XP(XP) - 2022 Q1 - Quarterly Report

Independent Auditor's Report Introduction PricewaterhouseCoopers Auditores Independentes Ltda. reviewed XP Inc.'s interim condensed consolidated financial statements for the three-month period ended March 31, 2022, prepared in accordance with IAS 34 - The review covered interim condensed consolidated balance sheets as of March 31, 2022, and statements of income, comprehensive income, changes in equity, and cash flows for the three-month period then ended[3] - Management is responsible for preparing these financial statements in accordance with IAS 34[4] Scope of Review The review was conducted according to Brazilian and International Standards on Reviews of Interim Financial Information, involving inquiries and analytical procedures, but is substantially less in scope than an audit - The review followed NBC TR 2410 and ISRE 2410 standards[5] - A review involves inquiries and analytical procedures, but does not provide the same level of assurance as an audit, thus no audit opinion is expressed[5] Conclusion Based on the review, the auditors found no material misstatements in the interim condensed consolidated financial statements, concluding they are prepared in accordance with IAS 34 - The auditors found nothing that causes them to believe the financial statements are not prepared, in all material respects, in accordance with IAS 34[6] Financial Statements Unaudited Interim Condensed Consolidated Balance Sheets XP Inc.'s consolidated balance sheet as of March 31, 2022, shows a significant increase in total assets and financial assets compared to December 31, 2021, primarily driven by growth in financial assets at fair value through profit or loss Key Balance Sheet Data (March 31, 2022 vs. December 31, 2021) | Item | March 31, 2022 (R$ thousands) | December 31, 2021 (R$ thousands) | Change (R$ thousands) | % Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Total assets | 163,092,720 | 139,340,402 | 23,752,318 | 17.05% | | Financial assets | 150,280,655 | 127,745,263 | 22,535,392 | 17.64% | | Financial assets at fair value through profit or loss | 86,041,429 | 69,123,669 | 16,917,760 | 24.47% | | Total liabilities | 147,551,827 | 124,920,773 | 22,631,054 | 18.12% | | Financial liabilities | 110,397,373 | 91,358,151 | 19,039,222 | 20.84% | | Total equity | 15,540,893 | 14,419,629 | 1,121,264 | 7.78% | - Cash increased by 29.6% from R$2,485,641 thousand to R$3,221,880 thousand[8] - Loan operations grew by 12.6% from R$12,819,627 thousand to R$14,431,840 thousand[8] Unaudited Interim Condensed Consolidated Statements of Income and of Comprehensive Income XP Inc. reported a substantial increase in net income and total comprehensive income for the three months ended March 31, 2022, primarily driven by a significant rise in net income from financial instruments at fair value through profit or loss, despite a decrease in net revenue from services rendered Key Income Statement Data (Three Months Ended March 31, 2022 vs. 2021) | Item | March 31, 2022 (R$ thousands) | March 31, 2021 (R$ thousands) | Change (R$ thousands) | % Change | | :---------------------------------------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Net revenue from services rendered | 1,264,952 | 1,454,656 | (189,704) | -13.04% | | Net income from financial instruments at fair value through profit or loss | 2,000,996 | 1,142,501 | 858,495 | 75.14% | | Total revenue and income | 3,121,347 | 2,628,041 | 493,306 | 18.77% | | Net income for the period | 854,249 | 734,148 | 120,101 | 16.36% | | Total comprehensive income for the period | 896,808 | 517,119 | 379,689 | 73.42% | | Basic earnings per share (R$) | 1.5273 | 1.3123 | 0.215 | 16.38% | | Diluted earnings per share (R$) | 1.4799 | 1.2810 | 0.1989 | 15.53% | - Administrative expenses increased significantly by 33.8% from R$966,278 thousand in 2021 to R$1,292,702 thousand in 2022[10] - Expected credit losses increased substantially from R$3,455 thousand in 2021 to R$26,427 thousand in 2022[10] Unaudited Interim Condensed Consolidated Statements of Changes in Equity XP Inc.'s total equity increased by 7.8% from December 31, 2021, to March 31, 2022, primarily due to net income for the period and an increase in capital reserve, partially offset by dividends distributed Key Equity Data (March 31, 2022 vs. December 31, 2021) | Item | March 31, 2022 (R$ thousands) | December 31, 2021 (R$ thousands) | Change (R$ thousands) | % Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Total Equity | 15,540,893 | 14,419,629 | 1,121,264 | 7.78% | | Equity attributable to owners of the Parent company | 15,538,320 | 14,416,836 | 1,121,484 | 7.78% | | Net income for the period | 854,104 | - | 854,104 | N/A | | Capital reserve | 15,148,044 | 14,923,315 | 224,729 | 1.51% | | Dividends distributed | (604) | - | (604) | N/A | - Other comprehensive income shifted from a loss of R$(334,563) thousand at December 31, 2021, to a loss of R$(291,913) thousand at March 31, 2022, indicating a positive movement of R$42,650 thousand[11] Unaudited Interim Condensed Consolidated Statements of Cash Flows XP Inc. experienced a significant increase in net cash