Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

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 March 31, 2011

¨	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):

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 May 13, 2011

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

INDEX


			Page
Part I. FINANCIAL INFORMATION

	Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets - at March 31, 2011 (Unaudited) and at December 31, 2010			2

	Condensed Consolidated Statements of Operations (Unaudited) - Three Months ended March 31, 2011 and 2010			3

	Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) - Three Months ended March 31, 2011 and 2010			4-5

	Condensed Consolidated Statements of Cash Flows (Unaudited) - Three Months ended March 31, 2011 and 2010			6

	Notes to Condensed Consolidated Financial Statements (Unaudited)			7-17

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		18-23

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		24

	Item 4.	Controls and Procedures		24

Part II. OTHER INFORMATION

	Item 1.	Legal Proceedings		25

	Item 1.A.	Risk Factors		25

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		25

	Item 3.	Defaults upon Senior Securities		25

	Item 4.	(Removed and Reserved)		25

	Item 5.	Other Information		25

	Item 6.	Exhibits		26

SIGNATURES				27

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 March 31, 2011			At December 31, 2010
	(unaudited)
Assets
Cash and due from banks	$	10,190			3,127
Interest-earning deposits		123			262
Federal funds sold		17,265			3,015

Cash and cash equivalents		27,578			6,404
Securities available for sale		48,714			49,304
Loans, net of allowance for loan losses of $4,593 and $4,115		211,155			213,069
Loans held for sale		3,851			7,395
Accrued interest receivable		916			903
Premises and equipment, net		13,400			13,418
Other real estate owned, net		5,840			6,359
Federal Home Loan Bank stock, at cost		1,544			1,409
Deferred income taxes		3,184			3,347
Other assets		1,275			1,382

Total assets	$	317,457			302,990


Liabilities and Stockholders’ Equity
Liabilities:
Noninterest-bearing demand deposits		31,313			26,778
NOW, money-market and savings deposits		91,323			76,476
Time deposits less than $100,000		85,884			89,016
Time deposits greater than $100,000		54,186			59,074

Total deposits		262,706			251,344
Federal Home Loan Bank advances		22,000			21,000
Other borrowings		4,454			3,054
Accrued interest payable		447			436
Accrued expenses and other liabilities		1,042			522

Total liabilities		290,649			276,356


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		(184	)		(200	)
Common stock, $.01 par value; 4,000,000 shares authorized, 2,653,208 shares issued and outstanding		27			27
Additional paid-in capital, common		26,694			26,693
Accumulated deficit		(6,233	)		(6,111	)
Accumulated other comprehensive loss		(336	)		(615	)

Total stockholders’ equity		26,808			26,634

Total liabilities and stockholders’ equity	$	317,457			302,990

See accompanying Notes to Condensed Consolidated Financial Statements.

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)

($ in thousands, except per share amounts)


	Three Months Ended March 31,
	2011			2010
Interest income:
Loans	$	2,994			3,286
Securities		318			311
Other		4			33

Total interest income		3,316			3,630


Interest expense:
Deposits		858			1,176
Borrowings		168			177

Total interest expense		1,026			1,353

Net interest income		2,290			2,277
Provision for loan losses		525			790

Net interest income after provision for loan losses		1,765			1,487


Noninterest income:
Deposit account fees		93			95
Gain on sales of loans held for sale		234			175
Other		45			38

Total noninterest income		372			308


Noninterest expense:
Salaries and employee benefits		1,042			945
Occupancy and equipment		297			292
Data processing		136			135
Professional services		143			99
Advertising and promotion		40			39
Office supplies and printing		38			31
OREO expense		64			28
FDIC assessment		145			102
Other		253			237

Total noninterest expense		2,158			1,908

Loss before income tax benefit		(21	)		(113	)
Income tax benefit		(4	)		(36	)

Net loss		(17	)		(77	)
Preferred stock dividend requirements and accretion of preferred stock to par		105			104

Net loss available to common shareholders	$	(122	)		(181	)

Loss per common share – basic and diluted	$	(0.05	)		(0.07	)

Weighted-average number of common shares outstanding, basic		2,653,208			2,653,208

Dividends per common share	$	—			—

See accompanying Notes to Condensed Consolidated Financial Statements.

