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, 2009





OR





 ̈
            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, including area code)





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 xNo  ̈





Indicate
by check mark whether the Registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the Registrant was required to submit
and post such files). Yes o   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.  (Check one): Large Accelerated
Filer    ̈   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 12, 2010 there were 899,009 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 INFORMATIONItem
      1.
                                  Financial
      Statements
                                  1Consolidated Balance
      Sheets at December 31, 2009 and March
      31, 2009 (Unaudited)
                                  1Consolidated
      Statements of Earnings for the three and nine months ended December 31,
      2009 and 2008 (Unaudited)
                                  2Consolidated
      Statements of Cash Flows for the nine months ended December 31, 2009 and
      2008 (Unaudited)
                                  3Notes
      to Unaudited Consolidated Financial Statements
                                  4Item
      2.
                                  Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                                  7Item
      3.
                                  Quantitative
      and Qualitative Disclosure About Market Risk
                                  15Item
      4.
                                  Controls
      and Procedures
                                  15PART
      II.  OTHER INFORMATIONItem
      1.
                                  Legal
      Proceedings
                                  16Item
      1A.
                                  Risk
      Factors
                                  16Item
      2.
                                  Unregistered
      Sales of Equity Securities and Use of Proceeds
                                  16Item
      3.
                                  Defaults
      upon Senior Securities
                                  16Item
      4.
                                  Submission
      of Matters to a Vote of Security Holders
                                  16Item
      5.
                                  Other
      Information
                                  16Item
      6.
                                  Exhibits
                                  16Signatures
                                  17
  i
  Part
I.  Financial Information
 
 Item
1. Financial Statements.
 
 SUGAR
CREEK FINANCIAL CORP. AND SUBSIDIARY
  Consolidated
Balance Sheets (Unaudited)
 
 December
      31,
                      
                      
                      March
      31,2009
                      
                      
                      2009AssetsCash
      and due from banks
                      
                      $
                      564,637
                      
                      
                      
                      775,208Federal
      funds sold
                      
                      
                      1,600,018
                      
                      
                      
                      5,611,104FHLB
      daily investment account
                      
                      
                      5,210,079
                      
                      
                      
                      2,543,514Cash
      and cash equivalents
                      
                      
                      7,374,734
                      
                      
                      
                      8,929,826Stock
      in FHLB of Chicago
                      
                      
                      1,660,145
                      
                      
                      
                      1,660,145Loans
      receivable, net of allowance for loan losses of $120,378 at December 31,
      2009 and $165,323 at March 31, 2009
                      
                      
                      75,281,026
                      
                      
                      
                      79,129,004Premises
      and equipment, net
                      
                      
                      1,088,756
                      
                      
                      
                      1,130,874Foreclosed
      real estate
                      
                      
                      505,465
                      
                      
                      
                      357,847Accrued
      interest receivable on loans
                      
                      
                      326,766
                      
                      
                      
                      315,727Other
      assets
                      
                      
                      557,900
                      
                      
                      
                      204,640Total
      assets
                      
                      $
                      86,794,792
                      
                      
                      
                      91,728,063Liabilities
      and Stockholders' EquityDeposits
                      
                      $
                      65,582,986
                      
                      
                      
                      67,076,374Accrued
      interest payable on deposits
                      
                      
                      132,702
                      
                      
                      
                      193,674Advances
      from FHLB of Chicago
                      
                      
                      11,000,000
                      
                      
                      
                      14,000,000Advances
      from borrowers for taxes and insurance
                      
                      
                      215,614
                      
                      
                      
                      310,026Other
      liabilities
                      
                      
                      203,505
                      
                      
                      
                      254,856Income
      taxes payable
                      
                      
                      356,617
                      
                      
                      
                      619,429Total
      liabilities
                      
                      
                      77,491,424
                      
                      
                      
                      82,454,359Commitments
      and contingenciesStockholders'
      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
                      
                      
                      9,069
                      
                      
                      
                      9,069Additional
      paid-in capital
                      
                      
                      3,229,491
                      
                      
                      
                      3,213,361Treasury
      stock, at cost, 7,870 shares and 6,772, respectively
                      
                      
                      (64,118
                      )
                      
                      
                      (56,157
                      )Common
      stock acquired by employee stock ownership plan
                      
                      
                      (284,392
                      )
                      
                      
                      (302,167
                      )Retained
      earnings - substantially restricted
                      
                      
                      6,413,318
                      
                      
                      
                      6,409,598Total
      stockholders' equity
                      
                      
                      9,303,368
                      
                      
                      
                      9,273,704Total
      liabilities and stockholders' equity
                      
                      $
                      86,794,792
                      
                      
                      
                      91,728,063
 
 See
accompanying notes to consolidated financial statements.
  1
  SUGAR
CREEK FINANCIAL CORP. AND SUBSIDIARY
 
 Consolidated
Statements of Earnings (Unaudited)
 
 Three
      Months Ended
                  
                  
                  Nine
      Months EndedDecember 31,
                  
                  
                  December 31,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Interest
      income:Loans
      receivable
                  
                  $
                  1,135,009
                  
                  
                  
                  1,248,261
                  
                  
                  
                  3,454,141
                  
                  
                  
                  3,734,861Securities
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Other
      interest-earning assets
                  
                  
                  710
                  
                  
                  
                  4,725
                  
                  
                  
                  5,224
                  
                  
                  
                  26,182Total
      interest income
                  
                  
                  1,135,719
                  
                  
                  
                  1,252,986
                  
                  
                  
