Provision for Loan Losses:
In the first quarter of 2021, a $79,000 loan loss provision credit was recorded, compared to a provision expense of $356,000 in the first quarter of 2020. Based on an analysis of the allowance of loan losses as of March 31, 2021, the decreased provision was primarily the result of continued improvement in asset quality trends and net recoveries. Management regularly reviews the adequacy of the allowance for loan losses and makes assessments as to specific loan impairment, charge-off expectations, general economic conditions in the Bank’s market area, specific loan quality and other factors. See the earlier discussion in the Financial Condition section explaining the information used to determine the provision.
Non-interest Income:
Non-interest income in the first quarter of 2021 was $1,272,000 compared to $994,000 in the first quarter of 2021, an increase of $278,000, or 28.0%.
Most significantly impacting non-interest income during the comparative three month periods was the increase in the value of equity securities of $93,000 in the first quarter of 2021 compared to a decrease in the value of equity securities of $172,000 in the first quarter of 2020, as well as an $89,000 increase in debit card fee income. Partially offsetting these increases was a $90,000 decline in customer service fees in the first quarter of 2021 compared to the comparable 2020 period.
As a percentage of average assets, annualized non-interest income was 0.64% in the first quarter of 2021 compared to 0.60% in the first quarter of 2020. Excluding the gain/loss on sales and calls of securities and change in value of equity securities, the percentage of average assets to annualized non-interest income was 0.59% in the first quarter of 2021 compared to 0.70% in the first quarter of 2020.
Non-interest Expense:
Non-interest expense was $4,588,000 for the three months ended March 31, 2021 compared to $4,760,000 for the same period in 2020, a decrease of $172,000, or 3.6%.
Non-interest expense decreased in the first quarter of 2021 compared to the same period in 2020, primarily driven by a decline of $183,000 in employee benefits expense due to lower medical claims expenses. Also contributing to the decline in non-interest expense between periods was a $49,000 gain on other real estate owned recorded in the first quarter of 2021 while no gain was reported in the comparable 2020, as well a $45,000 decrease in equipment expense. Partially offsetting these declines during the three months ended March 31, 2021 compared to the comparative 2020 period was an $82,000 increase in data processing expense, predominantly due to expenses associated with Juniata’s new online deposit account opening platform launched in the fourth quarter of 2020.
As a percentage of average assets, annualized non-interest expense was 2.31% in the first quarter of 2021 compared to 2.87% in the first quarter of 2020.
Provision for income taxes:
Income tax expense of $71,000 was recorded in the first quarter of 2021 compared to an income tax benefit of $159,000 recorded in the first quarter of 2020, primarily due to higher taxable income recorded in the 2021 period. Additionally, under the provisions of the CARES Act, the Company recorded a tax refund in excess of its deferred tax carrying value, resulting in a $57,000 credit to income tax expense in the first quarter of 2020.
The Company qualifies for a federal tax credit for a low-income housing project investment, and the tax provisions for each period reflect the application of the tax credit. For the first quarters of 2021 and 2020, the tax credits were $225,000 in each of the periods, offsetting $296,000 and $66,000 in tax expense in the first quarter of 2021 and the first quarter of