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 March 31, 2008





OR





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
£





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 £  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 May 9,
2008, the registrant had 23,000,000 shares of no par value common stock
outstanding.





MERIDIAN
INTERSTATE BANCORP, INC.





FORM
10-Q





INDEX





PART I.
            FINANCIAL INFORMATIONItem 1.
            Financial Statements
            
            PageConsolidated Balance Sheets at March 31, 2008 and December 31,
      2007 (Unaudited)
            
            1Consolidated Statements of Operations for the three months
      ended March 31, 2008 and 2007 (Unaudited)
            
            2Consolidated Statements of Changes in Stockholders’ Equity for
      the three months ended March 31, 2008 and 2007
    (Unaudited)
            
            3Consolidated Statements of Cash Flows for the three months
      ended March 31, 2008 and 2007 (Unaudited)
            
            4Notes to Unaudited Consolidated Financial
      Statements
            
            6Item 2.
            Management’s Discussion and Analysis of Financial Condition and
      Results of Operations
            
            10Item 3.
            Quantitative and Qualitative Disclosures About Market
      Risk
            
            21Item 4.
            Controls and Procedures
            
            23PART II.
            OTHER INFORMATIONItem 1.
            Legal Proceedings
            
            24Item 1A.
            Risk Factors
            
            24Item 2.
            Unregistered Sales of Equity Securities and Use of
      Proceeds
            
            24Item 3.
            Defaults Upon Senior Securities
            
            25Item 4.
            Submission of Matters to a Vote of Security
      Holders
            
            25Item 5A.
            Other Information
            
            25Item 6.
            Exhibits
            
            25Signatures
            
            26








Index


PART
I – FINANCIAL INFORMATION





Item
1. Financial Statements





MERIDIAN INTERSTATE BANCORP, INC. AND SUBSIDIARIES


Consolidated
Balance Sheets


(Unaudited)





March
      31,
              
              
              December
      31,(Dollars
      in thousands)
              2008
              
              
              2007ASSETSCash
      and due from banks
              
              $
              11,583
              
              
              $
              11,821Federal
      funds sold
              
              
              141,364
              
              
              
              91,272Total
      cash and cash equivalents
              
              
              152,947
              
              
              
              103,093Certificates
      of deposit
              
              
              2,000
              
              
              
              -Securities
      available for sale, at fair value
              
              
              251,045
              
              
              
              267,058Federal
      Home Loan Bank stock, at cost
              
              
              3,165
              
              
              
              3,165Loans
              
              
              583,168
              
              
              
              571,741Less
      allowance for loan losses
              
              
              (3,768
              )
              
              
              (3,637
              )Loans,
      net
              
              
              579,400
              
              
              
              568,104Bank-owned
      life insurance
              
              
              22,188
              
              
              
              18,003Investment
      in affiliate bank
              
              
              10,604
              
              
              
              10,772Premises
      and equipment, net
              
              
              22,629
              
              
              
              22,816Accrued
      interest receivable
              
              
              5,250
              
              
              
              5,764Other
      assets
              
              
              4,613
              
              
              
              4,451Total
      assets
              
              $
              1,053,841
              
              
              $
              1,003,226LIABILITIES
      AND STOCKHOLDERS' EQUITYDeposits:Non
      interest-bearing
              
              $
              53,499
              
              
              $
              51,396Interest-bearing
              
              
              752,095
              
              
              
              723,050Total
      deposits
              
              
              805,594
              
              
              
              774,446Stock
      subscriptions
              
              
              -
              
              
              
              62,518Short-term
      borrowings
              
              
              9,154
              
              
              
              9,154Long-term
      debt
              
              
              21,073
              
              
              
              27,373Accrued
      expenses and other liabilities
              
              
              14,555
              
              
              
              14,051Total
      liabilities
              
              
              850,376
              
              
              
              887,542Stockholders'
      equity:Common
      stock, no par value 50,000,000shares
      authorized; 23,000,000 and 0 sharesissued
      and outstanding at March 31, 2008and
      December 31, 2007, respectively
              
              
              -
              
              
              
              -Additional
      paid-in capital
              
              
              100,628
              
              
              
              -Retained
      earnings
              
              
              107,214
              
              
              
              109,177Accumulated
      other comprehensive income
              
              
              3,799
              
              
              
              6,507Unearned
      compensation- ESOP, 817,650shares
      and 0 shares at March 31, 2008and
      December 31, 2007, respectively
              
              
              (8,176
              )
              
              
              -Total
      stockholders' equity
              
              
              203,465
              
              
              
              115,684Total
      liabilities and stockholders' equity
              
              $
              1,053,841
              
              
              $
              1,003,226





See
accompanying notes to unaudited consolidated financial
statements.


1
 Index





MERIDIAN
INTERSTATE BANCORP, INC. AND SUBSIDIARIES


Consolidated
Statements of Operations


(Unaudited)





Three
      Months Ended March 31,(In
      thousands)
              2008
              
              
              2007Interest
      and dividend income:Interest
      and fees on loans
              
              $
              9,183
              
              
              $
              8,672Interest
      on debt securities
              
              
              2,612
              
              
              
              2,757Dividends
      on equity securities
              
              
              265
              
              
              
              279Interest
      on federal funds sold
              
              
              1,063
              
              
              
              187Total
      interest and dividend income
              
              
              13,123
              
              
              
              11,895Interest
      expense:Interest
      on deposits
              
              
              6,911
              
              
              
              6,116Interest
      on short-term borrowings
              
              
              62
              
              
              
              89Interest
      on long-term debt
              
              
              312
              
              
              
              387Total
      interest expense
              
              
              7,285
              
              
              
              6,592Net
      interest income
              
              
              5,838
              
              
              
              5,303Provision
      for loan losses
              
              
              131
              
              
              
              72Net
      interest income, after provisionfor
      loan losses
              
              
              5,707
              
              
              
              5,231Non-interest
      income:Customer
      service fees
              
              
              696
              
              
              
              637Loan
      fees
              
              
              178
              
              
              
              171Gain
      on sales of loans, net
              
              
              19
              
              
              
              17Gain
      on sales of securities, net
              
              
              2,266
              
              
              
              2,032Income
      from bank-owned life insurance
              
              
              185
              
              
              
              162Equity
      loss on investment in affiliate bank
              
              
              (168
              )
              
              
              (83
              )Total
      non-interest income
              
              
              3,176
              
              
              
              2,936Non-interest
      expenses:Salaries
      and employee benefits
              
              
              4,092
              
              
              
              3,736Occupancy
      and equipment
              
              
              780
              
              
              
              702Data
      processing
              
              
              387
              
              
              
              363Marketing
      and advertising
              
              
              246
              
              
              
              140Professional
      services
              
              
              309
              
              
              
              155Contribution
      to the MeridianCharitable
      Foundation
              
              
              3,000
              
              
              
              -Other
      general and administrative
              
              
              498
              
              
              
              440Total
      non-interest expenses
              
              
              9,312
              
              
              
              5,536Income
      (loss) before income taxes
              
              
              (429
              )
              
              
              2,631Provision
      (benefit) for income taxes
              
              
              (108
              )
              
              
              836Net
      income (loss)
              
              $
              (321
              )
              
              $
              1,795




See
accompanying notes to unaudited consolidated financial
statements.