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

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

Three Months Ended March 31, 2011 and 2010

($ 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			Loss			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)		—		—		—		—		—		—			—		—		—		(77	)		—			(77	)
Net change in unrealized loss on securities available for sale, net of taxes of $22 (unaudited)		—		—		—		—		—		—			—		—		—		—			35			35

Comprehensive loss (unaudited)																											(42	)

Share-based compensation (unaudited)		—		—		—		—		—		—			—		—		4		—			—			4
Preferred stock dividend requirements and Series B preferred stock accretion (unaudited)		—		—		—		—		—		17			—		—		—		(104	)		—			(87	)

Balance at March 31, 2010 (unaudited)		6,514	$	—		326	$	—		6,840		(248	)		2,653,208	$	27		26,684		(2,712	)		(10	)		30,581

(continued)

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

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

Three Months Ended March 31, 2011 and 2010

($ in thousands)


	Preferred Stock													Common Stock									Accumulated Other
	Series A				Series B				Additional Paid-in									Additional Paid-In		Accumulated			Comprehensive Income			Total Stockholders’
	Shares		Amount		Shares		Amount		Capital		Discount			Shares		Amount		Capital		Deficit			(Loss)			Equity
Balance at December 31, 2010		6,514	$	—		326	$	—		6,840		(200	)		2,653,208	$	27		26,693		(6,111	)		(615	)		26,634


Comprehensive loss:
Net loss (unaudited)		—		—		—		—		—		—			—		—		—		(17	)		—			(17	)
Net change in unrealized loss on securities available for sale, net of taxes of $(167) (unaudited)		—		—		—		—		—		—			—		—		—		—			279			279

Comprehensive income (unaudited)																											262

Share-based compensation (unaudited)		—		—		—		—		—		—			—		—		1		—			—			1
Preferred stock dividend requirements and Series B preferred stock accretion (unaudited)		—		—		—		—		—		16			—		—		—		(105	)		—			(89	)

Balance at March 31, 2011 (unaudited)		6,514	$	—		326	$	—		6,840		(184	)		2,653,208	$	27		26,694		(6,233	)		(336	)		26,808

See accompanying Notes to Condensed Consolidated Financial Statements.

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)


	Three Months Ended March 31,
	2011			2010
Cash flows from operating activities:
Net loss	$	(17	)		(77	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Provision for loan losses		525			790
Share-based compensation		1			4
Depreciation and amortization		141			155
Gain on sale of loans held for sale		(234	)		(175	)
Loans originated for sale		(12,302	)		(12,996	)
Proceeds from loans sold		16,080			14,588
Net amortization of premiums and discounts on securities available for sale		200			79
Deferred income tax benefit		(4	)		(37	)
Net amortization of deferred loan fees and costs		30			20
Loss on sale of other real estate owned		40			—
Net increase (decrease) in accrued interest payable		11			(4	)
Net increase in accrued interest receivable		(13	)		(18	)
Net decrease in other assets		107			151
Net increase in accrued expenses and other liabilities		520			586

Net cash provided by operating activities		5,085			3,066


Cash flows from investing activities:
Proceeds from principal repayments and maturities on securities available for sale		2,951			2,032
Purchase of securities available for sale		(2,115	)		(12,618	)
Net decrease in time deposits		—			990
Net decrease (increase) in loans		1,268			(2,573	)
Purchase of premises and equipment		(123	)		(48	)
Proceeds from sale of other real estate owned		570			—
Purchase of Federal Home Loan Bank stock		(135	)		—

Net cash provided by (used in) investing activities		2,416			(12,217	)


Cash flows from financing activities:
Net increase in deposits		11,362			10,005
Net increase (decrease) in other borrowings		1,400			(2,960	)
Net increase in advances from Federal Home Loan Bank		1,000			—
Preferred stock dividend requirements and Series B stock accretion		(89	)		(87	)

