<Page>1
JEFFERSON BANCSHARES, INC. ANNOUNCES EARNINGS FOR THE
QUARTER ENDED DECEMBER 31, 2007
Morristown, Tennessee -- (January 25, 2008) - Jefferson Bancshares, Inc.
(Nasdaq: JFBI), the holding company for Jefferson Federal Bank, announced
financial results for the quarter ended December 31, 2007, which included a
$637,000 non-cash charge to deferred income tax expense to establish a valuation
allowance against deferred tax assets. The deferred tax asset being written down
is the charitable contribution carryforward directly attributable to the
contribution made to the Jefferson Federal Charitable Foundation in connection
with the Company's public offering in July 2003. We determined that a valuation
allowance is prudent because the tax benefit of the contribution may not be
fully utilized based on our assessment of future taxable income within the time
allowed by the Internal Revenue Service. This charge to deferred income tax
expense resulted in a net loss of $176,000, or ($0.03) per diluted share, for
the quarter ended December 31, 2007 compared to net income of $349,000, or $0.06
per diluted share, for the corresponding quarter in 2006. Excluding this tax
charge, core net earnings were $461,000, or $0.08 per diluted share, for the
three months ended December 31, 2007 compared to GAAP earnings of $349,000, or
$0.06 per diluted share, for the corresponding 2006 period.(1) The increase in
core net earnings for the three months ended December 31, 2007 was due to
increases in net interest income and noninterest income, combined with a slight
decrease in noninterest expense.
For the six months ended December 31, 2007, net income was $258,000, or $0.04
per diluted share, compared to $639,000, or $0.11 per diluted share, for the
comparable period in 2006. Excluding the non-cash charge to deferred income tax
expense, core net earnings were $895,000, or $0.15 per share, for the six months
ended December 31, 2007 compared to GAAP earnings of $639,000, or $0.11, for the
corresponding period in 2006.(1) The increase in core net earnings for the six
months ended December 31, 2007 was due to increases in net interest income and
noninterest income, combined with a decrease in noninterest expense.
Anderson L. Smith, President and Chief Executive Officer, commented, "Although
the quarter-end financial results were negatively impacted by the non-cash
charge to deferred income tax expense, we are encouraged by solid core operating
performance, with a 35% year-to-date increase in pre-tax income and significant
growth in loans and deposits. Our growth strategy has lowered taxable income in
the short-term and will likely prevent us from taking full advantage of the
charitable contribution deduction. However, we believe that our choice to invest
in new facilities and infrastructure has long-term benefits for our
shareholders."
Net interest income increased $148,000, or 5.3%, to $3.0 million for the quarter
ended December 31, 2007 from the corresponding period in 2006. The interest rate
spread and net interest margin for the quarter ended December 31, 2007 were
2.95% and 3.72%, respectively, compared to 2.85% and 3.66% for the same period
in 2006. Interest income increased $255,000, or 4.9%, to $5.5 million for the
<Page>2
quarter ended December 31, 2007 as a result of growth in the average balance of
loans and an increase in interest rates. Interest expense increased $107,000, or
4.4%, to $2.5 million for the quarter ended December 31, 2007, primarily due to
an increase in the average balance of deposits combined with an increase in
market interest rates.
For the six months ended December 31, 2007, net interest income increased
$300,000, or 5.4%, to $5.9 million. The interest rate spread and net interest
margin for the six months ended December 31, 2007 were 2.93% and 3.72%,
respectively, compared to 2.85% and 3.64% for the same period in 2006. Interest
income increased $532,000, or 5.1%, to $10.9 million for the six-month period
ended December 31, 2007 primarily due to growth in the average balance of loans
combined with higher interest rates. Interest expense increased $232,000, or
4.8%, to $5.0 million for the six months ended December 31, 2007, primarily due
to an increase in the average balance of deposits and higher rates paid on
deposits. The higher rates were the result of increases in market interest
rates.
Noninterest income increased $37,000, or 11.9%, to $347,000 for the three months
ended December 31, 2007 and increased $62,000, or 8.9%, to $759,000 for the six
months ended December 31, 2007 compared to the corresponding 2006 periods. The
largest increases in noninterest income in both periods were in service charges
and fees, which increased $27,000, or 21.3%, for the three months and increased
$58,000, or 23.2%, for the six months ended December 31, 2007. There was no loss
on sale of investment securities recorded in the three or six-month period ended
December 31, 2007 compared to a loss of $30,000 for the same periods in 2006.
Noninterest expense remained steady at $2.5 million for the three-month period
ended December 31, 2007 and decreased $98,000, or 1.9%, to $5.1 million for the
six-month period ended December 31, 2007 compared to the corresponding periods
in 2006 primarily as a result of a decrease in compensation and benefits
expense. Compensation and benefits expense decreased $67,000, or 4.5%, to $1.4
million for the three-month period ended December 31, 2007 and decreased
$166,000, or 5.5%, to $2.9 million for the six months ended December 31, 2007
due to a lower number of employees.
