Edgar Filing: MERIDIAN INTERSTATE BANCORP INC

form10q-94865_meridian.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2008

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to _____________

Commission file number: 001-33898

Meridian Interstate Bancorp, Inc.

(Exact name of registrant as specified in its charter)

Massachusetts		20-4652200
(State or other jurisdiction of incorporation or		(I.R.S. Employer Identification No.)
organization)

10 Meridian Street, East Boston, Massachusetts 02128

(Address of principal executive offices)

(617) 567-1500

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes T No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

(Check one): Large Accelerated Filer o Accelerated Filer £ Non-accelerated Filer T Smaller Reporting Company£

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No T

At October 31, 2008, the registrant had 23,000,000 shares of no par value common stock outstanding.

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MERIDIAN INTERSTATE BANCORP, INC.

FORM 10-Q

INDEX

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements	Page

	Consolidated Balance Sheets at September 30, 2008 and December 31, 2007 (Unaudited)	1

	Consolidated Statements of Operations for the three and nine months ended September 30, 2008 and 2007 (Unaudited)	2

	Consolidated Statements of Changes in Stockholders’ Equity for the nine months ended September 30, 2008 and 2007 (Unaudited)	3

	Consolidated Statements of Cash Flows for the nine months ended September 30, 2008 and 2007 (Unaudited)	4

	Notes to Unaudited Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22

Item 4.	Controls and Procedures	23

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	24

Item 1A.	Risk Factors	24

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25

Item 3.	Defaults Upon Senior Securities	25

Item 4.	Submission of Matters to a Vote of Security Holders	25

Item 5.	Other Information	25

Item 6.	Exhibits	26

Signatures		27

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

MERIDIAN INTERSTATE BANCORP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Unaudited)

	September 30,			December 31,
(Dollars in thousands)	2008			2007
ASSETS
Cash and due from banks	$	15,934		$	11,821
Federal funds sold		23,550			91,272
Total cash and cash equivalents		39,484			103,093

Certificates of deposit		7,000			-
Securities available for sale, at fair value		288,941			267,058
Federal Home Loan Bank stock, at cost		4,303			3,165

Loans		667,608			571,741
Less allowance for loan losses		(5,718	)		(3,637	)
Loans, net		661,890			568,104

Bank-owned life insurance		22,627			18,003
Investment in affiliate bank		10,449			10,772
Premises and equipment, net		22,575			22,816
Accrued interest receivable		5,627			5,764
Foreclosed real estate		2,045			560
Other assets		8,742			3,891
Total assets	$	1,073,683		$	1,003,226

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non interest-bearing	$	56,805		$	51,396
Interest-bearing		748,279			723,050
Total deposits		805,084			774,446

Stock subscriptions		-			62,518
Short-term borrowings		-			9,154
Long-term debt		57,675			27,373
Accrued expenses and other liabilities		15,870			14,051
Total liabilities		878,629			887,542

Stockholders' equity:
Common stock, no par value 50,000,000 shares authorized;
23,000,000 and 0 shares issued and outstanding
at September 30, 2008 and December 31, 2007		-			-
Additional paid-in capital		100,628			-
Retained earnings		107,141			109,177
Accumulated other comprehensive income (loss)		(4,745	)		6,507
Unearned compensation - ESOP, 796,950 shares and 0 shares
at September 30, 2008 and December 31, 2007, respectively		(7,970	)		-
Total stockholders' equity		195,054			115,684
Total liabilities and stockholders' equity	$	1,073,683		$	1,003,226

See accompanying notes to unaudited consolidated financial statements.

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MERIDIAN INTERSTATE BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands, except share amounts)	2008			2007			2008			2007
Interest and dividend income:
Interest and fees on loans	$	9,938		$	9,073		$	28,455		$	26,560
Interest on debt securities		2,674			2,715			7,919			8,264
Dividends on equity securities		573			271			1,264			815
Interest on certificates of deposit		60			-			98			-
Interest on federal funds sold		99			331			1,640			726
Total interest and dividend income		13,344			12,390			39,376			36,365

Interest expense:
Interest on deposits		6,045			6,736			19,382			19,159
Interest on short-term borrowings		-			97			115			288
Interest on long-term debt		534			370			1,363			1,148
Total interest expense		6,579			7,203			20,860			20,595

Net interest income		6,765			5,187			18,516			15,770
Provision for loan losses		403			117			2,731			260
Net interest income, after provision
for loan losses		6,362			5,070			15,785			15,510

Non-interest income:
Customer service fees		718			710			2,073			2,022
Loan fees		181			152			551			486
Gain (loss) on sales of loans, net		(10	)		(6	)		17			19
Gain (loss) on sales of securities, net		2,779			(860	)		5,092			1,172
Income from bank-owned life insurance		209			153			624			850
Equity loss on investment in affiliate bank		(69	)		(138	)		(323	)		(349	)
Total non-interest income		3,808			11			8,034			4,200

Non-interest expenses:
Salaries and employee benefits		4,009			3,618			13,793			10,704
Occupancy and equipment		719			608			2,198			1,932
Data processing		450			368			1,243			1,100
Marketing		293			282			832			625
Professional services		595			278			1,562			737
Contribution to the Meridian
Charitable Foundation		-			-			3,000			-
Other general and administrative		733			553			1,959			1,382
Total non-interest expenses		6,799			5,707			24,587			16,480

Income (loss) before income taxes		3,371			(626	)		(768	)		3,230

Provision (benefit) for income taxes		1,228			(323	)		(374	)		942

Net income (loss)	$	2,143		$	(303	)	$	(394	)	$	2,288

Income per share:
Basic	$	0.10			N/A			N/A			N/A
Diluted	$	0.10			N/A			N/A			N/A

Weighted Average Shares:
Basic		22,196,225			N/A			N/A			N/A
Diluted		22,196,225			N/A			N/A			N/A

See accompanying notes to unaudited consolidated financial statements.

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MERIDIAN INTERSTATE BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

Nine Months Ended September 30, 2008 and 2007

(Dollars in thousands)	Shares of Common Stock		Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Unearned Compensation ESOP			Total
Nine months ended September 30, 2007
Balance at December 31, 2006		-	$	-	$	-		$	106,911		$	3,364		$	-		$	110,275
Comprehensive income:
Net income		-		-		-			2,288			-			-			2,288
Net unrealized gain on securities available for sale, net of
reclassification adjustment and tax effects		-		-		-			-			1,653			-			1,653
Total comprehensive income																		3,941
Balance at September 30, 2007		-	$	-	$	-		$	109,199		$	5,017		$	-		$	114,216
Nine months ended September 30, 2008
Balance at December 31, 2007		-	$	-	$	-		$	109,177		$	6,507		$	-		$	115,684
Adjustment to initially apply EITF 06-4		-		-		-			(1,642	)		-			-			(1,642	)
Balance, as adjusted																		114,042
Comprehensive loss:
Net loss		-		-		-			(394	)		-			-			(394	)
Net unrealized loss on securities available for sale, net of
reclassification adjustment and tax effects		-		-		-			-			(10,914	)		-			(10,914	)
Amortization of prior service cost, net of tax effects		-		-		-			-			15			-			15
Total comprehensive loss																		(11,293	)
Adjustment to initially apply FAS 158 for
long-term health care plan		-		-		-			-			(353	)		-			(353	)
Issuance of 12,650,000 shares to the mutual holding company		12,650,000		-		-			-			-			-			-
Issuance of 10,050,000 shares in the initial public
offering, net of expenses of $2,867		10,050,000		-		97,633			-			-			-			97,633
Issuance and contribution of common stock to
the Meridian Charitable Foundation, Inc.		300,000		-		3,000			-			-			-			3,000
Purchase of common stock by the ESOP		-		-		-			-			-			(8,280	)		(8,280	)
Unallocated ESOP shares earned (31,050 shares)		-		-		(5	)		-			-			310			305
Balance at September 30, 2008		23,000,000	$	-	$	100,628		$	107,141		$	(4,745	)	$	(7,970	)	$	195,054

See accompanying notes to unaudited consolidated financial statements.

