1


                                  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 March 31, 2005

                                       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          (I.R.S. Employer Identification Number)
 incorporation or organization)


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 an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).  Yes /X/  No  /_/

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

         At May 10, 2005, the registrant had 7,566,564 shares of common stock,
$0.01 par value per share, outstanding.


 2



                                                   INDEX
                                                                                                               Page

                                       Part I. FINANCIAL INFORMATION

                                                                                                              
Item 1.    Financial Statements

           Consolidated Statements of Condition - Unaudited
           Nine months ended March 31, 2005 and year ended June 30, 2004..................................        3

           Consolidated Statements of Earnings - Unaudited
           Three and nine months ended March 31, 2005 and 2004............................................        4

           Consolidated Statements of Changes in Stockholders' Equity - Unaudited
           Nine months ended March 31, 2005 and year ended June 30, 2004..................................        5

           Consolidated Statements of Cash Flows - Unaudited
           Nine months ended March 31, 2005 and 2004......................................................        6

           Notes to Consolidated Financial Statements - Unaudited.........................................        7

Item 2.    Management's Discussion and Analysis of
           Financial Condition and Results of Operations..................................................       11

Item 3.    Quantitative and Qualitative Disclosures About Market Risk.....................................       28

Item 4.    Controls and Procedures........................................................................       28

                                       Part II - OTHER INFORMATION

Item 1.    Legal Proceedings..............................................................................       29
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds....................................       29
Item 3.    Defaults Upon Senior Securities................................................................       30
Item 4.    Submission of Matters to a Vote of Security Holders............................................       30
Item 5.    Other Information..............................................................................       30
Item 6.    Exhibits ......................................................................................       30

SIGNATURES




                                                            2

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                          PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                                   JEFFERSON BANCSHARES, INC.
                              Consolidated Statements of Condition
                                March 31, 2005 and June 30, 2004
                                     (Dollars in Thousands)
                                                                           MARCH 31,               JUNE 30,
                                                                            2005                    2004
                                                                     ------------------      ------------------
                                                                         (Unaudited)
                                                                                        
ASSETS
Cash and cash equivalents                                             $          3,680        $          3,803
Interest-earning deposits                                                        8,224                   2,608
Investment securities classified as available for sale, net                     70,078                  95,005
Federal Home Loan Bank stock                                                     1,632                   1,580
Bank owned life insurance                                                        5,233                   5,080
Loans receivable, net                                                          194,943                 186,601
Premises and equipment, net                                                      5,180                   5,120
Foreclosed real estate, net                                                      1,143                     552
Accrued interest receivable:
       Investments                                                                 426                     870
       Loans receivable                                                          1,024                     956
Deferred tax asset                                                               2,206                   2,502
Other assets                                                                       731                     797
                                                                     ------------------      ------------------

Total Assets                                                          $        294,500        $        305,474
                                                                     ==================      ==================

LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits                                                              $        196,641        $        204,933
Federal Home Loan Bank advances                                                 12,000                   6,000
Other liabilities                                                                  901                   1,084
Accrued income taxes                                                                 -                      74
                                                                     ------------------      ------------------
       Total liabilities                                                       209,542                 212,091
                                                                     ------------------      ------------------

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; 7,566,564 shares issued and outstanding                        84                      84
       Additional paid-in capital                                               71,662                  71,496
       Unearned ESOP shares                                                     (5,941)                 (6,265)
       Unearned compensation                                                    (3,342)                 (3,488)
       Accumulated other comprehensive income                                     (572)                   (793)
       Retained earnings                                                        34,015                  32,349
       Treasury stock                                                          (10,948)                      -
                                                                     ------------------      ------------------
            Total stockholders' equity                                          84,958                  93,383
                                                                     ------------------      ------------------

Total liabilities and stockholders' equity                            $        294,500        $        305,474
                                                                     ==================      ==================


                          See accompanying notes to financial statements



                                                3

 4



                                           JEFFERSON BANCSHARES, INC.
                                 Consolidated Statements of Earnings (Unaudited)
                              (Dollars in Thousands, Except Net Earnings Per Share)

                                                                     THREE MONTHS ENDED            NINE MONTHS ENDED
                                                                         MARCH 31,                     MARCH 31,
                                                                         ---------                     ---------
                                                                    2005           2004           2005           2004
                                                                    ----           ----           ----           ----
                                                                                                   
Interest income:
     Interest on loans receivable                                 $    3,330     $    3,182     $    9,655     $    9,625
     Interest on investment securities                                   594            788          1,938          2,428
     Other interest                                                       76             26            193            148
                                                                 ------------   ------------   ------------   ------------
               Total interest income                                   4,000          3,996         11,786         12,201
                                                                 ------------   ------------   ------------   ------------
INTEREST EXPENSE:
     Deposits                                                          1,064          1,105          3,080          3,648
     Advances from FHLB                                                  101             25            292             75
                                                                 ------------   ------------   ------------   ------------
               Total interest expense                                  1,165          1,130          3,372          3,723
                                                                 ------------   ------------   ------------   ------------

               NET INTEREST INCOME                                     2,835          2,866          8,414          8,478
     Provision for loan losses                                             -              -              -              -
                                                                 ------------   ------------   ------------   ------------
     Net interest income after provision for loan losses               2,835          2,866          8,414          8,478
                                                                 ------------   ------------   ------------   ------------
NONINTEREST INCOME:
     Dividends from investments                                           20             26             46             48
     Mortgage origination income                                          40              -             40              -
     Service charges and fees                                            132            154            416            473
     Gain on sale of fixed assets                                          -              -              -              1
     Gain (loss) on sale of investment securities, net                     -              -            (43)            22
     Gain on sale of foreclosed real estate, net                          38             11             71             76
     BOLI increase in cash value                                          45             27            153             27
     Other                                                                52             47            106            104
                                                                 ------------   ------------   ------------   ------------
               Total noninterest income                                  327            265            789            751
                                                                 ------------   ------------   ------------   ------------
NONINTEREST EXPENSE:
     Compensation and benefits                                         1,070            900          2,914          2,370
     Occupancy expense                                                    89             64            241            189
     Equipment and data processing expense                               273            280            710            722
     SAIF deposit insurance premium                                        7              8             22             29
     REO expense                                                          26             26             58            156
     Advertising                                                          47             29            140            151
     Contribution to Jefferson Federal Charitable Foundation               -              -              -          4,000
     Other                                                               403            363            994          1,115
                                                                 ------------   ------------   ------------   ------------
               Total noninterest expense                               1,915          1,670          5,079          8,732
                                                                 ------------   ------------   ------------   ------------

     EARNINGS BEFORE INCOME TAXES                                      1,247          1,461          4,124            497
                                                                 ------------   ------------   ------------   ------------
INCOME TAXES:
     Current                                                             389            440          1,339          1,218
     Deferred                                                             (4)           (12)            89         (1,129)
                                                                 ------------   ------------   ------------   ------------
               Total income taxes                                        385            428          1,428             89
                                                                 ------------   ------------   ------------   ------------

NET EARNINGS (LOSS)                                               $      862     $    1,033     $    2,696     $      408
                                                                 ============   ============   ============   ============

NET EARNINGS (LOSS) PER SHARE, BASIC                              $     0.12     $     0.13     $     0.36     $     0.05
                                                                 ============   ============   ============   ============
NET EARNINGS (LOSS) PER SHARE, DILUTED                            $     0.12     $     0.13     $     0.36     $     0.05
                                                                 ============   ============   ============   ============

                                 See accompanying notes to financial statements

                                                        4


 5


                                                   JEFFERSON BANCSHARES, INC.
                                   Consolidated Statements of Changes in Stockholders' Equity
                                                    Year Ended June 30, 2004
                                        and Nine Months Ended March 31, 2005 (Unaudited)
                                                     (Dollars in Thousands)

                                                           UNALLOCATED                ACCUMULATED
                                               ADDITIONAL    COMMON                     OTHER                            TOTAL
                                     COMMON     PAID-IN     STOCK IN     UNEARNED    COMPREHENSIVE RETAINED  TREASURY  STOCKHOLDERS'
                                      STOCK     CAPITAL       ESOP      COMPENSATION     INCOME    EARNINGS    STOCK     EQUITY
                                   ---------- ------------ ------------ ------------- ------------ --------- --------- -------------
                                                                                                
