Redwood Credit Union, the third-largest financial institution in Sonoma County, is taking over a 75-year-old Santa Rosa credit union that has struggled financially in recent years.

Cal State Central Credit Union, which has lost money for the last five years, asked Redwood Credit Union in January to take over its operations. The two announced an agreement to merge Friday, pending approval from regulators.

"We weren't really looking to do it, but it's a good fit for us," said Brett Martinez, president and chief executive of Redwood Credit Union. "And more importantly, it's a good solution for their members and employees."

Cal State Central Credit Union did not have the financial strength to offer the number of branches and services provided to members at Redwood Credit Union, said Jim Larson, its longtime chief executive.

"We have about 16,000 members who will soon have access to many more services," Larson said.

Redwood Credit Union had $1.7 billion in assets and 151,000 members in 2010. The merger will increase its membership by about 11 percent, and add Cal State Central Credit Union's $90.3 million in assets.

Redwood Credit Union posted $6 million in earnings last year, bouncing back from a 2009 loss of $11.5 million.

The rebound was driven primarily by two factors, Martinez said. First, the credit union did not have to set aside as much money for loan losses in 2010 — $38.9 million last year compared to $48 million in 2009.

Secondly, Redwood Credit Union was required to pay $11.5 million into a national credit union insurance fund in 2009. Last year that number dropped to $3.9 million.

The amount of its delinquent loans increased 6.6 percent in 2010 to $31.6 million, and it wrote off a record $32.3 million in defaulted loans.

But the economy appears to have hit bottom, and as people get back to work their financial problems will begin to ease, Martinez said.

"The economy is not going to shoot through the roof, but we see slow, steady improvement," he said.

Cal State Central Credit Union had faltered in recent years, piling up $13.5 million in loan losses during the last five years. Its membership dwindled, from 20,456 members in 2006 to 16,285 at the end of last year. During that time its net worth ratio, which is a measure of financial health used by regulators, dropped to unacceptable levels, according to standards set by the National Credit Union Administration.

A credit union is considered well capitalized with a net worth ratio above 7 percent, and under-capitalized with a ratio below 6 percent.

Cal State's ratio had dropped to 3.65 percent as of December 2010 — down from 8.01 in 2006.

"It seems to have occurred as the economy went bad," Larson said.

Redwood Credit Union has remained well-capitalized by regulatory standards throughout the recession.

If approved by regulators, Cal State members should be integrated into the Redwood Credit Union system on June 1, giving them access to an additional 15 branches and free access to 28,000 ATMs nationwide. Members do not need to update their direct deposit information or manually move their money to Redwood Credit Union, Larson said.

Redwood Credit Union will retain most of Cal State's employees, Martinez said.