flows from operating activities for the three months ended March 31, 2022, compared to the same period in 2021, primarily driven by changes in assets and liabilities, particularly private pension liabilities and financing instruments payable Key Cash Flow Data (Three Months Ended March 31, 2022 vs. 2021) | Item | March 31, 2022 (R$ thousands) | March 31, 2021 (R$ thousands) | Change (R$ thousands) | % Change | | :------------------------------------------ | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Net cash flows from operating activities | 1,103,054 | 360,541 | 742,513 | 205.95% | | Net cash flows (used in) investing activities | (125,573) | (162,081) | 36,508 | -22.52% | | Net cash flows from (used in) financing activities | (24,989) | (26,292) | 1,303 | -4.96% | | Net increase in cash and cash equivalents | 952,492 | 172,168 | 780,324 | 453.24% | | Cash and cash equivalents at the end of the period | 4,667,332 | 2,840,192 | 1,827,140 | 64.33% | - Private pension liabilities contributed R$4,285,381 thousand to cash from operations in 2022, up from R$3,508,595 thousand in 2021[13] - Financing instruments payable generated R$5,168,058 thousand in cash from operations in 2022, a significant increase from R$1,644,036 thousand in 2021[13] Notes to Unaudited Interim Condensed Consolidated Financial Statements 1. Operations XP Inc. is a Cayman Island exempted holding company, listed on NASDAQ-GS, operating as a leading technology-driven financial services platform in Brazil, offering various financial products and advisory services. The company is monitoring the potential impacts of the Ukraine conflict on its business - XP Inc. is a Cayman Island exempted company, incorporated on August 29, 2019, with its principal executive office in São Paulo, Brazil[15] - The company is a leading, technology-driven financial services platform in Brazil, providing financial products, services, digital content, and advisory services, primarily acting as a broker-dealer[17] - The Ukraine conflict could adversely affect the Company's business through increased inflation, compliance costs, foreign currency volatility, and credit losses, though a material impact is not currently expected[19] 2. Basis of preparation and changes to the Group's accounting policies The interim condensed consolidated financial statements are prepared in accordance with IAS 34, consistent with previous annual statements, with no material impact from new standards adopted in 2022. The Group operates as a single segment and uses historical cost basis, except for fair value financial instruments - The financial statements are prepared in accordance with IAS 34 Interim Financial Reporting and are presented in Brazilian reais[20][24] - The Group considers itself a single operating and reportable segment, with the CEO and Board of Directors reviewing performance on a combined basis[46] - New standards and amendments adopted in 2022 did not have a material impact on the interim condensed consolidated financial statements[26] a) Basis of preparation%20Basis%20of%20preparation) - The unaudited interim condensed consolidated financial statements are prepared on a historical cost basis, except for financial instruments measured at fair value[21] - These interim statements should be read in conjunction with the Group's annual consolidated financial statements as of December 31, 2021, as they do not include all required annual disclosures[22] b) New standards, interpretations and amendments adopted by the Group%20New%20standards,%20interpretations%20and%20amendments%20adopted%20by%20the%20Group) - The accounting policies are consistent with the previous financial year, with no early adoption of new standards not yet effective[25] c) Basis of consolidation%20Basis%20of%20consolidation) - No changes in consolidation practices since December 31, 2021. XP Ativos Digitais Intermediações S.A. (Brazil, Digital Assets) was incorporated as a 100% indirectly controlled subsidiary during the period[27][28] d) Interests in associates and joint ventures%20Interests%20in%20associates%20and%20joint%20ventures) - Subsidiaries are fully consolidated, and investments in associates and joint ventures are accounted for using the equity method, except for those measured at fair value through XP FIP Managers, a venture capital organization[29][32] e) Business combinations and other developments%20Business%20combinations%20and%20other%20developments) - XP Inc. entered into binding agreements to acquire Banco Modal S.A. (pending regulatory approvals) and Habitat Capital Partners Asset Management (pending CADE approval)[38][39] - The company also acquired minority stakes in several companies, including Suno Controle S.A., Estratégia & Timing, Etrnity, AZ Quest, Direto S.A., and Inside[44] - XP Inc. announced the purchase of Brazilian biotechnology company SuperBac, which will be listed on the US stock exchange, with no financial statement impact as of March 31, 2022[43] f) Segment reporting%20Segment%20reporting) - The Group's Chief Executive Officer and Board of Directors, as the CODM, review the entire Group as a single operating and reportable