UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2008

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number 00-50347

JEFFERSON BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

Tennessee	45-0508261
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

120 Evans Avenue, Morristown, Tennessee	37814
(Address of principal executive offices)	(Zip code)

(423) 586-8421

(Registrant’s telephone number, including area code)

Not Applicable

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)

Large Accelerated Filer  ¨	Accelerated Filer  x
Non-Accelerated Filer  ¨	Smaller Reporting Company  x
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date:

At November 9, 2008, the registrant had 6,194,804 shares of common stock, $0.01 par value per share, outstanding.

INDEX

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Statements of Condition – Unaudited Three months ended September 30, 2008 and year ended June 30, 2008	3
	Consolidated Statements of Earnings – Unaudited Three months ended September 30, 2008 and 2007	4
	Consolidated Statements of Changes in Stockholders’ Equity – Unaudited Three months ended September 30, 2008 and 2007	5
	Consolidated Statements of Cash Flows – Unaudited Three months ended September 30, 2008 and 2007	6
	Notes to Consolidated Financial Statements – Unaudited	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	25
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3.	Defaults Upon Senior Securities	27
Item 4.	Submission of Matters to a Vote of Security Holders	27
Item 5.	Other Information	27
Item 6.	Exhibits	27
SIGNATURES

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Jefferson Bancshares, Inc. and Subsidiary

Consolidated Statements of Condition

(Dollars in thousands)

	September 30, 2008			June 30, 2008
	(Unaudited)
Assets
Cash and cash equivalents	$	2,609		$	2,398
Interest-earning deposits		10,719			14,112
Fed funds sold		349			1,106
Investment securities classified as available-for-sale, net		3,458			3,478
Federal Home Loan Bank stock		1,893			1,868
Bank owned life insurance		5,986			5,926
Loans receivable, net of allowance for loan losses of $1,958 at September 30, 2008 and $1,836 at June 30, 2008		286,547			282,483
Loans held-for-sale		82			258
Premises and equipment, net		15,138			15,200
Foreclosed real estate, net		474			462
Accrued interest receivable:
Investments		46			38
Loans receivable		1,221			1,208
Deferred tax asset		833			844
Other assets		991			884
Total assets	$	330,346		$	330,265
Liabilities and Stockholders’ Equity
Deposits:
Noninterest-bearing	$	14,652		$	17,517
Interest-bearing		203,245			206,035
Federal Home Loan Bank advances		38,000			33,000
Other liabilities		976			836
Accrued income taxes		377			100
Total liabilities		257,250			257,488
Commitments and contingent liabilities		—			—
Stockholders’ equity:
Preferred stock, $.01 par value; 10,000,000 shares authorized; no shares issued or outstanding		—			—
Common stock, $.01 par value; 30,000,000 shares authorized; 8,446,375 shares issued and 6,194,804 shares outstanding at September 30, 2008 and 6,207,702 shares outstanding at June 30, 2008		84			84
Additional paid-in capital		73,014			72,959
Unearned ESOP shares		(4,429	)		(4,537	)
Unearned compensation		(1,534	)		(1,659	)
Accumulated other comprehensive income		(28	)		(17	)
Retained earnings		35,126			34,965
Treasury stock, at cost; 2,251,571 shares at September 30, 2008 and 2,238,673 shares at June 30, 2008		(29,137	)		(29,018	)
Total stockholders’ equity		73,096			72,777
Total liabilities and stockholders’ equity	$	330,346		$	330,265

See accompanying notes to financial statements.

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Jefferson Bancshares, Inc. and Subsidiary

Consolidated Statements of Earnings (Unaudited)

(Dollars in Thousands, Except Net Earnings Per Share)

	Three Months Ended September 30,
	2008		2007
Interest income:
Interest on loans receivable	$	4,597	$	5,047
Interest on investment securities		29		273
Other interest		42		91
Total interest income		4,668		5,411
Interest expense:
Deposits		1,325		2,069
Advances from FHLB		356		441
Total interest expense		1,681		2,510
Net interest income		2,987		2,901
Provision for loan losses		160		68
Net interest income after provision for loan losses		2,827		2,833
Noninterest income:
Dividends from investments		11		8
Mortgage origination fee income		54		125
Service charges and fees		245		154
Gain on sale of foreclosed real estate, net		—		46
BOLI increase in cash value		60		55
Other		24		24
Total noninterest income		394		412
Noninterest expense:
Compensation and benefits		1,318		1,444
Occupancy expense		183		171
Equipment and data processing expense		358		359
DIF premiums		9		6
Advertising		3		95
Other		468		494
Total noninterest expense		2,339		2,569
Earnings before income taxes		882		676
Income taxes:
Current		332		234
Deferred		17		8
Total income taxes		349		242
Net earnings	$	533	$	434
Net earnings per share, basic	$	0.09	$	0.07
Net earnings per share, diluted	$	0.09	$	0.07

See accompanying notes to financial statements.

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Jefferson Bancshares, Inc. and Subsidiary

Consolidated Statements of Changes in Stockholders’ Equity

Three Months Ended September 30, 2008 and 2007

(Dollars in Thousands)

