Exhibit 99.3

       

Index

Report on review of interim condensed consolidated financial statements	3
Unaudited interim condensed consolidated balance sheets	4
Unaudited interim condensed consolidated statements of income and other comprehensive income	6
Unaudited interim condensed consolidated statements of changes in equity	7
Unaudited interim condensed consolidated statements of cash flows	8
1.   Operations	9
2.   Basis of preparation of the financial statements and changes to the Group’s accounting policies	10
3.   Securities purchased (sold) under resale (repurchase) agreements	12
4.   Securities	13
5.   Derivative financial instruments	14
6.   Hedge accounting	16
7.   Securities trading and intermediation (receivable and payable)	16
8.   Property, equipment, intangible assets and lease	17
9.   Borrowings and lease liabilities	18
10.   Debentures	19
11.   Private pension liabilities	19
12.   Income tax	20
13.   Equity	22
14.   Related party transactions	23
15.   Provisions and contingent liabilities	24
16.   Total revenue and income	25
17.   Operating costs	27
18.   Operating expenses by nature	27
19.   Other operating income (expenses), net	28
20.   Share-based plan	28
21.   Earnings per share (basic and diluted)	29
22.   Determination of fair value	30
23.   Management of financial risks and financial instruments	32
24.   Capital Management	32
25.   Cash flow information	34

Report on review of interim condensed consolidated financial statements

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. as at March 31, 2020 and the related interim condensed consolidated statements of income and of comprehensive income, of changes in equity and cash flows for the three-month period then ended, and a summary of significant accounting policies and other explanatory notes.

Management is responsible for the preparation and fair 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 did not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

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

São Paulo, May 12, 2020     

PricewaterhouseCoopers

Auditores Independentes 

CRC 2SP000160/O-5

Tatiana Fernandes Kagohara Gueorguiev

Contador CRC 1SP245281/O-6

PricewaterhouseCoopers, Av. Francisco Matarazzo 1400, Torre Torino, São Paulo, SP, Brasil 05001-903, Caixa Postal 61005, www.pwc.com/br

XP Inc. and its subsidiaries  Unaudited interim condensed consolidated balance sheets   As of March 31, 2020 and December 31, 2019  In thousands of Brazilian Reais  

	Note		March 31, 2020		December 31, 2019
Cash				249,950		109,922
Financial assets				56,217,071		41,888,778
Fair value through profit or loss				33,606,516		26,528,396
Securities		4		25,091,723		22,443,392
Derivative financial instruments		5		8,514,793		4,085,004
Fair value through other comprehensive income				4,896,387		2,616,118
Securities		4		4,896,387		2,616,118
Evaluated at amortized cost				17,714,168		12,744,264
Securities		4		1,267,826		2,266,971
Securities purchased under agreements to resell		3		14,916,794		9,490,090
Securities trading and intermediation		7		1,015,785		504,983
Accounts receivable				424,702		462,029
Loan operations				63,589		386
Other financial assets				25,472		19,805
Other assets				602,934		643,619
Recoverable taxes				226,645		243,320
Rights-of-use assets		8		236,136		227,478
Prepaid expenses				105,495		89,684
Other				34,659		83,137
Deferred tax assets		12		261,512		284,533
Property and equipment		8		154,548		142,464
Intangible assets		8		559,801		553,452
Total assets				58,045,816		43,622,768

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

XP Inc. and its subsidiaries  Unaudited interim condensed consolidated balance sheets   As of March 31, 2020 and December 31, 2019  In thousands of Brazilian Reais  

	Note		March 31, 2020		December 31, 2019
Financial liabilities				44,627,989		31,842,054
Fair value through profit or loss				8,247,206		5,250,943
Securities		4		721,131		2,021,707
Derivative financial instruments		5		7,526,075		3,229,236
Evaluated at amortized cost				36,380,783		26,591,111
Securities sold under repurchase agreements		3		21,111,301		15,638,407
Securities trading and intermediation		7		13,333,539		9,114,546
Borrowings and lease liabilities		9		644,439		637,484
Debentures		10		844,361		835,230
Accounts payables				265,197		266,813
Structured operations certificates				150,461		19,474
Other financial liabilities				31,485		79,157
Other liabilities				5,811,128		4,619,623
Social and statutory obligations				274,752		492,723
Taxes and social security obligations				170,422		345,331
Private pension liabilities		11		5,155,088		3,759,090
Provisions and contingent liabilities		15		14,897		15,193
Other				195,969		7,286
Deferred tax liabilities		12		-		5,132
Total liabilities				50,439,117		36,466,809
Equity attributable to owners of the Parent company		13		7,604,948		7,153,396
Issued capital				23		23
Capital reserve				6,966,667		6,943,446
Other comprehensive income				241,398		209,927
Retained earnings				396,860		-
Non-controlling interest				1,751		2,563
Total equity				7,606,699		7,155,959
Total liabilities and equity				58,045,816		43,622,768

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

Unaudited interim condensed consolidated statements of income and other

XP Inc. and its subsidiaries  Unaudited interim condensed consolidated statements of income and of comprehensive income   For the three months ended March 31, 2020 and 2019 In thousands of Brazilian Reais, except earnings per share 

ehensive income

				Three months period ended March 31,
	Note			2020			2019
Net revenue from services rendered		16	(a)		1,151,946			599,247
Net income from financial instruments at amortized cost and at fair value through other comprehensive income		16	(b)		202,497			65,822
Net income from financial instruments at fair value through profit or loss		16	(b)		380,398			268,923
Total revenue and income					1,734,841			933,992
Operating costs		17			(578,816	)		(307,756	)
Selling expenses		18			(28,476	)		(24,518	)
Administrative expenses		18			(578,116	)		(368,285	)
Other operating income (expenses), net		19			(13,883	)		85,176
Interest expense on debt					(19,019	)		(15,382	)
Income before income tax					516,531			303,227
Income tax expense		12			(118,977	)		(92,789	)
Net income for the period					397,554			210,438
Other comprehensive income
Items that can be subsequently reclassified to income
Foreign exchange variation of investees located abroad					56,560			1,325
Gains (losses) on net investment hedge					(56,496	)		(843	)
Changes in the fair value of financial assets at fair value through other comprehensive income					31,490			(1,183	)
Other comprehensive income (loss) for the period, net of tax					31,554			(701	)
Total comprehensive income for the period					429,108			209,737
Net income attributable to:
Owners of the Parent company					396,860			209,215
Non-controlling interest					694			1,223
Total comprehensive income attributable to:
Owners of the Parent company					428,414			208,514
Non-controlling interest					694			1,223
Earnings per share from total income attributable to the ordinary equity holders of  the company
Basic earnings per share		21			0.7192			0.4108
Diluted earnings per share					0.7139			0.4108