segment[45][46] g) Estimates%20Estimates) - Significant judgments and estimates in applying accounting policies for these interim statements were consistent with those in the annual consolidated financial statements for the year ended December 31, 2021[49] 3. Securities purchased (sold) under resale (repurchase) agreements Securities purchased under agreements to resell decreased by 31.7% to R$6,061,310 thousand, while securities sold under repurchase agreements decreased by 8.2% to R$24,131,734 thousand as of March 31, 2022, compared to December 31, 2021 Securities Purchased Under Agreements to Resell (March 31, 2022 vs. December 31, 2021) | Item | March 31, 2022 (R$ thousands) | December 31, 2021 (R$ thousands) | Change (R$ thousands) | % Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Available portfolio | 1,304,372 | 3,322,254 | (2,017,882) | -60.74% | | Collateral held | 4,758,952 | 5,574,846 | (815,894) | -14.63% | | Total | 6,061,310 | 8,894,531 | (2,833,221) | -31.85% | Securities Sold Under Repurchase Agreements (March 31, 2022 vs. December 31, 2021) | Item | March 31, 2022 (R$ thousands) | December 31, 2021 (R$ thousands) | Change (R$ thousands) | % Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | National Treasury Bills (LTNs) | 5,932,896 | 3,325,188 | 2,607,708 | 78.42% | | Financial Treasury Bills (LFTs) | 2,891,474 | 7,515,712 | (4,624,238) | -61.53% | | Total | 24,131,734 | 26,281,345 | (2,149,611) | -8.18% | - Securities sold under repurchase agreements were agreed with average interest rates of 11.64% p.a. as of March 31, 2022, up from 9.14% p.a. at December 31, 2021[52] 4. Securities The Group's securities portfolio saw significant changes, with financial assets at fair value through profit or loss increasing by 11.0% to R$64,599,608 thousand, while securities classified at fair value through other comprehensive income also increased by 3.9% to R$33,604,303 thousand. Securities evaluated at amortized cost more than doubled Securities Classified at Fair Value Through Profit or Loss (March 31, 2022 vs. December 31, 2021) | Item | March 31, 2022 (R$ thousands) | December 31, 2021 (R$ thousands) | Change (R$ thousands) | % Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Brazilian government bonds | 19,117,467 | 15,582,410 | 3,535,057 | 22.69% | | Investment funds | 31,387,133 | 28,520,788 | 2,866,345 | 10.05% | | Total | 64,599,608 | 58,179,955 | 6,419,653 | 11.03% | Securities at Fair Value Through Other Comprehensive Income (March 31, 2022 vs. December 31, 2021) | Item | March 31, 2022 (R$ thousands) | December 31, 2021 (R$ thousands) | Change (R$ thousands) | % Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | National treasury bill | 32,768,959 | 31,868,878 | 900,081 | 2.82% | | Bonds | 835,344 | 463,499 | 371,845 | 80.23% | | Total | 33,604,303 | 32,332,377 | 1,271,926 | 3.93% | Securities Evaluated at Amortized Cost (March 31, 2022 vs. December 31, 2021) | Item | March 31, 2022 (R$ thousands) | December 31, 2021 (R$ thousands) | Change (R$ thousands) | % Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Brazilian government bonds | 4,681,079 | - | 4,681,079 | N/A | | Bonds | 1,566,665 | 1,868,776 | (302,111) | -16.17% | | Total | 6,378,579 | 2,238,807 | 4,139,772 | 184.91% | 5. Derivative financial instruments The Group's derivative financial instruments portfolio significantly increased in fair value for both assets and liabilities as of March 31, 2022, compared to December 31, 2021, reflecting increased activity in options, swap, and forward contracts Derivative Financial Instruments (March 31, 2022 vs. December 31, 2021) | Item | March 31, 2022 (R$ thousands) | December 31, 2021 (R$ thousands) | Change (R$ thousands) | % Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Assets - Options | 6,007,492 | 6,570,326 | (562,834) | -8.57% | | Assets - Swap contracts | 3,927,311 | 2,577,311 | 1,350,000 | 52.38% | | Assets - Forward contracts | 11,100,245 | 1,601,167 | 9,499,078 | 593.26% | | Total Assets | 21,441,821 | 10,943,714 | 10,498,107 | 95.93% | | Liabilities - Options | 7,161,124 | 8,112,055 | (950,931) | -11.72% | | Liabilities - Forward contracts | 10,095,287 | 1,057,426 | 9,037,861 | 854.79% | | Total Liabilities | 21,344,628 | 11,908,183 | 9,436,445 | 79.24% | - The notional value of derivative assets increased from R$547,269,601 thousand to R$1,097,628,212 thousand, and liabilities from R$451,909,618 thousand to R$1,000,629,424 thousand[65] 6. Hedge accounting XP Inc. utilizes hedge accounting for net investment in foreign operations, fair value hedges for interest rate and exchange risk on securities, and cash flow hedges for market price risk related to share-based compensation. The Group aims to neutralize risk factors through compatible hedging instruments - The Group hedges net investment in foreign operations against US$ variation, using Non Deliverable Forward (NDF) contracts[68] - Fair value hedges are applied to Fixed-Income securities and XP Inc. bonds to protect against interest rate and exchange risk, primarily using DI1 Futuro derivatives[72] - A new cash flow hedge structure was recorded in March 2022 to neutralize the