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As filed with the Securities and Exchange Commission on May 13, 2003

Registration No. 333-103961

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

PRE-EFFECTIVE AMENDMENT NO. 2

TO THE

FORM S-1

REGISTRATION STATEMENT

UNDER THE SECURITIES ACT OF 1933

JEFFERSON BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

120 Evans Avenue

Morristown, Tennessee 37814

(423) 586-8421

(Address, including zip code, and telephone number,

including area code, of registrant’s principal executive offices)

Anderson L. Smith

President and Chief Executive Officer

Jefferson Bancshares, Inc.

120 Evans Avenue

Morristown, Tennessee 37814

(423) 586-8421

(Name, address, including zip code, and telephone number,

including area code, of agent for service)

Copies to:

Paul M. Aguggia, Esquire

Aaron M. Kaslow, Esquire

Muldoon Murphy & Faucette LLP

5101 Wisconsin Avenue, N.W.

Washington, D.C. 20016

(202) 362-0840

Approximate date of commencement of proposed sale to the public:    As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box.  x

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box.  ¨

Calculation of Registration Fee

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine.

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Prospectus Supplement

INTERESTS IN

JEFFERSON FEDERAL SAVINGS AND LOAN ASSOCIATION OF MORRISTOWN

EMPLOYEES’ SAVINGS & PROFIT SHARING PLAN AND TRUST

AND

OFFERING OF 147,000 SHARES OF

JEFFERSON BANCSHARES, INC.

COMMON STOCK ($.01 PAR VALUE)

This prospectus supplement relates to the offer and sale to participants in the Jefferson Federal Savings and Loan Association of Morristown Employees’ Savings & Profit Sharing Plan and Trust of participation interests and shares of common stock of Jefferson Bancshares, Inc.

The Board of Directors of Jefferson Federal has adopted a plan that will convert Jefferson Federal from the mutual holding company form of organization to stock form. As part of the conversion, Jefferson Bancshares, Inc. has been established to offer its common stock to the public under certain purchase priorities in the plan of conversion. Savings Plan participants are now permitted to direct the trustee of the Savings Plan to use their current account balances to subscribe for and purchase shares of Jefferson Bancshares, Inc. common stock through the Jefferson Bancshares, Inc. Stock Fund. Based upon the value of the Savings Plan assets as of December 31, 2002, the trustee of the Savings Plan could purchase up to 147,000 shares of Jefferson Bancshares, Inc. common stock, assuming a purchase price of $10.00 per share. This prospectus supplement relates to the election of Savings Plan participants to direct the trustee of the Savings Plan to invest all or a portion of their Savings Plan accounts in Jefferson Bancshares, Inc. common stock.

The prospectus dated             , 2003 of Jefferson Bancshares, Inc., which we have attached to this prospectus supplement, includes detailed information regarding the conversion of Jefferson Federal from the mutual holding company form to the stock form, and the financial condition, results of operations and business of Jefferson Federal. This prospectus supplement provides information regarding the Savings Plan. You should read this prospectus supplement together with the prospectus and keep both for future reference.

Please refer to “Risk Factors” beginning on page          of the prospectus.

Neither the Securities and Exchange Commission, the Office of Thrift Supervision, the Federal Deposit Insurance Corporation, nor any other state or federal agency or any state securities commission, has approved or disapproved these securities. Any representation to the contrary is a criminal offense.

These securities are not deposits or accounts and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

This prospectus supplement may be used only in connection with offers and sales by Jefferson Bancshares, Inc. of interests or shares of common stock under the Savings Plan to employees of Jefferson Federal. No one may use this prospectus supplement to reoffer or resell interests or shares of common stock acquired through the Savings Plan.

You should rely only on the information contained in this prospectus supplement and the attached prospectus. Jefferson Bancshares, Inc., Jefferson Federal and the Savings Plan have not authorized anyone to provide you with information that is different.

This prospectus supplement does not constitute an offer to sell or solicitation of an offer to buy any securities in any jurisdiction to any person to whom it is unlawful to make an offer or solicitation in that jurisdiction. Neither the delivery of this prospectus supplement and the prospectus nor any sale of common stock shall under any circumstances imply that there has been no change in the affairs of Jefferson Federal or the Savings Plan since the date of this prospectus supplement, or that the information contained in this prospectus supplement or incorporated by reference is correct as of any time after the date of this prospectus supplement.

The date of this Prospectus Supplement is             , 2003.

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THE OFFERING

Securities Offered

The securities offered in connection with this prospectus supplement are participation interests in the Savings Plan. Assuming a purchase price of $10.00 per share, the trustee may acquire up to 147,000 shares of Jefferson Bancshares, Inc. common stock for the Jefferson Bancshares, Inc. Stock Fund. The interests offered under this prospectus supplement are conditioned on the completion of the conversion of Jefferson Federal. Your investment in the Jefferson Bancshares, Inc. Stock Fund in connection with the conversion of Jefferson Federal is also governed by the purchase priorities contained in the plan of conversion. See the “Limitations on Purchases of Shares” section of the prospectus attached to this prospectus supplement for a discussion of the purchase priorities contained in the plan of conversion.

This prospectus supplement contains information regarding the Savings Plan. The attached prospectus contains information regarding the conversion of Jefferson Federal and the financial condition, results of operations and business of Jefferson Federal. The address of the principal executive office of Jefferson Federal is 120 Evans Avenue, Morristown, Tennessee 37814. The telephone number of Jefferson Federal is 423-586-8421.

Election to Purchase Jefferson Bancshares, Inc. Common Stock in the Conversion

In connection with the conversion of Jefferson Federal, the Savings Plan will permit you to direct the trustee to transfer all or part of the funds which represent your current beneficial interest in the assets of the Savings Plan to the Jefferson Bancshares, Inc. Stock Fund. The trustee of the Savings Plan will subscribe for Jefferson Bancshares, Inc. common stock offered for sale in connection with the conversion in accordance with each participant’s direction. If there is not enough common stock in the conversion to fill all subscriptions, the common stock will be apportioned and the trustee for the Savings Plan may not be able to purchase all of the common stock you requested. In such case, the trustee will purchase shares in the open market, on your behalf, after the conversion to fulfill your initial request. Such purchases may be at prices higher than the initial public offering price.

All plan participants are eligible to direct a transfer of funds to the Jefferson Bancshares, Inc. Stock Fund. However, such directions are subject to the purchase priorities in the plan of conversion. Your order will be filled based on your status as an eligible account holder or supplemental eligible account holder in the conversion of Jefferson Federal. An eligible account holder is a depositor whose savings account(s) totaled $50.00 or more on December 31, 2001. A supplemental eligible account holder is a depositor whose savings account(s) totaled $50.00 or more on March 31, 2003. No eligible account holder or supplemental eligible account holder may purchase more than $500,000 of Jefferson Bancshares, Inc. common stock in the offering. If you fall into one of the above subscription offering categories, you have subscription rights to purchase shares of common stock in the offering and you may use funds in the Savings Plan account to pay for the shares of Jefferson Bancshares, Inc. common stock which you are eligible to purchase.

Value of Participation Interests

As of December 31, 2002, the market value of the assets of the Savings Plan equaled approximately $1,473,000. The plan administrator has informed each participant of the value of his or her beneficial interest in the Savings Plan as of                 , 2003. The value of Savings Plan assets represents past contributions to the Savings Plan on your behalf, plus or minus earnings or losses on the contributions, less previous withdrawals and loans.

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Method of Directing Transfer

The last two pages of this prospectus supplement contain a form for you to direct a transfer to the Jefferson Bancshares, Inc. Stock Fund (the “Change of Investment Allocation Form”). If you wish to transfer all, or part, in multiples of not less than 1%, of your beneficial interest in the assets of the Savings Plan to the Jefferson Bancshares, Inc. Stock Fund, you should complete the Change of Investment Allocation Form. If you do not wish to make such an election at this time, you do not need to take any action. The minimum investment in the Jefferson Bancshares, Inc. Stock Fund during the initial public offering is $250.

