Photo: In this 1915 photo, a golfer tees off at the newly created Stockton Golf And Country Club. (Courtesy of Bank of Stockton)

In the most awkward event of 2022, Bank of Stockton yesterday held its annual Wealth Management Customer Appreciation Dinner at Stockton Golf and Country Club. Bank and club are feuding, bigtime.

Their battle spread last Friday into the U.S. Bankruptcy Court of the Eastern District of California. The country club hopes a federal judge will cram down a $7.7 million bank loan balance.

The financially strapped club cannot pay the loan off, said club General Manager Rick Schultz. Schultz wants to sell the club for around half the outstanding loan amount.

That’s all it’s worth, he said. “If they’re waiting for a full price offer, it’s never going to happen.”

The bank, for its part, says the club is not on the up-and-up and, “We’re not going to write off four million bucks,” said Bank of Stockton President, CEO, and Chairman Douglass Eberhardt II.  

So Stockton’s oldest bank and oldest country club — two Stockton institutions — have come to fisticuffs. Will the bank get a haircut? Can the country club be reborn?

The Stockton Golf and Country Club was founded in 1914. It started as a 9-hole course in Stockton’s swampy boondocks. Women could not be members. Nor could minorities, nor even the golf pro. Membership was restricted to 100 of the town’s upper crust.

Ironically, R.L. Wilhoit and his son Eugene, both presidents of the bank, were early members. Another Wilhoit, George Wilhoit, was one of the club’s founding members, showing how bank and country club were intertwined from the start.

Over the next century, the club expanded, improved levees (the course used to flood), got rid of the pig farm at one end, and modernized, often with the bank’s help.

It (belatedly) liberalized its membership eligibility standards and long reigned as “Stockton’s premier country club” for city leaders, captains of industry, golfers, and socialites.

Its rich history saw the Delta King and Queen parade past along the San Joaquin River shortly after their launch in 1927. P-40 fighter planes buzzed the course during World War II. Famous golfer Ben Hogan played an exhibition match there in 1948.

Baseball Hall of Famer Dizzy Dean lost a big bet to ringers there in 1959, jibing, “You guys should be arrested.”

Perhaps the most unusual tournament victory was in 1955. A man named Herb Patton, leading the tourney, whacked a ball into a tree on the 18th hole. The ball stuck in the canopy.

Undaunted, Patton shimmied up the tree, knocked the ball to the ground with a putter, hit a 6-iron 130 yards onto the green, sank the putt, and still took home the trophy.

Patrons play dice at the bar at the old Stockton Golf and Country Club in this undated photo. (Courtesy of the Bank of Stockton)

Some historic Stockton families have been members for generations—the aforementioned Wilhoits, for instance. Retired Chamber chief Doug Wilhoit is a fifth-generation member. (Note: Doug Wilhoit is a member of the Stocktonia Board of Trustees)

For years Wilhoit was part of a golf foursome that included developer Howard Arnaiz, Stockton Homicide Division chief Bob Wingo, and former Stockton Mayor Ed Chavez.

“We didn’t gamble” on the games, Wilhoit said. “We just harassed the heck out of each other for 18 holes, then went and rolled for a few drinks.”

To some, the whiff of good-ol’-boyism and exclusivity is undoubtedly a turn-off. But the way the SG&CC sometimes served as a city hall annex wove it into the community’s historic fabric.

“Everything in the city revolves around our building,” Schultz boasted. “The mayor, city council, supervisors, a congressional candidate, you have everybody who’s frankly anybody in the city is in our building.”

And yet the club filed for Chapter 11.

The club’s money woes have numerous causes: competition from other clubs, and golf’s declining popularity, to name two. The Covid-19 pandemic has been a mixed blessing; it caused a resurgence of golf’s popularity, but also drastically reduced banquet bookings. The country club depends on revenue from those bookings.

