UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended December 31, 2008

¨	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: 0-52532

SUGAR CREEK FINANCIAL CORP.

(Exact name of registrant as specified in its charter)

United States		74-3210459_____
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

28 West Broadway, Trenton, Illinois 62293-1304

(Address of principal executive offices)(Zip Code)

(618) 224-9228

(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 x 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 the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large Accelerated Filer o Accelerated Filer ¨ Non-accelerated Filer ¨ Smaller Reporting Company x

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

As of February 3, 2009 there were 900,107 shares of the registrant’s common stock outstanding, $.01 par value per share.

SUGAR CREEK FINANCIAL CORP.

FORM 10-Q

Index

		Page No.

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	1

	Consolidated Balance Sheets at December 31, 2008 and
	March 31, 2008 (Unaudited)	1

	Consolidated Statements of Operations for the three and nine months
	ended December 31, 2008 and 2007 (Unaudited)	2

	Consolidated Statements of Cash Flows for the nine months ended
	December 31, 2008 and 2007 (Unaudited)	3

	Notes to Unaudited Consolidated Financial Statements	4

Item 2.	Management’s Discussion and Analysis of Financial Condition and
	Results of Operations	5

Item 3.	Quantitative and Qualitative Disclosure About Market Risk	13

Item 4T.	Controls and Procedures	13

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	14

Item 1A.	Risk Factors	14

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	14

Item 3.	Defaults upon Senior Securities	14

Item 4.	Submission of Matters to a Vote of Security Holders	14

Item 5.	Other Information	14

Item 6.	Exhibits	15

Signatures		16

Part I. Financial Information

Item 1. Financial Statements.

SUGAR CREEK FINANCIAL CORP. AND SUBSIDIARY

Consolidated Balance Sheets (Unaudited)

	December 31,			March 31,
	2008			2008
Assets

Cash and due from banks	$	656,559			607,687
Federal funds sold		4,354,322			929,733
FHLB daily investment		1,482,727			1,629,805
Cash and cash equivalents		6,493,608			3,167,225
Stock in Federal Home Loan Bank of Chicago		1,660,145			1,660,145
Loans receivable, net of allowance for loan losses
of $165,287 and $124,287		82,540,398			79,803,742
Premises and equipment, net		1,157,399			1,036,555
Foreclosed real estate		385,847			385,847
Accrued interest receivable:
Securities		-			-
Loans		328,750			329,079
Other assets		208,061			223,594
Total assets	$	92,774,208			86,606,187

Liabilities and Stockholders' Equity
Deposits	$	62,365,211			59,181,449
Accrued interest on deposits		186,266			233,399
Advances from FHLB of Chicago		20,000,000			17,000,000
Advances from borrowers for taxes and insurance		204,784			342,017
Other liabilities		184,197			247,438
Income taxes		600,330			436,865
Total liabilities		83,540,788			77,441,168
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized; none issued or outstanding
Common stock, $.01 par value, 14,000,000 shares
authorized; 906,879 shared issued		9,069			9,069
Additional paid-in capital		3,207,505			3,341,901
Treasury stock, at cost, 6,772 shares		(56,157	)		-
Common stock acquired by employee stock ownership plan		(308,091	)		(325,866	)
Retained earnings - substantially restricted		6,381,094			6,139,915
Total stockholders' equity		9,233,420			9,165,019
Total liabilities and stockholders' equity	$	92,774,208			86,606,187

See accompanying notes to unaudited consolidated financial statements.

