Alarion Financial Services 10-Q 2009 Q2 Quarterly report

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2009

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to            

Commission file number 000-51843

ALARION FINANCIAL SERVICES, INC.

(Exact Name of Small Business Issuer as Specified in Its Charter)

Florida	20-3851373
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
One Northeast First Avenue, Ocala, Florida	34470
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s Telephone Number, Including Area Code (352) 237-4500

Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report.

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	x

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Common stock, par value $.01 per share 2,653,208 shares outstanding at August 11, 2009

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

INDEX

		Page
Part I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets - at June 30, 2009 (Unaudited) and at December 31, 2008	2
	Condensed Consolidated Statements of Operations (Unaudited) - Three and Six Months ended June 30, 2009 and 2008	3
	Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) - Six Months ended June 30, 2009 and 2008	4-5
	Condensed Consolidated Statements of Cash Flows (Unaudited) - Six Months ended June 30, 2009 and 2008	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	7-13
	Review by Independent Registered Public Accounting Firm	14
	Report of Independent Registered Public Accounting Firm	15
Item 2.	Management’s Discussion and Analysis	16-23
Item 4.	Controls and Procedures	24
Part II. OTHER INFORMATION
Item 1.	Legal Proceedings	24
Item 1.A.	Risk Factors	24
Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities	24
Item 3.	Defaults upon Senior Securities	24
Item 4.	Submission of Matters to a Vote of Security Holders	24-25
Item 5.	Other Information	25
Item 6.	Exhibits	26
SIGNATURES		27

1

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Consolidated Balance Sheets

($ in thousands, except per share amounts)

	At June 30, 2009			At December 31, 2008
	(unaudited)
Assets
Cash and due from banks	$	4,357		1,666
Interest-earning time deposits in banks		—		2,097
Interest-earning deposits and federal funds sold		3,733		5,708
Cash and cash equivalents		8,090		9,471
Interest-earning time deposits in banks		20,872		12,410
Securities available for sale		22,168		13,123
Loans, net of allowance for loan losses of $2,686 and $2,714		226,972		205,307
Accrued interest receivable		826		731
Premises and equipment, net		13,482		13,604
Other real estate owned		1,630		651
Federal Home Loan Bank stock, at cost		1,431		1,356
Deferred income taxes		1,423		1,103
Other assets		342		883
Total assets	$	297,236		258,639
Liabilities and Stockholders’ Equity
Liabilities:
Noninterest-bearing demand deposits		18,876		15,161
NOW, money-market and savings deposits		59,736		43,109
Time deposits < $100,000		107,551		94,547
Time deposits > = $100,000		47,808		50,097
Total deposits		233,971		202,914
Federal Home Loan Bank advances		21,000		22,000
Other borrowings		9,524		7,584
Accrued interest payable		1,033		1,118
Accrued expenses and other liabilities		1,283		387
Total liabilities		266,811		234,003
Stockholders’ equity:
Preferred stock, $.01 par value; 1,000,000 shares authorized
Preferred stock, series A, $.01 par value; $1,000 liquidation value; 6,514 shares outstanding in 2009		—		—
Preferred stock, series B, $.01 par value; $1,000 liquidation value; 326 shares outstanding in 2009		—		—
Additional paid-in capital, preferred		6,840		—
Preferred stock discount		(297	)	—
Common stock, $.01 par value; 4,000,000 shares authorized, 2,653,208 shares issued and outstanding in 2009 and 2008		27		27
Additional paid-in capital, common		26,657		26,613
Accumulated deficit		(2,866	)	(2,142	)
Accumulated other comprehensive income		64		138
Total stockholders’ equity		30,425		24,636
Total liabilities and stockholders’ equity	$	297,236		258,639

See accompanying Notes to Condensed Consolidated Financial Statements.

2

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)

($ in thousands, except per share amounts)

	Three Months Ended June 30,					Six Months Ended June 30,
	2009			2008		2009		2008
Interest income:
Loans	$	3,225		2,835		6,264		5,714
Securities		197		187		330		423
Other		155		89		295		178
Total interest income		3,577		3,111		6,889		6,315
Interest expense:
Deposits		1,603		1,620		3,238		3,346
Borrowings		207		157		410		307
Total interest expense		1,810		1,777		3,648		3,653
Net interest income		1,767		1,334		3,241		2,662
Provision for loan losses		293		56		387		242
Net interest income after provision for loan losses		1,474		1,278		2,854		2,420
Noninterest income:
Deposit account fees		91		85		182		156
Loan brokerage fees		210		214		408		430
Other		6		(2	)	20		10
Total noninterest income		307		297		610		596
Noninterest expense:
Salaries and employee benefits		887		820		1,818		1,627
Occupancy and equipment		271		190		533		374
Data processing		144		121		280		225
Professional services		81		65		162		105
Advertising and promotion		29		44		62		87
Office supplies and printing		32		27		62		61
Impairment of Silverton Bank stock		625		—		625		—
Other		447		227		737		455
Total noninterest expense		2,516		1,494		4,279		2,934
(Loss) earnings before income tax (benefit) expense		(735	)	81		(815	)	82
Income tax (benefit) expense		(262	)	34		(276	)	42
Net (loss) earnings		(473	)	47		(539	)	40
Preferred stock dividend requirements and accretion of preferred stock to par		105		—		185		—
Net (loss) earnings available to common shareholders	$	(578	)	47		(724	)	40
(Loss) earnings per common share – basic	$	(0.22	)	0.02		(0.27	)	0.02
(Loss) earnings per common share – diluted	$	(0.22	)	0.02		(0.27	)	0.02
Weighted-average number of common shares outstanding, basic		2,653,208		2,653,208		2,653,208		2,578,967
Weighted-average number of common shares outstanding, diluted		2,653,208		2,653,208		2,653,208		2,578,967
Dividends per common share	$	—		—		—		—

See accompanying Notes to Condensed Consolidated Financial Statements.

