EXHIBIT 99.1




PRESS RELEASE                     FOR IMMEDIATE RELEASE
                                  Contact:  Anderson L. Smith, President and CEO
                                  Telephone:  423-586-8421


    JEFFERSON BANCSHARES, INC. ANNOUNCES COMPLETION OF SECOND-STEP CONVERSION


Morristown,  Tennessee  - (July 1, 2003)  Jefferson  Bancshares,  Inc.  (Nasdaq:
JFBI),  the holding  company for  Jefferson  Federal  Bank  (formerly  Jefferson
Federal Savings and Loan Association of Morristown), today announced that it has
sold 6,612,500  shares at $10.00 per share,  representing  an offering amount of
$66,125,000 (the "adjusted  maximum" of the offering range),  in its second-step
mutual to stock  conversion  offering,  which  expired on June 18, 2003.  Orders
received in the  subscription  and community  offering totaled in excess of $105
million.

Jefferson Bancshares will exchange approximately  1,389,000 shares with minority
shareholders of Jefferson Federal Savings and Loan Association,  representing an
exchange ratio of 4.2661.

As part of the conversion,  Jefferson  Bancshares  formed the Jefferson  Federal
Charitable  Foundation,  which was funded with  $250,000  and 375,000  shares of
Jefferson  Bancshares common stock.  Jefferson  Charitable  Foundation will make
grants and donations to non-profit  and  community  groups and projects  located
within  Jefferson  Federal's  market area. In connection with the closing of the
conversion, Jefferson Federal Savings and Loan Association also changed its name
to "Jefferson Federal Bank."

Total shares outstanding after the conversion,  exchange and contribution to the
charitable foundation will be approximately 8,376,000 shares.

Shares of Jefferson  Bancshares,  Inc. are expected to begin  trading on July 2,
2003 on the Nasdaq under the ticker symbol "JFBI."

At March 31, 2003,  Jefferson Federal had assets of $265.5 million,  deposits of
$227.3 million and stockholders' equity of $35.8 million. Jefferson Federal is a
community oriented financial institution offering traditional financial services
within its local  communities  through  its main  office  and two  drive-through
facilities in Morristown.

Muldoon Murphy & Faucette LLP served as Jefferson  Federal's  conversion counsel
and Keefe,  Bruyette & Woods,  Inc.  assisted in the sale of the common stock of
Jefferson Bancshares.