10-K

United States
Securities and Exchange Commission

Washington, D.C. 20549

____________

FORM 10-K

x

ANNUAL REPORT PRUSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 2007

OR

£

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ________ .

Commission File No. 0-8117
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CHURCH LOANS & INVESTMENTS TRUST		®
(Exact name of registrant as specified in its charter)
Texas	75-6030254
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
5305 W Interstate 40 Amarillo, Texas 79106-4759
(Address of principal executive office)
(806) 358-3666
(Issuer’s telephone number including area code)
____________
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class	Name of each Exchange on which registered
Shares of Beneficial Interest, $0.00 par value per share	None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes £  No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes £  No  x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No  £
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act
Large accelerated filer  £		Accelerated filer  £	Non-accelerated filer x
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes £  No x
The aggregate market value of voting stock held by non-affiliates of the registrant was approximately $30,975,327 as of September 30, 2006.
The number of shares outstanding of each of the issuer’s classes of common stock, as of June 25, 2007 is 10,217,094 shares of beneficial interest.
DOCUMENTS INCORPORATED BY REFERENCE
Exhibit 3	Amended and Restated Declaration of Trust dated July 16, 2004, previously filed as an exhibit to the Trust’s Definitive Proxy Statement, Form DEF 14A, dated June 25, 2004 (File No. 000-08117) and is incorporated by reference.
	Amended and Restated Bylaws dated July 16, 2004, previously filed as an exhibit to the Trust’s Definitive Proxy Statement, Form DEF 14A, dated June 25, 2004 (File No. 000-08117) and is incorporated by reference.
Exhibit 10	Loan Agreement dated January 31, 2006 entered into by and between Church Loans & Investments Trust and Amarillo National Bank included as an exhibit to issuer’s Form 10-QSB, for the quarterly period ended December 31, 2005, under File No. 000-08117 is incorporated by reference into the List of Exhibits, Item 13(a) of Part III.
Transitional Small Business Disclosure Format (check one) Yes £  No x

CHURCH LOANS & INVESTMENTS TRUST Index To FORM 10-K For the Year Ended March 31, 2007
INDEX
Page
Part I
Item 1.	Business…………………...………………..............................................................	1
Item 1(A).	Risk Factors…………….. …………………............................................................	3
Item 1(B).	Unresolved Staff Comments………………............................................................	8
Item 2.	Properties ………………….……………….............................................................	8
Item 3.	Legal Proceedings…… …………………...............................................................	8
Item 4.	Submission of Matters to a Vote of Security Holders............................................	8
Part II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities…………………………...............................	8
Item 6.	Selected Financial Data………………………………………………………..………	10
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operation..……………………………………………...............................................	11
Item 7(A).	Quantitative and Qualitative Disclosures About Market Risk................................	17
Item 8.	Financial Statements and Supplementary Data....................................................	18
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure……………………………………………….............................................	34
Item 9(A).	Controls and Procedures…………………………..................................................	34
Item 9(B).	Other Information…………………………………...................................................	34
Part III
Item 10.	Directors, Executive Officers and Corporate Governance….................................	34
Item 11.	Executive Compensation………………………………………................................	36
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters………………………………………………................	37
Item 13.	Certain Relationships and Related Transactions and Director Independence.....	38
Item 14.	Principal Accountant Fees and Services…………………..…………………...……	38
Part IV
Item 15.	Exhibits and Financial Statement Schedules……………...…...............................	39
Signatures……………………………………………………………………………………………….		41

CHURCH LOANS & INVESTMENTS TRUST

(A Real Estate Investment Trust)

FORWARD-LOOKING STATEMENTS DISCLOSURE

This Annual Report includes forward-looking statements within the meaning of the Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  All statements other than statements of historical fact made in this discussion are forward-looking, which can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate,” “believe,” “continue” or other similar words.  The forward-looking statements are based upon management’s current plans and expectations and are subject to risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements, including:

• Competition in the business of making loans to churches;

• A decline in general economic conditions;

• A decline in real estate values affecting the value of the collateral securing our loans;

• A rise in interest rates resulting in higher cost of funds to us prior to the re-pricing of the loans owing to us;

• Our inability to borrow funds and at reasonable rates of interest;

• General risks of lending;

• Change in federal or state laws affecting our operations;

• Loss of critical management; and

• Other risks.

These risks and uncertainties are not intended to be exhaustive and should be read in conjunction with other cautionary statements made in this report.

PART I

Item 1:  BUSINESS

Church Loans & Investments Trust (which we refer to in this report as “we”, “us”, “our”, “Church Loans”, the “Trust” and the “Company”) is a real estate investment trust organized under the laws of the State of Texas in March 1963.  Although we have the authority to engage in the business of buying, selling and leasing of real estate, we have heretofore restricted our business activities primarily to making loans to churches and other nonprofit organizations and assisted living centers which are secured by a first mortgage on real estate owned by such borrowers.

The period of duration of the Trust, unless dissolved in accordance with law, or by the consent of the owners of our shares of beneficial interest, is perpetual.  We may be dissolved by the affirmative vote of not less than fifty percent of the owners of our outstanding shares.

The control and management of our properties, and all powers necessary or appropriate to effect any and all of the purposes for which we are organized, is vested in the Board of Trust Managers.  

The number of shares of beneficial interest which we are authorized to issue is unlimited.

We are qualified as a "real estate investment trust" under Sections 856-858 of the Internal Revenue Code of 1986 as amended (the "Internal Revenue Code" or "Code").  It is our intention to continue to qualify as a real estate investment trust under the Code.

We maintain an office located at 5305 I-40 West, Amarillo, TX 79106 (telephone 806/358-3666).

We registered an additional 7,000,000 shares or Certificates of Beneficial Interest pursuant to a registration statement filed with the Securities & Exchange Commission (“SEC”) on July 3, 2003.  The registration statement, file no. 333-106810, became effective on August 14, 2003.  After completing the registration with several key states, we commenced sales of the shares in December 2003 and ended the offering on August 14, 2004.  The name of the managing underwriter was Great Nation Investment Corporation and the additional participating underwriter was Commonwealth Church Finance, Inc.  The class of securities registered and offered were Certificates of Beneficial Interest.  This is the only class of securities that we have registered and offered.  

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As mentioned, the amount of shares registered and offered pursuant to our offering that became effective on August 14, 2003 was 7,000,000 shares.  The price at which the offering was made was $3.00 per share for an aggregate offering price of $21,000,000.  During the offering, we sold an additional 3,216,288 shares for a total aggregate offering price of $9,648,864.  

Our primary debt obligations consist of our bank line of credit owing to Amarillo National Bank and Master Note Agreements with various persons.  Prior to January 31, 2006, the line of credit was made pursuant to a Loan Agreement dated December 31, 2004, which was amended effective November 4, 2005 to increase the line of credit from $25,000,000 to $30,000,000.  Effective January 31, 2007, we entered into a new loan agreement with the bank that increased the line of credit to $35,000,000, for a term of three years, maturing December 31, 2008, instead of being renewed each year as in the past, and provided for a rate of interest that was more favorable to us.

As mentioned above, we are primarily engaged in the business of making mortgage loans to churches and other nonprofit organizations and assisted living centers.  Originally, our Declaration of Trust required a debt-to-value ratio of not greater than 66 2/3%.  However, at our annual meeting of shareholders held on July 16, 2004, the shareholders approved an Amended and Restated Declaration of Trust and Bylaws that raised the debt-to-value ratio to 85% unless substantial justification exists because of the presence of other underwriting criteria.  Most of our present loans were made based upon the prior 66 2/3% debt-to-value ratio.  Although we have been primarily in the business of making long-term mortgage loans, during the past several years we have also been actively involved in making short-term interim or construction loans to finance the construction of church buildings, the construction of assisted living centers, the purchas e of real estate, or the refinancing of existing indebtedness.  Most of the interim loans presently being made are associated with bond offerings of churches and other nonprofit organizations and assisted living centers.  These interim loans are scheduled to be repaid from the proceeds of the bond offerings.

We are not limited to the location of the property securing any loans in which we may invest and we seek to spread our investments in areas of the United States where favorable yields prevail.  

As of March 31, 2007 we had 124 permanent and interim mortgage loans and investments in church bonds having a principal balance, net of unamortized purchase discounts and allowance for credit losses, of $73,241,785, with the average principal amount thereof being $590,660.  The interest rates on these loans vary from 4% to 12% per annum with the weighted average interest rate of mortgage loans and church bonds being 8.31% per annum at March 31, 2007.  The original terms of these loans vary from one year to thirty years, with the majority being for a term of twenty years.

During the fiscal year ending March 31, 2007, our net income was $2,669,750, as compared to $3,236,950 in fiscal 2006, a decrease of 18%.  Such decrease in our net income was due to a decrease in our net interest income.  Net interest income was lower in fiscal 2007 as compared to fiscal 2006 primarily due to an increase in our interest expense.  

Our net income for each of the quarters during fiscal 2007 was as follows:  first quarter-$567,991; second quarter-$646,760; third quarter-$738,107; and fourth quarter-$716,892.

Our operational expense increased from $1,091,909 during fiscal 2006 to $1,261,553 in fiscal 2007.  Our operational expense included general and administrative expenses and compensation to members of the Board of Trust Managers. This increase is attributable to an increase in general and administrative expenses of $169,379 or 16%.  This increase in general and administrative expenses is primarily attributable to an increase in expenses related to other real estate owned and non-performing loans.

During fiscal 2007, we advanced loan proceeds of $36,845,728 on 26 interim loans and 11 permanent loans.  Most, if not all, of such loans bear interest at a variable rate varying from 1.5% to 2% per annum in excess of the prime rate of interest published by the Wall Street Journal and known as the "Wall Street Journal Prime."  

During fiscal 2007, we employed a total of 6 full time employees and employed, as needed, 2 additional part-time persons who worked on a contract basis.

The business conditions in which we operate have become more competitive in the past several years as more and more banks are re-entering the business of making loans to churches, especially the more desirable, less risky, church loans.  If this trend continues, the rates and fees which we can charge may decrease or the types of loans we make may involve more risk.  However, loan demand remains good as evidenced by the number of loan requests we receive and the number of loan commitments outstanding as of March 31, 2007.

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At your request, we will provide you, without charge, a copy of any exhibits to this Annual Report on Form 10-K.  If more information is needed, please call, write or e-mail us at:

Church Loans & Investments Trust

Attn: Mr. Kelly Archer

5305 I-40 West

Amarillo, Texas 79106

Telephone: (806) 358-3666

E-mail: karcher@churchloans.com

Item 1A: RISK FACTORS

You should carefully consider the following Risk Factors and other information provided in this Annual Report.  The risk and uncertainties described below are those that we believe may materially affect our operations and, in turn, the value of our shares.  Additional risks and uncertainties that we are unaware of or that we currently deem immaterial also may become important factors that affect our operations.

It may be necessary for us to raise additional funds in order to meet all of our financial obligations and these funds may not be available on acceptable terms or at all.

It may be necessary for us to raise additional funds in order to meet all of our financial obligations.  There is no assurance that we would be able to raise sufficient additional funds through borrowings.  In this event, it would be necessary for us to liquidate a portion of our mortgage loans.  We have little experience in selling our loans, but we anticipate that it may be necessary to discount loans in order to timely sell them.  A sale of a substantial portion of our loans at discounts would reduce our equity to the detriment of our shareholders. The extent, if any, to which we would have to discount our loan portfolio cannot be determined at this time.

Our master note agreements are due on demand.  Demand of a significant amount of these master notes would adversely affect our operations.

Since the master notes owing by us are due on demand, any holder could immediately demand payment of the holder’s note.  In such an instance, we believe that we would be able to meet this demand from available operating funds or by drawing upon our line of credit.  Although our master note agreements provide that we may limit withdrawals to a maximum of $250,000 per note per 30-day period, there is no assurance that we would have sufficient funds available to be drawn on the line of credit or otherwise to pay any demanded master note.   In the event that we failed to pay a master note upon demand, if known, other holders of master notes, would likely also demand payment of their master notes resulting in a series of demands.  In this event if there are not sufficient funds available from the line of credit to pay the demanded master notes, we would have to sell loans in our portfolio to retire the demanded master notes.  We have very limi ted experience in selling loans and would expect that it will take some time to accomplish a sale and possibly at substantial discounts.  We would be in default in the payment of the master notes and might have to seek protection under the bankruptcy laws in order to obtain the necessary time to sell assets to meet this demand.  Even if we are able to meet the demands, these events would adversely affect our operations.

Interest rate changes may result in the realization of substantially less net income.