3

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)

Six Months Ended June 30, 2009 and 2008

($ in thousands)

	Preferred Stock								Common Stock						Accumulated
	Series A			Series B			Additional Paid-in					Additional Paid-In	Accumulated		Other Comprehensive		Total Stockholders’
	Shares	Amount		Shares	Amount		Capital	Discount	Shares	Amount		Capital	Deficit		Income		Equity
Balance at December 31, 2007	—	$	—	—	$	—	—	—	2,183,485	$	22	21,856	(1,657	)	30		20,251
Comprehensive loss:
Net earnings (unaudited)	—		—	—		—	—	—	—		—	—	40		—		40
Net change in unrealized gain on securities available for sale, net of taxes of $(73) (unaudited)	—		—	—		—	—	—	—		—	—	—		(122	)	(122	)
Comprehensive loss (unaudited)																	(82	)
Share-based compensation (unaudited)	—		—	—		—	—	—	—		—	8	—		—		8
Common stock options and warrants exercised (unaudited)	—		—	—		—	—	—	469,723		5	4,692	—		—		4,697
Balance at June 30, 2008 (unaudited)	—	$	—	—	$	—	—	—	2,653,208	$	27	26,556	(1,617	)	(92	)	24,874

(continued)

4

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited), Continued

Six Months Ended June 30, 2009 and 2008

($ in thousands)

	Preferred Stock									Common Stock						Accumulated
	Series A			Series B			Additional Paid-in						Additional Paid-In	Accumulated		Other Comprehensive		Total Stockholders’
	Shares	Amount		Shares	Amount		Capital	Discount		Shares	Amount		Capital	Deficit		Income		Equity
Balance at December 31, 2008	—	$	—	—	$	—	—	—		2,653,208	$	27	26,613	(2,142	)	138		24,636
Comprehensive loss:
Net loss (unaudited)	—		—	—		—	—	—		—		—	—	(539	)	—		(539	)
Net change in unrealized gain on securities available for sale, net of taxes of $(44) (unaudited)	—		—	—		—	—	—		—		—	—	—		(74	)	(74	)
Comprehensive loss (unaudited)																		(613	)
Share-based compensation (unaudited)	—		—	—		—	—	—		—		—	44	—		—		44
Proceeds from issuance of 6,514 shares of Series A preferred stock to U.S. Treasury (unaudited)	6,514		—	—		—	6,514	—		—		—	—	—		—		6,514
Preferred stock warrants exercised by U.S. Treasury (unaudited)	—		—	326		—	326	(326	)	—		—	—	—		—		—
Preferred stock dividend requirements and Series B preferred stock accretion (unaudited)	—		—	—		—	—	29		—		—	—	(185	)	—		(156	)
Balance at June 30, 2009 (unaudited)	6,514	$	—	326	$	—	6,840	(297	)	2,653,208	$	27	26,657	(2,866	)	64		30,425

See accompanying Notes to Condensed Consolidated Financial Statements.

5

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

	Six Months Ended June 30,
	2009			2008
Cash flows from operating activities:
Net (loss) earnings	$	(539	)	40
Adjustments to reconcile net (loss) earnings to net cash provided by operating activities:
Provision for loan losses		387		242
Share-based compensation		44		8
Depreciation and amortization		311		195
Deferred income tax (benefit) expense		(276	)	44
Net amortization of deferred loan fees and costs		21		77
Net (decrease) increase in accrued interest payable		(85	)	197
Net (increase) decrease in accrued interest receivable		(95	)	230
Net (increase) in other assets		(84	)	(27	)
Impairment of Silverton Bank stock		625		—
Net increase in accrued expenses and other liabilities		896		496
Net cash provided by operating activities		1,205		1,502
Cash flows from investing activities:
Proceeds from principal repayments and maturities on securities available for sale		5,217		11,595
Purchase of securities available for sale		(14,380	)	(2,998	)
Net increase in time deposits		(8,462	)	(915	)
Loan disbursements, net of repayments		(23,103	)	(20,465	)
Purchase of premises and equipment		(189	)	(2,877	)
Proceeds from sale of other real estate owned		51		—
Proceeds from sale of premises and equipment		—		446
Purchase of Federal Home Loan Bank stock		(75	)	(385	)
Net cash used in investing activities		(40,941	)	(15,599	)
Cash flows from financing activities:
Net increase in deposits		31,057		13,078
Net (decrease) increase in advances from Federal Home Loan Bank		(1,000	)	6,000
Net increase in other borrowings		1,940		1,255
Proceeds from common stock options and warrants exercised		—		4,697
Proceeds from preferred stock issued		6,514		—
Preferred stock dividend requirements and Series B stock accretion		(156	)	—
Net cash provided by financing activities		38,355		25,030
Net (decrease) increase in cash and cash equivalents		(1,381	)	10,933
Cash and cash equivalents at beginning of period		9,471		3,638
Cash and cash equivalents at end of period	$	8,090		14,571
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest, net of capitalized interest of $99 in 2008	$	3,733		3,456
Income taxes	$	—		—
Noncash transactions:
Accumulated other comprehensive income, net change in unrealized gain on securities available for sale, net of taxes	$	(74	)	(122	)
Transfer of loans to other real estate owned	$	1,030		—

See accompanying Notes to Condensed Consolidated Financial Statements.

