After a year of hard knocks, it's a somber, sober industry that gathered in San Francisco over the weekend for the 117th annual convention of the American Bankers Association.

Hammered by rising insurance premiums and crimped by slumping loan demand, bankers interviewed last week moaned that these are the worst of times. And the outlook for most isn't much brighter.

A tough Environment

In some parts of the countrt -- the Midwest in particular -- the economy is looking up. But elsewhere, bankers are having trouble seeing the end of the real estate recession.

What's more, nonbank competition is stronger than ever, and the industry's regulators have cracked down on underwriting standards, forcing banks to turn down loans they would have booked in more normal times.

"I wouldn't exactly say the industry is hunkering down," said Robert Dederick, executive vice president of Northern Trust Co., Chicago. "but it's a tough environment out there. We're not going to be seeing the good old days again for some time."

Bankers around the country display a grim realism about the ills that afflict the industry and the difficulties they face.

"From Maine to Florida and from Atlanta through the South out to Texas, bankers are worried about their future," said Edward Furash, a Washington-based consultant.

"They are working in an environment in which the thing they have least of is quality loans. And they have a surfeit of deposits. So bankers are going into the ABA convention this year worrying about the long-term survivability of the industry."

Some problems have been with the industry for some time now, such as nonbank competitors.

At First National Bank of Petersburg, Ill., which has $51 million in assts, chairman Randall A. Killebrew keeps on his desk reports showing where large withdrawals - those over $15,000 - ended up.

Thumbing through the reports, he called off the names of brokerage firms and insurance companies: "Merrill Lynch, Equitable, Edward D. Jones, A.G. Edwards, Kidder Peabody, the Kemper . . . ." And the list went on.

"As rates go down, there's a sort of 'sticker shock' for depositors," Mr. Killebrew said. As a result, maturing certificates of deposit are frequently reinvested with brokerage firms in higher-yielding investments.

Dwinding Legacy

A huge chunk of deposits will be turning over this month. After the October 1987 stock market crash, billions of dollars found refuge in insured bank accounts. Each year, bankers hold their breath waiting to see how much of it will remain.

Not only are nonbanks picking off deposits from First National, they're picking up loan business as well, Mr. Killebrew said. "John Deere Credit is actively financing the purchase of farm equipment," he said, referring to the captive credit company of Deere & Co., the big farm-implement maker.

Auto financing has also gone to captives, he said, and agricultural cooperatives, including the Farm Credit System, are increasing their involvement in providing agricultural credit.

This is also a time of soft loan demand and increased regulatory scrutiny that bankers say makes it hard to lend even to those who want money and should be able to qualify.

"Everyone want's to be careful not to make loans that will be picked on by their regulator," said Thomas L. Perko, president and chief executive of WTB Financial Corp., a $950 million-asset bank holding company based in Spokane, Wash.

"We've tightened our credit policies," he said, adding that the bank has turned down loan applications that might have been approved a few years ago.

Even without regulatory pressure, say other bankers, good borrowers are hard to find.

At First Virginia Banks, a retail-oriented institutions that is managing better than most amid the real estate slump in the mid-Atlantic region, chairman Robert Zalokar is becoming a major lender to the U.S. government as a result.

Because consumer loan demand "is dead - just as flat as it can be," the bank is putting more money into U.S. Treasury bonds. But it is paying a price.

A Shrinking Margin

"Spreads are lower, so it cuts into our net interest margin," Mr. Zalokar said.

He said he believes the all-important market for residential real estate in northern Virginia will begin to show signs of recovery in about three months, with the commercial market following a year or so later.

But for now, he said, consumers are waiting for a new round of rate cuts before they begin borrowing again.

Alan Tubbs, president of First Central State BAnk, DeWitt, Iowa, and incoming president of the ABA, said the mood of bankers today varies considerably from one part of the country to another.

In Iowa, he said, the mood is optimish. "But in Boston and New England, they have trouble seeing beyond the first tree line."

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