	Common Stock		Additional Paid-in Capital			Unallocated Common Stock in ESOP			Unearned Compensation			Accumulated Other Comprehensive Income			Retained Earnings			Treasury Stock			Total Stockholders’ Equity
Balance at June 30, 2008	$	84	$	72,959		$	(4,537	)	$	(1,659	)	$	(17	)	$	34,965		$	(29,018	)	$	72,777
Comprehensive income:
Net earnings		—		—			—			—			—			533			—			533
Change in net unrealized gain (loss) on securities available for sale, net of taxes of ($7)		—		—			—			—			(11	)		—			—			(11	)
Total comprehensive income		—		—			—			—			—			—			—			522
Dividends		—		—			—			—			—			(372	)		—			(372	)
Shares committed to be released by the ESOP		—		(10	)		108			—			—			—			—			98
Stock options expensed		—		65			—			—			—			—			—			65
Earned portion of stock grants		—		—			—			125			—			—			—			125
Purchase of common stock (12,898 shares)		—		—			—			—			—			—			(119	)		(119	)
Balance at September 30, 2008	$	84	$	73,014		$	(4,429	)	$	(1,534	)	$	(28	)	$	35,126		$	(29,137	)	$	73,096
	Common Stock		Additional Paid-in Capital			Unallocated Common Stock in ESOP			Unearned Compensation			Accumulated Other Comprehensive Income			Retained Earnings			Treasury Stock			Total Stockholders’ Equity
Balance at June 30, 2007	$	84	$	72,738		$	(4,969	)	$	(2,182	)	$	(246	)	$	35,082		$	(26,863	)	$	73,644
Comprehensive income:
Net earnings		—		—			—			—			—			434			—			434
Change in net unrealized gain (loss) on securities available for sale, net of taxes of $88		—		—			—			—			141			—			—			141
Total comprehensive income		—		—			—			—			—			—			—			575
Dividends		—		—			—			—			—			(384	)		—			(384	)
Dividends used for ESOP payment		—		—			—			—			—			—			—			—
Shares committed to be released by the ESOP		—		16			108			—			—			—			—			124
Stock options expensed		—		66			—			—			—			—			—			66
Earned portion of stock grants		—		—			—			136			—			—			—			136
MRP vesting		—		—			—			—			—			—			—			—
Exercise of options		—		—			—			—			—			—			—			—
Tax benefit from exercise of nonqualifying stock options		—		—			—			—			—			—			—			—
Purchase of common stock (16,631 shares)		—		—			—			—			—			—			(196	)		(196	)
Balance at September 30, 2007	$	84	$	72,820		$	(4,861	)	$	(2,046	)	$	(105	)	$	35,132		$	(27,059	)	$	73,965

See accompanying notes to financial statements.

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Jefferson Bancshares, Inc. and Subsidiary

Consolidated Statements of Cash Flows (Unaudited)

(Dollars in Thousands)

	Three Months Ended September 30,
	2008			2007
Cash flows from operating activities:
Net earnings	$	533		$	434
Adjustments to reconcile net earnings to net cash provided by (used for) operating activities:
Allocated ESOP shares		99			124
Depreciation and amortization expense		152			164
Amortization of premiums (discounts), net on investment securities		3			4
Provision for loan losses		160			68
FHLB stock dividends		(25	)		—
Amortization of deferred loan fees, net		(59	)		(58	)
(Gain) on sale of foreclosed real estate, net		—			(46	)
Deferred tax expense		17			8
Originations of mortgage loans held for sale		(3,375	)		(8,586	)
Proceeds from sale of mortgage loans		3,551			10,496
Increase in cash value of life insurance		(60	)		(55	)
Earned portion of MRP		125			136
Stock options expensed		65			66
Decrease (increase) in:
Accrued interest receivable		(21	)		71
Other assets		(107	)		41
Increase (decrease) in other liabilities and accrued income taxes		417			98
Net cash provided by (used for) operating activities		1,475			2,965
Cash flows used for investing activities:
Loan originations, net of principal collections		(4,177	)		2,543
Investment securities classified as available for sale:
Proceeds from maturities, calls and prepayments		—			2,000
Purchase of premises and equipment		(90	)		(54	)
Proceeds from sale of (additions to) foreclosed real estate, net		(1	)		196
Net cash provided by (used for) investing activities		(4,268	)		4,685
Cash flows from financing activities:
Net increase (decrease) in deposits		(5,655	)		9,136
Proceeds from advances from FHLB		16,500			6,500
Repayment of FHLB advances		(11,500	)		(20,300	)
Purchase of treasury stock		(119	)		(196	)
Dividends paid		(372	)		(385	)
Net cash provided by (used for) financing activities		(1,146	)		(5,245	)
Net increase (decrease) in cash, cash equivalents and interest-earning deposits		(3,939	)		2,405
Cash, cash equivalents and interest-earning deposits at beginning of period		17,616			7,734
Cash, cash equivalents and interest-earning deposits at end of period	$	13,677		$	10,139
Supplemental disclosures of cash flow information:
Cash paid during period for:
Interest on deposits	$	1,078		$	2,069
Interest on FHLB advances	$	356		$	441
Income taxes	$	30		$	85
Real estate acquired in settlement of loans	$	12		$	0

See accompanying notes to financial statements.

6

Notes To Consolidated Financial Statements

(1) Basis of Presentation

The accompanying unaudited consolidated financial statements include the accounts of Jefferson Bancshares, Inc. (the “Company” or “Jefferson Bancshares”) and its wholly-owned subsidiary, Jefferson Federal Bank (the “Bank” or “Jefferson Federal”). The unaudited financial statements of the Company were prepared with generally accepted accounting principles and with instructions for Form 10-Q and, therefore, do not include all disclosures necessary for a complete presentation of financial condition, results of operations and cash flows. In the opinion of management, the accompanying unaudited financial statements contain all adjustments, which are normal and recurring in nature, necessary for a fair presentation of the interim financial statements. The results of operations for the period ended September 30, 2008 are not necessarily indicative of the results which may be expected for the entire fiscal year. These unaudited consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended June 30, 2008, which was filed with the Securities and Exchange Commission on September 11, 2008. All dollar amounts, other than per-share amounts, are in thousands unless otherwise noted.

(2) Principles of Consolidation

The consolidated financial statements include the accounts of Jefferson Bancshares, Inc. and its wholly-owned subsidiary, Jefferson Federal Bank. All significant intercompany balances and transactions have been eliminated in consolidation.

(3) Use of Estimates

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the statement of condition dates and revenues and expenses for the periods shown. Actual results could differ from the estimates and assumptions used in the consolidated financial statements. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the valuation of foreclosed real estate and deferred tax assets.