impact of XP share price variation on labor tax payments related to share-based compensation plans using SWAP-TRS contracts[73] 7. Loan operations XP Inc.'s total loan operations, net of expected credit losses, increased by 12.6% to R$14,431,840 thousand as of March 31, 2022, compared to December 31, 2021, with a notable increase in retail pledged asset loans and credit card operations Loan Operations (March 31, 2022 vs. December 31, 2021) | Loan Type | March 31, 2022 (R$ thousands) | December 31, 2021 (R$ thousands) | Change (R$ thousands) | % Change | | :-------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Pledged asset loan - Retail | 8,058,530 | 7,296,172 | 762,358 | 10.45% | | Credit card | 2,960,831 | 2,605,598 | 355,233 | 13.63% | | Total loans operations | 14,470,175 | 12,844,037 | 1,626,138 | 12.66% | | Expected Credit Loss | (38,335) | (24,410) | (13,925) | 57.05% | | Total loans operations, net | 14,431,840 | 12,819,627 | 1,612,213 | 12.58% | - Loans due after 12 months increased by 12.7% from R$8,223,087 thousand to R$9,263,766 thousand[77] 8. Prepaid expenses Total prepaid expenses remained relatively stable at R$3,972,158 thousand as of March 31, 2022, with a significant reclassification from non-current to current portion, indicating a shorter-term recognition of these expenses Prepaid Expenses (March 31, 2022 vs. December 31, 2021) | Item | March 31, 2022 (R$ thousands) | December 31, 2021 (R$ thousands) | Change (R$ thousands) | % Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Commissions and premiums paid in advance | 3,733,329 | 3,737,354 | (4,025) | -0.11% | | Total | 3,972,158 | 3,982,750 | (10,592) | -0.27% | | Current | 796,461 | 251,973 | 544,488 | 216.09% | | Non-current | 3,175,697 | 3,730,777 | (555,080) | -14.88% | - Commissions and premiums paid in advance, mostly long-term investment programs through IFAs, are recognized at signing and amortized linearly over the investment term[79] 9. Securities trading and intermediation (receivable and payable) Securities trading and intermediation assets increased by 77.0% to R$2,488,622 thousand, while liabilities increased by 17.4% to R$18,312,869 thousand as of March 31, 2022, compared to December 31, 2021, reflecting increased trading activity Securities Trading and Intermediation (March 31, 2022 vs. December 31, 2021) | Item | March 31, 2022 (R$ thousands) | December 31, 2021 (R$ thousands) | Change (R$ thousands) | % Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Total Assets | 2,488,622 | 1,405,651 | 1,082,971 | 77.05% | | Debtors pending settlement | 2,384,242 | 1,380,393 | 1,003,849 | 72.72% | | Total Liabilities | 18,312,869 | 15,597,555 | 2,715,314 | 17.41% | | Creditors pending settlement | 18,212,804 | 15,231,855 | 2,980,949 | 19.57% | - Expected losses on Securities trading and intermediation increased by 12.9% from R$81,988 thousand to R$92,541 thousand[81] 10. Expected Credit Losses on Financial Assets and Reconciliation of carrying amount Total expected credit losses (ECLs) for on-balance exposures increased by 14.5% to R$199,446 thousand as of March 31, 2022, with significant increases in ECLs for loans and credit card operations, and securities trading and intermediation Expected Credit Losses (ECLs) on Financial Assets (March 31, 2022 vs. December 31, 2021) | Item | March 31, 2022 (R$ thousands) | December 31, 2021 (R$ thousands) | Change (R$ thousands) | % Change | | :---------------------------------------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Total losses for on-balance exposures | 199,446 | 174,174 | 25,272 | 14.51% | | Loans and credit card operations (ECL) | 36,166 | 23,396 | 12,770 | 54.58% | | Securities trading and intermediation (ECL) | 92,541 | 81,988 | 10,553 | 12.87% | | Other financial assets (ECL) | 50,270 | 49,666 | 604 | 1.22% | | Total exposures (ECL) | 201,615 | 175,188 | 26,427 | 15.09% | - Loans and credit card operations saw transfers from Stage 1 to Stage 2 of R$382,854 thousand and from Stage 1 to Stage 3 of R$1,964 thousand during the period[84] 11. Investments in associates and joint ventures Total investments in associates and joint ventures increased by 7.4% to R$2,162,741 thousand as of March 31, 2022, primarily driven by acquisitions and fair value adjustments of associates measured at fair value Investments in Associates and Joint Ventures (March 31, 2022 vs. December 31, 2021) | Item | March 31, 2022 (R$ thousands) | December 31, 2021 (R$ thousands) | Change (R$ thousands) | % Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Associates (equity-accounted) | 776,365 | 790,744 | (14,379) | -1.82% | | Joint ventures (equity-accounted) | 714 | 1,197 | (483) | -40.35% | | Associates (measured at fair value) | 1,385,662 | 1,221,424 | 164,238 | 13.45% | | Total | 2,162,741 | 2,013,365 | 149,376 | 7.42% | - Acquisitions contributed R$111,989 thousand to investments in associates measured at fair value[89] - Equity in earnings for associates and joint ventures was R$38,008 thousand for the period[89] 12. Property, equipment, goodwill, intangible assets and lease Property and equipment decreased slightly to R$298,034 thousand, while goodwill