Big banks can do M&A deals … when they prepare.

That was the statement BB&T Chief Executive Kelly King sought to make Monday, when his company said it would buy the Bank of Kentucky for $363 million.

At $1.9 billion in assets, Bank of Kentucky is just a sliver of the $188 billion-asset BB&T's balance sheet. But what the deal lacks in size, it makes up for in significance: a large institution that had its capital plan rejected by the Federal Reserve is getting back into the business of buying others.

King brimmed with optimism, though he acknowledged that regulators still have to approve the deal.

"The clouds are clearing," King said in an interview. "Most [larger] bank CEOs would say they are not interested in deals. We believe the regulatory environment is positive to getting a merger approved if you've invested in the systems and processes."

BB&T has invested heavily in compliance over the last couple years, including in general ledger, commercial loan and client-relationship systems. Still, it is unclear if the improvements are enough to meet the demands of regulators reviewing its M&A applications.

When asked if the relatively small deal was a toe in the water, King said that sounded "pretty rational."

Bigger deals are what he wants, but Bank of Kentucky, which is the seventh-largest deposit holder in the Cincinnati area, was too good to pass up.

"We typically say our target is in that $10 billion to $20 billion range, so you shouldn't expect us to run around buying a bunch this size," King said. "But from time to time, something so strategically attractive comes along that the size of the merger is not as important as the opportunity."

BB&T executives see the deal as a way to break into Cincinnati and Ohio overall.

"It is a really good base. … It is a beachhead into Ohio, even if all but one of the branches is in Kentucky," King said. "We are looking at other acquisitions in Ohio and the Midwest."

Over the last few years, the company has been adding corporate lending teams in places like Chicago.

The company is looking to expand for two reasons, analysts say: deposits it can make use of in higher growth areas, and geographic diversification.

"King has said that one of the things he learned from the downturn was the need for more emphasis on geographic diversity," said Michael Rose, an analyst at Raymond James. "The Southeast was impacted more than other areas and as a result, we've seen the company expand — most notably in Texas — but he has mentioned the Midwest."

BB&T continued dealmaking throughout the downturn, including acquiring Colonial Bank when it failed and acquiring BankAtlantic.

Its ability to continue to buy whole banks in the near term, however, came under pressure last year when the Fed rejected the capital plan it submitted for the comprehensive capital analysis and review because of unspecified qualitative reasons. BB&T resubmitted and in August 2013, it announced the Fed had not objected to that plan. The regulator also accepted its 2014 plan.

Additionally, the company has been buying branches, including an agreement last week to acquire 41 branches from Citigroup.

Analysts were mostly positive on the deal, even if it seemed out of the ordinary since it was smaller than the company has discussed and the executives have also talked more about buying in existing, high-growth markets.

"Kentucky is not on the list of growth markets," said Jack Micenko, an analyst at Susquehanna Financial Group.

Will other big banks see BB&T as breaking the logjam for bigger bank M&A? Not completely, said several analysts.

"When the M&T-Hudson City deal closes — that will be a positive sign," said Sameer Gokhale, an analyst at Janney Montgomery Scott, referring to M&T Bank's $3.7 billion deal to buy Hudson City Bancorp, which has been in limbo for two years because of compliance issues.

"You'll have a clearer blueprint for larger banks," Gokhale said."Buying a smaller bank in Kentucky doesn't really signal much to others."

Robert Barba is one of American Banker's community banking reporters.

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