SUGAR CREEK FINANCIAL CORP. AND SUBSIDIARY

Consolidated Statements of Operations

	Three Months Ended December 31,					Nine Months Ended December 31,
	2008		2007			2008		2007
	(Unaudited)					(Unaudited)
Interest income:
Loans receivable	$	1,248,261		1,255,443		$	3,734,861		3,653,095
Securities		-		-			-		13,051
Other interest-earning assets		4,725		32,931			26,182		97,008
Total interest income		1,252,986		1,288,374			3,761,043		3,763,154

Interest expense:
Deposits		461,020		511,615			1,395,778		1,524,414
Advances from FHLB		190,294		270,309			627,905		736,005
Total interest expense		651,314		781,924			2,023,683		2,260,419
Net interest income		601,672		506,450			1,737,360		1,502,735
Provision for loan losses		40,046		80,436			51,876		80,436
Net interest income after provision
for loan losses		561,626		426,014			1,685,484		1,422,299

Noninterest income:
Loan service charges		4,988		7,479			14,930		18,855
Service charges on deposit accounts		43,548		34,961			123,153		98,267
Other		4,936		5,475			15,058		12,783
Total noninterest income		53,472		47,915			153,141		129,905

Noninterest expense:
Compensation and benefits		279,898		296,252			779,504		889,075
Occupancy expense		25,789		23,142			76,282		68,000
Equipment and data processing		83,039		82,232			268,280		240,629
FDIC premium expense		10,762		1,671			15,011		5,354
Advertising		18,079		12,056			34,483		28,624
Supplies expense		5,114		11,301			22,326		31,090
Other		81,850		87,303			249,554		229,276
Total noninterest expense		504,531		513,957			1,445,440		1,492,048
Earnings (loss) before income taxes		110,567		(40,028	)		393,185		60,156

Income tax expense (benefit)		44,165		(15,290	)		152,006		24,382

Net earnings (loss)	$	66,402		(24,738	)	$	241,179		35,774

Earnings (loss) per share	$	0.08		(0.03	)	$	0.28		0.04
Dividends per share	$	0.00		0.00		$	0.00		0.00

See accompanying notes to unaudited consolidated financial statements.

SUGAR CREEK FINANCIAL CORP. AND SUBSIDIARY

Consolidated Statements of Cash Flows (Unaudited)

	Nine Months Ended
	December 31,
	2008			2007

Cash flows from operating activities:
Net earnings	$	241,179			35,774
Adjustments to reconcile net earnings to net
cash provided by (used for) operating activities:
Depreciation		79,493			59,321
ESOP expense		15,636			23,636
Incentive plan expense		11,653			-
Amortization of deferred loan fees, net		(15,020	)		(18,558	)
Provision for loan losses		51,876			80,436
Decrease (increase) in accrued interest receivable		329			(5,286	)
Decrease (increase) in other assets		15,533			541,605
Increase (decrease) in:
Accrued interest on deposits		(47,133	)		(4,580	)
Other liabilities		(63,241	)		51,747
Income taxes		163,465			(8,264	)
Net cash provided by (used for) operating activities		453,770			755,831
Cash flows from investing activities:
Net change in loans receivable		(2,773,512	)		(1,684,957	)
Purchase of premises and equipment		(200,337	)		(220,265	)
Net cash provided by (used for) investing activities		(2,973,849	)		(1,905,222	)
Cash flows from financing activities:
Net increase (decrease) in deposits		3,183,762			(6,896,468	)
Increase (decrease) in advances from
borrowers for taxes and insurance		(137,233	)		43,558
Proceeds from advances from FHLB		19,500,000			21,500,000
Repayment of advances from FHLB		(16,500,000	)		(19,000,000	)
Proceeds from sale of common stock, net		-			2,996,088
Repurchase of common stock		(200,067	)		-
Net cash provided by (used for) financing activities		5,846,462			(1,356,822	)
Net increase (decrease) in cash and cash equivalents		3,326,383			(2,506,213	)
Cash and cash equivalents at beginning of period		3,167,225			6,958,707
Cash and cash equivalents at end of period	$	6,493,608			4,452,494
Supplemental disclosures-cash paid during the period for:
Interest on deposits and advances from FHLB	$	2,080,884			2,250,455
Federal and state income taxes	$	152,006			24,382
Real estate and repossessions acquired in settlement of loans	$	43,176			385,847

See accompanying notes to unaudited consolidated financial statements.

