At December 31, 2018, we owned 48.2% of the outstanding stock of Donegal Financial Services Corporation (“DFSC”), a grandfathered unitary savings and loan holding company, and Donegal Mutual owned the remaining 51.8% of the outstanding stock of DFSC. We and Donegal Mutual Insurance Company sold DFSC to Northwest Bancshares, Inc. (“Northwest”) on March 8, 2019, resulting in proceeds valued at approximately $85.8 million in a combination of cash and Northwest common stock. Immediately prior to the closing of the merger, DFSC paid a dividend of approximately $29.2 million to us and Donegal Mutual. As the owner of 48.2% of DFSC’s common stock, we received a dividend payment from DFSC of approximately $14.1 million and consideration from Northwest valued at approximately $41.4 million. We will record a gain from the sale of DFSC in our results of operations for the first quarter of 2019. This transaction represented the culmination of a banking strategy that began with the formation of DFSC in 2000. We and Donegal Mutual will utilize proceeds from the sale of DFSC to support expansion of our combined property and casualty insurance operations.
The establishment of appropriate liabilities is an inherently uncertain process and we can provide no assurance that our insurance subsidiaries’ ultimate liability will not exceed our insurance subsidiaries’ loss and loss expense reserves and have an adverse effect on our results of operations and financial condition. Furthermore, we cannot predict the timing, frequency and extent of adjustments to our insurance subsidiaries’ estimated future liabilities, because the historical conditions and events that serve as a basis for our insurance subsidiaries’ estimates of ultimate claim costs may change. As is the case for substantially all property and casualty insurance companies, our insurance subsidiaries have found it necessary in the past to increase their estimated future liabilities for losses and loss expenses in certain periods and, in other periods, their estimated future liabilities for losses and loss expenses have exceeded their actual liabilities for losses and loss expenses. Changes in our insurance subsidiaries’ estimates of their liability for losses and loss expenses generally reflect actual payments and their evaluation of information received subsequent to the prior reporting period. During 2018, our insurance subsidiaries received new information on previously-reported commercial automobile and personal automobile claims that led our insurance subsidiaries
Our interest expense in 2018 increased to $2.3 million, compared to $1.6 million in 2017. We attribute the increase to higher interest rates in effect during 2018 compared to 2017.
We estimated the timing of the amounts for the borrowings under our lines of credit based on their contractual maturities that we discuss in Note 9-Borrowings. Our borrowings under our lines of credit carry interest rates that vary as discussed in Note 9-Borrowings. Based upon the interest rates in effect at December 31, 2018, our annual interest cost associated with our borrowings under our lines of credit is approximately $2.2 million. For every 1% change in the interest rate associated with our borrowings under our lines of credit, the effect on our annual interest cost would be approximately $600,000.
At December 31, 2018 and 2017, our investment portfolio of primarily investment-grade bonds, common stock, short-term investments and cash totaled $1.1 billion and $1.0 billion, respectively, representing 59.1% and 60.1%, respectively, of our total assets. See “Business-Investments” for more information.
The following amounts represent reinsurance ceded to Donegal Mutual pursuant to these quota-share reinsurance agreements during 2018, 2017 and 2016:
Our investment in DFSC represented our 48.2% investment in the amount of $41,025,975 and $38,773,420 at December 31, 2018 and 2017, respectively. We accounted for our investment in DFSC using the equity method of accounting. Under this method, we recorded our investment at cost, with adjustments for our share of DFSC’s earnings and losses as well as changes in DFSC’s equity due to its unrealized gains and losses. We and Donegal Mutual sold DFSC in March 2019. We refer you to Note 22-Subsequent Event for information regarding the sale of DFSC.
Our effective tax rate is different from the amount computed at the statutory federal rate of 21% for 2018 and 35% for 2017 and 2016. The reasons for such difference and the related tax effects are as follows:
Tax years 2015 through 2018 remained open for examination by tax authorities at December 31, 2018. The net operating loss carryforward of $3.6 million of Le Mars will begin to expire in 2020 if not utilized and is subject to an annual limitation of approximately $376,000.
Shares available for future option grants at December 31, 2018 totaled 42,639 shares under all plans.
The following table reflects net income taxes we (recovered) paid and interest we paid during 2018, 2017 and 2016:
As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for changes in fair value of equity securities in 2018 due to the adoption of Accounting Standards Update 2016-01, Recognition and Measurement of Financial Assets and Liabilities.