	5,446,830		4,258,213
Real Estate Receivable Certificates (CRIs) (ii)	2,273,581		2,436,462
Agribusiness Receivables Certificates (CRAs) (ii)	-		459,896
Interbank Deposits Certificate (CDIs) (ii)	1,583,921		304,572
Other (ii)	655,381		107,908
Collateral sold	586,118		-
National Treasury Bills (LTNs)	586,118		-
Expected Credit Loss (iii)	(4,912)		(2,803)
Total	30,291,271		14,888,978

 

(i) Investments in purchase and sale commitments collateral-backed by sovereign debt securities refer to transactions involving the purchase of sovereign debt securities with a commitment to sale originated mainly in the subsidiaries XP CCTVM, Banco XP and in proprietary funds.

 

(ii) Refers to fixed-rate fixed-income assets, which are low-risk investments collateral-backed.

 

(iii) The reconciliation of gross carrying amount and the expected credit loss segregated by stages are presented in the Note 10.

 

As of March 31, 2024, securities purchased under resale agreements were carried out at average interest rates of 10.86% p.a. (11.85% p.a. as of December 31, 2023).

 

As of March 31, 2024, the amount of R$ 1,005,478 (December 31, 2023 - R$ 2,760,296), from the total amount of collateral held portfolio, is being presented as cash equivalents in the statements of cash flows.

 

b)

Securities sold under repurchase agreements

 

	March 31, 2024		December 31, 2023
National Treasury Bills (LTNs)	3,112,097		3,274,568
National Treasury Notes (NTNs)	24,152,124		8,456,861
Financial Treasury Bills (LFTs)	867,336		1,867,365
Debentures	9,841,919		8,776,735
Real Estate Receivable Certificates (CRIs)	8,868,120		9,201,853
Financial Credit Bills (LFs)	1,620,746		954,447
Agribusiness Receivables Certificates (CRAs)	591,983		808,682
Total	49,054,325		33,340,511

 

As of March 31, 2024, securities sold under repurchase agreements were agreed with average interest rates of 10.14% p.a. (December 31, 2023 – 10.91% p.a.), with assets pledged as collateral.

 

4.

Securities

 

a)

Securities classified at fair value through profit and loss are presented in the following table:

 

							March 31, 2024								December 31, 2023
	Gross carrying amount		Fair value		Group portfolio		Retirement plan assets (i)		Gross carrying amount		Fair value		Group portfolio		Retirement plan assets (i)
Financial assets
At fair value through profit or loss
Available portfolio
Brazilian onshore sovereign bonds	31,843,544		31,998,857		29,760,537		2,238,320		29,587,276		30,172,040		28,000,854		2,171,186
Investment funds	57,262,638		57,262,638		2,448,774		54,813,864		55,922,364		55,922,364		3,022,360		52,900,004
Stocks issued by public-held company	6,069,369		6,069,369		5,686,045		383,324		3,981,237		3,981,237		3,642,365		338,872
Debentures	4,092,165		4,063,083		3,558,317		504,766		4,642,827		4,575,326		4,133,285		442,041
Structured notes	59,865		81,551		81,551		-		90,876		113,816		113,816		-
Bank deposit certificates (ii)	435,743		441,980		330,574		111,406		756,066		765,741		663,985		101,756
Agribusiness receivable certificates	1,830,482		1,829,979		1,816,030		13,949		1,132,479		1,200,254		1,183,214		17,040
Real estate receivable certificates	1,520,304		1,498,603		1,495,794		2,809		1,843,651		1,924,269		1,921,927		2,342
Financial credit bills	418,036		461,215		89,800		371,415		435,425		469,943		153,994		315,949
Real estate credit bill	19,922		19,957		19,957		-		29,126		29,157		29,157		-
Agribusiness credit bills	46,079		46,105		46,105		-		101,796		103,541		103,541		-
Commercial notes	990,817		990,991		984,788		6,203		803,256		892,569		886,149		6,420
Others (iii)	7,314,298		7,420,741		7,310,298		110,443		3,055,153		3,131,955		3,075,864		56,091
Total	111,903,262		112,185,069		53,628,570		58,556,499		102,381,532		103,282,212		46,930,511		56,351,701

 

(i)

Those financial products represent investment contracts that have the legal form of retirement plans, which do not transfer substantial insurance risk to the Group. Therefore, contributions received from participants are accounted for as liabilities and an asset of the participant in the linked Specially Constituted Investment Fund (“FIE”). Besides assets which are presented segregated above, as retirement plan assets, the Group has proprietary assets to guarantee the solvency of our insurance and pension plan operations, under the terms of CNSP Resolution No. 432/2021, presented as Group portfolio, within investment funds line. As of March 31, 2024, those assets represent R$ 68,012 (December 31, 2023 - R$ 202,678).

(ii)

Bank deposit certificates include R$ 58,572 (December 31, 2023 – R$ 67,985) presented as cash equivalents in the statements of cash flows.

(iii)

Mainly related to bonds issued and traded overseas and other securities.

 

Securities at fair value through other comprehensive income are presented in the following table:

 

	March 31, 2024				December 31, 2023
	Gross carrying amount		Fair value		Gross carrying amount		Fair value
Financial assets
At fair value through other comprehensive income
Brazilian onshore sovereign bonds	37,442,891		37,362,177		41,023,844		41,343,987
Foreign sovereign bonds	2,863,318		2,948,227		2,669,993		2,718,963
Total	40,306,209		40,310,404		43,693,837		44,062,950

 

b)

Securities evaluated at amortized cost are presented in the following table:

 

	March 31, 2024				December 31, 2023
	Gross carrying amount		Book value		Gross carrying amount		Book value
Financial assets
At amortized cost (i)
Brazilian onshore sovereign bonds	1,815,652		1,815,235		3,773,404		3,772,534
Rural product note	623,874		622,572		616,083		615,576
Commercial notes	2,031,508		2,020,856		2,472,006		2,467,311
Total	4,471,034		4,458,663		6,861,493		6,855,421

 

(i) Includes expected credit losses in the amount of R$ 12,371 (December 31, 2023 – R$ 6,072). The reconciliation of gross carrying amount and the expected credit loss segregated by stages are presented in the Note 10.

 

c)

Securities on the financial liabilities classified at fair value through profit or loss are presented in the following table:

 

	March 31, 2024				December 31, 2023
	Gross carrying amount		Fair value		Gross carrying amount		Fair value
Financial liabilities
At fair value through profit or loss
Securities	17,061,636		17,061,636		19,949,021		19,949,021

 

d)

Debentures designated at fair value through profit or loss are presented in the following table:

 

On May 6, 2021, XP Investimentos, issued non-convertible Debentures, in the aggregate amount of R$ 500,018, and designated this instrument as fair value through profit or loss in order to align it with the Group’s risk management and investment strategy. The principal amount is due on April 10, 2036. The accrued interest is payable every month from the issuance date and is calculated based on the IPCA (Brazilian inflation index) plus 5% p.a.

 

	March 31, 2024				December 31, 2023
	Gross carrying amount		Fair value		Gross carrying amount		Fair Value
Financial liabilities
At fair value through profit or loss
Debentures	604,348		466,536		594,332		474,053

 

Unrealized gains/(losses) due to own credit risk for liabilities for which the fair value option has been elected are recorded in other comprehensive income. Gain/(losses) due to own credit risk were not material for the three months period ended March 31, 2024 and March 31, 2023.

 

Determination of own credit risk for items for which the fair value option was elected

 

The debenture’s own credit risk is calculated as the difference between its yield and its benchmark rate for similar Brazilian federal securities.

 

e.1) Difference between aggregate fair value and aggregate remaining contractual principal balance outstanding

 

The following table reflects the difference between the aggregate fair value and the aggregate remaining contractual principal balance outstanding as of March 31, 2024, for instruments for which the fair value option has been elected.

 

						March 31, 2024
		Contractual principal outstanding		Fair value		Fair value/(under) contractual principal outstanding
Long-term debt
Debentures		604,348		466,536		(137,812)

 

e)

Securities classified by maturity:

 

			Assets				Liabilities
	March 31, 2024		December 31, 2023		March 31, 2024		December 31, 2023
Financial assets
At fair value through PL and OCI
Current	92,951,420		74,520,326		17,061,636		19,949,021
Non-stated maturity	63,634,415		47,996,237		17,061,636		19,949,021
Up to 3 months	4,349,260		18,207,233		-		-
From 4 to 12 months	24,967,745		8,316,856		-		-
Non-current	59,544,053		72,824,836		466,536		474,053
After one year	59,544,053		72,824,836		466,536		474,053
Evaluated at amortized cost
Current	2,421,920		4,560,263		-		-
Up to 3 months	1,114,081		2,015,126		-		-
From 4 to 12 months	1,307,839		2,545,137		-		-
Non-current	2,036,743		2,295,158		-		-
After one year	2,036,743		2,295,158		-		-
Total	156,954,136		154,200,583		17,528,172		20,423,074

 

The reconciliation of expected loss to financial assets at amortized cost segregated by stages is demonstrated in Note 10.

 

5.

Derivative financial instruments

 

The Group trades derivative financial instruments with various counterparties to manage its overall exposures (interest rate, foreign currency and fair value of financial instruments) and to assist its customers in managing their own exposures.