Balance at June 30, 2003             $  1,876    $  1,167    $     -      $      -      $    898   $ 32,684  $      -   $   36,625

Comprehensive income:
   Net earnings                             -           -          -             -             -      1,387         -        1,387
   Change in net unrealized
      gain (loss) on securities
      available for sale, net
      of taxes of $1,043                    -           -          -             -        (1,691)         -         -       (1,691)
                                                                                                                        -----------
   Total comprehensive income               -           -          -             -             -          -         -         (304)

Dividends                                   -           -          -             -             -     (1,733)        -       (1,733)
Merger of MHC into Jefferson
    Bancshares                              -         100          -             -             -         11         -          111
Proceeds of stock conversion, net          66      64,406          -             -             -          -         -       64,472
Conversion of shares held under
    MHC structure                      (1,876)      1,876          -             -             -          -         -            -
Shares issued in exchange for
   shares held under MHC structure         14         (14)         -             -             -          -         -            -
Contribution of stock to the
    Jefferson Federal Charitable
    Foundation                              4       3,746          -             -             -          -         -        3,750
Common stock acquired by employee
    stock ownership plan                    -           -     (6,701)            -             -          -         -       (6,701)
Shares committed to be released by
    the employee stock ownership plan       -         154        436             -             -          -         -          590
Stock options exercised                     -          33          -             -             -          -         -           33
Tax benefit from exercise of
    nonqualifying stock options             -          28          -             -             -          -         -           28
Stock grants under the 2004
   Stock Incentive Plan                     -           -          -        (3,527)            -          -         -       (3,527)
Earned portion of stock grants              -           -          -           220             -          -         -          220
Purchase of stock for the
   2004 Stock Incentive Plan                -           -          -          (181)            -          -         -         (181)
                                    ----------  ----------   ----------   -----------   ---------  --------- ---------  -----------
Balance at June 30, 2004                   84      71,496     (6,265)       (3,488)         (793)    32,349         -       93,383
                                                                                                                        -----------
Comprehensive income:
   Net earnings                             -           -          -             -             -        952         -          952
   Change in net unrealized gain
      (loss) on securities available
      for  sale, net of taxes of $629       -           -          -             -         1,014          -         -        1,014
                                                                                                                        -----------
   Total comprehensive income               -           -          -             -             -          -         -        1,966

Dividends                                   -           -          -             -             -       (404)        -         (404)
Shares committed to be released
    by the employee stock
    ownership plan                          -          30        108             -             -          -         -          138
Earned portion of stock grants              -           -          -           110             -          -         -          110
Purchase of stock for the 2004
    Stock Incentive Plan                    -           -          -          (184)            -          -         -         (184)
Purchase of common stock
    (313,176 shares)                        -           -          -             -             -          -    (4,125)      (4,125)
                                    ----------  ----------   ----------   -----------   ---------  --------- ---------  -----------
Balance at September 30, 2004              84      71,526     (6,157)       (3,562)          221     32,897    (4,125)      90,884

Comprehensive income:
   Net earnings                             -           -          -             -             -        882         -          882
   Change in net unrealized
      gain (loss) on securities
      available for sale, net
      of taxes of $(154)                    -           -          -             -          (248)         -         -         (248)
                                                                                                                        -----------
   Total comprehensive income               -           -          -             -             -          -         -          634

Dividends                                   -           -          -             -             -       (391)        -         (391)
Dividends used for ESOP payment             -           -          -             -             -        143         -          143
Shares committed to be released
    by the employee stock
    ownership plan                          -          34        108             -             -          -         -          142
Stock options exercised                     -          44          -             -             -          -         -           44
Tax benefit from exercise of
    nonqualifying stock options             -          25          -             -             -          -         -           25
Earned portion of stock grants              -           -          -           110             -          -         -          110
Purchase of common stock
   (260,020 shares)                         -           -          -             -             -          -    (3,441)      (3,441)
                                    ----------  ----------   ----------   -----------   ---------  --------- ---------  -----------
Balance at December 31, 2004               84      71,629     (6,049)       (3,452)          (27)    33,531    (7,566)      88,150

Comprehensive income:
   Net earnings                             -           -          -             -             -        862         -          862
   Change in net unrealized gain
     (loss) on securities available
     for sale, net of taxes of $(337)       -           -          -             -          (545)         -         -         (545)
                                                                                                                        -----------
   Total comprehensive income               -           -          -             -             -          -         -          317

Dividends                                   -           -          -             -             -       (378)        -         (378)
Dividends used for ESOP payment             -           -          -             -             -          -         -            -
Shares committed to be released by
    the employee stock ownership plan       -          33        108             -             -          -         -          141
Stock options exercised                     -           -          -             -             -          -         -            -
Tax benefit from exercise of
    nonqualifying stock options             -           -          -             -             -          -         -            -
Earned portion of stock grants              -           -          -           110             -          -         -          110
Purchase of common stock
    (260,020 shares)                        -           -          -             -             -          -    (3,382)      (3,382)
                                    ----------  ----------   ----------   -----------   ---------  --------- ---------  -----------
Balance at March 31, 2005            $     84    $ 71,662    $(5,941)     $ (3,342)     $   (572)   $34,015  $(10,948)  $   84,958
                                    ==========  ==========   ==========   ===========   =========  ========= =========  ===========


                                                                        5


 6




                                           JEFFERSON BANCSHARES, INC.
                                Consolidated Statements of Cash Flows (Unaudited)
                                             (Dollars in Thousands)
                                                                                                       NINE MONTHS ENDED
                                                                                                           MARCH 31,
                                                                                                    -------------------------
                                                                                                       2005          2004
                                                                                                    -----------   -----------
                                                                                                             
Cash flows from operating activities:
     Net earnings                                                                                    $   2,696     $     408
     Adjustments to reconcile net earnings to net cash provided by (used for) operating activities
           Stock contributed to the Jefferson Federal Charitable Foundation                                  -         3,750
           Allocated ESOP shares                                                                           422           455
           Depreciation and amortization expense                                                           196           205
           Amortization of premiums (discounts), net on investment securities                               11            (1)
           Gain on sale of fixed assets                                                                      -             1
           Gain (loss) on sale of investment securities and mortgage-backed securities, net                 43           (22)
           FHLB stock dividends                                                                            (52)          (47)
           Amortization of deferred loan fees, net                                                         (97)         (126)
           Loss (gain) on foreclosed real estate, net                                                      (70)          (76)
           Increase in cash value of life insurance                                                       (153)          (27)
           Earned portion of MRDP                                                                          330           110
           Decrease (increase) in:
               Accrued interest receivable                                                                 376           370
               Other assets                                                                                 66           647
               Deferred tax asset                                                                          296        (1,328)
           Increase (decrease) in other liabilities and accrued income taxes                               117          (417)
                                                                                                    -----------   -----------
               Net cash provided by (used for) operating activities                                      4,181         3,902
                                                                                                    -----------   -----------

CASH FLOWS USED FOR INVESTING ACTIVITIES:
     Loan originations, net of principal collections                                                    (9,333)       (5,393)
     Investment securities classified as available for sale:
               Purchased                                                                                     -       (74,479)
               Proceeds from sale                                                                       20,378        24,914
               Proceeds from maturity                                                                    1,700        21,500
               Return of principal on mortgage-backed securities                                         3,152         5,373
     Purchase of bank owned life insurance                                                                   -        (5,000)
     Purchase of premises and equipment                                                                   (255)       (1,144)
     Sale of fixed assets                                                                                    -             1
     Proceeds from sale of (additions to) foreclosed real estate, net                                      430           520
                                                                                                    -----------   -----------
               Net cash provided by (used for) investing  activities                                    16,072       (33,708)
                                                                                                    -----------   -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Net increase (decrease) in deposits                                                                (8,292)     (115,116)
     Proceeds from stock conversion, net                                                                     -        57,771
     Merger of MHC into Jefferson Bancshares                                                                 -           111
     Proceeds from advances from FHLB                                                                   15,000         3,500
     Repayment of FHLB advances                                                                         (9,000)       (1,500)
     Purchase of company stock for the 2004 Stock Based Incentive Plan                                     (14)       (3,527)
     Purchase of treasury stock                                                                        (10,948)            -
     Cash dividend paid on common stock                                                                 (1,550)         (776)
     Proceeds from exercise of stock options                                                                44            34
                                                                                                    -----------   -----------
               Net cash provided by (used for) financing activities                                    (14,760)      (59,503)
                                                                                                    -----------   -----------

Net increase (decrease) in cash, cash equivalents and interest-earning deposits                          5,493       (89,309)
Cash, cash equivalents and interest-earning deposits at beginning of period                              6,411        96,543
                                                                                                    -----------   -----------

Cash, cash equivalents and interest-earning deposits at end of period                                $  11,904     $   7,234
                                                                                                    ===========   ===========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during period for:
       Interest on deposits                                                                          $   3,080     $   3,648
       Interest on FHLB advances                                                                     $     292     $      75
       Income taxes                                                                                  $   1,390     $   1,642
       Real estate acquired in settlement of loans                                                   $   1,282     $   1,471

                                     See accompanying notes to financial statements



                                                         6

 8

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 Jefferson Bancshares, Inc. 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 fair presentation of the interim
         financial statements. The results of operations for the period ended
         March 31, 2005 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, 2004.

