XP (XP) 6-K Report on review of interim condensed consolidated financial statements

Exhibit 99.1

XP Inc.

Interim condensed consolidated
financial statements at
March 31, 2023
and report on review

Report on review of interim condensed
consolidated financial statements

To the Board of Directors and Shareholders

XP Inc.

Introduction

We have reviewed the accompanying interim condensed consolidated balance sheets of XP Inc. and its subsidiaries (the “Company”) as at March 31, 2023 and the related interim condensed consolidated statements of income and of comprehensive income, changes in equity and cash flows for the three-month period then ended, and explanatory notes.

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

Scope of review

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

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim condensed consolidated financial statements referred to above are not prepared, in all material respects, in accordance with IAS 34.

São Paulo, May 15, 2023     

/s/ PricewaterhouseCoopers

Auditores Independentes Ltda.

CRC 2SP000160/O-5

Tatiana Fernandes Kagohara Gueorguiev

Contadora CRC 1SP245281/O-6

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

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

XP Inc. and its subsidiaries Unaudited interim condensed consolidated balance sheets As of March 31, 2023 and December 31, 2022 In thousands of Brazilian Reais  

Assets	Note		March 31,   2023		December 31,   2022
Cash				3,088,840		3,553,126
Financial assets				180,185,407		177,681,987
Fair value through profit or loss				99,526,681		96,730,159
Securities		4		84,511,400		87,513,004
Derivative financial instruments		5		15,015,281		9,217,155
Fair value through other comprehensive income				29,145,061		34,478,668
Securities		4		29,145,061		34,478,668
Evaluated at amortized cost				51,513,665		46,473,160
Securities		4		10,905,257		9,272,103
Securities purchased under agreements to resell		3		11,830,082		7,603,820
Securities trading and intermediation		9		2,607,109		3,271,000
Accounts receivable				594,600		597,887
Loan operations		7		23,106,926		22,211,161
Other financial assets		15		2,469,691		3,517,189
Other assets				6,193,799		5,760,811
Recoverable taxes				282,820		163,248
Rights-of-use assets		12		233,423		258,491
Prepaid expenses		8		4,250,258		4,240,107
Other				1,427,298		1,098,965
Deferred tax assets		17		1,582,107		1,611,882
Investments in associates and joint ventures		11		2,256,475		2,271,731
Property and equipment		12		304,404		310,894
Goodwill and Intangible assets		12		829,638		844,182
Total assets				194,440,670		192,034,613

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

 1

XP Inc. and its subsidiaries Unaudited interim condensed consolidated balance sheets As of March 31, 2023 and December 31, 2022 In thousands of Brazilian Reais  

Liabilities and equity	Note		March 31,   2023			December 31,   2022
Financial liabilities				128,402,304			127,708,578
Fair value through profit or loss				26,545,169			22,134,674
Securities		4		11,472,086			13,529,265
Derivative financial instruments		5		15,073,083			8,605,409
Evaluated at amortized cost				101,857,135			105,573,904
Securities sold under repurchase agreements		3		25,921,374			31,790,091
Securities trading and intermediation		9		15,269,391			16,062,697
Financing instruments payable		13		46,481,814			43,683,629
Accounts payables				585,660			617,394
Borrowings		14		1,825,181			1,865,880
Other financial liabilities		15		11,773,715			11,554,213
Other liabilities				48,916,078			47,172,782
Social and statutory obligations				503,295			968,119
Taxes and social security obligations				400,112			365,419
Retirement plans liabilities		16		47,806,249			45,733,815
Provisions and contingent liabilities		20		79,388			43,541
Other				127,034			61,888
Deferred tax liabilities		17		76,425			111,043
Total liabilities				177,394,807			174,992,403
Equity attributable to owners of the Parent company		18		17,038,650			17,035,735
Issued capital				24			24
Capital reserve				19,194,538			19,156,382
Other comprehensive income (loss)				(48,311	)		(133,909	)
Treasury shares				(2,902,621	)		(1,986,762	)
Retained earnings				795,020			—
Non-controlling interest				7,213			6,475
Total equity				17,045,863			17,042,210
Total liabilities and equity				194,440,670			192,034,613

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

 2

XP Inc. and its subsidiaries Unaudited interim condensed consolidated statements of income and of comprehensive income For the three months period ended March 31, 2023 and 2022 In thousands of Brazilian Reais, except earnings per share  

			Three months period ended   March 31,
	Note		2023			2022
Net revenue from services rendered		21		1,345,984			1,264,952
Net income/(loss) from financial instruments at amortized cost and at fair value through other comprehensive income		21		502,113			(144,601	)
Net income/(loss) from financial instruments at fair value through profit or loss		21		1,285,892			2,000,996
Total revenue and income				3,133,989			3,121,347
Operating costs		22		(1,016,525	)		(864,284	)
Selling expenses		23		(14,942	)		(19,182	)
Administrative expenses		23		(1,093,939	)		(1,292,702	)
Other operating income (expenses), net		24		18,881			42
Expected credit losses		10		(67,634	)		(26,427	)
Interest expense on debt				(162,828	)		(48,114	)
Share of profit (loss) in joint ventures and associates		11		19,146			(14,241	)
Income before income tax				816,148			856,439
Income tax credit (expense)		17		(20,203	)		(2,190	)
Net income for the period				795,945			854,249
Other comprehensive income
Items that can be subsequently reclassified to income
Foreign exchange variation of investees located abroad				(17,996	)		(51,541	)
Gains (losses) on net investment hedge				20,871			47,492
Changes in the fair value of financial assets at fair value through other comprehensive income				80,384			46,608
Other comprehensive income (loss) for the period, net of tax				83,259			42,559
Total comprehensive income for the period				879,204			896,808
Net income attributable to:
Owners of the Parent company				795,020			854,104
Non-controlling interest				925			145
Total comprehensive income attributable to:
Owners of the Parent company				878,279			896,663
Non-controlling interest				925			145
Earnings per share from total income attributable to the ordinary equity holders of the company
Basic earnings per share		26		1.4847			1.5273
Diluted earnings per share		26		1.4823			1.4799

 3

XP Inc. and its subsidiaries Unaudited interim condensed consolidated statements of changes in equity For the three months period ended March 31, 2023 and 2022 In thousands of Brazilian Reais, except earnings per share  

			Attributable to owners of the parent
			Capital reserve				Other
	Notes	Issued Capital	Additional paid-in capital		Other Reserves		comprehensive income and Other			Retained Earnings		Treasury Shares			Total			Non- Controlling interest			Total Equity
Balances as of December 31, 2021		23		6,821,176		8,102,139		(334,563	)		—		(171,939	)		14,416,836			2,793			14,419,629
Comprehensive income for the period
Net income for the period		—		—		—		—			854,104		—			854,104			145			854,249
Other comprehensive income, net		—		—		—		42,559			—		—			42,559			—			42,559
Transactions with shareholders - contributions and distributions
Share based plan	25	—		—		154,699					—		—			154,699			—			154,699
Other changes in equity, net		—		—				91			—		—			91			239			330
Private issuance of shares		1		70,030		—		—			—		—			70,031			—			70,031
Allocations of the net income for the period
Dividends distributed		—		—		—		—			—		—			—			(604	)		(604	)
Balances as of March 31, 2022		24		6,891,206		8,256,838		(291,913	)		854,104		(171,939	)		15,538,320			2,573			15,540,893
Balances as of December 31, 2022		24		6,986,447		12,169,935		(133,909	)		—		(1,986,762	)		17,035,735			6,475			17,042,210
Comprehensive income for the period
Net income for the period		—		—		—		—			795,020		—			795,020			925			795,945
Other comprehensive income, net		—		—		—		83,259			—		—			83,259			—			83,259
Transactions with shareholders - contributions and distributions
Share based plan	25	—		—		38,156		—			—		—			38,156			—			38,156
Other changes in equity, net		—		—		—		2,339			—		—			2,339			119			2,458
Treasury shares	18	—		—		—		—			—		(915,859	)		(915,859	)		—			(915,859	)
Allocations of the net income for the period
Dividends distributed		—		—		—		—			—		—			—			(306	)		(306	)
Balances as of March 31, 2023		24		6,986,447		12,208,091		(48,311	)		795,020		(2,902,621	)		17,038,650			7,213			17,045,863

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

 4

XP Inc. and its subsidiaries Unaudited interim condensed consolidated statements of cash flows For the three months period ended March 31, 2023 and 2022 In thousands of Brazilian Reais, except earnings per share  