                  3,459,365
                  
                  
                  
                  3,761,043Interest
      expense:Deposits
                  
                  
                  345,947
                  
                  
                  
                  461,020
                  
                  
                  
                  1,204,226
                  
                  
                  
                  1,395,778Advances
      from FHLB of Chicago
                  
                  
                  140,915
                  
                  
                  
                  190,294
                  
                  
                  
                  484,599
                  
                  
                  
                  627,905Total
      interest expense
                  
                  
                  486,862
                  
                  
                  
                  651,314
                  
                  
                  
                  1,688,825
                  
                  
                  
                  2,023,683Net
      interest income
                  
                  
                  648,857
                  
                  
                  
                  601,672
                  
                  
                  
                  1,770,540
                  
                  
                  
                  1,737,360Provision
      for loan losses
                  
                  
                  20,000
                  
                  
                  
                  40,046
                  
                  
                  
                  157,348
                  
                  
                  
                  51,876Net
      interest income after provision for loan losses
                  
                  
                  628,857
                  
                  
                  
                  561,626
                  
                  
                  
                  1,613,192
                  
                  
                  
                  1,685,484Noninterest
      income:Loan
      service charges
                  
                  
                  5,002
                  
                  
                  
                  4,988
                  
                  
                  
                  16,639
                  
                  
                  
                  14,930Service
      charges on deposit accounts
                  
                  
                  37,220
                  
                  
                  
                  43,548
                  
                  
                  
                  111,034
                  
                  
                  
                  123,153Other
                  
                  
                  3,904
                  
                  
                  
                  4,936
                  
                  
                  
                  14,434
                  
                  
                  
                  15,058Total
      noninterest income
                  
                  
                  46,126
                  
                  
                  
                  53,472
                  
                  
                  
                  142,107
                  
                  
                  
                  153,141Noninterest
      expense:Compensation
      and benefits
                  
                  
                  285,086
                  
                  
                  
                  279,898
                  
                  
                  
                  820,348
                  
                  
                  
                  779,504Occupancy
      expense
                  
                  
                  30,473
                  
                  
                  
                  25,789
                  
                  
                  
                  92,678
                  
                  
                  
                  76,282Equipment
      and data processing
                  
                  
                  87,051
                  
                  
                  
                  83,039
                  
                  
                  
                  235,999
                  
                  
                  
                  268,280FDIC
      premium expense
                  
                  
                  51,548
                  
                  
                  
                  10,762
                  
                  
                  
                  133,337
                  
                  
                  
                  15,011Advertising
                  
                  
                  13,344
                  
                  
                  
                  18,079
                  
                  
                  
                  25,909
                  
                  
                  
                  34,483Supplies
      expense
                  
                  
                  11,998
                  
                  
                  
                  5,114
                  
                  
                  
                  26,658
                  
                  
                  
                  22,326Operations
      of foreclosed real estate, net
                  
                  
                  24,910
                  
                  
                  
                  1,002
                  
                  
                  
                  92,933
                  
                  
                  
                  14,414Other
                  
                  
                  91,073
                  
                  
                  
                  80,848
                  
                  
                  
                  265,587
                  
                  
                  
                  235,140Total
      noninterest expense
                  
                  
                  595,483
                  
                  
                  
                  504,531
                  
                  
                  
                  1,693,449
                  
                  
                  
                  1,445,440Earnings
      before income taxes
                  
                  
                  79,500
                  
                  
                  
                  110,567
                  
                  
                  
                  61,850
                  
                  
                  
                  393,185Income
      tax expense
                  
                  
                  26,425
                  
                  
                  
                  44,165
                  
                  
                  
                  21,189
                  
                  
                  
                  152,006Net
      earnings
                  
                  $
                  53,075
                  
                  
                  
                  66,402
                  
                  
                  
                  40,661
                  
                  
                  
                  241,179Basic
      and diluted earnings per share
                  
                  $
                  0.06
                  
                  
                  
                  0.08
                  
                  
                  
                  0.05
                  
                  
                  
                  0.28Dividends
      per share
                  
                  $
                  0.10
                  
                  
                  
                  0.00
                  
                  
                  
                  0.10
                  
                  
                  
                  0.00
 
 See
accompanying notes to consolidated financial statements.
  2
  SUGAR
CREEK FINANCIAL CORP. AND SUBSIDIARY
 
 Consolidated
Statements of Cash Flows (Unaudited)
 
 Nine
      Months EndedDecember 31,2009
                  
                  
                  2008Cash
      flows from operating activities:Net
      earnings
                  
                  $
                  40,661
                  
                  
                  
                  241,179Adjustments
      to reconcile net earnings to net cash provided by operating
      activities:Depreciation
                  
                  
                  78,105
                  
                  
                  
                  79,493ESOP
      expense
                  
                  
                  12,987
                  
                  
                  
                  15,636Equity
      incentive plan expense
                  
                  
                  20,918
                  
                  
                  
                  11,653Amortization
      of deferred loan fees, net
                  
                  
                  (27,654
                  )
                  
                  
                  (15,020
                  )Provision
      for loan losses
                  
                  
                  157,348
                  
                  
                  
                  51,876Provision
      for losses on foreclosed real estate
                  
                  
                  34,357
                  
                  
                  
                  -Decrease
      (increase) in accrued interest receivable
                  
                  
                  (11,039
                  )
                  
                  
                  329Decrease
      (increase) in other assets
                  
                  
                  (353,260
                  )
                  
                  
                  15,533Increase
      (decrease) in:Accrued
      interest on deposits
                  
                  
                  (60,972
                  )
                  