(2)      CORPORATE REORGANIZATION AND STOCK OFFERING
         -------------------------------------------

         On March 4, 2003, the Boards of Directors of Jefferson Bancshares, MHC
         (the "MHC") and the Bank adopted a Plan of Conversion to convert the
         MHC from mutual to stock form and to complete a related stock offering
         in which shares of common stock representing the MHC's ownership
         interest in the Bank would be sold to investors (the "Conversion").

         The Plan of Conversion was approved by the stockholders and depositors
         of the Bank on June 25, 2003. The reorganization and stock offering
         were completed on July 1, 2003. As of that date, the Company sold
         6,612,500 shares of common stock for $10.00 per share. After taking
         into consideration estimated related expenses of approximately $1.6
         million, net proceeds from the stock offering amounted to approximately
         $64.5 million. An additional 1,388,485 shares were issued to existing
         stockholders, based on an exchange rate of 4.2661 shares of Company
         common stock for each existing share of Bank common stock, and 375,000
         shares were issued to the Jefferson Federal Charitable Foundation,
         resulting in the total issuance of 8,375,985 shares. Cash was paid in
         lieu of fractional shares.

         Upon completion of the Conversion and stock offering, the MHC ceased to
         exist and its net assets of $111,000 were transferred to the Bank.

         The Conversion was accounted for as a change in corporate form with no
         subsequent change in the historical basis of the Company's assets,
         liabilities and equity.

(3)      LIMITATION ON CAPITAL DISTRIBUTIONS
         -----------------------------------

         Office of Thrift Supervision regulations impose limitations upon all
         capital distributions by a savings institution, including cash
         dividends, payments to repurchase its shares and payments to
         shareholders of another institution in a cash-out merger. Under the
         regulations, an application to and the prior approval of the Office of
         Thrift Supervision is required prior to any capital distribution if the
         institution does not meet the criteria for "expedited treatment" of
         applications under Office of Thrift Supervision regulations (I.E.,
         generally, examination ratings in the two top categories), the total
         capital distributions for the calendar year exceed net income for that
         year plus the amount of retained net income for the preceding two
         years, the


                                       7

 8



         institution would be undercapitalized following the distribution or the
         distribution would otherwise be contrary to a statute, regulation or
         agreement with, or condition imposed by, the Office of Thrift
         Supervision. If an application is not required, the institution must
         still provide prior notice to the Office of Thrift Supervision of the
         capital distribution if, like Jefferson Federal, it is a subsidiary of
         a holding company. In addition, the Office of Thrift Supervision could
         prohibit a proposed capital distribution by any institution, which
         would otherwise be permitted by the regulation, if the Office of Thrift
         Supervision determined that such distribution would constitute an
         unsafe or unsound practice. In the event Jefferson Federal's capital
         falls below its regulatory requirements or the Office of Thrift
         Supervision notifies it that it is in need of more than normal
         supervision, Jefferson Federal's ability to make capital distributions
         could be restricted. Jefferson Federal also may not make a capital
         distribution if the distribution would reduce its regulatory capital
         below the amount needed for the liquidation account established in
         connection with the Conversion described in Note 2.

(4)      EARNINGS PER COMMON SHARE
         -------------------------

         Earnings per common share and diluted earnings per common share have
         been computed on the basis of dividing net earnings by the
         weighted-average number of shares of common stock outstanding. 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             WEIGHTED-AVERAGE SHARES
                                        OUTSTANDING FOR THE                 OUTSTANDING FOR THE
                                        THREE MONTHS ENDED                  NINE MONTHS ENDED
                                            MARCH 31,                            MARCH 31,
                                  -------------------------------     -------------------------------
Shares used for:                      2005             2004               2005             2004
                                  --------------   --------------     --------------   --------------
                                                                               
Basic Earnings Per Share              7,171,692        7,737,418          7,443,856        7,718,515

Diluted Earnings Per Share            7,188,557        7,784,096          7,462,315        7,765,484


(5)      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.

(6)      ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN
         ------------------------------------------------

         Impairment of loans having recorded investment of $120,000 at March 31,
         2005 and an average investment of $160,000 during the nine-month period
         ended March 31, 2005 has been recognized in conformity with the
         Financial Accounting Standards Board ("FASB") Statement No. 118. The
         total allowance for loan losses related to these loans was $47,000 at
         March 31, 2005. Other nonaccrual loans at March 31, 2005 were
         approximately $342,000. For the nine months ended March 31, 2005, gross
         income which would have been recognized had impaired and nonaccrual
         loans been current in accordance with their original terms, amounted to
         approximately $21,000. The amount of interest income from impaired and
         non-accrual loans included in the Company's interest income for the
         nine months ended March 31, 2005 was approximately $17,000. There was
         no interest income from impaired loans included in net income for the
         three months ended March 31, 2005.



                                       8

 9


         The following table summarizes the activity in the allowance for loan
         losses for the nine months ended March 31, 2005:

                                                   ALLOWANCE FOR LOAN LOSSES
                                                    (DOLLARS IN THOUSANDS)
                                                 ----------------------------

         Balance at June 30, 2004                                   $   2,479
         Provision for loan losses                                          -
         Charge-offs                               $     (393)
         Recoveries                                       252
                                                   -----------
         Net (charge-offs)/recoveries                                    (141)
                                                                    ----------
         Balance at March 31, 2005                                  $   2,338
                                                                    ==========

(7)      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.

         The estimated fair values of the Company's financial instruments are as
follows:


                                          MARCH 31, 2005                     JUNE 30, 2004
                                    ----------------------------      ---------------------------
                                      CARRYING        FAIR              CARRYING       FAIR
                                       AMOUNT         VALUE              AMOUNT        VALUE
                                       ------         -----              ------        -----
                                                      (Dollars in Thousands)
                                                                         
Financial assets:
   Cash and due from banks and
      interest-earning deposits
      with banks                      $   11,904     $  11,904         $    6,411    $    6,411
   Available-for-sale securities          70,078        70,078             95,005        95,005
   Federal Home Loan Bank stock            1,632         1,632              1,580         1,580
   Loans receivable                      194,943       194,204            186,601       189,153
   Accrued interest receivable             1,450         1,450              1,826         1,826

Financial liabilities:
   Deposits                             (196,641)     (196,337)          (204,933)     (205,248)
   FHLB advances                         (12,000)      (12,071)            (6,000)       (6,115)

Off-balance sheet assets (liabilities):
   Commitments to extend credit                -          (954)                 -        (5,123)
   Unused standby letters of credit            -          (570)                 -          (141)
   Unused lines of credit                      -       (10,306)                 -        (6,735)



                                                  9

 10


(8)      RECAPTURE OF TAX BAD DEBT RESERVES
         ----------------------------------

         Current federal income tax law provides for the elimination of the
         preferential tax bad debt deduction for thrift institutions and the
         recapture of tax bad debt reserves in excess of the base year reserves
         (pre-1988 reserves). The excess tax bad debt reserves is required to be
         recaptured to income ratably over a six-year period unless a thrift
         institution meets the "residential loan requirement" test and suspends
         the recapture for up to two years. For Jefferson Bancshares, this tax
         accounting change was effective for the year ending June 30, 1997.
         Because deferred taxes have been recorded for such excess tax bad debt
         reserves, this legislation has not had a material effect on the
         Company's statement of condition or results of operation; however, it
         has resulted in an outflow of cash. The six-year recapture period began
         with the fiscal year ending June 30, 1999. The total amount of excess
         tax bad debt reserves recaptured during the six-year period amounted to
         $622,000 and resulted in additional federal income taxes of $211,000.