6

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

1.Basis of Presentation. In the opinion of the management of Alarion Financial Services, Inc. (the “Holding Company”), the accompanying condensed consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position at June 30, 2009 and the results of operations for the three- and six-month periods ended June 30, 2009 and 2008 and cash flows for the six-month periods ended June 30, 2009 and 2008. The results of operations for the three- and six-month periods ended June 30, 2009, are not necessarily indicative of results that may be expected for the year ending December 31, 2009.

The Holding Company owns 100% of the common stock of Alarion Bank (the “Bank”) and North Central Florida Developers Corporation (“NCFDC”) (together the “Company”). The Holding Company’s primary activity is the operation of the Bank and NCFDC. The Bank is a state (Florida)-chartered commercial bank. The Bank offers a variety of banking and financial services to individual and corporate customers through its six banking offices located in Ocala and Gainesville, Florida. The deposit accounts of the Bank are insured up to the applicable limits by the Federal Deposit Insurance Corporation. NCFDC holds loans or assets that might require a longer term hold to realize full economic value.

2.Loans. The components of loans are summarized as follows (in thousands):

	At June 30, 2009			At December 31, 2008
Commercial real estate	$	113,025		102,788
Residential real estate and home equity		46,892		36,801
Construction		45,288		45,569
Commercial		20,935		19,635
Consumer		3,172		2,928
Total loans		229,312		207,721
Add/Deduct:    Allowance for loan losses		(2,686	)	(2,714	)
Deferred loan costs, net		346		300
Loans, net	$	226,972		205,307

(continued)

7

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

3.Loan Impairment and Loan Losses.An analysis of the change in the allowance for loan losses follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2009			2008	2009		2008
Beginning balance	$	2,457		2,232	2,714		2,046
Provision for loan losses		293		56	387		242
Charge-offs		(64	)	—	(415	)	—
Ending balance	$	2,686		2,288	2,686		2,288

The following is a summary of information regarding nonaccrual and impaired loans (in thousands):

				At June 30, 2009			At December 31, 2008
Nonaccrual loans				$	384		1,497
Accruing loans past due ninety days or more				$	—		—
Gross impaired loans with no related allowance for losses					3,108		644
Gross impaired loans with related allowance for losses					1,801		2,964
Less: Allowance on these loans					(590	)	(588	)
Net investment in impaired loans				$	4,319		3,020
	Three Months Ended June 30,			Six Months Ended June 30,
	2009		2008	2009			2008
Interest income recognized on impaired loans	$	—	—		—		—
Interest income received on impaired loans	$	—	—		—		—
Average net recorded investment in impaired loans	$	3,027	373		3,176		450

(continued)

8

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

4. (Loss) Earnings Per Common Share.(Loss) earnings per share (“EPS”) of common stock has been computed on the basis of the weighted-average number of shares of common stock outstanding. Outstanding stock options and warrants are not considered dilutive securities for the three- and six-month periods ended June 30, 2009 due to the net loss incurred by the Company. Outstanding stock options and warrants are considered dilutive securities for the three- and six-month periods ended June 30, 2008 for the purposes of calculating diluted EPS, which is computed using the treasury stock method. The following table represents the calculations of the weighted-average number of shares for EPS (in thousands, except per share amounts):

	2009							2008
	Loss			Weighted- Average Shares	Per Share Amount			Earnings		Weighted- Average Shares	Per Share Amount
Three Months Ended June 30:
Basic EPS:
Net (loss) earnings available to common stockholders	$	(578	)	2,653	$	(0.22	)	$	47	2,653	$	0.02
Effect of dilutive securities-
Incremental shares from assumed conversion of options and warrants				—						—
Diluted EPS:
Net (loss) earnings available to common stockholders and assumed conversions	$	(578	)	2,653	$	(0.22	)	$	47	2,653	$	0.02
Six Months Ended June 30:
Basic EPS:
Net (loss) earnings available to common stockholders	$	(724	)	2,653	$	(0.27	)	$	40	2,579	$	0.02
Effect of dilutive securities-
Incremental shares from assumed conversion of options and warrants				—						—
Diluted EPS:
Net (loss) earnings available to common stockholders and assumed conversions	$	(724	)	2,653	$	(0.27	)	$	40	2,579	$	0.02

For the three- and six-month periods ended June 30, 2008, the following options were excluded from the calculation of earnings per share due to the exercise price exceeding the average market price for the period.

Number of Outstanding Options	Exercise Price		Expiration Date
64,032	$	10.50	2017
10,000	$	10.50	2018

The remaining options outstanding had exercise prices equal to the average fair market value of the Company’s common stock during the three- and six-month periods ended June 30, 2008.

(continued)

9

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

5.Share Based Compensation. The Company follows the fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123 (R),Share-Based Payment (“SFAS 123 (R)”), using the modified-prospective-transition method. Under the transition method, compensation cost recognized includes: (a) compensation cost for all share-base payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value calculated in accordance with the original provisions of SFAS 123, and (b) compensation cost for all share-based payments granted subsequent to December 31, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123 (R). Prior to December 31, 2005, the Company was not considered a public company as defined in SFAS 123 and used the minimum value method to determine stock based compensation. Therefore, the stock options granted in 2005 that vested subsequent to December 31, 2005 are not required to be expensed by the Company upon implementation of SFAS 123(R). The Company recognizes stock-based compensation for all subsequent options granted in salaries and employee benefits in the accompanying consolidated statements of operations on a straight-line basis over the vesting period.