			Three months ended March 31,
	Note		2023			2022
Operating activities
Income before income tax				816,148			856,439
Adjustments to reconcile income before income taxes
Depreciation of property, equipment and right-of-use assets		12		26,516			33,690
Amortization of intangible assets		12		21,326			27,209
Loss on write-off of property, equipment and intangible assets and lease, net		12		5,325			5,164
Share of profit or (loss) in joint ventures and associates		11		(19,146	)		14,241
Expected credit losses on financial assets				33,881			26,427
Provision for contingencies, net		20		34,660			699
Net foreign exchange differences				(210,419	)		(880,960	)
Share based plan		25		38,156			154,699
Interest accrued				154,183			64,711
(Gain) / Loss on the disposal of investments		11		14,083			—
Changes in assets and liabilities
Securities (assets and liabilities)				4,112,334			(6,904,124	)
Derivative financial instruments (assets and liabilities)				701,030			(985,553	)
Securities trading and intermediation (assets and liabilities)				(135,413	)		1,621,790
Securities purchased (sold) under resale (repurchase) agreements				(5,969,509	)		684,165
Accounts receivable				(8,431	)		109,414
Loan operations				(911,295	)		(1,626,138	)
Prepaid expenses				(10,151	)		10,592
Other assets and other financial assets				334,362			(723,368	)
Accounts payable				(32,002	)		(426,964	)
Financing instruments payable				2,690,874			5,168,058
Social and statutory obligations				(464,824	)		(579,387	)
Tax and social security obligations				(13,087	)		(50,016	)
Retirement plans liabilities				2,072,434			4,285,381
Other liabilities and other financial liabilities				312,033			461,857
Cash from/ (used in) operations				3,593,068			1,348,026
Income tax paid				(157,926	)		(237,494	)
Contingencies paid		20		(199	)		(968	)
Interest paid				(6,883	)		(6,510	)
Net cash flows (used in) from operating activities				3,428,060			1,103,054
Investing activities
Acquisition of property and equipment		12		(1,929	)		(8,400	)
Acquisition of intangible assets		12		(8,348	)		(5,184	)
Disposal of investments		11		19,338			—
Acquisition of associates and joint ventures		11		—			(111,989	)
Net cash flows used in investing activities				9,061			(125,573	)
Financing activities
Acquisition of treasury shares		18		(915,859	)		—
Issuance of debt securities		30		134,598			—
Payments of borrowings and lease liabilities		30		(27,477	)		(24,624	)
Transactions with non-controlling interests				119			239
Dividends paid to non-controlling interests				(306	)		(604	)
Net cash flows from (used in) financing activities				(808,925	)		(24,989	)
Net increase in cash and cash equivalents				2,628,196			952,492
Cash and cash equivalents at the beginning of the period				4,967,480			3,751,861
Effects of exchange rate changes on cash and cash equivalents				(14,005	)		(37,021	)
Cash and cash equivalents at the end of the period				7,581,671			4,667,332
Cash				3,088,840			3,221,880
Securities purchased under agreements to resell		3		4,126,706			1,235,486
Interbank certificate deposits		4		236,125			209,966
Other deposits				130,000			—

s

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

5 

XP Inc. and its subsidiaries Notes to unaudited interim condensed consolidated financial statements As of March 31, 2023 In thousands of Brazilian Reais, unless otherwise stated  

1. Operations

XP Inc. (the “Company”) is a Cayman Island exempted company with limited liability, incorporated on August 29, 2019. The registered office of the Company is Ugland House, 121 South Church Street in George Town, Grand Cayman. The Company’s principal executive office is located in the city of São Paulo, Brazil.

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 67.43% of voting rights and is controlled by a group of individuals.

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

These unaudited interim condensed consolidated financial statements as of March 31, 2023, were approved by the Board of Director’s meeting on May 12, 2023.

1.1 Share buy-back program

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

As of November 04, 2022, the Board of Directors approved an amendment to the share buy-back program. Under the amended program, XP Inc may repurchase up to the amount in dollars equivalent to R$2.0 billion of its outstanding Class A common shares (therefore, an increase of the maximum amount of R$1.0 billion compared to the original program). The program period has not been amended, continuing until the earlier of the completion of the repurchase or May 12, 2023, depending upon market conditions.

As of March 31, 2023, the company purchased 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. The repurchase limit of R$2.0 billion has been reached on March 31, 2023, and, therefore, the share buy-back program has terminated. As of March 31, 2023, the shares repurchased under the repurchase program corresponded to approximately 4.47% of the entity's capital stock.

1.2 Share purchase agreement with Itaú

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

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

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

6 

XP Inc. and its subsidiaries Notes to unaudited interim condensed consolidated financial statements As of March 31, 2023 In thousands of Brazilian Reais, unless otherwise stated  

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

a) Basis of preparation

The unaudited interim condensed consolidated balance sheet as of March 31, 2023, and the unaudited interim condensed consolidated statements of income and comprehensive income, changes in equity and cash flow, for the three months period ended March 2023 and 2022 (the “financial statements”) have been prepared in accordance with IAS 34 Interim Financial Reporting as issued by the International Accounting Standards Board (“IASB”).

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

The unaudited interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group’s annual consolidated financial statements as of December 31, 2022. The list of notes that were not presented in this unaudited interim condensed is described below:

Note to financial statements of December 31, 2022	Description
3.	Summary of significant accounting policies
4.	Significant accounting judgements, estimates and assumptions
5.	Group structure
11.	Accounts receivable
12.	Recoverable taxes
21.	Social and Statutory obligations
22.	Tax and social security obligations
26. (a)	Key-person management compensation

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

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

b) New standards, interpretations and amendments adopted by the Group

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group’s annual consolidated financial statements for the year ended December 31, 2022. The Group has not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.

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

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

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

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

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

c) Basis of consolidation

There were no changes since December 31, 2022, in the accounting practices adopted for consolidation of the Company’s direct and indirect interests in its subsidiaries for the purposes of these unaudited interim condensed consolidated financial statements.

7 

XP Inc. and its subsidiaries Notes to unaudited interim condensed consolidated financial statements As of March 31, 2023 In thousands of Brazilian Reais, unless otherwise stated  

(i) Subsidiaries

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

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

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

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

(ii) Associates

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

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

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

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

(iii) Interests in associates and joint ventures measured at fair value

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

d) Business combinations and other developments

a) Business combinations

(i) Habitat

On February 25, 2022, we entered into a binding agreement to acquire 100% of the total capital of Habitat Capital Partners Asset Management, a manager focused on real estate funds. The asset was created with a focus on real estate operations outside the major Brazilian centers and with a strategy of monitoring the entire process in-house, from securitization to control of collection processes. The closing occurred in May 2022, and the acquisition is not considered material for XP Inc. interim consolidated financial statements. The total consideration is R$65,353, out of which: i) R$35,183 paid in cash, ii) R$17,233 which shall be paid at the end of March 2023 and iii) R$12,937 as a fair value of the contingent consideration. The purchase price was mostly allocated to goodwill (R$ 60,037 – see Note 12), representing the value of expected synergies arising from the acquisition.

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

8 

XP Inc. and its subsidiaries Notes to unaudited interim condensed consolidated financial statements As of March 31, 2023 In thousands of Brazilian Reais, unless otherwise stated  

(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.

b) Other developments

(i) SPAC Transactions

On April 25, 2022, XPAC Acquisition Corp., a special purpose acquisition company sponsored by the Group (“XPAC”), entered into a business combination agreement with SuperBac, a Brazilian biotechnology company. On May 2, 2023, SuperBac informed XPAC that it had decided to terminate the Business Combination Agreement, due to adverse market conditions, among other factors. Following the termination of the proposed business combination with SuperBac, the board of directors of XPAC determined that it is in the best interests of XPAC and its shareholders to accelerate the liquidation date of XPAC and XPAC expects to take necessary steps in furtherance of this.

(ii) Share purchase agreement signed with Banco Modal S.A

On January 6, 2022, the Group entered into a binding agreement to acquire up to 100% of the total share of Banco Modal which will be paid with up to 19.5 million newly issued XP Inc. Class A shares or Brazilian Depository Receipts (BDR), implying a premium of 35% over Banco Modal’s last thirty days average price. The companies share the common goal of exceeding clients’ expectations and democratizing access to high quality and low-cost financial products and services. The acquisition is expected to deliver solid and sustainable accretion to the shareholders of both companies. As of March 31, 2023, the acquisition is pending approval of the Brazilian Central Bank (BACEN). The transaction was approved by Administrative Council for Economic Defense (CADE) in July 2022.

e) Segment reporting

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

The CODM considers the whole Group as a single operating and reportable segment, monitoring operations, making decisions on fund allocation and evaluating performance based on a single operating segment. The CODM reviews relevant financial data on a combined basis for all subsidiaries and joint ventures. Disaggregated information is only reviewed at the revenue level (Note 21), with no corresponding detail at any margin or profitability levels.

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

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

f) Estimates

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

In preparing these unaudited interim condensed consolidated financial statements, the significant judgements and estimates made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that are set in the consolidated financial statements for the year ended December 31, 2022.

9 

XP Inc. and its subsidiaries Notes to unaudited interim condensed consolidated financial statements As of March 31, 2023 In thousands of Brazilian Reais, unless otherwise stated  

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

a) Securities purchased under resale agreements

	March 31,   2023			December 31,   2022
Collateral held		4,514,560			834,975
National Treasury Notes (NTNs) (i)		1,724,713			645,188
National Treasury Bills (LTNs) (i)		2,300,023			—
Debentures (ii)		351,831			84,065
Real Estate Receivable Certificates (CRI) (ii)		134,373			82,633
Financial credit bills (LF)		1,023			5,438
Other		2,597			17,651
Collateral repledge		7,319,439			6,771,526
National Treasury Bills (LTNs) (i)		110,000			227,713
National Treasury Notes (NTNs) (i)		1,888,307			2,842,159
Financial Treasury Bills (LFTs) (i)		1,800,024			—
Debentures (ii)		1,089,905			929,346
Real Estate Receivable Certificates (CRI) (ii)		2,131,996			2,019,639
Agribusiness Receivables Certificates (CRA)		152,065			101,091
Agribusiness Credit Bill		—			171,730
Other		147,142			479,848
Expected Credit Loss (iii)		(3,917	)		(2,681	)
Total		11,830,082			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 fixed-rate fixed-income assets, which are low-risk investments collateral-backed.

