On December 19, 2008, as part of the Troubled Asset Relief Program Capital Purchase Program, Alliance Financial Corporation (the "Company") entered into a Letter Agreement and Securities Purchase Agreement with the United States Department of the Treasury (the "Treasury Department") pursuant to which the Company (i) sold 26,918 shares of the Company's Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the "Preferred Stock") for a purchase price of $26,918,000 in cash, and (ii) issued a warrant (the "Warrant") to purchase 173,069 shares of the Company's common stock, par value $1.00 per share (the "Common Stock"), for a price of $23.33 per share.

On May 13, 2009, the Company redeemed all 26,918 shares of Preferred Stock and returned to the Treasury Department a total of $27,246,998, which includes the original investment amount of $26,918,000 plus accrued and unpaid dividends of $328,998. In connection with this transaction, the Company and the Treasury Department entered into a Letter Agreement dated May 13, 2009 (the "Redemption Letter Agreement"), a copy of which is filed as Exhibit 10.1 hereto and is incorporated by reference herein. Pursuant to the terms of the Redemption Letter Agreement, the Company has fifteen calendar days to notify the Treasury Department whether it elects to repurchase the Warrant from the Treasury Department or deliver a substitute warrant which will be identical to the Warrant, except that Section 13(H) of the Warrant would be deleted. The price for the repurchase of the Warrant will be subject to negotiation and there can be no assurance that the Warrant will be repurchased.

On May 13, 2009, Alliance Financial Corporation issued a press release announcing the consummation of the transaction described above under "Item 1.01 Entry into a Material Definitive Agreement." A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.

(a) Financial Statements of Businesses Acquired. Not applicable.

(b) Pro Forma Financial Information. Not applicable.

(c) Shell Company Transactions. Not applicable.

(d) Exhibits.

Exhibit No.     Description
10.1            Redemption Letter Agreement, dated May 13, 2009, by and between
                Alliance Financial Corporation and the United States Department of
                the Treasury

99.1            Press Release of Alliance Financial Corporation dated May 13, 2009