 

Below is the composition of the derivative financial instruments portfolio (assets and liabilities) by type of instrument, stated fair value and by maturity:

 

	March 31, 2024
	Notional	Fair Value	%	Up to 3 months	From 4 to 12 months	Above 12 months
Assets
Options	2,895,860,502	14,210,628	43	4,859,467	4,858,847	4,492,314
Swap contracts	308,584,853	4,663,288	14	475,029	85,243	4,103,016
Forward contracts	280,626,055	10,669,564	33	9,923,221	212,310	534,033
Future contracts	43,702,411	3,158,730	10	51,913	710,120	2,396,697
Total	3,528,773,821	32,702,210	100	15,309,630	5,866,52	11,526,060
Liabilities
Options	2,608,709,493	17,630,203	51	4,005,730	5,202,496	8,421,977
Swap contracts	324,669,538	3,809,925	11	199,501	1,716,620	1,893,804
Forward contracts	279,625,517	10,249,832	30	9,740,422	178,595	330,815
Future contracts	338,843,024	2,698,796	8	147,824	93,541	2,457,431
Total	3,551,847,572	34,388,756	100	14,093,477	7,191,252	13,104,027

 

	December 31, 2023
	Notional	Fair Value	%	Up to 3 months	From 4 to 12 months	Above 12 months
Assets
Options	3,053,641,595	15,982,949	85	6,240,115	6,455,786	3,287,048
Swap contracts	392,133,687	3,883,112	11	381,744	531,023	2,970,345
Forward contracts	125,343,466	2,889,964	3	2,508,142	250,756	131,066
Future contracts	8,005,705	977,441	1	833,172	104,758	39,511
Total	3,579,124,453	23,733,466	100	9,963,173	7,342,323	6,427,970
Liabilities
Options	2,308,283,883	17,970,099	74	5,996,813	5,601,569	6,371,717
Swap contracts	403,391,373	3,448,067	13	56,590	842,922	2,548,555
Forward contracts	82,074,317	2,705,166	3	2,216,996	250,030	238,140
Future contracts	311,303,078	662,084	10	29,918	79,459	552,707
Total	3,105,052,651	24,785,416	100	8,300,317	6,773,980	9,711,119

 

6.

Hedge accounting

 

The Group has three types of hedge relationships: hedge of net investment in foreign operations; fair value hedge and cash flow hedge. For hedge accounting purposes, the risk factors measured by the Group are:

 

·

Interest Rate: Risk of volatility in transactions subject to interest rate variations;

·

Currency: Risk of volatility in transactions subject to foreign exchange variations;

·

Stock Grant Charges: Risk of volatility in XP Inc stock prices, listed on NASDAQ.

 

The structure of risk limits is extended to the risk factor level, where specific limits aim at improving the monitoring and understanding processes, as well as avoiding concentration of these risks.

 

The structures designed for interest rate and exchange rate categories take into account total risk when there are compatible hedging instruments. In certain cases, management may decide to hedge a risk for the risk factor term and limit of the hedging instrument.

 

a)

Hedge of net investment in foreign operations

 

The objective of the Group was to hedge the risk generated by the US$ variation from investments in our subsidiaries in the United States, XP Holding International LLC. and XP Advisors Inc. The Group has entered into forward contracts to protect against changes in future cash flows and exchange rate variation of net investments in foreign operations known as Non-Deliverable Forward (“NDF”) contracts.

 

The Group undertakes risk management through the economic relationship between hedge instruments and hedged items, in which it is expected that these instruments will move in opposite directions, in the same proportions, with the aim of neutralizing the risk factors.

 

		Hedged item						Hedge instrument
		Book Value				Variation in value recognized in Other comprehensive income		Notional value		Variation in the amounts used to calculate hedge ineffectiveness
Strategies		Assets		Liabilities
March 31, 2024
Foreign exchange risk
Hedge of net investment in foreign operations		490,559		-		13,055		487,042		(12,561)
Total		490,559		-		13,055		487,042		(12,561)
December 31, 2023
Foreign exchange risk
Hedge of net investment in foreign operations		450,853		-		(34,603)		446,442		41,235
Total		450,853		-		(34,603)		446,442		41,235

 

b)

Fair value hedge

 

The Group’s fair value strategy consists of hedging the exposure to variation in fair value on the receipt, payment of interests and exchange variation on assets and liabilities.

 

The group applies fair value hedges as follows:

 

·

Hedging the exposure of fixed-income securities carried out through structured notes. The market risk hedge strategy involves avoiding temporary fluctuations in earnings arising from changes in the interest rate market in Reais. Once this risk is offset, the Group seeks to index the portfolio to the CDI, through the use of derivatives (DI1 Futuro). The hedge is contracted in order to neutralize the total exposure to the market risk of the fixed-income funding portfolio, excluding the portion of the fixed-income compensation represented by the credit spread of Banco XP S.A., seeking to obtain the closest match deadlines and volumes as possible.

 

·

Hedging to protect the change in the fair value of the exchange and interest rate risk of the component of future cash flows arising from the XP Inc bond issued (financial liability) recognized in the balance sheet of XP Inc in July 2021 by contracting derivatives.

 

The effects of hedge accounting on the financial position and performance of the Group are presented below:

 

		Hedged item						Hedge instrument
		Book Value				Variation in value recognized in income		Notional value		Variation in the amounts used to calculate hedge ineffectiveness
Strategies		Assets		Liabilities
March 31, 2024
Interest rate and foreign exchange risk
Structured notes		-		17,248,392		305,409		17,360,082		(314,932)
Issued bonds		-		3,599,940		(110,334)		3,466,683		104,157
Total		-		20,848,332		195,075		20,826,765		(210,775)

 

		Hedged item						Hedge instrument
		Book Value				Variation in value recognized in income		Notional value		Variation in the amounts used to calculate hedge ineffectiveness
Strategies		Assets		Liabilities
December 31, 2023
Interest rate and foreign exchange risk
Structured notes		-		16,593,439		(816,142)		16,702,984		849,160
Issued bonds		-		3,542,258		131,181		3,379,798		(189,189)
Total		-		20,135,697		(684,961)		20,082,782		659,971

 

c)

Cash flow hedge

 

In March 2022, XP Inc recorded a hedge structure, in order to neutralize the impacts of XP share price variation on highly probable labor tax payments related to share-based compensation plans using SWAP-TRS contracts. The transaction has been elected for hedge accounting and classified as cash flow hedge in accordance with IFRS 9. Labor tax payments are due upon delivery of shares to employees under share-based compensation plans and are directly related to share price at that time.

 

The effects of hedge accounting on the financial position and performance of the Group are presented below:

 

		Hedged item						Hedge instrument
		Book Value				Variation in value recognized in Other comprehensive income		Notional value		Variation in the amounts used to calculate hedge ineffectiveness
Strategies		Assets		Liabilities
March 31, 2024
Market price risk
Long term incentive plan taxes		-		502,559		33,008		445,687		(10,508)
Total		-		502,559		33,008		445,687		(10,508)
December 31, 2023
Market price risk
Long term incentive plan taxes		-		414,315		(59,517)		438,765		70,906
Total		-		414,315		(59,517)		438,765		70,906

 

The table below presents, for each strategy, the nominal value and the adjustments to the fair value of the hedging instruments and the book value of the hedged object:

 

						March 31, 2024
		Notional amount	Book value		Variation in fair value used to calculate hedge	Hedge ineffectiveness
Hedge Instruments			Assets	Liabilities	ineffectiveness	recognized in income
Interest rate risk
Futures		20,619,638	-	20,634,394	(218,099)	(14,499)
Foreign exchange risk
Futures		694,169	490,559	213,938	(5,237)	(707)
Market price risk
Swaps		445,687	-	502,559	(10,508)	22,500

 

						December 31, 2023
		Notional amount	Book value		Variation in fair value used to calculate hedge ineffectiveness	Hedge ineffectiveness recognized in income
Hedge Instruments			Assets	Liabilities
Interest rate risk
Futures		19,859,217	-	19,896,226	675,035	(19,807)
Foreign exchange risk
Futures		670,007	450,853	239,472	26,171	1,449
Market price risk
Swaps		438,765	-	414,315	70,906	11,389

 

The table below presents, for each strategy, the notional amount and the fair value adjustments of hedge instruments and the book value of the hedged item:

 

		March 31, 2024				December 31, 2023
Strategies		Hedge instruments		Hedge item		Hedge instruments		Hedge item
		Notional amount	Fair value adjustments	Book value		Notional amount	Fair value adjustments	Book value
Hedge of fair value		20,826,766	(210,775)	195,075		20,082,782	659,971	(684,961)
Hedge of net investment in foreign operations		487,042	(12,561)	13,055		446,442	41,235	(34,603)
Hedge of cash flow		445,687	(10,508)	33,008		438,765	70,906	(59,517)
Total		21,759,495	(233,844)	241,138		20,967,989	772,112	(779,081)

 

The table below shows the breakdown notional value by maturity of the hedging strategies:

 

	March 31, 2024
	0-1 year	1-2 years	2-3 years	3-4 years	4-5 years	5-10 years	Total
Hedge of fair value	981,732	3,032,392	9,287,483	3,542,372	2,011,162	1,971,625	20,826,766
Hedge of net investment in foreign operations	487,042	-	-	-	-	-	487,042
Hedge of cash flow	445,687	-	-	-	-	-	445,687
Total	1,914,461	3,032,392	9,287,483	3,542,372	2,011,162	1,971,625	21,759,495
	December 31, 2023
	0-1 year	1-2 years	2-3 years	3-4 years	4-5 years	5-10 years	Total
Hedge of fair value	696,906	1,653,677	6,001,602	6,920,470	2,888,836	1,921,291	20,082,782
Hedge of net investment in foreign operations	400,918	45,524	-	-	-	-	446,442
Hedge of cash flow	438,765	-	-	-	-	-	438,765
Total	1,536,589	1,699,201	6,001,602	6,920,470	2,888,836	1,921,291	20,967,989

 

7.

