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 ("SARs") and unrestricted share awards to employees and non-employee directors. The total number of common shares available under the 2006 Equity Plan is 1,081,260. The maximum number of common shares that can be issued for incentive stock options is 800,000 common 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 2009, Peoples has granted restricted common shares to employees and restricted common shares to non-employee directors subject to the terms and conditions prescribed by the 2006 Equity Plan. In general, common shares issued in connection with stock-based awards are issued from treasury shares to the extent available. If no treasury shares are available, common shares are issued from authorized but unissued common 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 common 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 nine months ended September 30, 2016:



	Number of Common Shares Subject to Options	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life	Aggregate Intrinsic Value
Outstanding at January 1	20,310	$	28.83
Expired	20,310	28.83
Outstanding at September 30	—	$	—	0.0 years	$	—
Exercisable at September 30	—	$	—	0.0 years	$	—

Stock Appreciation Rights

SARs granted to employees have an exercise price equal to the fair market value of Peoples’ common shares on the date of grant and will be settled using common shares of Peoples. Additionally, the SARs granted to employees vested three years after the grant date and are to 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 nine months ended September 30, 2016:



	Number of Common Shares Subject to SARs	Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Life	Aggregate Intrinsic Value
Outstanding at January 1	17,748	$	25.86
Forfeited	3,194	26.67
Outstanding at September 30	14,554	$	25.60	0.8 years	$	8,817
Exercisable at September 30	14,554	$	25.60	0.8 years	$	8,817

The following table summarizes Peoples' SARs outstanding at September 30, 2016:



Exercise Price	Number of Common Shares Subject to SARs Outstanding & Exercisable	Weighted- Average Remaining Contractual Life
$23.26	2,000	0.8 years
$23.77	7,508	1.2 years
$29.25	5,046	0.3 years
Total	14,554	0.8 years

Restricted Common Shares

Under the 2006 Equity Plan, Peoples may award restricted common shares to officers, key employees and non-employee directors. In general, the restrictions on restricted common shares awarded to non-employee directors expire after six months, while the restrictions on restricted common shares awarded to employees expire after periods ranging from one to three years. In the first quarter of 2016, Peoples granted an aggregate of 35,500 restricted common shares subject to performance-based vesting to officers and key employees with restrictions that will lapse three years after the grant date provided that in order for the restricted common shares to vest in full, Peoples must have reported positive net income and maintained a well capitalized status by regulatory standards for each of the three fiscal years preceding the vesting date. In the second quarter of 2016 and the third quarter of 2016, Peoples granted, to certain key employees, an aggregate of 20,500 restricted common shares subject to time-based vesting with restrictions that will lapse three years after the grant date.

The following table summarizes the changes to Peoples’ restricted common shares for the nine months ended September 30, 2016:



	Time-Based Vesting			Performance-Based Vesting
	Number of Common Shares	Weighted-Average Grant Date Fair Value		Number of Common Shares	Weighted-Average Grant Date Fair Value
Outstanding at January 1	30,734	$	21.76	158,763	$	22.86
Awarded	20,500	21.88		35,500	17.86
Released	334	21.52		41,028	21.74
Forfeited	2,000	21.92		9,654	22.67
Outstanding at September 30	48,900	$	21.81	143,581	$	21.95

For the nine months ended September 30, 2016, the total intrinsic value of restricted common shares released was $0.7 million compared to $1.7 million at September 30, 2015.

Stock-Based Compensation

Peoples recognizes 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 for each period:



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(Dollars in thousands)	2016			2015			2016			2015
Total stock-based compensation expense	$	346		$	405		$	1,009		$	1,432
Recognized tax benefit	(121		)	(142		)	(353		)	(501		)
Net expense recognized	$	225		$	263		$	656		$	931

Total unrecognized stock-based compensation expense related to unvested awards was $1.8 million at September 30, 2016, which will be recognized over a weighted-average period of 1.7 years.