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, 2009





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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes £     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 T  Non-accelerated
Filer £   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 1,
2009, the registrant had 22,586,000 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, 2009 and
      December 31, 2008 (Unaudited)
            
            1Consolidated Statements of Loss for the three
      months  ended March 31, 2009 and 2008
      (Unaudited)
            
            2Consolidated Statements of Changes in Stockholders’ Equity for
      the three months ended March 31, 2009 and 2008
    (Unaudited)
            
            3Consolidated Statements of Cash Flows for the three months
      ended March 31, 2009 and 2008 (Unaudited)
            
            4Notes to Unaudited Consolidated Financial
      Statements
            
            6Item 2.
            Management’s Discussion and Analysis of Financial Condition and
      Results of Operations
            
            12Item 3.
            Quantitative and Qualitative Disclosures About Market
      Risk
            
            23Item 4.
            Controls and Procedures
            
            24PART II.
            OTHER INFORMATIONItem 1.
            Legal Proceedings
            
            25Item 1A.
            Risk Factors
            
            25Item 2.
            Unregistered Sales of Equity Securities and Use of
      Proceeds
            
            26Item 3.
            Defaults Upon Senior Securities
            
            26Item 4.
            Submission of Matters to a Vote of Security
      Holders
            
            26Item 5.
            Other Information
            
            26Item 6.
            Exhibits
            
            27Signatures
            
            
            28








Index


PART
I – FINANCIAL INFORMATION





Item
1. Financial Statements





MERIDIAN INTERSTATE BANCORP, INC.Consolidated
      Balance Sheets(Unaudited)March
      31,
                                                                                      
                                                                                      
                                                                                      December
      31,(Dollars
      in thousands)
                                                                                      
                                                                                      2009
                                                                                      
                                                                                      
                                                                                      2008ASSETSCash
      and due from banks
                                                                                      
                                                                                      $
                                                                                      11,284
                                                                                      
                                                                                      
                                                                                      $
                                                                                      10,354Federal
      funds sold
                                                                                      
                                                                                      
                                                                                      18,521
                                                                                      
                                                                                      
                                                                                      
                                                                                      9,911Total
      cash and cash equivalents
                                                                                      
                                                                                      
                                                                                      29,805
                                                                                      
                                                                                      
                                                                                      
                                                                                      20,265Certificates
      of deposit - affiliate bank
                                                                                      
                                                                                      
                                                                                      2,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      7,000Securities
      available for sale, at fair value
                                                                                      
                                                                                      
                                                                                      278,707
                                                                                      
                                                                                      
                                                                                      
                                                                                      252,529Federal
      Home Loan Bank stock, at cost
                                                                                      
                                                                                      
                                                                                      4,303
                                                                                      
                                                                                      
                                                                                      
                                                                                      4,303Loans
                                                                                      
                                                                                      
                                                                                      745,378
                                                                                      
                                                                                      
                                                                                      
                                                                                      711,016Less
      allowance for loan losses
                                                                                      
                                                                                      
                                                                                      (7,456
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (6,912
                                                                                      )Loans,
      net
                                                                                      
                                                                                      
                                                                                      737,922
                                                                                      
                                                                                      
                                                                                      
                                                                                      704,104Bank-owned
      life insurance
                                                                                      
                                                                                      
                                                                                      23,045
                                                                                      
                                                                                      
                                                                                      
                                                                                      22,831Investment
      in affiliate bank
                                                                                      
                                                                                      
                                                                                      10,349
                                                                                      
                                                                                      
                                                                                      
                                                                                      10,376Premises
      and equipment, net
                                                                                      
                                                                                      
                                                                                      22,587
                                                                                      
                                                                                      
                                                                                      
                                                                                      22,710Accrued
      interest receivable
                                                                                      
                                                                                      
                                                                                      5,415
                                                                                      
                                                                                      
                                                                                      
                                                                                      6,036Foreclosed
      real estate, net
                                                                                      
                                                                                      
                                                                                      2,449
                                                                                      
                                                                                      
                                                                                      
                                                                                      2,604Deferred
      tax asset, net
                                                                                      
                                                                                      
                                                                                      10,462
                                                                                      
                                                                                      
                                                                                      
                                                                                      10,057Other
      assets
                                                                                      
                                                                                      
                                                                                      1,723
                                                                                      
                                                                                      
                                                                                      
                                                                                      2,537Total
      assets
                                                                                      
                                                                                      $
                                                                                      1,128,767
                                                                                      
                                                                                      
                                                                                      $
                                                                                      1,065,352LIABILITIES
      AND STOCKHOLDERS' EQUITYDeposits:Noninterest-bearing
                                                                                      
                                                                                      $
                                                                                      60,560
                                                                                      
                                                                                      
                                                                                      $
                                                                                      55,216Interest-bearing
                                                                                      
                                                                                      
                                                                                      798,700
                                                                                      
                                                                                      
                                                                                      
                                                                                      741,636Total
      deposits
                                                                                      
                                                                                      
                                                                                      859,260
                                                                                      
                                                                                      
                                                                                      
                                                                                      796,852Short-term
      borrowings - affiliate bank
                                                                                      
                                                                                      
                                                                                      7,546
                                                                                      
                                                                                      
                                                                                      
                                                                                      7,811Long-term
      debt
                                                                                      
                                                                                      
                                                                                      57,675
                                                                                      
                                                                                      
                                                                                      
                                                                                      57,675Accrued
      expenses and other liabilities
                                                                                      
                                                                                      
                                                                                      17,240
                                                                                      
                                                                                      
                                                                                      
                                                                                      13,174Total
      liabilities
                                                                                      
                                                                                      
                                                                                      941,721
                                                                                      
                                                                                      
                                                                                      
                                                                                      875,512Stockholders'
      equity:Common
      stock, no par value 50,000,000 shares authorized;23,000,000
      shares issued; 22,586,000 and 22,750,000 sharesoutstanding
      at March 31, 2009 and December 31, 2008, respectively
                                                                                      
                                                                                      
                                                                                      -
                                                                                      
                                                                                      
                                                                                      
                                                                                      -Additional
      paid-in capital
                                                                                      
                                                                                      
                                                                                      100,779
                                                                                      
                                                                                      
                                                                                      
                                                                                      100,684Retained
      earnings
                                                                                      
                                                                                      
                                                                                      104,318
                                                                                      
                                                                                      
                                                                                      
                                                                                      105,426Accumulated
      other comprehensive loss
                                                                                      
                                                                                      
                                                                                      (6,723
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (6,205
                                                                                      )Unearned
      compensation - ESOP - 776,250 and 786,600 sharesat
      March 31, 2009 and December 31, 2008, respectively
                                                                                      
                                                                                      
                                                                                      (7,762
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (7,866
                                                                                      )Unearned
      compensation - restricted shares - 414,000and
      250,000 shares at March 31, 2009 andDecember
      31, 2008, respectively
                                                                                      
                                                                                      
                                                                                      (3,566
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (2,199
                                                                                      )Total
      stockholders' equity
                                                                                      
                                                                                      
                                                                                      187,046
                                                                                      
                                                                                      
                                                                                      
                                                                                      189,840Total
      liabilities and stockholders' equity
                                                                                      
                                                                                      $
                                                                                      1,128,767
                                                                                      
                                                                                      
                                                                                      $
                                                                                      1,065,352




See
accompanying notes to unaudited consolidated financial
statements.


1
 Index





MERIDIAN
      INTERSTATE BANCORP, INC.Consolidated
      Statements of Loss(Unaudited)Three
      Months Ended March 31(Dollars
      in thousands, except per share amounts)
                                                              
                                                              2009
                                                              
                                                              
                                                              2008Interest
      and dividend income:Interest
      and fees on loans
                                                              
                                                              $
                                                              10,645
                                                              
                                                              
                                                              $
                                                              9,183Interest
      on debt securities
                                                              
                                                              
                                                              2,455
                                                              
                                                              
                                                              
                                                              2,612Dividends
      on equity securities
                                                              
                                                              
                                                              293
                                                              
                                                              
                                                              
                                                              265Interest
      on certificates of deposit
                                                              
                                                              
                                                              42
                                                              
                                                              
                                                              
                                                              -Interest
      on federal funds sold
                                                              
                                                              
                                                              12
                                                              
                                                              
                                                              
                                                              1,063Total
      interest and dividend income
                                                              
                                                              
                                                              13,447
                                                              
                                                              
                                                              
                                                              13,123Interest
      expense:Interest
      on deposits
                                                              
                                                              
                                                              5,263
                                                              
                                                              
                                                              
                                                              6,911Interest
      on short-term borrowings
                                                              
                                                              
                                                              35
                                                              
                                                              
                                                              
                                                              62Interest
      on long-term debt
                                                              
                                                              
                                                              497
                                                              
                                                              
                                                              
                                                              312Total
      interest expense
                                                              
                                                              
                                                              5,795
                                                              
                                                              
                                                              
                                                              7,285Net
      interest income
                                                              
                                                              
                                                              7,652
                                                              
                                                              
                                                              
                                                              5,838Provision
      for loan losses
                                                              
                                                              
                                                              546
                                                              
                                                              
                                                              