The Company adopted a stock option plan for its employees and directors (the “Plan”). Fifteen percent of the total amount of common shares outstanding, up to 450,000 shares (currently 397,981 shares), have been reserved under the Plan. Stock options are granted at an exercise price equal to or greater than the fair market value of the common stock on the date of grant. Options granted to directors vest immediately and for employees, the options primarily vest over two years starting with the date of grant and ending on the second anniversary thereof. At June 30, 2009, there were 89,263 options available for future grants under the Plan. A summary of stock option transactions under the Plan for the six-month period ended June 30, 2009, follows:

	Number of Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
Options outstanding at December 31, 2008	261,970		$	10.14
Options forfeited	(1,368	)		10.21
Options granted	24,600			10.00
Options outstanding at June 30, 2009	285,202		$	10.13	7.39 years	$	—
Options exercisable at June 30, 2009	243,661		$	10.11	7.14 years	$	—

(continued)

10

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

5.Share Based Compensation, Continued. The fair values of each option granted for the three- and six-month periods ended June 30, 2009 and 2008 are estimated on the date of the grant using the Black-Scholes option-pricing model with the following assumptions:

	Three Months Ended June 30,					Six Months Ended June 30,
	2009			2008		2009		2008
Risk-free interest rate		1.46	%	4.04	%	1.46	%	4.04-4.58	%
Dividend yield		—	%	—	%	—	%	—	%
Expected stock volatility		10.00	%	6.92	%	10.00	%	6.92	%
Expected life in years		5.50		5.50		5.50		5.50
Per share grant-date fair value of options issued during the period	$	1.29		2.02		1.29		2.02-2.22

The Company has examined its historical pattern of option exercises in an effort to determine if there were any patterns based on certain employee populations. From this analysis, the Company could not identify any patterns in the exercise of options. As such, the Company used the guidance in Staff Accounting Bulletin No. 107 issued by the Securities and Exchange Commission to determine the estimated life of options. Expected volatility is based on historical volatility of similar size financial institutions. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The dividend yield assumption is based on the Company’s history and expectation of dividend payments.

There were no options exercised during the six-month period ended June 30, 2009. There were 17,486 options exercised during the six-month period ended June 30, 2008. There was no intrinsic value or tax benefit related to these options exercised. At June 30, 2009, there was approximately $36,000 of total unrecognized compensation expense related to the nonvested share-based compensation arrangement granted under the plan. The cost is expected to be recognized over a weighted-average period of eight months. The total fair value of shares vesting and recognized as compensation expense was approximately $44,000 for the six-month period ended June 30, 2009, and $8,000 for the same period in 2008.

(continued)

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ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

6.Fair Value Measurements. Our listing of financial assets subject to fair value measurements on a recurring basis is as follows (in thousands):

			Fair Value Measurements at June 30, 2009 Using
	Fair Value as of June 30, 2009		Quoted Prices In Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Available for sale securities	$	22,168	—	22,168	—

Assets measured at fair value on a nonrecurring basis are summarized below (in thousands):

							Total Losses Recorded In Operations For the Period
	Net Carrying Value at June 30, 2009						Ended
	Total		Level 1	Level 2	Level 3	Total Losses	June 30, 2009
Impaired loans(1)	$	1,211	—	—	1,211	590	120
Other real estate owned	$	1,630	—	—	1,630	8	8

⁽¹⁾ In addition, loans with a carrying value of $3,108 at June 30, 2009 were measured for impairment using Level 3 inputs and had a fair value in excess of carrying value.

(continued)

12

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

7.Fair Value of Financial Instruments.The estimated fair values of the Company’s financial instruments are as follows (in thousands):

	At June 30, 2009			At December 31, 2008
	Carrying Amount		Fair Value	Carrying Amount	Fair Value
Financial assets:
Cash and cash equivalents	$	8,090	8,090	9,471	9,471
Interest bearing time deposits in banks		20,872	20,872	12,410	12,410
Securities available for sale		22,168	22,168	13,123	13,123
Loans, net		226,972	229,327	205,307	206,369
Accrued interest receivable		826	826	731	731
Federal Home Loan Bank stock		1,431	1,431	1,356	1,356
Financial liabilities:
Deposits		233,971	238,624	202,914	204,654
Other borrowings		9,524	9,524	7,584	7,584
Federal Home Loan Bank advances		21,000	19,750	22,000	20,018
Accrued interest payable		1,033	1,033	1,118	1,118
Off-balance-sheet financial instruments		—	—	—	—

13

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Review by Independent Registered Public Accounting Firm

Hacker, Johnson & Smith PA, the Company’s independent registered public accounting firm, has made a limited review of the financial data as of June 30, 2009, and for the three- and six-month periods ended June 30, 2009 and 2008 presented in this document, in accordance with standards established by the Public Company Accounting Oversight Board (United States).

Their report furnished pursuant to Article 10 of Regulation S-X is included herein.

14

Report of Independent Registered Public Accounting Firm

Alarion Financial Services, Inc.