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

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

As of March 31, 2023, the amount of R$ 4,126,706 (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

	March 31,  2023		December 31,   2022
National Treasury Bills (LTNs)		2,507,619		8,569,145
National Treasury Notes (NTNs)		12,291,177		12,347,218
Financial Treasury Bills (LFTs)		1,993,038		533,509
Debentures		1,690,234		1,831,846
Real Estate Receivable Certificates (CRI)		6,759,501		6,471,410
Financial credit bills (LF)		151,573		1,111,890
Agribusiness Receivables Certificates (CRA)		528,232		925,073
Total		25,921,374		31,790,091

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

10 

XP Inc. and its subsidiaries Notes to unaudited interim condensed consolidated financial statements As of March 31, 2023 In thousands of Brazilian Reais, unless otherwise stated  

4. Securities

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

	March 31, 2023								December 31, 2022
	Gross    carrying   amount		Fair    value		Group   portfolio		Retirement   plan assets   (i)		Gross   carrying   amount		Fair    value		Group   portfolio		Retirement   plan assets   (i)
Financial assets
At fair value through profit or loss
Available portfolio		81,865,361		83,369,090		35,665,204		47,703,886		86,273,732		86,336,920		40,648,295		45,688,625
Brazilian onshore sovereign bonds		21,561,747		23,009,915		20,987,834		2,022,081		25,262,407		25,127,998		22,799,302		2,328,696
Investment funds		46,065,076		46,065,076		1,583,716		44,481,360		42,274,069		42,274,069		2,389,131		39,884,938
Stocks issued by public-held company		4,217,653		4,217,653		3,958,008		259,645		5,494,957		5,494,957		5,155,761		339,196
Debentures		2,871,920		2,853,604		2,318,132		535,472		5,013,524		4,990,882		2,768,843		2,222,039
Structured notes		133,851		173,462		173,462		—		243,790		285,560		285,560		—
Bank deposit certificates (ii)		566,022		579,339		561,828		17,511		525,778		541,294		523,859		17,435
Agribusiness receivables certificates		1,994,033		1,976,547		1,958,509		18,038		1,998,287		1,984,686		1,964,977		19,709
Certificate of real estate receivable		2,329,705		2,317,259		2,315,462		1,797		1,799,625		1,803,111		1,800,671		2,440
Financial credit bills		452,502		492,966		131,501		361,465		663,589		738,028		16,981		721,047
Real estate credit bill		61,216		61,367		61,367		—		2,299,236		2,302,124		2,302,124		—
Others (iv)		1,611,636		1,621,902		1,615,385		6,517		698,470		794,211		641,086		153,125
Investments held in trust accounts		1,142,310		1,142,310		1,142,310		—		1,176,084		1,176,084		1,176,084		—
US government bonds (iii)		1,142,310		1,142,310		1,142,310		—		1,176,084		1,176,084		1,176,084		—
Total		83,007,671		84,511,400		36,807,514		47,703,886		87,449,816		87,513,004		41,824,379		45,688,625

(i) Those financial products represent investment contracts that have the legal form of retirement plans, which do not transfer substantial insurance risk to the Group. Therefore, contributions received from participants are accounted for as liabilities and an asset of the participant in the linked Specially Constituted Investment Fund (“FIE”). Besides assets which are presented segregated above, as retirement plan assets, the Group has proprietary assets to guarantee the solvency of our insurance and pension plan operations, under the terms of CNSP Resolution No. 432/2021, presented as Group portfolio, within investment funds line. As of March 31, 2023, those assets represent R$96,227 (December 31, 2022 - R$183,732).

(ii) Bank deposit certificates include R$236,125 (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.

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

11 

XP Inc. and its subsidiaries Notes to unaudited interim condensed consolidated financial statements As of March 31, 2023 In thousands of Brazilian Reais, unless otherwise stated  

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

	March 31,   2023				December 31,   2022
	Gross carrying   amount		Fair    value		Gross carrying   amount		Fair    value
Financial assets
At fair value through other comprehensive income
Brazilian onshore sovereign bonds		27,869,291		28,050,044		33,532,740		32,931,403
Brazilian offshore sovereign bonds		—		—		1,379,129		1,321,258
Foreign sovereign bonds		986,806		1,005,347		—		—
Corporate bonds		94,021		89,670		238,730		226,007
Total		28,950,118		29,145,061		35,150,599		34,478,668

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

	March 31,   2023				December 31,   2022
	Gross carrying   amount		Book   value		Gross carrying   amount		Book   value
Financial assets
At amortized cost (i)
Brazilian onshore sovereign bonds		7,743,613		7,741,826		5,835,971		5,834,628
Foreign sovereign bonds		879,123		877,634		1,743,688		1,742,311
Rural product note		577,580		577,325		507,131		506,927
Commercial notes		1,708,962		1,708,472		1,188,237		1,188,237
Total		10,909,278		10,905,257		9,275,027		9,272,103

(i) Includes expected credit losses in the amount of R$ 4,021 (December 31, 2022 – R$ 2,924). The reconciliation of gross carrying amount and the expected credit loss segregated by stages are presented in the Note 10.

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

	March 31,   2023				December 31,   2022
	Gross carrying   amount		Fair   value		Gross carrying   amount		Fair   value
Financial liabilities
At fair value through profit or loss
Securities		10,979,734		10,979,734		13,048,246		13,048,246

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

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

	March 31,   2023				December 31,   2022
	Gross carrying   amount		Fair    value		Gross carrying   amount		Fair   Value
Financial liabilities
At fair value through profit or loss
Debentures		580,474		492,352		567,838		481,019

12 

XP Inc. and its subsidiaries Notes to unaudited interim condensed consolidated financial statements As of March 31, 2023 In thousands of Brazilian Reais, unless otherwise stated  

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

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

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

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

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

	March 31, 2023
	Contractual   principal   outstanding		Fair value		Fair value/(under)   contractual principal   outstanding
Long-term debt
Debentures		580,474		492,352		(88,122	)

e) Securities classified by maturity:

	Assets				Liabilities
	March 31,   2023		December 31,   2022		March 31,   2023		December 31,   2022
Financial assets
At fair value through PL and at OCI
Current		79,578,818		73,569,049		10,979,734		13,048,246
Non-stated maturity		69,866,820		49,001,359		10,979,734		13,048,246
Up to 3 months		2,239,771		18,739,708		—		—
From 4 to 12 months		7,472,227		5,827,982		—		—
Non-current		34,077,643		48,422,623		492,352		481,019
After one year		34,077,643		48,422,623		492,352		481,019
Evaluated at amortized cost
Current		6,387,258		7,952,328		—		—
Up to 3 months		3,338,557		3,327,313		—		—
From 4 to 12 months		3,048,701		4,625,015		—		—
Non-current		4,517,999		1,319,775		—		—
After one year		4,517,999		1,319,775		—		—
Total		124,561,718		131,263,775		11,472,086		13,529,265

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

5. Derivative financial instruments

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

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

13 

XP Inc. and its subsidiaries Notes to unaudited interim condensed consolidated financial statements As of March 31, 2023 In thousands of Brazilian Reais, unless otherwise stated  

	March 31, 2023
	Notional		Fair Value		%		Up to 3   months		From 4 to   12 months		Above   12 months
Assets
Options		1,808,561,090		5,781,668		93		1,620,238		2,200,409		1,961,021
Swap contracts		72,584,200		2,954,033		4		276,921		241,681		2,435,431
Forward contracts		20,903,989		5,859,428		1		370,163		274,562		5,214,703
Future contracts		47,967,681		420,152		2		84,901		259,818		75,433
Total		1,950,016,960		15,015,281		100		2,352,223		2,976,470		9,686,588
Liabilities
Options		1,293,018,251		7,670,874		89		1,357,782		2,443,785		3,869,307
Swap contracts		66,529,833		1,374,334		5		50,602		270,660		1,053,072
Forward contracts		44,792,647		5,741,117		3		240,846		475,490		5,024,781
Future contracts		43,515,541		286,073		3		133,084		83,963		69,026
Others (i)		84,184		685		0		—		685		—
Total		1,447,940,456		15,073,083		100		1,782,314		3,274,583		10,016,186

	December 31, 2022
	Notional		Fair Value		%		Up to 3   months		From 4 to    12 months		Above   12 months
Assets
Options		1,253,758,408		5,542,340		94		1,209,290		1,931,618		2,401,432
Swap contracts		32,705,136		2,828,613		2		62,729		350,012		2,415,872
Forward contracts		16,058,162		549,953		1		352,796		132,119		65,038
Future contracts		34,679,065		296,249		3		73,621		222,628		—
Total		1,337,200,771		9,217,155		100		1,698,436		2,636,377		4,882,342
Liabilities						��
Options		852,098,826		7,086,946		84		1,387,988		1,781,457		3,917,501
Swap contracts		13,755,838		839,421		1		44,526		261,669		533,226
Forward contracts		13,548,954		511,167		1		150,119		224,932		136,116
Future contracts		140,039,765		161,574		14		53,421		72,349		35,804
Others (i)		84,184		6,301		—		6,301		—		—
Total		1,019,527,567		8,605,409		100		1,642,355		2,340,407		4,622,647

(i) Related to Public Warrants and Private placement Warrants liabilities issued by XPAC Acquisition Corp.

6. Hedge accounting

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

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

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

· 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 Holdings International and XP Advisors Inc. The Group has entered into forward contracts to protect against changes in future cash flows and exchange rate variation of net investments in foreign operations known as Non-Deliverable Forward (“NDF”) contracts.

14 

XP Inc. and its subsidiaries Notes to unaudited interim condensed consolidated financial statements As of March 31, 2023 In thousands of Brazilian Reais, unless otherwise stated  

The Group undertakes risk management through the economic relationship between hedge instruments and hedged item, 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			Variation in the amounts used to calculate
Strategies	Assets	Liabilities	comprehensive income		Notional value	hedge ineffectiveness
March 31, 2023
Foreign exchange risk
Hedge of net investment in foreign operations	434,248	—	(16,959	)	456,495	17,680
Total	434,248	—	(16,959	)	456,495	17,680
December 31, 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

b) Fair value hedge

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

The group applies fair value hedges as follows:

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

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

· Hedging the exposure of fixed-income securities carried out through sovereign and corporate bonds issued in local or foreign currencies, mainly US Dollars. The market risk hedge strategy involves avoiding temporary fluctuations in statements of income arising from changes in the interest rate market. Once this risk is offset, the Group seeks to index the portfolio to the CDI, through the use of derivatives.