                                                              131Net
      interest income, after provisionfor
      loan losses
                                                              
                                                              
                                                              7,106
                                                              
                                                              
                                                              
                                                              5,707Non-interest
      income:Customer
      service fees
                                                              
                                                              
                                                              697
                                                              
                                                              
                                                              
                                                              696Loan
      fees
                                                              
                                                              
                                                              150
                                                              
                                                              
                                                              
                                                              178Gain
      on sales of loans, net
                                                              
                                                              
                                                              183
                                                              
                                                              
                                                              
                                                              19Gain
      (loss) on securities, net
                                                              
                                                              
                                                              (124
                                                              )
                                                              
                                                              
                                                              2,266Income
      from bank-owned life insurance
                                                              
                                                              
                                                              214
                                                              
                                                              
                                                              
                                                              185Equity
      loss on investment in affiliate bank
                                                              
                                                              
                                                              (27
                                                              )
                                                              
                                                              
                                                              (168
                                                              )Total
      non-interest income
                                                              
                                                              
                                                              1,093
                                                              
                                                              
                                                              
                                                              3,176Non-interest
      expenses:Salaries
      and employee benefits
                                                              
                                                              
                                                              6,314
                                                              
                                                              
                                                              
                                                              4,092Occupancy
      and equipment
                                                              
                                                              
                                                              864
                                                              
                                                              
                                                              
                                                              780Data
      processing
                                                              
                                                              
                                                              438
                                                              
                                                              
                                                              
                                                              387Marketing
      and advertising
                                                              
                                                              
                                                              234
                                                              
                                                              
                                                              
                                                              246Professional
      services
                                                              
                                                              
                                                              652
                                                              
                                                              
                                                              
                                                              309Contribution
      to the MeridianCharitable
      Foundation
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              3,000Foreclosed
      real estate expense
                                                              
                                                              
                                                              255
                                                              
                                                              
                                                              
                                                              29Other
      general and administrative
                                                              
                                                              
                                                              920
                                                              
                                                              
                                                              
                                                              469Total
      non-interest expenses
                                                              
                                                              
                                                              9,677
                                                              
                                                              
                                                              
                                                              9,312Loss
      before income taxes
                                                              
                                                              
                                                              (1,478
                                                              )
                                                              
                                                              
                                                              (429
                                                              )Benefit
      for income taxes
                                                              
                                                              
                                                              (370
                                                              )
                                                              
                                                              
                                                              (108
                                                              )Net
      loss
                                                              
                                                              $
                                                              (1,108
                                                              )
                                                              
                                                              $
                                                              (321
                                                              )Loss
      per share:Basic
                                                              
                                                              $
                                                              (0.05
                                                              )
                                                              
                                                              
                                                              N/ADiluted
                                                              
                                                              $
                                                              (0.05
                                                              )
                                                              
                                                              
                                                              N/AWeighted
      Average Shares:Basic
                                                              
                                                              
                                                              21,868,565
                                                              
                                                              
                                                              
                                                              N/ADiluted
                                                              
                                                              
                                                              22,050,960
                                                              
                                                              
                                                              
                                                              N/A




See
accompanying notes to unaudited consolidated financial
statements.


2
 Index




MERIDIAN
      INTERSTATE BANCORP, INC.CONSOLIDATED
      STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITYThree
      Months Ended March 31, 2009 and 2008(Dollars
      in thousands)
                                                                                                        
                                                                                                        Shares
      of No ParCommon StockOutstanding
                                                                                                        
                                                                                                        
                                                                                                        AdditionalPaid-in
      Capital
                                                                                                        
                                                                                                        
                                                                                                        Retained
      Earnings
                                                                                                        
                                                                                                        
                                                                                                        Accumulated
      Other Comprehensive Income (Loss)
                                                                                                        
                                                                                                        
                                                                                                        Unearned
      Compensation ESOP
                                                                                                        
                                                                                                        
                                                                                                        Unearned
      Compensation Restricted Shares
                                                                                                        
                                                                                                        
                                                                                                        TotalThree
      Months Ended March 31, 2008Balance
      at December 31, 2007
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        109,177
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        6,507
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        115,684Adjustment
      to initially apply EITF 06-4
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (1,642
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (1,642
                                                                                                        )Comprehensive
      loss:Net
      loss
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (321
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (321
                                                                                                        )Change
      in net unrealized gain on securities available forsale,
      net of reclassification adjustment and tax effects
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (2,713
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (2,713
                                                                                                        )Change
      in prior service costs andactuarial
      losses, net of tax effects
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        5
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        5Total
      comprehensive loss
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (3,029
                                                                                                        )Issuance
      of 12,650,000 shares to the mutualholding
      company
                                                                                                        
                                                                                                        
                                                                                                        12,650,000
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -Issuance
      of 10,050,000 shares in the initialpublic
      offering, net of expenses of $2,867
                                                                                                        
                                                                                                        
                                                                                                        10,050,000
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        97,633
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        97,633Issuance
      and contribution of 300,000 sharesto
      the Meridian Charitable Foundation
                                                                                                        
                                                                                                        
                                                                                                        300,000
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        3,000
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        3,000Purchase
      of common stock by the ESOP
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (8,280
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -ESOP
      shares earned (10,350 shares)
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (5
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        104
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (8,280
                                                                                                        )Balance
      at March 31, 2008
                                                                                                        
                                                                                                        
                                                                                                        23,000,000
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        100,628
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        107,214
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        3,799
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        (8,176
                                                                                                        )
                                                                                                        
                                                                                                        $
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        203,465Three
      Months Ended March 31, 2009Balance
      at December 31, 2008
                                                                                                        
                                                                                                        
                                                                                                        22,750,000
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        100,684
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        105,426
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        (6,205
                                                                                                        )
                                                                                                        
                                                                                                        $
                                                                                                        (7,866
                                                                                                        )
                                                                                                        
                                                                                                        $
                                                                                                        (2,199
                                                                                                        )
                                                                                                        
                                                                                                        $
                                                                                                        189,840Comprehensive
      loss:Net
      loss
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (1,108
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (1,108
                                                                                                        )Change
      in net unrealized loss on securities available forsale,
      net of reclassification adjustment and tax effects
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (518
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (518
                                                                                                        )Total
      comprehensive loss
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (1,626
                                                                                                        )ESOP
      shares earned (10,350 shares)
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (17
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        104
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        87Purchase
      of 164,000 sharesfor
      restricted share plan
                                                                                                        
                                                                                                        
                                                                                                        (164,000
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        (1,468
                                                                                                        )
                                                                                                        
                                                                                                        
                                                                                                        (1,468
                                                                                                        )Share-based
      compensation expense
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        112
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        -
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        101
                                                                                                        
                                                                                                        
                                                                                                        
                                                                                                        213Balance
      at March 31, 2009
                                                                                                        
                                                                                                        
                                                                                                        22,586,000
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        100,779
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        104,318
                                                                                                        
                                                                                                        
                                                                                                        $
                                                                                                        (6,723
                                                                                                        )
                                                                                                        
                                                                                                        $
                                                                                                        (7,762
                                                                                                        )
                                                                                                        
                                                                                                        $
                                                                                                        (3,566
                                                                                                        )
                                                                                                        
                                                                                                        $
                                                                                                        187,046




See
accompanying notes to unaudited consolidated financial
statements.


3
 Index


MERIDIAN
INTERSTATE BANCORP, INC.


Consolidated
Statements of Cash Flows


(Unaudited)








Three
      Months Ended March 31,(In
      thousands)
                        
                        2009
                        
                        2008Cash
      flows from operating activities:Net
      loss
                        
                        $
                        (1,108
                        )
                        
                        $
                        (321
                        )Adjustments
      to reconcile net loss to net cashprovided
      by operating activities:Contribution
      of stock to charitable foundation
                        
                        
                        -
                        
                        
                        
                        3,000Earned
      ESOP shares
                        
                        
                        87
                        
                        
                        
                        99Provision
      for loan losses
                        
                        
                        546
                        
                        
                        
                        131Amortization
      of net deferred loan origination fees
                        
                        
                        (57
                        )
                        
                        
                        (78
                        )Net
      amortization of securities available for sale
                        
                        
                        302
                        
                        
                        
                        150Depreciation
      and amortization expense
                        
                        
                        329
                        
                        
                        
                        324Loss
      (gain) on securities, net
                        
                        
                        124
                        
                        
                        
                        (2,266
                        )Loss
      and provision for foreclosed real estate
                        
                        
                        148
                        
                        
                        
                        5Deferred
      income tax provision (benefit)
                        
                        
                        14
                        
                        
                        
                        (1,152
                        )Income
      from bank-owned life insurance
                        
                        
                        (214
                        )
                        
                        
                        (185
                        )Equity
      loss on investment in affiliate bank
                        
                        
                        27
                        
                        
                        
                        168Share-based
      compensation expense
                        
                        
                        213
                        
                        
                        
                        -Net
      changes in:Accrued
      interest receivable
                        
                        
                        621
                        
                        
                        
                        514Other
      assets
                        
                        
                        814
                        
                        
                        