Net cash provided by financing activities		13,673			6,958

Net increase (decrease) in cash and cash equivalents		21,174			(2,193	)
Cash and cash equivalents at beginning of period		6,404			22,098

Cash and cash equivalents at end of period	$	27,578			19,905


Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	1,015			1,357

Income taxes	$	—			—


Noncash transactions:
Accumulated other comprehensive income, net change in unrealized gain (loss) on securities available for sale, net of taxes	$	279			35

Transfer of loans to other real estate owned	$	91			—

See accompanying Notes to Condensed Consolidated Financial Statements.

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 March 31, 2011 and the results of operations and cash flows for the three-month periods ended March 31, 2011 and 2010. The results of operations for the three-month period ended March 31, 2011, are not necessarily indicative of results that may be expected for the year ending December 31, 2011.

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 than desirable term hold to realize reasonable or full economic value.

Recent Accounting Standards Update. In January 2010, the FASB issued ASU No. 2010-06, Improving Disclosures about Fair Value Measurements (Topic 820), which amends the guidance for fair value measurements and disclosures. The guidance in ASU 2010-06 requires a reporting entity to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and to describe the reasons for the transfers. Furthermore, ASU 2010-06 requires a reporting entity to present separately information about purchases, sales, issuances, and settlements in the reconciliation for fair value measurements using significant unobservable inputs; clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value; and amends guidance on employers’ disclosures about postretirement benefit plan assets to require that disclosures be provided by classes of assets instead of by major categories of assets. The ASU was effective for interim and annual reporting periods beginning January 1, 2010, except for the disclosures about purchases, sales, issuances, and settlements in the rollforward of activity in Level 3 fair value measurements. Those disclosures were effective January 1, 2011 and for interim periods thereafter. In the period of initial adoption, entities will not be required to provide the amended disclosures for any previous periods presented for comparative purposes. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

In July 2010, the FASB issued ASU No. 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. The new disclosures will require significantly more information about credit quality in a financial institution’s loan portfolio. This statement addresses only disclosures and does not change recognition or measurement of the allowance. For public entities, the disclosures as of the end of a reporting period was effective for interim and annual reporting periods ending on December 31, 2010. The disclosures about activity that occurs during a reporting period was effective for interim and annual reporting periods beginning on or after January 1, 2011. For nonpublic entities, the disclosures are effective for annual reporting periods ending on or after December 15, 2011. The adoption of the ASU did not have a material impact on the Company’s consolidated financial statements.

(continued)

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Basis of Presentation, Continued.

In January 2011, the FASB issued ASU No. 2011-01, Receivables (Topic 310) Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20. The amendments in this Update delay the effective date of the disclosures about troubled debt restructurings in Update 2010-20 for public entities. The effective date of the new disclosures about troubled debt restructurings for public entities and the guidance for determining what constitutes a troubled debt restructuring is effective as outlined in ASU No. 2011-02. The adoption of the ASU is not expected to have a material impact on the Company’s consolidated financial statements.

In April 2011, the FASB issued ASU No. 2011-02, Receivables (Topic 310) A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring. This amends the guidance for troubled debt restructurings. The guidance clarifies the guidance on a creditor’s evaluation of whether it has granted a concession and whether a debtor is experiencing financial difficulties. For public entities, the amendments are effective for first interim or annual period beginning on or after June 15, 2011 and should be applied retrospectively to the beginning of the annual period of adoption. For nonpublic entities, the amendments are effective for annual periods ending on or after December 15, 2012, including interim periods within those annual periods. The adoption of the ASU is not expected to have a material impact on the Company’s consolidated financial statements.

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 March 31, 2011-*
Mortgage-backed securities	$	49,252		120		(658	)		48,714


*At December 31, 2010-*
Mortgage-backed securities	$	50,288		77		(1,061	)		49,304

At March 31, 2011 and December 31, 2010, securities with a carrying value of approximately $9.9 million and $10.5 million, respectively, were pledged for other borrowings and public funds.

