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 February 2024

 

Commission File Number: 001-39155

 

XP Inc.

(Exact name of registrant as specified in its charter)

 

20, Genesis Close

Grand Cayman, George Town

Cayman Islands KY-1-1208

+55 (11) 3075-0429

(Address of principal executive office)

 

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

 

Form 20-F

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: February 27, 2024

 

 

 

 

EXHIBIT INDEX

 

Exhibit No. Description
99.1 XP Inc. – Consolidated Financial Statements for the years ended December 31, 2023, 2022 and 2021.

 

 

 

 

 

 

 

Exhibit 99.1

 

 

 

XP Inc.

Consolidated financial statements at

December 31, 2023

and independent auditor's report

 

 

 

 

 

 

 

Independent auditor's report

 

To the Board of Directors and Stockholders

XP Inc.

 

 

 

 

Opinion

 

 

We have audited the accompanying consolidated financial statements of XP Inc. (the "Company") and its subsidiaries, which comprise the consolidated balance sheet as at December 31, 2023 and the consolidated statements of income and of comprehensive income, of changes in equity and of cash flows for the year then ended, and notes to the financial statements, including material accounting policies and other explanatory information.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company and its subsidiaries as at December 31, 2023, and their financial performance and their cash flows for the year then ended, in accordance with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) (currently described as "IFRS Accounting Standards” by the IFRS Foundation).

 

Basis for opinion

 

 

We conducted our audit in accordance with Brazilian and International Standards on Auditing. Our responsibilities under those standards are described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company and its subsidiaries in accordance with the ethical requirements established in the Code of Professional Ethics and Professional Standards issued by the Brazilian Federal Accounting Council, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

Key Audit Matters

 

 

Key Audit Matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current year. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

 

 

 

 

 

 

 

 

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.

 

Why it is a Key Audit Matter How the matter was addressed in the audit
   
Information technology environment  
   

The processing of transactions, operations development and business continuity processes of XP and its subsidiaries are technological structure dependent.

 

The inherent risks in information technology, associated with eventual deficiencies in the controls that support the processing and operation, logical accesses, systems change management in the existing technology environments, can, eventually, cause incorrect processing of critical transactions, improper accesses to systems and data, and consequently processing of unauthorized transactions and errors in automated controls of application systems. For this reason, this was considered as a focal area in our audit.

 

With the support of professionals with specialized skill and knowledge, we understood the information technology environment and tested general technology controls. During our planning activities, we considered tests related to systemic development and change management, access, security to programs, systems and data, systems operation/processing and physical security of the data processing center.

 

We tested automated and technology-dependent controls related to applications in the relevant XP business processes.

 

Considering the results obtained in the procedures described above and in order to obtain necessary and sufficient evidence in our financial statements audit, it was necessary to carry out additional documental testing in order to assess the integrity and accuracy of the information generated by systems and automated reports and, when necessary, the application of procedures using analytical databases, which allowed us to apply a wider spectrum of testing and evidence gathering.

 

We also performed unpredictability tests and review procedures for specific access to accounting entries, in addition to the procedures already applied to address the risk of management override of controls.

 

The results of these procedures provided us with appropriate and sufficient audit evidence considering the consolidated financial statements taken as a whole.

   
   

Revenue from services rendered

(Notes 3(xxii.1) and 28(a))

 
   

 

 

 

 

 

XP Inc.

 

 

Why it is a Key Audit Matter How the matter was addressed in the audit
   

XP Inc. and its subsidiaries' revenue is substantially comprised of brokerage commission, securities placement and management fees.

 

These revenues are recognized according to contractual terms that consider the commission percentage for services provided. Revenue recognition requires management controls to ensure proper recognition at a certain point in time.

 

Considering the relevance of these revenues in the consolidated financial statements, associated with eventual deficiencies in the controls, this area was considered as a focus area of our audit.

 

We understood the internal controls environment regarding revenue recognition processes.

 

We also performed a tie-out between analytical information extracted from operational systems and revenue recorded in the accounting ledger. On a sample basis, we inspected supporting evidence of revenue in the accounting ledger and confronted its subsequent financial settlement with bank statements. In addition, we recalculated selected revenue transactions recognized in the accounting ledger.

 

Therefore, our audit procedures provided us with appropriate and sufficient audit evidence in the consolidated financial statements taken as a whole.

 

   

 

Responsibilities of management and those charged with governance for the consolidated financial statements

 

 

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) (currently described as "IFRS Accounting Standards" by the IFRS Foundation), and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

 

In preparing the consolidated financial statements, management is responsible for assessing the ability of the Company and its subsidiaries, as a whole, to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company and its subsidiaries, as a whole, or to cease operations, or has no realistic alternative but to do so.

 

Those charged with governance are responsible for overseeing the Company's financial reporting process.

 

Auditor's responsibilities for the audit of the consolidated financial statements

 

 

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Brazilian and International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

 

 

 

XP Inc.

 

 

As part of an audit in accordance with Brazilian and International Standards on Auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

 

Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

 

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal control of the Company and its subsidiaries.

 

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

 

Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the ability of the Company and its subsidiaries, as a whole, to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company and its subsidiaries, as a whole, to cease to continue as a going concern.

 

Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether these financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

 

Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

 

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

 

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats to our independence or safeguards applied.

 

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the Key Audit Matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

 

 

 

XP Inc.

 

 

São Paulo, February 27, 2024

 

 

 

 

PricewaterhouseCoopers Tatiana Fernandes Kagohara Gueorguiev
Auditores Independentes Ltda. Contadora CRC 1SP245281/O-6

2SP000160/O-5

 

 

XP Inc. and its subsidiaries

Notes to consolidated financial statements

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

 

 

XP Inc. and its subsidiaries

Consolidated balance sheets at December 31, 2023 and 2022

In thousands of Brazilian Reais

 

  

Assets Note 2023   2022
         
Cash                  3,943,307   3,553,126
         
Financial assets             229,197,214   177,681,987
         
Fair value through profit or loss             127,015,678    96,730,159
Securities 7           103,282,212    87,513,004
Derivative financial instruments 8             23,733,466    9,217,155
         
Fair value through other comprehensive income               44,062,950    34,478,668
Securities 7             44,062,950    34,478,668
         
Evaluated at amortized cost               58,118,586    46,473,160
Securities 7                6,855,421    9,272,103
Securities purchased under agreements to resell 6             14,888,978    7,603,820
Securities trading and intermediation 18                2,932,319    3,271,000
Accounts receivable 11                   681,190    597,887
Loan operations 10             28,551,935    22,211,161
Other financial assets 20                4,208,743    3,517,189
         
Other assets                 7,811,962    5,760,811
Recoverable taxes 12                   245,214    163,248
Rights-of-use assets 16                   281,804    258,491
Prepaid expenses 13                4,418,263    4,240,107
Other                  2,866,681    1,098,965
         
Deferred tax assets 24                2,104,128    1,611,882
Investments in associates and joint ventures 15                3,108,660    2,271,731
Property and equipment 16                   373,362    310,894
Goodwill and Intangible assets 16                2,502,045    844,182
         
         
Total assets             249,040,678   192,034,613

 

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

 

 

 

XP Inc. and its subsidiaries

Consolidated balance sheets at December 31, 2023 and 2022

In thousands of Brazilian Reais

 

 

Liabilities and equity Note 2023   2022
         
Financial liabilities             171,237,146   127,708,578
         
Fair value through profit or loss               45,208,490    22,134,674
Securities 7             20,423,074    13,529,265
Derivative financial instruments 8             24,785,416    8,605,409
         
Evaluated at amortized cost             126,028,656    105,573,904
Securities sold under repurchase agreements 6             33,340,511    31,790,091
Securities trading and intermediation   18             16,943,539    16,062,697
Financing instruments payable 17             60,365,590    43,683,629
Accounts payables                     948,218    617,394
Borrowings 19                2,199,422    1,865,880
Other financial liabilities 20             12,231,376    11,554,213
         
Other liabilities               58,266,331    47,172,782
Social and statutory obligations 21                1,146,127    968,119
Taxes and social security obligations   22                   559,647    365,419
Retirement plans and insurance liabilities 23             56,409,075    45,733,815
Provisions and contingent liabilities 27                     97,678    43,541
Other                       53,804   61,888
         
Deferred tax liabilities 24                     86,357   111,043
         
Total liabilities             229,589,834   174,992,403
         
         
Equity attributable to owners of the Parent company               19,449,352   17,035,735
Issued capital                               26    24
Capital reserve               19,189,994    19,156,382
Other comprehensive income                     376,449   (133,909)
Treasury shares                   (117,117)   (1,986,762)
         
Non-controlling interest                         1,492   6,475
         
Total equity 25             19,450,844   17,042,210
         
Total liabilities and equity             249,040,678   192,034,613

 

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

 

 

 

XP Inc. and its subsidiaries

Consolidated statements of income and

of comprehensive income for the years ended December 31, 2023, 2022 and 2021

In thousands of Brazilian Reais, except earnings per share

 

 

    Note   2023   2022   2021
                 
Net revenue from services rendered   28   6,532,005   5,940,456   6,196,465
Net income (loss) from financial instruments at amortized cost and at fair value through other comprehensive income   28   1,572,522   1,145,395   (1,559,464)
Net income from financial instruments at fair value through profit or loss   28   6,755,569   6,261,539   7,440,111
Total revenue and income       14,860,096   13,347,390   12,077,112
                 
Operating costs   29    (4,398,923)   (3,871,096)   (3,430,109)
Selling expenses   30    (169,486)   (138,722)   (227,483)
Administrative expenses   30    (5,461,147)   (5,641,233)   (4,692,698)
Other operating income (expenses), net       31    10,638   256,944   324,354
Expected credit losses   14    (360,859)   (94,159)   (92,560)
Interest expense on debt        (617,478)   (402,303)   (135,732)
Share of profit or (loss) in joint ventures and associates   15    73,507   (12,165)   (7,710)
Income before income tax       3,936,348   3,444,656   3,815,174
                   
                   
Income tax credit / (expense)   24    (36,957)   135,555   (222,714)
                   
Net income for the year        3,899,391   3,580,211   3,592,460
                   
Other comprehensive income                
Items that can be subsequently reclassified to income                
  Foreign exchange variation of investees located abroad     (41,160)   (19,645)   20,977
  Gains (losses) on net investment hedge     34,603   17,252   (18,758)
  Changes in the fair value of financial assets at fair value through other comprehensive income       556,381   218,106   (549,017)
                   
Other comprehensive income (loss) for the period, net of tax     549,824   215,713   (546,798)
                 
Total comprehensive income for the year       4,449,215   3,795,924   3,045,662
                   
Net income attributable to:                
  Owners of the Parent company        3,898,702   3,579,050   3,589,416
  Non-controlling interest        689   1,161   3,044
                   
Total comprehensive income attributable to:                
  Owners of the Parent company        4,448,526   3,794,763   3,042,618
  Non-controlling interest        689   1,161   3,044
                   
  Earnings per share from total income attributable to the ordinary equity holders of the company                
  Basic earnings per share   33    7.2220   6.4438   6.4211
  Diluted earnings per share   33    7.1639   6.2461   6.2588
                   
                     

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

 

 

 

XP Inc. and its subsidiaries

Consolidated statements of changes in equity for the years ended December 31, 2023, 2022 and 2021

In thousands of Brazilian Reais

 

]

     

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 at December 31, 2020   23 6,821,176 3,842,766 230,644 - - 10,894,609 3,005 10,897,614
Comprehensive income for the year                    
Net income for the year   - - - - 3,589,416 - 3,589,416 3,044 3,592,460
Other comprehensive income, net   - - - (546,798) - - (546,798) - (546,798)
Transactions with shareholders - contributions and distributions                    
Private issuance of shares   - - 112,642 - - - 112,642 - 112,642
Other equity transactions                    
Share based plan 32 - - 561,455 - - - 561,455 2 561,457
Other changes in equity   - - (4,140) (18,409) - - (22,549) (232) (22,781)
Treasury shares 25(c) - - - - - (171,939) (171,939) - (171,939)
Allocations of the net income for the year                    
Transfer to capital reserves   - - 3,589,416 - (3,589,416) - - - -
Dividends distributed 25(d) - - - - - - - (3,026) (3,026)
Balances at 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 year                    
Net income for the year   - - - - 3,579,050 - 3,579,050 1,161 3,580,211
Other comprehensive income, net   - - - 215,713 - - 215,713 - 215,713
Transactions with shareholders - contributions and distributions                    
Private issuance of shares 25(a) 1 70,030 - - - - 70,031 - 70,031
Other equity transactions                    
Share based plan 32 - 95,241 488,746 - - - 583,987 785 584,772
Other changes in equity   - - - (15,059) - - (15,059) 3,556 (11,503)
Treasury shares 25(c) - - - - - (1,814,823) (1,814,823) - (1,814,823)
Allocations of the net income for the year                    
Transfer to capital reserves   - - 3,579,050 - (3,579,050) - - - -
Dividends distributed 25(d) - - - - - - - (1,820) (1,820)
Balances at December 31, 2022   24 6,986,447 12,169,935 (133,909) - (1,986,762) 17,035,735 6,475 17,042,210

