Income taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income taxes

14. Income taxes

The components of income tax expense were as follows:

	Year Ended December 31
	2022			2021		2020
	(In thousands)
Current
Federal	$	367,028		$	331,714	$	267,550
State and local		143,012			85,354		98,431
Total current		510,040			417,068		365,981
Deferred
Federal		(18,444	)		71,880		(22,894	)
State and local		(11,543	)		15,279		(8,397	)
Total deferred		(29,987	)		87,159		(31,291	)
Amortization of investments in qualified affordable housing projects		139,407			92,176		81,679
Total income taxes applicable to pre-tax income	$	619,460		$	596,403	$	416,369

The Company files a consolidated federal income tax return reflecting taxable income earned by all domestic subsidiaries. In prior years, applicable federal tax law allowed certain financial institutions the option of deducting as bad debt expense for tax purposes amounts in excess of actual losses. In accordance with GAAP, such financial institutions were not required to provide deferred income taxes on such excess. Recapture of the excess tax bad debt reserve established under the previously allowed method will result in taxable income if M&T Bank fails to maintain bank status as defined in the Internal Revenue Code or charges are made to the reserve for other than bad debt losses. At December 31, 2022, M&T Bank’s tax bad debt reserve for which no federal income taxes have been provided was $137 million. No actions are planned that would cause this reserve to become wholly or partially taxable.

Income taxes attributable to gains or losses on bank investment securities were not material in any of 2022, 2021 and 2020.

Total income taxes differed from the amount computed by applying the statutory federal income tax rate to pre-tax income as follows:

	Year Ended December 31
	2022			2021			2020
	(In thousands)
Income taxes at statutory federal income tax rate	$	548,336		$	515,581		$	371,599
Increase (decrease) in taxes:
Tax-exempt income		(37,170	)		(20,605	)		(22,806	)
State and local income taxes, net of federal income tax effect		109,903			101,046			71,127
Qualified affordable housing project tax credits, net		(22,524	)		(14,542	)		(14,826	)
Other		20,915			14,923			11,275
	$	619,460		$	596,403		$	416,369

Deferred tax assets (liabilities) were comprised of the following at December 31:

	2022			2021			2020
	(In thousands)
Losses on loans and other assets	$	640,520		$	395,784		$	471,767
Operating lease liabilities		182,638			110,023			121,216
Retirement benefits		—			—			26,185
Postretirement and other employee benefits		—			31,760			28,004
Incentive and other compensation plans		33,936			24,713			18,984
Unrealized losses		115,024			—			—
Interest on loans		53,792			—			—
Losses on cash flow hedges		87,164			—			—
Stock-based compensation		51,366			32,675			29,507
Other		81,498			52,351			66,763
Gross deferred tax assets		1,245,938			647,306			762,426
Right of use assets and other leasing transactions		(367,137	)		(249,209	)		(285,311	)
Unrealized gains		—			(27,066	)		(50,785	)
Retirement benefits		(87,486	)		(45,402	)		—
Capitalized servicing rights		(51,273	)		(53,219	)		(50,235	)
Postretirement and other employee benefits		(29,230	)		—			—
Depreciation and amortization		(155,048	)		(93,103	)		(95,684	)
Interest on loans		—			(6,690	)		(8,113	)
Gains on cash flow hedges		—			(22,820	)		(97,004	)
Other		(69,314	)		(88,053	)		(62,581	)
Gross deferred tax liabilities		(759,488	)		(585,562	)		(649,713	)
Net deferred tax asset	$	486,450		$	61,744		$	112,713

The Company believes that it is more likely than not that the deferred tax assets will be realized through taxable earnings or alternative tax strategies.

The income tax credits shown in the statement of income of M&T in note 26 arise principally from operating losses before dividends from subsidiaries.

A reconciliation of the beginning and ending amount of unrecognized tax benefits follows:

	Federal, State and Local Tax			Accrued Interest			Unrecognized Income Tax Benefits
	(In thousands)
Gross unrecognized tax benefits at January 1, 2020	$	58,969		$	7,199		$	66,168
Increases as a result of tax positions taken in prior years		—			2,800			2,800
Decreases as a result of tax positions taken in prior years		(10,107	)		(2,384	)		(12,491	)
Gross unrecognized tax benefits at December 31, 2020		48,862			7,615			56,477
Increases as a result of tax positions taken in prior years		—			2,560			2,560
Decreases as a result of tax positions taken in prior years		(11,351	)		(2,766	)		(14,117	)
Gross unrecognized tax benefits at December 31, 2021		37,511			7,409			44,920
Increases as a result of tax positions taken in prior years		—			3,090			3,090
Unrecognized tax benefits assumed in a business combination		3,788			1,205			4,993
Decreases as a result of tax positions taken in prior years		(11,090	)		(3,958	)		(15,048	)
Gross unrecognized tax benefits at December 31, 2022	$	30,209		$	7,746			37,955
Less: Federal, state and local income tax benefits								(7,285	)
Net unrecognized tax benefits at December 31, 2022 that,    if recognized, would impact the effective income tax rate							$	30,670

The Company’s policy is to recognize interest and penalties, if any, related to unrecognized tax benefits in income taxes in the consolidated statement of income. The balance of accrued interest at December 31, 2022 is included in the table above. The Company’s federal, state and local income tax returns are routinely subject to examinations from various governmental taxing authorities. Such examinations may result in challenges to the tax return treatment applied by the Company to specific transactions. Management believes that the assumptions and judgment used to record tax-related assets or liabilities have been appropriate. Should determinations rendered by tax authorities ultimately indicate that management’s assumptions were inappropriate, the result and adjustments required could have a material effect on the Company’s results of operations. Examinations by the Internal Revenue Service of the Company’s federal income tax returns have been largely concluded through 2021, although under statute the income tax returns from 2018 through 2021 could be adjusted. The Company also files income tax returns in over forty states and numerous local jurisdictions. Substantially all material state and local matters have been concluded for years through 2014. It is not reasonably possible to estimate when examinations for any subsequent years will be completed.