Note 2. Stock Based Compensation

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.

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 500,000 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 500,000 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, 60 percent on the third anniversary of the grant date and 100 percent on the fourth anniversary of the grant date, and the non-qualified stock options vest 50 percent on the first anniversary of the grant date and 100 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		(13,542)		9.89
Forfeited		(2,139)		11.94
Share conversion		23,468		9.71
Retained by Cornerstone shareholders in merger		285,209		11.22
Outstanding at September 30, 2015		829,314	$	10.57

Information pertaining to options outstanding at September 30, 2015, is as follows:

		Options Outstanding					Options Exercisable
				Weighted-
				Average	Weighted-				Weighted-
		Number		Remaining	Average		Number		Average
		Outstanding		Contractual	Exercise		Exercisable		Exercise
Exercise Prices		at 9/30/2015		Life	Price		at 9/30/2015		Price
$	4.08		1,250	6.1 years	$	4.08		1,250	$	4.08
	4.40		1,250	5.9 years		4.40		1,250		4.40
	6.20		750	5.5 years		4.40		750		6.20
	6.60		64,800	6.5 years		6.60		64,800		6.60
	6.80		40,500	5.4 years		6.80		40,500		6.80
	9.48		58,350	7.5 years		9.48		58,350		9.48
	9.52		407,400	1.7 years		9.52		407,400		9.52
	9.60		71,250	8.4 years		9.60		71,250		9.60
	10.00		1,250	7.8 years		10.00		1,250		10.00
	10.48		79,220	4.7 years		10.48		79,220		10.48
	11.67		5,250	5.3 years		11.67		4,200		11.67
	14.29		1,050	2.8 years		14.29		1,050		14.29
	14.40		22,005	3.4 years		14.40		22,005		14.40
	15.05		52,689	10.0 years		15.05		-		15.05
	31.96		14,454	2.4 years		31.96		14,454		31.96
	53.00		4,200	0.4 years		53.00		4,200		53.00
	60.80		688	1.6 years		60.80		688		60.80
	61.00		2,958	1.4 years		61.00		2,958		61.00
	Outstanding, end of year		829,314	2.4 years		10.57		775,575		10.27

The Company recognized stock-based compensation expense of $111,184 and $10,270 for the periods ended September 30, 2015 and September 30, 2014, respectively. The total fair value of shares underlying the options which vested during the periods ended September 30, 2015 and September 30, 2014, was $96,907 and $95,370, respectively. There were no income tax benefits recognized for the exercise of options for the periods ended September 30, 2015 and December 31, 2014.

The intrinsic value of options exercised during the period ended September 30, 2015 was $78,968. The aggregate intrinsic value of total options outstanding and exercisable options at September 30, 2015 was $4,281,557 and $4,278,005, respectively. Cash received from options exercised under all share-based payment arrangements for the period ended September 30, 2015, was approximately $133,900.

Information related to non-vested options for the period ended September 30, 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 September 30, 2015		53,739	$	12.12

As of September 30, 2015, there was approximately $647,000 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 nine months ended September 30, 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	10 Years
Expected volatility	81.7	%
Risk-free interest
rate	1.54	%

There were no stock options granted during the nine months period ended September 30, 2014.