                        3,666Accrued
      expenses and other liabilities
                        
                        
                        4,066
                        
                        
                        
                        (1,131
                        )Net
      cash provided by operating activities
                        
                        
                        5,912
                        
                        
                        
                        2,924Cash
      flows from investing activities:Maturities
      (purchases) of certifictes of deposit
                        
                        
                        5,000
                        
                        
                        
                        (2,000
                        )Activity
      in securities available for sale:Proceeds
      from maturities, calls and principal payments
                        
                        
                        17,751
                        
                        
                        
                        25,750Proceeds
      from sales
                        
                        
                        -
                        
                        
                        
                        9,804Purchases
                        
                        
                        (45,292
                        )
                        
                        
                        (22,203
                        )Loans
      originated, net of principal payments received
                        
                        
                        (34,632
                        )
                        
                        
                        (12,257
                        )Purchase
      of bank-owned life insurance
                        
                        
                        -
                        
                        
                        
                        (4,000
                        )Purchases
      of premises and equipment
                        
                        
                        (206
                        )
                        
                        
                        (137
                        )Capitalized
      cost on foreclosed real estate
                        
                        
                        (180
                        )
                        
                        
                        -Proceeds
      from sales of foreclosed real estate
                        
                        
                        512
                        
                        
                        
                        290Net
      cash used in investing activities
                        
                        
                        (57,047
                        )
                        
                        
                        (4,753
                        )





(continued)


4
 Index








MERIDIAN
INTERSTATE BANCORP, INC.


Consolidated
Statements of Cash Flows


(Unaudited)





Three
      Months Ended March 31,(In
      thousands)
                            
                            2009
                            
                            2008Cash
      flows from financing activities:Net
      increase in deposits
                            
                            
                            62,408
                            
                            
                            
                            31,148Proceeds
      from sale of common stock
                            
                            
                            -
                            
                            
                            
                            97,633Common
      stock purchased by ESOP
                            
                            
                            -
                            
                            
                            
                            (8,280
                            )Decrease
      in stock subscriptions
                            
                            
                            -
                            
                            
                            
                            (62,518
                            )Purchase
      of stock for equity incentive plan
                            
                            
                            (1,468
                            )
                            
                            
                            -Net
      change in borrowings with maturitiesless
      than three months
                            
                            
                            (265
                            )
                            
                            
                            -Repayment
      of Federal Home Loan Bank advanceswith
      maturities of three months or more
                            
                            
                            -
                            
                            
                            
                            (6,300
                            )Net
      cash provided by financing activities
                            
                            
                            60,675
                            
                            
                            
                            51,683Net
      change in cash and cash equivalents
                            
                            
                            9,540
                            
                            
                            
                            49,854Cash
      and cash equivalents at beginning of period
                            
                            
                            20,265
                            
                            
                            
                            103,093Cash
      and cash equivalents at end of period
                            
                            $
                            29,805
                            
                            
                            $
                            152,947Supplemental
      cash flow information:Interest
      paid on deposits
                            
                            $
                            5,332
                            
                            
                            $
                            6,917Interest
      paid on borrowings
                            
                            
                            532
                            
                            
                            
                            404Income
      taxes paid
                            
                            
                            170
                            
                            
                            
                            20Non-cash
      investing and financing activities:Transfers
      from loans to foreclosed real estate
                            
                            
                            325
                            
                            
                            
                            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 56% of Meridian Interstate’s
outstanding common stock.





The
accompanying unaudited interim consolidated financial statements of Meridian
Interstate Bancorp, Inc. have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation
S-X.  Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.  In the opinion of management, all adjustments
considered necessary for a fair presentation have been included.  Such
adjustments were of a normal recurring nature.  The results of
operations for the three months ended March 31, 2009 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, 2008 which was filed with
the Securities and Exchange Commission (“SEC”) on March 15, 2009, as
subsequently amended, and is available through the SEC’s website at www.sec.gov.





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





2.            
Recent Accounting Pronouncements





In
December 2007, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards “SFAS” No. 141
(revised), ‘‘Business Combinations’’, which replaces SFAS 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.





In April
2009, the FASB issued FASB Staff Position (“FSP”) No. 141(R)-1
("FSP 141(R)-1"), Accounting for Assets Acquired and Liabilities Assumed in a
Business Combination That Arise from Contingencies.  FSP 141(R)-1 amends
and clarifies FASB Statement No. 141 (revised 2007), Business Combinations, to
address application issues raised by preparers, auditors, and members of the
legal profession on initial recognition and measurement, subsequent measurement
and accounting, and disclosure of assets and liabilities arising from
contingencies in a business combination.  FSP 141(R)-1 is effective for
assets or liabilities arising from contingencies in 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.  The adoption of
this FSP by the Company on January 1, 2009 did not have an impact on the
Company’s consolidated financial statements.





Effective
January 1, 2008, the Company adopted EITF 06-04, “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


6
 Index


portion
of the death benefit that the Company will receive as beneficiary of such
policies.  EITF 06-04 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 06-04, 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. 160, “Non-controlling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51,” which
establishes accounting and reporting standards for the non-controlling interest
in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a
non-controlling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated
financial statements. The adoption of this Statement by the Company on January
1, 2009 did not have an impact on the Company’s consolidated financial
statements.





In March
of 2008, the FASB issued Statement No. 161, “Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133,”
which changes the disclosure requirements for derivative instruments and hedging
activities.  Entities are required to provide enhanced disclosures
about (a) how and why an entity uses derivative instruments, (b) how derivative
instruments and related hedged items are accounted for under Statement No. 133
and its related interpretations, and (c) how derivative instruments and related
hedged items affect an entity’s financial position, financial performance, and
cash flows.  The adoption of this Statement by the Company on January
1, 2009 did not have an impact on the Company’s consolidated financial
statements.





In
December 2008, the FASB issued FASB Staff Position No. FAS 132(R)-1, “Employers’
Disclosures about Postretirement Benefit Plan Assets” (“FSP 132(R)-1”), which
amends FASB Statement No. 132 (revised 2003), “Employers’ Disclosures about
Pensions and Other Postretirement Benefits,” to provide guidance on an
employer’s disclosures about plan assets of a defined benefit pension or other
postretirement plan.  This staff position requires disclosure of
information about how investment allocation decisions are made, the fair value
of each major category of plan assets and the inputs and valuation techniques
used to develop fair value measurements.  Also, an employer shall provide
users of financial statements with an understanding of significant
concentrations of risk in plan assets. The disclosures about plan assets are
required for years ending after December 15, 2009.  Upon initial adoption
of FSP 132(R)-1, disclosures are not required for earlier periods that are
presented for comparative purposes.





In
January  2009, the FASB issued a FASB Staff Position on the Emerging Issues
Task Force (“EITF”) Issue No. 03-06-1, “Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities,” (FSP
EITF 03-06-1). Under FSP EITF 03-06-1, unvested share-based awards which include
the right to receive nonforfeitable dividends or dividend equivalents are
considered to participate with common stock in undistributed earnings. Companies
that issue share-based awards considered to be participating securities under
FSP EITF 03-06-1 are required to calculate basic and diluted earnings per common
share amounts under the two-class method. The two-class method excludes from
earnings per common share calculations any dividends paid or owed to
participating securities and any undistributed earnings considered to be
attributable to participating securities. FSP EITF 03-06-1 requires
retrospective application to all prior-period earnings per share data
presented.   The adoption of this EITF by the Company on January
1, 2009 did not have an impact on the Company’s consolidated financial
statements.





On
January 12, 2009, FASB issued FSP Emerging Issues Task Force (EITF) 99-20-1,
“Amendments to the Impairment Guidance of EITF Issue No. 99-20”. FSP EITF
99-20-1 addresses certain practice issues in EITF No. 99-20, Recognition of
Interest Income and Impairment on Purchased Beneficial Interests and Beneficial
Interests That Continue to Be Held by a Transferor in Securitized Financial
Assets, by making its other-than-temporary impairment assessment guidance
consistent with SFAS No. 115, Accounting for Certain Investments in Debt and
Equity Securities. FSP EITF 99-20-1 removes the reference to the consideration
of a market participant's estimates


7
 Index


of cash
flows in EITF 99-20, and instead requires an assessment of whether it is
probable, based on current information and events, that the holder of the
security will be unable to collect all amounts due according to the contractual
terms.  If it is probable that there has been an adverse change in
estimated cash flows, an other-than-temporary impairment is deemed to exist, and
a corresponding loss shall be recognized in earnings equal to the entire
difference between the investment’s carrying value and its fair value at the
balance sheet date of the reporting period for which the assessment is
made.  This FSP is effective for interim and annual reporting periods
ending after December 15, 2008, and shall be applied
prospectively.  The adoption of this Statement by the Company on
January 1, 2009 did not have an impact on the Company’s consolidated financial
statements.