Loan operations

 

Following is the breakdown of the carrying amount of loan operations by class, sector of debtor, maturity and concentration:

 

Loans by type	March 31, 2024		December 31, 2023
Pledged asset loan	25,604,864		24,845,243
Retail	13,600,131		12,366,330
Companies	7,072,619		7,054,507
Credit card	4,932,114		5,424,406
Non-pledged loan	4,297,272		4,036,646
Retail	407,654		764,712
Companies	1,415,082		959,898
Credit card	2,474,536		2,312,036
Total loans operations	29,902,136		28,881,889
Expected Credit Loss (Note 10)	(360,336)		(329,954)
Total loans operations, net of Expected Loss	29,541,800		28,551,935

 

By maturity	March 31, 2024		December 31, 2023
Overdue by 1 day or more	495,334		329,707
Due in 3 months or less	6,695,125		6,739,145
Due after 3 months through 12 months	5,192,069		5,056,321
Due after 12 months	17,519,608		16,756,716
Total loans operations	29,902,136		28,881,889

 

By concentration	March 31, 2024		December 31, 2023
Largest debtor	881,339		855,607
10 largest debtors	3,215,892		2,921,734
20 largest debtors	4,446,101		4,058,250
50 largest debtors	6,133,204		5,579,073
100 largest debtors	7,589,356		6,949,906

 

XP Inc offers loan products through Banco XP to its customers. The majority of the loan products offered are collateralized by customers’ investments on XP platform and credit products strictly related to investments in structured notes, in which the borrower is able to operate leveraged, retaining the structured note itself as guarantee for the loan.

 

The reconciliation of gross carrying amount and the expected credit losses in loan operations, segregated by stages, according with IFRS 9, is demonstrated in Note 10.

 

8.

Prepaid expenses

 

	March 31, 2024		December 31, 2023
Commissions and premiums paid in advance (a)	4,079,097		4,081,456
Marketing expenses	9,972		10,687
Other expenses paid in advance	387,517		326,120
Total	4,476,586		4,418,263
Current	995,931		826,107
Non-current	3,480,655		3,592,156

 

Mostly comprised by long term investment programs implemented by XP CCTVM through its network of IFAs. These commissions and premiums paid are recognized at the signing date of each contract and are amortized in the Group’s income statement, linearly, according to the investment term period.

 

(a)

Include balances with related parties, in connection with the transactions disclosed on Note 2(d)(b)(i).

 

9.

Securities trading and intermediation (receivable and payable)

 

Represented by operations at B3 on behalf of and on account of third parties, with liquidation operating cycle between D+1 and D+3.

 

	March 31, 2024		December 31, 2023
Cash and settlement records	465,779		1,277,579
Debtors pending settlement	2,166,669		1,768,735
Other	1,566		697
(-) Expected losses on Securities trading and intermediation (a)	(121,958)		(114,692)
Total Assets	2,512,056		2,932,319
Cash and settlement records	276,274		166,625
Creditors pending settlement	2,445,710		1,957,045
Customer's cash on investment account	13,672,834		14,819,869
Total Liabilities	16,394,818		16,943,539

 

(a) The reconciliation of gross carrying amount and the expected loss segregated by stages according to IFRS 9 were demonstrated in Note 10.

 

10.

Expected Credit Losses on Financial Assets and Reconciliation of carrying amount

 

It is presented below the reconciliation of gross carrying amount of financial assets through other comprehensive income and financial assets measured at amortized cost – that have their ECLs (Expected Credit Losses) measured using the three-stage model, the low credit risk simplification and the simplified approach and the ECLs as of March 31, 2024:

 

				March 31, 2024
		Gross carrying amount	Expected Credit Losses	Carrying amount, net
Financial assets at fair value through other comprehensive income
Low credit risk simplification
Securities (i) (vi)		40,306,209	(11,672)	40,306,209
Financial assets amortized cost
Low credit risk simplification
Securities (i)		4,471,034	(12,371)	4,458,663
Securities purchased under agreements to resell (i)		30,296,183	(4,912)	30,291,271
Three stage model
Loans and credit card operations (ii) (iii) (iv) (vii)		29,902,137	(341,044)	29,561,093
Simplified approach
Securities trading and intermediation		2,634,014	(121,958)	2,512,056
Accounts receivable		707,741	(68,599)	639,142
Other financial assets		5,196,322	(75,642)	5,120,680
Total losses for on-balance exposures		113,513,640	(636,198)	112,889,114
Off-balance exposures (v)		9,026,203	(19,293)	9,006,910
Total exposures		122,539,843	(655,491)	121,896,024

 

(i)

Financial assets considered in Stage 1.

(ii)

As of March 31, 2024, are presented in Stage 1: Gross amount of R$ 27,347,144 and ECL of R$ 60,951; Stage 2: Gross amount of R$ 2,285,695 and ECL of R$ 75,088; Stage 3: Gross amount of R$ 268,717 and ECL of R$ 205,005, respectively.

(iii)

Gross amount: As of March 31, 2024, there were transfers between Stage 1 to Stage 2 of R$ 737,268; Stage 1 to Stage 3 of R$ 28,909; Stage 2 to Stage 1 of R$ 407,041; Stage 2 to Stage 3 of R$ 73,880; Stage 3 to Stage 1 of R$ 2; and stage 3 to write-off of R$ 26,205.

(iv)

Expected credit loss: As of March 31, 2024, there were transfers between Stage 1 to Stage 2 of R$ 21,268; Stage 1 to Stage 3 of R$ 17,922; Stage 2 to Stage 1 of R$ 1,240 and Stage 2 to Stage 3 of R$ 52,323.

(v)

Include credit cards limits and letters of guarantee.

(vi)

The loss allowance for ECL of R$ 11,672 on securities at fair value through other comprehensive income does not reduce the carrying amount, but an amount equal to the allowance is recognized in OCI as an accumulated impairment amount, with corresponding impairment gains or losses recognized in the statement of income.

(vii)

In the three months period ended March 31, 2024, there was R$ 26,211 of credit write-off.

 

				December 31, 2023
		Gross carrying amount	Expected Credit Losses	Carrying amount, net
Financial assets at fair value through other comprehensive income
Low credit risk simplification
Securities (i)		43,693,839	(12,199)	43,693,839
Financial assets amortized cost
Low credit risk simplification
Securities (i)		6,861,493	(6,072)	6,855,421
Securities purchased under agreements to resell (i)		14,891,781	(2,803)	14,888,978
Three stage model
Loans and credit card operations (ii) (iii)(iv)		28,881,889	(311,823)	28,570,066
Simplified approach
Securities trading and intermediation		3,047,011	(114,692)	2,932,319
Accounts receivable		745,097	(63,907)	681,190
Other financial assets		4,263,948	(55,205)	4,208,743
Total losses for on-balance exposures		102,385,058	(566,700)	101,830,556
Off-balance exposures (credit card limits)		8,912,707	(18,131)	8,894,576
Total exposures		111,297,765	(584,832)	110,725,132

 

(i)

Financial assets considered in Stage 1.

(ii)

As of December 31, 2023 are presented in Stage 1: Gross amount of R$ 26,447,368 and ECL of R$ 54,845, Stage 2: Gross amount of R$ 2,202,931 and ECL of R$ 74,696, Stage 3: Gross amount of R$ 231,589 and ECL of R$ 182,282, respectively.

(iii)

Gross amount: As of December 31, 2023 there were transfers between Stage 1 to Stage 2 of R$ 1,800,466, Stage 1 to Stage 3 of R$ 193,066, Stage 2 to Stage 1 of R$ 518,241, Stage 2 to Stage 3 of R$ 33,238, Stage 3 to Stage 1 of R$ 27 and Stage 3 to Stage 2 of R$ 117.

(iv)

Expected credit loss: As of December 31, 2023 there were transfers between Stage 1 to Stage 2 of R$ 63,095, Stage 1 to Stage 3 of R$ 148,305, Stage 2 to Stage 1 of R$ 1,173, Stage 2 to Stage 3 of R$ 28,663, Stage 3 to Stage 1 of R$ 1 and Stage 3 to Stage 2 of R$ 17.

 

11.

Investments in associates and joint ventures

 

Set out below are the associates and joint ventures of the Group as of March 31, 2024 and March 31, 2023.

 

Entity	December 31, 2023		Changes in Equity	Equity in earnings / Fair value	Other comprehensive income	March 31, 2024
Equity-accounted method
Associates (i.a)	1,657,956		-	7,104	-	1,665,060
Measured at fair value
Associates (ii)	1,450,704		(831)	(15)	-	1,449,858
Total	3,108,660		(831)	7,089	-	3,114,918

 

Entity	December 31, 2022		Changes in Equity	Equity in earnings / Fair value	Other comprehensive income	March 31, 2023
Equity-accounted method
Associates (i.a)	748,306		(11,033)	19,146	2,430	758,849
Measured at fair value
Associates (ii)	1,523,425		(22,388)	(3,411)	-	1,497,626
Total	2,271,731		(33,421)	15,735	2,430	2,256,475

 

(i) As of March 31, 2024 and December 31, 2023, includes the interests in the total and voting capital of the following companies:

 

(a) Associates - Wealth High Governance Holding de Participações S.A. (49.9% of the total and voting capital on March 31, 2024 and December 31, 2023); Primo Rico Mídia, Educacional e Participações Ltda. (21.83% of the total and voting capital on March 31, 2024 and December, 2023); Novus Capital Gestora de Recursos Ltda. (27.5% of the total and voting capital on March 31, 2024 and December 31, 2023); NK112 Empreendimentos e Participações S.A. (49.9% of the total and voting capital on March 31, 2024 and December 31, 2023); Ável Participações Ltda. (“Ável”) (35% of the total and voting capital on March 31, 2024 and December 31, 2023); Monte Bravo Holding JV S.A. (45% of the total and voting capital on March 31, 2024 and December 31, 2023); and Blue3 S.A. (42% of the total and voting capital on March 31, 2024 and December 31, 2023).