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MERIDIAN INTERSTATE BANCORP, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)


	Nine Months Ended September 30,
(In thousands)	2008			2007
Cash flows from operating activities:
Net income (loss)	$	(394	)	$	2,288
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Contribution of stock to charitable foundation		3,000			-
Earned ESOP shares		305			-
Provision for loan losses		2,731			260
Amortization of net deferred loan origination fees		(242	)		(380	)
Net amortization of securities available for sale		828			521
Depreciation and amortization expense		950			855
Gain on sales of securities, net		(5,092	)		(1,172	)
Loss on sale of foreclosed real estate		5			-
Deferred income tax benefit		(1,522	)		(2,181	)
Income from bank-owned life insurance		(624	)		(850	)
Equity loss on investment in affiliate bank		323			349
Net changes in:
Accrued interest receivable		137			218
Other assets		2,808			1,371
Accrued expenses and other liabilities		1,438			1,552
Net cash provided by operating activities		4,651			2,831

Cash flows from investing activities:
Purchases of certificates of deposit		(7,000	)		-
Activity in securities available for sale:
Proceeds from maturities, calls and principal payments		90,363			79,442
Proceeds from redemption of mutual funds		25,000			-
Proceeds from sales		16,947			40,944
Purchases		(168,579	)		(104,630	)
(Purchase) redemption of Federal Home Loan Bank stock		(1,138	)		206
Loans originated, net of principal payments received		(99,228	)		(16,645	)
Purchase of bank-owned life insurance		(4,000	)		-
Proceeds from bank-owned life insurance		-			1,793
Purchases of premises and equipment		(709	)		(4,050	)
Proceeds from sales of foreclosed real estate		1,463			-
Net cash used in investing activities		(146,881	)		(2,940	)

(continued)

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MERIDIAN INTERSTATE BANCORP, INC. AND SUBSIDIARY

Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended September 30,
(In thousands)	2008			2007
Cash flows from financing activities:
Net increase in deposits		30,638			28,238
Proceeds from sale of common stock		35,115			-
Loan to ESOP for purchase of common stock		(8,280	)		-
Net change in Federal Home Loan Bank advances
with maturities of less than three months		(9,154	)		8,925
Proceeds from Federal Home Loan Bank advances
with maturities of three months or more		45,000			-
Repayment of Federal Home Loan Bank advances
with maturities of three months or more		(14,698	)		(4,450	)
Net cash provided by financing activities		78,621			32,713

Net change in cash and cash equivalents		(63,609	)		32,604

Cash and cash equivalents at beginning of period		103,093			23,494

Cash and cash equivalents at end of period	$	39,484		$	56,098

Supplemental cash flow information:
Interest paid on deposits		19,583			19,139
Interest paid on borrowings		1,427			1,450
Income taxes paid		180			377
Non-cash investing and financing activities:
Transfers from loans to foreclosed real estate		2,953			-

See accompanying notes to unaudited consolidated financial statements.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.	Basis of Presentation

Meridian Interstate Bancorp, Inc. (the “Company” or “Meridian Interstate”) is a Massachusetts mid-tier stock holding company that was formed in 2006 by East Boston Savings Bank (“the Bank”) to be its holding company. Meridian Interstate owns all of East Boston Savings Bank’s capital stock and directs, plans and coordinates East Boston Savings Bank’s business activities. In addition, Meridian Interstate owns 40% of the capital stock of Hampshire First Bank, a New Hampshire chartered bank, organized in 2006 and headquartered in Manchester, New Hampshire. Meridian Financial Services, Inc. (“Meridian Financial Services”) is the mutual holding company for Meridian Interstate and holds 12,650,000 shares or 55% of Meridian Interstate’s outstanding common stock.

The accompanying unaudited interim consolidated financial statements of Meridian Interstate Bancorp, Inc. have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Such adjustments were of a normal recurring nature. The results of operations for the three and nine months ended September 30, 2008 are not necessarily indicative of the results that may be expected for the entire year or any other interim period. For additional information, refer to the financial statements and footnotes thereto of Meridian Interstate included in Meridian Interstate’s Form 10-K for the year ended December 31, 2007 which was filed with the Securities and Exchange Commission (“SEC”) on March 31, 2008, as subsequently amended, and is available through the SEC’s website at www.sec.gov.

In preparing financial statements in conformity with U. S. generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and income and expenses during the reporting period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to determination of the allowance for loan losses and the fair values of financial instruments.

2.	Stock Offering

The Company completed its initial public stock offering on January 22, 2008 and sold 10,050,000 shares of its outstanding common stock to subscribers in the offering at a price of $10.00 per share, including 828,000 shares sold to the company’s employee stock ownership plan. Concurrent with the initial public offering, Meridian Financial Services was issued 12,650,000 shares, or 55.0% of the Company’s outstanding common stock. Because Meridian Interstate did not have outstanding public shares of common stock for the entire nine months ended September 30, 2008, per share earnings data is not meaningful for this period or prior comparative periods and is therefore not presented.

Net investable proceeds from the initial public offering were $89.4 million. In connection with the initial public offering, the Company also issued and contributed 300,000 shares of common stock to the Meridian Charitable Foundation, resulting in a pre-tax, non-interest expense charge of $3.0 million, in the quarter ended March 31, 2008.

As part of the offering, Meridian Interstate established a liquidation account of $114.2 million, which is equal to the net worth of Meridian Interstate as of the date of the latest consolidated balance sheet appearing in the final prospectus distributed in connection with the offering. The liquidation account will be maintained for the benefit of the eligible account holders and supplemental eligible account holders who maintain their accounts at East Boston Savings Bank after the offering. The liquidation account will be reduced annually to the extent that such account holders have reduced their qualifying deposits as of each anniversary date. Subsequent increases will not restore an account holder’s interest in the liquidation account. In the event of a complete liquidation, each eligible account holder will be entitled to receive balances for accounts held then.

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Meridian Interstate may not declare or pay dividends on, and may not repurchase, any of its shares of common stock if the effect thereof would cause stockholders’ equity to be reduced below applicable regulatory capital maintenance requirements or if such declaration, payment or repurchase would otherwise violate regulatory requirements.

3.	Recent Accounting Pronouncements

Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards No. 157 (“SFAS 157”), "Fair Value Measurements," which provides a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements. The Company’s disclosures relating to SFAS No. 157 are set forth in Note 4. In February 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (FSP) FAS 157-2, which defers the effective date of SFAS No. 157 until January 1, 2009 for nonfinancial assets and nonfinancial liabilities except those items recognized or disclosed at fair value on an annual or more frequently recurring basis. The adoption of SFAS No. 157 did not have a material affect on the Company's consolidated financial statements.

Effective January 1, 2008, the Company adopted SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115.” SFAS 159 allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis. The Company did not elect fair value treatment for any financial assets or liabilities upon adoption.

Effective January 1, 2008, the Company adopted EITF 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements.” The Company is the sole owner of life insurance policies pertaining to certain of the Company’s employees. The Company has entered into agreements with these individuals whereby the Company will pay to the individual’s estate or beneficiaries a portion of the death benefit that the Company will receive as beneficiary of such policies. EITF 06-4 addresses accounting for split-dollar life insurance arrangements whereby the employer purchases a policy to insure the life of an employee, and separately enters into an agreement to split the policy benefits between the employer and the employee. This EITF states that an obligation arises as a result of a substantive agreement with an employee to provide future postretirement benefits. Under EITF 06-4, the obligation is not settled upon entering into an insurance arrangement. Since the obligation is not settled, a liability should be recognized in accordance with applicable authoritative guidance. The implementation of this guidance on January 1, 2008 resulted in other liabilities increasing by $1.6 million with a corresponding decrease in retained earnings on the consolidated balance sheet.

In December 2007, the FASB issued Statement No. 141 (revised), “Business Combinations,” which replaces FASB Statement No. 141, and applies to all business entities, including mutual entities that previously used the pooling-of-interests method of accounting for certain business combinations, which makes significant amendments to other Statements and other authoritative guidance, and applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. An entity may not apply it before that date.

In December 2007, the FASB issued Statement No. 160, “Non-controlling Interests in Consolidated Financial Statements, an amendment of ARB No. 51,” which establishes accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a non-controlling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. This Statement is effective for fiscal years beginning on or after December 15, 2008 and is not expected to have a material impact on the consolidated financial statements of the Company.

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In March of 2008, the FASB issued Statement No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133,” which changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement No. 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This Statement is effective for fiscal years and interim periods beginning after November 15, 2008 and is not expected to have a material impact on the consolidated financial statements of the Company.

