UNITED STATES
                  SECURITIES AND EXCHANGE COMMISSION
                        Washington, D.C. 20549

                              Form 10-QSB

 X  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 
ACT OF 1934
               
                         For the quarterly period ended SEPTEMBER 30, 1998

    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

                         For the transition period from       to      

                         Commission file number   33-40799          

                            TIMBERLINE BANCSHARES, INC.                         
       (Exact name of small business issuer as specified in its charter)

          California                                 68-0269988        
(State or other jurisdiction of            (IRS Employer Identification No.)
of incorporation or organization)

                123 N. Main Street,   P. O. Box 1087, Yreka, Ca 96097  
                     (Address of principal executive offices)

                                  ( 530 )  842-6191                          
                               (Issuer's telephone number) 

                                                                       
(Former name, former address and former fiscal year, if changed since last
report)

Check whether the issuer (1) filed all reports required to be filed by Section 
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter 
period that the registrant was required to file such reports), and (2) has been 
subject to such filing requirements for the past 90 days.  Yes X   No   .

                   APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                      PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant filed all documents and report required to be filed
by Section 12, 13 or 15(d) of the Exchange Act after the distribution of 
securities under a plan confirmed by a court.  Yes     No   

                          APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:    1,006,726   






                        PART 1 - FINANCIAL INFORMATION


Item 1.  Financial Statements

                         TIMBERLINE BANCSHARES, INC.
                        CONSOLIDATED INCOME STATEMENT
                              Periods Indicated

(Amounts stated in thousands)
                                Quarter     Year         Prior        Prior Year
                                Ended       to Date      Quarter End  to Date
                                09/30/98    09/30/98     09/30/97     09/30/97

 1.  Interest and Fees on Loans   $1,240      $3,693       $1,180       $3,355
 2.  Interest On Securities
        Available for Sale           201         569          216          499
        Held to Maturity             102         321          113          367
 3.  Trading Account interest        -0-         -0-          -0-          -0-
 4.  Other interest                  184         507          146          458
 5.  Total Interest Income         1,727       5,090        1,655        4,679 
 6.  Interest on Deposits            617       1,806          539        1,542  
 7.  Interest on short term 
     borrowing                       -0-         -0-          -0-          -0-
 8.  Interest on long term debt      -0-         -0-          -0-          -0- 
 9.  Total Interest Expense          617       1,806          539        1,542
10.  Net Interest Income           1,110       3,284        1,116        3,137 
11.  Provision for Loan Losses        22          60          -0-          -0-
12.  Net Interest Income after
      Provision for loan losse     1,088       3,224        1,116        3,137
13.  Other Income                    106         320          108          331
14.  Other Expenses                  842       2,639          826        2,517
15.  Income before Tax               352         905          398          951
16.  Income Tax Expense               98         226          123          245
17.  Income before extraordinary
       item                          254         679          275          706
18.  Cumulative effect of accounting
       changes                       -0-         -0-          -0-          -0-
19.  Net Income                    $ 254       $ 679        $ 275        $ 706

20.  Earnings per share           $  .25       $ .67        $ .27        $ .70



Note 1:  The financial statements included in this report are unaudited
but, in the opinion of management of the Corporation, reflect all adjustments
(consisting only of normal recurring adjustments) necessary for a fair 
presentation of financial position, results of operations, and changes in 
financial position for the periods presented.



               TIMBERLINE BANCSHARES, INC.
               CONSOLIDATED BALANCE SHEET
                         09/30/98
(Amounts stated in thousands)


     ASSETS

 1.  Cash and Due from Banks                     $ 4,886 
 2.  Interest Bearing Deposits other banks           -0- 
 3.  Federal Funds sold and securities
       purchased under resale agreement           16,100 
 4.  Trading Account Assets                          -0- 
 5.  Other short-term investments                  1,346 
 6.  Investment securities
     Held for Sale                                11,898 
     Held to Maturity                              6,603 
 7.  Loans, Total                                 45,796 
          Allowance for loan losses                 (372)
          Unearned Income                            (88)
 8.  Premises and Equipment                        2,491 
 9.  Due from customers on acceptances               -0- 
10.  Other assets                                  1.092 
11.  Total Assets                                                     


     LIABILITIES

12.  Deposits, non-interest bearing              $15,026           
          Interest bearing                        66,148 
13.  Short-term borrowing                            -0- 
14.  Bank Acceptances outstanding                    -0- 
15.  Other liabilities                               661 
16.  Long-term debt                                  -0- 
17.  Commitments and contingent liabilities          -0- 
18.  Minority Interests                              -0- 
     SHAREHOLDERS EQUITY
19 & 20.  Preferred stock                            -0- 
21.  Common Stock                                  2,992 
22.  Other Shareholders equity                     4,925 
23.  Total Liabilities and Shareholders Equity   $89,752 


Note:  Held for Sale amount stated net of unrealized gain of $30.





