U.S. Bank will take over the deposit and credit card operations of State Farm's banking business, in an alliance announced Thursday as part of the insurance company's ongoing exit from the banking business.
Financially, the arrangement represents a relatively small addition to U.S. Bank's deposit base, but it nearly doubles the Minneapolis-based bank's geographic reach with consumers. U.S. Bank has branches in 26 states while State Farm has agents all across the country.
It's also another sign of how competitive pressures shaped by the shift to delivering services on digital devices are driving changes at even the bluest-chip financial companies.
"This is mostly about innovation, trying to do things in new and different ways for customers," said Tim Welsh, vice chairman of consumer and business banking at U.S. Bancorp.
State Farm, the nation's largest home and auto insurer, started its bank in 1999 and offered deposit, checking and credit card services marketed through its network of nearly 19,000 agents.
State Farm Bank had assets of $16.9 billion at the end of 2019, ranking it at around the 100th largest bank in the country. U.S. Bank, the nation's fifth-largest bank, had assets of nearly $500 billion.
Within the State Farm portfolio of businesses, chiefly insurance services, the bank was also relatively small. State Farm Bank contributed $59 million, or about 1%, of the $5.6 billion profit that State Farm earned last year.
State Farm and U.S. Bank called their relationship a "strategic alliance" that will initially involve deposit and credit card accounts but may eventually expand to include vehicle loans and business banking services. Financial details weren't disclosed.
If regulators approve the alliance, U.S. Bank will take control of deposit accounts from State Farm Bank customers this fall and the two firms will issue dual-branded credit cards next year. State Farm customers won't need to take any actions for the transition of accounts to happen.
State Farm, which is based in Bloomington, Ill., and a mutual company owned by policyholders, last year began moving away from directly operating services associated with a bank. Last summer, it formed an arrangement with Detroit-based Quicken Loans so that its agents who are qualified to originate home loans could do so using Quicken Loans' Rocket Mortgage platform.
"The financial-services industry is highly competitive and rapidly changing. Combining our deep customer relationships with the scale and capabilities of other financial organizations provides us the opportunity to help significantly more customers," said Roszell Gadson, a State Farm spokesman. "While each alliance is formed on its own terms, they share common features. Both of them join State Farm with a leading institution in the banking industry to offer outstanding products and services to customers."
He said State Farm chose to work with U.S. Bank in part because of its long history and "strong relationship with customers."
U.S. Bank and State Farm have been talking for several months about ways they might work together. Both companies declined to discuss specifics about how it came together.
Welsh said U.S. Bank is "constantly surveying the landscape" as financial services companies make adjustments to their products and services. The company last year struck a deal with BMW for a portion of its credit card portfolio, for instance.
"When we get an opportunity like this, it fits into a framework of how we're seeing the industry evolve," Welsh said.