10-Q

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 June 30, 2008

OR

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

For the transition period from ______________ to _____________

Commission file number: 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)

(618) 224-9228

(Registrant’s telephone number)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by checkmark 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 o

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. (Check one): Large Accelerated Filer o  Accelerated Filer o  Non-accelerated Filer o  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 o       No x

As of June 30, 2008 there were 906,879 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 June 30, 2008 and
		March 31, 2008 (Unaudited)	1
		Consolidated Statements of Earnings for the three months
		ended June 30, 2008 and 2007 (Unaudited)	2
		Consolidated Statements of Cash Flows for the three months ended
		June 30, 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	10
	Item 4.	Controls and Procedures	11
PART II. OTHER INFORMATION
	Item 1.	Legal Proceedings	12
	Item 1A.	Risk Factors	12
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	12
	Item 3.	Defaults upon Senior Securities	12
	Item 4.	Submission of Matters to a Vote of Security Holders	12
	Item 5.	Other Information	12
	Item 6.	Exhibits	12
Signatures

i

Part I. Financial Information

Item 1. Financial Statements.

SUGAR CREEK FINANCIAL CORP. AND SUBSIDIARY

Consolidated Balance Sheets (Unaudited)

	June 30,			March 31,
	2008			2008
Assets
Cash and due from banks	$	521,385			607,687
Federal funds sold		1,963,229			929,733
FHLB daily investment		674,541			1,629,805
Cash and cash equivalents		3,159,155			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 $124,287 and $124,287		82,461,306			79,803,742
Premises and equipment, net		1,201,186			1,036,555
Foreclosed real estate		385,847			385,847
Accrued interest receivable:
Securities		-			-
Loans		332,149			329,079
Other assets		133,909			223,594
Total assets	$	89,333,697			86,606,187
Liabilities and Stockholders' Equity
Deposits	$	59,299,464			59,181,449
Accrued interest on deposits		218,264			233,399
Advances from FHLB of Chicago		19,500,000			17,000,000
Advances from borrowers for taxes and insurance		469,820			342,017
Other liabilities		167,112			247,438
Income taxes		449,055			436,865
Total liabilities		80,103,715			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 shares issued and outstanding		9,069			9,069
Additional paid-in capital		3,341,158			3,341,901
Common stock acquired by employee stock ownership plan		(319,941	)		(325,866	)
Retained earnings - substantially restricted		6,199,696			6,139,915
Total stockholders' equity		9,229,982			9,165,019
Total liabilities and stockholders' equity	$	89,333,697			86,606,187

See accompanying notes to consolidated financial statements.

1

SUGAR CREEK FINANCIAL CORP. AND SUBSIDIARY

Consolidated Statements of Earnings (Unaudited)

	Three Months Ended June 30,
	2008		2007
Interest income:
Loans receivable	$	1,217,877		1,191,836
Securities		-		8,500
Other interest-earning assets		9,191		36,861
Total interest income		1,227,068		1,237,197
Interest expense:
Deposits		490,702		516,125
Advances from FHLB		206,493		217,044
Total interest expense		697,195		733,169
Net interest income		529,873		504,028
Provision for loan losses		-		-
Net interest income after provision
for loan losses		529,873		504,028
Noninterest income:
Loan service charges		4,556		4,133
Service charges on deposit accounts		35,116		29,895
Other		4,898		3,356
Total noninterest income		44,570		37,384
Noninterest expense:
Compensation and benefits		263,567		317,990
Occupancy expense		22,203		19,390
Equipment and data processing		95,051		76,301
Federal deposit insurance premiums		1,628		1,833
Advertising		8,997		7,071
Supplies expense		13,439		13,831
Other		76,941		71,954
Total noninterest expense		481,826		508,370
Earnings before income taxes		92,617		33,042
Income taxes		32,836		13,193
Net earnings	$	59,781		19,849
Basic and diluted earnings per share		0.07		0.02
Dividends per share		0.00		0.00

See accompanying notes to consolidated financial statements.