 

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

 

 

XP Inc. and its subsidiaries

Consolidated statements of changes in equity for the years ended December 31, 2023, 2022 and 2021

In thousands of Brazilian Reais

 

 

      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 at 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 year                    
Net income for the year   - - - - 3,898,702 - 3,898,702 689 3,899,391
Other comprehensive income, net   - - - 549,824 - - 549,824 - 549,824
Transactions with shareholders - contributions and distributions                    
Private issuance of shares 25(a) 2 1,886,172 211,152 - - - 2,097,326 - 2,097,326
Other equity transactions                    
Share based plan 32 - 330,000 35,388 - - - 365,388 327 365,715
Other changes in equity   - - - (39,466) - - (39,466) (4,146) (43,612)
Treasury shares 25(c) - (2,785,504) - - - 1,869,645 (915,859) - (915,859)
Allocations of the net income for the year                    
Transfer to capital reserves   - - 3,898,702 - (3,898,702) - - - -
Dividends distributed 25(d) - - (3,542,298) - - - (3,542,298) (1,853) (3,544,151)
Balances at December 31, 2023   26 6,417,115 12,772,879 376,449 - (117,117) 19,449,352 1,492 19,450,844

 

 

 

 

 

 

XP Inc. and its subsidiaries

Consolidated statements of cash flows for the years ended

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

 

 

  Note 2023   2022   2021
Operating activities                
Income before income tax   3,936,348   3,444,656   3,815,174
             
Adjustments to reconcile income before income taxes            
Depreciation of property, equipment and right-of-use assets 16 118,603   110,248   68,618
Amortization of intangible assets 16 133,810   95,629   163,112
Loss or write-off of property, equipment, intangible assets and leases, net 16 32,266   20,805   20,367
Share of profit or (loss) in joint ventures and associates 15 (73,507)   12,165   7,710
Income from share in the net income of associates measured at fair value 15 52,403   54,301   (47,291)
Expected credit losses on financial assets 14 360,859   78,945   92,560
(Reversal of) Provision for contingencies, net 27 9,940   12,305   5,325
Net foreign exchange differences   (470,788)   (301,697)   506,510
Share based plan 32 365,715   584,772   561,457
Interest accrued   637,640   429,222   181,731
(Gain)/Loss on the disposal of investments 15 26,367   -   -
             
Changes in assets and liabilities            
Securities (assets and liabilities)   (12,743,703)   (28,309,585)   (21,857,025)
Derivative financial instruments (assets and liabilities)   1,700,236   (1,550,061)   674,837
Securities trading and intermediation (assets and liabilities)   1,209,000   (1,423,398)   (5,086,154)
Securities purchased under agreements to resell   (4,495,605)   1,937,077   (2,269,321)
Accounts receivable   (53,247)   (157,056)   37,160
Loan operations   (5,596,362)   (9,416,502)   (8,918,608)
Prepaid expenses   22,722   (257,357)   (2,589,213)
Other assets and other financial assets   (437,106)   (3,358,515)   (674,697)
Securities sold under repurchase agreements   711,818   5,508,746   (5,557,999)
Accounts payable   326,344   (308,824)   (133,576)
Financing instruments payable   12,478,690   17,563,948   14,408,581
Social and statutory obligations   126,692   (54,093)   354,764
Tax and social security obligations   17,407   (91,326)   278,609
Retirement plans liabilities   10,675,260   13,812,415   18,533,487
Other liabilities and other financial liabilities   (347,790)   3,938,385   4,271,361
Cash from/(used in) operations   8,724,012   2,375,205   (3,152,521)
             
Income tax paid   (402,842)   (370,862)   (783,816)
Contingencies paid 27 (52,667)   (2,521)   (2,565)
Interest paid 37 (141,202)   (197,937)   (81,427)
Net cash flows from/(used in) operating activities   8,127,301   1,803,885   (4,020,329)
             
Investment activities                
Acquisition of intangible assets 16 (b) (130,219)   (82,412)   (217,569)
Acquisition of property and equipment 16 (a) (66,004)   (44,563)   (135,444)
Acquisition of subsidiaries, net of cash acquired 5 770,887   (69,532)   (40,857)
Investment in associates and joint ventures 15 (65,444)   (174,773)   (756,857)
Disposal of investments 15 29,589   -   -
Net cash flows from/(used in) investing activities   538,809   (371,280)   (1,150,727)
             
Financing activities                 
Proceeds from borrowings 37 2,252,550   -   1,570,639
Acquisition of treasury shares 25(c) (915,859)   (1,814,823)   -
Acquisitions of debt securities issued 37 373,481   1,890,500   4,191,280
Payments of borrowings and lease liabilities 37 (1,966,674)   (101,716)   (76,371)
Payment of debt securities 37 (590,029)   (175,999)   (177,826)
Dividends paid 25(d) (3,542,298)   -   -
Transactions with non-controlling interests   (4,146)   3,556   (231)
Dividends paid to non-controlling interests 25(d) (1,853)   (1,820)   (3,026)
Proceeds from SPAC issuance of shares   -   -   1,134,797
Net cash flows from/(used in) financing activities   (4,394,828)   (200,302)   6,639,262
             
Net increase/(decrease) in cash and cash equivalents   4,271,282   1,232,303   1,468,206
             
Cash and cash equivalents at the beginning of the fiscal year   4,967,480   3,751,861   2,660,388
Effects of exchange rate changes on cash and cash equivalents   (28,278)   (16,684)   (376,733)
Cash and cash equivalents at the end of the fiscal year   9,210,484   4,967,480   3,751,861
Cash   3,943,307   3,553,126   2,485,641
Securities purchased under agreements to resell 6 2,760,296   646,478   1,071,328
Interbank certificate deposits 7 67,985   252,877   194,892
Other deposits at Central Bank 20 2,438,896   514,999   -

 

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

 

 

XP Inc. and its subsidiaries

Notes to consolidated financial statements

December 31, 2023, 2022 and 2021

(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 66.5% of voting rights and is controlled by a group of individuals.

 

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

 

These consolidated financial statements were approved by the Board of Director’s meeting on February 20, 2024 and updated by subsequent events through February 27, 2024 as approved by the executive management.

 

1.1Share buy-back program

 

In May 2022, the Board of Directors approved a share buy-back program. Under the program, XP Inc. 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 repurchase limit of R$2.0 billion was reached on March 31, 2023, and, therefore, the share buy-back program terminated. At the end of the share buy-back program, the Company repurchased 25,037,192 shares (equivalent to R$ 2,059 million or US$ 394 million), which were acquired at an average price of US$ 15.76 per share, with prices ranging from US$ 10.69 to US$ 24.85.

 

1.2Share purchase agreement with Itaú

 

On June 8, 2022, XP Inc. signed a share purchase agreement with Itaú Unibanco. Under this agreement, XP Inc. 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 Inc. signed a share purchase agreement with Itaúsa S.A. Under this agreement, XP Inc. 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 Inc. 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 Inc. 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, totaling an amount of R$ 2,785,504 (5.6% of total issued shares, on this date) held by the Company in treasury (see note 25(c)). 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 a result of the termination of its shareholders agreement, 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 consolidated financial statements

December 31, 2023, 2022 and 2021

(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 December 31, 2023, up to the date of the consolidated financial statements, the corporate reorganization is not fully concluded and is expected to be completed by the end of 2024. There are some steps which require approval from Brazilian Central Bank and other regulators which may cause the reorganization to be concluded later than expected.

 

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

 

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

 

2.Basis of preparation of the financial statements and changes to the Group’s accounting policies

 

(i)Basis of preparation

 

The consolidated financial statements of the Group have been prepared in accordance with the International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”), currently described as "IFRS Accounting Standards” by the IFRS Foundation.

 

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

 

The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group's accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in Note 4.

 

The consolidated financial statements are presented in Brazilian reais (“R$”), our functional currency, and all amounts disclosed in the financial statements and notes have been rounded off to the nearest thousand currency units unless otherwise stated.

 

The balance sheet is presented in order of liquidity of assets and liabilities. The timing of their realization or settlement is dependent not just on their liquidity, but also on management’s judgements on expected movements in market prices and other relevant aspects. Certain reclassifications of prior period amounts have been made to conform to the current period presentation.

 

(ii)New or revised standards, interpretations and amendments

 

Certain new accounting standards, interpretations and amendments became effective for the reporting period beginning January 1, 2023. Possible impacts are measured by the Group, and it concluded there is not material impact to the consolidated financial statements.

 

IFRS 17 – Insurance Contracts: Requires insurance liabilities to be measured at a current fulfillment value and provides a more uniform measurement and presentation approach for all insurance contracts. The Group evaluated the impacts of applying this standard and concluded that it is not material to its consolidated financial statements.

 

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

 

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

 

 

XP Inc. and its subsidiaries

Notes to consolidated financial statements

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

Amendments to IAS 12 – International Tax Reform – Pillar Two Model Rules: The amendment provides a temporary exception of requirements to the initial application regarding deferred tax assets and liabilities related to pillar two income taxes for interim consolidated financial statements but is mandatory for annual reporting periods beginning January 1, 2023. The Group evaluated the impacts of applying these amendments and concluded there are no impacts on the Group´s consolidated financial statements for the current year.

 

(iii)Basis of consolidation

 

The consolidated financial statements comprise the consolidated balance sheets of the Group as of December 31, 2023 and 2022 and the consolidated statements of income and comprehensive income, consolidated statements of cash flows and consolidated statements of changes in equity for each of the years ended December 31, 2023, 2022 and 2021.

 

a)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 (refer to Note 5(ii)).

 

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 consolidated statement of income and of comprehensive income, statement of changes in equity and balance sheet respectively.

 

b)Associates

 

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

 

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

 

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

 

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

 

 

XP Inc. and its subsidiaries

Notes to consolidated financial statements

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

c)Interests in associates measured at fair value

 

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

 

(iv)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. Disaggregated information is only reviewed at the revenue level (Note 28), 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 consolidated statement of income and of comprehensive income and consolidated balance sheet. See Note 28 (c) for a breakdown of revenues and income and selected assets by geographic location.

 

(v)Foreign currency translation

 

(a)Functional and presentation currency

 

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in Brazilian Reais (“R$”), which is the Group functional and presentation currency.

 

The functional currency for all the Company’s subsidiaries in Brazil is also the Brazilian reais. Certain subsidiaries outside Brazil have different functional currencies, including US Dollar ("USD") and Pound Sterling (“GBP”).

 

(b)Transactions and balances

 

Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates are generally recognized in the statement of income. They are deferred in equity if they relate to qualifying cash flow hedges and qualifying net investment hedges or are attributable to part of the net investment in a foreign operation.

 

Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. For example, translation differences on non-monetary assets and liabilities such as equities held at fair value through profit or loss are recognized in the statement of income as part of the fair value gain or loss.

 

(c) Group companies

 

The results and financial position of foreign operations (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

 

·assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;

 

·income and expenses for each statement of income and statement of comprehensive income are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and

 

·all resulting exchange differences are recognized in other comprehensive income.

 

On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and other financial instruments designated as hedges of such investments, are recognized in other comprehensive income. When a foreign

 

 

XP Inc. and its subsidiaries

Notes to consolidated financial statements

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

operation is sold or any borrowings forming part of the net investment are repaid, the associated exchange differences are reclassified to profit and loss, as part of the gain or loss on sale.

 

Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate.

 

3.Summary of significant accounting policies

 

This note provides a description of the significant accounting policies adopted in the preparation of these consolidated financial statements in addition to other policies that have been disclosed in other notes to these consolidated financial statements. These policies have been consistently applied to all periods presented, unless otherwise stated.

 

(i)Business combinations

 

The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the:

 

·fair values of the assets transferred;

 

·liabilities incurred to the former owners of the acquired business;

 

·equity interests issued by the Group;

 

·fair value of any asset or liability resulting from a contingent consideration arrangement; and

 

·fair value of any pre-existing equity interest in the subsidiary.

 

Identifiable assets acquired, and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. The Group recognizes any non-controlling interest in the acquired entity on an acquisition-by-acquisition basis either at fair value or at the non-controlling interest’s proportionate share of the acquired entity’s net identifiable assets.

 

Acquisition-related costs are expensed as incurred.

 

The excess of the consideration transferred, amount of any non-controlling interest in the acquired entity and acquisition-date fair value of any previous equity interest in the acquired entity, over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the business acquired, the difference is recognized directly in the statement of income as a bargain purchase.

 

Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions.

 

Contingent consideration, when applicable, is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognized in the statement of income.

 

If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquirer is remeasured to fair value at the acquisition date. Any gains or losses arising from such remeasurement are recognized in the statement of income.

