Economic growth was markedly uneven during 2002, with the economy failing to generate sustained upward momentum. Labor markets were soft, and capital investment by the corporate sector remained subdued. Bankruptcy filings by publicly traded companies reached record levels. At times, heightened uncertainty permeated financial markets amid concerns about recession, terrorism, and corporate government malfeasance.

Notwithstanding the weak economic climate, consumption expenditures and consumer confidence remained relatively strong throughout the year. Record low mortgage rates fueled the residential mortgage market for both originations and re-financings. In turn, consumer spending was buoyed by cash-outs in the refinancing process.

With lingering weakness in many sectors of the national economy, credit quality tends to decline. In addition to deterioration in asset quality, banks tend to experience reductions in corporate loan demand and net income. However, due to strong capital, liquidity, and reserve positions, New York State's supervised banks were relatively well positioned to weather an economic trough.