(9)      STOCK INCENTIVE PLANS
         ---------------------

         Under the Bank's 1995 Stock Option Plan and the 1995 Management
         Recognition and Development Plan ("MRP"), the Company issued a combined
         total of 179,176 shares to officers, employees and non-employee
         directors. Both plans vested pro-rata over a five-year period, with the
         Stock Option Plan having an expiration date of April 1, 2007. As of
         March 31, 2005, there were 51,258 options outstanding and no remaining
         shares available for grant under the 1995 Stock Option Plan. During the
         nine-month period, 9,599 options were exercised.

         On January 8, 2004, the Company adopted the 2004 Stock Incentive Plan
         which authorized the granting of 698,750 options and 279,500 restricted
         stock awards to employees and non-employee directors. As of March 31,
         2005, there were 401,778 options and 160,711 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.

         The table below summarizes the status of the Company's stock option
         plans as of March 31, 2005.

                                                  NINE MONTHS ENDED
                                                    MARCH 31, 2005
                                                    --------------

                                                                    Weighted-
                                                                     average
                                                   Shares         exercise price
                                                ------------     ---------------

         Outstanding at beginning of period          462,635           $12.44
         Granted during the nine-month period              -                -
         Options exercised                             9,599           $ 4.64
         Outstanding at March 31, 2005               453,036           $12.60

         Options exercisable at March 31, 2005       131,619           $ 9.95


                                       10

 11


         The following information applies to options outstanding at March 31,
         2005:


         Number outstanding                                         453,036
         Range of exercise prices                            $3.52 - $13.69
         Weighted-average exercise price                             $12.60
         Weighted-average remaining contractual life             8.06 years
         Number of options remaining for future issuance            296,972


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. 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, 2004.

GENERAL
- -------

Jefferson Bancshares, Inc. (also referred to as the "Company" or "Jefferson
Bancshares") was organized as a Tennessee corporation at the direction of
Jefferson Federal Bank, formerly known as Jefferson Federal Savings and Loan
Association of Morristown (referred to as the "Bank" or "Jefferson Federal"), in
March 2003 to become the holding company for Jefferson Federal upon the
completion of its "second-step" mutual-to-stock conversion (the "Conversion") of
Jefferson Bancshares, M.H.C. (the "MHC"). The Conversion was completed on July
1, 2003. As part of the Conversion, the MHC merged into Jefferson Federal
thereby ceasing to exist and Jefferson Federal Savings and Loan Association of
Morristown changed its name to "Jefferson Federal Bank." The Company sold
6,612,500 shares of its common stock at a price of $10.00 per share to
depositors of the Bank in a subscription offering raising approximately $64.5
million in net proceeds. The Company also exchanged approximately 1,389,000
shares of its common stock for all the outstanding shares of the Bank's common
stock (other than shares held by the MHC), representing an exchange ratio of
4.2661 for each share of Jefferson Federal outstanding. In addition, the Bank
established the Jefferson Federal Charitable Foundation, which was funded with
$250,000 and 375,000 shares of Company common stock.

The Company has no significant assets, other than all of the outstanding shares
of the Bank and the portion of the net proceeds it retained from the Conversion,
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.

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 using
such funds to originate loans secured by first mortgages on owner-occupied,
one-to four- family residential properties, as well as to 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.


                                       11

 12


The Bank's savings accounts are insured up to the applicable legal limits by the
Federal Deposit Insurance Corporation ("FDIC") through the Savings Association
Insurance Fund ("SAIF"). 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 its 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. 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.


                                       12


 13


RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004

NET INCOME
- ----------

Net income was $862,000, or $0.12 per diluted share, for the quarter ended March
31, 2005 compared to net income of $1.0 million, or $0.13 per diluted share, for
the comparable period in 2004. Net income for the three-month period in 2005
reflects an increase in noninterest expense related to the January 1, 2005
opening of the lending office in Knoxville, Tennessee. The most significant item
contributing to the overall increase in noninterest expense was compensation
expense, which increased $170,000 for the quarter ended March 31, 2005 compared
to the same period in 2004. For the nine months ended March 31, 2005, net income
was $2.7 million, or $0.36 per diluted share, compared to net earnings of
$408,000, or $0.05 per diluted share, for the nine months ended March 31, 2004.
Net income for the nine-month period in 2004 reflects the nonrecurring expense
associated with the $4.0 million contribution to the Jefferson Federal
Charitable Foundation which was formed in connection with the Company's
conversion and was funded with $250,000 and 375,000 shares of Jefferson
Bancshares common stock. This stock and cash contribution was recorded as an
expense of $4.0 million, or approximately $2.5 million after taxes. Annualized
return on average assets was 1.16% and 1.18% for the three and nine months ended
March 31, 2005, respectively, compared with 1.33% and 0.17% for the comparable
periods in 2004. Annualized return on average equity was 3.98% and 4.01% for the
three and nine months ended March 31, 2005, respectively, compared with 4.35%
and 0.57% for the comparable periods in 2004.



                                                THREE MONTHS ENDED                     NINE MONTHS ENDED
                                                    MARCH 31,                              MARCH 31,
                                          -------------------------------       --------------------------------
                                              2005             2004                 2005              2004
                                          --------------   --------------       --------------    --------------
                                              (Dollars in thousands,                (Dollars in thousands,
                                              except per share data)                except per share data)
                                                                                            
Net earnings                                    $ 862           $1,033               $2,696             $ 408
Net earnings per share, basic                   $0.12           $ 0.13               $ 0.36             $0.05
Net earnings per share, diluted                 $0.12           $ 0.13               $ 0.36             $0.05
Return on average assets (annualized)            1.16%            1.33%                1.18%             0.17%
Return on average equity (annualized)            3.98%            4.35%                4.01%             0.57%



NET INTEREST INCOME
- -------------------

Net interest income before loan loss provision decreased $31,000, or 1.1%, to
$2.8 million for the three months ended March 31, 2005 compared to the same
period in 2004. The decline in net interest income is primarily attributable to
an increase in interest expense. Interest expense increased $35,000 as a result
of a $76,000 increase in the cost of borrowed funds partially offset by a
decrease in interest paid on deposits. The net interest margin increased 15
basis points to 4.02% for the three months ended March 31, 2005. The interest
rate spread was 3.36% and 3.20% for the quarters ended March 31, 2005 and 2004,
respectively. The increase in the interest rate spread reflects an increase in
the average yield on interest-earning assets partially offset by an increase in
the average rate paid on interest-bearing liabilities. The average yield on
interest-earning assets increased 29 basis points to 5.68% while the average
rate paid on interest-bearing liabilities increased 12 basis points to 2.31%.


                                       13



 14

The following table summarizes changes in interest income and expense for the
three-month periods ended March 31, 2005 and 2004:




                                           THREE MONTHS
                                              ENDED
                                            MARCH 31,
                                   ------------------------------
                                       2005            2004           $ CHANGE        % CHANGE
                                   -------------   --------------   -------------   --------------
                                      (Dollars in thousands)

                                                                            
INTEREST INCOME:
Loans                               $     3,330     $      3,182     $       148          4.7%
Investment securities                       594              788            (194)       (24.6%)
Interest-earning deposits                    58               10              48        480.0%
FHLB stock                                   18               16               2         12.5%
                                   -------------   --------------   -------------
     Total interest income                4,000            3,996               4          0.1%
INTEREST EXPENSE:
Deposits                                  1,064            1,105             (41)        (3.7%)
Borrowings                                  101               25              76        304.0%
                                   -------------   --------------   -------------
     Total interest expense               1,165            1,130              35          3.1%
                                   -------------   --------------   -------------
     Net interest income            $     2,835     $      2,866     $       (31)        (1.1%)
                                   =============   ==============   =============


For the nine months ended March 31, 2005, net interest income decreased $64,000
to $8.4 million. The decline in net interest income is primarily attributable to
a decrease in the volume of investment securities partially offset by a decline
in the average rate paid on interest-bearing deposits. The net interest margin
and interest rate spread was 3.88% and 3.25%, respectively, for the nine months
ended March 31, 2005 compared to 3.73% and 3.02% for the comparable period in
2004.

