<PAGE>

                                                                    Exhibit 10.3

                              EMPLOYMENT AGREEMENT

     THIS AGREEMENT (the "Agreement"), made this 1/st/ day of January, 2003, by
and among JEFFERSON BANCSHARES, M.H.C. (the "Company"), JEFFERSON FEDERAL
SAVINGS AND LOAN ASSOCIATION (the "Association") and ANDERSON L. SMITH
("Executive").

                               W I T N E S S E T H

     WHEREAS, Executive serves in a position of substantial responsibility;

     WHEREAS, the Company and the Association wish to assure the services of
Executive for the period provided in this Agreement; and

     WHEREAS, Executive is willing to serve in the employ of the Association on
a full-time basis for said period.

     NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:

     1.   Employment. Executive is employed as the President and Chief Executive
Officer and of the Company and the Association. Executive shall perform all
duties and shall have all powers which are commonly incident to the offices of
President and Chief Executive Officer and which, consistent with those offices,
are delegated to him by the Chairman of the Board of Directors of the
Association and the Company.

     2.   Location and Facilities. The Executive will be furnished with the
working facilities and staff customary for executive officers with the title and
duties set forth in Section 1 and as are necessary for him to perform his
duties. The location of such facilities and staff shall be at the principal
administrative offices of the Company and the Association, or at such other site
or sites customary for such offices.

     3.   Term.

     a.   The term of this Agreement shall be (i) the initial term, consisting
          of the period commencing on the date of this Agreement (the "Effective
          Date") and ending on the third anniversary of the Effective Date, plus
          (ii) any and all extensions of the initial term made pursuant to this
          Section 3.

     b.   Commencing on the first year anniversary date of this Agreement, and
          continuing on each anniversary thereafter, the disinterested members
          of the boards of directors of the Association and the Company may
          extend the Agreement an additional year such that the remaining term
          of the Agreement shall be thirty-six (36) months, unless Executive
          elects not to extend the term of this Agreement by giving written
          notice in accordance with Section 19 of this Agreement. The Board of
          Directors of the Association (the "Board") will review the Agreement
          and Executive's performance annually for purposes of determining
          whether to extend the Agreement and the rationale and results thereof
          shall be included in the minutes of the Board's meeting. The Board of
          Directors of the Association shall give notice to Executive as soon as
          possible after such review as to whether the Agreement is to be
          extended.

<PAGE>

     4.   Base Compensation.

     a.   The Company and the Association agree to pay the Executive during the
          term of this Agreement a base salary at the rate of $165,000.00 per
          year, payable in accordance with customary payroll practices.

     b.   The Board shall review annually the rate of the Executive's base
          salary based upon factors they deem relevant, and may maintain or
          increase his salary, provided that no such action shall reduce the
          rate of salary below the rate in effect on the Effective Date.

     c.   In the absence of action by the Board, the Executive shall continue to
          receive salary at the annual rate specified on the Effective Date or,
          if another rate has been established under the provisions of this
          Section 4, the rate last properly established by action of the Board
          under the provisions of this Section 4.

     5.   Bonuses. In lieu of any bonus normally provided to permanent full-time
employees of the Association, the Association agrees to provide a bonus program
to the Executive which will provide the Executive with the opportunity to earn
up to 50% of the Executive's base salary, on an annual basis, the amount of
which shall be determined by specific performance standards and a formula agreed
to by Executive and the Association annually. Performance standards shall be
measured on a calendar year, and no bonus shall be payable if Executive is not
employed on December 31 of the year in question; provided, however, in the event
of death of the Executive, the bonus for the calendar year of Executive's death
shall be prorated on a quarterly basis, using the information for the quarter(s)
completed prior to Executive's death.