Time for Directing Transfer

The deadline for submitting a direction to transfer amounts to the Jefferson Bancshares, Inc. Stock Fund in connection with the conversion is                 , 2003. You should return the Change of Investment Allocation Form to JoEllen McDaniel by          p.m. on                         , 2003.

Irrevocability of Transfer Direction

Your direction to transfer amounts credited to your account in the Savings Plan to the Jefferson Bancshares, Inc. Stock Fund cannot be changed.

Purchase Price of Jefferson Bancshares, Inc. Common Stock

The trustee will use the funds transferred to the Jefferson Bancshares, Inc. Stock Fund to purchase shares of Jefferson Bancshares, Inc. common stock in the conversion. The trustee will pay the same price for shares of Jefferson Bancshares, Inc. common stock as all other persons who purchase shares of Jefferson Bancshares, Inc. common stock in the offering. If there is not enough common stock in the offering to fill all subscriptions, the common stock will be apportioned and the trustee for the Savings Plan may not be able to purchase all of the common stock you requested. In such case, the trustee will purchase shares in the open market, on your behalf, after the conversion to fulfill your initial request. Such purchases may be at prices higher or lower than the conversion offering price.

Nature of a Participant’s Interest in Jefferson Bancshares, Inc. Common Stock

The trustee will hold Jefferson Bancshares, Inc. common stock in the name of the Savings Plan. The trustee will credit shares of common stock acquired at your direction to your account under the Savings Plan. Therefore, earnings with respect to your account should not be affected by the investment designations of other participants in the Savings Plan.

Voting and Tender Rights of Jefferson Bancshares, Inc. Common Stock

The trustee generally will exercise voting and tender rights attributable to all Jefferson Bancshares, Inc. common stock held by the Jefferson Bancshares, Inc. Stock Fund as directed by participants with interests in the Jefferson Bancshares, Inc. Stock Fund. With respect to each matter as to which holders of Jefferson Bancshares, Inc. common stock have a right to vote, you will be given voting instruction rights reflecting your proportionate interest in the Jefferson Bancshares, Inc. Stock Fund. The number of shares of Jefferson Bancshares, Inc. common stock held in the Jefferson Bancshares, Inc. Stock Fund that are voted for and against on each matter will be proportionate to the number of voting

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instruction rights exercised in such manner. If there is a tender offer for Jefferson Bancshares, Inc. common stock, the Savings Plan provides that each participant will be allotted a number of tender instruction rights reflecting such participant’s proportionate interest in the Jefferson Bancshares, Inc. Stock Fund. The percentage of shares of Jefferson Bancshares, Inc. common stock held in the Jefferson Bancshares, Inc. Stock Fund that will be tendered will be the same as the percentage of the total number of tender instruction rights that are exercised in favor of the tender offer. The remaining shares of Jefferson Bancshares, Inc. common stock held in the Jefferson Bancshares, Inc. Stock Fund will not be tendered. The Savings Plan makes provisions for participants to exercise their voting instruction rights and tender instruction rights on a confidential basis.

DESCRIPTION OF THE SAVINGS PLAN

Introduction

Effective May 1, 2003, Jefferson Federal will amend its existing 401(k) Plan dated November 1, 1973, in its entirety into the Jefferson Federal Savings and Loan Association of Morristown Employees’ Savings & Profit Sharing Plan and Trust. Jefferson Federal intends for the Savings Plan to comply, in form and in operation, with all applicable provisions of the Internal Revenue Code and the Employee Retirement Income Security Act of 1974, as amended, or “ERISA.” Jefferson Federal may change the Savings Plan from time to time in the future to ensure continued compliance with these laws. Jefferson Federal may also amend the Savings Plan from time to time in the future to add, modify, or eliminate certain features of the plan, as it sees fit. As a plan governed by ERISA, federal law provides you with various rights and protections as a plan participant. Although the Savings Plan is governed by many of the provisions of ERISA, your benefits under the plan are not guaranteed by the Pension Benefit Guaranty Corporation.

Reference to Full Text of the Plan. The following portions of this prospectus supplement provide an overview of the material provisions of the Savings Plan. Jefferson Federal qualifies this overview in its entirety by reference to the full text of the Savings Plan. You may obtain copies of the full Savings Plan document by sending a request to JoEllen McDaniel at Jefferson Federal. You should carefully read the full text of the Savings Plan document to understand your rights and obligations under the plan.

Eligibility and Participation

Any employee of Jefferson Federal who attains age 20½ may participate in the Savings Plan as of the first of the calendar month coinciding with or next following the date an employee completes 500 Hours of Service within a consecutive six-month period with Jefferson Federal.

As of December 31, 2002, 57 of the 57 employees of Jefferson Federal elected to participate in the Savings Plan.

Contributions Under the Savings Plan

Savings Plan Participant Contributions. Subject to certain IRS limitations, the Savings Plan permits each participant to make monthly contributions to the Savings Plan equal to 50% of the participant’s monthly salary. Participants may change their rate of contribution with respect to pre-tax deferrals once each calendar quarter.

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Jefferson Federal Contributions. The Savings Plan provides that Jefferson Federal may make profit-sharing contributions. Profit-sharing contributions are allocated to those participants who have completed 1,000 Hours of Service during the Plan Year and who are employed by Jefferson Federal on the last day of the Plan Year. In addition, participants who have retired, died or become totally and permanently disabled prior to the last day of the Plan Year will be credited with an employer contribution.

Limitations on Contributions

Limitation on Employee Salary Deferral. Although the Savings Plan permits you to defer up to 50% of your compensation, by law your total deferrals under the Savings Plan, together with similar plans, may not exceed $12,000 for 2003. The Internal Revenue Service will periodically increase this annual limitation. Contributions in excess of this limitation, or excess deferrals, will be included in an affected participant’s gross income for federal income tax purposes in the year they are made. In addition, a participant will have to pay federal income taxes on any excess deferrals when distributed by the Savings Plan to the participant, unless the excess deferral and any related income allocable is distributed to the participant not later than the first April 15th following the close of the taxable year in which the excess deferral is made. Any income on the excess deferral that is distributed not later than such date shall be treated, for federal income tax purposes, as earned and received by the participant in the taxable year in which the distribution is made.

Limitations on Annual Additions and Benefits. Under the requirements of the Internal Revenue Code, the Savings Plan provides that the total amount of contributions and forfeitures (annual additions) credited to a participant during any year may not exceed the lesser of 100% of the participant’s compensation for that year, or $40,000.

Limitation on Plan Contributions for Highly Compensated Employees. Special provisions of the Internal Revenue Code limit the amount of salary deferrals and matching contributions that may be made to the Savings Plan in any year on behalf of highly compensated employees in relation to the amount of deferrals and matching contributions made by or on behalf of all other employees eligible to participate in the Savings Plan. If these limitations are exceeded, the level of deferrals by highly compensated employees must be adjusted.

In general, a highly compensated employee includes any employee who (1) was a five percent owner of the sponsoring employer at any time during the year or preceding year, or (2) had compensation for the preceding year in excess of $90,000 and, if the sponsoring employer so elects, was in the top 20% of employees by compensation for such year. The dollar amounts in the foregoing sentence are for 2003, but may be adjusted annually to reflect increases in the cost of living.

Top-Heavy Plan Requirements. If for any calendar year the Savings Plan is a Top-Heavy Plan, then Jefferson Federal may be required to make certain minimum contributions to the Savings Plan on behalf of non-key employees.

