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 November 2023

 

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

X

  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

X

 

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

X

 

 

 

 

 

 

 

 

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 dos Santos
        Name: Bruno Constantino Alexandre dos Santos
        Title: Chief Financial Officer

 

Date: November 13, 2023

 

 

 

EXHIBIT INDEX

 

Exhibit No. Description
99.1 XP Inc. – Unaudited Interim Condensed Consolidated Financial Statements for the nine months period ended September 30, 2023.

 

 

 

 

 

 

 

 

Exhibit 99.1

 

 

 

 

 

 

 

  

 

XP Inc.

Interim condensed consolidated
financial statements at
September 30, 2023
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 sheets of XP Inc. and its subsidiaries ("Company") as at September 30, 2023 and the related interim condensed consolidated statements of income and comprehensive income for the quarter and nine-month period then ended, and the interim condensed consolidated statements of changes in equity and cash flows for the nine-month period then ended, and explanatory notes.

 

Management is responsible for the preparation and presentation of these interim condensed consolidated financial statements in accordance with International Accounting Standard (IAS) 34 - Interim Financial Reporting issued by the International Accounting Standards Board (IASB). Our responsibility is to express a conclusion on these interim condensed consolidated 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 does 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 interim condensed consolidated financial statements referred to above are not prepared, in all material respects, in accordance with IAS 34.

 

 

São Paulo, November 13, 2023

 

 

/s/ PricewaterhouseCoopers

Auditores Independentes Ltda.

CRC 2SP000160/O-5

 

 

Tatiana Fernandes Kagohara Gueorguiev

Contadora CRC 1SP245281/O-6

 

 

PricewaterhouseCoopers Auditores Independentes Ltda., Av. Brigadeiro Faria Lima 3732, 16o, partes 1 e 6, Edifício Adalmiro Dellape Baptista B32, São Paulo, SP, Brasil, 04538-132

T: +55 (11) 4004-8000, www.pwc.com.br

 

 

 

 

 

 

 

XP Inc. and its subsidiaries

Unaudited interim condensed consolidated balance sheets

As of September 30, 2023

In thousands of Brazilian Reais

 

 

Assets Note

September 30,

2023

  December 31, 2022
         
Cash   3,821,699   3,553,126
         
Financial assets   214,837,814   177,681,987
         
Fair value through profit or loss   120,853,702   96,730,159
Securities 4 101,038,694   87,513,004
Derivative financial instruments 5 19,815,008   9,217,155
         
Fair value through other comprehensive income   38,486,172   34,478,668
Securities 4 38,486,172   34,478,668
         
Evaluated at amortized cost   55,497,940   46,473,160
Securities 4 6,174,973   9,272,103
Securities purchased under agreements to resell 3 12,251,986   7,603,820
Securities trading and intermediation 9 3,569,085   3,271,000
Accounts receivable   620,008   597,887
Loan operations 7 26,645,487   22,211,161
Other financial assets 15 6,236,401   3,517,189
         
Other assets            7,585,713   5,760,811
Recoverable taxes               301,890   163,248
Rights-of-use assets 12 203,552   258,491
Prepaid expenses 8 4,400,808   4,240,107
Other   2,679,463   1,098,965
         
Deferred tax assets 17 2,022,609   1,611,882
Investments in associates and joint ventures 11 2,260,841   2,271,731
Property and equipment 12 347,659   310,894
Goodwill and Intangible assets 12 2,550,984   844,182
         
         
Total assets   233,427,319   192,034,613

 

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

 

 
 

XP Inc. and its subsidiaries

Unaudited interim condensed consolidated balance sheets

As of September 30, 2023

In thousands of Brazilian Reais

 

 

Liabilities and equity Note September 30, 2023   December 31, 2022
         
Financial liabilities   158,536,984   127,708,578
         
Fair value through profit or loss   32,888,077   22,134,674
Securities 4 14,342,482   13,529,265
Derivative financial instruments 5 18,545,595   8,605,409
         
Evaluated at amortized cost   125,648,907   105,573,904
Securities sold under repurchase agreements 3 39,517,091   31,790,091
Securities trading and intermediation   9 17,062,044   16,062,697
Financing instruments payable 13 53,093,731   43,683,629
Accounts payables   603,789   617,394
Borrowings 14 1,259,822   1,865,880
Other financial liabilities 15 14,112,430   11,554,213
         
Other liabilities   54,793,152   47,172,782
Social and statutory obligations   711,123   968,119
Taxes and social security obligations     488,388   365,419
Retirement plans liabilities 16 53,279,708   45,733,815
Provisions and contingent liabilities 20 109,595   43,541
Other   204,338   61,888
         
Deferred tax liabilities 17 73,982   111,043
         
Total liabilities   213,404,118   174,992,403
         
         
Equity attributable to owners of the Parent company 18 20,013,943   17,035,735
Issued capital   25   24
Capital reserve   18,745,482   19,156,382
Other comprehensive income(loss)   106,650   (133,909)
Treasury shares   (117,117)   (1,986,762)
Retained earnings   1,278,903   -
         
Non-controlling interest   9,258   6,475
         
Total equity   20,023,201   17,042,210
         
Total liabilities and equity   233,427,319   192,034,613

 

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

 

 
 

XP Inc. and its subsidiaries

Unaudited interim condensed consolidated statements of income and of comprehensive income

For the nine and three months period ended September 30, 2023, and 2022

In thousands of Brazilian Reais, except earnings per share

 

 

        Nine months period ended
September 30,
  Three months period ended
September 30,
    Note   2023   2022   2023   2022
                     
Net revenue from services rendered   21   4,651,223   4,375,806   1,822,475   1,558,302
Net income/(loss) from financial instruments at amortized cost and at fair value through other comprehensive income   21   1,261,859   1,131,100   141,716   563,461
Net income/(loss) from financial instruments at fair value through profit or loss   21   4,901,451   4,663,766   2,167,729   1,498,562
Total revenue and income       10,814,533   10,170,672   4,131,920   3,620,325
                     
Operating costs   22   (3,230,253)   (2,799,646)   (1,121,583)   (976,920)
Selling expenses   23   (110,016)   (91,141)   (49,812)   (32,649)
Administrative expenses   23   (3,914,035)   (4,273,233)   (1,544,184)   (1,502,793)
Other operating income (expenses), net       24   25,079   22,329   (18,293)   29,257
Expected credit losses   10   (237,331)   (56,042)   (114,782)   (28,205)
Interest expense on debt       (450,570)   (252,683)   (135,318)   (127,519)
Share of profit (loss) in joint ventures and associates   11   43,812   (13,648)   9,431   1,425
                     
Income before income tax       2,941,219   2,706,608   1,157,379   982,921
                     
Income tax credit (expense)      17   (81,842)   91,102   (70,790)   47,957
                     
Net income for the period       2,859,377   2,797,710   1,086,589   1,030,878
                     
Other comprehensive income                    
Items that can be subsequently reclassified to income                    
Foreign exchange variation of investees located abroad       (22,284)   (12,269)   23,008   9,904
Gains (losses) on net investment hedge       20,139   7,555   (22,064)   (7,283)
Changes in the fair value of financial assets at fair value through other comprehensive income       223,462   238,547   (178,019)   263,249
                     
Other comprehensive income (loss) for the period, net of tax       221,317   233,833   (177,075)   265,870
                     
Total comprehensive income for the period       3,080,694   3,031,543   909,514   1,296,748
                     
Net income attributable to:                    
Owners of the parent company       2,856,525   2,796,101   1,086,152   1,030,746
Non-controlling interest       2,852   1,609   437   132
                     
Total comprehensive income attributable to:                  
Owners of the parent company       3,077,842   3,029,934   909,077   1,296,616
Non-controlling interest       2,852   1,609   437   132
                     
Earnings per share from total income attributable to the ordinary equity holders of the company                    
Basic earnings per share   26   5.3195   5.0122   1.9873   1.8548
Diluted earnings per share   26   5.2813   4.8566   1.9620   1.7977
                       

 

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

 

 
 

XP Inc. and its subsidiaries

Unaudited interim condensed consolidated statements of changes in equity

For the nine and three months period ended September 30, 2023, and 2022

In thousands of Brazilian Reais, except earnings per share

 

 

      Attributable to owners of the parent    
        Capital reserve                    
 
  Notes Issued Capital   Additional paid-in capital   Other Reserves   Other comprehensive income and Other   Retained Earnings   Treasury Shares   Total Non-Controlling interest  

Total Equity

 

                                 
Balances as of December 31, 2021   23   6,821,176   8,102,139   (334,563)   -   (171,939)   14,416,836 2,793  

14,419,629

Comprehensive income for the period                                
Net income for the period   -   -   -   -   2,796,101   -   2,796,101 1,609  