Our interim loans are normally made at rates of interest that change as the prime rate of interest changes.  Most of our permanent mortgage loans are made at rates of interest that are fixed for a period of time, either one year, three years or five years, and then reprice based upon the prime rate of interest within certain interest rate caps provided in the loans.  However, all of our debt is either directly or indirectly tied to the prime rate of interest charged by major domestic banks and is subject to the day-to-day fluctuation of the prime rate without any interest rate cap.  As the prime rate of interest increases, causing an increase in our interest expense, our net income decreases for a period of time until the permanent mortgage loans reprice. Correspondingly, as the prime rate of interest decreases our interest expense would decrease and our net income would generally increase until the permanent mortgage loans reprice.  In the event of a s ignificant or rapid increase in the prime rate of interest, our interest expense could increase to an extent that we actually incurred a loss on our permanent mortgage loans until these loans could reprice.  Even the repricing of these loans may not cure the deficit between the interest income on a loan and the interest expense incurred in carrying the loan if the prime rate of interest increases has exceeded the interest rate cap provided in the note.  These factors could lower our net income or cause a net loss during periods of rising interest rates, which would negatively impact our financial condition, cash flows and results of operations and, correspondingly, the value of our shares.

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General economic and financial conditions in mortgage and financial markets may negatively affect our results of operations.

The performance of our mortgage loan portfolio depends on, among other things:
	•	the level of net interest income generated by our mortgage loans,
	•	the market value of such mortgage loans, and
	•	the supply of and demand for such mortgage loans.
In addition, the following factors cannot be predicted with any certainty:
	•	prepayment rates,
	•	interest rates,
	•	borrowing costs and credit losses depend upon the nature and terms of the mortgage loans,
	•	the geographic locations of the properties securing the mortgage loans,
	•	conditions in financial markets,
	•	the fiscal and monetary policies of the United States government and the Board of Governors of the Federal Reserve System,
	•	international economic and financial conditions,
	•	competition, and
	•	other factors.

There are inherent general risks involved in investing in mortgage loans including risks related to the collateral securing the loan, prior liens, property taxes and costs to enforce the mortgages.

All real property investments are subject to some degree of risk.  The mortgage loans in which we invest normally will not be insured or otherwise guaranteed by any institution or agency.  In the event of a default by a borrower it may be necessary for us to foreclose our mortgage or engage in negotiations which may involve further outlays to protect our investment.  The mortgages securing our loans may be or become, in some instances, subordinated to mechanics' or materialmen's liens or property tax liens.  In these instances it may become necessary in order to protect a particular investment for us to make payments in order to maintain the current status of a prior lien or discharge it entirely.  It is possible that the total amount recovered by us in these cases may be less than our total investment, resulting in a loss.  In the event of a major loan default or several loan defaults resulting in losses, our profitability would be materially and adversely affected and our ability to pay dividends to our shareholders would be impaired.

Our lending decision is based upon an appraisal of the property to secure the loan which is made prior to the making of the loan.  In the event of default, the actual value of the collateral securing the loan may differ.  A decline in real estate values will adversely affect the value of our loans, the value of the mortgages securing our loans and the value of our Shares.

Originally, our Declaration of Trust required that our loans not exceed 66 2/3% of the value of the real estate securing the loan.  At our annual shareholders’ meeting on July 16, 2004, the shareholders approved an Amended and Restated Declaration of Trust and Bylaws that raised the debt-to-value ratio to 85%.  However, the determination of the value of the real estate securing the loan is based upon a real estate appraisal made near the time of the making of the loan.  In the event of a default and the resulting foreclosure of the property securing a loan, the property may sell for more or less than the appraised amount.   This difference may be the result of mistaken assumptions made by the appraiser or changes in market conditions since the time of the appraisal.  We obtain an appraisal prior to making the loan to determine loan qualification.  However, we do not normally obtain new appraisals or updates to the appraisals after th e making of the initial loan.

Our church loans are normally secured by “single-purpose” properties that may not be readily marketable in the event of default.

In the event of default by a borrower in the payment of a mortgage loan owing to us, we may proceed to foreclose the property securing our loan.  However, the property securing the loan is normally a “single-purpose” church facility that may not be readily marketable.  It may take longer to secure a buyer for a property.  During a significant holding period, we may have to expend additional funds to secure and maintain the property and pay taxes on the property.  Furthermore, during the holding period the value of the property may decline.  Due to the limited number of potential buyers of the property, we may not be able to

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realize enough from the sale of the property to retire the entire principal, interest and expenses that we have invested in the loan.  

It is inevitable that some loans will become delinquent and we will not be able to collect the interest on the loan or may even have a loss of principal on the loan.

It is generally our practice to discontinue the accrual of interest upon mortgage loans which are 60 days or more past due, and to discontinue the accrual of interest upon church bonds where the issuer of the bonds fails to make a semi-annual payment of principal or interest upon the bonds.  At March 31, 2007, we had discontinued the accrual of interest upon mortgage loans and church bonds totaling $5,996,112. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

A church loan is normally repaid from contributions by the congregation’s members which may vary thereby affecting the congregation’s ability to timely meet its obligations.

As mentioned, most of our loans are made to churches.  Churches are normally dependent on the contributions of its members to meet its obligations.  If a borrowing church has a decline in membership or contributions, then it may not be able to timely make its payments to us.  A church can experience a decline in membership or contributions as a result of:

• a general economic decline in the community in which the church is located,

• a specific economic decline that affects a significant number of the members of the church,

• a conflict or division in the church that results in a loss of membership,

• a withholding of members’ normal contributions, or

• the loss of a popular pastor or minister of the church resulting in a significant loss of members and contributions.

Our mortgage loans are subject to normal credit risks and the loss of the underlying collateral.

Our mortgage loans are subject to the normal, general risks associated with mortgage loans, including risks of borrower defaults, bankruptcies and special hazard losses that are not covered by standard hazard insurance (including earthquakes, floods and the like).  In the event of a default on a loan, we will bear the risk of loss of principal to the extent of any deficiency between the value of the property securing the loan and the amount owing on the loan. Although we attempt to establish and maintain adequate reserves to cover these risks, there can be no assurance that such reserves will be sufficient to offset losses on mortgage loans in the future.

Even assuming that properties securing our mortgage loans do provide adequate security for these loans, substantial delays could be encountered in connection with the foreclosure of defaulted mortgage loans, with corresponding delays in the receipt of proceeds from the sale of these properties.  

Interim loans represent a greater risk of loss than a permanent loan that amortizes over the term of the loan.

Although we are engaged in the business of making both long-term permanent loans and short-term interim loans to churches and other non-profit organizations, during the past several years a significant number of the loans that we made were interim loans.  In fact, we attempt to maintain a loan portfolio that consists of 30-40% of interim loans.  Most of these loans are for the purpose of financing the purchase or construction of church buildings and facilities, or for the renovation of these facilities.  Most of these interim loans were associated with bond offerings of the borrowers where the proceeds from the sale of the bonds are used to repay our interim loan.  The timely repayment of these interim loans is primarily dependent upon the success of the borrower in selling its bonds.  Since these bonds are generally sold on a best efforts basis, with no firm underwriting or commitment by the broker-dealer to purchase any of t he bonds, there is no assurance that bonds in sufficient amounts will be sold in order to timely repay the interim loan owing to us.  All permanent and interim loans are secured by a first mortgage on the property of the borrower.  In situations where we make an interim loan to be repaid from the proceeds of a bond offering of the borrower, if any of the bonds of the offering are sold, the mortgage securing the interim loan would be of equal priority with the mortgage securing the payment of the bonds which are actually sold.  Should the borrower be unable to sell bonds in a sufficient amount to repay the interim loan, we would have the option to either foreclose on the property securing the interim loan or to extend the term of the loan over a longer period.  In either instance, our

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interest in the property securing the payment of our loan by virtue of our mortgage would be in proportion to the respective indebtedness of the borrower to us and the bondholders.

Furthermore, in the event of a default of an interim loan that is secured by a mortgage jointly securing us and the bondholders, we and the indenture trustee, acting on behalf of the bondholders, must cooperate in all collection actions or foreclosure proceedings.  Therefore, we are not solely in control of the proceedings relating to a defaulted interim loan.

In addition, in the event that a borrower does not have or loses its permanent source of financing and is unable to retire the interim loan at maturity, then we may foreclose the property securing the loan, extend the interim loan to allow additional time for the borrower to obtain permanent financing, or convert the interim loan into a permanent loan.  Any of these courses of action may either reduce our rate of return on the loan or result in a risk or loss to our loan portfolio.  

Construction loans offer higher risks of loss due to problems related to construction which may result in a loss to our investment portfolio.

We make construction loans primarily to churches that carry with them a higher degree of risk commensurate with construction loans, including:  dealing with the general contractor and subcontractors, cost over-runs, mechanic and material men liens, local building and construction codes, construction delays, incomplete construction and weather.  Any of these risks could result in a higher risk loan to our portfolio or even a default which in turn may result in a loss.  

Ownership of our shares is restricted somewhat to insure our REIT qualification.  Such restrictions could adversely affect the liquidity and marketability of such shares.

In order to insure our qualification as a REIT, our Bylaws prohibit any 5 persons, associations or corporations from owning more than 50% of our total outstanding shares.  This restriction may eliminate some potential purchasers of our shares in any offering of shares and in the secondary market.  Fewer buyers of shares in the secondary market will tend to adversely affect the price of shares in the secondary market.

Changes in federal and local tax laws may adversely affect our operations and the value of our shares.

Increases in income taxes, service taxes, mortgage taxes or other taxes generally are not passed through to borrowers and, in some cases, cannot be passed on to borrowers according to  local law.  These increases may adversely affect our funds from operations and the value of our shares.

We enjoy favorable income tax treatment due to our REIT status.  However, in the event that federal or state income tax laws were amended to either eliminate this tax advantage or to grant similar tax advantages to corporations, then the value of our shares could be adversely impacted.

Federal or State law may limit or prevent a change of control even if a change of control would increase our ability to operate more profitably.

In order to maintain our qualification as a REIT under the Internal Revenue Code our Shares must be held by 100 or more persons and not more than 50% in value of the outstanding Shares may be  held directly or indirectly by or for five or fewer individuals at any time during the last half of the tax year.  This ownership limit may discourage a change of control even if a change would increase our ability to operate more profitably.

There is no assurance that a shareholder can sell their shares since there is a limited trading market for our shares.

There is no established public trading market for our shares.  We attempt to maintain a list of persons desiring to sell shares and persons desiring to purchase shares.  We provide this list to anyone upon request.  There is no assurance that there will be sufficient buyers to meet the demand of shareholders desiring to sell.  In the event that there are not sufficient buyers, it is expected that the price for shares in the secondary market will decline.  It may even be possible that significant number of shares that are offered for sale will remain unsold for a substantial period of time.

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We face significant competition in providing financing to churches and other non-profit entities which may make it difficult to obtain quality mortgage loans in which to invest.

In the field of long-term mortgage financing, we will be competing against church bond programs, commercial banks, other REITs and other lenders to make loans to churches for the purpose of providing funds for financing the purchase, refinancing or construction of church buildings and facilities.  Loans to churches, as in the case of commercial loans, generally are competitive as to rate of interest and other costs associated with the loan, the term of the loan, and the security to be given by the borrower for the payment of the loan.  Any loans which may be made by us will be competitive with other lending institutions as to the rate of interest to be paid by the borrower and as to the term which the loan is to be repaid.  An increase in the availability of investment funds may increase competition for suitable investment opportunities, resulting in a reduced yield on those available or resulting in making loans involving higher risks.

Although we primarily invest in mortgage loans to churches, we are not prohibited from investing in other assets normally allowed for investment by a real estate investment trust.

It has been our primary purpose and intent to limit our investments to that of mortgage loans made to churches, assisted living centers, private schools and the like.  However, our Declaration of Trust and Bylaws allow us to invest in any other assets that are allowed by law for investment by real estate investment trusts.  In the event that our policies change to allow for investment in real estate and mortgages of for-profit entities, you should be aware that we do not have experience or expertise in these types of loans and may not be able to conduct our operations with the success that we have historically experienced in our normal business operations.

The risks and the general illiquidity of real estate investments may prohibit us from disposing of certain investments in response to changes in economic and other conditions.

All real estate investments are subject to some degree of risk.  As a result, real estate loans are relatively illiquid; therefore, we have a limited ability to vary our portfolio promptly in response to changes in economic or other conditions.

Environmental compliance costs and liabilities relating to the real estate securing our loans may adversely affect our results of operations.

Under various federal, state and local laws, ordinances and regulations, an owner of property or a secured lender may be liable in certain circumstances for the cost, removal or remediation of certain hazardous or toxic substances or petroleum products disposed, stored, released, generated, manufactured or discharged from, on, at, into or below the property.  We do not obtain an environmental report on all properties securing a mortgage loan owing to us.  Even the existence of an environmental report does not necessarily disclose the existence of an environmental hazard or problem or protect an owner or lender from potential liability.  The cost of any required remediation or removal can be quite extensive.  

An environmental, toxic or hazardous condition can dramatically reduce the ability of a borrower to meet its obligations, including its obligations to pay its mortgage loan owing to us.  Furthermore, the existence of such a condition can greatly reduce the value of the collateral securing our loan.  In the event that the borrower does not remedy an environmental condition and further defaults on its loan owing to us, we must carefully determine whether or not it is in our best interest to foreclose the property securing the loan which is environmentally impaired.  It could be that the cost of remedying the environmental condition could well exceed the resulting value of the property.  