     6.   Benefit Plans. The Executive shall be entitled to participate in such
life insurance, medical, dental, pension, profit-sharing, retirement and
stock-based compensation plans and other programs and arrangements as may be
approved from time to time by the Company and the Association for the benefit of
their employees. In addition, during the term of this Agreement, the Association
shall provide the Executive with a supplemental life insurance policy with a
death benefit of not less than $350,000. Notwithstanding the termination of this
Agreement for any reason, other than upon the Executive's termination for Cause,
the Association further agrees that the Executive shall receive a supplemental
retirement benefit of $15,083 per year, beginning during the calendar year in
which the Executive attains age 65 and continuing for a total of fifteen (15)
years.

     7.   Vacation and Leave.

     a.   The Executive shall be entitled to vacations and other leave in
          accordance with policy for senior executives, or otherwise as approved
          by the Board, but, in any event, not less than four (4) weeks vacation
          annually.

     b.   In addition to paid vacations and other leave, the Executive shall be
          entitled, without loss of pay, to absent himself voluntarily from the
          performance of his employment for such additional periods of time and
          for such valid and legitimate reasons as the Board may in its
          discretion determine. Further, the Board may grant to the Executive a
          leave or leaves of absence, with or without pay, at such time or times
          and upon such terms and conditions as the Board in its discretion may
          determine.

                                       2

<PAGE>

     8.   Expense Payments and Reimbursements. The Executive shall be reimbursed
for all reasonable out-of-pocket business expenses that he shall incur in
connection with his services under this Agreement upon substantiation of such
expenses in accordance with applicable policies of the Company and the
Association. In addition, Executive shall receive an allowance of $2,400 per
year for dues in professional, social and civic organizations.

     9.   Automobile Allowance. During the term of this Agreement, the Executive
shall be entitled to an annual automobile allowance of $12,000, payable in equal
monthly installments. Executive shall comply with reasonable reporting and
expense limitations on the use of such automobile as may be established by the
Company or the Association from time to time, and the Company or the Association
shall annually include on Executive's Form W-2 any amount of income attributable
to Executive's personal use of such automobile.

     10.  Loyalty and Confidentiality; Noncompetition.

     a.   During the term of this Agreement, Executive: (i) shall devote all his
          time, attention, skill, and efforts to the faithful performance of his
          duties hereunder; provided, however, that from time to time, Executive
          may serve on the boards of directors of, and hold any other offices or
          positions in, companies or organizations which will not present any
          conflict of interest with the Company and the Association or any of
          their subsidiaries or affiliates, unfavorably affect the performance
          of Executive's duties pursuant to this Agreement, or violate any
          applicable statute or regulation and (ii) shall not engage in any
          business or activity contrary to the business affairs or interests of
          the Company and the Association.

     b.   Nothing contained in this Agreement shall prevent or limit Executive's
          right to invest in the capital stock or other securities of any
          business dissimilar from that of the Company and the Bank, or, solely
          as a passive, minority investor, in any business.

     c.   Executive agrees to maintain the confidentiality of any and all
          information concerning the operation or financial status of the
          Company and the Association; the names or addresses of any of its
          borrowers, depositors and other customers; any information concerning
          or obtained from such customers; and any other information concerning
          the Company and the Association to which he may be exposed during the
          course of his employment. The Executive further agrees that, unless
          required by law or specifically permitted by the Board in writing, he
          will not disclose to any person or entity, either during or subsequent
          to his employment, any of the above-mentioned information which is not
          generally known to the public, nor shall he employ such information in
          any way other than for the benefit of the Company and the Association.

     d.   Upon the termination of Executive's employment hereunder for any
          reason, Executive agrees not to compete with the Association for a
          period of two (2) years following such termination in any city, town
          or county in which the Executive's normal business office is located
          and the Association has an office or has filed an application for
          regulatory approval to establish an office (or within a 60-mile radius
          of each of such offices), determined as of the effective date of such
          termination, except as agreed to pursuant to a resolution duly adopted
          by the Board. Executive agrees that during such period and within said
          cities, towns and counties, Executive shall not work for or advise,
          consult or otherwise serve with, directly or indirectly, any entity
          whose business materially competes with the depository,

                                       3

<PAGE>

lending or other business activities of the Association. The parties hereto,
recognizing that irreparable injury will result to the Association, its business
and property in the event of Executive's breach of his obligations under this
paragraph and agree that in the event of any such breach by Executive, the
Association, will be entitled, in addition to any other remedies and damages
available, to an injunction to restrain the violation hereof by Executive,
Executive's partners, agents, servants, employees and all persons acting for or
under the direction of Executive. Nothing herein will be construed as
prohibiting the Association from pursuing any other remedies available to the
Association for such breach or threatened breach, including the recovery of
damages from Executive.