In May 2008, the FASB issued Statement No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (SFAS 162), which identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP in the United States (the GAAP Hierarchy). The Board issued this Statement because it is the entity (not its auditor) that is responsible for selecting accounting principles for financial statements that are presented in conformity with GAAP. Accordingly, the Board concluded that the GAAP hierarchy should reside in the accounting literature established by the FASB as opposed to auditing literature established by the American Institute of Certified Public Accountants and Public Company Accounting Oversight Board (PCAOB). SFAS 162 is effective 60 days following the SEC’s approval of the PCAOB’s amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles”. The Company does not expect the adoption to have a material impact on its consolidated financial statements.

In October, 2008, the FASB issued FSP No. 157-3, “Determining the Fair Value of a Financial Asset When the Market for that Asset Is Not Active.” The FSP clarifies the application of SFAS No. 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. FSP 157-3 was effective immediately upon issuance, and includes prior periods for which financial statements have not been issued. The Company applied the guidance contained in FSP 157-3 in determining fair values as of September 30, 2008, and it did not have a material impact on the consolidated financial statements.

4.	Fair Value Measurement

As discussed in Note 3, SFAS No. 157 was implemented by the Company effective January 1, 2008. SFAS No. 157 establishes a hierarchy that prioritizes the use of fair value inputs used in valuation methodologies into the following three levels:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be derived from or corroborated by observable market data by correlation or other means for substantially the full term of the asset.

Level 3: Significant unobservable inputs that reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The following is a description of the Company's valuation methodologies used to measure and disclose the fair values of its financial assets and liabilities on a recurring or nonrecurring basis:

Securities available for sale: Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based on quoted prices, when available. If quoted prices are not available, fair values are measured using pricing models.

The Company utilizes a third-party pricing service to obtain fair values for investment securities. The pricing service utilizes the following method to value the security portfolio.

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The securities measured at fair value utilizing Level 1 inputs are marketable equity securities and utilizing Level 2 inputs are corporate obligations, obligations of the U.S. Treasury, agencies and corporations of the U.S. government, including mortgage-backed securities. The fair values represent either quoted market prices for the identical securities (Level 1 inputs) or fair values determined by pricing models that consider standard input factors such as observable market data, benchmark yields, reported trades, broker/dealer quotes, credit spreads, benchmark securities, as well as new issue data, monthly payment information, and collateral performance, among others. The Company does not currently have any Level 3 securities in its portfolio.

Loans: The Company does not record loans at fair value on a recurring basis. However, from time to time, non-recurring fair value adjustments to collateral dependent loans are recorded to reflect partial write-downs based on the observable market price or current appraised value of the collateral.

The balances of assets and liabilities measured at fair value on a recurring basis as of September 30, 2008 were as follows:

			Quoted Prices in		Significant
			Active Markets for		Other
	Assets at Fair Value		Identical Assets		Observable Inputs
			(Level 1)		(Level 2)
(In thousands)
Securities available for sale	$	288,941	$	73,544	$	215,397

The balances of assets and liabilities measured at fair value on a nonrecurring basis as of September 30, 2008 were as follows:

			Significant
			Unobservable		Total Gains
	Assets at Fair Value		Inputs		(Losses)
			(Level 3)
(In thousands)
Impaired loans (1)	$	6,578	$	6,578	$	(1,488)

(1) Represents carrying value and related write-downs for which adjustments are based on the appraised value of the collateral.

The Company did not have any significant changes in valuation methodology during the quarters ended September 30, 2008 or 2007. The Company will apply the fair value measurement and disclosure provisions of SFAS No. 157 effective January 1, 2009 to nonfinancial assets and liabilities measured on a nonrecurring basis. The Company measures the fair value of the following on a nonrecurring basis: (1) long-lived assets and (2) foreclosed assets.

5.	Employee Benefits

Employee Stock Ownership Plan (“ESOP”) - The Company established an ESOP for its eligible employees effective January 1, 2008. Employees are eligible to participate in the ESOP after attainment of age 18 and completion of three months of employment. The ESOP acquired 828,000 shares in the stock offering with the proceeds of a loan totaling $8.3 million from the Company’s subsidiary, Meridian Funding Corporation. Company contributions to the ESOP are at the discretion of the Company’s Board of Directors but at a minimum will be sufficient to service the annual debt of the ESOP. The Company accounts for its ESOP in accordance with Statement of Position 93-6 “Employers’ Accounting for Employee Stock Ownership Plans”. Accordingly, the shares pledged as collateral are reported as unallocated ESOP shares in the consolidated balance sheets. Shares will be released from collateral to settle the Company’s obligation under the ESOP at the ESOP’s year end. The number

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of shares to be released will be based on the fair value of the shares at that date required to settle the liability. As shares are released from collateral, the shares become outstanding for EPS computations.

Employment Agreement - Consistent with the terms of his employment agreement, the Bank entered into a Separation Agreement with its President upon his retirement during the quarter ended June 30, 2008. The Separation Agreement provided for the payment of any accrued compensation, 24 months of salary continuation payments at his rate of salary of $30,961 per month, the lump sum payment of benefits under his existing supplemental executive retirement plan totaling $2,351,591 to be paid on December 7, 2008, the continuation of an existing split-dollar life insurance policy and a bank-owned life insurance policy, both of which had been fully paid, and the maintenance of existing long-term care insurance policies for the President and his spouse at a current annual premium of $2,723. During the quarter ended June 30, 2008, the Company recorded pre-tax charges of $1.5 million as a result of the Separation Agreement.

Long-term Health Care Plan - Upon reviewing the long-term health care policies paid by the Company’s mutual holding company for the retiring President, as well as certain directors and executives, the Bank was determined to be a party to the agreement to pay the policies. The policies will thus be paid by the Bank. In accordance with SFAS No. 158, “Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R),” the Bank established a liability for the present value of the premiums due for the long-term care policies during the second quarter. The adjustment to stockholders’ equity was an after-tax reduction of $353,000.

Share Based Compensation – On August 19, 2008, stockholders of the Company approved the 2008 Equity Incentive Plan (the "Equity Incentive Plan"). The Equity Incentive Plan provides for the award of up to 1,449,000 shares of common stock pursuant to grants of restricted stock awards, incentive stock options, non-qualified stock options, and stock appreciation rights; provided, however, that no more than 1,035,000 shares may be issued or delivered in the aggregate pursuant to the exercise of stock options or stock appreciation rights, and no more than 414,000 shares may be issued or delivered pursuant to restricted stock awards. Pursuant to terms of the Equity Incentive Plan, the Board of Directors granted stock options and restricted shares to employees and directors on October 6, 2008. A total of 637,000 stock options were granted, and 185,625 restricted shares were granted, both with vesting dates evenly over a period of five years.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s discussion and analysis of the financial condition and results of operations is intended to assist in understanding the financial condition and results of operations of Meridian Interstate. The following discussion should be read in conjunction with the consolidated financial statements, notes and tables included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007, filed with the Securities and Exchange Commission.

Forward-Looking Statements

This report contains forward-looking statements that are based on assumptions and may describe future plans, strategies and expectations of Meridian Interstate Bancorp. These forward-looking statements are generally identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or similar expressions. Meridian Interstate Bancorp’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations of Meridian Interstate Bancorp and its subsidiaries include, but are not limited to, changes in interest rates, national and regional economic conditions, legislative and regulatory changes, monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality and composition of the loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in East Boston Savings Bank’s market area, changes in real estate market values in East Boston Savings Bank’s market area, and changes in relevant accounting principles and guidelines.

Management’s ability to predict results or the effect of future plans or strategies is inherently uncertain. These factors include, but are not limited to, general economic conditions, changes in the interest rate environment, legislative or regulatory changes that may adversely affect our business, changes in accounting policies and practices, changes in competition and demand for financial services, adverse changes in the securities markets and

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changes in the quality or composition of Meridian Interstate Bancorp’s loan or investment portfolios. Additional factors that may affect our results are discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007 filed with the Securities and Exchange Commission on March 31, 2008, under “Risk Factors,” as subsequently amended, which is available through the SEC’s website at www.sec.gov. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Except as required by applicable law or regulation, Meridian Interstate Bancorp does not undertake, and specifically disclaims any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.