In
April 2009, the FASB issued the following three FSPs intended to provide
additional application guidance and enhance disclosures regarding fair value
measurements and impairments of securities:




FSP FAS
157-4, “Determining Fair Value When the Volume and Level of Activity for the
Asset or Liability Have Significantly Decreased and Identifying Transactions
That Are Not Orderly,” provides additional guidance for estimating fair value in
accordance with SFAS No. 157 when the volume and level of activity for the
asset or liability have decreased significantly.  FSP FAS 157-4 also
provides guidance on identifying circumstances that indicate a transaction is
not orderly.  The provisions of FSP FAS 157-4 are effective for the Company’s interim
period ending on June 30, 2009.  Management is currently evaluating
the effect that the provisions of FSP FAS 157-4 may have on the Company’s
consolidated financial statements.




FSP FAS
107-1 and APB 28-1, “Interim
Disclosures about Fair Value of Financial Instruments,” requires
disclosures about fair value of financial instruments in interim reporting
periods of publicly traded companies that were previously only required to be
disclosed in annual financial statements.  The provisions of FSP FAS 107-1
and APB 28-1 are effective for the Company’s interim
period ending on June 30, 2009.  The adoption of this EITF by the
Company is not expected to have a material impact on the Company’s consolidated
financial statements.




FSP FAS
115-2 and FAS 124-2, “Recognition and Presentation of
Other-Than-Temporary Impairments,” amends current other-than-temporary
impairment guidance in GAAP for debt securities to make the guidance more
operational and to improve the presentation and disclosure of
other-than-temporary impairments on debt and equity securities in the financial
statements.  This FSP does not amend existing recognition and measurement
guidance related to other-than-temporary impairments of equity securities. 
The provisions of FSP FAS 115-2 and FAS 124-2 are effective for the Company’s
interim period ending on June 30, 2009.  Management is currently
evaluating the effect that the provisions of FSP FAS 115-2 and FAS 124-2 may
have on the Company’s consolidated financial statements.





3.            
Fair Value Measurement





Determination
of Fair Value





The
Company uses fair value measurements to record fair value adjustments to certain
assets and liabilities and to determine fair value disclosures.  In
accordance with FASB Statement No. 157, the fair value of a financial instrument
is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date.  Fair value is best determined based upon quoted
market prices.  However, in many instances, there are no quoted market
prices for the Company’s various financial instruments.   In
cases where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques.  Those
techniques are significantly affected by the assumptions used including the
discount rate and estimates of future cash flows.  Accordingly, the
fair value estimates may not be realized in an immediate settlement of the
instrument.





Fair
Value Hierarchy





In
accordance with Statement No. 157, the Company groups its financial assets and
financial liabilities measured at fair value in three levels, based on the
markets in which the assets and liabilities are traded and the reliability of
the assumptions used to determine fair value.


8
 Index


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.





Assets
Measured at Fair Value on a Recurring Basis:





Assets
measured at fair value on a recurring basis are summarized as
follows.  There were no liabilities measured at fair value on a
recurring basis.




March
      31, 2009(In
      thousands)
                                                                
                                                                Level
      1
                                                                
                                                                
                                                                Level
      2
                                                                
                                                                
                                                                Level
      3
                                                                
                                                                
                                                                TotalSecurities
      available for sale
                                                                
                                                                $
                                                                73,589
                                                                
                                                                
                                                                $
                                                                205,118
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                $
                                                                278,707December
      31, 2008(In
      thousands)
                                                                
                                                                Level
      1
                                                                
                                                                
                                                                Level
      2
                                                                
                                                                
                                                                Level
      3
                                                                
                                                                
                                                                TotalSecurities
      available for sale
                                                                
                                                                $
                                                                47,799
                                                                
                                                                
                                                                $
                                                                204,730
                                                                
                                                                
                                                                
                                                                -
                                                                
                                                                
                                                                $
                                                                252,529





The
Company may also be required, from time to time, to measure certain other
financial assets and non-financial assets on a non-recurring basis in accordance
with generally accepted accounting principles.  These adjustments to
fair value usually result from the application of lower-of-cost-or market
accounting or write-downs of individual assets.




9
 Index


The
following tables summarize the fair value hierarchy used to determine each
adjustment and the carrying value of the related individual assets.




March
      31, 2009
                                                        
                                                        
                                                        Quarter
                                                          Ended
                                                          March
      31,
                                                          2009(In
      thousands)
                                                        
                                                        Level
      1
                                                        
                                                        
                                                        Level
      2
                                                        
                                                        
                                                        Level
      3
                                                        
                                                        
                                                        Total
                                                          LossesImpaired
      loans
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        2,156
                                                        
                                                        
                                                        
                                                        109Foreclosed
      real esate
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        2,449
                                                        
                                                        
                                                        
                                                        60$
                                                        -
                                                        
                                                        
                                                        $
                                                        -
                                                        
                                                        
                                                        $
                                                        4,605
                                                        
                                                        
                                                        $
                                                        169December
      31, 2008
                                                        
                                                        
                                                        Quarter
                                                          Ended
                                                          March
      31,
                                                          2008(In
      thousands)
                                                        
                                                        Level
      1
                                                        
                                                        
                                                        Level
      2
                                                        
                                                        
                                                        Level
      3
                                                        
                                                        
                                                        Total
                                                          LossesImpaired
      loans
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        1,511
                                                        
                                                        
                                                        
                                                        59Foreclosed
      real esate
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        2,604
                                                        
                                                        
                                                        
                                                        -$
                                                        -
                                                        
                                                        
                                                        $
                                                        -
                                                        
                                                        
                                                        $
                                                        4,115
                                                        
                                                        
                                                        $
                                                        59




At March
31, 2009 and December 31, 2008, the amount of foreclosed real estate in
Level 3 represents the carrying value and related charge-offs for which
adjustments are based on appraised value of the collateral, considering
discounting factors and adjusted for selling costs. The loss on foreclosed real
estate represents the adjustment in valuation recorded during the time periods
indicated, and not for losses incurred on the sale of the
property.  At March 31, 2009 and December 31, 2008, the amount of
impaired loans in Level 3 represents the carrying value and related FASB
Statement No. 114 allocated reserves on impaired loans for which adjustments are
based on the appraised value of the underlying collateral, considering
discounting factors and adjusted for selling costs.  The loss on
impaired loans is not recorded directly as an adjustment to current earnings or
comprehensive income, but rather as a component in determining the overall
adequacy of the allowance for loan losses.  Adjustments to the
estimated fair value of impaired loans may result in increases or decreases to
the provision for loan losses.  There were no liabilities measured at
fair value on a non-recurring basis.




4.         
   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.




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





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.





10
 Index




5.         Earnings
Per Share
 
 Basic
earnings per share (“EPS”) excludes dilution and is calculated by dividing net
income available to common stockholders by the weighted-average number of shares
of common stock outstanding during the period.  Diluted EPS is computed in
a manner similar to that of basic EPS except that the weighted-average number of
common shares outstanding is increased to include the number of incremental
common shares (computed using the treasury stock method) that would have been
outstanding if all potentially dilutive common stock equivalents (such as stock
options and unvested restricted stock) were issued during the
period.
  For the
quarter ended March 31, 2009, potentially dilutive common stock equivalents
totaled 182,395 shares, representing the dilutive effect of the restricted
stock.  Earnings per share are not applicable for year to date and
quarterly periods prior to June 30, 2008 as the Company did not issue stock
until January 23, 2008.  Unallocated common shares held by the ESOP are
shown as a reduction in stockholders’ equity and are not included in the
weighted-average number of common shares outstanding for either basic or diluted
earnings per share calculations.
 
 The
following table is the reconciliation of basic and diluted earnings per share
for the three months ended March 31, 2009.


(Dollars
      in thousands, except per share amounts)
                                    
                                    Basic
                                    
                                    
                                    DilutedNet
      Loss
                                    
                                    $
                                    (1,108
                                    )
                                    
                                    $
                                    (1,108
                                    )Weighted
      average shares outstanding
                                    
                                    
                                    21,868,565
                                    
                                    
                                    
                                    21,868,565Effect
      of dilutive securities
                                    
                                    
                                    -
                                    
                                    
                                    
                                    182,395Adjusted
      weighted average shares outstanding
                                    
                                    
                                    21,868,565
                                    
                                    
                                    
                                    22,050,960Loss
      Per Share
                                    
                                    $
                                    (0.05
                                    )
                                    
                                    $
                                    (0.05
                                    )




11
 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, 2008, filed with the Securities and
Exchange Commission.





Forward-Looking
Statements





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:





·
            significantly
      increased competition among depository and other financial
      institutions;


·
            inflation
      and changes in the interest rate environment or other changes that reduce
      our interest margins or reduce the fair value of financial
      instruments;


·
            general
      economic conditions, either nationally or in our market areas, that are
      worse than expected;


·
            adverse
      changes in the securities markets;


·
            legislative
      or regulatory changes that adversely affect our
  business;


·
            our
      ability to enter new markets successfully and take advantage of growth
      opportunities, and the possible dilutive effect of potential acquisitions
      or de novo
      branches, if any;


·
            changes
      in consumer spending, borrowing and savings
  habits;


·
            changes
      in accounting policies and practices, as may be adopted by bank regulatory
      agencies, the Financial Accounting Standards Board, the Public Company
      Accounting Oversight Board and other promulgating
    authorities;


·
            inability
      of third-party providers to perform their obligations to
    us;


·
            changes
      in our organization, compensation and benefit
  plans;


·
            changes
      in real estate values in our market
areas;


·
            the
      effect of the current governmental effort to restructure the U.S.
      financial and regulatory system;


·
            the
      effect of developments in the secondary market affecting our loan
      pricing;


·
            the
      level of future deposit premiums;
and


·
            the
      effect of the current financial crisis on our loan portfolio and our
      investment portfolio, and our deposit and other
  customers.





