Alarion Financial Services 10-Q 2010 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, 2010

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  ¨

*The registrant has not yet been phased into the interactive data requirements.

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 13, 2010

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

INDEX

Part I. FINANCIAL INFORMATION
Item 1.	Financial Statements	Page
Condensed Consolidated Balance Sheets - at June 30, 2010 (Unaudited) and at December  31, 2009		2
Condensed Consolidated Statements of Operations (Unaudited) - Three and Six Months ended June 30, 2010 and 2009		3
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) - Six Months ended June 30, 2010 and 2009		4-5
Condensed Consolidated Statements of Cash Flows (Unaudited) - Six Months ended June  30, 2010 and 2009		6
Notes to Condensed Consolidated Financial Statements (Unaudited)		7-12
Review by Independent Registered Public Accounting Firm		13
Report of Independent Registered Public Accounting Firm		14
Item 2.	Management’s Discussion and Analysis	15-22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23
Item 4.	Controls and Procedures	23
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.	(Removed and Reserved)	24
Item 5.	Other Information	24
Item 6.	Exhibits	25
SIGNATURES		26

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, 2010			At December  31, 2009
Assets	(unaudited)
Cash and due from banks	$	3,309		3,993
Interest bearing time deposits in banks		—		5,895
Interest-earning deposits and federal funds sold		20,010		12,210
Cash and cash equivalents		23,319		22,098
Interest bearing time deposits in banks		—		2,287
Securities available for sale		41,805		31,282
Loans, net of allowance for loan losses of $4,452 and $3,035		230,497		234,680
Accrued interest receivable		947		939
Premises and equipment, net		13,545		13,310
Other real estate owned		1,887		1,583
Federal Home Loan Bank stock, at cost		1,499		1,499
Deferred income taxes		2,429		1,156
Other assets		1,452		1,749
Total assets	$	317,380		310,583
Liabilities and Stockholders’ Equity
Liabilities:
Noninterest-bearing demand deposits		21,730		18,136
NOW, money-market and savings deposits		72,163		73,537
Time deposits < $100,000		95,966		97,322
Time deposits > = $100,000		71,892		60,994
Total deposits		261,751		249,989
Federal Home Loan Bank advances		21,000		21,000
Other borrowings		4,373		7,633
Accrued interest payable		569		640
Accrued expenses and other liabilities		1,326		615
Total liabilities		289,019		279,877
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		—		—
Preferred stock, Series B, $.01 par value; $1,000 liquidation value; 326 shares outstanding		—		—
Additional paid-in capital, preferred		6,840		6,840
Preferred stock discount		(232	)	(265	)
Common stock, $.01 par value; 4,000,000 shares authorized, 2,653,208 shares issued and outstanding		27		27
Additional paid-in capital, common		26,687		26,680
Accumulated deficit		(5,473	)	(2,531	)
Accumulated other comprehensive income (loss)		512		(45	)
Total stockholders’ equity		28,361		30,706
Total liabilities and stockholders’ equity	$	317,380		310,583