SUGAR CREEK FINANCIAL CORP. AND SUBSIDIARY

Notes to Unaudited Consolidated Financial Statements

December 31, 2008

(1)	Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with instructions for Form 10-Q and, therefore, do not include all disclosures necessary for a complete presentation of the financial statements in conformity with U.S. generally accepted accounting principles. However, all adjustments that are, in the opinion of management, necessary for the fair presentation of the interim financial statements have been included. Such adjustments were of a normal recurring nature. The results of operations for the three and nine month periods ended December 31, 2008 are not necessarily indicative of the results that may be expected for the entire year or any other interim period.

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 losses on loans.

(2)	Mutual Holding Company Reorganization and Minority Stock Issuance

Sugar Creek Financial Corp. (the “Company”) was organized as a federal corporation at the direction of Tempo Bank (the “Bank”) in connection with the mutual holding company reorganization of the Bank. The reorganization was completed on April 3, 2007. In the reorganization, the Company sold 45% of its outstanding shares of common stock (408,095 shares) to the public, and issued 55% of its outstanding shares of common stock (498,784 shares) to Sugar Creek MHC, the mutual holding company of the Bank. The Company loaned $355,490 to a trust for the Employee Stock Ownership Plan (“the ESOP”) enabling the ESOP to purchase 35,549 shares of common stock in the offering for the benefit of the Bank’s employees. In addition, a contribution of $50,000 was made to capitalize Sugar Creek MHC. Costs incurred in connection with the common stock offering were recorded as a reduction of the proceeds from the offering and totaled $679,000. The Company owns all of the Bank’s capital stock.

(3)	Earnings Per Share

When presented, basic earnings per share are computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period, including ESOP shares which have been committed to be released. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.

Following is a summary of basic and diluted earnings per share:

	Three Months Ended					Nine Months Ended
	December 31,					December 31,
	2008		2007			2008		2007

Net earnings (loss)	$	66,402		(24,738	)	$	241,179		35,774

Weighted-average shares - Basic EPS		863,524		873,305			870,536		872,515
Effect of dilutive stock awards		2,205		-			792		-
Weighted-average shares - Diluted EPS		865,729		873,305			871,328		872,515

Basic earnings (loss) per common share	$	0.08		(0.03	)	$	0.28		0.04
Diluted earnings (loss) per common share	$	0.08		(0.03	)	$	0.28		0.04
Anti-dilutive shares		-		-		$	-		-

(4)	Equity Incentive Plan.

On November 19, 2007 stockholders approved the Sugar Creek Financial Corp. 2007 Equity Incentive Plan (the “Plan”). Under the Plan, the Company may grant to employees, officers and directors up to 62,211 shares of common stock, including 44,437 shares for stock options and 17,774 shares of restricted stock.

On July 21, 2008, the Board of Directors granted 17,774 shares of restricted stock to officers and directors of the Company. Shares of common stock were purchased in the open market at an average price of $8.18 per share to fund the restricted stock awards. Incentive plan expense was $7,000 for the three months and $12,000 for the nine months ended December 31, 2008.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operation

Management’s discussion and analysis of the financial condition and results of operations at and for the three and nine months ended December 31, 2008 and 2007 is intended to assist in understanding our financial condition and results of operations. The information contained in this section should be read in conjunction with the Unaudited Consolidated Financial Statements and the notes thereto, appearing in Part I, Item 1 of this report.

Forward-Looking Statements

This quarterly report contains forward-looking statements that are based on assumptions and may describe our future plans, strategies and expectations. These forward-looking statements are generally identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or similar expressions.

Our 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 our operations include, but are not limited to, changes in interest rates, national and regional economic conditions, legislative and regulatory changes, monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Federal Reserve Board, the quality and composition of our loan or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in our market area, changes in real estate market values in our area, and changes in relevant accounting principles and guidelines.