2
 Index


MERIDIAN
INTERSTATE BANCORP, INC. AND SUBSIDIARIES


Consolidated
Statements of Changes in Stockholders’ Equity


(Unaudited)


Three
Months Ended March 31, 2008 and 2007




(Dollars
      in thousands)
              
              Shares
      of Common Stock
              
              
              Common
      Stock
              
              
              Additional
      Paid-in Capital
              
              
              Retained
      Earnings
              
              
              Unearned
      Compensation
              
              
              AccumulatedOther
      Comprehensive Income
              
              
              TotalThree
      months ended March 31, 2007Balance
      at December 31, 2006
              
              
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              106,911
              
              
              $
              -
              
              
              $
              3,364
              
              
              $
              110,275Comprehensive
      income:Net
      income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,795
              
              
              
              -
              
              
              
              -
              
              
              
              1,795Change
      in net unrealized gain on securitiesavailable
      for sale, net of reclassificationadjustment
      and tax effects
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (559
              )
              
              
              (559
              )Total
      comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,236Balance
      at March 31, 2007
              
              
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              108,706
              
              
              $
              -
              
              
              $
              2,805
              
              
              $
              111,511Three
      months ended March 31, 2008Balance
      at December 31, 2007
              
              
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              109,177
              
              
              $
              -
              
              
              $
              6,507
              
              
              $
              115,684Comprehensive
      loss:Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (321
              )
              
              
              -
              
              
              
              -
              
              
              
              (321
              )Change
      in net unrealized gain on securitiesavailable
      for sale, net of reclassificationadjustment
      and tax effects
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (2,713
              )
              
              
              (2,713
              )Amortization
      of prior service cost, netof tax
      effects
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              5
              
              
              
              5Total
      comprehensive loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (3,029
              )Adjustment
      to initially apply EITF 06-4
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (1,642
              )
              
              
              -
              
              
              
              -
              
              
              
              (1,642
              )Issuance
      of 12,650,000 sharesto
      the mutual holding company
              
              
              12,650,000
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Issuance
      of 10,050,000 shares in the initial publicoffering,
      net of expenses of $2,867
              
              
              10,050,000
              
              
              
              -
              
              
              
              97,633
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              97,633Contribution
      of common stock to theMeridian
      Charitable Foundation, Inc.
              
              
              300,000
              
              
              
              -
              
              
              
              3,000
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              3,000Purchase
      of common stock by the ESOP
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (8,280
              )
              
              
              -
              
              
              
              (8,280
              )Unallocated
      ESOP, shares earned (10,350 shares earned)
              
              
              -
              
              
              
              -
              
              
              
              (5
              )
              
              
              -
              
              
              
              104
              
              
              
              -
              
              
              
              99Balance
      at March 31, 2008
              
              
              23,000,000
              
              
              $
              -
              
              
              $
              100,628
              
              
              $
              107,214
              
              
              $
              (8,176
              )
              
              $
              3,799
              
              
              $
              203,465




See
accompanying notes to unaudited consolidated financial
statements.


3
 Index


MERIDIAN
INTERSTATE BANCORP, INC. AND SUBSIDIARIES


Consolidated
Statements of Cash Flows


(Unaudited)








Three
      Months Ended March 31,(In
      thousands)
              
              2008
              
              2007Cash
      flows from operating activities:Net
      income (loss)
              
              $
              (321
              )
              
              $
              1,795Adjustments
      to reconcile net income (loss) to net cashprovided
      by operating activities:Contribution
      of stock to charitable foundation
              
              
              3,000
              
              
              
              -Earned
      ESOP shares
              
              
              99
              
              
              
              -Provision
      for loan losses
              
              
              131
              
              
              
              72Amortization
      of net deferred loan origination fees
              
              
              (78
              )
              
              
              (159
              )Net
      amortization of securities available for sale
              
              
              150
              
              
              
              225Depreciation
      and amortization expense
              
              
              324
              
              
              
              349Gain
      on sales of securities, net
              
              
              (2,266
              )
              
              
              (2,032
              )Loss
      on sale of foreclosed real estate
              
              
              5
              
              
              
              -Deferred
      income tax provision (benefit)
              
              
              (1,152
              )
              
              
              3Income
      from bank-owned life insurance
              
              
              (185
              )
              
              
              (162
              )Equity
      loss on investment in affiliate bank
              
              
              168
              
              
              
              83Net
      changes in:Accrued
      interest receivable
              
              
              514
              
              
              
              88Other
      assets
              
              
              3,666
              
              
              
              707Accrued
      expenses and other liabilities
              
              
              (1,131
              )
              
              
              (429
              )Net
      cash provided by operating activities
              
              
              2,924
              
              
              
              540Cash
      flows from investing activities:Purchases
      of certifictes of deposit
              
              
              (2,000
              )
              
              
              -Activity
      in securities available for sale:Proceeds
      from maturities, calls and principal payments
              
              
              25,750
              
              
              
              19,007Proceeds
      from sales
              
              
              9,804
              
              
              
              19,000Purchases
              
              
              (22,203
              )
              
              
              (32,404
              )Redemption
      of Federal Home Loan Bank stock
              
              
              -
              
              
              
              206Loans
      originated, net of principal payments received
              
              
              (12,257
              )
              
              
              (3,929
              )Purchase
      of bank-owned life insurance
              
              
              (4,000
              )
              
              
              -Purchases
      of premises and equipment
              
              
              (137
              )
              
              
              (2,650
              )Proceeds
      from sales of foreclosed real estate
              
              
              290
              
              
              
              -Net
      cash used in investing activities
              
              
              (4,753
              )
              