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

	Hedged item				Hedge instrument
	Book Value		Variation in value recognized in Other			Variation in the amounts used to calculate
Strategies	Assets	Liabilities	comprehensive income		Notional value	hedge ineffectiveness
March 31, 2023
Interest rate and foreign exchange risk
Structured notes	—	11,806,826	(123,855	)	11,825,140	122,882
Issued bonds	—	3,654,263	79,074		3,567,609	(82,223	)
Fixed income bonds	1,509,036	—	39,838		1,551,657	(37,490	)
Total	1,509,036	15,461,089	(4,943	)	16,944,406	3,169

15 

XP Inc. and its subsidiaries Notes to unaudited interim condensed consolidated financial statements As of March 31, 2023 In thousands of Brazilian Reais, unless otherwise stated  

	Hedged item				Hedge instrument
	Book Value		Variation in value recognized in Other			Variation in the amounts used to calculate
Strategies	Assets	Liabilities	comprehensive income		Notional value	hedge ineffectiveness
December 31, 2022
Interest rate and foreign exchange risk
Structured notes	—	10,648,559	726,798		10,663,672	(734,656	)
Issued bonds	—	3,889,699	323,881		3,646,613	(362,994	)
Fixed income bonds	3,589,909	—	(163,541	)	3,577,084	165,164
Total	3,589,909	14,538,258	887,138		17,887,369	(932,486	)

c) Cash flow hedge

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

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

	Hedged item			Hedge instrument
	Book Value		Variation in value recognized in Other		Variation in the amounts used to calculate
Strategies	Assets	Liabilities	comprehensive income	Notional value	hedge ineffectiveness
March 31, 2023
Market price risk
Long term incentive plan taxes	—	179,631	81,386	194,288	(81,678	)
Total	—	179,631	81,386	194,288	(81,678	)
December 31, 2022
Market price risk
Long term incentive plan taxes	—	262,756	346,900	261,818	(348,248	)
Total	—	262,756	346,900	261,818	(348,248	)

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

	March 31, 2023
	Notional				Book value		Variation in fair    value used to   calculate hedge   ineffectiveness			Hedge ineffectiveness   recognized in income
Hedge Instruments	amount		Assets		Liabilities
Interest rate risk
Futures		16,668,322		1,509,036		15,184,364		10,305			(528	)
Foreign exchange risk
Futures		732,579		434,248		276,725		10,544			(525	)
Market price risk
Swaps		194,288		—		179,631		(81,678	)		(292	)

16 

XP Inc. and its subsidiaries Notes to unaudited interim condensed consolidated financial statements As of March 31, 2023 In thousands of Brazilian Reais, unless otherwise stated  

	March 31, 2023
	Notional				Book value		Variation in fair    value used to   calculate hedge   ineffectiveness			Hedge ineffectiveness   recognized in income
Hedge Instruments	amount		Assets		Liabilities
Interest rate risk
Futures		17,604,185		3,589,909		14,218,543		(890,103	)		(41,295	)
Foreign exchange risk
Futures		697,227		395,594		319,715		(23,903	)		(2,825	)
Market price risk
Swaps		261,818		—		262,756		(348,248	)		(1,348	)

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

	March 31, 2023							December 31, 2022
	Hedge instruments				Hedge item			Hedge instruments				Hedge item
Strategies		Notional amount	Fair value adjustments			Book value			Notional amount	Fair value adjustments			Book value
Hedge of fair value		16,944,406	3,169			(4,943	)		17,887,369	(932,486	)		887,138
Hedge of net investment in foreign operations		456,495	17,680			(16,959	)		414,043	18,480			(17,252	)
Hedge of cash flow		194,288	(81,678	)		81,386			261,818	(348,248	)		346,900
Total		17,595,189	(60,829	)		59,484			18,563,230	(1,262,254	)		1,216,786

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

	March 31, 2023
	0-1 year		1-2 years		2-3 years		3-4 years		4-5 years		5-10 years		Total
Hedge of fair value		405,687		943,288		4,281,442		8,216,567		2,948,806		148,616		16,944,406
Hedge of net investment in foreign operations		425,034		31,461		—		—		—		—		456,495
Hedge of cash flow		194,288		—		—		—		—		—		194,288
Total		1,025,009		974,749		4,281,442		8,216,567		2,948,806		148,616		17,595,189

	December 31, 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

7. Loan operations

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

Loans by type	March 31,   2023			December 31,   2022
Pledged asset loan		20,845,544			20,198,764
Retail		11,272,103			10,932,086
Companies		5,475,177			5,311,675
Credit card		4,098,264			3,955,003
Non-pledged loan		2,321,774			2,061,774
Retail		318,776			309,468
Companies		433,517			546,678
Credit card		1,569,481			1,205,628
Total loans operations		23,167,318			22,260,538
Expected Credit Loss (Note 10)		(60,392	)		(49,377	)
Total loans operations, net of Expected Loss		23,106,926			22,211,161

17 

XP Inc. and its subsidiaries Notes to unaudited interim condensed consolidated financial statements As of March 31, 2023 In thousands of Brazilian Reais, unless otherwise stated  

By maturity	March 31,   2023		December 31,   2022
Overdue by 1 day or more		78,350		69,855
Due in 3 months or less		2,995,344		2,427,127
Due after 3 months through 12 months		6,480,590		7,211,321
Due after 12 months		13,613,034		12,552,235
Total loans operations		23,167,318		22,260,538

By concentration	March 31,   2023		December 31,   2022
Largest debtor		842,496		814,284
10 largest debtors		2,496,263		2,458,714
20 largest debtors		3,253,489		3,241,494
50 largest debtors		4,498,795		4,484,877
100 largest debtors		5,608,605		5,615,708

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

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

8. Prepaid expenses

	March 31,   2023		December 31,   2022
Commissions and premiums paid in advance (a)		3,885,522		3,863,986
Marketing expenses		14,006		16,893
Services paid in advance		48,650		48,775
Other expenses paid in advance		302,080		310,453
Total		4,250,258		4,240,107
Current		836,087		789,609
Non-current		3,414,171		3,450,498

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

9. Securities trading and intermediation (receivable and payable)

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

	March 31,   2023			December 31,   2022
Cash and settlement records		559,749			1,394,451
Debtors pending settlement		2,142,902			1,980,341
Other		4,092			1,387
(-) Expected losses on Securities trading and intermediation (a)		(99,634	)		(105,179	)
Total Assets		2,607,109			3,271,000
Cash and settlement records		367,812			171,659
Creditors pending settlement		2,414,804			2,401,828
Customer's cash on investment account		12,486,775			13,489,210
Total Liabilities		15,269,391			16,062,697

18 

XP Inc. and its subsidiaries Notes to unaudited interim condensed consolidated financial statements As of March 31, 2023 In thousands of Brazilian Reais, unless otherwise stated  

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

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

It is presented below the reconciliation of gross carrying amount of financial assets through other comprehensive income and financial assets measured at amortized cost – that have their ECLs (Expected Credit Losses) measured using the three-stage model, the low credit risk simplification and the simplified approach and the ECLs as of March 31, 2023:

	March 31, 2023
	Gross carrying   amount		Expected Credit   Losses			Carrying amount,   net
Financial assets at fair value through other comprehensive income
Low credit risk simplification
Securities (i) (vi)		28,950,118		(6,575	)		28,950,118
Financial assets amortized cost
Low credit risk simplification
Securities (i)		10,909,278		(4,021	)		10,905,257
Securities purchased under agreements to resell (i)		11,833,999		(3,917	)		11,830,082
Three stage model
Loans and credit card operations (ii) (iii) (iv) (vii)		23,167,318		(52,920	)		23,114,398
Simplified approach
Securities trading and intermediation		2,718,286		(111,177	)		2,607,109
Accounts receivable		641,104		(46,504	)		594,600
Other financial assets		2,520,604		(50,913	)		2,469,691
Total losses for on-balance exposures		80,740,707		(276,027	)		80,471,255
Off-balance exposures (v)		6,108,421		(7,472	)		6,100,949
Other off-balance exposures		—		(48,966	)		(48,966	)
Total exposures		86,849,128		(332,465	)		86,523,238

(i) Financial assets considered in Stage 1.

(ii) As of March 31, 2023, are presented in Stage 1: Gross amount of R$ 21,922,929 and ECL of R$ 20,011; Stage 2: Gross amount of R$ 1,220,047 and ECL of R$9,233; Stage 3: Gross amount of R$28,857 and ECL of R$ 28,192, respectively.

(iii) Gross amount: As of March 31, 2023, there were transfers between Stage 1 to Stage 2 of R$ 421,734; Stage 1 to Stage 3 of R$4,081; Stage 2 to Stage 1 of R$ 209,138; Stage 2 to Stage 3 of R$ 11,649; Stage 3 to Stage 1 of R$ 43; and stage 3 to write-off of R$ 4,515.

(iv) Expected credit loss: As of March 31, 2023, there were transfers between Stage 1 to Stage 2 of R$4,653; Stage 1 to Stage 3 of R$ 3,119; Stage 2 to Stage 1 of R$ 327 and Stage 2 to Stage 3 of R$ 7,658, Stage 3 to Stage 1 of R$ 2.

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

(vi) The loss allowance for ECL of R$ 6,575 on securities at fair value through other comprehensive income does not reduce the carrying amount, but an amount equal to the allowance is recognized in OCI as an accumulated impairment amount, with corresponding impairment gains or losses recognized in the statement of income.

(vii) In the three months period ended March 31, 2023, there was R$ 4,515 of credit write-off.

19 

XP Inc. and its subsidiaries Notes to unaudited interim condensed consolidated financial statements As of March 31, 2023 In thousands of Brazilian Reais, unless otherwise stated  

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

(i) Financial assets considered in Stage 1.