 

(ii)Financial instruments

 

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

 

1) Financial assets

 

Initial recognition and measurement

 

On initial recognition, financial assets are classified as instruments measured at amortized cost, fair value through other comprehensive income (“FVOCI”) or fair value through profit and loss (“FVPL”).

 

The classification of financial assets at initial recognition is based on either (i) the Group’s business model for managing the financial assets and (ii) the instruments’ contractual cash flows characteristics.

 

 

XP Inc. and its subsidiaries

Notes to consolidated financial statements

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

For a financial asset to be classified and measured at amortized cost or FVOCI, it needs to give rise to cash flows that are 'Solely Payments of Principal and Interest' (the "SPPI" criterion) on the principal amount outstanding. This assessment is referred to as the SPPI Test and is performed at an instrument level.

 

The Group's business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model considers whether the group’s objective is to receive cash flows from holding the financial assets, from selling the assets or a combination of both.

 

Purchases or sales of financial assets that require delivery of assets within a time frame set by regulation or market practice (regular way trades) are recognized on the trade date (i.e., the date that the Group commits to purchase or sell the asset).

 

Classification and subsequent measurement

 

(i)Financial assets at FVPL

 

Financial assets at FVPL include Securities, financial assets designated upon initial recognition at FVPL, or financial assets mandatorily required to be measured at fair value. This category includes Securities and Derivative financial instruments, including equity instruments which the Group had not irrevocably elected to classify at FVOCI.

 

Financial assets are classified as fair value through profit and loss if they either fail the contractual cash flow test or in the Group’s business model are acquired for the purpose of selling or repurchasing in the near term. Financial assets may be designated at FVPL on initial recognition if doing so eliminates, or significantly reduces, an accounting mismatch.

 

Derivative financial instruments, including separated embedded derivatives, are also classified as fair value through profit and loss unless they are designated as effective hedging instruments. The fair value determination for over-the-counter ("OTC") derivatives include components which reflect the counterparty's credit risk (CVA - Credit Valuation Adjustment) and the funding cost above the risk-free rate (FVA - Funding Valuation Adjustment). Financial assets with cash flows that do not meet the SPPI criteria are classified and measured at FVPL, irrespective of the business model.

 

Financial assets at FVPL are carried in the statement of financial position at fair value with net changes in fair value recognized in the statement of income. The net gain or loss recognized in the statement of income includes any dividend or interest earned on the financial asset.

 

A derivative embedded in a hybrid contract, with a financial liability or non-financial host, is separated from the host and accounted for as a separate derivative if: (i) the economic characteristics and risks are not closely related to the host; a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; (ii) and the hybrid contract is not measured at FVPL. Embedded derivatives are measured at fair value with changes in fair value recognized in the statement of income. Reassessment only occurs if there is either a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required or a reclassification of a financial asset out of the FVPL category.

 

A derivative embedded within a hybrid contract containing a financial asset host is not accounted for separately. The financial asset host together with the embedded derivative is required to be classified in its entirety as a financial asset at fair value through profit or loss.

 

Investments held in trust account

 

During the prior period presented in these consolidated financial statements, the Group had a certain class of securities owned by one of our subsidiaries, which qualify as financial instruments, primarily due to their short-term nature. These securities are classified as FVPL. The Group’s investments held in the trust account were comprised of money market funds and are recognized at fair value with the changes in fair value recognized in the consolidated statements of income. The estimated fair value of the investments held in the trust account was determined using available market information.

 

(ii)Financial assets at FVOCI

 

The Group measures financial assets at FVOCI if both of the following conditions are met:

 

.The financial asset is held within a business model with the objective of both holding to collect contractual cash flows and to sell.

 

.The contractual terms of the financial asset give rise on specified dates to cash flows that meet the SPPI criteria.

 

 

XP Inc. and its subsidiaries

Notes to consolidated financial statements

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

For financial assets at FVOCI, interest income, foreign exchange revaluation and impairment losses or reversals are recognized in the statement of income. The remaining fair value changes are recognized in OCI. Upon derecognition, the cumulative fair value change recognized in OCI is recycled to profit and loss.

 

The Group's financial assets at FVOCI includes certain debt instruments.

 

Upon initial recognition, the Group can elect to classify irrevocably equity investments at FVOCI when they meet the definition of equity under IAS 32 - "Financial Instruments: Presentation" and are not financial assets at FVPL.

 

The classification is determined on an instrument-by-instrument basis.

 

Dividends are recognized as income in the profit and loss when the right of payment has been established, except when the Group benefits from such proceeds as a recovery of part of the cost of the financial asset, in which case, such gains are recorded in OCI. Equity instruments designated at FVOCI are not subject to impairment assessment.

 

The Group has no equity instruments that have been irrevocably classified under this category.

 

(iii)Financial assets at amortized cost

 

A financial asset is measured at amortized cost if both of the following conditions are met:

 

.The financial asset is held within a business model with the objective to hold the financial asset in order to collect contractual cash flows.

 

.The contractual terms of the financial asset give rise on specified dates to cash flows that meet the SPPI criteria.

 

Financial assets at amortized cost are subsequently measured using the Effective Interest Rate ("EIR") method and are subject to impairment. Gains and losses are recognized in the statement of income when the asset is derecognized, modified or impaired.

 

The Group's financial assets at amortized cost mainly includes ‘Securities’, 'Securities purchased under agreements to resell', 'Securities trading and intermediation', ‘Loan operations’, 'Accounts receivable' and 'Other financial assets’.

 

The Group reclassifies financial assets only when its business approach for managing those assets changes.

 

Derecognition

 

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognized when:

 

·The contractual rights to receive cash flows from the asset have expired.

 

·The Group has transferred its contractual rights to receive cash flows from the asset or has assumed a contractual obligation to pay the received cash flows in full without material delay to a third party under a "pass-through" arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset; or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

 

When the Group has transferred its contractual rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all the risks and rewards of the asset, nor transferred control of the asset, the Group continues to recognize the transferred asset to the extent of its continuing involvement. In that case, the Group also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.

 

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

 

Expected credit loss on financial assets

 

The Group recognizes expected credit losses ("ECLs") for all financial assets not held at FVPL. ECLs are based on internal statistical models that are monitored and reviewed by the credit risk area.

 

Due to the features of the credit and credit card portfolio, the internal statistic models are modeled by the credit risk area using specific parameters from historical data of those products were the ECL are measured by inputs of PD (Probability of Default), LGS (Loss Given Default) and EAD (Exposure at Default).

 

 

XP Inc. and its subsidiaries

Notes to consolidated financial statements

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

For the credit and credit card portfolio, the Group classifies assets in three stages to measure the expected credit loss, in which the financial assets migrate from one stage to another in accordance with the changes in credit risk.

 

Stage 1: all financial assets are initially recognized in this stage. It is understood that a financial asset in this stage does not present a significant increase in risk since initial recognition. The provision for this asset represents the expected loss resulting from possible noncompliance in the next 12 months.

 

Stage 2: increase of the change in the risk of a default occurring based on internal models since initial recognition or overdue 30 days. If a significant increase in the risk is identified from the initial recognition, and no deterioration is realized, the financial asset falls within this stage. In this case, the amount related to the provision for expected loss reflects the estimated loss of the financial asset's remaining life (lifetime).

 

Stage 3: overdue 90 days. The Group considers a financial asset in default when contractual payments are 90 days past due. However, in certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before considering any credit enhancements held by the Group.

 

When a financial asset that migrated to stages 2 and 3 shows an improvement in credit risk, that financial asset can return to stage 1 as long as it meets the minimum cure period established by the credit risk area evaluating internal product data.

 

Financial assets are written off when there is no reasonable expectation of recovery, such as a debtor failing to engage in a repayment plan with the company. The Group categorizes a loan or receivable for write-off when a debtor fails to make contractual payments more than 360 days past due. Where loans or receivables have been written off, the Group continues to engage in enforcement activity to attempt to recover the receivable due. Where recoveries are made, these are recognized in profit or loss.

 

For accounts receivables, and other financial contract assets, the Group applies a simplified approach to calculating ECLs. Therefore, the Group does not track changes in credit risk but instead recognizes a loss allowance based on lifetime ECLs. The Group has established a provision that is based on its historical credit loss.

 

For debt instruments at FVOCI, the Group applies the low credit risk simplification at every reporting date, the Group evaluates whether the debt instrument is considered to have low credit risk using all reasonable and supportable information that is available without undue cost or effort. In making that evaluation, the Group reassesses the internal credit rating of the debt instrument. In addition, the Group considers that there has been a significant increase in credit risk when contractual payments are more than 30 days past due.

 

The Group, through its risk management area, applies policies, methods and procedures to mitigate its exposure to credit risk arising from insolvency attributable to counterparties.

 

These policies, methods and procedures are applied in the grant and re-evaluated on a monthly basis using variables that held identify risk.

 

The procedures applied to identify, measure, control and reduce exposure to credit risk are based on the individual level or grouped by similarity.

 

Risk management for structured credit operations customers is carried out through analysis complemented by decision-making support tools based on internal risk assessment models.

 

Standardized customers risk management, that is, which does not qualify as structured operations, is based on automated decision-making and internal risk assessment models, complemented, when the model is not comprehensive or precise enough, by teams of analysts specialized in this type of risk. Credits related to standardized customers are normally considered non-recoverable when they have a historical experience of losses and delays of more than 90 days.

 

2) Financial liabilities

 

Initial recognition and measurement

 

Financial liabilities are classified, at initial recognition, as financial liabilities at FVPL, amortized cost or as Derivative financial instruments designated as hedging instruments in an effective hedge, as appropriate.

 

All financial liabilities are recognized initially at fair value and, in the case of amortized cost, net of directly attributable transaction costs.

 

 

XP Inc. and its subsidiaries

Notes to consolidated financial statements

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

The Group's financial liabilities include 'Securities', 'Derivative financial instruments', 'Securities purchased under agreements to resell', 'Securities trading and intermediation', long-term debts such as 'Borrowings ' and 'Financing Instruments payable – Debt securities', 'Accounts payables' and 'Other financial liabilities’.

 

Classification and subsequent measurement

 

(i)Financial liabilities at FVPL

 

Financial liabilities at FVPL include securities loaned and derivatives financial instruments designated upon initial recognition as at FVPL.

 

Financial liabilities are classified as securities loaned if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered by the Group that are not designated as hedging instruments in hedge relationships as defined by IFRS 9. Separated embedded derivatives are also classified as fair value through profit and loss unless they are designated as effective hedging instruments.

 

Gains or losses on liabilities at fair value through profit and loss are recognized in the statement of income.

 

Financial liabilities designated upon initial recognition at FVPL are designated at the initial date of recognition, and only if the criteria in IFRS 9 are satisfied. Securities loaned, and derivative financial instruments are classified as fair value through profit and loss and recognized at fair value.

 

(ii)Financial liabilities designated at FVPL

 

Classification and subsequent measurement

 

The Group applied the fair value option as an alternative measurement for selected financial liabilities. Financial liabilities can be irrevocably designated as measured at FVPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases, or a group of financial instruments is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy. The amount of change in the fair value of the financial liabilities designated at FVPL that is attributable to changes in the credit risk of that liabilities shall be presented in other comprehensive income. See more information in Note 7(e).

 

(iii)Amortized cost

 

After initial recognition, these financial liabilities are subsequently measured at amortized cost using the Effective Interest Method (“EIR”) method. Gains and losses are recognized in profit and loss when the liabilities are derecognized as well as through the EIR amortization process.

 

Amortized cost is calculated by considering any discount or premium on acquisition and fees or costs that are an integral part of the EIR.

 

This category generally applies to Securities sold under repurchase agreements, ‘Securities trading and intermediation’, 'Borrowings', 'Financing Instruments Payable', 'Accounts payables', ‘Lease liabilities’ and 'Other financial liabilities'.

 

(iv)Commitments subject to possible redemption

 

XPAC Acquisition Corp. redeemable shares

 

The Group accounted for the common stock subject to redemption in cash held by the non-controlling interest holders of XPAC Acquisition Corp. as a financial liability measured at amortized cost. The instrument is initially recognized at fair value, net of derivative warrant liabilities component and the corresponding eligible transaction costs. The warrant component issued to the non-controlling interest holders of XPAC Acquisition Corp. were separately accounted as derivatives and measured at fair value with the changes in fair value recorded in the statement of income. On July 27, 2023, XPAC Acquisition Corp. was deconsolidated from XP Inc's Financial Statements due to the Purchase and Sponsor Handover Agreement (see note 5(ii)(c)(i)) and the redeemable shares were derecognized from the Group’s financial statements.

 

Derecognition

 

A financial liability is derecognized when the obligation under the liability is discharged, canceled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing

 

 

XP Inc. and its subsidiaries

Notes to consolidated financial statements

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in the statement of income.

