AFTER a three-year recession, most of New England is showing solid signs of recovery. But the tough times are lingering in Connecticut.

Defense-related industries, which employ about six out of every 100 workers in the Nutmeg State, show no signs of renewal. The insurance industry -- the state's second-biggest employer -- paid out a staggering $18 billion to $20 billion of property casualty claims last year, according to recent estimates, and layoffs of Connecticut's insurers continue.

Nonfarm employment throughout the state fell in each quarter of 1992 before inching up 0.2% in January and 0.4% in February, according to DRI/McGraw Hill, an economic forecasting firm. Employment dipped 0.7% in March.

DRI foresees a modest upturn in the second half but is not ready to declare the state on the mend, said economist Sara Johnson. Employment growth will remain weaker through 1994 than in any other state except California, she said.

How are bankers viewing the future? With almost universal pessimism.

"I don't see anything in the way of improvement on the horizon," said Lawrence Connell, chief executive of Society for Savings Bancorp, a $2.8 billion-asset company in Hartford.

Partly because of his bleak outlook, Mr. Connell last summer arranged the sale of Society to Bank of Boston Corp. The deal awaits regulatory approval.

Connecticut's financial institutions -- like many others nationwide - have been enduring by cutting costs, trimming loan-loss provisions, and repricing deposit rates. But the outlook for revenue growth is dismal.

Just last month, Shawmut National Corp., the state's largest bank company, said it would lay off 500 employees and shutter 50 branches to compensate for projections about the economy's rebound that proved too rosy.

An informal survey of five senior banking executives in the state found only one who expects commercial loan volume to grow by more than 7% annually in the next few years.

New Rivals to Worry About

Analysts say the largest banks operating in Connecticut -- such as Shawmut, Providence, R.I.-based Fleet Financial Group, and People's Bancorp in Bridgeport -- have enough muscle to ride out the state's economic problems. And some may generate loan growth through acquisitions.

But even they have competition. First Fidelity Bancorp., the emerging New Jersey power, just moved into affluent Fairfield County by buying Northeast Bancorp in Stamford. New York's Chase Manhattan Corp. edged northward into Connecticut 20 months ago by buying two failed Bridgeport banks.

Many smaller banks worry they could still be closed or forced to sell. "We're certainly planning on staying independent," said William Placke, the president of Centerbank, a Waterbury-based savings company with $1.7 billion of assets. "But we worry a lot how we can compete."

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