In California's fertile San Joaquin Valley, Bank of Stockton's sales of 401(k) plans are growing as juicily as grapes on the vine.

In the 16 months since the $722 million-asset bank began marketing newly developed 401(k)s offered by Pittsburgh-based Federated Investors, assets under management by the bank's trust department have swelled by almost $30 million.

And that's with only one employee - a trust officer who doesn't have a business-development background - devoting about a third of her time to the effort.

"This has worked out exceedingly well," says Robert W. Friedberger, the bank's vice president and senior trust officer. "We're ecstatic about it."

So is Federated, which began targeting banks to sell its specially tailored 401(k)s in mid-1994.

Federated was one of the first mutual fund administrators to zero in on financial institutions to supplement its 401(k) sales efforts, Now the strategy is bearing fruit, and not just in the San Joaquin Valley.

Federated's clients include about 200 banks across the nation, representing more than $1 billion in 401(k) assets.

Essentially, the bank acts as the 401(k)'s trustee, while Federated plays the role of third-party administrator.

One linchpin of the arrangement's success is that banks can often cross- sell the retirement products to their existing commercial clientele.

"Where do companies go when they want to set up their first 401(k) plan?" says Stephen P. Cronin, Federated's vice president and national director of trust marketing and sales. "They go to the people who loaned them money. That's the first step."

That loyalty might be one reason that Elizabeth K. Dannen -- the Bank of Stockton trust officer with limited sales experience - has been bagging so many new 401(k) clients.

Since 1994, Ms. Dannen's batting average at selling Bank of Stockton retirement plans to area employers has weighed in at an astounding .500. Most of her sales pitches are thrown at clients who use the bank's other services.

She recently hit a home run when she signed up 3,500-employee Crestwood Hospitals Inc., which owns a chain of 23 geriatric and psychiatric hospitals in Northern California. The health-care group is a longtime customer of Bank of Stockton's, and when it decided to dissolve its old 401(k) plan for one that gives its 625 plan participants more control over their investments, it gave the business to Ms. Dannen and Federated.

"Once or twice a month we would get called on by the brokerages, but we liked what Bank of Stockton and Federated came up with," says Donna Sinnock, who is in charge of Crestwood's human resources development office.

Crestwood's longstanding banking relationship with Bank of Stockton played a key role in moving its $2.5 million plan to it. Also, Bank of Stockton's proximity is an "added bonus," Ms. Sinnock says.

"All our employees know Bank of Stockton is the trustee," she says. "What's really nice is I can have lunch with Lisa (Dannen) when I need to" to discuss business.

Such home-town favoritism is just what Federated is counting on.

"Fidelity isn't going to fly someone to a $1 million plant to give the kind of service Bank of Stockton will," Federated's Mr. Cronin says. "It's because they're there that they get the business. They can drive the car down the street and do these things."

Ms. Sinnock says Crestwood is saving "quite a bit of money" on its new 401(k) arrangement, but she wouldn't specify how much. The health-care company is also avoiding the liability it shouldered when it oversaw investment of 401(k) funds, a responsibility more and more employers are happy to hand over to employees.

In addition, Ms. Sinnock says, employees are now able to call a toll- free number for account balances; previously, they were given only annual updates.

Crestwood is by far the largest of Bank of Stockton's 401(k) clients, and it's the kind of account the bank couldn't have hoped for if it didn't have Federated's resources to support it.

In fact, Ms. Dannen had help from Federated when she pitched Federated's Managed Series Trust to Crestwood. The trust offers four of Federated's own investment accounts and a handful of accounts managed by other mutual fund families. Representatives of Federated's Los Angeles and Sacramento offices routinely accompany Ms. Dannen on sales calls.

While Federated might help out again as Ms. Dannen begins conducting seminars on 401(k) investing at Crestwood's various sites, it's up to Ms. Dannen to offer the personal service that helps close such deals. She has given Crestwood 401(k) enrollees her direct telephone number at the bank.

Federated's Mr. Cronin says most of its banks target companies with between 25 and 1,000 employees. Crestwood is Bank of Stockton's biggest 401(k) client; the smallest is a 90-employee waste-management company.

Bank of Stockton president and CEO Douglass M. Eberhardt sees 401(k) administration as one more way the independent institution can continue to grow despite a shrinking local economy.

Since 1990, deposits at financial institutions in the Stockton metro area have dropped from $5.7 billion to $4.5 billion. Bank of Stockton's customer base is heavily commercial, with an emphasis on agricultural businesses.

Its slant toward corporate business makes it natural for the bank to market 401(k) programs, Mr. Eberhardt says.

"There's an awful lot of 401(k) business in this county," he says. "And there's an awful lot more in the counties adjacent to us. The potential for growth is there."

Mr. Friedberger, Bank of Stockton's senior trust officer, says he expects the bank's retirement business to double in each of the next five years.

"If we had another employee - we're thinking of adding someone doing just business development for 401(k)s - we think this will skyrocket," Mr. Friedberger says, adding that Ms. Dannen is "just overloaded."

Mr. Friedberger is predicting that growth despite some formidable competition. A half-dozen national brokerage houses in the market sell 401(k)s, and major California-based banks such as Wells Fargo and Bank of America also work the market, he says.

Bank of Stockton's entry into the 401(k) world is sparking interest from other institutions in its peer group, he reports. He says he tells them that setting up the program "hasn't been that hard for us."

Banks' interest stems from the fees they can generate from 401(k)s. Bank of Stockton, for example, earns about 25 basis points of the market value of its plans' assets as its annual fee for acting as trustee. Banks with smaller 401(k) portfolios under can earn fees as high as 100 basis points.

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