Canaccord Financial Inc. reports fiscal third quarter 2010 results

VANCOUVER, Feb. 4 /CNW/ - Canaccord Financial Inc.'s revenue for the third quarter of fiscal year 2010, ended December 31, 2009, was $173.2 million, up 98.6% from the same quarter last year and 40.0% from the previous quarter. Net income for the third quarter of fiscal 2010 was $15.1 million, up 124.2% compared to the previous quarter and up compared to a net loss of $62.4 million during the same quarter last year(1). Diluted earnings per share (EPS) for fiscal Q3/10 were $0.27, compared to diluted loss per share of $1.27 in Q3/09(1) and diluted EPS of $0.12 the previous quarter. Commenting on the quarter, Paul Reynolds, President and CEO, said, "There is much to be proud of in our third quarter results, including strong revenue growth, a significant increase in profitability and meaningful gains in our return on equity. However, we remain committed to improving our operating performance, believing there is even more that can be done to grow our strong global platform and generate lasting shareholder value."

    
    Third quarter 2010 vs. third quarter 2009

    -   Revenue of $173.2 million, up 98.6% or $86.0 million from
        $87.2 million

    -   Expenses of $150.9 million, down 5.5% or $8.7 million from
        $159.6 million(1)

    -   Net income of $15.1 million compared to net loss of $62.4 million(1)

    -   Annualized return on equity (ROE) of 15.2%, up from (64.3)%

    -   Diluted EPS of $0.27 compared to diluted loss per share of $1.27(1)

    Third quarter 2010 vs. second quarter 2010

    -   Revenue of $173.2 million, up 40.0% or $49.5 million from
        $123.7 million

    -   Expenses of $150.9 million, up 30.2% or $35.0 million from
        $115.9 million

    -   Net income of $15.1 million compared to net income of $6.7 million

    -   Annualized ROE of 15.2%, up from 6.9%

    -   Diluted EPS of $0.27 compared to diluted EPS of $0.12

    Year-to-date fiscal 2010 (nine months ended December 31, 2009) vs. year-
    to-date fiscal 2009 (nine months ended December 31, 2008)

    -   Revenue of $434.4 million, up 17.2% or $63.7 million from
        $370.7 million

    -   Expenses of $388.2 million, down 8.6% or $36.4 million from
        $424.6 million(1)

    -   Net income of $31.0 million compared to a net loss of
        $51.3 million(1)

    -   Annualized ROE of 10.6%, up from (18.0)%

    -   Diluted EPS of $0.56 compared to diluted loss per share of $1.05(1)

    Financial condition at end of third quarter 2010 vs. third quarter 2009

    -   Cash and cash equivalents balance of $782.6 million, up $98.1 million
        from $684.5 million

    -   Working capital of $327.0 million, up $41.4 million from
        $285.6 million

    -   Total shareholders' equity of $400.7 million, up $42.7 million from
        $358.0 million

    -   Book value per diluted common share for the period end was $7.00, up
        9.9% or $0.63 from $6.37

    -   On February 3, 2010 the Board of Directors considered the dividend
        policy and approved a quarterly dividend of $0.05 per share payable
        on March 10, 2010 with a record date of February 26, 2010.

    Highlights of operations:

    -   Canaccord Adams led or co-led 61 transactions globally to raise total
        proceeds of $3.6 billion(2) for our clients during fiscal Q3/10.

    -   Canaccord Adams participated in a total of 140 transactions globally
        to raise total proceeds of $12.0 billion(2) during fiscal Q3/10.

    -   During Q3/10, Canaccord Adams led or co-led the following equity
        fundraising transactions:

        -  C$172.5 million for Compton Petroleum Corporation on the TSX

        -  US$129.7 million Initial Public Offering (IPO) for DragonWave Inc.
           on the NASDAQ

        -  C$113.5 million for TransAtlantic Petroleum Ltd. on the TSX

        -  US$99.5 million for Telvent GIT S.A. on the NASDAQ

        -  C$75 million for PetroDorado on the TSX Venture

        -  (pnds stlg)72.7 million for Petra Diamonds Limited on the AIM of
           the LSE

        -  US$59.2 million for Northern Oil & Gas on the NYSE AMEX

        -  C$57.0 million for Exeter Resources Corporation on the TSX

        -  C$56.7 million for MBAC Opportunities and Financing Inc. on the
           TSX Venture

        -  (pnds stlg)50.0 million for Rockhopper Exploration plc on the AIM
           of the LSE

    -   Canaccord continued to rank first in Canada for block trading market
        share on the TSX Venture, with 16.8% of market share in Q3/10, up
        from 12.0% in Q3/09.(3)

    -   Canaccord Adams completed five Private Investment in Public Equity
        (PIPE) transactions in the US that raised US$123.0 million in
        proceeds during fiscal Q3/10.(4)

    -   Assets under administration of $12.2 billion, up 35.2% from
        $9.0 billion at the end of Q3/09, and up 7.2% from $11.4 billion at
        the end of Q2/10.

    -   Assets under management of $423 million, down 6.8% from $454 million
        at the end of Q3/09, and down 6.6% from $453 million at the end of
        Q2/10.

    -   During the quarter, Canaccord Wealth Management recruited five
        Independent Wealth Management (IWM) branches to our platform, in
        Gatineau, Quebec; Toronto (Eglinton), Ontario; Orangeville, Ontario;
        Saskatoon, Saskatchewan and Prince George, British Columbia. In
        addition, two existing corporate wealth management offices converted
        to the IWM model.

    -   At the end of fiscal Q3/10 (December 31, 2009), Canaccord had 327
        Advisory Teams(5), down 20 from 347 Advisory Teams as of
        December 31, 2008, and down seven Advisory Teams from 334 teams as of
        September 30, 2009. The decrease is largely due to a strategic review
        of our Wealth Management division.

    -   On December 1, 2009, Canaccord Capital Inc. was renamed Canaccord
        Financial Inc., to better reflect the growing scope of the Company's
        global businesses. As a result, on December 4, 2009, shares in the
        Company began trading under the stock symbols CF on the TSX and CF.
        on AIM.

    Subsequent to December 31, 2009:

    -   On January 4, 2010, Canaccord Wealth Management announced the
        addition of Complete Canaccord ETF Portfolios to its robust wealth
        management product suite, as well as the participation of a due
        diligence partner, Rogerscasey Canada.

    -   Two Canaccord Wealth Management branches, Campbell River, British
        Columbia and Nanaimo, British Columbia, converted to the Independent
        Wealth Management model.

    -   On January 7, 2010, Canaccord Adams was ranked by Sagient Research
        Systems in their PIPE Market League Tables as 5th by number of
        transactions and 6th by total amount placed in the US PIPE market in
        calendar 2009.

    -   On February 4, 2010, Canaccord Financial welcomed Charles N. Bralver
        to the company's board of directors. Mr. Bralver has nearly 30 years
        of experience in the global financial services industry, including as
        a founding partner and Vice Chairman of Oliver Wyman & Company, an
        international management consulting firm.

    ----------------------------
    (1) Expenses in Q3/09 included significant items of $51.1 million related
        to asset-backed commercial paper (ABCP) fair value adjustment, client
        relief provision and fair value adjustment, impairment of goodwill
        and intangibles, and restructuring costs. Excluding these significant
        items, Q3/09 net loss was $16.2 million, diluted loss per share was
        $0.33 and expenses were $108.5 million. For the nine month period
        ended December 31, 2008, the net loss was $5.2 million, diluted loss
        per share was $0.11 and expenses were $373.5 million, excluding these
        significant items.
    (2) Source: FPinfomart and Company information
    (3) Source: Canada Equity. Market share by trade volume
    (4) Source: Placement Tracker
    (5) Advisory Teams are normally comprised of one or more Investment
        Advisors (IAs) and their assistants and associates, who together
        manage a shared set of client accounts. Advisory Teams that are led
        by, or only include, an IA who has been licenced for less than three
        years are not included in our Advisory Team count, as it typically
        takes a new IA approximately three years to build an average-sized
        book.
    

LETTER TO SHAREHOLDERS

There is much to be proud of in our third quarter results. Canaccord posted strong revenue growth, a significant increase in profitability and meaningful gains in our return on equity. However, we remain committed to improving our operating performance, believing there is even more that can be done to grow our strong global platform and generate lasting shareholder value.

Financial overview

Revenue for the three months ended December 31, 2009 was $173.2 million, a 98.6% increase from the third quarter of fiscal 2009. At $150.9 million, our expenses were down 5.5% from the comparable period. Our non-compensation expense ratio reached an encouraging low of 24.3% of revenue. Our incentive compensation as a percentage of revenue, however, was higher than we would normally anticipate due to ongoing investments for the future in top-quality talent in key areas of our business.

Net income for the three months was $15.1 million compared to a net loss of $62.4 million for the same period a year ago, which included substantial one-time charges that demonstrated our commitment to putting our clients first and maintaining a clean, strong balance sheet. Diluted earnings per share for the third quarter of fiscal 2010 were $0.27; the prior year's diluted loss per share was $1.27. Canaccord's annualized return on equity for the third quarter was 15.2%, a solid improvement over the prior period and previous quarter but still well short of our business-cycle target of 20%.

Canaccord Adams

We were pleased with the results delivered by our global capital markets division this quarter. Our Canadian, US and UK teams led or co-led 61 transactions globally, raising total proceeds of $3.6 billion for our clients. At $116.1 million, Canaccord Adams' revenue for the three months ended December 31, 2009 was 136% higher than the prior-year quarter. After intersegment cost allocations, Canaccord Adams' income before taxes was $25.6 million, more than double that of the second quarter of the current fiscal year.

In Canada, Canaccord Adams had a very robust quarter in both its block trading and capital markets activities. Notable transactions included a $172.5 million equity issue for Compton Petroleum on the TSX and $113.5 million issue for TransAtlantic Petroleum, also on the TSX. Additional transactions can be found in the Highlights of operations on page 2 of this report.

Our U.S. team delivered solid results that beat their prior-year revenue by nearly 37%. The group led two equity issues on the NASDAQ during the third quarter: a US$129.7 million Initial Public Offering for DragonWave, Inc. and a US$99.5 million equity transaction for Telvent GIT S.A.

The investments we've made in building our management, sales, trading and research in Canaccord Adam's UK operations are beginning to deliver tangible returns. Third quarter revenue soared 110% over the comparable period in fiscal 2009 and was significantly higher than the second quarter. The group led a number of important equity transactions, including (pnds stlg)72.7 million for Petra Diamonds Limited and (pnds stlg)50 million for Rockhopper Exploration plc. Both were placed on the AIM of the London Stock Exchange.

In early December, the UK Chancellor of the Exchequer announced an immediate 50% supertax on discretionary bonus pay-outs greater than (pnds stlg)25,000 made by the nation's banks. We believe this tax is being misapplied to Canaccord and others in our market segment, and are optimistic that it will ultimately not apply. We do not trade in sophisticated debt instruments, we are not a proprietary trading house nor do we lend money or receive deposits. And unlike the large commercial banks we believe the government is targeting, we did not have access to - or need - bailouts from the Bank of England. We are working with advisors to both communicate with the UK treasury and minimize the potential impacts on our shareholders and employees. We will continue to monitor and manage this situation carefully, remaining focused on maintaining a healthy and profitable business for clients, shareholders and employees.

Canaccord Wealth Management

We're pleased with the progress we are seeing in our Wealth Management operations. Revenue for the three months ended December 31, 2009 totalled $51.7 million, a 54.3% increase from the comparable quarter of fiscal 2009 and the division's best revenue performance in the past six quarters. After intersegment cost allocations and before taxes, Wealth Management lost $87,000 for the three months. This is a meaningful improvement from the $3.3 million loss posted in the second quarter of the current fiscal year and a good indicator of the progress the division is making towards its goal of becoming a consistent contributor to Canaccord's profitability.

We're enthusiastic about the early success of our Independent Wealth Management (IWM) program. Essentially the franchise model of our business, the strategy significantly expands the breadth of our recruiting effort and reduces the overhead costs associated with operating Wealth Management's branch system. We converted two corporate branches to the IWM program during the third quarter, bringing the total IWM branches to date to seven.

We also continue to make investments in the tools and advice Canadians need to better manage their wealth. During the quarter, the team launched a new product under the robust Complete Canaccord Investment Counselling Program called Complete Canaccord ETF Portfolios. The five Complete Canaccord ETF Portfolios offer clients a level of risk management and security selection usually reserved for large institutional investors. The portfolios were developed with the participation of Rogerscasey Canada, who joined us this quarter as our due diligence partner to provide independent research and analysis of Canaccord's institutional management platform.

New products and stronger markets are driving gains in assets under administration (AUM), though they are still short of the scale we need to become consistently profitable. At the end of the third quarter, AUM totalled $12.2 billion, a 35% increase from the comparable quarter a year ago and up 7.2% from last quarter.

Looking ahead

As we announced last quarter, we have rebranded our company Canaccord Financial Inc. to better reflect the broad scope of our global operations. On December 4, 2009 we officially began trading under the stock symbols "CF" on the TSX and "CF." on the AIM.

Looking ahead, we are cautiously optimistic about the near-term market outlook and the pipeline of opportunities we're seeing in our capital markets business. But we are more cautious about the longer-term impact of global dynamics, such as excess liquidity, commodity cycles and the evolving regulatory frameworks, on market valuations. We will remain vigilant on these potentially disruptive trends, just as we will remain focused on our strategies to control costs, build our share of our target markets and grow the value of our Company for shareholders. As always, we are very grateful to our dedicated partners at Canaccord who are the real drivers of our continuing evolution.

    
    Paul D. Reynolds
    President & Chief Executive Officer
    

ACCESS TO QUARTERLY RESULTS INFORMATION:

Interested investors, the media and others may review this quarterly earnings release and supplementary financial information at canaccordfinancial.com.

CONFERENCE CALL AND WEBCAST PRESENTATION:

Interested parties can listen to our fiscal third quarter 2010 results conference call with analysts and institutional investors, live and archived, via the Internet and a toll free number. The conference call is scheduled for Thursday, February 4, 2010 at 8:00 a.m. (Pacific Time), 11:00 a.m. (Eastern Time) and 4:00 p.m. (UK Time). At that time, senior executives will comment on the results for the third quarter of fiscal 2010 and respond to questions from analysts and institutional investors.

The conference call may be accessed live and archived on a listen-only basis via the Internet at: www.canaccordfinancial.com

Analysts and institutional investors can call in via telephone at:

    
    -   647-427-7450 (within Toronto)
    -   1-888-231-8191 (toll free outside Toronto)
    -   0800-051-7107 (toll free from the United Kingdom)
    

A replay of the conference call can be accessed after 11:00 a.m. (Pacific Time), 2:00 p.m. (Eastern Time) and 7:00 p.m. (UK Time) on February 4, 2010 until March 20, 2010 at 416-849-0833 or 1-800-642-1687 by entering passcode 52205112 followed by the pound (No.) sign.

ABOUT CANACCORD FINANCIAL INC.:

An evolution of our Company

Through its principal subsidiaries, Canaccord Financial Inc. is a leading independent, full-service financial services firm, with operations in two principal segments of the securities industry: wealth management and global capital markets. Since its establishment in 1950, Canaccord has been driven by an unwavering commitment to build lasting client relationships. We achieve this by generating value for our individual, institutional and corporate clients through comprehensive investment solutions, brokerage services and investment banking services. Canaccord has 37 offices worldwide, including 29 Wealth Management offices located across Canada. Canaccord Adams, the international capital markets division, operates in the US, UK, Canada and Barbados.

Canaccord Financial Inc. is publicly traded under the symbol CF on the TSX and the symbol CF. on AIM, a market operated by the London Stock Exchange.