(4) Limitation on Capital Distributions

Jefferson Federal may not pay dividends on its capital stock if its regulatory capital would thereby be reduced below the amount then required for the liquidation account established for the benefit of certain depositors of Jefferson Federal at the time of its conversion to stock form.

Under applicable regulations, Jefferson Federal is prohibited from making any capital distributions if after making the distribution, the Bank would have: (i) a total risk-based capital ratio of less than 8.0%; (ii) a Tier 1 risk-based capital ratio of less than 4.0%; or (iii) a leverage ratio of less than 4.0%.

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Under the banking laws of the State of Tennessee, a Tennessee chartered savings bank may not declare dividends in any calendar year that exceeds the total of its net income of that year combined with its retained net income for the preceding two years without the prior approval of the Commissioner of the Department of Financial Institutions.

(5) Earnings Per Common Share

Earnings per common share and earnings per common share-assuming dilution have been computed on the basis of dividing net earnings by the weighted-average number of shares of common stock outstanding, exclusive of unallocated ESOP shares. Diluted earnings per common share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued. Potential common shares that may be issued by the Company relate to outstanding stock options and are determined using the treasury stock method. For the period ended September 30, 2008, stock options to purchase 400,032 shares were not included in the computation of diluted net income per share as their effect would have been anti-dilutive. The following table illustrates the number of weighted-average shares of common stock used in each corresponding earnings per common share calculation:

	Weighted-Average Shares Outstanding for the Three Months Ended September 30,
	2008	2007
Weighted average number of common shares used in computing basic earnings per common share	5,638,175	5,879,990
Effect of dilutive stock options	—	—
Weighted average number of common shares and dilutive potential common shares used in computing earnings per common share assuming dilution	5,638,175	5,879,990

(6) Statements of Cash Flows

Dividends declared but not paid have been recorded in other liabilities; however, their non-effect on cash and operations dictates their exclusion from the cash flows until actually paid.

(7) Accounting by Creditors for Impairment of a Loan

Impairment of loans is recognized in conformity with Financial Accounting Standards Board (“FASB”) Statement No. 118. There was no impairment of loans or allowance for loan losses related to impaired loans at September 30, 2008. Other nonaccrual loans at September 30, 2008 were approximately $725,000. For the three months ended September 30, 2008, gross income which would have been recognized had nonaccrual

8

loans been current in accordance with their original terms amounted to approximately $14,000. Interest income from non-accrual loans included in the Company’s interest income amounted to $3,000 for the three months ended September 30, 2008.

The following table summarizes the activity in the allowance for loan losses for the three months ended September 30, 2008:

	Allowance for Loan Losses (Dollars in thousands)
Balance at June 30, 2008			$	1,836
Provision for loan losses				160
Charge-offs	(49	)
Recoveries	11
Net (charge-offs)/recoveries				(38	)
Balance at September 30, 2008			$	1,958

(8) Financial Instruments With Off-Balance Sheet Risk

Jefferson Bancshares is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments generally include commitments to originate mortgage loans. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. The Company’s maximum exposure to credit loss in the event of nonperformance by the borrower is represented by the contractual amount and related accrued interest receivable of those instruments. The Company minimizes this risk by evaluating each borrower’s creditworthiness on a case-by-case basis. Collateral held by the Company consists of a first or second mortgage on the borrower’s property. The amount of collateral obtained is based upon an appraisal of the property.

At September 30, 2008, we had approximately $3.7 million in loan commitments, consisting of commitments to originate real estate loans. In addition to commitments to originate loans, we had $5.9 million of loans-in-process, $3.5 million in unused standby letters of credit and approximately $19.9 million in unused lines of credit.

(9) Dividend Declaration

On August 28, 2008 the Board of Directors of the Company approved a quarterly dividend of $0.06 per share to stockholders of record as of September 30, 2008 and payable on October 10, 2008.

(10) Stock Incentive Plans

The Company’s 2004 Stock Incentive Plan authorizes the granting of 698,750 options and 279,500 restricted stock awards to employees and non-employee directors of Jefferson Federal and Jefferson Bancshares. As of September 30, 2008, there were 400,032 options and 192,352 restricted stock awards granted under this plan which will vest pro-rata over a five-year period. The 2004 Plan has an expiration date of January 30, 2014.

9

The table below summarizes the status of the Company’s stock option plans as of September 30, 2008.

	Three Months Ended September 30, 2008
	Shares	Weighted- average exercise price
Outstanding at beginning of period	401,778	$	13.69
Granted during the three-month period	—		—
Options forfeited	1,746	$	13.69
Options exercised	—		—
Outstanding at September 30, 2008	400,032	$	13.69
Options exercisable at September 30, 2008	321,434	$	13.69

The following information applies to options outstanding at September 30, 2008:

Number outstanding		400,032
Range of exercise prices	$	13.69
Weighted-average exercise price	$	13.69
Weighted-average remaining contractual life		5.33
Number of options remaining for future issuance		298,718

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 123R, “Share Based Payment” (“SFAS 123R”), an amendment of FASB Statement No. 123 (“SFAS 123”), “Accounting for Stock-Based Compensation.” SFAS 123R eliminates the ability to account for share-based compensation transactions using Accounting Principles Board Opinion No. 25 (“APB 25”) and requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. This statement is effective for public entities that do not file as small business issuers as of the beginning of the first interim or annual reporting period that begins after June 15, 2005.

Effective July 1, 2005, the Company adopted SFAS 123R using the modified prospective application transition method. This requires the Company to expense the unvested portion of options granted in 2004, which reduces net earnings by approximately $106,000 in fiscal year 2009. SFAS 123R provides for the use of alternative models to determine compensation cost related to stock option grants. The estimated fair value of stock options at grant date has been determined using the Black-Scholes option-pricing model based on market data as of January 29, 2004. The expected dividend yield of 1.17% and expected volatility of 7.01% were used to model the value. The risk free rate of return equaled 4.22%, which was based on the yield of a U.S. Treasury note with a term of ten years. The estimated time remaining before the expiration of the options equaled ten years.

