Stock-Based Compensation

Under the Peoples Bancorp Inc. Second Amended and Restated 2006 Equity Plan (the “2006 Equity Plan”), Peoples may grant, among other awards, nonqualified stock options, incentive stock options, restricted stock awards, stock appreciation rights and unrestricted share awards to employees and non-employee directors. The total number of shares available under the 2006 Equity Plan is 1,081,260. The maximum number of shares that can be issued for incentive stock options is 800,000 shares. Prior to 2007, Peoples granted nonqualified and incentive stock options to employees and nonqualified stock options to non-employee directors under the 2006 Equity Plan and predecessor plans. Since February 2007, Peoples has granted a combination of restricted shares and stock appreciation rights (“SARs”) to be settled in shares to employees and restricted shares to non-employee directors subject to the terms and conditions prescribed by the 2006 Equity Plan. In general, shares issued in connection with stock-based awards are issued from treasury shares to the extent available. If no treasury shares are available, shares are issued from authorized but unissued shares.

Stock Options

Under the provisions of the 2006 Equity Plan and predecessor stock option plans, the exercise price per share of any stock option granted may not be less than the grant date fair market value of the underlying shares. All stock options granted to both employees and non-employee directors expire ten years from the date of grant. The most recent stock option grants to employees and non-employee directors occurred in 2006. The stock options granted to employees vested three years after the grant date, while the stock options granted to non-employee directors vested six months after the grant date.

The following table summarizes the changes to Peoples' stock options for the six months ended June 30, 2014:



	Number of Shares Subject to Options	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life	Aggregate Intrinsic Value
Outstanding at January 1	57,094	$	27.96
Exercised	792	24.07
Expired	12,926	28.12
Outstanding at June 30	43,376	$	27.98	1.3 years	$	3,000
Exercisable at June 30	43,376	$	27.98	1.3 years	$	3,000

The following table summarizes Peoples’ stock options outstanding at June 30, 2014:



			Options Outstanding & Exercisable
Range of Exercise Prices			Shares Subject to Options Outstanding & Exercisable	Weighted-Average Remaining Contractual Life	Weighted-Average Exercise Price
$23.59	to	$25.94	2,000	0.2 years	$	25.94
$26.01	to	$27.74	15,136	0.6 years	26.93
$28.25	to	$28.26	15,040	1.6 years	28.25
$28.57	to	$30.00	11,200	1.8 years	29.40
Total			43,376	1.3 years	$	27.98

Stock Appreciation Rights

SARs granted to employees have an exercise price equal to the fair market value of Peoples’ shares on the date of grant and will be settled using shares of Peoples. Additionally, the SARs granted vested three years after the grant date and expire ten years from the date of grant. The most recent grant of SARs occurred in 2008. The following table summarizes the changes to Peoples' SARs for the six months ended June 30, 2014:



	Number of Shares Subject to SARs	Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Life	Aggregate Intrinsic Value
Outstanding at January 1	21,292	$	25.96
Forfeited	—	—
Outstanding at June 30	21,292	$	25.96	3.2 years	$	35,000
Exercisable at June 30	21,292	$	25.96	3.2 years	$	35,000

The following table summarizes Peoples’ SARs outstanding at June 30, 2014:



Exercise Price	Number of Shares Subject to SARs Outstanding & Exercisable	Weighted- Average Remaining Contractual Life
$23.26	2,000	3.1 years
$23.77	10,582	3.6 years
$29.25	8,710	2.6 years
Total	21,292	3.2 years

Restricted Shares

Under the 2006 Equity Plan, Peoples may award restricted shares to officers, key employees and non-employee directors. In general, the restrictions on restricted shares awarded to non-employee directors expire after six months, while the restrictions on restricted shares awarded to employees expire after periods ranging from one to three years. In the first quarter of 2014, Peoples granted restricted shares subject to performance-based vesting to officers and key employees with restrictions that will lapse one to three years after the grant date provided that in order for the restricted common shares to vest on each of the three foregoing dates, Peoples must have reported positive net income and maintained a well capitalized status by regulatory standards in the year immediately preceding the vesting date. During the second quarter of 2014, Peoples granted restricted common shares to non-employee directors with a six month time-based vesting period, and certain key employees with a three year time-based vesting period.

The following table summarizes the changes to Peoples’ restricted shares for the six months ended June 30, 2014:



	Time-Based Vesting			Performance-Based Vesting
	Number of Shares	Weighted-Average Grant Date Fair Value		Number of Shares	Weighted-Average Grant Date Fair Value
Outstanding at January 1	60,206	$	17.18	85,254	$	20.98
Awarded	4,900	24.32		83,514	21.68
Released	20,077	15.75		37,746	19.93
Forfeited	—	—		5,803	21.73
Outstanding at June 30	45,029	$	18.60	125,219	$	21.73

For the six months ended June 30, 2014, the total intrinsic value of restricted shares released was $1.3 million.

Stock-Based Compensation

Peoples recognized stock-based compensation expense, which is included as a component of Peoples’ salaries and employee benefit costs, based on the estimated fair value of the awards on the grant date. The following table summarizes the amount of stock-based compensation expense and related tax benefit recognized:



	Three Months Ended						Six Months Ended
	June 30,						June 30,
(Dollars in thousands)	2014			2013			2014			2013
Total stock-based compensation	$	464		$	386		$	954		$	683
Recognized tax benefit	(162		)	(135		)	(334		)	(239		)
Net expense recognized	$	302		$	251		$	620		$	444

Total unrecognized stock-based compensation expense related to unvested awards was $1.7 million at June 30, 2014, which will be recognized over a weighted-average period of 1.5 years.