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

6 

Unaudited interim condensed consolidated statements of changes in equity

XP Inc. and its subsidiaries  Unaudited interim condensed consolidated statements of changes in equity   For the three months ended March 31, 2019 and 2020  In thousands of Brazilian Reais 

	Attributable to owners of the Parent
					Capital reserve
	Note		Issued Capital		Additional paid-in capital		Other Reserves		Other comprehensive income			Retained Earnings		Total			Non-Controlling interest			Total Equity
Balances at December 31, 2018				21		927,895		947,696		209,165			-		2,084,777			6,935			2,091,712
Comprehensive income for the period
Net income for the period				-		-		-		-			209,215		209,215			1,223			210,438
Other comprehensive income, net				-		-		-		(701	)		-		(701	)		-			(701	)
Transactions with shareholders - contributions and distributions
Gain (loss) in changes in interest of subsidiaries, net				-		-		-		258			-		258			(349	)		(91	)
Allocations of the net income for the period
Dividends distributed				-		-		-		-			-		-			(490	)		(490	)
Balances at March 31, 2019				21		927,895		947,696		208,722			209,215		2,293,549			7,319			2,300,868
Balances at December 31, 2019				23		5,409,895		1,533,551		209,927			-		7,153,396			2,563			7,155,959
Comprehensive income for the year
Net income for the period				-		-		-		-			396,860		396,860			694			397,554
Other comprehensive income, net				-		-		-		31,554			-		31,554			-			31,554
Transactions with shareholders - contributions and distributions
Share based plan		20		-		-		23,221		-			-		23,221			(7	)		23,214
Gain (loss) in changes in interest of subsidiaries, net				-		-		-		(83	)		-		(83	)		1,933			1,850
Allocations of the net income for the period
Dividends distributed				-		-		-		-			-		-			(3,432	)		(3,432	)
Balances at March 31, 2020				23		5,409,895		1,556,772		241,398			396,860		7,604,948			1,751			7,606,699

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

7 

Unaudited interim condensed consolidated statements of cash flows

XP Inc. and its subsidiaries  Unaudited interim condensed consolidated statements of cash flows For the three months ended March 31, 2020 and 2019  In thousands of Brazilian Reai 

			Three months ended March 31,
	Note		2020			2019
Operating activities
Income before income tax				516,531			303,227
Adjustments to reconcile income before income taxes
Depreciation of property and equipment and right-of-use assets		8		15,878			8,102
Amortization of intangible assets		8		15,648			7,055
Loss on write-off of property, equipment and intangible assets		8		3,452			112
Expected credit losses on accounts receivable and other financial assets				21,962			(180	)
(Reversal of) Provision for contingencies, net		15		(387	)		11
Net foreign exchange differences				(19,510	)		1,528
Share based plan				23,221			-
Interest accrued				20,087			16,898
Changes in assets and liabilities
Securities (assets and liabilities)				(6,676,164	)		605,953
Derivative financial instruments (assets and liabilities)				988,979			95,830
Securities trading and intermediation (assets and liabilities)				3,708,191			840,841
Securities purchased (sold) under resale (repurchase) agreements				46,190			(1,809,388	)
Accounts receivable				6,197			62,708
Loan operations				(63,520	)		-
Prepaid expenses				(15,811	)		2,776
Other assets and other financial assets				52,295			13,173
Structured operations certificates				130,987			-
Accounts payable				(1,616	)		(1,482	)
Social and statutory obligations				(217,971	)		(73,134	)
Tax and social security obligations				(33,554	)		(82,429	)
Private pension liabilities				1,395,998			33,867
Other liabilities and other financial liabilities				141,012			(9,598	)
Cash from operations				58,095			15,870
Income tax paid				(196,585	)		(86,579	)
Contingencies paid		15		(234	)		(318	)
Interest paid				(572	)		(3,141	)
Net cash flows from operating activities				(139,296	)		(74,168	)
Investing activities
Acquisition of property and equipment		8		(20,746	)		(11,375	)
Acquisition of intangible assets		8		(19,914	)		(8,061	)
Net cash flows used in investing activities				(40,660	)		(19,436	)
Financing activities
Payments of borrowings and lease liabilities		25		(26,058	)		(32,276	)
Transactions with non-controlling interests				1,844			(92	)
Dividends paid to non-controlling interests				(3,432	)		(490	)
Net cash flows from (used in) financing activities				(27,646	)		(32,858	)
Net increase in cash and cash equivalents				(207,602	)		(126,462	)
Cash and cash equivalents at the beginning of the period				887,796			626,863
Effects of exchange rate changes on cash and cash equivalents				31,009			70
Cash and cash equivalents at the end of the period				711,203			500,471
Cash				249,950			224,997
Securities purchased under agreements to resell		3		309,053			133,028
Interbank certificate deposits		4		152,200			142,446

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

8 

XP Inc. and its subsidiaries  Notes to unaudited interim condensed consolidated financial statements As of March 31, 2020  In thousands of Brazilian Reais 

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 a holding company controlled by XP Controle Participações S.A., which holds 64.61% of Class B common shares and whose is ultimately controlled by a group of individuals.

XP Inc. and its subsidiaries (collectively, the “Company”, “Group” or “XP Group”) are principally engaged in providing its customers, represented by individuals and legal entities in Brazil and abroad, various financial products and services, mainly acting as broker-dealer, including securities brokerage, banking, private pension plans and financial advisory services, through three retail brands (XP Investimentos, Rico and Clear) that reach clients directly and through network of Independent Financial Advisers (“IFAs”).

On November 29, 2019, the Group carried out a corporate reorganization in order to prepare the structure to the Initial Public Offering of its shares. As result, the capital contributed by the shareholders on XP Investimentos S.A. were transferred and incorporated on XP Inc. Therefore the shareholders have a direct stake on XP Inc. which controls XP Investimentos S.A. and the other operating companies of the Group.

On November 30, 2019, the Company carried out a reverse share split of 4:1. As a result, the share capital represented by 2,036,988,542 shares decreased to 509,247,136 shares. The reverse share split has been applied retrospectively to all figures in the historical financial statements regarding number of shares (Note 21) and per share data as if the reverse share split had been in effect for all periods presented.

1.1 Initial Public Offering and resulting transactions

On December 13, 2019, the Company completed its Initial Public Offering (“IPO”), offering 72,510,641 of Class A common shares out, of which 42,553,192 new shares were offered by the Company and the remaining 29,957,449 shares were offered by selling shareholders. Additionally the underwrites executed an option to purchase 10,876,596 additional Class A common shares at the initial public offering price which resulted in a total of 83,387,237 Class A common shares sold.

