Income taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income taxes

14.    Income taxes

The components of income tax expense were as follows:

	Year Ended December 31
	2021		2020			2019
	(In thousands)
Current
Federal	$	331,714	$	267,550		$	359,668
State and local		85,354		98,431			132,696
Total current		417,068		365,981			492,364
Deferred
Federal		71,880		(22,894	)		40,769
State and local		15,279		(8,397	)		16,779
Total deferred		87,159		(31,291	)		57,548
Amortization of investments in qualified affordable housing    projects		92,176		81,679			68,200
Total income taxes applicable to pre-tax income	$	596,403	$	416,369		$	618,112

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, 2021, 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 a benefit of $5 million in 2021 and $2 million in 2020 compared with an expense of $5 million in 2019.  

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
	2021			2020			2019
	(In thousands)
Income taxes at statutory federal income tax rate	$	515,581		$	371,599		$	534,925
Increase (decrease) in taxes:
Tax-exempt income		(20,605	)		(22,806	)		(27,319	)
State and local income taxes, net of federal income tax    effect		101,046			71,127			118,085
Qualified affordable housing project tax credits, net		(14,542	)		(14,826	)		(15,324	)
Other		14,923			11,275			7,745
	$	596,403		$	416,369		$	618,112

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

	2021			2020			2019
	(In thousands)
Losses on loans and other assets	$	395,784		$	471,767		$	309,523
Operating lease liabilities		110,023			121,216			128,178
Retirement benefits		—			26,185			55,048
Postretirement and other employee benefits		31,760			28,004			24,023
Incentive and other compensation plans		24,713			18,984			26,861
Stock-based compensation		32,675			29,507			27,912
Other		52,351			66,763			69,863
Gross deferred tax assets		647,306			762,426			641,408
Right of use assets and other leasing transactions		(249,209	)		(285,311	)		(326,626	)
Unrealized gains		(27,066	)		(50,785	)		(13,322	)
Retirement benefits		(45,402	)		—			—
Capitalized servicing rights		(53,219	)		(50,235	)		(56,649	)
Depreciation and amortization		(93,103	)		(95,684	)		(66,925	)
Interest on loans		(6,690	)		(8,113	)		(23,552	)
Gains on cash flow hedges		(22,820	)		(97,004	)		(36,845	)
Other		(88,053	)		(62,581	)		(40,472	)
Gross deferred tax liabilities		(585,562	)		(649,713	)		(564,391	)
Net deferred tax asset	$	61,744		$	112,713		$	77,017

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, 2019	$	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
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
Less: Federal, state and local income tax benefits								(8,748	)
Net unrecognized tax benefits at December 31, 2021 that,    if recognized, would impact the effective income tax rate							$	36,172

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, 2021 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 2020, although under statute the income tax returns from 2017 through 2020 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.