                  
                  (47,133
                  )Other
      liabilities
                  
                  
                  (51,351
                  )
                  
                  
                  (63,241
                  )Accrued
      income taxes
                  
                  
                  (262,812
                  )
                  
                  
                  163,465Net
      cash provided by (used for) operating activities
                  
                  
                  (422,712
                  )
                  
                  
                  453,770Cash
      flows from investing activities:Net
      change in loans receivable
                  
                  
                  3,234,813
                  
                  
                  
                  (2,773,512
                  )Purchase
      of premises and equipment
                  
                  
                  (35,987
                  )
                  
                  
                  (200,337
                  )Proceeds
      from foreclosed real estate
                  
                  
                  301,496
                  
                  
                  
                  -Net
      cash provided by (used for) investing activities
                  
                  
                  3,500,322
                  
                  
                  
                  (2,973,849
                  )Cash
      flows from financing activities:Net
      increase (decrease) in deposits
                  
                  
                  (1,493,388
                  )
                  
                  
                  3,183,762Decreases
      in advances from borrowers for taxes and insurance
                  
                  
                  (94,412
                  )
                  
                  
                  (137,233
                  )Proceeds
      from advances from FHLB
                  
                  
                  -
                  
                  
                  
                  19,500,000Repayment
      of advances from FHLB
                  
                  
                  (3,000,000
                  )
                  
                  
                  (16,500,000
                  )Dividends
      paid
                  
                  
                  (36,941
                  )
                  
                  
                  -Repurchase
      of common stock
                  
                  
                  (7,961
                  )
                  
                  
                  (200,067
                  )Net
      cash provided by (used for) financing activities
                  
                  
                  (4,632,702
                  )
                  
                  
                  5,846,462Net
      increase (decrease) in cash and cash equivalents
                  
                  
                  (1,555,092
                  )
                  
                  
                  3,326,383Cash
      and cash equivalents at beginning of period
                  
                  
                  8,929,826
                  
                  
                  
                  3,167,225Cash
      and cash equivalents at end of period
                  
                  $
                  7,374,734
                  
                  
                  
                  6,493,608Supplemental
      disclosures - cash paid:Interest
      on deposits and advances from FHLB
                  
                  $
                  1,762,180
                  
                  
                  
                  2,080,884Federal
      and state income taxes
                  
                  
                  26,425
                  
                  
                  
                  152,006Real
      estate and repossessions acquired in settlement of loans
                  
                  $
                  483,471
                  
                  
                  
                  43,176
 
 See
accompanying notes to consolidated financial statements.
  3
  SUGAR
CREEK FINANCIAL CORP. AND SUBSIDIARY
 Notes
to Unaudited Consolidated Financial Statements
 
 (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, 2009 are not necessarily indicative of the
results that may be expected for the entire year or any other interim
period.  Subsequent events have been evaluated through February 12,
2010, which is the date the financial statements were issued.
 
 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.
 
 Effective
for all interim and annual periods ending after September 15, 2009, the
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) became the source of authoritative U.S. generally accepted accounting
principles (“GAAP”) recognized by FASB to be applied to nongovernmental
entities.  Rules and interpretive releases of the Securities and
Exchange Commission (“SEC”) under authority of federal securities laws are also
sources of authoritative GAAP for SEC registrants.
 
 (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 to the public, and issued 55% of its outstanding shares of common
stock 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
 
 Earnings
per share are based upon the weighted-average shares
outstanding.  ESOP shares, which have been committed to be released
within the next twelve months, are considered outstanding.  Stock
options, if any, and restricted stock are considered outstanding to the extent
dilutive.  Under the treasury stock method, stock options and
restricted stock are dilutive when the average market price of the Company’s
common stock and effect of any unamortized compensation expense exceeds the
exercise price during the period.  In addition, proceeds from the
assumed exercise of dilutive stock options and restricted stock and related tax
benefit are assumed to be used to repurchase common stock at the average market
price during the period.
  4
 
 Three
      Months Ended
                  
                  
                  Nine
      Months EndedDecember 31,
                  
                  
                  December 31,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Net
      earnings
                  
                  $
                  53,075
                  
                  
                  
                  66,402
                  
                  
                  $
                  40,661
                  
                  
                  
                  241,179Weighted-average
      shares - Basic EPS
                  
                  
                  870,275
                  
                  
                  
                  863,524
                  
                  
                  
                  870,170
                  
                  
                  
                  870,536Effect
      of dilutive stock awards
                  
                  
                  1,245
                  
                  
                  
                  2,205
                  
                  
                  
                  940
                  
                  
                  
                  792Weighted-average
      shares - Diluted EPS
                  
                  
                  871,520
                  
                  
                  
                  865,729
                  
                  
                  
                  871,110
                  
                  
                  
                  871,328Basic
      earnings per common share
                  
                  $
                  0.06
                  
                  
                  
                  0.08
                  
                  
                  $
                  0.05
                  
                  
                  
                  0.28Diluted
      earnings per common share
                  
                  $
                  0.06
                  
                  
                  
                  0.08
                  
                  
                  $
                  0.05
                  
                  
                  
                  0.28Anti-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 to fund these awards were repurchased
in the open market at an average price of $8.10.
 