and intangible assets also saw a minor decrease to R$793,786 thousand as of March 31, 2022. Lease liabilities decreased by 5.9% to R$299,810 thousand Property, Equipment, Goodwill, Intangible Assets (March 31, 2022 vs. January 1, 2022) | Item | March 31, 2022 (R$ thousands) | January 1, 2022 (R$ thousands) | Change (R$ thousands) | % Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Property and equipment | 298,034 | 313,964 | (15,930) | -5.07% | | Intangible assets | 793,786 | 820,975 | (27,189) | -3.31% | Lease Liabilities (March 31, 2022 vs. January 1, 2022) | Item | March 31, 2022 (R$ thousands) | January 1, 2022 (R$ thousands) | Change (R$ thousands) | % Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Lease liabilities | 299,810 | 318,555 | (18,745) | -5.88% | | Current | 91,503 | - | 91,503 | N/A | | Non-current | 208,307 | - | 208,307 | N/A | - No indicators of potential goodwill impairment were identified as of March 31, 2022[94] 13. Financing Instruments payable Total financing instruments payable increased by 18.7% to R$28,997,365 thousand as of March 31, 2022, driven by significant growth in market funding operations, particularly deposits, while debt securities decreased Financing Instruments Payable (March 31, 2022 vs. December 31, 2021) | Item | March 31, 2022 (R$ thousands) | December 31, 2021 (R$ thousands) | Change (R$ thousands) | % Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Market funding operations | 25,460,509 | 20,122,206 | 5,338,303 | 26.53% | | Deposits | 14,092,751 | 9,898,630 | 4,194,121 | 42.37% | | Debt securities | 3,536,856 | 4,306,880 | (770,024) | -17.88% | | Total | 28,997,365 | 24,429,086 | 4,568,279 | 18.70% | | Current | 11,733,313 | 8,018,854 | 3,714,459 | 46.32% | | Non-Current | 17,264,052 | 16,410,232 | 853,820 | 5.20% | - Time deposits increased by 42.7% from R$9,662,694 thousand to R$13,788,908 thousand[99] - XP Inc. Bonds, issued in July 2021 for US$750 million, bear interest at 3.250% per year and mature on July 1, 2026[102] 14. Borrowings Total borrowings decreased by 12.3% to R$1,690,501 thousand as of March 31, 2022, compared to December 31, 2021, with a significant portion becoming current Borrowings (March 31, 2022 vs. December 31, 2021) | Item | March 31, 2022 (R$ thousands) | December 31, 2021 (R$ thousands) | Change (R$ thousands) | % Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Financial institution (i) | 1,406,317 | 1,651,871 | (245,554) | -14.86% | | Total borrowings | 1,690,501 | 1,928,782 | (238,281) | -12.35% | | Current | 1,415,512 | 1,661,067 | (245,555) | -14.78% | | Non-current | 274,989 | 267,715 | 7,274 | 2.72% | - The Group has complied with all financial covenants related to its borrowings throughout the reporting period[106] 15. Other financial assets and financial liabilities Other financial assets increased significantly by 98.6% to R$916,579 thousand, primarily due to a rise in the foreign exchange portfolio. Other financial liabilities also increased by 4.8% to R$8,047,579 thousand, driven by growth in foreign exchange portfolio and credit card operations Other Financial Assets (March 31, 2022 vs. December 31, 2021) | Item | March 31, 2022 (R$ thousands) | December 31, 2021 (R$ thousands) | Change (R$ thousands) | % Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Foreign exchange portfolio | 788,485 | 331,563 | 456,922 | 137.81% | | Total | 916,579 | 461,515 | 455,064 | 98.60% | | Current | 788,485 | 331,563 | 456,922 | 137.81% | Other Financial Liabilities (March 31, 2022 vs. December 31, 2021) | Item | March 31, 2022 (R$ thousands) | December 31, 2021 (R$ thousands) | Change (R$ thousands) | % Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Foreign exchange portfolio | 1,252,542 | 425,409 | 827,133 | 194.44% | | Credit cards operations | 2,813,197 | 2,522,833 | 290,364 | 11.51% | | Structured financing | 1,808,260 | 2,415,400 | (607,140) | -25.13% | | Total | 8,047,579 | 7,680,472 | 367,107 | 4.78% | | Current | 6,367,177 | 5,860,674 | 506,503 | 8.64% | - Contingent consideration, mostly associated with investment acquisitions, remained stable at R$743,443 thousand, with a maximum contractual amount payable of R$878,506 thousand over up to 6 years[109] 16. Private pension liabilities Private pension liabilities increased significantly by 13.4% to R$36,206,781 thousand as of March 31, 2022, driven by contributions received, transfers with third-party plans, and gains from Specially Constituted Investment Funds (FIE) Private Pension Liabilities (Three Months Ended March 31, 2022 vs. 2021) | Item | March 31, 2022 (R$ thousands) | March 31, 2021 (R$ thousands) | Change (R$ thousands) | % Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | As of January 1 | 31,921,400 | 13,387,913 | 18,533,487 | 138.43% | | Contributions received | 899,662 | 619,361 | 280,301 | 45.26% | | Transfer with third party plans | 3,168,954 | 3,123,046 | 45,908 | 1.47% | | Withdraws | (819,955) | (211,872) | (608,083) | 287.01% | | Gain (loss) from FIE | 1,036,720 | (21,940) | 1,058,660 | -4825.25% | | As of March 31 | 36,206,781 | 16,896,508 | 19,309,273 | 114.29% | - These financial products represent