 

3) Fair value of financial instruments

 

The fair value of financial instruments actively traded in organized financial markets is determined based on purchase prices quoted in the market at the close of business at the reporting date, without deducting transaction costs.

 

The fair value of financial instruments for which there is no active market is determined by using measurement techniques. These techniques may include the use of recent market transactions (on an arm's length basis); reference to the current fair value of another similar instrument; analysis of discounted cash flows or other measurement models (see note 34).

 

4) Derivative financial instruments and hedging activities – IFRS 9

 

Derivative financial instruments are financial contracts, the value of which is derived from the value of the underlying assets, interest rates, indexes or currency exchange rates.

 

Derivatives are initially recognized at fair value on the date a derivative contract is entered into, and they are subsequently remeasured to their fair value at the end of each reporting period. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument and, if so, the nature of the item being hedged. The group designates certain derivatives as either:

 

·hedges of the fair value of recognized assets or liabilities or a firm commitment (fair value hedges), or

 

·hedges of a net investment in a foreign operation (net investment hedges).

 

·hedges of expected cash flows to be paid on recognized liabilities (cash flow hedges).

 

At inception of the hedge relationship, the group documents the economic relationship between hedging instruments and hedged items, including whether changes in the cash flows of the hedging instruments are expected to offset changes in the cash flows of hedged items. The group documents its risk management objective and strategy for undertaking its hedge transactions.

 

If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest method is used is amortized to profit and loss over the remaining period until maturity, using a recalculated effective interest rate.

 

a)Hedge ineffectiveness

 

Hedge effectiveness is determined at the inception of the hedge relationship, and through periodic prospective effectiveness assessments to ensure that an economic relationship exists between the hedged item and hedging instrument.

 

To evaluate the effectiveness and to measure the ineffectiveness of such strategies, the Group uses the Dollar Offset Method. The Dollar Offset Method is a quantitative method that consists of comparing the change in fair value or cash flows of the hedging instrument with the change in fair value or cash flows of the hedged item attributable to the hedged risk.

 

b)Derivative warrant liabilities

 

The Group evaluates if the warrants issued in connection with the Initial Public Offering (the “Public Warrants”) and the Private Placement Warrants issued by XPAC Acquisition Corp. are derivatives or contain features that qualify as embedded derivatives in accordance with IFRS 9 – Financial Instruments. The Group’s derivatives instruments are recorded at financial instruments measured at fair value through profit or loss. Accordingly, the Group recognizes the warrants as financial liabilities at fair value and remeasures the warrants at fair value at each reporting period. The liabilities are subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the Group’s consolidated statements of income. The fair value has been measured based on the listed market price of such warrants. On July 27, 2023, XPAC Acquisition Corp. was deconsolidated from XP Inc's Financial Statements due to the Purchase and Sponsor Handover Agreement (see note 5(ii)(c)(i)) and the warrant liabilities expired.

 

(iii)Cash and cash equivalents

 

Cash is not subject to a significant risk of change in value and are held for the purpose of meeting short-term cash commitments and not for investments or other purposes. Transactions are considered short-term when they have maturities of three months or less from the date of acquisition. For purposes of consolidated statement of cash flows, cash equivalents refer to collateral held securities

 

 

XP Inc. and its subsidiaries

Notes to consolidated financial statements

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

purchased under agreements to resell, bank deposit certificates measured at fair value through profit and loss and other deposits that are readily convertible into a known cash amount, and for which are not subject to a significant risk of change in value.

 

(iv)Securities purchased under agreements to resell and obligations related to securities sold under repurchase agreements

 

The Group has purchased securities with resale agreement (resale agreements) and sold securities with repurchase agreement (repurchase agreement) of financial assets. Resale and repurchase agreements are accounted for under Securities purchased under agreements to resell and Securities sold under repurchase agreements, respectively. The difference between the sale and repurchase prices is treated as interest and recognized over the life of the agreements using the effective interest rate method. The financial assets accepted as collateral in our resale agreements can be used by us, if provided for in the agreements, as collateral for our repurchase agreements or can be sold.

 

(v)Securities trading and intermediation (receivable and payable)

 

Refers to transactions at B3 S.A. – Brasil, Bolsa, Balcão (“B3”) on behalf of and on account of third parties. Brokerages on these transactions are classified as revenues and service provision expenses are recognized at the time of the transactions. These balances are offset, and the net amount shown in the balance sheet when, and only when, there is a legal and enforceable right to offset and the intention to liquidate them on a net basis, or to realize the assets and settle the liabilities simultaneously.

 

Amounts due from and to customers represent receivables for securities sold and payables for securities purchased that have been contracted for but not yet settled or delivered on the balance sheet date, respectively. The due from customers balance is held for collection. These amounts are subdivided into the following items:

 

·Cash and settlement records - Represented by the registration of transactions carried out on the stock exchanges on its own behalf and for customers, which includes any asset liquidity event; and

 

·Debtors/Creditors pending settlement account - debtor or creditor balances of customers, in connection with transactions with fixed income securities, shares, commodities and financial assets, pending settlement as of the statement of reporting date. Sales transactions are offset and, in the event, the final amount is a credit, it will be recorded in liabilities, on the other hand if this amount is debt, it will be recorded in assets, provided that the offset balances refer to the same counterparty.

 

·Customer's cash on investment account - represents customer’s cash balances that are held in XP CCTVM.

 

These amounts are recognized initially at fair value and subsequently measured at amortized cost. At each reporting date, the Group shall measure the loss allowance on amounts due from customers at an amount equal to the lifetime expected credit losses if the credit risk has increased significantly since initial recognition. If, at the reporting date, the credit risk has not increased significantly since initial recognition, the Group shall measure the loss allowance at an amount equal to 12-month expected credit losses. Significant financial difficulties of the customer, probability that the customer will enter bankruptcy or financial reorganization, and default in payments are all considered indicators that a loss allowance may be required. If the credit risk increases to the point that it is considered to be credit impaired, interest income will be calculated based on the gross carrying amount adjusted for the loss allowance. A significant increase in credit risk is defined by management as any contractual payment which is more than 30 days past due.

 

Any contractual payment which is more than 90 days past due is considered credit impaired. The estimated credit losses for brokerage clients and related activity were immaterial for all periods presented.

 

(vi)Loan operations

 

Loan operations consist in arrangements under which clients can borrow stipulated amounts under defined terms and conditions. They are initially measured at its fair value plus transaction costs that are directly attributable to the acquisition and subsequently measured at amortized cost using the effective interest method, less expected credit loss. See note 10 for further information about the Group’s accounting for loan operations and note 3(ii) for a description of the Group’s expected losses on financial assets.

 

Interest income from these financial assets is included in net income from financial instruments at amortized cost using the effective interest rate method. Any gain or loss arising on derecognition of the loan operations is recognized directly in the statement of income and presented in note 14. Expected credit losses are presented as a separate line item in the statement of income.

 

(vii)Prepaid expenses

 

Prepaid expenses are recognized as an asset in the balance sheet. These expenditures include mainly incentives to IFAs, prepaid software licenses, certain professional services and insurance premiums. Prepaid expenses are amortized in profit and loss in the period in which the benefits of such items are realized.

 

 

XP Inc. and its subsidiaries

Notes to consolidated financial statements

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

(viii)Leases

 

Right-of-use assets

 

The Group recognizes right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities.

 

The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Unless the Group is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognized right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. Right-of-use assets are subject to impairment.

 

Lease liabilities

 

At the commencement date of the lease, the Group recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate. The variable lease payments that do not depend on an index or a rate are recognized as expenses in the period on which the event or condition that triggers the payment occurs.

 

In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset.

 

Short-term leases and leases of low-value assets

 

The Group applies the short-term lease recognition exemption to its short-term leases of properties (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases that are considered of low value. Lease payments on short-term leases and leases of low-value assets are recognized as expense on a straight-line basis over the lease term.

 

Significant judgement in determining the lease term of contracts with renewal options

 

The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised.

 

The Group has the option, under some of its leases to lease the assets for additional terms. The Group applies judgement in evaluating whether it is reasonably certain to exercise the option to renew. That is, it considers all relevant factors that create an economic incentive for it to exercise the renewal. After the commencement date, the Group reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise (or not to exercise) the option to renew (e.g., a change in business strategy).

 

(ix)Property and equipment

 

All property and equipment are stated at historical cost less accumulated depreciation and impairment. Historical cost includes expenditures that are directly attributable to the acquisition of the items and, if applicable, net of tax credits. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item is material and can be measured reliably. All other repairs and maintenance expenditures are charged to profit and loss during the period in which they are incurred. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets, as follows:

 

  Annual Rate (%)
Data Processing Systems 20%
Furniture and equipment 10%
Security systems 10%
Facilities 10%
Vehicle 10%

 

XP Inc. and its subsidiaries

Notes to consolidated financial statements

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

Assets’ residual values, useful lives and methods of depreciation are reviewed at each reporting date and adjusted prospectively, if appropriate. An asset’s carrying amount is written down immediately to its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use, if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals or derecognition are determined by comparing the disposal proceeds (if any) with the carrying amount and are recognized in the statement of income.

 

(x)Intangible assets

 

i)Goodwill

 

Goodwill arises on the acquisition of subsidiaries and represents the excess of (i) the consideration transferred; the amount of any non-controlling interest in the acquiree; and the acquisition-date fair value of any previous equity interest in the acquiree over (ii) the fair value of the identifiable net assets acquired. If the total of the consideration transferred, non-controlling interest recognized and previously held interest measured at fair value is less than the fair value of the net assets of the subsidiary acquired, which is the case of a bargain purchase, the difference is recognized directly in the statement of income.

 

Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment.

 

ii)Software and development costs

 

Certain direct development costs associated with internally developed software and software enhancements of the Group’s technology platform is capitalized. Capitalized costs, which occur post determination by management of technical feasibility, include external services and internal payroll costs. These costs are recorded as intangible assets when development is complete, and the asset is ready for use, and are amortized on a straight-line basis, during the period which is expected economic benefits generation to the Group. Research and pre-feasibility development costs, as well as maintenance and training costs, are expensed as incurred. In certain circumstances, management may determine that previously developed software and its related expense no longer meets management’s definition of feasible, which could then result in the impairment of such assets.

 

iii)Other intangible assets

 

Separately acquired intangible assets are measured at cost on initial recognition. The cost of intangible assets acquired in a business combination corresponds to their fair value at the acquisition date. After initial recognition, intangible assets are stated at cost, less any accumulated amortization and accumulated impairment losses. Internally generated intangible assets other than softwares are not capitalized and the related expenditure is reflected in the statement of income in the period in which the expenditure is incurred.

 

The useful life of intangible assets is assessed as finite or indefinite. As of December 31, 2023 and 2022, the Group does not hold indefinite life intangible assets, except for goodwill.

 

Intangible assets with finite useful lives are amortized over their estimated useful lives and tested for impairment whenever there is an indication that their carrying amount may not be recoverable. The period and method of amortization for intangible assets with finite lives are reviewed at least at the end of each fiscal year or when there are indicators of impairment. Changes in estimated useful lives or expected consumption of future economic benefits embodied in the assets are considered to modify the amortization period or method, as appropriate, and treated as changes in accounting estimates.

 

The amortization of intangible assets with definite lives is recognized in the statement of income in the expense category consistent with the use of intangible assets. The useful lives of the intangible assets are shown below:

 

  Estimate useful life (years) (*)
Software 3-5
Internally developed intangible 3-7
Customer list 2-8
Trademarks 10-20

 

Gains and losses recognized in profit and loss resulting from the disposal or derecognition of intangible assets are measured as the difference between the net disposal proceeds (if any) and their carrying amount.

 

 

XP Inc. and its subsidiaries

Notes to consolidated financial statements

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

(xi)Impairment of non-financial assets

 

Assets that have an indefinite useful life, for example goodwill, are not subject to amortization and are tested annually for impairment. Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment. Assets that are subject to depreciation or amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized when the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and its value in use.

 

For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (Cash-generating units (CGU's)). For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the CGUs (or groups of CGUs) that is expected to benefit from the synergies of the combination, which are identified at the operating segment level.

 

Non-financial assets other than goodwill that were adjusted due to impairment are subsequently reviewed for possible reversal of the impairment at the balance sheet date. The impairment of goodwill recognized in the statement of income is not reversible.

 

(xii)Taxes

 

i)Current income and social contribution taxes

 

Each of Group’s entities pay Federal Income Tax (IRPJ) and Social Contribution on Net Income (CSLL) under one of two different methods:

 

·Actual Profit Method (“APM”), where the taxpayer calculates both taxes based on its actual taxable income, after computing all income, gains and tax-deductible expenses, including net operating losses of prior years. Taxes calculated under the APM method are due quarterly or annually depending on entity’s adoption through the first collection document of each calendar year. APM annual method requires taxpayers to make monthly prepayments of IRPJ and CSLL during the calendar-year.