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, we do not undertake, and specifically disclaim 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.

General

Sugar Creek Financial Corp. is the holding company for Tempo Bank. Tempo Bank operates from two offices in Trenton and Breese, Illinois. Tempo Bank is engaged primarily in the business of attracting deposits from the general public and using such funds to originate a variety of single-family residential mortgages, consumer and business loans.

Critical Accounting Policy

Allowance for Loan Losses. We consider the allowance for loan losses to be a critical accounting policy. The allowance for loan losses is the amount estimated by management as necessary to cover probable losses inherent in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses, which is charged to income. Determining the amount of the allowance for loan losses necessarily involves a high degree of judgment. Among the material estimates required to establish the allowance are: loss exposure at default; the amount and timing of future cash flows on impacted loans; value of collateral; and determination of loss factors to be applied to the various elements of the portfolio. All of these estimates are susceptible to significant change. Management reviews the level of the allowance at least monthly and establishes the provision for loan losses based upon an evaluation of the portfolio, past loss experience, current economic conditions and other factors related to the collectibility of the loan portfolio. Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluation. In addition, the Office of Thrift Supervision, as an integral part of its examination process, periodically reviews our allowance for loan losses. Such agency may require us to recognize adjustments to the allowance based on its judgments about information available to it at the time of its examination. A large loss could deplete the allowance and require increased provisions to replenish the allowance, which would adversely affect earnings.

Balance Sheet Analysis

Overview. Total assets at December 31, 2008 were $92.8 million compared to $86.6 million at March 31, 2008. A $2.7 million increase in loans and a $3.4 million increase in Federal funds sold were funded primarily by increases in deposits and FHLB of Chicago borrowings.

Loans Receivable, Net. Loans receivable, net of allowance for loan losses, increased to $82.5 million at December 31, 2008 from $79.8 million at March 31, 2008. The increase consisted primarily of one-to four-family residential real estate loans.

Nonaccrual loans at December 31, 2008 increased to $1.5 million compared to $64,000 at March 31, 2008. Nonaccrual loans at December 31, 2008 consisted of nine single-family loans aggregating $1.4 million and six consumer loans aggregating $61,000. The two largest nonaccrual single-family loans were $352,000 and $280,000. At March 31, 2008, there were three consumer loans aggregating $64,000 classified as nonaccrual. Nonaccrual loans increased for the nine month period ended December 31, 2008 as a result of a slowing local and regional economy, job layoffs, divorce and health issues afflicting our borrowers. There were no troubled debt restructurings or loans 90 days or more past due and still accruing at either date.

Nonperforming Assets

	December 31,			March 31,
(Dollars in thousands)	2008			2008

Nonaccrual loans:
Residential real estate	$	1,405		$	-
Commercial real estate		-			-
Commercial		-			-
Consumer	61			64
Total		1,466			64
Foreclosed real estate and other repossessed assets (1)	418			386
Total nonperforming assets	$	1,884		$	450

Total nonperforming loans to total loans		1.78	%		0.08	%
Total nonperforming loans to total assets		1.58	%		0.07	%
Total nonperforming assets to total assets		2.03	%		0.52	%

(1) Foreclosed real estate and other repossessed assets at December 31, 2008 consist of one single-family residence located in O’Fallon, Illinois and two automobiles.

At December 31, 2008, we had no loans which were not currently classified as nonaccrual, 90 days past due or impaired but where known information about possible credit problems of borrowers caused management to have serious concerns as to the ability of the borrowers to comply with present loan repayment terms and which may result in disclosure in nonaccrual, 90 days past due or impaired. See also “Analysis of Loan Loss Experience”.

