“Leveraging our recently deployed digital assets, we now reach more potential clients over a single week than we previously reached over any given year,” stated Andrew C. Sagliocca, President and Chief Executive Officer. “Our thought leadership and digital innovation in both the litigation and payment processing verticals will continue to revolutionize our Company, transforming us into a leading financial and technology provider in both market verticals on a national basis.”
First Quarter Earnings
Net income for the quarter ended March 31, 2021 was $4.2 million, or $0.53 per diluted share, compared to $2.6 million, or $0.33 per diluted share for the same period in 2020. Returns on average assets and common equity for the current quarter were 1.81% and 13.30%, respectively, compared to 1.28% and 9.22% for the same period of 2020.
Net interest income for the first quarter of 2021 increased $874 thousand, or 9.5%, to $10.1 million, due to growth in average interest earning assets totaling $122.2 million, or 15.6%, to $906.1 million when compared to the same period in 2020. Our net interest margin decreased 21 basis points to 4.50% for the first quarter of 2021 compared to 4.71% for the same period in 2020 primarily due to the historically low interest rate environment and its negative effects on securities, interest earning cash and other short-term investment yields. Further, declines in loan yields were primarily offset by rate reductions on deposits as part of the Company’s overall asset/liability management strategy. Average loans in the quarter increased $118.2 million, or 21.1%, to $677.5 million when compared to the first quarter of 2020 with growth in our commercial, multifamily, and commercial real estate loan portfolios. Our loan-to-deposit ratio was 81.8% with loan growth funded by low-cost deposits.
The provision for loan losses was $1.8 million for the first quarter of 2021, a $100 thousand decrease from the same period in 2020. The first quarter 2021 provision for loan losses was driven by a prudent increase in the general reserve attributable to growth in our loan portfolio and the inherent credit risk associated with the ongoing COVID-19 pandemic. As previously disclosed, we also believe the $24.1 million legacy NFL portfolio’s duration has extended as a result of revisions to various claims administration protocols surrounding potential claims of fraud and the ongoing effects of the pandemic coupled with revised qualifying physician requirements. We ceased originating these loans in 2017. As of March 31, 2021, Esquire had nonperforming loans to total loans of 0.43%, an allowance to nonperforming loans of 441% and an allowance to loans of 1.88%.
Noninterest income increased $2.3 million, or 75.1%, to $5.5 million for the first quarter of 2021 as compared to the first quarter of 2020. Our payment processing platform experienced strong growth as fee income increased $2.4 million, or 81.7%, to $5.4 million compared to the same period in 2020. The current quarter includes certain ISO early termination fees totaling $500 thousand and we do not believe these ISOs will negatively impact our future growth. The remaining increase of $1.9 million, or 64.7%, in payment processing fee income was due to the continued expansion of our sales channels through ISOs, increased number of merchants, volume increases and increased fee allocation arrangements as we continue to focus on prudently growing this source of stable fee income. Our payment processing volumes increased $1.8 billion, or 37%, to $4.9 billion for the quarter ended March 31, 2021 as compared to the same period in 2020. Other noninterest income declined by $71 thousand compared to the same period in 2020 due to declines in administrative service payment (“ASP”) fee income. Our ASP fee income is impacted by the volume and duration of off-balance sheet funds and short-term interest rates. Off-balance sheet sweep funds totaled $515 million at quarter end, demonstrating the continued strength of our branchless core business model.
Noninterest expense increased $1.3 million, or 19.3%, to $8.2 million for the first quarter of 2021 as compared to the same period in 2020. This increase was primarily driven by increases in employee compensation and benefits, advertising and marketing, occupancy and equipment and data processing costs, partially offset by a decrease in travel and sales related costs. Employee compensation and benefits costs increased $1.0 million, or 25.6%, due to increases in staffing of 21% to support our investment in digital platforms and related sales/marketing divisions, and the impact of salary and stock-based compensation increases. Advertising and marketing costs increased $256 thousand as we commence our new digital marketing efforts and thought leadership in our national verticals, leveraging our investment in digital assets and new Esquire brand. Occupancy and equipment costs increased $153 thousand, or 28.0%, primarily due to amortization of our investments in internally developed software to support our new digital platform, precautionary office cleaning costs related to COVID-19 and additional office space to support our continued growth. Data processing costs increased $122 thousand, or 16.7%, due to increased processing volume, primarily driven by our core banking platform, and additional costs related to our technology implementations. Travel and sales related costs decreased $88 thousand, or 69.3%, due to a freeze on travel and a transition to webcast-based business development and digital marketing. We believe that our presence at industry events, including state and national trial associations, should commence in 2021 as vaccination levels increase in the United States and state mandated closures begin to relax. Coupling this with our digital assets and marketing efforts should continue to positively affect our growth in both our litigation and payment processing verticals in the future.
The Company’s efficiency ratio was 52.8% for the three months ended March 31, 2021 as compared to 55.8% for the same period in 2020. Excluding the ISO early termination fees of $500 thousand, our efficiency ratio would have been 54.5%.
