Richard Strutz, president of National Bank of Alaska, can come up with a few good reasons why prospective acquirers would think twice about buying his bank.

It gets really cold in Anchorage, for one.

"Outside banks that have talked to us about merging have said that if they were to put some of their people up here, who would want to go?"

Mr. Strutz was only half-joking.

The states of Alaska and Hawaii are, in effect, banking enclaves with market leaders that have managed to remain independent for reasons that have as much to do with geography as anything else.

The same factor may be at work in and around Utah, where First Security Corp. and Zions Bancorp. have built empires in a geographically logical, self-contained region while keeping giants from the West Coast and Midwest at bay.

The Mid-South states, including Tennessee, Alabama, and Mississippi, may be shaping up the same way, with a few banking companies growing into regional powerhouses. They are second-tier in relation to, say, NationsBank Corp. or First Union Corp., but they want to call their own shots when merger proposals present themselves and seem increasingly capable of doing so.

But given their remoteness, Alaska and Hawaii are the purest of the regional enclaves, offering the clearest perspectives on the survivability of banks below the top tier. Dealing with less-than-perfect market conditions and independent in spirit, bankers in the 49th and 50th states like their midsize and regional status-and their geography helps them preserve it.

"An institution in an isolated, challenging market like Hawaii or Alaska ... is not an easy deal for a potential acquirer, so there is less opportunity for cost savings," said Joseph K. Morford, an analyst at BT Alex. Brown in San Francisco.

An acquirer should find a lot to like in Mr. Strutz's holding company, the $2.8 billion-asset National Bancorp of Alaska. It has a 40% share of a banking market that is attractive enough to have heavyweights like San Francisco-based BankAmerica Corp. and Cleveland-based KeyCorp competing there.

Personal and business loan demand were relatively strong last year, Mr. Strutz said. Earnings per share rose 8% in 1997, to $1.64.

But the Alaska economy's heavy dependence on the petroleum industry, which has not seen much expansion in recent years, gives diversification- minded bankers pause. A sparse, slowly growing population of 616,000, coupled with a lackluster 1% economic growth rate, turned off at least one potential suitor, Mr. Strutz said.

"We were sitting in a bank's office in Los Angeles, and they said, 'Why should we be interested in you? There is more market in the view out my window than your entire state,'" he said.

"The Alaska market may have seen some growth 20 years ago when they were starting to build the oil pipeline, but what new growth areas are there now?" asked Eric E. Rothman, an analyst at Stephens Inc., Little Rock, Ark.

Another challenge, also at play at some of the regional independents in the contiguous United States, is social. A buyer would have to convince National Bancorp of Alaska chairman Edward B. Rasmuson and his family, who own roughly 60% of the stock, to give up an institution they have owned since 1917.

"Every morning I can have a stockholder meeting in the mirror when I shave," Mr. Rasmuson said.

That is the rugged survivalist mentality engendered by the vast, bleak expanses of Alaska. "We want to chart our own destiny and run our own institution," Mr. Rasmuson asserted.

"The bank does well financially, but that is not the only reason we are in business," added Mr. Strutz. "The Rasmusons were raised in Alaska, they like it here, and they want to use this opportunity to give back to the state."

As much as 3% of the bank's net income is donated annually to charitable causes, he said.

Much like the Alaskan bank, Pacific Century Financial Corp. of Honolulu and its local rival, First Hawaiian Inc., grew up in isolation.

"Both banks in Hawaii are independent-minded and enjoy their market position. And if an acquirer wanted to come in, they would face a limited growth prospect and population," said Mr. Morford of BT Alex. Brown.

Pacific Century president and chief operating officer Richard J. Dahl said that while technology has reduced the effects of isolation, it takes special know-how to operate in the island environment. Indeed, BankAmerica sold its $1.8 billion-asset Hawaii savings bank last year, citing an inability to grow.

"While nowhere is totally cut off from the rest of the world any more, we are an isolated, limited-growth market," Mr. Dahl said.

Yet in recent times, the holding company of $15 billion-asset Bank of Hawaii has been seen as more vulnerable to a takeover. With the Hawaiian economy entering its eighth year of slow growth, the stock price has been consistently depressed. Pacific Century's shares appreciated 18% during 1997, while other regional bank prices were up, on average, about 50%.

The Hawaii institution's fourth-quarter earnings per share of 41 cents were a penny lower than in the year-earlier period.

"We are definitely more alert than ever before that the weakness in our price could make us a target," Mr. Dahl said. But a massive cost-cutting and restructuring campaign announced last month, which would pare the work force by 11% and the 100-branch network by 25, is expected to boost performance measures.

"We islanders approach problems differently," Mr. Dahl added. "We take care of them ourselves instead of relying on others and thus run this bank with the goal of remaining independent."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.