The initial offering price per Class A common share was US$ 27.00, resulting in gross proceeds of US$ 1,148,936 thousand (or R$4,705,803) to XP Inc, deducting R$200,977 thousand as underwriting discounts and commissions. Additionally, the Company incurred in R$44,726 thousand regarding other offering expenses out of, which R$21,902 thousand was recognized directly in income statements and the amount of R$22,824 in equity as transaction cost.

The shares offered and sold in the IPO were registered under the Securities Act of 1933, as amended, pursuant to the Company’s Registration Statement on Form F-1 (Registration N° 333-234719), which was declared effective by the Securities and Exchange Commission on December 10, 2019. The common shares began trading on the Nasdaq Global Select Market (“NASDAQ-GS”) on December 11, 2019 under the symbol “XP”.

These unaudited interim condensed consolidated financial statements for the three months period ended March 31, 2020 were approved by the Board of Director’s meeting on May 8, 2020.

9 

XP Inc. and its subsidiaries  Notes to unaudited interim condensed consolidated financial statements As of March 31, 2020  In thousands of Brazilian Reais 

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

a) Basis of preparation of the unaudited interim condensed consolidated financial statements

The unaudited interim condensed consolidated financial statements as of March 31, 2020 and for the three months ended March 31, 2020 and 2019 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, 2019.

The accounting policies adopted are consistent with those of the previous financial year and corresponding interim reporting period.

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

b) Basis of consolidation

There were no changes since December 31, 2019 in the accounting practices adopted for consolidation and in the direct and indirect interests of Company in its subsidiaries for the purposes of these unaudited interim condensed consolidated financial statements, except for the following item:

			% of Group’s interest (i)
Entity name	Country of incorporation	Principal activities	March 31, 2020	December  31, 2019
Indirectly controlled
XP PE Gestão de Recursos Ltda. (ii)	Brazil	Private equity asset management	99.10%	-

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

(ii) New operating subsidiaries incorporated in 2020.

c) Segment reporting

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

The CODM considers the whole Group as a single operating and reportable segment, monitoring operations, making decisions on fund allocation and evaluating performance based on a single operating segment. The CODM reviews relevant financial data on a combined basis for all subsidiaries. Disaggregated information is only reviewed at the revenue level (Note 16), 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.

10 

XP Inc. and its subsidiaries  Notes to unaudited interim condensed consolidated financial statements As of March 31, 2020  In thousands of Brazilian Reais 

See Note 16 (c) for a breakdown of total revenue and income and selected assets by geographic location

d) Impacts related COVID-19 in the current period

Starting from January 2020, it was reported that a novel strain of coronavirus, later named COVID-19, spread worldwide. The current pandemic is expected to have a negative impact on global, regional and national economies and to disrupt supply chains and otherwise reduce international trade and business activity. The Group has reviewed its exposure to economic-related and market volatility, which could negatively impact the value of a certain class of financial instruments but has not identified relevant impact to the financial performance or position of the group as March 31, 2020. The company has sufficient headroom to enable it to conform to covenants on its existing borrowings and sufficient working capital and undrawn financing facilities to service its operating activities and ongoing investments.

Although the Group have not identified relevant impacts to its financial performance as at March 31, 2020, the Group is monitoring COVID-19 effects on its business, which are still uncertain and will depend on the severity of the coronavirus and the actions to contain or treat its impact, among others.

e) New standards, interpretations and amendments not yet adopted

The accounting policies adopted in the preparation of the unaudited interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group’s consolidated financial statements for the year ended December 31, 2019.

Certain new accounting standards and interpretations have been published that are not mandatory for the period ended March 31, 2020, and have not been early adopted by the group. These standards are not expected to have a material impact on the entity in the current or future financial statements periods and on foreseeable future transactions.

The Group did not have to change its accounting policies or make retrospective adjustments as a result of adopting these standards.

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 the consolidated financial statements for the year ended December 31, 2019.

11 

XP Inc. and its subsidiaries  Notes to unaudited interim condensed consolidated financial statements As of March 31, 2020  In thousands of Brazilian Reais 

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

a) Securities purchased under agreements to resell

	March 31, 2020	December 31, 2019
Available portfolio	3,294,442	971,991
National Treasury Notes (NTNs)	3,221,176	771,099
Financial Treasury Bills (LFTs)	-	195,980
National Treasury Bills (LTNs)	73,266	4,912
Collateral held	11,622,352	8,518,099
National Treasury Bills (LTNs)	293,787	1,764,410
National Treasury Notes (NTNs)	11,328,565	6,753,689
Total	14,916,794	9,490,090

Investments in purchase and sale commitments backed by sovereign debt securities refer to transactions involving the purchase of sovereign debt securities with a commitment to sale originated in the subsidiary XP CCTVM and in exclusive funds and were carried out at an average fixed rate of 3.68% p.a. (December 31, 2019 – 4.63% p.a.).

As of March 31, 2020, R$ 309,053 (December 31, 2019 - R$ 654,057) from the total amount of available portfolio is being presented as cash equivalents in the statements of cash flows.

b) Securities sold under repurchase agreements

	March 31, 2020	December 31, 2019
National Treasury Bills (LTNs)	16,829,549	8,533,113
National Treasury Notes (NTNs)	3,057,813	5,653,994
Financial Treasury Bills (LFTs)	1,220,908	1,451,300
Agribusiness receivables certificates (CRA)	3,031	-
Total	21,111,301	15,638,407

As of March 31, 2020, securities sold under repurchase agreements were agreed with average interest rates of 3.64% p.a. (December 31, 2019 – 4.48% p.a.), with assets pledged as collateral.

12 

XP Inc. and its subsidiaries  Notes to unaudited interim condensed consolidated financial statements As of March 31, 2020  In thousands of Brazilian Reais 

4. Securities

a) Securities classified at fair value through profit and loss and at fair value through other comprehensive income

	March 31, 2020				December 31, 2019
	Gross carrying amount		Fair value		Gross carrying amount		Fair Value
Financial assets
At fair value through profit and loss		24,911,824		25,091,723		22,332,936		22,443,392
Agribusiness receivables certificates		532,281		515,994		598,085		589,525
Bank deposit certificates (i)		270,022		272,972		244,071		246,827
Brazilian government bonds		15,461,665		15,669,359		15,404,300		15,494,046
Certificate of real estate receivable		211,458		205,546		75,922		75,123
Debentures		1,017,997		973,503		885,344		885,068
Financial credit bills		83,762		82,765		98,068		106,759
Investment funds		4,525,734		4,525,734		3,047,198		3,047,198
USA government bonds		1,856,714		1,857,216		-		-
Real estate credit bill		1,367		1,392		1,282		1,300
Stocks issued by public-held company		312,547		312,547		1,562,965		1,562,965
Structured transaction certificate		305,188		332,039		237,112		256,381
Others (ii)		333,089		342,656		178,589		178,200
At fair value through other comprehensive income		4,836,127		4,896,387		2,608,325		2,616,118
National treasury bill		4,836,127		4,896,387		2,608,325		2,616,118

(i) Bank deposit certificates include R$ 152,200 (December 31, 2019 – R$ 123,817) is being presented as cash equivalents in the statements of cash flows.

