Rockwater Reports Third Quarter 2005 Results.

TORONTO -- Delivers strong revenue and earnings growth across all three businesses

Rockwater Capital Corporation ("Rockwater") (TSX:RCC) today released its unaudited consolidated results for the three-month and nine-month periods ending September 30, 2005.

Highlights:

- Net earnings grew to $2.5 million for the quarter from $0.5 million in the third quarter of 2004

- EPS rose to $0.10 in the quarter from $0.03 in the same quarter last year

- Revenue rose 65.8% to $56.9 million compared to the third quarter in 2004

- EBITDA(1) increased 161.9% to $9.8 million for the quarter

- Total client assets(2) rose to $13.8 billion, an increase of $1.4 billion or 11.3% from the second quarter of this year

- Operating expenses as a percentage of revenue declined to 21.1% in the quarter compared to 25.2% in the same quarter of 2004

- Strong revenue and earnings growth across all three businesses

- Investment dealer launched new name and branding as Blackmont Capital

Rockwater recorded third quarter earnings of $2.5 million on revenues of $56.9 million compared with earnings of $0.5 million on revenues of $34.3 million in the third quarter of 2004. EBITDA(1) was $9.8 million for the quarter compared with $3.7 million for the third quarter of last year.

For the nine months ended September 30, 2005, Rockwater recorded earnings of $5.2 million or $0.23 diluted earnings per share, an increase of 65.1% from the same period last year, on revenues of $153.4 million, which were up 40.8%. For the same nine-month period in 2004, Rockwater recorded earnings of $3.2 million or $0.19 diluted  EPS on revenues of $108.9 million. It should be noted that these earnings are not directly comparable, as there was no tax provision recorded in the prior year due to unrecognized tax loss carryforwards. On a before tax basis, Rockwater earned $8.8 million for the current nine-month period, an increase of 175.0% from $3.2 million last year. EBITDA(1) rose 82.9% for the first nine months of 2005 to $24.1 million, up from $13.2 million in the same period of 2004.

"When we began to build this business in 2002, we implemented a three-pronged strategy of assembling high quality, distinct, complementary businesses in wealth management, asset management, and capital markets. Our ability to generate strong increases in revenue and earnings across these three platforms during the quarter is validation of our strategy," said Robert Schultz, Chairman of Rockwater. "Our focus continues to be on growing each platform aggressively by driving organic growth, pursuing acquisitions and recruiting top people."

"This quarter we gained momentum in each business, with growth in client assets, higher average assets under administration per advisor, and increased financing participation," said William Packham, President and Chief Executive Officer of Rockwater. "Another significant milestone during the quarter was the launch of a strong new brand identity for our investment dealer as Blackmont Capital."

Strong momentum in each business:

Wealth Management

- Revenue up 45.5% from the same quarter last year to $35.3 million this quarter

- AUA(1) up 34% from Q3 of 2004 to $7.1 billion in this year's quarter

- Average AUA per advisor was $40.1 million at quarter-end, up 49.6% from $26.8 million in the same period last year and 16.6% from Q2 of this year alone

(1) See "Non-GAAP Measures" in the accompanying MD&A.

(2) "Total client assets" refers to the sum of total AUA and total AUM for the relevant period. Refer to "Non-GAAP Measures" in the accompanying MD&A.

Asset Management

- Revenue in the quarter up 147.3% from Q3 last year to $10.6 million, principally due to the acquisition of KBSH

- Total AUM(1) of $6.7 billon at quarter-end up significantly from $500 million in the same quarter last year, mainly due to the KBSH acquisition

- Compared to Q2 this year, AUM 1 grew $500 million primarily from market appreciation and also from net inflows of assets

Capital Markets

- Revenue up 90.7% to $11.0 million in the quarter compared to Q3 last year

- 28 financing transactions compared with 8 in Q3 of 2004

- Strengthened team with key hires in research and sales and trading

- Opened new institutional sales and trading office in Chicago to increase penetration in the US institutional market

Investor Conference Call

Rockwater will hold a conference call and live audio webcast on November 2, 2005 at 11 a.m. (ET) to discuss its financial results for the third quarter ended September 30, 2005. The call will be hosted by Robert Schultz, Chairman; William Packham, President and Chief Executive Officer; and Gordon Weir, Chief Financial Officer. Following the presentation, there will be a question and answer session for analysts and institutional investors. Stuart Raftus, President and Chief Operating Officer, Blackmont Capital, Gerald  Throop, President, Capital Markets, Blackmont Capital and Peter Pennal, President and Chief Executive Officer of KBSH, will also be available to answer questions.

To participate in the teleconference, call 416-640-4127 or 1-866-250-4910. To access the simultaneous live audio webcast, please visit our website at www.rockwater.ca. A taped rebroadcast will be available until November 9, 2005 at midnight. To access the rebroadcast, please dial 416-640-1917 or 1-877-289-8525 and quote the passcode 21158365#.

About Rockwater

Rockwater Capital Corporation (TSX:RCC) is an independent diversified financial services company that offers a broad range of products and services to individuals, corporations and institutions. Rockwater conducts its operations through its three subsidiaries: Blackmont Capital Inc., Rockwater Asset Management Inc., and KBSH Capital Management Inc. Rockwater operaates its wealth management an capital markets businesses through its full service broker dealer, Blackmont Capital. Rockwater's asset management business operates through Rockwater Asset Management and KBSH, both investment counselling and portfolio management firms.

(1) See "Non-GAAP Measures" in the accompanying MD&A.

Management Discussion and Analysis

For the three-month and nine-month period ended September 30, 2005

This management discussion and analysis ("MD&A") is dated as of November 1, 2005 and is supplemental to the unaudited interim consolidated financial statements and the notes thereto of Rockwater Capital Corporation (the "Corporation") for the three-month and nine-month period ended September 30, 2005. This MD&A is intended to provide shareholders with additional information on the Corporation's recent performance, its current financial situation and its prospects. It should be read in conjunction with the unaudited interim consolidated financial statements and the audited consolidated financial statements and MD&A for the year ended December 31, 2004. There has been no material change to the information contained in the annual MD&A for 2004 except as disclosed  below. The financial information presented below is unaudited, expressed in Canadian dollars and is prepared in accordance with Canadian generally accepted accounting principles ("GAAP"). This MD&A has been prepared by, and is the responsibility of, the management of the Corporation. The Corporation's board of directors reviewed this MD&A prior to it being released.

Caution Regarding Forward-looking Statements

This MD&A includes forward-looking statements concerning the future performance of the business of the Corporation and its financial performance and condition. Forward-looking statements may include, but are not limited to, comments with respect to the Corporation's objectives for 2005 and beyond, its strategies or future actions, expectations for its financial condition, and the results of and/or outlook for its operations. These forward-looking statements are based on current expectations.

Forward-looking statements require the Corporation to make assumptions that are subject to inherent risks and uncertainties. There is significant risk that estimates, projections, and other forward-looking statements will not prove to be accurate. The Corporation cautions readers of this document not to place undue reliance on forward-looking statements as a number of factors could cause actual future results, conditions, actions or events to differ materially from the targets, expectattions, estimates or intention expressed in the forward-looking statements. Some of the factors that could affect future performance include, but are not limited to, economic conditions, regulatory change, competitive environment and technological change. Therefore, future events and results may vary significantly from what the Corporation currently foresees. The Corporation is under no obligation, and expressly disclaims any such obligation, to update or alter the forward-looking statements whether as a result of new information, future events or otherwise.

Corporate Overview

The Corporation is an independent diversified financial services company that offers a broad range of financial products and services to individuals, institutions and corporations in the areas of wealth management ("Wealth Management"), asset management ("Asset Management") and capital markets ("Capital Markets"). The Corporation's business is conducted primarily through three operating subsidiaries: Blackmont Capital Inc. a full service investment dealer registered in all of the provinces and territories of Canada, Rockwater Asset Management Inc. ("RAM"), an investment counsel and portfolio manager registered in the provinces of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Nova Scotia, New Brunswick, Newfoundland and Labrador and Prince Edward Island, and KBSH Capital Management Inc. ("KBSH"), an investment counsel and portfolio manager registered in all of the provinces of Canada.

The Corporation changed the name of its investment dealer subsidiary to Blackmont Capital Inc. ("BCI") from First Associates Investments Inc. on September 16, 2005. The Corporation's Wealth Management and Capital Markets businesses will continue to be conducted through BCI.

The Corporation's shares are traded on the Toronto Stock Exchange ("TSX") under the stock symbol "RCC".

Non-GAAP Measures

The Corporation's consolidated financial statements are prepared in accordance with GAAP. For internal purposes, the Corporation utilizes certain measures that are not defined under GAAP in order to evaluate and assess the financial performance of its business segments. The Corporation believes these non-GAAP measures are important indicators of operating performance. There are no prescribed standards or definitions applicable to non-GAAP measures, and, as such, the non-GAAP measures employed by the Corporation are specific to the Corporation. Therefore, these non-GAAP measures are unlikely to be comparable to similar measures presented by other companies.

"Earnings before interest, taxes, depreciation and amortization" or "EBITDA" is calculated as earnings before income taxes, amortization of capital and intangible assets, amortization of deferred employment arrangements and interest expense. Book value per share is calculated by dividing total shareholders' equity by the number of common shares outstanding at the end of the reporting period. Management believes EBITDA and book value per share are important metrics in assessing the financial performance and valuation of its businesses. The following table reconciles EBITDA to consolidated net earnings for the periods indicated.

