Meridian Interstate Bancorp, Inc., Reports Results for the Three and Nine Months Ended


BOSTON, Oct. 28, 2008 (GLOBE NEWSWIRE) -- Meridian Interstate Bancorp, Inc. (the "Company" or "Meridian") (Nasdaq:EBSB), the holding company for East Boston Savings Bank, (the "Bank"), announced net income of $2.1 million for the quarter ended September 30, 2008, compared to a net loss of $303,000 for the quarter ended September 30, 2007. Net income per basic and diluted share for the third quarter of 2008 was $.10. The Company recorded a net pre-tax gain on sale of securities of $2.8 million for the 2008 third quarter, compared to a pre-tax loss on sale of securities of $860,000 during the comparable 2007 period.

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

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

Results of Operations

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

The Company's net interest margin was 2.70% and 2.48% for the quarters ended September 30, 2008 and 2007, respectively, and for the quarter ended June 30, 2008 was 2.35%. The margin increase from the prior quarter and the prior year comparable periods is due to a decrease in the overall rate paid on deposits and borrowings. For the nine months ended September 30, 2008 the net interest margin was 2.50%, compared to 2.53% for the same period in 2007. The decline in the nine-month net interest margin is due to faster repricing of prime-related assets compared to interest-bearing liabilities.

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

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

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

The Company's loan loss provision was $403,000 and $2.7 million for the quarter and nine months ended September 30, 2008, compared to $117,000 and $260,000 for the same periods in 2007. The increase in the provision relates to specific reserves taken during the second quarter for two impaired construction loans, as well as growth in the loan portfolio and management's assessment of various factors affecting the portfolio, including, among others, an ongoing evaluation of credit quality, local real estate market conditions, and general economic factors.

Non-interest income for the third quarter of 2008 was $3.8 million, compared to $11,000 in the third quarter of 2007. A loss on sale of securities of $860,000 in the third quarter of 2007 offset other income earned, as the Company sold debt securities with exposure to the subprime mortgage market. The Company recorded gains on sales of securities of $2.8 million during the third quarter of 2008.

Non-interest expenses increased from $5.7 million for the quarter ended September 30, 2007 to $6.8 million for the quarter ended September 30, 2008. Salary and employee benefit costs increased from $3.6 million to $4.0 million, primarily as a result of additional expense incurred in connection with the Company's Employee Stock Ownership Plan (ESOP) and bank-owned life insurance policies. The Company also incurred an increase in professional service fees of $317,000 due mainly to legal and audit expenses related to being a public company. Other expenses increased $180,000 due to an increase in deposit insurance expense and annual meeting expenses. The Company benefited from a one-time deposit insurance credit in 2007 and the first quarter of 2008. Non-interest expenses increased $8.1 million, from $16.5 million to $24.6 million for the nine months ended September 30, 2007, and 2008, respectively, primarily as a result of the $1.5 million retirement charge, contribution of $3.0 million to the Meridian Charitable Foundation, and increased professional service fees.

Credit Quality

The allowance for loan losses was $5.7 million, or 0.86% of total loans outstanding as of September 30, 2008, compared to $3.6 million, or 0.63% as of December 31, 2007, and $3.6 million, or 0.66% at September 30, 2007. The Bank individually reviews classified residential and commercial loans for impairment based on the fair value of collateral or expected cash flows. At September 30, 2008, there was $10.4 million of impaired loans, including loans of $8.1 million with an impairment allowance of $1.5 million. At December 31, 2007, there was $5.1 million of impaired loans, including loans of $621,000 with an impairment allowance of $89,000.

Non-performing assets (non-accrual loans and property acquired through foreclosure) were $8.2 million, or 0.77% of total assets at September 30, 2008, compared to $5.5 million, or 0.55% at December 31, 2007, and $5.2 million, or 0.56% at September 30, 2007. The increase in non-performing assets from December resulted primarily from one construction lending relationship that was transferred to property acquired through foreclosure during the third quarter. The balance of the relationship was $2.4 million at the time of foreclosure, and a charge-off of $596,000 was recorded against the allowance. The charge-off had been identified as a specific reserve prior to June 30, 2008. Total property acquired through foreclosure was $2.0 million at September 30, 2008, compared to $560,000 and $220,000 at December 31 and September 30, 2007.