 A summary
of the Company’s restricted stock award expense under the Plan is as
follows:
 
 Three
      Months Ended
                  
                  
                  Nine
      Months EndedDecember 31,
                  
                  
                  December 31,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Pre-tax
                  
                  $
                  6,973
                  
                  
                  
                  6,973
                  
                  
                  
                  20,918
                  
                  
                  
                  11,653After-tax
                  
                  
                  4,254
                  
                  
                  
                  4,254
                  
                  
                  
                  12,760
                  
                  
                  
                  7,108Diluted
      earnings per common share
                  
                  $
                  0.00
                  
                  
                  
                  0.00
                  
                  
                  
                  0.01
                  
                  
                  
                  0.01
 
 At December 31, 2009, the total
unrecognized expense related to restricted stock awards was approximately
$101,000 and is expected to be recognized over the weighted-average period of
3.5 years.
 
 Non-vested
stock awards activity for the nine months ended December 31, 2009 is summarized
as follows:
 
 Weighted-Number
      of
                      
                      
                      AverageNon-vested
                      
                      
                      Grant
      DateShares
                      
                      
                      Fair ValueNonvested
      at March 31, 2009
                      
                      
                      17,774
                      
                      
                      $
                      7.90Granted
                      
                      
                      -Vested
                      
                      
                      (3,559
                      )
                      
                      
                      7.90Forfeited
                      
                      
                      -Nonvested
      at December 31, 2009
                      
                      
                      14,215
                      
                      
                      $
                      7.90
  5
  5)         
  Fair Value Measurements and Fair Value of Financial
Instruments
 
 Fair
Value Measurements
 
 The Company follows the provisions of FASB
      ASC 820-10, “Fair Value Measurements,” for financial assets and
      liabilities.  FASB ASC 820-10 defines fair value as the price
      that would be received to sell an asset or paid to transfer a liability in
      an orderly transaction between market participants at the measurement
      date.  The fair value hierarchy prioritizes the assumptions that
      market participants would use in pricing the assets or liabilities (the
      “inputs”) into three broad levels.
 
 The fair value hierarchy
      gives the highest priority (Level 1) to quoted prices in active markets
      for identical assets and liabilities and the lowest priority (Level 3) to
      unobservable inputs in which little, if any, market activity exists,
      requiring entities to develop their own assumptions and
    data.
 
 Level
      2 inputs are inputs other than quoted prices included within Level 1 that
      are observable for the asset or liability, either directly or
      indirectly.  These inputs include quoted prices for similar
      assets or liabilities in active markets, quoted prices for identical or
      similar assets or liabilities in market areas that are not active, inputs
      other than quoted prices that are observable for the asset or liability
      (such as interest rates, volatilities, prepayment speeds, credit risks and
      default rates) or inputs that are derived principally from or corroborated
      by observable market data by correlation or other
  means.
 
 Valuation
Techniques
 
 Available for
      sale securities are carried at fair value utilizing Level 1 and Level 2
      inputs.  For debt securities, the Bank obtains fair value
      measurements from an independent pricing service.  The fair
      value measurements consider observable data that may include dealer
      quotes, live trading levels, trade execution data, cash flows, market
      consensus prepayment speeds, market spreads, credit information and the
      U.S. Treasury yield curve.  The Company had no debt securities
      at December 31, 2009.
 
 Impaired
      loans, as defined under FASB ASC
      310-10-35, are carried at fair value utilizing Level 3 inputs,
      consisting of appraisals of underlying collateral and discounted cash flow
      analysis.  The Bank considers a loan to be impaired when, based
      on current information and events, it is probable that the Bank will be
      unable to collect all amounts due according to the contractual terms of
      the loan agreement on a timely basis.  The types of loans for
      which impairment is measured include nonaccrual income property loans,
      large nonaccrual single- family loans and troubled debt
      restructurings.  Valuation allowances are established for
      impaired loans for the difference between the loan amount and the fair
      value of collateral and estimated selling
costs.
 
 At
December 31, 2009, the Company did not have any available for sale securities or
impaired loans under FASB ASC
310-10-35.
 
 Non-financial
assets measured on a non-recurring basis include foreclosed real estate of
$505,000 at December 31, 2009.
 
 Fair Value of Financial
Instruments
 
 The
      following methods and assumptions were used in estimating the fair values
      shown below:
 
 .
                Cash
      and cash equivalents are valued at their carrying amounts due to the
      relatively short period to maturity of the
  instruments.
 .
                Stock
      in FHLB of Chicago (“FHLBC”) is valued at cost, which represents
      historical redemption value and approximates fair value.  The
      FHLBC has suspended redemption of FHLBC stock.  See “Balance
      Sheet Analysis –
Investments”.
 .
                Fair
      values are computed for each loan category using market spreads to
      treasury securities for similar existing loans in the portfolio and
      management's estimates of
prepayments.
 .
                The
      carrying amounts of accrued interest receivable and payable approximate
      fair value.
  6
  .
                Deposits
      with no defined maturities, such as NOW accounts, savings accounts and
      money market deposit accounts, are valued at the amount payable on demand
      at the reporting date.
 .
                The
      fair values of certificates of deposit and advances from FHLB are computed
      at fixed spreads to treasury securities with similar
      maturities.
 