2,797,710

Other comprehensive income, net   -   -   -   233,833   -   -   233,833 -  

233,833

Transactions with shareholders - contributions and distributions                              
Share based plan 25 -   -   460,734   -   -   -   460,734 490  

461,224

Other changes in equity, net   -   -   -   (8,394)   -   -   (8,394) (160)  

(8,554)

Private issuance of shares   1   74,905   -   -   -   -   74,906 -  

74,906

Treasury shares   -   -   -   -   -   (509,115)   (509,115) -  

(509,115)

Allocations of the net income for the period                                
Dividends distributed   -   -   -   -   -   -   - (1,712)  

(1,712)

Balances as of September 30, 2022   24   6,896,081   8,562,873   (109,124)   2,796,101   (681,054)   17,464,901 3,020  

17,467,921

                                 
                                 
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   -   -   -   -   2,856,525   -   2,856,525 2,852  

2,859,377 

Other comprehensive income, net   -   -   -   221,317   -   -   221,317 -  

221,317 

Transactions with shareholders - contributions and distributions                                
Share based plan 25 -   30,088   247,191   -   -   -   277,279 946  

278,225

Other changes in equity, net   -   -   -   19,242   -   -   19,242 293  

19,535

Private issuance of shares 18 1   1,886,172   211,153   -   -   -   2,097,326 -  

2,097,326

Treasury shares 18 -   -   (2,785,504)   -   -   1,869,645   (915,859) -  

(915,859)

Allocations of the net income for the period                                
Dividends distributed   -   -   -   -   (1,577,622)   -   (1,577,622) (1,308)  

(1,578,930)

Balances as of September 30, 2023   25   8,902,707   9,842,775   106,650   1,278,903   (117,117)   20,013,943 9,258  

20,023,201

 

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

 

 
 

XP Inc. and its subsidiaries

Unaudited interim condensed consolidated statements of cash flows

For the nine and three months period ended September 30, 2023, and 2022

In thousands of Brazilian Reais, except earnings per share

 

 

     

Nine months ended

September 30,

    Note 2023   2022
Operating activities          
Income before income tax     2,941,219   2,706,608
           
Adjustments to reconcile income before income taxes          
Depreciation of property, equipment and right-of-use assets   12 80,185   83,613
Amortization of intangible assets   12 89,746   76,648
Loss on write-off of right of use assets, property, equipment and intangible assets and lease, net   12 49,425   3,177
Share of profit or (loss) in joint ventures and associates   11 (43,812)   13,648
Expected credit losses on financial assets     237,331   56,042
Income from share in the net income of associates measured at fair value   11 3,410   (74,005)
Provision for contingencies, net   20 26,807   7,301
Net foreign exchange differences     (264,525)   (193,361)
Share based plan   25 278,225   461,224
Interest accrued     448,228   279,852
(Gain) / Loss on the disposal of investments   11 26,367   -
           
Changes in assets and liabilities          
Securities (assets and liabilities)     (10,686,644)   (22,518,320)
Derivative financial instruments (assets and liabilities)     (689,347)   (2,330,757)
Securities trading and intermediation (assets and liabilities)     692,601   (2,809,615)
Securities purchased (sold) under resale (repurchase) agreements     3,988,038   7,744,496
Accounts receivable     23,638   (132,112)
Loan operations     (3,557,417)   (7,601,787)
Prepaid expenses     40,177   (213,571)
Other assets and other financial assets     (3,769,115)   (1,963,291)
Accounts payable     (18,085)   (346,139)
Financing instruments payable     4,587,411   15,279,083
Social and statutory obligations     (308,312)   (394,322)
Tax and social security obligations     119,215   (167,160)
Retirement plans liabilities     7,545,893   10,792,833
Other liabilities and other financial liabilities     2,575,401   1,990,809
           
Cash from/(used in) operations     4,416,060   750,894
           
Income tax paid     (335,003)   (351,932)
Contingencies paid   20 (2,642)   (1,580)
Interest paid     (80,029)   (109,226)
Net cash flows (used in) from operating activities     3,998,386   288,156
           
Investing activities          
Acquisition of property and equipment   12 (66,977)   (33,528)
Acquisition of intangible assets   12 (182,796)   (15,618)
Cash acquired in business combination     770,887   -
Acquisition of subsidiaries, net of cash acquired     -   (35,183)
Acquisition of associates and joint ventures   11 -   (209,562)
Disposal of investments   11 29,589   -
Net cash flows used in investing activities     550,703   (293,891)
           
Financing activities          
Acquisitions of borrowings       30 1,252,828   -
Acquisition of treasury shares   18(c) (915,859)   (509,115)
Issuance of debt securities       30 373,481   1,890,500
Payments of borrowings and lease liabilities    30 (1,907,948)   (75,982)
Payment of debt securities in issue    30 (38,619)   (175,999)
Dividends paid   18 (1,577,622)   -
Transactions with non-controlling interests     293   (160)
Dividends paid to non-controlling interests     (1,308)   (1,712)
Net cash flows from (used in) financing activities     (2,814,754)   1,127,532
           
Net increase in cash and cash equivalents     1,734,335   1,121,797
Cash and cash equivalents at the beginning of the period     4,967,480   3,751,861
Effects of exchange rate changes on cash and cash equivalents     (12,304)   28,368
Cash and cash equivalents at the end of the period     6,689,511   4,902,026
Cash     3,821,699   2,601,041
Securities purchased under agreements to resell   3 1,719,000   1,748,737
Bank deposit certificates   4 207,813   250,248
Other deposits at Central Bank     940,999   302,000

 

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

 

 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of September 30, 2023

In thousands of Brazilian Reais, unless otherwise stated

 

 

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 66.60% 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 September 30, 2023, were approved by the Board of Director’s meeting on November 13, 2023.

 

1.1Share 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$2.0 billion has been reached on March 31, 2023, and, therefore, the share buy-back program has terminated. At the end of the share buy-back program, the company repurchased 25,037,192 shares (equivalent to R$ 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.

 

1.2Share purchase agreement with Itaú

 

On June 8, 2022, XP signed a share purchase agreement with Itaú Unibanco. Under this agreement, XP purchased 1,056,308 outstanding Class B common shares from Itaú Unibanco, equivalent to approximately US$24 million (R$ 117 million), or US$22.65 per share – the same price for which Itaú Unibanco sold 6,783,939 Class A shares on June 7, 2022, to third parties. These shares are held in treasury.

 

On November 10, 2022, XP signed a share purchase agreement with Itaúsa S.A. Under this agreement, XP purchased 5,500,000 outstanding Class A common shares from Itaúsa S.A., equivalent to approximately U$105 million (R$ 562 million), or U$19.10 per share (R$ 102.14 per share). XP utilized its existing cash to fund this share repurchase.

 

Those transactions are not part of the share buy-back program (Note 1.1) announced by XP on May 11, 2022.

 

1.3Cancellation of treasury shares

 

On April 5, 2023, the Company’s Board of Directors approved the cancellation of 31,267,095 Class A shares (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.

 

1.4Termination 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 the main 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.

 

 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of September 30, 2023

In thousands of Brazilian Reais, unless otherwise stated

 

 

1.5Corporate 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 September 30, 2023, the transaction is still subject to approval by the Central Bank of Brazil.

 

ii) Reorganization of international operations. The entities XP Holding US and XP Holding UK, 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 September 30, 2023, and the unaudited interim condensed consolidated statements of income and comprehensive income, changes in equity and cash flow for the nine months period ended September, 2023 and 2022 (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, 2022. The list of notes that were not presented in this unaudited interim condensed is described below:

 

Note to financial statements of

December 31, 2022

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 adopted by the Group

 

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, 2022. The Group has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.

 

Those amendments or standards apply for the first time in 2023, but do not have a material impact on the interim condensed consolidated financial statements of the Group:

 

IFRS 17 – Insurance Contracts: The group evaluated the impacts of applying this standard and concluded that it is not material to its current operations.

 

 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of September 30, 2023

In thousands of Brazilian Reais, unless otherwise stated

 

 

Amendments to IAS 1 – Presentation of Financial Statements: Requires that only information about material accounting policies are disclosed, eliminating disclosures of information that duplicate or summarize IFRS requirements.

 

Amendments to IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors – Includes the definition of accounting estimates: monetary amounts subject to uncertainties in their measurement.

 

Amendments to IAS 12 – Income Taxes: Clarifies that the exemption for accounting for deferred taxes arising from temporary differences generated in the initial recognition of assets or liabilities is not applicable to lease operations.

 

c)Basis of consolidation

 

There were no changes since December 31, 2022, 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 and joint ventures 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 and joint ventures are recognized as a reduction of the carrying amount of the investment.