 

(ii) As mentioned in Note 2 (c)(iii), the Group values the investments held through some proprietary investment funds at fair value. The fair value of investments is presented in the statement of income as Net income/(loss) from financial instruments at fair value through profit or loss. Contingent consideration amounts related to the investments at fair value held through proprietary investment funds are presented in Note 15.

 

12.

Property, equipment, goodwill, intangible assets and lease

 

a)

Changes in the period

 

	Property and equipment	Intangible assets
As of January 1, 2023	310,894	844,182
Additions	1,929	8,348
Write-offs	(364)	(1,566)
Foreign exchange	(274)	-
Depreciation / amortization in the period	(7,781)	(21,326)
As of March 31, 2023	304,404	829,638
Cost	403,441	1,160,700
Accumulated depreciation / amortization	(99,037)	(331,062)
As of January 1, 2024	373,362	2,502,045
Additions	32,965	13,775
Business combination (i)	-	46,049
Write-offs	(10)	-
Foreign exchange	(222)	(4)
Depreciation / amortization in the period	(11,307)	(39,142)
As of March 31, 2024	394,788	2,522,723
Cost	596,050	2,842,100
Accumulated depreciation / amortization	(201,262)	(319,377)

 

(i) Related to fair value adjustments of identifiable assets and goodwill arising from the business combination with Banco Modal (Note 2(d)(a)(i)).

 

b)

Impairment test for goodwill

 

Given the interdependency of cash flows and the merger of business practices, all Group’s entities are considered a single cash generating unit (“CGU”) and, therefore, a goodwill impairment test is performed at the single operating level. Therefore, the carrying amount considered for the impairment test represents the Company’s equity.

 

The Group performs its annual impairment test in December and when circumstances indicates that the carrying value may be impaired. The Group’s impairment tests are based on value-in-use calculations. The key assumptions used to determine the recoverable amount for the cash generating unit were disclosed in the annual consolidated financial statements for the year ended December 31, 2023. As of March 31, 2024, there were no indicators of a potential impairment of goodwill.

 

c)

Leases

 

Set out below are the carrying amounts of the Group’s right-of-use assets and lease liabilities and the movements during the period.

 

	Right-of-use assets		Lease liabilities
As of January 1, 2023	258,491		285,638
Depreciation expense	(18,735)		-
Write-off	(3,395)		-
Interest expense	-		6,146
Revaluation	268		-
Effects of exchange rate	(3,206)		(3,380)
Payment of lease liabilities	-		(27,477)
As of March 31, 2023	233,423		260,927
Current	-		49,487
Non-current	233,423		211,440
	Right-of-use assets		Lease liabilities
As of January 1, 2024	281,804		304,762
Depreciation expense	(17,611)		-
Write-off	(15,803)		(16,116)
Interest expense	-		4,979
Revaluation	325		-
Effects of exchange rate	1,996		(1,409)
Payment of lease liabilities	-		(26,735)
As of March 31, 2024	250,711		265,481
Current	-		112,657
Non-current	250,711		152,824

 

The Group did not recognize rent expense from short-term leases and low-value assets for the three months period ended March 31, 2024 and March 31, 2023. The total rent expense of R$ 9,005 (R$ 5,575 – March 31, 2023) includes other expenses related to leased offices such as condominiums for the period ended March 31, 2024.

 

 

13.

Financing Instruments Payable

 

	March 31, 2024		December 31, 2023
Market funding operations (a)	57,320,581		54,831,509
Deposits	27,657,251		27,493,655
Demand deposits	1,626,351		1,812,469
Time deposits	24,899,822		25,230,996
Interbank deposits	1,131,078		450,190
Financial bills	10,315,211		9,019,789
Structured notes	19,135,037		18,015,165
Others	213,082		302,900
Debt securities (b)	5,716,591		5,534,081
Debentures	2,280,393		2,212,441
Bond	3,436,198		3,321,640
Total	63,037,172		60,365,590
Current	23,770,442		22,946,160
Non-current	39,266,730		37,419,430

 

(a)

Market funding operations maturity

 

March 31, 2024
Class	Within 30 days	From 31 to 60 days	From 61 to 90 days	From 91 to 180 days	From 181 to 360 days	After 360 days	Total
Demand deposits	1,626,351	-	-	-	-	-	1,626,351
Time deposits	2,180,020	1,421,949	1,845,796	6,688,246	3,244,410	9,519,401	24,899,822
Interbank deposits	620,159	-	-	85,219	207,433	218,267	1,131,078
Financial bills	236,522	94,047	1,183,338	254,639	1,608,905	6,937,760	10,315,211
Structured notes	7,823	48,331	15,016	132,698	829,373	18,101,796	19,135,037
Others	972	19,711	2,468	92,845	97,086	-	213,082
Total	4,671,847	1,584,038	3,046,618	7,253,647	5,987,207	34,777,224	57,320,581
December 31, 2023
Class	Within 30 days	From 31 to 60 days	From 61 to 90 days	From 91 to 180 days	From 181 to 360 days	After 360 days	Total
Demand deposits	1,812,469	-	-	-	-	-	1,812,469
Time deposits	1,944,623	2,823,731	5,370,064	2,522,206	2,878,827	9,691,545	25,230,996
Interbank deposits	-	-	-	1,006	276,113	173,071	450,190
Financial bills	30,954	43,635	94,499	680,490	2,103,902	6,066,309	9,019,789
Structured notes	23,345	32,730	1,756	69,879	712,046	17,175,409	18,015,165
Others	1,119	17,116	-	46,688	235,513	2,464	302,900
Total	3,812,510	2,917,212	5,466,319	3,320,269	6,206,401	33,108,798	54,831,509

 

(b)

Debt securities maturity

 

The total balance is comprised of the following issuances:

 

		March 31, 2024				December 31, 2023
	Rate type	Up to 1 year	1-5 years	Total		Up to 1 year	1-5 years	Total
Bonds (i)	Fixed rate	122,038	3,314,160	3,436,198		118,402	3,203,238	3,321,640
Debentures (ii)	Floating rate	1,105,047	1,175,346	2,280,393		1,105,047	1,107,394	2,212,441
Total		1,227,085	4,489,506	5,716,591		1,223,449	4,310,632	5,534,081
Current				1,227,085				1,223,449
Non-current				4,489,506				4,310,632

 

(i)

XP Inc Bonds

 

On July 1, 2021, XP Inc. concluded the issuance of a gross of US$750 million senior unsecured notes with net proceeds of US$739 million (R$ 3,697 million) with maturity on July 1, 2026, and bear interest at the rate of 3.250% per year, guaranteed by XP Investimentos S.A. The principal amount will be paid on the maturity date and the interest is amortized every six months.

 

(ii)

XP Investimentos debentures

 

On July 19, 2022, XP Investimentos issued non-convertible debentures in the amount of R$1,800,000 (R$900,000 of series 1 and R$900,000 of series 2). The debentures series, added together, has a maximum authorized issuance up to R$1,800,000. The principal amount, including the interest, will be paid on the maturity date as follow: (i) June 23, 2024 (series 1) and (ii) June 23, 2025 (series 2). The interest rates for series 1 and series 2 debentures are CDI+1.75% and CDI+1.90%, respectively. On March 31, 2024, the total amount is R$ 2,280,393 (R$ 2,212,441 on December 31, 2023).

 

14.

Borrowings

 

	Annual interest rate %		Maturity		March 31, 2024		December 31, 2023
Banco Nacional do México (*)	Term SOFR + 0.40%		August 2024		2,265,992		2,198,619
Banco Daycoval	15.66%		September 2024		622		803
Total					2,266,614		2,199,422
Current					2,266,614		2,199,422
Non-current					-		-

 

(*) Security Overnight Financing Rate (SOFR).

 

 

15.

Other financial assets and financial liabilities

 

a)

Other financial assets

 

	March 31, 2024		December 31, 2023
Foreign exchange portfolio	3,334,525		1,022,083
Receivables from IFAs	164,029		165,640
Compulsory and other deposits at Brazilian Central Bank (i)	1,493,805		2,956,896
Other financial assets	203,963		119,329
(-) Expected losses on other financial assets (ii)	(75,642)		(55,205)
Total	5,120,680		4,208,743
Current	3,431,563		3,471,827
Non-current	1,689,117		736,916

 

(i) As of March 31, 2024, the amount of R$ 90,000 (December 31, 2023 - R$ 2,438,896) is being presented as cash equivalents in the statements of cash flows.

 

(ii) The reconciliation of gross carrying amount and the expected loss according to IFRS 9 are presented in Note 10.

 

 

b)

Other financial liabilities

 

	March 31, 2024		December 31, 2023
Foreign exchange portfolio	3,675,140		1,361,882
Structured financing (i)	2,976,433		1,841,790
Credit cards operations	7,044,046		7,234,116
Contingent consideration (ii)	571,723		571,723
Lease liabilities	265,481		304,762
Others	287,036		917,103
Total	14,819,859		12,231,376
Current	14,591,432		11,974,989
Non-current	228,427		256,387

 

(i) Financing with prime brokers through the Group's proprietary fund Multistrategy using some of its own financial assets as collateral.

 

(ii) Contractual contingent considerations mostly associated with the investment acquisition. The maturity of the total contingent consideration payment is up to 5 years and the contractual maximum amount payable is R$ 833,000 (the minimum amount is zero).

 

16.

Retirement plans and insurance liabilities

 

As of March 31, 2024, active plans are principally accumulation of financial resources through products PGBL and VGBL structured in the form of variable contribution, for the purpose of granting participants with returns based on the accumulated capital in the form of monthly withdraws for a certain term or temporary monthly withdraws.