Critical Accounting Policies

The Company’s significant accounting policies are described in Note 1 to the consolidated financial statements included in the 2007 Annual Report on Form 10-K. Management has identified accounting for the allowance for credit losses, other than temporary impairment of investment securities and income taxes as the Company’s most critical accounting estimates.

General

Selected Financial Data

The following is a summary of operating and financial condition highlights as of and for the periods indicated:

	Financial Condition At
	September 30,		December 31,
(In thousands)	2008		2007

Total assets	$	1,073,683	$	1,003,226
Secuities available for sale		288,941		267,058
Net loans		661,890		568,104
Deposits		805,084		774,446
Borrowed funds		57,675		36,527
Stockholders' equity		195,054		115,684


	Results of Operations
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(Dollars in thousands)	2008			2007			2008			2007

Net interest income	$	6,765		$	5,187		$	18,516		$	15,770
Provision for loan losses		403			117			2,731			260
Non-interest income		3,808			11			8,034			4,200
Non-interest expenses		6,799			5,707			24,587			16,480
Provision (benefit) for income taxes		1,228			(323	)		(374	)		942
Net income (loss)		2,143			(303	)		(394	)		2,288
Interest rate spread		2.10	%		2.18	%		1.87	%		2.23	%
Net interest margin		2.70	%		2.48	%		2.50	%		2.53	%

Comparison of Financial Condition at September 30, 2008 and December 31, 2007

The Company’s total assets increased by $70.5 million, or 7.0%, to $1.1 billion at September 30, 2008 from December 31, 2007. Cash and cash equivalents decreased by $63.6 million, as cash received for the stock offering was used for general corporate activities, including loan originations and investment purchases. Net loans increased by $93.8 million, or 16.5%, and securities available for sale increased $21.9 million, or 8.2%. For the nine months

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ended September 30, 2008, the Company increased outstanding loans in all categories except construction and consumer lending.

Deposits increased by $30.6 million, or 4.0%, for the nine months ended September 30, 2008. Demand deposit and money market balances increased by $13.6 million and $17.6 million, respectively, during this time.

Borrowed funds also increased $21.1 million, to $57.7 million. In April 2008, the Company obtained new advances totaling $45.0 million from the Federal Home Loan Bank of Boston (“FHLB”) as part of its leveraging strategy and to take advantage of favorable interest rates. The advances mature from 2011 to 2013, with rates ranging from 2.99% to 3.54%. The average borrowing rate is 3.27% and the average term is four years.

Stockholders’ equity increased by $79.4 million, to $195.1 million at September 30, 2008 from $115.7 million at December 31, 2007, mainly due to the Company’s first quarter stock offering. During the third quarter of 2008, accumulated other comprehensive income decreased by $11.3 million primarily due to the change in net unrealized losses on securities available for sale.

Securities

All securities held by the Company as of September 30, 2008 and December 31, 2007 are classified as available-for-sale and are carried at fair value. Unrealized gains and losses, net of tax, are excluded from earnings and reported as a separate component of stockholders’ equity. Gains or losses on the sale of available-for-sale securities are determined using the specific identification method. Premiums and discounts are recognized in interest income using the effective interest method over the period to maturity. Carrying amounts and fair values at September 30, 2008 and December 31, 2007 were as follows:

	At September 30, 2008				At December 31, 2007
	Amortized		Fair		Amortized		Fair
(In thousands)	Cost		Value		Cost		Value
Securities available for sale:
U.S. Government – sponsored enterprises	$	19,268	$	19,267	$	7,002	$	6,975
Corporate bonds		204,262		196,089		219,626		220,629
Mortgage-backed securities		41		41		43		43
Total debt securities		223,571		215,397		226,671		227,647
Marketable equity securities		72,476		73,544		28,843		39,411
Total securities available for sale	$	296,047	$	288,941	$	255,514	$	267,058

The available-for-sale securities portfolio increased $21.9 million, or 8.2% to $288.9 million at September 30, 2008 from $267.1 million December 31, 2007. Money market mutual funds included in the marketable equity securities portfolio totaled $46.6 million and $1.3 million at September 30, 2008 and December 31, 2007, respectively. Management continues to hold the money market mutual funds and monitor available investment opportunities in light of the current issues in the debt and equity markets.

Management evaluates securities for other-than-temporary impairment on a monthly basis, with more frequent evaluation for selected issues. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. At September 30, 2008, unrealized losses in our debt portfolio ranged from 0% to 52%, and unrealized losses in our equity portfolio ranged from 0% to 27%.

Included in the decrease in the market value of the equity portfolio year to date is almost all of the net gain on sales of securities of $5.1 million. As of September 30, 2008 the net unrealized gain of the total equity portfolio was $1.1 million. Seven equity securities had market value declines of 20% or more, with net unrealized losses of $701,000. The most significant market valuation decrease related to any one equity security at September 30, 2008 is $183,000. As of June 30, 2008, three equity securities had a market value decline of 20% or more, with

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net unrealized losses of $428,000. No equity security had a market valuation decrease of 20% or more as of December 31, 2007.

At September 30, 2008, the aggregate amortized cost of debt obligations owned by the Company was $223.6 million and the aggregate market value was $215.4 million. Eight corporate bonds, from five issuers, had a market decline of greater than 20% of book value, with declines ranging from 23.1% to 51.7%. All of these bonds were issued by financial companies. The aggregate unrealized loss on these eight bonds is $6.9 million and is presently considered to be temporary.

Five of the securities, from three issuers, had been impaired greater than 20% for approximately one month, reflecting the rapid changes in the market during the third quarter. The aggregate unrealized loss on these five bonds was $3.6 million at September 30, 2008. These bonds have maturity dates ranging from May 2010 to May 2012. Due to the very recent impairment of these securities, with no indication that the issuers will be unable to continue to service the obligations based on ongoing operations, and management’s ability and intent to hold the obligations until the earlier of recovery or maturity, management considers the decline in market valuation to be temporary.

The remaining three bonds, from two issuers, had been impaired greater than 20% for less than six months. The aggregate unrealized loss on these three bonds was $3.3 million at September 30, 2008. Included in this group is the bond with the most significant market decline ($2.1 million), issued by a regional bank considered to be “well-capitalized” as of September 30, 2008. This bond matures in December 2011. In October 2008, the issuer announced it will be acquired by PNC Bank. PNC Bank has thus far mainly avoided many of the credit problems affecting regional and national banks, and announced that it will receive $7.7 billion from the Treasury Department TARP Capital Purchase Program as part of the acquisition.

The remaining two bonds in this group, maturing in July 2011 and February 2012, were issued by a commercial finance and lease company. The aggregate unrealized loss on these bonds was $1.2 million as of September 30, 2008. According to the issuer’s third quarter press releases, the company has obtained $11.0 billion of additional liquidity during 2008 and continues to have stable cash balances and an adequate funding plan to meet all obligations in the next 12 months. The third quarter earnings announcement also includes a statement that the issuer is reviewing its funding model, including deposit taking capabilities, which would help alleviate funding issues long term by providing a deposit base to support lending.

Due to the relatively short length of time of the impairment of these securities, with no indication that the issuers will be unable to continue to service the obligations based on ongoing operations, and management’s ability and intent to hold the obligations until the earlier of recovery or maturity, management considers the decline in market valuation to be temporary.