     11.  Termination and Termination Pay. Subject to Section 12 of this
Agreement, Executive's employment under this Agreement may be terminated in the
following circumstances:

     a.   Death. Executive's employment under this Agreement shall terminate
          upon his death during the term of this Agreement, in which event
          Executive's estate shall be entitled to receive the compensation due
          to the Executive through the last day of the calendar month in which
          his death occurred.

     b.   Retirement. This Agreement shall be terminated upon Executive's
          retirement under the retirement benefit plan or plans in which he
          participates pursuant to Section 6 of this Agreement or otherwise.

     c.   Disability.

          i.   The Board or Executive may terminate Executive's employment after
               having determined Executive has a Disability. For purposes of
               this Agreement, "Disability" means a physical or mental infirmity
               that impairs Executive's ability to substantially perform his
               duties under this Agreement and that results in Executive
               becoming eligible for long-term disability benefits under any
               long-term disability plans of the Company and the Association
               (or, if there are no such plans in effect, that impairs
               Executive's ability to substantially perform his duties under
               this Agreement for a period of one hundred eighty (180)
               consecutive days). The Board shall determine whether or not
               Executive is and continues to be permanently disabled for
               purposes of this Agreement in good faith, based upon competent
               medical advice and other factors that they reasonably believe to
               be relevant. As a condition to any benefits, the Board may
               require Executive to submit to such physical or mental
               evaluations and tests as it deems reasonably appropriate.

          ii.  In the event of such Disability, Executive's obligation to
               perform services under this Agreement will terminate. The
               Association will pay Executive, as Disability pay, an amount
               equal to seventy-five (75) percent of Executive's weekly rate of
               base salary in effect as of the date of his termination of
               employment due to Disability. Disability payments will be made on
               a monthly basis and will commence on the first day of the month
               following the effective date of Executive's termination of
               employment for Disability and end on the earlier of: (A) the date
               he returns to full-time employment at the Association in the same
               capacity as he was employed prior to his termination for
               Disability; (B) his death; or (C) the remaining term of the
               Agreement (if the Agreement had not been earlier terminated by
               the Executive's

                                       4

<PAGE>

               Disability). Such payments shall be reduced by the amount of any
               short- or long-term disability benefits payable to the Executive
               under any other disability programs sponsored by the Company and
               the Association. In addition, during any period of Executive's
               Disability, Executive and his dependents shall, to the greatest
               extent possible, continue to be covered under all benefit plans
               (including, without limitation, retirement plans and medical,
               dental and life insurance plans) of the Company and the
               Association, in which Executive participated prior to his
               Disability on the same terms as if Executive were actively
               employed by the Company and the Association.

     d.   Termination for Cause.

          i.   The Board may, by written notice to the Executive in the form and
               manner specified in this paragraph, immediately terminate his
               employment at any time, for "Cause". The Executive shall have no
               right to receive compensation or other benefits for any period
               after termination for Cause except for vested
               benefits.Termination for "Cause" shall mean termination because
               of, in the good faith determination of the Board, Executive's:

               (1)  Personal dishonesty;

               (2)  Incompetence;

               (3)  Willful misconduct;

               (4)  Breach of fiduciary duty involving personal profit;

               (5)  Intentional failure to perform duties under this Agreement;

               (6)  Willful violation of any law, rule or regulation (other than
                    traffic violations or similar offenses) that reflects
                    adversely on the reputation of the Company and the
                    Association, any felony conviction, any violation of law
                    involving moral turpitude, or any violation of a final
                    cease-and-desist order; or

