M&T BANK CORP

6. Capitalized servicing assets

Changes in capitalized servicing assets were as follows:

During 2023, the Company completed a $350 million bulk purchase of residential mortgage loan servicing rights associated with $19.5 billion of residential real estate loans. In conjunction with the acquisition of People's United on April 1, 2022, the Company acquired servicing rights for residential real estate loans that had outstanding principal balances at that date of $1.1 billion. The fair value of such servicing rights at that date was $12 million.

The estimated fair value of capitalized residential mortgage loan servicing assets was approximately $612 million at December 31, 2024 and $611 million at December 31, 2023. The fair value of capitalized residential mortgage loan servicing assets was estimated using weighted-average discount rates of 11.64% and 11.45% at December 31, 2024 and 2023, respectively, and contemporaneous prepayment assumptions that vary by loan type. At December 31, 2024 and 2023, the discount rate represented a weighted-average OAS of 758 basis points and 790 basis points over market implied forward SOFR, respectively. The estimated fair value of capitalized residential mortgage loan servicing rights may vary significantly in subsequent periods due to changing interest rates and the effect thereof on prepayment speeds. The estimated fair value of capitalized commercial mortgage loan servicing assets was approximately $194 million at December 31, 2024 and $193 million at December 31, 2023. Weighted-average discount rates of 12.80% and 14.43% were used to estimate the fair value of capitalized commercial mortgage loan servicing rights at December 31, 2024 and 2023, respectively. Estimated servicing revenues and expenses used to value such servicing rights considered historical payment performance trends and current market interest rates. In general, the servicing agreements allow the Company to share in customer loan prepayment fees and thereby recover the remaining carrying value of the capitalized servicing rights associated with such loans. The Company's ability to realize the carrying value of capitalized commercial mortgage loan servicing rights is more dependent on the borrowers' abilities to repay the underlying loans than it is on prepayments.

The key economic assumptions used to determine the fair value of significant portfolios of capitalized servicing rights at December 31, 2024 and the sensitivity of such value to changes in those assumptions are summarized in the table that follows. Those calculated sensitivities are hypothetical and actual changes in the fair value of capitalized servicing rights may differ significantly from the amounts presented herein. The effect of a variation in a particular assumption on the fair value of the servicing rights is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another which may magnify or counteract the sensitivities. The changes in assumptions are presumed to be instantaneous.