($000's Cdn,    For the Three-Months Ended For the Nine-Months Ended
 except %           Sept-    Sept-            Sept-     Sept-
 amounts)           ember    ember            ember     ember
                      30,      30,              30,       30,
                     2005     2004  Change     2005      2004 Change
---------------------------------------------------------------------
Net Earnings        2,518      514  389.9%    5,201     3,150  65.1%

Add:

Interest expense    1,398      422  231.3%    4,104     1,527 168.8%

Amortization of
 capital and
 intangible assets  1,237      525  135.6%    3,545     1,532 131.4%
Amortization of
 deferred employment
 arrangements       2,543    2,286   11.2%    7,634     6,962   9.7%

Tax provision       2,117        -     n/m    3,606         -    n/m
                   ---------------           ----------------
EBITDA              9,813    3,747  161.9%   24,090    13,171  82.9%
                   ---------------           ----------------
                   ---------------           ----------------

The Corporation also utilizes cash operating earnings to measure its overall financial performance. In particular, cash operating earnings is used to assess the ability of the Corporation to generate internal capital to finance its strategic business plan. Please see "Liquidity and Capital Resources" section of this MD&A for the Corporation's cash operating earnings for the three-month and nine-month periods ended September 30, 2005.

"Assets under administration" or "AUA" represents the market value of client assets administered by the Corporation in respect of which the Corporation earns commissions, administrative and other fees. "Assets under management" or "AUM" represents the market value of client assets managed by the Corporation on a discretionary basis and in respect of which the Corporation earns an investment management fee. Management uses AUA and AUM to assess the operational performance of its Wealth Management and Asset Management businesses respectively. To the extent that AUA are managed by the Corporation on a discretionary basis, such assets may also be included in AUM. AUA and AUM are not reflected on the Corporation's balance sheet.

Summary of Key Financial Data

($000's except
 where noted        For the Three-Months(3)     For the Nine-Months(3)
 and per share,                      Ended                      Ended
 employee,          Sept-    Sept-            Sept-    Sept-
 % amounts)         ember    ember            ember    ember
                      30,       30       %      30,      30,       %
                     2005     2004  Change     2005     2004  Change
---------------------------------------------------------------------
Revenue            56,855   34,301   65.8%  153,360  108,886    40.8%

Operating expenses 47,042   30,554   54.0%  129,270   95,715    35.1%
                   ---------------          ----------------

EBITDA(1)(2)        9,813    3,747  161.9%   24,090   13,171    82.9%

Interest expense    1,398      422  231.3%    4,104    1,527   168.8%

Amortization of
 capital and
 intangible assets  1,237      525  135.6%    3,545    1,532   131.4%
Amortization of
 deferred employment
 arrangements       2,543    2,286   11.2%    7,634    6,962     9.7%
                   ---------------          ----------------

Earnings before
 taxes              4,635      514  801.8%    8,807    3,150   179.6%

Tax provision       2,117        -     n/m    3,606        -      n/m
                             -----                     -----

Net earnings        2,518      514  389.9%    5,201    3,150    65.1%
                   ---------------          ----------------
                   ---------------          ----------------

Earnings per share
 (EPS)- Basic       $0.10    $0.03  233.3%    $0.23    $0.20    15.0%

Earnings per share
 (EPS) -Diluted     $0.10    $0.03  233.3%    $0.23    $0.19    21.1%

Book value per
 Share(2)           $5.73   $4.69    22.2%    $5.73    $4.69    22.2%

Total assets -
 $Million Cdn         753     438    71.9%      753      438    71.9%

Total long-term
 Liabilities -
 $Million Cdn         65        2      n/m       65        2      n/m

Number of employees  658      588    11.9%      658      588    11.9%

AUA(2) - $Billion
 Cdn                 7.1      5.3    34.0%      7.1      5.3    34.0%

AUM(2) - $Billion
 Cdn                 6.7      0.5 1,240.0%      6.7      0.5   1,240%

(1) See reconciliation of net earnings to EBITDA in "Non-GAAP Measures" section of this MD&A.

(2) See "Non-GAAP Measures" section of this MD&A.

(3) AUA, AUM and number of employees are as at the period end.

Industry Outlook

The operating results and financial condition of the Corporation are closely related to the performance of the Canadian equity markets, which are cyclical by nature. In the third quarter of 2005, activity in the Canadian equity markets remained strong, particularly the energy and metals and mining sectors. The level of energy prices, growth in global economies and rising interest rates in Canada and the U.S. are among the factors that have added some uncertainty to the outlook for Canadian equity markets for the remainder of the year(1). The Corporation's objective is to continue to build each of its business segments while maintaining control over fixed expenses in order to remain profitable in all market cycles(1).

In addition to being cyclical, Canadian equity markets experience significant seasonal variations in activity resulting in considerable fluctuations in revenue and income from quarter to quarter. Historically, revenue for capital markets participants is higher in the first and last quarters of the calendar year and the Corporation's experience generally follows that of the industry.

Results of Operations
---------------------

Revenue

Revenue by Type       For the Three-Months       For the Nine-Months
($000's Cdn,                         Ended                     Ended
 except %           Sept-    Sept-            Sept-    Sept-
 amounts)           ember    ember            ember    ember
                      30,      30,              30,      30,
                     2005     2004  Change     2005     2004  Change
---------------------------------------------------------------------
Commission         27,307   18,408   48.3%   75,176   67,020   12.2%

Investment banking  6,543    3,733   75.3%   22,261   10,750  107.1%

Asset management
 and account fees  12,219    4,374  179.4%   31,070   10,439  197.6%

Interest income     3,563    2,361   50.9%    9,697    7,785   24.6%

Principal
 transactions       6,480    3,539   83.1%   12,244    8,031   52.5%

Other income(2)       743    1,886 (60.6%)    2,912    4,861 (40.1%)
                   ---------------          ----------------

 Total Revenue     56,855   34,301   65.8%  153,360  108,886   40.8%
                   ---------------          ----------------
                   ---------------          ----------------

(1) Please see cautionary language contained in the section entitled "Caution Regarding Forward-Looking Statements" in this MD&A.

(2) Includes revenue generate from stock borrowing an lending agreements, repurchase and resale agreements and foreign currency transactions.

In the third quarter of 2005, total revenue increased by $22.6 million to a total of $56.9 million, primarily due to increased capital markets activity in Canada. Commission revenue totalled $27.3 million in the third quarter of 2005, an increase of $8.9 million or 48.3% from the prior year due to an increase in trading commissions generated from the Corporation's retail and institutional client base. Investment banking revenue totalled $6.5 million, up $2.8 million from the same period in the prior year, reflecting the growing recognition of the Corporation's investment banking team and increased financing activity by Canadian mid and small-cap equity issuers. Asset management and account fees increased by $7.8 million from the third quarter of 2004 to a total of $12.2 million due to the acquisition of KBSH, which was completed in the fourth quarter of 2004, and increased management and performance fees earned by RAM. Principal transactions revenue, which includes commissions earned on securities transactions recorded as principal and realized and unrealized gains on share purchase warrants received as consideration in various underwriting transactions, was $6.5 million, up $2.9 million from the same quarter in the prior year. Interest income totalled $3.6 million and other income was $0.7 million. The comparable figures for the prior year were $2.4 million and $1.9 million respectively.

For the nine-month period ended September 30, 2005, total revenue increased by $44.5 million to a total of $153.4 million, with each of the Corporation's principal sources of revenue contributing to the growth. Commissions increased by $8.2 million to a total of $75.2 million; Asset Management and account fees increased by $20.6 million to $31.1 million; Investment banking revenue was up $11.5 million to a total of $22.3 million; and principal transactions revenue increased by $4.2 million to $12.2 million. Interest income was up $1.9 million, while other income was down $1.9 million from the prior nine-month period.

Operating Expenses

For the Three-Months       For the Nine-Months
($000's Cdn,                         Ended                     Ended
 except %           Sept-    Sept-            Sept-    Sept-
 amounts)           ember    ember            ember    ember
                      30,      30,              30,      30,
                     2005     2004  Change     2005     2004  Change
---------------------------------------------------------------------
Incentive
 compensation      26,066   15,325   70.1%   68,227   48,238   41.4%
Fixed salaries
 and benefits       7,791    6,196   25.7%   23,604   18,651   26.6%
Stock-based
 compensation       1,217      382  218.6%    4,053      866  368.0%
                   ---------------          ----------------
Total compensation
 and benefits      35,074   21,903   60.1%   95,884   67,755   41.5%
Other operating
 expenses(1)       11,968    8,651   38.3%   33,386   27,960   19.4%
                   ---------------          ----------------
 Total Operating
  Expenses         47,042   30,554   54.0%  129,270   95,715   35.1%
                   ---------------          ----------------
                   ---------------          ----------------

(1) Other operating expenses are comprised of trading costs (brokerage, clearing and exchange fees), as well as occupancy, communications and technology, and general and administrative costs.

Total operating expenses were $47.0 million in the third quarter of 2005, up $16.5 million from the third quarter of 2004, primarily due to increased compensation. As a percentage of revenue, total compensation expense decreased to 61.7% from 63.9% in the prior year. Incentive compensation increased by $10.7 million from the third quarter of 2004, primarily due to the increase in revenue. Fixed salaries and benefits were up $1.6 million from the comparable quarter in the prior year. The acquisition of KBSH accounts for $0.7 million of this increase. The remaining increase primarily reflects increased staffing levels relative to the third quarter of 2004. The year-over-year increase in the number of employees is principally due to the KBSH acquisition and an increase in business support staffing levels for the planned growth of the Corporation's businesses. Stock-based compensation related to stock option, deferred share unit ("DSU") and performance share unit ("PSU") awards granted to senior management and other employees of the Corporation increased by $0.8 million from the third quarter of 2004. The DSU awards granted to Investment Advisors ("IAs"), Capital Markets professionals and other employees represent the stock-based component of various compensation programs. The PSU plan was approved by the Board of Directors on February 21, 2005 and is available to executives and key senior employees of the Corporation. Under the terms of the plan, the Corporation must achieve certain key financial targets over the 2005 to 2007 time period in order for the PSUs to be awarded. A total of 679,318 DSUs and 500,000 PSUs have been awarded as at September 30, 2005. The expense associated with the DSU and PSU awards is new in 2005, and is recognized over their three-year vesting periods.

