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

Meridian Interstate Bancorp, Inc., Reports Results for the Three and Nine Months
Ended September 30, 2009

BOSTON, Oct. 22, 2009 (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 $1.9 million or $.09 per
share (basic and diluted), for the quarter ended September 30, 2009, compared to
net income of $2.1 million, or $.10 per share (basic and diluted) for the
quarter ended September 30, 2008. The Company recorded net income of $1.7
million or $.08 per share (basic and diluted) for the nine months ended
September 30, 2009, compared to a net loss of $394,000 for the comparable 2008
period. Earnings per share information is not applicable for the nine months
ended September 30, 2008, as shares were not outstanding for the entire period.

Notable items in 2009 include the following:

* Total loans increased by $74.7 million, or 10.5% from
December 31, 2008.
* Deposits increased by $125.2 million, or 15.7% from
December 31, 2008.
* The net interest margin improved for the sixth consecutive
quarter, increasing from 3.18% for the quarter ended June 30,
2009 to 3.35% for the quarter ended September 30, 2009.
* To increase the Bank's brand exposure in Suffolk County, the
Company initiated a new strategic marketing campaign in
September 2009, which is entitled "Hard Work" and highlights the
Bank's community focus and commitment to hard work.
* In September 2009, the Bank hosted an open house at its newest
branch in Medford, MA, bringing the number of locations to
provide convenient customer service to 13.
Richard J. Gavegnano, Chairman and Chief Executive Officer of the Company, noted
that, "The Bank continues to see great opportunities in lending and healthy
growth in deposits. Yields on new loans remain stable, and the Bank's cost of
funds has decreased sharply, enhancing net interest income. Our capital position
is a source of stability for the Bank and provides us the ability to capture
relationships from customers disaffected by larger institutions."

Mr. Gavegnano added, "We will continue to be focused on expanding our brand and
capturing high quality seasoned relationships from our competitors." As
previously announced in July, the Company signed a definitive merger agreement
to acquire Mt. Washington Bank ("Mt. Washington"), which operates seven offices
in Suffolk County, Massachusetts, subject to regulatory approval. Mt.
Washington's existing customer deposits in Suffolk County will increase East
Boston Savings Bank's market share to 5th in the County. "Our core values and
strategies will be applied in the Mt. Washington Bank market area while
retaining the strong Mt. Washington brand name."

Net Interest Income

* Net interest income for the quarter ended September 30, 2009 was
$9.5 million, an increase of $2.7 million, or 40.7%, from the
quarter ended September 30, 2008.
* Interest and fees on loans increased from $9.9 million to $11.5
million, or 15.5%, as a result of higher average loan balances,
which increased from $641.1 million to $777.7 million for the
quarters ended September 30, 2008 and 2009, respectively.
* Interest expense on deposits decreased by $1.6 million, or 27.1%,
from $6.0 million to $4.4 million, as a result of a decrease to
the average cost of deposits from 3.20% to 2.00% for the
quarters ended September 30, 2008 and 2009, respectively,
despite a substantial increase in average deposit balances.
* For the nine months ended September 30, 2009, net interest
income increased by $7.1 million, or 38.5%, to $25.6 million.
The Company recorded an increase in interest and fees on loans
of $4.7 million, or 16.6%, and incurred lower interest expense
on deposits, which decreased by $4.8 million, or 24.6%.
* The Company continues to utilize funds received from its 2008
public offering and from deposit inflows to invest in new loan
originations. Loan balances increased by $72.9 million, or 10.4%
during the nine months ended September 30, 2009.

Non-interest Income

* Non-interest income was $1.1 million and $3.2 million for the
quarter and nine months ended September 30, 2009, compared to
$3.8 million and $8.0 million for the comparable 2008 periods
due primarily to gains on sales of securities recorded in 2008.
* The Company recorded a net loss on securities of $346,000 and
$719,000 for the quarter and nine months ended September 30,
2009, compared to a net gain on securities of $2.8 million and
$5.1 million in 2008. During the 2009 quarter, the Company sold
securities in an effort to recapture capital gain taxes paid for
prior years.
* The Company's investment in its affiliate, Hampshire First Bank,
generated income of $92,000 for the nine months ended
September 30, 2009, compared to a net loss of $323,000 for the
comparable 2008 period.