In general, the Savings Plan will be treated as a “Top-Heavy Plan” for any calendar year if, as of the last day of the preceding calendar year, the aggregate balance of the accounts of participants who are Key Employees exceeds 60% of the aggregate balance of the accounts of all participants. Key Employees generally include any employee who, at any time during the calendar year or any of the four preceding years, is:

(1) an officer of Jefferson Federal having annual compensation in excess of $130,000 who is in an administrative or policy-making capacity,

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(2) one of the ten employees having annual compensation in excess of $40,000 and owning, directly or indirectly, the largest interests in Jefferson Federal,

(3) a person who owns, directly or indirectly, more than 5% of the stock of Jefferson Bancshares, Inc., or stock possessing more than 5% of the total combined voting power of all stock of Jefferson Bancshares, Inc., or

(4) a person who owns directly or indirectly combined voting power of all stock and more than 1% of the total stock of Jefferson Bancshares, Inc. and has annual compensation in excess of $150,000.

The foregoing dollar amounts are for 2003.

Investment of Contributions

All amounts credited to participants’ accounts under the Savings Plan are held in trust. A trustee appointed by the board of directors of Jefferson Federal administers the trust.

The Savings Plan offers the following investment choices:

S&P500 Stock Fund. This stock fund invests in the stocks of a broad array of established U.S. companies. Its objective is long-term: to earn higher returns by investing in the largest companies in the U.S. economy.

Stable Value Fund. This fund invests primarily in Guaranteed Investment Contracts and Synthetic Guaranteed Investment Contracts. These contracts pay a steady rate of interest over a certain period of time, usually between three and five years. Its objective is short to intermediate-term: to achieve a stable return over short to intermediate periods of time while preserving the value of your investment.

S&P MidCap Stock Fund. This stock fund invests in the stocks of mid-sized U.S. companies, which are expected to grow faster than larger, more established companies. Its objective is long-term: to earn higher returns which reflect the growth potential of mid-sized companies.

Money Market Fund. This fund invests in a broad range of high-quality, short-term instruments issued by banks, corporations and the U.S. Government and its agencies. These instruments include certificates of deposit and U.S. Treasury bills. Its objective is short-term: to achieve competitive, short-term rates of return while preserving the value of your principal.

Government Bond Fund. This bond fund invests in U.S. Treasury bonds with a maturity of 20 years or more. Its objective is long-term: to earn a higher level of income along with the potential for capital appreciation.

International Stock Fund. This fund invests in over 1,000 foreign stocks in 20 countries, based in Europe, Australia, and the Far East. Its objective is long-term: to offer the potential return of investing in the stocks of established non-U.S. companies, as well as the potential risk-reduction of broad diversification.

Income Plus Asset Allocation Fund. This fund diversifies among a broad range of stable value securities to reduce short-term risk among a broad range of large U.S. and international companies to

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capture growth potential. The fund is structured to take advantage of market opportunities with a small flexible component. Its objective is intermediate-term: to preserve the value of your investment over short periods of time and to offer some potential for growth.

Growth and Income Asset Allocation Fund. This fund diversifies among U.S. and international stocks, U.S. bonds, and stable value investments to pursue long-term appreciation and short-term stability and takes advantage of market opportunities with a small flexible component. Its objective is intermediate-term: to provide a balance between the pursuit of growth and protection from risk.

Growth Asset Allocation Fund. This fund diversifies among a broad range of domestic and international stocks and takes advantage of market opportunities with a large flexible component. Its objective is long-term: to pursue high growth of your investment over time.

Russell 2000 Stock Fund. This fund seeks to emulate the performance of the Russell 2000 Index. The Russell 2000 Index is a subset of the Russell 3000 Index. The Russell 3000 Index is based on ranking of all U.S. publicly traded companies by market capitalization size. The Russell 2000 represents those 2000 companies ranked by size below the top 1000 companies. It is broadly diversified in terms of industries and economic sectors. This fund is intended for long-term investors seeking the potential high returns from investing in smaller U.S. companies.

S&P 500/Growth Stock Fund. This fund seeks to track the S&P/BARRA Growth Index by investing in many or all of the same stocks that make up the S&P/BARRA Growth Index. The fund maintains a low turnover of securities which results in low trading costs for investors. This fund is intended for long-term investors seeking a diversified portfolio of large-capitalization value stocks.

S&P 500/Value Stock Fund. This fund invests in most, or all of the stocks held in the S&P/BARRA Value Index. The index represents approximately 50% of the market capitalization of the S&P 500 Stock Index. This fund is intended for long-term investors seeking a diversified portfolio of large-capitalization value stocks.

NASDAQ 100. The Pentegra Nasdaq 100 Stock Fund invests in most or all of the same stocks held in the Nasdaq 100 Index. The Nasdaq 100 Index reflects Nasdaq’s largest non-financial companies across major industry groups, including computer hardware and software, telecommunications, retail/wholesale trade and biotechnology.

Jefferson Federal Certificate of Deposit Fund. This fund invests in certificates of deposit of Jefferson Federal with varying terms and interest rates.

The Savings Plan now provides the Jefferson Bancshares, Inc. Stock Fund as an additional choice to these investment alternatives. The Jefferson Bancshares, Inc. Stock Fund invests primarily in the common stock of Jefferson Bancshares, Inc. Participants in the Savings Plan may direct the trustee to invest all or a portion of their Savings Plan account balance in the Jefferson Bancshares, Inc. Stock Fund.

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The annual percentage return on the funds (net of fees) listed above for the prior three years was:

The Jefferson Bancshares, Inc. Stock Fund consists of investments in the common stock of Jefferson Bancshares, Inc. made on the effective date of the conversion. After the conversion of Jefferson Federal, the trustee of the Savings Plan will, to the extent practicable, use all amounts held by it in the Jefferson Bancshares, Inc. Stock Fund, including cash dividends paid on the common stock held in the fund, to purchase shares of common stock of Jefferson Bancshares, Inc. Savings Plan participants that invest in the Stock Fund will be permitted to direct the Stock Fund Trustee how to vote the shares of Jefferson Bancshares, Inc. common stock credited to their account.

As of the date of this prospectus supplement, none of the shares of Jefferson Bancshares, Inc. common stock have been issued or are outstanding and there is no established market for the Jefferson Bancshares, Inc. common stock. Accordingly, there is no record of the historical performance of the Jefferson Bancshares, Inc. Stock Fund. Performance of the Jefferson Bancshares, Inc. Stock Fund depends on a number of factors, including the financial condition and profitability of Jefferson Bancshares, Inc. and Jefferson Federal and market conditions for Jefferson Bancshares, Inc. common stock generally.

Benefits Under the Savings Plan

Vesting. Participants are 100% vested in their contributions. All profit-sharing contributions vest at a rate of 20% per year over a five year period.

Withdrawals and Distributions From the Savings Plan

Withdrawals Before Termination of Employment. You may receive in-service distributions from the Savings Plan under limited circumstances in the form of hardship distributions and loans. In order to qualify for a hardship withdrawal, you must have an immediate and substantial need to meet certain expenses and have no other reasonably available resources to meet the financial need. If you qualify for a hardship distribution, the trustee will make the distribution proportionately from the investment funds in which you have invested your account balances. Participants and beneficiaries are eligible for Savings Plan loans. The minimum loan amount is $1,000 calculated solely using a Participant’s vested interest in his or her account.

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Distribution Upon Retirement or Disability. Upon retirement or disability, you may receive a partial lump sum payment, a full lump sum payment, or installment payments from the Savings Plan equal to the value of your account.

Distribution Upon Death. If you die before your benefits are paid from the Savings Plan, your benefits will be paid to your surviving spouse or beneficiary under one or more of the forms available under the Savings Plan.

Distribution Upon Termination for Any Other Reason. If you terminate employment for any reason other than retirement, disability or death and your account balance exceeds $500, the trustee will make your distribution on your normal retirement date, unless you request otherwise. If your account balances do not exceed $500, the trustee will generally distribute your benefits to you as soon as administratively practicable following termination of employment.

Nonalienation of Benefits. Except with respect to federal income tax withholding and as provided with respect to a qualified domestic relations order, benefits payable under the Savings Plan will not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or levy of any kind, either voluntary or involuntary, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose of any rights to benefits payable under the Savings Plan will be void.