Even if we have no liability to remove or remedy the environmental condition, the existence of such may still result in a loss to us in the cash flow from the loan or the proceeds resulting from a foreclosure of the property in the event of default.

We are not currently supervised or regulated by any federal or state agency.

We are not supervised or regulated by any federal or state agency.  Nor are we insured or guaranteed by any federal or state agency.

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Item 1B: UNRESOLVED STAFF COMMENTS

None.

Item 2: PROPERTIES

We maintain as our only place of business our offices located at 5305 I-40 West, in Amarillo, Texas.  Such building is owned by us and is occupied solely by us.  There is no debt owed by us in regard to this real property.

Our real properties, net of depreciation and excluding real estate acquired through foreclosure, are not a significant portion of our assets, representing less than 1% of our total assets.

As previously mentioned, our primary business is the making of mortgage loans, almost exclusively, first mortgage loans, to churches and other nonprofit organizations and assisted living centers.  Our Bylaws, as amended, restrict our investments to loans secured by a mortgage, deed of trust, or other lien covering real property with the amount of such loans not to exceed 85% of the value of the real property securing such loan.  The Bylaws may be amended by majority vote of the Board of Trust Managers.  The Board of Trust Managers' general policy is to limit investment of our assets in any one mortgage loan to not more than approximately 20% of Shareholder equity or $6,000,000.  However, at the discretion of the Board of Trust Managers, we may make and have made loans in excess of such limit.  All of our investment in mortgage loans is for the purpose of earning income.

Item 3: LEGAL PROCEEDINGS

None.

Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

Item 5:

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

(a)

Market Information

There is no established public trading market for our shares of beneficial interest.  During fiscal year 2007, a total of 262,186 shares were sold in the secondary market at prices ranging from $3.25 to $3.90 per share.  The last sale during the fiscal year was at $3.50 per share.  During fiscal year 2006, a total of 161,228 shares were sold in the secondary market at prices ranging from $3.00 to $3.50 per share.

The range of high and low bid information for shares of beneficial interest for each quarter within the last two fiscal years is as follows:

Quarter	Fiscal 2007		Fiscal 2006
	High	Low	High	Low
April-June	3.50	3.25	3.50	3.00
July-September	3.60	3.25	3.50	3.00
October-December	3.60	3.40	3.40	3.05
January-March	3.90	3.25	3.50	3.00

The source of the above information is our own records.  We serve as the Transfer Agent for our shares.

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(b)

Holders

On March 31, 2007, there were 2,696 shareholders of Church Loans.  

(c)

Dividends

Cash dividends on all our outstanding shares of beneficial interest are declared twice annually to shareholders of record as of March 31 and December 31. Dividends paid during fiscal years 2006 and 2007 were as follows:  Fiscal Year 2006:  Dividend/Share $.29 per share (Based on three months of fiscal 2005 taxable income and nine months of fiscal 2006 taxable income); Fiscal Year 2007:  Dividend/Share $.25 per share (Based on three months of fiscal 2006 taxable income and nine months of fiscal 2007 taxable income).  

An additional dividend of $.06 per share was declared in April 2007 based upon fiscal 2007 taxable income (see Note 6 of the Notes to Financial Statements).  This additional dividend was paid during fiscal 2008 to shareholders of record as of March 31, 2007.

(d)

Securities authorized for issuance under equity compensation plans.

None.

(e)

Sales of Unregistered Securities.

None.

(f)

Report of Use of Proceeds of Sales of Recently Registered Securities

None.

(g)

Repurchases of Shares

None.

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Item 6: SELECTED FINANCIAL DATA

The following selected statements of operations data for each of the years in a the five-year period ended March 31, 2007 and the balance sheet data as of the year-end for each of the years in the five-year period ended March 31, 2007 were derived from the audited financial statements and notes to the financial statements starting on page 18 and with Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operation.”

CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Selected Historical
Consolidated Financial and Other Data
		As of March 31,
		2007		2006		2005		2004		2003
Balance sheet data
Total assets	$	76,364,055	$	71,491,066	$	59,573,937	$	44,629,888	$	55,106,397
Notes payable	$	43,609,969	$	38,890,110	$	27,581,042	$	16,679,383	$	32,370,714
Shareholders’ equity	$	31,083,160	$	30,967,683	$	30,693,690	$	27,033,273	$	21,439,788
Operating Data
INTEREST INCOME AND FEES	$	6,589,080	$	6,287,367	$	4,669,730	$	4,551,060	$	4,902,182
INTEREST EXPENSE		2,781,039		1,972,371		791,730		821,706		974,600
Net interest income		3,808,041		4,314,996		3,878,000		3,729,354		3,927,582
PROVISION FOR CREDIT LOSSES		-		-		(20,000)		-		-
Net interest income less provision for possible credit losses		3,808,041		4,314,996		3,898,000		3,729,354		3,927,582
OTHER INCOME		167,809		87,817		159,164		170,626		86,145
OTHER OPERATING EXPENSES
General and administrative		1,211,253		1,041,874		1,003,631		943,160		771,378
Board of Trust Managers’ fees		50,300		50,035		53,185		56,714		58,782
Total other operating expenses		1,261,553		1,091,909		1,056,816		999,874		830,160
Income before provision for income taxes		2,714,297		3,310,904		3,000,348		2,900,106		3,183,567
PROVISION FOR INCOME TAXES		44,547		73,954		82,649		71,345		69,928
NET INCOME	$	2,669,750	$	3,236,950	$	2,917,699	$	2,828,761	$	3,113,639
NET INCOME PER SHARE	$	.26	$	.32	$	.29	$	.38	$	.44
DISTRIBUTIONS PER SHARE	$	.25	$	.29	$	.28	$	.36	$	.40

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Item 7:

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

Critical Accounting Policies

Our accounting and reporting policies are in accordance with accounting principles generally accepted in the United States of America.  Our significant accounting policies are described in the notes to the financial statements.  Certain accounting policies require management to make significant estimates and assumptions, which have a material impact on the carrying value of certain assets and liabilities, and we consider these to be critical accounting policies.  The estimates and assumptions used are based on historical experience, as well as other factors, which management believes to be reasonable under the circumstances.  Actual results could differ significantly from these estimates and assumptions, which could have a material impact on the carrying value of assets and liabilities at the balance sheet dates and results of operations for the reporting periods.

We believe that the following critical accounting policies require the most significant estimates and assumptions that are particularly susceptible to a significant change in the preparation of our financial statements.

Revenue Recognition.  We accrue interest income as it is earned.  All past due loans are reviewed monthly by management and the Audit Committee.  A past due loan is evaluated based upon the payment history, opinion of the ultimate collectability of the principal and interest and other experience factors.  The accrual of interest is generally discontinued on loans and church bonds more than 60 days past due unless the credit is well secured and in process of collection.  In all cases, loans and bonds are placed on nonaccrual or charged-off at an earlier date, if collection of principal or interest is considered doubtful.

Once a loan is placed on non-accrual, the loan will be classified as either “cash basis” or “capital recovery.”  A loan is typically classified as “cash basis” if the Audit Committee believes, based upon several factors, that there is a strong likelihood that the principal of the loan will be recovered, but is concerned that all of the interest will be recovered.  If a loan is classified as “cash basis,” then payments received will be applied to interest first and then to principal.  A loan is typically classified as “capital recovery” if the Audit Committee believes, based upon several factors, that there is a strong likelihood that we may not be able to recover all of the principal balance of the loan.  In the event that a loan is classified as “capital recovery,” then payments received are applied to principal first and then to interest.

The actual decision to place a loan on non-accrual and the classification of the loan as either “cash basis” or “capital recovery” is made by the Audit Committee with input from management.

Non-accrual status loans are returned to an accrual status when in the opinion of the Audit Committee, based upon input from management, that such is warranted based upon the passing of a sufficient time period during which the principal and interest have become current and remain current and, therefore, the loan, both principal and interest, is anticipated to be fully collectible.

Allowance for Credit Loss.  The Audit Committee reviews the allowance for credit loss at the end of each quarter.  The provision for losses is based on an amount that is adequate, in the opinion of the Audit Committee, based upon input from management, to absorb losses inherent in the existing portfolio.  The evaluation, which includes a review of all loans on which full collection may not be reasonably assumed, considers among other factors, general economic conditions, the fair market value or estimated net realizable value of the underlying collateral securing the loan, past experience, trends in loan delinquency and other factors that warrant recognition in providing for an adequate allowance to absorb inherent losses.  The evaluation by the Audit Committee includes a review of a quarterly grading methodology performed by management on all past-due loans.  The Audit Committee, based upon its evaluation and review, then makes a recommenda tion to the full Board of Trust Managers as to the recommended amount of the credit loss reserve.  The Board of Trust Managers, based upon the recommendation of the Audit Committee, establishes the amount of the allowance for credit loss and any adjustments to such allowance.

Other Real Estate Owned.  Other real estate owned (OREO) represents property acquired as a result of a foreclosure of a mortgage note(s) held by Church Loans.  OREO is recorded at estimated fair value at date of foreclosure, establishing a new cost basis.  After foreclosure, OREO is carried at the lower of the carrying amount or estimated fair value minus estimated cost to sell.  Impairment losses are charged to operations.  Costs of the foreclosure, insurance and other costs associated with carrying the property are expensed.

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Management has discussed our critical accounting policies and the development, selection and disclosure of the estimates and alternatives with the Audit Committee of the Board of Trust Managers and obtained their approval of the applicable disclosures contained in this report.

Overview

Church Loans was founded in May of 1959 and was organized to assist churches with the financing of purchases and construction of church facilities.  Church Loans has also made loans for the financing of assisted living centers.  Although we were originally organized under the corporate structure, we reorganized in 1963 as a real estate investment trust in order to take advantage of the favorable provisions of the federal tax law applicable to real estate investment trusts.  

Our loan portfolio consists primarily of loans to churches and is comprised of both permanent loans and interim construction loans.  Although, we have purchased existing loans from other lenders, our primary operating strategy is to originate, either through mortgage loan brokers, church bond broker-dealers or directly to churches, mortgage loans secured by a first mortgage against a church’s buildings and related facilities.  We rarely, if ever, sell a loan and, therefore, we intend to hold our loan portfolio to maturity.  Our underwriting standards normally include compiled, reviewed or audited financial statements depending on the size of the loan, a fair market value appraisal prepared by an independent appraiser, a first mortgage on the property of the church insured by a title insurance policy issued by a national title company, applicable fire and extended casualty insurance on the collateral and such other requirements as determined by managemen t on a case by case basis.  Also, as part of our due diligence, management normally makes, prior to funding, an onsite inspection of the property that is to secure the loan.

Originally, our Declaration of Trust required a debt-to-value ratio of not greater than 66 2/3%.  However, at our annual meeting of shareholders held on July 16, 2004, the shareholders approved an Amended and Restated Declaration of Trust and Bylaws that raised the debt-to-value ratio to 85% unless substantial justification exists because of the presence of other underwriting criteria.  Most of our present loans were made based upon the prior 66 2/3% debt-to-value ratio.

Management is aggressively pursuing quality new loans, both interim and permanent.   We believe this is evident by the 6% increase in our loan portfolio during the year ended March 31, 2007.   

Results of Operations—2007 compared to 2006

During the fiscal year ended March 31, 2007, interest income and fees increased by $301,713 (5%) over the previous fiscal year.  The increase in interest income and fees was primarily the result of an increase in the amount of mortgage loans, interim construction loans and church bonds that we held during the fiscal year.

Total performing and non-performing mortgage loans, church bonds and interim loans increased from $71,063,449 as of March 31, 2006, to $74,955,034 as of March 31, 2007.  There was a decrease in the amount of our performing interim loans from $20,268,706 as of March 31, 2006, to $18,471,378 as of March 31, 2007.  There was an increase in our performing mortgage loans and church bonds during the recent fiscal year from $48,835,293 as of March 31, 2006, to $50,487,544 as of March 31, 2007.  Total performing loans, church bonds and interim loans decreased from $69,103,999 as of March 31, 2006 to $68,958,922 as of March 31, 2007.  

Non-performing loans increased from $1,959,450 as of March 31, 2006, to $5,996,112 as of March 31, 2007.   Interest income which would have been recorded under the original terms of impaired loans and church bonds amounted to approximately $350,000 for the year ended March 31, 2007 as compared to $97,000 for the year ended March 31, 2006.  Interest income actually recognized on such impaired loans and church bonds was $290,000 and $46,000 for the years ended March 31, 2007 and March 31, 2006, respectively.

The increase in our loan portfolio is evidenced by the difference in our investment in mortgage and interim loans and bonds during fiscal 2007 of $36,845,728 as compared to the payments we received on our loan portfolio during fiscal 2007 in the amount of $31,241,440.