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,
	2010			2009		2010		2009
Interest income:
Loans	$	3,176		3,225		6,461		6,264
Securities		339		197		651		330
Other		9		155		42		295
Total interest income		3,524		3,577		7,154		6,889
Interest expense:
Deposits		1,148		1,603		2,324		3,238
Borrowings		173		207		350		410
Total interest expense		1,321		1,810		2,674		3,648
Net interest income		2,203		1,767		4,480		3,241
Provision for loan losses		4,504		293		5,294		387
Net interest (expense) income after provision for loan losses		(2,301	)	1,474		(814	)	2,854
Noninterest income:
Deposit account fees		103		91		198		182
Net gain on sales of loans held for sale		468		210		644		408
Other		94		6		132		20
Total noninterest income		665		307		974		610
Noninterest expense:
Salaries and employee benefits		1,123		887		2,068		1,818
Occupancy and equipment		298		271		591		533
Data processing		160		144		295		280
Professional services		106		81		205		162
Advertising and promotion		34		29		73		62
Office supplies and printing		32		32		63		62
Impairment of Silverton Bank stock		—		625		—		625
OREO expense		346		14		374		15
FDIC assessment		106		216		209		290
Other		385		217		621		432
Total noninterest expense		2,590		2,516		4,499		4,279
Loss before income tax benefit		(4,226	)	(735	)	(4,339	)	(815	)
Income tax benefit		(1,571	)	(262	)	(1,607	)	(276	)
Net loss		(2,655	)	(473	)	(2,732	)	(539	)
Preferred stock dividend requirements and accretion of preferred stock to par		105		105		210		185
Net loss available to common shareholders	$	(2,760	)	(578	)	(2,942	)	(724	)
Loss per common share – basic	$	(1.04	)	(0.22	)	(1.11	)	(0.27	)
Loss per common share – diluted	$	(1.04	)	(0.22	)	(1.11	)	(0.27	)
Weighted-average number of common shares outstanding, basic		2,653,208		2,653,208		2,653,208		2,653,208
Weighted-average number of common shares outstanding, diluted		2,653,208		2,653,208		2,653,208		2,653,208
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, 2010 and 2009

($ in thousands)

																Accumulated Other Comprehensive Income
	Preferred Stock									Common Stock
							Additional						Additional					Total
	Series A			Series B			Paid-in						Paid-In	Accumulated				Stockholders’
	Shares	Amount		Shares	Amount		Capital	Discount		Shares	Amount		Capital	Deficit				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

(continued)

4

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

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

Six Months Ended June 30, 2010 and 2009

($ in thousands)

																Accumulated Other Comprehensive (Loss) Income
	Preferred Stock									Common Stock
							Additional						Additional					Total
	Series A			Series B			Paid-in						Paid-In	Accumulated				Stockholders’
	Shares	Amount		Shares	Amount		Capital	Discount		Shares	Amount		Capital	Deficit				Equity
Balance at December 31, 2009	6,514	$	—	326	$	—	6,840	(265	)	2,653,208	$	27	26,680	(2,531	)	(45	)	30,706
Comprehensive loss:
Net loss (unaudited)	—		—	—		—	—	—		—		—	—	(2,732	)	—		(2,732	)
Net change in unrealized loss on securities available for sale, net of taxes of $334 (unaudited)	—		—	—		—	—	—		—		—	—	—		557		557
Comprehensive loss (unaudited)																		(2,175	)
Share-based compensation (unaudited)	—		—	—		—	—	—		—		—	7	—		—		7
Preferred stock dividend requirements and Series B preferred stock accretion (unaudited)	—		—	—		—	—	33		—		—	—	(210	)	—		(177	)
Balance at June 30, 2010 (unaudited)	6,514	$	—	326	$	—	6,840	(232	)	2,653,208	$	27	26,687	(5,473	)	512		28,361