Ocala, Florida:

We have reviewed the accompanying condensed consolidated balance sheet of Alarion Financial Services, Inc. and Subsidiaries (the “Company”) as of June 30, 2009, the related condensed consolidated statements of operations for the three- and six-month periods ended June 30, 2009 and 2008, and the related condensed consolidated statements of cash flows and changes in stockholders’ equity for the six-month periods ended June 30, 2009 and 2008. These interim condensed financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2008, and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for the year then ended (not presented herein); and in our report dated March 23, 2009, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2008, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ Hacker, Johnson & Smith PA

HACKER, JOHNSON & SMITH PA

Tampa, Florida

August 11, 2009

15

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis

General

Alarion Financial Services, Inc. (the “Holding Company”) owns 100% of the common stock of Alarion Bank (the “Bank”) and North Central Florida Developers Corporation (collectively the “Company”). The Holding Company’s primary activity is the operation of the Bank and North Central Florida Developers Corporation. The Bank is a state (Florida)-chartered commercial bank. The Company offers a variety of banking and financial services to individual and corporate customers through its six banking offices located in Ocala and Gainesville, Florida. North Central Florida Developers Corporation holds loans or assets that might require a longer term hold to realize full economic value.

The Bank’s deposits are insured by the Deposit Insurance Fund of the Federal Deposit Insurance Corporation (“FDIC”) up to applicable limits. The Holding Company’s operations are subject to supervision and regulation of the Federal Reserve Board. The operations of the Bank are subject to the supervision and regulation of the FDIC and the Florida Office of Financial Regulation.

The Bank provides a variety of consumer and commercial banking services to individuals, businesses and industries. The basic services offered by the Bank include: demand interest-bearing and noninterest-bearing accounts, money market deposit accounts, NOW accounts, time deposits, credit cards, cash management, direct deposits, notary services, money orders, night depository, travelers’ checks, cashier’s checks, domestic collections, savings bonds, bank drafts, automated teller services, drive-in tellers, and banking by mail. In addition, the Bank makes secured and unsecured commercial, consumer, and real estate loans and issues stand-by letters of credit. The Bank provides automated teller machine (ATM) cards and is a member of the Star ATM network, thereby permitting customers to utilize the convenience of larger ATM networks. In addition to the foregoing services, the offices of the Company provide customers with extended banking hours. The Company does not have trust powers and, accordingly, no trust services are provided.

16

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

The revenues of the Bank are primarily derived from interest on, and fees received in connection with, real estate and other loans, and from interest and dividends from investment and mortgage-backed securities, and short-term investments. The principal sources of funds for the Bank’s lending activities are its deposits and borrowings, repayment of loans, and the sale and maturity of investment securities. The principal expenses of the Bank are the interest paid on deposits, and operating and general administrative expenses.

As is the case with banking institutions generally, the Company’s operations are materially and significantly influenced by general economic conditions and by related monetary and fiscal policies of financial institution regulatory agencies, including the Board of Governors of the Federal Reserve System (the “Federal Reserve”) and the FDIC. Deposit flows and costs of funds are influenced by interest rates on competing investments and general market rates of interest. Lending activities are affected by the demand for financing of real estate and other types of loans, which in turn is affected by the interest rates at which such financing may be offered and other factors affecting local demand and availability of funds. The Company faces strong competition in the attraction of deposits (its primary source of lendable funds) and in the origination of loans.

Capital Resources, Commitments and Capital Requirements

The Bank’s principal sources of funds are those generated by the Bank, including net increases in deposits and borrowings, principal and interest payments on loans, and proceeds from maturities of investment securities.

The Bank uses its capital resources principally to fund existing and continuing loan commitments and to purchase investment securities. Off-balance-sheet commitments to extend credit represent legally binding agreements to lend to customers with fixed expiration dates or other termination clauses. Since many commitments are expected to expire without being funded, committed amounts do not necessarily represent future cash requirements.

The following table summarizes the Bank’s contractual obligations, including certain on-balance sheet and off-balance sheet obligations, at June 30, 2009 (in thousands):

Contractual Obligations	Total
Time deposit maturities	$	155,359
Advances from Federal Home Loan Bank		21,000
Other borrowings		9,524
Commitments to extend credit		3,880
Unused lines of credit		24,220
Standby letters of credit		403
Total	$	214,386

Management believes that the Bank has adequate resources to fund all its commitments, that a majority of all of its existing commitments will be funded within 12 months and, if so desired, that the Bank can adjust the rates and terms on time deposits and other deposit accounts to retain or obtain new deposits in a changing interest rate environment.

17

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Regulatory Capital Requirements

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory - and possibly additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and percentages of total and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. If such minimum amounts and percentages are met, the Bank is considered “adequately capitalized.” If the actual amounts exceed the requirements of “adequately capitalized,” and meet even more stringent minimum standards, they are considered “well capitalized.” Management believes as of June 30, 2009, the Bank meets the capital requirements for a “well capitalized” financial institution.

The table below shows the total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios of the Bank at June 30, 2009 and December 31, 2008, and the minimum required amounts and percentages ($ in thousands).