For the three months ended September 30, 2005, other operating expenses increased by $3.3 million to a total of $12.0 million from the three-month period ended September 30, 2004. As a percentage of revenue, other operating expenses declined to 21.1% in the third quarter of 2005 from 25.2% in the comparable quarter in 2004, which reflects the Corporation's strategy of controlling these expenses relative to revenue. Occupancy costs were up $0.5 million due to the opening of new BCI branch offices and the acquisition of KBSH. Trading costs were up $0.8 million due to increased trading activity. Communications and technology costs were up $0.4 million, primarily due to the increase in the number of employees, and general and administrative costs were up $1.5 million as result of higher business development costs of $0.4 million, professional fees of $0.5 million and costs of $0.5 million associated with the rebranding of the investment dealer.

For the nine-month period ended September 30, 2005, operating expenses were up by $33.6 million from the same nine-month period in the prior year. The increase was driven by higher compensation expense, occupancy, general and administrative and communications and technology expenses. These increases generally reflect the increase in revenue and the build-out of the Corporation's business unit infrastructure to support the increased operating activity in each business segment. As a percentage of revenue, compensation expense for nine months period ended September 30, 2005 increased to 62.5% from 62.2% for the same period of the prior year and other operating expenses declined to 21.8% from 25.7%.

Other Expenses

For the Three-Months       For the Nine-Months
($000's Cdn,                         Ended                     Ended
 except %           Sept-    Sept-            Sept-    Sept-
 amounts)           ember    ember            ember    ember
                      30,      30,              30,      30,
                     2005     2004  Change     2005     2004  Change
---------------------------------------------------------------------
Interest expense    1,398      422  231.3%    4,104    1,527  168.8%
Amortization,
 capital and
 intangible assets  1,237      525  135.6%    3,545    1,532  131.4%
Amortization,
 deferred
 employment
 arrangements       2,543    2,286   11.2%    7,634    6,962    9.7%
                   ---------------          ----------------
 Total Other
  Expenses          5,178    3,233   60.2%   15,283   10,021   52.5%
                   ---------------          ----------------
                   ---------------          ----------------

Interest expense was $1.4 million for the three months ending September 30, 2005, up $1.0 million from the same period in the prior year. The increase reflects interest paid on the convertible debentures in the amount of $0.6 million.

Amortization of capital and intangible assets increased by $0.7 million to $1.2 million due to the amortization of intangible assets related to the acquisition of KBSH. Amortization of deferred employment arrangements for the three-month period ended September 30, 2005 was $2.5 million, an increase of $0.3 million from the three-month period in the prior year. Amortization of deferred employment arrangements includes amortization related to both contracts acquired through business acquisitions and normal recruitment activities. The increase from the prior year reflects increased recruiting activity in 2005.

Interest expense increased $2.6 million to $4.1 million for the nine-month period ending September 30, 2005 when compared to the same period in 2004. The increase reflects interest paid on the subordinated loans from the former shareholders of KBSH in the amount of $0.5 million and interest paid on the convertible debentures in the amount of $1.7 million. The subordinated loans from the former shareholders of KBSH, including accumulated interest thereon, were repaid in full on April 28, 2005 with the proceeds received from a public offering of common shares as described below. See "Convertible Debentures" and "Outstanding Share Data" below.

For the nine-month period ended September 30, 2005, amortization of capital and intangible assets was $3.5 million and amortization of deferred employment arrangements was $7.6 million, increases of $2.0 and $0.7 million, respectively, over the comparable period last year. The table below outlines the amortization expense related to deferred employment contracts entered into as at September 30, 2005.

($000's Cdn)               2005         2006        2007        2008
---------------------------------------------------------------------
Acquisition Related       4,428        1,705         932         734
Recruitment Related(1)    5,713        5,495       4,006       2,967
                        ---------------------------------------------
  Total Amortization     10,141        7,200       4,938       3,701
                        ---------------------------------------------
                        ---------------------------------------------

Income Taxes

In the third quarter of 2005, the Corporation recorded a tax provision of $2.1 million, which represents an effective tax rate of 46%. For the nine months ended September 30, 2005, the tax provision and effective tax rate are $3.6 million and 41%, respectively. The Corporation's effective tax rate is higher than the statutory tax rate of approximately 36%, principally due to non-deductible expenses relating to business acquisitions made in 2002 and the expense associated with the issuance of employee stock options. The dollar amount of these non-deductible expenses are expected to decline by approximately 50% in 2006, which will move the Corporation's effective tax rate closer to the statutory rate(2).

Net Income

The Corporation recorded EBITDA of $9.8 million for the three-month period ended September 30, 2005, an increase of $6.1 million from the third quarter of 2004. Net earnings were $2.5 million and fully diluted earnings per share were $0.10. This compares to the net earnings of $0.5 million and fully diluted earnings per share of $0.03 recorded in the three-month period ended September 30, 2004.

For the nine-month period ended September 30, 2005, EBITDA was $24.1 million, net earnings were $5.2 million and fully diluted earnings per share were $0.23. This compares to EBITDA of $13.2 million, net earnings of $3.2 million and fully diluted earnings per share of $0.19 for the nine-month period ended September 30, 2004.

(1) Only includes current employee arrangements and does not include any amortization related to planned or forecasted deferred employment contracts. This expense is expected to increase as a function of recruitment

(2) Please see cautionary language contained in the section entitled "Caution Regarding Forward-Looking Statements" in this MD&A.

Business Segment Analysis

Wealth Management

($000's Cdn,        For the Three-Months(2)    For the Nine-Months(2)
 except                            Ended                     Ended
 employee,          Sept-    Sept-            Sept-    Sept-
 % amounts          ember    ember            ember    ember
 and asset            30,       30       %      30,      30,       %
 totals)             2005     2004  Change     2005     2004  Change
---------------------------------------------------------------------

Revenue            35,308   24,268   45.5%   93,670   80,222   16.8%
Expenses           29,853   20,678   44.4%   81,134   67,989   19.3%
                -------------------        -------------------
EBITDA(1)           5,455    3,590   51.9%   12,536   12,233    2.5%
Amortization of
 capital assets       350      272   28.7%    1,013      783   29.4%
Amortization of
 deferred
 employment
 arrangements       1,386    1,065   30.1%    4,043    3,210   26.0%
Interest expense      682      422   61.6%    1,581    1,520    4.0%
                -------------------        -------------------
Earnings before
 tax                3,037    1,831   65.9%    5,899    6,720  (12.2%)
                -------------------        -------------------
                -------------------        -------------------
AUA(1)
 - $Billion Cdn       7.1      5.3   34.0%      7.1      5.3   34.0%
Number of
 Investment Advisors  178      197   (9.6%)     178      197   (9.6%)
Number of employees   354      350    1.1%      354      350    1.1%

Wealth Management Business

The Corporation conducts its Wealth Management business through the private client group (the "Private Client Group") of its subsidiary, BCI. The goal of the Private Client Group is to become Canada's leading source of independent investment advice for individual investors. The Private Client Group currently serves investors across the country through its thirteen branches in major centres across Canada.

In the third quarter of 2005, Private Client Group revenue increased by $11.0 million to a total of $35.3 million from the comparable quarter in 2004. Commission revenue increased by $6.9 million from the third quarter of 2004 due to increased activity in Canadian equity markets, particularly in the energy and metals and mining sectors. Managed account fees totalled $2.2 million compared to $1.0 million for the same period last year. The increase in managed account fees is consistent with the Corporation's strategy to increase client assets on its managed account platform. Principal transaction revenue was up $2.5 million from the comparable quarter in the prior year. The increase in principal transactions revenue reflects the growth in client facilitation trading activity, which is executed as principal, and an increase in realized and unrealized gains on share purchase warrants that have been received as payment in various underwriting assignments.

(1) See "Non-GAAP Measures" section of this MD&A.

(2) Number of investment advisors and employees are as at the period end.

The Private Client Group generated earnings before tax of $3.0 million and EBITDA of $5.5 million in the third quarter of 2005, compared to earnings before tax and EBITDA of $1.8 million and $3.6 million respectively in the third quarter of 2004.

As at September 30, 2005, the Corporation had AUA of $7.1 billion and 178 IAs, compared to $5.3 billion in AUA and 197 IAs as at September 30, 2004. AUA per advisor increased from $26.8 million at September 30, 2004 to $40.1 million at September 30, 2005. Although the number of IAs has declined year-over-year, total AUA and AUA per IA has steadily increased. This is a result of organic growth from market appreciation and the recruitment of IAs with larger client asset books.

The Corporation continues to focus on achieving its stated objective of 300 IAs with $20 billion of AUA by 2008 1 . With a view to achieving these stated objectives, the Corporation has undertaken a number of initiatives to enable it to attract and retain qualified IAs in an increasingly competitive recruiting and retention environment. These initiatives include changes to the management structure, implementation of a DSU program that offers equity ownership to IAs, the opening of new branch offices in Edmonton and Guelph, the launch of an Integrated Managed Account ("IMA") platform to support asset gathering and wealth management activities, the renaming of the investment dealer subsidiary to Blackmont Capital Inc., and the associated rebranding thereof, and the planned conversion to an enhanced third-party brokerage technology platform in the second half of 2006.

(1) Please see the Corporation's renewal annual information form for the year ended December 31, 2004 dated March 24, 2005 available on SEDAR at www.sedar.com.