Applicable federal tax law requires the Savings Plan to impose substantial restrictions on your right to withdraw amounts held under the plan before your termination of employment with Jefferson Federal. Federal law may also impose an excise tax on withdrawals made from the Savings Plan before you attain 59½ years of age regardless of whether the withdrawal occurs during your employment with Jefferson Federal or after termination of employment.

Administration of the Savings Plan

The trustee with respect to the Savings Plan is the named fiduciary of the Savings Plan for purposes of ERISA.

Trustees. The board of directors of Jefferson Federal appoints the trustee to serve at its pleasure. The board of directors has appointed Bank of New York as trustee of the Jefferson Bancshares, Inc. Stock Fund.

The trustee receives, holds and invests the contributions to the Savings Plan in trust and distributes them to participants and beneficiaries in accordance with the terms of the Savings Plan and the directions of the plan administrator. The trustee is responsible for investment of the assets of the trust.

Reports to Savings Plan Participants

The plan administrator will furnish you a statement at least quarterly showing the balance in your account as of the end of that period, the amount of contributions allocated to your account for that period, and any adjustments to your account to reflect earnings or losses.

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Plan Administrator

The current plan administrator of the Savings Plan is Jefferson Federal. The plan administrator is responsible for the administration of the Savings Plan, interpretation of the provisions of the plan, prescribing procedures for filing applications for benefits, preparation and distribution of information explaining the plan, maintenance of plan records, books of account and all other data necessary for the proper administration of the plan, and preparation and filing of all returns and reports relating to the plan which are required to be filed with the U.S. Department of Labor and the Internal Revenue Service, and for all disclosures required to be made to participants, beneficiaries and others under the Employee Retirement Income Security Act of 1974, as amended.

Amendment and Termination

Jefferson Federal intends to continue the Savings Plan indefinitely. Nevertheless, Jefferson Federal may terminate the Savings Plan at any time. If Jefferson Federal terminates the Savings Plan in whole or in part, then regardless of other provisions in the plan, all affected participants will become fully vested in their accounts. Jefferson Federal reserves the right to make, from time to time, changes which do not cause any part of the trust to be used for, or diverted to, any purpose other than the exclusive benefit of participants or their beneficiaries; provided, however, that Jefferson Federal may amend the plan as it determines necessary or desirable, with or without retroactive effect, to comply with the Employee Retirement Income Security Act of 1974, as amended, or the Internal Revenue Code.

Merger, Consolidation or Transfer

If the Savings Plan merges or consolidates with another plan or transfers the trust assets to another plan, and if either the Savings Plan or the other plan is then terminated, the Savings Plan requires that you would receive a benefit immediately after the merger, consolidation or transfer. The benefit would be equal to or greater than the benefit you would have been entitled to receive immediately before the merger, consolidation or transfer if the Savings Plan had then terminated.

Federal Income Tax Consequences

The following is only a brief summary of the material federal income tax aspects of the Savings Plan. You should not rely on this survey as a complete or definitive description of the material federal income tax consequences relating to the Savings Plan. Statutory provisions change, as do their interpretations, and their application may vary in individual circumstances. Finally, the consequences under applicable state and local income tax laws may not be the same as under the federal income tax laws. You are urged to consult your tax advisor with respect to any distribution from the Savings Plan and transactions involving the Savings Plan.

As a “qualified retirement plan,” the Code affords the Savings Plan special tax treatment, including:

(1) The sponsoring employer is allowed an immediate tax deduction for the amount contributed to the plan each year;

(2) participants pay no current income tax on amounts contributed by the employer on their behalf; and

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(3) earnings of the plan are tax-deferred, thereby permitting the tax-free accumulation of income and gains on investments.

Jefferson Federal will administer the Savings Plan to comply in operation with the requirements of the Internal Revenue Code as of the applicable effective date of any change in the law. If Jefferson Federal receives an adverse determination letter regarding its tax exempt status from the Internal Revenue Service, all participants would generally recognize income equal to their vested interest in the Savings Plan, the participants would not be permitted to transfer amounts distributed from the Savings Plan to an Individual Retirement Account or to another qualified retirement plan, and Jefferson Federal may be denied certain deductions taken with respect to the Savings Plan.

Lump Sum Distribution. A distribution from the Savings Plan to a participant or the beneficiary of a participant will qualify as a lump sum distribution if it is made within one taxable year, on account of the participant’s death, disability or separation from service, or after the participant attains age 59 ¹/2; and consists of the balance credited to the participant under this plan and all other profit sharing plans, if any, maintained by Jefferson Federal. The portion of any lump sum distribution required to be included in your taxable income for federal income tax purposes consists of the entire amount of the lump sum distribution less the amount of after-tax contributions, if any, you have made to any other profit sharing plans maintained by Jefferson Federal which is included in the distribution.

Jefferson Bancshares, Inc. Common Stock Included in Lump Sum Distribution. If a lump sum distribution includes Jefferson Bancshares, Inc. common stock, the distribution generally will be taxed in the manner described above, except that the total taxable amount will be reduced by the amount of any net unrealized appreciation with respect to Jefferson Bancshares, Inc. common stock, that is, the excess of the value of Jefferson Bancshares, Inc. common stock at the time of the distribution over its cost or other basis of the securities to the trust. The tax basis of Jefferson Bancshares, Inc. common stock for purposes of computing gain or loss on its subsequent sale equals the value of Jefferson Bancshares, Inc. common stock at the time of distribution, less the amount of net unrealized appreciation. Any gain on a subsequent sale or other taxable disposition of Jefferson Bancshares, Inc. common stock, to the extent of the amount of net unrealized appreciation at the time of distribution, will constitute long-term capital gain regardless of how long the Jefferson Bancshares, Inc. common stock, is held, or the “holding period.” Any gain on a subsequent sale or other taxable disposition of Jefferson Bancshares, Inc. common stock in excess of the amount of net unrealized appreciation at the time of distribution will be considered long-term capital gain regardless of the holding period of Jefferson Bancshares, Inc. common stock. Any gain on a subsequent sale or other taxable disposition of Jefferson Bancshares, Inc. common stock in excess of the amount of net unrealized appreciation at the time of distribution will be considered either short-term or long-term capital gain, depending upon the length of the holding period of Jefferson Bancshares, Inc. common stock. The recipient of a distribution may elect to include the amount of any net unrealized appreciation in the total taxable amount of the distribution, to the extent allowed by the regulations to be issued by the IRS.

Distributions: Rollovers and Direct Transfers to Another Qualified Plan or to an IRA. You may roll over virtually all distributions from the Savings Plan to another qualified retirement plan or to an individual retirement account.

We have provided you with a brief description of the material federal income tax aspects of the Savings Plan which are of general application under the Code. It is not intended to be a complete or definitive description of the federal income tax consequences of participating in or receiving distributions from the Savings Plan. Accordingly, you are urged to consult a tax advisor

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concerning the federal, state and local tax consequences of participating in and receiving distributions from the Savings Plan.

Restrictions on Resale

Any person receiving a distribution of shares of common stock under the Savings Plan who is an “affiliate” of Jefferson Bancshares, Inc. under Rules 144 and 405 under the Securities Act of 1933, as amended, may reoffer or resell such shares only under a registration statement filed under the Securities Act of 1933, as amended, assuming the availability of a registration statement, or under Rule 144 or some other exemption of the registration requirements of the Securities Act of 1933, as amended. Directors, officers and substantial shareholders of Jefferson Bancshares, Inc. are generally considered “affiliates.” Any person who may be an “affiliate” of Jefferson Federal may wish to consult with counsel before transferring any common stock they own. In addition, participants are advised to consult with counsel as to the applicability of Section 16 of the Securities Exchange Act of 1934, as amended, which may restrict the sale of Jefferson Bancshares, Inc. common stock acquired under the Savings Plan, or other sales of Jefferson Bancshares, Inc. common stock.