	Actual				For Capital Adequacy Purposes				For Well Capitalized Purposes
	Amount		Percent		Amount		Percent		Amount		Percent
As of June 30, 2009:
Total capital (to Risk-Weighted Assets)	$	27,107	11.44	%	$	18,956	8.00	%	$	23,695	10.00	%
Tier I Capital (to Risk-Weighted Assets)		24,421	10.31			9,475	4.00			14,212	6.00
Tier I Capital (to Average Assets)		24,421	8.44			11,574	4.00			14,467	5.00
As of December 31, 2008:
Total capital (to Risk-Weighted Assets)		23,852	10.74			17,767	8.00			22,209	10.00
Tier I Capital (to Risk-Weighted Assets)		21,138	9.52			8,882	4.00			13,322	6.00
Tier I Capital (to Average Assets)		21,138	8.37			10,102	4.00			12,627	5.00

18

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Results of Operations

The following table shows selected ratios for the periods ended or at the dates indicated:

	Six Months Ended June 30, 2009		Year Ended December 31, 2008		Six Months Ended June, 2008
Average equity as a percentage of average assets	10.69	%	10.49	%	10.65	%
Total equity to total assets at end of period	10.24	%	9.53	%	10.86	%
Return on average assets (1)	(.39	)%	(.21	)%	0.04	%
Return on average equity (1)	(3.63	)%	(1.99	)%	0.34	%
Noninterest expense to average assets (1)	3.08	%	2.71	%	2.68	%
Nonperforming loans to total loans at end of period (2)	.17	%	.72	%	0.46	%

(1) Annualized for the six-months ended June 30, 2009 and 2008.

(2) Nonperforming loans consist of nonaccrual loans and accruing loans contractually past due ninety days or more.

Changes in Financial Condition

Total assets increased $39 million or 15%, from $259 million at December 31, 2008 to $297 million at June 30, 2009, primarily as a result of a $22 million increase in net loans, an $8 million increase in interest bearing time deposits in banks, and a $9 million increase in securities. Deposits increased $31 million from $203 million at December 31, 2008 to $234 million at June 30, 2009 and Federal Home Loan Bank advances decreased $1 million.

19

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Net Interest Margin and Interest Rate Spread

The following table sets forth, for the periods indicated, information regarding (i) the total dollar amount of interest and dividend income of the Company from interest-earning assets and the resultant average yields; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average costs; (iii) net interest/dividend income; (iv) interest-rate spread; and (v) net interest margin. Yields and costs were derived by dividing annualized income or expense by the average balance of assets or liabilities, respectively, for the periods shown. The yields and costs include certain fees which are considered to constitute adjustments to yields.

	Three Months Ended June 30,
	2009						2008
	Average Balance		Interest and Dividends		Average Yield/ Rate		Average Balance		Interest and Dividends			Average Yield/ Rate
	($ in thousands)
Interest-earning assets:
Loans	$	217,673		3,225	5.94	%	$	179,730		2,835		6.33	%
Securities		20,777		197	3.80			13,305		187		5.64
Other (1)		29,513		155	2.11			16,018		89		2.23
Total interest-earning assets		267,963		3,577	5.35			209,053		3,111		5.97
Noninterest-earning assets		22,446						16,404
Total assets	$	290,409					$	225,457
Interest-bearing liabilities:
Deposits		210,599		1,603	3.05			161,309		1,620		4.03
Federal Home Loan Bank advances and other borrowings		29,551		207	2.81			23,646		209		3.53
Total interest-bearing liabilities		240,150		1,810	3.02			184,955		1,829		3.97
Capitalized interest				—						(52	)
Net interest expense				1,810						1,777
Noninterest-bearing deposits		18,596						14,981
Noninterest-bearing liabilities		907						566
Stockholders’ equity		30,756						24,955
Total liabilities and stockholders’ equity	$	290,409					$	225,457
Net interest income			$	1,767					$	1,334
Interest-rate spread					2.33	%						2.00	%
Net interest margin (2)					2.64	%						2.56	%
Ratio of interest-earning assets to interest-bearing liabilities		1.12						1.13

(1) Includes interest-earning deposits, federal funds sold, time deposits and Federal Home Loan Bank stock.

(2) Net interest margin is annualized net interest income divided by average interest-earning assets.

20

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

The following table sets forth, for the periods indicated, information regarding (i) the total dollar amount of interest and dividend income of the Company from interest-earning assets and the resultant average yields; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average costs; (iii) net interest/dividend income; (iv) interest-rate spread; and (v) net interest margin. Yields and costs were derived by dividing annualized income or expense by the average balance of assets or liabilities, respectively, for the periods shown. The yields and costs include certain fees which are considered to constitute adjustments to yields.

	Six Months Ended June 30,
	2009						2008
	Average Balance		Interest and Dividends		Average Yield/ Rate		Average Balance		Interest and Dividends			Average Yield/ Rate
	($ in thousands)
Interest-earning assets:
Loans	$	213,300		6,264	5.92	%	$	174,198		5,714		6.58	%
Securities		17,212		330	3.87			15,404		423		5.51
Other (1)		24,737		295	2.40			13,682		178		2.61
Total interest-earning assets		255,249		6,889	5.44			203,284		6,315		6.23
Noninterest-earning assets		24,615						15,974
Total assets	$	279,864					$	219,258
Interest-bearing liabilities:
Deposits		203,326		3,238	3.21			158,246		3,346		4.24
Federal Home Loan Bank advances and other borrowings		28,274		410	2.92			21,906		406		3.72
Total interest-bearing liabilities		231,600		3,648	3.18			180,152		3,752		4.18
Capitalized interest				—						(99	)
Net interest expense				3,648						3,653
Noninterest-bearing deposits		17,628						14,545
Noninterest-bearing liabilities		719						1,203
Stockholders’ equity		29,917						23,358
Total liabilities and stockholders’ equity	$	279,864					$	219,258
Net interest income			$	3,241					$	2,662
Interest-rate spread					2.27	%						2.05	%
Net interest margin (2)					2.56	%						2.63	%
Ratio of interest-earning assets to interest-bearing liabilities		1.10						1.13

(1) Includes interest-earning deposits, federal funds sold, time deposits and Federal Home Loan Bank stock.