investment contracts structured as private pension plans that do not transfer insurance risk to the Group, with contributions accounted for as liabilities[111] 17. Income tax Net deferred tax assets increased by 8.4% to R$1,348,182 thousand as of March 31, 2022, primarily due to tax losses carryforwards and share-based compensation, while income tax expense for the period significantly decreased due to effects from entities taxed at different regimes Deferred Income Tax Components (March 31, 2022 vs. December 31, 2021) | Item | March 31, 2022 (R$ thousands) | December 31, 2021 (R$ thousands) | Net Change (R$ thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | | Tax losses carryforwards | 482,666 | 108,138 | 374,528 | | Share-based compensation | 451,197 | 385,594 | 65,603 | | Profit sharing plan | 73,596 | 260,865 | (187,269) | | Total Net Deferred Tax | 1,348,182 | 1,244,135 | 104,047 | Income Tax Expense Reconciliation (Three Months Ended March 31, 2022 vs. 2021) | Item | March 31, 2022 (R$ thousands) | March 31, 2021 (R$ thousands) | Change (R$ thousands) | % Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Income before taxes | 856,439 | 784,216 | 72,223 | 9.21% | | Tax expense at the combined rate (34%) | 291,189 | 266,634 | 24,555 | 9.21% | | Effects from entities taxed at different taxation regimes | (314,649) | (215,804) | (98,845) | 45.80% | | Total Income Tax Expense | 2,190 | 50,068 | (47,878) | -95.63% | - The combined tax rate in Brazil is 34%, applied to XP Investimentos S.A., the holding company for Brazilian operating entities[117] 18. Equity XP Inc.'s issued capital increased slightly to R$24 thousand as of March 31, 2022, with 429,854,621 Class A and 130,139,431 Class B common shares outstanding. The company maintains a share-based long-term incentive plan and holds treasury shares from a previous merger - As of March 31, 2022, XP Inc. had R$24 thousand of issued capital, comprising 429,854,621 Class A common shares and 130,139,431 Class B common shares[121] - Class A shares have one vote per share, while Class B shares have ten votes per share, with both classes voting together on most matters[127] - The share-based long-term incentive plan reserves 14,486,999 restricted share units (RSUs) and 2,966,060 performance restricted units (PSUs) for issuance[123] - The Group held 726,776 thousand treasury shares valued at R$171,939 thousand as of March 31, 2022, resulting from the merger of XPart into XP Inc[125] 19. Related party transactions Transactions with related parties, primarily Itausa S.A. Group, resulted in a significant increase in net liabilities to R$(3,539,396) thousand as of March 31, 2022, compared to R$(2,096,701) thousand at December 31, 2021, with corresponding increases in expenses Related Party Transactions (March 31, 2022 vs. December 31, 2021) | Item | March 31, 2022 (R$ thousands) | December 31, 2021 (R$ thousands) | Change (R$ thousands) | % Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Shareholders with significant influence (Assets/(Liabilities)) | (3,539,396) | (2,096,701) | (1,442,695) | 68.81% | | Securities sold under repurchase agreements (Liabilities) | (3,999,996) | (2,300,798) | (1,699,198) | 73.85% | | Shareholders with significant influence (Revenue/(Expenses)) | (51,846) | (21,596) | (30,250) | 140.07% | | Securities sold under repurchase agreements (Expenses) | (60,060) | (23,330) | (36,730) | 157.44% | - Intercompany transactions with subsidiaries, including education, consulting, financial advisory, and resource management services, are eliminated in the consolidated financial statements[130] 20. Provisions and contingent liabilities Total provisions for probable risks increased by 4.7% to R$30,679 thousand as of March 31, 2022, primarily due to civil contingencies. Contingent liabilities classified as possible risk also increased by 10.5% to R$538,179 thousand, mainly driven by civil and tax claims Provisions for Probable Risks (March 31, 2022 vs. December 31, 2021) | Item | March 31, 2022 (R$ thousands) | December 31, 2021 (R$ thousands) | Change (R$ thousands) | % Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Tax contingencies | 10,542 | 10,374 | 168 | 1.62% | | Civil contingencies | 13,908 | 12,539 | 1,369 | 10.92% | | Total provision | 30,679 | 29,308 | 1,371 | 4.68% | Contingent Liabilities - Possible Risk (March 31, 2022 vs. December 31, 2021) | Item | March 31, 2022 (R$ thousands) | December 31, 2021 (R$ thousands) | Change (R$ thousands) | % Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Tax | 236,524 | 228,602 | 7,922 | 3.47% | | Civil | 283,496 | 232,775 | 50,721 | 21.79% | | Total | 538,179 | 487,121 | 51,058 | 10.48% | - Civil claims primarily relate to financial losses in the stock market, portfolio management, and alleged losses from liquidation of customer assets[135] 21. Total revenue and income Total revenue and income increased by 18.8% to R$3,121,347 thousand for the three months ended March 31, 2022, primarily driven by a substantial increase in net income from financial instruments, despite a decrease in net revenue from services rendered Total Revenue and Income (Three Months