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Loan Portfolio Analysis

Our loan portfolio consists primarily of residential, multi-family and commercial real estate loans, construction and land development loans, commercial and consumer loans and home equity lines of credit originated primarily in our market area. There are no foreign loans outstanding. The Company does not originate or purchase non-traditional loans, such as negative amortization or payment option adjustable rate mortgages or subprime or Alt-A loans. Interest rates charged on loans are affected principally by the demand for such loans, the supply of money available for lending purposes and the rates offered by our competitors. Loan detail by category as of September 30, 2008 and December 31, 2007 were as follows:


	At September 30, 2008						At December 31, 2007
(Dollars in thousands)	Amount			%			Amount			%
Real estate loans:
One-to four-family	$	266,327			39.8	%	$	224,109			39.1	%
Multi-family		31,407			4.7			26,855			4.7
Commercial real estate		223,867			33.4			175,072			30.5
Construction		104,321			15.6			111,796			19.5
Home equity lines
of credit		27,078			4.1			21,541			3.8
Total real estate loans		653,000			97.6			559,373			97.6

Commercial business loans		14,355			2.2			11,859			2.1
Consumer loans		1,274			0.2			1,576			0.3
Total loans		668,629			100.0	%		572,808			100.0	%
Net deferred origination fees		(1,021	)					(1,067	)
Allowance for loan losses		(5,718	)					(3,637	)
Loans, net	$	661,890					$	568,104

Analysis of Loan Loss Experience

The allowance for loan losses is maintained at a level adequate to absorb possible losses inherent in the loan portfolio. The allowance for loan losses is based on management’s assessment of various factors affecting the loan portfolio, including portfolio composition, delinquency and non-accrual levels, economic conditions, loss experience, and an evaluation of underlying collateral quality. Changes in the allowance for loan losses during the three and nine months ended September 30, 2008 and 2007 were as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2008			2007			2008			2007
Beginning balance	$	5,961		$	3,503		$	3,637		$	3,362
Provision for loan losses		403			117			2,731			260
Charge offs:
Real estate loans		647			-			650			16
Commercial business loans		-			-			-			-
Consumer loans		-			1			2			14
Total charge-offs		647			1			652			30
Recoveries:
Real estate loans		-			-			1			16
Commercial business		-			-			-			-
Consumer loans		1			1			1			12
Total recoveries		1			1			2			28
Net charge-offs		(646	)		-			(650	)		(2	)
Ending balance	$	5,718		$	3,620		$	5,718		$	3,620
Allowance to non-accrual loans		92.51	%		72.49	%		92.51	%		72.49	%
Allowance to total loans outstanding		0.86	%		0.66	%		0.86	%		0.66	%
Net charge-offs/average loans outstanding		0.10	%		0.00	%		0.11	%		0.00	%

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Provision for Loan Losses

The Company’s loan loss provision was $403,000 and $2.7 million for the quarter and nine months ended September 30, 2008, compared to $117,000 and $260,000 for the same periods in 2007. The increase in the provision relates to specific reserves established during the second quarter for two impaired construction loans, as well as growth in the loan portfolio and management’s assessment of various factors affecting the portfolio, including, among others, an ongoing evaluation of credit quality, local real estate market conditions, and general economic factors. The Company had two loan charge-offs totaling $647,000 during the current quarter. Both loans charged-off had specific reserves established in the second quarter. The collateral for both loans, a residential construction loan and a residential real estate loan, became foreclosed real estate.

The allowance for loan losses was $5.7 million, or 0.86% of total loans outstanding as of September 30, 2008, compared to $3.6 million, or 0.63% as of December 31, 2007, and $3.6 million, or 0.66% at September 30, 2007.

Management’s Assessment of Asset Quality

Non-performing assets include loans that are 90 or more days past due or on non-accrual status and real estate and other loan collateral acquired through foreclosure and repossession. Loans 90 days or more past due may remain on an accrual basis if adequately collateralized and in the process of collection. For non-accrual loans, interest previously accrued but not collected is reversed and charged against income at the time a loan is placed on non-accrual status. Payments received at the time a loan is on non-accrual status are applied to principal. Interest income is not recognized until the loan is returned to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

The following table summarizes the non-performing assets at September 30, 2008 and December 31, 2007.

	At September 30,			At December 31,
(In thousands)	2008			2007
Loans accounted for on a non-accrual basis:
Real estate loans:
One-to four-family	$	3,068		$	2,059
Multi-family		-			-
Commercial real estate		2,679			1,561
Home equity lines of credit		-			98
Construction		335			1,218
Total real estate loans		6,082			4,936
Commercial business loans		99			45
Consumer loans		-			1
Total non-accrual loans		6,181			4,982

Foreclosed assets		2,045			560
Total nonperforming assets	$	8,226		$	5,542

Non-accrual loans to total loans		0.92	%		0.87	%
Non-accrual loans to total assets		0.58	%		0.50	%
Non-performing assets to total assets		0.77	%		0.55	%

Non-performing assets (non-accrual loans and property acquired through foreclosure) were $8.2 million, or 0.77% of total assets at September 30, 2008, compared to $5.5 million, or 0.55% at December 31, 2007, and $5.2 million, or 0.56% at September 30, 2007. The increase in non-performing assets from December resulted primarily from one construction lending relationship that was transferred to property acquired through foreclosure during the third quarter. The balance of the relationship was $2.4 million at the time of foreclosure, and a charge-off of $596,000 was recorded against the allowance. The charge-off had been identified as a specific reserve prior to June 30, 2008.

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The Company’s credit quality is a reflection of the current environment, with increased levels of non-performing residential loans and commercial real estate loans compared to December 31, 2007 due mainly to softening in local primary real estate markets. The Company cannot predict when the level of non-performing assets might return to the lower end of the historic basis point range; however management continues to monitor delinquency and non-performing asset trends.

Total property acquired through foreclosure was $2.0 million at September 30, 2008, compared to $560,000 and $220,000 at December 31 and September 30, 2007. The Company recorded a $5,000 loss on the sale of foreclosed real estate for the nine months ending September 30, 2008.

Foregone interest income that would have been recorded for the nine months ended September 30, 2008 had nonaccruing loans and accruing loans past due 90 days or more been current according to their original terms amounted to $152,000.

The Bank individually reviews classified residential and commercial loans for impairment, and establishes reserves, if necessary, based on the fair value of collateral or expected cash flows. The Bank considers a loan to be impaired when collection of all amounts due according to the original loan term, including interest, is doubtful. At September 30, 2008, there are $10.4 million of impaired loans, including loans of $8.1 million with an impairment allowance of $1.5 million. The September 30, 2008 impaired loan balance includes two troubled debt restructings totaling $6.2 million that are on accrual due to their continued payment performance. A modification of loan terms constitutes a troubled debt restructuring if, for reasons related to the debtor’s financial difficulties, a concession is granted to the debtor that would not otherwise be considered. At December 31, 2007, there was $5.1 million of impaired loans, including loans of $621,000 with an impairment allowance of $89,000. The Company’s average investment in impaired loans was $6.4 million and $4.0 million for the nine months ended September 30, 2008 and 2007, respectively.

Deposits

Deposits are a major source of our funds for lending and other investment purposes. Deposit inflows and outflows are significantly influenced by general interest rates and money market conditions.

The following table summarizes the balance and the composition of deposits:

	At September 30, 2008					At December 31, 2007
(Dollars in thousands)	Amount		Percent			Amount		Percent
NOW and demand deposits	$	98,635		12.3	%	$	85,045		11.0	%
Money market deposits		156,238		19.4			138,688		17.9
Regular and other deposits		118,806		14.7			118,837		15.3
Certificates of deposit		431,405		53.6			431,876		55.8
Total	$	805,084		100.0	%	$	774,446		100.0	%

Borrowings

Federal Home Loan Bank (“FHLB”) advances maturing within one year totaled $9.2 million at December 31, 2007, at a weighted average rate of 4.52%. No short term advances were outstanding at September 30, 2008.

At September 30, 2008, long-term FHLB advances totaling $57.7 million mature through April 2013, with a weighted average yield of 3.45%. As of December 31, 2007, long-term FHLB advances totaling $27.4 million were outstanding, with a weighted average yield of 4.48%.

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Results of Operations for the Three and Nine months ended September 30, 2008 and September 30, 2007

Average Balance Table

The following table sets forth average balance sheets, average yields and costs, and certain other information at and for the periods indicated.

	For The Three Months Ended September 30,
	2008								2007
(Dollars in thousands)	Average Balance		Interest Earned/Paid			Yield/ Cost (4)			Average Balance		Interest Earned/Paid			Yield/ Cost (4)
Assets:
Interest-earning assets:
Loans (1)	$	641,094	$	9,938			6.17	%	$	545,808	$	9,073			6.63	%
Securities and certificates of deposit		333,900		3,307			3.94			262,927		2,986			4.54
Other interest-earning assets		21,478		99			1.83			26,153		331			5.02
Total interest-earning assets		996,472		13,344			5.33			834,888		12,390			5.94

Noninterest-earning assets		79,296								77,934
Total assets	$	1,075,768							$	912,822

Liabilities and stockholders' equity:
Interest-bearing liabilities:
NOW deposits	$	42,078		92			0.87		$	61,909		31			0.20
Money market deposits		150,501		929			2.46			119,184		1,144			3.81
Savings and other deposits		123,236		354			1.14			127,363		371			1.15
Certificates of deposit		435,022		4,670			4.27			419,575		5,190			4.91
Total interest-bearing deposits		750,837		6,045			3.20			728,031		6,736			3.70
FHLB advances		60,316		534			3.52			38,663		467			4.83
Total interest-bearing liabilities		811,153		6,579			3.23			766,694		7,203			3.76
Noninterest-bearing demand deposits		54,711								25,111
Other noninterest-bearing liabilities		10,509								8,232
Total liabilities		876,373								800,037
Total stockholders' equity		199,395								112,785
Total liabilities and stockholders' equity	$	1,075,768							$	912,822
Net interest income			$	6,765							$	5,187
Interest rate spread (2)							2.10	%							2.18	%
Net interest margin (3)							2.70	%							2.48	%
Average interest-earning assets to				122.85	%							108.89	%
average interest-bearing liabilities

(1) Loans on non accrual status are included in average balances.