Investments. The Bank is a member of the Federal Home Loan Bank of Chicago (“FHLBC”), from which we borrow to fund our operations. As a member, we are required to own stock in the FHLBC. In addition, we maintain excess or voluntary stock, which is stock held in excess of the amount required as a condition of membership or for borrowings. On October 10, 2007, the FHLBC entered into a consensual cease and desist order with the Federal Housing Finance Board Office of Supervision, which limits the ability of the FHLBC to redeem excess or voluntary stock or to pay dividends. The FHLBC has not paid a dividend during the last six quarters citing continuing pressure on net interest income, projected earnings levels, market conditions and regulatory requirements. At December 31, 2008, we owned $1.66 million of FHLBC stock, of which $660,000 was considered excess or voluntary stock. Our investment portfolio consists solely of our investment in the FHLBC.

Premises and Equipment, Net. Premises and equipment, net, increased $120,000 to $1.2 million at December 31, 2008 primarily as a result of the purchase of a tract of land for a possible future branch location.

Other Assets. Other assets decreased $16,000 to $208,000 at December 31, 2008 due primarily to the timing of payment of certain prepaid items.

Deposits. Deposit balances increased to $62.4 million at December 31, 2008 as customers’ funds moved from the stock market and other investment accounts to insured deposits.

Borrowings. We use short-term, cash equivalent FHLB advances as an additional source of liquidity. FHLB advances increased $3.0 million from $17.0 million at March 31, 2008 to $20.0 million at December 31, 2008.

Other Liabilities. Advances from borrowers for real estate taxes and insurance decreased $137,000 to $205,000 at December 31, 2008 due to payments made for real estate taxes and insurance. Other liabilities decreased $63,000 to $184,000 at December 31, 2008 as a result of timing of payment of certain accrual items.

Stockholders’ Equity. Stockholders’ equity increased $68,000 to $9.2 million at December 31, 2008 as a result of net earnings of $241,000, partially offset by the repurchase of common stock of $200,000, primarily used to fund restricted stock awards.

Results of Operations for the Three Months Ended December 31, 2008 and 2007.

General. Net earnings for the three months ended December 31, 2008 were $66,000, compared to a net loss of $24,700 for the same period last year. Higher net interest income and noninterest income, combined with a lower provision for loan losses and noninterest expenses, were partially offset by income tax expense.

Total Interest Income. Total interest income decreased $35,000 to $1.3 million for the three months ended December 31, 2008. Interest income on loans decreased $7,000 as result of a lower average balance on loans. The FHLBC continues its suspended dividend policy and, therefore, the Bank does not expect to receive cash or stock dividends on the FHLB stock in the near future. Earnings on overnight deposits fell $28,000 since the Federal Reserve lowered the target for the Fed Funds rate to 0.00% to 0.25%.

Total Interest Expense. Total interest expense decreased by $131,000 to $651,000 for the three months ended December 31, 2008 from $782,000 for the three months ended December 31, 2007. The decrease resulted primarily from lower average rates on customer deposits and FHLB advances.

Net Interest Income. Net interest income increased $95,000 to $602,000 for the three months ended December 31, 2008 from $506,000 for the three months ended December 31, 2007 as a result of lower average rates on deposits and FHLB advances.

Provision for Loan Losses. We establish provisions for loan losses which are charged to operations at a level we believe to be appropriate to our risk profile. These provisions represent management’s best estimate of probable loan losses in the portfolio. In evaluating the allowance for loan losses, management considers historical loss experience, the composition of the loan portfolio, adverse situations that might impact a borrower’s ability to repay the loan, the value of the underlying collateral, and other information, including level of nonaccrual loans. During the quarter ended December 31, 2008, the Bank recorded $40,000 as a provision for loan losses. For the comparable period ended December 31, 2007, the Bank recorded $80,000 as a provision for loan losses.

Noninterest Income. Noninterest income includes service charges on deposit accounts, loan service charges, and other income. Total noninterest income increased for the three month period ended December 31, 2008 to $53,000 from $48,000 for the three months ended December 31, 2007 due to increased ATM and debit card fees resulting from increased usage and the Bank’s overdraft privilege program for transaction account customers.