    
    FOR FURTHER INFORMATION, CONTACT:

    North American media:
    Scott Davidson
    Managing Director, Global Head of Marketing & Communications
    Phone: 416-869-3875
    Email: scott_davidson@canaccord.com

    Investor relations inquiries:
    Joy Fenney
    Vice President,
    Investor Relations
    Phone: 416-869-3515
    Email: joy.fenney@canaccord.com

    London media:
    Bobby Morse or Ben Willey
    Buchanan Communications (London)
    Phone: +44 (0) 207 466 5000
    Email: bobbym@buchanan.uk.com

    Nominated Adviser and Broker:
    Marc Milmo or Jonny Franklin-Adams
    Fox-Pitt, Kelton Limited
    Phone: +44 (0) 207 663 6000
    Email: corporatebroking@fpk.com

    -------------------------------------------------------------------------
    None of the information on Canaccord's website at canaccordfinancial.com
    should be considered incorporated herein by reference.
    -------------------------------------------------------------------------
    

Management's Discussion and Analysis

Fiscal third quarter 2010 for the three months and nine months ended December 31, 2009 - this document is dated February 4, 2010

The following discussion of the financial condition and results of operations for Canaccord Financial Inc., formerly Canaccord Capital Inc.(Canaccord), is provided to enable the reader to assess material changes in our financial condition and to assess results for the three- and nine-month periods ended December 31, 2009 compared to the corresponding periods in the preceding fiscal year. The three- and nine-month periods ended December 31, 2009 are also referred to as third quarter 2010, Q3/10, fiscal Q3/10 and year-to-date fiscal year 2010 in the following discussion. This discussion should be read in conjunction with the unaudited interim consolidated financial statements for the three- and nine-month periods ended December 31, 2009 (Unaudited Interim Consolidated Financial Statements), beginning on page 30 of this report; our Annual Information Form dated May 26, 2009; and the 2009 annual Management's Discussion and Analysis (MD&A) including the audited consolidated financial statements for the fiscal year ended March 31, 2009 (Audited Annual Consolidated Financial Statements) in Canaccord's Annual Report dated May 20, 2009 (the Annual Report) as filed on SEDAR on May 26, 2009. There has been no material change to the information contained in the annual MD&A for fiscal 2009 except as disclosed in this MD&A. Canaccord's financial information is expressed in Canadian dollars unless otherwise specified. The financial information presented in this document is prepared in accordance with Canadian generally accepted accounting principles (GAAP) unless specifically noted. This MD&A is based on Unaudited Interim Consolidated Financial Statements and Audited Annual Consolidated Financial Statements prepared in accordance with Canadian GAAP.

Caution regarding forward-looking statements

This document may contain certain forward-looking statements. These statements relate to future events or future performance and reflect management's expectations or beliefs regarding future events including business and economic conditions and Canaccord's growth, results of operations, performance and business prospects and opportunities. Such forward-looking statements reflect management's current beliefs and are based on information currently available to management. In some cases, forward-looking statements can be identified by terminology such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential", "continue", "target", "intend" or the negative of these terms or other comparable terminology. By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and a number of factors could cause actual events or results to differ materially from the results discussed in the forward-looking statements. In evaluating these statements, readers should specifically consider various factors that may cause actual results to differ materially from any forward-looking statement. These factors include, but are not limited to, market and general economic conditions, the nature of the financial services industry and the risks and uncertainties detailed from time to time in Canaccord's interim and annual consolidated financial statements and its Annual Report and Annual Information Form filed on sedar.com. These forward-looking statements are made as of the date of this document, and Canaccord assumes no obligation to update or revise them to reflect new events or circumstances.

Non-GAAP measures

Certain non-GAAP measures are utilized by Canaccord as measures of financial performance. Non-GAAP measures do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other companies. Non-GAAP measures included are return on average common equity (ROE), assets under administration (AUA), assets under management (AUM), expenses as a % of revenue and book value per diluted share.

Canaccord's capital is represented by shareholders' equity and, therefore, management uses ROE as a performance measure.

AUA and AUM are non-GAAP measures of client assets that are common to the wealth management aspects of the private client services industry. AUA is the market value of client assets administered by Canaccord from which Canaccord earns commissions or fees. This measure includes funds held in client accounts as well as the aggregate market value of long and short security positions. Canaccord's method of calculating AUA may differ from the methods used by other companies and therefore may not be comparable to other companies. Management uses this measure to assess operational performance of the Wealth Management business segment. AUM includes all assets managed on a discretionary basis under our programs generally described as or known as the Complete Canaccord Investment Counselling Program and Complete Canaccord Managed Accounts(1). Services provided include the selection of investments and the provision of investment advice. AUM are also administered by Canaccord and are included in AUA.

Financial statement items which exclude significant items are non-GAAP measures. Significant items include the asset-backed commercial paper (ABCP) fair value adjustment, additional accrual for client relief programs, fair value adjustment of ABCP purchased by the Company under a client relief program, impairment of goodwill and intangibles and restructuring costs.

    
    --------------------------
    (1) Previously known as Canaccord's Alliance Accounts and Private
        Investment Management.
    

BUSINESS OVERVIEW

Through its principal subsidiaries, Canaccord (TSX: CF; AIM: CF.) is a leading independent, full-service investment dealer in Canada with capital markets operations in the United Kingdom and the United States. Canaccord is publicly traded on both the Toronto Stock Exchange (TSX) and AIM, a market operated by the London Stock Exchange (LSE). The Company has operations in two of the principal segments of the securities industry: global capital markets and wealth management. Together, these operations offer a wide range of complementary investment banking services, investment products and brokerage services to Canaccord's institutional, corporate and individual clients.

Canaccord's business is cyclical and experiences considerable variations in revenue and income from quarter to quarter and year to year due to factors beyond Canaccord's control. Our business is affected by the overall condition of the North American and European equity markets, including seasonal fluctuations.

Business environment

The calendar year 2009, though it began with unprecedented challenges, ended on a more confident note. The low level of short-term interest rates prompted market participants to seek returns in all asset classes. The high level of liquidity in the market allowed for a resurgence in financing activity as well as an aggressive pursuit by investors of yield-producing vehicles. From October through December 2009, many equity indices reached post-Lehman-collapse highs and higher stock prices lifted the value of 401K and RRSP plans. A resumption of high economic activity in China prompted investment in hard assets and hard asset equities and rejection of the US dollar. The Bloomberg world equity market capitalization rose from $25.6 trillion at the March 2009 low, to $46 trillion on December 31, 2009. Higher wealth lifted consumer confidence and leading economic indicators.

As global economic data was released in December, however, investors became more concerned with Europe, and sovereign default, than with the US budget deficit and a weak recovery. North American economies have benefited from the massive government liquidity injections; although a few smaller countries (such as Australia, Norway and Vietnam) did raise interest rates during the quarter on fear of having over-stimulated the economy. Job creation in advanced economies, a key metric for confirmation of sustained economic growth, was disappointing. While final US GDP growth for the quarter should be good (but not as robust as past timelines recorded), improvements in the manufacturing industry were tempered by continuing challenges in the service industry, which represents almost 90% of the economy.

Debt issuance by governments and corporations during the quarter came at record levels, yet consumers reduced debt and small businesses remained cautious. In the months ahead, significant attention will be focused on the critical issue of how all governments will safely withdraw monetary liquidity from the global economy, yet achieve comfortable levels of growth in 2010.

Market data

Financing values were up significantly on the TSX / TSX Venture and the NASDAQ compared to the same quarter last year. Compared to the previous quarter, financing values for the TSX / TSX Venture were down 8.5%, while the NASDAQ was down 21.6%. The AIM experienced a substantial increase in financings compared to the dismal market conditions during the same quarter last year.

    
    Total financing value by exchange
    -------------------------------------------------------------------------
                   October  November  December    Fiscal    Change    Change
                        09        09        09     Q3/10      from      from
                                                            fiscal    fiscal
                                                             Q3/09     Q2/10
    -------------------------------------------------------------------------
    TSX and TSX
     Venture
     (C$ billions)     6.1       8.0       4.1      18.2     31.9%    (8.5)%
    AIM ((pnds stlg)
     billions)         1.1       0.4       0.9       2.4      n.m.     60.0%
    NASDAQ
     (US$ billions)    7.6       4.1       4.3      16.0      n.m.   (21.6)%
    -------------------------------------------------------------------------
    Source: TSX Statistics, LSE AIM Statistics, Equidesk
    n.m.: not meaningful


    Financing value for relevant AIM industry sectors
    -------------------------------------------------------------------------
    ((pnds stlg)
     millions,     October  November  December    Fiscal    Change    Change
     except for         09        09        09     Q3/10      from      from
     percentage                                             fiscal    fiscal
     amounts)                                                Q3/09     Q2/10
    -------------------------------------------------------------------------
    Oil and gas      141.1     150.7     297.4     589.2      n.m.     80.9%
    Mining            48.2     117.2     240.1     405.5    196.6%     94.9%
    Pharmaceutical
     and Biotech       8.0       7.2      15.9      31.1      n.m.      1.0%
    Media              0.4      12.7       1.1      14.2    273.7%   (73.1)%
    Technology        11.5       8.4      25.9      45.8    249.6%     20.8%
                  -----------------------------------------------------------
    Total (of
     relevant
     sectors)        209.2     296.2     580.4   1,085.8    503.9%     65.7%
    -------------------------------------------------------------------------
    Source: LSE AIM Statistics
    n.m.: not meaningful


    Financing value for relevant TSX and TSX Venture industry sectors
    -------------------------------------------------------------------------
    ($ millions,   October  November  December    Fiscal    Change    Change
     except for         09        09        09     Q3/10      from      from
     percentage                                             fiscal    fiscal
     amounts)                                                Q3/09     Q2/10
    -------------------------------------------------------------------------
    Oil and gas    1,451.8   1,307.3     863.2   3,622.3    138.3%     59.6%
    Mining           452.6   1,300.3   1,507.7   3,260.6      n.m.   (49.4)%
    Biotech           24.7      60.7         -      85.4      n.m.      n.m.
    Media                -         -         -         -         -  (100.0)%
    Technology       292.4      18.9      45.9     357.2      n.m.      n.m.
                  -----------------------------------------------------------
    Total (of
     relevant
     sectors)      2,221.5   2,687.2   2,461.8   7,325.5    223.2%   (16.8)%
    -------------------------------------------------------------------------
    Source: FPinfomart
    n.m.: not meaningful
    

ABOUT CANACCORD FINANCIAL INC.

An evolution of our Company

On December 1, 2009, Canaccord Capital Inc. was renamed Canaccord Financial Inc., to better reflect the growing scope of the Company's global businesses. As a result, on December 4, 2009, shares in the Company began trading under the stock symbols CF on the TSX and CF. on AIM.

Through its principal subsidiaries, Canaccord Financial Inc. is a leading independent, full-service financial services firm, with operations in two principal segments of the securities industry: wealth management and global capital markets. Since its establishment in 1950, Canaccord has been driven by an unwavering commitment to build lasting client relationships. We achieve this by generating value for our individual, institutional and corporate clients through comprehensive investment solutions, brokerage services and investment banking services. Canaccord has 37 offices worldwide, including 29 Wealth Management offices located across Canada. Canaccord Adams, the international capital markets division, operates in the US, UK, Canada and Barbados.

Canaccord Adams

Canaccord Adams offers corporations and institutional investors around the world an integrated platform for equity research, sales and trading, and investment banking services that is built on extensive operations in Canada, the United States and the United Kingdom.

    
    -   Canaccord's research analysts have deep knowledge of more than 650
        companies across eight primary focus sectors: Mining and Metals,
        Energy, Technology, Life Sciences, Consumer, Real Estate,
        Infrastructure and Sustainability.

    -   Our Sales and Trading desk executes timely transactions for more than
        1,500 institutional relationships around the world, operating as an
        integrated team.

    -   With more than 65 skilled investment bankers, Canaccord Adams
        provides clients with sector expertise and global insight, as well as
        proven equity transaction and M&A advisory experience.

    -   Our Fixed Income Operations in Canada and the UK cover a wide range
        of money market instruments, federal crown corporations, strips,
        euros, US Pays, gilts and structured products, as well as federal,
        provincial and municipal bonds.
    

Revenue from Canaccord Adams is generated from commissions and fees earned in connection with investment banking transactions and institutional sales and trading activity, as well as trading gains and losses from Canaccord's principal and international trading operations.

Canaccord Wealth Management

Canaccord Wealth Management provides wealth creation, wealth management and wealth transfer services to individual investors from 29 offices across Canada. Our platform is based on the "Complete Canaccord" offering, a commitment to understanding clients and their financial goals, along with a robust set of products and services for tailoring financial solutions.

Canaccord Wealth Management delivers superior training and education to Investment Advisors. Our personal and professional development platform, Canaccord University, supports skill-building initiatives in the areas of products, technology and tools, and practice management. Advisors at Canaccord Wealth Management participate in both external and internal training opportunities to continually equip themselves to best serve our clients' financial needs. Many Canaccord Investment Advisors have completed the training required for advanced industry designations such as Chartered Financial Analyst or Certified Investment Manager.

Revenue from Canaccord Wealth Management is generated through traditional commission-based brokerage services; the sale of fee-based products and services; client-related interest; and fees and commissions earned by Advisory Teams in respect of investment banking and venture capital transactions by Wealth Management clients.

Corporate and Other

This segment, described as Corporate and Other, includes correspondent brokerage services, bank and other interest revenue, foreign exchange gains and losses, and expenses not specifically allocable to either the Canaccord Adams or Canaccord Wealth Management divisions. Also included in this segment are Canaccord's operations and support services, which are responsible for front- and back-office information technology systems, compliance and risk management, operations, finance and all administrative functions.

CONSOLIDATED OPERATING RESULTS

    
    Third quarter and year-to-date fiscal 2010 summary data(1)
    -------------------------------------------------------------------------
                       Three months                   Nine months
    (C$ thousands,         ended       Quarter-          ended
     except per         December 31       over-       December 31       YTD-
     share, employee                   quarter                      over-YTD
     and % amounts)   2009      2008    change      2009      2008    change

    Canaccord
     Financial Inc.
    Revenue
      Commission    60,696    51,473     17.9%   172,780   184,099    (6.1)%
      Investment
       banking      88,417    20,198      n.m.   191,923   130,369     47.2%
      Principal
       trading      15,645     3,781      n.m.    38,704     9,779      n.m.
      Interest       3,099     9,108   (66.0)%     9,696    33,171   (70.8)%
      Other          5,340     2,628    103.2%    21,301    13,307     60.1%
    Total revenue  173,197    87,188     98.6%   434,404   370,725     17.2%
    Expenses
      Incentive
       compensation 93,872    43,299    116.8%   226,301   177,003     27.9%
      Salaries and
       benefits     14,945    12,817     16.6%    42,730    42,455      0.6%
      Other
       overhead
       expenses(2)  42,070    52,418   (19.7)%   119,207   154,060   (22.6)%
      ABCP fair
       value
       adjustment        -     6,700  (100.0)%         -     6,700  (100.0)%
      Client relief
       provision         -     2,700  (100.0)%         -     2,700  (100.0)%
      Canaccord
       relief
       program
       fair value
       adjustment        -     2,647  (100.0)%         -     2,647  (100.0)%
      Impairment of
       goodwill and
       intangibles       -    31,524  (100.0)%         -    31,524  (100.0)%
      Restructuring
       costs             -     7,520  (100.0)%         -     7,520  (100.0)%
    Total
     expenses      150,887   159,625    (5.5)%   388,238   424,609    (8.6)%
    Income (loss)
     before income
     taxes          22,310   (72,437) (130.8)%    46,166   (53,884) (185.7)%
    Net income
     (loss)         15,113   (62,378) (124.2)%    30,971   (51,317) (160.4)%
    Earnings (loss)
     per share -
     diluted          0.27     (1.27) (121.3)%      0.56     (1.05) (153.3)%
    Return on
     average
     common equity   15.2%   (64.3)%   79.5p.p.    10.6%   (18.0)%   28.6p.p.
    Book value
     per share -
     period end       7.00      6.37      9.9%
    Number of
     employees       1,570     1,570      0.0%
    -------------------------------------------------------------------------
    (1) Data is considered to be GAAP except for ROE, book value per share
        and number of employees.
    (2) Consists of trading costs, premises and equipment, communication and
        technology, interest, general and administrative, amortization and
        development costs.
    p.p.: percentage points
    n.m.: not meaningful


    Geographic distribution of revenue for the third quarter of fiscal
    2010(1)
    -------------------------------------------------------------------------
                       Three months                   Nine months
                           ended       Quarter-          ended
    (C$ thousands,      December 31       over-       December 31       YTD-
     except %                          quarter                      over-YTD
     amounts)         2009      2008    change      2009      2008    change
    -------------------------------------------------------------------------
    Canada         123,626    57,907    113.5%   290,750   247,580     17.4%
    UK              26,420    11,752    124.8%    61,120    58,567      4.4%
    US              22,817    16,533     38.0%    80,133    60,438     32.6%
    Other Foreign
     Location          334       996   (66.5)%     2,401     4,140   (42.0)%
    -------------------------------------------------------------------------
    Total          173,197    87,188     98.6%   434,404   370,725     17.2%
    -------------------------------------------------------------------------
    (1) For a business description of Canaccord's geographic distribution
        please refer to the "About Canaccord Financial Inc." section on page
        9.
    

Third quarter 2010 vs. third quarter 2009

On a consolidated basis, revenue is generated through five activities: commissions and fees associated with agency trading and private client wealth management activity, investment banking, principal trading, interest and other. Revenue for the three months ended December 31, 2009 was $173.2 million, an increase of 98.6% or $86.0 million compared to the same period a year ago.

For the third quarter of fiscal 2010, revenue generated from commissions was up 17.9% to $60.7 million compared to the same period a year ago. This increase was due to a $6.1 million commission revenue growth in our Canaccord Wealth Management segment and a $3.1 million improvement in our Canaccord Adams segment.