 

Unrealized gains on transactions between the Group and its associates and joint ventures 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 and joint ventures 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 and joint ventures 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 fund meets the definition of a venture capital organization, 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.

 

 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of September 30, 2023

In thousands of Brazilian Reais, unless otherwise stated

 

 

d)Business combinations and other developments

 

a)Business combinations

 

(i)Habitat

 

On February 25, 2022, we entered into a binding agreement to acquire 100% of the total capital of Habitat Capital Partners Asset Management, a manager focused on real estate funds. The asset was created with a focus on real estate operations outside the major Brazilian centers and with a strategy of monitoring the entire process in-house, from securitization to control of collection processes. The closing occurred in May 2022, and the acquisition is not considered material for XP Inc. interim consolidated financial statements. The total consideration R$65,353, which have been fully settled, was composed of: i) R$52,416 paid in cash and ii) R$12,937 as a fair value of the contingent consideration. The purchase price was mostly allocated to goodwill (R$ 60,037 – see Note 12), representing the value of expected synergies arising from the acquisition.

 

In addition, the Company incurred in direct costs for the business combinations which were expensed as incurred.

 

(ii) BTR Benefícios e Seguros

 

On August 15, 2022, the Group exercised its call options over the equity of BTR Benefícios e Seguros (“BTR”) which allowed the Group to acquire up to 100% of the total share of BTR Benefícios e Seguros. This acquisition allows the Group to further strengthen its operations on the Health and Benefits front, with a focus on corporate customers. The management of health plans today is a priority topic on the corporate market agenda as it represents, in Brazil, one of the largest costs to most companies. The closing occurred on October 3, 2022, and the total consideration paid, in cash, was R$1,254. This acquisition is not considered material for XP Inc. consolidated financial statements.

 

(iii) Banco Modal S.A.

 

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 equity 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. The goodwill is R$ 1,232,547 and is attributable to the workforce and the high profitability of the acquired business.

 

The table below shows, on the closing date of the transaction, the fair value attributed to each of the identified intangible assets not recorded in the acquiree's balance sheet, as well as the fair value measurement method and their useful lives:

 

Identified assets at the acquisition date   Amount   Method   Expected useful life
Retail client portfolio   169,828   Multi-Period Excess Earnings   6 years, 11 months
Institutional client portfolio   51,629   Multi-Period Excess Earnings   4 years, 6 months
Core deposits   134,273   With and Without   9 years, 6 months
Trademarks   29,909   Relief-from-Royalty   5 years
Softwares   4,311   Cost Approach   5 years
Total   389,950        

 

For the period from July 1, 2023 to September 30, 2023, Banco Modal contributed R$ 20,613 to XP Inc's net income and R$ 149,747 to XP Inc's net revenues. If the acquisition date was on the beginning of the reporting period, XP Inc's combined net income and revenue for the nine months period ended September 30, 2023, would be R$ 2,555,445 and R$ 10,842,304, respectively.

 

 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of September 30, 2023

In thousands of Brazilian Reais, unless otherwise stated

 

 

The table below shows the fair value of the net assets acquired and the preliminary allocation of the purchase price consideration (including goodwill arising on the acquisition), as well as the impacts on the Group's cash flows:

 

Fair value of net assets acquired July 1, 2023
Assets  
Cash and cash equivalents 770,887
Financial assets 4,295,122
Investments in associates and joint ventures 765
Property and equipment 39,532
Intangible assets 67,663
Other assets 751,682
Total assets 5,925,651
   
Liabilities  
Financial liabilities 4,667,146
Other liabilities 783,675
Total liabilities 5,450,822
Net assets at fair value 474,829
   
Identified assets  
Client portfolios 221,457
Core deposits 134,273
Trademarks 29,909
Software 4,311
Total identified assets 864,779
   
Preliminary goodwill  
Purchase consideration transferred 2,097,326
(Less) fair value of identified assets (864,779)
Goodwill 1,232,547
   
Analysis of cash flow on acquisition  
Net cash acquired with the subsidiary 770,887
Issuance of shares – XP Inc (non-cash) -
Net of cash flow on acquisition (investing activities) 770,887

 

b)Other developments

 

(i) 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 SuperBac, a Brazilian biotechnology company.

 

On May 2, 2023, SuperBac 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 SuperBac, 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.

 

 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of September 30, 2023

In thousands of Brazilian Reais, unless otherwise stated

 

 

(ii)Termination of XTAGE client operations

 

On October 18, 2023, XP Inc announced the termination of XTAGE's operations, which is scheduled to take place on December 15, 2023. XTAGE's operations are 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. Disaggregated information is only reviewed at the revenue level (Note 21), with no corresponding detail at any margin or profitability levels.

 

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, 2022.

 

3.Securities purchased (sold) under resale (repurchase) agreements

 

a)     Securities purchased under resale agreements

 

  September 30, 2023   December 31, 2022
Collateral held  1,941,284   834,975
National Treasury Notes (NTNs) (i)  1,418,174   645,188
Financial Treasury Bills (LFTs) (i) 43,456   -
Debentures (ii) 114,145   84,065
Real Estate Receivable Certificates (CRI) (ii) 202,421   82,633
Other 163,088   23,089
       
Collateral repledged         10,313,956   6,771,526
National Treasury Bills (LTNs) (i)                        -      227,713
National Treasury Notes (NTNs) (i) 2,672,346   2,842,159
Financial Treasury Bills (LFTs) (i) 1,500,214   -
Debentures (ii)  2,637,732   929,346
Real Estate Receivable Certificates (CRIs) (ii)  2,516,420   2,019,639
Agribusiness Receivables Certificates (CRAs) (ii)  133,476   101,091
Agribusiness Credit Bill (LCAs) (ii)  -      171,730
Interbank Deposits Certificates (CDIs) (ii)  344,742   -
Other  509,026   479,848
       
Expected Credit Loss (iii) (3,254)      (2,681)
       
Total 12,251,986   7,603,820

 

 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of September 30, 2023

In thousands of Brazilian Reais, unless otherwise stated

 

 

(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 exclusive funds.

 

(ii) Refers to corporate debt 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 September 30, 2023, securities purchased under resale agreements were carried out at average interest rates of 11.76% p.a. (13.65% p.a. as of December 31, 2022).

 

As of September 30, 2023, the amount of R$ 1,719,000 (December 31, 2022 - R$ 646,478), 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

 

 

September 30,

2023

 

December 31,

2022

National Treasury Bills (LTNs)  3,186,421   8,569,145
National Treasury Notes (NTNs)  19,820,683   12,347,218
Financial Treasury Bills (LFTs)  1,889,299   533,509
Debentures  4,543,392   1,831,846
Real Estate Receivables Certificates (CRIs)  8,662,411   6,471,410
Financial Credit Bills (LFs)  708,211   1,111,890
Agribusiness Receivables Certificates (CRAs)  706,674   925,073
Total  39,517,091   31,790,091
       

 

As of September 30, 2023, securities sold under repurchase agreements were agreed with average interest rates of 12.98% p.a. (December 31, 2022 – 13.65% p.a.), with assets pledged as collateral.

 

 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of September 30, 2023

In thousands of Brazilian Reais, unless otherwise stated

 

 

4.Securities

 

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

 

              September
30, 2023
              December 31, 2022
  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 100,993,988    101,038,694     47,851,968    53,186,726   86,273,732   86,336,920   40,648,295   45,688,625
Brazilian onshore sovereign bonds  34,400,337   34,549,725    32,431,057    2,118,668   25,262,407   25,127,998   22,799,302   2,328,696
Investment funds  52,046,550   52,046,549    2,164,190    49,882,359   42,274,069   42,274,069   2,389,131   39,884,938
Stocks issued by public-held company 4,489,126    4,489,126    4,141,437     347,689   5,494,957   5,494,957   5,155,761   339,196
Debentures 2,790,291    2,637,028     2,205,113    431,915   5,013,524   4,990,882   2,768,843   2,222,039
Structured notes  120,336    154,067    154,067    -      243,790   285,560   285,560   -
Bank deposit certificates (ii)  639,183    627,310    627,310    -      525,778   541,294   523,859   17,435
Agribusiness receivables certificates  725,809    716,452    716,452    -      1,998,287   1,984,686   1,964,977   19,709
Real estate receivables certificates  1,719,301    1,707,372    1,707,372    -      1,799,625   1,803,111   1,800,671   2,440
Financial credit bills  408,877    446,821    40,726    406,095   663,589   738,028   16,981   721,047
Real estate credit bill  154,257    154,580    154,580    -      2,299,236   2,302,124   2,302,124   -
Agribusiness credit bills  389,479     384,077     384,077     -      254,300   256,129   256,129   -
Commercial notes  805,219    857,162    857,162    -      334,568   348,025   292,705   55,320
Others (iv) 2,305,223    2,268,425    2,268,425     -      698,470   794,211   641,086   153,125
Investments held in trust accounts  -       -       -       -      1,176,084   1,176,084   1,176,084   -
US government bonds (iii)  -       -       -       -      1,176,084   1,176,084   1,176,084   -
Total 100,993,988    101,038,694     47,851,968    53,186,726   87,449,816   87,513,004   41,824,379   45,688,625
                               
                                 

 

(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 September 30, 2023, those assets represent R$ 193,501 (December 31, 2022 - R$183,732).