 

In this respect, such financial products represent investment contracts that have the legal form of private pension plans, but which do not transfer insurance risk to the Group. Therefore, contributions received from participants are accounted for as liabilities and balance consists of the participant’s balance in the linked Specially Constituted Investment Fund (“FIE”) on the reporting date (Note 4 (a)(i)).

 

Changes in the period:

 

	Three months period ended March 31,
	2024	2023
As of January, 1	56,409,075	45,733,815
Contributions received	1,028,645	534,716
Transfer with third party plans	867,675	2,033,910
Withdraws	(873,880)	(1,070,417)
Claims paid	(194)	-
Other provisions (Constitution/Reversion)	25,658	102,352
Monetary correction and interest income	1,197,383	471,873
As of March, 31	58,654,362	47,806,249

 

17.

Income tax

 

a)

Deferred income tax

 

Deferred tax assets (DTA) and deferred tax liabilities (DTL) are comprised of the main following components:

 

	Balance sheet			Net change in the three months period ended March 31,
	March 31, 2024	December 31, 2023		2024	2023
Tax losses carryforwards	884,123	742,245		141,878	44,032
Goodwill on business combinations (i)	35,297	35,823		(526)	268
Provisions for IFAs’ commissions	89,328	90,075		(747)	7,127
Revaluations of financial assets at fair value	(164,833)	(166,281)		1,448	187,208
Expected credit losses (ii)	296,086	335,711		(39,625)	13,182
Profit sharing plan	111,523	278,983		(167,460)	(172,957)
Net gain/(loss) on hedge instruments	(26,625)	(22,704)		(3,921)	(18,042)
Share based compensation	695,715	627,730		67,985	28,392
Other provisions	144,939	96,189		48,750	(84,367)
Total	2,065,553	2,017,771		47,782	4,843
Deferred tax assets	2,183,746	2,104,128
Deferred tax liabilities	(118,193)	(86,357)

 

(i)

For Brazilian tax purposes, goodwill is amortized at least in 5 years on a straight-line basis when the entity acquired is sold or merged into the acquirer company.

(ii)

Include expected credit loss on accounts receivable, loan operations and other financial assets.

 

The changes in the net deferred tax were recognized as follows:

 

	Three months period ended March 31,
	2024	2023
As of January, 1	2,017,771	1,480,442
Foreign exchange variations	(19,850)	18,484
Charges to statement of income	(13,810)	67,844
Tax relating to components of other comprehensive income	81,442	(61,088)
As of March 31,	2,065,553	1,505,682

 

Unrecognized deferred taxes

 

Deferred tax assets are recognized for tax losses to the extent that the realization of the related tax benefit against future taxable profits is probable. The Group did not recognize deferred tax assets of R$ 101,144 (December 31, 2023 - R$ 55,410) mainly in respect of losses from subsidiaries overseas and that can be carried forward and used against future taxable income.

 

b)

Income tax expense reconciliation

 

The tax on the Group's pre-tax profit differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the consolidated entities. The following is a reconciliation of income tax expense to profit (loss) for the period, calculated by applying the combined Brazilian statutory rates at 34% for the three months period ended March 31:

 

	Three months period
	ended March 31,
	2024	2023
Income before taxes	1,088,453	816,148
Combined tax rate in Brazil (a)	34%	34%
Tax expense at the combined rate	370,074	277,490
Effects from entities taxed at different rates	39,884	9,525
Effects from entities taxed at different taxation regimes (b)	(278,340)	(269,681)
Intercompany transactions with different taxation	(46,190)	(16,820)
Tax incentives and related donation programs	(119)	(729)
Non-deductible expenses (non-taxable income), net	(26,344)	(3,808)
Others	(67)	24,226
Total	58,898	20,203
Current	55,415	88,085
Deferred	3,483	(67,882)
Total expense / (credit)	58,898	20,203

 

(a)

Considering that XP Inc. is domiciled in Cayman and there is no income tax in that jurisdiction, the combined tax rate of 34% demonstrated above is the current rate applied to XP Investimentos S.A. which is the holding company of all operating entities of XP Inc. in Brazil.

(b)

Certain eligible subsidiaries adopted the PPM tax regime and the effect of the presumed profit of subsidiaries represents the difference between the taxation based on this method and the amount that would be due based on the statutory rate applied to the taxable profit of the subsidiaries. Additionally, some entities and investment funds adopt different taxation regimes according to the applicable rules in their jurisdictions.

 

Other comprehensive income

 

The tax (charge)/credit relating to components of other comprehensive income is as follows:

 

	Before tax	(Charge)/ Credit	After tax
Foreign exchange variation of investees located abroad	(17,996)	-	(17,996)
Gains (losses) on net investment hedge	31,482	(10,611)	20,871
Changes in the fair value of financial assets at fair value	130,861	(50,477)	80,384
As of March 31, 2023	144,347	(61,088)	83,259
Foreign exchange variation of investees located abroad	14,796	-	14,796
Gains (losses) on net investment hedge	(12,561)	-	(12,561)
Changes in the fair value of financial assets at fair value	(290,840)	119,360	(171,480)
As of March 31, 2024	(288,605)	119,360	(169,245)

 

18.

Equity

 

(a)

Issued capital

 

The Company has an authorized share capital of US$ 35, corresponding to 3,500,000,000 authorized shares with a par value of US$ 0,00001 each of which:

 

·

2,000,000,000 shares are designated as Class A common shares and issued; and

·

1,000,000,000 shares are designated as Class B common shares and issued.

 

The remaining 500,000,000 authorized but unissued shares are presently undesignated and may be issued by our board of directors as common shares of any class or as shares with preferred, deferred or other special rights or restrictions. Therefore, the Company is authorized to increase capital up to this limit, subject to approval of the Board of Directors.

 

On July 1, 2023, XP Inc issued 18,717,771 Class A common shares (R$ 2,097,326) to acquire 100% of Banco Modal´s shares, in a non-cash equity exchange transaction.

 

As of March 31, 2024, the Company had R$ 26 of issued capital which were represented by 436,776,614 Class A common shares and 112,717,094 Class B common shares.

 

(b)

Additional paid-in capital and capital reserve

 

Class A and Class B common shares, have the following rights:

 

·

Each holder of a Class B common share is entitled, in respect of such share, to 10 votes per share, whereas the holder of a Class A common share is entitled, in respect of such share, to one vote per share.

·

Each holder of Class A common shares and Class B common shares vote together as a single class on all matters (including the election of directors) submitted to a vote of shareholders, except as provided below and as otherwise required by law.

·

Class consents from the holders of Class A common shares and Class B common shares, as applicable, shall be required for any modifications to the rights attached to their respective class of shares the rights conferred on holders of Class A common shares shall not be deemed to be varied by the creation or issue of further Class B common shares and vice versa; and

·

the rights attaching to the Class A common shares and the Class B common shares shall not be deemed to be varied by the creation or issue of shares with preferred or other rights, including, without limitation, shares with enhanced or weighted voting rights.

 

The Articles of Association provide that at any time when there are Class A common shares in issue, Class B common shares may only be issued pursuant to: (a) a share split, subdivision of shares or similar transaction or where a dividend or other distribution is paid by the issue of shares or rights to acquire shares or following capitalization of profits; (b) a merger, consolidation, or other business combination involving the issuance of Class B common shares as full or partial consideration; or (c) an issuance of Class A common shares, whereby holders of the Class B common shares are entitled to purchase a number of Class B common shares that would allow them to maintain their proportional ownership and voting interests in XP Inc.

 

The Board of Directors approved in December 2019 a share based long-term incentive plan, which the maximum number of shares should not exceed 5% of the issued and outstanding shares. As of March 31, 2024, the outstanding number of shares reserved under the plans were 16,369,903 restricted stock units (“RSUs”) (December 31, 2023 – 14,600,588) and 1,588,818 performance stock units (“PSUs”) (December 31, 2023 – 1,588,818) to be issued at the vesting dates.

 

The additional paid-in capital refers to the difference between the purchase price that the shareholders pay for the shares and their par value. Under Cayman Law, the amount in this type of account may be applied by the Company to pay distributions or dividends to members, pay up unissued shares to be issued as fully paid, for redemptions and repurchases of own shares, for writing off preliminary expenses, recognized expenses, commissions or for other reasons. All distributions are subject to the Cayman Solvency Test which addresses the Company’s ability to pay debts as they fall due in the natural course of business.

 

(c)

Treasury shares

 

As of March 31, 2024, the Group recognized amounts of treasury shares as a result of: (i) the share purchase agreement with Itaú Unibanco, signed on June 2022 and (ii) the share repurchase program approved on February, 2024, which aims to neutralize future shareholder dilution due to the vesting of Restricted Stock Units (RSUs) from the Company’s long-term incentive plan. The treasury shares are registered as a deduction from equity until the shares are canceled or reissued.

 

As of March 31, 2024, the Group held 81,250 Class A common shares (December 31, 2023 - 0) and 1,056,308 Class B common shares (December 31, 2023 – 1,056,308) in treasury, totaling an amount of R$ 127,454 (December 31, 2023 – R$ 117,117).

 

(d)

Dividends distribution

 

The Group has not adopted a dividend policy with respect to future distributions of dividends. The amount of any distributions will depend on many factors such as the Company's results of operations, financial condition, cash requirements, prospects and other factors deemed relevant by XP Inc. board of directors and, where applicable, the shareholders.

 

For the three months period ended March 31, 2024 and 2023, XP Inc. has not declared and paid dividends to the shareholders.

 

Non-controlling shareholders of some XP Inc’s subsidiaries has received dividends in the period ended on March 31, 2024.

 

(e)

Other comprehensive income

 

Other comprehensive income consists of changes in the fair value of financial assets at fair value through other comprehensive income, while these financial assets are not realized. Also includes gains (losses) on net investment hedge and foreign exchange variation of investees located abroad.

 

19.