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, 2008filed with the
Securities and Exchange Commission on March 15, 2009, under “Risk Factors,” as
subsequently amended, which is available through the SEC’s website at www.sec.gov.  These
risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such
statements.  Except as required by applicable law or regulation,
Meridian Interstate Bancorp does not undertake, and specifically disclaims any
obligation, to release publicly the result of any revisions that may be made to
any forward-looking statements to reflect events or circumstances after the date
of the statements or to reflect the occurrence of anticipated or unanticipated
events.


12
 Index


Critical
Accounting Policies




The
Company’s significant accounting policies are described in Note 1 to the
consolidated financial statements included in the 2008 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
loan losses, other-than-temporary impairment of securities, foreclosed real
estate and income taxes as the Company’s most critical accounting
policies.  The Company’s critical accounting policies have not changed
since December 31, 2008.





Selected
Financial Data





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





Financial
      Condition HighlightsAt
                                                      
                                                      
                                                      AtMarch
      31,
                                                      
                                                      
                                                      December
      31,(In
      thousands)
                                                      
                                                      2009
                                                      
                                                      
                                                      2008Total
      assets
                                                      
                                                      $
                                                      1,128,767
                                                      
                                                      
                                                      $
                                                      1,065,352Secuities
      available for sale
                                                      
                                                      
                                                      278,707
                                                      
                                                      
                                                      
                                                      252,529Net
      loans
                                                      
                                                      
                                                      737,922
                                                      
                                                      
                                                      
                                                      704,104Deposits
                                                      
                                                      
                                                      859,260
                                                      
                                                      
                                                      
                                                      796,852Borrowed
      funds
                                                      
                                                      
                                                      65,221
                                                      
                                                      
                                                      
                                                      65,486Stockholders'
      equity
                                                      
                                                      
                                                      187,046
                                                      
                                                      
                                                      
                                                      189,840Three
      Months EndedMarch
      31,(Dollars
      in thousands)
                                                      
                                                      2009
                                                      
                                                      
                                                      2008Net
      interest income
                                                      
                                                      $
                                                      7,652
                                                      
                                                      
                                                      $
                                                      5,838Provision
      for loan losses
                                                      
                                                      
                                                      546
                                                      
                                                      
                                                      
                                                      131Non-interest
      income
                                                      
                                                      
                                                      1,093
                                                      
                                                      
                                                      
                                                      3,176Non-interest
      expenses
                                                      
                                                      
                                                      9,677
                                                      
                                                      
                                                      
                                                      9,312Benefit
      for income taxes
                                                      
                                                      
                                                      (370
                                                      )
                                                      
                                                      
                                                      (108
                                                      )Net
      loss
                                                      
                                                      
                                                      (1,108
                                                      )
                                                      
                                                      
                                                      (321
                                                      )Interest
      rate spread
                                                      
                                                      
                                                      2.55
                                                      %
                                                      
                                                      
                                                      1.82
                                                      %Net
      interest margin
                                                      
                                                      
                                                      3.04
                                                      %
                                                      
                                                      
                                                      2.43
                                                      %





Comparison
of Financial Condition at March 31, 2009 and December 31, 2008





Total
assets increased by $63.4 million, or 6.0%, to $1.1 billion at March 31,
2009.  Securities available for sale increased $26.2 million, or
10.4%, from December 31, 2008, as the Company invested excess funds in money
market mutual funds as an alternative to federal funds sold.




Loan
growth continued in the first quarter of 2009, with total loans increasing by
$34.4 million, or 4.8%.  Multi-family loans increased by $15.3
million, or 49.2%, while the one- to four-family residential loan
and




13
 Index


commercial
real estate loan portfolios increased by $9.8 million and $8.4 million,
respectively.  Rate decreases have contributed to higher originations
for these products, with increased interest in both purchase and refinance
activity.




Deposits
increased by $62.4 million, or 7.8%, from December 31, 2008, with increases in
all deposit types, as local deposit competition has lessened.  Money
market deposits increased by $31.9 million, or 18.4%, to $204.7 million at March
31, 2009.  Certificates of deposit also increased by $20.2 million, or
4.9%, to $434.2 million.





Stockholders’
equity decreased by $2.8 million, to $187.0 million at March 31, 2009 from
$189.8 million at December 31, 2008, mainly due to in the net operating loss of
$1.1 million and a $1.5 million repurchase of the Company’s common stock, for
the Equity Incentive Plan.





Securities


All
securities held by the Company as of March 31, 2009 and December 31, 2008 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, 2009 and December 31, 2008 were as follows:





At
      March 31,
                                                    
                                                    
                                                    At
      December 31,2009
                                                    
                                                    
                                                    2008(In
      thousands)
                                                    
                                                    Amortized
                                                    
                                                    
                                                    Fair
                                                    
                                                    
                                                    Amortized
                                                    
                                                    
                                                    FairCost
                                                    
                                                    
                                                    Value
                                                    
                                                    
                                                    Cost
                                                    
                                                    
                                                    ValueDebt
      securities:U.S.
      Government – sponsored enterprises
                                                    
                                                    $
                                                    -
                                                    
                                                    
                                                    $
                                                    -
                                                    
                                                    
                                                    $
                                                    1,000
                                                    
                                                    
                                                    $
                                                    1,003Corporate
      bonds
                                                    
                                                    
                                                    209,970
                                                    
                                                    
                                                    
                                                    205,079
                                                    
                                                    
                                                    
                                                    210,079
                                                    
                                                    
                                                    
                                                    203,687Mortgage-backed
      securities
                                                    
                                                    
                                                    40
                                                    
                                                    
                                                    
                                                    39
                                                    
                                                    
                                                    
                                                    40
                                                    
                                                    
                                                    
                                                    40Total
      debt securities
                                                    
                                                    
                                                    210,010
                                                    
                                                    
                                                    
                                                    205,118
                                                    
                                                    
                                                    
                                                    211,119
                                                    
                                                    
                                                    
                                                    204,730Marketable
      equity securities :Common
      stocks
                                                    
                                                    
                                                    27,276
                                                    
                                                    
                                                    
                                                    21,554
                                                    
                                                    
                                                    
                                                    26,142
                                                    
                                                    
                                                    
                                                    22,854Money
      market mutual funds
                                                    
                                                    
                                                    52,035
                                                    
                                                    
                                                    
                                                    52,035
                                                    
                                                    
                                                    
                                                    24,945
                                                    
                                                    
                                                    
                                                    24,945Total
      marketable equity securities
                                                    
                                                    
                                                    79,311
                                                    
                                                    
                                                    
                                                    73,589
                                                    
                                                    
                                                    
                                                    51,087
                                                    
                                                    
                                                    
                                                    47,799Total
      securities available for sale
                                                    
                                                    $
                                                    289,321
                                                    
                                                    
                                                    $
                                                    278,707
                                                    
                                                    
                                                    $
                                                    262,206
                                                    
                                                    
                                                    $
                                                    252,529





Securities
available for sale increased $26.2 million, or 10.4%, from $252.5 million at
December 31, 2008, as the Company invested excess funds in money market mutual
funds as an alternative to federal funds sold.  Management continues
to hold the money market mutual funds and monitor available investment
opportunities in light of the current issues in the debt and equity
markets.





Management
evaluates securities for other-than-temporary impairment on a monthly basis,
with more frequent evaluation for selected issues.  Consideration is
given to (1) the length of time and the extent to which the fair value has been
less than cost, (2) the financial condition and near-term prospects of the
issuer, and (3) the intent and ability of the Company to retain its investment
in the issuer for a period of time sufficient to allow for any anticipated
recovery in fair value.  The Company recorded an impairment loss of
$124,000 on equity securities determined to be other-than-temporarily impaired
during the first quarter of 2009.





As of
March 31, 2009, the net unrealized loss on the total equity portfolio was $5.7
million.  Twenty-seven equity securities had market value declines of
20% or more.  The most significant market valuation decrease related
to any one equity security at March 31, 2009 is $517,000.  Although
the issuers have shown declines in earnings as a result of the weakened economy,
no credit issues have been identified that cause management to


14
 Index


believe
the decline in market value is other than temporary, and the Company has the
ability and intent to hold these investments until a recovery of fair
value.  In analyzing an equity issuer’s financial condition,
management considers industry analysts’ reports, financial performance and
projected target prices of investment analysts within a one-year time
frame.





At March 31, 2009, the aggregate
amortized cost of debt obligations owned by the Company was $210.0 million and
the aggregate market value was $205.1 million.  Eleven corporate
bonds, from six issuers, had a market decline of greater than 20% of amortized
cost, with declines ranging from 22% to 50%.  The aggregate unrealized
loss on these bonds at March 31, 2009 was $6.8 million and is presently
considered to be temporary.