 

(ii)Bank deposit certificates include R$ 207,813 (December 31, 2022 – R$252,877) presented as cash equivalents in the statements of cash flows.

 

(iii)Related to investments received through IPO transactions derived by XPAC Acquisition Corp. These funds are restricted for use and may only be used for purposes of completing an initial business combination or redemption of public shares as set forth in XPAC Acquisition Corp. trust agreement. See note 2 (d)(b)(i).

 

(iv)Mainly related to bonds issued and traded overseas and other securities.

 

 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of September 30, 2023

In thousands of Brazilian Reais, unless otherwise stated

 

 

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

 

 

September 30,

2023

 

December 31,

2022

  Gross carrying amount  

Fair

value

  Gross carrying amount  

Fair

value

Financial assets              
At fair value through other comprehensive income              
Brazilian onshore sovereign bonds 35,974,645   35,821,669   33,532,740   32,931,403
Brazilian offshore sovereign bonds -   -   1,379,129   1,321,258
Foreign sovereign bonds  2,627,473    2,664,503   -   -
Corporate bonds -   -   238,730   226,007
Total  38,602,118    38,486,172   35,150,599   34,478,668

 

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

 

 

September 30,

2023

 

December 31,

2022

  Gross carrying amount  

Book

value

  Gross carrying amount  

Book

value

Financial assets              
At amortized cost (i)              
Brazilian onshore sovereign bonds  3,662,935    3,659,176   5,835,971   5,834,628
Foreign sovereign bonds  -       -      1,743,688   1,742,311
Rural product note  610,626    610,384   507,131   506,927
Commercial notes 1,906,410    1,905,413   1,188,237   1,188,237
Total 6,179,971    6,174,973   9,275,027   9,272,103

 

(i) Includes expected credit losses in the amount of R$ 4,998 (December 31, 2022 – R$2,924). 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:

 

 

September 30,

2023

 

December 31,

2022

  Gross carrying amount  

Fair

value

  Gross carrying amount  

Fair

value

Financial liabilities              
At fair value through profit or loss              
Securities 13,886,608   13,886,608   13,048,246   13,048,246

 

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, with the objective of funding the Group’s working capital for the construction of “Vila XP” at São Roque, State of São Paulo 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.

 

 

September 30,

2023

 

December 31,

2022

  Gross carrying amount  

Fair

value

  Gross carrying amount  

Fair

Value

Financial liabilities              
At fair value through profit or loss              
Debentures 589,383   455,874   567,838   481,019

 

 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of September 30, 2023

In thousands of Brazilian Reais, unless otherwise stated

 

 

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 nine months period ended September 30, 2023, and 2022.

 

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 September 30, 2023, for instruments for which the fair value option has been elected.

 

            September 30, 2023
    Contractual principal outstanding   Fair value   Fair value/(under) contractual principal outstanding
Long-term debt            
Debentures   589,383   455,874                (133,509)

 

e)Securities classified by maturity:

 

      Assets       Liabilities
 

September 30,

2023

 

December 31,

2022

 

September 30,

2023

  December 31,
2022
               
Financial assets              
At fair value through PL and at OCI              
Current  96,276,364   73,569,049   13,886,607   13,048,246
Non-stated maturity  56,267,523   49,001,359   13,886,607   13,048,246
Up to 3 months  29,573,326   18,739,708    -      -
From 4 to 12 months  10,435,515   5,827,982    -      -
               
Non-current  43,248,502   48,422,623   455,875   481,019
After one year  43,248,502   48,422,623   455,875   481,019
               
Evaluated at amortized cost              
Current 3,819,854   7,952,328   -      -
Up to 3 months  9,855   3,327,313   -      -
From 4 to 12 months  3,809,999   4,625,015   -      -
               
Non-current  2,355,119   1,319,775   -      -
After one year  2,355,119   1,319,775   -      -
               
Total 145,699,839   131,263,775   14,342,482   13,529,265

 

The reconciliation of expected loss to financial assets at amortized cost – securities 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:

 

 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of September 30, 2023

In thousands of Brazilian Reais, unless otherwise stated

 

 

 

 

September 30,

2023

 

Notional

 

Fair Value

 

%

 

Up to 3

months

 

From 4 to

 12 months

 

Above

12 months

Assets                      
Options 2,263,704,106   7,013,848   89   1,616,676   2,759,120   2,638,052
Swap contracts 222,234,131   3,433,806   9   400,195   276,974   2,756,637
Forward contracts 51,978,867   8,750,850   2   7,233,271   212,686   1,304,893
Future contracts

7,148,038

 

616,504

 

-

 

105,530

 

385,265

 

125,709

Total

2,545,065,143

 

19,815,008

 

100

 

9,355,672

 

3,634,045

 

6,825,291

                       
Liabilities                      
Options 2,205,051,357   8,738,756   86   723,594   2,653,937   5,361,225
Swap contracts 225,013,220   2,315,402   9   370,702   1,335,943   608,757
Forward contracts 103,833,614   7,447,278   4   7,015,096   212,581   219,601
Future contracts 17,605,614   44,159   1   29,167   3,017   11,975
Total

2,551,503,804

 

18,545,595

 

100

 

8,138,559

 

4,205,478

 

6,201,558

 

 

December 31,

2022

  Notional   Fair Value   %  

Up to 3

months

 

From 4 to

12 months

 

Above

12 months

Assets                      
Options 1,253,758,408   5,542,340   94   1,209,290   1,931,618   2,401,432
Swap contracts 32,705,136   2,828,613   2   62,729   350,012   2,415,872
Forward contracts 16,058,162   549,953   1   352,796   132,119   65,038
Future contracts 34,679,065   296,249   3   73,621   222,628   -
Total 1,337,200,771   9,217,155   100   1,698,436   2,636,377   4,882,342
                       
Liabilities                      
Options 852,098,826   7,086,946   84   1,387,988   1,781,457   3,917,501
Swap contracts 13,755,838   839,421   1   44,526   261,669   533,226
Forward contracts 13,548,954   511,167   1   150,119   224,932   136,116
Future contracts 140,039,765   161,574   14   53,421   72,349   35,804
Others (i)

84,184

 

6,301

 

-

 

6,301

 

-

 

-

Total 1,019,527,567   8,605,409   100   1,642,355   2,340,407   4,622,647

 

(i)Related to Public Warrants and Private placement Warrants liabilities issued by XPAC Acquisition Corp. See note 2 (d)(b)(i).

 

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.

 

 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of September 30, 2023

In thousands of Brazilian Reais, unless otherwise stated

 

 

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 Holdings International 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      
September 30, 2023                    
Foreign exchange risk                    
Hedge of net investment in foreign operations   472,870   -   (20,139)   467,849   22,242
Total   472,870   -   (20,139)   467,849   22,242
                     
December 31, 2022                    
Foreign exchange risk                    
Hedge of net investment in foreign operations   395,564   -   (17,281)   414,043   18,480
Total   395,564   -   (17,281)   414,043   18,480

 

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.

