PREMISES, FURNITURE, AND EQUIPMENT

The following table summarizes the Company's premises, furniture, and equipment by category.

Premises, Furniture, and Equipment

(Dollar amounts in thousands)



	As of
	March 31, 2017			December 31, 2016
Land	$	29,942		$	18,304
Premises	138,748			94,369
Furniture and equipment	133,618			105,859
Total cost	302,308			218,532
Accumulated depreciation	(178,801		)	(140,030		)
Net book value of premises, furniture, and equipment	123,507			78,502
Assets held-for-sale	17,146			4,075
Total premises, furniture, and equipment	$	140,653		$	82,577

During 2016, First Midwest Bank (the "Bank") completed a sale-leaseback transaction, whereby the Bank sold to a third party for an aggregate cash purchase price of $150.3 million, 55 properties with book values totaling $58.8 million, owned and operated by the Bank as branches. Upon the sale of the branches the Bank concurrently entered into triple net lease agreements with certain affiliates of the third party for each of the branches sold. Subject to the right of the Bank to terminate certain of the lease agreements at the end of the eleventh year, the lease agreements have initial terms of 14 years. Each lease agreement provides the Bank with five consecutive renewal options of five years each. The sale-leaseback transaction resulted in a pre-tax gain of $88.0 million, net of transaction related expenses, with $79.5 million of deferred pre-tax gains remaining as of March 31, 2017.

As of March 31, 2017 and December 31, 2016 assets held-for-sale consisted of former branches that are no longer in operation and parcels of land previously purchased for expansion.

Depreciation on premises, furniture, and equipment totaled $3.5 million and $3.2 million for the quarters ended March 31, 2017 and 2016, respectively.

Operating Leases

As of March 31, 2017, the Company was obligated to utilize certain premises and equipment under certain non-cancelable operating leases, which expire at various dates through the year ending December 31, 2033. Many of these leases contain renewal options and certain leases provide options to purchase the leased property during or at the expiration of the lease period at specific prices. Some leases contain escalation clauses calling for rentals to be adjusted for increased real estate taxes and other operating expenses or proportionately adjusted for increases in consumer or other price indices. The following summary reflects the future minimum payments by year required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of March 31, 2017.

Future Minimum Operating Lease Payments

(Dollar amounts in thousands)



	Total
One year or less	$	18,809
After one year to two years	16,591
After two years to three years	16,800
After three years to four years	16,276
After four years to five years	16,190
After five years	124,340
Total minimum lease payments	$	209,006

As of March 31, 2017, deferred pre-tax gains of $79.5 million related to the sale-lease back transaction will be accreted as a reduction to lease expense in other expenses on the Condensed Consolidated Statements of Income on a straight-line basis over the initial terms of the leases.

The Company assumed certain operating leases related to various branches in previous acquisitions. An intangible liability is recorded when the cash flows of a lease exceeds its fair market value. This intangible liability will be accreted into income as a reduction to net occupancy and equipment expense using the straight-line method over the initial term of each lease, which expire between 2018 and 2030. The intangible liability is included in accrued interest and other liabilities in the Consolidated Statements of Financial Condition.

The following table presents the remaining scheduled accretion of the intangible liability by year.

Scheduled Accretion of Operating Lease Intangible

(Dollar amounts in thousands)



	Total
One year or less	$	1,180
After one year to two years	829
After two years to three years	658
After three years to four years	648
After four years to five years	648
After five years	3,835
Total accretion	$	7,798

The following table presents net operating lease expense for the quarters ended March 31, 2017 and 2016.

Net Operating Lease Expense

(Dollar amounts in thousands)



	Quarters Ended March 31,
	2017			2016
Lease expense charged to operations	$	4,559		$	1,727
Accretion of operating lease intangible ⁽¹⁾	(295		)	(286		)
Accretion of deferred gain on sale-leaseback transaction ⁽¹⁾	(1,473		)	—
Rental income from premises leased to others ⁽¹⁾	(181		)	(158		)
Net operating lease expense	$	2,610		$	1,283


⁽¹⁾	Included as reductions to net occupancy and equipment expense in the Condensed Consolidated Statements of Income.