Financial Condition

The Company's total assets increased by $70.5 million, or 7.0%, to $1.1 billion at September 30, 2008 from December 31, 2007. Net loans increased by $93.8 million, or 16.5%, and securities available for sale increased $21.9 million, or 8.2%. For the nine months ended September 30, 2008, the Company increased outstanding loans in all categories except construction and consumer lending.

Deposits increased by $30.6 million, or 4.0%, for the nine months ended September 30, 2008. Demand deposit and money market balances increased by $13.6 million and $17.6 million, respectively, during this time. Federal Home Loan Bank of Boston borrowings also increased $21.1 million, to $57.7 million, as the Company opted to replace some higher rate maturing advances with lower cost borrowings.

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

Forward Looking Statements

Certain statements herein constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may be identified by words such as "believes," "will," "expects," "project," "may," "could," "developments," "strategic," "launching," "opportunities," "anticipates," "estimates," "intends," "plans," "targets" and similar expressions. These statements are based upon the current beliefs and expectations of Meridian Interstate Bancorp, Inc.'s management and are subject to significant risks and uncertainties. Actual results may differ materially from those set forth in the forward-looking statements as a result of numerous factors. Factors that could cause such differences to exist include, but are not limited to, general economic conditions, changes in interest rates, regulatory considerations, and competition and the risk factors described in the Company's November 13, 2007 prospectus. Should one or more of these risks materialize or should underlying beliefs or assumptions prove incorrect, Meridian Interstate Bancorp, Inc.'s actual results could differ materially from those discussed. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this release.



                MERIDIAN INTERSTATE BANCORP, INC. AND SUBSIDIARIES
                           Consolidated Balance Sheets
                                   (Unaudited)

                                               Sept. 30,     Dec. 31,
                                             ------------------------
 (Dollars in thousands)                          2008         2007
                                             ------------------------
                                 ASSETS

 Cash and due from banks                     $    15,934  $    11,821
 Federal funds sold                               23,550       91,272
                                             ------------------------
   Total cash and cash equivalents
                                                  39,484      103,093

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

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

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

                    LIABILITIES AND STOCKHOLDERS' EQUITY

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

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

   Total liabilities                             878,629      887,542
                                             ------------------------

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

                                                 195,054      115,684
                                             ------------------------
   Total liabilities and stockholders'
    equity                                   $ 1,073,683  $ 1,003,226
                                             ========================

               MERIDIAN INTERSTATE BANCORP, INC. AND SUBSIDIARIES
                     Consolidated Statements of Operations
                                  (Unaudited)


                    Three Months Ended           Nine Months Ended
                       September  30,              September 30,
                  --------------------------------------------------
 (Dollars in
  thousands,
  except per
  share amounts)      2008          2007         2008         2007
                  --------------------------------------------------
 Interest and
  dividend
  income:
  Interest and
   fees on loans  $     9,938  $     9,073  $    28,455  $    26,560
  Interest on
   debt securities      2,674        2,715        7,919        8,264
  Dividends on
   equity
   securities             573          271        1,264          815
  Interest on
   certificates of
   deposit                 60           --           98           --
  Interest on
   federal funds
   sold                    99          331        1,640          726
                  --------------------------------------------------
   Total interest
    and dividend
    income             13,344       12,390       39,376       36,365
                  --------------------------------------------------
 Interest expense:
  Interest on
   deposits             6,045        6,736       19,382       19,159
  Interest on
   short-term
   borrowings              --           97          115          288
  Interest on
   long-term debt         534          370        1,363        1,148
                  --------------------------------------------------
   Total interest
    expense             6,579        7,203       20,860       20,595
                  --------------------------------------------------

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

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

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

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

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

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

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

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

            MERIDIAN INTERSTATE BANCORP, INC. AND SUBSIDIARIES
                       Net Interest Income Analysis
                               (Unaudited)

                                         For The Three Months Ended
                                               September 30,
                                      ------------------------------
                                                    2008
 -------------------------------------------------------------------
                                       Average     Interest  Yield/
 (Dollars in thousands)                Balance   Earned/Paid Cost (4)
                                      ------------------------------
 Assets:
 Interest-earning assets:
  Loans (1)                           $  641,094 $    9,938   6.17%
  Securities and certificates of
   deposit                               333,900      3,307   3.94
  Other interest-earning assets           21,478         99   1.83
                                      ---------------------
   Total interest-earning assets         996,472     13,344   5.33