2

SUGAR CREEK FINANCIAL CORP. AND SUBSIDIARY

Consolidated Statements of Cash Flows (Unaudited)

	Three Months Ended
	June 30,
	2008			2007
Cash flows from operating activities:
Net earnings	$	59,781			19,849
Adjustments to reconcile net earnings to net
cash provided by (used for) operating activities:
Depreciation		26,498			19,032
ESOP expense		5,182			8,392
Amortization of deferred loan fees, net		(6,447	)		(4,820	)
Provision for loan losses		-			-
Increase in accrued interest receivable		(3,070	)		(9,166	)
Decrease in other assets		89,685			491,061
Increase (decrease) in:
Accrued interest on deposits		(15,135	)		(21,852	)
Other liabilities		(80,326	)		63,631
Income taxes		12,190			13,193
Net cash provided by (used for) operating activities		88,358			579,320
Cash flows from investing activities:
Net change in loans receivable		(2,651,117	)		(908,142	)
Purchase of premises and equipment		(191,129	)		(39,235	)
Net cash provided by (used for) investing activities		(2,842,246	)		(947,377	)
Cash flows from financing activities:
Net increase (decrease) in deposits		118,015			(7,300,130	)
Increase (decrease) in advances from
borrowers for taxes and insurance		127,803			120,202
Proceeds from advances from FHLB		2,500,000			4,000,000
Repayment of advances from FHLB		-			(3,000,000	)
Proceeds from sale of common stock, net		-			2,996,089
Net cash provided by (used for) financing activities		2,745,818			(3,183,839	)
Net increase (decrease) in cash and cash equivalents		(8,070	)		(3,551,896	)
Cash and cash equivalents at beginning of period		3,167,225			6,958,707
Cash and cash equivalents at end of period	$	3,159,155			3,406,811
Supplemental disclosures-cash paid during the period for:
Interest on deposits and advances from FHLB	$	713,410			749,589
Federal and state income taxes		-			13,193
Real estate and repossessions acquired in settlement of loans	$	-			-

See accompanying notes to consolidated financial statements.

3

SUGAR CREEK FINANCIAL CORP. AND SUBSIDIARY

Notes to the Unaudited Consolidated Financial Statements

June 30, 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 month periods ended June 30, 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. 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.

Basic and diluted earnings per share for the three months ended June 30, 2008 is based on total shares outstanding of 906,879 less unallocated ESOP shares of 32,290, or 874,589 shares. Basic and diluted earnings per share for the period April 3, 2007 through June 30, 2007 is based on total shares outstanding of 906,879 less unallocated ESOP shares of 34,759, or 872,120 shares.

4

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 months ended June 30, 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.

Overview – Financial Highlights

Financial Condition. Total assets at June 30, 2008 were $89.3 million compared to $86.6 million at March 31, 2008. A $2.7 million increase in loans was funded primarily by FHLB of Chicago borrowings.

Operating Results.Net earnings for the three months ended June 30, 2008 were $60,000 compared to net earnings of $20,000 for the comparable 2007 period. The increase in net earnings for the quarter was primarily due to decreases in interest expense on deposits and borrowings, as well as a decrease in noninterest expense.

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.

5

Balance Sheet Analysis

Loans Receivable, Net. Loans receivable, net of allowance for loan losses, increased to $82.5 million at June 30, 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 June 30, 2008 increased to $528,000 compared to $64,000 at March 31, 2008. Nonaccrual loans at June 30, 2008 consisted of three single-family loans aggregating $410,000 and six consumer loans of $118,000. At March 31, 2008, there were three consumer loans of $64,000 classified as nonaccrual. Nonaccrual loans increased during the quarter ended June 30, 2008 as result of a slowing local and regional economy, job layoffs and health issues for one of our borrowers. There were no troubled debt restructurings or loans 90 days or more past due and still accruing at either date.

Nonperforming Assets

	June 30,			March 31,
(Dollars in thousands)	2008			2008
Nonaccrual loans:
Residential real estate	$	410		$	—
Commercial real estate		—			—
Commercial		—			—
Consumer		118			64
Total		528			64
Foreclosed real estate - residential (1)		386			386
Total nonperforming assets	$	914		$	450
Total nonperforming loans to total loans		0.64	%		0.08	%
Total nonperforming loans to total assets		0.59	%		0.07	%
Total nonperforming assets to total assets		1.02	%		0.52	%

(1) Foreclosed real estate consists of one single-family residence located in O’Fallon, Illinois.