Investment banking revenue was $88.4 million, up $68.2 million primarily due to stronger capital markets activity in Canada.

Revenue derived from principal trading was $15.6 million, an increase of $11.9 million mainly due to increased market-making operations in our UK subsidiary and wealth management segment, and $3.1 million as a result of the increased trading activity in our Fixed Income group.

Interest revenue was $3.1 million, which decreased by $6.0 million or 66.0% due to the drop in the number and size of margin accounts and lower interest rates.

Other revenue was $5.3 million, up $2.7 million or 103.2%, which was mainly attributed to an increase in foreign exchange gains in the quarter.

Third quarter revenue in Canada was $123.6 million, an improvement of 113.5% or $65.7 million from the same period a year ago. The main contributor to the higher revenue in Canada was a $46.9 million increase in revenue in our Canaccord Adams group. The revenue from our wealth management segment in Canada was also up by $17.8 million compared to the same quarter of the last year.

Revenue in the UK was $26.4 million, up 124.8% or $14.7 million compared to the same period a year ago. Revenue from Other Foreign Location was $0.3 million which declined by $0.7 million. Enhanced capital markets activity during the quarter resulted in the increase in revenue in the UK.

Revenue in the US was $22.8 million, an increase of $6.3 million or 38.0% from Q3/09. Revenue improved significantly compared to Q3/09 because of favourable trends in the equity markets, changes in the competitive landscape and increased activity in respect of both public and private offerings and advisory work.

Year-to-date fiscal year 2010 vs. year-to-date fiscal year 2009

Revenue for the nine months ended December 31, 2009 was $434.4 million, up 17.2% or $63.7 million compared to the same period a year ago. Revenue generated from commissions decreased by 6.1% to $172.8 million compared to the prior year largely due to the significantly weaker market conditions during Q1/10 compared to Q1/09. The Q1/09 results were relatively stronger as this period was prior to the market disruption that occurred near the end of Q2/09.

Investment banking revenue was $191.9 million for year to date fiscal 2010, representing an increase of 47.2% primarily due to the higher financing activity in equity markets in our North American operations. This was partially offset by a decrease in revenue in our UK operations, comparing the year-to-date of fiscal year 2010 to the year-to-date of fiscal year 2009.

Revenue from principal trading was $38.7 million year-to-date compared to $9.8 million in the prior year. Principal trading revenue from our UK and Other Foreign Location was increased by $16.8 million. The disposal of some investment in ABCP resulted in a $4.2 million gain recognized in principal trading revenue. The Fixed Income segment of our business also contributed to the increase in principal trading revenue by $3.4 million.

Interest revenue was $9.7 million, a decline of 70.8% due to a decrease in interest revenue from banks and clients as a result of lower interest rates and smaller margin accounts. Other revenue increased by $8.0 million to $21.3 million during the year-to-date of fiscal year 2010 as a result of foreign exchange gains.

Year-to-date revenue in Canada was $290.8 million, up 17.4% or $43.2 million from the same period a year ago. Year-to-date fiscal year 2010 revenue in the UK was $61.1 million, an increase of 4.4% or $2.6 million from the same period a year ago. Revenue in the US was $80.1 million, an increase of 32.6% or $19.7 million compared to the year-to-date of fiscal year 2009. Revenue from Other Foreign Location was $2.4 million compared to $4.1 million in the nine months ended December 31, 2008. Year-to-date revenue increased across geographies except for our Other Foreign Location which decreased slightly by $1.7 million. This increase was a result of stronger capital markets activity during year-to-date fiscal 2010 compared to fiscal 2009.

    
    Expenses as a percentage of revenue
    -------------------------------------------------------------------------
                       Three months                   Nine months
                           ended       Quarter-          ended
                        December 31       over-       December 31       YTD-
    (in percentage                     quarter                      over-YTD
     points)          2009      2008    change      2009      2008    change
    -------------------------------------------------------------------------
      Incentive
       compensation  54.2%     49.7%    4.5p.p.    52.1%     47.7%    4.4p.p.
      Salaries and
       benefits       8.6%     14.7%  (6.1)p.p.     9.8%     11.5%  (1.7)p.p.
      Other overhead
       expenses(1)   24.3%     60.1% (35.8)p.p.    27.4%     41.6% (14.2)p.p.
      ABCP fair
       value
       adjustment        -      7.7%  (7.7)p.p.        -      1.8%  (1.8)p.p.
      Client relief
       provision         -      3.1%  (3.1)p.p.        -      0.7%  (0.7)p.p.
      Canaccord
       relief
       program
       fair value
       adjustment        -      3.0%  (3.0)p.p.        -      0.7%  (0.7)p.p.
      Impairment of
       goodwill and
       intangibles       -     36.2% (36.2)p.p.        -      8.5%  (8.5)p.p.
      Restructuring
       costs             -      8.6%  (8.6)p.p.        -      2.0%  (2.0)p.p.
    -------------------------------------------------------------------------
    Total            87.1%    183.1% (96.0)p.p.    89.3%    114.5% (25.2)p.p.
    -------------------------------------------------------------------------
    (1) Consists of trading costs, premises and equipment, communication and
        technology, interest, general and administrative, amortization and
        development costs.
    p.p.: percentage points
    

Third quarter 2010 vs. third quarter 2009

Expenses for the three months ended December 31, 2009 were $150.9 million, down 5.5% from a year ago.

Incentive compensation expense was $93.9 million for the quarter, an increase of 116.8% or $50.6 million, consistent with the net increase in incentive-based revenue. Consolidated incentive compensation as a percentage of total revenue was 54.2%, an increase of 4.5 percentage points, due to a decrease in non-incentive-based revenue, primarily interest revenue, as well as higher long term incentive plan (LTIP) expense. Salaries and benefits expense was $14.9 million, up 16.6% in the third quarter of fiscal 2010 from the same period a year ago, attributable to a new recruiting strategy in our Canaccord Wealth Management group and a change in the pool recovery structure in our Canaccord Adams segment.

The total compensation (incentive compensation plus salaries) payout as a percentage of consolidated revenue for Q3/10 was 62.8%, a decrease of 1.5 percentage points from 64.4% in Q3/09. This was mainly due to a decrease in salaries and benefits expense as a result of the staff restructuring in the third quarter of fiscal 2009.

Year-to-date fiscal year 2010 vs. year-to-date fiscal year 2009

Expenses for the nine months ended December 31, 2009 were $388.2 million, an overall decrease of $36.4 million or 8.6% from a year ago. Incentive compensation expense was $226.3 million, up 27.9 %, which was consistent with the increase in incentive-based revenue. Consolidated incentive compensation as a percentage of total revenue was 52.1%, an increase of 4.4 percentage points mainly as a result of the dramatic decline in interest revenue, a non-incentive-based revenue item.

Salaries and benefits expense for the nine month period was $42.7 million, an increase of 0.6% compared to the same period a year ago for the same reasons mentioned above. The total compensation (incentive compensation plus salaries) payout as a percentage of consolidated revenue was 61.9%, an increase of 2.7 percentage points from 59.2% in the first nine months of fiscal 2009, a result of the significant decrease in non-incentive-based revenue as a percentage of consolidated revenue.

    
    Other overhead expenses
    -------------------------------------------------------------------------
                       Three months                   Nine months
                           ended       Quarter-          ended
    (C$ thousands,      December 31       over-       December 31       YTD-
     except %                          quarter                      over-YTD
     amounts)         2009      2008    change      2009      2008    change
    -------------------------------------------------------------------------
      Trading costs  7,140     6,708      6.4%    21,466    19,746      8.7%
      Premises and
       equipment     6,228     6,549    (4.9)%    18,214    18,291    (0.4)%
      Communication
       and
       technology    5,838     6,277    (7.0)%    16,572    18,979   (12.7)%
      Interest         631     2,568   (75.4)%     1,968     9,881   (80.1)%
      General
       and admin-
       istrative    13,609    19,827   (31.4)%    37,195    58,715   (36.7)%
      Amortization   1,904     2,751   (30.8)%     5,731     6,865   (16.5)%
      Development
       costs         6,720     7,738   (13.2)%    18,061    21,583   (16.3)%
    -------------------------------------------------------------------------
    Total other
     overhead
     expenses       42,070    52,418   (19.7)%   119,207   154,060   (22.6)%
    -------------------------------------------------------------------------
    

Third quarter 2010 vs. third quarter 2009

Other overhead expenses decreased by 19.7% or $10.3 million from the prior year to $42.1 million for the third quarter of fiscal 2010 mainly due to the decrease in general and administrative, interest, and development costs.

General and administrative expense declined mainly due to a reduced credit provision required in our wealth management segment as a result of stronger market conditions in Q3/10 compared to Q3/09. The lower provision reduced expenses by $6.6 million or 100.5% compared to Q3/09.

Interest expense was decreased by $1.9 million or 75.5% which was attributable to the decline in interest rates over the past year. Development costs were $1.0 million or 13.2% lower than the prior year mainly due to the reduction in hiring incentives in our US operations.

Net income for Q3/10 was $15.1 million compared to a net loss of $62.4 million for the same period a year ago. Diluted EPS was $0.27 in Q3/10 compared to a loss per share of $1.27 in Q3/09. In the prior year, the Company recognized $51.1 million of expenses in Q3/09 arising from significant items in that period including an ABCP fair value adjustment, Canaccord relief program provision and fair value adjustment, impairment of goodwill and intangibles, and restructuring costs. Excluding significant items, net income in Q3/10 was $15.1 million and net loss in Q3/09 was $16.2 million. The increase in net income and EPS, excluding significant items, were mainly due to the 98.6% growth in revenue matched with similar expense levels compared to the same quarter last period. Annualized ROE for Q3/10 was 15.2% compared to an annualized ROE of (64.3)% in Q3/09. Book value per diluted share for Q3/10 was $7.00 versus $6.37 in Q3/09.

The effective tax rate for this quarter was 32.3% compared to 13.9% in the same quarter last year and 14.2% last quarter. The increase from a year ago was due primarily to the reduction of previously recorded valuation allowances in Q3/09. The increase from Q2/10 was due to the decrease in the utilization of tax losses carried forward in Q3/10 as compared to Q2/10.

Year-to-date fiscal year 2010 vs. year-to-date fiscal year 2009

Other overhead expenses for the nine months ended December 31, 2009 were $119.2 million, representing a 22.6% decrease from the same period a year ago. Reduced expenses in general and administrative, interest, and development expenses were the main contributors to the drop in overhead expenses. General and administrative expense was decreased by $21.5 million primarily due to a combination of reduced credit provision, promotion and travel expense, and professional fees. Promotion and travel expense was down by $6.0 million due to a firm-wide focus on controlling costs, as well as additional expense recoveries from compensation pools. Due to non-recurring consultancy fees incurred in fiscal 2009 to upgrade internal infrastructure, professional fees were $6.0 million lower than year-to-date fiscal 2009.

Interest expense dropped by 80.1% or $7.9 million, and development costs were decreased by 16.3% or $3.5 million. The decline in interest expense was the result of a decrease in clients' payable balances in addition to lower interest rates. Development costs were reduced because of a $6.0 million drop in hiring incentives paid in the Canaccord Adams, and Corporate and Other segments; however, this was offset by a $2.5 million increase in hiring incentives invested by our Canaccord Wealth Management segment as part of its overall restructuring strategy.

Net income for the year-to-date of fiscal 2010 was $31.0 million compared to a net loss of $51.3 million for the same period a year ago. Diluted EPS was $0.56 compared to a diluted loss per share of $1.05 a year ago and annualized ROE was 10.6% compared to (18.0)% a year ago. There were $51.1 million of significant items recognized during Q3/09 that did not recur in fiscal 2010 as discussed above. Excluding significant items, net income was $31.0 million compared to net loss of $5.2 million, up $36.2 million year over year. This increase was the result of more revenue earned in the strengthening market along with a consistent amount of expenses incurred compared to the same period in the prior year. Book value per diluted share at the period end was $7.00, a 9.9% increase from $6.37.

Income tax expense was $15.2 million in the year to date of fiscal 2010, an increase of $17.8 million. The change was largely due to the increase in income. The year-to-date effective tax rate was 32.9% compared to 4.8% for the same period last year. The higher effective tax rate was a result of the valuation allowances recorded in fiscal 2009, which resulted in a low effective tax recovery rate.

RESULTS OF OPERATIONS

    
    Canaccord Adams(1)
    -------------------------------------------------------------------------
                       Three months                   Nine months
                           ended       Quarter-          ended
    (C$ thousands,      December 31       over-       December 31       YTD-
     except employees                  quarter                      over-YTD
     and % amounts)   2009      2008    change      2009      2008    change
    -------------------------------------------------------------------------
    Canaccord Adams
      Revenue      116,090    49,250    135.7%   280,062   212,379     31.9%
      Expenses
        Incentive
         compen-
         sation     63,567    28,857    120.3%   151,559   111,384     36.1%
        Salaries
         and
         benefits    4,441     3,413     30.1%    11,221    11,555    (2.9)%
        Other
         overhead
         expenses   20,102    26,027   (22.8)%    58,480    83,528   (30.0)%
        Impairment
         of goodwill
         and
         intangibles     -    31,524  (100.0)%         -    31,524  (100.0)%
        Restructuring
         costs           -     5,949  (100.0)%         -     5,949  (100.0)%
    -------------------------------------------------------------------------
      Total
       expenses     88,110    95,770    (8.0)%   221,260   243,940    (9.3)%
    Income (loss)
     before income
     taxes(2)       27,980   (46,520) (160.1)%    58,802   (31,561) (286.3)%
      Income (loss)
       before
       significant
       items and
       income
       taxes        27,980    (9,047)     n.m.    58,802     5,912      n.m.
      Number of
       employees       503       480      4.8%
    -------------------------------------------------------------------------
    (1) Data is considered to be GAAP except for income (loss) before
        significant items and income taxes, and number of employees.
    (2) See "Intersegment Allocated Costs".
    n.m.: not meaningful
    

Revenue from Canaccord Adams is generated from commissions and fees earned in connection with investment banking transactions and institutional sales and trading activity, as well as trading gains and losses from Canaccord's principal and international trading operations.

Third quarter 2010 vs. third quarter 2009

Revenue for Canaccord Adams in Q3/10 was $116.1 million, an increase of 135.7% or $66.8 million from the same quarter a year ago, due to the stronger global capital markets in Canada and the US in Q3/10 compared to Q3/09.

Revenue from Canadian operations

Canaccord Adams in Canada generated revenue of $67.4 million in Q3/10, up 229.7% or $46.9 million from Q3/09. The increase in revenue in this geographic sector was largely due to an improvement in capital markets activity in Canada since the first quarter of fiscal 2010. Canadian revenue for Canaccord Adams of $67.4 million represented 58.0% (Q3/09: 41.5%) of Canaccord Adams' total revenue.

Revenue from UK and Other Foreign Location

Canaccord Adams' operations in the UK and Europe include providing institutional sales and trading, corporate finance and research services. Revenue derived from capital markets activity outside of Canada, the UK and the US is reported as Other Foreign Location, which includes operations for Canaccord International Ltd. Revenue in the UK and Other Foreign Location was $26.8 million, which improved by 109.9% or $14.0 million from the same period a year ago mainly due to an increase in market-making operations during Q3/10. UK and Other Foreign Location revenue of $26.8 million was 23.0% (Q3/09: 25.8%) of Canaccord Adams' total revenue.

Revenue from US operations

The US operations reflect the capital markets activities of Canaccord Adams Inc. Third quarter 2010 revenue for Canaccord Adams in the US was $22.0 million (Q3/09: $16.1 million), an increase of $5.9 million or 36.8% compared to the same period last year primarily due to improvements in the equity markets, changes in the competitive landscape and increased activity in respect of both public and private offerings as well as increased advisory fees. Revenue from the US operations represented 19.0% (Q3/09: 32.7%) of Canaccord Adams' total revenue.

Expenses

Expenses in Canaccord Adams for the third quarter of fiscal 2010 were $88.1 million, which is $7.7 million or 8.0% lower than in fiscal 2009. This was mainly attributed to the significant items recorded in Q3/09 that did not recur during fiscal 2010, including the $31.5 million impairment of goodwill and intangibles and $5.9 million of restructuring costs. This decrease in expense was offset by a $34.7 million increase in incentive compensation due to higher incentive-based revenue in the quarter. Salary and benefits expense for the quarter was $4.4 million, representing an increase of $1.0 million or 30.1% due to the increase of 23 employees in this segment. Total compensation expense as a percentage of revenue for the quarter was 58.6%, a decrease of 6.9 percentage points from 65.5% in Q3/09.