 Noninterest-earning assets               79,296
                                      ----------
   Total assets                       $1,075,768
                                      ==========

 Liabilities and stockholders' equity:
 Interest-bearing liabilities:
  NOW deposits                        $   42,078         92   0.87
  Money market deposits                  150,501        929   2.46
  Savings and other deposits             123,236        354   1.14
  Certificates of deposit                435,022      4,670   4.27
                                      ---------------------
   Total interest-bearing deposits       750,837      6,045   3.20

  FHLB advances                           60,316        534   3.52
                                      ---------------------
   Total interest-bearing liabilities    811,153      6,579   3.23

    Noninterest-bearing demand
     deposits                             54,711
    Other noninterest-bearing
     liabilities                          10,509
                                      ----------
    Total liabilities                    876,373

   Total stockholders' equity            199,395
                                      ----------
   Total liabilities and stockholders'
    equity                            $1,075,768
                                      ==========

  Net interest income                            $    6,765
                                                 ==========
  Interest rate spread (2)                                    2.10%
  Net interest margin (3)                                     2.70%
  Average interest-earning assets to
   average interest-bearing liabilities              122.85%

                                         For The Three Months Ended
                                               September 30,
                                      ------------------------------
                                                  2007
 -------------------------------------------------------------------
                                       Average     Interest  Yield/
 (Dollars in thousands)                Balance   Earned/Paid Cost (4)
                                      ------------------------------
  Assets:
 Interest-earning assets:
  Loans (1)                           $ 545,808  $   9,073      6.63%
  Securities and certificates of
   deposit                              262,927      2,986      4.54
  Other interest-earning assets          26,153        331      5.02
                                      --------------------
   Total interest-earning assets        834,888     12,390      5.94

 Noninterest-earning assets              77,934
                                      ---------
   Total assets                         912,822
                                      =========

 Liabilities and stockholders' equity:
 Interest-bearing liabilities:
  NOW deposits                        $  61,909  $      31      0.20
  Money market deposits                 119,184      1,144      3.81
  Savings and other deposits            127,363        371      1.15
  Certificates of deposit               419,575      5,190      4.91
                                      --------------------
   Total interest-bearing deposits      728,031      6,736      3.70
  FHLB advances                          38,663        467      4.83
                                      --------------------
   Total interest-bearing liabilities   766,694      7,203      3.76
  Noninterest-bearing demand deposits    25,111
  Other noninterest-bearing
   liabilities                            8,232
                                      ---------
   Total liabilities                    800,037
   Total stockholders' equity           112,785
                                      ---------
   Total liabilities and
    stockholders' equity              $ 912,822
                                      =========

    Net interest income                          $   5,187
                                                 =========
    Interest rate spread (2)                                    2.18%
    Net interest margin  (3)                                    2.48%
    Average interest-earning assets to
     average interest-bearing
     liabilities                                    108.89%

 -------------------------------------------------------------------

 (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.

         MERIDIAN INTERSTATE BANCORP, INC. AND SUBSIDIARIES
                    Net Interest Income Analysis
                             (Unaudited)

                                           For The Nine Months Ended
                                                September 30,
                                         -----------------------------
                                                     2008
 ---------------------------------------------------------------------
                                                     Interest
                                          Average     Earned/   Yield/
 (Dollars in thousands)                   Balance      Paid    Cost(4)
                                         -----------------------------
 Assets:
 Interest-earning assets:
  Loans(1)                               $  604,157  $ 28,455    6.29%
  Securities and certificates of deposit    301,477     9,281    4.11
  Other interest-earning assets              85,350     1,640    2.57
                                         --------------------
    Total interest-earning assets           990,984    39,376    5.31

 Noninterest-earning assets                  76,733
                                         ----------
    Total assets                         $1,067,717
                                         ==========
 Liabilities and stockholders' equity:
 Interest-bearing liabilities:
  NOW deposits                           $   38,855       236    0.81
  Money market deposits                     144,751     2,967    2.74
  Savings and other deposits                129,138     1,103    1.14
  Certificates of deposit                   443,140    15,076    4.54
                                         --------------------
   Total interest-bearing deposits          755,884    19,382    3.43

