Valley National Bancorp - the same banking company State Farm dumped last year as its East Coast referral partner for auto loans - has announced it is selling a Canadian finance subsidiary, VNB Financial Services Inc., to the Bloomington, Ill., insurer.
The purchase price is to be equal Valley National's equity in the subsidiary at the time of closing plus a premium of about $2.7 million. Alan D. Eskow, chief financial officer of the banking company, said the final price would not be determined until the deal closes, probably in May.
The $8.6 billion-asset Wayne, N.J., bank holding company started VNB Financial Services in 1996 in Toronto specifically to finance auto loans for State Farm customers in Canada.
"We had been doing State Farm business all up and down the coast," Mr. Eskow said. "State Farm had nobody to represent them in Canada. So they kind of asked us if we would be interested."
Mr. Eskow said Valley National considered forming a bank in Canada but then decided it would be better to form a finance company focusing on auto loans.
Through the agreement, State Farm agents referred customers interested in auto loans to Valley National in the United States or to VNB Financial in Canada. But Mr. Eskow said the Canadian company did not do a lot of business. "Relative to Valley this is quite small," he said. As of Dec. 31, VNB Financial had $30 million of assets.
Last year, after forming its own thrift, State Farm Bank, the big insurer canceled its referral alliances with nine banks - including Valley National, which had handled loans for the insurer's customers for 50 years.
When the companies announced that the relationship would end, in December 2000, Jack Chleboun, the director of consumer loans at State Farm Bank, said, "That is not by their choice - it's by our choice. There's nothing wrong with our relationship; it's just that we have our own bank now."
Without the larger U.S. referral agreement, Mr. Eskow said, owning a subsidiary just to help out State Farm up north made little sense, so Valley National decided to quit the Canadian finance business.
"There's no reason for us to do this just in Canada if we're not going to do this in the rest of the country," Mr. Eskow said. Hence, the sale to State Farm.
Since saying in December 2000 that it would cancel its referral agreements with Valley National and other U.S. banking companies by yearend 2001, State Farm trained agents in 48 states to market not only auto loans but also mortgages, certificates of deposit, deposit accounts, and other banking products to both their existing insurance customers and new ones.
The thrift has $1.8 billion of assets, though it just completed its rollout in January. State Farm Bank president Stan Ommen said recently that auto loans are its most popular product and that he expects assets to surpass $3 billion by Dec. 31.
Derek Fee, a spokesman for State Farm's Canadian operation in Toronto, said the insurer bought the auto finance company to give its Canadian clients continuity.
He said he expects the finance company to change its name once the deal closes but that a new name has not yet been chosen.
State Farm of Canada is substantially smaller than the U.S. operation, Mr. Fee noted, so the fact that Valley National wanted to quit the Canadian partnership after the U.S. one ended did not surprise State Farm.
State Farm Bank does not operate in Canada, Mr. Fee said. In addition to offering auto loans through VNB Financial, he said, the Canadian operation also sells mutual funds through another partnership.
Valley National Bancorp is a regional bank holding company whose principal subsidiary is Valley National Bank, which includes the Merchants Bank of New York division it bought it January 2001.
Valley National Bank operates 126 branches throughout northern New Jersey and Manhattan.
