The parent company of Anchor Bank has a merger partner. And it’s not Washington Federal.

The parent company of Anchor Bank will not merge with Washington Federal as previously announced. Instead, the Lacey-based company is now set to merge with FS Bancorp of Mountlake Terrace in a stock and cash deal valued at $77 million.

FS Bancorp operates 1st Security Bank.

Anchor Bancorp and Seattle-based Washington Federal, which first announced their merger in April 2017, called it off Tuesday, according to a news release.

Addressing the failed merger, Anchor President and Chief Executive Jerry Shaw said Wednesday that Washington Federal had “regulatory issues that were going to take them a while to get past.”

Anchor and Washington Federal had extended their merger agreement in November because of “issues with respect to procedures, systems and processes” tied to Washington Federal’s subsidiary’s bank secrecy act, Anchor had announced.

As for the new merger with FS Bancorp, Shaw said they had “found an equally good partner,” with similar bank cultures devoted to community and customers.

Anchor Bancorp shareholders also appear to have reached a sweeter deal with FS Bancorp.

When the Anchor Bancorp and Washington Federal deal was first announced in spring 2017, it was valued at about $64 million, compared to $77 million for the pending FS Bancorp merger.

The merger is expected to close in the fourth quarter of 2018, or the first quarter of 2019. The combined company will have $1.5 billion in assets, $1.2 billion in deposits, and 22 branch offices throughout Western Washington.

Anchor Bancorp stock rose more than 4 percent Wednesday to close at $29.55 a share.

This story was originally published July 18, 2018 at 11:44 AM.