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The increase in interest income and fees was enhanced by an increase in the net interest rate margin on our loan portfolio.  The average interest rate on loans and church bonds held by us increased from 7.82% as of March 31, 2006, to 8.31% as of March 31, 2007.  During the same period, the average interest rate on our total indebtedness increased from 6.64% as of March 31, 2006 to 6.96% as of March 31, 2007.  Therefore, our net interest rate margin increased from 1.18% as of March 31, 2006 to 1.35% as of March 31, 2007, an increase of 17 basis points.

Our net income for fiscal 2007 was $2,669,750, a decrease of $567,200 (18%) from the previous fiscal year.  Such decrease was primarily attributable to a decrease in our net interest income.  Net interest income decreased from $4,314,996 in fiscal 2006 to $3,808,041 in fiscal 2007, a decrease of $506,955 (12%) from fiscal 2006.

Total operating expenses increased from $1,091,909 for the fiscal year ended March 31, 2006 to $1,261,553 for the fiscal year ended March 31, 2007, an increase of $169,644 or 16%. This increase is attributable to an increase in general and administrative expenses of $169,379 or 16%.  This increase in general and administrative expenses is primarily attributable to an increase in expenses related to other real estate owned and non-performing loans.

Income from the realization of loan discounts from loan purchases decreased from $472,356 for the year ended March 31, 2006, to $22,947 for the year ended March 31, 2007, a decrease of $449,409.  The rather large amount of income from the realization of loan discounts in the year ended March 31, 2006 was primarily the result of the payment of one loan resulting in the recognition of $395,961 in income for the year ended March 31, 2006.  This income, which is included in interest income, was characterized as discounted income on mortgage loans since this loan was acquired by us at a price below the principal balance of the loan.

Dividends related to fiscal 2007, without regard to dates they were declared, were $2,452,103 or $.24 per share as compared to $3,065,128 or $.30 per share for fiscal 2006.  The decrease in dividends paid was attributable to a decrease in net income.  

As a real estate investment trust, we are required by Section 857 of the Internal Revenue Code, as amended, to distribute not less than 90% of our taxable net income to our shareholders.  Dividends are based on taxable income which varies from net income reported in the financial statements because of temporary differences (differences between the tax basis of an asset or liability and its reported amount in the financial statements that will result in taxable or deductible amounts in future years).   Future dividends may be more or less than the net income reported in the financial statements because of variances in these temporary differences.

Other income increased from $87,817 for fiscal 2006 to $167,809 for fiscal 2007.  Included in fiscal year 2007 other income is a deferred gain of approximately $91,000 from the payoff of a church loan in Trenton, New Jersey.  

Results of Operations—2006 compared to 2005

During the fiscal year ended March 31, 2006, interest income and fees increased by $1,617,637 (34.64%) over the previous fiscal year.  The increase in interest income and fees was primarily the result of an increase in the amount of mortgage loans, interim construction loans and church bonds that we held during the fiscal year, plus the recognition of $395,961 of income from the payment of a loan that was previously in default.

Total performing and non-performing mortgage loans, church bonds and interim loans increased from $59,319,446 as of March 31, 2005, to $71,063,449 as of March 31, 2006.  There was an increase in the amount of our performing interim loans from $18,043,873 as of March 31, 2005, to $20,268,706 as of March 31, 2006, and there was also an increase in our performing mortgage loans and church bonds during the recent fiscal year from $38,103,729 as of March 31, 2005, to $48,835,293 as of March 31, 2006.  These increases resulted in an increase in performing loans, church bonds and interim loans from $56,147,602 as of March 31, 2005 to $69,103,999 as of March 31, 2006.  In addition, non-performing loans decreased from $3,171,844 as of March 31, 2005, to $1,959,450 as of March 31, 2006.

This increase is evidenced by the difference in our investment in mortgage and interim loans during fiscal 2006 of $48,633,320 as compared to the payments we received on our loan portfolio during fiscal 2006 in the amount of $37,361,673.

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The increase in interest income and fees was diminished by a decrease in the net interest rate margin on our loan portfolio.  The average interest rate on loans and church bonds held by us increased from 7.37% as of March 31, 2005, to 7.82% as of March 31, 2006.  During the same period, the average interest rate on our total indebtedness increased from 4.68% as of March 31, 2005 to 6.64% as of March 31, 2006.  Therefore, our net interest rate margin decreased from 2.69% as of March 31, 2005 to 1.18% as of March 31, 2006, a decrease of 151 basis points.

Our net income for fiscal 2006 was $3,236,950, an increase of $319,251 (10.94%) from the previous fiscal year.  Such increase was primarily attributable to an increase in our net interest income.  Net interest income increased from $3,878,000 in fiscal 2005 to $4,314,996 in fiscal 2006, an increase of $436,996 (11.27%) from fiscal 2005.

Total operating expenses increased from $1,056,816 for the fiscal year ended March 31, 2005 to $1,091,909 for the fiscal year ended March 31, 2006, an increase of $35,093 or 3.32%. This increase is attributable to an increase in general and administrative expenses of $38,243 or 3.81%.

Income from the realization of loan discounts from loan purchases increased from $23,177 for the year ended March 31, 2005, to $472,356 for the year ended March 31, 2006, an increase of $449,179.  The increase in income from the realization of loan discounts is primarily the result of payments of a loan owing by St. Luke Missionary Baptist Church.  On July 1, 2005, we accepted $1,425,000 in full and final payment on the loan.  The payment of this loan resulted in the recognition of $395,961 in income.  This income was characterized as discounted income on mortgage loans since this loan was acquired by us at a price below the principal balance of the loan.

Dividends related to fiscal 2006, without regard to dates they were declared, were $3,065,128 or $.30 per share as compared to $2,758,616 or $.27 per share for fiscal 2005.  The increase in dividends paid was primarily attributable to an increase in net income.  

Other income decreased from $159,164 for fiscal 2005 to $87,817 for fiscal 2006.  Included in fiscal 2005 other income is a gain of $15,578 on the sale of other real estate owned as compared to $4,524 in fiscal 2006.

Liquidity and Capital Resources

Liquidity is a measurement of our ability to meet potential cash requirements, including the repayment of borrowings by us, fund loan commitments, maintain investments and meet our general business expenses and needs.  Additionally, to maintain our status as a REIT under the Internal Revenue Code, we must distribute annually at least 90% of our REIT taxable income.

We are engaged primarily in the business of making permanent and interim loans to churches and other non-profit organizations, and to other borrowers, including businesses engaged in the building and operation of assisted living centers.  At March 31, 2007 we had seven loans to three different borrowers which are secured by assisted living centers and commercial properties which totaled approximately $11,710,000.  Our assets primarily consist of our loan portfolio, real estate acquired through foreclosure and our office building and facilities.  

Our operating expenses are comprised of the maintenance of our office building, the payment of the salaries of our management and support staff, office expenses, fees paid to the Board of Trust Managers, and the payment for legal and accounting services.  Substantially all of our assets are invested in the permanent and interim loans.  Our only potential liquidity problems relate to the timely and proper repayment of the leveraged funds we have borrowed to make loans in excess of our capital and the ability to fund loan commitments which totaled approximately $19,231,000 at March 31, 2007.  

Our primary sources of funds for liquidity consist of cash reserves, net cash provided by operations, payments received from the loans comprising our loan portfolio, and funds available through debt financing, including our line of credit agreement with the Amarillo National Bank.

Our level of liquidity based upon cash and cash equivalents decreased by $33,543 during the year ended March 31, 2007.  During this same period, we invested $36,845,728 in mortgage and interim construction loans using net borrowings on our bank line of credit and Master Note agreements in the amount of $4,719,859, net cash provided by operating activities in the amount of $2,751,401, principal payments

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received on our loan portfolio in the amount of $31,241,440, payments received on other notes receivables of $2,902 proceeds from the sale of other real estate owned of $250,607 and insurance proceeds on other real estate owned of $400,249.  The total liquidity available to invest in mortgage and interim construction loans was reduced by $2,554,273 paid in cash dividends during the year ended March 31, 2007.  

Our primary debt obligations consist of our bank line of credit owing to Amarillo National Bank and Master Note Agreements with various persons.  Pursuant to our January 31, 2006 loan agreement with the bank, we have a $35,000,000 line of credit for a term of three years, maturing December 31, 2008.  

As of March 31, 2007, our total liabilities outstanding were $45,280,895.  The amount owing on the line of credit as of March 31, 2007 was $22,380,000.  It is anticipated that the line of credit will be renewed at the expiration of such three-year term.  In the event that the bank elects not to renew the line of credit, we may, under the terms of the loan agreement, retire the line of credit over a period of time, not to exceed five years, equal to the weighted average remaining term of a pool of our real estate lien notes which would be pledged to secure the remaining balance of the bank line of credit.

At March 31, 2007, loans to us under Master Note Agreements, which are in effect demand notes, totaled $21,229,969.  In the past, we have utilized our bank line of credit and the principal paid to us upon our outstanding loan portfolio in order to meet our maturing obligations.

Although our cash and cash equivalents as of March 31, 2007 were only $95,412, the balance which could be borrowed by us upon our bank line of credit as of March 31, 2007 was $12,620,000.  The principal payments scheduled to be received on our loan portfolio for the fiscal years ending March 31, 2008, 2009 and 2010 are $23,380,970, $3,431,939 and $2,656,911 respectively.  Assuming all of these scheduled principal payments are received, these payments, together with the balance available to us on our bank line of credit, would not provide us with sufficient funds to meet our maturing obligations and fund loan commitments without the necessity of borrowing funds from other sources.  Based upon our success in obtaining borrowings in the past, we are confident that, should it be necessary, we will be able to obtain additional bank financing in the future in sufficient amounts for us to timely meet all of our obligations.

Should all the scheduled principal payments upon loans not be received, and should we be unable to borrow against our line of credit, and should borrowings from other sources not be available, it would be necessary to sell a portion of our mortgage loan portfolio in order to meet all of our financial obligations.  At March 31, 2007, the principal balance of our loan and church bond portfolio was $74,955,034, net of unamortized purchase discounts.  The weighted average interest rate on loans and church bonds was 8.31% per annum.  In view of the normal marketability of conventional loans, we might be required to discount a majority of these loans in order for them to be attractive for purchase.  The principal amount of these loans if discounted to yield a weighted average interest rate of 12%, 14% and 16% would be $51,906,361, $44,491,167, and $38,929,771, respectively.  There is no assurance that we would be able to sell all, or a portion of, our po rtfolio of loans, in which event, it would be necessary to secure a loan, or loans, from a lender in order to meet our financial obligations.  There is no assurance that we would be able to secure a loan in such instance.  We have sold only one of our loans in our mortgage loan portfolio and, therefore, have limited experience in this area.  Furthermore, if required to discount our loans in excess of 13.8%, then we would not realize sufficient funds from the sale of the loans to retire all of our debt.

Principal payments scheduled to be received upon our permanent loan portfolio during the years ending March 31, 2008, 2009 and 2010, if not used to fund new loan commitments, would be used to reduce our outstanding indebtedness.  Should we use the payments of principal which shall be received upon our loan portfolio to reduce our outstanding indebtedness, our interest expense will decrease.  In such instance, whether the decrease in the interest income will exceed, or be less than, the decrease in the interest expense will largely be dependent upon the prime rate of interest prevailing at such time due to the fact that the interest to be earned upon our mortgage loan portfolio is generally based upon a fixed rate of interest or a variable rate of interest that periodically reprices, while the interest to be paid upon our outstanding debts is directly, or indirectly, tied to the prime rate of interest charged by major banks.

Pursuant to the loan agreement with the bank, we have pledged all of our mortgage loans, church bonds and interim construction loans to the bank to secure the line of credit.  The amount owing on the line of credit must not exceed an amount equal to 85% of the outstanding principal amount of the performing mortgage loans and church bonds and 50% of the outstanding principal amount of the performing interim construction loans.  Applying that borrowing limit to our loan portfolio as of March 31, 2007, we can borrow up to the entire $35,000,000 line of credit limit.  However, during the term of the new loan agreement, we would not have the right to sell our loans, without the bank’s consent, since all of our loans have been pledged to the

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bank to secure the line of credit.  Therefore, under our new loan agreement, it will be very difficult, if not impossible, to sell our loans to meet our financial obligations.

Cash flows from operating activities consist primarily of net income.  The primary components of net income are interest income and expense.  Interest income should continue to be the main source of cash provided by operating activities; however, the availability of this cash flow is dependent upon the ability of the borrowers to repay loans.  Cash provided by operating activities has been and is expected to be a relatively stable source of cash flow.

Cash flows from investing activities results primarily from investment in and payments received on mortgage and interim construction loans and church bonds.

Cash flows from financing activities relate primarily to the borrowings and payments on notes payable and the line of credit.  Borrowings are made as funds are needed to make loans or as current obligations become due.  Based upon our success to obtain borrowings in the past, we are confident that we will be able to obtain borrowings in the future in sufficient amounts, along with payments to be received on loans, to timely meet our obligations.