(2) Interest rate spread represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.

(3) Net interest margin represents net interest income divided by average interest-earning assets.

(4) Annualized.

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	For The Nine Months Ended September 30,
	2008								2007
(Dollars in thousands)	Average Balance		Interest Earned/Paid			Yield/ Cost (4)			Average Balance		Interest Earned/Paid			Yield/ Cost (4)
Assets:
Interest-earning assets:
Loans (1)	$	604,157	$	28,455			6.29	%	$	541,108	$	26,560			6.55	%
Securities and certificates of deposit		301,477		9,281			4.11			269,448		9,079			4.49
Other interest-earning assets		85,350		1,640			2.57			18,900		726			5.14
Total interest-earning assets		990,984		39,376			5.31			829,456		36,365			5.85

Noninterest-earning assets		76,733								74,542
Total assets	$	1,067,717							$	903,998

Liabilities and stockholders' equity:
Interest-bearing liabilities:
NOW deposits	$	38,855		236			0.81		$	63,322		79			0.17
Money market deposits		144,751		2,967			2.74			107,266		2,852			3.55
Savings and other deposits		129,138		1,103			1.14			131,199		1,142			1.16
Certificates of deposit		443,140		15,076			4.54			418,279		15,086			4.82
Total interest-bearing deposits		755,884		19,382			3.43			720,066		19,159			3.56
FHLB advances		53,458		1,478			3.69			40,095		1,436			4.79
Total interest-bearing liabilities		809,342		20,860			3.44			760,161		20,595			3.62
Noninterest-bearing demand deposits		53,867								24,275
Other noninterest-bearing liabilities		9,854								7,417
Total liabilities		873,063								791,853
Total stockholders' equity		194,654								112,145
Total liabilities and stockholders' equity	$	1,067,717							$	903,998
Net interest income			$	18,516							$	15,770
Interest rate spread (2)							1.87	%							2.23	%
Net interest margin (3)							2.50	%							2.53	%
Average interest-earning assets to				122.44	%							109.12	%
average interest-bearing liabilities

(1) Loans on non accrual status are included in average balances.

(2) Interest rate spread represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.

(3) Net interest margin represents net interest income divided by average interest-earning assets.

(4) Annualized.

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Financial Summary

The Company recorded net income of $2.1 million for the quarter ended September 30, 2008, compared to a net loss of $303,000 for the quarter ended September 30, 2007. Net income per basic and diluted share for the third quarter of 2008 was $.10. The Company recorded a net pre-tax gain on sale of securities of $2.8 million for the 2008 third quarter, compared to a pre-tax loss on sale of securities of $860,000 during the comparable 2007 period.

For the nine months ended September 30, 2008, the Company recorded a net loss of $394,000, compared to net income of $2.3 million for the nine months ended September 30, 2007. The 2008 net loss includes a $3.0 million pre-tax contribution of stock to the Company’s charitable foundation, and pre-tax compensation charges of $1.5 million as a result of the retirement of the Bank’s president.

Earnings per share is not applicable for the nine months ended September 30, 2008 and prior periods, as shares were not outstanding for the entire periods.

Analysis of Net Interest Income

Net interest income for the quarter ended September 30, 2008 was $6.8 million, an increase of $1.6 million, or 30.4%, from the quarter ended September 30, 2007, due to an increase in interest income earned on loans of $865,000, or 9.5%, and a reduction in deposit interest expense of $691,000, or 10.3%. Net interest income for the nine months ended September 30, 2008 was $18.5 million, an increase of $2.7 million, or 17.4%, from the nine months ended September 30, 2007, due primarily to an increase in loan interest income of $1.9 million, or 7.1%.

The Company’s net interest margin was 2.70% and 2.48% for the quarters ended September 30, 2008 and 2007, respectively. The margin increase from the prior period is due to a decrease in the overall rate paid on deposits and borrowings. For the nine months ended September 30, 2008 the net interest margin was 2.50%, compared to 2.53% for the same period in 2007. The decline in the nine-month net interest margin is due to faster repricing of prime-related assets compared to interest-bearing liabilities in a period of declining market interest rates.

Growth in the loan portfolio resulted in increased loan interest income in 2008, from $9.1 million for the quarter ended September 30, 2007, to $9.9 million for the quarter ended September 30, 2008. For the nine months ended September 30, 2008, total loan interest income was $28.5 million, compared to $26.6 million for the nine months ended September 30, 2007.

The average balance of interest-bearing deposits increased from $728.0 million to $750.8 million for the quarters ended September 30, 2007 and 2008, respectively, while deposit interest expense decreased $691,000, or 10.3%, due to lower average rates paid, particularly on money market accounts and certificates of deposit. For the nine months ended September 30, 2008, deposit interest expense increased $223,000, or 1.2%, from the same period in 2007 due to higher average balances.

Borrowing expense increased $67,000, or 14.3%, for the quarter ended September 30, 2008 compared to the same period in 2007 due to higher average outstanding borrowings, which increased from $38.7 million to $60.3 million.

Non-interest Income

Non-interest income for the third quarter of 2008 was $3.8 million, compared to $11,000 in the third quarter of 2007. A loss on sale of securities of $860,000 in the third quarter of 2007 offset other income earned, as the Company sold debt securities with exposure to the subprime mortgage market. The Company recorded gains on sales of securities of $2.8 million during the third quarter of 2008, as management opted to sell equity securities with appreciable gains. Bank-owned life insurance income increased from $153,000 to $209,000 due to an increase in policy balances owned. The Company’s equity loss from its investment in Hampshire First Bank decreased from $138,000 to $69,000, as Hampshire First Bank continues to implement its business growth plans.

Non-interest income increased from $4.2 million for the nine months ended September 30, 2007 to $8.0 million for the nine months ended September 30, 2008, primarily due to increased net gains on sales of securities. The Company also recorded bank-owned life insurance income of $624,000 for the nine months ended September

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30, 2008 compared to $850,000 for the comparable 2007 period due to policy proceeds of $383,000 received during 2007. No policy proceeds were received during 2008.

Non-interest Expenses

Non-interest expenses increased from $5.7 million for the quarter ended September 30, 2007 to $6.8 million for the quarter ended September 30, 2008. Salary and employee benefit costs increased from $3.6 million to $4.0 million, primarily as a result of additional expense incurred in connection with the Company’s Employee Stock Ownership Plan (ESOP) and bank-owned life insurance policies. The Company also incurred an increase in professional service fees of $317,000 due mainly to legal and audit expenses related to being a public company. Other expenses increased $180,000 due to an increase in deposit insurance expense and annual meeting expenses. The Company benefited from a one-time deposit insurance credit in 2007 and the first quarter of 2008.

Non-interest expenses increased $8.1 million, from $16.5 million to $24.6 million for the nine months ended September 30, 2007, and 2008, respectively, primarily as a result of the $1.5 million retirement charge (see Note 5 to interim financial statements), the contribution expense of $3.0 million for the contribution to the Meridian Charitable Foundation, and increased professional service fees and deposit insurance expense.

Income Tax Expense

The Company recorded a tax expense of $1.2 million, or a 36.4% effective tax rate, for the quarter ended September 30, 2008 compared to a tax benefit of $323,000, or a 51.6% effective tax rate, for the same 2007 period. The Company recorded a tax benefit of $374,000, or a 48.7% effective tax rate, for the nine months ended September 30, 2008 compared to a tax expense of $942,000, or a 29.2% effective tax rate, for the same 2007 period. The change in the effective tax rate is due to changes in the components of non-taxable income and non-deductible expense as a percentage of pre-tax income or loss, including net gains and losses on the sale of securities and the Company’s 2008 contribution to the Meridian Charitable Foundation.

