PREMISES, EQUIPMENT AND SOFTWARE

Premises and Equipment

Premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization have been computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the life of the lease (including renewal options if exercise of those options is reasonably assured) or their estimated useful life, whichever is shorter.

Additions to premises and equipment are recorded at cost. The cost of major additions, improvements and betterments is capitalized. Normal repairs and maintenance and other costs that do not improve the property, extend the useful life or otherwise do not meet capitalization criteria are charged to expense as incurred. Citizens evaluates premises and equipment for impairment when events or changes in circumstances indicate that the carrying value of such assets may not be recoverable.

A summary of the carrying value of premises and equipment is presented below:



		December 31,
(dollars in millions)	Useful Lives (years)	2018			2017
Land and land improvements	10 - 75		$112			$47
Buildings and leasehold improvements	5 - 60	852			719
Furniture, fixtures and equipment	5 - 20	1,019			1,465
Construction in progress		292			359
Total premises and equipment, gross		2,275			2,590
Accumulated depreciation		(1,484		)	(1,905		)
Total premises and equipment, net			$791			$685

Depreciation charged to noninterest expense totaled $117 million, $124 million, and $130 million for the years ended December 31, 2018, 2017, and 2016, respectively, and is presented in the Consolidated Statements of Operations in both occupancy and equipment expense.

Software

Costs related to computer software developed or obtained for internal use are capitalized if the projects improve functionality and provide long-term future operational benefits. Capitalized costs are amortized using the straight-line method over the asset’s expected useful life, based upon the basic pattern of consumption and economic benefits provided by the asset. Citizens begins to amortize the software when the asset (or identifiable component of the asset) is substantially complete and ready for its intended use. All other costs incurred in connection with an internal-use software project are expensed as incurred. Capitalized software is included in other assets on the Consolidated Balance Sheets.

Citizens had capitalized software assets of $1.8 billion and $1.7 billion and related accumulated amortization of $948 million and $869 million as of December 31, 2018 and 2017, respectively. Amortization expense was $189 million, $180 million, and $170 million for the years ended December 31, 2018, 2017, and 2016, respectively.

The estimated future amortization expense for capitalized software assets is presented below:



Year	(in millions)
2019		$186
2020	155
2021	116
2022	80
2023	48
Thereafter	72
Total ⁽¹⁾		$657

⁽¹⁾ Excluded from this balance is $188 million of in-process software at December 31, 2018.

Operating Lease Assets

Other assets on the Consolidated Balance Sheets included assets subject to operating leases, where Citizens was the lessor, of $92 million and $112 million as of December 31, 2018 and 2017, respectively. Operating lease rental income for leased assets is recognized in other income on a straight-line basis over the lease term. Related depreciation expense is recorded on a straight-line basis over the estimated useful life, considering the estimated residual value of the leased asset and is included in other operating expense in the Consolidated Statements of Operations. On a periodic basis, leased assets are reviewed for impairment. Impairment loss is recognized in other operating expense if the carrying amount of the leased assets exceeds fair value and is not recoverable. The carrying amount of leased assets is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the lease payments and the estimated residual value upon the eventual disposition of the asset.