(continued)

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

2. Securities, Continued. There were no sales of securities during the three months ended March 31, 2011 and 2010.

Securities with gross unrealized losses at March 31, 2011, aggregated by investment category and length of time that individual securities have been in a continuous loss position, is as follows (in thousands):


	Less Than Twelve Months
	Gross Unrealized Losses			Fair Value
*Securities Available for Sale-*
Mortgage-backed securities	$	(658	)		35,587

The unrealized losses on nineteen investment securities were caused by interest rate changes. It is expected that the securities would not be settled at a price less than the par value of the investments. Because the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Company has the ability and intent to hold these investments until a market price recovery or maturity, these investments are not considered other-than-temporarily impaired.

(continued)

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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


	At March 31, 2011			At December 31, 2010
Real estate loans:
Office/retail	$	43,556			43,687
Multi-family		9,482			9,518
Land		22,821			23,345
Line of credit		9,501			9,088
Other		55,763			54,953
Residential		32,633			32,667
Construction		5,307			4,819
Home equity		10,237			10,676
Commercial		18,702			20,587
Consumer		7,385			7,471


Total loans		215,387			216,811

Allowance for loan losses		(4,593	)		(4,115	)
Deferred loan costs, net		361			373


Loans, net	$	211,155			213,069

An analysis of the change in the allowance for loan losses follows (in thousands):


	Three Months Ended March 31,
	2011																													2010
	Office/ Retail		Multi- Family		Land			Line of Credit		Other			Residential			Home Construction		Equity			Commercial			Consumer			Total			2010
Beginning balance	$	991		9		583			622		785			350			23		121			427			204			4,115			3,035
Provision for loan losses		28		—		38			10		(1	)		119			431		(115	)		(315	)		330			525			790
Recoveries		—		—		—			—		—			—			—		—			—			1			1			—
Charge-offs		—		—		(5	)		—		—			(15	)		—		—			(25	)		(3	)		(48	)		—

Ending balance	$	1,019		9		616			632		784			454			454		6			87			532			4,593			3,825


Individually evaluated for impairment:
Recorded investment	$	2,885		—		8,029			912		1,349			651			898		—			70			83			14,877

Balance in allowance for loan losses	$	668		—		337			476		192			173			—		—			84			178			2,108

Collectively evaluated for impairment:
Recorded investment	$	39,652		9,472		14,176			7,957		53,629			31,528			3,954		10,231			18,548			6,770			195,917

Balance in allowance for loan losses	$	351		10		279			156		593			281			455		6			—			354			2,485

(continued)

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

3. Loans, Continued. The following summarizes the loan credit quality (in thousands):


Credit Risk Profile by Internally Assigned Grade:	Office/ Retail		Multi- Family		Land		LOC		Other		Residential Real Estate		Construction		HELOC		Commercial		Consumer		Total
*March 31, 2011:*
Grade:
Pass	$	34,091		9,482		12,790		5,778		50,233		30,508		4,409		10,188		16,678		6,707		180,864
Special mention		4,725		—		1,665		2,011		3,470		918		—		49		920		349		14,107
Substandard		4,740		—		8,366		1,712		2,060		1,207		898		—		1,104		329		20,416
Doubtful		—		—		—		—		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—		—		—		—		—

Total	$	43,556		9,482		22,821		9,501		55,763		32,633		5,307		10,237		18,702		7,385		215,387


*December 31, 2010:*
Grade:
Pass		38,560		9,518		13,812		5,365		49,605		30,908		3,895		10,627		18,450		6,769		187,509
Special mention		408		—		1,371		2,010		3,278		594		—		49		897		352		8,959
Substandard		4,719		—		8,162		1,713		2,070		1,165		924		—		1,240		350		20,343
Doubtful		—		—		—		—		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—		—		—		—		—

Total	$	43,687		9,518		23,345		9,088		54,953		32,667		4,819		10,676		20,587		7,471		216,811

Internally assigned loan grades are defined as follows:

Pass – A Pass loan’s primary source of loan repayment is satisfactory, with secondary sources very likely to be realized if necessary.