Nonperforming assets increased to 0.56% of total assets at December 31, 2007,
compared to 0.17% of total assets at December 31, 2006, primarily due to a large
commercial loan that was moved to nonaccrual status during the quarter combined
with an increase in foreclosed real estate. The increase in foreclosed real
estate was primarily attributable to one large commercial relationship and
included foreclosed property totaling $1.0 million. Net charge-offs for the six
months ended December 31, 2007 were $256,000, or 0.18% of average loans on an
annualized basis, compared to $94,000, or 0.07% of average loans on an
annualized basis, for the same period in 2006. The allowance for loan losses was
$1.8 million, or 0.64%, of total gross loans, at December 31, 2007 compared to
$2.1 million, or 0.78% of total gross loans at December 31, 2006. The provision
for loan losses totaled $128,000 for the six months ended December 31, 2007
primarily as a result of growth in the loan portfolio, compared to $30,000 for
the six months ended December 31, 2006.
<Page>3
Total assets at December 31, 2007 were $344.2 million compared to $339.7 million
at June 30, 2007. Net loans receivable increased $10.1 million, or 3.7%, to
$284.9 million at December 31, 2007, primarily due to an increase in real estate
and commercial loans. Total deposits increased $11.7 million, or 5.3%, to $231.8
million at December 31, 2007 as a result of marketing efforts, promotional rates
and the opening of our second branch in Knoxville, Tennessee during the current
six-month period. The increase in deposits has reduced our reliance on FHLB
advances during the six months ended December 31, 2007. FHLB advances were $38.3
million at December 31, 2007, a decrease of $6.5 million, or 14.5%, compared to
$44.8 million at June 30, 2007.
Total stockholders' equity amounted to $73.0 million at December 31, 2007. Stock
repurchases for the three months ended December 31, 2007 totaled 88,066 shares
at an average cost of $10.17 per share. On February 24, 2006, the Company
announced its third stock repurchase program in which up to 690,261 shares, or
10% of the Company's outstanding common stock, may be repurchased. At December
31, 2007, 227,879 shares remained eligible for repurchase under the current
stock repurchase program. The Company paid a $0.06 per share dividend to
shareholders during the quarter ended December 31, 2007 totaling $379,000.
Jefferson Bancshares, Inc. is the holding company for Jefferson Federal Bank, a
federally-chartered stock thrift institution headquartered in Morristown,
Tennessee. Jefferson Federal is a community oriented financial institution
offering traditional financial services with offices in Hamblen and Knox
Counties, Tennessee. The Company's stock is listed on the NASDAQ Global Market
under the symbol "JFBI." More information about Jefferson Bancshares and
Jefferson Federal Bank can be found at its website: www.jeffersonfederal.com.
This press release, as well as other written communications made from time to
time by the Company and its subsidiaries and oral communications made from time
to time by authorized officers of the Company, may contain statements relating
to the future results of the Company (including certain projections and business
trends) that are considered "forward-looking statements" as defined in the
Private Securities Litigation Reform Act of 1995 (the "PSLRA"). Such
forward-looking statements may be identified by the use of such words as
"believe," "expect," "anticipate," "should," "planned," "estimated," "intend"
and "potential." For these statements, the Company claims the protection of the
safe harbor for forward-looking statements contained in the PSLRA.
The Company cautions you that a number of important factors could cause actual
results to differ materially from those currently anticipated in any
forward-looking statement. Such factors include, but are not limited to:
prevailing economic and geopolitical conditions; changes in interest rates, loan
demand, real estate values and competition; changes in accounting principles,
policies and guidelines; changes in any applicable law, rule, regulation or
practice with respect to tax or legal issues; and other economic, competitive,
governmental, regulatory and technological factors affecting the Company's
operations, pricing, products and services and other factors that may be
described in the Company's annual report on Form 10-K and quarterly reports on
Form 10-Q as filed with the Securities and Exchange Commission. The
<Page>4
forward-looking statements are made as of the date of this release, and, except
as may be required by applicable law or regulation, the Company assumes no
obligation to update the forward-looking statements or to update the reasons why
actual results could differ from those projected in the forward-looking
statements.
JEFFERSON BANCSHARES, INC.
RECONCILIATION OF GAAP AND CORE NET EARNINGS
(Unaudited)
(1) While core net earnings is not a measure of performance calculated in
accordance with GAAP, the Company believes that this measure is important for
the three and six month periods ended December 31, 2007 to convey to investors
the Company's earnings for these periods absent the $637,000 non-cash charge to
deferred income tax expense to establish a valuation allowance against deferred
tax assets during the quarter ended December 31, 2007. The valuation allowance
was related to the charitable contribution carryforward directly attributable to
the Company's contribution to the Jefferson Federal Charitable Foundation in
July 2003. The Company calculated its core net earnings for the three and six
month periods ended December 31, 2007 by subtracting this $637,000 non-cash
charge from net income for the respective periods. Core net earnings should not
be considered in isolation or as a substitute for net income, cash flows from
operating activities or other income or cash flow statement data calculated in
accordance with GAAP. Moreover, the manner in which the Company calculates core
net earnings may differ from that of other companies reporting measures with
similar names. Reconciliations of the Company's GAAP and core net earnings for
the three and six month periods ended December 31, 2007 follow.