10

(11) Fair Value Disclosures

Effective July 1, 2008, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” and SFAS No. 159 “The Fair Value Options for Financial Assets and Liabilities”. SFAS No. 159, which was issued in February 2007, generally permits entities to choose to measure many financial instruments and certain other items at fair value at specified election dates. The statement also provides guidance on financial assets and liabilities that are not subject to fair value measurement. Upon adoption of SFAS No. 159, the Company did not elect to adopt the fair value option for any financial instruments.

SFAS No. 157, which was issued in September 2006, defines fair value, provides a framework for measuring fair value under U.S. Generally Accepted Accounting Principles and expands disclosures about fair value measurements. This Statement defines fair value as the exchange price that would be received for an asset or paid to transfer a liability in the most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.

In accordance with SFAS No. 157, when measuring fair value, the Company uses valuation techniques that are appropriate and consistently applied. A hierarchy is also established under the standard and is used to prioritize valuation inputs into the following three levels to determine fair value:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable inputs other than the quoted prices included in Level 1.

Level 3: Unobservable inputs.

Following is a description of valuation methodologies used for assets recorded at fair value.

Investment Securities Available for Sale

Investment securities available-for-sale are recorded at fair value on at least a monthly basis. Fair value measurements are based upon independent pricing models or other model-based valuation techniques with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. Level 2 securities include mortgage-backed securities issued by government-sponsored entities, municipal bonds, bonds issued by government agencies, and corporate debt securities.

The fair value measurements as of September 30, 2008, for investment securities available-for-sale are summarized below:

	Fair Value Measurement Using
Description	Level 1	Level 2		Level 3	Total
Securities available for sale	—	$	3,458	—	$	3,458

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(12) Subsequent Event

On October 31, 2008, the Company completed its previously announced acquisition of State of Franklin Bancshares, Inc. (“State of Franklin Bancshares”). Pursuant to the terms of the Agreement and Plan of Merger by and between the Company and State of Franklin Bancshares, shares of State of Franklin Bancshares will be converted into either $10.00 in cash or 1.1287 shares of Jefferson Bancshares common stock. The total merger consideration will consist of approximately $4.3 million in cash and 736,000 shares of Jefferson Bancshares stock. The acquisition provided the Company with total assets of approximately $670 million, including loans of approximately $509 million and total deposits of approximately $478 million.

In connection with the merger, on October 31, 2008, Jefferson Federal merged with and into State of Franklin Savings Bank, the wholly owned subsidiary of State of Franklin Bancshares, Inc. The resulting institution will continue to operate as a Tennessee chartered savings bank under the name “Jefferson Federal Bank.” As a Tennessee chartered savings bank, Jefferson Federal will be regulated by the Tennessee Department of Financial Institutions and the FDIC.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s discussion and analysis of financial condition and results of operations is intended to assist in understanding the financial condition and results of operations of Jefferson Bancshares. The information contained in this section should be read in conjunction with the financial statements and accompanying notes thereto. For further information, refer to the financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2008, which was filed with the Securities and Exchange Commission on September 11, 2008.

General

Jefferson Bancshares, Inc. (also referred to as the “Company” or “Jefferson Bancshares”) is the holding company for Jefferson Federal Bank (the “Bank” or “Jefferson Federal”).

The Company has no significant assets, other than all of the outstanding shares of the Bank, and no significant liabilities. Management of the Company and the Bank are substantially similar and the Company neither owns nor leases any property, but instead uses the premises, equipment and furniture of the Bank. Accordingly, the information set forth in this report, including the consolidated financial statements and related financial data, relates primarily to the Bank.

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Jefferson Federal is a community oriented financial institution offering traditional financial services to its local communities. The Bank is engaged primarily in the business of attracting deposits from the general public and using such funds to originate loans secured by first mortgages on owner-occupied, one-to four- family residential properties, as well as originate commercial real estate and multi-family mortgage loans, construction loans, consumer loans, commercial non-real estate loans and make other investments permitted by applicable laws and regulations.

The Bank’s savings accounts are insured up to the applicable legal limits by the Federal Deposit Insurance Corporation (“FDIC”) through the Deposit Insurance Fund. Jefferson Federal Bank is a member of the Federal Home Loan Bank (“FHLB”) System.

Private Securities Litigation Reform Act Safe Harbor Statement

This Quarterly Report may contain forward-looking statements within the meaning of the federal securities laws. These statements are not historical facts; but rather, are statements based on Jefferson Bancshares’ current expectations regarding its business strategies and their intended results and the Company’s future performance. Forward-looking statements are preceded by terms such as “expects,” “believes,” “anticipates,” “intends” and similar expressions.

Management’s ability to predict results or the effect of future plans or strategies is inherently uncertain. 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. Additional factors that may affect our results are discussed in our Annual Report on Form 10-K for the year ended June 30, 2008 under “Item 1A. Risk Factors.” These factors should be considered in evaluating the forward-looking statements and undue reliance should not be placed on such statements. Jefferson Bancshares assumes no obligation to update any forward-looking statements.

Results of Operations for the Three Months Ended September 30, 2008 and 2007

Net Income

Net income was $533,000, or $0.09 per diluted share, for the quarter ended September 30, 2008 compared to net income of $434,000, or $0.07 per diluted share, for the corresponding quarter in 2007. The increase in net income for the three months ended September 30, 2008 was due to an increase in net interest income and a decrease in noninterest expense, partially offset by an increase in the provision for loan losses.

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	Three Months Ended September 30,
	2008			2007
	(Dollars in thousands, except per share data)
Net earnings	$	533		$	434
Net earnings per share, basic	$	0.09		$	0.07
Net earnings per share, diluted	$	0.09		$	0.07
Return on average assets (annualized)		0.65	%		0.52	%
Return on average equity (annualized)		2.89	%		2.35	%

Net Interest Income

Net interest income before loan loss provision increased $86,000, or 3.0%, to $3.0 million for the quarter ended September 30, 2008 from the corresponding period in 2007. The interest rate spread and net interest margin for the quarter ended September 30, 2008 were 3.35% and 3.94%, respectively, compared to 2.91% and 3.72%, respectively, for the same period in 2007.