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,
	2010			2009
Cash flows from operating activities:
Net loss	$	(2,732	)	(539	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Provision for loan losses		5,294		387
Share-based compensation		7		44
Depreciation and amortization		296		311
Net increase in loans held for sale		(2,308	)	(3,253	)
Deferred income tax benefit		(1,607	)	(276	)
Net amortization of deferred loan fees and costs		53		21
Write-off of other real estate owned		247		—
Net decrease in accrued interest payable		(71	)	(85	)
Net increase in accrued interest receivable		(8	)	(95	)
Net decrease (increase) in other assets		297		(84	)
Impairment of Silverton Bank stock		—		625
Net increase in accrued expenses and other liabilities		711		896
Net cash provided by (used in) operating activities		179		(2,048	)
Cash flows from investing activities:
Proceeds from principal repayments and maturities on securities available for sale		5,045		5,217
Purchase of securities available for sale		(14,677	)	(14,380	)
Net decrease (increase) in time deposits		2,287		(8,462	)
Net loan repayments (disbursements)		593		(19,850	)
Purchase of premises and equipment		(531	)	(189	)
Proceeds from sale of other real estate owned		—		51
Purchase of Federal Home Loan Bank stock		—		(75	)
Net cash used in investing activities		(7,283	)	(37,688	)
Cash flows from financing activities:
Net increase in deposits		11,762		31,057
Net decrease in advances from Federal Home Loan Bank		—		(1,000	)
Net (decrease) increase in other borrowings		(3,260	)	1,940
Proceeds from preferred stock issued		—		6,514
Preferred stock dividend requirements and Series B stock accretion		(177	)	(156	)
Net cash provided by financing activities		8,325		38,355
Net increase (decrease) in cash and cash equivalents		1,221		(1,381	)
Cash and cash equivalents at beginning of period		22,098		9,471
Cash and cash equivalents at end of period	$	23,319		8,090
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	2,745		3,733
Income taxes	$	—		—
Noncash transactions:
Accumulated other comprehensive income (loss), net change in unrealized gain on securities available for sale, net of taxes	$	557		(74	)
Transfer of loans to other real estate owned	$	551		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, 2010 and the results of operations for the three- and six-month periods ended June 30, 2010 and 2009 and cash flows for the six-month periods ended June 30, 2010 and 2009. The results of operations for the three- and six-month periods ended June 30, 2010, are not necessarily indicative of results that may be expected for the year ending December 31, 2010.

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.Securities.Securities have been classified according to management’s intent. The carrying amount of securities available for sale and their approximate fair values are as follows (in thousands):

	Amortized Cost		Gross Unrealized Gains	Gross Unrealized Losses		Fair Value
At June 30, 2010:
U.S. Government agency securities	$	5,098	80	—		5,178
Mortgage-backed securities		35,887	740	—		36,627
	$	40,985	820	—		41,805
At December 31, 2009:
U.S. Government agency securities		1,029	—	(24	)	1,005
Mortgage-backed securities		30,325	150	(198	)	30,277
	$	31,354	150	(222	)	31,282

The scheduled maturities of securities at June 30, 2010 are as follows (in thousands):

	Amortized Cost		Fair Value
Due from five to ten years	$	3,025	3,059
Due after ten years		2,073	2,119
Mortgage-backed securities		35,887	36,627
	$	40,985	41,805

(continued)

7

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

2.Securities, Continued.At June 30, 2010 and December 31, 2009, securities with a carrying value of approximately $12.5 million and $18.2 million, respectively, were pledged for other borrowings and public funds.

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

		At June 30,			At December 31,
		2010			2009
Commercial real estate		$	148,815		144,234
Residential real estate and home equity			46,869		45,877
Residential mortgages held for sale			8,633		6,325
Construction			7,072		15,400
Commercial			20,469		22,362
Consumer			2,734		3,130
Total loans			234,592		237,328
Add/Deduct:	Allowance for loan losses		(4,452	)	(3,035	)
	Deferred loan costs, net		357		387
Loans, net		$	230,497		234,680

4.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,
	2010			2009		2010		2009
Beginning balance	$	3,825		2,457		3,035		2,714
Provision for loan losses		4,504		293		5,294		387
Recoveries		55		—		55		—
Charge-offs		(3,932	)	(64	)	(3,932	)	(415	)
Ending balance	$	4,452		2,686		4,452		2,686

(continued)

8

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

4.Loan Impairment and Loan Losses, Continued.The following is a summary of information regarding nonaccrual and impaired loans (in thousands):