               TIMBERLINE BANCSHARES, INC
          CONSOLIDATED STATEMENT OF CASH FLOWS
                    For Periods Indicated

(Amounts stated in thousands)
                                        Year                    Year    
                                       to Date                 to date  
                                       09/30/98                 09/30/97       

Cash Flow from Operating Activities
     Net Income                          $ 679                    $ 706 
     Non-cash items included in income
     Depreciation                          160                      194 
     Net change in Bad Debt Provision      (29)                     (21)
Cumulative effect of accounting 
          change
     (Increase)Decrease in:
          Other Assets                     489                      205 
     Increase(Decrease) in:
          Other Liabilities                120                       65 
                                                                             
     Net cash provided by operations     1,419                    1,149 

Cash Flow from Investing Activities
     Increase(Decrease) in:
          Deposits                       3,616                    6,841 
     (Increase)Decrease in:
          Short Term Investments           (43)                     (40)
          Securities: Held for Sale      1,246                   (8,408)
                   Held to Maturity        602                    2,359 
          Federal Funds Sold            (9,100)                   2,500 
          Loans                          2,793                   (3,544)
     (Purchase)Sale of Fixed assets       (619)                    (238)
                                                                             
Net cash (used for) provided by
     investing activities               (1,505)                    (530)

Cash Flow from Financing Activities
     Dividends (Paid)                     (252)                    (251)
Additional Paid in Capital                 -0-                      166 
                                                                              
Net cash (applied to)provided by
     financing activities                 (252)                     (85)
Net cash increase(decrease) in cash
     and due from banks                   (338)                     534 

Cash and Due from Banks at
     beginning of year                   5,224                    5,202 

Cash and Due from Banks at
     end of period                      $4,886                   $5,736



Item 2.  Management's Discussion and Analysis or Plan of Operation.

(a) Plan of Operation

It is the intention of management that its wholly-owned subsidiary, Timberline 
Community Bank, shall continue to function much as it has in the past.  When 
formed in June 1980, it was the intent of the Bank to serve the needs of the 
communities of the County.  This intention has not changed.  

The Bank has enjoyed sustained growth since it was opened and has established 
a solid deposit base and profitability that has enabled it to maintain the cash 
requirements for operation.  Management can foresee nothing that would indicate 
that this condition will change in the future.

The Bank will continue to operate as a full service banking organization, 
continually enhancing the service to its  depositors, stay abreast of the 
changing environment of banking, always monitoring operational costs, 
maintaining a respectable return to the shareholders, providing the best service
possible to its customer base, and increasing income to full potential.

     
(b) Management's Discussion and Analysis of Financial condition and Results of 
Operations

In 1996 the Bank entered into a credit card participation agreement with 
Humboldt Bank for the California State Employees Association that did not meet 
expectations either in volume or profitability.  The operating expenses and 
ratio of credit losses that occurred were unsatisfactory to  management and 
the Bank subsequently pulled out of the program at the end of the third quarter 
of the year.  However, the losses and operating expenses are reflected in the 
provision for loan losses and the increase in other operating expenses. 

The financials also reflect a decline in net interest margin from 1997 due in 
part to  the loan demand in the local area (which is experiencing an 11.4% 
unemployment rate) that has steadily declined for the past two to three years, 
a greater growth in deposits than in loans, and the changes in interest rates 
that have recently occurred.  

Because of the decreasing loan demand and the simultaneous increase in deposit 
growth, the Bank is in a highly liquid ratio with Federal Funds sold and 
investments in securities.  The interest margin between investments and deposits
is not as great as the interest margin between loans and deposits, thereby 
narrowing the net interest margin.  In addition, with the rate changes that have
occurred in the past three months, investments are being called and repurchased 
at a lower interest rate, contributing more to the narrowing of the net 
interest margin.