 

·Presumed Profit Method (“PPM”), where the taxpayer calculates IRPJ and CSLL applying a presumed profit margin over the operating revenues. It is important to emphasize that the profit margin is defined by the Brazilian Revenue Service (“RFB”) according to the type of services rendered and/or goods sold. Under the PPM method, both taxes are due on a quarterly basis and no prepayment is required during the quarters. This method can be adopted only by entities with gross revenue up to an annually revised threshold determined by tax authorities.

 

The tax rates applicable to APM or PPM are also defined according to entities’ main activity:

 

·Federal Income Tax (IRPJ) – tax rate of 15% calculated on taxable income and a surcharge of 10% calculated on the taxable income amount that exceeds R$ 20 per month (or R$ 240 annually).

 

·Social Contribution on Net Income (CSLL) – tax rate of 9% calculated on taxable income. However, banks (i.e., Banco XP and Banco Modal) are subject to a higher CSLL rate of 20%, while all other companies treated as financial entities for tax purposes (i.e., XP CCTVM, Modal DTVM, XP DTVM and XP Vida e Previdência) are subject to a CSLL rate of 15%.

 

As of July 2021, the rate of CSLL was increased by 5% for all Brazilian financial entities until December 2021. Therefore, Brazilian banks were subject to a CSLL rate of 25% and all other financial entities, including insurance companies, were subject to a rate of 20% by means of Law 13.148/2021.

 

As of January 2022, the tax rate returned to the regular percentage of 20% for banks and 15% for all other financial entities, including insurance companies.

 

As of August 2022, by means of federal Law 14.446 the CSLL rate was increased in 1% for all Brazilian Financial entities until December 2022. Therefore, during that period between August and December 2022, Brazilian banks were subject to a CSLL rate of 21% and all other financial entities, including insurance companies, were subject to a rate of 16%. With the ending of Law 14.446/2022 enforceability, the rates of CSLL applied for banks returned to the regular level of 20%, and 15% for all other financial entities.

 

 

XP Inc. and its subsidiaries

Notes to consolidated financial statements

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

ii)Deferred income tax and social contribution

 

Deferred income tax and social contribution are recognized, using the liability method, on temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, deferred taxes are not accounted for if they arise from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit and loss.

 

Deferred tax assets are recognized only to the extent it is probable that future taxable profit will be available against which the temporary differences and/or tax losses can be utilized. In accordance with the Brazilian tax legislation, loss carryforwards can be used to offset up to 30% of taxable profit for the year and do not expire.

 

Deferred tax is provided on temporary differences arising on investments in subsidiaries, except for a deferred tax liability where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

 

Deferred tax assets and liabilities are presented net in the statement of financial position when there is a legally enforceable right and the intention is to offset them upon the calculation of current taxes, generally when related to the same legal entity and the same jurisdiction. Accordingly, deferred tax assets and liabilities in different entities or in different countries are generally presented separately, and not on a net basis.

 

iii)Sales and other taxes

 

Revenues, expenses and assets are recognized net of sales tax, except:

 

·When the sales taxes incurred on the purchase of goods or services are not recoverable from tax authorities, in which case the sales tax is recognized as part of the cost of acquiring the asset or expense item, as applicable.

 

·When the amounts receivable or payable are stated with the amount of sales taxes included.

 

The net amount of sales taxes, recoverable or payable to the tax authority, is included as part of receivables or payables in the balance sheet, and net of corresponding revenue or cost/expense, in the statement of income.

 

Sales revenues in Brazil are subject to taxes and contributions, at the following statutory rates:

 

·PIS and COFINS are contributions levied by the Brazilian Federal government on gross revenues. These amounts are invoiced to and collected from the Group’s customers and recognized as deductions to gross revenue (Note 28) against tax liabilities, as we are acting as tax withholding agents on behalf of the tax authorities. PIS and COFINS paid on certain purchases may be claimed back as tax credits to offset PIS and COFINS payable. These amounts are recognized as Recoverable taxes (Note 12) and are offset monthly against Taxes payable and presented net, as the amounts are due to the same tax authority. PIS and COFINS are contributions calculated on two different regimes according to Brazilian tax legislation: cumulative method and non-cumulative method.

 

The non-cumulative method is mandatory to companies that calculate income tax under the Actual Profit Method (APM). The applicable rates of PIS and COFINS are 1.65% and 7.60%, respectively.

 

Otherwise, the cumulative method should be adopted by entities under the Presumed Profit Method (PPM) and is also mandatory to Financial and Insurance Companies. The rates applicable to companies under PPM are PIS 0.65% and COFINS 3.00%. Financial entities (i.e., XP CCTVM, Modal DTVM, Banco Modal, Banco XP and XP DTVM) and insurance companies (i.e., XP Vida e Previdência) have a different percentage of COFINS with the surcharge of 1.00%, totaling 4.00%.

 

The tax on services (“ISS”) is a tax levied by municipalities on revenues from the provision of services. ISS tax is added to amounts invoiced to the Group’s customers for the services the Group renders. These are recognized as deductions to gross revenue (Note 28) against tax liabilities, as the Group acts as agent collecting these taxes on behalf of municipal governments. The rates may vary from 2.00% to 5.00%. Currently, XP Group’s entities are based majoritarily in the cities of São Paulo and Rio de Janeiro then, revenues perceived by those companies are subject to rates defined by those cities’ Laws. 

 

(xiii)Equity security loans

 

Represent liabilities to return cash proceeds from security lending transactions. Securities lending transactions are used primarily to earn spread income which relates mainly to equity securities received with a fixed term payable, based on the fair value of the securities plus pro rata interest over the period of the equity security loan. Equity securities borrowed are recognized as unrestricted assets on the statement of financial position and may be sold to third parties. The equity security loans are recorded as a trading liability and measured at fair value with any gains or losses included in the income statement under net fair value gains/(losses) on financial instruments (Note 28 b).

 

 

XP Inc. and its subsidiaries

Notes to consolidated financial statements

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

(xiv)Debt securities and Borrowings

 

Debt securities classified as Debentures, Bonds, Promissory Notes and Borrowings are initially recognized at fair value, net of transaction costs incurred, and subsequently carried at amortized cost. Any differences between the proceeds (net of transaction costs) and the total amount payable is recognized in the statement of income over the period of the borrowings using the effective interest rate method.

 

Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included as interest expense on debt in the statement of income.

 

(xv)Accounts payables

 

Accounts payables are obligations to pay for goods or services that have been acquired in the ordinary course of business. Accounts payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest rate method.

 

(xvi)Retirement plans liabilities

 

Retirement plans, relates to accumulation of financial resources, called PGBL (Plan Generator of Benefits), a plan that aims at accumulating funds for participant’s retirement in life, and VGBL (Redeemable Life Insurance), a financial product structured as a pension plan. In both products, the contribution received from the participant is applied to a Specially Constituted Investment Fund (“FIE”) and accrues interest based on FIE investments.

 

The retirement plans offered by the Group do not contain significant insurance risk where the Group accepts significant insurance risk from participants by agreeing to compensate them if a specified uncertain future event adversely affects them. These products also do not contain any discretionary participation features. Therefore, the contracts are accounted for under the scope of IFRS 9 - Financial Instruments (“IFRS 9”).

 

(xvii)Provisions

 

Provisions for legal claims (labor, civil and tax) and other risks are recognized when: (i) the Group has a present legal or constructive obligation as a result of past events; (ii) it is probable that an outflow of resources will be required to settle the obligation; and (iii) the amount can be reliably estimated. Provisions do not include future operating losses.

 

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognized even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

 

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the time elapsed is recognized as interest expense.

 

(xviii)Employee benefits

 

i)Short-term obligations

 

Liabilities in connection with short-term employee benefits are measured on a non-discounted basis and are expensed as the related service is provided.

 

The liability is recognized for the expected amount to be paid under the plans of cash bonus or short-term profit sharing if the Group has a legal or constructive obligation of paying this amount due to past service provided by employees and the obligation may be reliably estimated.

 

ii)Share-based plan

 

The establishment of the shared-based plan was approved by the board of Director’s meeting on December 6, 2019.

 

The Group launched two share-based plans, the Restricted Stock Unit (“RSU”) and the Performance Share Unit (“PSU”). The shared-based plans are designed to provide long-term incentives to certain employees, directors, and other eligible service providers in exchange for their services. For both plans, management commits to grant shares of XP Inc to the defined participants.

 

 

XP Inc. and its subsidiaries

Notes to consolidated financial statements

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

The cost of share-based compensation is measured using the fair value at the grant date. The cost is expensed together with a corresponding increase in equity over the service period or on the grant date when the grant relates to past services.

 

The total amount to be expensed is determined by reference to the fair value of the tranche shares granted at the grant date, which is also based on:

 

Including any market performance conditions;

 

Including the impact of any non-market performance vesting conditions (i.e., remaining an employee of the entity over a specified time), and;

 

Including the impact of any non-vesting conditions (i.e., the requirement for participants to save or hold shares for a specific period of time).

 

The total expense is recognized over the vesting period, which is the period over which all of the specified vesting conditions have to be satisfied. At the end of each period, the entity revises its estimates of the number of shares that are expected to vest based on the non-market vesting conditions. The Company recognizes the impact of the revision to original estimates, if any, in the statement of income, with a corresponding adjustment to equity.

 

When the shares are vested, the Company transfers the correspondent number of shares to the participant. The shares received by the participants, net of any directly attributable transaction costs (including withholding taxes), are credited directly to equity.

 

The significant judgments, estimates and assumptions regarding share-based payments and activity relating to share-based payments are discussed further in note 32.

 

iii)Profit-sharing and bonus plans

 

The Group recognizes a liability and an expense for bonuses and profit-sharing based on a formula that takes into consideration the profit attributable to the owners of the Company after certain adjustments, and distributed based on individual and collective performance, including qualitative and quantitative indicators.

 

Employee profit-sharing terms are broadly established by means of annual collective bargaining with workers’ unions. The Group recognizes a provision where contractually obliged or where there is a past practice that has created a constructive obligation.

 

(xix)Share capital

 

Common shares are classified in equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

 

(xx)Treasury shares

 

Own equity instruments that are reacquired (treasury shares) are recognized at cost and deducted from equity. No gain or loss is recognized in the statement of income on the purchase, sale, issue or cancellation of the Group’s own equity instruments.

 

The difference between the sale price and the average price of the treasury shares is recorded as a reduction or increase in capital reserves. The cancellation of treasury shares is recorded as a reduction in treasury shares against capital reserves, at the average price of treasury shares at the cancellation date.

 

(xxi)Earnings per share

 

Basic earnings per share is calculated by dividing the profit attributable to owners of the Company, excluding any costs of servicing equity other than ordinary and preferred shares by the weighted average number of ordinary and preferred shares outstanding during the year, adjusted for bonus elements in ordinary and preferred shares issued during the year and excluding treasury shares (note 33).

 

Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after-income tax effect of interest and other financing costs associated with dilutive potential common and preferred shares, and the weighted average number of additional common and preferred shares that would have been outstanding assuming the conversion of all dilutive potential common and preferred shares (note 33).

 

 

XP Inc. and its subsidiaries

Notes to consolidated financial statements

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

(xxii)Revenue and income

 

1)Revenue from contracts with customers

 

Revenue is recognized when the Group has transferred control of the services to the customers, in an amount that reflects the consideration the Group expects to collect in exchange for those services.

 

The Group applies the following five steps: i) identification of the contract with a customer; ii) identification of the performance obligations in the contract; iii) determination of the transaction price; iv) allocation of the transaction price to the performance obligations in the contract; and v) recognition of revenue when or as the entity satisfies a performance obligation.

 

Revenue is recognized net of taxes collected from customers, which are subsequently remitted to governmental authorities.

 

The Group has discretion to involve and contract a third-party provider in providing services to the customer on its behalf. The Group presents the revenues and associated costs to such third-party providers on a gross basis where it is deemed to be the principal and on a net basis where it is deemed to be the agent. Generally, the Group is deemed to be the principal in these arrangements because the Group controls the promised services before they are transferred to customers, and accordingly presents the revenue gross of related costs.

 

The Group main types of revenues contracts are:

 

i)Brokerage commission

 

Brokerage commission revenue consists of revenue generated through commission-based brokerage services on each transaction carried out on, for example, the stock exchanges for customers, recognized at a point in time (trade date) as the performance obligation is satisfied.

 

ii)Securities placement

 

Securities placement revenue refers to fees and commissions earned on the placement of a wide range of securities on behalf of issuers and other capital raising activities, such as mergers and acquisitions, including related finance advisory services. The act of placing the securities is the sole performance obligation and revenue is recognized at the point in time when the underlying transaction is complete under the engagement terms and it is probable that a significant revenue reversal will not occur.