Persons who are not deemed to be “affiliates” of Jefferson Federal at the time of resale will be free to resell any shares of Jefferson Bancshares, Inc. common stock distributed to them under the Savings Plan, either publicly or privately, without regard to the registration and prospectus delivery requirements of the Securities Act of 1933, as amended, or compliance with the restrictions and conditions contained in the exemptive rules under federal law. An “affiliate” of Jefferson Federal is someone who directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control, with Jefferson Federal. Normally, a director, principal officer or major shareholder of a corporation may be deemed to be an “affiliate” of that corporation. A person who may be deemed an “affiliate” of Jefferson Federal at the time of a proposed resale will be permitted to make public resales of the common stock only under a “reoffer” prospectus or in accordance with the restrictions and conditions contained in Rule 144 under the Securities Act of 1933, as amended, or some other exemption from registration, and will not be permitted to use this prospectus in connection with any such resale. In general, the amount of the common stock which any such affiliate may publicly resell under Rule 144 in any three-month period may not exceed the greater of one percent of Jefferson Bancshares, Inc. common stock then outstanding or the average weekly trading volume reported on the Nasdaq Stock Market during the four calendar weeks before the sale. Such sales may be made only through brokers without solicitation and only at a time when Jefferson Bancshares, Inc. is current in filing the reports required of it under the Securities Exchange Act of 1934, as amended.

SEC Reporting and Short-Swing Profit Liability

Section 16 of the Securities Exchange Act of 1934, as amended, imposes reporting and liability requirements on officers, directors and persons beneficially owning more than ten percent of public companies such as Jefferson Bancshares, Inc. Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the filing of reports of beneficial ownership. Within ten days of becoming a person required to file reports under Section 16(a), a Form 3 reporting initial beneficial ownership must be filed with the Securities and Exchange Commission. Certain changes in beneficial ownership, such as purchases, sales, gifts and participation in savings and retirement plans must be reported periodically, either on a Form 4 within two days after a transaction, or annually on a Form 5 within 45 days after the close of a company’s fiscal year.

In addition to the reporting requirements described above, Section 16(b) of the Securities Exchange Act of 1934, as amended, provides for the recovery by Jefferson Bancshares, Inc. of profits

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realized by any officer, director or any person beneficially owning more than ten percent of the common stock resulting from the purchase and sale or sale and purchase of the common stock within any six-month period.

The SEC has adopted rules that exempt many transactions involving the Savings Plan from the “short-swing” profit recovery provisions of Section 16(b). The exemptions generally involve restrictions upon the timing of elections to buy or sell employer securities for the accounts of any officer, director or any person beneficially owning more than ten percent of the common stock.

Except for distributions of the common stock due to death, disability, retirement, termination of employment or under a qualified domestic relations order, persons who are governed by Section 16(b) may, under limited circumstances involving the purchase of common stock within six months of the distribution, be required to hold shares of the common stock distributed from the Savings Plan for six months following the distribution date.

LEGAL OPINION

The validity of the issuance of the common stock of Jefferson Bancshares, Inc. will be passed upon by Muldoon Murphy & Faucette LLP, Washington, D.C. Muldoon Murphy & Faucette LLP acted as special counsel for Jefferson Federal in connection with the conversion of Jefferson Federal.

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JEFFERSON FEDERAL SAVINGS AND LOAN ASSOCIATION OF MORRISTOWN EMPLOYEES’

SAVINGS & PROFIT SHARING PLAN AND TRUST

CHANGE OF INVESTMENT ALLOCATION

Print your full name above                                                                                 (Last, first, middle initial)                                                           Social Security Number

Street Address                                                                                                                                        City                                                             State                       Zip

Jefferson Federal Savings and Loan Association of Morristown Employees’ Savings & Profit Sharing Plan and Trust (the “Savings Plan”) is giving members a special opportunity to invest their Savings Plan account balances in a new investment fund – the Jefferson Bancshares, Inc. Stock Fund – which is comprised primarily of common stock (“Common Stock”) issued by Jefferson Bancshares, Inc. (the “Company”) in connection with the conversion of Jefferson Federal from the mutual holding company form to the stock form. The percentage of a member’s account transferred at the direction of the member into the Jefferson Bancshares, Inc. Stock Fund will be used to purchase shares of Common Stock during the Offering. Please review the Prospectus (the “Prospectus”) and the Prospectus Supplement (the “Supplement”) before making any decision.

If there is not enough Common Stock in the conversion to fill all subscriptions, the Common Stock will be apportioned and the trustee for the Plan may not be able to purchase all of the Common Stock you requested. In such case, the trustee will purchase shares in the open market, on your behalf, after the conversion to fulfill your initial request. Such purchases may be at prices higher or lower than the initial offering price.

Investing in Common Stock entails some risks, and we encourage you to discuss this investment decision with your spouse and investment advisor. The Plan trustee and the Plan administrator are not authorized to make any representations about this investment other than what appears in the Prospectus and the Supplement, and you should not rely on any information other than what is contained in the Prospectus and the Supplement. For a discussion of certain factors that should be considered by each member as to an investment in the Common Stock, see “Risk Factors” beginning on page         of the Prospectus. Any shares purchased by the Plan pursuant to your election will be subject to the conditions or restrictions otherwise applicable to Common Stock, as discussed in the Prospectus and the Supplement.

To direct a transfer of all or part of the funds credited to your accounts to the Jefferson Bancshares, Inc. Stock Fund, you should complete and submit this form to                                               at Jefferson Federal Savings and Loan Association of Morristown, no later than                     , 2003 at              p.m. If you need any assistance in completing this form, please contact                                    . If you do not complete and return this form to                          by          p.m., on                     , 2003, the funds credited to your account under the Plan will continue to be invested in accordance with your prior investment direction, or in accordance with the terms of the Savings Plan if no investment direction had been provided.

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I hereby revoke any previous investment direction and now direct that the market value of the units that I have invested in the following funds, to the extent permissible, be transferred out of the specified fund and invested (in whole percentages) in the Jefferson Bancshares, Inc. Stock Fund as follows:

I hereby revoke any previous investment instructions and now direct that any future contributions and/or loan repayments, if any, made by me or on my behalf by Jefferson Federal Savings and Loan Association of Morristown, including those contributions and/or repayments received by Jefferson Federal Savings and Loan Association of Morristown Employees’ Savings & Profit Sharing Plan and Trust during the same reporting period as this form, be invested in the following whole percentages. If I elect to invest in Jefferson Bancshares, Inc. Common Stock, such future contributions or loan repayments, if any, will be invested in the Jefferson Bancshares, Inc. Stock Fund the month following the conclusion of the Offering.

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Growth Fund and/or Employer Stock Fund, for a period of three months may be transferred to the Money Market Fund upon the submission of a separate Change of Investment Allocation Form.

The percentage that can be transferred to the Money Market Fund may be limited by any amounts previously transferred from the Stable Value Fund that have not satisfied the equity wash requirement. Such amounts will remain in either the S&P 500 Stock Fund, S&P MidCap Stock Fund, Government Bond Fund, International Stock Fund, Income Plus Fund, Growth & Income Fund, Growth Fund and/or Employer Stock Fund and a separate direction to transfer them to the Money Market Fund will be required when they become available.

By signing this Change Of Investment Allocation Form, I authorize and direct the Plan administrator and trustee to carry out my instructions. I acknowledge that I have been provided with and read a copy of the Prospectus and the Supplement relating to the issuance of Common Stock. I am aware of the risks involved in the investment in Common Stock, and understand that the trustee and Plan administrator are not responsible for my choice of investment.

Pentegra Services, Inc. is hereby authorized to make the above listed change(s) to this member’s record.

Minimum Stock Purchase is $250

Maximum Stock Purchase is $500,000

PLEASE COMPLETE AND RETURN TO                         

AT JEFFERSON FEDERAL SAVINGS AND LOAN ASSOCIATION

OF MORRISTOWN

BY              P.M. ON                         , 2003.

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PROSPECTUS

[LOGO]

Jefferson Bancshares, Inc.

