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                                                                    Exhibit 10.9

                                    AGREEMENT

         This agreement made and entered into by and between Jefferson Federal
Savings and Loan Association of Morristown (hereinafter the "ASSOCIATION"),
Jefferson Bancshares, M.H.C. (hereinafter "COMPANY") and William W. Bales
(hereinafter "BALES")

                                   WITNESSETH:

         The following recitals are deemed necessary as antecedents to this
Agreement:

         1. Effective as of May 26, 1994, the ASSOCIATION, the COMPANY, and
BALES entered into Employment Agreement which governed the employment
relationship among the parties thereto;

         2. Said employment agreement has been renewed from time to time and
still is in effect although the terms as to salary have been modified over the
years;

         3. Bales has announced his retirement effective after December 31,
2001;

         4. The parties desire to provide a method for canceling the remainder
of the Employment Agreement;

         5. Due to Bales' knowledge of the ASSOCIATION and the COMPANY, their
operations, and their customer base, and due further to BALES' reputation as a
banker in the trade area of the COMPANY and the ASSOCIATION, the COMPANY and the
ASSOCIATION desire to expand and extend the terms of the covenant not to compete
contained in BALES' Employment Agreement, and BALES is willing to do so;

         6. The parties desire to formalize their Agreement concerning matters
set forth herein;

         Now, therefore, in consideration of the foregoing, and other good and
valuable considerations, including those herein set forth, the receipt and
sufficiency of which are hereby acknowledged, the following agreement is made:

         1. Effective January 1, 2002, as previously announced, Bales is
retiring and resigning as an employee, officer, and director of the COMPANY and
the ASSOCIATION, which retirement shall include a termination of all employment
agreements, positions as an officer and/or director or as a member of any
committee of the ASSOCIATION and/or the COMPANY.


         2. Effective as of the close of business on December 31, 2001, the
employment agreement by and among BALES, the ASSOCIATION, and the

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COMPANY shall be canceled and for nothing held, and the relationship by and
among BALES, the ASSOCIATION, and the COMPANY shall thereafter be governed by
the terms of this Agreement. Accordingly, Bales releases the ASSOCIATION and the
COMPANY from all claims arising from or related to said Employment Agreement.

         3. In consideration of the cancellation of BALES' Employment Agreement
with the ASSOCIATION and the COMPANY as well as the extension of the covenant
not to compete, as hereinafter set forth, the ASSOCIATION and/or the COMPANY
shall pay to BALES the sum of $381,000.00 payable in equal monthly installments
($10,583.33 for the months of January through November and $10,583.37 for
December) over the next three years, subject to the provisions of paragraph 6 of
this agreement. BALES acknowledges that said payments constitute a full and
complete satisfaction of all obligations of the ASSOCIATION and/or the COMPANY
to BALES under said Employment Agreement, and that said payments also constitute
a good and valuable consideration for the extension of the covenant not to
compete as herein set forth.

         The parties recognize that from time to time, there may be questions
that arise from BALES' work with the ASSOCIATION and/or the COMPANY and that the
ASSOCIATION and/or the COMPANY may call upon BALES for assistance related to
accounts handled by BALES or responding to information from examiners, auditors,
regulators, etc., and BALES agrees to provide such assistance without further
charge to the ASSOCIATION and/or the COMPANY.

         4. During the term of this Agreement, BALES agrees not to compete with
the ASSOCIATION and/or the COMPANY in the following counties: Hamblen, Grainger,
Jefferson, Cocke, Greene, Hawkins, Knox, Claiborne, Hancock, and Sevier. The
parties recognize that these counties constitute the areas in which the
ASSOCIATION and/or the COMPANY have primarily operated during BALES' employment
with the ASSOCIATION and/or the COMPANY and these are the counties in which
BALES would have access to confidential information which the ASSOCIATION and
the COMPANY desire, and are entitled, to protect.

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BALES agrees that during such period and within such counties, he shall not work
for or advise, consult, or otherwise serve with, directly or indirectly,
including serving as a director, any entity whose business materially competes
with the depository, lending or other business activities of the ASSOCIATION
and/or the COMPANY. Recognizing that irreparable injury will result to the
ASSOCIATION and/or the COMPANY, its business and property in the event of BALES'
breach of this provision, the parties agree that in the event of any such breach
by BALES, the ASSOCIATION and/or the COMPANY will be entitled, in addition to
any other remedies and damages available to them, to an injunction to restrain
and prohibit the violation hereof by BALES, BALES' partners, agents, servants,
employers, employees, and all persons acting for or with BALES. This shall not
be construed to prohibit the ASSOCIATION and/or the COMPANY from pursuing any
other remedies available to the ASSOCIATION and/or the COMPANY for such breach
or threatened breach, including the recovery of damages.

         5. The parties recognize that from and after January 1, 2002, BALES
shall not be entitled to participate in any benefit plans, retirement plans, or
receive other benefits from the ASSOCIATION and/or the COMPANY, other than the
payments herein set forth or payments or rights which had vested in BALES prior
to January 1, 2002. Notwithstanding the foregoing, the stock options previously
granted to BALES and any stock allocated to BALES in the current Management
Recognition Plan shall be awarded to BALES. To the extent required, BALES'
services under this Agreement shall be considered for service requirements for
vesting.

         6. Should BALES die prior to the expiration of the term of this
Agreement, the payments for the remaining term of this contract shall be
adjusted as follows:

         (a) Death during first year of this agreement, all payments after date
             of death shall be reduced by 75%.

         (b) Death during second year of this agreement, all payments after
             date of death shall be reduced by 50%.

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         (c) Death after the second year of this agreement, all payments after
             date of death shall be reduced by 15%.

         Effective as of January 1, 2002.

                                          /s/ William W. Bales
                                          --------------------------------------
                                          William W. Bales


                                          JEFFERSON FEDERAL SAVINGS AND
                                          LOAN ASSOCIATION

ATTEST:

/s/ Jack E. Campbell                         By: /s/ John F. McCrary
---------------------------------            -----------------------------------
Jack E. Campbell, Secretary                  John F. McCrary, Chairman
                                             JEFFERSON BANCSHARES M.H.C.


ATTEST:

/s/ Jack E. Campbell                         By: /s/ John F. McCrary
---------------------------------            -----------------------------------
Jack E. Campbell, Secretary                  John F. McCrary, Chairman