Premises and Equipment

Details of premises and equipment, at cost, at December 31, were as follows:



	2015			2014
Land and land improvements	$	3,102		$	3,046
Buildings and leasehold improvements	37,926			29,984
Furniture, fixtures and equipment	35,083			19,950
Total cost⁽¹⁾	76,111			52,980
Accumulated depreciation and amortization	(30,152		)	(29,094		)
Net premises and equipment	$	45,959		$	23,886

(1) Increase is primarily due to assets acquired in connection with the SBM acquisition. Refer to Note 2 for further details.

Depreciation and amortization expense on premises and equipment for the years ended December 31, 2015, 2014 and 2013 was $3.3 million, $2.7 million and $2.7 million, respectively. At December 31, 2015 and 2014, the Company has capitalized software costs of $3.8 million and $3.6 million, respectively, and related accumulated depreciation expense of $3.3 million and $3.0 million, respectively. Capitalized software costs are presented within other assets on the consolidated statement of condition. Depreciation and amortization expense on capitalized software costs for the years ended December 31, 2015, 2014, and 2013 were $337,000, $335,000, and $296,000, respectively.

The Company enters into noncancellable lease arrangements primarily for its office buildings and branch facilities. Certain lease arrangements contain clauses requiring increasing rental payments over the lease term, which may be indexed to an index (commonly the Consumer Price Index) or the increases may be contractually stipulated. Furthermore, many of these lease arrangements provide the Company with the option to renew the lease arrangement after the initial lease term. The Company incurred expenses of $1.7 million, $1.2 million and $1.3 million for the years ended December 31, 2015, 2014 and 2013, respectively, associated with its operating lease arrangements.

The Company has one capital lease for a branch facility with payments that extend until 2026 at an interest rate of 9.75% per year. The capital lease, recorded in premises and equipment, has a cost basis of $855,000 at December 31, 2015 and 2014 and accumulated depreciation of $416,000 and $373,000 at December 31, 2015 and 2014, respectively. The associated depreciation expense was reported within total depreciation and amortization expenses on premises and equipment above.

In connection with the SBM acquisition, the Company assumed a lease arrangement for which the agreement is between the Company and two of its employees. The lease is for a period of five years with an expiration date of December 1, 2019 with two consecutive five year extension periods available at the option of the Company. The lease arrangement contains certain termination clauses whereby the Company has the right to terminate the lease arrangement should the employees be terminated and/or certain mortgage loan production metrics not be met over a consecutive 12 month period.

At December 31, 2015, under current operating and capital lease contracts, the Company had the following schedule of future minimum lease payments:



	Operating		Capital
2016	$	1,793	$	127
2017	1,495		126
2018	1,144		126
2019	1,102		126
2020	601		126
Thereafter	2,161		686
Total minimum lease payments	$	8,296	$	1,317
Less: amount representing interest⁽¹⁾			395
Present value of net minimum lease payments⁽²⁾			$	922

(1) Amount necessary to reduce net minimum lease payments to present value calculated at the Company's incremental borrowing rate at lease inception.

(2) Reflects the liability reported within other borrowed funds on the consolidated statements of condition. At December 31, 2015 and 2014, the capital lease liability was $922,000 and $984,000, respectively.

As part of the Company's ongoing consolidation in connection with the acquisition of SBM, certain leases will be terminated during 2016. These terminations are reflected in the above schedule of future minimum lease payments.

Included in acquisition and divestiture costs on the consolidated statements of income for the year ended December 31, 2015 was $1.1 million of fixed asset disposal costs incurred as a result of the SBM acquisition. There were no recorded gains or losses from the sale of premises or equipment for the years ended December 31, 2015, 2014 and 2013.