The Company and its subsidiaries file a consolidated federal income tax return on a fiscal year basis. The provision for income taxes for the years presented below consisted of the following:


	Fiscal Years Ended September 30,
(Dollars in Thousands)	2020		2019		2018
Federal:
Current	$	3,148	$	5,278	$	(4,023)
Deferred	(4,505)		(14,831)		5,895
	(1,357)		(9,553)		1,872
State:
Current	4,860		5,649		2,611
Deferred	2,158		530		634
	7,018		6,179		3,245
Income tax (benefit) expense	$	5,661	$	(3,374)	$	5,117


	September 30,
(Dollars in Thousands)	2020		2019
Deferred tax assets:
Bad debts	$	13,968	$	6,805
Deferred compensation	1,288		1,626
Stock based compensation	4,073		4,296



Valuation adjustments	5,343		6,596
General business credits(1)	37,888		27,935
Accrued expenses	2,155		3,767
Lease liability	6,798		—
Other assets	3,215		3,144
	74,728		54,169
Deferred tax liabilities:
Premises and equipment	(2,852)		(3,084)
Intangibles	(2,114)		(1,812)
Net unrealized gains on securities available for sale	(5,964)		(2,146)
Deferred income	—		(179)
Leased assets	(35,279)		(24,996)
Right-of-use assets	(6,550)		—
Other liabilities	(4,246)		(3,068)
	(57,005)		(35,285)
Net deferred tax assets	$	17,723	$	18,884

(1) The general business credits are investment tax credits generated from qualified solar energy property placed in service during the fiscal years ended September 30, 2020 and 2019. These credits expire on September 30, 2040.

As of September 30, 2020, the Company had a gross deferred tax asset of $2.4 million for separate company state cumulative net operating loss carryforwards, for which $2.4 million was reserved. At September 30, 2019, the Company had a gross deferred tax asset of $2.0 million for separate company state cumulative net operating loss carryforwards, for which $2.0 million was reserved. These state operating loss carryforwards will expire in various subsequent periods.

In general, management believes that the realization of its deferred tax assets is more likely than not based on the expectations as to future taxable income; therefore, there was no deferred tax valuation allowance at September 30, 2020, or 2019 with the exception of the state cumulative net operating loss carryforwards discussed above.

The table below reconciles the statutory federal income tax expense and rate to the effective income tax expense and rate for the fiscal years presented. The Company's effective tax rate is calculated by dividing income tax expense by income before income tax expense.


	Fiscal Years Ended September 30,
	2020				2019				2018
(Dollars in Thousands)	Amount		Rate		Amount		Rate		Amount		Rate
Statutory federal income tax expense and rate	$	24,151	21.0	%	$	20,568	21.0	%	$	14,082	24.5	%
Change in tax rate resulting from:
State income taxes net of federal benefits	5,444		4.7	%	5,000		5.1	%	2,461		4.3	%
162(m) disallowance	1,129		1.0	%	2,777		2.8	%	—		—	%
Tax exempt income	(1,212)		(1.0)	%	(2,714)		(2.8)	%	(6,968)		(12.1)	%
Nondeductible acquisition costs	—		—	%	—		—	%	1,295		2.3	%
General business credits	(22,284)		(19.4)	%	(27,126)		(27.7)	%	(3,948)		(6.9)	%
Tax reform	—		—	%	—		—	%	3,849		6.7	%
Amended Crestmark Bancorp historical tax return	—		—	%	—		—	%	(4,644)		(8.1)	%
Other, net	(1,567)		(1.4)	%	(1,879)		(1.8)	%	(1,010)		(1.7)	%
Income tax expense (benefit)	$	5,661	4.9	%	$	(3,374)	(3.4)	%	$	5,117	9.0	%

The provisions of ASC 740, Income Taxes, address the determination of how tax benefits claimed or expected to be claimed on a tax return should be recorded in the Consolidated Financial Statements. Under ASC 740, the Company recognizes the tax benefits from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination, with a tax examination being presumed to occur, including the resolution of any related appeals or litigation. The tax benefits recognized in the Consolidated Financial Statements from such a position are measured as the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution.

The Company uses the flow through method of accounting for investment tax credits under which the credits are recognized as a reduction to income tax expense in the period in which the credit arises. During the fiscal years ended September 30, 2020, 2019, and 2018, $20.5 million, $27.1 million, and $4.0 million in investment tax credits were recognized as a reduction to income tax expense, respectively.

The Company’s tax reserves reflect management’s judgment as to the resolution of the issues involved if subject to judicial review. While the Company believes that its reserves are adequate to cover reasonably expected tax risks, there can be no assurance that, in all instances, an issue raised by a tax authority will be resolved at a financial cost that does not exceed its related reserve. With respect to these reserves, the Company’s income tax expense would include (i) any changes in tax reserves arising from material changes during the period in the facts and circumstances surrounding a tax issue, and (ii) any difference from the Company’s tax position as recorded in the Consolidated Financial Statements and the final resolution of a tax issue during the period.

The tax years ended September 30, 2017 and later remain subject to examination by the Internal Revenue Service. For state purposes, the tax years ended September 30, 2017 and later remain open for examination, with few exceptions.


	September 30,
(Dollars in Thousands)	2020		2019
Balance at beginning of fiscal year	$	368	$	434



Additions (reductions) for tax positions related to prior years	723		(66)
Balance at end of fiscal year	$	1,091	$	368

The total amount of unrecognized tax benefits that, if recognized, would impact the effective rate was $981,000 as of September 30, 2020. The Company recognizes interest related to unrecognized tax benefits as a component of income tax expense. The amount of accrued interest related to unrecognized tax benefits was $115,000 as of September 30, 2020. The Company does not anticipate any significant change in the total amount of unrecognized tax benefits within the next 12 months.

The Company adopted ASU 2018-02 as of October 1, 2020. The amendments in this ASU allow for a reclassification from AOCI to Retained Earnings for stranded tax effects from the Tax Cuts and Jobs Act (TCJA). For the Company, these amendments are limited to any unrealized gains and losses held in Other Comprehensive Income for available-for-sale debt securities held at the time of the TCJA enactment. The Company determined there were no stranded tax effects from the TCJA enactment and has not made any reclassification from AOCI to Retained Earnings upon adoption of this ASU.