(Proposed Holding Company for Jefferson Federal Savings and Loan  Association of Morristown, to become Jefferson Federal Bank)

Up to 5,750,000 Shares of Common Stock

Jefferson Bancshares, Inc. is offering common stock for sale in connection with the conversion of Jefferson Federal Savings and Loan Association of Morristown from the mutual holding company form of organization to stock form. The shares we are offering represent the ownership interest in Jefferson Federal Savings and Loan Association now owned by Jefferson Bancshares, M.H.C. The existing publicly held shares of Jefferson Federal, which represent the remaining interest in Jefferson Federal, will be exchanged for shares of common stock of Jefferson Bancshares. All shares offered for sale are offered at a price of $10.00 per share. We have received approval to have our common stock listed for trading on the Nasdaq National Market under the symbol “JFBI.”

If you are or were a depositor of Jefferson Federal Savings and Loan Association:

If you are currently a shareholder of Jefferson Federal Savings and Loan Association:

If you are a participant in the Jefferson Federal Savings and Loan Association 401(k) Retirement Plan:

If you fit none of the categories above, but are interested in purchasing shares of our common stock:

We are offering up to 5,750,000 shares of common stock for sale on a best efforts basis, subject to certain conditions. We must sell a minimum of 4,250,000 shares to complete the offering and the exchange of existing shares. We may sell up to 6,612,500 shares without resoliciting subscribers because of regulatory considerations, demand for the shares or changes in market conditions. The offering is expected to terminate at 12:00 noon, Eastern time, on June 18, 2003. We may extend this termination date without notice to you until August 2, 2003, unless the Office of Thrift Supervision approves a later date, which will not be beyond June 25, 2005.

Keefe, Bruyette & Woods, Inc. will use its best efforts to assist us in our selling efforts, but is not required to purchase any of the common stock that is being offered for sale. Purchasers will not pay a commission to purchase shares of common stock in the offering.

The minimum purchase is 25 shares. Once submitted, orders are irrevocable unless the offering is terminated or extended beyond August 2, 2003. If the offering is extended beyond August 2, 2003, subscribers will have the right to modify or rescind their purchase orders. Funds received prior to completion of the offering will be held in an escrow account at Jefferson Federal and will earn interest at its passbook rate. If we terminate the offering, or if we extend the offering beyond August 2, 2003 and you rescind your order, we will return your funds with interest at Jefferson Federal’s passbook rate.

We expect our directors and executive officers, together with their associates, to subscribe for 379,000 shares, which equals 7.6% of the shares offered at the midpoint of the offering range. Following the conversion, our directors and executive officers, together with their associates, are expected to own 559,806 shares of common stock (including exercisable options), or 8.7% of our outstanding common stock if shares are sold at the midpoint of the offering range.

OFFERING SUMMARY

Price Per Share: $10.00

This investment involves a degree of risk, including the possible loss of principal.

Please read “Risk Factors” beginning on page 13.

These securities are not deposits or accounts and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.

Neither the Securities and Exchange Commission, the Office of Thrift Supervision nor any state securities regulator has approved or disapproved of these securities or determined if this prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

KEEFE, BRUYETTE & WOODS, INC.

The date of this prospectus is May 13, 2003

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[map of Tennessee showing office locations of Jefferson Federal appears here]

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Questions and Answers about the Stock Offering

A The following are answers to frequently asked questions. You should read this entire prospectus, including “Risk Factors” beginning on page 13 and “The Conversion” beginning on page 94, for more information.

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If the above persons do not subscribe for all of the shares offered, we will offer the remaining shares to the general public, giving preference to current shareholders of Jefferson Federal and next to people and trusts for the benefit of people who reside in Hamblen County, Tennessee and surrounding counties.

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To ensure that each person receives a prospectus at least 48 hours prior to the expiration date of the offering in accordance with federal law, no prospectus will be mailed any later than five days prior to the expiration date or hand delivered any later than two days prior to the expiration date.

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Summary

This summary highlights selected information from this document and may not contain all the information that is important to you. To understand the stock offering fully, you should read this entire document carefully. In certain instances where appropriate, the terms “we,” “us” and “our” refer collectively to Jefferson Bancshares, Inc. and Jefferson Federal. For assistance, please contact our stock information center at (423) 318-1025.

The Companies

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The following table shows how the exchange ratio will adjust, based on the number of shares sold in our offering. The table also shows how many shares a hypothetical owner of 100 shares of Jefferson Federal common stock would receive in the exchange, based on the number of shares sold in the offering.

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THE OFFERING

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Risk Factors

You should consider carefully the following risk factors before purchasing Jefferson Bancshares common stock.

Our subprime loans subject our loan portfolio to increased risk.

As a result of our prior lending practices, we have a large number of subprime loans, which we define as loans to borrowers with a Beacon credit score of less than 600. Subprime loans are particularly susceptible to delinquencies and losses. Our delinquency and foreclosure rates on our residential and consumer loan portfolios have been higher than our peers. We believe that, to a significant extent, this is a result of our historical subprime residential and consumer lending practices. We expect that this trend will continue in the near future. We have substantially decreased our origination of subprime loans and have improved our collection policies and procedures. As a result, subprime loans have decreased from $45.5 million, or 25.9% of total loans, at June 30, 2000 to $33.0 million, or 17.2% of total loans, at December 31, 2002. Nevertheless, as a result of our having subprime loans in our portfolio, we expect to have a higher level of nonperforming assets than our peers. If we experience increased losses from nonperforming assets, we may determine it necessary to increase our allowance for loan losses. Increased provisions for loan losses will hurt our profits.

A downturn in the local economy could hurt our profits.

The success of our business depends on our ability to generate profits and grow our franchise. We are located in Morristown, Tennessee and consider Hamblen County, with a population of 59,000, and its contiguous counties to be our primary market area. The economy of this market area is based primarily on manufacturing and agriculture. Our primary lending activity is the origination of loans secured by real estate. Nearly all of these loans are made to borrowers who live and work in our primary market area. According to the U.S. Bureau of Labor Statistics, the unemployment rates for the State of Tennessee have compared favorably to the national rate as well as the rate in Hamblen County. In this regard, the average monthly unemployment rate in Hamblen County has decreased from 6.2% for 2001 to 5.6% for 2002, but remained above the state average and slightly below the national average. Importantly, the slow economy in Jefferson Federal’s market has been evidenced in other ways such as through diminished hours worked for hourly employees in the manufacturing sector, which is the largest component of the local economy.

Rising interest rates may hurt our profits.

Interest rates are at historically low levels. If interest rates rise, our net interest income and the value of our assets likely would be reduced if interest paid on interest-bearing liabilities, such as deposits and borrowings, increased more quickly than interest received on interest-earning assets, such as loans and investments. At December 31, 2002, 59.6% of our real estate loans provided for periodic interest rate adjustments. Our adjustable-rate residential mortgage loans generally do not adjust downwards below the initial contract rate. Accordingly, the interest rates on these loans have not decreased as a result of the declining interest rate environment. If market interest rates decline further, because most of our portfolio has reached the floor interest rates, our loans may be more susceptible to prepayments. If market interest rates increase, our adjustable-rate mortgage loans will not adjust upward until the index rate exceeds the initial contract rate. As a result, in a rising interest rate environment, we expect that the interest we pay on deposits will increase faster than the interest we receive on loans, reducing our profitability. According to Office of Thrift Supervision calculations, if interest rates increase by 2%, the net value of our assets will decrease by 10%. If interest rates increase by 3%, the net value of our assets (our net portfolio value) will decrease by 18%. For further discussion of how changes in interest rates could impact us, see “Management’s Discussion and Analysis of Results of Operations and Financial Condition—Management of Interest Rate Risk and Market Risk Analysis.”

We expect that our return on equity initially will decline after the conversion.