              
              (770
              )





(continued)





4
 Index


MERIDIAN
INTERSTATE BANCORP, INC. AND SUBSIDIARY


Consolidated
Statements of Cash Flows


(Unaudited)





Three
      Months Ended March 31,(In
      thousands)
              
              2008
              
              2007Cash
      flows from financing activities:Net
      increase in deposits
              
              
              31,148
              
              
              
              6,053Proceeds
      from sale of common stock
              
              
              97,633
              
              
              
              -Common
      stock purchased by ESOP
              
              
              (8,280
              )
              
              
              -Stock
      subscriptions
              
              
              (62,518
              )
              
              
              -Proceeds
      from Federal Home Loan Bank advanceswith
      maturities of three months or more
              
              
              -
              
              
              
              169Repayment
      of Federal Home Loan Bank advanceswith
      maturities of three months or more
              
              
              (6,300
              )
              
              
              (450
              )Net
      cash provided by financing activities
              
              
              51,683
              
              
              
              5,772Net
      change in cash and cash equivalents
              
              
              49,854
              
              
              
              5,542Cash
      and cash equivalents at beginning of period
              
              
              103,093
              
              
              
              23,494Cash
      and cash equivalents at end of period
              
              $
              152,947
              
              
              $
              29,036Supplemental
      cash flow information:Interest
      paid on deposits
              
              
              6,917
              
              
              
              6,104Interest
      paid on borrowings
              
              
              404
              
              
              
              472Income
      taxes paid
              
              
              20
              
              
              
              25Non-cash
      investing and financing activities:Transfers
      from loans to foreclosed real estate
              
              
              908
              
              
              
              -





See
accompanying notes to unaudited consolidated financial
statements.


5
 Index


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
(consisting only of normal recurring accruals) considered necessary for a fair
presentation have been included.  Such adjustments were of a normal
recurring nature.  The results of operations for the three month
period ended March 31, 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, 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 shares of common stock for the entire
quarter ended March 31, 2008, per share earnings data is not meaningful for this
quarter or prior comparative periods and is therefore not
presented.




Net investable proceeds from the initial public offering were approximately
$89,353,000.   In connection with the initial public offering,
the Company also 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
$114,216,000, 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.


6
 Index





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.
            Subsequent
      Event





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.





4.
            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.Statement No. 157 does not
require any new fair value measurements.  The Company’s disclosures
relating to SFAS No. 157 are set forth in Note 5.  In February 2008,
the FASB issued FASB Staff Position (FSP) FAS 157-2.  FSP FAS 157-2
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 the SFAS No. 157 did not have a material affect on the Company's
consolidated financial statements.





Effective
January 1, 2008, the Company also 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.
This Statement 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.” This Statement
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


7
 Index


December
15, 2008 and is not expected to have a material impact on the consolidated
financial statements of the Company.





In March
of 2008, the FASB issued Statement No. 161, “Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No.
133.”  This Statement 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.





5.
            Fair
      Value Measurement





As
discussed in Note 4, 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.





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.


8
 Index




The
balances of assets and liabilities measured at fair value on a recurring basis
as of March 31, 2008 were as follows:




Assets
      at Fair Value
                  
                  Quoted
      Prices in
                    Active
      Markets for
                    Identical
      Assets
                    (Level
      1)
                  
                  Significant
                    Other
                    Observable
      Inputs
                    (Level
      2)(In
      thousands)Securities
      available for sale
                  
                  $
                  251,045
                  
                  
                  $
                  33,384
                  
                  
                  $
                  217,661





The
balances of assets and liabilities measured at fair value on a nonrecurring
basis as of March 31, 2008 were as follows:


Assets
      at Fair Value
                
                
                Significant
                  Unobservable
                  Inputs
                  (Level
      3)
                
                
                Total
      Gains
                  (Losses)(In
      thousands)Impaired
      loans (1)
                
                $
                1,321
                
                
                $
                1,321
                
                
                $
                (148
                )




(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 March 31, 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.





6.
            Employee
      Benefits


Employee Stock Ownership Plan (“ESOP”)—The Company established an ESOP
for its employees effective January 1, 2008. The ESOP covers all of the
Company’s eligible employees.  Employees are eligible to participate
in the ESOP after satisfaction of the following requirements: 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 Employees
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 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.





9
 Index


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 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, 2007filed with the
Securities and Exchange Commission on March 31, 2007, under “Risk Factors,”
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. The preparation of financial statements in accordance with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes.  Actual results could differ from those
estimates.  Management has identified accounting for the allowance for
credit losses and income taxes as the Company’s most critical accounting
policies.  The Company’s critical accounting policies have not changed
since December 31, 2007.





10
 Index





General





Selected
Financial Data





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





Financial
      Condition HighlightsAt
              
              
              AtMarch
      31,
              
              
              December
      31,(In
      thousands)
              
              2008
              
              
              2007Total
      assets
              
              $
              1,053,841
              
              
              $
              1,003,226Secuities
      available for sale
              
              
              251,045
              
              
              
              267,058Net
      loans
              
              
              579,400
              
              
              
              568,104Deposits
              
              
              805,594
              
              
              
              774,446Borrowed
      funds
              
              
              30,227
              
              
              
              36,527Stockholders'
      equity
              
              
              203,465
              
              
              
              115,684
  Three
      Months EndedMarch
      31,(Dollars
      in thousands)
              
              2008
              
              
              2007Net
      interest income
              
              $
              5,838
              
              
              $
              5,303Provision
      for loan losses
              
              
              131
              
              
              
              72Non-interest
      income
              
              
              3,176
              
              
              
              2,936Non-interest
      expenses
              
              
              9,312
              
              
              
              5,536Provision
      (benefit) for income taxes
              
              
              (108
              )
              
              
              836Net
      income (loss)
              
              
              (321
              )
              
              
              1,795Interest
      rate spread
              
              
              1.82
              %
              
              
              2.12
              %Net
      interest margin
              
              
              2.43
              %
              
              
              2.58
              %


Comparison
of Financial Condition at March 31, 2008 and December 31, 2007





Total
assets increased by $50.6 million, or 5.0%, from $1.0 billion at December 31,
2007 to $1.05 billion at March 31, 2008.  The increase in assets was
due to the influx of net proceeds from the initial public offering of
$89,353,000, and was offset in part by the reduction in stock subscription
escrow funds which totaled $62,518,000 at December 31, 2007.  Cash and
equivalents increased by $49.9 million as a portion of the net proceeds received
in the stock offering remain invested in federal funds.  Net loans
increased by $11.3 million, or 2.0%, while securities available for sale
decreased $14.6 million, or 6.0%, due to sales, maturities and amortization of
the portfolio.  Deposit balances increased by $31.1 million, or 4.0%
despite the end of our offering promotional rates.