Noninterest Expense. Noninterest expense includes salaries and employee benefits, equipment and data processing, occupancy and other expenses. Total noninterest expense decreased by $9,000 to $505,000 for the three months ended December 31, 2008 from $514,000 for the three months ended December 31, 2007. Reductions in compensation, health care and retirement benefit costs were the largest contributors to the decrease. Health care costs declined as a result of our decision to change providers which has resulted in a cost savings. Retirement benefit expenses decreased due to lower plan contributions required as a result of higher investment returns in the defined benefit plan. FDIC premium expense increased due to a new risk-based assessment system which considers the supervisory rating and certain financial ratios of each financial institution and related expiring credits.

Income Taxes. Income tax expense was $44,000 for the three months ended December 31, 2008 compared to a tax benefit of $15,000 for the three months ended December 31, 2007. The increase in tax expense is primarily attributable to the higher pre-tax income for the current period.

Results of Operations for the Nine months Ended December 31, 2008 and 2007.

General. Net earnings for the nine months ended December 31, 2008 were $241,000, an increase of $205,000 from the nine months ended December 31, 2007. The increase in earnings was due to increases in net interest income, noninterest income and reductions in noninterest expenses.

The following table summarizes average balances and annualized average yields and costs for the nine months ended December 31, 2008 and 2007.

	Nine Months Ended December 31,
	2008							2007
(Dollars in thousands)	Average Balance		Interest and Dividends		Yield/ Cost			Average Balance		Interest and Dividends		Yield/ Cost

Assets:
Interest-earning assets:
Loans	$	82,627	$	3,735		6.03	%	$	81,100	$	3,653		6.01	%
Stock in FHLB of Chicago		1,660		–		0.00			1,660		13		1.04
Other interest-earning assets		3,339		26		1.04			2,598		97		4.98
Total interest-earning assets		87,626		3,761		5.72			85,358		3,763		5.88

Noninterest-earning assets		3,127							2,523
Total assets		90,753							87,881

Liabilities and Stockholders’ Equity
Total interest-bearing deposits		57,482		1,396		3.24			54,461		1,524		3.73
FHLB advances		20,389		628		4.12			20,778		736		4.72
Total interest-bearing liabilities		77,871		2,024		3.47			75,239		2,260		4.01

Noninterest-bearing deposit accounts		2,695							2,444
Other noninterest-bearing liabilities		927							1,120
Total liabilities		81,493							78,803

Stockholders’ equity		9,260							9,078
Total liabilities and stockholders’ equity	$	90,753						$	87,881

Net interest income			$	1,737						$	1,503

Interest rate spread						2.25	%						1.87	%

Net interest margin						2.64	%						2.35	%

Total Interest Income. Total interest income decreased $2,000 to $3.761 million for the nine months ended December 31, 2008 from $3.763 million for the same period ended December 31, 2007. While interest income on loans increased because of higher average balances and a higher average yield on loans, interest income on other interest earning assets and dividends on FHLB stock declined.

Total Interest Expense. Total interest expense decreased by $236,000 to $2.0 million for the nine months ended December 31, 2008 from $2.3 million for the comparable prior year period. The decline was due to reductions in deposit interest expense and FHLB advance interest expense.

Net Interest Income. Net interest income increased by $234,000 to $1.74 million for the nine months ended December 31, 2008 from $1.5 million for the nine months ended December 31, 2007 as a result of lower average rates on deposits and FHLB advances.

Provision for Loan Losses. We establish provisions for loan losses which are charged to operations at a level we believe to be appropriate to our risk profile. These provisions represent management’s best estimate of probable loan losses in the portfolio. In evaluating the allowance for loan losses, management considers historical loss experience, the composition of the loan portfolio, adverse situations that might impact a borrower’s ability to repay the loan, the value of the underlying collateral, and other information, including level of nonaccrual loans. During the nine month period ended December 31, 2008, we recorded a $52,000 provision for loan losses compared to an $80,000 provision for the same period in 2007.