Special Mention – A Special Mention loan has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in the deterioration of the repayment prospects for the asset or the Company’s credit position at some future date. Special Mention loans are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.

Substandard – A Substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful – A loan classified Doubtful has all the weaknesses inherent in one classified Substandard with the added characteristics that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loss – A loan classified Loss is considered uncollectible and of such little value that continuance as a bankable asset is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future.

(continued)

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

3. Loans, Continued. Age analysis of past-due loans is as follows (in thousands):


	Accruing Loans
	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current		Nonaccrual Loans		Total Loans
*At March 31, 2011:*
Real estate loans:
Office/retail	$	—		3,480		—		3,480		39,613		463		43,556
Multi-family		—		—		—		—		9,482		—		9,482
Land		257		355		—		612		19,302		2,907		22,821
Line of credit		1,366		—		—		1,366		8,135		—		9,501
Other		193		—		—		193		54,028		1,542		55,763
Residential		1,573		—		—		1,573		30,236		824		32,633
Construction		—		—		—		—		5,307		—		5,307
Home equity		—		—		—		—		10,237		—		10,237
Commercial		—		—		—		—		18,548		154		18,702
Consumer		25		210		—		235		6,983		167		7,385

Total	$	3,414		4,045		—		7,459		201,871		6,057		215,387


*At December 31, 2010:*
Real estate loans:
Office/retail		392		2,620		—		3,012		40,206		469		43,687
Multi-family		—		—		—		—		9,518		—		9,518
Land		3,109		5		—		3,114		17,533		2,698		23,345
Line of credit		—		—		—		—		9,088		—		9,088
Other		—		—		—		—		53,417		1,536		54,953
Residential		496		358		—		854		31,031		782		32,667
Construction		—		—		—		—		4,819		—		4,819
Home equity		—		—		—		—		10,676		—		10,676
Commercial		91		—		—		91		20,338		158		20,587
Consumer		144		194		—		338		6,944		189		7,471

Total	$	4,232		3,177		—		7,409		203,570		5,832		216,811

(continued)

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

3. Loans, Continued. The following summarizes the amount of impaired loans (in thousands):


	With No Related Allowance Recorded						With an Allowance Recorded						Total
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
*March 31, 2011:*
Real estate loans:
Office/retail	$	—		—		—		2,885		3,707		668		2,885		3,707		668
Multi-family		—		—		—		—		—		—		—		—		—
Land		4,816		6,114		—		3,213		3,666		337		8,029		9,780		337
Line of credit		—		—		—		912		1,388		476		912		1,388		476
Other		1,228		1,228		—		121		383		192		1,349		1,611		192
Residential		371		371		—		280		453		173		651		824		173
Construction		898		898		—		—		—		—		898		898		—
Home equity		—		—		—		—		—		—		—		—		—
Commercial		70		70		—		—		84		84		70		154		84
Consumer		—		—		—		83		261		178		83		261		178

	$	7,383		8,681		—		7,494		9,942		2,108		14,877		18,623		2,108


*December 31, 2010:*
Real estate loans:
Office/retail		—		—		—		2,858		3,681		667		2,858		3,681		667
Multi-family		—		—		—		—		—		—		—		—		—
Land		4,625		5,936		—		3,200		3,652		337		7,825		9,588		337
Line of credit		—		—		—		912		1,388		476		912		1,388		476
Other		1,228		1,228		—		116		377		192		1,344		1,605		192
Residential		621		707		—		127		161		34		748		868		34
Construction		923		923		—		—		—		—		923		923		—
Home equity		—		—		—		—		—		—		—		—		—
Commercial		—		—		—		164		240		76		164		240		76
Consumer		92		146		—		116		260		145		208		406		145

	$	7,489		8,940		—		7,493		9,759		1,927		14,982		18,699		1,927

(continued)

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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


	For the Three Months Ended March 31, 2011
	Average Recorded Investment		Interest Income Recognized		Interest Income Received
Real estate loans:
Office/retail	$	3,539		51		51
Multi-family		—		—		—
Land		8,262		49		49
Line of credit		1,388		15		15
Other		1,539		—		—
Residential		757		—		—
Construction		911		8		8
Home equity		—		—		—


	$	16,396		123		123


Comparative totals for March 31, 2010	$	9,601		72		72

4. 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-month periods ended March 31, 2011 and 2010, respectively. All outstanding stock options are not dilutive due to the net losses of the Company.