Loans
growth continued in the first quarter of 2008.  Growth in total real
estate loans was $10.0 million, or 1.8%, including increases of $6.8 million, or
3.0%, in one- to four-family real estate loans.  The Company has
experienced increased activity in this loan category in 2008.  An
increase in commercial real estate loans of $15.2 million, or 8.7%, was offset
by a decrease in the balance of construction loans of $12.6 million, due to the
transfer to the real estate portfolio upon project completion.  The
Company continues to develop the commercial business loan portfolio, which
increased by $1.5 million, or 12.8%, from December 31, 2007.




11
 Index







Deposits
increased by $31.1 million, or 4.0%, as customers are showing a preference for
insured deposit accounts, despite the end of our offering promotional market
pricing in January 2008.  Interest-bearing checking deposits increased
by $3.5 million, or 10.3%, to $37.1 million at March 31,
2008.  Certificates of deposit also increased by $23.2 million,
to $455.1 million, despite the end of our offering promotional rates on
this category.  Federal Home Loan Bank of Boston borrowings declined
$6.3 million, to $30.2 million at March 31, 2008, as the Company elected to
delay replacing maturing debt due to the increase in deposit balances, maturing
securities and stock offering proceeds.





Stockholders’
equity increased by $87.8 million, to $203.5 million at March 31, 2008 from
$115.7 million at December 31, 2007, mainly due to the stock offering, offset by
the effects of the adoption of ETIF 06-4 of $1.6 million and the change in the
net unrealized gain on securities available for sale of $2.7
million.





Securities


All
securities held by the Company as of March 31, 2008 and 2007 were 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 March 31,
2008 and December 31, 2007 were as follows:




At
      March 31,
              
              
              At
      December 31,2008
              
              
              2007(In
      thousands)
              
              Amortized
              
              
              Fair
              
              
              Amortized
              
              
              FairCost
              
              
              Value
              
              
              Cost
              
              
              ValueSecurities
      available for sale:U.S.
      Government – sponsored enterprises
              
              $
              4,001
              
              
              $
              4,033
              
              
              $
              7,002
              
              
              $
              6,975Corporate
      bonds
              
              
              211,876
              
              
              
              213,585
              
              
              
              219,626
              
              
              
              220,629Mortgage-backed
      securities
              
              
              42
              
              
              
              43
              
              
              
              43
              
              
              
              43Total
      debt securities
              
              
              215,919
              
              
              
              217,661
              
              
              
              226,671
              
              
              
              227,647Marketable
      equity securities
              
              
              28,360
              
              
              
              33,384
              
              
              
              28,843
              
              
              
              39,411Total
      securities available for sale
              
              $
              244,279
              
              
              $
              251,045
              
              
              $
              255,514
              
              
              $
              267,058





The
available for sale securities portfolio declined by $16.0 million due to
maturities, amortization, and sales.    The funds generated
from the portfolio were used primarily to pay down borrowings and fund loan
originations.   At March 31, 2008, unrealized losses in our debt
portfolio ranged from 0% to 22%, and unrealized losses in our equity portfolio
ranged from 0% to 36%.  At March 31, 2007, unrealized losses in our
debt portfolio ranged from 0% to 22%, and unrealized losses in our equity
portfolio ranged from 0% to 15%.   Management continues to
carefully monitor the securities that have been determined to have temporary
market declines.





Management
evaluates securities for other-than-temporary impairment on a semi-monthly
basis.  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.


12
 Index




Loan
Portfolio Analysis





Our loan portfolio consists primarily
of residential, multi-family and commercial real estate, construction and land
development, commercial, and consumer loans and home equity lines of credit
originated primarily in our market area. There are no foreign loans outstanding.
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 March 31, 2008 and December 31, 2007 were as
follows:





At
      March 31, 2008
              
              
              At
      December 31, 2007(Dollars
      in thousands)
              
              Amount
              
              
              %
              
              
              Amount
              
              
              %Real
      estate loans:One-to
      four-family
              
              $
              230,938
              
              
              
              39.5
              %
              
              $
              224,109
              
              
              
              39.1
              %Multi-family
              
              
              27,912
              
              
              
              4.8
              
              
              
              26,855
              
              
              
              4.7Commercial
      real estate
              
              
              190,231
              
              
              
              32.5
              
              
              
              175,072
              
              
              
              30.5Construction
              
              
              99,203
              
              
              
              17.0
              
              
              
              111,796
              
              
              
              19.5Home
      equity linesof
      credit
              
              
              21,101
              
              
              
              3.6
              
              
              
              21,541
              
              
              
              3.8Total
      real estate loans
              
              
              569,385
              
              
              
              97.4
              
              
              
              559,373
              
              
              
              97.6Commercial
      business loans
              
              
              13,373
              
              
              
              2.3
              
              
              
              11,859
              
              
              
              2.1Consumer
      loans
              
              
              1,462
              
              
              
              0.3
              
              
              
              1,576
              
              
              
              0.3Total
      loans
              
              
              584,220
              
              
              
              100.0
              %
              
              
              572,808
              
              
              
              100.0
              %Net
      deferred loan origination fees
              
              
              (1,052
              )
              
              
              
              
              
              
              (1,067
              )Allowance
      for loan losses
              
              
              (3,768
              )
              
              
              
              
              
              
              (3,637
              )Loans,
      net
              
              $
              579,400
              
              
              
              
              
              
              $
              568,104











13
 Index


Analysis
of Loan Loss Experience





The
allowance for loan losses is maintained at levels considered adequate by
management to provide for possible loan losses as of the consolidated balance
sheet reporting dates.  The allowance for loan losses is based on
management’s assessment of various factors affecting the loan portfolio,
including portfolio composition, delinquent and non-accrual loans, national and
local business conditions and loss experience, and an overall evaluation of the
quality of the underlying collateral.  Changes in the allowance for
loan losses during the three months ended March 31, 2008 and 2007 were as
follows:





Three
      Months EndedMarch
      31,(Dollars
      in thousands)
              
              2008
              
              
              2007Beginning
      Balance
              
              $
              3,637
              
              
              $
              3,362Provision
      for loan losses
              
              
              131
              
              
              