General and administrative expense was $5.8 million in Q3/10, down by $3.1 million or 34.7%. Professional fees were $1.0 million lower due to non-recurring consultancy fees to upgrade internal infrastructure incurred in Q3/09. Reduced credit provision also reduced expenses by $1.1 million due to a lower amount of receivables that were deemed uncollectible during the quarter.

Income before income taxes for the quarter was $28.0 million compared to a net loss before income taxes of $46.5 million for the same period last year. The increase in net income was mainly a result of the $66.8 million increase in revenue because of the improved economic conditions and favourable competitive environment in the small to mid-size capital markets, especially in the US operations. In addition, significant items of $37.5 million were recognized during Q3/09 that did not recur in the current fiscal year related to the impairment of goodwill and intangibles and restructuring costs.

Year-to-date fiscal year 2010 vs. year-to-date fiscal year 2009

Revenue for Canaccord Adams for the year-to-date of fiscal 2010 was $280.1 million, up by $67.7 million from the same period last year due to recovering capital markets activities in all geographies where we operate, particularly in the US segment.

Revenue from Canadian operations

In Canada, revenue was $138.3 million, a 51.0% growth from the same period a year ago. Within Canada, $115.4 million was derived from investment banking and equities activity, while $22.9 million was from our international trading, registered traders and fixed income operations. Overall, our Canadian revenue represented 49.3% (Q3/09: 43.1%) of Canaccord Adams' total revenue.

Revenue from UK and Other Foreign Location operations

Our UK and Other Foreign Location revenue was $63.5 million, a slight increase of $0.8 million from the same period a year ago. Revenue from our UK and Other Foreign Location operations represented 22.7% (Q3/09: 29.5%) of Canaccord Adams' total revenue.

Revenue from US operations

The US operations experienced a significant increase in revenue during the year-to-date of fiscal 2010, mainly due to the improvements in the equity markets, changes in the competitive landscape, and increased activity in respect of both public and private offerings as well as higher advisory fees. Revenue was $78.2 million, an increase of $20.1 million or 34.7% compared to the same period a year ago. Revenue from US operations represented 28.0% (Q3/09: 27.4%) of Canaccord Adams' total revenue.

Expenses

Expenses for the year-to-date of fiscal 2010 were $221.3 million, down by $22.7 million. This decrease was mainly due to the $31.5 million impairment of goodwill and intangibles and $5.9 million of restructuring costs recognized in fiscal 2009 that did not recur in fiscal 2010. This was offset by an increase in incentive compensation of $40.2 million or 36.1% compared to the same period a year ago. Incentive compensation expense as a percentage of revenue was increased by 1.7 percentage points as a result of increased profitability and new LTIP grants during Q3/10.

Salary and benefits expense for the year-to-date of fiscal 2010 declined slightly by $0.3 million from a year ago. The total compensation expense payout as a percentage of revenue for the first nine months of fiscal 2010 was 58.6%, consistent with the same period a year ago.

Overhead expenses were $58.5 million during the year-to-date of fiscal 2010, a decrease of $25.0 million or 30.0% compared to the same period in fiscal 2009. This was mainly due to a $16.2 million drop in general and administrative expense primarily connected to the $5.3 million decline in non-recurring consultancy fees paid to upgrade our internal infrastructure in Q3/09. Promotion and travel expense also decreased by $7.0 million due to cost reduction initiatives and changes in expense allocations to compensation pools. There were less hiring incentives incurred in our US operations, leading to a drop in development costs of $4.9 million during the year-to-date of fiscal 2010.

Income before income taxes for the period was $58.8 million compared to a net loss of $31.6 million for the same period a year ago. Improvement in the income before taxes was due to higher revenue and a result of significant items recognized in fiscal 2009 that did not recur in fiscal 2010.

    
    Canaccord Wealth Management(1)
    -------------------------------------------------------------------------
    (C$ thousands,
     except AUM and
     AUA, which are
     in C$ millions;   Three months                   Nine months
     employees;            ended       Quarter-          ended
     Advisory           December 31       over-       December 31       YTD-
     Teams; and                        quarter                      over-YTD
     % amounts)       2009      2008    change      2009      2008    change
    -------------------------------------------------------------------------
    Revenue         51,733    33,532     54.3%   132,056   135,229    (2.3)%
    Expenses
      Incentive
       compensation 24,376    14,195     71.7%    62,387    61,261      1.8%
      Salaries and
       benefits      4,015     3,057     31.3%    12,621    10,315     22.4%
      Other
       overhead
       expenses     13,656    17,437   (21.7)%    37,420    43,707   (14.4)%
      Client relief
       provision         -     2,700  (100.0)%         -     2,700  (100.0)%
      Canaccord
       relief
       program fair
       value
       adjustment        -     2,647  (100.0)%         -     2,647  (100.0)%
        Restructuring
         costs           -       180  (100.0)%         -       180  (100.0)%
    -------------------------------------------------------------------------
    Total expenses  42,047    40,216      4.6%   112,428   120,810    (6.9)%
    Income before
     income taxes(2) 9,686    (6,684) (244.9)%    19,628    14,419     36.1%
    Income (loss)
     before
     significant
     items and
     income taxes    9,686    (1,157)     n.m.    19,628    19,946    (1.6)%
    Assets under
     management        423       454    (6.8)%       423       454    (6.8)%
    Assets under
     admin-
     istration      12,210     9,030     35.2%    12,210     9,030     35.2%
    Number of
     Advisory Teams    327       347    (5.8)%
    Number of
     employees         707       725    (2.5)%
    -------------------------------------------------------------------------
    (1) Data is considered to be GAAP except for AUM, AUA, number of Advisory
        Teams, income (loss) before significant items and income taxes and
        number of employees.
    (2) See "Intersegment Allocated Costs".
    n.m.: not meaningful
    

Revenue from Canaccord Wealth Management is generated through traditional commission-based brokerage services; the sale of fee-based products and services; margin interest; and fees and commissions earned in respect of investment banking and venture capital transactions by private clients.

Third quarter 2010 vs. third quarter 2009

Revenue from Canaccord Wealth Management was $51.7 million, an increase of $18.2 million or 54.3% mainly due to stronger activity during the quarter. AUA was up 35.2% or $3.2 billion to $12.2 billion compared to Q3/09. AUM decreased by 6.8% year over year. There were 327 Advisory Teams at the end of the third quarter of fiscal 2010, a decrease of 20 from a year ago. Canaccord's fee-related revenue accounted for 11.7% of Canaccord Wealth Management's revenue in Q3/10 compared to 18.4% in Q3/09, a decrease of 6.7 percentage points.

Expenses for Q3/10 were $42.0 million, an increase of 4.6% or $1.8 million. This change was made up of an increase in incentive compensation by $10.2 million and salaries expense by $1.0 million, but offset by a decrease in overhead expenses by $3.8 million. The movement in incentive compensation expense was due to the higher revenue and implementation of a new retention program in fiscal 2010. Salaries and benefits expense increased despite lower staff levels as a result of the hiring of key personnel to our management group as part of its restructuring strategy. This increase in overall expense in Q3/10 was partially offset by a $5.5 million Canaccord relief program provision and fair value adjustment, and restructuring costs recognized in Q3/09 that did not recur in Q3/10.

Other overhead expenses decreased mainly due to a decrease in general and administrative expense of $3.7 million and lower interest expense of $1.7 million resulting from the drop in interest rates. The Canaccord Wealth Management segment incurred $1.0 million more in hiring incentives invested as part of its overall restructuring strategy.

Income before income taxes for the quarter was $9.7 million compared to a net loss of $6.7 million from the same period a year ago. There were $5.5 million of significant items recognized in Q3/09 that did not recur. Excluding significant items, net income was $9.7 million Q3/10 compared to net loss of $1.2 million in Q3/09, an increase of $10.8 million. This increase was mainly due to improved revenue in Q3/10 compared to Q3/09.

Year-to-date fiscal year 2010 vs. year-to-date fiscal year 2009

Revenue from Canaccord Wealth Management was $132.1 million, a decrease of $3.2 million or 2.3%. Overall, revenue in Canaccord Wealth Management remained consistent with year-to-date fiscal 2009. Fee-related revenue as a percentage of total Canaccord Wealth Management revenue decreased by 3.9 percentage points to 13.4% compared to the same period last year.

Expenses for the nine months ended December 31, 2009 were $112.4 million, a decrease of $8.4 million or 6.9%. Incentive compensation expense increased slightly by $1.1 million or 1.8% mainly due to the new retention program implemented in fiscal 2010. Salaries and benefits expense also increased by $2.3 million due to the hiring of key personnel as discussed above. Interest expense decreased by $6.7 million or 94.4%, a result of lower interest rates and smaller cash balances in our client accounts. The total compensation expense payout as a percentage of revenue for the first nine months of fiscal 2010 was 56.8%, an increase of 3.9 percentage points from 52.9% for the same period a year ago. The significant decrease in non-incentive-based revenue, particularly interest revenue, is the main reason for this increase in compensation expense payout as a percentage of revenue.

The decrease in expenses was offset by an increase in development costs of $2.5 million or 47.1%, which was mainly due to additional hiring incentives incurred as part of our recruiting strategy in this segment.

Income before income taxes for the year-to-date of fiscal 2010 was $19.6 million, an increase of 36.1% from the same period a year ago. The increase was mainly attributed to $5.5 million of significant expenses incurred in Q3/09 not recurring in fiscal 2010. Excluding significant items, net income was $19.6 million in Q3/10, consistent with the $19.9 million net income reported in Q3/09.

    
    Corporate and Other(1)
    -------------------------------------------------------------------------
                       Three months                   Nine months
                           ended       Quarter-          ended
    (C$ thousands,      December 31       over-       December 31       YTD-
     except employees                  quarter                      over-YTD
     and % amounts)   2009      2008    change      2009      2008    change
    -------------------------------------------------------------------------
    Revenue          5,374     4,406     22.0%    22,286    23,117    (3.6)%
    Expenses
      Incentive
       compensation  5,929       247      n.m.    12,355     4,358    183.5%
      Salaries and
       benefits      6,489     6,347      2.2%    18,888    20,585    (8.2)%
      Other overhead
       expenses      8,312     8,954    (7.2)%    23,307    26,825   (13.1)%
      ABCP fair
       value
       adjustment        -     6,700  (100.0)%         -     6,700  (100.0)%
      Restructuring
       costs             -     1,391  (100.0)%         -     1,391  (100.0)%
    -------------------------------------------------------------------------
    Total expenses  20,730    23,639   (12.3)%    54,550    59,859    (8.9)%
    Loss before
     income
     taxes(2)      (15,356)  (19,233)  (20.2)%   (32,264)  (36,742)  (12.2)%
    Loss before
     significant
     items and
     income taxes  (15,356)  (11,142)    37.8%   (32,264)  (28,651)    12.6%
    Number of
     employees         360       365    (1.4)%
    -------------------------------------------------------------------------
    (1) Data is considered to be GAAP except for loss before significant
        items and income taxes and number of employees
    (2) See "Intersegment Allocated Costs".
    n.m.: not meaningful
    

This segment, described as Corporate and Other, includes correspondent brokerage services, bank and other interest revenue, foreign exchange gains and losses, and expenses not specifically allocable to either the Canaccord Adams or Canaccord Wealth Management divisions. Also included in this segment are Canaccord's operations and support services, which are responsible for front and back-office information technology systems, compliance and risk management, operations, finance, and all administrative functions.

Third quarter 2010 vs. third quarter 2009

Revenue for the three months ended December 31, 2009 was $5.4 million, an increase of 22.0% or $1.0 million from the same quarter a year ago. The change was mainly related to a $4.2 million increase in foreign exchange gains offset by a $3.4 million decrease in interest revenue.

Expenses for Q3/10 were $20.7 million, down 12.3% or $2.9 million. This drop in expenses was primarily due to the $6.7 million ABCP fair value adjustment and $1.4 million of restructuring costs recognized in fiscal 2009 that did not recur in fiscal 2010. This was offset by an increase in incentive compensation expense was of $5.7 million due to higher profitability of the consolidated group of companies.

Overall, loss before income taxes was $15.4 million in Q3/10 compared to $19.2 million in the same quarter a year ago. The decrease in loss was mainly due to the recognition of the $6.7 million ABCP fair value adjustment and $1.4 million of restructuring costs that did not recur in fiscal 2009, offset by an increase in incentive compensation expense.

Year-to-date fiscal year 2010 vs. year-to-date fiscal year 2009

Revenue was $22.3 million, a slight drop of $0.8 million, primarily attributed to the $11.3 million decline in interest revenue offset by $8.7 million of foreign exchange gains.

Expenses for the year-to-date of fiscal 2010 were $54.6 million, a decrease of $5.3 million. There was a net increase in incentive compensation expense of $8.0 million or 183.5% mainly due to greater profitability amongst the consolidated group of companies. This was offset by a decrease in salaries and benefits expense of $1.7 million, a result of the staff restructuring in fiscal 2009. General and administrative expense also decreased by $0.8 million mainly due to less contingent liability accruals during the period. Development costs were reduced by $1.1 million, resulting from decreased spending on systems development.

Overall, loss before income taxes was $32.3 million compared to $36.7 million for the same period a year ago.

Intersegment allocated costs

Included in the Corporate and Other segment are certain trade processing, support services, research and other expenses that have been incurred to support the activities within the Canaccord Adams and Canaccord Wealth Management segments. Excluding executive incentive compensation and certain administrative support, foreign exchange gains and losses and net interest, management has determined that allocable costs from Corporate and Other to Canaccord Wealth Management were $9.8 million for the quarter ending December 31, 2009 and to Canaccord Adams such allocable costs were $2.4 million.

FINANCIAL CONDITION

Below are specific changes in selected balance sheet items.

Assets

Cash and cash equivalents were $782.6 million on December 31, 2009 compared to $701.2 million on March 31, 2009. Refer to the Liquidity and Capital Resources section below for more details.

Securities owned were $404.5 million compared with $133.7 million on March 31, 2009, mainly attributable to an increase in fixed income activity, net holdings of marketable securities and additional corporate finance bought deals. This was a result of a corporate initiative to expand the Fixed Income group, which deals in the primary and secondary markets of all fixed income products.

Accounts receivable were $1.3 billion at December 31, 2009 compared to $1.1 billion at March 31, 2009, attributed to an increase in brokers' and investment dealers' receivables. This increase was due to increased trading activities and expansion of the Fixed Income group. Accounts receivable net of accounts payable was $(483.0) million at December 31, 2009 compared to $(408.2) million at March 31, 2009.

Other assets were $85.6 million compared to $126.1 million at March 31, 2009, mainly due to a decrease in income taxes receivable and disposal of holdings in ABCP.

Liabilities

Bank overdrafts and call loan facilities utilized by Canaccord may vary significantly on a day-to-day basis and depend on securities trading activity. At December 31, 2009 Canaccord had available credit facilities with banks in Canada and the UK in the aggregate amount of $485.4 million (March 31, 2009 - $568.7 million). These credit facilities, consisting of call loans, letters of credit and daylight overdraft facilities, are collateralized by either unpaid client securities and/or securities owned by the Company. On December 31, 2009 there was bank indebtedness of $44.6 million compared to $75.6 million on March 31, 2009.

Accounts payable were $1.8 billion compared to $1.5 billion at March 31, 2009, an increase of $0.3 billion mainly related to an increase in payables to brokers and investment dealers. As discussed above in "Assets", the increase was due to increased trading activities, expansion of the Fixed Income group and additional corporate finance activities.

Securities sold short were $324.9 million, an increase of $245.5 million compared to $79.4 million at March 31, 2009. This increase was a result of the Company's initiative to grow the Fixed Income group.

Other liabilities include income taxes payable and subordinated debt with a total balance of $19.6 million at December 31, 2009, a decrease of $5.4 million. This decrease was due to the $10.0 million repayment of subordinated debt during fiscal 2010 and an increase in income taxes payable.

OFF-BALANCE SHEET ARRANGEMENTS

A subsidiary of the Company has entered into irrevocable, secured standby letters of credit from a financial institution totalling $2.4 million (US$2.3 million) (March 31, 2009 - $2.9 million (US$2.3 million)) as rent guarantees for its leased premises in Boston, New York and San Francisco.

LIQUIDITY AND CAPITAL RESOURCES

Canaccord has a capital structure comprised of share capital, retained earnings and accumulated other comprehensive losses and is further complemented by subordinated debt. On December 31, 2009, cash and cash equivalents of $782.6 million, net of bank indebtedness of $44.6 million, were $738.0 million, an increase of $112.4 million from $625.6 million as of March 31, 2009. During the nine months ended December 31, 2009, financing activities used cash in the amount of $21.6 million mainly due to the $11.7 million acquisition of common shares for LTIP and $10.0 million repayment of subordinated debt. Investing activities provided cash in the amount of $8.9 million mainly relating to the net proceeds on sale and redemption of investment in ABCP. Operating activities provided cash in the amount of $126.5 million, which was due to net income offset by net changes in working capital. A decrease in cash of $1.4 million was attributed to the effect of foreign exchange on cash balances. In total, there was an increase in net cash of $112.4 million compared to March 31, 2009.