Ended March 31, 2022 vs. 2021) | Item | March 31, 2022 (R$ thousands) | March 31, 2021 (R$ thousands) | Change (R$ thousands) | % Change | | :---------------------------------------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Net revenue from services rendered | 1,264,952 | 1,454,656 | (189,704) | -13.04% | | Net income from financial instruments at fair value through profit or loss | 2,015,661 | 1,161,364 | 854,297 | 73.56% | | Total revenue and income | 3,121,347 | 2,628,041 | 493,306 | 18.77% | - Brokerage commission revenue decreased by 12.6% to R$560,353 thousand, and securities placement revenue decreased by 38.0% to R$290,965 thousand[142] - Management fees increased by 6.2% to R$329,002 thousand, and commissions fees increased significantly by 446.9% to R$93,281 thousand[142] 22. Operating costs Total operating costs increased by 3.2% to R$864,284 thousand for the three months ended March 31, 2022, primarily due to a significant rise in 'Other costs', despite a decrease in commission costs Operating Costs (Three Months Ended March 31, 2022 vs. 2021) | Item | March 31, 2022 (R$ thousands) | March 31, 2021 (R$ thousands) | Change (R$ thousands) | % Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Commission costs | 636,083 | 676,505 | (40,422) | -5.97% | | Other costs | 214,003 | 153,519 | 60,484 | 39.39% | | Total | 864,284 | 837,435 | 26,849 | 3.21% | - Clearing house fees increased slightly by 2.6% to R$101,629 thousand[146] 23. Operating expenses by nature Total operating expenses increased by 29.8% to R$1,311,884 thousand for the three months ended March 31, 2022, driven by substantial increases in personnel expenses, data processing, and third parties' services, despite a decrease in selling expenses Operating Expenses by Nature (Three Months Ended March 31, 2022 vs. 2021) | Item | March 31, 2022 (R$ thousands) | March 31, 2021 (R$ thousands) | Change (R$ thousands) | % Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Selling Expenses | 19,182 | 44,418 | (25,236) | -56.82% | | Administrative expenses | 1,292,702 | 966,278 | 326,424 | 33.78% | | Personnel expenses | 899,486 | 693,738 | 205,748 | 29.66% | | Data processing | 148,159 | 98,730 | 49,429 | 50.07% | | Third parties' services | 115,717 | 36,343 | 79,374 | 218.41% | | Total | 1,311,884 | 1,010,696 | 301,188 | 29.80% | - Compensation within personnel expenses increased by 42.9% to R$421,009 thousand[147] - Amortization of intangible assets decreased by 49.9% to R$27,209 thousand[147] 24. Other operating income (expenses), net Net other operating income decreased significantly to R$42 thousand for the three months ended March 31, 2022, from R$18,361 thousand in the prior year, primarily due to a substantial reduction in revenue from incentives and an increase in other operating expenses Other Operating Income (Expenses), Net (Three Months Ended March 31, 2022 vs. 2021) | Item | March 31, 2022 (R$ thousands) | March 31, 2021 (R$ thousands) | Change (R$ thousands) | % Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Other operating income | 19,175 | 28,399 | (9,224) | -32.48% | | Revenue from incentives from Tesouro Direto, B3 and Others | 3,642 | 18,476 | (14,834) | -80.29% | | Other operating expenses | (19,133) | (10,038) | (9,095) | 90.60% | | Total | 42 | 18,361 | (18,319) | -99.77% | - Legal, administrative proceedings and agreement with customers expenses increased by 314.4% to R$3,423 thousand[149] 25. Share-based plan The total number of outstanding shares reserved under XP Inc.'s share-based plan decreased slightly to 17,453,059 units as of March 31, 2022, due to forfeitures. Total compensation expense for the period decreased by 8.2% to R$163,684 thousand Share-based Plan Activity (March 31, 2022 vs. January 1, 2022) | Item | Number of units (thousands) | | :-------------------------------- | :-------------------------- | | Outstanding, January 1, 2022 | 18,119,890 | | Forfeited | (666,831) | | Outstanding, March 31, 2022 | 17,453,059 | Share-based Plan Compensation Expense (Three Months Ended March 31, 2022 vs. 2021) | Item | March 31, 2022 (R$ thousands) | March 31, 2021 (R$ thousands) | Change (R$ thousands) | % Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Total compensation expense | 163,684 | 178,246 | (14,562) | -8.17% | | Tax provisions | 9,048 | 37,697 | (28,649) | -75.99% | - The measurement condition of PSU shares was updated in May 2020, replacing the Total Shareholder Return (TSR) measurement from US Dollars to Brazilian Reais, making it subject to exchange variation[154] 26. Earnings per share (basic and diluted) Basic earnings per share increased by 16.4% to R$1.5273, and diluted earnings per share increased by 15.5% to R$1.4799 for the three months ended March 31, 2022, reflecting higher net income attributable to owners of the parent Earnings Per Share (Three Months Ended March 31, 2022 vs. 2021) | Item | March 31, 2022 | March 31, 2021 | Change | % Change | | :-------------------------------- | :------------- | :------------- | :----- | :------- | | Net Income attributable to owners of the Parent (R$ thousands) | 854,104 | 733,668 | 120,436 | 16.42% | | Basic