 

iii)Management fees

 

Management fees relate substantially to (i) services as investments advisor from funds, investment clubs and wealth management; and (ii) distributions of quotas from investments funds managed by others. Revenue is recognized over the period of time when this performance obligation is delivered, and generally based on an agreed-upon fixed percentage of the net asset value of each fund on a monthly basis. A part of management fees is performance-based (performance fees), which are recognized for the delivery of asset management services and calculated based on appreciation of the net asset value of the funds, subject to certain thresholds, such as internal rates of returns or hurdle rates in accordance with the terms of the fund’s constitution. Performance fees, which includes variable consideration, are only recognized after an assessment of the facts and circumstances and when it is highly probable that significant reversal of the amount of cumulative revenue recognized will not occur when the uncertainty is resolved.

 

iv)Insurance brokerage fee

 

Refers to insurance brokerage, capitalization, retirement plans and health insurance through the intermediation of the sale of insurance services.

 

Revenues are recognized after the provision of brokerage services to insurers. Products that were sold through XP Corretora de Seguros are inspected monthly, and amounts received from commission are recognized as revenue at a point in time as the performance obligation is satisfied.

 

v)Educational services

 

Educational revenue relates to advising and consulting on finance, financial planning, business management and the development of courses and business training programs in the national territory through the development and management of courses.

 

vi)Commissions fees

 

Commissions fees are recognized when XP provides or offers services to customers, in an amount that reflects the consideration XP expects to collect in exchange for those services. A five-step model is applied to account for revenues: i) identification of the

 

 

XP Inc. and its subsidiaries

Notes to consolidated financial statements

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

contract with a customer; ii) identification of the performance obligations in the contract; iii) determination of the transaction price; iv) allocation of the transaction price to the performance obligations in the contract; and v) revenue recognition, when performance obligations agreed upon in agreements with clients are met. Incremental costs and costs to fulfill agreements with clients are recognized as an expense as incurred.

 

vii)Interchange Fee

 

Interchange fees revenue represents fees for authorizing and providing settlement on credit and debit card transactions processed through the Visa networks and is determined as a variable percentage - depending on the type of establishment in which the customer buys - of the total payment processed when the Group’s customers use XP’s cards. The fees are recognized on completion of the transaction and once the Group has completed its performance obligations under the contract.

 

viii)Other services

 

Other services refer to revenue related to finance advisory services, advertisements on the Group’s website and sponsorship on events held by the Group.

 

2)Net income from financial instruments

 

Net income from financial instruments includes realized gains and losses on the sales of investments, unrealized gains and losses resulting from our investments measured at fair value and interest earned on both cash balances and investments in connection with our trading activities. These gains and losses are outside the scope of IFRS 15 but in scope of IFRS 9 – Financial Instruments, and the related accounting policies are disclosed in Note 3.

 

4.Significant accounting judgements, estimates and assumptions

 

The preparation of the financial statements according to accounting policies described in Note 3 requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts for assets, liabilities, revenues and expenses. Actual results may differ from these estimates.

 

Information about uncertainties on assumptions and estimates that have a significant risk of resulting in a material adjustment in the future fiscal year is included as follows:

 

(i)Estimation fair value of certain financial assets

 

The fair value of financial instruments that are not traded in an active market is determined using valuation techniques. The Group uses its judgment to select a variety of methods and make assumptions that are mainly based on market conditions existing at the end of each reporting period.

 

(ii)Expected credit losses on financial assets

 

The expected credit losses for financial assets are based on assumptions about risk of default and expected loss rates. The Group uses judgement in making these assumptions and selecting the inputs to the impairment calculation, based on the Group’s history and existing market conditions, as well as forward-looking estimates at the end of each reporting period.

 

(iii)Recognition of deferred tax asset for carried-forward tax losses

 

Deferred tax assets are recognized for all unused tax losses to the extent that sufficient taxable profit will likely be available to allow the use of such losses. Significant judgment from management is required to determine the amount of deferred tax assets that can be recognized, based on the likely timing and level of future taxable profits, together with future tax planning strategies.

 

The Group has concluded that the deferred assets will be recoverable using the estimated future taxable income based on the approved business plans and budgets for the subsidiaries where a deferred tax asset has been recognized.

 

(iv)Property and equipment and intangible assets useful lives

 

Property and equipment and intangible assets include the use of estimates to determine the useful life for depreciation and amortization purposes. Useful life determination requires estimates in relation to the expected technological advances and alternative uses of assets. There is a significant element of judgment involved in making technological development assumptions, since the timing and nature of future technological advances are difficult to predict.

 

 

XP Inc. and its subsidiaries

Notes to consolidated financial statements

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

(v)Impairment of non-financial assets, including goodwill

 

The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. Intangible assets with indefinite useful lives and goodwill are tested for impairment annually at the level of the CGU, as appropriate, and when circumstances indicate that the carrying value may be impaired.

 

Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in use. Technological obsolescence, suspension of certain services and other changes in circumstances that demonstrate the need for recording a possible impairment are also regarded in estimates.

 

(vi)Provision for contingent liabilities

 

Provisions for the judicial and administrative proceedings are recorded when the risk of loss of administrative or judicial proceedings is considered probable and the amounts can be reliably measured, based on the nature, complexity and history of lawsuits and the opinion of legal counsel internal and external.

 

Provisions are made when the risk of loss of judicial or administrative proceedings is assessed as probable and the amounts involved can be measured with sufficient accuracy, based on best available information. They are fully or partially reversed when the obligations cease to exist or are reduced. Given the uncertainties arising from the proceedings, it is not practicable to determine the timing of any outflow (cash disbursement).

 

(vii)Share-based payments

 

Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model, which depends on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the valuation model, including the expected life of the share option or appreciation right.

 

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the consolidated financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events.

 

5.Group structure

 

(i)Subsidiaries

 

The following are the direct and indirect interests of Company in its subsidiaries for the purposes of these consolidated financial statements:

 

      % of Group’s interest (i)
Entity name Country of incorporation Principal activities 2023 2022 2021
           
Directly controlled          
XP Investimentos S.A. Brazil Holding 100.00% 100.00% 100.00%
XPAC Sponsor LLC Cayman Special Purpose Acquisition (SPAC) Sponsor 100.00% 100.00% 100.00%
XProject LTD Cayman Holding 100.00% 100.00% 100.00%
XP Holding International LLC USA International financial holding 100.00% 100.00% 100.00%
XP Advisory US USA Investment advisor 100.00% 100.00% 100.00%
XP Holding UK Ltd UK International financial holding 100.00% 100.00% 100.00%
XP Controle 6 Participações S.A. (iv) Brazil Holding 100.00% - -
           
           
Indirectly controlled          
XP Investimentos Corretora de Câmbio, Títulos e Valores Mobiliários S.A. Brazil Broker-dealer 100.00% 100.00% 100.00%
XP Vida e Previdência S.A. (iii) Brazil Retirement plans and insurance 100.00% 100.00% 100.00%
Banco XP S.A. Brazil Multipurpose bank 100.00% 100.00% 100.00%
XP Controle 3 Participações S.A. Brazil Financial holding 100.00% 100.00% 100.00%

 

XP Inc. and its subsidiaries

Notes to consolidated financial statements

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

      % of Group’s interest (i)
Entity name Country of incorporation Principal activities 2023 2022 2021

XPE Infomoney Educação Assessoria Empresarial e Participações Ltda.

 

Brazil Digital content services 100.00% 100.00% 100.00%

Tecfinance Informática e Projetos de Sistemas Ltda.

 

Brazil Rendering of IT services 99.70% 99.73% 99.73%

XP Corretora de Seguros Ltda.

 

Brazil Insurance broker 99.99% 99.99% 99.99%

XP Gestão de Recursos Ltda.

 

Brazil Asset management 95.50% 95.60% 94.90%
XP Finanças Assessoria Financeira Ltda. Brazil Investment consulting services 99.99% 99.99% 99.99%
Infostocks Informações e Sistemas Ltda. Brazil Mediation of information systems 100.00% 99.99% 99.99%
XP Advisory Gestão Recursos Ltda. Brazil Asset management 99.53% 99.55% 99.54%
XP Vista Asset Management Ltda. Brazil Asset management 99.99% 99.99% 99.50%
XP Controle 4 Participações S.A. Brazil Insurance holding 100.00% 100.00% 100.00%
XP Investments UK LLP UK Inter-dealer broker and Organized Trading Facility (OTF) 100.00% 100.00% 100.00%
XP Private Holding UK Ltd UK Investment advisor 100.00% 100.00% 100.00%
XP Investments US, LLC USA Broker-dealer 100.00% 100.00% 100.00%
XP PE Gestão de Recursos Ltda. Brazil Asset management 98.10% 98.70% 98.70%
Antecipa S.A. Brazil Receivables financing market 100.00% 100.00% 100.00%
XP Allocation Asset Management Ltda. Brazil Asset management 99.97% 99.99% 99.99%
XP Eventos Ltda. Brazil Media and events 100.00% 100.00% 99.90%
DM10 Corretora de Seguros Ltda. Brazil Insurance broker 100.00% 100.00% 100.00%
XP Comercializadora de Energia Ltda. Brazil Energy trading 100.00% 100.00% 100.00%
XPAC Acquisition Corp. (vi) Cayman Special Purpose Acquisition (SPAC) - 20.00% 20.00%
XP Distribuidora de Títulos e Valores Mobiliários Brazil Securities dealer 100.00% 100.00% 100.00%
Instituto de Gestão e Tecnologia da Informação Ltda. Brazil Educational content services 100.00% 100.00% 100.00%

Xtage Intermediação S.A.

 

Brazil Digital assets 100.00% 100.00% 100.00%
XP Administradora de Benefícios Ltda. Brazil Individual health plan intermediation 100.00% 100.00% -
BTR Administração e Corretagem de Seguros S.A. (ii) Brazil Retirement plans and insurance 100.00% 100.00% -
XP Representação Seguros Ltda. (iv) Brazil Insurance broker 100.00% - -
Banco Modal S.A. (ii) Brazil Multipurpose bank 100.00% - -
Modal Assessoria Financeira Ltda. (ii) Brazil Investment consulting services 100.00% - -
Modal Distribuidora de Títulos e Valores Mobiliários Ltda. (ii) Brazil Securities dealer 100.00% - -
Modalmais Treinamento e Desenvolvimento Ltda. (ii) Brazil Professional training services 100.00% - -
Modal Corretora de Seguros Ltda. (ii) Brazil Insurance broker 100.00% - -
Eleven Serviços de Consultoria e Análise S.A. (ii) Brazil Investment consulting services 100.00% - -
Banking and Trading Desenvolvimento de Sistemas Ltda. (“Carteira Global”) (ii) Brazil Softwares development services 100.00% - -
Refinaria de Dados – Análise de Dados Ltda. (ii) Brazil Digital content services 100.00% - -
Hum Bilhão Educação Financeira Ltda.           (ii) Brazil Digital content services 100.00% - -
Vaivoa Educação Financeira Ltda. (ii) Brazil Digital content services 100.00% - -

 

XP Inc. and its subsidiaries

Notes to consolidated financial statements

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

      % of Group’s interest (i)
Entity name Country of incorporation Principal activities 2023 2022 2021
Modal As a Service S.A. (ii) Brazil Financial services 100.00% - -
Galapos Consultoria e Participações Ltda. (ii) Brazil Consulting services 100.00% - -
W2D Tecnologia e Soluções Ltda. (ii) Brazil Rendering of IT services 100.00% - -
XP Controle 5 Participações Ltda. Brazil Holding 100.00% 96.00% 92.00%
XP Sports Asset Management Ltda. (ii) Brazil Asset management 100.00% - -
Carteira Online Controle de Investimentos Ltda. – ME (v) Brazil Investment consolidation platform - 100.00% 99.99%
Track Índices Consultoria Ltda. Brazil Index provider - - 100.00%
Habitat Capital Partners (v) Brazil Asset management - 99.99% -
Consolidated investments funds          
Aetos Energia Fundo de Investimento em Direitos Creditórios Brazil Investment fund 100.00% - -
Consignado Público XP Fundo de Investimento em Direitos Creditórios Brazil Investment fund 100.00% - -
Falx Fundo de Investimento Multimercado Crédito Privado Investimento no Exterior Brazil Investment fund 100.00% 100.00% 100.00%
Gladius Fundo de Investimento Multimercado Investimento no Exterior Brazil Investment fund 100.00% 100.00% 100.00%
Scorpio Debentures Incentivadas Fundo de Investimento Multimercado Crédito Privado Brazil Investment fund 100.00% 100.00% 100.00%
SMF Fundo de Investimento Multimercado Crédito Privado Brazil Investment fund 100.00% - -
Javelin Fundo de Investimento Multimercado Crédito Privado Investimento no Exterior Brazil Investment fund 100.00% 100.00% 100.00%
Frade Fundo de Investimento em Cotas de Fundos de Investimento em Direitos Creditórios NP Brazil Investment fund 100.00% 100.00% 100.00%
Frade III Fundo de Investimento em Cotas de Fundo de Investimento Multimercado Crédito Privado Brazil Investment fund 100.00% 100.00% 100.00%
Coliseu Fundo de Investimento Multimercado Crédito Privado Investimento no Exterior Brazil Investment fund 100.00% 100.00% 100.00%
NIMROD Fundo de Investimento Multimercado Crédito Privado Investimento no Exterior Brazil Investment fund 100.00% 100.00% 100.00%
XP High Yield Fund SP Cayman Investment fund 100.00% 100.00% 100.00%
XP International Fund SPC Cayman Investment fund 100.00% 100.00% 100.00%
XP Managers Fundo de Investimento em Participações Multiestratégia Brazil Investment fund 100.00% 100.00% 100.00%
XP Alesia Fund SP CL Shares - Brazil Internacional Fund SPC. Cayman Investment fund 100.00% 100.00% 100.00%
Newave Fundo de Investimento em Participações Multiestratégia (v) Brazil Investment fund - 100.00% 100.00%
Endor Fundo de Investimento em Participações Multiestratégia Investimento no Exterior Brazil Investment fund 100.00% 100.00% 100.00%
XP Phalanx CT Fund Cayman Investment fund 100.00% 100.00% -
MM Macadâmia FIM CP IE (ii) Brazil Investment fund 100.00% - -
MM Hedge Icon (ii) Nassau Investment fund 99.37% - -
Suécia I Fundo de Investimento Multimercado (ii) Brazil Investment fund 100.00% - -

 

XP Inc. and its subsidiaries

Notes to consolidated financial statements

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

      % of Group’s interest (i)
Entity name Country of incorporation Principal activities 2023 2022 2021
Suécia II Fundo de Investimento Multimercado (ii) Brazil Investment fund 100.00% - -

 

(i) The percentage of participation represents the Group’s interest in total capital and voting capital of its subsidiaries.