              72Charge
      offs:Real
      estate loans
              
              
              -
              
              
              
              -Commercial
      business loans
              
              
              -
              
              
              
              3Consumer
      loans
              
              
              -
              
              
              
              -Total
      charge-offs
              
              
              -
              
              
              
              3Recoveries:Real
      estate loans
              
              
              -
              
              
              
              -Commercial
      business
              
              
              -
              
              
              
              -Consumer
      loans
              
              
              -
              
              
              
              -Total
      recoveries
              
              
              -
              
              
              
              -Net
      recoveries (charge-offs)
              
              
              -
              
              
              
              (3
              )Allowance
      at end of period
              
              $
              3,768
              
              
              $
              3,431Allowance
      to non-accrual loans
              
              
              127.95
              %
              
              
              73.00
              %Allowance
      to total loans outstanding
              
              
              0.64
              %
              
              
              0.63
              %Net
      recovery (charge-offs) to average loans outstanding
              
              
              0.00
              %
              
              
              -0.03
              %





Provision
for Loan Losses





Management
made provisions of $131,000 and $72,000 for the quarters ended March 31, 2008
and 2007, respectively.  We recorded net charge-offs of $3,000 in the
first quarter of 2007.The allowance for loan
losses was $3.8 million, or 0.64% of total loans outstanding as of March 31,
2008, as compared to $3.6 million, or 0.63% of total loans outstanding as of
December 31, 2007.   The increase in the balance of the allowance
for loan losses is due to growth in the overall loan portfolio and management’s
ongoing analysis of loan loss factors.The Company continues to
assess the adequacy of its allowance for loan losses in accordance with
established policies.





Management believes that the increase
in the loan loss provision is appropriate considering the growth of the loan
portfolio, local market conditions and the overall economic
environment.  While the Company’s non-accrual and impaired loan
balances decreased during the quarter, specific reserves for impaired loans
increased $59,000 during the quarter, reflecting the declining real estate
values in the Company’s market area.


14
 Index


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 March 31, 2008
and December 31, 2007.





At
      March 31,
              
              
              At
      December 31,(In
      thousands)
              
              2008
              
              
              2007Loans
      accounted for on a non-accrual basis:Real
      estate loans:One-to
      four-family
              
              $
              987
              
              
              $
              2,059Multi-family
              
              
              -
              
              
              
              -Commercial
      real estate
              
              
              1,623
              
              
              
              1,561Home
      equity lines of credit
              
              
              -
              
              
              
              98Construction
              
              
              335
              
              
              
              1,218Total
      real estate loans
              
              
              2,945
              
              
              
              4,936Commercial
      business loans
              
              
              -
              
              
              
              45Consumer
      loans
              
              
              -
              
              
              
              1Total
      non-accrual loans
              
              
              2,945
              
              
              
              4,982Foreclosed
      assets
              
              
              1,173
              
              
              
              560Total
      nonperforming assets
              
              $
              4,118
              
              
              $
              5,542Non-accrual
      loans to total loans
              
              
              0.50
              %
              
              
              0.87
              %Non-accrual
      loans to total assets
              
              
              0.28
              %
              
              
              0.50
              %Non-performing
      assets to total assets
              
              
              0.39
              %
              
              
              0.55
              %





Interest
income that would have been recorded for the quarters ended March 31, 2008 had
nonaccruing loans and accruing loans past due 90 days or more been current
according to their original terms amounted to $140,000.  Foreclosed
assets include three residential properties.  At March 31, 2008 or
2007, the Company did not have any troubled debt restructures or accruing loans
past due 90 days or more.




Non-accrual
loans decreased to $2.9 million at March 31, 2008 from $5.0 million at December
31, 2007.  In addition, $835,000 and $1.3 million of the non-accrual
loans at March 31, 2008 and December 31, 2007, respectively, represented matured
loans that were reported as non-accrual although the customer continued to make
payments.  The percentage of total delinquent loans as a percentage of
the total portfolio was 1.66% and 0.80% as of December 31, 2007, and March 31,
2008 respectively.





The
Company had impaired loans totaling $3.5 million and $5.1 million as of March
31, 2008 and December 31, 2007, respectively.  Impaired loans totaling
$621,000 million had a valuation allowance of $89,000 at December 31,
2007.  At March 31, 2008, impaired loans totaling $1.5 million had a
valuation allowance of $148,000.  The Company’s average
investment in impaired loans was $3.1 million and $3.2 million for the quarters
ended March 31, 2008 and 2007, respectively.





15
 Index





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 period end balance and the composition of
deposits:





At
      March 31, 2008
                  
                  
                  At
      December 31, 2007(Dollars
      in thousands)
                  
                  Amount
                  
                  
                  Percent
                  
                  
                  Amount
                  
                  
                  PercentNOW
      and demand deposits
                  
                  $
                  90,628
                  
                  
                  
                  11.25
                  %
                  
                  $
                  85,045
                  
                  
                  
                  10.98
                  %Money
      market deposits
                  
                  
                  139,283
                  
                  
                  
                  17.29
                  
                  
                  
                  138,688
                  
                  
                  
                  17.91Regular
      and other deposits
                  
                  
                  120,614
                  
                  
                  
                  14.97
                  
                  
                  
                  118,837
                  
                  
                  
                  15.34Certificates
      of deposit
                  
                  
                  455,069
                  
                  
                  56.49
                  
                  
                  
                  431,876
                  
                  
                  55.77Total
                  
                  $
                  805,594
                  
                  
                  
                  100.00
                  %
                  
                  $
                  774,446
                  
                  
                  
                  100.00
                  %











Borrowings





Federal
Home Loan Bank (“FHLB”) advances totaling to $9,154,000 at both March 31, 2008
and December 31, 2007 mature within one year, at a weighted average rate of
2.44% and 4.52%, respectively.




At March
31, 2008, long-term FHLB advances totaling $21.1 million mature through June
2010, with a weighted average yield of 4.43%.  As of December 31,
2007, long-term FHLB advances totaling $27.4 million were outstanding, with a
weighted average yield of 4.48%.  The Company has utilized proceeds
from the securities portfolio to pay down borrowings.