(ii) Mainly related to bonds issued and traded overseas.

b) Securities evaluated at amortized cost

	March 31, 2020				December 31, 2019
	Gross carrying amount		Book Value		Gross carrying amount		Book Value
Financial assets
At amortized cost		1,267,826		1,267,826		2,266,971		2,266,971
Bonds		1,267,826		1,267,826		2,266,971		2,266,971

13 

XP Inc. and its subsidiaries  Notes to unaudited interim condensed consolidated financial statements As of March 31, 2020  In thousands of Brazilian Reais 

c) Securities on the financial liabilities classified at fair value through profit or loss

	March 31, 2020				December 31, 2019
	Gross carrying amount		Book value		Gross carrying amount		Book Value
Financial liabilities
At fair value through profit or loss
Securities loaned		721,131		721,131		2,021,707		2,021,707

d) Securities classified by maturity

			Assets				Liabilities
	March 31, 2020		December 31, 2019		March 31, 2020		December 31, 2019
Financial assets
At fair value through P&L and at OCI
Current		8,417,190		9,804,819		721,131		2,021,707
Non-stated maturity		5,405,233		4,999,333		721,131		2,021,707
Up to 3 months		1,814,839		257,544		-		-
From 3 to 12 months		1,197,118		4,547,942		-		-
Non-current		21,570,920		15,254,691		-		-
After one year		21,570,920		15,254,691		-		-
Evaluated at amortized cost
Current		1,267,826		2,266,971		-		-
Up to 3 months		423,837		807,218		-		-
From 3 to 12 months		843,989		1,459,753		-		-
Total		31,255,936		27,326,481		721,131		2,021,707

5. Derivative financial instruments

The Group uses the derivatives to manage its overall exposures of foreign exchange rates, interest rates and price of shares.

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

	March 31, 2020
	Notional		Fair Value		%		Up to 3 months		From 3 to 12 months		Above 12 months
Assets
Options		380,556,621		7,156,611		84		2,612,257		2,482,728		2,061,626
Swap contracts		3,864,467		789,707		8		392,631		11,953		385,123
Forward contracts		707,973		567,259		7		545,521		3,679		18,059
Future contracts		6,201		1,216		1		1,216		-		-
Total		385,135,262		8,514,793		100		3,551,625		2,498,360		2,464,808

14 

XP Inc. and its subsidiaries  Notes to unaudited interim condensed consolidated financial statements As of March 31, 2020  In thousands of Brazilian Reais 

Liabilities
Options	439,211,735	6,469,055	86	1,932,259	2,354,129	2,182,667
Swap contracts	2,915,357	425,108	6	22,309	13,866	388,933
Forward contracts	4,223,982	631,912	8	558,697	73,152	63
Total	446,351,074	7,526,075	100	2,513,265	2,441,147	2,571,663

	December 31, 2019
	Notional		Fair Value		%		Up to 3 months		From 3 to 12 months		Above 12 months
Assets
Options		498,484,022		2,742,035		67		1,837,073		577,177		327,785
Swap contracts		3,955,473		1,133,768		27		10,418		700,668		422,682
Forward contracts		1,857,542		187,392		5		159,163		28,175		54
Future contracts		15,920,584		21,809		1		21,809		-		-
Total		520,217,621		4,085,004		100		2,028,463		1,306,020		750,521
Liabilities
Options		488,482,756		2,741,592		85		1,745,532		637,393		358,667
Swap contracts		3,420,857		485,164		14		15,838		40,687		428,639
Forward contracts		164,209		2,480		1		1,693		325		462
Total		492,067,822		3,229,236		100		1,763,063		678,405		787,768

15 

XP Inc. and its subsidiaries  Notes to unaudited interim condensed consolidated financial statements As of March 31, 2020  In thousands of Brazilian Reais 

6. Hedge accounting

In the three months period ended March 31, 2020 and in the year ended December 31, 2019, the objective for the Group was to hedge the risk generated by the US$ variation from the investments in USA, XP Holding International and XP Advisors Inc.

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

The Group undertakes risk management through the economic relationship between hedge instruments and hedged 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 comprehensive income		Nominal value		Variation in the amounts used to calculate hedge ineffectiveness
Strategies	Assets		Liabilities
March 31, 2020
Foreign exchange risk
Hedge of net investment in foreign operations		228,563		-		52,428		385,484		(56,496	)
Total		228,563		-		52,428		385,484		(56,496	)
December 31, 2019
Foreign exchange risk
Hedge of net investment in foreign operations		186,412		-		5,946		248,896		(7,133	)
Total		186,412		-		5,946		248,896		(7,133	)

There was no ineffectiveness during March 31, 2020 and December 31, 2019 in relation to the foreign net investment hedge.

7. 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, 2020		December 31, 2019
Cash and settlement records		49		13,823
Debtors pending settlement		956,760		477,646
Other		58,976		13,514
Total Assets		1,015,785		504,983
Cash and settlement records		557,632		474,759
Creditors pending settlement		12,775,907		8,639,787
Total Liabilities		13,333,539		9,114,546

16 

XP Inc. and its subsidiaries  Notes to unaudited interim condensed consolidated financial statements As of March 31, 2020  In thousands of Brazilian Reais 

8. Property, equipment, intangible assets and lease

a) Changes in the period

	Property and equipment			Intangible assets
As of January 1, 2019		99,127			504,915
Additions		11,375			8,061
Write-offs		(56	)		(56	)
Depreciation / amortization in the period		(4,672	)		(7,055	)
As of March 31, 2019		105,774			505,865
Cost		146,865			626,921
Accumulated depreciation / amortization		(41,092	)		(121,056	)
As of January 1, 2020		142,464			553,452
Additions		20,746			19,914
Write-offs		(324	)		-
Transfers		(2,083	)		2,083
Depreciation / amortization in the period		(6,255	)		(15,648	)
As of March 31, 2020		154,548			559,801
Cost		211,839			672,045
Accumulated depreciation / amortization		(57,291	)		(112,244	)

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, 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, 2019.