Inflation

At March 31, 2007, the weighted average interest rate on our mortgage loan and church bond portfolio was 8.31% per annum while the weighted average interest rate upon all our borrowings was 6.96% per annum resulting in a net interest rate margin of 1.35%.   By comparison, as of March 31, 2006, the weighted average interest rate on our mortgage loan and church bond portfolio was 7.82% per annum while the weighted average interest rate on our borrowings was 6.64% per annum resulting in a net interest rate margin of 1.18% per annum and at March 31, 2005, the weighted average interest rate on our mortgage loan and church bond portfolio was 7.37% per annum while the weighted average interest rate on our borrowings was 4.68% per annum resulting in a net interest rate margin of 2.69% per annum.  Therefore, our net interest rate margin has increased by 17 basis points during the year ending March 31, 2007 as compared to March 31, 2006.  However, as compared to March 31, 2005, our net interest rate margin has decreased as of March 31, 2007 by 134 basis points.  Although a majority of the loans constituting our loan portfolio have been made at variable rates of interest that generally reprice either daily, annually, or otherwise periodically, a portion of the loans constituting our loan portfolio have been made at fixed rates of interest and therefore are not subject to being increased or decreased during the term of the loan.  All of our indebtedness is either directly or indirectly tied to the prime rate of interest charged by major banking institutions and, therefore, is subject to fluctuation.  

During periods of inflation, the prime rate of interest charged by major banking institutions, as well as the interest rate or cost of borrowing money from any lender, generally increases.  Consequently, during an inflationary period our interest expense would increase.  Since our interest income would not increase as rapidly, an increase in the interest expense would decrease our net income.  However, interest income should subsequently increase as variable rate loans reprice.  We believe that the decrease in our net interest rate margin from March 31, 2005 to March 31, 2006 and the resulting increase in the net interest rate margin from March 31, 2006 to March 31, 2007 are indicative of this gradual re-pricing of our portfolio during periods of rising interest rates.  

Should the amount of our loans and the amount of our indebtedness remain constant, and should the weighted average interest rate upon the indebtedness increase to approximately 14.28% per annum, interest income and interest expense would be substantially equal.  

Under the terms of the loan agreement with Amarillo National Bank effective January 1, 2006, the interest rate on our line of credit adjusts in accordance with the lesser of the 30-day, 60-day, 90-day or 180-day London Interbank Offered Rates (“LIBOR”) or the J.P. Morgan Chase & Co. prime rate.  The interest rate on our Master Note Agreements adjusts as and when the Prime Rate as published by the Wall Street Journal changes.  Most of our loans are made on interest rates that are tied to the Prime Rate as published by the Wall Street Journal or a similar index used by major U.S. banking institutions.  Therefore, our cost of funds should be tied to an index that is equal to or less than the index used to price our loan portfolio.

Off-Balance Sheet Arrangements  

We have no off-balance sheet arrangements or commitments other than our normal loan commitments.

-16-

New Accounting Standards

We do not believe the adoption of any recently issued pronouncements by the Financial Accounting Standards Board will have a significant impact on its financial statements.

Contractual Obligations

As of March 31, 2007, we had the following contractual obligations:

			Payments due by period As of March 31, 2007
		Less than one year			1 – 3 years
Unsecured debt:
Master Notes	$		21,229,969	$		-
Line of Credit			-			22,380,000
Interest			122,248			-
Total contractual obligations	$		21,352,217	$		22,380,000

Item 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The primary market risk to which we are exposed is the risk associated with interest rate fluctuations as discussed in “Management’s Discussion and Analysis of Financial Condition and Result of Operation – Inflation.”

-17-

Item 8:

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm

The Board of Trust Managers and Shareholders

Church Loans & Investments Trust

Amarillo, Texas

We have audited the accompanying balance sheets of Church Loans & Investments Trust (a real estate investment trust) as of March 31, 2007 and 2006, and the related statements of income, shareholders' equity, and cash flows for each of the years in the three-year period ended March 31, 2007.  These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control over financial reporting.  Accordingly, we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management , as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Church Loans & Investments Trust as of March 31, 2007 and 2006, and the results of its operations and its cash flows for each of the years in the three-year period ended March 31, 2007 in conformity with accounting principles generally accepted in the United States of America.

/s/ Clifton Gunderson LLP

Amarillo, Texas

June 22, 2007

-18-

CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
BALANCE SHEETS
March 31, 2007 and 2006
ASSETS
			2007			2006
CASH AND CASH EQUIVALENTS	$		95,412	$		128,955
RECEIVABLES
Mortgage loans and church bonds – performing			50,487,544			48,835,293
Interim construction loans – performing			18,471,378			20,268,706
Nonperforming mortgage loans, church bonds and interim construction loans			5,996,112			1,959,450
Less: Allowance for credit losses			(1,713,249)			(1,713,249)
			73,241,785			69,350,200
Accrued interest receivable			514,175			558,217
Notes receivable			3,000			5,902
Net receivables			73,758,960			69,914,319
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $534,072 and $532,008 in 2007 and 2006, respectively			219,060			221,124
OTHER REAL ESTATE OWNED			2,252,095			1,180,618
OTHER ASSETS			38,528			46,050
TOTAL ASSETS	$		76,364,055	$		71,491,066
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
Notes payable and line of credit:
Related parties	$	4,718,106		$	2,845,753
Other		38,891,863			36,044,357
		43,609,969			38,890,110
Accrued interest payable		122,248			130,229
Other		1,548,678			1,503,044
Total liabilities		45,280,895			40,523,383
SHAREHOLDERS’ EQUITY
Shares of beneficial interest, no par value; authorized shares unlimited, 10,223,690 shares issued		29,762,291			29,762,291
Undistributed net income		1,337,359			1,221,882
Treasury shares, at cost (6,596 shares)		(16,490)			(16,490)
Total shareholders’ equity		31,083,160			30,967,683
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	76,364,055		$	71,491,066
These financial statements should be read only in connection with the accompanying summary of significant accounting policies and notes to financial statements.

-19-

CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
STATEMENTS OF INCOME
Years ended March 31, 2007, 2006 and 2005
		2007		2006		2005
INTEREST INCOME AND FEES	$	6,589,080	$	6,287,367	$	4,669,730
INTEREST EXPENSE		2,781,039		1,972,371		791,730
Net interest income		3,808,041		4,314,996		3,878,000
PROVISION FOR CREDIT LOSSES		-		-		(20,000)
Net interest income less provision for possible credit losses		3,808,041		4,314,996		3,898,000
OTHER INCOME		167,809		87,817		159,164
OTHER OPERATING EXPENSES
General and administrative		1,211,253		1,041,874		1,003,631
Board of Trust Managers’ fees		50,300		50,035		53,185
Total other operating expenses		1,261,553		1,091,909		1,056,816
Income before provision for income taxes		2,714,297		3,310,904		3,000,348
PROVISION FOR INCOME TAXES		44,547		73,954		82,649
NET INCOME	$	2,669,750	$	3,236,950	$	2,917,699
NET INCOME PER SHARE	$	.26	$	.32	$	.29
These financial statements should be read only in connection with the accompanying summary of significant accounting policies and notes to financial statements.

-20-

CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
STATEMENTS OF SHAREHOLDERS’ EQUITY
Years ended March 31, 2007, 2006 and 2005
	Shares of beneficial interest					Undistributed		Treasury
	Shares			Amount		net income		shares			Total
Balance, March 31, 2004		8,986,208	$	26,245,401	$	804,362	$	(16,490)	$	27,033,273
Net income		-		-		2,917,699		-		2,917,699
Issuance of shares of beneficial  interest, net of issue costs  of $195,556		1,237,482		3,516,890		-		-		3,516,890
Cash dividends ($0.28 per share)		-		-		(2,774,172)		-		(2,774,172)
Balance, March 31, 2005		10,223,690		29,762,291		947,889		(16,490)		30,693,690
Net income		-		-		3,236,950		-		3,236,950
Cash dividends ($0.29 per share)		-		-		(2,962,957)		-		(2,962,957)
Balance, March 31, 2006		10,223,690		29,762,291		1,221,882		(16,490)		30,967,683
Net income		-		-		2,669,750		-		2,669,750
Cash dividends ($0.25 per share)		-		-		(2,554,273)		-		(2,554,273)
Balance, March 31, 2007		10,223,690	$	29,762,291	$	1,337,359	$	(16,490)	$	31,083,160
These financial statements should be read only in connection with the accompanying summary of significant accounting policies and notes to financial statements.

-21-

CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
STATEMENTS OF CASH FLOWS
Years ended March 31, 2007, 2006 and 2005
		2007		2006		2005
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	2,669,750	$	3,236,950	$	2,917,699
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		2,064		2,064		1,376
Provision for credit loss		-		-		(20,000)
(Gain) loss on sale of other real estate owned		13,317		-		(15,578)
Amortization of loan discounts		(22,947)		(472,356)		(23,177)
Changes in:
Accrued interest receivable		44,042		(215,530)		(102,164)
Accrued interest payable		(7,981)		80,656		5,207
Federal income tax payable		-		-		(37,553)
Other liabilities		45,634		253,412		313,870
Other, net		7,522		89,569		(128,173)
Net cash provided by operating activities		2,751,401		2,974,765		2,911,507
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in mortgage and interim construction loans and church bonds		(36,845,728)		(48,633,320)		(39,428,229)
Payments received on mortgage and interim construction loans and church bonds		31,241,440		37,361,673		24,562,358
Payments received on notes receivable		2,902		18,872		86,979
Proceeds from sale of other real estate owned		250,607		-		29,241
Insurance proceeds on other real estate owned		400,249		-		-
Purchase of property and equipment		-		-		(10,321)
Net cash used by investing activities		(4,950,530)		(11,252,775)			(14,759,972)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on notes payable and line of credit		38,906,978		53,825,599		44,682,570
Principal payments on notes payable and line of credit		(34,187,119)		(42,516,531)				(33,780,911)
Cash dividends paid		(2,554,273)		(2,962,957)				(2,774,172)
Issuance of shares of beneficial interest, net of issue cost of $195,566 in 2005		-		-		3,516,890
Net cash provided by financing activities		2,165,586		8,346,111		11,644,377
Increase (decrease) in cash and cash equivalents		(33,543)		68,101		(204,088)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		128,955		60,854		264,942
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	95,412	$	128,955	$	60,854
These financial statements should be read only in connection with the accompanying summary of significant accounting policies and notes to financial statements.

-22-

CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
March 31, 2007, 2006 and 2005

NATURE OF OPERATIONS

Church Loans & Investments Trust (Church Loans) is a real estate investment trust that invests primarily in mortgage and interim construction loans to churches and other borrowers (see note 1) across the United States, particularly in the southern portion of the United States.  Church Loans requires that real estate properties be pledged against loans as security which could be foreclosed by Church Loans should the borrower default.  Repayment of each borrower's obligations is generally expected to be repaid from contributions from church members or from operations of the borrower, or in the case of interim construction loans, by permanent financing provided by Church Loans or others.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.  A material estimate that is particularly susceptible to significant changes in the near term relates to the determination of the allowance for credit losses.

CURRENT OPERATING ENVIRONMENT

Church Loans has historically invested in long-term, fixed-rate mortgage loans, generally funded by relatively short-term debt obligations.  The volatility of interest rates and increased competition to attract customers' funds have caused Church Loans' liability structure to become short-term and rate sensitive.  Church Loans reflected an average interest yield on its loan and church bond portfolio, an average interest rate on its total indebtedness and a net interest rate margin at March 31, 2007, 2006 and 2005 as follows:

	Loan and church bond portfolio	Total indebtedness	Net interest rate margin
March 31, 2007	8.31%	6.96%	1.35%
March 31, 2006	7.82%	6.64%	1.18%
March 31, 2005	7.37%	4.68%	2.69%

Church Loans finances maturities of debt obligations through its available lines of credit and principal payments received on its mortgage and interim construction loans.

CHURCH BONDS

Church bonds, secured by first mortgage liens on church facilities, are stated at cost, as there is no traded market for the bonds and management intends to hold such securities until maturity.

-23-

CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
March 31, 2007, 2006 and 2005

LOANS

Loans that Church Loans has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for credit losses, and any deferred fees or costs on originated loans.  Interest income is accrued on the unpaid principal balance.  Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield.

The accrual of interest is generally discontinued on loans and church bonds more than 60 days past due unless the credit is well secured and in process of collection.  In all cases, loans and bonds are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not collected for loans that are placed on nonaccrual or charged-off is reversed against interest income.  The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual.  Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Commitment fees received on interim construction loans are recognized over the interim commitment period for loans that are not permanently financed by Church Loans and over the life of the mortgage loan for loans that are permanently financed by Church Loans.  Amounts are being amortized using the straight-line method.  For the years ended March 31, 2007, 2006 and 2005, this method is not materially different from the method of deferring commitment fees until the commitment is exercised and recognizing such fees as an adjustment to yield by the interest method over the related loans' lives as prescribed by generally accepted accounting principles.

Purchase discounts on loans are amortized based on the interest method.