The following table summarizes changes in interest income and expense for the
nine-month periods ended March 31, 2005 and 2004:


                                           NINE MONTHS
                                              ENDED
                                            MARCH 31,
                                   ------------------------------
                                       2005            2004           $ CHANGE        % CHANGE
                                   -------------   --------------   -------------   --------------
                                      (Dollars in thousands)
                                                                             
INTEREST INCOME:
Loans                               $     9,655     $      9,625     $        30           0.3%
Investment securities                     1,938            2,428            (490)        (20.2%)
Interest-earning deposits                   141              102              39          38.2%
FHLB stock                                   52               46               6          13.0%
                                   -------------   --------------   -------------
     Total interest income               11,786           12,201            (415)         (3.4%)
INTEREST EXPENSE:
Deposits                                  3,080            3,648            (568)        (15.6%)
Borrowings                                  292               75             217         289.3%
                                   -------------   --------------   -------------
     Total interest expense               3,372            3,723            (351)         (9.4%)
                                   -------------   --------------   -------------
     Net interest income            $     8,414     $      8,478     $       (64)         (0.8%)
                                   =============   ==============   =============



                                       14

 15


The following table summarizes average balances and average yields and costs:



                                    THREE MONTHS ENDED MARCH 31,                       NINE MONTHS ENDED MARCH 31,
                          ----------------------------------------------     ----------------------------------------------
                                   2005                    2004                       2005                    2004
                          ----------------------  ----------------------     ----------------------  ----------------------
                            AVERAGE     YIELD/      AVERAGE     YIELD/        AVERAGE      YIELD/     AVERAGE      YIELD/
                            BALANCE      COST       BALANCE      COST         BALANCE       COST      BALANCE       COST
                          ------------  --------  ------------  --------     -----------  ---------  -----------  ---------
                                    (Dollars in thousands)                              (Dollars in thousands)
                                                                                           
Loans                     $ 197,923     6.73%     $ 189,904     6.70%       $ 198,856      6.47%    $ 184,874      6.94%
Investment securities        70,887     3.35%        97,187     3.24%          77,778      3.32%      106,979      3.03%
Interest-earning deposits    11,392     2.04%         7,924     0.50%          10,996      1.71%        9,673      1.41%
FHLB stock                    1,625     4.43%         1,559     4.11%           1,608      4.31%        1,544      3.97%
Deposits                    189,527     2.25%       203,783     2.17%         194,344      2.11%      209,419      2.32%
Borrowings                   12,000     3.37%         2,667     3.75%          11,889      3.27%        2,222      4.56%


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                              NINE MONTHS
                                               2005 COMPARED TO 2004                     2005 COMPARED TO 2004
                                         -----------------------------------      -----------------------------------
                                         INCREASE (DECREASE)                      INCREASE (DECREASE)
                                               DUE TO                                   DUE TO
                                         -----------------------                  -----------------------
                                          VOLUME        RATE         NET           VOLUME        RATE         NET
                                         ----------  -----------  ----------      ----------  -----------  ----------
                                                  (In Thousands)                            (In Thousands)
                                                                                          
Interest income:
  Loans receivable                        $    138    $      10    $    148        $    706    $    (676)   $     30
  Investment securities                       (222)          28        (194)           (718)         228        (490)
  Other                                         10           40          50              18           27          45
                                         ----------  -----------  ----------      ----------  -----------  ----------
        Total interest-earning assets          (74)          78           4               6         (421)       (415)
                                         ----------  -----------  ----------      ----------  -----------  ----------
Interest expense:
  Deposits                                     (82)          41         (41)           (252)        (315)       (567)
  Borrowings                                    79           (3)         76             242          (26)        216
                                         ----------  -----------  ----------      ----------  -----------  ----------
      Total interest-bearing liabilities        (3)          38          35             (10)        (341)       (351)
                                         ----------  -----------  ----------      ----------  -----------  ----------
  Net change in interest income           $    (71)   $      40    $    (31)       $     16    $     (80)   $    (64)
                                         ==========  ===========  ==========      ==========  ===========  ==========


Total interest income remained steady at $4.0 million for the three months ended
March 31, 2005 and decreased $415,000, or 3.4%, to $11.8 million for the nine
months ended March 31, 2005. Interest income for both the three- and nine-month
period in 2005 reflects a decrease in income from investment securities. The
decrease in income from investment securities was primarily the result of a
decrease in the average balance of investment securities more than offsetting an
increase in the average yield. The decline in investment securities was due to
the deployment of conversion proceeds primarily into stock repurchases and other
higher yielding assets. Interest on loans increased for the three months ended
March 31, 2005 due to an increase in the average balance of loans combined with


                                       15

 16


a slight increase in the average yield. For the nine-month period ended March
31, 2005, interest on loans increased due to an increase in the average balance
of loans more than offsetting a reduction in the average yield. The increase in
the average balance of loans is the result of growth in the commercial loan
portfolio. Most of the commercial loans that have been originated have been tied
to prime and will reprice quickly as interest rates change. Interest on deposits
increased for both the three- and nine-month period due to our increased
liquidity for future loan demand. Interest on deposits was $58,000 and $141,000
for the three- and nine- month period ended March 31, 2005, respectively,
compared to $10,000 and $102,000 for the comparable periods in 2004. Dividends
on Federal Home Loan Bank ("FHLB") stock were $18,000 and $52,000 for the three-
and nine- month periods ended March 31, 2005, respectively, and $16,000 and
$46,000 for the comparable periods in 2004. FHLB dividends are paid with
additional shares of FHLB stock.

Interest expense on interest-bearing liabilities increased for the three-month
period ended March 31, 2005 due to an increase in interest paid on advances more
than offsetting a decrease in interest paid on deposits. Interest expense on
FHLB advances was $101,000 for the three months ended March 31, 2005 compared to
$25,000 for the comparable period in 2004 due to a higher average balance.

Interest expense on deposits decreased $41,000, or 3.7%, to $1.1 million for the
three-month period ended March 31, 2005 due to a decrease in the average balance
of deposits more than offsetting an increase in the average rate paid. The
average rate paid on deposits increased 8 basis points to 2.25% for the
three-month period in 2004 due to higher rates paid on money market accounts.
The increase in the rate paid on money market accounts reflects an increase in
short-term interest rates.

Interest expense on interest-bearing liabilities decreased $351,000, or 9.4%, to
$3.4 million for the nine months ended March 31, 2005 due primarily to a
decrease in both the average balance and average rate paid on deposits. Interest
expense on deposits decreased $568,000, or 15.6%, to $3.1 million for the
nine-month period ended March 31, 2005 compared to $3.6 million for the
comparable period in 2004. The average balance of deposits decreased $15.1
million to $194.3 million due to a decline in the average balance of
certificates of deposit and the average rate paid decreased 21 basis points to
2.11% for the nine months ended March 31, 2005. The decline in the average rate
paid on deposits reflects lower repricing of certificates of deposit during the
period more than offsetting higher rates paid on money market accounts. Interest
expense on FHLB advances was $292,000 for the nine months ended March 31, 2005
compared to $75,000 for the comparable period in 2004. This increase was
primarily attributable to a higher average balance during the current nine-month
period.

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. Net charge-offs amounted to $50,000 and $141,000 for the three- and
nine-month periods ended March 31, 2005 compared to $58,000 and $317,000 for the
comparable periods in 2004. There were no additions to the allowance for loan
losses during either period. Nonperforming loans totaled $296,000 at March 31,
2005 compared to $1.2 million for the comparable period in 2004.



                                       16

 17


NONINTEREST INCOME
- ------------------

Noninterest income increased $62,000, or 23.4%, to $327,000 for the three months
ended March 31, 2005 as a result of an increase in mortgage origination fee
income, an increase in net gain on foreclosed real estate, and an increase in
the cash surrender value of bank owned life insurance more than offsetting a
decrease in service charges and fees. Mortgage origination fee income increased
due to the initiation of secondary market operations.

The following table summarizes the dollar amounts for each category of
noninterest income, and the dollar and percent changes for the three months
ended March 31, 2005 compared to the same period in 2004.