As of March 31, 2020, there were no indicators of a potential impairment of goodwill. Additionally, there are no significant changes to the assumptions in the annual consolidated financial statements for the year ended December 31, 2019.

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:

17 

XP Inc. and its subsidiaries  Notes to unaudited interim condensed consolidated financial statements As of March 31, 2020  In thousands of Brazilian Reais 

	Right-of-use assets			Lease liabilities
As of January 1, 2019		133,870			148,494
Depreciation expense		(3,430	)		-
Interest expense		-			2,328
Effects of exchange rate		(1,281	)		134
Payment of lease liabilities		-			(7,490	)
As of March 31, 2019		129,159			143,466
As of December 31, 2019		227,478			255,406
Additions (i)		19,273			19,361
Depreciation expense		(9,623	)		-
Interest expense		-			6,145
Revaluation (ii)		(19,968	)		(19,968	)
Impairment		(3,040	)		-
Effects of exchange rate		22,016			23,561
Payment of lease liabilities		-			(15,558	)
As of March 31, 2020		236,136			268,947
Current		-			56,581
Non-current		236,136			212,367

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

(ii) Revaluation of discount rate that represent the current market assessment.

The Group recognized rent expense from short-term leases and low-value assets of R$ 1,746 for the period ended December 31, 2019. The total rent expense of R$ 9,225, include other expenses related to leased offices such as condominium.

9. Borrowings and lease liabilities

	Interest rate %	Maturity	March 31, 2020	December 31, 2019
Bank borrowings – domestic (i)	113% of CDI	March 2021	42,124	52,668
Related parties			42,124	52,668
Financial institution (ii)	CDI + 0.774%	April 2023	333,368	329,410
Third parties			333,368	329,410
Total borrowings			375,492	382,078
Lease liabilities			268,947	255,406
Total borrowings and lease liabilities			644.439	637,484
Current			405,498	116,450
Non-current			238,941	521,034

(*) Brazilian Interbank Offering Rate (CDI)

(i) Loan agreement with Itaú Unibanco with maturity on March 8, 2021, payable in 36 monthly installments.

18 

XP Inc. and its subsidiaries  Notes to unaudited interim condensed consolidated financial statements As of March 31, 2020  In thousands of Brazilian Reais 

(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.

All the obligations above contain financial covenants, which comply with certain performance conditions. The Group has complied with these covenants throughout the reporting period (Note 24 (b)).

10. Debentures

On May 15, 2019 and September 28, 2018, the Company issued Debentures, non-convertible into shares, in the amount of R$ 800,000, with the objective of funding the Group’s working capital and treasury investments. As of March 31, 2020, the total balance is comprised of the following issuances:

Issuance	Quantity (units)		Annual rate	Issuance date	Maturity date	Unit value at issuance		Unit value at period-end		Book value
1st		400,000	108.0% CDI	9/28/2018	9/28/2020	R$	1,000.00	R$	1,093.87		438,010
2st		400,000	107.5% CDI	5/15/2019	5/15/2022	R$	1,000.00	R$	1,016.83		406,351
Total		800,000									844,361

	March 31, 2020			December 31, 2019
Principal		800,000			800,000
Interest		56,258			47,127
Payments		(11,897	)		(11,897	)
Total		844,361			835,230
Current		444,361			435,230
Non-current		400,000			400,000

The principal amount and accrued interest payables related to the first issuance are due on the maturity date, while for the second issuance, 50% of the principal amount is due on May 15, 2021 and the remaining balance on the maturity date, and accrued interest payable every 12 months from the issuance date. There were no amounts paid in 2019.

Debentures are subject to financial covenants, which comply with certain performance conditions. The Group has complied with these covenants throughout the reporting period (Note 24(b)).

11. Private pension liabilities

As of March 31, 2020, 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 FIE at the reporting date (Note 4 (a)).

19 

XP Inc. and its subsidiaries  Notes to unaudited interim condensed consolidated financial statements As of March 31, 2020  In thousands of Brazilian Reais 

a) Changes in the period

	Three months period ended March 31,
	2020			2019
As of January 1		3,759,090			16,059
Contributions received		278,357			1,766
Transfer with third party plans		1,636,370			31,777
Redemptions paid		(46,585	)		-
Gain (loss) from FIE		(472,144	)		324
As of March 31		5,155,088			49,926
Contributions invested in FIEs (Note 4 (a))		5,155,088			49,926

12. 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, 2020			December 31, 2019			March 31, 2020			March 31, 2019
Tax losses carryforwards		39,298			17,146			22,152			(29,611	)
Goodwill on business combinations (i)		14,714			22,303			(7,589	)		(9,068	)
Provisions for IFAs’ commissions		64,669			68,041			(3,372	)		-
Revaluations of financial assets at fair value		(26,370	)		25,259			(51,629	)		(2,486	)
Expected credit losses		13,695			5,666			8,029			(75	)
Financial instruments taxed on redemption		-			-			-			9,852
Profit sharing plan		71,309			141,136			(69,828	)		51,494
Net gain on hedge instruments		22,706			(36,384	)		59,091			(1,080	)
Share based plan		14,187			2,950			11,237			-
Other provisions		47,304			33,284			14,019			776
Total		261,512			279,401			(17,890	)		19,802
Deferred tax assets		261,512			284,533
Deferred tax liabilities		-			(5,132	)

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

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

	Three months period ended March 31,
	2020			2019
As of January 1		279,401			140,400
Foreign exchange variations		21,055			(114	)
Charges to statement of income		(47,072	)		18,643
Tax relating to components of other comprehensive income		8,128			1,273
As of March 31		261,512			160,202

20 

XP Inc. and its subsidiaries  Notes to unaudited interim condensed consolidated financial statements As of March 31, 2020  In thousands of Brazilian Reais 

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$ 12,237 (December 31, 2019 - R$ 18,402) 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 year, calculated by applying the combined Brazilian statutory rates at 34% for the period ended March 31:

	Three months period ended March 31,
	2020			2019
Income before taxes		516,531			303,227
Combined tax rate in Brazil (i)		34	%		34	%
Tax expense at the combined rate		175,620			103,097
Income (loss) from entities not subject to taxation		(9,246	)		(48	)
Effects from entities taxed at different rates		14,287			6,505
Effects from entities taxed at different method (ii)		(64,678	)		(4,968	)
Intercompany transactions with different taxation		(9,156	)		(7,767	)
Tax incentives		605			-
Non deductible expenses (non-taxable income), net		6,586			717
Others		4,959			(4,747	)
Total		118,977			92,789
Effective tax rate		23.03	%		30.60	%
Current		71,905			111,432
Deferred		47,072			(18,643	)
Total expense		118,977			92,789

(i) 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.

