0 41 First BanCorp.> 2001 Capital >. Dividends >. Quantitative and Qualitative Disclosures about Market Risk >. During 2001, the Corporation increased its total capital from $435 million at December 31, 2000 to $603 million at December 31, 2001. Total capi- tal increased by $168 million due to earnings of $86 million, the issuance of 4,140,000 shares of preferred stock at $100 million, the issuance of 234,000 shares of common stock through the exercise of stock options with proceeds of $1 million, a positive fluctuation in the valuation of secu- rities available for sale of $13 million, reduced by the repurchased shares of common stock at a total cost of $2 million, and cash dividends of $30 million. The Corporation’s objective is to maintain a solid capital position above the “well capitalized” classification under the federal banking regulations. The Corporation continues to exceed the well capitalized guidelines. To be in a “well capitalized” position, an institution should have: (i) a leverage ratio of 5% or greater; (ii) a total risk based capital ratio of 10% or greater; and (iii) a Tier 1 risk-based capital ratio of 6% or greater. At December 31, 2001 the Corporation had a leverage ratio of 7.49%; a total risk based cap- ital ratio of 14.50%; and a Tier 1 risk-based capital ratio of 12.16%. In 2001, 2000 and 1999 the Corporation declared four quarterly cash div- idends of $0.13, $0.11 and $0.09 per common share, respectively, for an annual dividend of $0.52, $0.44 and $0.36, respectively. Total cash dividends paid on common shares amounted to $14 million for 2001 (or a 19.91% dividend payout ratio), $12 million for 2000 (or a 19.72% dividend payout ratio) and $10 million for 1999 (or a 17.96% dividend payout ratio). Dividends declared on preferred stock amounted to $17 million in 2001 and $7 million in 2000, and $4 million in 1999. First BanCorp manages its asset/liability position in order to limit the effects of changes in interest rates on net interest income, subject to other goals of Management and within guidelines set forth by the Board of Directors. The day-to-day management of interest rate risk, as well as liquidity man- agement and other related matters, is assigned to the Asset Liability Management and Investment Committee of FirstBank (ALCO). The ALCO is composed of the following officers: President and CEO, the Senior Executive Vice President and Chief Financial Officer, the Senior Executive Vice President and Chief Lending Officer, the Executive Vice Presidents, the Senior Vice President of Investments and Treasury, and the Economist.The ALCO meets on a weekly basis. The Economist also acts as secretary, keeping minutes of all meetings. An Investment Committee for First BanCorp also monitors the investment portfolio of the Holding Company, including a stock portfolio which amounted to $34 million at December 31, 2001.This Committee meets weekly and has the same membership as the ALCO Committee described previously. Committee meetings focus on, among other things, current and expected conditions in world financial markets, competition and prevailing rates in the local deposit market, reviews of liquidity, unrealized gains and losses in securities, recent or proposed changes to the investment portfolio, alter- native funding sources and their costs, hedging and the possible purchase of derivatives such as swaps and caps, and any tax or regulatory issues which may be pertinent to these areas. The ALCO approves funding deci- sions in the light of the Corporation’s overall growth strategies and objec- tives. On a quarterly basis the ALCO performs a comprehensive asset/lia- bility review, examining the measures of interest rate risk described below together with other matters such as liquidity and capital. The Corporation uses simulations to measure the effects of changing inter- est rates on net interest income. These measures are carried out over a