 December
      31,
                  
                  
                  March
      31,2009
                  
                  
                  2009
                  
                  
                  2009
                  
                  
                  2009Carrying
                  
                  
                  Fair
                  
                  
                  Carrying
                  
                  
                  FairAmount
                  
                  
                  Value
                  
                  
                  Amount
                  
                  
                  ValueNon-trading
      instruments and nonderivatives:Cash
      and cash equivalents
                  
                  $
                  7,374,734
                  
                  
                  
                  7,374,734
                  
                  
                  
                  8,929,826
                  
                  
                  
                  8,929,826Stock
      in FHLB of Chicago
                  
                  
                  1,660,145
                  
                  
                  
                  1,660,145
                  
                  
                  
                  1,660,145
                  
                  
                  
                  1,660,145Loans
      receivable, net
                  
                  
                  75,281,026
                  
                  
                  
                  78,066,144
                  
                  
                  
                  79,129,004
                  
                  
                  
                  82,770,610Accrued
      interest receivable
                  
                  
                  326,766
                  
                  
                  
                  326,766
                  
                  
                  
                  315,727
                  
                  
                  
                  315,727Deposits
                  
                  
                  65,582,986
                  
                  
                  
                  65,218,671
                  
                  
                  
                  67,076,374
                  
                  
                  
                  66,748,824Accrued
      interest on deposits
                  
                  
                  132,702
                  
                  
                  
                  132,702
                  
                  
                  
                  193,674
                  
                  
                  
                  193,674Advances
      from FHLB of Chicago
                  
                  $
                  11,000,000
                  
                  
                  
                  11,573,613
                  
                  
                  
                  14,000,000
                  
                  
                  
                  14,825,091
 
 Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
 
 Management’s
discussion and analysis of the financial condition and results of operations at
and for the three and nine months ended December 31, 2009 and 2008 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.
  7
  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 December 31, 2009 were $86.8 million compared to $91.7 million at
March 31, 2009. Asset shrinkage was lead by a $3.8 million decrease in loans
receivable caused by loan prepayments and a decrease in cash and cash
equivalents used to fund a $1.5 million decline in deposits. Liability shrinkage
was lead by a $3.0 million decrease in advances from FHLBC.
 
 Operating
Results.During the nine month
period ended December 31, 2009,  net earnings of $41,000 was recorded
compared to net earnings of $241,000 for the comparable 2008
period.  The decrease in net earnings for the period was primarily due
to an increased loan loss provision, an increase in FDIC premium expense and
higher costs related to foreclosed real estate.
 
 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
 
 Loans Receivable,
Net.   Loans receivable, net of allowance for loan losses,
decreased to $75.3 million at December 31, 2009 from $79.1 million at March 31,
2009.  The decrease consisted primarily of one-to four-family
residential real estate loans and was primarily due to loan
prepayments.
 
 Nonaccrual
loans at December 31, 2009 decreased to $280,000 compared to $1.8 million at
March 31, 2009. Nonaccrual loans at December 31, 2009 consisted of two
single-family loans aggregating $250,000, one commercial land loan of $17,000
and four consumer loans totaling $13,000. At March 31, 2009, there were eight
single-family loans aggregating $1.5 million; two loans secured by commercial
real estate aggregating $176,000; and nine consumer loans of $93,000 classified
as nonaccrual. Nonaccrual loans continue to be impacted by a slow local and
regional economy, job layoffs, and divorce and health issues affecting our
borrowers.  There were three single-family troubled debt
restructurings totaling $652,000 at December 31, 2009.  There were no
loans 90 days or more past due and still accruing at either date. Foreclosed
real estate consisted of two single-family residential properties. Other
repossessed assets consisted of one automobile loan.
  8
 
 December
      31,
                      
                      
                      March
      31,(Dollars in thousands)
                      
                      2009
                      
                      
                      2009Nonaccrual
      loans:Residential
      real estate
                      
                      $
                      250
                      
                      
                      $
                      1,515Multi-family
                      
                      
                      -
                      
                      
                      
                      -Commercial
                      
                      
                      17
                      
                      
                      
                      176Consumer
                      
                      
                      13
                      
                      
                      
                      93Troubled
      debt restructurings
                      
                      
                      652
                      
                      
                      
                      -Total
      nonperforming loans
                      
                      
                      932
                      
                      
                      
                      1,784Foreclosed
      real estate - residential
                      
                      
                      505
                      
                      
                      
                      358Other
      repossessed assets - autos
                      
                      
                      10
                      
                      
                      
                      6Total
                      
                      
                      515
                      
                      
                      
                      364Total
      nonperforming assets
                      
                      $
                      1,447
                      
                      
                      $
                      2,148Total
      nonperforming loans to total loans
                      
                      
                      1.23
                      %
                      
                      
                      2.25
                      %Total
      nonperforming loans to total assets
                      
                      
                      1.07
                      
                      
                      
                      1.94Total
      nonperforming assets to total assets
                      
                      
                      1.67
                      %
                      
                      
                      2.34
                      %
 
 At December 31, 2009, 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.
 
 For the nine months ended December 31,
2009, the amount of interest income collected (and recognized) on nonperforming
loans and the contractual amount due during the period was $17,000 and $18,000,
respectively.
  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 declared or paid a dividend since the second quarter of 2007
citing regulatory requirements, continuing pressure on net interest income,
projected earnings levels, and market conditions.
  
 At
December 31, 2009, we owned $1.7 million of FHLBC stock, of which $914,000 was
considered excess or voluntary stock. Based on the liquidity needs of Tempo Bank
and subject to the stock redemption guidelines of the FHLBC, Tempo Bank expects
to redeem the majority of its excess or voluntary stock as soon as an official
redemption policy has been announced by the FHLBC.
  Premises and Equipment,
Net.Premises and equipment, net decreased $42,000 to $1.1
million at December 31, 2009 as a result of depreciation expense, net of
purchases.
 
 Other
Assets.At December 31, 2009,other assets increased
by $353,000 to $558,000 at December 31, 2009 due primarily to the FDIC’s levy of
a 3 year prepaid deposit insurance premium.
 