(ii) 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.

21 

XP Inc. and its subsidiaries  Notes to unaudited interim condensed consolidated financial statements As of March 31, 2020  In thousands of Brazilian Reais 

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		1,325			-			1,325
Gains (losses) on net investment hedge		(1,277	)		434			(843	)
Changes in the fair value of financial assets at fair value		(2,021	)		838			(1,183	)
As of March 31, 2019		(1,973	)		1,272			(701	)
Foreign exchange variation of investees located abroad		56,560			-			56,560
Gains (losses) on net investment hedge		(85,600	)		29,104			(56,496	)
Changes in the fair value of financial assets at fair value		52,467			(20,977	)		31,490
As of March 31, 2020		23,427			8,127			31,554

13. 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 XP Inc. 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.

As of March 31, 2020 and December 31, 2019, the Company have US$ 23 thousand of issued capital which were represented by 354,181,346 Class A common shares and 197,618,980 Class B common shares. In the IPO that took place on December 11, 2019, the Company issued 83,387,238 new Class A common shares, with a corresponding increased of US$ 2 in the issued capital of the Company.

(b) Additional paid-in capital and capital reserve

In December 2019, immediately prior the completion of the IPO, the Company had 257,456,251,558 Class A common shares and 251,790,558 Class B common shares of its authorized share capital issued. Class A and Class B common shares.

At the Board of Directors meetings on November 30, 2019, the Company’s shareholders approved a reverse share split of 4:1 (four for one) for an initial consideration to IPO with a conversion of 2,036,988,542 into 509,247,134 shares. On the same event shareholders also approved the conversion of 30,807,911 Class B common shares of the Company into Class A common shares.

In December 2019, as a result of the completion of the IPO describe in Note 1.1, 42,553,192 new Class A common shares were issued.

As mentioned in Note 20, the Board of Directors approved on 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, 2020 the Company has 1,906,024 (December 31, 2019 – 1,921,669) restricted share units (“RSUs”) and 2,190,377 (December 31, 2019 – 2,190,377) performance restricted units (“PSUs”) 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,

22 

XP Inc. and its subsidiaries  Notes to unaudited interim condensed consolidated financial statements As of March 31, 2020  In thousands of Brazilian Reais 

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) 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.

The proposal and payment of dividends recorded in the Company's financial statements, subject to the approval of the shareholders in General Meetings.

For the three months period ended March 31, 2020 and 2019, the Company has not declared and paid dividends to the controlling shareholders.

(d) Other comprehensive income

Increases or decreases in value attributed to assets and liabilities are classified as equity valuation adjustments, while not being computed in the income for the period in accordance with the accrual basis as a result of their valuation at fair value.

14. Related party transactions

The main transactions carried with related parties, under commutative conditions, 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, 2020			December 31, 2019			2020			2019
Shareholders with significant influence (i)		175,859			(732,420	)		(26,039	)		(9,841	)
Securities		152,636			123,813			3,780			2,094
Securities purchased under agreements to resell		64,999			196,009			(30,087	)		-
Accounts receivable		348			594			797			61
Securities sold under repurchase agreements		-			(1,000,168	)		-			-
Borrowings		(42,124	)		(52,668	)		(529	)		(11,996	)

(i) These transactions are related to Itaú Unibanco who became shareholder of the Company in 2018 and since then a related party.

Transactions with related parties also includes transactions among the Company and its subsidiaries in the ordinary course of 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; and (v) insurance. The effects of these transactions have been eliminated and do not have effects on the unaudited interim condensed consolidated financial statements.

23 

XP Inc. and its subsidiaries  Notes to unaudited interim condensed consolidated financial statements As of March 31, 2020  In thousands of Brazilian Reais 

15. 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 and 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, 2020		December 31, 2019
Tax contingencies		9,956		9,878
Civil contingencies		2,412		2,673
Labor contingencies		2,529		2,642
Total provision		14,897		15,193
Judicial deposits (i)		10,050		18,403

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

Changes in the provision during the three months period

	Three months period ended March 31,
	2020			2019
As of January 1		15,193			17,474
Monetary correction		325			336
Provisions accrued		159			11
Provisions reversed		(546	)		-
Payments		(234	)		(318	)
As of March 31		14,897			17,503

Nature of claims

a) Tax

As of March 31, 2020, the Group has claims classified as probable risk of loss in the amount of R$ 9,956 (December 31, 2019 - R$ 9,878), regarding social contributions on revenue (PIS and COFINS), questioning the exclusion of this own taxes on the calculation basis over revenues. In accordance with Brazilian laws and tax regulations, this practice is legal for VAT (ICMS) taxes, and other companies have recently obtained significant success in applying this concept for PIS and COFINS taxes. These lawsuits are supported by court deposits in its entirety.

b) Civil

The majority of the civil 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;

24 

XP Inc. and its subsidiaries  Notes to unaudited interim condensed consolidated financial statements As of March 31, 2020  In thousands of Brazilian Reais 

and (iii) alleged losses generated from the liquidation of costumers assets in portfolio due to margin cause and/or negative balance. As of March 31, 2020, there were 34 civil claims for which the likelihood of loss has been classified as probable, in the amount of R$ 2,412 (December 31, 2019 - R$ 2,673). An amount of R$ 100 was deposited in court as of March 31, 2020 (December 31, 2019 – R$ 9,744).

c) 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, 2020, the Company and its subsidiaries are the defendants in approximately 10 cases involving labor matters for which the likelihood of loss has been classified as probable, in the amount of R$ 2,529 (December 31, 2019 - R$ 2,642).

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$ 163,982 (December 31, 2019 - R$ 153,951).

Below is summarized these possible claims by nature:

	March 31, 2020		December 31, 2019
Tax (i)		69,963		69,386
Civil (ii)		89,419		81,414
Labor		4,600		3,151
Total		163,982		153,951

(i) In December 2019, the Group was notified by tax authorities for a requirement of social security contributions due to employee profit sharing payments related to the calendar year 2015, allegedly in violation of Brazilian Law 10,101/00. Currently, the case at administrative level in assessment by the Administrative Council of Tax Appeals (“CARF”), awaiting the decision on the Group’s appeal. There are other favorable CARF precedents on the subject and the Group obtained legal opinions that support the Group’s defense and current practice.

(ii) The Group is defendant in 456 civil 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.