Three bonds, from two issuers, had
been impaired greater than 20% for approximately seven
months.   The issuers are consumer finance and commercial finance
subsidiaries of a major insurance company.  The bonds had an amortized
cost of $7.0 million and unrealized losses of $3.3 million at March 31,
2009.  These bonds have maturity dates of May 2010 to May
2012.





Two bonds, from one issuer, had been
impaired greater than 20% for approximately three months.  The
amortized cost and aggregate unrealized loss on these bonds at March 31, 2009
was $2.4 million and $813,000, respectively.  These bonds were issued
by a national media company with a significant revenue decline in
2008.  These bonds mature in June of 2011.





Another bond, with a decline of
$665,000, was issued by a national insurance company, and has been impaired for
approximately four months.  At March 31, 2009, the amortized cost of
this bond, which matures in July of 2012, was $3.0 million.





Three
bonds, from one issuer, had been impaired greater than 20% for approximately one
month.  The amortized cost and aggregate unrealized loss on these
bonds at March 31, 2009 was $4.0 million and $1.1 million,
respectively.  These bonds were issued by a national insurance
company.  These bonds mature in September 2011 and June
2012.





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











15
 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, 2009 and December 31, 2008 was as
follows:





At
      March 31, 2009
                        
                        
                        At
      December 31, 2008(Dollars
      in thousands)
                        
                        Amount
                        
                        
                        %
                        
                        
                        Amount
                        
                        
                        %Real
      estate loans:One-to
      four-family
                        
                        $
                        284,565
                        
                        
                        
                        38.1
                        %
                        
                        $
                        274,716
                        
                        
                        
                        38.6
                        %Multi-family
                        
                        
                        46,560
                        
                        
                        
                        6.2
                        
                        
                        
                        31,212
                        
                        
                        
                        4.4Commercial
      real estate
                        
                        
                        277,825
                        
                        
                        
                        37.2
                        
                        
                        
                        269,454
                        
                        
                        
                        37.7Construction
                        
                        
                        91,794
                        
                        
                        
                        12.3
                        
                        
                        
                        91,652
                        
                        
                        
                        12.9Home
      equity linesof
      credit
                        
                        
                        29,466
                        
                        
                        
                        4.0
                        
                        
                        
                        28,253
                        
                        
                        
                        4.0Total
      real estate loans
                        
                        
                        730,210
                        
                        
                        
                        97.8
                        
                        
                        
                        695,287
                        
                        
                        
                        97.6Commercial
      business loans
                        
                        
                        14,851
                        
                        
                        
                        2.0
                        
                        
                        
                        15,355
                        
                        
                        
                        2.2Consumer
      loans
                        
                        
                        1,303
                        
                        
                        
                        0.2
                        
                        
                        
                        1,379
                        
                        
                        
                        0.2Total
      loans
                        
                        
                        746,364
                        
                        
                        
                        100.0
                        %
                        
                        
                        712,021
                        
                        
                        
                        100.0
                        %Net
      deferred loan origination fees
                        
                        
                        (986
                        )
                        
                        
                        
                        
                        
                        
                        (1,005
                        )Allowance
      for loan losses
                        
                        
                        (7,456
                        )
                        
                        
                        
                        
                        
                        
                        (6,912
                        )Loans,
      net
                        
                        $
                        737,922
                        
                        
                        
                        
                        
                        
                        $
                        704,104


16
 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, 2009 and 2008 were as
follows:





Three
      Months EndedMarch
      31,(Dollars
      in thousands)
                            
                            2009
                            
                            
                            2008Beginning
      balance
                            
                            $
                            6,912
                            
                            
                            $
                            3,637Provision
      for loan losses
                            
                            
                            546
                            
                            
                            
                            131Charge
      offs:Real
      estate loans
                            
                            
                            -
                            
                            
                            
                            -Commercial
      business loans
                            
                            
                            -
                            
                            
                            
                            -Consumer
      loans
                            
                            
                            (2
                            )
                            
                            
                            -Total
      charge-offs
                            
                            
                            (2
                            )
                            
                            
                            -Recoveries:Real
      estate loans
                            
                            
                            -
                            
                            
                            
                            -Commercial
      business
                            
                            
                            -
                            
                            
                            
                            -Consumer
      loans
                            
                            
                            -
                            
                            
                            
                            -Total
      recoveries
                            
                            
                            -
                            
                            
                            
                            -Net
      recoveries (charge-offs)
                            
                            
                            (2
                            )
                            
                            
                            -Ending
      Balance
                            
                            $
                            7,456
                            
                            
                            $
                            3,768Allowance
      to non-accrual loans
                            
                            
                            47.27
                            %
                            
                            
                            127.95
                            %Allowance
      to total loans outstanding
                            
                            
                            1.00
                            %
                            
                            
                            0.64
                            %Net
      recovery (charge-offs) to
                              average
      loans outstanding
                            
                            
                            0.00
                            %
                            
                            
                            0.00
                            %





Provision
for Loan Losses





Management
made provisions of $546,000 and $131,000 for the quarters ended March 31, 2009
and 2008, respectively.  We recorded net charge-offs of $2,000 in the
first quarter of 2009.The allowance for loan
losses was $7.5 million, or 1.0% of total loans outstanding as of March 31,
2009, as compared to $6.9 million, or 0.97% of total loans outstanding as of
December 31, 2008.   The increase in the balance of the allowance
for loan losses is due to growth in the overall loan portfolio, increases in
non-accrual loans, increased levels of specific reserves on impaired loans, and
management’s ongoing analysis of loan loss factors, including further
deterioration of the national and local economic environment.The Company continues to
assess the adequacy of its allowance for loan losses in accordance with
established policies.





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.


17
 Index


The
following table summarizes the non-performing assets at March 31, 2009
and December 31, 2008.





At
      March 31,
                            
                            
                            At
      December 31,(In
      thousands)
                            
                            2009
                            
                            
                            2008Loans
      accounted for on a non-accrual basis:Real
      estate loans:One-to
      four-family
                            
                            $
                            4,021
                            
                            
                            $
                            3,962Multi-family
                            
                            
                            -
                            
                            
                            
                            -Commercial
      real estate
                            
                            
                            798
                            
                            
                            
                            883Home
      equity lines of credit
                            
                            
                            -
                            
                            
                            
                            -Construction
                            
                            
                            10,906
                            
                            
                            
                            9,387Total
      real estate loans
                            
                            
                            15,725
                            
                            
                            
                            14,232Commercial
      business loans
                            
                            
                            -
                            
                            
                            
                            -Consumer
      loans
                            
                            
                            49
                            
                            
                            
                            -Total
      non-accrual loans
                            
                            
                            15,774
                            
                            
                            
                            14,232Foreclosed
      assets
                            
                            
                            2,449
                            
                            
                            
                            2,604Total
      nonperforming assets
                            
                            $
                            18,223
                            
                            
                            $
                            16,836Non-accrual
      loans to total loans
                            
                            
                            2.11
                            %
                            
                            
                            2.00
                            %Non-accrual
      loans to total assets
                            
                            
                            1.40
                            %
                            
                            
                            1.34
                            %Non-performing
      assets to total assets
                            
                            
                            1.61
                            %
                            
                            
                            1.58
                            %





Non-performing
assets increased to $18.2 million, or 1.61% of total assets, at March 31,
2009 from $16.8 million at December 31, 2008.  Non-performing assets
include foreclosed real estate of $2.4 million, $10.9 million of construction
loans, $4.0 million of residential mortgage loans, and $850,000 of other loans.
Interest income that would have been recorded for the quarter ended March 31,
2009 had nonaccruing loans and accruing loans past due 90 days or more been
current according to their original terms amounted to $345,000.  At
March 31, 2009, the Company did not have any accruing loans past due 90 days or
more.




The
Company had impaired loans totaling $15.6 million and $12.5 million as of March
31, 2009 and December 31, 2008, respectively.  At March 31, 2009,
impaired loans totaling $2.7 million had a valuation allowance of
$527,000.  Impaired loans totaling $2.0 million had a valuation
allowance of $418,000 at December 31, 2008.  The Company’s average
investment in impaired loans was $14.0 million and $3.1 million for the quarters
ended March 31, 2009 and 2008, respectively.   Included in the
balance of impaired loans at March 31, 2009 are three troubled debt restructure
loans totaling $3.9 million.