16
 Index


Results
of Operations for the Quarter Ended March 31, 2008 and March 31,
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 March 31,2008
                
                
                2007(Dollars
      in thousands)
                
                Average
      Balance
                
                
                InterestEarned/Paid
                
                
                Yield/ Cost
      (4)
                
                
                Average
      Balance
                
                
                InterestEarned/Paid
                
                
                Yield/ Cost
      (4)Assets:Interest-earning
      assets:Loans
      (1)
                
                $
                567,832
                
                
                $
                9,183
                
                
                
                6.50
                %
                
                $
                537,640
                
                
                $
                8,672
                
                
                
                6.54
                %Securities
                
                
                259,907
                
                
                
                2,877
                
                
                
                4.45
                
                
                
                281,120
                
                
                
                3,036
                
                
                
                4.38Other
      interest-earning assets
                
                
                138,471
                
                
                1,063
                
                
                
                3.09
                
                
                
                14,342
                
                
                187
                
                
                
                5.28Total
      interest-earning assets
                
                
                966,210
                
                
                
                13,123
                
                
                
                5.46
                
                
                
                833,102
                
                
                
                11,895
                
                
                
                5.79Noninterest-earning
      assets
                
                
                74,585
                
                
                
                
                
                
                
                
                
                
                
                66,576Total
      assets
                
                $
                1,040,795
                
                
                
                
                
                
                
                
                
                
                $
                899,678Liabilities
      and equity:Interest-bearing
      liabilities:NOW  deposits
                
                $
                37,511
                
                
                $
                68
                
                
                
                0.72
                %
                
                $
                37,671
                
                
                $
                28
                
                
                
                0.30
                %Money
      market deposits
                
                
                140,123
                
                
                
                1,153
                
                
                
                3.30
                
                
                
                98,450
                
                
                
                817
                
                
                
                3.37Regular
      and other deposits
                
                
                145,970
                
                
                
                395
                
                
                
                1.09
                
                
                
                130,960
                
                
                
                378
                
                
                
                1.17Certificates
      of deposit
                
                
                445,869
                
                
                5,295
                
                
                
                4.78
                
                
                
                420,780
                
                
                4,893
                
                
                
                4.72Total
      interest-bearing deposits
                
                
                769,473
                
                
                
                6,911
                
                
                
                3.61
                
                
                
                687,861
                
                
                
                6,116
                
                
                
                3.61FHLB
      advances
                
                
                35,913
                
                
                374
                
                
                
                4.19
                
                
                
                40,378
                
                
                476
                
                
                
                4.78Total
      interest-bearing liabilities
                
                
                805,386
                
                
                
                7,285
                
                
                
                3.64
                
                
                
                728,239
                
                
                
                6,592
                
                
                
                3.67Noninterest-bearing
      demand deposits
                
                
                51,801
                
                
                
                
                
                
                
                
                
                
                
                52,309Other
      noninterest-bearing liabilities
                
                
                24,033
                
                
                
                
                
                
                
                
                
                
                
                8,237Total
      liabilities
                
                
                881,220
                
                
                
                
                
                
                
                
                
                
                
                788,785Total
      equity
                
                
                159,575
                
                
                
                
                
                
                
                
                
                
                
                110,893Total
      liabilities and equity
                
                $
                1,040,795
                
                
                
                
                
                
                
                
                
                
                $
                899,678Net
      interest income
                
                
                
                
                
                $
                5,838
                
                
                
                
                
                
                
                
                
                
                $
                5,303Interest
      rate spread  (2)
                
                
                
                
                
                
                
                
                
                
                1.82
                %
                
                
                
                
                
                
                
                
                
                
                2.12
                %Net
      interest margin  (3)
                
                
                
                
                
                
                
                
                
                
                2.43
                %
                
                
                
                
                
                
                
                
                
                
                2.58
                %Average
      interest-earning assets to average
      interest-bearing liabilities
                
                
                
                
                
                
                119.97
                %
                
                
                
                
                
                
                
                
                
                
                114.40
                %(1)
      Loans on non accrual status are included in average
    balances.(2)
      Interest rate spread represents the difference betweent the yield on
      interest-earning assets andthe cost of interest-bearing liabilities.(3)
      Net interest margin represents net interest income divided by average
      interest-earning assets.(4)
      Yields are annualized


17
 Index


Financial
Highlights





We
recorded a loss a net loss of $321,000 for the quarter ended March 31, 2008,
compared to net income of $1.8 million for the quarter ended March 31,
2007.  The 2008 net loss resulted primarily from a $3.0 million
pre-tax contribution of stock to the Company’s charitable foundation, which was
made as part of the Company’s minority stock offering, completed on January 22,
2008.   The loss from the contribution was offset, in part, by an
increase in net interest income of $535,000, or a 10.1% increase, and an
increase in noninterest income of $240,000, or 8.2%.





Analysis
of Net Interest Income





Net interest income for the quarter
ended March 31, 2008 was $5.8 million, an increase of $535,000, or 10.1%, from
the quarter ended March 31, 2007.  An increase in interest earned on
the loan portfolio due to a higher balance of loans and lower borrowing costs on
FHLB advances were partially offset by an increase in the average balance and
cost of deposits.




The
Company’s net interest margin was 2.43% and 2.58% for the quarters ended March
31, 2008 and 2007, respectively.  An increase in the balance of lower
yielding federal funds sold as a result of cash received in the stock offering
and an increase in the average balance of higher costing deposits resulted in
the margin compression.




Interest income on the securities
portfolio decreased $159,000, or 5.2%, from $3.0 million to $2.9 million, mainly
due to lower average balances in 2008.  The average balance decrease
was partially offset by an increase in the yield from 4.38% to 4.45% for the
first quarters of 2007 and 2008, respectively.





Growth in
the loan portfolio throughout 2007 impacted interest earned, as the average loan
balance increased $30.2 million, from $537.6 million for the quarter ended March
31, 2007, to $567.8 million for the quarter ended March 31,
2008.  Loan interest income increased $511,000, to $9.2 million, and
loan yields of 6.50% and 6.54% were earned during the quarters ended March 31,
2008 and 2007, respectively.





The Company experienced an increase in
the average balance of deposits, particularly certificates of deposit and money
market accounts, which increased due to promotional rates on these products
throughout 2007.  Average interest-bearing deposits increased by $81.6
million, or 11.9%, to $769.5 million for the quarter ended March 31, 2008,
compared to the quarter ended March 31, 2007. Certificates of deposit with the
promotional rates matured during the first quarter of 2008, and the money
market account promotional rates have also ended as of March 31,
2008.  The average rate paid on certificates of deposit increased
slightly due to these promotions, and interest expense on deposits increased by
$795,000, or 13.0%.  The average rate paid on interest-bearing
deposits was 3.61% for each of the first quarters of 2007 and 2008.