Non-interest Expense

* Non-interest expense was $7.2 million and $24.5 million for the
quarter and nine months ended September 30, 2009, compared to
$6.8 million and $24.6 million for the comparable 2008 periods.
* Salary and employee benefit expenses increased $706,000, or 5.1%,
to $14.5 million, for the nine months ended September 30, 2009,
primarily as a result of expenses relating to grants issued in
the fourth quarter of 2008 under the Company's equity incentive
plan.
* In 2008, the Company made a pre-tax $3.0 million contribution to
the Company's charitable foundation in conjunction with its
stock offering.
* Deposit insurance expense increased by $201,000 and $1.1 million,
respectively, for the quarter and nine months ended September 30,
2009, due to deposit growth and a special assessment levied by
the FDIC.
* For the nine months ended September 30, 2009, foreclosed real
estate expense increased to $493,000 from $74,000, due to higher
levels of foreclosed real estate activity in 2009.
* Other general and administrative expense increased by $151,000
and $418,000, respectively, for the quarter and nine months
ended September 30, 2009, primarily as a result of costs
incurred for the Company's planned acquisition of Mt. Washington
Bank.

Balance Sheet

* Securities available for sale increased by $67.3 million, or
26.6%, from December 31, 2008, as the Company invested excess
cash in money market mutual funds and debt securities as an
alternative to lower-yielding federal funds sold.
* Loan demand remained strong in 2009, with increases in all real
estate loan types at September 30, 2009 compared to December 31,
2008. Multi-family loans increased by $20.0 million, or 64.0%,
and the commercial real estate portfolio increased by $35.1
million, or 13.0%.
* Deposits increased by $125.2 million, or 15.7%, from December 31,
2008, with increases in all deposit types. Money market deposits
increased by $85.6 million, or 49.5%, to $258.5 million at
September 30, 2009. The Company successfully established an
online deposit gathering website during 2009, EBSB Direct, which
contributed to the increase in money market account balances.

Credit Quality

* The allowance for loan losses was $8.7 million, or 1.11% of
total loans outstanding as of September 30, 2009, compared to
$6.9 million, or 0.97% of total loans outstanding as of
December 31, 2008. The increase in the allowance for loan losses
relates to loan growth and management's assessment of various
factors affecting the portfolio, including, among others, an
ongoing evaluation of credit quality, local real estate market
conditions, local and national economic factors, and
non-performing and delinquent loan trends.
* The percentage of non-performing assets to total assets was 1.83%
at September 30, 2009, compared to 1.58% at December 31, 2008.
The increase is due primarily to higher levels of non-performing
construction loan balances. Non-performing assets, which totaled
$21.9 million at September 30, 2009, included foreclosed real
estate of $2.7 million, $12.4 million of construction loans,
$4.3 million of residential mortgage loans, and $2.5 million of
other loans.

Provision for Loan Losses

* The Company's loan loss provision was $694,000 and $1.8 million
for the quarter and nine months ended September 30, 2009,
compared to $403,000 and $2.7 million for the same periods in
2008.
* The decrease in the level of provision for the nine months was
due primarily to lower specific reserves required for loans that
became impaired in 2009 versus those in 2008. During 2008, the
Company had two loans that became impaired for which it recorded
specific reserves of $1.7 million.
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
filings with the Securities and Exchange Commission. 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.
Consolidated Balance Sheets
(Unaudited)

September 30, December 31,
----------------------------
(Dollars in thousands) 2009 2008
----------------------------
ASSETS
Cash and due from banks $ 10,761 $ 10,354
Federal funds sold 16,654 9,911
----------------------------
Total cash and cash equivalents 27,415 20,265

Certificates of deposit - affiliate bank 3,000 7,000
Securities available for sale, at fair
value 319,787 252,529
Federal Home Loan Bank stock, at cost 4,454 4,303

Loans held for sale 699 --
Loans 785,742 711,016
Less allowance for loan losses (8,711) (6,912)
----------------------------
Loans, net 777,031 704,104

Bank-owned life insurance 23,501 22,831
Investment in affiliate bank 10,468 10,376
Premises and equipment, net 23,381 22,710
Accrued interest receivable 5,523 6,036
Foreclosed real estate, net 2,658 2,604
Deferred tax asset, net 2,793 10,057
Other assets 1,597 2,537
----------------------------
Total assets $ 1,202,307 $ 1,065,352
============================

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 61,408 $ 55,216
Interest-bearing 860,605 741,636
----------------------------
Total deposits 922,013 796,852

Short-term borrowings - affiliate bank 5,795 7,811
Long-term debt 57,200 57,675
Accrued expenses and other liabilities 18,167 13,174
----------------------------
Total liabilities 1,003,175 875,512
----------------------------
Stockholders' equity:
Common stock, no par value 50,000,000
shares authorized; 23,000,000 shares
issued; 22,257,768 and 22,750,000
shares outstanding at September 30,
2009 and December 31, 2008,
respectively -- --
Additional paid-in capital 100,919 100,684
Retained earnings 107,168 105,426
Accumulated other comprehensive income
(loss) 4,910 (6,205)
Treasury stock (2,902) --
Unearned compensation - ESOP, 755,550
and 786,600 shares at September 30,
2009 and December 31, 2008,
respectively (7,555) (7,866)
Unearned compensation - restricted
shares, 414,000 and 250,000 shares at
September 30, 2009 and December 31,
2008, respectively (3,408) (2,199)
----------------------------
Total stockholders' equity 199,132 189,840
----------------------------
Total liabilities and stockholders'
equity $ 1,202,307 $ 1,065,352
============================