(2) Net interest margin is annualized net interest income divided by average interest-earning assets.

21

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Comparison of the Three-Month Periods Ended June 30, 2009 and 2008

General Operating Results.Net loss for the three-month period ended June 30, 2009 was $473,000, or $(0.22) per basic and diluted common share, compared to net earnings of $47,000, or $.02 per basic and diluted common share, for the comparable period in 2008. The $520,000 change resulted primarily from an increase in noninterest expense of $1.0 million and an increase of $237,000 in provision for loan losses, partially offset by a $10,000 increase in noninterest income, and a $433,000 increase in net interest income.

Interest Income.Interest income increased $466,000 to $3.6 million for the three-month period ended June 30, 2009, when compared to the three-month period ended June 30, 2008. The increase was due to a $58.9 million increase in average interest-earning assets outstanding for the three-months ended June 30, 2009 compared to the 2008 period, partially offset by a decrease in the average yield earned on interest-earning assets from 5.97% for the three-months ended June 30, 2008 to 5.35% for three-months ended June 30, 2009.

Interest Expense.Interest expense increased $33,000 for the three-month period ended June 30, 2009 compared to the three-month period ended June 30, 2008. The increase was primarily due to an increase of $55.2 million in average interest-bearing liabilities outstanding, partially offset by a decrease in the average cost of interest-bearing liabilities from 3.97% for the three-months ended June 30, 2008 to 3.02% for the comparable 2009 period. Average interest-bearing deposits increased from $161.3 million outstanding during the three-months ended June 30, 2008 to $210.6 million outstanding during the comparable period for 2009.

Provision for Loan Losses.The provision for loan losses is charged to operations to increase the total loan loss allowance to a level deemed appropriate by management. The provision is based upon the volume and type of lending conducted by the Company, industry standards, general economic conditions, particularly as they relate to the Company’s market area, and other factors related to the collectibility of the Company’s loan portfolio. The Company recorded provisions for loan losses for the three-month periods ended June 30, 2009 and 2008 of $293,000 and $56,000, respectively. Management believes that the allowance for loan losses, which was $2.7 million or 1.17% of gross loans at June 30, 2009 is adequate.

Noninterest Income.Noninterest income increased $10,000 during the 2009 period. The increase was primarily due to a $6,000 increase in deposit account fees, and a $8,000 increase in other noninterest income, partially offset by a $4,000 decrease in loan brokerage fees when compared to the three-month period ended June 30, 2008.

Noninterest Expense.Noninterest expense increased by $1.0 million from $1.5 million for the three-month period ended June 30, 2008 to $2.5 million for the three-month period ended June 30, 2009. The increase was primarily due to increases of $67,000 in salaries and employee benefits, $81,000 in occupancy and equipment expense, $23,000 in data processing expense, $625,000 for impairment of Silverton Bank stock, and $220,000 in other noninterest expense, all related to the overall growth of the Company.

Income Taxes.The income tax benefit was $262,000 for the three-month period ended June 30, 2009. The income tax expense was $34,000 for the corresponding period in 2008.

22

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Comparison of the Six-Month Periods Ended June 30, 2009 and 2008

General Operating Results.Net loss for the six-month period ended June 30, 2009 was $539,000, or $(0.27) per basic and diluted common share, compared to net earnings of $40,000, or $.02 per basic and diluted common share, for the comparable period in 2008. The $579,000 change resulted primarily from an increase in noninterest expense of $1.3 million, and an increase of $145,000 in provision for loan losses, partially offset by a $14,000 increase in noninterest income, and a $579,000 increase in net interest income.

Interest Income.Interest income increased $574,000 to $6.9 million for the six-month period ended June 30, 2009, when compared to the six-month period ended June 30, 2008. The increase was due to a $52.0 million increase in average interest-earning assets outstanding for the six months ended June 30, 2009 compared to June 30, 2008, partially offset by a decrease in the average yield earned on interest-earning assets from 6.23% for the six months ended June 30, 2008, to 5.44% for the six months ended June 30, 2009.

Interest Expense.Interest expense decreased $5,000 for the six-month period ended June 30, 2009 compared to the six-month period ended June 30, 2008. The decrease was primarily due to a decrease in the average cost of interest-bearing liabilities from 4.18% for the six months ended June 30, 2008 to 3.18% partially offset by a $51.4 million increase in average interest-bearing liabilities outstanding for the comparable 2009 period. Average interest-bearing deposits increased from $158.2 million outstanding during the six months ended June 30, 2008 to $203.3 million outstanding during the comparable period for 2009.

Provision for Loan Losses.The provision for loan losses is charged to operations to increase the total loan loss allowance to a level deemed appropriate by management. The provision is based upon the volume and type of lending conducted by the Company, industry standards, general economic conditions, particularly as they relate to the Company’s market area, and other factors related to the collectibility of the Company’s loan portfolio. The Company recorded provisions for loan losses for the six-month periods ended June 30, 2009 and 2008 of $387,000 and $242,000, respectively. Management believes that the allowance for loan losses, which was $2.7 million or 1.17% of gross loans at June 30, 2009 is adequate.

Noninterest Income.Noninterest income increased $14,000 during the 2009 period. The increase was primarily due to a $26,000 increase in deposit account fees and a $10,000 increase in other noninterest income when compared to the six-month period ended June 30, 2008, partially offset by a $22,000 decrease in loan brokerage fees.