The
Company experienced a decrease in the average balance and cost of borrowings by
utilizing security pay-downs, deposit growth and stock offering proceeds to
repay maturing borrowings.  Average outstanding borrowings declined
from $40.4 million for the quarter ended March 31, 2007 to $35.9 million for the
quarter ended March 31, 2008, and the rate paid decreased from 4.78% to
4.19%.  Total borrowing expense decreased by $102,000, or 21.4%, from
$476,000 to $374,000 for the quarters ended March 31, 2007 and 2008,
respectively.




Non-interest
Income.  Non-interest
income for the first quarter of 2008 was $3.2 million, an increase of $240,000,
or 8.2%, compared to the first quarter of 2007.  Customer service fees
increased $59,000, or 9.3% to $696,000, as a result of increased transaction
account balances and management’s continued focus on earnings
diversification.  Bank-owned life insurance income increased $23,000,
or 14.2% due to increased interest rates earned on the policies.  The
net loss on the investment in our affiliate bank, Hampshire First Bank, was
$168,000, an increase of $85,000, or 102.4% due to the establishment of two
additional branches in accordance with Hampshire First Bank’s business
plan.  The Company also recorded net gains on sales of securities of
$2.3 million and $2.0 million for the quarters ended March 31, 2008 and 2007,
respectively, primarily as a result of the sale of marketable equity securities.





18
 Index


Non-interest
Expenses.Non-interest
expenses increased $3.8 million, from $5.5 million to $9.3 million for the
quarters ended March 31, 2007, and 2008, respectively. The increase was
mainly due to the $3.0 million contribution to the Company’s charitable
foundation.   Salary and employee benefit costs increased from
$3.7 million to $4.1 million, or 9.5%, as a result of the opening of the Lynn
branch in mid-2007, modest salary increases, and additional expense incurred as
the result of the transition from a mutual to a public
company.   Occupancy and equipment expense increased
$78,000, or 11.1% as a result of the new Lynn branch and increased utility
costs. Professional service fees increased $154,000 primarily due
to stock market listing fees and higher professional expenses related to
being a public company.  Marketing expense was $246,000, an increase
of $106,000 from 2007, as the Company utilized radio media to promote the
availability of commercial and residential mortgage credit in its local market
area.





Income
Tax Expense.  We recorded a tax benefit of $108,000, or a 25.2%
effective tax rate,  for the quarter ended March 31, 2008 compared to
a tax expense of $836,000, or a 31.8% effective tax rate,  for the
same 2007 period.  The tax benefit recorded in 2008 was due to the net
operating loss, and the decrease 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.  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, our $3.0 million contribution will create
a carry-forward for income tax purposes and a deferred tax asset for financial
statement purposes.






19
 Index





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 March 31, 2008, cash and cash equivalents totaled $152.9
million.  In addition, at March 31, 2008, we had $103.7 million of
available borrowing capacity with the Federal Home Loan Bank of Boston,
including a $9.4 million line of credit.  On March 31, 2008, we had
$30.2 million of advances outstanding.





A significant use of our liquidity is
the funding of loan originations.  At March 31, 2008, we had $147.7
million in total loan commitments outstanding.  Unused portions of
existing loans include $55.8 million in unadvanced portions of construction
loans, $21.0 million in unused home equity lines of credit, $3.0 million in
unused business lines of credit, $1.2 million in unused commercial letters of
credit, and $490,000 in unadvanced revolving lines of credit. Commitments to
fund new loans include $10.6 million in commitments to fund one- to four-family
residential real estate loans, $33.7 million in commitments to fund commercial
real estate loans, $18.5 million in commitments to originate construction loans,
$1.9 million in commitments to originate home equity lines of credit, and $1.5
million in commitments to originate residential construction
loans.    Historically, many of the commitments expire
without being fully drawn; therefore, the total amount of commitment does not
necessarily represent future cash requirements.  We also have a seven
year contract with our core data processing provider with an outstanding
commitment of approximately $7.1 million as of March 31, 2008, and an annual
payment of approximately $1.3 million.





Another significant use of our
liquidity is the funding of deposit withdrawals.  Certificates of
deposit due within one year of March 31, 2008 totaled $306.6 million, or
67% of certificates of deposit.  The large percentage of certificates
of deposit that mature within one year reflects our 2007 promotional market
pricing that focused on short term certificates.  If these maturing
deposits do not remain with us, we will be required to utilize other sources of
funds.  However, due to the cash generated in the Company’s recent
stock offering, we believe we have funds available to offset any deposit
outflows.  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,
and deposits have continued to increase in 2008 despite the end of our offering
promotional pricing.





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 March 31, 2008, both Meridian Interstate Bancorp and
East Boston Savings Bank exceeded all of their respective regulatory capital
requirements. East Boston Saving Bank is considered “well capitalized” under
regulatory guidelines.


20
 Index








The proceeds from the stock offering
significantly increased our liquidity and capital resources.  Over
time, the initial level of liquidity will be reduced as net proceeds from the
stock offering are used for general corporate purposes, including the funding of
loan originations.  Our financial condition and results of operations
have been enhanced by the capital from the offering, resulting in increased net
interest-earning assets and net income during the period following completion of
the offering in January 2008.  However, due to the increase in equity
that resulted from the net proceeds of the stock offering, prospectively, our
return on equity ratios will be 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 March 31, 2008.





For the three months ended March 31,
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.”


21
 Index


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 March 31, 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 March 31, 2008 and ending March
31, 2009:





Increase
      (Decrease)in
      Market Interest
              
              Net
      Interest Income
              
              Net
      Portfolio Value EstimateRates
      (Rate Shock)
              
              Amount
              
              
              Change
              
              
              Percent
              
              Amount
              
              
              Change
              
              
              Percent(Dollars
      in thousands)300
              bp
              
              $
              35,220
              
              
              $
              5,039
              
              
              
              16.70
              %
              
              $
              156,721
              
              
              $
              (57,031
              )
              
              
              (26.68
              )
      %200
              
              
              
              33,564
              
              
              
              3,383
              
              
              
              11.21
              
              
              
              175,499
              
              
              
              (38,253
              )
              
              
              (17.90
              )100
              
              
              
              31,897
              
              
              
              1,716
              
              
              
              5.69
              
              
              
              195,106
              
              
              
              (18,646
              )
              
              
              (8.72
              )0
              
              
              
              30,181
              
              
              
              
              
              
              
              
              
              
              
              213,752(100
              )
              
              
              28,351
              
              
              
              (1,830
              )
              
              
              (6.06
              )
              
              
              229,526
              
              
              
              15,774
              
              
              
              7.38(200
              )
              
              
              26,183
              
              
              
              (3,998
              )
              
              
              (13.25
              )
              
              
              239,764
              
              
              
              26,012
              
              
              
              12.17(300
              )
              
              
              23,633
              
              
              
              (6,548
              )
              
              
              (21.70
              )
              
              
              248,429
              
              
              
              34,677
              
              
              
              16.22





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











22
 Index







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)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.















