MINNEAPOLIS - John F. Grundhofer still cultivates the image of a dealmaker, even though his company is viewed more often these days as a target, not a buyer.

The 61-year-old chairman and chief executive of U.S. Bancorp, who has pasted together about 20 midwestern and western banks and thrifts to create the nation's 14th-largest banking company, seems eager to do at least one more big deal before he retires.

In an interview last week at U.S. Bancorp's headquarters here, Mr. Grundhofer said his company is actively looking for opportunities in the western states.

Especially California. "It's huge," he said. ""In time it could be our largest state by deposits."

But he conceded that the company's battered stock price makes it appealing to buyers. A takeover "is always possible," he said.

As it mulls expansion opportunities, U.S. Bancorp continues to spend heavily on an overhaul of its retail operations and on technology initiatives to improve service and revenue growth.

Philip G. Heasley, president and chief operating officer, who is considered to be Mr. Grundhofer's heir apparent, said the company "invested heavily in the first quarter." He added, "We've probably spent a little more than we expected" in the period.

It is clearly a company in transition. Its stock has languished since December, when the company warned of slowing revenues and a fourth-quarter earnings shortfall. These were blamed on the need to invest on consumer and technology initiatives coupled with lower consumer lending, which sent its stock down 28%. Since the beginning of the year, shares of U.S. Bancorp are down 11%, against a decline of 5% in American Banker's index of the 50 largest banks.

First-quarter profits were dampened by U.S. Bancorp's spending initiatives as well. Like many other regional banking companies, it has been hit by concerns over the effect of rising interest rates on credit quality. Shares of the company closed Friday at $19.750, down $1.875.

But the company says it is sticking to its course. Though the spending has been varied, much of it has focused on technology improvements for payment systems, its consumer Web site, and its retail bank.

A big chunk of the investing this year has been at the branch level. A vice chairman, Peter E. Raskind, focused almost entirely on overhauling 1,100 branches, a project he said he expects to be completed by yearend.

U.S. Bancorp added 150 tellers this year in places where it said it needed to cut down on customer waiting times. It also raised compensation and added incentives for branch managers and tellers. The company plans to open 30 branches this year, mostly in metropolitan areas where it sees the most growth - Las Vegas, Denver, Portland, Ore., and Southern California, for example.

"The branch is the only physical manifestation of the bank, and that's why it's crucial to manage it well," Mr. Raskind said.

So how long will it take for the bank to see a payoff in all of its investments?

Mr. Heasley predicts positive returns from its upgrades will be sprinkled over the next three to four years. He said the its branch project called Lobby 2000 will start showing positive results by the middle of 2001, while the technology initiatives may take a little longer, two to four years, to produce results.

That leaves plenty of time to plot an expansion strategy. U.S. Bancorp's depressed stock is expected to keep it out of the megamerger game for the immediate future. Where it has expressed a desire to expand by acquisition, analysts agree that the company could pick up "fill-in" bank deals.

Michael Plodwick, senior regional bank analyst at UBS Warburg Dillon in New York, said, "I think the most likely acquisitions would be to build out in California" for U.S. Bancorp. They would involve smaller banks, rather than big ones like Unionbancal.

Three Southern California banks that U.S. Bancorp purchased within the last year serve as a model for how it will integrate future acquisitions. In those mergers, U.S. Bancorp kept much of the senior management intact, a policy Mr. Grundhofer says should make it more attractive as an acquirer in California.

It has fierce competition. Several major banking companies, including BancWest Corp. and Pacific Century Financial Corp., have said they are looking to expand by acquisition.

But in U.S. Bancorp's court is Mr. Grundhofer, a Southern California native whose experience includes several years at Wells Fargo & Co. and Union Bank. Indeed, his personal contacts with banks in Southern California triggered U.S. Bancorp's acquisition of Peninsula Bank in San Diego and Western Bancorp in Newport Beach. U.S. Bancorp also bought San Diego's Bank of Commerce last year.

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