Bank Premises and Equipment

12 Months Ended

Dec. 31, 2016

7. BANK PREMISES AND EQUIPMENT

The following table provides a summary of bank premises and equipment as of December 31:

($ in millions)	Estimated Useful Life		2016	2015
Land and improvements^(a)		$	663	685
Buildings^(a)	2 - 30 yrs.		1,672	1,755
Equipment	2 - 30 yrs.		1,761	1,696
Leasehold improvements	1 - 30 yrs.		398	403
Construction in progress^(a)			99	85
Bank premises and equipment held for sale:
Land and improvements			29	55
Buildings			9	20
Equipment			1	3
Leasehold improvements			-	3
Accumulated depreciation and amortization			(2,567)	(2,466)
Total bank premises and equipment		$	2,065	2,239

(a) At December 31, 2016 and 2015, land and improvements, buildings and construction in progress included $92 and $102, respectively, associated with parcels of undeveloped land intended for future branch expansion.

Depreciation and amortization expense related to bank premises and equipment was $242 million, $256 million and $254 million for the years ended December 31, 2016, 2015 and 2014, respectively.

The Bancorp monitors changing customer preferences associated with the channels it uses for banking transactions to evaluate the efficiency, competitiveness and quality of the customer service experience in its consumer distribution network. As part of this ongoing assessment, the Bancorp may determine that it is no longer fully committed to maintaining full-service branches at certain of its existing banking center locations. Similarly, the Bancorp may also determine that it is no longer fully committed to building banking centers on certain parcels of land which had previously been held for future branch expansion.

On June 16, 2015, the Bancorp’s Board of Directors authorized management to pursue a plan to further develop its distribution strategy, including a plan to consolidate and/or sell certain operating branch locations and certain parcels of undeveloped land that had been acquired by the Bancorp for future branch expansion (the “Branch Consolidation and Sales Plan”). In addition, the Bancorp announced on September 13, 2016 that it had identified an additional 44 branch locations and 5 parcels of undeveloped land that it planned to consolidate or sell.

On January 29, 2016, the Bancorp closed the previously announced sale in the St. Louis MSA to Great Southern Bank and recorded a gain on the sale of $8 million in other noninterest income in the Consolidated Statements of Income. Additionally, on April 22, 2016, the Bancorp closed the previously announced sale in the Pittsburgh MSA to First National Bank of Pennsylvania and recorded a gain on the sale of $11 million in other noninterest income in the Consolidated Statements of Income. Both transactions were part of the Branch Consolidation and Sales Plan.

As of December 31, 2016, the Bancorp had 64 branch locations and 35 parcels of undeveloped land that had been acquired for future branch expansion that it intended to consolidate or sell. These branch locations and parcels of undeveloped land, which include unsold properties from the Branch Consolidation and Sales Plan as well as properties included in the September 13, 2016 announcement, represent $39 million, $16 million and $1 million of land and improvements, buildings and equipment, respectively, included in bank premises and equipment in the Consolidated Balance Sheets as of December 31, 2016, of which $29 million, $9 million and $1 million, respectively, were classified as held for sale.

The Bancorp performs assessments of the recoverability of long-lived assets when events or changes in circumstances indicate that their carrying values may not be recoverable. Impairment losses associated with such assessments and lower of cost or market adjustments were $32 million, $109 million and $20 million for the years ended December 31, 2016, 2015 and 2014, respectively. The recognized impairment losses were recorded in other noninterest income in the Consolidated Statements of Income.

On September 29, 2016, the Bancorp closed on the sale of an office complex. The sale also included all of the Bancorp’s rights, title and interest as a landlord under existing leases in the complex. Under the terms of the transaction, the Bancorp received proceeds of approximately $31 million and entered into a lease agreement whereby the Bancorp leased-back approximately 25% of the office complex. In conjunction with the transaction, which qualified as a sale-leaseback under U.S. GAAP, the Bancorp retired assets with a net book value of approximately $10 million, recognized a deferred gain of $10 million, which is being amortized as a reduction of rent expense over the 15 year lease term, and recorded a gain on the transaction of $11 million in other noninterest income in the Consolidated Statements of Income.

Gross occupancy expense for cancelable and noncancelable leases, which is included in net occupancy expense in the Consolidated Statements of Income, was $100 million, $110 million and $100 million for the years ended December 31, 2016, 2015 and 2014, respectively, which was reduced by rental income from leased premises of $16 million, $18 million and $17 million during the years ended December 31, 2016, 2015 and 2014, respectively. The Bancorp’s subsidiaries have entered into a number of noncancelable operating and capital lease agreements with respect to bank premises and equipment.

The following table provides the annual future minimum payments under noncancelable operating leases and capital leases for the years ending December 31:

($ in millions)		Noncancelable Operating Leases	Capital Leases
2017	$	88	6
2018		84	6
2019		77	5
2020		65	1
2021		52	-
Thereafter		210	1
Total minimum lease payments	$	576	19
Less: Amounts representing interest		-	2
Present value of net minimum lease payments		-	17