               (7)  Material breach by Executive of any provision of this
                    Agreement.

          ii.  Notwithstanding the foregoing, Executive shall not be deemed to
               have been terminated for Cause by the Company and the Association
               unless there shall have been delivered to Executive a copy of a
               resolution duly adopted by the affirmative vote of three-fourths
               (3/4) of the entire membership of the Board at a meeting of such
               Board called and held for the purpose (after reasonable notice to
               Executive and an opportunity for Executive to be heard before the
               Board with counsel), of finding that in the good faith opinion of
               the Board, Executive was guilty of the conduct described above
               and specifying the particulars thereof.

     e.   Voluntary Termination by Executive. In addition to his other rights to
          terminate under this Agreement, Executive may voluntarily terminate
          employment during the term of this

                                       5

<PAGE>

     Agreement upon at least sixty (60) days prior written notice to the Board,
     in which case Executive shall receive only his compensation, vested rights
     and employee benefits up to the date of his termination.

f.        Without Cause or With Good Reason.

     i.   In addition to termination pursuant to Sections 11(a) through 11(e)
          the Board, may, by written notice to Executive, immediately terminate
          his employment at any time for a reason other than Cause (a
          termination "Without Cause") and Executive may, by written notice to
          the Board, immediately terminate this Agreement at any time within
          ninety (90) days following an event constituting "Good Reason" as
          defined below (a termination "With Good Reason").

     ii.  Subject to Section 12 of this Agreement, in the event of termination
          under this Section 11(f), Executive shall be entitled to receive a
          payment equal to the base salary (determined by reference to the
          Executive's base salary on the termination date) and bonuses
          (determined by reference to the Executive's average bonus over the
          three (3) years preceding his termination date or such lesser period
          as he was employed by the Association) that would otherwise have been
          payable over the remaining term of the Agreement. Such amount shall be
          paid in one lump sum within ten (10) calendar days of such
          termination. Also, in such event, Executive shall, for the remaining
          term of the Agreement, receive the benefits he would have received
          during the remaining term of the Agreement under any retirement
          programs (whether tax-qualified or non-qualified) in which Executive
          participated prior to his termination (with the amount of the benefits
          determined by reference to the benefits received by the Executive or
          accrued on his behalf under such programs during the twelve (12)
          months preceding his termination) and continue to participate in any
          benefit plans of the Company and the Association that provide health
          (including medical and dental), life, or similar coverage upon terms
          no less favorable than the most favorable terms provided to senior
          executives of the Company and the Association during such period. In
          the event that the Company and the Association are unable to provide
          such coverage by reason of Executive no longer being an employee, the
          Company and the Association shall provide Executive with comparable
          coverage on an individual policy basis.

     iii. "Good Reason" shall exist if, without Executive's express written
          consent, the Company and the Association materially breach any of
          their respective obligations under this Agreement. Without limitation,
          such a material breach shall be deemed to occur upon any of the
          following:

          (1)  A material reduction in Executive's responsibilities or authority
               in connection with his employment with the Company or the
               Association;

          (2)  Assignment to Executive of duties of a non-executive nature or
               duties for which he is not reasonably equipped by his skills and
               experience;

          (3)  A reduction in salary or benefits contrary to the terms of this
               Agreement, or, following a Change in Control as defined in
               Section 12 of this

                                        6

<PAGE>

                    Agreement, any reduction in salary or material reduction in
                    benefits below the amounts to which he was entitled prior to
                    the Change in Control;

               (4)  Termination of incentive and benefit plans, programs or
                    arrangements, or reduction of Executive's participation to
                    such an extent as to materially reduce their aggregate value
                    below their aggregate value as of the Effective Date; or

               (5)  A requirement that Executive relocate his principal business
                    office or his principal place of residence outside of the
                    area consisting of a twenty-five (25) mile radius from the
                    current main office and any branch of the Association, or
                    the assignment to Executive of duties that would reasonably
                    require such a relocation; or

          iv.  Notwithstanding the foregoing, a reduction or elimination of the
               Executive's benefits less than one or more benefit plans
               maintained by the Company and the Association as part of a good
               faith, overall reduction or elimination of such plans or benefits
               thereunder applicably to all participants in a manner that does
               not discriminate against Executive (except as such discrimination
               may be necessary to comply with law) shall not constitute an
               event of Good Reason or a material breach of this Agreement,
               provided that benefits of the type or to the general extent as
               those offered under such plans prior to such reduction or
               elimination are not available to other officers of the Company
               and the Association or any company that controls either of them
               under a plan or plans in or under which Executive is not entitled
               to participate.