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

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

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

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

11. Investments in associates and joint ventures

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

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

Entity	December 31,   2021		Changes in   Equity		Equity in   earnings / Fair   value			Other   comprehensive   income			March 31,   2022
Equity-accounted method
Associates		790,744		—		(13,758	)		(621	)		776,365
Joint ventures		1,197		—		(483	)		—			714
Measured at fair value
Associates (ii)		1,221,424		111,989		52,249			—			1,385,662
Total		2,013,365		111,989		38,008			(621	)		2,162,741

(i) As of March 31, 2023 and December 31, 2022, includes the interests in the total and voting capital of the following companies:

20 

XP Inc. and its subsidiaries Notes to unaudited interim condensed consolidated financial statements As of March 31, 2023 In thousands of Brazilian Reais, unless otherwise stated  

(a) Associates - Wealth High Governance Holding de Participações S.A. (49.9% of the total and voting capital on March 31, 2023, and December 31, 2022); Primo Rico Mídia, Educacional e Participações Ltda. (21.83% of the total and voting capital on March 31, 2023 and 29.26% on December 31, 2022); NK112 Empreendimentos e Participações S.A. (49.9% of the total and voting capital on March 31, 2023, and December 31, 2022).

(ii) As mentioned in Note 2 (c)(iii), the Group valued the investments held through our investment funds at fair value. The fair value of investments is presented in the statement of income as Net income/(loss) from financial instruments at fair value through profit or loss.

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

a) Changes in the period

	Property and    equipment			Intangible   assets
As of January 1, 2022		313,964			820,975
Additions		8,400			5,184
Write-offs		—			(5,164	)
Transfers		(15,000	)		—
Foreign exchange		(1,641	)		—
Depreciation / amortization in the period		(7,689	)		(27,209	)
As of March 31, 2022		298,034			793,786
Cost		363,995			1,056,591
Accumulated depreciation / amortization		(65,961	)		(262,805	)
As of January 1, 2023		310,894			844,182
Additions		1,929			8,348
Write-offs		(364	)		(1,566	)
Foreign exchange		(274	)		—
Depreciation / amortization in the period		(7,781	)		(21,326	)
As of March 31, 2023		304,404			829,638
Cost		403,441			1,160,700
Accumulated depreciation / amortization		(99,037	)		(331,062	)

b) Impairment test for goodwill

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

The Group performs its annual impairment test in December and when circumstances indicates that the carrying value may be impaired. The Group’s impairment tests are based on value-in-use calculations. The key assumptions used to determine the recoverable amount for the cash generating unit were disclosed in the annual consolidated financial statements for the year ended December 31, 2022. As of March 31, 2023, there were no indicators of a potential impairment of goodwill.

c) Leases

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

	Right-of-use  assets			Lease   liabilities
As of January 1, 2022		284,509			318,555
Additions (i)		14,028			14,118
Depreciation expense		(26,001	)		—
Interest expense		—			5,703
Revaluation		8,127			(90	)
Effects of exchange rate		(12,022	)		(13,852	)
Payment of lease liabilities		—			(24,624	)
As of March 31, 2022		268,641			299,810
Current		—			91,503
Non-current		268,641			208,307

21 

XP Inc. and its subsidiaries Notes to unaudited interim condensed consolidated financial statements As of March 31, 2023 In thousands of Brazilian Reais, unless otherwise stated  

	Right-of-use   assets			Lease   liabilities
As of January 1, 2023		258,491			285,638
Depreciation expense		(18,735	)		—
Write-off		(3,395	)		—
Interest expense		—			6,146
Revaluation		268			—
Effects of exchange rate		(3,206	)		(3,380	)
Payment of lease liabilities		—			(27,477	)
As of March 31, 2023		233,423			260,927
Current		—			49,487
Non-current		233,423			211,440

The Group did not recognize rent expense from short-term leases and low-value assets for the three month period ended March 31, 2023 and March 31, 2022. The total rent expense of R$ 5,575 (R$2,351 – March 31, 2022) includes other expenses related to leased offices such as condominiums for the period ended March 31, 2023.

13. Financing Instruments Payable

	March 31,   2023		December 31,   2022
Market funding operations (a)		40,750,447		38,093,772
Deposits		21,025,125		20,261,532
Demands deposits		868,100		803,031
Time deposits		20,143,287		19,445,276
Interbank deposits		13,738		13,225
Financial bills		6,346,534		5,675,596
Structured notes		13,204,014		12,109,576
Others		174,774		47,068
Debt securities (b)		5,731,367		5,589,857
Debentures		2,234,769		2,028,681
Bond		3,496,598		3,561,176
Total		46,481,814		43,683,629
Current		19,629,697		19,794,572
Non-current		26,852,116		23,889,057

(a) Maturity

Maturity - March 31, 2023
Class	Within 30   days		From 31   to 60   days		From 61   to 90   days		From 91   to 180   days		From 181   to 360   days		After 360   days		Total
Demand deposits		868,100		—		—		—		—		—		868,100
Time deposits		4,085,031		4,592,362		3,022,600		2,043,394		2,025,468		4,374,432		20,143,287
Interbank deposits		—		2,990		—		—		—		10,748		13,738
Financial bills		146,991		221,649		1,321,777		87,525		488,143		4,080,449		6,346,534
Structured notes		13,258		16,086		1,957		101,463		213,764		12,857,486		13,204,014
Others		2,597		10,828		—		—		31,831		129,518		174,774
Total		5,115,977		4,843,915		4,346,334		2,232,382		2,759,206		21,452,633		40,750,447

22 

XP Inc. and its subsidiaries Notes to unaudited interim condensed consolidated financial statements As of March 31, 2023 In thousands of Brazilian Reais, unless otherwise stated  

Maturity – December 31, 2022
Class	Within 30   days		From 31   to 60   days		From 61   to 90   days		From 91   to 180   days		From 181   to 360   days		After 360   days		Total
Demand deposits		803,031		—		—		—		—		—		803,031
Time deposits		3,604,494		4,273,475		5,187,106		1,382,514		2,016,732		2,980,955		19,445,276
Interbank deposits		—		—		—		3,092		—		10,133		13,225
Financial bills		—		—		2,390		1,637,547		405,901		3,629,758		5,675,596
Structured notes		—		—		5,720		35,773		261,019		11,807,064		12,109,576
Others		—		—		1,031		13,053		32,984		—		47,068
Total		4,407,525		4,273,475		5,196,247		3,071,979		2,716,636		18,427,910		38,093,772

(b) Debt securities

The total balance is comprised of the following issuances:

		March 31,   2023						December 31,   2022
	Rate type	Up to 1 year		1-5 years		Total		Up to 1 year		1-5 years		Total
Bonds (i)	Fixed rate		123,703		3,372,895		3,496,598		128,710		3,432,466		3,561,176
Debentures (ii) (iii)	Floating rate		208,180		2,026,589		2,234,769		106,118		1,922,563		2,028,681
Total			331,883		5,399,484		5,731,367		234,828		5,355,029		5,589,857
Current							331,883						234,828
Non-Current							5,399,484						5,355,029

(i) XP Inc Bonds

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

(ii) XP Energia issuance

On December 8, 2021, XP Energia issued non-convertible Debentures in the amount of R$485,511. The Debentures series has a maximum authorized issuance up to R$1,000,000. The objective is to fund the Group’s working capital and treasury investments related to wholesale electricity trade business. The principal amount is due and will be paid on the maturity date of December 8, 2023. The interest rate is CDI+2.5% annually payable. On March 31, 2023, the total amount is R$ 765,077, out of which R$ 240,716 is held by entities outside the Group and as such is included in the consolidated financial statement.

(iii) XP Investimentos debentures

On July 19, 2022, XP Investimentos issued non-convertible debentures in the amount of R$1,800,000 (R$900,000 of series 1 and R$900,000 of series 2). The debentures series, added together, has a maximum authorized issuance up to R$1,800,000. The principal amount is due and will be paid on the maturity date as follow: (i) June 23, 2024 (series 1) and (ii) June 23, 2025 (series 2). The interest rates for series 1 and series 2 debentures are CDI+1.75% and CDI+1.90%, respectively. On March 31, 2023, the total amount is R$ 1,994,053.

23 

XP Inc. and its subsidiaries Notes to unaudited interim condensed consolidated financial statements As of March 31, 2023 In thousands of Brazilian Reais, unless otherwise stated  

14. Borrowings

	Annual interest rate %			Maturity	March 31,   2023		December 31,   2022
Financial institution (i)		2.55	%	May 2023		1,535,724		1,586,052
Financial institution (ii)		CDI (*) + 0.74%		April 2023		289,457		279,828
Third parties						1,825,181		1,865,880
Total borrowings						1,825,181		1,865,880
Current						1,825,181		1,865,880
Non-current						—		—

(*) Brazilian Interbank Offering Rate (CDI).

(i) Loan agreement with Banco Nacional de México. On May 2022, the loan agreement was rolled over for 1 year, amending the maturity to May 2023. On May 5, 2023, according to the maturity date, the loan agreement was fully settled.

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

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

15. Other financial assets and financial liabilities

a) Other financial assets

	March 31,   2023			December 31,   2022
Foreign exchange portfolio		1,731,739			2,145,174
Receivables from IFAs		171,967			172,884
Compulsory and other deposits at central banks		538,296			1,119,169
Other financial assets		78,602			131,071
(-) Expected losses on other financial assets (i)		(50,913	)		(51,109	)
Total		2,469,691			3,517,189
Current		1,868,171			2,791,244
Non-current		601,520			725,945

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

b) Other financial liabilities

	March 31,   2023		December 31,   2022
Foreign exchange portfolio		2,035,963		2,405,429
Structured financing (i)		2,393,009		1,933,522
Credit cards operations		5,245,340		4,987,390
Contingent consideration (ii)		562,559		566,930
Commitments subject to possible redemption (iii)		1,008,321		1,049,130
Lease liabilities		260,927		285,638
Others		267,596		326,174
Total		11,773,715		11,554,213
Current		11,242,441		11,014,262
Non-current		531,274		539,951

24 

XP Inc. and its subsidiaries Notes to unaudited interim condensed consolidated financial statements As of March 31, 2023 In thousands of Brazilian Reais, unless otherwise stated  

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

(ii) Contractual contingent considerations mostly associated with the investment acquisition. The maturity of the total contingent consideration payment is up to 5 years and the contractual maximum amount payable is R$ 1,105,000 (the minimum amount is zero).