At June 30, 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.

Investments. The Bank is a member of the Federal Home Loan Bank of Chicago (the “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 four quarters citing continuing pressure on net interest income, projected earnings levels, market conditions and regulatory requirements.

6

At June 30, 2008, we owned $1.7 million of FHLBC stock, of which $685,000 was considered excess or voluntary stock. For the three months ended June 30, 2008 and 2007, the Bank recognized $0 and $8,500, respectively, in dividend income from the FHLBC.

Premises and Equipment, Net. Premises and equipment, net increased $165,000 to $1.2 million at June 30, 2008 primarily as a result of the purchase of a tract of land for possible future use.

Other Assets. Other assets decreased $90,000 to $134,000 at June 30, 2008 due primarily to the timing of payment of certain prepaid items.

Deposits. Deposit balances increased slightly to $59.3 million at June 30, 2008 from $59.2 million at March 31, 2008. Deposits increased, in part, due to interest credited to accounts less withdrawal activity during the period.

Borrowings. We use short-term, cash equivalent FHLB advances as an additional source of liquidity. FHLB advances increased $2.5 million from $17.0 million at March 31, 2008 to $19.5 million at June 30, 2008.

Other Liabilities. Advances from borrowers for taxes and insurance increased $128,000 to $470,000 at June 30, 2008 due to deposits made by borrowers for real estate taxes and insurance. Other liabilities decreased $80,000 to $167,000 at June 30, 2008 as a result of timing of payment of certain accrual items.

Results of Operations for the Three Months Ended June 30, 2008 and 2007.

Total Interest Income.Total interest income decreased $10,000 to $1.2 million for the three months ended June 30, 2008. Although interest income on loans increased $26,000 as a result of a higher average balance on loans with higher average yields, the cessation of dividends by the FHLB Chicago on FHLB Stock and a decrease in interest income on other interest-earning assets for the quarter ended June 30, 2008 contributed to the overall decline in interest income. The Bank does not expect to receive cash or stock dividends on the FHLB stock in the near future.

Total Interest Expense.Total interest expense decreased by $36,000 to $697,000 for the three months ended June 30, 2008 from $733,000 for the three months ended June 30, 2007. The decrease resulted primarily from lower average rates on deposits and borrowings. .

Net Interest Income. Net interest income increased $26,000 to $530,000 for the three months ended June 30, 2008 from $504,000 for the three months ended June 30, 2007. The increase is due primarily to an improved interest rate spread. The interest rate spread increased 18 basis points from the comparable period in 2007 to 2.07% primarily as a result of a lower cost of funds.

7

The following table summarizes average balances and annualized average yields and costs for the three months ended June 30, 2008 and 2007.

	Three Months Ended June 30,
	2008							2007
(Dollars in thousands)	Average Balance		Interest and Dividends		Yield/ Cost			Average Balance		Interest and Dividends		Yield/ Cost
Assets:
Interest-earning assets:
Loans	$	81,156	$	1,218		6.00	%	$	80,574	$	1,192		5.92	%
Stock in FHLB of Chicago		1,660		-		0.00			1,660		8		1.93
Other interest-earning assets		1,828		9		1.97			3,273		37		4.52
Total interest-earning assets		84,644		1,227		5.80			85,507		1,237		5.79
Noninterest-earning assets		3,164							1,878
Total assets		87,808							87,385
Liabilities and Stockholders’ Equity
Total interest-bearing deposits		56,498		491		3.48			55,949		516		3.69
FHLB advances		18,167		206		4.54			18,345		217		4.73
Other borrowings		-		-		-			-		-		-
Total interest-bearing liabilities		74,665		697		3.73			74,294		733		3.90
Noninterest-bearing deposit accounts		2,632							3,014
Other noninterest-bearing liabilities		1,305							1,078
Total liabilities		78,602							78,386
Stockholders’ equity		9,206							8,999
Total liabilities and stockholders’ equity	$	87,808						$	87,385
Net interest income			$	530						$	504
Interest rate spread						2.07	%						1.89	%
Net interest margin						2.50	%						2.36	%

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 quarters ended June 30, 2008 and 2007, the Bank did not record 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 June 30, 2008 to $45,000 from $37,000 for the three months ended June 30, 2007 due primarily to the Bank’s new overdraft privilege program for transaction account customers. The noninterest income generated from this program is expected to continue to improve in the future.