Analysis of Loan Loss Experience.

	Nine Months Ended December 31,
(Dollars in thousands)	2008			2007

Allowance at beginning of period	$	124		$	130

Provision for (recovery of) loan losses		52			80

Charge-offs:
One- to four- family		-			(92	)
Consumer loans		(11	)		-
Total charge-offs		(11	)		(92	)

Recoveries:
One- to four- family		-			-
Consumer loans		-			6
Total recoveries		-			6
Net recoveries (charge-offs)		(11	)		(86	)

Allowance at end of period	$	165		$	124

Allowance to nonperforming loans		11.26	%		288.37	%
Allowance to total loans outstanding at end of nine month period		0.20	%		0.15	%
Annualized net charge-offs (recoveries) to average loans outstanding		0.02	%		0.14	%

Noninterest Income. Noninterest income includes service charges on deposit accounts, loan service charges, and other income. Total noninterest income increased for the nine months ended December 31, 2008 to $153,000 from $130,000 for the same period ended December 31, 2007. The increase continues to be driven by increased ATM and debit card fees resulting from increased usage and the Bank’s overdraft privilege program for transaction account customers.

Noninterest Expense. Noninterest expense includes salaries and employee benefits, equipment and data processing, occupancy and other expenses. Total noninterest expense decreased by $47,000 for the nine months ended December 31, 2008 to $1.4 million. The decrease was primarily due to lower compensation and benefits expense as a result of a change in employee healthcare providers and reduced defined benefit plan expenses.

Income Taxes. Income tax expense increased to $152,000 for the nine months ended December 31, 2008 from $24,000 for the same period ended December 31, 2007. The $128,000 increase in tax expense is primarily attributable to the higher pre-tax income for the nine month period ended December 31, 2008.

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 FHLBC. 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 December 31, 2008, cash and cash equivalents totaled $6.5 million and the Bank was eligible for additional advances of up to $13.2 million from the FHLBC. At December 31, 2008, we had $20.0 million of advances outstanding.

A significant use of our liquidity is the funding of loan originations. Historically, many of the commitments expire without being fully drawn; therefore, the total commitment amounts do not necessarily represent future cash requirements. At December 31, 2008, we had no outstanding loan commitments.

Another significant use of our liquidity is the funding of deposit withdrawals. Certificates of deposit due within one year of December 31, 2008 totaled $33.4 million, or 77.2% of certificates of deposit. Although the percentage of certificates of deposit that mature within one year is slightly larger than last quarter, it continues to reflect consumers’ hesitancy to invest their funds for longer periods given uncertainties about the interest rate environment. If these maturing deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit and borrowings. Due to the severe economic conditions, we have become quite sensitized about deposit pricing and the monitoring of liquidity levels. While we believe we can attract new money deposits with targeted pricing, the local deposit market is extremely competitive with both regional and national banking institutions “buying the market” for liquidity. This has contributed significantly to a very rate sensitive time deposit base.

Our primary investing activity is the origination of loans. Our primary financing activities consist of activity in deposit accounts and FHLB advances. Deposit flows are affected by the overall level of interest rates, the rates paid and products offered by us and our local competitors and several 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. We are subject to various regulatory capital requirements administered by the Office of Thrift Supervision, 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 December 31, 2008, we exceeded all of our regulatory capital requirements. We are considered “well capitalized” under regulatory guidelines.

The Bank may not declare or pay a cash dividend, if the effect of such dividends would be to cause the capital of the Bank to be reduced below the aggregate amount required by federal or state law. The Company may pay a dividend, if and when declared by its Board of Directors. Any dividends waived by the MHC, are subject to approval by the OTS. Any repurchases of the Company’s common stock will be conducted in accordance with applicable laws and regulations.

