net interest margin increased primarily due to an increase in average earning assets and a decrease in rates paid on average interest bearing liabilities in the three month comparative periods.
Average interest-earning assets increased $217.2 million, or 15.1%, to $1.65 billion for the three months ended March 31, 2021 compared to $1.44 billion for the three months ended March 31, 2020.
Total interest income (expressed on a fully taxable equivalent basis) was $16.4 million for the three months ended March 31, 2021 compared to $16.0 million for the three months ended March 31, 2020. The Company’s rates earned on interest earning assets were 4.03% for the three months ended March 31, 2021 compared to 4.47% for the three March 31, 2020.
Interest income on loans held for investment was $15.1 million for the three months ended March 31, 2021 compared to $14.5 million for the three months ended March 31, 2020.
Average loans outstanding increased $114.1 million, or 9.8%, to $1.27 billion for the three months ended March 31, 2021 compared to $1.16 billion for the three months ended March 31, 2020. The average yield on loans decreased to 4.81% for the three months ended March 31, 2021 compared to 5.01% for the three months ended March 31, 2020. See the Lending and Credit Management section for further discussion of changes in the composition of the lending portfolio.
Interest income on available-for-sale securities was $1.1 million for the three months ended March 31, 2021 compared to $1.1 million for the three months ended March 31, 2020.
Average securities increased $32.6 million, or 17.8%, to $215.7 million for the three months ended March 31, 2021 compared to $183.1 million for the three months ended March 31, 2020. The average yield on securities decreased to 2.04% for the three months ended March 31, 2021 compared to 2.31% for the three months ended March 31, 2020. Management plans to grow the investment portfolio to $300.0 million by the end of 2021. See the Liquidity Management section for further discussion.
Total interest expense decreased to $1.7 million for the three months ended March 31, 2021 compared to $3.3 million for the three months ended March 31, 2020. The Company’s rates paid on interest bearing liabilities were 0.59% for the three months ended March 31, 2021 compared to 1.19% for the three months ended March 31, 2020. See the Liquidity Management section for further discussion.
Interest expense on deposits decreased to $1.0 million for the three months ended March 31, 2021 compared to $2.1 million for the three months ended March 31, 2020.
Average interest bearing deposits increased $54.4 million, or 5.9%, to $981.8 million for the three months ended March 31, 2021 compared to $927.4 million for the three months ended March 31, 2020. The average cost of deposits decreased to 0.40% for the three months ended March 31, 2021 compared to 0.92% for the three months ended March 31, 2020. Although offering rates remain low in response to lower market interest rates, growth in deposits was positively impacted in part by customers who deposited both economic stimulus payments and PPP loan proceeds.
Interest expense on borrowings was $0.7 million for the three months ended March 31, 2021 compared to $1.2 million for the three months ended March 31, 2020.
Average borrowings increased to $189.1 million for the three months ended March 31, 2021 compared to $183.8 million for the three months ended March 31, 2020. The average cost of borrowings decreased to 1.57% for the three months ended March 31, 2021 compared to 2.56% for the three months ended March 31, 2020. The decrease in cost of funds primarily resulted from lower market interest rates.
The increase in average borrowings during 2020 was primarily due to an increase in FHLB advances to fund liquidity needs as refinancing activity increased when rates dropped during the first quarter of 2020. This in turn was offset beginning in April of 2020 when the Company had an increase in liquidity due to participation in the CARES Act economic stimulus programs. The Company experienced significant deposit growth primarily due to stimulus checks, proceeds from