The Company contributed 300,000 shares of common stock to the Meridian Charitable Foundation, resulting in a pre-tax non-interest expense charge of $3.0 million in the first quarter of 2008. Under current Federal income tax regulations, charitable contribution deductions are limited to 10% of taxable income. Accordingly, the $3.0 million contribution created a carry-forward for income tax purposes and a deferred tax asset for financial statement purposes.

Liquidity and Capital Management

Liquidity Management. Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, loan repayments, maturities of and payments on investment securities and borrowings from the Federal Home Loan Bank of Boston. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.

We regularly adjust our investments in liquid assets based upon our assessment of (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities and (4) the objectives of our asset/liability management policy.

Our most liquid assets are cash and cash equivalents. The levels of these assets depend on our operating, financing, lending and investing activities during any given period. At September 30, 2008, cash and cash equivalents totaled $39.5 million. In addition, at September 30, 2008, we had $108.0 million of available borrowing capacity with the Federal Home Loan Bank of Boston, including a $9.4 million line of credit. On September 30, 2008, we had $57.7 million of advances outstanding.

A significant use of our liquidity is the funding of loan originations. At September 30, 2008, we had $170.1 million in total loan commitments outstanding. Historically, some of the commitments expire without being fully drawn; therefore the total amount of commitment does not necessarily represent future cash requirements. Unused portions of existing loans include $83.2 million in unadvanced portions of construction loans, $26.1 million in unused home equity lines of credit, $2.1 million in unused business lines of credit, $1.2 million in unused commercial letters of credit, and $557,000 in unadvanced revolving lines of credit. Commitments to fund new loans

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include $5.1 million in commitments to fund one- to four-family residential real estate loans, $32.7 million in commitments to fund commercial real estate loans, $15.7 million in commitments to originate commercial construction loans, $1.3 million in commitments to originate commercial lines of credit, $1.3 million in commitments to originate home equity lines of credit, and $761,000 in commitments to originate residential construction loans. We also have a seven year contract with our core data processing provider with an outstanding commitment of approximately $6.4 million as of September 30, 2008, and an annual payment of approximately $1.3 million. In 2008, the Company entered into an agreement for design and renovation services for the new Wakefield, Massachusetts branch, which opened for business in October. The outstanding commitment for the project at September 30, 2008 is $126,000.

Another significant use of our liquidity is the funding of deposit withdrawals. Certificates of deposit due within one year of September 30, 2008 totaled $356.6 million, or 83% of certificates of deposit. If these maturing deposits do not remain with us, we will be required to utilize other sources of funds. Historically, a significant portion of certificates of deposit that mature have remained at the Company. We have the ability to attract and retain deposits by adjusting the interest rates offered.

Our primary investing activities are the origination of loans and the purchase of securities. Our primary financing activities consist of activity in deposit accounts and Federal Home Loan Bank advances. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors and other factors. We generally manage the pricing of our deposits to be competitive. Occasionally, we offer promotional rates on certain deposit products to attract deposits.

Capital Management. Both Meridian Interstate Bancorp and East Boston Savings Bank are subject to various regulatory capital requirements administered by the Federal Reserve Board and Federal Deposit Insurance Corporation, respectively, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At September 30, 2008, both Meridian Interstate Bancorp and East Boston Savings Bank exceeded all of their respective regulatory capital requirements.

The proceeds from the stock offering significantly increased our liquidity and capital resources. The initial level of liquidity is being reduced as net proceeds are used for general corporate purposes, including the funding of loan originations. Due to the increase in equity that resulted from the net proceeds of the stock offering, our return on equity ratios have been adversely affected.

We may use capital management tools such as cash dividends and common share repurchases. However, Massachusetts Commissioner of Banks regulations restrict stock repurchases by Meridian Interstate Bancorp within three years of the stock offering unless the repurchase: (i) is part of a general repurchase made on a pro rata basis pursuant to an offering approved by the Commissioner of the Banks and made to all stockholders of Meridian Interstate Bancorp (other than Meridian Financial Services with the approval of the Commissioner of Banks); (ii) is limited to the repurchase of qualifying shares of a director; (iii) is purchased in the open market by a tax-qualified or nontax-qualified employee stock benefit plan of Meridian Interstate Bancorp or East Boston Savings Bank in an amount reasonable and appropriate to fund the plan; or (iv) is limited to stock repurchases of no greater than 5% of the outstanding capital stock of Meridian Interstate Bancorp where compelling and valid business reasons are established to the satisfaction of the Commissioner of Banks. In addition, pursuant to Federal Reserve Board approval conditions imposed in connection with the formation of Meridian Interstate Bancorp, Meridian Interstate Bancorp has committed (i) to seek the Federal Reserve Board’s prior approval before repurchasing any equity securities from Meridian Financial Services and (ii) that any repurchases of equity securities from stockholders other than Meridian Financial Services will be at the current market price for such stock repurchases. Meridian Interstate Bancorp will also be subject to the Federal Reserve Board’s notice provisions for stock repurchases.

Off-Balance Sheet Arrangements. In the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally accepted accounting principles are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments and lines of credit. We had no investment in derivative securities at September 30, 2008.

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For the nine months ended September 30, 2008, we engaged in no off-balance sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk Management. Our earnings and the market value of our assets and liabilities are subject to fluctuations caused by changes in the level of interest rates. We manage the interest rate sensitivity of our interest-bearing liabilities and interest-earning assets in an effort to minimize the adverse effects of changes in the interest rate environment. Deposit accounts typically react more quickly to changes in market interest rates than mortgage loans because of the shorter maturities of deposits. As a result, sharp increases in interest rates may adversely affect our earnings while decreases in interest rates may beneficially affect our earnings. To reduce the potential volatility of our earnings, we have sought to improve the match between asset and liability maturities and rates, while maintaining an acceptable interest rate spread. Our strategy for managing interest rate risk emphasizes: originating loans with adjustable interest rates; selling the residential real estate fixed-rate loans with terms greater than 15 years that we originate; and promoting core deposit products and short-term time deposits.

We have an Asset/Liability Management Committee to coordinate all aspects involving asset/liability management. The committee establishes and monitors the volume, maturities, pricing and mix of assets and funding sources with the objective of managing assets and funding sources to provide results that are consistent with liquidity, growth, risk limits and profitability goals.

Net Interest Income Simulation Analysis. We analyze our interest rate sensitivity position to manage the risk associated with interest rate movements through the use of interest income simulation. The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest sensitive.” An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within that time period.

Our goal is to manage asset and liability positions to moderate the effects of interest rate fluctuations on net interest income. Interest income simulations are completed quarterly and presented to the Asset/Liability Committee and the board of directors. The simulations provide an estimate of the impact of changes in interest rates on net interest income under a range of assumptions. The numerous assumptions used in the simulation process are reviewed by the Asset/Liability Committee and the Executive Committee on a quarterly basis. Changes to these assumptions can significantly affect the results of the simulation. The simulation incorporates assumptions regarding the potential timing in the repricing of certain assets and liabilities when market rates change and the changes in spreads between different market rates. The simulation analysis incorporates management’s current assessment of the risk that pricing margins will change adversely over time due to competition or other factors.

Simulation analysis is only an estimate of our interest rate risk exposure at a particular point in time. We continually review the potential effect changes in interest rates could have on the repayment of rate sensitive assets and funding requirements of rate sensitive liabilities.

The simulation uses projected repricing of assets and liabilities at September 30, 2008 on the basis of contractual maturities, anticipated repayments and scheduled rate adjustments. Prepayment rates can have a significant impact on interest income simulation. Because of the large percentage of loans we hold, rising or falling interest rates have a significant impact on the prepayment speeds of our earning assets that in turn affect the rate sensitivity position.

When interest rates rise, prepayments tend to slow. When interest rates fall, prepayments tend to rise. Our asset sensitivity would be reduced if prepayments slow and vice versa. While we believe such assumptions to be reasonable, there can be no assurance that assumed prepayment rates will approximate actual future mortgage-backed security and loan repayment activity.