The following table summarizes changes in interest income and expense for the three-month periods ended September 30, 2008 and 2007:

	Three Months Ended September 30,				$ Change			% Change
	2008		2007
	(Dollars in thousands)
Interest income:
Loans	$	4,597	$	5,047	$	(450	)	(8.9	)%
Investment securities		29		273		(244	)	(89.4	)%
Interest-earning deposits		17		62		(45	)	(72.6	)%
FHLB stock		25		29		(4	)	(13.8	)%
Total interest income		4,668		5,411		(743	)	(13.7	)%
Interest expense:
Deposits		1,325		2,069		(744	)	(36.0	)%
Borrowings		356		441		(85	)	(19.3	)%
Total interest expense		1,681		2,510		(829	)	(33.0	)%
Net interest income	$	2,987	$	2,901	$	86		3.0	%

The following table summarizes average balances and average yields and costs for the three months ended September 30, 2008 and September 30, 2007:

	Three Months Ended September 30,
	2008				2007
	Average Balance		Yield/ Cost		Average Balance		Yield/ Cost
	(Dollars in thousands)
Loans	$	287,869	6.34	%	$	275,138	7.28	%
Investment securities		3,467	3.32	%		26,323	4.15	%
Interest-earning deposits		7,707	0.88	%		6,317	3.89	%
FHLB stock		1,868	5.31	%		1,796	6.41	%
Deposits		202,947	2.59	%		212,589	3.86	%
Borrowings		35,057	4.03	%		35,118	4.98	%

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The following table sets forth the effects of changing rates and volumes on our net interest income. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. For purposes of this table, changes attributable to changes in both rate and volume that cannot be segregated have been allocated proportionately based on the changes due to rate and the changes due to volume.

	Three Months Ended September 30, 2008 Compared to 2007
	Increase (Decrease) Due To						Net
	Volume			Rate
	(In thousands)
Interest income:
Loans receivable	$	250		$	(700	)	$	(450	)
Investment securities		(240	)		—			(240	)
Municipals		(7	)		3			(4	)
Daily interest-earning deposits and other interest-earning assets		19			(68	)		(49	)
Total interest-earning assets		22			(765	)		(743	)
Interest expense:
Deposits		(90	)		(654	)		(744	)
Borrowings		(1	)		(84	)		(85	)
Total interest-bearing liabilities		(91	)		(738	)		(829	)
Net change in interest income	$	113		$	(27	)	$	86

Total interest income decreased $743,000, to $4.7 million for the three months ended September 30, 2008 due to a lower average yield on interest-earning assets more than offsetting an increase in the average balance of interest-earning assets.

Interest on loans decreased $450,000, or 8.9%, to $4.6 million for the three months ended September 30, 2008. The decrease in interest on loans was attributable to a decrease in the average yield partially offset by a higher average balance of loans. The average balance of loans increased $12.7 million, or 4.6%, to $287.9 million for the three months ended September 30, 2008 primarily due to growth in the commercial loan portfolio. The average yield on loans decreased 94 basis points to 6.34%, primarily as a result of decreases in the prime lending rate.

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Interest on investment securities decreased $244,000 to $29,000 for the three months ended September 30, 2008 primarily due to a decline in the average balance of investment securities. The average balance of investment securities was $3.5 million for the three months ended September 30, 2008 compared to $26.3 million for the comparable period in 2007 due to securities being called.

Total interest expense decreased $829,000, or 33.0%, to $1.7 million for the three-month period ended September 30, 2008 primarily due to a 122 basis point decline in the rate paid on interest-bearing liabilities and a decrease in the average balance of interest-bearing liabilities.

Interest expense on deposits decreased $744,000, or 36.0%, to $1.3 million for the three-month period ended September 30, 2008 due to a decrease in the average rate paid on deposits and a decrease in the average balance of deposits. The average rate paid on deposits decreased 127 basis points to 2.59% due to decreases in short term interest rates while the average balance of deposits declined $9.6 million to $202.9 million due to a decrease in the average balance of certificates of deposit.

Interest expense on FHLB advances decreased $85,000, or 19.3%, to $356,000 for the three months ended September 30, 2008 compared to the same period in 2007. The decrease was due to a lower average rate paid on borrowings.

Provision for Loan Losses

We review the level of the loan loss allowance on a monthly basis and establish the provision for loan losses based on the volume and types of lending, delinquency levels, loss experience, the amount of classified loans, economic conditions and other factors related to the collectibility of the loan portfolio. The provision for loan losses for the three-month period ended September 30, 2008 amounted to $160,000 compared to $68,000 for the comparable period in 2007. The increase in the provision for loan losses reflects growth in commercial loans, management’s evaluation of credit quality and current economic conditions. Nonperforming loans totaled $725,000 at September 30, 2008 compared to $1.4 million at September 30, 2007.

Noninterest Income

Noninterest income decreased $18,000, or 4.4%, to $394,000 for the three months ended September 30, 2008 compared to $412,000 for the corresponding period in 2007. Service charges and fee income increased $91,000, or 59.1%, to $245,000 for the three months ended September 30, 2008 due to the implementation of a new overdraft program. Mortgage origination fee income decreased $71,000, or 56.8%, to $54,000 for the three months ended September 30, 2008 due to a lower volume of loan originations. There was no gain on sale of foreclosed assets for the quarter ended September 30, 2008 compared to a $46,000 gain on sale of foreclosed assets for the corresponding period in 2007.

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The following table summarizes the dollar amounts for each category of noninterest income, and the dollar and percent changes for the three months ended September 30, 2008 compared to the same period in 2007.