23
 Index


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 March 31, 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.





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




(a.) Not
applicable.





(b.)        
On July 2, 2007, the Board of Directors of Meridian Interstate Bancorp, Inc.
adopted a Stock Issuance Planwhereby Meridian Interstate Bancorp, Inc. would
sell 43% of its to-be outstanding shares of common stock to the public in a
stock offering and issue 300,000 of its to-be outstanding shares to Meridian
Charitable Foundation, Inc.  The remaining 55% of the to-be
outstanding shares would be held by Meridian Financial Services, Incorporated,
Meridian Interstate Bancorp, Inc.’s mutual holding company.





Meridian
Interstate Bancorp, Inc. filed a Registration Statement on Form S-1 with the
Securities and Exchange Commission in connection with the stock offering (File
No. 333-146373).  The Registration Statement was declared effective by
the Securities and Exchange Commission on November 13, 2007.  Meridian
Interstate Bancorp, Inc. registered 13,591,125 shares on the Registration
Statement, including up to 13,291,125 shares for sale to the
public.  The stock offering commenced on November 27, 2007, and closed
on January 22, 2008.





Keefe,
Bruyette & Woods, Inc. was engaged to assist in the marketing of the shares
of common stock. For their services, Keefe, Bruyette & Woods, Inc. received
a success fee of 0.75% of the aggregate dollar amount of the shares of common
stock sold in the Subscription and Community offering excluding shares sold to
our employee stock ownership plan and to our officers, employees, corporators
and directors and their immediate family members and contributed to Meridian
Charitable Foundation, Inc.





For
shares of common stock sold through a group of broker-dealers in a syndicated
community offering, the total fees payable to the selected dealers (which
included Keefe, Bruyette & Woods, Inc.) for the shares sold totaled 0.50% of
the aggregate dollar amount of shares sold in the syndicated offering. Keefe,
Bruyette & Woods, Inc. was also reimbursed $10,750 for its reasonable
out-of-pocket expenses and $25,000 for its legal fees and expenses.





The stock
offering resulted in gross proceeds of $100.5 million, through the sale of
10,050,000 shares at a price of $10.00 per share. Expenses related to the
offering were approximately $2.9 million, including $1.5 million paid to Keefe,
Bruyette & Woods, Inc.  No underwriting discounts, commissions or
finders fees were paid in connection with the stock offering.








24
 Index








Net
investable proceeds of the offering were approximately $89.4
million.  Meridian Interstate Bancorp, Inc. retained $44.7 million of
the net proceeds of the offering, and $44.7 million was contributed to East
Boston Savings Bank.  The proceeds were invested in federal funds sold
in the interim period.  Meridian Interstate Bancorp, Inc. may use the
proceeds from the stock offering as described in the section entitled “Use of
Proceeds” in the prospectus filed with the SEC on November 27,
2007.





(c.)
      Not applicable.





Item
3.  Defaults Upon Senior Securities





Not
applicable.





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





None.





Item
5A.  Other Information
  Supplemental
Executive Retirement Agreements.  Effective April 14, 2008,
East Boston Savings Bank entered into amended supplemental executive retirement
agreements with each of the following: Robert F. Verdonck, President; Philip F.
Freehan, Executive Vice President; and Leonard V. Siuda, Chief Financial Officer
and Treasurer.  Meridian Interstate Bancorp entered into a
substantially similar agreement with Richard J. Gavegnano, Chairman and Chief
Executive Officer, in lieu of the agreement that was in place for Mr.
Gavegnano as a director.  Under the agreements, if the executive
terminates employment after 10 years of service, he will receive an annual
benefit (paid monthly) equal to 70% of his final average compensation, offset by
his annual pension benefit.  For purposes of the agreements, an
executive’s final average compensation equals the three years’ base salary that
results in the highest average.  Messrs. Verdonck and
Freehan become 50% vested in the annual benefit upon the completion of ten
years of service and continues to vest an additional 5% for the next ten years
of service, so that they are fully vested following 20 years of
service.  The benefit is reduced by 2.5% for each year the executive
receives the benefit prior to reaching age 65.   Notwithstanding the
foregoing, in the amended agreement, the accrued benefit shall not be reduced by
the 2.5% increments after the Executive has completed 25 years of service with
the Bank, or following a Change in Control.  Mr. Siuda’s amended
agreement provides that he will vest ratably in the stated benefit over a period
of 18 years so that he becomes fully vested upon attainment of age
65.  Mr. Gavegnano’s agreement provides that he will vest ratably in
the stated benefit over a period of eight years (12.5% per year) so that he
becomes fully vested upon attainment of age 68. Mr. Gavegnano’s benefit is not
offset by any pension benefit since Mr. Gavegnano did not participate in the
former pension plan.  The benefit is paid in a lump sum. If the
executive dies while employed, his beneficiary will receive a benefit for their
life, assuming the executive had retired on his date of death.  Copies
of the amended agreements are filed as exhibits to this Quarterly Report on Form
10-Q.





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 Amended and Restated Supplemental Executive Retirement Agreement with
      certain officer10.8
            Form
      of Amended and Restated Supplemental Executive Retirement Agreement with
      certain officer10.9
            Form
      of Amended and Restated Supplemental Executive Retirement Agreement with
      certain officer10.10
            Form
      of Supplemental Executive Retirement Agreement with certain
      officer21
            Subsidiaries
      of Registrant*31.1
            Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200231.2
            Certification
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200232
            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.








25
 Index











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:  May
      14, 2008
            /s/
      Richard J. GavegnanoRichard
      J. GavegnanoChairman
      and Chief Executive Officer(Principal
      Executive Officer)Dated:  May
      14, 2008
            /s/
      Leonard V. SiudaLeonard
      V. SiudaChief
      Financial Officer and Treasurer(Principal
      Financial and Accounting Officer)








26