ALLOWANCE FOR CREDIT LOSSES

The allowance for credit losses is established as losses are estimated to have occurred through a provision for credit losses charged to earnings.  Loan losses are charged against the allowance when Church Loans believes the uncollectability of a loan balance is confirmed.  Subsequent recoveries, if any, are credited to the allowance.

The allowance for credit losses is evaluated on a regular basis by Church Loans and is based upon management's and the Board of Trust Managers' periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral and prevailing economic conditions.  This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.

A loan is considered impaired when, based on current information and events, it is probable that Church Loans will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.  Factors considered by Church Loans in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.  Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.

Church Loans determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed.  Impairment is measured on a loan-by-loan basis by either the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

-24-

CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
March 31, 2007, 2006 and 2005

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost, less accumulated depreciation.  Depreciation is provided on the straight-line method over the estimated useful lives of the assets.  

OTHER REAL ESTATE OWNED

Real estate acquired through, or in lieu of, loan foreclosure is to be sold and is initially recorded at estimated fair value at date of foreclosure, establishing a new cost basis.  Other real estate owned, after foreclosure, is carried at the lower of carrying amount or the property's estimated fair value minus estimated costs to sell (fair value).  Impairment losses are measured as the amount by which the carrying amount of a property exceeds its fair value, and losses are charged to operations.

INCOME TAXES

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS

In the ordinary course of business, Church Loans has entered into off-balance-sheet financial instruments consisting of commitments to extend credit.  Such financial instruments are recorded in the financial statements when they become payable.

CASH FLOWS

For purposes of reporting cash flows, cash and cash equivalents include cash-on-hand, investments in a money market mutual fund, and certificates of deposit with maturities of less than 90 days at the time of acquisition.

ADVERTISING

Advertising costs are expended as incurred. Advertising expense for the years ended March 31, 2007, 2006 and 2005 was $53,965, $48,247 and $30,682, respectively.

NEW ACCOUNTING PRONOUNCEMENTS

In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective in fiscal years beginning after December 15, 2006. The provisions of FIN 48 are to be applied to all tax positions upon initial adoption, with the cumulative effect adjustment reported as an adjustment to the opening balance of undistributed net income. Church Loans is currently evaluating the potential impact, if any, that the adoption of FIN 48 will have on its financial statements. Management believes, based on an initial evaluation, that the impact of FIN 48 will not be significant to the financial statements.

This information is an integral part of the accompanying financial statements.

-25-

CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
NOTES TO FINANCIAL STATEMENTS
March 31, 2007, 2006 and 2005

NOTE 1 – LOANS AND CHURCH BONDS

Mortgage loans receivable consist of conventional loans of $56,220,626 and $49,447,215 and church bonds of $225,608 and $302,467 at March 31, 2007 and 2006, respectively.  Interim construction loans of $19,571,378 and $21,368,706 at March 31, 2007 and 2006, respectively, consist primarily of loans to churches for the construction of church facilities and assisted living centers.  Mortgage loans, church bonds and interim construction loans are generally secured by first liens on real estate comprised primarily of church buildings and other real estate.  Historically, the amount of a loan has been generally limited to 66-2/3% of the appraised value of the related property.  During the fiscal year 2005, the debt-to-value ratio was increased to 85%. Certain loans are guaranteed by individual members of the congregations or other individuals or congregations, depending on the circumstances.

Church Loans' portfolio included mortgage loans, church bonds and interim construction loans with interest rates ranging from 4.0% to 12.0% at March 31, 2007.  The weighted average annual interest rates of Church Loans' loan and church bond portfolio were 8.31% and 7.82% and 7.37% at March 31, 2007, 2006 and 2005, respectively.

In addition to a concentration of loans to churches, Church Loans makes certain interim real estate construction loans and permanent loans to entities other than churches.  At March 31, 2007 and 2006, Church Loans had seven loans to three borrowers which were secured by assisted living centers and commercial properties that totaled approximately $11,710,000 and $9,177,000, respectively.

The following schedule is a summary of the combined mortgage, church bonds and interim construction loan portfolios by size of loan at March 31:

	2007			2006
Description	No. of Loans		Carrying amount		No. of Loans		Carrying amount
Over $1,500,000	11	$	27,254,091		12	$	26,846,380
$1,300,000-1,499,999	4		5,613,124		2		2,722,793
$1,000,000-1,299,999	5		5,421,816		4		4,476,097
$900,000-999,999	2		1,918,591		5		4,711,478
$800,000-899,999	4		3,476,415		1		850,000
$700,000-799,999	4		3,028,411		6		4,460,782
$600,000-699,999	10		6,523,785		9		5,793,709
$500,000-599,999	11		6,085,895		14		7,520,442
$400,000-499,999	13		5,774,595		8		3,683,201
$300,000-399,999	7		2,449,427		10		3,466,245
$200,000-299,999	22		5,659,870		16		3,909,203
$100,000-199,999	13		1,915,073		12		1,731,676
Under $100,000	18		896,519		22		946,382
	124		76,017,612		121		71,118,388
Less: unamortized purchase discounts on mortgage loans			(1,062,578)				(54,939)
Less: allowance for credit losses			(1,713,249)				(1,713,249)
Total		$	73,241,785			$	69,350,200

-26-

CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
NOTES TO FINANCIAL STATEMENTS
March 31, 2007, 2006 and 2005

NOTE 1 – LOANS AND CHURCH BONDS (CONTINUTED)

The mortgage and interim construction loan portfolios included the following loans at March 31, 2007, with individual balances in excess of 3% of the total carrying amount of the combined portfolios:

Bickford Cottage LLC, Peoria, IL; interest at prime plus 1.5%, with a floor of 9.75% (9.75% at March 31, 2007, scheduled to reprice January 1, 2010); monthly payments of $36,092 to maturity on January 1, 2032	$	4,043,603
Community Protestant Church of Co-Op City, Bronx, NY; interest at prime plus 2.0%, with a floor of 9.25% (9.25% at March 31, 2007, scheduled to reprice January 1, 2009); monthly payments of $26,249 to maturity on January 1, 2026		2,804,795
Christ Temple Pentecostal Church, Kansas City, MO; interest at prime plus 2.5%, with a floor of 10.75% (10.75% at March 31, 2007, scheduled to reprice March 1, 2012); monthly payments of $31,387 to maturity on March 1, 2022		2,800,000
Great Plains Assisted Living L.L.C., Sioux City, IA; interest at prime plus 1.5%, with a floor of 5.5% (5.5% at March 31, 2007, scheduled to reprice January 1, 2009); monthly payments of $17,960 to maturity on January 1, 2029		2,735,966
Bickford Cottage LLC, Lafayette, IN; interest at prime plus 1.5%, with a floor of 8.0% (8.0% at March 31, 2007,scheduled to reprice September 1, 2010); monthly payments of $18,949 to maturity on September 1, 2030		2,405,788
Living Word Bible, Mesa, AZ ; interest at prime plus 2.0%, with a floor of 9.0% (10.25% at March 31, 2007); principal and interest due on maturity on December 1, 2007		3,500,000
	$	18,290,152

The original terms of the individual loans included in the loan portfolio generally vary from 1 to 30 years.  Scheduled maturities during the five years subsequent to March 31, 2007, are:

2008	$	23,380,970
2009		3,431,939
2010		2,656,911
2011		2,957,169
2012		2,957,169

At March 31, 2007, mortgage loans and interim construction loans with a carrying amount of $74,729,426 were pledged to support the indebtedness of Church Loans.

-27-

CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
NOTES TO FINANCIAL STATEMENTS
March 31, 2007, 2006 and 2005

NOTE 1 – LOANS AND CHURCH BONDS (CONTINUTED)

A summary of transactions in the allowance for credit losses for the years ended March 31 is as follows:

		2007		2006		2005
Balance at beginning of year	$	1,713,249	$	1,713,249	$	1,733,249
Charge-offs		-		-		-
Provision charged to operating expenses		-		-		(20,000)
Balance at end of year	$	1,713,249	$	1,713,249	$	1,713,249

At March 31, 2007 and 2006, the recorded investment for loans for which impairment was recognized in accordance with Statement No. 114 was approximately $5,996,000 and $1,959,000, respectively.  The related allowance for credit losses at March 31, 2007 and 2006 was $813,000 and $463,000, respectively. The average investment in impaired loans was approximately $3,978,000 and $2,566,000 for the years ended March 31, 2007 and 2006, respectively.  Interest income which would have been recorded under the original terms of impaired loans and church bonds amounted to approximately $350,000, $97,000 and $277,000 for the years ended March 31, 2007, 2006 and 2005, respectively.Interest income actually recognized for the years ended March 31, 2007, 2006 and 2005 was approximately $290,000, $46,000 and $685,000, respectively. In 2005, interest income actually recognized includes amounts received from a nonacc rual loan paid off during the year.

NOTE 2 – DEBT OBLIGATIONS

Information relating to debt obligations follows:

Balance at
end of year Weighted
average
interest rate at
end of year Maximum
amount
outstanding at any
month-end Average
month-end
balance Weighted
average
interest rate for
the year

March 31, 2007
Line of credit payable to bank	$	22,380,000	6.93%	*	$	24,380,000	$	21,207,083	6.81%	*
Other demand notes payable		21,229,969	7.00%			21,229,969		19,193,775	6.96%
TOTAL	$	43,609,969	6.96%		$	45,609,969	$	40,400,858	6.87%
March 31, 2006
Line of credit payable to bank	$	20,755,000	6.54%	*	$	23,630,000	$	17,500,000	5.66%	*
Other demand notes payable		18,135,110	6.75%			18,135,110		17,158,381	5.70%
TOTAL	$	38,890,110	6.64%		$	41,765,110	$	34,658,381	5.68%

* Does not consider commitment fees.

All debt obligations, except for other demand notes payable, are secured by the pledge of specific mortgage notes receivable.

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CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
NOTES TO FINANCIAL STATEMENTS
March 31, 2007, 2006 and 2005

NOTE 2 – DEBT OBLIGATIONS (CONTINUTED)

Maturities of debt obligations are financed through principal payments received on loans, advances on other demand notes payable and advances on the line of credit.

Descriptions of the various categories of debt obligations follow:

Line of Credit Payable to Bank

The line of credit payable to bank consists of borrowings under a loan agreement effective through December 31, 2008, that provides for a $35,000,000 line of credit with certain commitment fees. Pursuant to the new agreement with the bank, Church Loans has pledged all mortgage loans, church bonds and interim construction loans to the bank to secure the line of credit.  The amount owing on the line of credit must not exceed an amount equal to 85% of the outstanding principal amount of the performing mortgage loans and church bonds and 50% of the outstanding principal amount of the performing interim construction loans.

Interest accrues at the six-month LIBOR rate plus 1.60% (6.9281% at March 31, 2007).  Interest is payable monthly.

Additionally, the line of credit requires that Church Loans' net worth be no less than $18,000,000 and its total indebtedness shall not exceed 250% of its net worth.  At March 31, 2007, Church Loans' total indebtedness was approximately $12,620,000 less than the maximum amount permitted under the agreement.

Demand Notes Payable

Debt obligation consists of demand notes payable of $21,229,969 which mature during the year ended March 31, 2008. The demand notes payable bear interest, payable monthly, at 1.25% less than the prime rate (8.25% at March 31, 2007) and are unsecured (see note 7).

NOTE 3 – INCOME TAX PROVISION

Church Loans has elected to be taxed as a real estate investment trust under the provisions of the Internal Revenue Code (the Code).  To qualify as a real estate investment trust under the Code, Church Loans must, among other things, distribute at least 90% of its taxable income to its shareholders through dividends.  Church Loans is required to pay dividends of at least 85% of its calendar year undistributed income by February 1 or be subject to a special federal excise tax of 4% on the undistributed amount.

Deferred taxes were not significant to Church Loans' 2007 and 2006 financial statements.

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CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
NOTES TO FINANCIAL STATEMENTS
March 31, 2007, 2006 and 2005

NOTE 3 – INCOME TAX PROVISION (CONTINUTED)

Total income tax provision for the years ended March 31 is less than the amount computed by applying the applicable statutory federal income tax rate (35%) to income before provision for income taxes as follows:

		2007		2006		2005
Computed "expected" federal income tax provision	$	950,004	$	1,158,816	$	1,050,122
Increases (decreases) in taxes resulting from:
Dividends		(857,895)		(1,072,795)		(965,519)
Graduated rate differential		(8,710)		(7,460)		(6,556)
Difference in provision for credit losses for financial and tax purposes		-		-		19,250
Difference in accounting for interest income recognized for financial and tax purposes		(6,864)		(4,655)		(3,746)
Other		(31,988)		48		(10,902)
Actual provision for income taxes	$	44,547	$	73,954	$	82,649

NOTE 4 – SECURITIES OFFERING

Church Loans filed a Form S-11 Registration Statement, (the Statement) with the Securities and Exchange Commission indicating its intent to offer 7,000,000 additional shares at a price of $3.00 per share.  The purpose of this offering was to raise additional capital in order for Church Loans to make additional mortgage loans and as a result, to further grow the company.  The effective date of the registration was August 14, 2003.  In addition, on various dates subsequent to August 14, 2003, this offering became effective in various states.  Sales of shares ceased as of August 14, 2004, and as of such date, Church Loans had sold and issued an additional 3,216,288 shares resulting in an increase of $9,138,425, net of issuance costs of $510,439, in Church Loans' shareholders' equity.