Canaccord's business requires capital for operating and regulatory purposes. The majority of current assets reflected on Canaccord's balance sheet are highly liquid. The majority of the positions held as securities owned are readily marketable and all are recorded at their fair value. The fair value of these securities fluctuates daily as factors such as changes in market conditions, economic conditions and investor outlook affect market prices. Client receivables are secured by readily marketable securities and are reviewed daily for impairment in value and collectibility. Receivables and payables from brokers and dealers represent the following: current open transactions that generally settle within the normal three-day settlement cycle; collateralized securities borrowed and/or loaned in transactions that can be closed within a few days on demand; and balances on behalf of introducing brokers representing net balances in connection with their client accounts.

During the nine-months ended December 31, 2009, there were no material changes to the Company's commitments from those described in Note 17 of the Audited Annual Consolidated Financial Statements.

OUTSTANDING SHARE DATA

    
    -------------------------------------------------------------------------
                                                          Outstanding shares
                                                                 as of
                                                              December 31
    -------------------------------------------------------------------------
                                                          2009          2008
    -------------------------------------------------------------------------
    Issued shares excluding unvested shares(1)      48,105,856    49,108,237
    Issued shares outstanding(2)                    55,404,528    54,636,139
    Issued shares outstanding - diluted(3)          57,266,909    56,218,193
    Average shares outstanding - basic              48,376,433    48,656,116
    Average shares outstanding - diluted            55,576,702    54,329,767
    -------------------------------------------------------------------------
    (1) Excludes 3,811,007 unvested shares that are outstanding relating to
        share purchase loans for recruitment and retention programs, and
        3,487,665 unvested shares purchased by the employee benefit trust for
        the LTIP.
    (2) Includes 3,811,007 unvested shares that are outstanding relating to
        share purchase loans for recruitment and retention programs, and
        3,487,665 unvested shares purchased by the employee benefit trust for
        the LTIP.
    (3) Includes 1,862,381 of share issuance commitments.
    

At February 3, 2010, Canaccord had 55,404,528 common shares issued and outstanding, an increase of 768,389 common shares from December 31, 2008 due to shares issued in connection with stock-based compensation plans.

The Company renewed its normal course issuer bid (NCIB) and is currently entitled to acquire up to 2,767,974 of its shares from September 3, 2009 to September 2, 2010; this number represents 5% of its shares outstanding as of August 28, 2009. There were nil shares purchased through the NCIB between September 3, 2009 and December 31, 2009.

STOCK-BASED COMPENSATION PLANS

Stock options

The Company granted stock options to purchase common shares of the Company to independent directors and senior managers. The independent directors and senior managers have been granted options to purchase up to an aggregate of 2,449,993 common shares of the Company. The stock options vest over a four- to five-year period and expire seven years after the grant date. The weighted average exercise price of the stock options is $9.91.

In May 2009, the Company granted an aggregate of 125,000 stock options to five independent directors with an exercise of $7.21 per share. The options vest over a four-year period and expire seven years after the grant date.

On August 31, 2009, the independent directors of the Company approved the grant of stock options to certain senior managers of the Company and its subsidiaries. An aggregate of 2,099,993 options were granted at an exercise price of $9.47 per share that vest over five years. The options expire at the earliest of: (1) seven years after the grant date, (2) three years after death or any other event of termination of employment, (3) after any unvested optioned shares held by the optionee are cancelled for any reason, and (4) in the case of early retirement, after a determination that the optionee has competed with the Company or violated any non-competition, non-solicitation or non-disclosure obligations.

Long term incentive plan

Under the LTIP, eligible participants are awarded restricted share units (RSUs) which vest over three years. For employees in Canada, an employee benefit trust (the Trust) has been established, and either (a) the Company will fund the Trust with cash, which will be used by a trustee to purchase on the open market common shares of the Company that will be held in trust by the trustee until RSUs vest, or (b) the Company will issue common shares from treasury to participants following vesting of RSUs. For employees in the United States and the United Kingdom, at the time of each RSU award, the Company will allot common shares and these shares will be issued from treasury at the time they vest for each participant.

INTERNATIONAL FINANCIAL CENTRE

Canaccord is a member of the International Financial Centre Vancouver and International Financial Centre Montreal, which provide certain tax and financial benefits pursuant to the International Financial Business (Tax Refund) Act of British Columbia and the Act Respecting International Financial Centres of Quebec. Accordingly, Canaccord's overall income tax rate is less than the rate that would otherwise be applicable.

FOREIGN EXCHANGE

Canaccord manages its foreign exchange risk by periodically hedging pending settlements in foreign currencies. Realized and unrealized gains and losses related to these transactions are recognized in income during the year. On December 31, 2009, forward contracts outstanding to sell US dollars had a notional amount of US$2.8 million, an increase of $2.2 million from a year ago. Forward contracts outstanding to buy US dollars had a notional amount of US$5.0 million, an increase of US$2.7 million compared to a year ago. The fair value of these contracts was nominal. Some of Canaccord's operations in London, England are conducted in UK pounds sterling; however, any foreign exchange risk in respect of these transactions is generally limited, as pending settlements on both sides of the transaction are typically in UK pounds sterling.

RELATED PARTY TRANSACTIONS

Security trades executed for employees, officers and directors of Canaccord are transacted in accordance with terms and conditions applicable to all clients. Commission income on such transactions in the aggregate is not material in relation to the overall operations of Canaccord.

CRITICAL ACCOUNTING ESTIMATES

The following is a summary of Canaccord's critical accounting estimates. Canaccord's accounting policies are in accordance with Canadian GAAP and are described in Note 1 to the Audited Annual Consolidated Financial Statements. The accounting policies described below require estimates and assumptions that affect the amounts of assets, liabilities, revenues and expenses recorded in the financial statements. Because of their nature, estimates require judgment based on available information. Actual results or amounts could differ from estimates, and the difference could have a material impact on the financial statements.

Revenue recognition and valuation of securities

Securities owned and sold short, including share purchase warrants and options, are categorized as held for trading as per Canadian Institute of Chartered Accountants (CICA) Handbook Section 3855 "Financial Instruments - Recognition and Measurement", and are recorded at fair value with unrealized gains and losses recognized in net income. In the case of publicly traded securities, fair value is determined on the basis of market prices from independent sources, such as listed exchange prices or dealer price quotations. Adjustments to market prices are made for liquidity, relative to the size of the position, holding periods and other resale restrictions, if applicable. Investments in illiquid or non-publicly traded securities categorized as held for trading are measured at fair value determined by a valuation model. There is inherent uncertainty and imprecision in estimating the factors that can affect value and in estimating values generally. The extent to which valuation estimates differ from actual results will affect the amount of income or loss recorded for a particular security position in any given period. With Canaccord's security holdings consisting primarily of publicly traded securities except as noted below, our procedures for obtaining market prices from independent sources, the validation of estimates through actual settlement of transactions and the consistent application of our approach from period to period, we believe that the estimates of fair value recorded are reasonable.

Asset-backed commercial paper

There is a significant amount of uncertainty in estimating the amount and timing of cash flows associated with the Company's holdings in ABCP. The Company estimates the fair value of its ABCP holdings by discounting expected future cash flows on a probability weighted basis considering the best available data. Since the fair value of the ABCP is based on the Company's assessment of current conditions, amounts reported may change materially in subsequent periods. Refer to Note 7 in the Audited Annual Consolidated Financial Statements for further details and Note 6 of the Unaudited Interim Consolidated Financial Statements.

Provisions

Canaccord records provisions related to pending or outstanding legal matters and doubtful accounts associated with client receivables, loans, advances and other receivables. Provisions in connection with legal matters are determined on the basis of management's judgment in consultation with legal counsel, considering such factors as the amount of the claim, the possibility of wrongdoing by an employee of Canaccord and precedents. Client receivables are generally collateralized by securities and, therefore, any impairment is generally measured after considering the market value of any collateral.

Provisions in connection with other doubtful accounts are generally based on management's assessment of the likelihood of collection and the recoverable amount. Provisions are also recorded utilizing discount factors in connection with syndicate participation.

Tax

Accruals for income tax liabilities require management to make estimates and judgments with respect to the ultimate outcome of tax filings and assessments. Actual results could vary from these estimates. Canaccord operates within different tax jurisdictions and is subject to their individual assessments. Tax filings can involve complex issues, which may require an extended period of time to resolve in the event of a dispute or re-assessment by tax authorities. Accounting standards require a valuation allowance when it is more likely than not that all or a portion of a future income tax asset will not be realized prior to its expiration. Although realization is not assured, Canaccord believes that, based on all evidence, it is more likely than not that all of the future income tax assets, net of the valuation allowance, will be realized. Canaccord believes that adequate provisions for income taxes have been made for all years.

Consolidation of variable interest entities

The Company consolidates variable interest entities (VIEs) in accordance with the guidance provided by CICA Accounting Guideline 15 "Consolidation of Variable Interest Entities" (AcG-15). AcG-15 defines a VIE as an entity which either does not have sufficient equity at risk to finance its activities without additional subordinated financial support or where the holders of equity at risk lack the characteristics of a controlling financial interest. The enterprise that consolidates a VIE is called the primary beneficiary of the VIE. An enterprise should consolidate a VIE when that enterprise has a variable interest that will absorb a majority of the entity's expected losses or receive a majority of the entity's expected residual returns.

The Company has established an employee benefit trust to fulfill obligations to employees arising from the Company's stock-based compensation plan. The employee benefit trust has been consolidated in accordance with AcG-15 as it meets the definition of a VIE and the Company is the primary beneficiary of the employee benefit trust.

Stock-based compensation plans

Stock-based compensation represents the cost related to stock-based awards granted to employees. The Company uses the fair value method to account for such awards. Under this method, the Company measures the fair value of stock-based awards as of the grant date and recognizes the cost as an expense over the applicable vesting period with a corresponding increase in contributed surplus. In the case where vesting is also dependent on performance criteria, the cost is recognized over the vesting period in accordance with the rate at which such performance criteria are achieved (net of estimated forfeitures). Otherwise, the cost is recognized on a graded basis. When stock-based compensation awards vest, contributed surplus is reduced by the applicable amount and share capital is increased by the same amount.

RECENT ACCOUNTING PRONOUNCEMENTS

Business Combinations and Consolidated Financial Statements

In January 2009 the CICA issued a new accounting standard, CICA Handbook Section 1582 "Business Combinations", which replaces the former Section 1581 "Business Combinations". This standard harmonizes Canadian guidance to the International Financial Reporting Standard (IFRS) 3 "Business Combinations". This standard requires additional use of fair value measurements, transaction costs to be expensed and increased financial statement notes disclosure. It also provides guidance on the recognition and measurement of goodwill acquired in the business combination. This standard is to be applied prospectively for business combinations for which the acquisition date is on or after April 1, 2011.

In addition, the CICA has issued Handbook Section 1601 "Consolidated Financial Statements", and Handbook Section 1602 "Non-controlling Interests", which replace CICA Handbook Section 1600 "Consolidated Financial Statements". CICA Handbook Section 1601 carries forward guidance from CICA Handbook Section 1600 except for the standards relating to the accounting for non-controlling interests, which are addressed separately in Section 1602. Section 1602 harmonizes Canadian standards with amended International Accounting Standard 27 "Consolidated and Separate Financial Statements". This Canadian standard provides guidance on accounting for a non-controlling interest in a subsidiary in the consolidated financial statements subsequent to a business combination. These two standards will be effective for the Company beginning April 1, 2011.

Early adoption prior to April 1, 2011 is permitted, and all three standards must be adopted concurrently. The impact of adoption of these standards is being assessed.

International Financial Reporting Standards

The Canadian Accounting Standards Board (AcSB) has confirmed that the use of IFRS will be required commencing in 2011 for publicly accountable, profit-oriented enterprises. IFRS will replace Canadian GAAP currently followed by the Company. The purpose of this adoption is to increase the comparability of financial reporting among countries and to improve transparency. The Company will be required to begin reporting under IFRS for its fiscal year ended March 31, 2012 and will be required to provide information that conforms with IFRS for the comparative periods presented.

The Company is currently in the process of evaluating the potential impact of IFRS on the consolidated financial statements. This is an ongoing process as the International Accounting Standards Board (IASB) and the AcSB continue to issue new standards and recommendations. The Company's consolidated financial performance and financial position as disclosed in the current Canadian GAAP financial statements may differ significantly when presented in accordance with IFRS. Some of the significant differences identified between IFRS and Canadian GAAP may have a material effect on the Company's consolidated financial statements.

In order to prepare for the conversion to IFRS, the Company has developed an IFRS conversion plan, which includes the following three phases:

    
    1.  Diagnostic phase - This phase involves preparing the high-level
        impact assessment of the significant differences between IFRS and
        Canadian GAAP that may have a material impact on the Company's
        financial statements. The procedures in this phase will prioritize
        the areas that will be affected.

    2.  Design and planning - This phase includes identification, evaluation,
        and selection of accounting policies in accordance with IFRS. Mock
        financial statements will be prepared during this phase and
        quantitative impacts will be determined. Operational plans will be
        completed to evaluate the impact of conversion on information
        technology, internal control over financial reporting, training, and
        communication to internal and external stakeholders.

    3.  Implementation and post-implementation review - This phase involves
        execution of the plans prepared in the phases described above. It
        will also include collecting information required for IFRS-compliant
        financial statements, implementing IFRS in business processes,
        obtaining audit committee approval of IFRS financial statements, and
        provide any further taining for employees for revised systems.
    

The Company is in the design and planning phase of the changeover plan. We are currently focusing on the areas that will have the most significant impact on the consolidated financial statements. Assessment of the application of IFRS 1 "First time adoption of IFRS" (IFRS 1) is also ongoing. IFRS 1 provides entities adopting IFRS for the first time with a number of optional exemptions and mandatory exceptions, in certain areas, to the general requirements for full retrospective application of IFRSs.

It is noted that both the AcSB and the IASB have significant workplans to change certain accounting standards. The AcSB is continuously making changes to converge some standards to align with IASB before the changeover date, while IASB is modifying its standards to meet the needs of the current economic environment. For example, the IASB have published discussion papers and exposure drafts proposing significantly different accounting models in the following areas that may materially impact the Company's consolidated financial statements: lease accounting, financial instruments, and revenue recognition. The Company will continue to monitor the progress of these changes and assess the impact on the changeover implementation plan. Due to the uncertainties of the proposed standards, the Company has not been able to evaluate the quantitative impacts expected on its consolidated financial statements.

We have identified three main areas below that contain significant differences based on current Canadian GAAP and IFRS as of today.

    
    Financial instruments
    ---------------------

    The IASB recently issued IFRS 9 "Financial Instruments: Recognition and
    Measurement", which specifically addresses the recognition and
    measurement of financial assets. Financial assets are initially measured
    at fair value and classified as either amortized cost or fair value. This
    differs from the current CICA Handbook Section 3855 "Financial
    Instruments: Recognition and Measurement" in that financial assets are
    initially measured at fair value, and they are classified as held for
    trading, held to maturity, loans and receivables, or available for sale.

    Under Canadian GAAP, any gains or losses from available for sale assets
    are recognized in other comprehensive income; however, this
    classification does not exist under IFRS. Any changes in fair value or
    amortization of amortized cost financial assets are recognized into net
    income directly.

    Transaction costs are also required to be capitalized as part of the fair
    value of the financial asset upon initial recognition under IFRS.
    Canadian GAAP allows for the option to expense transaction costs as
    incurred or capitalized as part of the fair value of the financial asset.

    Stock-based compensation
    ------------------------

    IFRS 2 "Share-Based Payments" requires that cash-settled share-based
    payments to employees be measured based on fair values of the awards at
    initial and subsequent measurement. Under CICA Handbook Section 3870
    "Stock-Based Compensation", cash-settled share-based payments are
    measured at intrinsic values of the awards. This will have an impact on
    the accounting of our stock-based compensation plans.

    Revenue recognition
    -------------------

    Per CICA Handbook Section 3400 "Revenue", revenue is recognized when
    performance is completed and collectibility is reasonably assured.
    Performance relating to services rendered and long-term contracts is
    determined using the percentage completion method or the completed
    contract method. Per International Accounting Standard (IAS) 18
    "Revenue", revenue should be recognized based on the stage of completion
    of the transaction at the end of the reporting period when the following
    conditions are satisfied: amount of revenue can be reasonably determined,
    probable that economic benefits of the transaction will flow to the
    entity, stage of completion of the transaction at the end of the
    reporting period can be measured reliably, and costs incurred for the
    transaction and the costs to complete the transaction can be measured
    reliably.