 Deposits. Deposit balances
decreased to $65.6 million at December 31, 2009 from $67.1 million at March 31,
2009. Deposits decreased, in part, due to rate sensitive deposits being
withdrawn during the period.
  9
  Borrowings. We use short-term,
cash equivalent FHLBC advances as an additional source of liquidity. FHLBC
advances declined at December 31, 2009 to $11.0 million from $14.0 million as
compared with March 31, 2009.
 
 Other
Liabilities.Advances from borrowers for taxes and insurance
decreased $94,000 to $216,000 at December 31, 2009 due to payments made for real
estate taxes.  Other liabilities decreased $51,000 to $204,000 at
December 31, 2009 as a result of timing and payment of certain accrual
items.
 
 Results
of Operations for the Three Months Ended December 31, 2009 and
2008.
 
 Total Interest Income.Total interest income
decreased $117,000 to $1.1 million for the three months ended December 31,
2009.  The decrease was largely due to a reduction in loans
receivable.  The Bank does not expect to receive cash or stock
dividends on its FHLBC stock for the foreseeable future.
 
 Total Interest Expense.Total
interest expense decreased $164,000 to $487,000 for the three months ended
December 31, 2009 from $651,000 for the three months ended December 31, 2008.
The decrease resulted primarily from lower deposit and FHLBC advance balances
and lower average rates paid for deposits.
 
 Net Interest Income.  Net
interest income increased $47,000 to $649,000 for the three months ended
December 31, 2009 from $602,000 for the three months ended December 31,
2008.  The increase is due primarily to the lower deposit
rates.
 
 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, 2009, the
Bank recorded a provision for loan losses of $20,000. In the comparable period
for 2008, the Bank recorded a provision for loan losses of $40,000. The effects
of the economic downturn and unemployment are negatively impacting our market
area, causing an increase in delinquencies and a decrease in collateral
values.
  Noninterest
Income.  Noninterest income includes service charges on deposit
accounts, loan service charges, and other income.  Total noninterest
income decreased for the three month period ended December 31, 2009 to $46,000
from $53,000 for the three months ended December 31, 2008 due primarily to lower
service charges on deposit accounts.
  Noninterest Expense.  Noninterest
expense primarily consists of salaries and employee benefits, equipment and data
processing, occupancy, FDIC premium expense and other expenses.  Total
noninterest expense increased by $91,000 to $595,000 for the three months ended
December 31, 2009 from $505,000 for the three months ended December 31, 2008
primarily due to higher FDIC premium expense and operations of foreclosed real
estate.
  Income
Taxes.  Income tax expense for the three months ended December
31, 2009 was $26,000 compared $44,000 for the three months ended December 31,
2008. The decrease in tax expense is primarily attributable to lower pre-tax
earnings.
  10
  Results
of Operations for the Nine Months Ended December 31, 2009 and 2008.
 
 General.The
Company recorded net earnings of $41,000 for the nine months ended December 31,
2009 compared with net earnings $241,000 for the same period last
year.  The $200,000 decrease in net earnings was primarily due to a
higher loan loss provision, an increase in FDIC premium expense and higher costs
related to foreclosed real estate.
 
 The
following table summarizes average balances and annualized average yields and
costs for the nine months ended December 31, 2009 and 2008.
 Nine
      Months Ended December 31,2009
                    
                    
                    2008Interest
                    
                    
                    
                    
                    
                    
                    
                    
                    InterestAverage
                    
                    
                    and
                    
                    
                    Yield/
                    
                    
                    Average
                    
                    
                    and
                    
                    
                    Yield/(Dollars
      in thousands)
                    
                    Balance
                    
                    
                    Dividends
                    
                    
                    Cost
                    
                    
                    Balance
                    
                    
                    Dividends
                    
                    
                    CostAssets:Interest-earning
      assets:Loans
                    
                    $
                    76,574
                    
                    
                    $
                    3,454
                    
                    
                    
                    6.01
                    %
                    
                    $
                    82,627
                    
                    
                    $
                    3,735
                    
                    
                    
                    6.03
                    %Stock
      in FHLB of Chicago
                    
                    
                    1,660
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,660
                    
                    
                    
                    -
                    
                    
                    
                    -Other
      interest-earning assets
                    
                    
                    8,000
                    
                    
                    
                    5
                    
                    
                    
                    0.08
                    %
                    
                    
                    3,339
                    
                    
                    
                    26
                    
                    
                    
                    1.04
                    %Total
      interest-earning assets
                    
                    
                    86,234
                    
                    
                    
                    3,459
                    
                    
                    
                    5.35
                    %
                    
                    
                    87,626
                    
                    
                    
                    3,761
                    
                    
                    
                    5.72
                    %Noninterest-earning
      assets
                    
                    
                    3,466
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    3,127Total
      assets
                    
                    
                    89,700
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    90,753Liabilities
      and Stockholders’ Equity:Interest-bearing
      liabilities:NOW
      accounts
                    
                    $
                    4,362
                    
                    
                    $
                    16
                    
                    
                    
                    0.49
                    %
                    
                    $
                    4,361
                    
                    
                    $
                    16
                    
                    
                    
                    0.49
                    %Savings
      accounts
                    
                    
                    8,180
                    
                    
                    
                    43
                    
                    
                    
                    0.70
                    %
                    
                    
                    7,443
                    
                    
                    
                    38
                    
                    
                    
                    0.68
                    %Money
      market accounts
                    
                    
                    7,821
                    
                    
                    