18
 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, 2009
                                  
                                  
                                  At
      December 31, 2008(Dollars
      in thousands)
                                  
                                  Amount
                                  
                                  
                                  Percent
                                  
                                  
                                  Amount
                                  
                                  
                                  PercentNOW
      and demand deposits
                                  
                                  $
                                  97,429
                                  
                                  
                                  
                                  11.34
                                  %
                                  
                                  $
                                  92,051
                                  
                                  
                                  
                                  11.55
                                  %Money
      market deposits
                                  
                                  
                                  204,746
                                  
                                  
                                  
                                  28.83
                                  
                                  
                                  
                                  172,876
                                  
                                  
                                  
                                  21.69Regular
      and other deposits
                                  
                                  
                                  122,921
                                  
                                  
                                  
                                  14.30
                                  
                                  
                                  
                                  117,913
                                  
                                  
                                  
                                  14.80Certificates
      of deposit
                                  
                                  
                                  434,164
                                  
                                  
                                  
                                  50.53
                                  
                                  
                                  
                                  414,012
                                  
                                  
                                  
                                  51.96Total
                                  
                                  $
                                  859,260
                                  
                                  
                                  
                                  100.00
                                  %
                                  
                                  $
                                  796,852
                                  
                                  
                                  
                                  100.00
                                  %





Borrowings





At March
31, 2009 and December 31, 2008, long-term FHLB advances totaling $57.7 million
mature through April 2013, with a weighted average yield of 3.45%.  At
March 31, 2009 and December 31, 2008, short-term borrowings consisted of federal
funds purchased from the Company’s affiliate bank amounting to $7,546,000 and
$7,811,000, respectively, with a weighted average rate of 0.35% and 0.91%,
respectively.



















19
 Index


Results
of Operations for the Three Months Ended March 31, 2009 and March 31,
2008





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 31,2009
                                          
                                          2008(Dollars
      in thousands)
                                          
                                          Average
                                            Balance
                                          
                                          
                                          Interest
                                            Earned/Paid
                                          
                                          
                                          Yield/
                                            Cost
      (4)
                                          
                                          
                                          Average
                                            Balance
                                          
                                          
                                          Interest
                                            Earned/Paid
                                          
                                          
                                          Yield/
                                            Cost
      (4)Assets:Interest-earning
      assets:Loans
      (1)
                                          
                                          $
                                          726,851
                                          
                                          
                                          $
                                          10,645
                                          
                                          
                                          
                                          5.94
                                          %
                                          
                                          $
                                          567,832
                                          
                                          
                                          $
                                          9,183
                                          
                                          
                                          
                                          6.50
                                          %Securities
      and certificates of deposit
                                          
                                          
                                          262,955
                                          
                                          
                                          
                                          2,790
                                          
                                          
                                          
                                          4.30
                                          
                                          
                                          
                                          259,907
                                          
                                          
                                          
                                          2,877
                                          
                                          
                                          
                                          4.45Federal
      funds sold
                                          
                                          
                                          30,361
                                          
                                          
                                          
                                          12
                                          
                                          
                                          
                                          0.16
                                          
                                          
                                          
                                          138,471
                                          
                                          
                                          
                                          1,063
                                          
                                          
                                          
                                          3.09Total
      interest-earning assets
                                          
                                          
                                          1,020,167
                                          
                                          
                                          
                                          13,447
                                          
                                          
                                          
                                          5.35
                                          
                                          
                                          
                                          966,210
                                          
                                          
                                          
                                          13,123
                                          
                                          
                                          
                                          5.46Noninterest-earning
      assets
                                          
                                          
                                          75,208
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          74,585Total
      assets
                                          
                                          $
                                          1,095,375
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          $
                                          1,040,795Liabilities
      and stockholders' equity:Interest-bearing
      liabilities:NOW  deposits
                                          
                                          $
                                          36,610
                                          
                                          
                                          
                                          46
                                          
                                          
                                          
                                          0.51
                                          %
                                          
                                          $
                                          37,511
                                          
                                          
                                          
                                          68
                                          
                                          
                                          
                                          0.72
                                          %Money
      market deposits
                                          
                                          
                                          183,199
                                          
                                          
                                          
                                          1,027
                                          
                                          
                                          
                                          2.27
                                          
                                          
                                          
                                          140,123
                                          
                                          
                                          
                                          1,153
                                          
                                          
                                          
                                          3.30Savings
      and other deposits
                                          
                                          
                                          122,990
                                          
                                          
                                          
                                          302
                                          
                                          
                                          
                                          1.00
                                          
                                          
                                          
                                          145,970
                                          
                                          
                                          
                                          395
                                          
                                          
                                          
                                          1.09Certificates
      of deposit
                                          
                                          
                                          427,534
                                          
                                          
                                          
                                          3,888
                                          
                                          
                                          
                                          3.69
                                          
                                          
                                          
                                          445,869
                                          
                                          
                                          
                                          5,295
                                          
                                          
                                          
                                          4.78Total
      interest-bearing deposits
                                          
                                          
                                          770,333
                                          
                                          
                                          
                                          5,263
                                          
                                          
                                          
                                          2.77
                                          
                                          
                                          
                                          769,473
                                          
                                          
                                          
                                          6,911
                                          
                                          
                                          
                                          3.61FHLB
      advances  and other borrowings
                                          
                                          
                                          67,752
                                          
                                          
                                          
                                          532
                                          
                                          
                                          
                                          3.19
                                          
                                          
                                          
                                          35,913
                                          
                                          
                                          
                                          374
                                          
                                          
                                          
                                          4.19Total
      interest-bearing liabilities
                                          
                                          
                                          838,085
                                          
                                          
                                          
                                          5,795
                                          
                                          
                                          
                                          2.80
                                          
                                          
                                          
                                          805,386
                                          
                                          
                                          
                                          7,285
                                          
                                          
                                          
                                          3.64Noninterest-bearing
      demand deposits
                                          
                                          
                                          58,705
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          51,801Other
      noninterest-bearing liabilities
                                          
                                          
                                          9,078
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          24,033Total
      liabilities
                                          
                                          
                                          905,868
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          881,220Total
      stockholders' equity
                                          
                                          
                                          189,507
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          159,575Total
      liabilities and stockholders' equity
                                          
                                          $
                                          1,095,375
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          $
                                          1,040,795Net
      interest income
                                          
                                          
                                          
                                          
                                          
                                          $
                                          7,652
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          $
                                          5,838Interest
      rate spread  (2)
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          2.55
                                          %
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          1.82
                                          %Net
      interest margin  (3)
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          3.04
                                          %
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          2.43
                                          %Average
      interest-earning assets to
                                            average
      interest-bearing liabilities
                                          
                                          
                                          
                                          
                                          
                                          
                                          121.73
                                          %
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          119.97
                                          %(1)
      Loans on non-accrual status are included in average
    balances.(2)
      Interest rate spread represents the difference between the yield on
      interest-earning assets and the cost of interest-bearing
      liabilities.(3)
      Net interest margin represents net interest income divided by average
      interest-earning assets.(4)
      Annualized.
 20
 Index


Financial
Results





We
recorded a net loss of $1.1 million, or $.05 per share (basic and diluted), for
the quarter ended March 31, 2009, compared to a net loss of $321,000 for the
quarter ended March 31, 2008.  Earnings per share information is not
applicable for the quarter ended March 31, 2008, as shares were not outstanding
for the entire quarter.The 2009 net loss
includes pre-tax charges of $2.1 million relating to the retirement of the
Company’s CFO and an Executive Vice President and the settlement of an
arbitration agreement with a former employee.  The 2008 net loss
includes 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.





Analysis
of Net Interest Income





Net interest income for the quarter
ended March 31, 2009 was $7.7 million, an increase of $1.8 million, or 31.1%,
from the quarter ended March 31, 2008.   The Company experienced
a $324,000 increase in total interest and dividend income, mainly as a result of
loan growth, and a $1.6 million decrease to interest expense on deposits, due to
lower rates paid.  The net interest margin was 2.43% for the quarter
ended March 31, 2008, 2.97% for the quarter ended December 31, 2008, and 3.04%
for the quarter ended March 31, 2009.





Interest income on federal funds sold
decreased $1.1 million, due to lower average balances in 2009. Funds received in
the Company’s offering were invested in federal funds sold during the first
quarter of 2008. In 2009, management is utilizing money market mutual funds as
an alternative investment for excess cash balances.





Growth in
the loan portfolio throughout 2008 impacted interest earned, as the average loan
balance increased from $567.8 million for the quarter ended March 31, 2008, to
$726.9 million for the quarter ended March 31, 2009.  Loan interest
income increased $1.5 million, or 15.9%, to $10.6 million, and loan yields of
5.94% and 6.50% were earned during the quarters ended March 31, 2009 and 2008,
respectively.





Interest expense on deposits decreased
$1.6 million, or 23.8%, from $6.9 million to $5.3 million, as the average cost
of deposits decreased from 3.61% to 2.77% for the quarters ended March 31, 2008
and 2009, respectively.  The total average balance of interest bearing
deposits was $769.5 million and $770.3 million for the quarters ended March 31,
2008 and 2009, respectively, with a $43.1 million increase to the average
balance of money market funds offset by a decrease to the average balance of
savings and certificates of deposit of $23.0 million and $18.3 million,
respectively.





An increase in the average balance of
borrowings, from $35.9 million for the quarter ended March 31, 2008 to $67.8
million for the quarter ended March 31, 2009 impacted interest
expense.  The average borrowing rate declined from 4.19% to 3.19%,
while borrowing expense increased from $374,000 to $532,000 for the quarters
ended March 31, 2008 and 2009, respectively.