Return on equity, which equals net income divided by average equity, is a ratio used by many investors to compare the performance of a particular company with other companies. For the six months ended December 31, 2002, our annualized return on equity was 10.25%, while our pro forma return on equity for the same period is

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estimated to be 5.59%, assuming the sale of shares at the midpoint of the offering range. Our regional peers used in the valuation of Jefferson Bancshares had an average return on equity of 6.11% for the year ended December 31, 2002, while all publicly held thrifts had an average return on equity of 9.62% for the same period. Over time, we intend to use the net proceeds from this offering to increase earnings per share and book value per share, without assuming undue risk, with the goal of achieving a return on equity that is competitive with other publicly traded financial institutions. This goal could take a number of years to achieve, and we cannot assure you that this goal will be attained. Consequently, you should not expect a competitive return on equity in the near future. Failure to achieve a competitive return on equity might make an investment in our common stock unattractive to some investors and might cause our common stock to trade at lower prices than comparable companies with a higher return on equity. See “Pro Forma Data” for an illustration of the financial impact of this offering.

Strong competition within our market area could hurt our profits and slow growth.

We face intense competition both in making loans and attracting deposits. This competition has made it more difficult for us to make new loans and at times has forced us to offer higher deposit rates. Price competition for loans and deposits might result in us earning less on our loans and paying more on our deposits, which reduces net interest income. As of June 30, 2002, we held 31% of the deposits in Hamblen County, which was the largest share of deposits out of eight financial institutions in the county. However, we compete with large regional banks owned by Suntrust Banks, Inc., First Tennessee National Corporation, Union Planters Corporation and National Commerce Financial Corporation. These competitors have substantially greater resources and lending limits than we have and may offer services that we do not provide. We expect competition to increase in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services industry. Our profitability depends upon our continued ability to compete successfully in our market area. For more information about our market area and the competition we face, see “Our Business—Market Area” and “Our Business—Competition.”

Our commercial real estate and multi-family loans expose us to increased lending risks.

At December 31, 2002, $56.7 million, or 29.5%, of our loan portfolio consisted of commercial and multi-family real estate loans. These types of loans generally expose a lender to greater risk of non-payment and loss than one- to four-family residential mortgage loans because repayment of the loans often depends on the successful operation of the property and the income stream of the borrowers. Such loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to one- to four-family residential mortgage loans. Also, many of our commercial borrowers have more than one loan outstanding with us. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to a significantly greater risk of loss compared to an adverse development with respect to a one- to four-family residential mortgage loan.

We may require further additions to our allowance for loan losses, which would reduce net income.

If our borrowers do not repay their loans or if the collateral securing their loans is insufficient to provide for the full repayment, we may suffer credit losses. Credit losses are inherent in the lending business and could have a material adverse effect on our operating results. We make various assumptions and judgments about the collectibility of our loan portfolio and provide an allowance for loan losses based on a number of factors. If our assumptions and judgments are wrong, our allowance for loan losses may not be sufficient to cover our losses. If we determine that our allowance for loan losses is insufficient, we would be required to take additional provisions for loan losses, which would reduce net income during the period those provisions are taken. In addition, the Office of Thrift Supervision periodically reviews our allowance for loan losses and may require us to increase our allowance for loan losses or to charge off particular loans.

Implementation of new benefit plans will increase our future compensation expense, which will reduce our profitability and stockholders’ equity.

We will recognize additional annual material employee compensation and benefit expenses stemming from the shares purchased or granted to employees and executives under new benefit plans. We cannot predict the actual amount of these new expenses because applicable accounting practices require that they be based on the fair market

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value of the shares of common stock at specific points in the future. We would recognize expenses for our employee stock ownership plan when shares are committed to be released to participants’ accounts and would recognize expenses for restricted stock awards over the vesting period of awards made to recipients. These expenses have been estimated in the pro forma financial information under “Pro Forma Data” assuming the $10.00 per share purchase price as fair market value. Actual expenses, however, may be higher or lower, depending on the price of our common stock. In addition, changes in accounting guidelines may require us to recognize expenses relating to stock option grants. For further discussion of these plans, see “Our Management—Benefit Plans.”

Issuance of shares for benefit programs may dilute your ownership interest.

We intend to adopt a stock-based incentive plan following the offering. If shareholders approve the new stock-based incentive plan, we intend to issue shares to our officers and directors through this plan. If the restricted stock awards under the stock-based incentive plan are funded from authorized but unissued stock, your ownership interest could be diluted by up to approximately 3.5%. If the shares issued upon the exercise of stock options under the stock-based incentive plan are issued from authorized but unissued stock, your ownership interest could be diluted by up to approximately 8.3%. See “Pro Forma Data” and “Our Management—Benefit Plans.”

Expected voting control by management and employees may prevent shareholders from taking actions opposed by management.

Our board of directors and executive officers intend to purchase approximately 7.6% of the shares offered at the midpoint of the offering range. These purchases, together with shares acquired through the exchange of shares of Jefferson Federal, the purchase of 8% of the shares by the employee stock ownership plan (including the shares contributed to the Jefferson Federal Charitable Foundation), the potential acquisition of 11.7% of our common stock through the stock-based incentive plan, and the 375,000 shares issued in the conversion to the Jefferson Federal Charitable Foundation, could result in management and employees controlling a significant percentage of Jefferson Bancshares’ common stock. If these individuals were to act together, they could have significant influence over the outcome of any shareholder vote. This voting power may discourage takeover attempts you might like to see happen. In addition, the total voting power of management and employees is likely to exceed 20% of Jefferson Bancshares’ outstanding stock. That level would enable management and employees as a group to defeat any shareholder matter that requires an 80% vote, including removal of directors, approval of certain business combinations with interested shareholders and certain amendments to our charter and bylaws. For information about management’s intended stock purchases and the number of shares that may be awarded under new benefit plans, see “Our Management—Benefit Plans,” and “Shares to Be Purchased by Management with Subscription Rights.”

The contribution to the Jefferson Federal Charitable Foundation means that a shareholder’s total ownership interest will be up to 6.8% less after the contribution.

Purchasers of shares will have their ownership and voting interests in Jefferson Bancshares diluted by up to 6.8% at the close of the conversion when Jefferson Bancshares issues an additional 375,000 shares and contributes those shares to the Jefferson Federal Charitable Foundation. For a further discussion regarding the effect of the contribution to the charitable foundation, see “Pro Forma Data” and “Comparison of Independent Valuation and Pro Forma Financial Information With and Without the Foundation.”

The contribution to the Jefferson Federal Charitable Foundation may decrease the number of shares issued in exchange for shares of Jefferson Federal.

The exchange ratio for converting shares of Jefferson Federal common stock into shares of Jefferson Bancshares common stock may be lower due to the contribution to the foundation. The number of shares that we are offering for sale is based on an independent appraisal of Jefferson Bancshares. RP Financial, LC., which performed the appraisal, has informed us that the value of Jefferson Bancshares would be greater if we did not form the charitable foundation and fund it with shares of Jefferson Bancshares common stock. The final exchange ratio for converting shares of Jefferson Federal common stock into shares of Jefferson Bancshares common will depend on the number of shares sold in the offering. The maximum number of shares that we may sell in the offering without resoliciting subscribers is 6,612,500, which would result in an exchange ratio of 4.2661. If we did not form the

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charitable foundation, the maximum number of shares that we would be able to sell in the offering without resoliciting subscribers would be 7,273,750, which would result in an exchange ratio of 4.6927.

Our contribution to the Jefferson Federal Charitable Foundation may not be tax deductible, which could hurt our profits.

We believe that our contribution to the Jefferson Federal Charitable Foundation, valued at $4.0 million, pre-tax, will be deductible for federal income tax purposes. However, we do not have any assurance that the Internal Revenue Service will grant tax-exempt status to the foundation. If the contribution is not deductible, we would not receive any tax benefit from the contribution. In addition, even if the contribution is tax deductible, we may not have sufficient profits to be able to use the deduction fully.

Establishment of the Jefferson Federal Charitable Foundation will hurt our profits for fiscal year 2003.