 

·Hedging the exposure of fixed-income securities carried out through sovereign and corporate bonds issued in local or foreign currencies, mainly US Dollars. The market risk hedge strategy involves avoiding temporary fluctuations in statements of income arising from changes in the interest rate market. Once this risk is offset, the Group seeks to index the portfolio to the CDI, through the use of 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      
September 30, 2023                    
Interest rate and foreign exchange risk                    
Structured notes   -   14,755,798   (366,523)   14,847,814   365,568
Issued bonds   -   3,556,685   116,754   3,411,023   (153,251)
Fixed income bonds   1,501,868   -   81,378   1,509,832   (74,594)
Total   1,501,868   18,312,483   (168,391)   19,768,669   137,723

 

 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of September 30, 2023

In thousands of Brazilian Reais, unless otherwise stated

 

 

 

 

    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, 2022                    
Interest rate and foreign exchange risk                    
Structured notes   -   10,648,559   726,798   10,663,672   (734,656)
Issued bonds   -   3,889,699   323,881   3,646,613   (362,994)
Fixed income bonds   3,589,909   -   (163,541)   3,577,084   165,164
Total   3,589,909   14,538,258   887,138   17,887,369   (932,486)

 

c)Cash flow hedge

 

In March 2022, XP Inc recorded a new 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      
September 30, 2023                    
Market price risk                    
Long term incentive plan taxes   -   444,083   (46,981)   446,861   45,797
Total   -   444,083   (46,981)   446,861   45,797
December 31, 2022                    
Market price risk                    
Long term incentive plan taxes   -   262,756   346,900   261,818   (348,248)
Total   -   262,756   346,900   261,818   (348,248)

 

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:

 

            September 31, 2022
Hedge Instruments   Notional amount Book value Variation in fair value used to calculate hedge ineffectiveness Hedge ineffectiveness recognized in income
Assets Liabilities
Interest rate risk            
Futures   19,542,748 1,501,868 18,070,445 148,952 (26,752)
Foreign exchange risk            
Futures   693,769 472,870 242,038 11,013 (1,812)
Market price risk            
Swaps   446,861 - 444,083 45,797 (1,184)
             

 

 

 

 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of September 30, 2023

In thousands of Brazilian Reais, unless otherwise stated

 

 

            December 31, 2022
    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   17,604,185 3,589,909 14,218,543 (890,103) (41,295)
Foreign exchange risk            
Futures   697,227 395,594 319,715 (23,903) (2,825)
Market price risk            
Swaps   261,818 - 262,756 (348,248) (1,348)

 

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:

 

    September 30, 2023   December 31, 2022
Strategies   Hedge instruments Hedged item   Hedge instruments Hedged item
  Notional amount Fair value adjustments Book value   Notional amount Fair value adjustments Book value
Hedge of fair value   19,768,669 137,723 (168,391)   17,887,369 (932,486) 887,138
Hedge of net investment in foreign operations   467,849 22,242 (20,139)   414,043 18,480 (17,252)
Hedge of cash flow   446,861 45,797 (46,981)   261,818 (348,248) 346,900
Total   20,683,379 205,762 (235,511)   18,563,230 (1,262,254) 1,216,786

 

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

 

 

September 30,

2023

  0-1 year 1-2 years 2-3 years 3-4 years 4-5 years 5-10 years Over 10 years Total
Hedge of fair value 410,950 3,264,937 5,923,184 6,342,558 2,875,727 939,816 11,497 19,768,669
Hedge of net investment in foreign operations 435,069 32,780 - - - - - 467,849
Hedge of cash flow 101,231 345,630 - - - - - 446,861
Total 947,250 3,643,347 5,923,184 6,342,558 2,875,727 939,816 11,497 20,683,379
                   

 

     

December 31,

2022

  0-1 year 1-2 years 2-3 years 3-4 years 4-5 years 5-10 years Over 10 years Total
Hedge of fair value 229,368 707,421 2,773,333 5,913,477 5,930,291 2,333,479 - 17,887,369
Hedge of net investment in foreign operations 381,958 - 32,085 - - - - 414,043
Hedge of cash flow 261,818 - - - - - - 261,818
Total 873,144 707,421 2,805,418 5,913,477 5,930,291 2,333,479 - 18,563,230

 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of September 30, 2023

In thousands of Brazilian Reais, unless otherwise stated

 

 

 

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

September 30,

2023

  December 31, 2022  
Pledged asset loan  23,577,597   20,198,764  
Retail  12,171,132   10,932,086  
Companies  6,762,345   5,311,675  
Credit card  4,644,120   3,955,003  
Non-pledged loan  3,324,673   2,061,774  
Retail  408,552   309,468  
Companies  721,931   546,678  
Credit card  2,194,190   1,205,628  
Total loans operations  26,902,270   22,260,538  
Expected Credit Loss (Note 10) (256,783)   (49,377)  
Total loans operations, net of Expected Loss  26,645,487   22,211,161  
         
By maturity

September 30,

2023

  December 31, 2022  
Overdue by 1 day or more  218,829   69,855  
Due in 3 months or less  6,385,085   2,427,127  
Due after 3 months through 12 months  4,152,477   7,211,321  
Due after 12 months  16,145,879   12,552,235  
Total loans operations  26,902,270   22,260,538  
By concentration    

September 30,

2023

   December 31, 2022  
Largest debtor  828,918   814,284  
10 largest debtors  3,176,489   2,458,714  
20 largest debtors  4,361,443   3,241,494  
50 largest debtors  5,985,340   4,484,877  
100 largest debtors  7,463,939   5,615,708  


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 loans operations according with IFRS 9 is demonstrated in Note 10.

 

8.Prepaid expenses

 

 

September 30,

2023

  December 31, 2022
Commissions and premiums paid in advance (a) 4,032,782   3,863,986
Marketing expenses 22,310   16,893
Services paid in advance 56,526   48,775
Other expenses paid in advance 289,190   310,453
Total 4,400,808   4,240,107
       
Current  875,001   789,609
Non-current  3,525,807   3,450,498

 

(a) 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 statement of income of the Company, linearly, according to the investment term period.

 

 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of September 30, 2023

In thousands of Brazilian Reais, unless otherwise stated

 

 

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.

 

 

September 30,

2023

  December 31, 2022
Cash and settlement records            1,174,352   1,394,451
Debtors pending settlement            2,495,815   1,980,341
Other                 11,748   1,387
(-) Expected losses on Securities trading and intermediation (a)             (112,830)   (105,179)
Total Assets 3,569,085   3,271,000
       
Cash and settlement records  205,040   171,659
Creditors pending settlement  4,101,371   2,401,828
Customer’s cash on investment account  12,755,633   13,489,210
Total Liabilities 17,062,044   16,062,697

 

(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 September 30, 2023:

 

        September 30, 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) (vi)   38,486,172 (8,088) 38,486,172
Financial assets amortized cost        
Low credit risk simplification        
Securities (i) (viii)   6,179,971 (4,998) 6,174,973
Securities purchased under agreements to resell (i)   12,255,240 (3,254) 12,251,986
Three stage model        
Loans and credit card operations (ii) (iii) (iv) (vii) (viii)   26,902,270 (240,231) 26,662,039
Simplified approach        
Securities trading and intermediation   3,681,915 (112,830) 3,569,085
Accounts receivable   668,213 (48,205) 620,008
Other financial assets   6,286,377 (49,976) 6,236,401
         
Total losses for on-balance exposures   94,460,158 (467,582) 94,000,664
         
Off-balance exposures (v)   8,166,048 (16,552) 8,149,496
         
Total exposures   102,626,206 (484,134) 102,150,160

 

(i)Financial assets considered in Stage 1,

 

(ii)As of September 30, 2023, are presented in Stage 1: Gross amount of R$ 24,886,627 and ECL of R$ 58,108; Stage 2: Gross amount of R$ 1,854,864 and ECL of R$ 62,712; Stage 3: Gross amount of R$ 160,779 and ECL of R$ 119,412, respectively.

 

 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of September 30, 2023

In thousands of Brazilian Reais, unless otherwise stated

 

 

(iii)Gross amount: As of September 30, 2023 there were transfers between Stage 1 to Stage 2 of R$ 1,401,037; Stage 1 to Stage 3 of R$ 117,455; Stage 2 to Stage 1 of R$ 475,493; Stage 2 to Stage 3 of R$ 32,819; Stage 3 to Stage 1 of R$ 15 and Stage 3 to Stage 2 of R$ 100.

 

(iv)Expected credit loss: As of September 30, 2023 there were transfers between Stage 1 to Stage 2 of R$ 49,451; Stage 1 to Stage 3 of R$ 80,781; Stage 2 to Stage 1 of R$ 1,316; Stage 3 to Stage 1 of R$ 1; Stage 2 to Stage 3 of R$ 28,759 and Stage 3 to Stage 2 of R$ 17.

 

(v)Include credit cards limits and letters of guarantee.

 

(vi)The loss allowance for ECL of R$ 8,087 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)During the nine months period ended September 30, 2023, there was R$ 70,443 of write-off.

 

        December 31, 2022
     Gross carrying amount Expected Credit Losses Carrying amount, net
         
Financial assets at fair value through other comprehensive income        
Low credit risk simplification        
Securities (i)   35,150,599 (8,077) 35,142,522
Financial assets amortized cost        
Low credit risk simplification        
Securities (i)   9,275,027 (2,924) 9,272,103
Securities purchased under agreements to resell (i)   7,606,501 (2,681) 7,603,820
Three stage model        
Loans and credit card operations (ii) (iii)(iv)   21,168,048 (43,149) 21,124,899
Simplified approach        
Securities trading and intermediation   3,376,179 (105,179) 3,271,000
Accounts receivable   632,673 (34,786) 597,887
Other financial assets   3,568,298 (51,109) 3,517,189
         
Total losses for on-balance exposures   80,777,325 (247,905) 80,529,420
         
Off-balance exposures (credit card limits) (v)    4,759,298 (6,228) 4,753,070
Other off-balance exposures   - (15,214) (15,214)
         
Total exposures   85,536,623 (269,347) 85,267,276

 

(i)Financial assets considered in Stage 1.