     12.  Termination in Connection with a Change in Control.

     a.   For purposes of this Agreement, a "Change in Control" shall be deemed
          to occur on the earliest of:

          (i)  such time as any "person" (as the term is used in Sections 13(d)
               and 14(d) of the Securities Exchange Act of 1934, as amended
               ("Exchange Act")) is or becomes the "beneficial owner" (as
               defined in Rule 13d-3 under the Exchange Act), directly or
               indirectly, of voting securities of the Association representing
               25% or more of the Association's outstanding voting securities or
               the right to acquire such securities, except for any voting
               securities purchased by any employee benefit plan of the
               Association;

          (ii) such time as individuals who constitute the Board of Directors on
               the date hereof (the "Incumbent Board") cease for any reason to
               constitute at least a majority thereof, provided that any person
               becoming a director subsequent to the date hereof whose election
               was approved by a vote of at least three-quarters of the
               directors constituting the Incumbent Board (or members who were
               nominated by the

                                        7

<PAGE>

                Incumbent Board), or whose nomination for election by the
                Association's stockholders was approved by a Nominating
                Committee solely composed of members which are Incumbent Board
                members (or members nominated by the Incumbent Board), shall be,
                for purposes of this clause (iii), considered as though he or
                she were a member of the Incumbent Board;

          (iii) such time as a reorganization, merger, consolidation, or similar
                transaction occurs or is effectuated as a result of which 60% of
                shares of the common stock of the resulting entity are owned by
                persons who were not stockholders of the Association immediately
                prior to the consummation of the transaction;

          (iv)  such time as substantially all of the assets of the Association
                are sold or otherwise transferred to another corporation or
                other entity that is not controlled by the Association.

Notwithstanding anything in this Agreement to the contrary, in no event shall
(i) the conversion of the Company and the Association from the mutual holding
company form of organization to the full stock form of organization (including
without limitation, through the formation of a stock holding company as the
parent of the Association), (ii) the formation of a mid-tier holding company
controlled by the Company as the parent holding company of the Association or
(iii) the consummation of an additional offering by the Association (or any
mid-tier holding company controlled by the Company) in a transaction which
results in the Company continuing to qualify as a mutual holding company,
constitute a "Change in Control" for purposes of this Agreement.

     b.   Termination. If within the period ending two years after a Change in
          Control, (i) the Company and the Association shall terminate the
          Executive's employment Without Cause, or (ii) Executive voluntarily
          terminates his employment With Good Reason, the Company and the
          Association shall, within ten calendar days of the termination of
          Executive's employment, make a lump-sum cash payment to him equal to
          2.99 times the Executive's average Annual Compensation over the five
          (5) most recently completed calendar years ending with the year
          immediately preceding the effective date of the Change in Control (or
          such lesser number of completed calendar years as the Executive has
          been employed by the Company and the Association). In determining
          Executive's average Annual Compensation, Annual Compensation shall
          include base salary and any other taxable income, including but not
          limited to amounts related to the granting, vesting or exercise of
          restricted stock or stock option awards, commissions, bonuses (whether
          paid or accrued for the applicable period), as well as, retirement
          benefits, director or committee fees and fringe benefits paid or to be
          paid to Executive or paid for Executive's benefit during any such
          year, profit sharing, employee stock ownership plan and other
          retirement contributions or benefits, including to any tax-qualified
          plan or arrangement (whether or not taxable) made or accrued on behalf
          of Executive of such year. The cash payment made under this Section
          12(b) shall be made in lieu of any payment also required under Section
          11(f) of this Agreement because of a termination in such period.
          Executive's rights under Section 11(f) are not otherwise affected by
          this Section 12. Also, in such event, the Executive shall, for a
          thirty-six (36) month period following his termination of employment,
          receive the benefits he would have received over such period under any
          retirement programs (whether tax-qualified or nonqualified) in which
          the Executive participated prior to his termination (with the amount
          of the benefits determined by reference to the benefits received by
          the Executive or accrued on his behalf under such programs during the
          twelve (12) months preceding the Change in Control) and continue to
          participate in any benefit plans of the Company and the Association
          that provide health (including medical and dental), life, or similar
          coverage

