Income taxes

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

Income taxes

14. Income taxes

The components of income tax expense were as follows:

	Year Ended December 31,
(Dollars in millions)	2023			2022			2021
Current:
Federal	$	580		$	367		$	332
State and local		228			143			85
Total current		808			510			417
Deferred:
Federal		(64	)		(18	)		72
State and local		(33	)		(12	)		15
Total deferred		(97	)		(30	)		87
Amortization of investments in qualified affordable housing projects		167			140			92
Total income taxes applicable to pre-tax income	$	878		$	620		$	596

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, 2023, 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.

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,
(Dollars in millions)	2023			2022			2021
Income taxes at statutory federal income tax rate	$	760		$	548		$	516
Increase (decrease) in taxes:
Tax-exempt income		(51	)		(37	)		(21	)
State and local income taxes, net of federal income tax effect		161			110			101
Qualified affordable housing project tax benefits, net		(26	)		(22	)		(15	)
Other		34			21			15
	$	878		$	620		$	596

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

(Dollars in millions)	2023			2022			2021
Losses on loans and other assets	$	686		$	641		$	396
Operating lease liabilities		182			183			110
Postretirement and other employee benefits		47			—			32
Incentive and other compensation plans		30			34			25
Unrealized losses		64			115			—
Interest on loans		42			54			—
Losses on cash flow hedges		52			87			—
Stock-based compensation		54			51			33
Other		153			81			52
Gross deferred tax assets		1,310			1,246			648
Right-of-use assets and other leasing transactions		(336	)		(367	)		(249	)
Unrealized gains		—			—			(27	)
Retirement benefits		(198	)		(88	)		(46	)
Capitalized servicing rights		(38	)		(51	)		(53	)
Postretirement and other employee benefits		—			(29	)		—
Depreciation and amortization		(157	)		(155	)		(93	)
Interest on loans		—			—			(7	)
Gains on cash flow hedges		—			—			(23	)
Other		(59	)		(69	)		(88	)
Gross deferred tax liabilities		(788	)		(759	)		(586	)
Net deferred tax asset	$	522		$	487		$	62

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:

(Dollars in millions)	Federal, State and Local Tax			Accrued Interest			Unrecognized Income Tax Benefits
Gross unrecognized tax benefits at January 1, 2021	$	49		$	8		$	56
Increases as a result of tax positions taken in prior years		—			3			3
Decreases as a result of tax positions taken in prior years		(11	)		(3	)		(14	)
Gross unrecognized tax benefits at December 31, 2021		38			8			45
Increases as a result of tax positions taken in prior years		—			3			3
Unrecognized tax benefits assumed in a business combination		3			1			5
Decreases as a result of tax positions taken in prior years		(11	)		(4	)		(15	)
Gross unrecognized tax benefits at December 31, 2022		30			8			38
Increases as a result of tax positions taken in prior years		5			1			6
Decreases as a result of tax positions taken in prior years		(13	)		(3	)		(16	)
Gross unrecognized tax benefits at December 31, 2023	$	22		$	6		$	28
Less: Federal, state and local income tax benefits								(6	)
Net unrecognized tax benefits at December 31, 2023 that,    if recognized, would impact the effective income tax rate							$	22

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 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 2020 through 2022 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.