    Accounting for revenue under Canadian GAAP and IFRS is similar except for
    some differences in the accounting for long-term contracts where the
    completed contract method is permitted under Canadian GAAP but not under
    IFRS. This may have an impact on the revenue recognition of our
    investment banking revenue.
    

CHANGES IN ACCOUNTING POLICIES

Goodwill and Intangible Assets

The CICA issued a new accounting standard, CICA Handbook Section 3064 "Goodwill and Intangible Assets", which prescribes when expenditures qualify for recognition as intangible assets and provides increased guidance on the recognition and measurement of internally generated goodwill and intangible assets. The Company adopted Section 3064 effective April 1, 2009. The adoption of this new standard had no impact on the Company's financial statements.

Financial Instruments - Disclosures

The AcSB amended CICA Handbook Section 3862 "Financial Instruments - Disclosures", to increase disclosure requirements regarding the fair value measurements of financial instruments. The Company adopted these new amendments during fiscal 2010 and this information is included in Note 4 of the Unaudited Interim Consolidated Financial Statements.

ASSET-BACKED COMMERCIAL PAPER

As a result of liquidity issues in the ABCP market, there has been very limited trading of the ABCP since mid-August 2007. On March 17, 2008 the Pan-Canadian Investors Committee (the Committee) for ABCP filed proceedings for a plan of compromise and arrangement (the Plan) under the Companies' Creditors Arrangement Act (Canada) (CCAA) with the Ontario Superior Court (the Court). The Court issued the final implementation order in the ABCP restructuring process on January 12, 2009 and the restructuring closed on January 21, 2009. The Plan as amended provided for a declaratory release that was effective on implementation of the Plan and that, with the closing of the Canaccord Relief Program, resulted in the release of all existing and future ABCP-related claims against the Company. This release has been given effect in the United States under Chapter 15 of the US Bankruptcy Code as announced in January 2010.

The first two installments of interest (to August 31, 2008) were made during the year ended March 31, 2009 and one further and final payment was received during the third quarter of fiscal 2010. Reimbursement of restructuring costs under the Canaccord Relief Program has been received.

On December 21, 2009, a Hearing Panel of the Investment Industry Regulatory Organization of Canada (IIROC) accepted a settlement agreement between the IIROC Staff and Canaccord Financial Ltd. regarding matters surrounding ABCP, which resulted in a settlement of $3.1 million. This amount was substantially accrued at September 30, 2009 and therefore, there was no significant impact on net income in the quarter ended December 31, 2009. This amount was paid subsequent to December 31, 2009.

There has been very limited trading of the restructured ABCP notes since January 21, 2009 and, as such, no meaningful market quote is available. There is a significant amount of uncertainty in estimating the amount and timing of cash flows associated with the ABCP. The Company estimated the fair value of its ABCP by discounting expected future cash flows on a probability weighted basis considering the best available data at December 31, 2009. During the quarter ended December 31, 2009, the Company disposed of its investment in ABCP with a carrying value of $14.3 million for proceeds of $18.5 million resulting in a gain of $4.2 million included in principal trading revenue.

DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING

Disclosure controls and procedures

Based on an evaluation performed as of March 31, 2009, the President & CEO and the Executive Vice President & CFO concluded that the design and operation of our disclosure controls and procedures were effective as defined under National Instrument 52-109. During the quarter ended December 31, 2009, there were no changes that would have materially affected, or are reasonably likely to materially affect, Canaccord's disclosure controls and procedures.

Changes in internal control over financial reporting

An evaluation of the Company's internal control over financial reporting was performed as of March 31, 2009. Based on this evaluation, the President & CEO and the Executive Vice President & CFO concluded that our internal controls over financial reporting are designed and operating effectively as defined under National Instrument 52-109 and there were no material weaknesses. There were no changes in internal control over financial reporting that occurred during the quarter ended December 31, 2009 that have materially affected, or are reasonably likely to materially affect, Canaccord's internal control over financial reporting.

DIVIDEND POLICY

Although dividends are expected to be declared and paid quarterly, the Board of Directors, in its sole discretion, will determine the amount and timing of any dividends. All dividend payments will depend on general business conditions, Canaccord's financial condition, results of operations, capital requirements and such other factors as the Board determines to be relevant.

DIVIDEND DECLARATION

On February 3, 2010 the Board of Directors considered the dividend policy and approved a quarterly dividend of $0.05 per share payable on March 10, 2010 with a record date of February 26, 2010.

HISTORICAL QUARTERLY INFORMATION

Canaccord's revenue from an underwriting transaction is recorded only when the transaction has closed. Consequently, the timing of revenue recognition can materially affect Canaccord's quarterly results. The expense structure of Canaccord's operations is geared towards providing service and coverage in the current market environment. If general capital markets activity were to drop significantly, Canaccord could experience losses.

The following table provides selected quarterly financial information for the nine most recently completed financial quarters ended December 31, 2009. This information is unaudited but reflects all adjustments of a recurring nature that are, in the opinion of management, necessary to present a fair statement of the results of operations for the periods presented. Quarter-to-quarter comparisons of financial results are not necessarily meaningful and should not be relied upon as an indication of future performance.

    
    -------------------------------------------------------------------------
    (C$ thousands,                    Fiscal 2010                Fiscal 2009
     except EPS in $)                 -----------                -----------
    -------------------------------------------------------------------------
                                      Q3       Q2       Q1       Q4       Q3
    -------------------------------------------------------------------------
    Revenue
      Canaccord Adams           $116,090  $78,475  $85,497  $64,972  $49,250
      Canaccord Wealth
       Management                 51,733   40,138   40,185   37,255   33,532
      Corporate and Other          5,374    5,131   11,781    4,769    4,406
    -------------------------------------------------------------------------
    Total revenue                173,197  123,744  137,463  106,996   87,188
    Net income (loss)             15,113    6,746    9,112    3,666  (62,378)
    EPS - basic                     0.31     0.14     0.19     0.07    (1.27)
    EPS - diluted                   0.27     0.12     0.16     0.07    (1.27)
    -------------------------------------------------------------------------


    ----------------------------------------------------------------
    (C$ thousands,                    Fiscal 2009       Fiscal 2008
     except EPS in $)                 -----------       -----------
    ----------------------------------------------------------------
                                      Q2       Q1       Q4       Q3
    ----------------------------------------------------------------
    Revenue
      Canaccord Adams            $58,336 $104,793  $77,965 $109,583
      Canaccord Wealth
       Management                 43,844   57,853   54,463   61,166
      Corporate and Other          8,649   10,062   11,018   12,605
    ----------------------------------------------------------------
    Total revenue                110,829  172,708  143,446  183,354
    Net income (loss)             (5,398)  16,459  (35,154)  15,048
    EPS - basic                    (0.11)    0.35    (0.80)    0.34
    EPS - diluted                  (0.11)    0.31    (0.80)    0.31
    ----------------------------------------------------------------
    

RISKS

The securities industry and Canaccord's activities are by their very nature subject to a number of inherent risks. Economic conditions, competition and market factors such as volatility in the Canadian and international markets, interest rates, commodity prices, market prices, trading volumes and liquidity will have a significant impact on Canaccord's profitability. An investment in the common shares of Canaccord involves a number of risks, including market, liquidity, credit, operational, legal and regulatory risks, which could be substantial and are inherent in Canaccord's business. Canaccord is also directly exposed to market price risk, liquidity risk and volatility risk as a result of its principal trading activities in equity securities and to specific interest rate risk as a result of its principal trading in fixed income securities. Canaccord Wealth Management revenue is dependent on trading volumes and, as such, is dependent on the level of market activity and investor confidence. Canaccord Adams' revenue is dependent on financing activity by corporate issuers and the willingness of institutional clients to actively trade and participate in capital markets transactions. There may also be a lag between market fluctuations and changes in business conditions and the level of Canaccord's market activity and the impact that these factors have on Canaccord's operating results and financial position. The Company has a capital management framework to maintain the level of capital that will meet the firm's regulated subsidiaries' target ratios as set out by the respective regulators, fund current and future operations, ensure that the firm is able to meet its financial obligations as they come due, and support the creation of shareholder value. The regulatory bodies that certain of the Company's subsidiaries are subject to are listed in Note 16 of the March 31, 2009 Audited Annual Consolidated Financial Statements. Further discussion regarding risks can be found in our Annual Information Form.

ADDITIONAL INFORMATION

A comprehensive discussion of our business, strategies, objectives and risks is available in our Annual Information Form and Management's Discussion and Analysis, including our Audited Annual Consolidated Financial Statements in Canaccord's 2009 Annual Report, which have been posted to shareholders and are available on our website at canaccordfinancial.com and on SEDAR at sedar.com.

    
    Interim Consolidated Financial Statements

    Canaccord Financial Inc. (formerly Canaccord Capital Inc.)
    Unaudited
    For the three months and nine months ended December 31, 2009
    (Expressed in Canadian dollars)



                          Canaccord Financial Inc.

               INTERIM CONSOLIDATED BALANCE SHEETS (Unaudited)

                                                   (in thousands of dollars)
    As at                                          December 31,     March 31,
                                                        2009          2009
                                                          $             $
    -------------------------------------------------------------------------

    ASSETS
    Current
    Cash and cash equivalents                          782,576       701,173
    Securities owned (note 3)                          404,537       133,691
    Accounts receivable (notes 5 and 11)             1,311,144     1,061,161
    Income taxes receivable                                  -        23,771
    Future income taxes                                 11,890        15,680
    -------------------------------------------------------------------------
    Total current assets                             2,510,147     1,935,476

    Investment                                           5,000         5,000
    Investment in asset-backed commercial paper
     (note 6)                                           28,239        35,312
    Equipment and leasehold improvements                40,471        46,311
    -------------------------------------------------------------------------
                                                     2,583,857     2,022,099
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current
    Bank indebtedness                                   44,600        75,600
    Securities sold short (note 3)                     324,877        79,426
    Accounts payable and accrued liabilities
     (notes 5 and 11)                                1,794,123     1,469,369
    Income taxes payable                                 4,590             -
    Subordinated debt (note 8)                          15,000        25,000
    -------------------------------------------------------------------------
    Total current liabilities                        2,183,190     1,649,395
    -------------------------------------------------------------------------
    Commitments and contingencies (note 13)

    Shareholders' equity
    Common shares (note 9)                             188,610       183,619
    Contributed surplus                                 49,279        44,383
    Retained earnings                                  189,026       160,868
    Accumulated other comprehensive losses             (26,248)      (16,166)
    -------------------------------------------------------------------------
    Total shareholders' equity                         400,667       372,704
    -------------------------------------------------------------------------
                                                     2,583,857     2,022,099
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes



                          Canaccord Financial Inc.

          INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

                                         (in thousands of dollars,
                                         except per share amounts)
                                    For the three           For the nine
                                    months ended            months ended
                               ----------------------  ----------------------
                                December    December    December    December
                                31, 2009    31, 2008    31, 2009    31, 2008
                                    $           $           $           $
    -------------------------------------------------  ----------------------

    REVENUE
    Commission                    60,696      51,473     172,780     184,099
    Investment banking            88,417      20,198     191,923     130,369
    Principal trading (note 6)    15,645       3,781      38,704       9,779
    Interest                       3,099       9,108       9,696      33,171
    Other                          5,340       2,628      21,301      13,307
    -------------------------------------------------  ----------------------
                                 173,197      87,188     434,404     370,725
    -------------------------------------------------  ----------------------

    EXPENSES
    Incentive compensation        93,872      43,299     226,301     177,003
    Salaries and benefits         14,945      12,817      42,730      42,455
    Trading costs                  7,140       6,708      21,466      19,746
    Premises and equipment         6,228       6,549      18,214      18,291
    Communication and
     technology                    5,838       6,277      16,572      18,979
    Interest                         631       2,568       1,968       9,881
    General and administrative    13,609      19,827      37,195      58,715
    Amortization                   1,904       2,751       5,731       6,865
    Development costs              6,720       7,738      18,061      21,583
    Asset-backed commercial
     paper fair value
     adjustment                        -       6,700           -       6,700
    Client relief program              -       5,347           -       5,347
    Impairment of goodwill
     and intangibles                   -      31,524           -      31,524
    Restructuring costs                -       7,520           -       7,520
    -------------------------------------------------  ----------------------
                                 150,887     159,625     388,238     424,609
    -------------------------------------------------  ----------------------
    Income (loss) before
     income taxes                 22,310     (72,437)     46,166     (53,884)
    Income tax expense
     (recovery)
      Current                      7,070      (7,769)     11,429     (17,910)
      Future                         127      (2,290)      3,766      15,343
    -------------------------------------------------  ----------------------
                                   7,197     (10,059)     15,195      (2,567)
    -------------------------------------------------  ----------------------
    -------------------------------------------------  ----------------------
    Net income (loss) for
     the period                   15,113     (62,378)     30,971     (51,317)
    -------------------------------------------------  ----------------------
    -------------------------------------------------  ----------------------

    Basic earnings (loss)
     per share (note 9 (iv))        0.31       (1.27)       0.64       (1.05)
    Diluted earnings (loss)
     per share (note 9 (iv))        0.27       (1.27)       0.56       (1.05)
    -------------------------------------------------  ----------------------
    -------------------------------------------------  ----------------------
    See accompanying notes



                          Canaccord Financial Inc.

       INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
                                 (Unaudited)

                                         (in thousands of dollars)
                                   For the three            For the nine
                                    months ended            months ended
                               ----------------------------------------------
                                December    December    December    December
                                31, 2009    31, 2008    31, 2009    31, 2008
                                    $           $           $           $
                               ----------------------------------------------

    Net income (loss) for
     the period                   15,113     (62,378)     30,971     (51,317)
    Other comprehensive loss,
     net of taxes
      Net change in unrealized
       losses on translation
       of self-sustaining
       foreign operations            (63)     (1,519)    (10,082)     (8,281)
    -------------------------------------------------------------------------
    Comprehensive income
     (loss) for the period        15,050     (63,897)     20,889     (59,598)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



                 INTERIM CONSOLIDATED STATEMENTS OF CHANGES
                     IN SHAREHOLDERS' EQUITY (Unaudited)

                                                   (in thousands of dollars)
    As at and for the nine months ended            December 31,  December 31,
                                                        2009          2008
                                                          $             $
    -------------------------------------------------------------------------

    Common shares, opening                             183,619       111,142
    Shares issued                                        3,819        69,979
    Shares cancelled                                         -          (442)
    Acquisition of common shares for long
     term incentive plan (notes 9 and 10)              (11,691)      (13,839)
    Release of vested common shares from
     employee benefit trust (note 10)                   10,035         5,994
    Unvested share purchase loans                        2,828         3,162
    -------------------------------------------------------------------------
    Common shares, closing                             188,610       175,996
    -------------------------------------------------------------------------

    Contributed surplus, opening                        44,383        34,024
    Excess on redemption of common shares                    -          (340)
    Stock-based compensation (note 10)                   4,742         9,509
    Unvested share purchase loans                          154          (451)
    -------------------------------------------------------------------------
    Contributed surplus, closing                        49,279        42,742
    -------------------------------------------------------------------------

    Retained earnings, opening                         160,868       222,597
    Net income for the period                           30,971       (51,317)
    Dividends                                           (2,813)      (13,457)
    -------------------------------------------------------------------------
    Retained earnings, closing                         189,026       157,823
    -------------------------------------------------------------------------

    Accumulated other comprehensive losses,
     opening                                           (16,166)      (10,319)
    Other comprehensive losses for the period          (10,082)       (8,281)
    -------------------------------------------------------------------------
    Accumulated other comprehensive losses,
     closing                                           (26,248)      (18,600)
    -------------------------------------------------------------------------

    Shareholders' equity                               400,667       357,961
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    See accompanying notes



                          Canaccord Financial Inc.

          INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

                                         (in thousands of dollars)
                                   For the three            For the nine
                                    months ended            months ended
                               ----------------------  ----------------------
                                December    December    December    December
                                31, 2009    31, 2008    31, 2009    31, 2008
                                    $           $           $           $
    -------------------------------------------------  ----------------------

    OPERATING ACTIVITIES
    Net income (loss) for
     the period                   15,113     (62,378)     30,971     (51,317)
    Items not affecting cash
      Amortization                 1,904       2,751       5,731       6,865
      Stock-based compensation
       expense                     5,874       5,542      16,949      16,122
      Future income tax
       (recovery) expense            127      (2,290)      3,766      15,343
      Impairment of goodwill
       and intangibles                 -      31,524           -      31,524
      Asset-backed commercial
       paper gain and fair
       value adjustment           (4,559)      6,700      (4,559)      6,700
    Changes in non-cash
     working capital
      Decrease (increase) in
       securities owned          112,437     (16,974)   (271,752)     19,251
      Decrease (increase) in
       accounts receivable       670,252     425,012    (255,291)    606,405
      Decrease (increase) in
       income taxes receivable
       net of payable              5,877      (9,295)     25,231     (17,614)
      (Decrease) increase in
       securities sold short     (57,345)     46,927     245,822      48,351
      (Decrease) increase in
       accounts payable and
       accrued liabilities      (630,792)   (296,629)    329,681    (490,610)
    -------------------------------------------------  ----------------------
    Cash provided by
     operating activities        118,888     130,890     126,549     191,020
    -------------------------------------------------  ----------------------

    FINANCING ACTIVITIES
    Acquisition of common
     shares for long term
     incentive plan               (6,454)          -     (11,691)    (13,839)
    Dividends paid                (2,770)          -      (2,770)    (13,457)
    Decrease in unvested
     common share purchase
     loans                          (308)      1,936       2,828       2,711
    Repayment of subordinated
     debt                              -           -     (10,000)          -
    Issuance of shares for cash
     net of issuance costs             -           -           -      66,462
    Purchase and cancellation
     of shares                         -           -           -        (782)
    -------------------------------------------------  ----------------------
    Cash (used in) provided by
     financing activities         (9,532)      1,936     (21,633)     41,095
    -------------------------------------------------  ----------------------

    INVESTING ACTIVITIES
    Purchase of equipment and
     leasehold improvements         (993)     (5,267)     (1,558)     (8,024)
    Purchase of Intelli           (1,199)          -      (1,199)          -
    Proceeds on sale of
     investment in ABCP           18,537           -      18,537           -
    Purchase of investment
     in ABCP under client
     relief program, net of
     redemptions                  (8,666)          -      (6,905)          -
    -------------------------------------------------  ----------------------
    Cash provided by (used in)
     investing activities          7,679      (5,267)      8,875      (8,024)
    -------------------------------------------------  ----------------------

    Effect of foreign exchange
     on cash balances             (2,914)      3,396      (1,388)        721
    -------------------------------------------------  ----------------------

    Increase in cash position    114,121     130,955     112,403     224,812
    Cash position, beginning
     of period                   623,855     514,468     625,573     420,611
    -------------------------------------------------  ----------------------
    Cash position, end of
     period                      737,976     645,423     737,976     645,423
    -------------------------------------------------  ----------------------
    -------------------------------------------------  ----------------------

    Cash position is
     comprised of:
    Cash and cash equivalents    782,576     684,463     782,576     684,463
    Bank indebtedness            (44,600)    (39,040)    (44,600)    (39,040)
    -------------------------------------------------  ----------------------
    -------------------------------------------------  ----------------------
                                 737,976     645,423     737,976     645,423
    -------------------------------------------------  ----------------------
    -------------------------------------------------  ----------------------

    Supplemental cash flow
     information
    Interest paid                    579       2,508       1,806       9,775
    Income taxes paid                591       3,420       2,594       6,256
    -------------------------------------------------  ----------------------
    -------------------------------------------------  ----------------------
    See accompanying notes



                          Canaccord Financial Inc.

       NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


    For the three and nine months ended December 31, 2009

    (in thousands of dollars, except per share amounts)


    Through its principal subsidiaries, Canaccord Financial Inc. (formerly
    Canaccord Capital Inc.) (the Company) is a leading independent,
    full-service investment dealer in Canada with capital markets operations
    in the United Kingdom (UK) and the United States of America (US). The
    Company has operations in each of the two principal segments of the
    securities industry: global capital markets and wealth management
    services. Together, these operations offer a wide range of complementary
    investment products, brokerage services and investment banking services
    to the Company's private, institutional and corporate clients.

    The Company's business is cyclical and experiences considerable
    variations in revenue and income (loss) from quarter to quarter and year
    to year due to factors beyond the Company's control. The Company's
    business is affected by the overall condition of the North American and
    European equity and bond markets, including the seasonal variance in
    these markets.

    1.  SIGNIFICANT ACCOUNTING POLICIES

    Basis of presentation and principles of consolidation

    These unaudited interim consolidated financial statements have been
    prepared by the Company in accordance with Canadian generally accepted
    accounting principles (GAAP) with respect to interim financial
    statements. These interim unaudited consolidated financial statements
    follow the same accounting principles and methods of application as those
    disclosed in Note 1 to the Company's audited consolidated financial
    statements as at and for the year ended March 31, 2009 as filed on SEDAR
    on May 26, 2009 (Audited Annual Consolidated Financial Statements) except
    for the changes in accounting policies as described in Note 2.
    Accordingly, they do not include all the information and footnotes
    required for compliance with Canadian GAAP for annual financial
    statements. These unaudited interim consolidated financial statements and
    notes thereon should be read in conjunction with the Audited Annual
    Consolidated Financial Statements.

    The preparation of these unaudited interim consolidated financial
    statements and the accompanying notes requires management to make
    estimates and assumptions that affect the amounts reported. In the
    opinion of management, these unaudited interim consolidated financial
    statements reflect all adjustments necessary to state fairly the results
    for the periods presented. Actual results could vary from these estimates
    and the operating results for the interim periods presented are not
    necessarily indicative of results that may be expected for the full year.

    Recent accounting pronouncements

    Business Combinations and Consolidated Financial Statements

    In January 2009, the Canadian Institute of Chartered Accountants (CICA)
    issued a new accounting standard, CICA Handbook Section 1582 "Business
    Combinations", which replaces the former Section 1581 "Business
    Combinations". This standard harmonizes Canadian guidance to the
    International Financial Reporting Standard (IFRS) 3 "Business
    Combinations". This standard requires additional use of fair value
    measurements, transaction costs to be expensed and increased financial
    statements note disclosure. It also provides guidance on the recognition
    and measurement of goodwill acquired in the business combination. This
    standard is to be applied prospectively by the Company for business
    combinations for which the acquisition date is on or after April 1, 2011.

    In addition, the CICA has issued Handbook Section 1601 "Consolidated
    Financial Statements", and Handbook Section 1602 "Non-controlling
    Interests", which replace CICA Handbook Section 1600 "Consolidated
    Financial Statements". CICA Handbook Section 1601 carries forward
    guidance from CICA Handbook Section 1600 except for the standards
    relating to the accounting for non-controlling interests, which are
    addressed separately in Section 1602. Section 1602 substantially
    harmonizes Canadian standards with amended International Accounting
    Standard 27 "Consolidated and Separate Financial Statements". This
    Canadian standard provides guidance on accounting for non-controlling
    interest in a subsidiary in the consolidated financial statements
    subsequent to a business combination. These two standards will be
    effective for the Company beginning April 1, 2011.

    Early adoption prior to April 1, 2011 is permitted, and all three
    standards must be adopted concurrently. The impact of adoption of these
    standards is not expected to have a material impact on the Company's
    consolidated financial statements.

    International Financial Reporting Standards

    The Canadian Accounting Standards Board (AcSB) has confirmed that the use
    of IFRS will be required commencing in 2011 for publicly accountable,
    profit-oriented enterprises. IFRS will replace Canadian GAAP currently
    followed by the Company. The purpose of this adoption is to increase the
    comparability of financial reporting among countries and to improve
    transparency. The Company will be required to begin reporting under IFRS
    for its fiscal year ended March 31, 2012 and will be required to provide
    information that conforms with IFRS for the comparative periods
    presented.

    The Company is currently in the process of evaluating the potential
    impact of IFRS on the consolidated financial statements. This is an
    ongoing process as the International Accounting Standards Board (IASB)
    and the AcSB continue to issue new standards and recommendations. The
    Company's consolidated financial performance and financial position as
    disclosed in the current Canadian GAAP financial statements may differ
    significantly when presented in accordance with IFRS. Some of the
    significant differences identified between IFRS and Canadian GAAP may
    have a material impact on the Company's consolidated financial
    statements.

    2.  CHANGE IN ACCOUNTING POLICIES

    Goodwill and Intangible Assets

    The CICA issued a new accounting standard, CICA Handbook Section 3064
    "Goodwill and Intangible Assets", which prescribes when expenditures
    qualify for recognition as intangible assets and provides increased
    guidance on the recognition and measurement of internally generated
    goodwill and intangible assets. The Company adopted Section 3064
    effective April 1, 2009. The adoption of this new standard has no impact
    on the consolidated financial statements.

    Financial Instruments - Disclosures

    The AcSB amended CICA Handbook Section 3862 "Financial Instruments -
    Disclosures" to increase disclosure requirements regarding the fair value
    measurements and liquidity of financial instruments. The Company adopted
    these new amendments during fiscal 2010 and this information is included
    in Note 4.

    Revenue Recognition

    The Company introduced Registered Plan Administration Fees during the
    three month period ended December 31, 2009. This fee income is received
    in advance for a one-year period and it is deferred and recognized into
    income as earned on a straight line basis.

    3.  SECURITIES OWNED AND SECURITIES SOLD SHORT

                                 December 31, 2009        March 31, 2009
                              ----------------------- -----------------------
                              Securities  Securities  Securities  Securities
                                owned     sold short    owned     sold short
                                  $           $           $           $
    -------------------------------------------------------------------------

    Corporate and government
     debt                        311,503     311,023      86,069      72,315
    Equities and convertible
     debentures                   93,034      13,854      47,622       7,111
    -------------------------------------------------------------------------
                                 404,537     324,877     133,691      79,426
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    As at December 31, 2009, corporate and government debt maturities ranged
    from 2010 to 2060 (March 31, 2009 - 2009 to 2049) bearing interest
    ranging from 0.50% to 14.00% (March 31, 2009 - 3.00% to 10.75%).

    4.  FINANCIAL INSTRUMENTS

    During the periods, there were no material changes to the risks
    associated with the Company's financial instruments from those described
    in Note 4 of the Audited Annual Consolidated Financial Statements.
    Additional disclosures regarding fair value measurements of financial
    instruments as required by recent amendments made to CICA Handbook
    Section 3862 are presented below.

    A fair value hierarchy is presented below that distinguishes the
    significance of the inputs used in determining the fair value
    measurements of various financial instruments. The hierarchy contains the
    following levels: Level 1 uses inputs based on quoted prices, Level 2
    uses observable inputs other than quoted prices and Level 3 uses inputs
    that are not based on observable market data.

                                                          Estimated
                                  Carrying value         fair value

                                December  March 31,        December
                                31, 2009    2009           31, 2009

                                                   Level 1  Level 2  Level 3
                                    $        $        $        $        $
    -------------------------------------------------------------------------
    Held for trading(1)
    Cash and cash equivalents    782,576  701,173  782,576        -        -
    Securities owned, net of
     securities sold short        79,660   54,265   74,606    5,054        -
    Investment in ABCP (note 6)   28,239   35,312        -        -   28,239
    Available for sale
     financial assets
    Investment(2)                  5,000    5,000      n/a      n/a      n/a
    Other financial liabilities
    Subordinated debt             15,000   25,000   15,000        -        -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) The fair values of the Company's bank indebtedness, accounts
        receivable, and accounts payable and accrued liabilities approximate
        their carrying values due to their short-term nature.
    (2) Investment is classified as available for sale and carried at cost as
        the investment does not have a quoted market price. The estimated
        fair value of the investment cannot be reliably determined and,
        therefore, it is not disclosed in the above table.

    5.  ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

    Accounts receivable

                                                     December 31,   March 31,
                                                          2009        2009
                                                            $           $
    -------------------------------------------------------------------------
    Brokers and investment dealers                       535,303     331,930
    Clients                                              326,995     288,877
    RRSP cash balances held in trust                     379,179     397,011
    Other                                                 69,667      43,343
    -------------------------------------------------------------------------
                                                       1,311,144   1,061,161
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Accounts payable and accrued liabilities
                                                     December 31,   March 31,
                                                          2009        2009
                                                            $           $
    -------------------------------------------------------------------------
    Brokers and investment dealers                       659,383     419,437
    Clients                                              988,817     923,902
    Other                                                145,923     126,030
    -------------------------------------------------------------------------
                                                       1,794,123   1,469,369
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Accounts payable to clients include $379.2 million (March 31, 2009 -
    $397.0 million) payable to clients for RRSP cash balances held in trust.

    Client security purchases are entered into on either a cash or margin
    basis. In the case of a margin account, the Company extends a loan to a
    client for the purchase of securities, using securities purchased and/or
    other securities in the client's account as collateral. Amounts loaned to
    any client are limited by margin regulations of the Investment Industry
    Regulatory Organization of Canada (IIROC) and other regulatory
    authorities and are subject to the Company's credit review and daily
    monitoring procedures.

    Amounts due from and to clients are due by the settlement date of the
    trade transaction. Margin loans are due on demand and are collateralized
    by the assets in the clients' accounts. Interest on margin loans and
    amounts due to clients is based on a floating rate (December 31, 2009 -
    5.25%-6.25% and 0.00%-0.05%, respectively; March 31, 2009 - 5.50%-6.25%
    and 0.00%-0.20%, respectively).

    6.  INVESTMENT IN ASSET-BACKED COMMERCIAL PAPER

                                                     December 31,   March 31,
                                                          2009        2009
                                                            $           $
    -------------------------------------------------------------------------
    Investment in asset-backed commercial paper           28,239      35,312
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    In January 2009, the Company received restructured ABCP notes upon the
    final implementation order issued by the Ontario Superior Court in a plan
    of arrangement under the Companies' Creditors Arrangement Act (Canada)
    (CCAA) (the Plan). During the quarter ended December 31, 2009, there were
    no material changes to the accounting treatment of investment in ABCP.
    Refer to Note 7 of the Audited Annual Consolidated Financial Statements
    for further information.

    The Plan as amended provided for a declaratory release that was effective
    on implementation of the Plan and that, with the closing of the Canaccord
    Relief Program, resulted in the release of all existing and future
    ABCP-related claims against the Company. This release has been given
    effect in the United States under Chapter 15 of the US Bankruptcy Code.

    There is no assurance that the validity or effectiveness of the
    declaratory release will not be challenged in actions commenced against
    the Company and others. Any determination that the declaratory release is
    invalid or ineffective could materially adversely affect the Company's
    business, results of operations and financial condition.

    On December 21, 2009, a Hearing Panel of the IIROC accepted a settlement
    agreement between the IIROC Staff and Canaccord Financial Ltd. regarding
    matters surrounding ABCP, which resulted in a settlement of $3.1 million.
    This amount was substantially accrued at September 30, 2009 and
    therefore, there was no significant impact on net income in the quarter
    ended December 31, 2009. This amount was paid subsequent to December 31,
    2009.

    There has been very limited trading of the restructured ABCP notes since
    January 2009 and, as such, no meaningful market quote is available. There
    is a significant amount of uncertainty in estimating the amount and
    timing of cash flows associated with the ABCP. The Company estimates the
    fair value of its ABCP by discounting expected future cash flows on a
    probability weighted basis considering the best available data at the
    reporting date. During the quarter ended December 31, 2009, the Company
    disposed of its investment in ABCP with a carrying value of $14.3 million
    for proceeds of $18.5 million resulting in a gain of $4.2 million
    included in principal trading revenue. A fair value adjustment of
    $0.3 million was also included in principal trading revenue.

    The assumptions used in the valuation model include:

                                         December 31, 2009    March 31, 2009
    -------------------------------------------------------------------------
    Weighted average interest rate                   0.29%             4.72%
    Weighted average discount rate                   6.03%             6.83%
    Maturity of notes                        7 to 18 years     8 to 19 years
    Credit losses                              30% to 100%       25% to 100%

    The following is a summary of transactions impacting ABCP for the
    nine-month period ended December 31, 2009:

                                                                      Amount
                                                                        $
    -------------------------------------------------------------------------
    Balance, March 31, 2009                                           35,312
    Net redemptions                                                   (2,222)
    Purchases under the client relief program                          9,127
    Disposal of investment                                           (14,276)
    Fair value adjustment                                                298
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Balance, December 31, 2009                                        28,239
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    7.  INCOME TAXES

    The Company's income tax expense differs from the amount that would be
    computed by applying the combined federal and provincial/state income tax
    rates as a result of the following:

                                   For the three            For the nine
                                    months ended            months ended
                                December    December    December    December
                                31, 2009    31, 2008    31, 2009    31, 2008
                                    $           $           $           $
    -------------------------------------------------------------------------

    Income taxes at the
     estimated statutory rate      6,772     (22,595)     13,976     (16,780)
    Less: International
     Finance Business recovery
     of provincial taxes            (208)       (336)       (389)       (336)
    Less: Difference in tax
     rates in foreign
     jurisdictions                  (178)     (1,199)       (124)     (2,111)
    Non-deductible items
     affecting the
     determination of
     taxable income                  490      10,254       1,164      11,295
    Change in valuation
     allowance related to
     US operating losses            (223)      4,277      (2,920)      6,043
    Change in FIT asset -
     reversal period of
     temporary differences           544        (460)      3,488        (678)
    -------------------------------------------------------------------------
    Income tax expense -
     current and future            7,197     (10,059)     15,195      (2,567)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    8.  SUBORDINATED DEBT

                                                     December 31,   March 31,
                                                          2009        2009
                                                            $           $
    -------------------------------------------------------------------------
    Loan payable, interest payable monthly
     at prime + 4% per annum, due on demand               15,000      25,000
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The loan payable is subject to a subordination agreement and may only be
    repaid with the prior approval of IIROC.