	Three Months Ended September 30,				$ Change			% Change
	2008		2007
	(Dollars in thousands)
Noninterest income:
Dividends from investments	$	11	$	8	$	3		37.5	%
Mortgage origination fee income		54		125		(71	)	(56.8)	%
Service charges and fees		245		154		91		59.1	%
Gain on sale of foreclosed real estate, net		—		46		(46	)	(100.0)	%
BOLI increase in cash value		60		55		5		9.1	%
Other		24		24		—		0.0	%
Total noninterest income	$	394	$	412	$	(18	)	(4.4)	%

Noninterest Expense

Noninterest expense decreased $230,000, or 9.0%, to $2.3 million for the three-month period ended September 30, 2008 compared to the corresponding 2007 period. Compensation and benefits expense decreased $126,000, or 8.7%, to $1.3 million for the three months ended September 30, 2008 due in part to a lower number of employees. Advertising expense decreased $92,000 to $3,000 due to planned reductions in promotional advertising during the three months ended September 30, 2008.

The following table summarizes the dollar amounts for each category of noninterest expense, and the dollar and percent changes for the three months ended September 30, 2008 compared to the same period in 2007.

	Three Months Ended September 30,				$ Change			% Change
	2008		2007
	(Dollars in thousands)
Compensation and benefits	$	1,318	$	1,444	$	(126	)	(8.7)	%
Occupancy expense		183		171		12		7.0	%
Equipment and data processing expense		358		359		(1	)	(0.3)	%
Deposit insurance premiums		9		6		3		50.0	%
Advertising		3		95		(92	)	(96.8)	%
Other		468		494		(26	)	(5.3)	%
Total noninterest expense	$	2,339	$	2,569	$	(230	)	(9.0)	%

Income Taxes

Income tax expense for the three months ended September 30, 2008 was $349,000 compared to $242,000 for the same period in 2007 due to higher taxable income.

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Financial Condition

Cash, Cash Equivalents and Interest-Earning Deposits

Cash, cash equivalents, and interest-earning deposits were $13.7 million at September 30, 2008 compared to $17.6 million at June 30, 2008. We manage the level of cash, cash equivalents and interest-earning deposits to meet loan demand and daily liquidity needs.

Investments

Our investment portfolio consists primarily of municipal securities with maturities of 20 years or less. We do not hold any Freddie Mac or Fannie Mae preferred or common stock in our investment portfolio. Investment securities amounted to $3.5 million at both September 30, 2008 and June 30, 2008. Investment securities classified as available-for-sale are carried at fair market value and reflect an unrealized loss of $45,000, or $28,000 net of taxes.

The following table sets forth the carrying values of our investment securities portfolio at the dates indicated. All of our investment securities are classified as available-for-sale.

At September 30, 2008
	Amortized Cost			Unrealized Gains		Unrealized Losses			Fair Value
	(Dollars in thousands)
Securities available-for-sale
Debt securities:
Federal agency	$	—		$	—	$	—		$	—
Municipals		3,503			7		(52	)		3,458
Total securities available-for-sale	$	3,503		$	7	$	(52	)	$	3,458
Weighted-average rate		3.24	%
At June 30, 2008
	Amortized Cost			Unrealized Gains		Unrealized Losses			Fair Value
	(Dollars in thousands)
Securities available-for-sale
Debt securities:
Federal agency	$	—		$	—	$	—		$	—
Municipals		3,506			7		(35	)		3,478
Total securities available-for-sale	$	3,506		$	7	$	(35	)	$	3,478
Weighted-average rate		3.62	%

Loans

Net loans increased $4.1 million to $286.5 million at September 30, 2008 primarily due to an increase in real estate loans and commercial business loans. Our primary lending activity is the origination of loans secured by real estate. Real estate loans totaled $228.8 million, or 79.2% of total loans, at September 30, 2008 compared to $224.6 million, or 78.9% of total loans, at June 30, 2008. Commercial business loans increased $562,000, or 1.1%, to $52.6 million at

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September 30, 2008, while consumer loans decreased $581,000, or 7.3%, to $7.3 million at that date. The decline in consumer loans was largely attributable to a decrease in indirect automobile loans.

Loans receivable, net, are summarized as follows:

	At September 30, 2008					At June 30, 2008					$ Change			% Change
	Amount			Percent of Portfolio		Amount			Percent of Portfolio
	(Dollars in thousands)
Real estate loans:
Residential one-to four-family	$	64,099		22.2	%	$	63,340		22.3	%	$	759		1.2	%
Home equity line of credit		6,431		2.2	%		5,723		2.0	%		708		12.4	%
Commercial		93,225		32.3	%		90,933		32.0	%		2,292		2.5	%
Multi-family		4,877		1.7	%		4,219		1.5	%		658		15.6	%
Construction		19,603		6.8	%		19,553		6.9	%		50		0.3	%
Land		40,585		14.1	%		40,862		14.4	%		(277	)	(0.7)	%
Total real estate loans		228,820		79.2	%		224,630		78.9	%		4,190		1.9	%
Commercial business loans		52,599		18.2	%		52,037		18.3	%		562		1.1	%
Consumer loans:
Automobile loans		3,472		1.2	%		3,973		1.4	%		(501	)	(12.6)	%
Mobile home loans		57		0.0	%		60		0.0	%		(3	)	(5.0)	%
Loans secured by deposits		939		0.3	%		930		0.3	%		9		1.0	%
Other consumer loans		2,875		1.0	%		2,961		1.0	%		(86	)	(2.9)	%
Total consumer loans		7,343		2.5	%		7,924		2.8	%		(581	)	(7.3)	%
Total gross loans		288,762		100.0	%		284,591		100.0	%		4,171		1.5	%
Less:
Deferred loan fees, net		(257	)				(272	)				15		(5.5)	%
Allowance for losses		(1,958	)				(1,836	)				(122	)	6.6	%
Loans receivable, net	$	286,547				$	282,483				$	4,064		1.4	%

Loan Loss Allowance

The allowance for loan losses is a valuation allowance for probable losses inherent in the loan portfolio. We evaluate the need to establish reserves against losses on loans on a monthly basis. When additional reserves are necessary, a provision for loan losses is charged to earnings.