(iii) Related to the IPO transaction of XPAC Acquisition Corp. that occurred on August 3, 2021. The capital issued by XPAC Acquisition Corp. includes conditionally redeemable Class A ordinary shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control. The noncontrolling shareholders of XPAC Acquisition Corp. have the right to redeem their shares in cash at the earliest of (i) upon the completion of XPAC Acquisition Corp’s initial business combination or (ii) 24 months from the closing of the IPO transaction. See note 2 (d)(b)(i).

16. Retirement plans liabilities

As of March 31, 2023, active plans are principally accumulation of financial resources through products PGBL and VGBL structured in the form of variable contribution, for the purpose of granting participants with returns based on the accumulated capital in the form of monthly withdraws for a certain term or temporary monthly withdraws.

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

Changes in the period:

	Three months period ended   March 31,
	2023			2022
As of January, 1		45,733,815			31,921,400
Contributions received		534,716			899,664
Transfer with third party plans		2,033,910			3,206,658
Withdraws		(1,070,417	)		(819,953	)
Other provisions (Constitution/Reversion)		102,352			52,385
Monetary correction and interest income		471,873			946,645
As of March, 31		47,806,249			36,206,799

17. Income tax

a) Deferred income tax

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

	Balance sheet						Net change in the   three months period   ended March 31,
	March 31,   2023			December 31,   2022			2023			2022
Tax losses carryforwards		619,152			575,120			44,032			374,528
Goodwill on business combinations (i)		6,644			6,376			268			(5,974	)
Provisions for IFAs’ commissions		79,113			71,986			7,127			9,415
Revaluations of financial assets at fair value		(27,248	)		(214,456	)		187,208			(101,286	)
Expected credit losses (ii)		71,390			58,208			13,182			6,094
Profit sharing plan		96,992			269,949			(172,957	)		(187,269	)
Net gain (loss) on hedge instruments		(29,211	)		(11,169	)		(18,042	)		(37,189	)
Share based compensation		595,113			566,721			28,392			65,603
Other provisions		93,737			178,104			(84,367	)		(19,875	)
Total		1,505,682			1,500,839			4,843			104,047
Deferred tax assets		1,582,107			1,611,882
Deferred tax liabilities		(76,425	)		(111,043	)

25 

XP Inc. and its subsidiaries Notes to unaudited interim condensed consolidated financial statements As of March 31, 2023 In thousands of Brazilian Reais, unless otherwise stated  

(i) For tax purposes, goodwill is amortized over 5 years on a straight-line basis when the acquired entity is sold or merged into another entity.

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

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

	Three months period   ended March 31,
	2023			2022
As of January, 1		1,480,442			1,244,135
Foreign exchange variations		18,484			(8,788	)
Charges to statement of income		67,844			165,187
Tax relating to components of other comprehensive income		(61,088	)		(52,352	)
As of March 31,		1,505,682			1,348,182

Unrecognized deferred taxes

Deferred tax assets are recognized for tax losses to the extent that the realization of the related tax benefit against future taxable profits is probable. The Group did not recognize deferred tax assets of R$ 10,428 (December 31, 2022 - R$ 13,001) mainly in respect of losses from subsidiaries overseas and that can be carried forward and used against future taxable income.

b) Income tax expense reconciliation

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

	Three months period
	ended March 31,
	2023			2022
Income before taxes		816,148			856,439
Combined tax rate in Brazil (a)		34%			34%
Tax expense at the combined rate		277,490			291,189
Income (loss) from entities not subject to taxation		392			22
Effects from entities taxed at different rates		9,525			28,559
Effects from entities taxed at different taxation regimes (b)		(269,681	)		(314,649	)
Intercompany transactions with different taxation		(16,820	)		(17,447	)
Tax incentives and related donation programs		(729	)		—
Non-deductible expenses (non-taxable income), net		(3,808	)		6,774
Others		23,834			7,742
Total		20,203			2,190
Current		88,085			164,147
Deferred		(67,882	)		(161,957	)
Total expense / (credit)		20,203			2,190

26 

XP Inc. and its subsidiaries Notes to unaudited interim condensed consolidated financial statements As of March 31, 2023 In thousands of Brazilian Reais, unless otherwise stated  

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

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

Other comprehensive income

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

	Before tax			(Charge)/   Credit			After tax
Foreign exchange variation of investees located abroad		(51,541	)		—			(51,541	)
Gains (losses) on net investment hedge		76,109			(28,617	)		47,492
Changes in the fair value of financial assets at fair value		70,206			(23,598	)		46,608
As of March 31, 2022		94,774			(52,215	)		42,559
Foreign exchange variation of investees located abroad		(17,996	)		—			(17,996	)
Gains (losses) on net investment hedge		31,482			(10,611	)		20,871
Changes in the fair value of financial assets at fair value		130,861			(50,477	)		80,384
As of March 31, 2023		144,347			(61,088	)		83,259

18. Equity

(a) Issued capital

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

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

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

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

On October 8, 2021 XP Inc issued 489,759 Class A common shares (R$ 112,642) as part of our acquisition of a minority stake of Jive Investments (non-cash transaction).

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

As of March 31, 2023, the Company had R$24 of issued capital which were represented by 447,801,661 Class A common shares and 112,717,094 Class B common shares.

(b) Additional paid-in capital and capital reserve

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

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

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

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

27 

XP Inc. and its subsidiaries Notes to unaudited interim condensed consolidated financial statements As of March 31, 2023 In thousands of Brazilian Reais, unless otherwise stated  

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

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

The Board of Directors approved in December 2019 a share based long-term incentive plan, which the maximum number of shares should not exceed 5% of the issued and outstanding shares. As of March 31, 2023, the outstanding number of shares reserved under the plans were 13,012,180 restricted stock units (“RSUs”) (December 31, 2022 - 13,684,424) and 1,901,420 performance stock units (“PSUs”) (December 31, 2022 - 2,527,242) to be issued at the vesting date.

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

(c) Treasury shares

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

As of March 31, 2023, the Group held 32,320,276 shares in treasury (19,203,135 – December 31, 2022) with an amount of R$ 2,902,621 (R$ 1,986,762 - December 31, 2022).

(d) Dividends distribution

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

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

Non-controlling shareholders of some XP Inc’s subsidiaries has received dividends in the period ended on March 31, 2023.

(e) Other comprehensive income

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

28 

XP Inc. and its subsidiaries Notes to unaudited interim condensed consolidated financial statements As of March 31, 2023 In thousands of Brazilian Reais, unless otherwise stated  

19. Related party transactions

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

	Assets (Liabilities)					Revenue (Expenses)
						Three months
						period ended   March 31,
Relation and transaction	March 31   , 2023		December 31,   2022			2023			2022
Shareholders with significant influence (i)		2,338,479		(3,562,079	)		8,499			(51,846	)
Securities		238,325		238,088			8,813			4,411
Securities purchased under agreements to resell		2,099,999		—			2,623			3,610
Accounts receivable		155		476			418			193
Securities sold under repurchase agreements		—		(3,800,643	)		(3,355	)		(60,060	)

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

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

20. Provisions and contingent liabilities

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

	March 31,   2023		December 31,   2022
Civil contingencies		22,290		20,419
Labor contingencies		8,130		7,908
Other provisions (i)		48,968		15,214
Total provision		79,388		43,541
Judicial deposits (ii)		12,341		12,077

(i) The Group recorded a provision for the credit risk exposure related to probable future payments expected to occur in the ordinary course of its operations.

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

Changes in the provision during the period

	Three months period ended   March 31,
	2023			2022
At the beginning of period		43,541			29,308
Monetary correction		1,386			1,640
Provision accrued		34,789			901
Provision reversed		(129	)		(202	)
Payments		(199	)		(968	)
At the end of period		79,388			30,679

29 

XP Inc. and its subsidiaries Notes to unaudited interim condensed consolidated financial statements As of March 31, 2023 In thousands of Brazilian Reais, unless otherwise stated  

Nature of claims

a) Civil

Most of the civil and administrative claims involve matters that are normal and specific to the business and refer to demands for indemnity primarily due to: (i) financial losses in the stock market; (ii) portfolio management; and (iii) alleged losses generated from the liquidation of customers assets in portfolio due to margin cause and/or negative balance. As of March 31, 2023, there were 231 (December 31, 2022 - 181) civil and administrative claims for which the likelihood of loss has been classified as probable, in the amount of R$ 22,290 (December 31, 2022 - R$ 20,419).

b) Labor

Labor claims to which the Group is party primarily concern: (i) the existence (or otherwise) of a working relationship between the Group and IFAs; and (ii) severance payment of former employees. As of March 31, 2023, the Company and its subsidiaries are the defendants in 31 cases (December 31, 2022 - 28) involving labor matters for which the likelihood of loss has been classified as probable, in the amount of R$ 8,130 (December 31, 2022 - R$ 7,908).

Contingent liabilities - probability of loss classified as possible

In addition to the provisions constituted, the Company and its subsidiaries have several labor, civil and tax contingencies in progress, in which they are the defendants, and the likelihood of loss, based on the opinions of the internal and external legal advisors, is considered possible, and the contingencies amount to approximately R$ 928,404 (December 31, 2022 - R$ 893,745).