(ii) New subsidiaries acquired in 2023 and 2022. See further details in Note 5 (ii) Business combinations, below.

(iii) Subsidiary incorporated in 2018 for operating in the retirement plans and life insurance business, which is regulated by the Superintendency of Private Insurance (SUSEP) in Brazil.

(iv) New subsidiaries and investment funds incorporated in the year.

(v) Subsidiaries and investment funds closed or consolidated by other funds/companies during the year.

(vi) Subsidiaries which the Group holds or has held the operational control. The operational control refers to relevant rights the Company have over the subsidiary, that includes, among other topics, the right to nominate the directors and propose the target entity for merger.

 

(ii)Business combinations and other developments

 

(a)Acquisitions in 2023

 

(i)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 net assets fair value as of July 1, 2023, with an allocation of the purchase price between (i) the amount of fair value of the identifiable assets acquired and liabilities assumed and (ii) the goodwill arising at this date, corresponding to the difference between the total consideration transferred and the fair value of identifiable assets acquired and liabilities assumed. The total consideration transferred corresponds to the fair value of the 18,717,771 XP Inc BDR's at the closing date for an amount of R$ 2,097,326. 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 December 31, 2023, Banco Modal contributed R$ 93,611 to XP Inc's net income and R$ 343,258 to XP Inc's net revenues. If the acquisition date was on the beginning of the reporting period, XP Inc's combined unaudited net income and revenue for the year ended December 31, 2023, would be R$ 3,595,461 and R$ 14,896,966, respectively.

 

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:

 

 

XP Inc. and its subsidiaries

Notes to consolidated financial statements

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

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
Goodwill determination  
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)Acquisitions in 2022

 

(ii)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 total consideration is R$65,353. The fair value of the identifiable assets acquired and liabilities assumed as of the acquisition date were:

 

  Habitat
Assets  
Cash 275
Accounts Receivable 4,977
Securities 240
Property and equipment 251
Other assets 1,063
  6,806
Liabilities  
Tax and social security obligations (1,424)
Other liabilities (66)
   
Total identifiable net assets at fair value 5,316
   
Goodwill arising on acquisition 60,037
Purchase consideration transferred 65,353
   
   

 

 

 

 

 

XP Inc. and its subsidiaries

Notes to consolidated financial statements

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

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

 

During the year ended December 31, 2023, Habitat was merged into XP Vista Asset Management. The merger had no impact on the consolidated financial statements

 

(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 the company. This acquisition will allow 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 03, 2022, and the total consideration paid, in cash, was R$1,254. This acquisition is not considered material for XP Inc. consolidated financial statements. No goodwill was recognized in this transaction.

 

(c)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.

 

(ii)Minority stake acquisitions

 

XP Inc. entered in agreements through its subsidiary XP Controle 5 Participações Ltda. to acquire a minority stake in Monte Bravo Holding JV S.A. (“Monte Bravo”), Blue3 S.A. (“Blue3”) and Ctrl+e Participações Ltda. (“Ável”). These companies were part of XP Inc’s IFAs network.

 

The total fair value consideration recorded for those acquisitions during the period ended December 31, 2023, is R$ 834,743, including the goodwill in a total amount of R$ 537,671 (Note 15). During the year ended December 31, 2023, R$ 45,000 of the total consideration was paid in cash. See note 37(ii).

 

(iii)Termination of XTAGE client operations

 

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

 

 

XP Inc. and its subsidiaries

Notes to consolidated financial statements

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

 

6.

Securities purchased (sold) under resale (repurchase) agreements

 

a)Securities purchased under resale agreements

 

 

2023

 

 

2022

 

Collateral held                3,891,759    834,975
National Treasury Notes (NTNs) (i)                2,013,366    645,188
National Treasury Bills (LTNs) (i)                   820,487   -
Financial Treasury Bills (LFTs) (i)                   799,417   -
Debentures (ii)                      89,234    84,065
Real Estate Receivable Certificates (CRIs) (ii)                      80,565    82,633
Other                      88,690   23,089 
Collateral repledge             11,000,022    6,771,526
National Treasury Bills (LTNs) (i)                2,416,143    227,713
Financial Treasury Bills (LFTs) (i)                   900,245    
National Treasury Notes (NTNs) (i)                   116,583    2,842,159
Debentures (ii)                4,258,213    929,346
Real Estate Receivable Certificates (CRIs) (ii)                2,436,462    2,019,639
Agribusiness Receivables Certificates (CRAs) (ii)                   459,896    101,091
Agribusiness Credit Bill (LCAs) (ii)                              -       171,730
Interbank Deposits Certificates (CDIs) (ii)                   304,572   -
Other                   107,908    479,848
Expected Credit Loss (iii) (2,803)   (2,681)
Total 14,888,978    7,603,820 

 

(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 14.

 

As of December 31, 2023, securities purchased under resale agreements were carried out at average interest rates of 11.85% p.a. (13.65% p.a. as of December 31, 2022).

 

As of December 31, 2023, the amount of R$ 2,760,296 (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

 

 

2023

 

 

2022

 

National Treasury Bills (LTNs)                3,274,568    8,569,145
National Treasury Notes (NTNs)                8,456,861    12,347,218
Financial Treasury Bills (LFTs)                1,867,365    533,509
Debentures                8,776,735    1,831,846
Real Estate Receivable Certificates (CRIs)                9,201,853    6,471,410
Financial credit bills (LFs)                   954,447    1,111,890
Agribusiness Receivables Certificates (CRAs)                   808,682    925,073
Total             33,340,511    31,790,091

 

As of December 31, 2023, securities sold under repurchase agreements were agreed with average interest rates of 10.91% p.a. (December 31, 2022 – 13.65% p.a.).

 

 

XP Inc. and its subsidiaries

Notes to consolidated financial statements

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

7.Securities

 

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

 

 

2023

 

 

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

 

  102,381,532  

103,282,212

  46,930,511   56,351,701    86,273,732    86,336,920    40,648,295    45,688,625
Brazilian onshore sovereign bonds 29,587,276   30,172,040   28,000,854   2,171,186    25,262,407   25,127,998   22,799,302    2,328,696
Investment funds 55,922,364   55,922,364   3,022,360   52,900,004    42,274,069   42,274,069    2,389,131    39,884,938
Stocks issued by public-held company 3,981,237   3,981,237   3,642,365   338,872    5,494,957    5,494,957    5,155,761    339,196
Debentures 4,642,827   4,575,326   4,133,285   442,041    5,013,524    4,990,882    2,768,843    2,222,039
Structured notes 90,876   113,816   113,816    -       243,790    285,560    285,560    -
Bank deposit certificates (ii) 756,066   765,741   663,985   101,756    525,778    541,294    523,859    17,435
Agribusiness receivables certificates 1,132,479   1,200,254   1,183,214   17,040    1,998,287    1,984,686    1,964,977    19,709
Real estate receivable certificates 1,843,651   1,924,269   1,921,927   2,342     1,799,625   1,803,111     1,800,671    2,440
Financial credit bills 435,425   469,943   153,994   315,949    663,589    738,028    16,981    721,047
Real estate credit bill 29,126   29,157   29,157   -   2,299,236   2,302,124   2,302,124   -
Agribusiness credit bills 101,796   103,541   103,541   -   254,300   256,129   256,129   -
Commercial notes 803,256   892,569   886,149   6,420   64,568   65,837   10,517   55,320
Others (iv) 3,055,153   3,131,955   3,075,864   56,091   379,602   472,245   374,440   97,805
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 102,381,532   103,282,212   46,930,511   56,351,701    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 the investment funds line. As of December 31, 2023, those assets represent R$ 202,678 (December 31, 2022 - R$183,732).

 

(ii)Bank deposit certificates include R$67,985 (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 5(ii)(c)(i).

 

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

 

 

XP Inc. and its subsidiaries

Notes to consolidated financial statements

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

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

 

 

2023

 

2022

 

Gross carrying amount 

 

Fair

value

 

Gross carrying amount 

 

Fair

value

Financial assets              
At fair value through other comprehensive income              
Brazilian onshore sovereign bonds 41,023,844   41,343,987   33,532,740   32,931,403
Brazilian offshore sovereign bonds -   -    1,379,129   1,321,258
Foreign sovereign bonds 2,669,993   2,718,963   -   -
Corporate bonds -   -    238,730    226,007
Total 43,693,837   44,062,950   35,150,599   34,478,668

 

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

 

 

2023

 

2022

 

Gross carrying amount

 

Book

value

 

Gross carrying amount

 

Book

value

Financial assets              
At amortized cost (i)              
Brazilian onshore sovereign bonds 3,773,404   3,772,534   5,835,971   5,834,628
Foreign sovereign bonds -      -      1,743,688   1,742,311
Rural product note 616,083   615,576    507,131    506,927
Commercial notes 2,472,006   2,467,311   1,188,237   1,188,237
Total 6,861,493   6,855,421   9,275,027   9,272,103

 

(i) Includes expected credit losses in the amount of R$ 6,072 (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 14.

 

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

 

 

2023

 

2022

 

Gross carrying amount

 

Fair

value

 

Gross carrying amount

 

Fair

value

Financial liabilities              
At fair value through profit or loss              
Securities 19,949,021   19,949,021   13,048,246   13,048,246

 

e)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.

 

 

2023

 

2022

 

Gross carrying amount

 

Fair

value

 

Gross carrying amount

 

Fair

Value

Financial liabilities              
At fair value through profit or loss              
Debentures 594,332   474,053   567,838   481,019

 

 

 

XP Inc. and its subsidiaries

Notes to consolidated financial statements

December 31, 2023, 2022 and 2021

(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 period ended December 31, 2023.

 

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

 

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

 

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

 

The following table reflects the difference between the aggregate fair value and the aggregate remaining contractual principal balance outstanding as of December 31, 2023 for instruments for which the fair value option has been elected.

 

           

2023

   

Contractual principal outstanding

 

Fair value

 

Fair value/(under) contractual principal outstanding

Long-term debt            
Debentures   594,332   474,053   (120,279)

 

f)Securities classified by maturity:

 

     

Assets

     

Liabilities

 

2023

 

2022

 

2023

 

2022

               
Financial assets              
At fair value through PL and at OCI              
Current 74,520,326    73,569,049   19,949,021   13,048,246
Non-stated maturity 47,996,237    49,001,359   19,949,021   13,048,246
Up to 3 months 18,207,233    18,739,708    -    -
From 4 to 12 months 8,316,856    5,827,982    -    -
               
Non-current 72,824,836    48,422,623   474,053   481,019
After one year 72,824,836    48,422,623   474,053   481,019
               
Evaluated at amortized cost              
Current 4,560,263   7,952,328    -    -
Up to 3 months 2,015,126    3,327,313    -    -
From 4 to 12 months 2,545,137    4,625,015   -   -
               
Non-current 2,295,158    1,319,775   -   -
After one year 2,295,158    1,319,775   -   -
               
Total 154,200,583   131,263,775   20,423,074   13,529,265

 

The reconciliation of expected loss to financial assets at amortized cost segregated by stage is demonstrated in Note 14.