 

(ii)As of December 31, 2022, are presented in Stage 1: Gross amount of R$ 21,168,048 and ECL of R$ 21,312; Stage 2: Gross amount of R$ 1,073,170 and ECL of R$ 7,656; Stage 3: Gross amount of R$ 19,319 and ECL of R$ 14,181, respectively.

 

(iii)As of December 31, 2022 there were transfers between Gross amount Stage 1 to Stage 2 of R$ 945,055; Stage 1 to Stage 3 of R$ 12,373; Stage 2 to Stage 1 of R$ 449,698; Stage 2 to Stage 3 of R$ 6,642; Stage 3 to Stage 1 of R$ 5 and Stage 3 to Stage 2 of R$ 5.

 

(iv)As of December 31, 2022, there were transfers between ECL Stage 1 to Stage 2 of R$ 6,940; Stage 1 to Stage 3 of R$ 8,624; Stage 2 to Stage 1 of R$ 1,091 and Stage 2 to Stage 3 of R$ 5,308.

 

(v)As of December 31, 2022, there were no transfers between stages.

 

 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of September 30, 2023

In thousands of Brazilian Reais, unless otherwise stated

 

 

11.Investments in associates and joint ventures

 

Set out below are the associates and joint ventures of the Group as of September 30, 2023, and December 31, 2022.

 

Entity December 31, 2022

Changes in

Equity (iii)

Equity in earnings / Fair value Other comprehensive income

September 30,

2023

Equity-accounted method          
Associates (i.a) 748,306 (10,793) 43,812 263 781,588
Measured at fair value          
Associates (ii) 1,523,425 (40,762) (3,410) - 1,479,253
 Total 2,271,731 (51,555) 40,402 263 2,260,841

 

Entity December 31, 2021 Changes in
Equity
Equity in earnings / Fair value Other comprehensive income September 30, 2022
Equity-accounted method          
Associates 790,744 (24,257) (12,604) (797) 753,086
Joint ventures 1,197 1,073 (1,044) (31) 1,195
Measured at fair value          
Associates (ii) 1,221,424 365,179 74,005 - 1,660,608
 Total 2,013,365 341,995 60,357 (828) 2,414,889

 

(i) As of September 30, 2023, and December 31, 2022, 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 September 30, 2023, and December 31, 2022); Primo Rico Mídia, Educacional e Participações Ltda. (21.83% of the total and voting capital on September 30, 2023 and 29.26% on December 31, 2022); Novus Capital Gestora de Recursos Ltda. (27.5% of the total and voting capital on September 30, 2023) and NK112 Empreendimentos e Participações S.A. (49.9% of the total and voting capital on September 30, 2023, and December 31, 2022).

 

(ii) As mentioned in Note 2 (c)(iii), the Group valued the investments held through our 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.

 

(iii) During the nine months period ended September 30, 2023, includes total or partial disposal of investments in Grimper Capital, BlueMacaw and OHM Research.

 

12.Property, equipment, goodwill, intangible assets and lease

 

a)Changes in the period

 

 

Property and

equipment

Intangible

assets

     
As of January 1, 2022 313,964 820,975
Additions             33,528             15,618
Business combination - 60,037
Write-offs           (1,179)             (1,998)
Transfers                    (15,018)                       -   
Foreign exchange                  (283)                    (3,147)
Depreciation / amortization in the period           (23,201)           (76,648)
As of September 30, 2022 307,811           814,837
Cost           392,022        1,097,103
Accumulated depreciation / amortization           (84,211)         (282,266)

 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of September 30, 2023

In thousands of Brazilian Reais, unless otherwise stated

 

 

As of January 1, 2023 310,894 844,182
Additions      27,445 131,989
Business combination (i)      39,532 1,690,160
Write-offs          (831)       (27,140)
Foreign exchange 69 1,539
Depreciation / amortization in the period

(29,450)

(89,746)

As of September 30, 2023

347,659

2,550,984

Cost    527,472 2,807,161
Accumulated depreciation / amortization  (179,813)     (256,177)

 

 

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

 

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 units (“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, 2022. As of September 30, 2023, 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, 2022 284,509   318,555
Additions (i) 30,998   31,086
Depreciation expense (60,412)   -
Interest expense -   16,717
Revaluation 8,662   (89)
Effects of exchange rate (2,911)   (3,052)
Payment of lease liabilities -   (73,921)
As of September 30, 2022 260,846   289,296
Current -   70,562
Non-current 260,846   218,734

 

As of January 1, 2023 258,491   285,637
Additions (i) 2,909   2,909
Depreciation expense (50,735)   -
Business combination (Note 2(d)(a)(iii)) 17,493   19,802
Write-off (21,454)   -
Interest expense -   17,912
Revaluation 803   -
Effects of exchange rate (3,955)   (4,123)
Payment of lease liabilities -   (95,813)
As of September 30, 2023 203,552   226,324
Current  48,866   28,850
Non-current  154,686   197,474

 

(i)Additions to right-of-use assets in the period include prepayments to lessors and accrued liabilities.

 

 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of September 30, 2023

In thousands of Brazilian Reais, unless otherwise stated

 

 

The Group did not recognize rent expense from short-term leases and low-value assets for the nine-month periods ended September 30, 2023, and 2022 and for the three months period ended September 30, 2023, and 2022. The total rent expense for the nine-month periods ended September 30, 2023 of R$ 20,148 (R$9,355 – September 30, 2022) and for the three month periods ended September 30, 2023 of R$ 11,585 (R$5,322 – September 30, 2022) includes other expenses related to leased offices such as condominiums.

 

13.Financing Instruments Payable

 

   

September 30,

2023

 

December 31,

2022

         
Market funding operations (a)   47,039,876   38,093,772
Deposits   22,634,528   20,261,532
Demand deposits   1,732,031   803,031
Time deposits   20,551,994   19,445,276
Interbank deposits   350,503   13,225
Financial bills   7,811,965   5,675,596
Structured notes   16,241,251   12,109,576
Others   352,132   47,068
Debt securities (b)                6,053,855   5,589,857
Debentures                2,656,003   2,028,681
Bond                3,397,852   3,561,176
Total             53,093,731   43,683,629
         
Current   18,195,324   19,794,572
Non-current   34,898,407   23,889,057

 

 

 

(a)Market funding operations maturity

 

Maturity - September 30, 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   1,732,031 - - - - - 1,732,031
Time deposits   2,728,716 2,675,060 1,547,959 2,123,360 2,614,317 8,862,582 20,551,994
Interbank deposits   - - 100,825 - 72,287 177,391 350,503
Financial bills   176,147 - 171,827 162,222 1,672,423 5,629,346 7,811,965
Structured notes   19,409 75,678 35,670 57,840 198,410 15,854,244 16,241,251
Others   83,179 29,742 6,124 17,788 187,639 27,660 352,132
Total   4,739,482 2,780,480 1,862,405 2,361,210 4,745,076 30,551,223 47,039,876

 

Maturity – December 31, 2022

               
 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   803,031 - - - - - 803,031
Time deposits   3,604,494 4,273,475 5,187,106 1,382,514 2,016,732 2,980,955 19,445,276
Interbank deposits   - - - 3,092 - 10,133 13,225
Financial bills   - - 2,390 1,637,547 405,901 3,629,758 5,675,596
Structured notes   - - 5,720 35,773 261,019 11,807,064 12,109,576
Others   - - 1,031 13,053 32,984 - 47,068
Total   4,407,525 4,273,475 5,196,247 3,071,979 2,716,636 18,427,910 38,093,772

 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of September 30, 2023

In thousands of Brazilian Reais, unless otherwise stated

 

 

(b)Debt securities maturity

 

The total balance is comprised of the following issuances:

 

   

September 30,

2023

 

December 31,

2022

  Rate type Up to 1 year 1-5 years Total   Up to 1 year 1-5 years Total
Bonds (i) Fixed rate  122,645 3,275,207 3,397,852   128,710 3,432,466 3,561,176
Debentures (ii) (iii) Floating rate  1,584,026 1,071,977 2,656,003   106,118 1,922,563 2,028,681
Total    1,706,671 4,347,184 6,053,855   234,828 5,355,029 5,589,857
Current       1,706,671       234,828
Non-current       4,347,184       5,355,029
                 

 

(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 and will be guaranteed by XP Investimentos S.A. On September 30, 2023, the total amount is R$ 3,436,471, out of which R$ 3,397,852 is held by entities outside the Group and as such is included in the consolidated financial statement.