(continued)

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

5. 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 March 31, 2011, there were 128,262 options available for future grants under the Plan. A summary of stock option transactions under the Plan for the three-month period ended March 31, 2011, follows:


	Number of Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value

Options outstanding at December 31, 2010		246,203	$	10.12
Options forfeited		—		—


Options outstanding at March 31, 2011		246,203	$	10.12		5.61 years	$	—


Options exercisable at March 31, 2011		246,203	$	10.12		5.61 years	$	—

There were no options exercised during the three month periods ended March 31, 2011 and 2010. At March 31, 2011, there was no unrecognized compensation expense related to the nonvested share-based compensation arrangement granted under the plan. The total fair value of shares vesting and recognized as compensation was approximately $1,000 and $4,000 for the three month periods ended March 31, 2011 and 2010, respectively.

(continued)

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 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 March 31, 2011-*
Mortgage-backed securities	$	48,714		—		48,714		—


*As of December 31, 2010-*
Mortgage-backed securities	$	49,304		—		49,304		—

There were no transfers of securities between levels of inputs for the three months ended March 31, 2011.

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


	Net Carrying Value at March 31, 2011								Total Losses		Total Losses Recorded In Operations for the Three-Month Period Ended March 31, 2011
	Total		Level 1		Level 2		Level 3		Total Losses
*As of March 31, 2011:*
Impaired loans	$	9,174		—		—		9,174		3,745		207


Other real estate owned	$	5,840		—		—		5,840		861		—

In addition, loans with a carrying value of $5,703,000 at March 31, 2011 were measured for impairment using Level 3 inputs and had a fair value in excess of carrying value.

(continued)

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited), Continued

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


	Net Carrying Value at December 31, 2010								Total Losses		Total Losses Recorded In Operations For the Year Ended December 31, 2010
	Total		Level 1		Level 2		Level 3		Total Losses
*As of December 31, 2010:*
Impaired loans	$	9,088		—		—		9,088		3,717		3,493


Other real estate owned	$	6,359		—		—		6,359		1,134		1,107

In addition, loans with a carrying value of $5,894,000 at December 31, 2010 were measured for impairment using Level 3 inputs and had a fair value in excess of carrying value.

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


	At March 31, 2011				At December 31, 2010
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:
Cash and cash equivalents	$	27,578		27,578		6,404		6,404
Securities available for sale		48,714		48,714		49,304		49,304
Loans, net		211,155		211,221		213,069		214,080
Loans held for sale		3,851		3,851		7,395		7,395
Accrued interest receivable		916		916		903		903
Federal Home Loan Bank stock		1,544		1,544		1,409		1,409

Financial liabilities:
Deposits		262,706		263,957		251,344		253,656
Federal Home Loan Bank advances		22,000		20,572		21,000		19,404
Other borrowings		4,454		4,454		3,054		3,054
Accrued interest payable		447		447		436		436

Off-balance-sheet financial instruments		—		—		—		—

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 (“NCFDC”) holds loans or assets that might require a longer than desirable term hold to realize full or reasonable 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 and NCFDC 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.

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 and sales 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 March 31, 2011 (in thousands):


Contractual Obligations	Total

Time deposit maturities	$	140,070
Advances from Federal Home Loan Bank		22,000
Other borrowings		4,454
Commitments to extend credit		1,314
Unused lines of credit		15,467
Standby letters of credit		159


Total	$	183,464

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.