Noninterest Expense.Noninterest expense increased by $1.3 million from $2.9 million for the six-month period ended June 30, 2008 to $4.3 million for the six-month period ended June 30, 2009. The increase was primarily due to increases of $191,000 in salaries and employee benefits, $159,000 in occupancy and equipment expense, $55,000 in data processing expense, $625,000 for impairment of Silverton Bank Stock and $282,000 in other noninterest expense, all related to the overall growth of the Company.

Income Taxes.The income tax expense was $42,000 for the six-month period ended June 30, 2008 and the income tax benefit was $276,000 for the corresponding period in 2009.

23

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Item 4. Controls and Procedures

a. Evaluation of disclosure controls and procedures. The Company maintains controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based upon their evaluation of those controls and procedures performed within 90 days of the filing date of this report, the Principal Executive and Principal Financial officers of the Company concluded that the Company’s disclosure controls and procedures were adequate.

b. Changes in internal controls. The Company made no significant changes in its internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation of those controls by the Principal Executive and Principal Financial officers.

Part II - OTHER INFORMATION

Item 1. Legal Proceedings

There are no material pending legal proceedings to which Alarion Financial Services, Inc. or its subsidiaries is a party or to which any of their property is subject.

Item 1.A. Risk Factors

Not applicable

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities

Not applicable

Item 3. Defaults upon Senior Securities

Not applicable

Item 4. Submission of Matters to a Vote of Security Holders

The Annual Meeting of Shareholders (“Annual Meeting”) of Alarion Financial Services, Inc. was held at the Gainesville Country Club, 7300 SW 35^th Way, Gainesville, Florida on May 13, 2009, at 1:00 p.m. Eastern Time.

There were 2,653,208 outstanding shares entitled to be cast at the Annual Meeting, of which 1,326,605 represents a majority.

24

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Item 4. Submission of Matters to a Vote of Security Holders, Continued

At the Annual Meeting 1,448,921 shares were present in person or by proxy. The following is a summary and tabulation of the matters that were voted upon at the Annual Meeting:

PROPOSAL I.Election of the following directors, each for a one-year term:

	For	Withheld
Spencer R. Barrett	1,446,921	2,000
Carol R. Bosshardt	1,446,921	2,000
Gloria W. Fletcher	1,446,921	2,000
Michael P. Hill	1,446,921	2,000
Jon M. Kurtz	1,446,921	2,000
Ignacio L. Leon	1,446,921	2,000
Loralee W. Miller	1,446,921	2,000
Job E. White	1,446,921	2,000
Thomas W. Williams, Jr.	1,446,921	2,000

PROPOSAL II: Advisory vote on executive compensation:

For	Against	Abstain
1,337,621	64,050	47,250

PROPOSAL III: Ratification of the appointment of Hacker, Johnson & Smith PA as Alarion Bank’s independent auditor for the fiscal year ending December 31, 2009:

For	Against	Abstain
1,443,171	1,250	4,500

PROPOSAL IV. Adjournment of the Annual Meeting to solicit additional proxies in the event there are not sufficient votes to approve any one or more of the above Proposals:

For	Against	Abstain
1,415,621	10,500	22,800

Item 5. Other Information

Not applicable

25

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Item 6. Exhibits

Exhibits marked with an (a) were filed in the Holding Company’s Annual Report on Form 10-KSB, filed with the Securities and Exchange Commission on March 15, 2006. The Exhibits marked with a (b) were filed in the Holding Company’s Form 10-Q, filed with the Securities and Exchange Commission on May 15, 2008. Exhibit (c) was filed in the Annual Report on Form 10-KSB/A filed with the Commission on July 17, 2006. The Exhibits marked with a (d) were filed in Form 8-K filed with the Commission on January 27, 2009.

Exhibit No.		Description of Exhibit
3.1	(a)	Articles of Incorporation
3.2	(a)	Bylaws
3.3	(d)	Articles of Amendment to the Articles of Incorporation authorizing the Series A Preferred Shares
3.3	(d)	Articles of Amendment to the Articles of Incorporation authorizing the Series B Preferred Shares
4.1	(a)	Specimen Common Stock Certificate
4.2	(d)	Form of Certificate for Series A Preferred Stock
4.3	(c)	2005 Stock Plan
4.4	(d)	Form of Certificate for Series B Preferred Stock
4.5	(d)	Warrant to Purchase up to 327 shares of Series B Preferred Stock
10.1	(a)	Employment Agreement with Jon M. Kurtz
10.2	(a)	Lease for Main Office
10.3	(b)	Employment Agreement with Walter R. Czuryla
10.4	(b)	Employment Agreement with Robert L. Page
10.5	(d)	Letter Agreement between the Company and the UST
10.6	(d)	Form of Compliance Letter Agreement
10.7	(d)	Securities Purchase Agreement – Standard Terms between the Company and the United States Department of the Treasury
10.8	(d)	Side Letter Agreement between the Company and the UST
21.1	(a)	Schedule of Subsidiaries
31.1		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – President and Principal Executive Officer
31.2		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Principal Financial and Accounting Officer
32.1		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – President and Principal Executive Officer
32.2		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Principal Financial and Accounting Officer

26

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: August 11, 2009

Alarion Financial Services, Inc.
By:	/s/ Jon M. Kurtz
Name:	Jon M. Kurtz, President and Principal Executive Officer
By:	/s/ Matthew Ivers
Name:	Matthew Ivers, Senior Vice President and Principal Financial and Accounting Officer

27