    9.  SHARE CAPITAL

                                                     December 31,   March 31,
                                                          2009        2009
                                                            $           $
    -------------------------------------------------------------------------
    Share capital
      Common shares                                      253,237     249,418
      Unvested share purchase loans                      (28,083)    (30,911)
      Acquisition of common shares for
       long term incentive plan (note 10)                (36,544)    (34,888)
    -------------------------------------------------------------------------
                                                         188,610     183,619
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Share capital of Canaccord Financial Inc. is comprised of the following:

    (i)   Authorized

    Unlimited common shares without par value
    Unlimited preferred shares without par value

    (ii)  Issued and fully paid

    Common shares
                                                       Number of      Amount
                                                        shares          $
    -------------------------------------------------------------------------
    Balance, December 31, 2008                        54,636,139     243,336
    Shares issued in connection with
     stock compensation plans (note 10)                  681,777       7,101
    Shares cancelled                                    (225,072)     (1,019)
    -------------------------------------------------------------------------
    Balance, March 31, 2009                           55,092,844     249,418
    Shares issued in connection with
     stock compensation plans (note 10)                  311,684       3,819
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Balance, December 31, 2009                        55,404,528     253,237
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The Company renewed its normal course issuer bid (NCIB) and is currently
    entitled to acquire up to 2,767,974 of its shares from September 3, 2009
    to September 2, 2010; this number represents 5% of its shares outstanding
    as of August 28, 2009. There were nil shares purchased through the NCIB
    between September 3, 2009 and December 31, 2009.

    (iii) Common share purchase loans

    The Company provides forgivable common share purchase loans to employees
    in order to purchase common shares. The unvested balance of forgivable
    common share purchase loans is presented as a deduction from share
    capital. The forgivable common share purchase loans are amortized over a
    vesting period up to five years. The difference between the unvested and
    unamortized values is included in contributed surplus.

    (iv)  Earnings per share

                                   For the three            For the nine
                                    months ended            months ended
                               ----------------------  ----------------------
                                December    December    December    December
                                31, 2009    31, 2008    31, 2009    31, 2008
                                    $           $           $           $
    -------------------------------------------------------------------------
    Basic earnings (loss)
     per share
    Net income (loss) for
     the period                  $15,113    $(62,378)    $30,971    $(51,317)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Weighted average number
     of common shares
     (number)                 48,147,301  49,073,032  48,376,433  48,656,116
    Basic earnings (loss)
     per share                     $0.31      $(1.27)      $0.64      $(1.05)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Diluted earnings (loss)
     per share
    Net income (loss) for
     the period                  $15,113    $(62,378)    $30,971    $(51,317)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Weighted average number
     of common shares
     (number)                 48,147,301  49,073,032  48,376,433  48,656,116
    Dilutive effect of
     unvested shares (number)  3,811,007   2,810,989   3,811,007   2,810,989
    Dilutive effect of stock
     options (number) (note 10)  412,594           -      26,563           -
    Dilutive effect of share
     issuance commitment in
     connection with retention
     plan (number) (note 10)           -     616,205           -     616,205
    Dilutive effect of
     unvested shares purchased
     by employee benefit trust
     (number) (note 10)        3,422,722   2,719,062   3,092,333   2,246,457
    Dilutive effect of share
     issuance commitment in
     connection with long
     term incentive plan
     (number) (note 10)          480,544           -     270,366           -
    -------------------------------------------------------------------------
    Adjusted weighted
     average number of
     common shares (number)   56,274,168  55,219,288  55,576,702  54,329,767
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Diluted earnings (loss)
     per share                     $0.27      $(1.27)      $0.56      $(1.05)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    10. STOCK-BASED COMPENSATION PLANS

    Stock options

    The Company granted stock options to purchase common shares of the
    Company to independent directors and senior managers. The stock options
    vest over a four- to five-year period and expire seven years after the
    grant date or 30 days after the participant ceases to be a director. The
    exercise price is based on the fair market value of the common shares at
    grant date. The weighted average exercise price of the stock options was
    $9.91 at December 31, 2009.

    In May 2009, the Company granted an aggregate of 125,000 stock options to
    five independent directors with an exercise price of $7.21 per share. The
    options vest over a four-year period and expire seven years after the
    grant date.

    In August 2009, the independent directors of the Company approved the
    grant of stock options to certain senior managers of the Company and its
    subsidiaries. An aggregate of 2,099,993 options were granted at an
    exercise price of $9.47 per share that vest over five years. The options
    expire at the earliest of: (1) seven years after the grant date,
    (2) three years after death or any other event of termination of
    employment, (3) after any unvested optioned shares held by the optionee
    are cancelled for any reason, and (4) in the case of early retirement,
    after a determination that the optionee has competed with the Company or
    violated any non-competition, non-solicitation or non-disclosure
    obligations.

    The following is a summary of the Company's stock options to independent
    directors and senior managers as at December 31, 2009 and changes during
    the year then ended:
                                                                    Weighted
                                                                     average
                                                       Number of    exercise
                                                          shares    price ($)
    -------------------------------------------------------------------------

    Balance, December 31, 2008                           275,000      $15.54
    Expired                                              (50,000)      16.31
    -------------------------------------------------------------------------
    Balance, March 31, 2009                              225,000       15.37
    Granted                                            2,224,993        9.34
    -------------------------------------------------------------------------
    Balance, December 31, 2009                         2,449,993       $9.91
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The fair value of each stock option grant was estimated on grant date
    using the Black-Scholes option pricing model with the following
    assumptions:

                                  August         May      August        June
                                    2009        2009        2008        2008
                                   grant       grant       grant       grant
    -------------------------------------------------------------------------
    Dividend yield                 2.00%       2.30%       5.10%       5.10%
    Expected volatility           44.00%      44.00%      30.00%      30.00%
    Risk-free interest rate        2.45%       2.45%       2.32%       2.32%
    Expected life                5 years     5 years     5 years     5 years

    Option pricing models require the input of highly subjective assumptions
    including the expected price volatility. Changes in the subjective
    assumptions can materially affect the fair value estimate and, therefore,
    the existing models do not necessarily provide a reliable single measure
    of the fair value of the Company's stock options.

    Compensation expense of $436 and $693 has been recognized for the three
    and nine months ended December 31, 2009 ($51 and $152 for the three and
    nine months ended December 31, 2008) in respect of the above stock
    options.

    Long term incentive plan

    Under the long term incentive plan (LTIP), eligible participants are
    awarded restricted share units (RSUs) which vest over three years. For
    employees in Canada, an employee benefit trust (the Trust) has been
    established, and either (a) the Company will fund the Trust with cash,
    which will be used by a trustee to purchase on the open market common
    shares of the Company that will be held in trust by the trustee until
    RSUs vest, or (b) the Company will issue common shares from treasury to
    participants following vesting of RSUs. For employees in the United
    States and the United Kingdom, at the time of each RSU award, the Company
    will allot common shares and these shares will be issued from treasury at
    the time they vest for each participant.

    The costs of the RSUs are amortized over the vesting period of three
    years. Compensation expense of $5.4 million and $16.3 million has been
    recognized for the three and nine months ended December 31, 2009
    ($4.7 million and $13.5 million for the three and nine months ended
    December 31, 2008) in respect of the LTIP.

                                   For the three            For the nine
                                    months ended            months ended
                               ----------------------  ----------------------
                                December    December    December    December
                                31, 2009    31, 2008    31, 2009    31, 2008
                               ----------------------  ----------------------
    Awards outstanding,
     beginning of period       5,447,251   3,881,558   4,602,385   2,221,578
    Grants                       285,756     133,994   2,189,216   2,195,969
    Vested                      (169,425)   (128,100) (1,228,019)   (530,095)
    -------------------------------------------------------------------------
    Awards outstanding,
     end of period             5,563,582   3,887,452   5,563,582   3,887,452
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                   For the three            For the nine
                                    months ended            months ended
                               ----------------------  ----------------------
                                December    December    December    December
                                31, 2009    31, 2008    31, 2009    31, 2008
                               ----------------------  ----------------------

    Common shares held by
     Trust, beginning of
     period                    2,931,932   3,011,055   3,075,300   1,621,895
    Acquired                     680,119           -   1,328,700   1,706,903
    Released on vesting         (124,386)    (97,898)   (916,335)   (415,641)
    -------------------------------------------------------------------------
    Common shares held by
     Trust, end of period      3,487,665   2,913,157   3,487,665   2,913,157
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    11. RELATED PARTY TRANSACTIONS

    Security trades executed by the Company for employees, officers and
    directors are transacted in accordance with the terms and conditions
    applicable to all clients. Commission income on such transactions in the
    aggregate is not material in relation to the unaudited interim
    consolidated financial statements.

    Accounts receivable and accounts payable and accrued liabilities include
    the following balances with the related parties described above:

                                                     December 31,   March 31,
                                                          2009        2009
                                                            $           $
    -------------------------------------------------------------------------
    Accounts receivable                                   44,297      38,733
    Accounts payable and accrued liabilities              79,763      77,334
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    12. SEGMENTED INFORMATION

    The Company has two operating segments:

        Canaccord Adams - includes investment banking, research and trading
        activities on behalf of corporate, institutional and government
        clients as well as principal trading activities in Canada, the UK and
        Other Foreign Location, and the US.

        Canaccord Wealth Management - provides brokerage services and
        investment advice to retail or private clients in Canada and the US.

    The Corporate and Other segment includes correspondent brokerage
    services, interest and foreign exchange revenue and expenses not
    specifically allocable to Canaccord Adams and Canaccord Wealth
    Management.

    The Company's industry segments are managed separately because each
    business offers different services and requires different personnel and
    marketing strategies. The Company evaluates the performance of each
    business based on operating results.

    The Company does not allocate total assets or equipment and leasehold
    improvements to the segments. Amortization is allocated to the segments
    based on square footage occupied. There are no significant intersegment
    revenues.

    For the three months ended December 31

                                                    2009
                               ----------------------------------------------
                                            Canaccord   Corporate
                                Canaccord     Wealth       and
                                  Adams     Management    Other       Total
                                    $           $           $           $
    -------------------------------------------------------------------------

    Revenue                      116,090      51,733       5,374     173,197
    Expenses                      84,743      38,194      19,326     142,263
    Amortization                     903         637         364       1,904
    Development costs              2,464       3,216       1,040       6,720
    Impairment of goodwill
     and intangibles                   -           -           -           -
    -------------------------------------------------------------------------
    Income (loss) before
     income taxes                 27,980       9,686     (15,356)     22,310
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                    2008
                               ----------------------------------------------
                                            Canaccord   Corporate
                                Canaccord     Wealth       and
                                  Adams     Management    Other       Total
                                    $           $           $           $
    -------------------------------------------------------------------------

    Revenue                       49,250      33,532       4,406      87,188
    Expenses                      58,409      37,441      21,762     117,612
    Amortization                   1,586         463         702       2,751
    Development costs              4,251       2,312       1,175       7,738
    Impairment of goodwill
     and intangibles              31,524           -           -      31,524
    -------------------------------------------------------------------------
    Income (loss) before
     income taxes                (46,520)     (6,684)    (19,233)    (72,437)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    For the nine months ended December 31

                                                    2009
                               ----------------------------------------------
                                            Canaccord   Corporate
                                Canaccord     Wealth       and
                                  Adams     Management    Other       Total
                                    $           $           $           $
    -------------------------------------------------------------------------

    Revenue                      280,062     132,056      22,286     434,404
    Expenses                     211,278     102,837      50,331     364,446
    Amortization                   2,787       1,857       1,087       5,731
    Development costs              7,195       7,734       3,132      18,061
    Impairment of goodwill
     and intangibles                   -           -           -           -
    -------------------------------------------------------------------------
    Income (loss) before
     income taxes                 58,802      19,628     (32,264)     46,166
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                    2008
                               ----------------------------------------------
                                            Canaccord   Corporate
                                Canaccord     Wealth       and
                                  Adams     Management    Other       Total
                                    $           $           $           $
    -------------------------------------------------------------------------

    Revenue                      212,379     135,229      23,117     370,725
    Expenses                     196,936     114,271      53,430     364,637
    Amortization                   3,424       1,283       2,158       6,865
    Development costs             12,056       5,256       4,271      21,583
    Impairment of goodwill
     and intangibles              31,524           -           -      31,524
    -------------------------------------------------------------------------
    Income (loss) before
     income taxes                (31,561)     14,419     (36,742)    (53,884)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The Company's business operations are grouped into the following four
    geographic segments (revenue is attributed to geographic areas on the
    basis of the underlying corporate operating results):

                                   For the three            For the nine
                                    months ended            months ended
                               ----------------------------------------------
                                December    December    December    December
                                31, 2009    31, 2008    31, 2009    31, 2008
                                    $           $           $           $
    -------------------------------------------------------------------------
    Canada
      Revenue                    123,626      57,907     290,750     247,580
      Equipment and leasehold
       improvements               28,791      29,285      28,791      29,285

    United Kingdom
      Revenue                     26,420      11,752      61,120      58,567
      Equipment and leasehold
       improvements                5,736       7,099       5,736       7,099

    United States
      Revenue                     22,817      16,533      80,133      60,438
      Equipment and leasehold
       improvements                5,944       7,794       5,944       7,794

    Other Foreign Location
      Revenue                        334         996       2,401       4,140
    -------------------------------------------------------------------------

    13. COMMITMENTS AND CONTINGENCIES

    During the period, there were no material changes, except for the
    contingencies disclosed below, to the Company's commitments and
    contingencies from those described in Note 17 of the Audited Annual
    Consolidated Financial Statements.

    a)  Canaccord Financial Ltd. was one of the underwriters of a public
        offering of 13% senior secured notes of Redcorp Ventures Ltd. under a
        prospectus dated July 5, 2007. The offering was for a total of
        $142.0 million and Canaccord participated for 12.5% of that amount
        ($17.8 million). A number of entities have given notice to the
        underwriters (including Canaccord) alleging that the statements in
        the prospectus describing the security for Redcorp's obligations
        under the notes were incorrect and constitute, among other things,
        negligent misstatements, which were reasonably relied upon by these
        entities to their detriment in deciding to purchase the notes and, as
        a result, the underwriters (including Canaccord) are liable to
        compensate these entities for all of their losses flowing from the
        misrepresentations. The defences to these claims, third party claims
        and the quantification of damages are yet to be determined. Canaccord
        intends to vigorously defend itself against these claims.

    As disclosed in the Audited Annual Consolidated Financial Statements, in
    2002, an action was commenced in the Ontario Superior Court of Justice
    against the Company and other defendants including another investment
    dealer. The claim makes allegations of illegal activities by two of the
    Company's former Investment Advisors who were previously employed by the
    other investment dealer named in the action. The claim against the
    Company and the other investment dealer is, among other things, that
    there was a failure to supervise the conduct of the investment advisors.
    The damages claimed in this action are $27 million. During the period
    ended December 31, 2009, this action was dismissed for failure to post
    security for costs. The period for an appeal of that decision has not yet
    expired.

    14. BUSINESS COMBINATION

    On October 1, 2009, Canaccord Adams Limited, a wholly owned subsidiary of
    the Company, acquired Intelli Partners Limited and its wholly owned
    subsidiary, Intelli Corporate Finance Limited, a corporate advisory and
    brokerage boutique located in Edinburgh, Scotland (Intelli) with net
    assets at fair value of approximately $5.8 million, for cash
    consideration of $7.0 million. Intelli is focused on investment companies
    and companies within the asset management sector.

    15. SUBSEQUENT EVENTS

    On February 3, 2010, the Board of Directors declared a common share
    dividend of $0.05 per share payable on March 10, 2010, with a record date
    of February 26, 2010.
    

For further information: For further information: North American media: Scott Davidson, Managing Director, Global Head of Marketing & Communications, Phone: (416) 869-3875, Email: scott.davidson@canaccord.com; Investor relations inquiries: Joy Fenney, Vice President, Investor Relations, Phone: (416) 869-3515, Email: joy.fenney@canaccord.com; London media: Bobby Morse or Ben Willey, Buchanan Communications (London), Phone: +44 (0) 207 466 5000, Email: bobbym@buchanan.uk.com; Nominated Adviser and Broker: Marc Milmo or Jonny Franklin-Adams, Fox-Pitt, Kelton Limited, Phone: +44 (0) 207 663 6000, Email: corporatebroking@fpk.com


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