earnings per share (R$) | 1.5273 | 1.3123 | 0.215 | 16.38% | | Diluted earnings per share (R$) | 1.4799 | 1.2810 | 0.1989 | 15.53% | | Basic weighted average number of outstanding shares (thousands) | 558,871 | 559,059 | (188) | -0.03% | | Diluted weighted average number of outstanding shares (thousands) | 576,777 | 572,735 | 4,042 | 0.71% | - The share-based plan is the only source of potential dilutive effect on earnings per share[156] 27. Determination of fair value The Group measures financial instruments at fair value using a three-level hierarchy: Level 1 for quoted market prices, Level 2 for observable market data, and Level 3 for unobservable inputs. Investments in associates measured at fair value and contingent consideration are classified as Level 3 - Level 1 includes public financial instruments and those traded on active markets (e.g., Stock Exchanges)[159] - Level 2 includes private financial instruments and those traded in a secondary market, using observable market data[160] - Level 3 includes unlisted equity securities, investments in associates measured at fair value, and contingent consideration, where significant inputs are unobservable[161][165][166] - As of March 31, 2022, there were no transfers between Level 2 and Level 3 of the fair value hierarchy[166] 28. Management of financial risks and financial instruments XP Inc. manages various financial risks including credit, liquidity, market (currency, interest rate, price), and operational risks, using derivative financial instruments for mitigation. Risk management is overseen by a dedicated structure reporting directly to senior management, with no changes in policies since year-end 2021 - The Group's risk management structure focuses on minimizing adverse effects from financial market unpredictability and prohibits speculative trading in derivatives[168] - Risk Management operates independently from business areas, reporting to senior management to ensure objectivity and proper segregation of functions[169] - Sensitivity analysis for the trading portfolio as of March 31, 2022, showed potential losses of R$694,201 thousand in Scenario III (50% variation in rates/prices), with Seed Money being the largest risk factor[175][176] 29. Capital Management XP Inc. aims to safeguard its going concern ability and optimize capital structure. Net debt decreased by 44.8% to R$3,165,759 thousand as of March 31, 2022, leading to a significant reduction in the gearing ratio to 16.93%. Certain subsidiaries are subject to minimum capital requirements and have complied with all financial covenants Net Debt and Gearing Ratio (March 31, 2022 vs. December 31, 2021) | Item | March 31, 2022 (R$ thousands) | December 31, 2021 (R$ thousands) | Change (R$ thousands) | % Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Total debt | 7,833,091 | 9,488,421 | (1,655,330) | -17.45% | | Cash and cash equivalents | (4,667,332) | (3,751,861) | (915,471) | 24.40% | | Net debt | 3,165,759 | 5,736,560 | (2,570,801) | -44.82% | | Total Equity attributable to owners of the Parent company | 15,538,320 | 14,416,836 | 1,121,484 | 7.78% | | Total capital | 18,704,079 | 20,153,396 | (1,449,317) | -7.19% | | Gearing ratio % | 16.93% | 28.46% | -11.53% | -40.51% | - Subsidiaries XP CCTVM and XP Vida e Previdência complied with all minimum capital requirements from local regulators as of March 31, 2022[180][181][182] - The Group has complied with financial covenants on long-term debt contracts, totaling R$457,679 thousand, throughout the reporting period[183][184] 30. Cash flow information Total debt decreased by 12.0% to R$6,232,962 thousand as of March 31, 2022, compared to January 1, 2022, primarily due to significant net foreign exchange differences and payments, partially offset by interest accrued Debt Reconciliation (March 31, 2022 vs. January 1, 2022) | Item | March 31, 2022 (R$ thousands) | January 1, 2022 (R$ thousands) | Change (R$ thousands) | % Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | :------- | | Borrowings | 1,690,501 | 1,928,782 | (238,281) | -12.35% | | Lease liabilities | 299,810 | 318,555 | (18,745) | -5.88% | | Debentures | 724,584 | 705,975 | 18,609 | 2.64% | | Bonds | 3,518,067 | 4,128,306 | (610,239) | -14.78% | | Total debt | 6,232,962 | 7,081,618 | (848,656) | -11.98% | | Net foreign exchange differences | (894,623) | - | (894,623) | N/A | | Payments | (24,624) | - | (24,624) | N/A | | Interest accrued | 63,073 | - | 63,073 | N/A | 31. Subsequent events Provisional Measure No. 1,115, published on April 28, 2022, proposes a 1% increase in the Social Contribution on Net Income (CSLL) rate for Banks (to 26%) and Broker-dealers (to 16%) between August and December 2022. XP Inc. does not expect a material impact on its results or financial condition - The CSLL rate increase is proposed for Banks (to 26%) and Broker-dealers (to 16%) from August to December 2022[186] - The Provisional Measure has a 60-day deadline for conversion into Law, extendable for an additional 60 days[187] - Based on an initial analysis, the Group does not expect material impacts on the Company's results or financial condition from this change[188]