Employee Benefit Plans

401(k) Plan:

The Company provides a deferred salary reduction plan (“Plan”) under Section 401(k) of the Internal Revenue Code covering substantially all employees. After one year of service the Company matches 100 percent of employee contributions up to 3 percent of compensation and 50 percent of employee contributions on the next 2 percent of compensation. The Company's contribution to the Plan for the three month period ending June 30, 2017 and 2016 respectively was $106,130 and $99,568 and for the six month period ending June 30, 2017 and 2016 respectively was $208,846 and $190,423

Stock Option Plans:

The Company has one currently active equity incentive plan administered by the Board of Directors, and four plans or programs, pursuant to which the Company has outstanding prior grants. These plans are described below:

Legacy Cornerstone Bancshares, Inc. 2002 Long Term Incentive Plan – The plan provided Cornerstone Bancshares, Inc. officers and employees incentive stock options or non-qualified stock options to purchase shares of common stock. The exercise price for incentive stock options was not less than 100 percent of the fair market value of the common stock on the date of the grant. The exercise price of the non-qualified stock options was equal to or more or less than the fair market value of the common stock on the date of the grant. This plan expired in 2012.

Legacy Cornerstone Non-Qualified Plan Options — During 2013 and 2014, Cornerstone issued non-qualified options to employees and directors. The options were originally documented in 2013 as being issued out of the Cornerstone Bancshares, Inc. 2002 Long Term Incentive Plan but that plan expired in 2012. The non-qualified options are governed by the grant document issued to the holders which incorporate the terms of the plan by reference.

Legacy SmartBank Stock Option Plan – This plan was assumed by the Company on August 31, 2015. The plan provides for incentive stock options and nonqualified stock options. The maximum number of common shares that could be sold or optioned under the plan is 525,000 shares. Under the plan, the exercise price of each option could not be less than 100 percent of the fair market value of the common stock on the date of grant.

Legacy SmartFinancial, Inc. 2010 Incentive Plan - This plan was assumed by the Company on August 31, 2015. This plan provides for incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, performance awards, dividend equivalents and stock or other stock-based awards. The maximum number of common shares that could be sold or optioned under the plan is 525,000 shares. Under the plan, the exercise price of each option could not be less than 100 percent of the fair market value of the common stock on the date of grant.

Note 5. Employee Benefit Plans, Continued

Stock Option Plans (Continued):

2015 Stock Incentive Plan – This plan provides for incentive stock options, nonqualified stock options, and restricted stock. The maximum number of shares of common stock that can be sold or optioned under the plan is 2,000,000 shares. The term of each option shall be no more than ten years from the date of grant. In the case of an incentive stock option granted to a participant who, at the time the option is granted, owns stock representing more than ten percent of the voting power of all classes of stock of the Company or any parent or subsidiary thereof, the term of the option shall be five years from the date of grant or such shorter term as may be provided in the award agreement.

The per share exercise price for the shares to be issued upon exercise of an option shall be such price as is determined by the plan administrator, subject to the following: In the case of an incentive stock option: (1) granted to an employee who, at the time of grant of such option, owns stock representing more than ten percent of the voting power of all classes of stock of the company or any parent or subsidiary thereof, the exercise price shall be no less than one hundred and ten percent of the fair market value per share on the date of grant; or (2) granted to any other employee, the per share exercise price shall be no less than one hundred percent of the fair market value per share on the date of grant. In the case of a nonstatutory stock option, the per share exercise price shall be no less than one hundred percent of the fair market value per share on the date of grant, unless otherwise determined by the Administrator.

The incentive stock options vest 30% on the second anniversary of the grant date, 30% on the third anniversary of the grant date and 40% on the fourth anniversary of the grant date. Director non-qualified stock options vest 50% on the first anniversary of the grant date and 50% on the second anniversary of the grant date.

A summary of the status of these stock option plans is presented in the following table:



	Number		Weighted Average Exercisable Price
Outstanding at December 31, 2016	717,524		$	10.57
Exercised	(481,717	)	9.60
Forfeited	(22,721	)	19.72
Outstanding at June 30, 2017	213,086		$	11.77



	Number		Weighted Average Exercisable Price
Outstanding at December 31, 2015	817,414		$	10.62
Exercised	(89,556	)	8.98
Forfeited	(10,334	)	28.49
Outstanding at December 31, 2016	717,524		$	10.57

Note 5. Employee Benefit Plans, Continued

Stock Option Plans (continued):

Information pertaining to options outstanding at June 30, 2017, is as follows:



	Options Outstanding			Options Exercisable
		Weighted- Average Remaining	Weighted- Average		Weighted- Average
Exercise	Number	Contractual	Exercise	Number	Exercise
Prices	Outstanding	Life	Price	Exercisable	Price
6.60	39,000	4.7 years	6.60	39,000	6.60
6.80	17,625	3.7 years	6.80	17,625	6.80
9.48	27,375	5.7 years	9.48	27,375	9.48
9.60	35,625	6.7 years	9.60	35,625	9.60
10.48	20,245	0.2 years	10.48	20,245	10.48
11.67	3,250	3.6 years	11.67	3,250	11.67
14.40	13,305	1.7 years	14.40	13,305	14.40
15.05	42,745	8.3 years	15.05	4,104	15.05
31.96	13,916	0.7 years	31.96	13,916	31.96
Outstanding, end of period	213,086	4.9 years	11.77	174,445	11.05

The Company recognized stock-based compensation expense of $23,718 and $33,000 for the three months ended June 30, 2017 and June 30, 2016, respectively and $50,530 and $66,635 for the six months ended June 30, 2017 and June 30, 2016, respecitvely. For the six months period ended June 30, 2017, direct stock grant expense issued to local advisory board members of $31,791 was included in professional services. There was no direct grant stock grant expense for the six months period ended June 30, 2016. The total fair value of shares underlying the options which vested during the six months period ended June 30, 2017 and June 30, 2016 was $0 and $16,800 , respectively. There were no income tax benefits recognized for the exercise of options for the periods ended June 30, 2017 and June 30, 2016, respectively.

The intrinsic value of options exercised during the period ended June 30, 2017 was $5,135,088. The aggregate intrinsic value of total options outstanding and exercisable options at June 30, 2017 was $2,692,426 and $2,351,226, respectively. Cash received from options exercised under all share-based payment arrangements for the period ended June 30, 2017 was $4,625,012.

Information related to non-vested options for the period ended June 30, 2017, is as follows:



	Number		Weighted Average Grant-Date Fair Value
Nonvested at December 31, 2016	47,970		$	12.31
Granted	—		—
Vested	—		—
Forfeited/expired	(9,329	)	12.31
Nonvested at June 30, 2017	38,641		$	12.31

As of June 30, 2017 , there was approximately $316,824 of total unrecognized compensation cost related to nonvested stock-based compensation arrangements granted under the Plans. The cost is expected to be recognized over a weighted-average period of 1.3 years. There were no stock options granted during the six months period ended June 30, 2017.