16. 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:

25 

XP Inc. and its subsidiaries  Notes to unaudited interim condensed consolidated financial statements As of March 31, 2020  In thousands of Brazilian Reais 

	Three months period ended March 31,
	2020			2019
Major service lines
Brokerage commission		504,644			288,819
Securities placement		348,174			160,391
Management fees		255,049			140,858
Insurance brokerage fee		29,226			18,548
Educational services		25,700			13,750
Other services		94,085			43,709
		1,256,878			666,075
(-) Sales taxes and contributions on revenue (i)		(104,932	)		(66,828	)
		1,151,946			599,247

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

b) Net income from financial instruments

	Three months period ended March 31,
	2020			2019
Net Income of financial instruments at fair value through profit or loss		391,689			274,520
Net Income of financial instruments measured at amortized cost and at fair value through other comprehensive income		207,299			65,822
(-) Taxes and contributions on financial income		(16,093	)		(5,597	)
		582,895			334,745

c) Disaggregation by geographic location

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

	Three months period ended March 31,
	2020		2019
Brazil		1,634,093		863,587
United Stated of America		91,890		62,958
Europe		8,858		7,447
Total revenue and income		1,734,841		933,992
		March 31, 2020		December 31, 2019
Brazil		1,162,433		1,208,737
United Stated of America		147,374		224,244
Europe		7,475		16,476
Selected assets (i)		1,317,282		1,449,457

(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 customers represented more than 10% of Group’s revenues for the periods presented.

26 

XP Inc. and its subsidiaries  Notes to unaudited interim condensed consolidated financial statements As of March 31, 2020  In thousands of Brazilian Reais 

17. Operating costs

	Three months period ended March 31,
	2020		2019
Commission costs		441,951		242,831
Operating losses and provisions		38,303		2,901
Other costs		98,562		62,024
Clearing house fees		63,504		34,513
Third parties’ services		18,148		19,579
Other		16,910		7,932
Total		578,816		307,756

18. Operating expenses by nature

	Three months period ended March 31,
	2020		2019
Selling expenses		28,476		24,518
Advertising and publicity		28,476		24,518
Administrative expenses		578,116		368,285
Personnel expenses		400,980		255,844
Compensation		177,119		71,466
Employee profit-sharing and bonus		103,020		150,185
Executives profit-sharing		72,677		10,143
Benefits		17,549		10,834
Social charges		30,052		12,515
Other		563		701
Other taxes expenses		6,843		6,635
Depreciation of property and equipment and right-of-use assets		15,878		8,102
Amortization of intangible assets		15,648		7,055
Other administrative expenses		138,767		90,649
Data processing		55,947		33,328
Technical services		20,768		15,360
Third parties' services		40,193		21,968
Rent expenses		3,390		6,318
Communication		4,499		3,454
Travel		5,699		3,674
Legal and judicial		677		414
Other		7,594		6,133
Total		606,592		392,803

27 

XP Inc. and its subsidiaries  Notes to unaudited interim condensed consolidated financial statements As of March 31, 2020  In thousands of Brazilian Reais 

19. Other operating income (expenses), net

	Three months period ended March 31,
	2020			2019
Other operating income		27,666			90,613
Recovery of charges and expenses		501			51,800
Reversal of operating provisions		704			4,392
Revenue from incentives from Tesouro Direto, B3 and others		21,672			8,855
Interest received on tax		2,281			22,931
Other		2,508			2,635
Other operating expenses		(41,549	)		(5,437	)
Legal proceedings and agreement with customers		(10,246	)		(437	)
Losses on write-off and disposal of assets		(59	)		(3	)
Fines and penalties		(624	)		(730	)
Associations and regulatory fees		(3,321	)		(839	)
Charity		(16,596	)		(1,250	)
Other		(10,703	)		(2,178	)
Total		(13,883	)		85,176

20. Share-based plan

a) Share-based Plan

The establishment of the Plan was approved by the Board of Director’s meeting on December 6, 2019 and the first grant of RSUs and PSUs was on December 10, 2019.

Under the Restricted Stock Unit plan, stocks are awarded at no cost to the recipient upon their grant date. RSUs are granted semi-annually, their vesting conditions are service related and they vest at a rate of 20% after three years, 20% after four years, and 60% after five years. After the vesting periods, common shares will be issued to the recipients. For the PSUs, the vesting is the following: (i) 33% will vest on the third year after the grant, (ii) 33%% will vest on the fourth year after the grant and (iii) 34% will vest on the fifth year after the grant date.

Under the Performance Share Unit, stocks are granted to eligible participants and their vesting conditions are based on five-year period metrics and also based on the total shareholder return (TSR), including share price growth, dividends and capital returns.

If an eligible participant ceases to be employed by the Company, within the vesting period, the rights will be forfeited, except in limited circumstances that are approved by the board on a case-by-case basis.

Once the PSUs are vested, the shares of common stock that are delivered must be held for an additional one-year period, typically for a total combined vesting and holding period of six years from the grant date.

28 

XP Inc. and its subsidiaries  Notes to unaudited interim condensed consolidated financial statements As of March 31, 2020  In thousands of Brazilian Reais 

b) Fair value of shares granted

Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model and underlying assumptions, which depends on the terms and conditions of the grant and the information available at the grant date.

The Company uses certain methodologies to estimate fair value which include the following:

• Estimation of fair value based on equity transactions with third parties close to the grant date; and

• Other valuation techniques including share pricing models such as Monte Carlo.

These estimates also require determination of the most appropriate inputs to the valuation models including assumptions regarding the expected life of a share-based payment or appreciation right, expected volatility of the price of the Group’s shares and expected dividend yield.

c) 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. As of March 31, 2020, the outstanding number of Company reserved under the plans were 4,096,401 (December 31, 2019 - 4,112,046) including 1,906,024 RSUs (December 31, 2019 - 1,921,669) and 2,190,377 PSUs (December 31, 2019 - 2,190,377).

For the period ended March 31, 2020, total compensation expense of both plans were R$28,408, including R$5,187 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 weighted-average grant-date fair value of RSU and PSU shares was US$27 and US$ 34,56 respectively.

During the period ended March 31, 2020, there were 15,645 forfeited RSUs and no shares granted, exercised, expired or vested.

21. Earnings per share (basic and diluted)

The Company implemented a four-to-one reverse share split (or consolidation), effective as of November 30, 2019. The quantity of shares of the comparative periods were adjusted to give effect to this transaction.

