Note 10.

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 was $219,017 in 2015 and $163,509 in 2014.

Stock Option Plans:

The Company has one 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 can be sold or optioned under the plan is 525,000 shares. Under the plan, the exercise price of each option shall 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 can be sold or optioned under the plan is 525,000 shares. Under the plan, the exercise price of each option shall not be less than 100 percent of the fair market value of the common stock on the date of grant.

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

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

			Weighted
			Average
			Exercisable
	Number		Price
Outstanding at December 31, 2014		483,629	$	10.20
Granted		52,689		15.05
Exercised		(24,292)		8.79
Forfeited		(3,289)		10.83
Share conversion		23,468		9.71
Retained by Cornerstone shareholders in merger		285,209		11.22
Outstanding at December 31, 2015		817,414	$	10.62

			Weighted
			Average
			Exercisable
	Number		Price
Outstanding at December 31, 2013		487,431	$	10.21
Exercised		(3,242)		10.69
Forfeited		(560)		11.00
Outstanding at December 31, 2014		483,629	$	10.20

Information pertaining to options outstanding at December 31, 2015, is as follows:

		Options Outstanding						Options Exercisable
				Weighted-
				Average		Weighted-				Weighted-
				Remaining		Average				Average
Exercise		Number		Contractual		Exercise		Number		Exercise
Prices		Outstanding		Life		Price		Exercisable		Price
$	4.08		1,250		5.8 years	$	4.08		1,250	$	4.08
	4.40		1,250		5.6 years		4.40		1,250		4.40
	6.20		750		5.3 years		6.20		750		6.20
	6.60		62,250		6.2 years		6.60		62,250		6.60
	6.80		33,875		5.2 years		6.80		33,875		6.80
	9.48		57,250		7.2 years		9.48		57,250		9.48
	9.52		407,400		1.2 years		9.52		407,400		9.52
	9.60		70,000		8.2 years		9.60		70,000		9.60
	10.00		1,250		7.6 years		10.00		1,250		10.00
	10.48		79,220		4.5 years		10.48		79,220		10.48
	11.67		5,250		5.1 years		11.67		4,200		11.67
	14.29		1,050		2.5 years		14.29		1,050		14.29
	14.40		21,630		3.2 years		14.40		21,630		14.40
	15.05		52,689		9.8 years		15.05		-		15.05
	31.96		14,454		2.2 years		31.96		14,454		31.96
	53.00		4,200		0.2 years		53.00		4,200		53.00
	60.80		688		1.3 years		60.80		688		60.80
	61.00		2,958		1.2 years		61.00		2,958		61.00
Outstanding, end of year			817,414		3.4 years		10.62		763,675		10.31

The Company recognized stock-based compensation expense of $ 140,077 and $14,624 for the periods ended December 31, 2015 and 2014, respectively. For the period ended December 31, 2015, $100,216 of direct stock grant expense issued to Directors was included in the stock-based compensation. The total fair value of shares underlying the options which vested during the periods ended December 31, 2015 and 2014, was $103,604 and $103,800, respectively. The income tax benefit recognized for the exercise of options for the periods ended December 31, 2015 was $27,738. No income tax benefit was recognized for the period ended December 31, 2014.

The intrinsic value of options exercised during the periods ended December 31, 2015 and 2014 was $171,574 and $13,968, respectively. The aggregate intrinsic value of total options outstanding and exercisable options at December 31, 2015 was $5,019,089 and $4,959,647, respectively. Cash received from options exercised under all share-based payment arrangements for the period ended December 31, 2015 was $213,542.

Information related to non-vested options for the period ended December 31, 2015, is as follows:

			Weighted
			Average
			Grant-Date
	Number		Fair Value
Nonvested at December 31, 2014		7,358	$	2.16
Granted		52,689		12.31
Vested		(6,439)		2.05
Forfeited/expired		(237)		2.02
Share conversion		368		2.17
Nonvested at December 31, 2015		53,739	$	12.12

As of December 31, 2015, there was approximately $617,000 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 4.0 years.

The weighted average grant date fair value of all stock options granted during the twelve months ended December 31, 2015 was $12.31. This was determined using the Black-Scholes option-pricing model with the following weighted-average assumptions:

Dividend yield	0.0	%
Expected life	10Years
Expected volatility	81.7	%
Risk-free interest rate	1.54	%

There were no stock options granted during the twelve months period ended December 31, 2014.