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In connection with assessing the allowance, we have established a systematic methodology for determining the adequacy of the allowance for loan losses. The methodology utilizes a loan grading system which segments loans with similar risk characteristics. Management performs a monthly assessment of the allowance for loan losses based on the nature and volume of the loan portfolio, the amount of impaired and classified loans and historical loan loss experience. In addition, management considers other qualitative factors, including delinquency trends, economic conditions and loan considerations.

The FDIC and/or the Tennessee Department of Financial Institutions, as an integral part of its examination process, periodically reviews our allowance for loan losses. The FDIC and/or the Tennessee Department of Financial Institutions may require us to make additional provisions for loan losses based on judgments different from ours.

The allowance for loan losses was $2.0 million at September 30, 2008 compared to $1.8 million at June 30, 2008. Our allowance for loan losses represented 0.68% of total loans and 270.07% of nonperforming loans at September 30, 2008 compared to 0.65% of total loans and 609.97% of nonperforming loans at June 30, 2008.

	Three Months Ended September 30,
	2008			2007
	(Dollars in thousands)
Balance at beginning of period	$	1,836		$	1,955
Provision for loan losses		160			68
Recoveries		11			10
Charge-offs		(49	)		(78	)
Net charge-offs		(38	)		(68	)
Allowance at end of period	$	1,958		$	1,955
Net charge-offs to average outstanding loans during the period, annualized		0.05	%		0.10	%

Nonperforming Assets

We consider repossessed assets and nonaccrual loans to be nonperforming assets. Loans are reviewed on a monthly basis and are generally placed on nonaccrual status when the loan becomes more than 90 days delinquent. Nonperforming loans totaled $725,000 at September 30, 2008 compared to $301,000 at June 30, 2008. Foreclosed real estate amounted to $474,000 at September 30, 2008 compared to $462,000 at June 30, 2008. Foreclosed real estate is initially recorded at the lower of the amount of the loan or the fair value of the foreclosed real estate, less estimated selling costs. Any writedown to fair value is charged to the allowance for loan losses. Any subsequent writedown of foreclosed real estate is charged against earnings.

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	September 30, 2008			June 30, 2008
	(Dollars in thousands)
Nonaccruing loans:
Real estate	$	578		$	139
Commercial business		147			162
Consumer		—			—
Total nonaccrual loans		725			301
Real estate owned		474			462
Other repossessed assets		5			5
Total nonperforming assets	$	1,204		$	768
Total nonperforming assets to total assets		0.36	%		0.23	%
Total nonperforming loans to total loans		0.25	%		0.11	%
Allowance for loan losses to total nonperforming loans		270.07	%		609.97	%

Bank Owned Life Insurance

We hold bank owned life insurance (“BOLI”) to help offset the cost of employee benefit plans. BOLI provides earnings from accumulated cash value growth and provides tax advantages inherent in a life insurance contract. The cash surrender value of the BOLI at September 30, 2008 was $6.0 million.

Deposits

Total deposits decreased $5.7 million, or 2.5%, to $217.9 million at September 30, 2008 due to a $7.6 million decrease in transaction accounts more than offsetting a $2.0 million increase in certificates of deposit.

	September 30, 2008		June 30, 2008		$ Change			% Change
	(Dollars in thousands)
Noninterest-bearing accounts	$	14,652	$	17,517	$	(2,865	)	(16.4	)%
NOW accounts		19,334		20,352		(1,018	)	(5.0	)%
Savings accounts		9,032		9,153		(121	)	(1.3	)%
Money market accounts		46,141		49,781		(3,640	)	(7.3	)%
Certificates of deposit		128,738		126,749		1,989		1.6	%
	$	217,897	$	223,552	$	(5,655	)	(2.5	)%

Advances

FHLB advances increased $5.0 million to $38.0 million at September 30, 2008, compared to $33.0 million at June 30, 2008 due to an increase in short term borrowings to meet liquidity needs.

Stockholders’ Equity

Stockholders’ equity amounted to $73.1 million at September 30, 2008 compared to $72.8 million at June 30, 2008. Stock repurchases for the three months ended September 30, 2008

21

totaled 12,898 shares at an average cost of $9.29 per share. On February 24, 2006, the Company announced its third stock repurchase program pursuant to which up to 690,261 shares of the Company’s outstanding common stock may be repurchased. At September 30, 2008, 115,794 shares remained eligible for repurchase under the current stock repurchase program. Unrealized gains and losses, net of taxes, in the available-for-sale investment portfolio are reflected as an adjustment to stockholders’ equity. At September 30, 2008, the adjustment to stockholders’ equity was a net unrealized loss of $28,000 compared to a net unrealized loss of $17,000 at June 30, 2008. The Company declared a $0.06 per share dividend to shareholders of record at September 30, 2008 totaling $372,000 that was payable on October 10, 2008.

Liquidity and Capital Resources

Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, loan repayments, maturities and sales of investment securities and borrowings from the FHLB of Cincinnati. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.

We regularly adjust our investments in liquid assets based on our assessment of expected loan demand, expected deposit flows, yields available on interest-earning deposits and securities, and the objectives of our asset/liability management program. Excess liquid assets are invested generally in interest-earning deposits and short- and intermediate-term U.S. Government agency obligations.

Our most liquid assets are cash and cash equivalents and interest-earning assets. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. At September 30, 2008, cash and cash equivalents totaled $2.6 million and interest-earning deposits totaled $11.1 million, compared to $2.4 million and $15.2 million, respectively, at June 30, 2008. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $3.5 million at both September 30, 2008 and June 30, 2008. In addition, at September 30, 2008, our advance agreement with the FHLB provided us with the ability to borrow a total of approximately $47.1 million from the FHLB of Cincinnati. In the three-month period ended September 30, 2008, FHLB advances increased $5.0 million to $38.0 million compared to $33.0 million at June 30, 2008.