 

(ii)XP Energia debentures

 

On December 8, 2021, XP Energia issued non-convertible Debentures in the amount of R$485,511. The Debentures series has a maximum authorized issuance up to R$1,000,000. The objective is to fund the Group’s working capital and treasury investments related to wholesale electricity trade business. The principal amount is due and will be paid on the maturity date of December 8, 2023. The interest rate is CDI+2.5% annually payable. On September 30, 2023, the total amount is R$ 824,592, out of which R$ 513,942 is held by entities outside the Group and as such is included in the consolidated financial statement.

 

(iii)         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$1,800,000. The principal amount is due and will be paid on the maturity date as follow: (i) June 23, 2024 (series 1) and (ii) June 23, 2025 (series 2). The interest rates for series 1 and series 2 debentures are CDI+1.75% and CDI+1.90%, respectively. On September 30, 2023, the total amount is R$ 2,142,061.

 

14.Borrowings

 

 

  Annual interest rate %   Maturity   September 30, 2023   December 31, 2022
               
Banco Nacional de México (i) 2.55%   May 2023 -   1,586,052
International Finance Corporation (IFC) (ii) CDI (*) + 0.74%   April 2023 -   279,828
Banco Nacional de México Term SOFR(**) + 0.40%   August 2024 1,258,844   -
Banco Daycoval 15.66%   September 2024 978   -
Third parties       1,259,822   1,865,880
             
Total borrowings       1,259,822   1,865,880
             
Current       1,259,822   1,865,880
Non-current       -  

-

 

 

 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of September 30, 2023

In thousands of Brazilian Reais, unless otherwise stated

 

 

(*) Brazilian Interbank Offering Rate (CDI).

(**) Secured Overnight Financing Rate (SOFR).

 

(i) On May 5, 2023, according to the maturity date, the loan agreement was fully settled.

 

(ii) Loan agreement entered into on March 28, 2018. The principal amount is due on the maturity date and accrued interests payable at every six months. On April 17, 2023, according to the maturity date, the loan agreement was fully settled.

 

Some of the obligations above contain financial covenants, which have certain performance conditions. The Group complied with these covenants throughout the duration of the contracts (Note 29 (ii)).

 

15.Other financial assets and financial liabilities

 

a)Other financial assets

 

  September 30,
2023
 

December 31,

2022

Foreign exchange portfolio          4,239,672   2,145,174
Receivables from IFAs             167,361   172,884
Compulsory and other deposits at central banks          1,721,616   1,119,169
Other financial assets             157,728   131,071
(-) Expected losses on other financial assets (i)             (49,976)   (51,109)
Total          6,236,401   3,517,189
       
Current          5,271,303   2,791,244
Non-current             965,098   725,945

 

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

 

b)Other financial liabilities

 

  September 30,
2023
 

December 31,

2022

Foreign exchange portfolio          4,562,194   2,405,429
Structured financing (i)          2,114,191   1,933,522
Credit cards operations          6,442,407   4,987,390
Contingent consideration (ii)             574,026   566,930
Commitments subject to possible redemption (iii)                      -      1,049,130
Lease liabilities 226,324   285,638
Others             193,288   326,174
Total 14,112,430   11,554,213
Current        13,595,779   11,014,262
Non-current 516,651   539,951

 

(i)Financing for maintenance of financial assets required to perform financial transactions.

 

(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$ 1,105,000 (the minimum amount is zero).

 

(iii)Related to the IPO transaction of XPAC Acquisition Corp. that occurred on August 3, 2021. The capital issued by XPAC Acquisition Corp. includes conditionally redeemable Class A ordinary shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control. On July 27, 2023, the Group ceased to control XPAC Acquisition Corp., see note 2 (d)(b)(i) for more information.

 

 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of September 30, 2023

In thousands of Brazilian Reais, unless otherwise stated

 

 

16.Retirement plans liabilities

 

As of September 30, 2023, 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 balance of the participant in the linked Specially Constituted Investment Fund (“FIE”) at the reporting date (Note 4 (a)(i)).

 

Changes in the period:

 

 

Nine months period ended September 30,

 

2023

 

2022

As of January 1  45,733,815           31,921,400
Contributions received  2,047,327   1,968,179
Transfer with third party plans  4,637,059             8,529,102
Withdraws  (2,884,406)           (2,627,886)
Other provisions (Constitution/Reversion)  108,899   27,440
Monetary correction and interest income

3,637,014

 

2,896,120

As of September 30

53,279,708

 

42,714,355

 

 

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
 

September 30,

2023

  December 31, 2022
Tax losses carryforwards  892,195   575,120
Goodwill on business combinations (i) 13,552   6,376
Provisions for IFAs’ commissions  76,793   71,986
Revaluations of financial assets at fair value  (232,081)   (214,456)
Expected credit losses (ii)  252,733   58,208
Profit sharing plan  138,046   269,949
Net gain (loss) on hedge instruments  (35,215)   (11,169)
Share-based compensation  734,170   566,721
Other provisions

108,434

 

178,104

Total

1,948,627

 

1,500,839

Deferred tax assets  2,022,609   1,611,882
Deferred tax liabilities  (73,982)   (111,043)
       

 

 

 

 

Net change in the nine months period ended September 30,

 

 

Net change in the three months period ended September 30,

 

  2023 2022   2023 2022
           
Tax losses carryforwards 317,075 373,146    250,665 164,871
Goodwill on business combinations (i) 7,176 (2,872)    6,640 3,826
Provisions for IFAs’ commissions 4,807 (2,887)    (13,762) (12,183)
Revaluations of financial assets at fair value (17,625) (206,257)    183,680 (173,076)
Expected credit losses (ii) 194,525 8,017    162,866 (3,913)
Profit sharing plan (131,903) (132,926)    (111,391)  (119,315)
Net gain (loss) on hedge instruments (24,046) (30,098)    71,210 (44)
Share based plan 167,449 183,342    55,233 67,085
Other provisions (69,670)  (44,205)    (47,511) (64,411)
Total 447,788 145,260    557,630 (137,162)

 

 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of September 30, 2023

In thousands of Brazilian Reais, unless otherwise stated

 

 

 

(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:

 

 

Nine months period ended September 30,

 

2023

 

2022

       
As of January 1  1,480,442   1,244,135
Foreign exchange variations  (37,718)   (21,289)
Business combination (Note 2(d)(a)(iii))  394,101   -
Charges to statement of income  287,352   319,165
Tax relating to components of other comprehensive income

(175,549)

 

(152,615)

As of September 30

1,948,628

 

1,389,396

       

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$ 7,704 (December 31, 2022 - R$ 13,001) 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 nine and three-months period ended September 30:

 

  Nine months period   Three months period
ended September 30,   ended September 30,
  2023 2022   2023 2022
Income before taxes 2,941,219 2,706,608   1,157,379 982,921
Combined tax rate in Brazil (a) 34% 34%   34% 34%
Tax expense at the combined rate 1,000,014 920,247   393,508 334,193
           
Income (loss) from entities not subject to taxation  453 58   21 8
Effects from entities taxed at different rates  30,121 47,484   5,126 46,657
Effects from entities taxed at different taxation regimes (b)  (877,752) (1,066,638)   (302,998) (397,565)
Intercompany transactions with different taxation  (62,743) (18,503)   (23,032) (6,224)
Tax incentives and related donation programs  (4,018) -   (1,365) -
Nondeductible expenses (non-taxable income), net  (43,164) 1,734   (7,472) (40,614)
Effect from social contribution on net income rate (Law No. 14,183)  -    (4,439)   -    (25)
Others  38,931 28,955   7,002 15,613
Total 81,842 (91,102)   70,790 (47,957)
           
Current 368,781 228,063   109,161 11,193
Deferred (286,939) (319,165)    (38,371) (59,150)
Total expense / (credit) 81,842 (91,102)    70,790 (47,957)

 

 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of September 30, 2023

In thousands of Brazilian Reais, unless otherwise stated

 

 

(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 (12,270)   -   (12,270)
Gains (losses) on net investment hedge 14,281   (6,726)   7,555
Changes in the fair value of financial assets at fair value

384,437

 

(145,890)

 

238,547

As of September 30, 2022

386,448

 

(152,616)

 

233,832

           
Foreign exchange variation of investees located abroad  (22,284)    -    (22,284)
Gains (losses) on net investment hedge  26,758    (6,619)    20,139
Changes in the fair value of financial assets at fair value

392,392

 

(168,930)

 

223,462

As of September 30, 2023

396,866

 

(175,549)

 

221,317

 

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 January 10, 2022, XP Inc issued 445,328 Class A common shares (R$ 70,030) as part of our acquisition of a minority stake of Vista Capital (non-cash transaction).

 

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

 

As of September 30, 2023, the Company had R$25 of issued capital which were represented by 435,366,147 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.