                                        8

<PAGE>

          upon terms no less favorable than the most favorable terms provided to
          senior executives during such period. In the event that the Company
          and the Association are unable to provide such coverage by reason of
          the Executive no longer being an employee, the Company and the
          Association shall provide the Executive with comparable coverage on an
          individual policy.

     c.   The provisions of Sections 12 and Sections 14 through 25, including
          the defined terms used is such sections, shall continue in effect
          until the later of the expiration of this Agreement or two years
          following a Change in Control.

     13.  Indemnification and Liability Insurance.

     a.   Indemnification. The Company and the Association agree to indemnify
          the Executive (and his heirs, executors, and administrators), and to
          advance expenses related thereto, to the fullest extent permitted
          under applicable law and regulations against any and all expenses and
          liabilities reasonably incurred by him in connection with or arising
          out of any action, suit, or proceeding in which he may be involved by
          reason of his having been a director or Executive of the Company, the
          Association or any of their subsidiaries (whether or not he continues
          to be a director or Executive at the time of incurring any such
          expenses or liabilities) such expenses and liabilities to include, but
          not be limited to, judgments, court costs, and attorneys' fees and the
          cost of reasonable settlements, such settlements to be approved by the
          Board, if such action is brought against the Executive in his capacity
          as an Executive or director of the Company and the Association or any
          of their subsidiaries. Indemnification for expense shall not extend to
          matters for which the Executive has been terminated for Cause. Nothing
          contained herein shall be deemed to provide indemnification prohibited
          by applicable law or regulation. Notwithstanding anything herein to
          the contrary, the obligations of this Section 13 shall survive the
          term of this Agreement by a period of six (6) years.

     b.   Insurance. During the period in which indemnification of the Executive
          is required under this Section, the Company and the Association shall
          provide the Executive (and his heirs, executors, and administrators)
          with coverage under a directors' and Executives' liability policy at
          the expense of the Company and the Association, at least equivalent to
          such coverage provided to directors and senior Executives of the
          Company and the Association.

     14.  Reimbursement of Executive's Expenses to Enforce this Agreement. The
Company and the Association shall reimburse the Executive for all out-of-pocket
expenses, including, without limitation, reasonable attorneys' fees, incurred by
the Executive in connection with successful enforcement by the Executive of the
obligations of the Company and the Association to the Executive under this
Agreement. Successful enforcement shall mean the grant of an award of money or
the requirement that the Company and the Association take some action specified
by this Agreement (i) as a result of court order; or (ii) otherwise by the
Company and the Association following an initial failure of the Company and the
Association to pay such money or take such action promptly after written demand
therefor from the Executive stating the reason that such money or action was due
under this Agreement at or prior to the time of such demand.