NOTE 5 – NET INCOME PER SHARE

Net income per share of beneficial interest is based on the weighted average number of shares outstanding, which was 10,217,094 for the years ended March 31, 2007 and 2006, respectively and 9,898,521 for the year ended March 31, 2005.  There were no share equivalents or other potentially dilutive securities outstanding during any of the periods presented.

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CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
NOTES TO FINANCIAL STATEMENTS
March 31, 2007, 2006 and 2005

NOTE 6 – DIVIDENDS

All dividends paid by Church Loans are taxable to the recipient.  A schedule of dividends paid during the years ended March 31, 2007 and 2006 and 2005 follows:

			Dividend amount
Date of record	Date paid		Per Share			Total
March 31, 2004	May 2004	$		.07	$		628,582
December 31, 2004	January 2005			.21			2,145,590
March 31, 2005	May 2005			.06			613,026
December 31, 2005	January 2006			.23			2,349,931
March 31, 2006	May 2006			.07			715,197
December 31, 2006	January 2007			.18			1,839,076

In April 2007, a dividend of $613,026 ($0.06 per share) was declared for shareholders of record on
March 31, 2007.

NOTE 7 - RELATED PARTY TRANSACTIONS

Other demand notes payable at March 31, 2007 and 2006 included notes totaling $4,718,106 and $2,845,753, respectively, which represent borrowings from related parties.  The notes bear interest at 1.25% less than the prime rate (8.25% at March 31, 2007) and are unsecured.  Interest expense incurred on related party other demand notes payable was approximately $258,000 and $200,000 and $90,000 in 2007, 2006 and 2005, respectively.

NOTE 8 - SHAREHOLDERS’ EQUITY

March 26, 2007, the Board of Trust Managers passed a resolution authorizing an odd-lot tender offer to be made to shareholders holding 99 or fewer shares at a price of $4 per share.  The tender offer is to be made during the second fiscal quarter of 2008.

NOTE 9 - CASH FLOW INFORMATION

Supplemental information on cash flows and noncash transactions for the years ended March 31 is as follows:

		2007			2006			2005
Supplemental cash flow information
Interest paid	$		2,789,020	$		1,891,715	$		786,523
Income taxes paid	$		67,089	$		76,252	$		138,208
Schedule of noncash investing activity:
Real estate acquired through foreclosure	$		1,735,650	$		-	$		-
Mortgage loan issued in connection with sale of other real estate	$		-	$		-	$		235,000
Deferred gain from sale of other real estate	$		-	$		-	$		116,027

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CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
NOTES TO FINANCIAL STATEMENTS
March 31, 2007, 2006 and 2005

NOTE 10 – SIMPLE RETIREMENT PLAN

Church Loans participates in a Simplified Employee Pension – Individual Retirement Accounts Contribution Agreement. Church Loans agrees to provide discretionary contributions in each calendar year to the individual retirement account or individual retirement annuity of all employees who are at least 21 years old and have performed services for Church Loans in at least three years of the immediately preceding five years. Church Loans contribution amounted to approximately $58,000, $59,000 and $60,000 for the years ended March 31, 2007, 2006 and 2005, respectively.

NOTE 11 - COMMITMENTS AND CONTINGENCIES

Church Loans is a party to financial instruments with off-balance-sheet risk in the normal course of business.  Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.  Commitments generally have variable interest rates, fixed expiration dates or other termination clauses and require payment of a fee.  Since some of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.  Church Loans evaluates each customer's credit worthiness on a case-by-case basis.  Collateral generally includes real estate properties.  The exposure to credit loss in the event of nonperformance by the other party to the commitments to extend credit is represented by the contractual amount.  At March 31, 2007, Church Loans had outstanding loan commitments (by contract amounts) of approximately $19,231, 000.  Management does not anticipate any losses as a result of these transactions.

Church Loans is involved in litigation in the normal course of business and, in the opinion of management; such litigation will have no material effect on Church Loans' financial statements.

NOTE 12 - DISCLOSURE ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value of each class of financial instruments, the results of applying such methods and assumptions to the financial instruments and limitations inherent in fair value estimates:

Cash and Cash Equivalents

The assets are considered short-term instruments for which the carrying amount is a reasonable estimate of fair value.

Loans and Church Bonds

Fair values are estimated for portfolios of loans with similar financial characteristics.  Loans are segregated by type, such as mortgage and interim construction loans and church bonds.  Each loan category is further segmented into fixed and adjustable rate interest terms.  For variable-rate loans, primarily interim construction loans, that reprice frequently and with no significant change in credit risk, fair values are based on carrying amounts.  The fair value of fixed-rate mortgage loans and bonds is generally estimated by discounting the future cash flows through the estimated maturity using the current rates at which similar loans would be made to borrowers with similar credit ratings.  The estimate of maturity is based on Church Loans' historical experience with repayments for each loan classification, modified, as required, by an estimate of the effect of current economic and lending conditions.  The carrying value of loans and bonds, net of the allowance for credit losses was $73,241,785 and $69,350,200 and the fair value of loans and bonds was approximately $66,374,000and $63,315,000 at March 31, 2007 and 2006, respectively.

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CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
NOTES TO FINANCIAL STATEMENTS
March 31, 2007, 2006 and 2005

NOTE 12 - DISCLOSURE ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

Notes Payable and Line of Credit

The fair value of notes payable are equal to the carrying value as such liabilities are deemed to be short-term borrowings. The fair value of the line of credit is equal to the carrying value as such amounts are variable rate debt.

Commitments to Extend Credit

Generally, Church Loans enters into commitments to extend credit at adjustable interest terms.  Accordingly, the commitment amount is a reasonable estimate of fair value.

Other

The carrying amounts of notes receivable and accrued interest approximate fair value.

Limitations

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument.  These estimates do not reflect any premium or discount that could result from offering for sale at one time Church Loans' entire holdings of a particular financial instrument.  Because no market exists for a significant portion of Church Loans' financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors.  These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision.  Changes in assumptions could significantly affect the estimates.

This information is an integral part of the accompanying financial statements.

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Item 9:

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

Item 9A: CONTROLS AND PROCEDURES

Our chief executive officer and our senior vice president are charged with making an evaluation of our disclosure controls and procedures (as defined in Rule 13a-15(c) or 15(d)-15(e) of the Securities Exchange Act of 1934) as of March 31, 2007.  These controls and procedures are designed to ensure that information required to be disclosed in reports mandated by the Securities Exchange Act of 1934 is recorded, communicated to management, and accurately reported within the required time periods.  Our chief executive officer and senior vice-president have concluded, based upon their evaluation of these controls and procedures as of March 31, 2007, that our disclosure controls and procedures are effective.

There have been no significant changes in our internal controls or in the other factors that could significantly affect these controls subsequent to the date of their evaluation.

Item 9B: OTHER INFORMATION

At its March 26, 2007 meeting, the Board of Trust Managers passed a resolution authorizing an odd-lot tender offer to be made to shareholders holding 99 or fewer shares at a price of $4.00 per share. The tender offer is to be made during the second fiscal quarter of 2008.

PART III

Item 10: DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

(a)  

Board of Trust Managers.  The following information is furnished as to each individual who now serves as a member of our Board of Trust Managers:

B. R. McMorries, age 80, is a consulting engineer.  He has served as a Trust Manager since 1963.  He serves as Chairman of the Board of Trust Managers.

Larry G. Brown, age 64, is the President of Larry Brown Realtors, Inc. and is a licensed realtor.  He has served as a Trust Manager since 1981.  He serves as Vice-Chairman of the Board of Trust Managers.

Alfred J. Smith, age 72, is in the independent oil and gas production business.  Mr. Smith has served as a Trust Manager since 1999.  He serves as Secretary of the Board of Trust Managers.

Jack R. Vincent, age 77, is engaged in farming and ranching operations.  He has served as a Trust Manager since 1989.

Steven Rogers, age 59, is a commercial real estate agent.  He has served as a Trust Manager since 1990.

Michael A. Bahn, age 63, is the President of Amarillo Blueprint Co., an office equipment and supply and reproduction services business. He has served as a Trust Manager since 1997.

Michael W. Borger, age 52 is the President of Turnkey Leasing, Ltd., an equipment leasing business.  Mr. Borger has served as a Trust Manager from 1988 to 1990 and again since 2002.

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(b)

Executive Officers.  The following information is furnished as to each individual who now serves as an executive officer and who is not mentioned under "Board of Trust Managers" above:

M. Kelly Archer, age 55, serves as President, Manager of Operations and Chief Executive Officer.  As such, Mr. Archer functions as our Executive Officer.  Mr. Archer has served in this capacity for 25 years.

Robert E. Martin, age 57, serves as our Senior Vice-President-Lending.  Mr. Martin has served in such capacity since 1999.  Prior to serving in such capacity, Mr. Martin served as the President/CEO of Santa Fe Federal Credit Union.  Mr. Martin also served as a member of our Board of Trust Managers prior to becoming our Senior Vice-President.

Robert E. Fowler, age 54, serves as our Senior Vice-President-CFO and Information Systems.  Mr. Fowler has served in such capacity for 25 years.

Joshua D. Shields, age 29, serves as a Vice-President.  Mr. Shields has served in such capacity since June 2003.  Previously, Mr. Shields was employed by Wells Fargo Bank.

(c)

Identification of Certain Significant Employees.

None.

(d)

Family Relationships.

None.

(e)

Business Experience.

See responses to Items 10(a) and 10(b) above.

(f)

Involvement in Certain Legal Proceedings.

None.

(g)

Audit Committee Financial Expert.

We do not have an audit committee financial expert serving on our Audit Committee.  However, we believe that our Audit Committee, as a whole, meets the requirements of a financial expert.

(h)

Identification of the Audit Committee.

We have an Audit Committee which consists of Messers McMorries, Smith, Vincent and Borger.  This committee, which met twelve times during our last fiscal year, is primarily responsible for:  reviewing the activities of our independent auditors; reviewing and evaluating recommendations of the auditors; recommending areas of review to our management; reviewing our loans to determine the recommended loan loss reserve and review and classification of past due loans; and reviewing and evaluating our accounting policies, reporting practices and internal controls.

(i)

Changes in Recommending Nominees to the Board of Trust Managers.

None.

(j)

Compliance with Section 16(a) of the Securities Exchange Act of 1934.  

Based upon information provided to us by individual Trust Managers and Executive Officers and shareholders, we believe that during the preceding fiscal year our Managers and Executive Officers and shareholders have complied with all such applicable filing requirements.

-35-

(k)

Code of Ethics.

We have adopted a Code of Ethics applicable to our executive officers.  A copy of the Code of Ethics is attached hereto as Exhibit 14.  The Code of Ethics is also posted on our website at www.churchloans.com.  We will provide, free of charge, to any person so requesting a copy of the Code of Ethics.  Requests can be made to:

Church Loans & Investments Trust

Attn: Mr. Kelly Archer

5305 I-40 West

Amarillo, Texas 79106

Telephone: (806) 358-3666

E-mail: karcher@churchloans.com

Item 11: EXECUTIVE COMPENSATION

(a)  Executive Officers:

The following table sets forth certain information regarding compensation paid during each of our last three fiscal years to our Manager of Operations (CEO) and Chief Financial Officer (CFO).  We have no other executive officers whose salary, bonuses and other compensation earned during fiscal 2007 exceeded $100,000 for services rendered in all capacities.

				Annual Compensation
Name and Principal Position	Fiscal  Year		Salary			Bonus		Other Annual Compensation
CEO - M. Kelly Archer  Manager of Operations	2007 2006 2005	$	112,854 110,850 108,413		$	-0- 12,000 -0-	$	19,500 19,350 18,900
CFO - Robert E. Fowler	2007 2006 2005	$	73,760 72,130 70,985		$	-0- 6,000 -0-	$	12,750 12,656 12,375

Other Annual Compensation paid to or for the benefit of Mr. Archer and Mr. Fowler represents annual contributions to the SEP (Simplified Employee Pension) accounts for Mr. Archer and Mr. Fowler.

(b)  Trust Managers' Compensation:

Our Board of Trust Managers was paid $50,300 in cash as a group during the last fiscal year for services as Trust Managers.  The Chairman of the Board of Trust Managers, B. R. McMorries, is paid $500 per month for serving in such capacity.  The remaining members of the Board of Trust Managers are paid $300 per month for serving as a member of the board.  All Trust Managers are paid an additional $100 per board or committee meeting attended.  In addition, a Trust Manager receives $400 per day for their services when out of town on trust business.