	At June 30,			At December 31,
	2010			2009
Nonaccrual loans	$	8,040		2,842
Accruing loans past due ninety days or more	$	—		—
Collateral dependent loans identified as impaired:
Gross loans with no related allowance for losses		6,073		1,932
Gross loans with related allowance for losses recorded		68		1,667
Less allowances on these loans		(33	)	(246	)
Net loans with related allowance		35		1,421
Net investment in collateral dependent impaired loans		6,108		3,353
Noncollateral dependent loans identified as impaired:
Gross loans with no related allowance for losses		6,294		1,034
Gross loans with related allowance for losses recorded		6,157		2,094
Less allowance on these loans		(1,435	)	(513	)
Net loans with related allowance		4,722		1,581
Net investment in noncollateral dependent impaired loans		11,016		2,615
Net investment in impaired loans	$	17,124		5,968

The average net investment in impaired loans and interest income recognized and received on impaired loans are as follows (in thousands):

	Three Months Ended June  30,			Six Months Ended June  30,
	2010		2009	2010	2009
Interest income recognized on impaired loans	$	44	—	116	—
Interest income received on impaired loans	$	44	—	116	—
Average net recorded investment in impaired loans	$	12,660	3,027	12,598	3,176

(continued)

9

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

5.Loss Per Share.Basic loss per share has been computed on the basis of the weighted-average number of shares of common stock outstanding during the periods, which was 2,653,208 shares during the three- and six-month periods ended June 30, 2010 and 2009. All outstanding stock options are not dilutive due to the net losses of the Company.

6.Share-Based Compensation. 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, 2010, there were 100,162 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, 2010, follows:

	Number of Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
Options outstanding at December 31, 2009	276,069		$	10.12
Options forfeited	(1,766	)		10.42
Options outstanding at June 30, 2010	274,303		$	10.12	6.39 years	$	—
Options exercisable at June 30, 2010	266,795		$	10.13	6.33 years	$	—

No options have been granted during 2010. The fair value of each option granted for the six-month period ended June 30, 2009 were estimated on the date of the grant using the Black-Scholes option-pricing model with the following assumptions:

Risk-free interest rate		1.46	%
Dividend yield		—	%
Expected stock volatility		10.00	%
Expected life in years		5.50
Per share grant-date fair value of options issued during the period	$	1.29

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.

(continued)

10

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

6.Share-Based Compensation, Continued. There were no options exercised during the six month periods ended June 30, 2010 and 2009. At June 30, 2010, there was approximately $6,000 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 seven months. The total fair value of shares vesting and recognized as compensation was approximately $7,000 and $44,000 for the six month periods ended June 30, 2010 and 2009, respectively.

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

	Fair Value Measurements at Reporting Date Using
	Fair Value		Quoted Prices In Active Markets  for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level  3)
As of June 30, 2010-
Available-for-sale securities	$	41,805	—	41,805	—
As of December 31, 2009-
Available-for-sale securities	$	31,282	—	31,282	—

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, 2010						Ended
						Total	June 30,
	Total		Level 1	Level 2	Level 3	Losses	2010
As of June 30, 2010:
Impaired loans	$	35	—	—	35	33	33
Other real estate owned	$	1,887	—	—	1,887	314	247

In addition, loans with a carrying value of $6,073,000 at June 30, 2010 were measured for impairment using Level 3 inputs and had a fair value in excess of carrying value.

(continued)

11

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

7.Fair Value Measurements, Continued. Assets measured at fair value on a nonrecurring basis are summarized below (in thousands):

							Total
							Losses
							Recorded
							In Operations
							For the Year
	Net Carrying Value at December 31, 2009						Ended
						Total	December 31,
	Total		Level 1	Level 2	Level 3	Losses	2009
As of December 31, 2009:
Impaired loans	$	1,421	—	—	1,421	246	238
Other real estate owned	$	1,583	—	—	1,583	76	76

In addition, loans with a carrying value of $1,932,000 at December 31, 2009 were measured for impairment using Level 3 inputs and had a fair value in excess of carrying value.