                                                 THREE MONTHS ENDED
                                                      MARCH 31,
                                              -------------------------        $             %
                                                 2005          2004         CHANGE        CHANGE
                                              -----------   -----------   ------------  ------------
                                               (Dollars in thousands)
                                                                                 
Dividends from investments                     $      20     $      26      $      (6)       (23.1%)
Mortgage origination fees                             40             -             40            NM
Service charges and fees                             132           154            (22)       (14.3%)
Gain on sale of fixed assets                           -             -              -            NM
Gain (loss) on sale of investments                     -             -              -            NM
Gain on sale of foreclosed property                   38            11             27        245.5%
BOLI increase in cash value                           45            27             18         66.7%
Other                                                 52            47              5         10.6%
                                              -----------   -----------   ------------
     Total  noninterest income                 $     327     $     265      $      62         23.4%
                                              ===========   ===========   ============


Noninterest income increased $38,000, or 5.1%, to $789,000 for the nine months
ended March 31, 2005 as a result of an increase in mortgage origination fee
income and an increase in the cash surrender value of bank owned life insurance
more than offsetting a decline in service charges and fees and a loss on sale of
investment securities.

The following table summarizes the dollar amounts for each category of
noninterest income, and the dollar and percent changes for the nine months ended
March 31, 2005 compared to the same period in 2004.


                                                 NINE MONTHS ENDED
                                                      MARCH 31,
                                              -------------------------        $            %
                                                 2005          2004         CHANGE        CHANGE
                                              -----------   -----------   ------------  ------------
                                               (Dollars in thousands)
                                                                                
Dividends from investments                     $      46     $      48     $       (2)        (4.2%)
Mortgage origination fees                             40             -             40            NM
Service charges and fees                             416           473            (57)       (12.1%)
Gain on sale of fixed assets                           -             1             (1)      (100.0%)
Gain (loss) on sale of investments                   (43)           22            (65)      (295.5%)
Gain on sale of foreclosed property                   71            76             (5)        (6.6%)
BOLI increase in cash value                          153            27            126        466.7%
Other                                                106           104              2          1.9%
                                              -----------   -----------   ------------
     Total  noninterest income                 $     789     $     751     $       38          5.1%
                                              ===========   ===========   ============



                                       17

 18


NONINTEREST EXPENSE
- -------------------

Noninterest expense totaled $1.9 million for the three months ended March 31,
2005 as compared to $1.7 million for the comparable period in 2004 primarily due
to an increase in compensation expense. Compensation expense increased $170,000,
or 18.9%, to $1.1 million for the current three-month period. This increase is
primarily due to staff additions for the lending office in Knoxville, Tennessee
which opened on January 1, 2005.

The following table summarizes the dollar amounts for each category of
noninterest expense, and the dollar and percent changes for the three months
ended March 31, 2005 compared to the same period in 2004.


                                                           THREE MONTHS ENDED
                                                                MARCH 31,
                                                        -------------------------        $            %
                                                           2005          2004         CHANGE        CHANGE
                                                        -----------   -----------   -----------   -----------
                                                         (Dollars in thousands)
                                                                                          
Compensation and benefits                                $   1,070     $     900     $     170         18.9%
Occupancy                                                       89            64            25         39.1%
Equipment and data processing                                  273           280            (7)        (2.5%)
SAIF Deposit insurance premiums                                  7             8            (1)       (12.5%)
REO expense                                                     26            26             -          0.0%
Advertising                                                     47            29            18         62.1%
Other                                                          403           363            40         11.0%
                                                        -----------   -----------   -----------
     Total noninterest expense                           $   1,915     $   1,670     $     245         14.7%
                                                        ===========   ===========   ===========


Noninterest expense totaled $5.1 million for the nine months ended March 31,
2005 compared to $8.7 million for the comparable period in 2004. The $3.7
million decrease was primarily attributable to the nonrecurring expense
associated with the $4.0 million contribution to the Jefferson Federal
Charitable Foundation during the nine months ended March 31, 2004. Compensation
expense increased $544,000, or 23.0%, to $2.9 million for the 2005 nine-month
period due to staff additions for the lending office that opened in Knoxville,
Tennessee on January 1, 2005 combined with normal salary increases and expenses
related to the Stock Incentive Plan.



                                       18


 19


The following table summarizes the dollar amounts for each category of
noninterest expense, and the dollar and percent changes for the nine months
ended March 31, 2005 compared to the same period in 2004.



                                                           NINE MONTHS ENDED
                                                                MARCH 31,
                                                        -------------------------        $             %
                                                           2005          2004         CHANGE        CHANGE
                                                        -----------   -----------   -----------   -----------
                                                         (Dollars in thousands)
                                                                                         
Compensation and benefits                                $   2,914     $   2,370     $     544         23.0%
Occupancy                                                      241           189            52         27.5%
Equipment and data processing                                  710           722           (12)        (1.7%)
SAIF Deposit insurance premiums                                 22            29            (7)       (24.1%)
REO expense                                                     58           156           (98)       (62.8%)
Advertising                                                    140           151           (11)        (7.3%)
Contribution to Jefferson Federal Charitable Foundation          -         4,000        (4,000)      (100.0%)
Other                                                          994         1,115          (121)       (10.9%)
                                                        -----------   -----------   -----------
     Total noninterest expense                           $   5,079     $   8,732     $  (3,653)       (41.8%)
                                                        ===========   ===========   ===========


INCOME TAXES
- ------------

Income tax expense for the three months ended March 31, 2005 was $385,000
compared to $428,000 for the same period in 2004. Income tax expense for the
nine months ended March 31, 2005 was $1.4 million compared to $89,000 for the
same period in 2004. The income tax expense for the nine-period in 2004 reflects
the contribution of cash and common stock to the Jefferson Federal Charitable
Foundation. The contribution to the Foundation was tax deductible, subject to a
limitation based on 10% of the Company's annual taxable income. Any unused
portion of the deduction may be carried forward for five years following the
year in which the contribution is made.

FINANCIAL CONDITION

ASSETS
- ------

At March 31, 2005, total assets were $294.5 million, a decrease of $11.0
million, or 3.6%, compared to $305.5 million at June 30, 2004. The decrease in
assets was primarily attributable to a decline in investment securities.
Proceeds from sales and maturities of investment securities and repayments of
mortgage-backed securities were utilized to fund stock repurchases and to fund
growth in the loan portfolio.

CASH, CASH EQUIVALENTS AND INTEREST-EARNING DEPOSITS
- ----------------------------------------------------

Cash and cash equivalents were $3.7 million at March 31, 2005 compared to $3.8
million at June 30, 2004. Interest-earning deposits increased $5.6 million to
$8.2 million at March 31, 2005, which reflects our decision to increase
liquidity for future loan demand.


                                       19

 20


INVESTMENTS
- -----------

Our investment portfolio consists primarily of Federal agency securities with
maturities of seven years or less, municipal securities and mortgage-backed
securities with stated final maturities of thirty years or less. Investment
securities decreased $24.9 million, or 26.2%, to $70.1 million due primarily to
sales of investment securities during the 2005 nine-month period. Proceeds from
the sale of investment securities were used to fund stock repurchases and to
fund growth in the loan portfolio. Investment securities classified as
available-for-sale are carried at fair market value and reflect an unrealized
loss of $926,000, or $572,000 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 MARCH 31, 2005
                                      AMORTIZED      UNREALIZED    UNREALIZED       FAIR
                                        COST           GAINS         LOSSES         VALUE
                                     ------------   ------------   -----------   ------------
                                                    (Dollars in thousands)
                                                                      
Securities Available-for-Sale
  Debt securities:
     Federal agency                   $   58,528     $       93     $  (1,063)    $   57,558
     Municipals                            3,214              3           (67)         3,150
     Mortgage-backed                       9,262            108             -          9,370
                                     ------------   ------------   -----------   ------------
          Total securities available-
          for-sale                    $   71,004     $      204     $  (1,130)    $   70,078
                                     ============   ============   ===========   ============
  Weighted-average rate                    3.33%
                                     ============
Federal Home Loan Bank of
  Cincinnati stock                    $   1,632      $        -     $       -     $    1,632
                                     ============   ============   ===========   ============
  Weighted-average rate                    4.50%
                                     ============