Below is summarized these possible claims by nature:

	March 31,    2023		December 31,   2022
Tax (i)		576,461		543,463
Civil (ii)		330,361		335,644
Labor		21,582		14,638
Total		928,404		893,745

(i) Employees Profit Sharing Plans: At the end of years 2015, 2019 and 2021 tax authorities issued assessments against the Group claiming mainly for allegedly unpaid social security contributions on amounts due and paid to employees as profit sharing plans related to calendar years of 2011, 2015, 2017 and 2018. According to the tax authorities the Group profit sharing plans did not comply with the provisions of Law 10,101/00.

a. Tax assessment related to 2011: The first and the second administrative appeals were denied, and currently the Group awaits for the judgment of the special appeal by the Superior Court of the Administrative Council of Tax Appeals (“CARF”). There are other favorable CARF precedents on the subject and the Group obtained legal opinions that support the Group’s defense and current practice. The amount claimed is R$ 19,881.

b. Tax assessment related to 2015: The first administrative appeal was denied, and currently the Group awaits for the judgment of the second appeal by the CARF. There are other favorable CARF precedents on the subject and the Group obtained legal opinions that support the Group’s defense and current practice. The amount claimed is R$ 50,928.

c. Tax assessment related to 2017: In addition to the claim related to the employees profit sharing plan tax authorities are also challenging the deductibility for Corporate Income Tax (IRPJ) and Social Contribution of Net Profits (CSLL) purposes of the amounts paid under such plan to the members of the Group’s Council. An administrative appeal was filed against the assessment, which is awaiting judgment by the Federal Revenue Service of Brazil (“RFB”). The total amount claimed is R$110,332.

d. Tax assessment related to 2018: The Group will appeal against the assessment. The total amount claimed is R$131,943 and the risk of loss for this claim was classified as possible.

30 

XP Inc. and its subsidiaries Notes to unaudited interim condensed consolidated financial statements As of March 31, 2023 In thousands of Brazilian Reais, unless otherwise stated  

e. In June 2022, the Group was notified by the Public Labor Ministry for allegedly unpaid FGTS (Fund for Severance Indemnity Payment) on the amounts paid to employees under profit sharing plans related to years 2015 to 2020. According to the tax authorities the Group profit sharing plans did not comply with the provisions of Law 10,101/00. The Group presented its administrative defense and awaits for the judgment of the appeal. The total amount claimed is R$ 131,785. The risk of loss for this claim was classified as possible.

(ii) Amortization of goodwill: The Group also received three tax assessments in which the tax authorities challenge the deductibility for Corporate Income Tax (IRPJ) and Social Contribution of Net Profits (CSLL) of the expenses deriving from the amortization of goodwill registered upon the acquisitions made by the Group between 2013 and 2016. According to the tax authorities the respective goodwill was registered in violation of Laws 9,532/97 and 12,973/14, respectively. Currently, the three proceedings are pending judgment by the first instance of RFB. Also, the Group has filed two lawsuits to prevent the issuance of new tax assessments related to such goodwill for other periods.

(iii) The Group is defendant in 773 (December 31, 2022 – 688) civil and administrative claims by customers and investment agents, mainly related to portfolio management, risk rating, copyrights and contract termination. The total amount represents the collective maximum value to which the Group is exposed based on the claims’ amounts monetarily restated.

21. Total revenue and income

a) Net revenue from services rendered

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

	Three months period ended   March 31,
	2023			2022
Major service lines
Brokerage commission		494,017			560,353
Securities placement		248,574			290,965
Management fees		381,645			329,002
Insurance brokerage fee		41,365			36,193
Educational services		13,224			7,838
Commission fees		189,471			93,281
Other services		100,765			88,603
Gross revenue from services rendered		1,469,061			1,406,235
(-) Sales taxes and contributions on services (i)		(123,077	)		(141,283	)
Net revenue from services rendered		1,345,984			1,264,952

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

b) Net income/(loss) from financial instruments

	Three months period ended   March 31,
	2023			2022
Net income/(loss) from financial instruments at fair value through profit or loss		1,330,060			2,015,661
Net income/(loss) from financial instruments measured at amortized cost and at fair value through other comprehensive income		526,600			(151,653	)
Total income from financial instruments		1,856,660			1,864,008
(-) Taxes and contributions on financial income		(68,655	)		(7,613	)
		1,788,005			1,856,395

31 

XP Inc. and its subsidiaries Notes to unaudited interim condensed consolidated financial statements As of March 31, 2023 In thousands of Brazilian Reais, unless otherwise stated  

c) Disaggregation by geographic location

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

	Three months period ended   March 31,
	2023		2022
Brazil		3,022,295		3,023,702
United States		95,965		95,620
Europe		15,729		2,025
Revenues		3,133,989		3,121,347
		March 31, 2023		December 31, 2022
Brazil		9,015,004		8,649,964
United States		509,020		488,158
Europe		60,292		49,496
Selected assets (i)		9,584,316		9,187,618

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

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

22. Operating costs

	Three months period ended   March 31,
	2023		2022
Commission and incentive costs		720,918		636,083
Operating losses		40,621		14,198
Other costs		254,986		214,003
Clearing house fees		100,161		101,629
Third parties’ services		16,229		14,133
Credit card cashback		89,731		49,222
Other (i)		48,865		49,019
Total		1,016,525		864,284

(i) Other costs include operational losses incurred in the ordinary course of the Group’s business and other costs.

23. Operating expenses by nature

	Three months period ended   March 31,
	2023		2022
Selling Expenses (a)		14,942		19,182
Administrative expenses		1,093,939		1,292,702
Personnel expenses		759,662		899,486
Compensation		248,888		421,009
Employee profit-sharing and bonus		305,864		272,966
Executives profit-sharing		36,468		24,731
Other personnel expenses (b)		168,442		180,780
Other taxes expenses		18,700		11,155
Depreciation of property and equipment and right-of-use assets		26,516		33,690
Amortization of intangible assets		21,326		27,209
Data processing		155,755		148,159
Technical services		30,086		30,135
Third parties' services		45,107		115,717
Other administrative expenses (c)		36,787		27,151
Total		1,108,881		1,311,884

32 

XP Inc. and its subsidiaries Notes to unaudited interim condensed consolidated financial statements As of March 31, 2023 In thousands of Brazilian Reais, unless otherwise stated  

(a) Selling expenses refer to advertising and publicity.

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

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

24. Other operating income (expenses), net

	Three months period ended   March 31,
	2023			2022
Other operating income		40,080			19,175
Revenue from incentives from Tesouro Direto, B3 and Others		2,758			3,642
Other operating income (a)		37,322			15,533
Other operating expenses		(21,199	)		(19,133	)
Legal proceedings and agreement with customers		(592	)		(3,423	)
Charity		(4,347	)		(5,886	)
Other operating expenses (b)		(16,260	)		(9,824	)
Total		18,881			42

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

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

25. Share-based plan

Outstanding shares granted and valuation inputs

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

Set out below are summaries of XP Inc's Restricted Stock Units (“RSU”) and Performance Stock Units (“PSU”) activity for the three months period ended March 31, 2023.

	RSUs			PSUs			Total
(In thousands, except weighted-average data, and where otherwise stated)	Number of units			Number of units			Number of units
Outstanding, January 1		13,684,424			2,527,242			16,211,666
Forfeited		(672,244	)		(625,822	)		(1,298,066	)
Outstanding, March 31		13,012,180			1,901,420			14,913,600

As of March 31, 2023, total compensation expense of the plans was R$68,412 (2022 - R$163,684), including R$ 29,262 (2022 - R$9,048) of tax provisions, and does not include any tax benefits on total share-based compensation expense once this expense is not deductible for tax purposes. The tax benefits will be perceived when the shares are converted into common shares.

The original weighted-average grant-date fair value of RSU and PSU shares was US$27 and US$ 34.56 respectively. In May 2020, the Company decided to update the measurement condition of its PSU shares, replacing the TSR measurement from US Dollars (US$) to Brazilian Reais (R$), being therefore subject to exchange variation. The weighted-average grant-date fair value of PSU shares for the updated plan was US$52.41. The incremental fair value will be recognized as an expense over the period from the modification date to the end of the vesting period. All other conditions of the PSU shares plan have not been modified.

33 

XP Inc. and its subsidiaries Notes to unaudited interim condensed consolidated financial statements As of March 31, 2023 In thousands of Brazilian Reais, unless otherwise stated  

26. Earnings per share (basic and diluted)

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

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

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

	Three months period ended   March 31,
	2023		2022
Net income attributable to owners of the Parent		795,945		854,104
Basic weighted average number of outstanding shares (i)(iii)		536,103		558,871
Basic earnings per share - R$		1.4847		1.5273
Effect of dilution
Shared-based plan (ii) (iii)		845		17,906
Diluted weighted average number of outstanding shares (iii)		536,948		576,777
Diluted earnings per share - R$		1.4823		1.4799

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

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

(iii) Thousands of shares.