We anticipate that we will have sufficient funds available to meet current loan commitments. At September 30, 2008, we had approximately $3.7 million in loan commitments outstanding. In addition to commitments to originate loans, we had $5.9 million in loans-in-process primarily related to undisbursed proceeds of construction loans, $3.5 million in unused standby letters of credit and approximately $19.9 million in unused lines of credit. At September 30, 2008, we had $72.6 million in certificates of deposit due within one year and $89.2 million in other deposits without specific maturities. We believe, based on past experience, that a significant portion of those deposits will remain with us. Deposit flows are affected by the overall level of interest rates and products offered by us and our local competitors and other factors. We generally

22

manage the pricing of our deposits to be competitive and to increase deposits. Occasionally, we offer promotional rates on certain deposit products in order to attract deposits. We experienced a net decrease in total deposits of $5.7 million during the three-month period ended September 30, 2008.

Off-Balance Sheet Arrangements

In the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally accepted accounting principles, are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments, unused lines of credit, amounts due mortgagors on construction loans, amounts due on commercial loans and commercial letters of credit.

For the three months ended September 30, 2008, we engaged in no off-balance sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.

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Capital Compliance

The following table presents our capital position relative to our regulatory capital requirements at September 30, 2008 and June 30, 2008:

	Actual				For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount			Ratio		Amount			Ratio
	(Dollars in thousands)
At September 30, 2008
Total Capital
(To Risk Weighted Assets)	$	66,178	23.6	%	$	22,444	³	8.0	%	$	28,055	³	10.0	%
Core Capital
(To Tangible Assets)		64,277	19.5	%		13,175	³	4.0	%		16,468	³	5.0	%
Tangible Capital
(To Tangible Assets)		64,277	19.5	%		4,940	³	1.5	%		N/A
Tier 1 Capital
(To Risk Weighted Assets)		64,277	22.9	%		N/A					16,833	³	6.0	%
At June 30, 2008
Total Capital
(To Risk Weighted Assets)		66,271	24.2	%		21,941	³	8.0	%		27,426	³	10.0	%
Core Capital
(To Tangible Assets)		64,472	19.6	%		13,175	³	4.0	%		16,469	³	5.0	%
Tangible Capital
(To Tangible Assets)		64,472	19.6	%		4,941	³	1.5	%		N/A
Tier 1 Capital
(To Risk Weighted Assets)		64,472	23.5	%		N/A					16,455	³	6.0	%

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

For a discussion of the Company’s asset and liability management policies, as well as the potential impact of interest rate changes upon the market value of the Company’s portfolio equity, see Item 7A in the Company’s Annual Report on Form 10-K for the year ended June 30, 2008. Management, as part of its regular practices, performs periodic reviews of the impact of interest rate changes upon net interest income and the market value of the Company’s portfolio equity. Based on, among other factors, such reviews, management believes that there have been no material changes in the market risk of the Company’s asset and liability position since June 30, 2008.

Item 4. Controls and Procedures

The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. In addition, based on that evaluation, no change in the Company’s internal control over financial reporting occurred during the quarter ended September 30, 2008 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Jefferson Bancshares is not a party to any pending legal proceedings. Periodically, there have been various claims and lawsuits involving Jefferson Federal, such as claims to enforce liens, condemnation proceedings on properties in which Jefferson Federal holds security interests, claims involving the making and servicing of real property loans and other issues incident to Jefferson Federal’s business. Jefferson Federal is not a party to any pending legal proceedings that it believes would have a material adverse effect on the financial condition or operations of the Company or the Bank.

Item 1A. Risk Factors

There have been no material changes to the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended June 30, 2008.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Period	(a) Total Number of Shares (or units) Purchased	(b) Average Price Paid per Share (or Unit)		(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased Under the Plans or Programs
Month #1 July 1, 2008 through July 31, 2008	—		—	—	128,692	(1)
Month #2 August 1 2008 through August 31, 2008	12,770	$	9.29	12,770	115,922	(1)
Month #3 September 1, 2008 through September 30, 2008	128	$	9.23	128	115,794	(1)
Total	12,898		9.29	12,898	115,794

(1) On February 24, 2006, the Company announced a stock repurchase program under which the Company may repurchase up to 690,261 shares of the Company’s common stock, from time to time, subject to market conditions. The repurchase program will continue until completed or terminated by the Board of Directors.

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Item 3. Defaults Upon Senior Securities

None.

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

None.

Item 5. Other Information

The following disclosures would otherwise have been furnished on Form 8-K under the heading:

“Item 2.02. Results of Operations and Financial Condition”:

The information relating to the Company’s results of operations for the quarter ended September 30, 2008, which was furnished to the SEC via a Form 8-K on November 7, 2008, is incorporated herein by reference. The information being incorporated by reference herein shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section.

Item 6. Exhibits

2.1	Agreement and Plan of Merger by and between Jefferson Bancshares, Inc. and State of Franklin Bancshares, Inc., dated September 4, 2008 (1)
10.1	Employment Agreement by and among Jefferson Federal Bank, Jefferson Bancshares, Inc. and Randal R. Greene, dated October 31, 2008 (2)
31.1	Rule 13a-14(a)/15d-14(a) certification of the principal executive officer
31.2	Rule 13a-14(a)/15d-14(a) certification of the principal financial officer
32.1	Section 1350 certification

(1) Incorporated by reference to the Current Report on Form 8-K filed with the Securities and Exchange Commission on September 5, 2008.

(2) Incorporated by reference to the Current Report on Form 8-K filed with the Securities and Exchange Commission on November 4, 2008.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	JEFFERSON BANCSHARES, INC.
November 10, 2008	/s/ Anderson L. Smith
	Anderson L. Smith
	President and Chief Executive Officer
November 10, 2008	/s/ Jane P. Hutton
	Jane P. Hutton
	Chief Financial Officer, Treasurer and Secretary