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

	At June 30, 2010			At December 31, 2009
	Carrying Amount		Fair Value	Carrying Amount	Fair Value
Financial assets:
Cash and cash equivalents	$	23,319	23,319	22,098	22,098
Interest bearing time deposits in banks		—	—	2,287	2,287
Securities available for sale		41,805	41,805	31,282	31,282
Loans, net		230,497	232,290	234,680	237,399
Accrued interest receivable		947	947	939	939
Federal Home Loan Bank stock		1,499	1,499	1,499	1,499
Financial liabilities:
Deposits		261,751	263,805	249,989	253,975
Other borrowings		4,373	4,373	7,633	7,633
Federal Home Loan Bank advances		21,000	19,296	21,000	19,788
Accrued interest payable		569	569	640	640
Off-balance-sheet financial instruments		—	—	—	—

12

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, 2010, and for the three- and six-month periods ended June 30, 2010 and 2009 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.

13

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, 2010, the related condensed consolidated statements of operations for the three- and six-month periods ended June 30, 2010 and 2009, and the related condensed consolidated statements of cash flows and changes in stockholders’ equity for the six-month periods ended June 30, 2010 and 2009. 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, 2009, 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 30, 2010, 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, 2009, 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 13, 2010

14

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.

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.

15

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

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, 2010 (in thousands):

Contractual Obligations	Total
Time deposit maturities	$	167,858
Advances from Federal Home Loan Bank		21,000
Other borrowings		4,373
Commitments to extend credit		2,668
Unused lines of credit		20,334
Standby letters of credit		379
Total	$	216,612

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.

16

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, 2010, 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, 2010 and December 31, 2009, and the minimum required amounts and percentages ($ in thousands).

									For Well
					For Capital				Capitalized
	Actual				Adequacy Purposes				Purposes
	Amount		Percent		Amount		Percent		Amount		Percent
As of June 30, 2010:
Total capital (to Risk-Weighted Assets)	$	26,514	11.16	%	$	19,006	8.00	%	$	23,758	10.00	%
Tier I Capital (to Risk-Weighted Assets)		23,527	9.90			9,506	4.00			14,259	6.00
Tier I Capital (to Average Assets)		23,527	7.46			12,615	4.00			15,769	5.00
As of December 31, 2009:
Total capital (to Risk-Weighted Assets)		28,332	11.49			19,726	8.00			24,658	10.00
Tier I Capital (to Risk-Weighted Assets)		25,297	10.26			9,862	4.00			14,794	6.00
Tier I Capital (to Average Assets)		25,297	8.37			12,089	4.00			15,112	5.00

17

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, 2010		Year Ended December 31, 2009		Six Months Ended June 30, 2009
Average equity as a percentage of average assets	9.45	%	10.56	%	10.69	%
Total equity to total assets at end of period	8.94	%	9.89	%	10.24	%
Return on average assets (1)	(1.74	)%	—	%	(.39	)%
Return on average equity (1)	(18.46	)%	0.02	%	(3.63	)%
Noninterest expense to average assets (1)	2.87	%	2.75	%	3.08	%
Nonperforming loans to total loans at end of period (2)	3.49	%	1.21	%	.17	%

(1) Annualized for the six-months ended June 30, 2010 and 2009.

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

Changes in Financial Condition

Total assets increased $6 million or 2%, from $311 million at December 31, 2009 to $317 million at June 30, 2010, primarily as a result of an $11 million increase in securities. Deposits increased $12 million from $250 million at December 31, 2009 to $262 million at June 30, 2010.