27. Determination of fair value

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

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

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

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

Specific valuation techniques used to value financial instruments include:

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

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

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

34 

XP Inc. and its subsidiaries Notes to unaudited interim condensed consolidated financial statements As of March 31, 2023 In thousands of Brazilian Reais, unless otherwise stated  

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

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

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

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

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

	March 31, 2023
	Level 1		Level 2		Level 3		Fair Value		Book Value
Financial Assets
Financial assets at Fair value through profit or loss
Securities		74,284,375		10,227,025		—		84,511,400		84,511,400
Derivative financial instruments		420,152		14,595,129		—		15,015,281		15,015,281
Investments in associates measured at fair value		—		—		1,497,626		1,497,626		1,497,626
Fair value through other comprehensive income
Securities		29,145,061		—		—		29,145,061		29,145,061
Evaluated at amortized cost
Securities		8,618,715		2,385,260		—		11,003,975		10,905,257
Securities purchased under agreements to resell		—		11,548,383		—		11,548,383		11,830,082
Securities trading and intermediation		—		2,607,109		—		2,607,109		2,607,109
Accounts receivable		—		594,600		—		594,600		594,600
Loan operations		—		22,383,924		—		22,383,924		23,106,926
Other financial assets		—		2,469,691		—		2,469,691		2,469,691
Financial liabilities
Fair value through profit or loss
Securities		10,979,734		492,352		—		11,472,086		11,472,086
Derivative financial instruments		286,758		14,786,325		—		15,073,083		15,073,083
Evaluated at amortized cost
Securities sold under repurchase agreements		—		25,902,028		—		25,902,028		25,921,374
Securities trading and intermediation		—		15,269,391		—		15,269,391		15,269,391
Financing instruments payable		—		46,312,353		—		46,312,353		46,481,814
Borrowings		—		1,801,869		—		1,801,869		1,825,181
Accounts payables		—		585,660		—		585,660		585,660
Other financial liabilities		—		11,211,156		562,559		11,773,715		11,773,715

35 

XP Inc. and its subsidiaries Notes to unaudited interim condensed consolidated financial statements As of March 31, 2023 In thousands of Brazilian Reais, unless otherwise stated  

	December 31, 2022
	Level 1		Level 2		Level 3		Fair Value		Book Value
Financial Assets
Financial assets at Fair value through profit or loss
Securities		73,022,643		14,490,361		—		87,513,004		87,513,004
Derivative financial instruments		296,249		8,920,906		—		9,217,155		9,217,155
Investments in associates measured at fair value		—		—		1,523,425		1,523,425		1,523,425
Fair value through other comprehensive income
Securities		34,478,668		—		—		34,478,668		34,478,668
Evaluated at amortized cost
Securities		7,579,658		1,695,368		—		9,275,026		9,272,103
Securities purchased under agreements to resell		—		7,172,777		—		7,172,777		7,603,820
Securities trading and intermediation		—		3,271,000		—		3,271,000		3,271,000
Accounts receivable		—		597,887		—		597,887		597,887
Loan operations		—		20,874,930		—		20,874,930		22,211,161
Other financial assets		—		3,517,189		—		3,517,189		3,517,189
Financial liabilities
Fair value through profit or loss
Securities loaned		13,048,246		481,019		—		13,529,265		13,529,265
Derivative financial instruments		167,874		8,437,535		—		8,605,409		8,605,409
Evaluated at amortized cost
Securities sold under repurchase agreements		—		31,370,050		—		31,370,050		31,790,091
Securities trading and intermediation		—		16,062,697		—		16,062,697		16,062,697
Financing instruments payable		—		43,669,798		—		43,669,798		43,683,629
Borrowings		—		1,814,714		—		1,814,714		1,865,880
Accounts payables		—		617,394		—		617,394		617,394
Other financial liabilities		—		10,987,283		566,930		11,554,213		11,554,213

As of March 31, 2023, and December 31, 2022, the total contingent consideration liability is reported at fair value and is dependent on the profitability of the acquired associate and businesses. The total contingent consideration is classified within Level 3 of the fair value hierarchy. The contingent consideration liability represents the maximum amount payable under the purchase and sale agreements discounted using a weighted average rate of 12.29% p.a. change in the discount rate by 100 bps would increase/decrease the fair value by R$ 7,817. The change in the fair value in the contingent consideration between the acquisition date and March 31, 2023, was not material.

The investments held through our investees which are considered to be venture capital investments are classified as Level 3 of the fair value hierarchy. The inputs used by the Group are derived for discounted rates for these investments using a capital asset model to calculate a pre-tax rate that reflects current market assessments of the time value of money and the risk specific to the asset. Change in the discount rate by 100 bps would increase/decrease the fair value by R$ 14,976.

Transfers into and out of fair value hierarchy levels are analyzed at the end of each consolidated financial statement. As of March 31, 2023, the Group had no transfers between Level 2 and Level 3.

28. Management of financial risks and financial instruments

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

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

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

Regarding one specific subsidiary XP CCTVM, the organizational structure is based on the recommendations proposed by the Basel Accord, in which procedures, policies and methodology are formalized consistent with risk tolerance and with the business strategy and the various risks inherent to the operations and/or processes, including market, liquidity, credit and operating risks. The Group seek to follow the same risk management practices as those applying to all companies.

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

36 

XP Inc. and its subsidiaries Notes to unaudited interim condensed consolidated financial statements As of March 31, 2023 In thousands of Brazilian Reais, unless otherwise stated  

The unaudited interim condensed consolidated financial statements do not include all financial risk management information and disclosures required in the annual financial statements; they should be read in conjunction with the Group’s annual financial statements as of December 31, 2022. There have been no changes in the risk management department or in any risk management policies since the year-end.

Sensitivity analysis

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

								March 31,   2023
Trading portfolio	Exposures	Scenario
Risk factors	Risk of variation in:	I			II			III
Fixed interest rate	Fixed interest rate in Reais		(171	)		(96,247	)		(139,667	)
Exchange coupons	Foreign currencies coupon rate		(123	)		(5,507	)		(9,155	)
Foreign currencies	Exchange rates		(3,382	)		(127,810	)		(368,892	)
Price indexes	Inflation coupon rates		(153	)		(24,624	)		(45,964	)
Shares	Shares prices		(5,954	)		(95,908	)		(425,134	)
Seed Money (i)	Seed Money		(6,942	)		(173,561	)		(347,121	)
			(16,725	)		(523,657	)		(1,335,933	)

								December 31,   2022
Trading portfolio	Exposures	Scenarios
Risk factors	Risk of variation in:	I			II			III
Fixed interest rate	Fixed interest rate in Reais		(174	)		(231,438	)		(483,589	)
Exchange coupons	Foreign currencies coupon rate		(15	)		(5,407	)		(10,418	)
Foreign currencies	Exchange rates		(2,089	)		22,825			(120,873	)
Price indexes	Inflation coupon rates		(118	)		(19,523	)		(40,147	)
Shares	Shares prices		(4,689	)		(46,927	)		(242,687	)
Seed Money (i)	Seed Money		(6,685	)		(167,106	)		(334,211	)
			(13,770	)		(447,576	)		(1,231,925	)

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

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

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

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

29. Capital Management

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

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

37 

XP Inc. and its subsidiaries Notes to unaudited interim condensed consolidated financial statements As of March 31, 2023 In thousands of Brazilian Reais, unless otherwise stated  

The net debt and corresponding gearing ratios as of March 31, 2023, and December 31, 2022, were as follows:

	March 31,   2023			December 31,   2022
Group debt (Note 30) (i)		8,309,827			8,175,437
Structured financing (Note 15 (b))		2,393,009			1,933,522
Total debt		10,702,836			10,108,959
Cash		(3,088,840	)		(3,553,126	)
Securities purchased under agreements to resell (Note 3 (a))		(4,126,706	)		(646,478	)
Certificate deposits (Securities) (Note 4 (a))		(236,125	)		(252,877	)
Deposits at Central Bank (Note 15 (a))		(130,000	)		(514,999	)
Net debt		3,121,165			5,141,479
Total Equity attributable to owners of the Parent company		17,038,650			17,035,735
Total capital		20,159,815			22,177,214
Gearing ratio %		15.48%			23.18%

(i) Minimum capital requirements

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

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

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

On March 31, 2023 the subsidiaries XP CCTVM and XP Vida e Previdência were in compliance with all capital requirements.

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

(ii) Financial covenants

In relation to the long-term debt contracts, including multilateral instruments, recorded within “Borrowings” (Note 14), the Group is required to comply with certain performance conditions, such as profitability and efficiency indexes.

As of March 31, 2023, the amount of contracts under financial covenants is R$ 289,457 (December 31, 2022 – R$ 279,828). The Group has complied with these covenants throughout the reporting period.

Eventual failure of the Group to comply with such covenants may be considered as breach of contract and, as a result, considered for early settlement of related obligations.

38 

XP Inc. and its subsidiaries Notes to unaudited interim condensed consolidated financial statements As of March 31, 2023 In thousands of Brazilian Reais, unless otherwise stated  

30. Cash flow information

a. Debt reconciliation

					Debt securities (i)
	Borrowings		Lease liabilities		Debentures and notes		Bonds		Total
Total debt as of January 1, 2022	1,928,782		318,555		705,975		4,128,306		7,081,618
Acquisitions / Issuance	—		14,118		—		—		14,118
Payments	—		(24,624	)	—		—		(24,624	)
Revaluation	—		(90	)	—		—		(90	)
Net foreign exchange differences	(248,745	)	(13,852	)	—		(632,026	)	(894,623	)
Interest accrued	10,464		5,703		25,119		21,787		63,073
Interest paid	—		— ��		(6,510	)	—		(6,510	)
Total debt as of March 31, 2022	1,690,501		299,810		724,584		3,518,067		6,232,962
Total debt as of January 1, 2023	1,865,880		285,638		2,596,519		3,911,383		8,659,420
Acquisitions / Issuance	—		—		134,598		—		134,598
Payments	—		(27,477	)	—		—		(27,477	)
Net foreign exchange differences	(61,610	)	(3,380	)	—		(148,910	)	(213,900	)
Interest accrued	20,911		6,146		91,009		34,731		152,797
Interest paid	—		—		(6,883	)	—		(6,883	)
Total debt as of March 31, 2023	1,825,181		260,927		2,815,243		3,797,204		8,698,555

(i) Debt securities includes Debentures measured at FVPL presented in Note 7(e) and does not include fair value adjustments of (i) Debentures - R$ 88,122 (R$ 86,819 - 2022) and (ii) Bonds - R$ 300,606 (R$ 350,207 - 2022).

31. Subsequent events

On April 5, 2023, the Company’s Board of Directors approved the cancellation of 31,267,095 Class A shares (5.6% of total shares) held by the Company in treasury. Total share count, on April 5, 2023, went from 560,534,012 to 529,266,917 after cancellation.

39