The increase occurs because of the different definitions of money. If you define money as the sum of amounts available in demand account at banks (with is roughly what M2 is), then lending from a bank increases this number as the borrowed money ends up in the account of the borrower or in the accounts of the people the borrower spends the money with.

This fact means that retail banks "create money out of nothing" only when money is defined as the sum across all banks of the amounts available to customers on demand. No individual bank "creates money out of nothing", individually they borrow money and lend a fraction of it out; they have balance sheets which balance - i.e. ignoring shareholder equity, for every asset (money owed to them by a borrower), there must be a liability (money they owe to lenders including depositors). The M2 money supply counts the latter but does not deduct the former from the sum; as a result, the M2 money supply has a direct relationship with the total size of retail banking balance sheets.

M2 is an economic statistic and it's behavior tells you nothing about how individual banks operate.