Noninterest Expense. Noninterest expense includes salaries and employee benefits, equipment and data processing, occupancy and other expenses. Total noninterest expense decreased by $26,000 to $482,000 for the three months ended June 30, 2008 from $508,000 for the three months ended June 30, 2007. Reductions in compensation, health care and retirement benefit costs were the largest contributors to the decrease, while equipment and data processing expenses increased in cost. Compensation expense decreased due to the retirement of one employee. Health care costs declined as a result of our decision to change providers. Retirement benefit expenses decreased due to lower plan contributions required as a result of higher investment returns. Equipment and data processing increased due to higher depreciation expense on computer equipment and data processing costs as a result of a new internet banking system, implementation of the Check 21 program and upgrades to data lines. Other noninterest expense increased primarily as a result of higher professional fees and costs associated with the Company’s status as a public entity.

8

Income Taxes. Income tax expense was $33,000 for the three months ended June 30, 2008 compared to an expense of $13,000 for the three months ended June 30, 2007. The increase in tax expense is primarily attributable to the higher pre-tax income for the current period quarter.

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 June 30, 2008, cash and cash equivalents totaled $3.2 million and the Bank was eligible for additional advances of up to $33.2 million from the FHLBC. At June 30, 2008, we had $19.5 million of advances outstanding.

A significant use of our liquidity is the funding of loan originations. At June 30, 2008, we had $218,000 in two outstanding loan commitments. Historically, many of the commitments expire without being fully drawn; therefore, the total commitment amounts do not necessarily represent future cash requirements. Another significant use of our liquidity is the funding of deposit withdrawals. Certificates of deposit due within one year of June 30, 2008 totaled $32.4 million, or 79.3% 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. With the recent action taken by the Federal Reserve’s Federal Open Market Committee to lower the Fed funds and Discount Window rates, 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 resulted in a very rate sensitive time deposit base. We have the ability to attract and retain these deposits by adjusting the interest rates offered.

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.

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. No shares were granted as of June 30, 2008.

9

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 will be purchased in the open market to fund the restricted stock awards.

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 June 30, 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.

During the quarter ended June 30, 2008, the Bank paid a cash dividend of $200,000 to the Company for the repurchase of common stock in the open market to fund restricted stock awards.

The Bank’s actual and required capital amounts and ratios at June 30, 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	$	8,642		9.7	%	$	1,340		1.5	%
General valuation allowance		124
Total capital to risk-weighted assets	$	8,766		18.0	%	$	3,903		8.0	%	$	4,879		10.0	%
Tier 1 capital to risk-weighted assets	$	8,642		17.7	%	$	1,952		4.0	%	$	2,928		6.0	%
Tier 1 capital to total assets	$	8,642		9.7	%	$	3,572		4.0	%	$	4,466		5.0	%

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 three months ended June 30, 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.

10

Item 4. 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 June 30, 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.

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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

None.

Item 3. Defaults upon Senior Securities

Not Applicable.

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

None.

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)
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.

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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: August 12, 2008	By:	/s/ Robert J. Stroh, Jr.
		Robert J. Stroh, Jr.
		Chairman, Chief Executive Officer and
		Chief Financial Officer

EX-31

Exhibit 31.0

Rule 13a-14a/15d-14(a) Certification

I, Robert J. Stroh, Jr., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Sugar Creek Financial Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 12, 2008	/s/ Robert J. Stroh, Jr.
	Robert J. Stroh, Jr.
	Chairman, Chief Executive Officer and Chief
	Financial Officer

EX-32

Exhibit 32.0

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADDED BY

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Sugar Creek Financial Corp. (the “Company”) on Form 10-Q for the quarterly period ended June 30, 2008, as filed with the Securities and Exchange Commission (the “Report”), I hereby certify pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in this Report fairly presents, in all material respects, the consolidated financial condition and results of the Company as of and for the period covered by this Report.

By:	/s/ Robert J. Stroh, Jr.
	Robert J. Stroh, Jr.
	Chairman, Chief Executive Officer and Chief Financial Officer
	August 12, 2008