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Carasso Named As Jefferson Federal Bank President for Knoxville Region

         Morristown, Tennessee (January 27, 2005) - Jefferson Bancshares, Inc.
(Nasdaq:JFBI), the holding company for Jefferson Federal Bank, today announced
that Tony Carasso has been selected as President of Jefferson Federal Bank's
Knoxville, Tennessee region.

     Originally chartered as a Savings and Loan, Jefferson Federal has been
conducting business in Morristown since 1963. In July 2003, Jefferson Federal
reorganized from the mutual holding company structure to the stock holding
company structure. In connection with this conversion, Jefferson Bancshares sold
approximately 6.6 million shares of its common stock in a public offering. The
conversion has allowed Jefferson Federal to grow its core businesses, compete
more effectively in the financial services marketplace and has created a more
active and liquid market for the Jefferson Bancshares' common stock. Consumer
loan, commercial loan and mortgage lending operations began January 1, 2005 at
8920 Executive Park Drive in Knoxville at Jefferson Federal Bank's Cedar Bluff
location, and full service centers are to follow at other locations later in the
year.

     "Tony brings an enormous talent to Jefferson Federal Bank," said Jefferson
Bancshares President and CEO, Anderson L. Smith. Smith went on to say, "As we
made plans to expand into Knoxville, we knew we were going to need a leader for
the region with Tony's experience and familiarity with the market. We couldn't
be more pleased to have him on board as our Knoxville President."

     As President for the Knoxville region, Carasso will be instrumental in
developing Jefferson Federal Bank's position in the marketplace and overseeing
the operations of the bank. Much of his initial focus will be to develop a
balanced sales and service team and to continue the bank's exemplary customer
service record. He will also work to build the bank's consumer and commercial
loan portfolios as well as to develop its mortgage lending opportunities.

     A Memphis native, Carasso has been in the banking industry for
approximately fifteen years. Since his early years in banking, he has maintained
a primary working relationship with a large regional commercial bank. Carasso
began in the Collection Department of the company's Memphis operation to
ultimately rise to the position of overseeing the development and growth of
twenty-two branches in eleven cities.

     Carasso is active in numerous community outreach organizations and
activities including the Upward Bound Basketball League, the Karns Community
Ruritan Club, the March of Dimes Steering Committee and the Cabinet for the
United Way.

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     Carasso and his wife, Debbie, live in Farragut and attend First Baptist
Concord Church, where they both teach Sunday School. They have two sons, Blake,
age fifteen and Jack, age two.

         This news release may contain forward-looking statements, which can be
identified by the use of words such as "believes", "expects", "anticipates",
"estimates", or similar expressions. Such forward-looking statements and all
other statements that are not historic facts, are subject to risks and
uncertainties which could cause actual results to differ materially from those
currently anticipated due to a number of factors. These factors include, but are
not limited to, general economic conditions, changes in the interest rate
environment, legislative or regulatory changes that may adversely affect our
business, changes in accounting policies and practices, changes in competition
and demand for financial services, adverse changes in the securities markets,
and changes in the quality or composition of the Company's loan or investment
portfolios. Should one or more of these risks materialize, actual results may
vary from those anticipated, estimated, or projected. Readers are cautioned not
to place undue reliance on these forward-looking statements, which speak only as
of the date of this press release.

      Specific factors that could cause future results to vary from current
management expectations may be detailed, from time to time in the Company's
filings with the Securities and Exchange Commission, which are available through
the SEC's website at www.sec.gov.

Contacts:

Jefferson Bancshares, Inc.
Anderson L. Smith 423-586-8421
Jane P. Hutton 423-586-8421