Asset Management

($000's Cdn,        For the Three-Months(2)    For the Nine-Months(2)
 except                            Ended                     Ended
 employee,          Sept-    Sept-            Sept-    Sept-
 % amounts          ember    ember            ember    ember
 and asset            30,       30        %     30,      30,        %
 totals)             2005     2004   Change    2005     2004   Change
---------------------------------------------------------------------

Revenue            10,590    4,286   147.1%  28,246   12,183   131.8%
Expenses            6,401    3,339    91.7%  18,192   10,678    70.4%
                -------------------        -------------------

EBITDA(1)           4,189      947   342.3%  10,054    1,505   568.0%
Amortization of
 capital assets       149       21   609.5%     327       79   313.9%
Amortization of
 deferred
 employment
 arrangements           2        -     n/m        2        -     n/m
                -------------------        -------------------

Interest expense       61        -     n/m      149        2     n/m
                -------------------        -------------------

Earnings before
 tax                3,977      926   329.5%   9,576    1,424   572.5%
                -------------------        -------------------
                -------------------        -------------------

AUM(1)
 - $Billion Cdn       6.7      0.5 1,240.0%     6.7      0.5 1,240.0%
Number of Investment
 Professionals         30        7   328.6%      30        7   328.6%
Number of employees    73       20   265.0%      73       20   265.0%

Asset Management Business

The Corporation's Asset Management business provides discretionary investment management services to institutional, corporate and high net worth clients. The acquisition of KBSH has enabled the Corporation to significantly expand the scope and scale of its asset management business. KBSH's global growth management expertise complements the Corporation's existing capabilities in momentum style management. The Corporation intends to further diversify its breadth and depth of investment style offerings. The Corporation's combined Asset Management business provides a scalable platform to grow this business organically and make further acquisitions in the asset management industry.

The Corporation's AUM as at September 30, 2005 was $6.7 billion. This represents an increase of $6.2 billion from the third quarter of 2004, principally due to the acquisition of KBSH. The total AUM attributable to KBSH as at September 30, 2005 is $5.7 billion, a decline of approximately $490 million since December 31, 2004, the closing date of the KBSH acquisition, but an increase of $300 million from the end of the second quarter of 2005. The increase in AUM from June 30, 2005 is a result of organic asset growth from market appreciation and new investment mandates secured by KBSH, reflecting the continued improvement in performance of its investment funds and focused marketing efforts.

(1) See "Non-GAAP Measures" section of this MD&A.

(2) AUM, number of investment professionals and employees are as at the period end.

Total AUM attributable to RAM is approximately $800 million, an increase of approximately $300 million from September 30, 2004. In addition the Corporation has approximately $170 million in AUM attributable to the IMA platform. The IMA assets are administered by the Corporation's Wealth Management group, through both internal and external money managers. The comparable figures as at September 30, 2004 was $11 million in AUM on the IMA platform. The increase in AUM primarily reflects market appreciation and a net inflow of new assets to the Disciplined Leadership mutual funds, separately managed accounts and the IMA platform.

In the three-month period ended September 30, 2005, the Asset Management business generated earnings before tax and EBITDA of $4.0 million and $4.2 million, respectively, on revenue of $10.6 million. This compares to earnings before tax and EBITDA of $0.9 million on revenue of $4.3 million for the comparable period in 2004. The growth in earnings, EBITDA and revenue is primarily attributable to the acquisition of KBSH, the increase in AUM attributable to RAM and the IMA platform, and increased performance fees earned on the Disciplined Leadership mutual funds.

Capital Markets

($000's Cdn,        For the Three-Months(2)    For the Nine-Months(2)
 except                            Ended                     Ended
 employee           Sept-    Sept-            Sept-    Sept-
 and %              ember    ember            ember    ember
 amounts)             30,       30        %     30,      30,        %
                     2005     2004   Change    2005     2004   Change
---------------------------------------------------------------------

Revenue            11,003    5,769    90.7%  31,561   16,503    91.2%
Expenses            8,178    5,270    55.2%  23,655   13,610    73.8%
                -------------------        -------------------

EBITDA(1)           2,825      499   466.1%   7,906    2,893   173.3%
Amortization
 of capital assets     87       69    26.1%     251      200    25.5%
Amortization of
 deferred
 employment
 arrangements         509      333    52.9%   1,301      739    76.0%
Interest expense       44        -    n/m        67        -     n/m
                -------------------        -------------------

Earnings before
 tax                2,185       97 2,152.6%   6,287    1,954   221.8%
                -------------------        -------------------
                -------------------        -------------------

Number of
 Professionals         66       56    17.9%      66       56    17.9%
Number of Employees    81       67    20.9%      81       67    20.9%

(1) See "Non-GAAP Measures" section of this MD&A.

(2) Number of professionals and employees are as at the period end.

Capital Markets Business

The Corporation's Capital Markets business, operating under BCI, focuses on providing investment banking services, independent research and specialized trade execution to institutional clients in Canada and the United States.

Earnings before tax and EBITDA contributed by the Capital Markets group was $2.2 million and $2.8 million respectively in the third quarter of 2005. The comparable totals for the third quarter of 2004 were $0.1 million and $0.5 million respectively. Revenue for the three-month period ended September 30, 2005 increased by $5.2 million to $11.0 million compared to the three-month period in the prior year. This was primarily due to an increase in investment banking revenue of $2.8 million, reflecting strong participation in energy and mining transactions, and an increase in institutional commission revenue of $1.9 million. These increases reflect the increased industry recognition achieved by the Corporation's Capital Markets group, the successful recruiting efforts in 2004 and 2005, and the positive capital markets environment in the third quarter of 2005. The Corporation expects to continue to grow its Capital Markets Business through its continuing recruiting efforts, with the goal of adding additional traders and investment bankers to the group(1). Expenses for the three-month period ended September 30, 2005 were up $2.9 million from the comparable period in the prior year, primarily due to higher compensation and business development costs. The increase in these expenses is generally a function of the increase in revenue.

Financial Condition

The following is a discussion of the major components of the Corporation's capital structure.

Securities and Client Related Balances

Client account balances at any given period end are presented on a trade-date basis and therefore include balances related to unsettled trades. These balances may vary significantly on a day-to-day basis, reflecting changes in the volume of trading activity, although such variance does not necessarily represent any change to the Corporation's financial position. As at September 30, 2005, receivables from customers, receivables from brokers, dealers and clearing organizations, receivables under securities borrowed transactions and receivables under repurchase agreements totalled $488 million. The comparable balances at the end of December 31, 2004, totalled $365 million. Due to customers, due to brokers, dealers and clearing organizations and due to brokers under securities loaned transactions totalled $435 million at September 30, 2005, compared to $332 million as at December 31, 2004.

(1) Please see cautionary language contained in the section entitled "Caution Regarding Forward-Looking Statements" in this MD&A.

Short-term Borrowings

The Corporation used the proceeds received from the issuance of senior unsecured convertible debentures to repay in full the $35 million short-term bridge loan received from a major Canadian financial institution to fund the cash component of the purchase consideration for the KBSH acquisition. In addition, the $25 million in subordinate secured notes issued in conjunction with the KBSH acquisition were repaid in full on April 28, 2005 with the proceeds received from a public offering of common shares. See "Convertible Debentures" and "Capital Stock" below.

Future Tax Liability

The net future tax liability of $10.7 million principally reflects the future tax liability associated with the intangible assets subject to amortization that were acquired as a result of the KBSH acquisition. This is a non-cash liability and it is reduced as the intangible assets are amortized. The future tax liability associated with the intangible assets is partially offset by the benefit of tax loss carryforwards and other temporary differences between the tax and book values of certain assets and liabilities.

Convertible Debentures

On January 4, 2005, the Corporation entered into agreements to complete a private placement of $35 million principal amount of senior unsecured convertible debentures due December 31, 2010. Caisse  de d[c]p[acute accent]t et placement du Quebec (the "Caisse") subscribed for $30 million of the debentures and members of senior management of the Corporation subscribed for $5 million of the debentures. The terms of the debentures initially bore interest at 6.75% per annum, which was reduced to 6.5% per annum as at April 28, 2005. Effective June 30, 2005, the debentures became convertible at the holders' option into common shares of the Corporation at a price of $7.19 per common share. After December 31, 2008, the Corporation may, at its option, redeem the debentures, in whole or in part, subject to specified  conditions. The Corporation will have the right to repay the outstanding principal amount of the debentures, on maturity or redemption, through the issuance of its common shares.

Capital Stock

On April 28, 2005, the Corporation completed a public offering with a syndicate of underwriters of 5,686,275 common shares from treasury at a price of $5.10 per common share for gross proceeds of approximately $29.0 million. In addition, on May 11, 2005 the underwriters exercised an over-allotment option to acquire 852,941 additional common shares at a price of $5.10 per common share for gross proceeds of $4.35 million. The number of common shares and the issue price gives effect to the consolidation of the outstanding common shares of the Corporation on a one-for-ten basis which took place immediately prior to the closing of the offering. Please see the "Outstanding Share Data" section of this MD&A for further discussion on the share consolidation and its impact on the number of outstanding shares of the Corporation. As a result of the offering the capital stock of the Corporation has increased to approximately $163.6 million as at September 30, 2005 from $136.0 million at December 31, 2004.

Liquidity and Capital Resources

The Corporation's business requires capital for operating and regulatory requirements. The Corporation's policy is to maintain sufficient capital for the variety of risks that the Corporation is exposed to in its businesses and operations. The principal sources of capital for the Corporation's businesses are shareholders' equity, preferred shares issued by subsidiaries, convertible debentures, subordinated debt in the form of bank loans, customer credit balances and other payables and cash flow from operations.

As described above, in the second quarter the Corporation completed an offering for 6,539,216 common shares for net proceeds of approximately $30.7 million. The Corporation used a portion of the net proceeds to repay in full the subordinated secured notes from the former shareholders of KBSH. The balance of the proceeds was used to pay the professional fees associated with the offering, the acquisition of KBSH and to provide capital to the Corporation's operating subsidiaries. The Corporation does not expect to require any additional capital from the public equity markets for the foreseeable future, other than in conjunction with a major acquisition.

