The decision by the Bloomington, Ill.-based company was made in the middle of last year's season but became public Tuesday in a Huffington Post report.
"It's a result of all the information that has been going on with Penn State over the last year," said spokeswoman Arlene Lester. "The decision was based on our business needs at this time."
The decision came to light a day after the NCAA levied harsh sanctions against the school after former assistant coach Jerry Sandusky's conviction on 45 counts of criminal child sex abuse and a report that indicated university officials helped cover up the abuse.
Penn State will pay a $60 million fine, is banned from postseason play including bowl games for four years and will vacate its 112 wins from 1998-2011.The university was put on five years' probation.
State Farm no longer will have signs in Beaver Stadium and it will not run commercials on radio broadcasts of home games. Lester said she did not have information on how much the company would have spent on the Penn State sponsorship in the season.
"It's not an image issue … we're just doing what's right," she said. "We don't want to be a supporter of something that's not right in a community. We're about helping communities succeed and prosper."
The company, which has sponsored Penn State football for several years, has not made a decision about future seasons at this point, she said. It will continue to support other Penn State sports, including basketball.
And State Farm will continue to be an NCAA advertiser nationally, and that could include ads for games at which Penn State is the away team.
"We're still going to be supporters fully of NCAA teams across the country as we've done for many years," Lester said. "We don't think it's fair to pull ads from a game because Penn State is coming. If they are already in place, they will remain in place."
Last week, State Farm Fire & Casualty Co., which wrote the homeowners' policy for Sandusky, sued the former assistant coach. The home and auto insurer said the coverage excludes any injury caused by "any willful and malicious acts of the policyholder," according to the lawsuit, filed in a U.S. District Court in the Middle District of Pennsylvania.
State Farm also is asking a court to declare that there is no provision in the policy to force it to help pay for Sandusky's criminal defense bills, nor must it help cover any punitive damages incurred by Sandusky.
Lester declined comment, citing pending litigation, except to say such legal moves are standard procedure for the company in Pennsylvania.
Tribune reporters Becky Yerak and Colleen Kane contributed to this story.