Related party transactions

 

Transactions with related parties includes transactions among the Company and its subsidiaries in the course of normal operations include services rendered such as: (i) education, consulting and business advisory; (ii) financial advisory and financial consulting in general; (iii) management of resources and portfolio management; (iv) information technology and data processing; (v) insurance and (vi) loan operations. The effects of these transactions have been eliminated and do not have effects on the consolidated financial statements.

 

Transactions with related parties also includes transactions among the Company and its associates related to commissions and premiums paid in advance, as described in Note 8.

 

20.

Provisions and contingent liabilities

 

The Company and its subsidiaries are party to judicial and administrative litigations before various courts and government bodies, arising from the ordinary course of operations, involving tax, civil and labor matters and other issues. Periodically, Management evaluates the tax, civil and labor risks, based on legal, economic and tax supporting data, in order to classify the risks as probable, possible or remote, in accordance with the chances of them occurring and being settled, taking into consideration, case by case, the analyses prepared by external and internal legal advisors.

 

	March 31, 2024		December 31, 2023
Tax contingencies	1,540		1,537
Civil contingencies	44,329		37,921
Labor contingencies	55,624		57,965
Other provisions	-		255
Total provision	101,493		97,678
Judicial deposits (i)	24,063		22,108

 

(i)

There are circumstances in which the Group is questioning the legitimacy of certain litigations or claims filed against it. As a result, either because of a judicial order or based on the strategy adopted by management, the Group might be required to secure part or the whole amount in question by means of judicial deposits, without this being characterized as the settlement of the liability. These amounts are classified as “Other assets” on the balance sheets and referred above for information.

 

Changes in the provision during the period

 

	Three months period ended March 31,
	2024	2023
At the beginning of period	97,678	43,541
Monetary correction	15,399	1,386
Provision accrued	11,662	34,789
Provision reversed	(23,234)	(129)
Payments	(12)	(199)
At the end of period	101,493	79,388

 

Nature of claims

 

a)

Civil

 

Most of the civil and administrative claims involve matters that are normal and specific to the business and refer to demands for indemnity primarily due to: (i) financial losses in the stock market; (ii) portfolio management; and (iii) alleged losses generated from the liquidation of customers assets in portfolio due to margin cause and/or negative balance. As of March 31, 2024, there were 579 (December 31, 2023 - 777) civil and administrative claims for which the likelihood of loss has been classified as probable, in the amount of R$ 44,329 (December 31, 2023 - R$ 37,921).

 

b)

Labor

 

Labor claims to which the Group is party primarily concern: (i) the existence (or otherwise) of a working relationship between the Group and IFAs; and (ii) severance payment of former employees. As of March 31, 2024, the Company and its subsidiaries are defendants in 140 cases (December 31, 2023 - 116) involving labor matters for which the likelihood of loss has been classified as probable, in the amount of R$ 55,624 (December 31, 2023 - R$ 57,965).

 

Contingent liabilities - probability of loss classified as possible

 

In addition to the provisions mentioned above, the Company and its subsidiaries are party to several labor, civil and tax contingencies in progress, in which they are the defendants, and the likelihood of loss, based on the opinions of the internal and external legal advisors, is considered possible. The contingencies amount to approximately R$ 1,795,174 (December 31, 2023 - R$ 1,826,688).

 

Below these claims are summarized by nature:

 

	March 31, 2024		December 31, 2023
Tax (i) (ii) (iii)	653,788		653,714
Civil (iv)	856,627		883,485
Labor (v)	284,759		289,489
Total	1,795,174		1,826,688

 

(i)

Employees Profit Sharing Plans: In 2015, 2019, 2021, 2022 and 2024 tax authorities issued assessments against the Group claiming mainly for allegedly unpaid social security contributions on amounts due and paid to employees as profit sharing plans related to calendar years of 2011, 2015, 2017, 2018 and 2019. According to the tax authorities, the Group profit sharing plans did not comply with the provisions of Law 10,101/00. The risk of loss for these claims is classified as possible by the external counsels.

 

a.

Tax assessment related to 2011: The first and the second administrative appeals were denied, and currently the Group awaits for the judgment of the special appeal by the Superior Court of the Administrative Council of Tax Appeals (“CSRF”). The amount claimed is R$ 21,162.

 

b.

Tax assessment related to 2015: The first and the second administrative appeals were denied, and currently the Group is awaiting to be notified by such unfavorable decision in order to appeal to the CSRF. The amount claimed is R$ 55,153.

 

c.

Tax assessment related to 2017: In addition to the claim related to the employees’ profit-sharing plan, tax authorities are also challenging the deductibility for Corporate Income Tax (IRPJ) and Social Contribution of Net Profits (CSLL) purposes of the amounts paid under such plan to the members of the Board. Administrative appeals were filed against the assessments, which are awaiting judgment by the Federal Revenue Service of Brazil (“RFB”). The total amount claimed is R$ 135,252.

 

d.

Tax assessment related to 2018: An administrative appeal was filed against the assessment, which awaits for judgment by the RFB. The total amount claimed is R$ 145,426.

 

e.

In June 2022, the Group was notified by the Public Labor Ministry for allegedly unpaid FGTS (Fund for Severance Indemnity Payment) on the amounts paid to employees under profit sharing plans related to years 2015 to 2020. According to the tax authorities, the Group profit sharing plans did not comply with the provisions of Law 10,101/00. The Group presented its administrative defense which awaits for judgment. The total amount claimed is R$ 135,738.

 

f.

Tax assessment related 2019: An administrative appeal was filed against the assessment, which awaits for judgment by the RFB. The amount claimed is R$ 193,183.

 

(ii)

Amortization of goodwill: The Group also received four tax assessments in which the tax authorities challenge the deductibility for Corporate Income Tax (IRPJ) and Social Contribution of Net Profits (CSLL) purposes of the expenses deriving from the amortization of goodwill registered upon the acquisitions made by the Group between 2013 and 2016. According to the tax authorities, the respective goodwill was registered in violation of Laws 9.532/97 and 12.973/14, respectively. Currently, two of the proceedings are pending judgment by the RFB and the other two awaits for judgement by the CARF, considering that the administrative appeals were denied. Also, the Group have filed two lawsuits to prevent the issuance of new tax assessments and/or the application of the 150% penalty by the tax authorities in relation to expenses of such goodwill incurred in other periods. The risk of loss for these claims is classified as possible by the external counsels. The amount claimed is R$ 92,973.

 

(iii)

Banco Modal S.A. - Employees Profit Sharing Plans: In March 2016, tax authorities issued an assessment against Banco Modal claiming mainly for allegedly unpaid social security contributions on amounts due and paid to employees as profit sharing plan related to calendar year of 2012. The first administrative appeal was denied, and currently Banco Modal awaits for the judgment of the second appeal by the CARF. The risk of loss for this claim is classified as possible by the external counsels. The total amount claimed is R$ 7,169.

 

(iv)

The Group is defendant in 1,979 (December 31, 2023 – 778) civil and administrative claims by customers and investment agents, mainly related to portfolio management, risk rating, copyrights and contract termination. The total amount represents the collective maximum value to which the Group is exposed based on the claims’ amounts monetarily restated.

 

(v)

The Group is defendant in 310 (December 31, 2023 – 116) labor claims by former employees. The total amount represents the collective maximum value to which the Group is exposed based on the claims’ amounts monetarily restated.

 

21.

Total revenue and income

 

a)

Net revenue from services rendered

 

Revenue from contracts with customers derives mostly from services rendered and fees charged at daily transactions from customers, therefore mostly recognized at a point in time. Disaggregation of revenue by major service lines are as follows:

 

	Three months period ended March 31,
Major service lines	2024	2023
Brokerage commission	495,364	494,017
Securities placement	489,528	248,574
Management fees	410,610	381,645
Insurance brokerage fee	49,141	41,365
Commission fees	208,395	189,471
Other services	127,699	113,989
Gross revenue from services rendered	1,780,737	1,469,061
(-) Sales taxes and contributions on services (i)	(156,886)	(123,077)
Net revenue from services rendered	1,623,851	1,345,984

 

(i) Mostly related to taxes on services (ISS) and contributions on revenue (PIS and COFINS).

 

 

b)

Net income/(loss) from financial instruments

 

	Three months period ended March 31,
	2024	2023
Net income/(loss) from financial instruments at fair value through profit or loss	2,251,108	1,330,060
Net income/(loss) from financial instruments measured at amortized cost and at fair value through other comprehensive income	238,333	526,600
Total income from financial instruments	2,489,441	1,856,660
(-) Taxes and contributions on financial income	(60,436)	(68,655)
Net income/(loss) from financial instruments	2,429,005	1,788,005

 

 

c)

Disaggregation by geographic location

 

Breakdown of total net revenue and income and selected assets by geographic location:

 

	Three months period ended March 31,
	2024	2023
Brazil	3,872,525	3,022,295
United States	164,860	95,965
Europe	15,471	15,729
Revenues	4,052,856	3,133,989
	March 31, 2024	December 31, 2023
Brazil	14,400,579	13,255,769
United States	541,875	508,544
Europe	95,567	88,395
Selected assets (i)	15,038,021	13,852,708

 

(i) Selected assets are total assets of the Group, less: cash, financial assets and deferred tax assets and are presented by geographic location.

 

None of the clients represented more than 10% of our revenues for the periods presented.

 

22.

Operating costs

 

	Three months period ended March 31,
	2024	2023
Commission and incentive costs	851,598	720,918
Operating losses	39,346	40,621
Other costs	327,872	254,986
Clearing house fees	135,520	100,161
Third parties’ services	15,350	16,229
Credit card cashback	102,683	89,731
Other	74,319	48,865
Total	1,218,816	1,016,525

 

23.