AT JUNE 30, 2004
                                      AMORTIZED      UNREALIZED    UNREALIZED       FAIR
                                        COST           GAINS         LOSSES         VALUE
                                     ------------   ------------   -----------   ------------
                                                    (Dollars in thousands)
Securities Available-for-Sale
  Debt securities:
     Federal agency                   $  80,443      $      205     $  (1,375)    $   79,273
     Municipals                           3,425               1          (112)         3,314
     Mortgage-backed                     12,422              78           (82)        12,418
                                     ------------   ------------   -----------   ------------
          Total securities available-
          for-sale                    $  96,290      $      284     $  (1,569)    $   95,005
                                     ============   ============   ===========   ============
     Weighted-average rate                 3.22%
                                     ============

Federal Home Loan Bank of
     Cincinnati stock                 $   1,580      $        -     $       -     $    1,580
                                     ============   ============   ===========   ============
     Weighted-average rate                 4.00%
                                     ============


                                              20


 21


LOANS
- -----

Net loans increased $8.3 million, or 4.5%, to $194.9 million at March 31, 2005.
Our primary lending activity is the origination of loans secured by real estate.
We originate real estate loans secured by one- to four-family homes, commercial
real estate, multi-family real estate and land. We also originate construction
loans and home equity loans. Total real estate loans totaled $167.1 million, or
84.6% of gross loans at March 31, 2005 compared to $170.9 million, or 90.2% of
gross loans, at June 30, 2004.

Commercial business loans increased $11.5 million, or 91.4%, to $24.2 million at
March 31, 2005 due to our continued emphasis on this type of lending. Commercial
business loans were 12.2% of gross loans at March 31, 2005 compared to 6.7% of
gross loans at June 30, 2004. Most of the commercial business loans that we have
originated have been tied to prime and will reprice quickly as interest rates
change.

We originate a variety of consumer loans, including loans secured by
automobiles, mobile homes and deposit accounts at Jefferson Federal. Consumer
loans increased $433,000, or 7.4%, to $6.3 million at March 31, 2005 due to an
emphasis on automobile loans during the three-month period ended March 31, 2005.








                                       21



 22

Loans receivable, net are summarized as follows:


                                                AT                            AT
                                              MARCH 31,                     JUNE 30,
                                                2005                          2004
                                       -------------------------     -------------------------
                                                      PERCENT                       PERCENT            $             %
                                         AMOUNT     OF PORTFOLIO       AMOUNT     OF PORTFOLIO       CHANGE        CHANGE
                                       ------------ ------------     ------------ ------------     -----------  ----------
                                                      (Dollars in thousands)
                                                                                                
Real estate loans:
     Residential one-to four-family     $   81,908        41.5%       $   84,784        44.8%       $  (2,876)      (3.4%)
     Multi-family                            8,651         4.4%            9,213         4.9%            (562)      (6.1%)
     Construction                            5,011         2.5%            3,001         1.6%           2,010       67.0%
     Commercial                             53,301        27.0%           59,993        31.7%          (6,692)     (11.2%)
     Land                                   14,310         7.2%           10,760         5.7%           3,550       33.0%
     Home equity line of credit              3,880         2.0%            3,143         1.7%             737       23.4%
                                       ------------ ------------     ------------ ------------     -----------

             Total real estate loans       167,061        84.6%          170,894        90.2%          (3,833)      (2.2%)
                                       ------------ ------------     ------------ ------------     -----------

Commercial business loans                   24,187        12.2%           12,640         6.7%          11,547       91.4%
                                       ------------ ------------     ------------ ------------     -----------

Consumer Loans:
     Loans secured by deposit accounts       1,146         0.6%            1,084         0.6%              62        5.7%
     Other consumer loans                    1,623         0.8%            2,038         1.1%            (415)     (20.4%)
     Loans secured by automobiles            3,108         1.6%            2,200         1.2%             908       41.3%
     Mobile home loans                         409         0.2%              531         0.3%            (122)      (23.0)
                                       ------------ ------------     ------------ ------------     -----------

             Total non-real estate loans     6,286         3.2%            5,853         3.1%             433        7.4%
                                       ------------ ------------     ------------ ------------     -----------

             Total commercial business
                 and consumer loans         30,473        15.4%           18,493         9.8%          11,980       64.8%
                                       ------------ ------------     ------------ ------------     -----------

              Total gross loans            197,534       100.0%          189,387       100.0%           8,147        4.3%

Less:
     Deferred loan fees, net                  (253)                         (306)                          53      (17.3%)
     Unearned discount on loans                  -                            (1)                           1     (100.0%)
     Allowance for losses                   (2,338)                       (2,479)                         141       (5.7%)
                                       ------------                  ------------                  -----------
Loans receivable, net                   $  194,943                    $  186,601                    $   8,342        4.5%
                                       ============                  ============                  ===========


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. In connection
with assessing the allowance, we consider the level of classified loans,
delinquency levels and loss experience. In addition, we assess the allowance
using factors that cannot be associated with specific credit or loan categories.
These factors include our subjective evaluation of local and national economic
and business conditions, portfolio concentration and changes in the character
and size of the loan portfolio. The allowance methodology appropriately reflects
a margin for the imprecision necessarily inherent in estimates of expected
credit losses.


                                       22

 23


The Office of Thrift Supervision, as an integral part of its examination
process, periodically reviews our allowance for loan losses. The Office of
Thrift Supervision may require us to make additional provisions for loan losses
based on judgments different from ours.

Due to net charge-offs, the allowance for loan losses decreased $141,000 to $2.3
million at March 31, 2005. There were no additions to the allowance for loan
losses during the three-month period ended March 31, 2005. Our allowance for
loan losses represented 1.18% of total gross loans at March 31, 2005 compared to
1.31% of total gross loans at June 30, 2004.


                                                    THREE MONTHS ENDED              NINE MONTHS ENDED
                                                         MARCH 31,                       MARCH 31,
                                                ---------------------------     ---------------------------
                                                   2005           2004             2005            2004
                                                -----------    ------------     ------------    -----------
                                                  (Dollars in thousands)          (Dollars in thousands)
                                                                                     
Balance at beginning of period                   $   2,388      $    2,582       $    2,479      $   2,841
Provision for loan losses                                -               -                -              -
Recoveries                                              66              44              252            219
Charge-offs                                           (116)           (102)            (393)          (536)
                                                -----------    ------------     ------------    -----------
Net charge-offs                                        (50)            (58)            (141)          (317)
                                                -----------    ------------     ------------    -----------
Allowance at end of period                       $   2,338      $    2,524       $    2,338      $   2,524
                                                ===========    ============     ============    ===========
Net charge-offs to average outstanding
    loans during the period, annualized               0.10%           0.12%            0.09%          0.23%



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 assets
were $1.5 million at March 31, 2005 compared to $1.6 million at June 30, 2004.
Nonperforming loans were $342,000 and $1.1 million at March 31, 2005 and June
30, 2004, respectively. Foreclosed real estate increased $591,000 to $1.1
million at March 31, 2005. The increase in foreclosed property is primarily
attributable to one borrowing relationship and includes foreclosed property
totaling $912,000. Foreclosed real estate is initially recorded at the lower of
the amount of the loan or the fair value, 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.


                                       23

 24


                                                           MARCH 31,             JUNE 30,
                                                              2005                 2004
                                                         ---------------      ----------------
                                                                (Dollars in thousands)
                                                                         
Nonaccruing loans:
       Real estate                                        $         296        $        1,047
       Commercial business                                           46                    15
       Consumer                                                       -                    21
                                                         ---------------      ----------------

Total nonaccrual loans                                              342                 1,083

Real estate owned                                                 1,143                   552
Other repossessed assets                                              -                     -
                                                         ---------------      ----------------

Total nonperforming assets                                $       1,485        $        1,635
                                                         ===============      ================

Total nonperforming assets to total assets                         0.50%                 0.54%
Total nonperforming loans to total loans                           0.18%                 0.58%
Allowance for loan losses to total nonperforming loans           683.63%               228.90%


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 March 31, 2005 was $5.2 million.

DEPOSITS
- --------

Total deposits decreased $8.3 million to $196.6 million at March 31, 2005, due
primarily to a $12.9 million decrease in certificates of deposit, partially
offset by increases in NOW, money market and non-interest bearing accounts. The
continuing decline in the average balance of certificates of deposit reflects
our emphasis on attracting lower cost deposits.