 

 

XP Inc. and its subsidiaries

Notes to consolidated financial statements

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

8.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. The fair value of derivative financial instruments, comprised of futures, forward, options, and swaps operations, is determined in accordance with the following criteria:

 

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

 

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

 

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

 

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

 

Positions with derivative financial instruments as of December 31, 2023 and 2022 are shown below:

 

                      2023  
 

Notional

 

Fair Value

 

%

 

Up to 3

months

 

From 4 to

12 months

 

Above

12 months

 
Assets                        
Options 3,053,641,595   15,982,949   85   6,240,115   6,455,786   3,287,048  
Swap contracts 392,133,687   3,883,112   11   381,744   531,023   2,970,345  
Forward contracts 125,343,466   2,889,964   3   2,508,142   250,756   131,066  
Future contracts

8,005,705

 

977,441

 

1

 

833,172

 

104,758

 

39,511

 
Total

3,579,124,453

 

23,733,466

 

100

 

9,963,173

 

7,342,323

 

6,427,970

 
                         
Liabilities                        
Options 2,308,283,883   17,970,099   74   5,996,813   5,601,569   6,371,717  
Swap contracts 403,391,373   3,448,067   13   56,590   842,922   2,548,555  
Forward contracts 82,074,317   2,705,166   3   2,216,996   250,030   238,140  
Future contracts 311,303,078   662,084   10   29,918   79,459   552,707  
Total

3,105,052,651

 

24,785,416

 

100

 

8,300,317

 

6,773,980

 

9,711,119

 

 

 

2022

 
 

Notional

 

Fair Value

 

%

 

Up to 3

months

 

From 4 to

12 months

 

Above

12 months

 
Assets                        
Swap contracts 1,253,758,408   5,542,340   94   1,209,290   1,931,618   2,401,432  
Forward contracts 32,705,136   2,828,613   2   62,729   350,012   2,415,872  
Future contracts 16,058,162   549,953   1   352,796   132,119   65,038  
Options

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  
Forward contracts 13,755,838   839,421   1   44,526   261,669   533,226  
Future contracts 13,548,954   511,167   1   150,119   224,932   136,116  
Swap 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 liabilities issued by XPAC Acquisition Corp.

 

 

XP Inc. and its subsidiaries

Notes to consolidated financial statements

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

Derivatives financial instruments by index:

 

   

2023

 

2022

   

Notional

 

Fair Value 

 

Notional 

 

Fair Value

Swap Contracts              
  Asset Position              
  Interest 367,589,959   1,863,359   20,616,960   739,698
  Foreign exchange 6,446,652   611,709   1,647,089   15,906
  Share 17,870,871   1,363,195   10,302,018   2,054,430
  Commodities 226,205   44,849   139,069   18,579
                 
  Liability Position              
  Interest 403,391,373   (3,448,067)   13,106,906   (630,539)
  Foreign exchange -   -   648,932   (208,882)
Forward Contracts              
  Asset Position              
  Foreign exchange 100,765,753   341,835   15,516,883   213,311
  Share -   -   305,614   306,516
  Interest 24,577,713   2,548,129   233,977   30,126
  Commodities -   -   1,688   -
                 
  Liability Position              
  Foreign exchange 60,387,358   (759,693)   13,548,954   (511,167)
  Interest 21,686,959   (1,945,473)   -   -
Future Contracts              
  Purchase commitments              
  Foreign exchange 387,663   908   6,041,572   1,182
  Interest 4,887,109   972,355   26,020,396   291,057
  Share 3,520   -   180,720   -
  Commodities 2,727,413   4,178   2,436,377   4,010
                 
  Commitments to sell              
  Interest 35,365,170   (560,676)   111,237,614   (111,009)
  Foreign exchange 43,572   (131)   25,134,918   (20,290)
  Share 274,874,389   (99,779)   3,006,462   (23,268)
  Commodities 1,019,947   (1,498)   660,771   (7,007)
Options              
  Purchase commitments              
  Foreign exchange 14,346,184   520   237,680,984   1,352,521
  Share 18,780,035   385,921   462,926,358   2,394,104
  Interest 3,019,606,208   15,593,786   544,855,750   1,681,487
  Commodities 909,168   2,722   8,295,316   114,228
                 
  Commitments to sell              
  Foreign exchange 9,308,549   (123,346)   234,719,499   (1,504,068)
  Share 20,296,428   (4,026,023)   26,017,420   (4,245,923)
  Interest 2,278,678,906   (13,820,730)   590,924,462   (1,223,999)
  Commodities -   -   437,445   (112,956)
  Others              
  Liability Position              
  Share -   -   84,184   (6,301)
                 
  Assets     23,733,466       9,217,155
  Liabilities    

(24,785,416)

     

(8,605,409)

  Net    

(1,051,950)

     

611,746

 

 

 

 

XP Inc. and its subsidiaries

Notes to consolidated financial statements

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

9.Hedge accounting

 

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

 

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

 

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

 

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

 

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

 

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

 

a)Hedge of net investment in foreign operations

 

The objective of the Group was to hedge the risk generated by the US$ variation from investments in our subsidiaries in the United States, XP Holding International and XP Advisors Inc.

 

The Group has entered into derivatives contracts to protect against changes in future cash flows and exchange rate variation of net investments in foreign operations.

 

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

Strategies

 

Assets

 

Liabilities

     

ineffectiveness

                     
2023                    
Foreign exchange risk                    
Hedge of net investment in foreign operations 450,853     (34,603)   446,442   41,235
Total   450,853     (34,603)   446,442   41,235
                     
2022                    
Foreign exchange risk                    
Hedge of net investment in foreign operations 395,594   -   (17,281)   414,043   18,480
Total   395,594   -   (17,281)   414,043   18,480
                     
2021                    
Foreign exchange risk                    
Hedge of net investment in foreign operations 310,069   -   19,474   440,022   (18,758)
Total   310,069   -   19,474   440,022   (18,758)

 

 

 

XP Inc. and its subsidiaries

Notes to consolidated financial statements

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

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 the income statement 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

     
2023                    
Interest rate and foreign exchange risk                    
Structured notes   -   16,593,439   (816,142)   16,702,984   849,160
Issued bonds   -   3,542,258   131,181   3,379,798   (189,189)
Total   -   20,135,697   (684,961)   20,082,782   659,971
                     
   

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

     
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)

 

XP Inc. and its subsidiaries

Notes to consolidated financial statements

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

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

     
2023                    
Market price risk                    
Long term incentive plan taxes   -   414,315   (59,517)   438,765   70,906
Total   -   414,315   (59,517)   438,765   70,906
                     
   

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

     
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 risk factor and hedging instruments categories, the nominal value and the adjustments to the fair value of the hedging instruments and the book value of the hedged object:

 

2023
   

Notional amount

 

Book value

   

Hedge Instruments

 

Assets

 

Liabilities

Variation in fair value used to calculate hedge ineffectiveness

Hedge ineffectiveness recognized in income

Interest rate risk              
Futures   19,859,217 -   19,896,226 675,035 (19,807)
Foreign exchange risk              
Futures   670,007 450,853   239,472 26,171 1,449
Market price risk              
Swaps   438,765 -   414,315 70,906 11,389
                 
2022
   

Notional amount

 

Book value

   

Hedge Instruments

 

Assets

 

Liabilities

Variation in fair value used to calculate hedge ineffectiveness

Hedge ineffectiveness recognized in income

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)
                 

 

XP Inc. and its subsidiaries

Notes to consolidated financial statements

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

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

 

   

December 31, 2023

 

December 31, 2022

 

December 31, 2021

Strategies

 

Hedge instruments

Hedge item

Hedge instruments

Hedge item  

Hedge instruments

Hedge item
 

Notional amount

Fair value adjustment

Book value

 

Notional amount

Fair value adjustment

Book value

 

Notional amount

Fair value adjustment

Book value

Hedge of fair value   20,082,782 659,971 (684,961)   17,887,369 (932,486) 887,138   9,297,999 (495,191) 506,190
Hedge of net investment in foreign operations   446,442 41,235 (34,603)   414,043 18,480 (17,252)   440,022 (18,758) 19,474
Hedge of cash flow   438,765 70,906 (59,517)   261,818 (348,248) 346,900   - - -
Total   20,967,989 772,112 (779,081)   18,563,230 (1,262,254) 1,216,786   9,738,021 (513,949) 525,664

 

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

 

 

2023

 

 

0-1 year

1-2 years

2-3 years

3-4 years

4-5 years

5-10 years

Total

Hedge of fair value 696,906 1,653,677 6,001,602 6,920,470 2,888,836 1,921,291 20,082,782
Hedge of net investment in foreign operations 400,918 45,524 - - - - 446,442
Hedge of cash flow 438,765 - - - - - 438,765
Total 1,536,589 1,699,201 6,001,602 6,920,470 2,888,836 1,921,291 20,967,989
               
 

2022

 

 

0-1 year

1-2 years

2-3 years

3-4 years

4-5 years

5-10 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
               
 

2021

 

 

0-1 year

1-2 years

2-3 years

3-4 years

4-5 years

5-10 years

Total

Hedge of fair value 136,636 276,219 478,745 972,199 4,510,125 2,924,075 9,297,999
Hedge of net investment in foreign operations 384,217 - - 55,805 - - 440,022
Total 520,853 276,219 478,745 1,028,004 4,510,125 2,924,075 9,738,021

 

10.Loan operations

 

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

 

Loans by type 2023   2022
Pledged asset loan 24,845,243   20,198,764
Retail 12,366,330   10,932,086
Companies 7,054,507   5,311,675
Credit card 5,424,406   3,955,003
Non-pledged loan 4,036,646   2,061,774
Retail 764,712   309,468
Companies 959,898   546,678
Credit card 2,312,036   1,205,628
Total loans operations 28,881,889   22,260,538
Expected Credit Loss (Note 14) (329,954)   (49,377)
Total loans operations, net of Expected Loss 28,551,935   22,211,161

 

XP Inc. and its subsidiaries

Notes to consolidated financial statements

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

By maturity 2023   2022  
Overdue by 1 day or more 329,707   -  
Due in 3 months or less 6,739,145   2,496,982  
Due after 3 months through 12 months 5,056,321   7,211,321  
Due after 12 months 16,756,716   12,552,235  
Total loans operations 28,881,889   22,260,538  
By concentration  

 

 

2023   2022  
Largest debtor 855,607   814,284  
10 largest debtors 2,921,734   2,458,714  
20 largest debtors 4,058,250   3,241,494  
50 largest debtors 5,579,073   4,484,877  
100 largest debtors 6,949,906   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 gross carrying amount and the expected credit losses in loan operations, segregated by stage, according with IFRS 9, is demonstrated in Note 14.

 

11.Accounts receivable

 

  2023   2022
Customers (a)  579,498    522,117
Dividends and interest receivable on equity capital - Funds  31,779    82,545
Other (b)  133,820    28,011
(-) Expected credit losses on accounts receivable (Note 14(b)) (63,907)    (34,786)
Total  681,190    597,887

 

(a) Refers to receivables from management fees arising from the distribution of funds and amounts receivable related to service provision, which have an average term of 30 days. There is no concentration on the balances receivable as of December 31, 2023 and 2022.

 

(b) Mainly related to accounts receivable from B3.

 

The reconciliation of gross carrying amount and the expected credit loss in accounts receivable, segregated by stage, according with IFRS 9, is included in Note 14.

 

12.Recoverable taxes

 

  2023   2022
Prepayments of income taxes (IRPJ and CSLL)  192,570   142,708
Contributions over revenue (PIS and COFINS)  45,688   19,453
Taxes on services (ISS)  1,859   1,087
Others 5,097   -
Total 245,214   163,248
       
Current 245,214   163,248
Non-current -   -

 

XP Inc. and its subsidiaries

Notes to consolidated financial statements

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

13.Prepaid expenses

 

  2023   2022
Commissions and premiums paid in advance (a) (b)  4,081,456    3,863,986
Marketing expenses  10,687    16,893
Services paid in advance  42,331    48,775
Other expenses paid in advance  283,789    310,453
Total  4,418,263    4,240,107
       
Current  826,107    789,609
Non-current  3,592,156    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 Group’s income statement, linearly, according to the investment term period.

 

(b)Include balances with related parties, in connection with the transactions disclosed on Note 5(ii)(c)(ii).

 

 

XP Inc. and its subsidiaries

Notes to consolidated financial statements

December 31, 2023, 2022 and 2021

(In thousands of Brazilian Reais, unless otherwise stated)

14.Expected Credit Losses on Financial Assets and Reconciliation of carrying amount

 

a)Reconciliation of carrying amount of Financial Assets

 

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 and the low credit risk simplification.

 

Stage 1 Balance at December 31, 2022 Acquisition / (Settlements) Business Combination Transfer to stage 2 Transfer to stage 3 Transfer from stage 2 Transfer from stage 3 Write-Off Closing balance December 31, 2023
                   
Financial assets at fair value through other comprehensive income</