                    105
                    
                    
                    
                    1.79
                    %
                    
                    
                    4,438
                    
                    
                    
                    87
                    
                    
                    
                    2.61
                    %Certificates
      of deposit
                    
                    
                    43,493
                    
                    
                    
                    1,040
                    
                    
                    
                    3.19
                    %
                    
                    
                    41,240
                    
                    
                    
                    1,255
                    
                    
                    
                    4.06
                    %Total
      interest-bearing deposits
                    
                    
                    63,856
                    
                    
                    
                    1,204
                    
                    
                    
                    2.51
                    %
                    
                    
                    57,482
                    
                    
                    
                    1,396
                    
                    
                    
                    3.24
                    %FHLB
      advances
                    
                    
                    13,000
                    
                    
                    
                    485
                    
                    
                    
                    4.97
                    %
                    
                    
                    20,389
                    
                    
                    
                    628
                    
                    
                    
                    4.11
                    %Other
      borrowings
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Total
      interest-bearing liabilities
                    
                    $
                    76,856
                    
                    
                    $
                    1,689
                    
                    
                    
                    2.93
                    %
                    
                    $
                    77,871
                    
                    
                    $
                    2,024
                    
                    
                    
                    3.47
                    %Noninterest-bearing
      NOW accounts
                    
                    
                    2,704
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    2,695Other
      noninterest-bearing liabilities
                    
                    
                    859
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    927Total
      liabilities
                    
                    
                    80,419
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    81,493Stockholders’
      equity
                    
                    
                    9,281
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    9,260Total
      liabilities and stockholders’ equity
                    
                    $
                    89,700
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    $
                    90,753Net
      interest income
                    
                    
                    
                    
                    
                    $
                    1,770
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    $
                    1,737Interest
      rate spread
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    2.42
                    %
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    2.25
                    %Net
      interest margin
                    
                    
                    
                    
                    
                    
                    2.74
                    %
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    2.64
                    %Average
      interest-earning assets to average interest-bearing
      liabilities
                    
                    
                    112.20
                    %
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    112.53
                    %
 Total Interest Income. Total
interest income decreased $302,000 to $3.5 million for the nine months ended
December 31, 2009 from $3.8 million for the same period ended December 31, 2008.
The decrease was largely due to a reduction in loan receivable balances and
interest rates earned for overnight funds.
  11
  Total
Interest Expense. Total interest expense decreased by $335,000 to $1.7
million for the nine months ended December 31, 2009 from $2.0 million for the
comparable prior year period. The decline was due primarily to lower deposit
rates and a lower FHLB advance balance.
 
 Net Interest Income. Net
interest income increased by $33,000 to $1.8 million for the nine months ended
December 31, 2009 from $1.7 million for the nine months ended December 31, 2008
as a result of lower average rates paid for deposits and a lower FHLB advance
balance.
 
 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, 2009, we recorded a provision for loan
losses of $157,000, compared to $52,000 in the comparable prior
period.
 
 Analysis
      of Loan Loss Experience
                    
                    Nine
      Months EndedDecember
      31,(Dollars in thousands)
                    
                    2009
                    
                    
                    2008Allowance
      at beginning of period
                    
                    $
                    165
                    
                    
                    $
                    124Provision
      for loan losses
                    
                    
                    157
                    
                    
                    
                    52Charge-offs:One-
      to four- family
                    
                    
                    (201
                    )
                    
                    
                    -Consumer
      loans
                    
                    
                    (1
                    )
                    
                    
                    (11
                    )Total
      charge-offs
                    
                    
                    (202
                    )
                    
                    
                    (11
                    )Recoveries:One-
      to four- family
                    
                    
                    -
                    
                    
                    
                    -Consumer
      loans
                    
                    
                    -
                    
                    
                    
                    -Total
      recoveries
                    
                    
                    -
                    
                    
                    
                    -Net
      recoveries (charge-offs)
                    
                    
                    (202
                    )
                    
                    
                    (11
                    )Allowance
      at end of period
                    
                    $
                    120
                    
                    
                    $
                    165Allowance
      to nonperforming loans
                    
                    
                    12.88
                    %
                    
                    
                    11.26
                    %Allowance
      to total loans
                    
                    
                    0.16
                    %
                    
                    
                    0.20
                    %Annualized
      net charge-offs (recoveries) to average loans outstanding
                    
                    
                    0.35
                    %
                    
                    
                    0.02
                    %
 
 Noninterest Income.Noninterest income includes service charges on deposit accounts, loan
service charges, and other noninterest income. Total noninterest income
decreased for the nine months ended December 31, 2009 to $142,000 from $153,000
for the same period ended December 31, 2008. The decrease was primarily a result
of lower service charges on deposit accounts offset by an increase in loan
service charges.
  Noninterest Expense.Noninterest expense primarily consists of compensation and benefits,
equipment and data processing, occupancy, FDIC premium expense and other
expenses.  Noninterest expense increased by $248,000 due primarily to
a higher FDIC premium expense and higher expenses related to foreclosed real
estate.
  12
  FDIC premium expense increased by
$118,000 to $133,000 for the nine months ended December 31, 2009, compared to
$15,000 for the same period last year as a result of higher quarterly
assessments and one special assessment.  On May 22, 2009, the FDIC
issued a final rule that imposed a special five basis points assessment on each
institution’s assets minus Tier 1 capital as of June 30, 2009, which was paid to
the FDIC on September 30, 2009.  The cost of this special assessment
to Tempo Bank was $41,000.  In addition, the quarterly premium
increased due to a higher risk-based assessment, which considers the supervisory
rating and certain financial ratios of each financial institution.
  Operations of
foreclosed real estate increased by $79,000 as a result of higher holding costs,
primarily consisting of real estate taxes, repairs and other maintenance
expenses.  In addition, the Bank incurred losses on foreclosed real
estate of $34,000 during the 2009 period.
  Other
noninterest expense increased by $31,000 due to higher legal costs associated
with operating as a public company, travel expenses and education
costs.
  Equipment
and data processing expenses decreased by $32,000 to $236,000 for the nine
months ended December 31, 2009 as a result of costs associated with
implementation of new products in the comparable 2008 period.
  Income Taxes.Income tax
expense decreased to $21,000 for the nine months ended December 31, 2009 from
$152,000 for the same period ended December 31, 2008. The decrease in income tax
expense is primarily attributable to lower pre-tax earnings.
  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, 2009, cash and cash equivalents totaled $7.4
million. At December 31, 2009, the Bank had $11.0 million in FHLBC advances
outstanding.
 