 

 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of September 30, 2023

In thousands of Brazilian Reais, unless otherwise stated

 

 

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 September 30, 2023, the outstanding number of shares reserved under the plans were 16,405,218 restricted stock units (“RSUs”) (December 31, 2022 – 13,684,424) and 1,860,129 performance stock units (“PSUs”) (December 31, 2022 – 2,527,242) to be issued at the vesting date.

 

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

 

The Group registered treasury shares in its Equity as a result of the following transactions: (i) the merger of XPart into XP Inc., which was settled through XP Inc.’s own shares; (ii) the share buy-back program, approved in May 2022, amended in November 2022 and ended in March 2023; (iii) the shares purchase agreements with Itaú Unibanco, signed on June and November 2022. Treasury shares are registered as a deduction from equity until the shares are canceled or reissued.

 

On April 5, 2023, the Company’s Board of Directors approved the cancellation of 31,267,095 Class A common shares (R$ 2,785,504) held by the Company in treasury.

 

As of September 30, 2023, the Group held 1,056,308 shares in treasury (19,203,135 – December 31, 2022) with an amount of R$ 117,117 (R$ 1,986,762 - December 31, 2022).

 

(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 nine months period ended September 30, 2023, XP Inc. declared and paid dividends to its shareholders in the total amount of US$ 320 million (R$ 1,577,622). The dividends were settled on September 25, 2023.

 

Non-controlling shareholders of some XP Inc’s subsidiaries have received dividends in the period ended of September 30, 2023.

 

(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.

 

 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of September 30, 2023

In thousands of Brazilian Reais, unless otherwise stated

 

 

19.Related party transactions

 

The main transactions carried with related parties, conducted on an arm’s length basis, including interest rates, terms and guarantees, and period-end balances arising from such transactions are as follows:

 

  Assets (Liabilities)   Revenue (Expenses)
        Nine months Three months period ended September 30,

period ended

September 30,

Relation and transaction September 30, 2023 December 31, 2022   2023 2022 2023 2022
               
Shareholders with significant influence (i) - (3,562,079)   6,104 (156,942) - (53,106)
Securities - 238,088   17,403 18,294 - 8,394
Securities purchased under agreements to resell - -   5,101 8,665 - 1,680
Accounts receivable - 476   424 519 - 46
Securities sold under repurchase agreements - (3,800,643)   (16,824) (184,420) - (63,226)

 

(i)These transactions are mainly related to Itaúsa S.A. Group.

 

Transactions with related parties also 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.

 

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.

 

 

September 30,

 

2023

 

  December 31,
2022
Civil contingencies 24,944   20,419
Labor contingencies 37,992   7,908
Other provisions (i) 46,659   15,214
Total provision 109,595   43,541
       
Judicial deposits (ii) 13,317   12,077

 

(i) In 2005, the Brazilian Central Bank initiated an administrative proceeding in order to investigate an alleged failure by Banco Modal to inform the Brazilian Central Bank about transactions carried out by one of its clients. The administrative proceeding was concluded in 2009 with the imposition of a fine of R$200. On 2010, Modal appealed from such decision to the Ministry of Finance, who decided to increase the fine to R$15,864. On 2010, Modal appealed from the Ministry of Finance’s decision to a Civil Court, who also dismissed the appeal. The updated amount of the fine is R$44,952 (R$ 39,985 as of December 31, 2022).

 

(ii) 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.

 

 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of September 30, 2023

In thousands of Brazilian Reais, unless otherwise stated

 

 

Changes in the provision during the period

 

 

Nine months period ended

September 30,

  Three months period
ended September 30,
  2023 2022   2023 2022
At the beginning of period 43,541          29,310   78,778         32,385
Business combination (Note 2(d)(a)(iii)) 70,910 -   70,910 -
Monetary correction 4,292                 3,152   1,830               1,073
Provision accrued 45,542                 7,503   11,726            5,032
Provision reversed (52,048)                  (202)   (51,438)                     -
Payments (2,642)               (1,580)   (2,211)             (307)
At the end of period 109,595          38,183   109,595         38,183

 

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 September 30, 2023, there were 361 civil and administrative claims for which the likelihood of loss has been classified as probable, in the amount of R$ 24,944 (December 31, 2022 - R$ 20,419).

 

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 September 30, 2023, the Company and its subsidiaries are the defendants in 105 cases (December 31, 2022 – 28) involving labor matters for which the likelihood of loss has been classified as probable, in the amount of R$ 37,992 (December 31, 2022 - R$ 7,908).

 

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$ 1,298,356 (December 31, 2022 - R$ 893,745).

 

Below these claims are summarized by nature:

 

 

September 30,

2023

  December 31, 2022
Tax (i) (ii) 645,651   543,463
Civil (iii) 404,388   335,644
Labor (iv) 248,318   14,638
Total 1,298,356   893,745

 

(i)Employees Profit Sharing Plans: At the end of years 2015, 2019 and 2021 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 and 2018. According to the tax authorities the Group profit sharing plans did not comply with the provisions of Law 10,101/00.

 

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 (“CARF”). There are other favorable CARF precedents on the

 

 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of September 30, 2023

In thousands of Brazilian Reais, unless otherwise stated

 

 

subject and the Group obtained legal opinions that support the Group’s defense and current practice. The amount claimed is R$ 20,571.

 

b.Tax assessment related to 2015: The first administrative appeal was denied, and currently the Group awaits for the judgment of the second appeal by the CARF. There are other favorable CARF precedents on the subject and the Group obtained legal opinions that support the Group’s defense and current practice. The amount claimed is R$ 53,205.

 

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 Group’s Council. An administrative appeal was filed against the assessment, which is awaiting judgment by the Federal Revenue Service of Brazil (“RFB”). The total amount claimed is R$115,911.

 

d.Tax assessment related to 2018: The Group will appeal against the assessment. The total amount claimed is R$139,211 and the risk of loss for this claim was classified as possible.

 

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 and awaits for the judgment of the appeal. The total amount claimed is R$ 135,738. The risk of loss for this claim was classified as possible.

 

(ii)    Amortization of goodwill: The Group also received three tax assessments in which the tax authorities challenge the deductibility for Corporate Income Tax (IRPJ) and Social Contribution of Net Profits (CSLL) 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, the three proceedings are pending judgment by the first instance of RFB. Also, the Group has filed two lawsuits to prevent the issuance of new tax assessments related to such goodwill for other periods.

 

(iii)The Group is defendant in 1,108 (December 31, 2022 – 688) 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.

 

(iv)The Group is defendant in 232 (December 31, 2022 – 28) 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:

 

  Nine months period ended
September 30,
  Three months period ended September 30,
  2023 2022   2023 2022
Major service lines          
Brokerage commission      1,506,965 1,558,443    525,257 498,109
Securities placement      1,292,184 1,270,534    636,694 525,088
Management fees      1,214,837 1,168,686    414,479 361,209
Insurance brokerage fee         126,830 105,891    43,334 35,048
Commission fees         569,812 327,179    205,963 134,974
Other services         374,863 368,117    169,425 149,324
Gross revenue from services rendered      5,085,491 4,798,850    1,995,152 1,703,752
(-) Sales taxes and contributions on services (i)  (434,268) (423,044)    (172,677) (145,450)
Net revenue from services rendered 4,651,223 4,375,806   1,822,475 1,558,302

 

XP Inc. and its subsidiaries

Notes to unaudited interim condensed consolidated financial statements

As of September 30, 2023

In thousands of Brazilian Reais, unless otherwise stated

 

 

  

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

 

b)Net income/(loss) from financial instruments

 

  Nine months period ended
September 30,
  Three months period ended September 30
  2023 2022   2023 2022
Net income/(loss) from financial instruments at fair value through profit or loss 5,008,430 4,715,330    2,220,100  1,517,816
Net income/(loss) from financial instruments measured at amortized cost and at fair value through other comprehensive income   1,323,397 1,185,122    148,627  589,801
Total income from financial instruments      6,331,827 5,900,452    2,368,727 2,107,617
(-) Taxes and contributions on financial income  (168,517) (105,586)    (59,282) (45,594)
Net income/(loss) from financial instruments  6,163,310 5,794,866   2,309,445  2,062,023

 

c)Disaggregation by geographic location

 

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

 

  Nine months period ended September 30,   Three months period ended September 30,
  2023 2022   2023 2022
Brazil  10,379,863 9,836,021    4,019,307 3,480,424
United States  388,592 327,561    95,104 135,073
Europe  46,078 7,090    17,509 4,828
Revenues  10,814,533 10,170,672    4,131,920 3,620,325
           
       

September 30,

2023

December 31,

2022

Brazil       12,133,313 8,649,964
United States       538,776 488,158
Europe       73,108 49,496
Selected assets (i)        12,745,197 9,187,618

 

(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

 

  Nine months period ended September 30,