(9)	Bank Premises and Equipment

At December 31, 2017 and 2016, bank premises and equipment are as follows:

(Dollars in thousands)
	2017			2016
Land	$	3,564		$	2,315
Buildings		8,632			9,517
Furniture, fixtures, and equipment		8,262			8,184
Leasehold improvements		1,126			1,432
Construction in progress		4,467			89
Total cost		26,051			21,537
Less accumulated depreciation		(9,883	)		(10,463	)
Net book value of bank premises and equipment		16,168			11,074
Assets held for sale		-			1,894
Total bank premises and equipment	$	16,168		$	12,968

There were no premises and equipment classified as held for sale as of December 31, 2017. As of December 31, 2016, assets held-for-sale consisted of three full service retail banking properties. These properties were transferred from land and buildings to assets held for sale during 2016 due to Mid Penn’s intent to sell them during January 2017. An impairment charge of $142,000 was recorded on one of the properties at December 31, 2016 and included as a separate component in noninterest expense on the Consolidated Statements of Income. On January 20, 2017, Mid Penn consummated the sale of the three properties for an aggregate purchase price of $2,240,000, which exceeds Mid Penn’s combined carrying value by approximately $346,000. Two of the properties are being leased back by Mid Penn for a period of at least 15 years, and the respective gains on the sales of those properties will be recognized over the life of the leases.

As of December 31, 2017, construction in process included (i) a commercial building and related improvements in Harrisburg, (ii) two vacant and undeveloped lots adjacent to the commercial building; and (iii) land, building, and improvements related to a newly constructed branch in Halifax, PA. The commercial building and adjacent lots in Harrisburg, PA were being renovated as of December 31, 2017 to serve as an administrative center for the Company, replacing two administrative offices which were previously leased. The renovations were substantially completed in February 2018, and Mid Penn employees took occupancy at that time. The new full-service office in Halifax, PA opened on January 8, 2018.

Depreciation expense was $1,464,000 in 2017, $1,658,000 in 2016, and $1,485,000 in 2015.

Operating Leases:

As of December 31, 2017, Mid Penn was obligated to utilize certain premises under certain non-cancelable operating leases, which expire at various dates through the year ending December 31, 2035. Many of these leases contain renewal options and certain 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. Four of Mid Penn’s operating leases are with related parties. The rental expense paid to related parties was $352,000 in 2017, $348,000 in 2016, and $279,000 in 2015. The future minimum payments to related parties are $328,000 (2018), $304,000 (2019), $305,000 (2020), $213,000 (2021), $182,000 (2022) and $1,937,000 thereafter.

In 2016, Mid Penn entered into two subleasing agreements with escalation clauses to two unrelated parties. The first sublease agreement began on April 1, 2016, while the second sublease began on July 1, 2016. Both subleases end on March 31, 2021.

The following summary reflects the future minimum rental payments by year under Mid Penn’s operating leases as of December 31, 2017, including a breakdown of the sublease rental income and future minimum payments owed to related parties.

(Dollars in thousands)
	Lease Obligation		Sublease Rental Income		Net Rental Expense
2018		1,171		79		1,092
2019		975		81		894
2020		790		81		709
2021		617		20		597
2022		564		—		564
thereafter		5,113		—		5,113
	$	9,230	$	261	$	8,969

Rental expense in connection with leases was $1,087,000 in 2017, $716,000 in 2016, and $627,000 in 2015.