Jefferson Bancshares intends to contribute $250,000 plus 375,000 shares of its common stock to the Jefferson Federal Charitable Foundation. This contribution will be an additional operating expense and will reduce net income during the fiscal year in which the foundation is established, which is expected to be the year ending June 30, 2003, possibly resulting in an operating loss for that year. Based on the pro forma assumptions, the contribution to the foundation would reduce net earnings by $2.5 million, after tax, in fiscal year 2003. If we experience delays in completing the conversion, we would recognize the expense in the fiscal year 2004.

Failure to approve the Jefferson Federal Charitable Foundation may materially affect the pro forma market value of Jefferson Bancshares, which may delay the completion of the conversion.

The establishment and funding of the foundation as part of the conversion is subject to the approval of the members of Jefferson Bancshares, M.H.C. and the shareholders of Jefferson Federal. In the event our members or our shareholders approve the conversion, but not the foundation, we may determine to complete the conversion without the establishment of the foundation and may do so without amending the plan of conversion or obtaining any further vote of our members or the shareholders of Jefferson Federal. RP Financial, LC., which performed the appraisal of Jefferson Bancshares on which this offering is based, has informed us that the value of Jefferson Bancshares would be greater if we did not form the charitable foundation and fund it with shares of Jefferson Bancshares common stock. Therefore, failure of our members or shareholders to approve the foundation may materially affect our pro forma market value. If our pro forma market value increases above $83,761,000, all subscribers will be resolicited and given the chance to change or cancel their orders. A resolicitation would delay the completion of the conversion.

Loss of our President and Chief Executive Officer could hurt our operations.

We rely heavily on our President and Chief Executive Officer, Anderson L. Smith. The loss of Mr. Smith could have an adverse effect on us because, as a small community bank, Mr. Smith is responsible for more aspects of our business than he might be at a larger financial institution with more employees. Moreover, as a small community bank, we have fewer management level employees who are in a position to succeed Mr. Smith. We have entered into a three-year employment agreement with Mr. Smith. We do not have key-man life insurance on Mr. Smith.

Various factors could make takeover attempts more difficult to achieve, even if a majority of our shareholders favor such takeover attempts.

Provisions of Jefferson Bancshares’ charter and bylaws, federal and state regulations and various other factors may make it more difficult for companies or persons to acquire control of Jefferson Bancshares without the consent of Jefferson Bancshares Board of Directors. It is possible, however, that you might like to see a takeover attempt succeed because, for example, the potential acquiror could be offering a premium over the then prevailing market price of Jefferson Bancshares common stock. The factors that may discourage takeover attempts or make them more difficult include:

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Our stock price may decline when trading commences.

We cannot guarantee that if you purchase shares in the conversion that you will be able to sell them at or above the $10.00 purchase price. After the shares of our common stock begin trading, the trading price of the common stock will be determined by the marketplace, and will be influenced by many factors, including prevailing interest rates, investor perceptions and general industry, geopolitical and economic conditions. Publicly traded stocks, including stocks of financial institutions, have recently experienced substantial market price volatility. These market fluctuations might not be related to the operating performance of particular companies whose shares are traded.

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There may be a limited market for our common stock, which may negatively affect the market price.

We have received approval to have Jefferson Bancshares’ stock traded on the Nasdaq National Market. Currently, there is no established market in which shares of Jefferson Federal’s stock are regularly traded, nor are there any uniformly quoted prices for such shares. There is no guarantee that the shares of Jefferson Bancshares will be traded more regularly then the shares of Jefferson Federal, which may negatively affect the market price. If an active trading market for Jefferson Bancshares’ stock does not develop, you might not be able to sell all of your shares of Jefferson Bancshares common stock on short notice and the sale of a large number of shares at one time could temporarily depress the market price. There also may be a wide spread between the bid and asked price for the common stock.

There is a decrease in the rights of shareholders under our Tennessee charter and bylaws.

As a result of the conversion, existing shareholders of Jefferson Federal, a federal savings and loan association, will become shareholders of Jefferson Bancshares, a Tennessee corporation. The rights of shareholders of the new Tennessee corporation will be less than the rights shareholders currently have. The differences in shareholder rights under Jefferson Bancshares’ charter and bylaws are not mandated by Tennessee law but have been chosen by management as being in the best interests of the corporation and all of its shareholders. The differences in shareholder rights include the following: (1) approval by at least 80% of outstanding shares required to remove a director for cause; (2) the inability of shareholders to call special meetings; (3) greater lead time required for shareholders to submit shareholder proposals; (4) approval by at least 80% of the outstanding shares required to amend the charter and bylaws; (5) a residency requirement for directors; (6) approval by at least 80% of the outstanding shares required to approve business combinations involving an interested shareholder; and (7) limitations on voting rights of beneficial owners of more than 10% of Jefferson Bancshares’ common stock.

We operate in a highly regulated environment and we may be adversely affected by changes in laws and regulations.

We are subject to extensive regulation, supervision and examination by the Office of Thrift Supervision, our chartering authority, and by the Federal Deposit Insurance Corporation, as insurer of our deposits. As a savings and loan holding company, Jefferson Bancshares will be subject to regulation and supervision by the Office of Thrift Supervision. Such regulation and supervision govern the activities in which an institution and its holding company may engage, and are intended primarily for the protection of the insurance fund and depositors. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the imposition of restrictions on our operations, the classification of our assets and determination of the level of our allowance for loan losses. Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, legislation or supervisory action, may have a material impact on our operations.

We have broad discretion in allocating the proceeds of the offering. Our failure to effectively utilize such proceeds would reduce our profitability.

We intend to contribute approximately 50% of the net proceeds of the offering to Jefferson Federal. We may use the remaining net proceeds to finance the acquisition of other financial institutions or other businesses that are related to banking, pay dividends to shareholders, repurchase common stock, purchase investment securities, or for other general corporate purposes. We expect to use a portion of the net proceeds to fund the employee stock ownership plan purchases of shares in the offering. Jefferson Federal may use the proceeds it receives to establish or acquire new branches, acquire financial institutions or other businesses that are related to banking, fund new loans, purchase investment securities, or for general corporate purposes. We have not allocated specific amounts of proceeds for any of these purposes, and we will have significant flexibility in determining how much of the net proceeds we apply to different uses and the timing of such applications. Our failure to utilize these funds effectively would reduce our profitability.

We may not succeed in our plan to grow.

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We intend to expand our branch network, initially in Hamblen County and possibly into surrounding counties, in future years. Building and staffing new branch offices will increase our operating expenses. There is no guarantee that new branch offices will generate revenues that are sufficient to justify our investment or that will exceed the expenses we would incur in expanding our branch network.

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A Warning About Forward-Looking Statements

This prospectus contains forward-looking statements, which can be identified by the use of words such as “believes,” “expects,” “anticipates,” “estimates” or similar expressions. Forward-looking statements include:

These forward-looking statements are subject to significant risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements due to, among others, the following factors:

Any of the forward-looking statements that we make in this prospectus and in other public statements we make may turn out to be wrong because of inaccurate assumptions we might make, because of the factors illustrated above or because of other factors that we cannot foresee. Consequently, no forward-looking statement can be guaranteed.

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Selected Financial and Other Data

The summary financial information presented below is derived in part from the financial statements of Jefferson Federal. The following is only a summary and you should read it in conjunction with the financial statements and notes beginning on page F-1. The information at June 30, 2002 and 2001 and for the three years ended June 30, 2002 is derived in part from the audited consolidated financial statements of Jefferson Federal that appear in this prospectus. The information at June 30, 2000, 1999 and 1998 and for the years ended June 30, 1999 and 1998 is derived in part from audited consolidated financial statements that do not appear in this prospectus. The operating data for the six months ended December 31, 2002 and 2001 was not audited, but, in the opinion of management, reflects all adjustments necessary for a fair presentation. No adjustments were other than normal recurring entries. The results of operations for the six months ended December 31, 2002 are not necessarily indicative of the results of operations that may be expected for the entire year.