Consequently, the Bank has begun an aggressive loan participation program with 
banks out of the normal lending area - principally with banks in Oregon through 
it's Loan Production Office in Medford.  The subsequent increase in loan volume 
will largely compensate for the decrease in net interest margins in today's 
market and should enable the Bank to end the year with no material change in per
share earnings over last year.

The Bank has also been actively involved in the Year 2000 (Y2K) issues.  The 
Bank has assessed its state of readiness by evaluating its information 
technology (IT) and non-IT systems.  The IT systems consist of a Data Processing
Service owned by a service provider, an administrative network, various 
non-network computers and calculators, typewriters, etc.

The service provider has developed a project time line to ensure it meets all 
deadlines as proscribed by the FDIC.  They keep the bank updated on their 
progress in meeting those goals. To date, they are ahead of the FDIC Guidelines.
The administrative network has been fully tested, the equipment and software 
updated or replaced and is fully Y2K ready.  All non-networked computers have 
been tested, the equipment and software updated or replaced and are fully Y2K 
ready.  Other various office equipment has been tested and appears to be Y2K 
ready.

The Bank does not have any non-IT systems with embedded technology that would 
be adversely effected by Y2K.

The Bank has made the following determinations in regard to Y2K issues relating
to third parties:        

Regulatory agencies, Federal and State, all purport to be in compliance or on 
schedule with Y2K issues.  The bank has not independently verified this.

Federal Reserve Bank - purports to be on schedule.  The bank has tested direct 
applications used on premises and the service provider has tested the 
applications used on the Bank's behalf and they appear to be on schedule.

Vendors - the Bank's vendors are mainly fungible and any with Y2K problems can 
easily be replaced.

Customers:
    Depositors:   the Bank has provided public forums to discuss Y2K issues.
The Bank does not anticipate any significant Y2K issues with our deposit base.
    Borrowers:   Each loan made since June 1, 1998 has been evaluated as to its 
Y2K issues.  The Bank's allowance for loan losses will reflect any potential Y2K
related losses.

Costs - The Bank has been able to handle hardware and software costs through 
normal budgeted expenditures and did not accelerate any replacement periods.
All labor costs were incurred using existing staff without overtime.

Risk - The Bank anticipates that the most likely worst case scenario will be a 
combination of several borrowers experiencing short term Y2K cash flow problems 
and a pre Y2K increased cash demand by our customers.  The bank does not 
consider a computer system failure as likely because of the extensive pre Y2K 
preparation.  The other failure commonly discussed by the general public is a 
failure of the power grid.  From reports made by the various power companies in 
the newspapers on their Y2K readiness, the Bank does not consider that likely.

Contingency Plan - If the Bank has borrowers that experience Y2K cash flow 
problems, they will be dealt with in the same routine manner that normal cash 
flow interruptions experienced by borrowers are dealt with.   The Bank does not 
anticipate any material failure of borrowers because of the Bank's ongoing 
review process.  Any increase in cash demand will be funded by the Bank's normal
currency ordering procedures.

Independent Verification - Verification will be completed during our annual 
audit to the extend required by GAAP and GAAS.  In addition, the Bank is a 
highly regulated industry and are examined by Federal and State regulatory 
agencies.

In addition to the extensive Y2K activities, the Bank has installed a 24 hour 
banking system and a debit card program for the convenience of the customers.
All these activities were budgeted as anticipated banking expenses for the year.

The Bank paid a $.25 dividend in the spring and has declared an additional $.25 
dividend for the first month of the fourth quarter.


               PART 11 - OTHER INFORMATION

Item 1. Legal Proceedings

There are no legal proceedings pending other than those in the normal course of 
doing business that may have a material impact on the bank.

Item 2.  Changes in Securities

None

Item 3.  Defaults Upon Senior Securities

None

Item 4.  Submission of Matters to a Vote of Security Holders

None

Item 5.  Other Information

None

Item 6.  Exhibits and Reports on Form 8-K

None






                       SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused 
this report to be signed on its behalf by the undersigned, thereunto duly 
authorized.


                             TIMBERLINE BANCSHARES, INC.


Date  10/27/98                   /s/ Robert J. Youngs 
                                 Robert J. Youngs, President & CEO          




Date  10/27/98                   /s/ Helen L. Gaulden                      
                                 Helen L. Gaulden, Vice President & Treasurer