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

Three Months Ended Nine Months Ended
September 30, September 30,
(Dollars in thousands, ---------------------- ----------------------
except per share 2009 2008 2009 2008
amounts) ---------------------- ----------------------
Interest and dividend
income:
Interest and fees on
loans $ 11,480 $ 9,938 $ 33,171 $ 28,455
Interest on debt
securities 2,673 2,674 7,682 7,919
Dividends on equity
securities 252 573 844 1,264
Interest on
certificates of
deposit 16 60 72 98
Interest on federal
funds sold 5 99 23 1,640
---------------------- ----------------------
Total interest and
dividend income 14,426 13,344 41,792 39,376
---------------------- ----------------------

Interest expense:
Interest on deposits 4,404 6,045 14,605 19,382
Interest on short-term
borrowings 5 -- 47 115
Interest on long-term
debt 502 534 1,501 1,363
---------------------- ----------------------
Total interest
expense 4,911 6,579 16,153 20,860
---------------------- ----------------------

Net interest income 9,515 6,765 25,639 18,516
Provision for loan
losses 694 403 1,808 2,731
---------------------- ----------------------
Net interest income,
after provision for
loan losses 8,821 6,362 23,831 15,785
---------------------- ----------------------

Non-interest income:
Customer service fees 826 718 2,322 2,073
Loan fees 160 181 437 551
Gain (loss) on sales
of loans, net 125 (10) 424 17
Gain (loss) on
securities, net (346) 2,779 (719) 5,092
Income from bank-owned
life insurance 216 209 670 624
Equity income (loss)
on investment in
affiliate bank 117 (69) 92 (323)
---------------------- ----------------------
Total non-interest
income 1,098 3,808 3,226 8,034
---------------------- ----------------------

Non-interest expenses:
Salaries and employee
benefits 4,084 4,009 14,499 13,793
Occupancy and
equipment 754 719 2,315 2,198
Data processing 406 450 1,318 1,243
Marketing and
advertising 387 293 934 832
Professional services 467 595 1,535 1,562
Contribution to the
Meridian Charitable
Foundation -- -- -- 3,000
Foreclosed real estate
expense 15 31 493 74
Deposit insurance 373 172 1,513 382
Other general and
administrative 681 530 1,921 1,503
---------------------- ----------------------
Total non-interest
expenses 7,167 6,799 24,528 24,587
---------------------- ----------------------

Income (loss) before
income taxes 2,752 3,371 2,529 (768)

Provision (benefit)
for income taxes 864 1,228 787 (374)
---------------------- ----------------------

Net income (loss) $ 1,888 $ 2,143 $ 1,742 $ (394)
====================== ======================

Earnings per share:
Basic $ 0.09 $ 0.10 $ 0.08 N/A
Diluted $ 0.09 $ 0.10 $ 0.08 N/A

Weighted Average
Shares:
Basic 21,542,287 22,196,225 21,704,968 N/A
Diluted 21,713,948 22,196,225 21,889,813 N/A

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

For The Three Months Ended September 30,
------------------------------------------------------
2009 2008
------------------------------------------------------
Interest Yield/ Interest Yield/
(Dollars in Average Earned/ Cost Average Earned/ Cost
thousands) Balance Paid (4) Balance Paid (4)
------------------------------------------------------
Assets:
Interest-earning
assets:
Loans(1) $ 777,674 $11,480 5.86% $ 641,094 $ 9,938 6.17%
Securities and
certificates
of deposit 314,130 2,941 3.71 333,900 3,307 3.94
Other interest-
earning
assets 35,346 5 0.06 21,478 99 1.83
------------------- -------------------
Total
interest-
earning
assets 1,127,150 14,426 5.08 996,472 13,344 5.33
------- -------

Noninterest-
earning assets 77,101 79,296
---------- ----------
Total assets $1,204,251 $1,075,768
========== ==========

Liabilities and
stockholders'
equity:
Interest-bearing
liabilities:
NOW deposits $ 37,912 22 0.23 $ 42,078 92 0.87
Money market
deposits 267,049 1,084 1.61 150,501 929 2.46
Savings and
other deposits 128,816 238 0.73 123,236 354 1.14
Certificates of
deposit 439,967 3,060 2.76 435,022 4,670 4.27
------------------- -------------------
Total
interest-
bearing
deposits 873,744 4,404 2.00 750,837 6,045 3.20