The following table reflects the net income and share data used in the basic and diluted earnings per share (“EPS”) calculations:

	Three months period ended March 31,
	2020		2019
Net income attributable to Parent company		396,860		209,215
Basic weighted average quantity of shares (a)		551,800		509,247
Basic earnings per share - R$		0.7192		0.4108
Share-based incentive program (a)		4,096		-
Diluted weighted average quantity of shares		555,896		509,247
Diluted earnings per share - R$		0.7139		0.4108

(a) Thousands of shares.

29 

XP Inc. and its subsidiaries  Notes to unaudited interim condensed consolidated financial statements As of March 31, 2020  In thousands of Brazilian Reais 

22. 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 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. As of March 31, 2020 and December 31, 2019, there were no financial instruments classified as level 3.

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.

• 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.

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:

30 

XP Inc. and its subsidiaries  Notes to unaudited interim condensed consolidated financial statements As of March 31, 2020  In thousands of Brazilian Reais 

	March, 31 2020
	Level 1		Level 2		Fair Value		Book Value
Financial Assets
Financial assets at Fair value through profit or loss
Securities		22,640,753		2,450,970		25,091,723		25,091,723
Derivative financial instruments		1,215		8,513,577		8,514,793		8,514,793
Fair value through other comprehensive income
Securities		4,896,387		-		4,896,387		4,896,387
Evaluated at amortized cost
Securities		-		1,267,826		1,267,826		1,267,826
Securities purchased under agreements to resell		-		14,916,794		14,916,794		14,916,794
Securities trading and intermediation		-		1,015,785		1,015,785		1,015,785
Accounts receivable		-		424,702		424,702		424,702
Loan operations		-		63,589		63,589		63,589
Other financial assets		-		25,472		25,472		25,472
Financial liabilities
Fair value through profit or loss
Securities loaned		721,131		-		721,131		721,131
Derivative financial instruments		-		7,526,075		7,526,075		7,526,075
Evaluated at amortized cost
Securities sold under repurchase agreements		-		21,111,301		21,111,301		21,111,301
Securities trading and intermediation		-		13,333,539		13,333,539		13,333,539
Borrowings and lease liabilities		-		644,184		644,184		644,439
Debentures		-		832,810		832,810		844,361
Accounts payables		-		265,197		265,197		265,197
Structured operations certificates		-		150,461		150,461		150,461
Other financial liabilities		-		31,485		31,485		31,485

	December 31, 2019
	Level 1		Level 2		Fair Value		Book Value
Financial Assets
Financial assets at Fair value through profit or loss
Securities		20,277,031		2,166,361		22,443,392		22,443,392
Derivative financial instruments		21,809		4,063,195		4,085,004		4,085,004
Fair value through other comprehensive income
Securities		2,616,118		-		2,616,118		2,616,118
Evaluated at amortized cost
Securities		-		3,914,923		3,914,923		2,266,971
Securities purchased under agreements to resell		-		9,490,090		9,490,090		9,490,090
Securities trading and intermediation		-		504,983		504,983		504,983
Accounts receivable		-		462,029		462,029		462,029
Loan operations		-		386		386		386
Other financial assets		-		19,805		19,805		19,805
Financial liabilities
Fair value through profit or loss
Securities loaned		2,021,707		-		2,021,707		2,021,707
Derivative financial instruments		-		3,229,236		3,229,236		3,229,236
Evaluated at amortized cost
Securities sold under repurchase agreements		-		15,638,407		15,638,407		15,638,407
Securities trading and intermediation		-		9,114,546		9,114,546		9,114,546
Borrowings and lease liabilities		-		633,781		633,781		637,484
Debentures		-		836,001		836,001		835,230
Accounts payables		-		266,813		266,813		266,813
Structured operations certificates		-		19,474		19,474		19,474
Other financial liabilities		-		79,127		79,127		79,157

31 

XP Inc. and its subsidiaries  Notes to unaudited interim condensed consolidated financial statements As of March 31, 2020  In thousands of Brazilian Reais 

23. 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 operating 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.

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, 2019. There have been no changes in the risk management department or in any risk management policies since the year-end.

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

32 

XP Inc. and its subsidiaries  Notes to unaudited interim condensed consolidated financial statements As of March 31, 2020  In thousands of Brazilian Reais 

The net debt and corresponding gearing ratios as of March 31, 2020 and December 31, 2019 were as follows:

	March 31, 2020			December 31, 2019
Borrowings and lease liabilities		644,439			637,484
Debentures		844,361			835,230
Total debt		1,488,800			1,472,714
Cash		(249,950	)		(109,922	)
Securities purchased under agreements to resell		(309,053	)		(654,057	)
Certificate deposits (Securities)		(152,200	)		(123,817	)
Net debt		777,597			584,918
Total equity		7,604,939			7,153,396
Total capital		8,382,533			7,738,313
Gearing ratio %		9.28	%		7.56	%

a) 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, under BACEN regulation regime, is required to maintain a minimum capital and follow aspects from the Basel Accord, with the current strategy of maintaining its capital 1% above the minimum capital requirement.

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”) and Venture Capital Liquidity (“CR”), CMR is equivalent to the highest value between base capital and venture capital.

At March 31, 2020 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.

b) Financial covenants

In relation to the long-term debt contracts, including multilateral instruments, recorded within “Borrowing and lease liabilities” and “Debentures” (Notes 9 and 10), the Group is required to comply with certain performance conditions, such as profitability and efficiency indexes.

As of March 31, 2020, the amount of contracts under financial covenants is R$ 1,219,853 (December 31, 2019 – R$ 1,217,308). 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.

33 

XP Inc. and its subsidiaries  Notes to unaudited interim condensed consolidated financial statements As of March 31, 2020  In thousands of Brazilian Reais 

25. Cash flow information

a) Debt reconciliation

	Borrowings			lease liabilities			Debentures		Total
Total debt as of January 1, 2019		469,609			148,494			406,538		1,024,641
Payments		(24,786	)		(7,490	)		-		(32,276	)
Net foreign exchange differences		-			134			-		134
Interest accrued		7,585			2,328			6,649		16,562
Interest paid		(3,141	)		-			-		(3,141	)
Total debt as of March 31, 2019		449,267			143,466			413,187		1,005,920
Total debt as of January 1, 2020		382,078			255,406			835,230		1,472,714
Acquisitions / Issuance		-			19,361			-		19,361
Payments		(10,500	)		(15,558	)		-		(26,058	)
Revaluation		-			(19,968	)		-		(19,968	)
Net foreign exchange differences		-			23,561			-		23,561
Interest accrued		4,486			6,145			9,131		19,762
Interest paid		(572	)		-			-		(572	)
Total debt as of March 31, 2020		375,492			268,947			844,361		1,488,800

*   *   *

34