Operating expenses by nature

  

	Three months period ended March 31,
	2024	2023
Selling expenses (a)	32,054	14,942
Administrative expenses	1,451,651	1,093,939
Personnel expenses	1,006,627	759,662
Compensation	392,849	248,888
Employee profit-sharing and bonus	399,771	305,864
Executives profit-sharing	11,979	36,468
Other personnel expenses (b)	202,028	168,442
Other taxes expenses	33,624	18,700
Depreciation of property and equipment and right-of-use assets	28,919	26,516
Amortization of intangible assets	39,142	21,326
Data processing	210,782	155,755
Technical services	33,933	30,086
Third parties' services	47,930	45,107
Other administrative expenses (c)	50,694	36,787
Total	1,483,705	1,108,881

 

(a) Selling expenses refer to advertising and publicity.

(b) Other personnel expenses include benefits, social charges and others.

(c) Other administrative expenses include rent, communication and travel expenses, legal and judicial and other expenses.

 

24.

Other operating income (expenses), net

 

	Three months period ended March 31,
	2024	2023
Other operating income	44,310	40,080
Revenue from incentives from Tesouro Direto, B3 and others	9,856	2,758
Other operating income (a)	34,454	37,322
Other operating expenses	(35,089)	(21,199)
Legal proceedings and agreement with customers	(18,455)	(592)
Charity	(2,483)	(4,347)
Other operating expenses (b)	(14,151)	(16,260)
Total	9,221	18,881

 

(a) Other operating income include recovery of charges and expenses, reversal of operating provisions, interest received on tax and others.

(b) Other operating expenses include fines and penalties, association and regulatory fees and other expenses.

 

25.

Share-based plan

 

(i)

Outstanding shares granted and valuation inputs

 

The maximum number of shares available for issuance under the share-based plan shall not exceed 5% of the issued and outstanding shares.

 

Set out below are summaries of XP Inc's Restricted Stock Units (“RSU”) and Performance Stock Units (“PSU”) activity for the three months period ended March 31, 2024.

 

		RSUs		PSUs		Total
(In thousands, except weighted-average data, and where otherwise stated)		Number of units		Number of units		Number of units
Outstanding, January 1, 2024		14,600,588		1,588,818		16,189,406
Granted		1,946,401		-		1,946,401
Forfeited		(176,352)		-		(176,352)
Vested		(734)		-		(734)
Outstanding, March 31, 2024		16,369,903		1,588,818		17,958,721

 

For the three months period ended March 31, 2024, total compensation expense of both plans was R$ 177,648 (2023 - R$ 68,412), including R$ 36,192 of tax provisions (2023 - R$ 29,262) and does not include any tax benefits on total share-based compensation expense once this expense is not deductible for tax purposes. The tax benefits will be perceived when the shares are converted into common shares.

 

Since the inception of the plans in 2019, the original grant-date fair value of RSU plans has ranged from US$ 11.16 to US$ 51.03 and of PSU plans has ranged from US$ 31.60 to US$ 64.68.

 

26.

Earnings per share (basic and diluted)

 

Basic earnings per share is calculated by dividing net income for the period attributed to the owners of the parent by the weighted average number of ordinary shares outstanding during the period.

 

Diluted earnings per share is calculated by dividing net income attributable to owners of XP Inc by the weighted average number of shares outstanding during the year plus the weighted average number of shares that would be issued on conversion of all dilutive potential shares into shares by applying the treasury stock method. The shares in the share-based plan are the only shares with potential dilutive effect.

 

The following table presents the calculation of net income applicable to the owners of the parent and basic and diluted EPS for the three months period ended of March 31:

 

	Three months period ended March 31,
	2024	2023
Net income attributable to owners of the Parent	1,030,016	795,945
Basic weighted average number of outstanding shares (i)(iii)	548,429	536,103
Basic earnings per share - R$	1.8781	1.4847
Effect of dilution
Share-based plan (ii) (iii)	8,246	845
Diluted weighted average number of outstanding shares (iii)	556,675	536,948
Diluted earnings per share - R$	1.8503	1.4823

 

(i)

See on Note 18, the number of XP Inc.’s outstanding common shares during the period.

(ii)

See on Note 25, the number of shares granted and forfeited during the period regarding XP Inc.’s Share-based plan.

(iii)

Thousands of shares.

 

27.

Determination of fair value

 

The Group measures financial instruments such as certain financial investments and derivatives at fair value at each balance sheet date.

 

Level 1: The fair value of financial instruments traded in active markets is based on quoted market prices at the end of the reporting period. The financial instruments included in the level 1 consist mainly in public financial instruments and financial instruments negotiated on active markets (i.e., stock exchanges).

 

Level 2: The fair value of financial instruments that are not traded in active markets is determined using valuation techniques, which maximize the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value as an instrument are directly or indirectly observable, the instrument is included in level 2. The financial instruments classified as level 2 are composed mainly from private financial instruments and financial instruments negotiated in a secondary market.

 

Level 3: If one or more of the significant inputs is unobservable, the instrument is included in level 3. This is the case for unlisted equity securities.

 

Specific valuation techniques used to value financial instruments include:

 

·

Financial assets (other than derivatives) – The fair value of securities is determined by reference to their closing prices on the date of presentation of the consolidated financial statements. If there is no market price, fair value is estimated based on the present value of future cash flows discounted using the observable rates and market rates on the date of presentation.

 

·

Swap – These operations swap cash flow based on the comparison of profitability between two indexers. Thus, the agent assumes both positions – put in one indexer and call on another.

 

·

Forward – At the market quotation value, and the installments receivable or payable are fixed to a future date, adjusted to present value, based on market rates published at B3.

 

·

Futures – Foreign exchange rates, prices of shares and commodities are commitments to buy or sell a financial instrument at a future date, at a contracted price or yield and may be settled in cash or through delivery. Daily cash settlements of price movements are made for all instruments.

 

·

Options – Option contracts give the purchaser the right to buy or sell the instrument at a fixed price negotiated at a future date. Those who acquire the right must pay a premium to the seller. This premium is not the price of the instrument, but only an amount paid to have the option (possibility) to buy or sell the instrument at a future date for a previously agreed price.

 

·

Other financial assets and liabilities – Fair value, which is determined for disclosure purposes, is calculated based on the present value of the principal and future cash flows, discounted using the observable rates and market rates on the date the financial statements are presented.

 

·

Loans operations – Fair value is determined through the present value of expected future cash flows discounted using the observable rates and market rates on the date the financial statements are presented.

 

·

Contingent consideration – Fair value of the contingent consideration liability related to acquisitions is estimated by applying the income approach and discounting the expected future payments to selling shareholders under the terms of the purchase and sale agreements.

 

Below are the Group financial assets and liabilities by level within the fair value hierarchy. The Group assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels:

 

		March 31, 2024
		Level 1		Level 2		Level 3		Fair Value		Book Value
Financial Assets
Financial assets at Fair value through profit or loss
Securities		80,671,702		31,513,367		-		112,185,069		112,185,069
Derivative financial instruments		3,158,730		29,543,480		-		32,702,210		32,702,210
Investments in associates measured at fair value		-		-		1,449,858		1,449,858		1,449,858
Fair value through other comprehensive income
Securities		40,310,404		-		-		40,310,404		40,310,404
Evaluated at amortized cost
Securities		1,241,830		3,216,833		-		4,458,663		4,458,663
Securities purchased under agreements to resell		-		27,893,313		-		27,893,313		30,291,271
Securities trading and intermediation		-		2,512,056		-		2,512,056		2,512,056
Accounts receivable		-		639,142		-		639,142		639,142
Loan operations		-		27,702,743		-		27,702,743		29,541,800
Other financial assets		-		5,120,680		-		5,120,680		5,120,680
Financial liabilities
Fair value through profit or loss
Securities		17,061,636		466,536		-		17,528,172		17,528,172
Derivative financial instruments		2,698,796		31,689,959		-		34,388,755		34,388,756
Evaluated at amortized cost
Securities sold under repurchase agreements		-		45,824,459		-		45,824,459		49,054,325
Securities trading and intermediation		-		16,394,818		-		16,394,818		16,394,818
Financing instruments payable		-		62,157,527		-		62,157,527		63,037,172
Borrowings		-		2,266,614		-		2,266,614		2,266,614
Accounts payables		-		954,009		-		954,009		954,009
Other financial liabilities		-		14,248,136		571,723		14,819,859		14,819,859

 

		December 31, 2023
		Level 1		Level 2		Level 3		Fair Value		Book Value
Financial Assets
Financial assets at Fair value through profit or loss
Securities		92,628,880		10,653,332		-		103,282,212		103,282,212
Derivative financial instruments		977,441		22,756,025		-		23,733,466		23,733,466
Investments in associates measured at fair value		-		-		1,450,704		1,450,704		1,450,704
Fair value through other comprehensive income
Securities		44,062,950		-		-		44,062,950		44,062,950
Evaluated at amortized cost
Securities		3,773,404		3,082,017		-		6,855,421		6,855,421
Securities purchased under agreements to resell		-		13,551,224		-		13,551,224		14,888,978
Securities trading and intermediation		-		2,932,319		-		2,932,319		2,932,319
Accounts receivable		-		681,190		-		681,190		681,190
Loan operations		-		28,551,935		-		28,551,935		28,551,935
Other financial assets		-		4,208,743		-		4,208,743		4,208,473
Financial liabilities
Fair value through profit or loss
Securities		19,949,021		474,053		-		20,423,074		20,423,074
Derivative financial instruments		662,084		24,123,332		-		24,785,416		24,785,416
Evaluated at amortized cost
Securities sold under repurchase agreements		-		44,589,653		-		44,589,653		33,340,511
Securities trading and intermediation		-		16,943,539		-		16,943,539		16,943,539
Financing instruments payable		-		61,098,677		-		61,098,677		60,365,590
Borrowings		-		3,174,285		-		3,174,285		2,199,422
Accounts payables		-		948,218		-		948,218		948,218
Other financial liabilities		-		11,659,653		571,723		12,231,376		12,231,376

 

As of March 31, 2024, and December 31, 2023, the total contingent consideration liability is reported at fair value and is dependent on the profitability of the acquired associate and businesses. The total contingent consideration is classified within Level 3 of the fair value hierarchy. The contingent consideration liability represents the maximum amount payable under the purchase and sale agreements discounted using an appropriate rate, which includes the Brazilian risk-free rate. Changes in an average discount rate of 10.04% by 100 bps would increase/decrease the fair value of contingent consideration liability by R$ 2,270.

