Deposits. Total deposits decreased $2.1 million, or 0.8%, to $267.8 million at September 30, 2021 from $269.9 million at June 30, 2021. The decrease was due to decreases in demand accounts of $4.8 million, or 4.4%, from $109.0 million at June 30, 2021 to $104.2 million at September 30, 2021 and in certificates of deposit of $876,000, or 1.2%, to $71.9 million at September 30, 2021 from $72.7 million at June 30, 2021. The decreases were offset partially by the increase in savings and NOW accounts of $3.6 million, or 4.1%, from $88.2 million at June 30, 2021 to $91.8 million at September 30, 2021.
Borrowed Funds. Borrowed funds, consisting solely of Federal Home Loan Bank advances, remained unchanged at $5.0 million at September 30, 2021 and June 30, 2021. Loan payments and payoffs have reduced our need for borrowings to fund our operations.
Stockholders’ Equity. Total stockholders’ equity increased $453,000 or 1.4%, to $33.6 million at September 30, 2021 from $33.1 million at June 30, 2021. The increase was due primarily to net income of $624,000 during the three months ended September 30, 2021.
Comparison of Operating Results for the Three Months Ended September 30, 2021 and 2020
General. Net income was $624,000 for the three months ended September 30, 2021, compared to $1.8 million for the three months ended September 30, 2020, a decrease of $1.2 million. The change was primarily due to a $1.4 million decrease in gain on sales of mortgage loans, partially offset by a $303,000 decrease in compensation and benefits expense, described in more detail below.
Interest Income. Interest income decreased $308,000, or 11.2%, to $2.4 million for the three months ended September 30, 2021 compared to $2.8 million for the three months ended September 30, 2020. Interest income on loans, which is our primary source of interest income, decreased $343,000, or 13.2%, to $2.3 million for the three months ended September 30, 2021 compared to $2.6 million for the three months ended September 30, 2020. Our annualized average yield on loans decreased 34 basis points to 4.13% for the three months ended September 30, 2021 from 4.47% for the three months ended September 30, 2020, primarily due to the decrease in interest rates. The average balance of loans decreased $14.3 million, or 6.1%, to $218.4 million for the three months ended September 30, 2021 from $232.6 million for the three months ended September 30, 2020.
Interest Expense. Interest expense decreased $93,000, or 25.4%, to $275,000 for the three months ended September 30, 2021 compared to $369,000 for the three months ended September 30, 2020, due primarily to decreases in market interest rates and a shift in deposits from certificates of deposit to lower cost demand and savings and NOW accounts.
Interest expense on deposits decreased $87,000, or 24.1%, to $275,000 for the three months ended September 30, 2021 from $362,000 for the three months ended September 30, 2020. Specifically, interest expense on certificates of deposit decreased $83,000, or 24.6%, to $255,000 for the three months ended September 30, 2021 from $338,000 for the three months ended September 30, 2020. The decrease resulted from a 17 basis point decrease in the annualized average rate we paid on certificates of deposit to 1.42% for the three months ended September 30, 2021 from 1.59% for the three months ended September 30, 2020, reflecting a decrease in market rates. Additionally, there was a $13.3 million decrease in the average balance of certificates of deposits to $72.0 million at September 30, 2021 from $85.3 million for the three months ended September 30, 2020.
There was no interest expense on FHLB borrowings for the three months ended September 30, 2021 compared to $6,000 for the three months ended September 30, 2020. This decrease resulted from decreases in both the average balance of FHLB borrowings and the average rate we paid on FHLB borrowings. The average balance of borrowings decreased $3.0 million, or 37.2%, to $5.0 million for the three months ended September 30, 2021 from $8.0 million for the three months ended September 30, 2020, and the annualized average rate we paid on borrowings decreased 31 basis points to 0% for the three months ended September 30, 2021 from 0.31% for the three months ended September 30, 2020. As described above, loan payments and payoffs and increases in demand and savings and NOW deposits have reduced our need for borrowings to fund our operations.