Non-interest Income





Non-interest
income for the first quarter of 2009 was $1.1 million, compared to $3.2 million,
for the first quarter of 2008. The Company recorded an impairment loss of
$124,000 on securities determined to be other-than-temporarily impaired during
the first quarter of 2009, compared to gains on sales of securities of $2.3
million for the first quarter of 2008.   The Company recorded
$183,000 in gains on sale of mortgage loans during the first quarter of 2009,
compared to $19,000 in the 2008 comparable quarter, as saleable residential loan
origination volume has increased in 2009 due to lower rates.





Non-interest
Expenses





Non-interest
expenses increased $365,000, or 3.9%, from $9.3 million to $9.7 million for the
quarters ended March 31, 2008, and 2009, respectively.  Salaries and
benefits expense increased $2.2 million.  In the first quarter of
2009, the Company recorded salary and benefit expense of $2.1 million related to
the retirement of its CFO and an Executive Vice President, and to the settlement
of an arbitration agreement with a former employee.  The Company also
incurred expenses relating to the Company’s Equity Incentive Plan, pursuant to
which initial grants were made during the fourth quarter of
2008.  Professional service fees increased $343,000 primarily as
a


21
 Index


result of
legal expenses related to the settlement of employee benefit and litigation
matters. In the first quarter of 2008, the Company made a pre-tax $3.0
million contribution to the Company’s charitable foundation in conjunction with
its stock offering.  Other non-interest expense increased by $451,000,
primarily as a result of increased FDIC insurance assessment in
2009.





Income Tax





We
recorded a tax benefit of $370,000 and $108,000, a 25.0% and 25.2% effective tax
rate, for the quarters ended March 31, 2009 and 2008, respectively, due to the
net operating loss in both years.  Included in the 2008 net operating loss
is the Company’s $3.0 million contribution to the Meridian Charitable
Foundation, which contributed to an increase in the Company’s deferred tax
asset.  After an analysis of the components of the deferred tax asset,
the Company recorded an increase of $75,000 to the valuation allowance against
the deferred tax asset during the first quarter of 2009.  As of March
31, 2009, the total valuation allowance against the deferred tax asset is
$575,000.





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, 2009, cash and cash equivalents totaled $29.8
million.  In addition, at March 31, 2009, we had $108.1 million of
available borrowing capacity with the Federal Home Loan Bank of Boston,
including a $9.4 million line of credit.  On March 31, 2009, we had
$57.7 million of advances outstanding.





A significant use of our liquidity is
the funding of loan originations.  At March 31, 2009, we had $153.0
million in total loan commitments outstanding.  Unused portions of
existing loans include $77.3 million in unadvanced portions of construction
loans, $25.4 million in unused home equity lines of credit, $2.0 million in
unused business lines of credit, $728,000 in unused commercial letters of
credit, and $779,000 in unadvanced revolving lines of credit. Commitments to
fund new loans include $5.9 million in commitments to fund one- to four-family
residential real estate loans, $37.6 million in commitments to fund commercial
real estate and construction loans, $18.5 million in commitments to originate
construction loans, $1.2 million in commitments to originate home equity lines
of credit, $2.2 million in commitments to originate residential construction
loans and $50,000 in commitments to originate other
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 $5.8 million as of March 31, 2009, 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, 2009 totaled $310.7 million, or
72% of certificates of deposit.  If these maturing deposits do not
remain with us, we will be required to utilize other sources of
funds.  Historically, a significant portion of certificates of deposit
that mature have remained at the Company.   We have the ability
to attract and retain deposits by adjusting the interest rates offered, and
total certificates of deposit have increased in 2009.





22
 Index


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, 2009, both Meridian Interstate Bancorp and
East Boston Savings Bank exceeded all of their respective regulatory capital
requirements. East Boston Savings Bank is considered “well capitalized” under
regulatory guidelines.





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.





The Company completed the repurchase of
414,000 shares of common stock for the 2008 Equity Incentive Plan in the first
quarter of 2009.  Also during the quarter, the Commonwealth of
Massachusetts Office of the Commissioner of Banks approved the Company’s
application to repurchase up to 5% of its outstanding common stock not held by
its mutual holding company parent, or 517,500 shares of its common
stock.





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, 2009.





For the three months ended March 31,
2009, 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.


23
 Index





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





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





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





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





The simulation uses projected repricing
of assets and liabilities 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.  Our interest
rate risk assumptions and profile have not changed materially from December 31,
2008.





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.


24
 Index





(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.





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 2008 Annual Report on Form 10-K, filed with
the SEC on March 15, 2009, which is available through the SEC’s website at www.sec.gov.   As
of March 31, 2009, the risk factors of Meridian Interstate Bancorp have not
changed materially from those reported in the annual report.  The
risks described in Meridian Interstate Bancorp’s annual report 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.





25
 Index


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





(a.)
            –
      (b.) Not applicable.





(c.)The
      following table sets forth information with respect to any purchase made
      by or on behalf of the Company during the indicated
    periods:





Period
                                    (a)
                                    (b)
                                    (c)
                                    (d)Total
      Number of
                                      Shares
      (or Units)
                                      Purchased
                                    Average
      Price
                                      Paid
      Per Share (or
                                      Unit)
                                    Total
      Number of
                                      Shares
      (or Units)
                                      Purchased
      as Part
                                      of
      Publicly
                                      Announced
      Plans
                                      or
      Programs (1)
                                    Maximum
      Number
                                      (or
      Approximate
                                      Dollar
      Value) of
                                      Shares
      (or Units)
                                      that
      May Yet Be
                                      Purchased
      Under
                                      the
      Plans or
                                      ProgramsJanuary
      1 – 31, 2009
                                    -
                                    -
                                    -
                                    164,000February
      1 – 28, 2009 (1)
                                    164,000
                                    $                     8.95
                                    164,000
                                    -March
      1 – 31, 2009 (2)
                                    -
                                    -
                                    -
                                    517,500Total
                                    164,000
                                    $                     8.95
                                    164,000
                                    517,500





(1) The
Company completed the repurchase of 414,000 shares of common stock for the 2008
Equity Incentive Plan in the first quarter of 2009.





(2) In
March 2009, the Commonwealth of Massachusetts Office of the Commissioner of
Banks approved the Company’s application to repurchase up to 5% of its
outstanding common stock not held by its mutual holding company parent, or
517,500 shares of its common stock.








Item
3.  Defaults Upon SeniorSecurities





Not
applicable.





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





None.





Item
5.  Other Information





None.








26
 Index





Item
      6.
            Exhibits3.1
            Amended
      and Restated Articles of Organization of Meridian Interstate Bancorp,
      Inc.*3.2
            Amended
      and Restated Bylaws of Meridian Interstate Bancorp,
  Inc.*4
            Form
      of Common Stock Certificate of Meridian Interstate Bancorp,
      Inc.*10.1
            Form
      of East Boston Savings Bank Employee Stock Ownership
  Plan*10.2
            Form
      of East Boston Savings Bank Employee Stock Ownership Plan Trust
      Agreement*10.3
            East
      Boston Savings Bank Employee Stock Ownership Plan Loan Agreement, Pledge
      Agreement and Promissory Note*10.4
            Form
      of Amended and Restated Employment Agreement*10.5
            Form
      of East Boston Savings Bank Employee Severance Compensation
      Plan*10.6
            Form
      of Supplemental Executive Retirement Agreements with certain
      directors*10.7
            Form
      of Separation Agreement with Robert F. Verdonck incorporated by reference
      to the Form 8-K filed on June 9, 200810.8
            Form
      of Separation Agreement with Leonard V. Siuda incorporated by reference to
      Form 8-K filed on April 7, 200910.9
            Form
      of Separation Agreement with Philip F. Freehan incorporated by reference
      to Form 8-K filed on April 7, 200910.10
            Form
      of Supplemental Executive Retirement Agreement with Richard J. Gavegnano
      filed as an exhibit to Form 10-Q filed on May 14, 200810.11
            Form
      of Employment Agreement with Richard J. Gavegnano incorporated by
      reference to the Form 8-K filed on January 12, 200910.12
            Form
      of Employment Agreement with Deborah J. Jackson incorporated by reference
      to the Form 8-K filed on January 22, 200910.13
            Form
      of Supplemental Executive Retirement Agreement with Deborah J. Jackson
      incorporated by reference to the Form 8-K filed on January 22,
      200910.14
            2008 Equity Incentive
      Plan**10.15
            Amendment
      to Supplemental Executive Retirement Agreements with certain directors
      incorporated by reference to the Form 10K-A filed on April 8,
      200921
            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.**
            Incorporated
      by reference to Appendix A to theCompany’s Definitive
      Proxy Statement for its 2009 Annual Meeting, as filed with the Securities
      and Exchange Commission on April 24,
2009.

















27
 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
      11, 2009
                /s/ Richard J. GavegnanoRichard
      J. GavegnanoChairman
      and Chief Executive Officer(Principal
      Executive Officer)Dated:  May
      11, 2009
                /s/ Deborah J. JacksonDeborah
      J. JacksonPresident
      and Acting Chief Financial Officer(Principal
      Financial and Accounting
Officer)






28