During the twelve months ended December 31, 2012, net interest income was $10.0 million, an increase of $186,000 compared to the twelve months ended December 31, 2011. Interest income was $14.1 million and $14.9 million, respectively, for the annual periods ended December 31, 2012 and December 31, 2011. This decrease in interest income was due to a $1.4 million decrease in the average balance of our interest-earnings assets, and a 22 basis point decrease in the average yield on interest-earning assets. Interest income on our loans receivable was $11.2 million for the year ended December 31, 2012 compared to $11.0 million for the year ended December 31, 2011. The average balance of our loans receivable increased by $22.5 million during the twelve months ended December 31, 2012 compared to the twelve months ended December 31, 2011. The benefit derived by this increase in the average balance of our loans was largely offset by a 54 basis point decrease in the average yield earned on our loans receivable. During 2012, the average balance of our mortgage-backed securities and CMOs increased by $16.1 million compared to 2011, while the average yield of our mortgage-backed securities and CMOs decreased by 135 basis points, resulting in a decrease in interest income of $387,000. The Company earned $151,000 on an average investment securities portfolio of $6.8 million during 2012 compared to $694,000 on an average investment securities portfolio $43.7 million during 2011.
Total interest expense was $922,000, with our interest-bearing liabilities having an average cost of 1.54%, during the fourth quarter of 2012, compared to $1.2 million and an average cost of 1.93% for the fourth quarter of 2011. The average rate paid on interest-bearing deposits was 1.02% during the quarter ended December 31, 2012, a decrease of 29 basis points from the quarter ended December 31, 2011. Interest expense on borrowings was $456,000 at an average cost of 3.15% during the fourth quarter of 2012, and $562,000 at an average cost of 3.84% during the fourth quarter of 2011. The net interest rate spread between our interest-earning assets and our interest-bearing liabilities was 2.86% for the fourth quarter of 2012, compared to 2.79% for the fourth quarter of 2011. Our net interest margin, which expresses net interest income as a percentage of average interest-earning assets, was 3.20% for both three month periods ended December 31, 2012, and December 31, 2011.
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