18

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,
	2010						2009
	Average Balance		Interest and Dividends		Average Yield/ Rate		Average Balance		Interest and Dividends		Average Yield/ Rate
	($ in thousands)
Interest-earning assets:
Loans	$	229,680		3,176	5.55	%	$	217,673		3,225	5.94	%
Securities		41,164		339	3.30			20,777		197	3.80
Other (1)		20,454		9	0.18			29,513		155	2.11
Total interest-earning assets		291,298		3,524	4.85			267,963		3,577	5.35
Noninterest-earning assets		27,270						22,446
Total assets	$	318,568					$	290,409
Interest-bearing liabilities:
Deposits		240,039		1,148	1.92			210,599		1,603	3.05
Federal Home Loan Bank advances and other borrowings		25,643		173	2.71			29,551		207	2.81
Total interest-bearing liabilities		265,682		1,321	1.99			240,150		1,810	3.02
Noninterest-bearing deposits		21,948						18,596
Noninterest-bearing liabilities		1,745						907
Stockholders’ equity		29,193						30,756
Total liabilities and stockholders’ equity	$	318,568					$	290,409
Net interest income			$	2,203					$	1,767
Interest-rate spread					2.86	%					2.33	%
Net interest margin (2)					3.03	%					2.64	%
Ratio of interest-earning assets to interest-bearing liabilities		1.10						1.12

(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.

19

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,
	2010							2009
	Average Balance		Interest and Dividends			Average Yield/ Rate		Average Balance		Interest and Dividends		Average Yield/ Rate
	($ in thousands)
Interest-earning assets:
Loans	$	231,311		6,461		5.63	%	$	213,300		6,264	5.92	%
Securities		38,169		651		3.44			17,212		330	3.87
Other (1)		20,679		42		0.41			24,737		295	2.40
Total interest-earning assets		290,159		7,154	��	4.97			255,249		6,889	5.44
Noninterest-earning assets		25,727							24,615
Total assets	$	315,886						$	279,864
Interest-bearing liabilities:
Deposits		237,165		2,324		1.98			203,326		3,238	3.21
Federal Home Loan Bank advances and other borrowings		26,008		350		2.71			28,274		410	2.92
Total interest-bearing liabilities		263,173		2,674		2.05			231,600		3,648	3.18
Noninterest-bearing deposits		21,319							17,628
Noninterest-bearing liabilities		1,544							719
Stockholders’ equity		29,850							29,917
Total liabilities and stockholders’ equity	$	315,886						$	279,864
Net interest income			$	4,480						$	3,241
Interest-rate spread						2.92	%					2.27	%
Net interest margin (2)						3.11	%					2.56	%
Ratio of interest-earning assets to interest-bearing liabilities		1.10							1.10

(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

Comparison of the Three-Month Periods Ended June 30, 2010 and 2009

General Operating Results.Net loss for the three-month period ended June 30, 2010 was $2.7 million, or $(1.04) per basic and diluted common share, compared to a net loss of $473,000, or $(.22) per basic and diluted common share, for the comparable period in 2009. The $2.2 million change resulted primarily from an increase in noninterest expense of $74,000 and an increase of $4.2 million in provision for loan losses, partially offset by a $358,000 increase in noninterest income, and a $436,000 increase in net interest income.

Interest Income.Interest income decreased $53,000 to $3.5 million for the three-month period ended June 30, 2010, when compared to the three-month period ended June 30, 2009. The decrease was due to a decrease in the average yield earned on interest-earning assets from 5.35% for the three-months ended June 30, 2009 to 4.85% for three-months ended June 30, 2010, partially offset by a $23.3 million increase in average interest-earning assets outstanding for the three-months ended June 30, 2010 compared to the 2009 period.

Interest Expense.Interest expense decreased $489,000 for the three-month period ended June 30, 2010 compared to the three-month period ended June 30, 2009. The decrease was primarily due to a decrease in the average cost of interest-bearing liabilities from 3.02% for the three-months ended June 30, 2009 to 1.99% for the comparable 2010 period, partially offset by an increase of $25.5 million in average interest-bearing liabilities outstanding. Average interest-bearing deposits increased from $210.6 million outstanding during the three-months ended June 30, 2009 to $240.0 million outstanding during the comparable period for 2010.

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, 2010 and 2009 of $4.5 million and $293,000, respectively. Management believes that the allowance for loan losses, which was $4.5 million or 1.89% of gross loans at June 30, 2010 is adequate.

Noninterest Income.Noninterest income increased $358,000 during the 2010 period. The increase was primarily due to a $12,000 increase in deposit account fees, a $88,000 increase in other noninterest income and a $258,000 increase in loan brokerage fees when compared to the three-month period ended June 30, 2009.

