Jefferson Bancshares (JFBI)

Provision for Loan Losses

We review the level of the loan loss allowance on a monthly basis and establish the provision for loan losses based on the volume and types of lending, delinquency levels, loss experience, the amount of classified loans, economic conditions and other factors related to the collectibility of the loan portfolio. The provision for loan losses for the three-month period ended March 31, 2009 amounted to $300,000 compared to $243,000 for the comparable period in 2008. The increase in the provision for loan losses reflects management’s evaluation of credit quality and current economic conditions. Nonperforming loans totaled $6.7 million at March 31, 2009 compared to $301,000 at June 30, 2008 and $386,000 at March 31, 2008. The increase in nonperforming loans is due in part to the addition of nonperforming loans from the State of Franklin acquisition, as well as the current economic environment. Nonperforming loans have increased due to deterioration in the residential housing market.

Provision for Loan Losses

We review the level of the loan loss allowance on a monthly basis and establish the provision for loan losses based on the volume and types of lending, delinquency levels, loss experience, the amount of classified loans, economic conditions and other factors related to the collectibility of the loan portfolio. The provision for loan losses for the three-month period ended December 31, 2008 amounted to $150,000 compared to $60,000 for the comparable period in 2007. The increase in the provision for loan losses reflects growth in commercial loans, management’s evaluation of credit quality and current economic conditions. Nonperforming loans totaled $3.8 million at December 31, 2008 compared to $301,000 at June 30, 2008 and $814,000 at December 31, 2007. The increase in nonperforming loans is due in part to the addition of nonperforming loans from the State of Franklin acquisition, as well as the current economic environment. State of Franklin nonperforming loans have increased due to deterioration in the residential housing market.

Provision for Loan Losses

We review the level of the loan loss allowance on a monthly basis and establish the provision for loan losses based on the volume and types of lending, delinquency levels, loss experience, the amount of classified loans, economic conditions and other factors related to the collectibility of the loan portfolio. The provision for loan losses for the three-month period ended September 30, 2008 amounted to $160,000 compared to $68,000 for the comparable period in 2007. The increase in the provision for loan losses reflects growth in commercial loans, management’s evaluation of credit quality and current economic conditions. Nonperforming loans totaled $725,000 at September 30, 2008 compared to $1.4 million at September 30, 2007.

Provision for Loan Losses

We review the level of the loan loss allowance on a monthly basis and establish the provision for loan losses based on the volume and types of lending, delinquency levels, loss experience, the amount of classified loans, economic conditions and other factors related to the collectibility of the loan portfolio. Net charge-offs for the three- and nine-month periods ended March 31, 2008 amounted to $265,000 and $521,000, respectively, compared to $60,000 and $154,000, respectively, for the comparable periods in 2007. The provision for loan losses for the three- and nine-month periods ended March 31, 2008 totaled $243,000 and $371,000, respectively, compared to no provision and $30,000, respectively, for the corresponding periods in 2007. The increase in provision for loan losses reflects growth in commercial loans and current economic conditions. Nonperforming loans totaled $386,000 at March 31, 2008 compared to $333,000 at March 31, 2007.

16

Table of Contents

Provision for Loan Losses

We review the level of the loan loss allowance on a monthly basis and establish the provision for loan losses based on the volume and types of lending, delinquency levels, loss experience, the amount of classified loans, economic conditions and other factors related to the collectibility of the loan portfolio. Net charge-offs for the three and six month periods ended December 31, 2007 amounted to $188,000 and $256,000, respectively, compared to $66,000 and $94,000 for the comparable periods in 2006. The provision for loan losses for the three and six month periods ended December 31, 2007 totaled $60,000 and $128,000, respectively, compared to $30,000 for both the three and six months ended December 31, 2006. The increase in provision for loan losses reflects growth in commercial loans. Nonperforming loans totaled $814,000 at December 31, 2007 compared to $526,000 at December 31, 2006.

16

Table of Contents

Provision for Loan Losses

We review the level of the loan loss allowance on a monthly basis and establish the provision for loan losses based on the volume and types of lending, delinquency levels, loss experience, the amount of classified loans, economic conditions and other factors related to the collectibility of the loan portfolio. The provision for loan losses totaled $68,000 for the three months ended September 30, 2007 primarily as a result of growth in the loan portfolio, compared to no provision for the comparable period in 2006. Net charge-offs for the three month period ended September 30, 2007 amounted to $68,000 compared to $28,000 for the comparable period in 2006. Nonperforming loans totaled $1.3 million at September 30, 2007 compared to $205,000 at September 30, 2006 primarily due to a commercial relationship involving two loans totaling $1.2 million that was moved to nonaccrual status during the three months ended September 30, 2007.

Provision for Loan Losses

We review the level of the loan loss allowance on a monthly basis and establish the provision for loan losses based on the volume and types of lending, delinquency levels, loss experience, the amount of classified loans, economic conditions and other factors related to the collectibility of the loan portfolio. Net charge-offs for the three and nine month periods ended March 31, 2007 amounted to $60,000 and $154,000, respectively, compared to $43,000 and $102,000 for the comparable periods in 2006. The provision for loan losses totaled $30,000 for the nine months ended March 31, 2007 as a result of growth in the loan portfolio, compared to no provision for the comparable period in 2006. Nonperforming loans totaled $333,000 at March 31, 2007 compared to $62,000 at March 31, 2006.

Provision for Loan Losses

We review the level of the loan loss allowance on a monthly basis and establish the provision for loan losses based on the volume and types of lending, delinquency levels, loss experience, the amount of classified loans, economic conditions and other factors related to the collectibility of the loan portfolio. Net charge-offs for the three and six month periods ended December 31, 2006 amounted to $66,000 and $94,000, respectively, compared to $47,000 and $59,000 for the comparable periods in 2005. The provision for loan losses totaled $30,000 for both the three and six months ended December 31, 2006 as a result of growth in the loan portfolio, compared to no provision for the comparable periods in 2005. Nonperforming loans totaled $527,000 at December 31, 2006 compared to $498,000 at December 31, 2005.

Provision for Loan Losses

We review the level of the loan loss allowance on a monthly basis and establish the provision for loan losses based on the volume and types of lending, delinquency levels, loss experience, the amount of classified loans, economic conditions and other factors related to the collectibility of the loan portfolio. Net charge-offs for the quarter ended September 30, 2006 were $28,000, or 0.04% of average loans, compared to $12,000, or 0.02% of average loans for the quarter ended September 30, 2005. There were no additions to the allowance for loan losses for either three-month period. Nonperforming loans totaled $205,000 at September 30, 2006 compared to $221,000 at September 30, 2005.

Provision for Loan Losses

We review the level of the loan loss allowance on a monthly basis and establish the provision for loan losses based on the volume and types of lending, delinquency levels, loss experience, the amount of classified loans, economic conditions and other factors related to the collectibility of the loan portfolio. Net charge-offs for the three- and nine-month periods ended March 31, 2006 amounted to $43,000 and $102,000, respectively, compared to $50,000 and $141,000 for the comparable periods in 2005. There were no additions to the allowance for loan losses for either nine-month period. Nonperforming loans totaled $62,000 at March 31, 2006 compared to $342,000 at March 31, 2005.