  FHLB advances                              53,458     1,478    3.69
                                         --------------------

   Total interest-bearing liabilities       809,342    20,860    3.44

  Noninterest-bearing demand deposits        53,867
  Other noninterest-bearing liabilities       9,854
                                         ----------
    Total liabilities                       873,063

   Total stockholders' equity               194,654
                                         ----------
   Total liabilities and stockholders'
    equity                               $1,067,717
                                         ==========

  Net interest income                                $ 18,516
                                                     ========
  Interest rate spread(2)                                        1.87%
  Net interest margin(3)                                         2.50%
  Average interest-earning assets to
   average interest-bearing liabilities                122.44%
 ---------------------------------------------------------------------

                                            For The Nine Months Ended
                                                September 30,
                                         -----------------------------
                                                     2007
 ---------------------------------------------------------------------
                                                     Interest
                                          Average     Earned/   Yield/
 (Dollars in thousands)                   Balance      Paid    Cost(4)
                                         -----------------------------
 Assets:
 Interest-earning assets:
  Loans(1)                               $  541,108  $ 26,560    6.55%
  Securities and certificates of deposit    269,448     9,079    4.49
  Other interest-earning assets              18,900       726    5.14
                                         --------------------
    Total interest-earning assets           829,456    36,365    5.85

 Noninterest-earning assets                  74,542
                                         ----------
    Total assets                         $  903,998
                                         ==========

 Liabilities and stockholders' equity:
 Interest-bearing liabilities:
  NOW deposits                               63,322  $     79    0.17
  Money market deposits                     107,266     2,852    3.55
  Savings and other deposits                131,199     1,142    1.16
  Certificates of deposit                   418,279    15,086    4.82
                                         --------------------
   Total interest-bearing deposits          720,066    19,159    3.56

  FHLB advances                              40,095     1,436    4.79
                                         --------------------

   Total interest-bearing liabilities       760,161    20,595    3.62

  Noninterest-bearing demand deposits        24,275
  Other noninterest-bearing liabilities       7,417
                                         ----------
    Total liabilities                       791,853

   Total stockholders' equity               112,145
                                         ----------
   Total liabilities and stockholders'
    equity                               $  903,998
                                         ==========

  Net interest income                                $ 15,770
                                                     ========
  Interest rate spread(2)                                        2.23%
  Net interest margin(3)                                         2.53%
  Average interest-earning assets to                   109.12%
   average interest-bearing liabilities
 --------------------------------------------------------------------

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

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

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

 (4) Annualized.


         MERIDIAN INTERSTATE BANCORP, INC. AND SUBSIDIARIES
                          Financial Ratios
                             (Unaudited)
 ---------------------------------------------------------------------
                                Three Months Ended   Nine Months Ended
                                   September 30,       September 30,
                                  2008      2007      2008      2007
                                --------------------------------------
 Key Performance Ratios
 Return on average assets(4)       0.80%    (0.13)%   (0.05)%    0.34%
 Return on average equity(4)       4.30     (1.08)    (0.27)     2.72
 Interest rate spread(1)(4)        2.10      2.18      1.87      2.23
 Net interest margin(2)(4)         2.70      2.48      2.50      2.53
 Noninterest expense to average
  assets(4)                        2.53      2.50      3.07      2.43
 Efficiency ratio(3)              64.31    109.79     92.61     82.52
 Average interest-earning assets
  to average interest-bearing
  liabilities                    122.85    108.89    122.44    109.12

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

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

 (3) The efficiency ratio represents non-interest expense, divided by
     the sum of net interest income plus non-interest income.

 (4) Annualized.


                                             At        At       At
                                          Sept. 30, Dec. 31,  Sept. 30,
                                            2008      2007      2007
                                          ----------------------------
 Asset Quality Ratios
 Allowance for loan losses/total loans       0.86%     0.63%     0.66%
 Allowance for loan losses/
  nonperforming loans                       92.51     73.00     72.49

 Non-performing loans/total loans            0.92      0.87      0.91
 Non-performing loans/total assets           0.58      0.50      0.53
 Non-performing assets /total assets         0.77      0.55      0.56
 ---------------------------------------------------------------------


            

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