FHLB advances
and other
borrowings 62,612 507 3.21 60,316 534 3.52
------------------- -------------------

Total
interest-
bearing
liabilities 936,356 4,911 2.08 811,153 6,579 3.23
------- -------

Noninterest-
bearing demand
deposits 61,203 54,711
Other
noninterest-
bearing
liabilities 11,260 10,509
---------- ----------
Total
liabilities 1,008,819 876,373

Total
stockholders'
equity 195,432 199,395
---------- ----------
Total
liabilities
and
stockholders'
equity $1,204,251 $1,075,768
========== ==========

Net interest
income $ 9,515 $ 6,765
======= =======
Interest rate
spread(2) 3.00% 2.10%
Net interest
margin(3) 3.35% 2.70%
Average
interest-
earning assets
to average
interest-
bearing
liabilities 120.38% 122.85%
------------------------------------------------------

(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 Month Ended September 30,
------------------------------------------------------
2009 2008
----------------------------------------------------------------------
Interest Yield/ Interest Yield/
(Dollars in Average Earned/ Cost Average Earned/ Cost
thousands) Balance Paid (4) Balance Paid (4)
------------------------------------------------------
Assets:
Interest-earning
assets:
Loans(1) $ 754,770 $33,171 5.90% $ 604,157 $28,455 6.29%
Securities and
certificates
of deposit $ 286,433 8,598 4.03 301,477 9,281 4.11
Other interest-
earning assets 29,295 23 0.11 85,350 1,640 2.57
------------------- -------------------
Total
interest-
earning
assets 1,070,498 41,792 5.24 990,984 39,376 5.31
------- -------

Noninterest-
earning assets 80,603 76,733
---------- ----------
Total assets $1,151,101 $1,067,717
========== ==========

Liabilities and
stockholders'
equity:
Interest-bearing
liabilities:
NOW deposits $ 37,483 105 0.38 $ 38,855 236 0.81
Money market
deposits 225,982 3,184 1.89 144,751 2,967 2.74
Savings and
other deposits 126,673 833 0.88 129,138 1,103 1.14
Certificates of
deposit 433,512 10,483 3.24 443,140 15,076 4.54
------------------- -------------------
Total
interest-
bearing
deposits 823,650 14,605 2.38 755,884 19,382 3.43

FHLB advances
and other
borrowings 64,840 1,548 3.20 53,458 1,478 3.69
------------------- -------------------

Total
interest-
bearing
liabilities 888,490 16,153 2.44 809,342 20,860 3.44
------- -------

Noninterest-
bearing demand
deposits 60,569 53,867
Other
noninterest-
bearing
liabilities 10,412 9,854
---------- ----------
Total
liabilities 959,471 873,063

Total
stockholders'
equity 191,630 194,654
---------- ----------
Total
liabilities
and
stockholders'
equity $1,151,101 $1,067,717
========== ==========

Net interest
income $25,639 $18,516
======= =======
Interest rate
spread(2) 2.80% 1.87%
Net interest
margin(3) 3.21% 2.50%
Average
interest-
earning
assets to
average
interest-
bearing
liabilities 120.49% 122.44%
----------------------------------------------------------------------

(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,
2009 2008 2009 2008
-------- -------- -------- --------
Key Performance Ratios
Return on average assets(4) 0.63% 0.80% 0.20% (0.05)%
Return on average equity(4) 3.86 4.30 1.22 (0.27)
Interest rate spread(1)(4) 3.00 2.10 2.80 1.87
Net interest margin(2)(4) 3.35 2.70 3.21 2.50
Noninterest expense to average
assets(4) 2.38 2.53 2.86 3.07
Efficiency ratio(3) 67.53 64.31 84.97 92.61
Average interest-earning assets
to average interest-bearing
liabilities 120.38 122.85 120.49 122.44

(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
September September December 31,
2009 2008 2008
---------------------------------------------------------------------
Asset Quality Ratios
Allowance for loan losses/total
loans 1.11% 0.86% 0.97%
Allowance for loan losses/
nonperforming loans 45.14 92.51 48.57

Non-performing loans/total loans 2.45 0.92 2.00
Non-performing loans/total assets 1.60 0.58 1.34
Non-performing assets /total assets 1.83 0.77 1.58
---------------------------------------------------------------------
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CONTACT: Meridian Interstate Bancorp, Inc.
Richard J. Gavegnano, Chairman and Chief Executive
Officer
(978) 977-2211