It is expected that the Corporation will continue to generate sufficient amounts of cash and cash equivalents in the short and long term to maintain current operating capacity, achieve its growth objectives and to meet any unexpected fluctuations in liquidity. The expense structure of the Corporation is geared towards maintaining the current level of activity and providing capacity to support planned growth initiatives. If the general capital markets environment were to deteriorate significantly resulting in a decline in revenue-generating activity and the ability of the Corporation to realize its growth objectives, the Corporation would need to re-adjust its growth initiatives and expense structure accordingly with a view to avoiding ongoing operating losses. The table below illustrates the Corporation's cash operating earnings for the three and nine-month period ended September 30, 2005.

For the Three-Months       For the Nine-Months
($000's Cdn,                         Ended                     Ended
 except %           Sept-    Sept-            Sept-    Sept-
 amounts)           ember    ember            ember    ember
                      30,      30,              30,      30,
                     2005     2004  Change     2005     2004  Change
---------------------------------------------------------------------

Net Earnings        2,518      514  389.9%    5,201    3,150   65.1%
Add:
Amortization of
 capital assets       748      525   45.2%    2,085    1,532   36.1%
Amortization of
 intangible assets    489        -   n/m      1,460        -    n/m
Amortization of
 deferred
 employment
 arrangements       2,543    2,286   11.2%    7,634    6,962    9.7%
Stock-based
 compensation       1,217      382  218.6%    4,053      866  368.0%
Future tax
 provision           (201)       -    n/m       661        -    n/m
                -------------------        -------------------

Cash Operating
 Earnings(1)        7,314    3,707   97.3%   21,094   12,510   68.6%
                -------------------        -------------------
                -------------------        -------------------

In the third quarter of 2005, cash flow from operations, before changes in non-cash working capital balances, was $7.3 million. This represents an increase of $3.6 million from the same period in the prior year.

Investing activities consumed $4.6 million of cash in the three-month period ended September 30, 2005 ($2.9 million in Q3 2004). This includes $0.5 million ($0.5 million in Q3 2004) for the purchase of capital assets and $4.1 million for deferred employment arrangements ($1.6 million in Q3 2004).

Financing activities expended $2.2 million for the purchase of commons shares pursuant to the Corporation's DSU plan ($2.5 million in Q3 2004).

Outstanding Share Data

The Corporation's authorized capital stock consists of an unlimited number of common shares.

On April 28, 2005, the Corporation completed a public offering and issued 5,686,275 common shares for gross proceeds of $29.0 million. In addition, the over-allotment option granted to the underwriters under the offering to acquire up to 852,941 additional common shares for additional gross proceeds of $4.35 million was exercised on May 11, 2005. Immediately prior to the completion of the offering, the Corporation executed the previously announced consolidation of the outstanding common shares on a one-for-ten basis. After giving effect to the issuance of these common shares and the one-for-ten consolidation, the common shares issued and outstanding are as follows:

(1) See "Non-GAAP Measures" section of this MD&A.

Outstanding as of
                                               -----------------
                                       September 30,    December 31,
                                                2005            2004
---------------------------------------------------------------------
Common shares outstanding - basic         24,729,530      18,768,632
Common shares outstanding - diluted       25,870,516      19,215,965
Weighted average shares outstanding
 - basic                                  22,404,045      16,131,735
Weighted average shares outstanding
 - diluted                                22,545,031      16,782,877

In addition, there are also options outstanding to purchase 2,177,766 common shares, warrants outstanding to purchase 1,000,000 common shares, 188,489 common shares reserved and allocated for issuance pursuant to the Company's Key Employee Retention Plan and 315,789 common shares reserved and allocated for issuance pursuant to the terms of the acquisition of Brawley Cathers Limited. In addition, the debentures are convertible at the holder's option into common shares of the Corporation at a conversion price of $7.19 per share. The debentures will also be convertible, at the option of the holder, into common shares at the lower of (i) $7.19; and (ii) 135% of the reference price in the event of a take-over, merger or amalgamation  with a party dealing at arm's length with the Corporation.

Critical Accounting Estimates

The Corporation's financial statements are prepared in accordance with Canadian GAAP requirements. The Corporation's significant accounting policies are described in Note 2 of the interim unaudited consolidated financial statements for the fiscal quarter ended September 30, 2005. Certain of these policies require the Corporation to make estimates or assumptions that in some cases may relate to matters that are inherently uncertain. Due to the inherent uncertainty involved in making estimates, actual amounts or results could differ from estimates and the difference could have a material impact on the financial statements. In order to ensure that the estimates and assumptions made by the Corporation are well controlled, the Audit Committee reviews the Corporation's accounting policies and the application of these policies with respect to the unaudited interim consolidated financial statements. The Audit Committee also reviews all quarterly filings and recommends adoption of the Corporation's interim consolidated financial statements to the Corporation's Board of Directors. The accounting policies that require management's judgment include the fair value of certain financial instruments, valuation of goodwill and intangible assets, the valuation of stock-based compensation and income taxes. The application of these policies is consistent with the Corporation's 2004 Annual Report.

New Accounting Policies

Convertible debentures

The liability and equity components of debentures that grant an option to the holder to convert the instrument into common shares of the Corporation are classified and presented on the balance sheet separately as a liability or as equity in accordance with CICA  Handbook Section 3860, Financial Instruments - Disclosure and Presentation. The Corporation determines the initial carrying amount of the liability component of such financial instruments by discounting the stream of future payments of interest and principal at the prevailing market rate for a similar liability that does not have an associated equity component. After initial recognition, the financial liability component is measured on the balance sheet at amortized cost using the effective interest method. The carrying amount of the equity component is determined by deducting the carrying amount of the financial liability from the amount of the instrument as a whole.

Future accounting changes

In early 2005, the CICA issued three new accounting standards: Section 1530, Comprehensive Income; Section 3855, Financial Instruments - Recognition and Measurement; and Section 3865, Hedges. In addition, extensive revisions were made to Section 3050, Long-term  Investments, which was reissued as Section 3051, Investments; Section 3250, Surplus, which has been reissued as Section 3251; and Section 3860, Financial Instruments - Disclosure and Presentation, which has been reissued as Section 3861. The new standards will be effective for the Corporation's fiscal year commencing January 1, 2007. The Corporation will assess the impact of adopting the new standards on its financial position, statement of operations and cash flows and determine whether early adoption is appropriate.

Related Party Transactions

The Corporation executes securities transactions on behalf of employees, officers, directors and shareholders and their related corporations. These transactions are conducted in accordance with terms and conditions applicable to all clients of the Corporation. Commission income earned from these transactions in the aggregate is not material in relation to the overall operations of the Corporation.

The Corporation completed a private placement for $35 million of senior unsecured convertible debentures. The Caisse subscribed for $30 million and senior management subscribed for $5 million of these debentures. The debentures issued to senior management contain the identical terms and conditions as the debentures issued to the Caisse. See the sub-heading "Convertible Debentures" in the "Financial Condition" section of this MD&A for a detailed description of the terms and conditions of the debentures.

Risk Factors

For a description of the identifiable risks that could affect the Corporation's business, please see the Corporation's Annual Information Form dated March 23, 2005, which is available on SEDAR at www.sedar.com.

Additional Information

Additional information relating to the Corporation, including the Corporation's most recently filed annual information form and information circular, is available on SEDAR at www.sedar.com.

Selected Quarterly Data(1) (Unaudited)
                   ($000's Cdn except per share and asset totals)

---------------------------------------------------------------------
---------------------------------------------------------------------

                                               2005

                                30-Sep        30-Jun          31-Mar
---------------------------------------------------------------------

Revenue                        $56,855       $46,810         $49,683
---------------------------------------------------------------------
Expenses                        47,042        40,004          42,224
EBITDA                           9,813         6,806           7,459
---------------------------------------------------------------------
Amortization of capital and
 intangible assets and deferred
 employment arrangements         3,780         3,669           3,730
Interest                         1,398         1,303           1,403
Recovery on prior business
 activities                          -             -              12

Tax provision (recovery)         2,117           193           1,296
---------------------------------------------------------------------

Net earnings                    $2,518        $1,641          $1,042
---------------------------------------------------------------------
---------------------------------------------------------------------

Earnings per share - basic       $0.10         $0.07           $0.06
---------------------------------------------------------------------
---------------------------------------------------------------------

Earnings per share - diluted     $0.10         $0.07           $0.06
---------------------------------------------------------------------
---------------------------------------------------------------------

AUA(2) - $Billion Cdn             $7.1          $6.2            $6.2
AUM(2) - $Billion Cdn             $6.7          $6.2            $6.6


                                    2004                        2003

                    31-Dec    30-Sep     30-Jun    31-Mar     31-Dec
---------------------------------------------------------------------

Revenue            $43,956   $34,301    $32,043   $42,456    $40,756
Expenses            39,056    30,564     28,578    36,582     36,342
---------------------------------------------------------------------
EBITDA               4,900     3,737      3,465     5,874      4,414
Amortization of
 capital and
 intangible
 assets and deferred
 employment
 arrangements        2,614     2,801      2,964     2,720      2,650
Interest               407       422        387       718        603
Recovery on prior
 business activities    12         -          -        86         93

Tax provision
 (recovery)         -3,479         -          -         -       -508
---------------------------------------------------------------------

Net earnings        $5,370      $514       $114    $2,522     $1,762
---------------------------------------------------------------------
---------------------------------------------------------------------

Earnings per share
 - basic             $0.33     $0.03      $0.01     $0.16      $0.12
---------------------------------------------------------------------
---------------------------------------------------------------------

Earnings per share
 - diluted           $0.32     $0.03      $0.01     $0.15      $0.12
---------------------------------------------------------------------
---------------------------------------------------------------------
AUA(2)
 - $Billion Cdn       $5.7      $5.3       $5.1      $5.4       $5.0
AUM(2)
 - $Billion Cdn       $6.8      $0.5       $0.5      $0.5       $0.5

The table disclosed above provides unaudited, selected quarterly financial information from the eight most recently completed financial quarters ended September 30, 2005. The Corporation's business is generally seasonal over the fiscal year and may experience considerable variations in revenue and income from quarter to quarter. Historically, revenue for capital markets participants is higher in the first and last quarters of the fiscal year and the Corporation's experience follows that of the industry. In 2004, 57% of the Corporation's revenue was recorded in the first and last quarters. Therefore, quarter-to-quarter comparisons of financial results are not necessarily meaningful and should not be relied upon as an indication of future performance.