<Table>
<Caption>
Three Months ended Six Months Ended
December 31, December 31,
2007 2006 2007 2006
---- ---- ---- ----
(Dollars in thousands, except per share data)
GAAP net earnings (loss) ($176) $349 $258 $639
Plus: non-cash charge to deferred income tax expense $637 $ 0 $637 $ 0
----- ----- ----- -----
Core net earnings $461 $349 $895 $639
===== ===== ===== =====
GAAP earnings (loss) per diluted share ($0.03) $0.06 $0.04 $0.11
Plus: non-cash charge to deferred income tax expense $0.11 $0.00 $0.11 $0.00
----- ----- ----- -----
Core net earnings per diluted share $0.08 $0.06 $0.15 $0.11
===== ===== ===== =====
</Table>
<Page>5
JEFFERSON BANCSHARES, INC.
<Table>
<Caption>
At At
December 31, June 30,
2007 2007
--------- ---------
(Dollars in thousands)
Financial Condition Data:
Total assets $ 344,152 $ 339,703
Loans receivable, net 284,949 274,881
Cash and cash equivalents, and
interest-bearing deposits 9,264 7,734
Investment securities 22,715 27,278
Deposits 231,774 220,082
Borrowings 38,300 44,800
Stockholders' equity 73,032 73,644
</Table>
<Table>
<Caption>
Three Months Ended December 31, Six Months Ended December 31,
2007 2006 2007 2006
---------- ---------- ---------- ----------
(Dollars in thousands, (Dollars in thousands,
except per share data) except per share data)
Operating Data:
Interest income $ 5,491 $ 5,236 $ 10,902 $ 10,370
Interest expense 2,535 2,428 5,045 4,813
Net interest income 2,956 2,808 5,857 5,557
Provision for loan losses 60 30 128 30
Net interest income after
provision for loan losses 2,896 2,778 5,729 5,527
Noninterest income 347 310 759 697
Noninterest expense 2,538 2,539 5,107 5,205
Earnings before income taxes 705 549 1,381 1,019
Total income taxes 881 200 1,123 380
Net earnings (176) 349 258 639
Share Data:
Earnings per share, basic $ (0.03) $ 0.06 $ 0.04 $ 0.11
Earnings per share, diluted $ (0.03) $ 0.06 $ 0.04 $ 0.11
Dividends per share $ 0.06 $ 0.06 $ 0.12 $ 0.12
Weighted average shares:
Basic 5,840,831 5,990,682 5,860,409 6,015,862
Diluted 5,840,831 5,994,138 5,860,409 6,021,572
</Table>
<Table>
<Caption>
Three Months Ended December 31, Six Months Ended December 31,
2007 2006 2007 2006
-------- -------- -------- --------
(Dollars in thousands) (Dollars in thousands)
Allowance for Loan Losses:
Allowance at beginning of period $ 1,955 $ 2,144 $ 1,955 $ 2,172
Provision for loan losses 60 30 128 30
Recoveries 20 17 30 42
Charge-offs (208) (83) (286) (136)
-------- -------- -------- --------
Net Charge-offs (188) (66) (256) (94)
-------- -------- -------- --------
Allowance at end of period $ 1,827 $ 2,108 $ 1,827 $ 2,108
======== ======== ======== ========
Net charge-offs to average outstanding
loans during the period, annualized 0.27% 0.10% 0.18% 0.07%
</Table>
<Page>6
<Table>
<Caption>
At At At
December 31, June 30, December 31,
2007 2007 2006
------------ -------- ------------
(Dollars in thousands)
Nonperforming Assets:
Nonaccrual loans:
Real estate $ 280 $ 251 $ 317
Commercial business 534 - 210
Consumer - - -
------------ -------- ------------
Total 814 251 527
Real estate owned 1,107 275 30
Other nonperforming assets - - -
------------ -------- ------------
Total nonperforming assets $ 1,921 $ 526 $ 557
============ ======== ============
</Table>
<Table>
<Caption>
Six Months Ended Year Ended
December 31, June 30,
2007 2007
---------------- ----------
Performance Ratios:
Return on average assets 0.15% 0.51%
Return on average equity 0.70% 2.28%
Interest rate spread 2.93% 2.93%
Net interest margin 3.72% 3.73%
Efficiency ratio 77.19% 79.11%
Average interest-earning assets to
average interest-bearing liabilities 124.47% 125.18%
Asset Quality Ratios:
Allowance for loan losses as a
percent of total gross loans 0.64% 0.71%
Allowance for loan losses as a
percent of nonperforming loans 224.45% 778.88%
Nonperforming loans as a percent
of total loans 0.28% 0.09%
Nonperforming assets as a percent
of total assets 0.56% 0.15%
</Table>
Contact:
Jefferson Bancshares, Inc.
Anderson L. Smith, President and Chief Executive Officer
423-586-8421
Jane P. Hutton, Chief Financial Officer
423-586-8421