 A significant use of our liquidity is
the funding of loan originations.  At December 31, 2009, we had
$400,000 in one outstanding single-family loan
commitment.  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 December 31, 2009 totaled $30.9 million, or 74.5%
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 economic and 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 leave the Fed funds and
Discount Window rates and their current benchmarks, we have been able to attract
new money deposits with targeted pricing.  The local deposit market
remains extremely competitive with both regional and national banking
institutions “buying the market” for liquidity, several of which are TARP
recipients. 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, if deemed appropriate.
  13
  The Company is a separate legal entity from the Bank and must provide for its
own liquidity.  In addition to its operating expenses, the Company is
responsible for paying any dividends declared to its shareholders, and interest
and principal on outstanding debt, if any.  The Company also has
repurchased shares of its common stock.  The Company’s primary source
of income is dividends received from the Bank.  The amount of
dividends that the Bank may declare and pay to the Company in any calendar year,
without the receipt of prior approval from the Office of Thrift Supervision but
with prior notice to Office of Thrift Supervision, cannot exceed net income for
that year to date plus retained net income (as defined) for the preceding two
calendar years.  At December 31, 2009, the Company had liquid assets
of $49,000.
 
 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, 2009, 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.
 
 On August
3, 2009, the Board of Directors of the Company declared a one-time cash dividend
of $.10 per share.  The dividend was paid to stockholders of record as
of August 18, 2009, excluding the MHC, on September 1, 2009.
 
 The
Bank’s actual and required capital amounts and ratios at December 31, 2009 are
as follows:
 
 Minimum Requiredfor
      Capital
                  
                  
                  to
      be "WellActual
                  
                  
                  Adequacy
                  
                  
                  Capitalized"Amount
                  
                  
                  Ratio
                  
                  
                  Amount
                  
                  
                  Ratio
                  
                  
                  Amount
                  
                  
                  Ratio(Dollars
      in Thousands)Stockholders'
      equity of the Bank
                  
                  $
                  8,917
                  
                  
                  
                  10.3
                  %
                  
                  $
                  1,302
                  
                  
                  
                  1.5
                  %General
      valuation allowance
                  
                  
                  120Total
      capital to risk-weighted assets
                  
                  $
                  9,037
                  
                  
                  
                  19.6
                  %
                  
                  $
                  3,686
                  
                  
                  
                  8.0
                  %
                  
                  $
                  4,607
                  
                  
                  
                  10.0
                  %Tier
      1 capital to risk-weighted assets
                  
                  $
                  8,917
                  
                  
                  
                  19.4
                  %
                  
                  $
                  1,843
                  
                  
                  
                  4.0
                  %
                  
                  $
                  2,764
                  
                  
                  
                  6.0
                  %Tier
      1 capital to total assets
                  
                  $
                  8,917
                  
                  
                  
                  10.3
                  %
                  
                  $
                  3,472
                  
                  
                  
                  4.0
                  %
                  
                  $
                  4,340
                  
                  
                  
                  5.0
                  %
  14
 
 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, 2009, 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.
 
 Legal
Proceedings
 
 In
January 2010, Tempo Bank was named as a defendant, along with other financial
institutions and a brokerage firm, in a proposed class action lawsuit alleging
violations of Illinois Consumer Fraud and Deceptive Business Practices Act and
negligence.  The plaintiff seeks class action status for an alleged 40
– 100 similarly situated persons.  Tempo Bank has filed a motion to
dismiss the complaint.
 
 Management
believes, after consultation with counsel, that the likelihood of a favorable
outcome on defending the lawsuit is good.  Management believes that a
negative outcome would not be material to the financial condition of the Bank or
Company.
 
 Item
3.  Quantitative and Qualitative Disclosure About Market
Risk
 
 Not
applicable.
 
 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 December 31, 2009, 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.
  15
  PART
II.  OTHER INFORMATION
 
 Item
1.    Legal Proceedings
 
 Periodically,
there have been various claims and lawsuits against us, such as claims to
enforce liens, condemnation proceedings on properties in which we hold security
interests, claims involving the making and servicing of real property loans and
other issues incident to our business.  During the quarter ended
December 31, 2009, we were not a party to any pending legal proceedings that we
believe would have a material adverse effect on our financial condition, results
of operations or cash flow.
 
 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
 
 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)
  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.
  16
  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 12, 2010
                By:
                /s/ Robert J. Stroh, Jr.Robert
      J. Stroh, Jr.Chairman,
      Chief Executive Officer andChief
      Financial Officer
  17