Income taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income taxes

13.    Income taxes

The components of income tax expense were as follows:

	Year Ended December 31
	2020			2019		2018
	(In thousands)
Current
Federal	$	267,550		$	359,668	$	408,428
State and local		98,431			132,696		113,706
Total current		365,981			492,364		522,134
Deferred
Federal		(22,894	)		40,769		(12,780	)
State and local		(8,397	)		16,779		28,637
Total deferred		(31,291	)		57,548		15,857
Amortization of investments in qualified affordable housing projects		81,679			68,200		52,169
Total income taxes applicable to pre-tax income	$	416,369		$	618,112	$	590,160

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, 2020, 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 an expense of $2 million in 2020 and $5 million in 2019 and a benefit of $2 million in 2018.  

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
	2020			2019			2018
	(In thousands)
Income taxes at statutory federal income tax rate	$	371,599		$	534,925		$	526,730
Increase (decrease) in taxes:
Tax-exempt income		(22,806	)		(27,319	)		(26,186	)
State and local income taxes, net of federal income tax effect		71,127			118,085			112,451
Qualified affordable housing project federal tax credits, net		(14,826	)		(15,324	)		(12,240	)
Other		11,275			7,745			(10,595	)
	$	416,369		$	618,112		$	590,160

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

	2020			2019			2018
	(In thousands)
Losses on loans and other assets	$	471,767		$	309,523		$	322,818
Operating lease liabilities		121,216			128,178			—
Retirement benefits		26,185			55,048			30,057
Postretirement and other employee benefits		28,004			24,023			23,563
Incentive and other compensation plans		18,984			26,861			24,796
Stock-based compensation		29,507			27,912			26,759
Unrealized losses		—			—			52,580
Losses on cash flow hedges		—			—			1,861
Other		66,763			69,863			43,880
Gross deferred tax assets		762,426			641,408			526,314
Right of use assets and other leasing transactions		(285,311	)		(326,626	)		(186,787	)
Unrealized gains		(50,785	)		(13,322	)		—
Capitalized servicing rights		(50,235	)		(56,649	)		(54,894	)
Depreciation and amortization		(95,684	)		(66,925	)		(61,881	)
Interest on loans		(8,113	)		(23,552	)		(18,920	)
Gains on cash flow hedges		(97,004	)		(36,845	)		—
Other		(62,581	)		(40,472	)		(30,211	)
Gross deferred tax liabilities		(649,713	)		(564,391	)		(352,693	)
Net deferred tax asset	$	112,713		$	77,017		$	173,621

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 25 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, 2018	$	45,432		$	5,651		$	51,083
Increases as a result of tax positions taken during 2018		13,426			—			13,426
Increases as a result of tax positions taken in prior years		—			1,969			1,969
Decreases as a result of settlements with taxing authorities		(664	)		(289	)		(953	)
Decreases as a result of tax positions taken in prior years		(1,920	)		(702	)		(2,622	)
Gross unrecognized tax benefits at December 31, 2018		56,274			6,629			62,903
Increases as a result of tax positions taken during 2019		6,996			—			6,996
Increases as a result of tax positions taken in prior years		3,265			3,255			6,520
Decreases as a result of tax positions taken in prior years		(7,566	)		(2,685	)		(10,251	)
Gross unrecognized tax benefits at December 31, 2019		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
Less: Federal, state and local income tax benefits								(11,174	)
Net unrecognized tax benefits at December 31, 2020 that,    if recognized, would impact the effective income tax rate							$	45,303

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, 2020 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 2019, although under statute the income tax returns from 2017 through 2019 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 2013. It is not reasonably possible to estimate when examinations for any subsequent years will be completed.