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 March 31, 2011, 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 March 31, 2011 and December 31, 2010, 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 March 31, 2011:*
Total capital (to Risk-Weighted Assets)	$	26,368		11.54	%	$	18,279		8.00	%	$	22,849		10.00	%
Tier I Capital (to Risk-Weighted Assets)		23,491		10.28			9,140		4.00			13,711		6.00
Tier I Capital (to Average Assets)		23,491		7.75			12,124		4.00			15,155		5.00

*As of December 31, 2010:*
Total capital (to Risk-Weighted Assets)		26,170		11.47			18,253		8.00			22,816		10.00
Tier I Capital (to Risk-Weighted Assets)		23,303		10.22			9,121		4.00			13,681		6.00
Tier I Capital (to Average Assets)		23,303		7.62			12,233		4.00			15,291		5.00

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Results of Operations

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


	Three Months Ended March 31, 2011			Year Ended December 31, 2010			Three Months Ended March 31, 2010
Average equity as a percentage of average assets		8.90	%		9.16	%		9.80	%

Total equity to total assets at end of period		8.44	%		8.79	%		9.61	%

Return on average assets (1)		(.02	)%		(1.01	)%		(.10	)%

Return on average equity (1)		(.25	)%		(10.98	)%		(1.02	)%

Noninterest expense to average assets (1)		2.86	%		3.12	%		2.47	%

Nonperforming loans to total loans at end of period (2)		2.87	%		2.74	%		2.32	%

(1)	Annualized for the three-months ended March 31, 2011 and 2010.

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

Changes in Financial Condition

Total assets increased $14.5 million or 5%, from $303.0 million at December 31, 2010 to $317.5 million at March 31, 2011, primarily as a result of a $21.2 million increase in cash and cash equivalents somewhat offset by a decrease in net loans of $1.9 million. Deposits increased $11.4 million from $251.3 million at December 31, 2010 to $262.7 million at March 31, 2011.

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 March 31,
	2011							2010
	Average Balance		Interest and Dividends		Average Yield/ Rate			Average Balance		Interest and Dividends		Average Yield/ Rate
	($ in thousands)
Interest-earning assets:
Loans	$	215,166		2,994		5.64	%	$	232,962		3,286		5.72	%
Securities		48,720		318		2.65			35,140		311		3.59
Other (1)		10,657		4		0.15			20,906		33		0.64


Total interest-earning assets		274,543		3,316		4.90			289,008		3,630		5.09


Noninterest-earning assets		31,106							24,179


Total assets	$	305,649						$	313,187


Interest-bearing liabilities:
Deposits		224,266		858		1.55			234,050		1,176		2.04
Federal Home Loan Bank advances and other borrowings		25,175		168		2.71			26,378		177		2.72


Total interest-bearing liabilities		249,441		1,026		1.67			260,428		1,353		2.11


Noninterest-bearing deposits		28,562							20,683
Noninterest-bearing liabilities		439							1,385
Stockholders’ equity		27,207							30,691


Total liabilities and stockholders’ equity	$	305,649						$	313,187


Net interest income			$	2,290						$	2,277


Interest-rate spread						3.23	%						2.98	%


Net interest margin (2)						3.38	%						3.20	%


Ratio of interest-earning assets to interest-bearing liabilities		1.10							1.11

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

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

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Comparison of the Three-Month Periods Ended March 31, 2011 and 2010

General Operating Results. Net loss available to common shareholders for the three-month period ended March 31, 2011 was $122,000, or $(0.05) per basic and diluted common share, compared to a net loss of $181,000, or $(0.07) per basic and diluted common share, for the comparable period in 2010. The $59,000 decrease in net loss resulted primarily from a $13,000 increase in net interest income, a $64,000 increase in noninterest income and a $265,000 decrease in provision for loan losses, partially offset by a $250,000 increase in noninterest expense.

Interest Income. Interest income decreased $314,000 to $3.3 million for the three-month period ended March 31, 2011, when compared to the three-month period ended March 31, 2010. The decrease was due to a $14.5 million decrease in average interest-earning assets outstanding for the three months ended March 31, 2011 compared to the 2010 period and a decrease in the average yield earned on interest-earning assets from 5.09% for the three months ended March 31, 2010 to 4.90% for the three months ended March 31, 2011.