(1) Certain comparative figures have been reclassified to conform to the current period presentation.

(2) See "Non-GAAP Measures" of this MD&A.

Interim Consolidated Financial Statements (Unaudited)

Rockwater Capital Corporation
September 30, 2005


Rockwater Capital Corporation
Interim Consolidated Balance Sheets (Unaudited)
(in thousands of Canadian dollars)

                              As at September 30, As at December 31,
                                             2005               2004
                                                $                  $
---------------------------------------------------------------------

ASSETS
Current
Cash and cash equivalents                   4,946             13,274
Securities owned, at market (note 4)       69,769             19,332
Receivables from customers (note 14)      358,067            245,668
Receivables from brokers, dealers
 and clearing organizations                59,934             45,018
Receivables under securities
 borrowed transactions (note 3)            46,761             25,267
Receivables under repurchase
 agreements (note 3)                       23,394             49,199
Accounts receivable and
 prepaid expenses                          21,170             16,460
Cash deposited with clearing
 organizations                              1,604              1,304
---------------------------------------------------------------------
Total current assets                      585,645            415,522
---------------------------------------------------------------------

Corporate investments, net of reserves      1,845              1,460
Capital assets, net                        12,054             12,615
Goodwill                                   92,339             93,264
Intangible assets                          40,216             41,610
Deferred employment arrangements,
 net (note 6)                              19,855             16,423
Other assets                                  619              1,950
---------------------------------------------------------------------
Total assets                              752,573            582,844
---------------------------------------------------------------------
---------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Short-term borrowing (note 7)                   -             60,000
Securities sold short, at market
 (note 4)                                  20,337             10,367
Due to customers (note 14)                397,426            299,757
Due to brokers, dealers and clearing
 organizations                             36,965             20,833
Due to brokers under securities loaned
 transactions (note 3)                        814             11,556
Accounts payable and accrued
 liabilities                               88,002             39,199
Subordinated loan                           2,000              2,000
---------------------------------------------------------------------
Total current liabilities                 545,544            443,712
---------------------------------------------------------------------

Convertible debentures (note 8)            34,040                  -
Future tax liability                       10,721             10,194
Preferred shares issued by
 subsidiaries (note 9)                     20,663             24,116
---------------------------------------------------------------------
Total liabilities                         610,968            478,022
---------------------------------------------------------------------

Shareholders' equity
Capital stock (note 10)                   163,572            136,039
Contributed surplus                         7,995              3,574
Deficit                                   (29,962)           (34,791)
---------------------------------------------------------------------
Total shareholders' equity                141,605            104,822
---------------------------------------------------------------------
                                          752,573            582,844
---------------------------------------------------------------------
---------------------------------------------------------------------

See accompanying notes


Rockwater Capital Corporation
Interim Consolidated Statements of Operations and Deficit (Unaudited)
(in thousands of Canadian dollars, except per share amounts)

               For the three months ended: For the nine months ended:
---------------------------------------------------------------------
---------------------------------------------------------------------
                     September  September       September  September
                      30, 2005   30, 2004        30, 2005   30, 2004
                             $          $               $          $
---------------------------------------------------------------------

REVENUES
 Commissions            27,307     18,408          75,176     67,020
 Asset management
  and account fees      12,219      4,374          31,070     10,439
 Investment banking      6,543      3,733          22,261     10,750
 Principal
  transactions           6,480      3,539          12,244      8,031
 Interest income         3,563      2,361           9,697      7,785
 Other income              743      1,886           2,912      4,861
---------------------------------------------------------------------
                        56,855     34,301         153,360    108,886

EXPENSES
 Compensation and
  benefits              35,074     21,903          95,884     67,755
 General and
  administrative         3,796      2,302           9,545      7,302
 Brokerage, clearing
  and exchange fees      3,322      2,356           9,295      8,359
 Occupancy               2,701      2,230           8,170      6,740
 Communications and
  technology             2,149      1,763           6,376      5,559
 Amortization            1,237        525           3,545      1,532
 Interest expense        1,398        422           4,104      1,527
---------------------------------------------------------------------
                        49,677     31,501         136,919     98,774
---------------------------------------------------------------------

Earnings before
 amortization of
 deferred employment
 arrangements            7,178      2,800          16,441     10,112
Amortization of
 deferred employment
 arrangements (note 6)   2,543      2,286           7,634      6,962
---------------------------------------------------------------------
---------------------------------------------------------------------

Earnings before
 income tax              4,635        514           8,807      3,150
---------------------------------------------------------------------
---------------------------------------------------------------------

Income taxes
 Current                 2,318          -           2,945          -
 Future                   (201)         -             661          -
---------------------------------------------------------------------
                         2,117          -           3,606          -
---------------------------------------------------------------------

Net earnings for
 the period              2,518        514           5,201      3,150
---------------------------------------------------------------------
---------------------------------------------------------------------

Excess on acquisition
 of preferred shares
 (note 9)                  (37)      (438)           (372)      (438)
Deficit, beginning of
 the period            (32,443)   (40,373)        (34,791)   (43,009)
---------------------------------------------------------------------
---------------------------------------------------------------------

Deficit, end of
 the period            (29,962)   (40,297)        (29,962)   (40,297)
---------------------------------------------------------------------
---------------------------------------------------------------------

Basic earnings per
 common share
 (note 12)                0.10       0.03            0.23       0.20
Diluted earnings per
 common share
 (note 12)                0.10       0.03            0.23       0.19
---------------------------------------------------------------------
---------------------------------------------------------------------

See accompanying notes



Rockwater Capital Corporation
Interim Consolidated Statements of Cash Flows (Unaudited)
(in thousands of Canadian dollars)

               For the three months ended: For the nine months ended:
---------------------------------------------------------------------
---------------------------------------------------------------------
                     September  September       September  September
                      30, 2005   30, 2004        30, 2005   30, 2004
                             $          $               $          $
---------------------------------------------------------------------
OPERATING ACTIVITIES
Net earnings for the
 period                  2,518        514           5,201      3,150
Add (deduct) items
 not affecting cash
 Amortization            1,237        525           3,545      1,532
 Amortization of
  deferred employment
  arrangements           2,543      2,286           7,634      6,962
 Future income taxes      (201)         -             661          -
 Stock-based employee
  compensation           1,217        382           4,053        866
---------------------------------------------------------------------
                         7,314      3,707          21,094     12,510

Net change in non-cash
 working capital
 balances related
 to operations         (14,215)   (13,866)        (15,324)   (54,836)
---------------------------------------------------------------------
---------------------------------------------------------------------
Cash generated (used)
 in operating
 activities             (6,901)   (10,159)          5,770    (42,326)
---------------------------------------------------------------------
---------------------------------------------------------------------

INVESTING ACTIVITIES
Purchase of capital
 assets                   (534)      (468)         (1,612)    (1,429)
Deferred employment
 arrangements           (4,110)    (1,582)        (11,066)    (8,673)
Investments from
 prior business
 activities                  -          -               -        643
Corporate investments        -       (832)           (501)      (832)
---------------------------------------------------------------------
Cash used in investing
 activities             (4,644)    (2,882)        (13,179)   (10,291)
---------------------------------------------------------------------
---------------------------------------------------------------------

FINANCING ACTIVITIES
Repayment of
 short-term borrowing        -          -         (60,000)         -
Issuance of convertible
 debentures                  -          -          35,000          -
Issuance (repurchase)
 of common shares
 (note 10)              (2,188)    (2,479)         27,533      1,724
Decrease in preferred
 shares issued by
 subsidiaries                -       (150)         (3,452)    (1,074)
---------------------------------------------------------------------
Cash provided by
 (used in) financing
 activities             (2,188)    (2,629)           (919)       650
---------------------------------------------------------------------
---------------------------------------------------------------------

Net decrease in cash
 and cash equivalents
 for the period        (13,733)   (15,670)         (8,328)   (51,967)
Cash and cash
 equivalents,
 beginning of period    18,679      9,706          13,274     46,003
---------------------------------------------------------------------
Cash and cash
 equivalents, end
 of period               4,946     (5,964)          4,946     (5,964)
---------------------------------------------------------------------
---------------------------------------------------------------------

Supplemental cash
 flow information
Interest paid              797        423           3,426      1,486
Income taxes paid
 (recovered)               (80)         -             169         98
---------------------------------------------------------------------
---------------------------------------------------------------------

See accompanying notes


Notes to Interim Consolidated Financial Statements (Unaudited)
For the three-month and nine-month period ended September 30, 2005
(in thousands of Canadian dollars, except where noted and per share
 amounts)

1. DESCRIPTION OF THE BUSINESS

Rockwater Capital Corporation (the "Corporation") is a financial services holding corporation, which through its principal operating subsidiaries offers a broad range of financial products and services to individuals, institutions and corporations in the areas of wealth management, asset management and capital markets. The Corporation's operating subsidiaries include: Blackmont Capital Inc.("BCI" formerly known as First Associates Investments Inc.), a full service investment dealer registered in all the provinces and territories of Canada; Rockwater Asset Management Inc. ("RAM"), an investment counsel and portfolio manager registered in the provinces of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Nova Scotia, New Brunswick, Newfoundland and Labrador and Prince Edward Island; and KBSH Capital Management Inc. ("KBSH"), an investment counsel and portfolio manager registered in all the provinces of Canada.

The Corporation's common shares are traded on The Toronto Stock Exchange ("TSX") under the stock symbol "RCC".

