WILMINGTON, Del. (AP) — A former Wilmington Trust executive pleaded guilty to conspiracy to commit bank fraud on Wednesday amid a federal investigation of the failed bank’s lending practices.
Joseph P. Terranova, 45, waived an indictment and entered his plea in a brief hearing before Chief U.S. District Judge Gregory Sleet.
Terranova faces up to five years in prison when sentenced Sept. 9. He and his lawyer declined to comment after they left the courtroom.
Terranova is a former relationship manager in the commercial real estate group at Wilmington Trust, which was sold to M&T Bank Corp. in 2010 after its deteriorating loan portfolio left it on the verge of collapse.
Terranova worked closely with Michael Zimmerman, a prominent Dover developer indicted earlier this year on charges of conspiracy, money laundering and making false statements to a financial institution.
Zimmerman’s lawyer, Dan Lyons, attended Wednesday’s hearing but declined to comment.
Court documents filed by federal prosecutors portray a bank in which top executives played fast and loose in loaning hundreds of millions of dollars to borrowers while ignoring the bank’s own lending policies and federal banking regulations.
Prosecutors said Terranova conspired with other bank officials to extend credit to Zimmerman and other borrowers on terms not presented to or approved by the bank’s loan committee.
According to an FBI affidavit filed in Zimmerman’s case, Wilmington Trust in May 2007 wired $1 million to an account controlled by Zimmerman for a commercial project in Ocean View after Terranova sent an email to Zimmerman noting that an executed lease and plan approval were conditions on such funding.
“However, not wanting my reputation for reckless abandon to be in jeopardy, I guess we can fund the $1,000,000,” Terranova wrote.
In another incident cited in court documents, Zimmerman faxed a request to Terranova in January 2008 asking him to send $1 million as soon as possible. “I have to pay my bar tab,” explained Zimmerman, who got the money, even though conditions for the loan had not been met.
Prosecutors said Terranova also conspired with others in a “bank-wide scheme” to conceal the financial condition of Wilmington Trust from federal regulators and shareholders by not accurately reporting past due and non-performing loans.
According to court documents, Wilmington Trust officials “waived” reporting of past due loans if it considered such loans to be in the process of being extended, and ignored requirements that real estate securing the loans be reappraised in order for credit to be extended.
According to court documents, Terranova emailed another bank employee in April 2009 about appraisal values dropping for residential real estate projects with past due loans, attaching a spreadsheet with properties that had received or were due to receive updated appraisals.
“As I suspected this list is not comprehensive of the bank just your portfolio and has the near term potential for catastrophic consequences,” the other employee responded.
Court documents show that matured loans not reported as past due or on non-accrual status because they had been “waived” exceeded $186 million by March 2009, with $68 million involving clients’ relationships in which Terranova had served as relationship manager. By Dec. 31, 2009, the total amount of past due loans not reported exceeded $373 million, including about $148 million involving Terranova as relationship manager.
Less than a year later, Wilmington Trust was sold to Buffalo, N.Y.-based M&T Bank for about $351 million after reporting a quarterly loss of about $370 million because of bad real estate construction loans and saying future losses were likely.