The members of the Board of Trust Managers are not otherwise employed or compensated by us.

(c) Compensation Committee Interlocks and Insider Participation:

We have a Compensation Committee which consists of Messer’s Borger, Brown and Rogers.  This committee met 3 times during the Trust's last fiscal year.  The Compensation Committee is primarily responsible for reviewing the compensation of the Trust's staff and making recommendations regarding same to the Board of Trust Managers.  

-36-

(d) Compensation Committee Report:

The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) (§229.402(b)) of Regulation S-K. Based upon the review, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this annual report.

The compensation of our employees and officers is based on multiple factors. In determining the compensation for any employee or officer, the committee considers the following factors:

• The profitability of the Company.

• The employee’s or officer’s contribution to the profitability of the Company.

• The current market rate for the experience level of the employee or officer.

• The cost of living in Amarillo, Texas.

By:

Michael W. Borger

Larry G. Brown

Stephen Rogers

Item 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

(a)

The following table indicates the persons known by us to own beneficially more than 5 percent of our shares of beneficial interest:

Name and Address of Beneficial Owner	Amount of and Nature of Beneficial Ownership	Percent of Class
Edith M. Brandon 3001 Teckla, Amarillo, TX 79106	605,323 shares	5.930%

(b)

The following table indicates the number of our shares of beneficial ownership owned by the Board of Trust Managers and Executive Officers, individually and as a group:

Name and Address of Beneficial Owner Amount of and Nature of Beneficial Ownership* Percent of Class

	B. R. McMorries 1601 Jordan, Amarillo, TX 79106	400,072	3.916%
Larry G. Brown 4210 Palacio Drive, Amarillo, TX 79109		42,787	0.419%
Jack R. Vincent 6303 Stoneham Drive, Amarillo, TX 79109		12,500	0.122%
Steven Rogers 6206 Calumet, Amarillo, TX 79106		2,800	0.027%
Michael A. Bahn 1612 S. Travis, Amarillo, TX 79102		1,650	0.016%
Alfred J. Smith 21 Hogan Drive, Amarillo, TX 79124		63,393	0.620%
Michael W. Borger 43 Cypress Point, Amarillo, TX 79124		13,850	0.136%

-37-

M. Kelly Archer 7200 Dreyfuss Road, Amarillo, TX 79106	216,261	2.117%
Robert E. Fowler 7629 Tarrytown Ave., Amarillo, TX 79121	8,802	0.086%
Robert E. Martin 8 Country Club Drive, Amarillo, TX 79124	10,261	0.100%
Joshua D. Shields 58 Hunsley RD, Canyon, TX  79015	6,650	0.065%
All Trust Managers and Executive Officers as a Group	779,026	7.624%

*

The nature of beneficial ownership of such shares is either directly by such named person, indirectly through such person’s spouse or through Individual Retirement Accounts directed by such person or their spouse.

(c)

Change in control.

We know of no arrangements which may result in a change of control.

(d)

Securities Authorized for Issuance under Equity Compensation Plans.

None.

Item 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

We issue a limited number of "Master Notes" which are unsecured debt instruments.  We pay the obligee of such notes interest at the rate of one and one-quarter percent per annum (1.25%) less than the prime lending rate of Amarillo National Bank, our primary lender.  As of March 31, 2007 we had entered into Master Note Agreements with B. R. McMorries, Chairman of the Board of Trust Managers, and related parties, in the amount of $1,818,951; Larry Brown, Vice-Chairman of the Board of Trust Managers and related persons, in the amount of $680,254; Jack R. Vincent, a member of the Board of Trust Managers, and related parties in the amount of $178,465; M. Kelly Archer, President, Manager of Operations and CEO of the Trust and related persons, in the amount of $140,040; and Michael W. Borger, and related parties, in the amount of $1,875,186.  The terms of such Master Notes are the same as Master Notes entered into with other unrelated persons, except as t o the amounts thereof.

Jack R. Vincent serves as a member of our Board of Trust Managers and serves also as a member of the Board of Directors of Happy State Bank and Trust Company, Happy, Texas.  Happy State Bank and Trust Company competes with us for loans to churches, including interim loans to churches.  This competition may have a significant impact on the number of interim loans we acquire through referrals from church bond broker-dealers.  These church bond broker-dealers are a substantial source of our interim loans.

Item 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES

The Board of Trust Managers has selected Clifton Gunderson LLP, independent certified public accountants, as the auditors of our financial statements for the fiscal year ending March 31, 2008.  At the meeting of the shareholders to be held on August 28, 2007, the shareholders will vote upon a proposal to ratify the selection of this firm as auditors.  No member of such firm, or any associate thereof, has any financial interest in us.

-38-

Audit Fees

The aggregate fees billed for professional services rendered for the audit of our annual financial statements for the most recent fiscal year, the review of the financial statements included in our Form 10-Q for such fiscal year, or for services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements were $70,950 as compared to $68,000 for the fiscal year ended March 31, 2006.  

Audit-Related Fees

None.

Tax Fees

The aggregate fees billed us for tax services, including preparation of our tax return and tax related matters, were $7,045 for the most recent fiscal year as compared to $7,395 for the fiscal year ended March 31, 2006.  

All Other Fees

There were no other fees billed in each of the last two fiscal years for services rendered by the principal accountant, Clifton Gunderson LLP for other services not included above.  

Before Clifton Gunderson LLP is engaged by us to render audit or non-audit services, the engagement is approved by our Audit Committee.  Furthermore, the accountant’s engagement to render tax services is also approved by our Audit Committee prior to the engagement.  There were no other fees not included above.  

All hours expended on the principal accountant’s engagement to audit our Financial Statements for the most recent fiscal year were attributed to work performed by Clifton Gunderson LLP’s full-time, permanent employees.

PART IV

Item 15: EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)

Exhibits

The Exhibits listed on the accompanying Index to Exhibits are filed as a part of this Annual Report.

-39-

CHURCH LOANS & INVESTMENTS TRUST (A Real Estate Investment Trust) INDEX TO EXHIBITS
(2)	None
(3)	(i) Amended and Restated Declaration of Trust dated July 16, 2004, previously filed as an exhibit to the Trust’s Definitive Proxy Statement, Form DEF 14A, dated June 25, 2004 (File No. 000-08117) and is incorporated by reference.
	(ii) Amended and Restated Bylaws dated July 16, 2004, previously filed as an exhibit to the Trust’s Definitive Proxy Statement, Form DEF 14A, dated June 25, 2004 (File No. 000-08117) and is incorporated by reference.
(4)	None other than those listed in (3) above.
(9)	None
(10)	Loan Agreement dated January 31, 2006 entered into by and between Church Loans and Amarillo National Bank included as an exhibit to Issuer’s Form 10-QSB for the quarterly period ended December 31, 2005, under File No. 000-08117 and is incorporated by reference.
(11)	Statement regarding computation of per share earnings-omitted since information necessary to make the computation is included in the Financial Statements and Note 5 thereto.
(12)	None
(13)	None
(14)	Code of Ethics for Officers
(16)	None
(18)	None
(21)	None
(22)	None
(24)	None
(31)	(i)(1) Certification of President (Principal Executive Officer and CEO) Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a).
	(i)(2) Certification of Senior Vice-President and CFO (Principal Financial Officer) Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a).
	(ii) None
(32)	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(33)	None
(34)	None
(35)	None
(99)	None

-40-

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
			CHURCH LOANS & INVESTMENTS TRUST
				By:	/s/ B.R. Mcmorries
					B.R. McMorries Chairman of the Board of Trust Managers
DATED:  June 26, 2007
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
	Signature	Capacity				Date
	/s/ B.R. McMorries                               . B.R. McMorries	Chairman of the Board of Trust Managers				6/26/2007
	. Larry G. Brown	Vice-Chairman of the Board of Trust Managers				.
	/s/ Alfred J. Smith                                . Alfred J. Smith	Secretary of the Board of Trust Managers				6/26/2007
	/s/ M. Kelly Archer                               . M. Kelly Archer	President, Principal Executive Officer and CEO				6/26/2007
	/s/ Robert E. Fowler                            . Robert E. Fowler	Senior Vice-President and Chief Financial Officer				6/26/2007
	/s/ Jack R. Vincent                              . Jack R. Vincent	Trust Manager				6/26/2007
	/s/ Steven Rogers                                . Steven Rogers	Trust Manager				6/26/2007
	/s/ Michael A. Bahn                             . Michael A. Bahn	Trust Manager				6/26/2007
	/s/ Michael W. Borger                          . Michael W. Borger	Trust Manager				6/26/2007

-41-

Service Mark and Copyright Notice

Copyright © 2007 by Church Loans & Investments Trust
This report is copyrighted material of
Church Loans & Investments Trust.

Church Loans & Investments Trust is a service mark
of the Trustees of Church Loans & Investments Trust.

The unauthorized use of the service marks and copyrights
of Church Loans & Investments Trust without the express,
written permission of Church Loans & Investments Trust,
is strictly prohibited. All rights reserved.

-42-

EX-14

Exhibit 14 CHURCH LOANS & INVESTMENTS TRUST CODE OF ETHICS FOR OFFICERS
In my role as an officer of Church Loans & Investments Trust (the “Trust”), I hereby certify that I adhere to and advocate the following principles and responsibilities governing my professional and ethical conduct.
To the best of my knowledge and ability:
1.	I will, at all times, act with honesty and integrity, avoiding actual or apparent conflicts of interest in regard to my dealings with or on behalf of the Trust;
2.	I will, at all times, provide my fellow officers, superiors, the Board of Trust Managers, independent auditors of the Trust, legal counsel for the Trust, and shareholders with information that is accurate, complete, objective, relevant, timely and understandable;
3.	I will, at all times, comply with applicable rules and regulations of federal, state and local governments, and other appropriate private and public regulatory agencies;
4.	I will, at all times, act in good faith, responsibly, with due care, confidence and diligence, without misrepresenting material facts or relying on my independent judgment to be subordinated or compromised;
5.	I will, at all times, respect the confidential information acquired in the course of my work, except when authorized or otherwise legally obligated to disclose same and will never use confidential information acquired in the course of my work for personal advantage or gain;
6.	I will, at all times, promote ethical behavior among others in my work environment, including fellow employees of the Trust, its Trust Managers, and those persons in which I may come in contact with when acting on behalf of the Trust; and
7.	I will, at all times, exercise the utmost care and responsibility in the use of and control over assets and resources of the Trust which are employed by or entrusted to me.
	Signed this 23rd day of June, 2004.
		By:	M. Kelly Archer President and CEO Robert E. Fowler Senior Vice-President and CFO Robert Martin, Vice-President-Lending Joshua Shields, Vice-President

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EXHIBIT 31(i) (1) PRESIDENT (PRINCIPAL EXECUTIVE OFFICER AND CEO) PURSUANT TO EXCHANGE ACT RULE 13a-14(a)/15d-14(a)
I, M. Kelly Archer, President and Chief Executive Officer of Church Loans & Investments Trust, certify that:
1.	I have reviewed this Annual Report on Form 10-K of Church Loans & Investments Trust;
2.	Based on my knowledge, this Annual Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Annual Report;
3.	Based on my knowledge, the financial statements, and other financial information included in this Annual Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Annual Report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
	(a)	Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Annual Report is being prepared;
	(b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Annual Report based on such evaluation; and
	(c)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Trust Managers:
	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
	DATED:  June 26, 2007		/s/ M. Kelly Archer                                                    . M. Kelly Archer, President & CEO

EX-31

EXHIBIT 31(i) (2) SENIOR VICE-PRESIDENT AND CFO (PRINCIPAL FINANCIAL OFFICER) PURSUANT TO EXCHANGE ACT RULE 13a-14(a)/15d-14(a)
I, Robert E. Fowler, Senior Vice-President and CFO of Church Loans & Investments Trust certify that:
1.	I have reviewed this Annual Report on Form 10-K of Church Loans & Investments Trust;
2.	Based on my knowledge, this Annual Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Annual Report;
3.	Based on my knowledge, the financial statements, and other financial information included in this Annual Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Annual Report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
	(a)	Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Annual Report is being prepared;
	(b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Annual Report based on such evaluation; and
	(c)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Trust Managers:
	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
	DATED:  June 26, 2007		/s/ Robert E. Fowler                                                    . Robert E. Fowler, Senior Vice President and CFO

EX-32

EXHIBIT 32 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
June 26, 2007
In connection with the filing of the Annual Report on Form 10K of Church Loans & Investments Trust, a Texas real estate investment trust, (“the Trust”), for the annual period ended March 31, 2007, as filed with the Securities and Exchange Commission on the date hereof (“the Report”), each of the undersigned officers of the Trust certifies that, to the best of the officer’s knowledge:
	(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
	(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Trust as of the dates and for the periods expressed in the Report.
			/s/ M. Kelly Archer                                                    . M. Kelly Archer President and CEO (Principal Executive Officer)   /s/ Robert E. Fowler                                                    . Robert E. Fowler Senior Vice-President and CFO (Principal Financial Officer)