There’s more, if you want to go into the weeds (or the rough). The tax code allows 501(c)(7) nonprofit corporations to garner no more than 15% non-member revenue. And a 2019 tax reform bill eliminated the deduction for country club dues. That hurt membership.

But the real millstone was the club’s 2006 construction of its outsized new clubhouse, Schultz said. It was too big and, financed by Bank of Stockton loans totaling $12 million, too costly (Bank of the West subsequently bought some of the debt).

“The tough thing is when you build such a big clubhouse, you’re building it for 10 percent of the time instead of being used 90 percent of the time,” Schultz said. “It’s just too much overhead.”

The club “never missed a payment” for 15.5 years, Schultz said, “but the problem was there wasn’t any money to fix up the facilities, and the facilities got worse.”

In private country clubs, “It’s more about the member experience,” Schultz said. “The nicest course, the best food, the best ambiance. (Otherwise) members tend to leave for places newer, fresher, cleaner.”

From a membership high of 700 circa 2006 the roster dove to “over 400,” while capital investment in everything from the irrigation system to chairs went wanting.

The club paid the bank $11 million but still owed almost $8 million, Schultz said (the bank did not verify this amount; it said the club has paid $3.3 million in principal). “We paid them a lot of money over the years. The bank was helpful. But there was just more and more interest, more and more interest.”

Groundskeepers work on the course at the Stockton Golf and Country Club. (Photos by Scott Linesburgh)

The club stopped paying the bank on April 1.

It went shopping for for-profit buyers not hamstrung by the nonprofit tax code, buyers with deep pockets who can reinvest, gussy up the club, and attract new members.

Five groups responded, Schultz said. One offered $5.7 million, the others around $4 million.

The bank would have none of it.

“We’ve rewritten the loan numerous times, we’ve deferred payments when the time has come, we helped them facilitate a PPP (Paycheck Protection Program) loan” for $430,455 that was forgiven, Eberhardt said. “What they’re asking is are we willing to take a $4 million hit on that property?”

Eberhardt suspects the club has the money but sees Chapter 11 as a “strategic bankruptcy” to divert money from debt payments to needed capital improvements. He cries foul.

An April 11 country club newsletter from Schultz seems to confirm his suspicion. In it, Schultz wrote, “I want to reassure everyone that not paying the bank doesn’t mean we don’t have the money, we are simply trying to push negotiations with the bank.”

A central issue in the bankruptcy trial will be the value of the Stockton Golf and Country Club. The reason being that the bank is only entitled to the value of “secured” collateral.

Bank of Stockton President, CEO, and Chairman Douglass Eberhardt II (Courtesy of the Bank of Stockton)

A secured claim, if perfected, has priority over all other creditors in court, said Geoffrey Berman, former president of the American Bankruptcy Institute and senior managing director for Development Specialists Inc. of Los Angeles.

The “deficiency”—the loan amount over the value of the collateral — is “unsecured.” An unsecured claim stands on an equal basis with every other hapless creditor.

“So it’s safe to assume that the bank doesn’t want the property to be less than its debt because it doesn’t want an unsecured loan,” Berman said. “It doesn’t want to be exposed to having loss.”

The bank points to a value placed on the club by the U.S. Army Corps of Engineers when it seized eight acres of club land by eminent domain several years ago for a flood-control project: $8.1 million—minus the value of the eight acres.

The $5.7 million offer was not a formal letter of intent but a mere promise, the bank points out.

On the other hand, if the clubhouse is the white elephant — or chronically wrong business model — Schultz claims it is, that will lower the value of the club, Berman said.

A judge will decide.

Eberhardt: “If I was going to lose 4 million bucks by agreeing to sell the club … heck, might as well roll the dice in bankruptcy court. What have I got to lose?

Michael Fitzgerald’s column runs on Wednesdays. Phone (209) 687-9585. On Twitter and Instagram as Stocktonopolis. Email michaelfstockton@gmail.com.

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