     15.  Limitation of Benefits under Certain Circumstances. If the payments
and benefits pursuant to Section 12 of this Agreement, either alone or together
with other payments and benefits which the Executive has the right to receive
from the Company and the Association, would constitute a "parachute

                                        9

<PAGE>

payment" under Section 280G of the Code, the payments and benefits pursuant to
Section 12 shall be reduced or revised, in the manner determined by the
Executive, by the amount, if any, which is the minimum necessary to result in no
portion of the payments and benefits under Section 12 being non-deductible to
the Company and the Association pursuant to Section 280G of the Code and subject
to the excise tax imposed under Section 4999 of the Code. The determination of
any reduction in the payments and benefits to be made pursuant to Section 12
shall be based upon the opinion of the Company and the Association's independent
public accountants and paid for by the Company and the Association. In the event
that the Company, the Association and/or the Executive do not agree with the
opinion of such counsel, (i) the Company and the Association shall pay to the
Executive the maximum amount of payments and benefits pursuant to Section 12, as
selected by the Executive, which opinion indicates there is a high probability
of such payments and benefits being non-deductible to the Company and the
Association and subject to the imposition of the excise tax imposed under
Section 4999 of the Code and (ii) the Company and the Association may request,
and the Executive shall have the right to demand that they request, a ruling
from the IRS as to whether the disputed payments and benefits pursuant to
Section 12 have such consequences. Any such request for a ruling from the IRS
shall be promptly prepared and filed by the Company and the Association, but in
no event later than thirty (30) days from the date of the opinion of counsel
referred to above, and shall be subject to the Executive's approval prior to
filing, which shall not be unreasonably withheld. The Company, the Association
and the Executive agree to be bound by any ruling received from the IRS and to
make appropriate payments to each other to reflect any such rulings, together
with interest at the applicable federal rate provided for in Section 7872(f)(2)
of the Code. Nothing contained herein shall result in a reduction of any
payments or benefits to which the Executive may be entitled upon termination of
employment other than pursuant to Section 12 hereof, or a reduction in the
payments and benefits specified in Section 12 below zero.

     16.  Injunctive Relief. If there is a breach or threatened breach of
Section 10 of this Agreement, the parties agree that there is no adequate remedy
at law for such breach, and that the Company and the Association shall be
entitled to injunctive relief restraining the Executive from such breach or
threatened breach, but such relief shall not be the exclusive remedy hereunder
for such breach. The parties hereto likewise agree that the Executive, without
limitation, shall be entitled to injunctive relief to enforce the obligations of
the Company and the Association under this Agreement.

     17.  Successors and Assigns.

     a.   This Agreement shall inure to the benefit of and be binding upon any
          corporate or other successor of the Company and the Association which
          shall acquire, directly or indirectly, by merger, consolidation,
          purchase or otherwise, all or substantially all of the assets or stock
          of the Company and the Association.

     b.   Since the Company and the Association are contracting for the unique
          and personal skills of Executive, Executive shall be precluded from
          assigning or delegating his rights or duties hereunder without first
          obtaining the written consent of the Company and the Association.

     18.  No Mitigation. Executive shall not be required to mitigate the amount
of any payment provided for in this Agreement by seeking other employment or
otherwise and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to Executive in any subsequent employment.

     19.  Notices. All notices, requests, demands and other communications in
connection with this Agreement shall be made in writing and shall be deemed to
have been given when delivered by hand or 48

                                       10

<PAGE>

hours after mailing at any general or branch United States Post Office, by
registered or certified mail, postage prepaid, addressed to the Company and/or
the Association at their principal business offices and to Executive at his home
address as maintained in the records of the Company and the Association.

     20.  No Plan Created by this Agreement. Executive, the Company and the
Association expressly declare and agree that this Agreement was negotiated among
them and that no provision or provisions of this Agreement are intended to, or
shall be deemed to, create any plan for purposes of the Employee Retirement
Income Security Act or any other law or regulation, and each party expressly
waives any right to assert the contrary. Any assertion in any judicial or
administrative filing, hearing, or process that such a plan was so created by
this Agreement shall be deemed a material breach of this Agreement by the party
making such an assertion.

     21.  Amendments. No amendments or additions to this Agreement shall be
binding unless made in writing and signed by all of the parties, except as
herein otherwise specifically provided.

     22.  Applicable Law. Except to the extent preempted by Federal law, the
laws of the State of Tennessee shall govern this Agreement in all respects,
whether as to its validity, construction, capacity, performance or otherwise.

     23.  Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.