The Bank’s actual and required capital amounts and ratios at December 31, 2008 are as follows:

						Minimum Required
						for Capital					to be "Well
	Actual					Adequacy					Capitalized"
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in Thousands)

Stockholders' equity of the Bank	$	8,862		9.55	%	$	1,392		1.50	%
General valuation allowance		165
Total capital to risk-weighted assets	$	9,027		18.03	%	$	4,005		8.00	%	$	5,006		10.00	%

Tier 1 capital to risk-weighted assets	$	8,862		17.70	%	$	2,003		4.00	%	$	3,004		6.00	%

Tier 1 capital to total assets	$	8,862		9.55	%	$	3,711		4.00	%	$	4,638		5.00	%

Off-Balance Sheet Arrangements

In the normal course of operations, we engage in a variety of financial transactions that, in accordance with U.S. 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.

For the nine months ended December 31, 2008, we did not engage in any 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 Disclosure About Market Risk

Not applicable.

Item 4T.

Controls and Procedures

The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’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, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company 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 the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

During the quarterly period ended December 31, 2008, there were no changes in the Company’s internal control over financial reporting which materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

Sugar Creek Financial Corp. is not involved in any pending legal proceedings. Tempo Bank is not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business. Such routine legal proceedings, in the aggregate, are believed by management to be immaterial to its financial condition and results of operations.

Item 1A.

Risk Factors

Not applicable.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Period	(a) Total number of Shares (or Units) Purchased			(b) Average Price Paid per Share (or Unit)		(c) Total Number of Shares (or units) Purchased as Part of Publicly Announced Plans or Programs		(d) Maximum Number (or Appropriate Dollar Value) of Shares (or units) that May Yet Be Purchased Under the Plans or Programs

Month #1 October 1, 2008 through October 31, 2008		-			-		-		-

Month #2 November 1, 2008 through November 30, 2008		-			-		-		-

Month #3 December 1, 2008 through December 31, 2008		16,046	(1)	$	8.16		-		-

Total		16,046	(1)	$	8.16		-

(1)	On December 4, 2008 and December 8, 2008, management purchased a total of 16,046 shares of Company common stock in open market transactions.

Item 3.

Defaults upon Senior Securities

Not Applicable.

Item 4.

Submission of Matters to a Vote of Security Holders

Not Applicable.

Item 5.

Other Information

None.

Item 6.

Exhibits

3.1		Charter of Sugar Creek Financial (1)

3.2		Bylaws of Sugar Creek Financial (1)

4.0		Stock certificate of Sugar Creek Financial (2)

10.1		Employment Agreement by and between Tempo Bank and Robert J. Stroh, Jr., as amended

10.2		Employment Agreement by and between Sugar Creek Financial Corp. and Robert J. Stroh, Jr., as amended

10.3		Employment Agreement by and between Tempo Bank and Francis J. Eversman, as amended

10.4		Employment Agreement by and between Sugar Creek Financial Corp. and Francis J. Eversman, as amended

10.5		Tempo Bank Employee Severance Compensation Plan, as amended

31.0		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer and Chief Financial Officer

32.0		Section 1350 Certification

(1)		Incorporated by reference into this document from the Exhibits filed with the Securities and Exchange Commission on the Annual Report on Form 10-KSB (File No. 000-52532), filed on June 27, 2007.

(2)		Incorporated by reference into this document from the Exhibits filed with the Securities and Exchange Commission on the Registration Statement on Form SB-2, (File No. 333-139332) and any amendments thereto.

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.

		SUGAR CREEK FINANCIAL CORP.


Dated:	February 9, 2009	By:	/s/ Robert J. Stroh, Jr.
			Robert J. Stroh, Jr.
			Chairman, Chief Executive Officer and
			Chief Financial Officer

Sugar Creek Financial Corp 10-Q