                                 MARCH 31,          JUNE 30,
                                    2005              2004           $ CHANGE      % CHANGE
                               ---------------   ---------------   -------------  ------------
                                    (Dollars in thousands)
                                                                         
Certificates of deposit         $     126,030     $     138,976     $   (12,946)     (9.3%)
Savings accounts                       13,268            13,849            (581)     (4.2%)
Money market accounts                  32,042            28,930           3,112      10.8%
NOW accounts                           16,293            15,220           1,073       7.0%
Non-interest bearing accounts           9,008             7,958           1,050      13.2%
                               ---------------   ---------------   -------------
                                $     196,641     $     204,933     $    (8,292)     (4.0%)
                               ===============   ===============   =============


ADVANCES AND OTHER LIABILITIES
- ------------------------------

FHLB advances increased $6.0 million to $12.0 million at March 31, 2005. During
the nine-month period ended March 31, 2005, FHLB advances were utilized as a
funding source for supporting loan growth.


                                       24

 25


STOCKHOLDERS' EQUITY
- --------------------

Stockholders' equity decreased $8.4 million, or 9.0%, to $85.0 million at March
31, 2005. Retained earnings increased $1.7 million to $34.0 million at March 31,
2005 due to net earnings of $2.7 million partially offset by the payment of
dividends to shareholders in the amount of $1.2 million. Unrealized gains and
losses, net of taxes, in the available-for-sale investment portfolio are
reflected as an adjustment to stockholders' equity. At March 31, 2005, the
adjustment to stockholders' equity was an unrealized loss of $572,000 compared
to a net unrealized loss of $793,000 at June 30, 2004. During the nine-month
period ended March 31, 2005, a Stock Repurchase Program was announced under
which up to 838,552 shares, or 10%, of the Company's outstanding common stock
may be repurchased. During the nine-month period ended March 31, 2005, there
were 828,552 shares of treasury stock purchased at a cost of $10.9 million.

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 Federal Home Loan Bank 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 March 31, 2005,
cash and cash equivalents totaled $3.7 million and interest-earning deposits
totaled $8.2 million. Securities classified as available-for-sale, which provide
additional sources of liquidity, totaled $70.1 million at March 31, 2005. In
addition, at March 31, 2005, we had arranged the ability to borrow a total of
approximately $66.2 million from the Federal Home Loan Bank of Cincinnati. On
that date, we had advances outstanding of $12.0 million.

At March 31, 2005, we had approximately $954,000 in loan commitments, consisting
of $576,000 in commitments to originate residential loans and $378,000 to
originate commercial loans. In addition to commitments to originate loans, we
had $3.9 million in loans-in-process, $570,000 in unused standby letters of
credit and approximately $10.3 million in unused lines of credit. We had $88.3
million in certificates of deposit due within one year and $70.6 million in
other deposits without specific maturities at March 31, 2005. We believe, based
on past experience, that a significant portion of those deposits will remain
with us. We have the ability to attract and retain deposits by adjusting the
interest rates offered.

Our primary investing activities are the origination of loans and the purchase
of investment securities. During the nine-month period ended March 31, 2005,
loan originations, net of principal collections, were $9.3 million offset by the
redemption, prepayment and sale of securities in the amount of $25.2 million.
During the period, financing activities consisted primarily of activity in
deposit accounts and


                                       25

 26


Federal Home Loan Bank advances. We experienced a net decrease in total deposits
of $8.3 million during the nine-month period ended March 31, 2005 due primarily
to a decline in certificates of deposit. The decline in certificates of deposit
reflects our emphasis on attracting lower cost deposits. Deposit flows are
affected by the overall level of interest rates and products offered by us and
our local competitors and other factors. Occasionally, we offer promotional
rates on certain deposit products in order to attract deposits. In the
nine-month period ended March 31, 2005, Federal Home Loan Bank advances
increased $6.0 million to $12.0 million.

At March 31, 2005, the average liquidity ratio was 32.29% compared to 37.04% at
March 31, 2004. The capital from the Conversion has significantly increased our
liquidity and capital resources. Over time, we expect the initial level of
liquidity after the Conversion will continue to be reduced as net proceeds from
the stock offering are used for future lending and operational growth and
expansion activities.

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 March 31, 2005, 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.






                                       26

 27


CAPITAL COMPLIANCE
- ------------------

The following table presents our capital position relative to our regulatory
capital requirements at March 31, 2005 and June 30, 2004:



                                                                                             TO BE WELL
                                                                                          CAPITALIZED UNDER
                                                                FOR CAPITAL               PROMPT CORRECTIVE
                                        ACTUAL               ADEQUACY PURPOSES            ACTION PROVISIONS
                               -------------------------   ------------------------    ------------------------
                                 AMOUNT        RATIO         AMOUNT        RATIO        AMOUNT         RATIO
                                 ------        -----         ------        -----        ------         -----
                                                           (Dollars in Thousands)
                                                                                       
AT MARCH 31, 2005

Total Capital
     (To Risk Weighted Assets)   $ 67,140         38.1%      $ 14,090  >      8.0%      $ 17,613  >      10.0%
                                                                      ---                        ---

Core Capital
     (To Tangible Assets)          64,952         23.1%        11,244  >      4.0%        14,055  >       5.0%
                                                                      ---                        ---

Tangible Capital
     (To Tangible Assets)          64,952         23.1%         4,216  >      1.5%           N/A
                                                                      ---

Tier 1 Capital
     (To Risk Weighted Assets)     64,952         36.9%           N/A                     10,568  >       6.0%
                                                                                                 ---

AT JUNE 30, 2004

Total Capital
     (To Risk Weighted Assets)     64,731         38.8%        13,352  >      8.0%        16,690  >      10.0%
                                                                      ---                        ---

Core Capital
     (To Tangible Assets)          62,640         22.2%        11,280  >      4.0%        14,101  >       5.0%
                                                                      ---                        ---

Tangible Capital
     (To Tangible Assets)          62,640         22.2%         4,230  >      1.5%           N/A
                                                                      ---

Tier 1 Capital
     (To Risk Weighted Assets)     62,640         37.5%           N/A                     10,014  >       6.0%
                                                                                                 ---




                                       27
 28


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, 2004. 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, 2004. As a result of the funds raised in the Company's
stock offering and management's strategy of investing the funds from the
offering and excess funds from operations in short-term investments with minimal
extension risk, the Company is now more asset sensitive and is likely to
experience an increase in net interest income in a rising interest rate
environment.

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 March 31, 2005 that
has materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.



                                       28
 29


                           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.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS



Stock Repurchase Program
                                                                                       (d)
                                                                                  MAXIMUM NUMBER
                                                                (c)              (OR APPROXIMATE
                                                           TOTAL NUMBER OF         DOLLAR VALUE)
                               (a)             (b)        SHARES (OR UNITS)        OF SHARES (OR
                           TOTAL NUMBER      AVERAGE        PURCHASED AS          UNITS) THAT MAY
                            OF SHARES       PRICE PAID    PART OF PUBLICLY        YET BE PURCHASED
                            (OR UNITS)      PER SHARE      ANNOUNCED PLANS        UNDER THE PLANS
Period                      PURCHASED       (OR UNIT)        OR PROGAMS             OR PROGRAMS
                          ---------------   -----------  --------------------   ---------------------
                                                                            
Month #1
January 1, 2005                     -             -                     -               265,356 (1)
through
January 31, 2005

Month #2
February 1, 2005              142,538        $13.15               142,538               122,818 (1)
through
February 28, 2005

Month #3
March 1, 2005                 112,818        $13.36               112,818                10,000 (1)
through
March 31, 2005

Total                         255,356        $13.24               255,356                10,000

- -----------------------------------------

(1)   On July 30, 2004, the Company announced a Stock Repurchase Program under
      which the Company may repurchase up to an aggregate of 838,552 shares, or
      10%, of the Company's common stock.



                                       29

 30


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

         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





                                       30
 31



                                   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.



May 10, 2005                               /s/ Anderson L. Smith
                                           -------------------------------------
                                           Anderson L. Smith
                                           President and Chief Executive Officer



May 10, 2005                               /s/ Jane P. Hutton
                                           -------------------------------------
                                           Jane P. Hutton
                                           Chief Financial Officer, Treasurer
                                            and Secretary