2. SIGNIFICANT ACCOUNTING POLICIES

The unaudited interim consolidated financial statements include the accounts of all subsidiaries on a consolidated basis and are presented in accordance with Canadian generally accepted accounting principles ("GAAP"). These unaudited interim consolidated financial statements follow the same accounting policies and methods of application as those disclosed in Note 2 to the Corporation's audited consolidated financial statements as at and for the year ended December 31, 2004 ("Audited Consolidated Financial Statements"), except as noted below. However, they do not include all disclosures required by Canadian GAAP for annual financial statements, and accordingly, these unaudited interim consolidated financial statements should be read in conjunction with the Audited Consolidated Financial Statements. The Annual Audited Consolidated Financial Statements can be found on Sedar (www.sedar.com).

The preparation of these unaudited interim consolidated financial statements and the accompanying notes, in accordance with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as at the date of the consolidated balance sheet and the revenue and expenses recorded in the reporting period. Actual results could differ from those estimates.

Certain reclassifications and format changes have been made to the prior year's amounts to conform to the current year's presentation.

Convertible debentures

The liability and equity components of debentures that grant an option to the holder to convert the instrument into common shares of the Corporation are classified and presented on the balance sheet separately as a liability or as equity in accordance with CICA Handbook Section 3860, Financial Instruments - Disclosure and Presentation. The Corporation determines the initial carrying amount of the liability component of such financial instruments by discounting the stream of future payments of interest and principal at the prevailing market rate for a similar liability that does not have an associated equity component. After initial recognition, the financial liability component is measured on the balance sheet at amortized cost using the effective interest method. The carrying amount of the equity component is determined by deducting the carrying amount of the financial liability from the amount of the instrument as a whole.

Future accounting changes

In early 2005, the CICA issued three new accounting standards: Section 1530, Comprehensive Income; Section 3855, Financial Instruments - Recognition and Measurement; and Section 3865, Hedges. In addition, extensive revisions were made to Section 3050, Long-term Investments, which was reissued as 3051, Investments; Section 3250, Surplus, which has been reissued as Section 3251; and Section 3860, Financial Instruments - Disclosure and Presentation, which has been reissued as Section 3861. The new standards will be effective for the Corporation's fiscal year commencing January 1, 2007. The Corporation will assess the impact of adopting the new standards on its financial position, statement of operations and cash flows and determine whether early adoption is appropriate.

3. SECURITIES LENDING AND BORROWING AND REPURCHASE AGREEMENTS

The Corporation employs securities lending and borrowing primarily to facilitate the securities settlement process. These arrangements are typically short-term in nature, with interest being received on the cash delivered. These transactions are collateralized by securities owned and unpaid client securities and are subject to margin calls for any deficiency between the market value of the security given and the amount of collateral received. The Corporation manages its credit exposure by establishing and monitoring aggregate limits by counterparty for these transactions. Securities lending and borrowing and repurchase agreements consist of the following:

Cash                Securities
                -----------------------------------------------------
                     Loaned or  Borrowed or  Borrowed or    Loaned or
                  delivered as  received as  received as delivered as
                    collateral   collateral   collateral   collateral
                             $            $            $            $
---------------------------------------------------------------------

Securities
 lending and
 borrowing

September 30, 2005      46,761          814       45,394        1,430
December 31, 2004       25,267       11,556       27,995       15,015
---------------------------------------------------------------------
---------------------------------------------------------------------
Repurchase agreements

September 30, 2005      23,394            -       23,315            -
December 31, 2004       49,199            -       47,882            -
---------------------------------------------------------------------
---------------------------------------------------------------------

4. SECURITIES OWNED AND SOLD SHORT

Securities owned and sold short consist of the following:

                          September 30, 2005        December 31, 2004
                  ---------------------------------------------------
                    Securities    Securities  Securities   Securities
                         owned    sold short       owned   sold short
                             $             $           $            $
---------------------------------------------------------------------

Corporate and
 government debt        25,488        13,344      16,302        9,788
Equities                44,281         6,993       3,030          579
---------------------------------------------------------------------
                        69,769        20,337      19,332       10,367
---------------------------------------------------------------------
---------------------------------------------------------------------

As at September 30, 2005, corporate and government debt maturities range from 2005 to 2052 (December 31, 2004-2005 to 2032) and bear interest ranging from 2.35% to 8.10% (December 31, 2004 - 2.75% to 10.75%).

5. FINANCIAL INSTRUMENTS

Foreign exchange

The Corporation uses financial instruments to manage and hedge foreign exchange risk on pending settlements in foreign currencies. Realized and unrealized gains and losses related to these contracts are recognized in income in the period in which they occur. Forward contracts outstanding consists of the following:

Forward contracts outstanding as September 30, 2005:

                   Notional Amounts  Average Price          Maturity
---------------------------------------------------------------------

To sell US dollars          $ 9,343        $1.1715   October 5, 2005
To buy US dollars           $16,190        $1.1726   October 5, 2005

---------------------------------------------------------------------
---------------------------------------------------------------------


Forward contracts outstanding as December 31, 2004:

                   Notional Amounts  Average Price          Maturity
---------------------------------------------------------------------

To sell US dollars           $2,084        $1.2151   January 4, 2005
To buy US dollars           $19,091        $1.2060   January 6, 2005

---------------------------------------------------------------------
---------------------------------------------------------------------


6. DEFERRED EMPLOYMENT ARRANGEMENTS

The Corporation's net carrying value of deferred employment
arrangements consists of the following:

                               September 30, 2005   December 31 2004
                                              Net                Net
                                         carrying           carrying
                     Cost   Amortization    value              value
                        $              $        $                  $
---------------------------------------------------------------------

Acquisition
 related           18,153         16,172    1,981              4,796
Recruitment
 related           27,293          9,419   17,874             11,627
---------------------------------------------------------------------
                   45,446         25,591   19,855             16,423
---------------------------------------------------------------------
---------------------------------------------------------------------


7. SHORT-TERM BORROWING

Short-term borrowing consists of the following:

                                          September 30,  December 31
                                                   2005         2004
                                                      $            $
---------------------------------------------------------------------

Bridge loan                                           -       35,000
Subordinated loans from former KBSH shareholders      -       25,000
---------------------------------------------------------------------
                                                      -       60,000
---------------------------------------------------------------------
---------------------------------------------------------------------

The Corporation obtained a bridge loan of $35,000 from a major Canadian financial institution on December 31, 2004. The loan proceeds were used to fund the cash component of the purchase consideration for the KBSH acquisition. The loan was repaid on January 11, 2005 with the proceeds received from a private placement of convertible debentures.

Subordinated loans of $25,000 were issued to the former KBSH shareholders on December 31, 2004 as part of the purchase consideration provided by the Corporation to acquire KBSH. The loans bear interest at a rate of 6% per annum for the first three months, and 8% per annum thereafter. On April 28, 2005, the Corporation used the net proceeds from an offering of common shares to repay the subordinated loans in full, including accumulated interest.

From time to time, the Corporation borrows money to facilitate the securities settlement process for both client and principal securities transactions. The use of call loans is customary in the brokerage industry to satisfy daily cash requirements, and these loans are collateralized by either unpaid client securities or securities owned by the Corporation. The call loans bear interest at the prevailing interest rate set by the Corporation's primary lenders as a function of the prime rate.

8. CONVERTIBLE DEBENTURES

On January 11, 2005, the Corporation completed a private placement of $35 million of senior unsecured convertible debentures (the "Debentures") due December 31, 2010. Caisse de depot et placement du Quebec has purchased $30 million of the Debentures and members of senior management of the Corporation have purchased $5 million of the Debentures. The Debentures initially bore interest at 6.75% per annum, which was reduced to 6.50% per annum as at April 28, 2005. Interest is payable on June 30 and December 31 in each year starting on June 30, 2005. Commencing June 30, 2005, the Debentures are convertible at the holder's option into common shares of the Corporation at a conversion price of $7.19 per share. The Debentures will also be convertible, at the option of the holder, into common shares at the lower of (i) $7.19; and (ii) 135% of the reference price in the event of a take-over, merger or amalgamation with a party dealing at arm's length with the Corporation, all subject to standard adjustments. After December 31, 2008, the Corporation may, at its option, redeem the Debentures, in whole or in part, subject to specified conditions. The Corporation will have the right to repay the outstanding principal amount of the Debentures, on maturity or redemption, through the issuance of its common shares.

The amortized cost of the Debentures is as follows:

September 30,  December 31
                                                   2005         2004
                                                      $            $
---------------------------------------------------------------------

Principal amount                                 35,000            -
Discount                                           (960)           -
---------------------------------------------------------------------
Net carrying value                               34,040            -
---------------------------------------------------------------------
---------------------------------------------------------------------


9. PREFERRED SHARES ISSUED BY SUBSIDIARIES

Preferred shares issued by subsidiaries consist of the following:

                                                   2005         2004
                                                      $            $
---------------------------------------------------------------------

Class T preferred shares issued by First
 Associates Investments Inc.                          -        2,366
Preferred shares issued by Rockwater Asset
 Management Ltd.                                 20,663       21,750
---------------------------------------------------------------------
                                                 20,663       24,116
---------------------------------------------------------------------
---------------------------------------------------------------------

In the second quarter of 2005, the Corporation repurchased the Class T preferred shares issued by BCI. The excess of the purchase price over the carrying value of the shares was charged directly to retained earnings.

10. CAPITAL STOCK AND CONTRIBUTED SURPLUS

Authorized

The Corporation's authorized capital stock consists of an unlimited number of common shares.

On April 28, 2005, the Corporation executed the previously announced consolidation of the outstanding common shares on a one-for-ten basis. The number of common shares issued and outstanding in the table presented below have been restated to give effect to this consolidation.