Noninterest Expense.Noninterest expense increased by $74,000 from $2.5 million for the three-month period ended June 30, 2009 to $2.6 million for the three-month period ended June 30, 2010. The increase was primarily due to increases of $236,000 in salaries and employee benefits, $27,000 in occupancy and equipment expense, $16,000 in data processing expense, $332,000 in OREO expense, and $168,000 in other noninterest expense, all related to the overall growth of the Company partially offset by a reduction of $625,000 on impairment of Silverton Bank stock.

Income Taxes.The income tax benefit was $1.6 million for the three-month period ended June 30, 2010. The income tax benefit was $262,000 for the corresponding period in 2009.

21

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Comparison of the Six-Month Periods Ended June 30, 2010 and 2009

General Operating Results.Net loss for the six-month period ended June 30, 2010 was $2.7 million, or $(1.11) per basic and diluted common share, compared to a net loss of $539,000, or $(0.27) per basic and diluted common share, for the comparable period in 2009. The $2.2 million change resulted primarily from an increase in noninterest expense of $220,000, and an increase of $4.9 million in provision for loan losses, partially offset by a $364,000 increase in noninterest income, and a $1.2 million increase in net interest income.

Interest Income.Interest income increased $265,000 to $7.2 million for the six-month period ended June 30, 2010, when compared to the six-month period ended June 30, 2009. The increase was due to a $34.9 million increase in average interest-earning assets outstanding for the six months ended June 30, 2010 compared to June 30, 2009, partially offset by a decrease in the average yield earned on interest-earning assets from 5.44% for the six months ended June 30, 2009, to 4.97% for the six months ended June 30, 2010.

Interest Expense.Interest expense decreased $974,000 for the six-month period ended June 30, 2010 compared to the six-month period ended June 30, 2009. The decrease was primarily due to a decrease in the average cost of interest-bearing liabilities from 3.18% for the six months ended June 30, 2009 to 2.05% partially offset by a $31.6 million increase in average interest-bearing liabilities outstanding for the comparable 2010 period. Average interest-bearing deposits increased from $203.3 million outstanding during the six months ended June 30, 2009 to $237.2 million outstanding during the comparable period for 2010.

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, 2010 and 2009 of $5.3 million and $387,000, respectively. Management believes that the allowance for loan losses, which was $4.5 million or 1.89% of gross loans at June 30, 2010 is adequate.

Noninterest Income.Noninterest income increased $346,000 during the 2010 period. The increase was primarily due to a $16,000 increase in deposit account fees, a $112,000 increase in other noninterest income and a $236,000 increase in loan brokerage fees when compared to the six-month period ended June 30, 2009.

Noninterest Expense.Noninterest expense increased by $220,000 from $4.3 million for the six-month period ended June 30, 2009 to $4.5 million for the six-month period ended June 30, 2010. The increase was primarily due to increases of $250,000 in salaries and employee benefits, $58,000 in occupancy and equipment expense, $15,000 in data processing expense, $359,000 in OREO expense and $189,000 in other noninterest expense, all related to the overall growth of the Company partially offset by a reduction of $625,000 on impairment of Silverton Bank stock.

Income Taxes.The income tax benefit was $276,000 for the six-month period ended June 30, 2009 and the income tax benefit was $1.6 million for the corresponding period in 2010.

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ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable

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 as of June 30, 2010, the Principal Executive and Principal Financial Officer 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 over financial reporting during the quarter ended June 30, 2010 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

c. Limitations on Effectiveness of Controls. The Company, including its Principal Executive Officer and Principal Financial Officer, does not expect that our disclosure controls and internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

23

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

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. (Removed and Reserved)

Item 5. Other Information

Not applicable

24

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
3.4(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
10.9(d)	Form of Waiver
21.1	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

25

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 13, 2010

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

26