Interest Expense. Interest expense decreased $327,000 for the three-month period ended March 31, 2011 compared to the same 2010 period. The decrease was primarily due to decrease in the average cost of interest-bearing liabilities from 2.11% for the three months ended March 31, 2010 to 1.67% for the comparable 2011 period and a $10.9 million decrease in average interest bearing liabilities. Average interest-bearing liabilities decreased from $260.4 million outstanding during the three months ended March 31, 2010 to $249.4 million outstanding during the comparable period for 2011.

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 collectability of the Company’s loan portfolio. The Company recorded provisions for loan losses for the three-month periods ended March 31, 2011 and 2010 of $525,000 and $790,000, respectively. Management believes that the allowance for loan losses, which was $4.6 million or 2.13% of gross loans at March 31, 2011 is adequate.

Noninterest Income. Noninterest income increased $64,000 during the 2011 period. The increase was primarily due to a $59,000 increase in gain on sale of loans held for sale compared to the three-month period ended March 31, 2010.

Noninterest Expense. Noninterest expense increased by $250,000 from $1.9 million for the three-month period ended March 31, 2010 to $2.2 million for the three-month period ended March 31, 2011. The increase was primarily due to increases of $97,000 in salaries and employee benefits, $5,000 in occupancy and equipment expense, and $16,000 in other noninterest expense, all related to the overall growth of the residential mortgage department.

Income Taxes. The income tax benefit was $36,000 for the three-month period ended March 31, 2010. The income tax benefit was $4,000 for the corresponding period in 2011.

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Not applicable

Item 4.

Controls and Procedures

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 March 31, 2011, the Principal Executive and Principal Financial Officer of the Company concluded that the Company’s disclosure controls and procedures were adequate.

Changes in internal controls. The Company made no significant changes in its internal controls over financial reporting during the quarter ended March 31, 2011 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

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.

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 and Use of Proceeds

Not applicable

Item 3.

Defaults upon Senior Securities

Not applicable

Item 4.

(Removed and Reserved)

Item 5.

Other Information

Not applicable

ALARION FINANCIAL SERVICES, INC. AND SUBSIDIARIES

Item 6.

Exhibits

Exhibits marked with an (a) were filed with the Form 10-K filed with the Securities and Exchange Commission on March 15, 2006. Exhibits marked with a (b) were filed with the Form 8-K filed with the Securities and Exchange Commission on January 27, 2009. 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

(a)	3.1	Articles of Incorporation

(a)	3.2	Bylaws

(b)	3.3	Articles of Amendment to the Articles of Incorporation authorizing the Series A Preferred Shares

(b)	3.4	Articles of Amendment to the Articles of Incorporation authorizing the Series B Preferred Shares

(a)	4.1	Specimen Common Stock Certificate

(a)	4.2	Warrant Plan and Specimen Warrant Plan

(b)	4.3	Form of Certificate for Series A Preferred Stock

(b)	4.4	Form of Certificate for Series B Preferred Stock

(c)	4.5	2005 Stock Plan

(a)	10.1	Employment Agreement with Jon M. Kurtz

(a)	10.2	Lease for Main Office

(b)	10.3	Letter Agreement, dated January 23, 2009 between AFSI and the United States Department of the Treasury

(b)	10.4	Form of Waiver

(b)	10.5	Form of Compliance Agreement

(b)	10.6	Securities Purchase Agreement – Standard Terms between the Company and the United States Department of the Treasury

(d)	10.8	Employment Agreement with Robert L. Page

(a)	14.1	Code of Ethics

(a)	21.1	Schedule of Subsidiaries

	31.1	Certification of Chief Executive Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange Act

	31.2	Certification of Principal Financial Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange Act

	32.1	Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	32.2	Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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: May 16, 2011


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

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

Alarion Financial Services Inc 10-Q