Issued

---------------------------------------------------------------------
---------------------------------------------------------------------
                            Common              Capital  Contributed
                            shares    Warrants    Stock      surplus
                                 #           #        $            $
---------------------------------------------------------------------
Balance at December
 31, 2004               18,768,606   1,000,000  136,039        3,574
Issuance of common
 shares pursuant to
 secondary offering of
 common shares           6,539,216           -   30,535            -
Issuance for deferred
 employment arrangements   232,819           -    1,840       (1,768)
Issuance on exercise of
 options                    50,000           -      250            -
Issuance of common shares
 pursuant to deferred
 share unit plans           49,841           -      437         (437)
Stock-based compensation         -           -        -        4,053
Acquisition of common
 shares for deferred
 share unit plans         (772,323)          -   (4,912)         433
Cancellation of common
 shares pursuant to
 acquisitions             (138,629)          -     (617)           -
Equity component of
 convertible debentures
 issued                          -           -        -        1,066
Amortization of deferred
 employment arrangements         -           -        -        1,074
---------------------------------------------------------------------
Balance at September 30,
 2005                   24,729,530   1,000,000  163,572        7,995
---------------------------------------------------------------------
---------------------------------------------------------------------

On January 2, 2005, 138,629 shares relating to the acquisitions of KBSH and Platinum Wealth Management Inc. were cancelled due to forfeiture.

A total of 232,819 common shares were issued pursuant to deferred employment arrangements and 50,000 common shares were issued for options exercised.

On January 11, 2005, the Corporation issued $35 million in convertible debentures as described in Note 8. The equity component associated with these debentures is $1,066.

On April 28, 2005, the Corporation issued 6,539,216 common shares for net proceeds of approximately $30.5 million pursuant to a public offering.

As at September 30, 2005, 772,323 common shares were acquired and 49,841 common shares were issued to employees pursuant to the Corporation's deferred share unit ("DSU") plans. The excess of the book value over the cost of the common shares acquired was credited to contributed surplus.

11. STOCK-BASED COMPENSATION PLANS

The Corporation adopted the fair value method of accounting recommended by the CICA in Handbook Section 3870, Stock-based Compensation and Other Stock-based Payments, prospectively for new awards granted after January 1, 2003. Total stock-based compensation expense for stock option, DSU awards and performance share unit ("PSU") awards for the three-month period and nine-month period ended September 30, 2005 was $1,217 and $4,053 respectively ($382 and $866 for the three-month period and nine-month period ended September 30, 2004). The unamortized expense for stock-based compensation plans as at September 30, 2005, is $7,025 ($5,153 as at September 30, 2004).

The Corporation has provided pro forma disclosures below, which demonstrate the effects if the recommended recognition provisions of CICA Section 3870 had been adopted for awards granted before 2003:

For the three months ended: For the nine months ended:
---------------------------------------------------------------------
---------------------------------------------------------------------
                     September  September       September  September
                      30, 2005   30, 2004        30, 2005   30, 2004
                             $          $               $          $
---------------------------------------------------------------------

Earnings
 attributable
 to common
 shareholders
 - as reported           2,518        514           5,201      3,150
Stock-based
 compensation expense      184        202             552        606
Earnings (Loss)
 attributable to
 common shareholders
 - pro forma             2,334        312           4,649      2,544
---------------------------------------------------------------------
Earnings per share
 - as reported            0.10       0.03            0.23       0.19
Earnings (Loss)
 per share - pro forma    0.09       0.02            0.21       0.15
---------------------------------------------------------------------
---------------------------------------------------------------------


12. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted
earnings per common share.

               For the three months ended: For the nine months ended:
---------------------------------------------------------------------
---------------------------------------------------------------------
                     September  September       September  September
                      30, 2005   30, 2004        30, 2005   30, 2004
                             $          $               $          $
---------------------------------------------------------------------

Basic earnings
 per common share
Net earnings for
 the period              2,518        514           5,201      3,150
Weighted average
 number of common
 shares             24,989,697 15,796,885      22,404,045 16,000,485
Basic earnings per
 common share             0.10       0.03            0.23       0.20
Diluted earnings
 per common share
Net earnings for
 the period              2,518        514           5,201      3,150
Weighted average
 number of common
 shares             24,989,697 15,796,885      22,404,045 16,000,485
Dilutive effect of
 unvested shares        91,536    441,502         140,986    479,555
---------------------------------------------------------------------
Adjusted weighted
 average number of
 common shares      25,081,233 16,238,387      22,545,031 16,480,040
Diluted earnings
 per common share         0.10       0.03            0.23       0.19
---------------------------------------------------------------------
---------------------------------------------------------------------

13. SEGMENTED INFORMATION

For management reporting, the Corporation's results are categorized into three business segments: Wealth Management, Asset Management and Capital Markets. Wealth Management revenues are comprised of commission and fee income earned on private client transactions and interest income on private client portfolio management services. Asset Management revenues are comprised primarily of fees charged to clients for the provision of discretionary investment management services and supervision of assets. Revenues from Capital Markets are earned from underwriting and investment banking fees, as well as institutional commissions derived from equity trading and other principal trading. Amortization of deferred employment arrangements related to acquisitions and certain corporate expenses are not attributed to segments because management excludes these items from operating results when evaluating segment performance. These expenses are included and reported as corporate items. Amortization of deferred employment arrangements related to recruitment is attributed to the proper business segment. The Corporation evaluates the performance of its segments and allocates resources to them based on profitability. Therefore, asset information by segment is not reported since the Corporation does not produce such information for internal use.

The tables below present information about the reported revenues, operating expenses, consisting of direct and allocated corporate expenses, amortization of deferred employment arrangements and net earnings (loss) of the Corporation's segments for the three-month periods and nine-month periods ended September 30, 2005 and 2004:

For the three months ended September 30, 2005
            ---------------------------------------------------------
                      Wealth       Asset  Capital
                  Management  Management  Markets  Corporate   Total
                           $           $        $          $       $
---------------------------------------------------------------------

Revenues              35,308      10,590   11,003        (46) 56,855
Operating expenses    29,853       6,401    8,178      2,610  47,042
---------------------------------------------------------------------
Earnings (loss)
 before the
 undernoted            5,455       4,189    2,825     (2,656)  9,813
Amortization             350         149       87        651   1,237
Amortization of
 deferred employment
 arrangements          1,386           2      509        646   2,543
Interest expense         682          61       44        611   1,398
Income tax                 -           -        -      2,117   2,117
---------------------------------------------------------------------
Net earnings (loss)
 for the period        3,037       3,977    2,185     (6,681)  2,518
---------------------------------------------------------------------
---------------------------------------------------------------------


                    For the three months ended September 30, 2004
            ---------------------------------------------------------
                      Wealth       Asset  Capital
                  Management  Management  Markets  Corporate   Total
                           $           $        $          $       $
---------------------------------------------------------------------

Revenues              24,268       4,286    5,769        (22) 34,301
Operating expenses    20,678       3,339    5,270      1,267  30,554
---------------------------------------------------------------------
Earnings (loss)
 before the
 undernoted            3,590         947      499     (1,289)  3,747
Amortization             272          21       69        163     525
Amortization of
 deferred employment
 arrangements          1,065           -      333        888   2,286
Interest expense         422           -        -          -     422
Income tax                 -           -        -          -       -
---------------------------------------------------------------------
Net earnings (loss)
 for the period        1,831         926       97     (2,340)    514
---------------------------------------------------------------------
---------------------------------------------------------------------


                    For the nine months ended September 30, 2005
            ---------------------------------------------------------
                      Wealth       Asset  Capital
                  Management  Management  Markets  Corporate    Total
                           $           $        $          $        $
---------------------------------------------------------------------

Revenues              93,670      28,246   31,561       (117) 153,360
Operating expenses    81,134      18,192   23,655      6,289  129,270
---------------------------------------------------------------------
Earnings (loss)
 before the
 undernoted           12,536      10,054    7,906     (6,406)  24,090
Amortization           1,013         327      251      1,954    3,545
Amortization of
 deferred
 employment
 arrangements          4,043           2    1,301      2,288    7,634
Interest expense       1,581         149       67      2,307    4,104
Income tax                 -           -        -      3,606    3,606
---------------------------------------------------------------------
Net earnings (loss)
 for the period        5,899       9,576    6,287    (16,561)   5,201
---------------------------------------------------------------------
---------------------------------------------------------------------


                 For the nine months ended September 30, 2004
            ---------------------------------------------------------
                      Wealth       Asset  Capital
                  Management  Management  Markets  Corporate    Total
                           $           $        $          $        $
---------------------------------------------------------------------

Revenues              80,222      12,183   16,503        (22) 108,886
Operating expenses    67,989      10,678   13,610      3,438   95,715
Earnings (loss)
 before the
 undernoted           12,233       1,505    2,893     (3,460)  13,171
Amortization             783          79      200        470    1,532
Amortization of
 deferred
 employment
 arrangements          3,210           -      739      3,013    6,962
Interest expense       1,520           2        -          5    1,527
Income tax                 -           -        -          -        -
---------------------------------------------------------------------
Net earnings (loss)
 for the period        6,720       1,424    1,954     (6,948)   3,150
---------------------------------------------------------------------
---------------------------------------------------------------------

14. RELATED PARTY TRANSACTIONS AND FUNDS HELD IN TRUST

Transactions with employees, officers and directors

During the period, the Corporation entered into certain transactions in the normal course of business with employees, officers and directors and their related corporations. Included in receivables from and due to customers are $33,839 and $16,247 (December 31, 2004 - $54,174 and $20,369), respectively relating to these transactions. Commission income earned on these transactions is not material to the overall operations of the Corporation.

Funds held in Trust

The Corporation holds RRSP cash funds in trust on behalf of certain clients. These funds are included in the consolidated financial statements. At September 30, 2005, RRSP cash funds held in trust amount to $105,095 (December 31, 2004 - $92,264).

Rockwater Capital Corporation (TSX:RCC)