The following table reflects changes in estimated net interest income for the Company for the twelve-month period beginning October 1, 2008 and ending September 30, 2009:

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Increase (Decrease)
in Market Interest			Net Interest Income								Net Portfolio Value Estimate
Rates (Rate Shock)			Amount		Change			Percent			Amount		Change			Percent
			(Dollars in thousands)
	200		$	32,402	$	1,869			6.12	%	$	152,395	$	(39,748	)		(20.69	) %
	100			31,636		1,103			3.61			173,421		(18,722	)		(9.74	)
	0			30,533								192,143
	(100	)		28,729		(1,804	)		(5.91	)		203,078		10,935			5.69
	(200	)		26,158		(4,375	)		(14.33	)		208,054		15,911			8.28

The basis point changes in rates in the above table are assumed to occur evenly over the following 12 months.

Item 4. Controls and Procedures

(a)

Disclosure Controls and Procedures

Meridian Interstate Bancorp’s management, including Meridian Interstate Bancorp’s principal executive officer and principal financial officer, have evaluated the effectiveness of Meridian Interstate Bancorp’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, Meridian Interstate Bancorp’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that Meridian Interstate Bancorp files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (2) is accumulated and communicated to Meridian Interstate Bancorp’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

(b)

Changes in Internal Control over Financial Reporting

There have not been any changes in Meridian Interstate Bancorp’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, Meridian Interstate Bancorp’s internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings

Periodically, there have been various claims and lawsuits against us, such as claims to enforce liens, condemnation proceedings on properties in which we hold security interests, claims involving the making and servicing of real property loans and other issues incident to our business. We are not a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations or cash flows.

Item 1A. Risk Factors

For information regarding our risk factors, see “Risk Factors,” in our 2007 Annual Report on Form 10-K, filed with the SEC on March 31, 2008, which is available through the SEC’s website at www.sec.gov. As of September 30, 2008, the risk factors of Meridian Interstate Bancorp have not changed materially from those reported in the prospectus. The risks described in Meridian Interstate Bancorp’s prospectus are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

In addition to the previously noted risk factors, the Company will experience an increased level of Federal Deposit Insurance Corporation (“FDIC”) insurance expense. The FDIC imposes an assessment based on the risk category of the institution that ranges from 5 to 43 basis points of the institution’s deposits. The Company received a one-time credit that decreased the amount of deposit insurance expense in 2007 and the first quarter of 2008. This credit was depleted during the second quarter of 2008.

Federal law requires that the reserve ratio for the deposit insurance fund be established by the FDIC at 1.15% to 1.50% of estimated insured deposits. If this reserve ratio drops below 1.15% or the FDIC expects that it will do so within six months, the FDIC must, within ninety days, establish and implement a plan to restore the designated reserve ratio to 1.15% of estimated insured deposits within five years (absent extraordinary circumstances.)

Recent bank failures coupled with deteriorating economic conditions have significantly reduced the deposit insurance fund’s reserve ratio. As of June 30, 2008, the designated reserve ratio was 1.01% of estimated insured deposits at March 31, 2008. As a result of this reduced reserve ratio, on October 16, 2008, the FDIC published a proposed rule that would restore the reserve ratio to the required level. The proposed rule would raise the current deposit insurance assessment rate uniformly for all institutions by 7 basis points (to a range from 12 to 50 basis points) for the first quarter of 2009. The proposed rule would also alter the way the FDIC calculates federal deposit insurance assessment rates beginning in the second quarter of 2009 and thereafter.

Under the proposed rule, the FDIC would first establish an institution’s initial base assessment rate. This initial assessment rate would range, depending on the risk category of the institution, from 10 to 45 basis points. The FDIC would then adjust the initial base assessment (higher or lower) to obtain the total base assessment rate. The adjustments to the initial base assessment rate would be based upon an institution’s levels of unsecured debt, secured liabilities, and brokered deposits. The total base assessment rate would range from 8 to 77.5 basis points of the institution’s deposits. There can be no assurance that the proposed rule will be implemented by the FDIC or implemented in its present form.

In addition, the Emergency Economic Stabilization Act of 2008 (EESA) temporarily increased the limit on FDIC insurance coverage for deposits to $250,0000 through December 31, 2009, and the FDIC took action to provide coverage for newly-issued senior unsecured debt and non-interest bearing transaction account in excess of the $250,000 limit, for which institutions will be assessed additional premiums.

These actions will significantly increase the Company’s non-interest expense in 2009 and in future years as long as the increased premiums are in place.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a.) – (c.) Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Submission of Matters to a Vote of Security Holders

(a)

The annual meeting of shareholders was held on August 19, 2008.

(b)

The following individuals were re-elected as directors for a three-year term at the annual meeting: Vincent D. Basile, James P. DelRossi, James G. Sartori and Paul T. Sullivan.

(c)

The following matters were voted upon and approved by the Company’s shareholders at the 2008 Annual Meeting of Shareholders held on August 19 2008: (i) election of four directors to serve for three-year terms (Proposal 1); (ii) approval of the Company’s 2008 Equity Incentive Compensation Plan (Proposal 2); and (iii) ratification of the appointment of Wolf & Company, P.C. as the independent registered public accounting firm for the Company for the fiscal year ending December 31, 2008. (Proposal 3).

The votes tabulated by an independent inspector of election for the above-listed proposals were as follows:

Proposal 1

Vincent D. Basile received 21,491,240 votes for election and 400,326 votes were withheld; James P. DelRossi received 21,619,728 votes for election and 271,838 votes were withheld; and James G. Sartori received 21,626,762 votes for election and 264,804 votes were withheld; Paul T. Sullivan received 21,613,070 votes for election and 278,496 votes were withheld. There were no abstentions or broker non-votes for any of the nominees.

Proposal 2

Shareholders cast 18,662,920 votes for, 920,457 votes against and 84,318 abstentions, and 2,223,871 broker non-votes.

Proposal 3

Shareholders cast 21,769,020 votes for, 88,303 votes against and 34,243 abstentions.

(d)

Not applicable.

Item 5. Other Information

None.

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Item 6. Exhibits

3.1	Amended and Restated Articles of Organization of Meridian Interstate Bancorp, Inc.*
3.2	Amended and Restated Bylaws of Meridian Interstate Bancorp, Inc.*
4	Form of Common Stock Certificate of Meridian Interstate Bancorp, Inc.*
10.1	Form of East Boston Savings Bank Employee Stock Ownership Plan*
10.2	Form of East Boston Savings Bank Employee Stock Ownership Plan Trust Agreement*
10.3	East Boston Savings Bank Employee Stock Ownership Plan Loan Agreement, Pledge Agreement and Promissory Note*
10.4	Form of Amended and Restated Employment Agreement*
10.5	Form of East Boston Savings Bank Employee Severance Compensation Plan*
10.6	Form of Supplemental Executive Retirement Agreements with certain directors*
10.7	Form of Separation Agreement with Robert F. Verdonck incorporated by reference to the Form 8-K filed on September11, 2008.
10.8	Form of Amended and Restated Supplemental Executive Retirement Agreement with Leonard V. Siuda filed as an exhibit to Form 10-Q filed on May 14, 2008.
10.9	Form of Amended and Restated Supplemental Executive Retirement Agreement with Philip F. Freehan filed as an exhibit to Form 10-Q filed on May 14, 2008.
10.10	Form of Supplemental Executive Retirement Agreement with Richard J. Gavegnano filed as an exhibit to Form 10-Q filed on May 14, 2008.
10.11	2008 Equity Incentive Plan**
21	Subsidiaries of Registrant*
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
_______________________________

*	Incorporated by reference to the Registration Statement on Form S-1 of Meridian Interstate Bancorp, Inc. (File No. 333-146373), originally filed with the Securities and Exchange Commission on September 28, 2007.

**	Incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement for its 2008 Annual Meeting, as filed with the Securities and Exchange Commission on July 11, 2008.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	MERIDIAN INTERSTATE BANCORP, INC.
	(Registrant)


Dated: November 10, 2008		/s/ Richard J. Gavegnano
	Richard J. Gavegnano
	Chairman and Chief Executive Officer
	(Principal Executive Officer)


Dated: November 10, 2008		/s/ Leonard V. Siuda
	Leonard V. Siuda
	Chief Financial Officer and Treasurer
	(Principal Financial and Accounting Officer)