Kevin Dobbsis a senior reporter and columnist. The views and opinions expressed in thispiece represent those of the author or his sources and not necessarily those ofS&P Global Market Intelligence. Follow on Twitter @Kevin1Dobbs.

An increasingappetite among banks to expand in high-performing markets is fuelingmerger-and-acquisition talks in the Seattle area. And now, with bank stocksrecovering from the beating many endured early in 2016, buyers have strongercurrencies with which to make offers, increasing the likelihood that talks willevolve into deals, analysts say.

Therewere nodeals announced in Seattle — or anywhere inthe Pacific Northwest states of Oregon and Washington — during the firstquarter of this year. Analysts say many M&A talks temporarily slowed afterbank stocks, along with much of the market, slumped in January and earlyFebruary. The SNL U.S. Bank Index was down more than 20% by Feb. 11. Withbruised stocks, buyers often lack the appeal needed to cinch stock or stock-and-cashdeals.

But conditions have improved.

Since mid-February, banks stocks have gathered momentum,regaining a majority of the ground lost early in the year, and buyers havere-emerged. There were two bank deals announced in late April in GreaterSeattle, with both acquirers talking up the growth potential of a marketdefined by strong job opportunity, business growth and bustling downtown realestate activity.

Eugene,Ore.-based PacificContinental Corp. ($1.97 billion) on April 26 announcedplans to buyBellevue, Wash.-based Foundation Bancorp Inc. ($422.4 million) in a $67.1million cash-and-stock deal. And Bend, Ore.-based  ($2.98 billion)said the same day that it would acquire Lynnwood, Wash.-based  ($119.4 million at the close of 2015) in a $17.1million stock deal. 

PacificContinental President and CEO Roger Busse saidin an interview that there is "an elevated level of interest inSeattle" among would-be bank buyers.

Itis a "very attractive market," he said, noting ongoing expansion ofmajor employers such as Microsoft and Amazon, which not only are adding jobsand offices but are paying well for engineers and other skilled workers. Thesame is true of the region's aerospace industry —including Boeing, which employs tens of thousands in the area — and an expanding medical industry. This fuelsconsumer strength and spending, from home buying to purchases at a range ofsmall businesses, Busse said. And as those smallbusinesses grow to meet rising demand, they turn to community banks to financetheir expansions, he said.

Unemploymentin Greater Seattle clocked in at 4.9% in March, down from 5% the previous monthand below the 5% national rate, according to Washington's Employment SecurityDepartment.

"Wesee tremendous opportunity" in the Seattle area, Busse said.

Cascadesaid its planned acquisition would complement its existing downtown Seattlecommercial lending center and help it expand small-business lending. The targetis based in Snohomish County north of downtown. It is a fast-growth area,bolstered in large part by a heavy Boeing presence and myriad small businessesthat feed off of the aerospace sector's strength.  

CascadePresident and CEO Terry Zink told analysts on acall afterannouncing the deal that the bank is focused on "region-leadingorganic loan growth," but it also has its sights on more M&A. "Wewill continue to be opportunistic as we look for acquisitions that will enhancethe franchise value of the bank," he said, noting that Cascade hasambitions to grow to $5 billion in assets.

Busse said Pacific Continental, too, isopen to more M&A in Seattle and elsewhere in the Pacific Northwest."We will continue to have talks," he said, with an eye toward targetswith between $100 million and $600 million in assets in its home state marketsof Eugene and Portland, as well as in Seattle, where he said more dealopportunities are likely to bubble up.

Analystsagree. They say that while Seattle is on solid ground, there are many smallbanks in the market that, like their brethren across the country, are grapplingwith high regulatory costs, stiff competition from larger banks and nonbanks,and a protracted low interest rate era that has curbed lending profitability.Many of them, analysts say, are considering merging into a larger bank to gainheft needed to better absorb compliance expenses and to boost lending limits togrow substantially enough to offset the impact of low rates.

Againstthat backdrop, FIG Partners analyst Timothy Coffey said in an interview, moresmall banks are likely to sell. And buyers, motivated to gain market share andsize for many of the same reasons, are now more likely to step up to the table,thanks to the stock market recovery. And, Coffey said, Seattle is among themost attractive markets in the West.

"Iwouldn't be surprised to see more banks try to move in there or try to build upscale if they are already there," he said. "They need to find a wayto grow earnings without taking on a lot of credit risk, and so an acquisitionis one big way for them to do that."

Coffeynoted that both analysts and bankers are watching closely for signs of creditrisk. It is naturally prudent to do so when a market is booming and smartlenders make sure to guard against the possible inflation of asset bubbles.What's more, he said, the strong credit cycle is now several years in themaking and is bound to at least level off this year. But Coffey echoed Busse in saying that, in Seattle, there are no obvioussigns of weakness yet.

"It'sone of the healthiest markets around," he said.