 

The investments held through our investees which are considered to be venture capital investments are classified as Level 3 of the fair value hierarchy. The inputs used by the Group are derived for discounted rates for these investments using a capital asset model to calculate a pre-tax rate that reflects current market assessments of the time value of money and the risk specific to the asset. Change in the discount rate by 100 bps would increase/decrease the fair value by R$ 14,499.

 

Transfers into and out of fair value hierarchy levels are analyzed at the end of each consolidated financial statement. As of March 31, 2024, the Group had no transfers between Level 2 and Level 3.

 

28.

Management of financial risks and financial instruments

 

The Group’s activities are exposed to a variety of financial risks: credit risk, liquidity risk, market risk (including currency risk, interest rate risk and price risk), and operational risk. The Group’s overall risk management structure focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance. The Group uses derivative financial instruments to mitigate certain risk exposures. It is the Group’s policy that no trading in derivatives for speculative purposes may be undertaken.

 

Management has overall responsibility for establishing and supervising the risk management structure of the Group. Risk Management is under a separated structure from business areas, reporting directly to senior management, to ensure exemption of conflict of interest, and segregation of functions appropriate to good corporate governance and market practices.

 

The risk management policies of the Group are established to identify and analyze the risks faced, to set appropriate risk limits and controls, and to monitor risks and adherence to the limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and in the activities of the Group. The Group, through its training and management standards and procedures, developed a disciplined and constructive control environment within which all its employees are aware of their duties and obligations.

 

Regarding the subsidiary Banco XP and the other subsidiaries components of XP Prudential Conglomerate (Brazilian Central Bank oversight definition), the organizational structure is based on the recommendations proposed by the Basel Accord, in which procedures, policies and methodology are formalized consistent with risk tolerance and with the business strategy and the various risks inherent to the operations and/or processes, including market, liquidity, credit and operating risks. The Group seeks to follow the same risk management practices as those applying to all companies.

 

Such risk management processes are also related to going concern management procedures, mainly in terms of formulating impact analyses, business continuity plans, contingency plans, backup plans and crisis management.

 

The unaudited interim condensed consolidated financial statements do not include all financial risk management information and disclosures required in the annual financial statements; they should be read in conjunction with the Group’s annual financial statements as of December 31, 2023. There have been no changes in the risk management department or in any risk management policies since the year-end.

 

Sensitivity analysis

 

According to the market information, the Group performed the sensitivity analysis by market risk factors considered relevant. The largest losses, by risk factor, in each of the scenarios were presented with an impact on the profit or loss, providing a view of the exposure by risk factor of the Group in exceptional scenarios. The following sensitivity analyzes do not consider the functioning dynamics of risk and treasury areas, since once these losses are detected, risk mitigation measures are quickly triggered, minimizing the possibility of significant losses.

 

				March 31, 2024
Trading portfolio	Exposures	Scenarios
Risk factors	Risk of variation in:	I	II	III
Fixed interest rate	Fixed interest rate in Reais	(1,269)	(145,236)	(277,958)
Exchange coupons	Foreign currencies coupon rate	(146)	(20,990)	(42,454)
Foreign currencies	Exchange rates	(7,954)	89,133	442,952
Price indexes	Inflation coupon rates	(12)	(990)	(1,769)
Shares	Shares prices	(2,020)	(91,649)	(277,622)
Seed money (i)	Seed money	(2,872)	(71,807)	(143,614)
		(14,273)	(241,539)	(300,465)

 

		December 31,  2023
Trading portfolio	Exposures	Scenarios
Risk factors	Risk of variation in:	I	II	III
Fixed interest rate	Fixed interest rate in Reais	(258)	21,269	22,753
Exchange coupons	Foreign currencies coupon rate	(367)	(18,174)	(36,588)
Foreign currencies	Exchange rates	331	343,440	907,349
Price indexes	Inflation coupon rates	(103)	(12,998)	(24,579)
Shares	Shares prices	(3,472)	(251,572)	(289,613)
Seed money (i)	Seed money	(2,822)	(70,566)	(141,133)
		(6,691)	11,399	438,189

 

(i)

Related to seed money strategy, which includes several risk factors that are disclosed in aggregate.

 

Scenario I: Increase of 1 basis point in the rates in the fixed interest rate yield, exchange coupons, inflation and 1 percentage point in the prices of shares, commodities and currencies;

 

Scenario II: Project a variation of 25 percent in the rates of the fixed interest yield, exchange coupons, inflation, prices of shares, commodities and currencies, both rise and fall, being considered the largest losses resulting by risk factor; and

 

Scenario III: Project a variation of 50 percent in the rates of the fixed interest yield, exchange coupons, inflation, prices of shares, commodities and currencies, both rise and fall, being considered the largest losses resulting from the risk factor.

 

29.

Capital Management

 

The Group’s objectives when managing capital are to safeguard their ability to continue as a going concern, so that they can continue to provide returns for shareholders and benefits for other stakeholders, and maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

 

The Group also monitors capital based on the net debt and the gearing ratio. Net debt is calculated as total debt (including borrowings, lease liabilities, structured financing and debentures as shown in the balance sheet) less cash and cash equivalent (including cash, securities purchased under resale agreements and certificate deposits as shown in the statement of cash flows). The gearing ratio corresponds to the net debt expressed as a percentage of total capital.

 

The net debt and corresponding gearing ratios as of March 31, 2024, and December 31, 2023, were as follows:

 

	March 31, 2024		December 31, 2023
Group debt (Note 30) (i)	8,715,221		8,512,319
Structured financing (Note 15 (b))	2,976,433		1,841,790
Total debt	11,691,654		10,354,109
Cash	(3,938,578)		(3,943,307)
Securities purchased under resale agreements (Note 3 (a))	(1,005,478)		(2,760,296)
Bank deposit certificates (Note 4 (a))	(58,572)		(67,985)
Other deposits at Brazilian Central Bank (Note 15 (a))	(90,000)		(2,438,896)
Net debt	6,599,026		1,143,625
Total Equity attributable to owners of the Parent company	20,421,216		19,449,352
Total capital	27,020,242		20,592,977
Gearing ratio %	24.42%		5.55%

 

(i)

Minimum capital requirements

  

Although capital is managed considering the consolidated position, certain subsidiaries are subject to minimum capital requirement from local regulators.

 

The subsidiary Banco XP, leader of the Prudential Conglomerate (which includes XP CCTVM, XP DTVM, Banco Modal and Modal DTVM), under BACEN regulation regime, is required to maintain a minimum capital and follow aspects from the Basel Accord.

 

The subsidiary XP Vida e Previdência operates in retirement plans and insurance business and is oversight by the SUSEP, being required to present Adjusted Shareholders' Equity (PLA) equal to or greater than the Minimum Required Capital (“CMR”), CMR is equivalent to the highest value between base capital and Venture Capital Liquidity (“CR”).

 

On March 31, 2024, the subsidiaries Banco XP, XP Vida e Previdência and XP Administradora de Benefícios were in compliance with all capital requirements.

 

There is no requirement for compliance with a minimum capital for the other Group companies.

 

30.

Cash flow information

 

(i)

Debt reconciliation

 

						Debt securities (i)
		Borrowings		Lease liabilities		Debentures and notes		Bonds		Total
Total debt as of January 1, 2023		1,865,880		285,638		2,596,519		3,911,383		8,659,420
Acquisitions / Issuance		-		-		134,598		-		134,598
Payments/repurchase		-		(27,477)		-		-		(27,477)
Net foreign exchange differences		(61,610)		(3,380)		-		(148,910)		(213,900)
Interest accrued		20,911		6,146		91,009		34,731		152,797
Interest paid		-		-		(6,883)		-		(6,883)
Total debt as of March 31, 2023		1,825,181		260,927		2,815,243		3,797,204		8,698,555
Total debt as of January 1, 2024		2,199,422		304,762		2,806,774		3,546,567		8,857,525
Acquisitions / Issuance		-		-		-		-		-
Payments/repurchase		(26,706)		(26,735)		-		-		(53,441)
Write-offs		-		(16,116)		-		-		(16,116)
Net foreign exchange differences		52,704		(1,409)		-		110,050		161,345
Interest accrued		41,194		4,979		88,030		32,910		167,113
Interest paid		-		-		(10,064)		-		(10,064)
Total debt as of March 31, 2024		2,266,614		265,481		2,884,740		3,689,527		9,106,362

 

Debt securities includes Debentures measured at FVPL presented in Note 4(e) and does not include fair value adjustments of (i) Debentures - R$ 137,811 (R$ 120,280 - December 31, 2023) and (ii) Bonds - R$ 253,329 (R$ 224,927 - December 31, 2023).

 

ii)

Cash reconciliation for investing and financing activities

 

During the three months period ended March 31, 2024, the Group paid R$ 670,464 in connection with the minority stake acquisitions in Monte Bravo JV S.A. (“Monte Bravo”), Blue3 S.A. (“Blue3”), and Ável Participações Ltda. (“Ável”) disclosed in Note 2(d)(b)(i).

 

 

 

---