     24.  Headings. Headings contained herein are for convenience of reference
only.

     25.  Entire Agreement. This Agreement, together with any understanding or
modifications thereof as agreed to in writing by the parties, shall constitute
the entire agreement among the parties hereto with respect to the subject matter
hereof, other than written agreements with respect to specific plans, programs
or arrangements described in Sections 5 and 6. The parties agree that this
Agreement supercedes and replaces in its entirety the Agreement between the
Executive, the Association and the Company dated October 8, 2001.

     26.  Required Provisions. In the event any of the provisions of this
Section 26 are in conflict with the terms of this Agreement, this Section 26
shall prevail.

     a.   The Association may terminate Executive's employment at any time, but
          any termination by the Association, other than Termination for Cause,
          shall not prejudice Executive's right to compensation or other
          benefits under this Agreement. Executive shall not have the right to
          receive compensation or other benefits for any period after
          Termination for Cause as defined in Section 7 hereinabove.

     b.   If Executive is suspended from office and/or temporarily prohibited
          from participating in the conduct of the Association's affairs by a
          notice served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit
          Insurance Act, 12 U.S.C. (S)1818(e)(3) or (g)(1); the Association's
          obligations under this contract shall be suspended as of the date of
          service, unless stayed by appropriate proceedings. If the charges in
          the notice are dismissed, the Association may in its discretion: (i)
          pay Executive all or part of the compensation withheld

                                       11

<PAGE>

          while their contract obligations were suspended; and (ii) reinstate
          (in whole or in part) any of the obligations which were suspended.

     c.   If Executive is removed and/or permanently prohibited from
          participating in the conduct of the Association's affairs by an order
          issued under Section 8(e)(4) or 8(g)(1) of the Federal Deposit
          Insurance Act, 12 U.S.C. (S)1818(e)(4) or (g)(1), all obligations of
          the Association under this contract shall terminate as of the
          effective date of the order, but vested rights of the contracting
          parties shall not be affected.

     d.   If the Association is in default as defined in Section 3(x)(1) of the
          Federal Deposit Insurance Act, 12 U.S.C. (S)1813(x)(1) all obligations
          of the Association under this contract shall terminate as of the date
          of default, but this paragraph shall not affect any vested rights of
          the contracting parties.

     e.   All obligations of the Association under this contract shall be
          terminated, except to the extent determined that continuation of the
          contract is necessary for the continued operation of the institution:
          (i) by the Director of the OTS (or his designee), the FDIC or the
          Resolution Trust Corporation, at the time the FDIC enters into an
          agreement to provide assistance to or on behalf of the Association
          under the authority contained in Section 13(c) of the Federal Deposit
          Insurance Act, 12 U.S.C. (S)1823(c); or (ii) by the Director of the
          OTS (or his designee) at the time the Director (or his designee)
          approves a supervisory merger to resolve problems related to the
          operations of the Association or when the Association is determined by
          the Director to be in an unsafe or unsound condition. Any rights of
          the parties that have already vested, however, shall not be affected
          by such action.

     f.   Any payments made to Executive pursuant to this Agreement, or
          otherwise, are subject to and conditioned upon compliance with 12
          U.S.C. (S)1828(k) and 12 C.F.R. Section 545.121 and any rules and
          regulations promulgated thereunder.

                                       12

<PAGE>

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first set forth above.

Attest:                           JEFFERSON BANCSHARES, M.H.C.


 /s/ Jack E. Campbell             By:  /s/ John F. McCrary, Jr.
---------------------------            -----------------------------------------
                                       Chairman of the Board of Directors

Attest:                           JEFFERSON FEDERAL SAVINGS AND
                                  LOAN ASSOCIATION


 /s/ Jack E. Campbell             By:  /s/ John F. McCrary, Jr.
---------------------------            -----------------------------------------
                                       Chairman of the Board of Directors

Witness:                          EXECUTIVE



 /s/ Jack E. Campbell             /s/ Anderson L. Smith
---------------------------       ----------------------------------------------
                                  Anderson L. Smith

                                       13