10-Q

United States Securities and Exchange Commission
Washington, D.C. 20549
____________
FORM 10-Q
xQUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2006
oTRANSITION 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
____________
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)				(Zip Code)
(806) 358-3666
(Issuer’s telephone number including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
____________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
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 o	Accelerated filer o		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 o No x
Class		Outstanding at June 30, 2006
Common Stock, $0.00 par value per share		10,217,094

CHURCH LOANS & INVESTMENTS TRUST FORM 10-Q For the Quarter Ended June 30, 2006
INDEX
Page
Part I.	Financial Information

Item 1.			Financial Statements:
	a)			Condensed Balance Sheets (Unaudited) June 30, 2006 and March 31, 2006	1
	b)			Condensed Statements of Income (Unaudited) for the three-month periods ended June 30, 2006 and 2005	2
	c)			Condensed Statements of Cash Flows (Unaudited) for the three-month periods ended June 30, 2006 and 2005	3
	d)			Notes to Condensed Financial Statements (Unaudited)	4
Item 2.		Management’s Discussion and Analysis or Plan of Operation				5
Item 3.		Quantitative and Qualitative Disclosures About Market Risk				10
Item 4.		Controls and Procedures				10

Part II. Other Information

Item 1.	Legal Proceedings		11
Item 1A.	Risk Factors		11
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	11
Item 3.	Defaults Upon Senior Securities	11
Item 4.	Submission of Matters to a Vote of Security Holders	11
Item 5.	Other Information	11
Item 6.	Exhibits	11

Index to Exhibits	12
Signatures	13

PART I.FINANCIAL INFORMATION
Item 1.Financial Statements
CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Condensed Balance Sheets (Unaudited)
June 30, 2006 and March 31, 2006
ASSETS
			June 30, 2006			March 31, 2006
CASH AND CASH EQUIVALENTS	$		204,904		$	128,955
RECEIVABLES
Mortgage loans and church bonds – performing			46,897,987			48,835,293
Interim construction loans – performing			19,286,201			20,268,706
Nonperforming mortgage loans, church bonds and interim construction loans			3,901,127			1,959,450
Less: Allowance for credit losses			(1,713,249	)		(1,713,249	)
			68,372,066			69,350,200
Accrued interest receivable			570,298			558,217
Notes receivable			4,122			5,902
Net receivables			68,946,486			69,914,319
PROPERTY AND EQUIPMENT, net			220,608			221,124
OTHER REAL ESTATE OWNED			1,180,618			1,180,618
OTHER ASSETS			33,813			46,050
TOTAL ASSETS	$		70,586,429		$	71,491,066
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
Notes payable and line of credit:
Related parties		$	2,448,061		$	2,845,753
Other			35,574,734			36,044,357
			38,022,795			38,890,110
Accrued interest payable			107,819			130,229
Other			1,635,337			1,503,044
Total liabilities			39,765,951			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			1,074,677			1,221,882
Treasury shares, at cost (6,596 shares)			(16,490	)		(16,490	)
Total shareholders’ equity			30,820,478			30,967,683
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	70,586,429		$	71,491,066
These condensed financial statements should be read only in connection with the accompanying notes to condensed financial statements. -1-

CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Condensed Statements of Income (Unaudited)
Three-month periods ended June 30, 2006 and 2005
		Three-month periods ended June 30,
		2006		2005
INTEREST INCOME AND FEES
Interest and fees on mortgage loans, church bonds and interim construction loans	$	1,523,290	$	1,290,644
Total interest income and fees		1,523,290		1,290,644
INTEREST EXPENSE		640,709		363,506
Net interest income		882,581		927,138
OTHER INCOME		20,795		29,904
OTHER OPERATING EXPENSES
General and administrative		323,485		198,303
Board of Trust Managers’ fees		11,900		11,400
Total other operating expenses		335,385		209,703
NET INCOME	$	567,991	$	747,339
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING		10,217,094		10,217,094
NET INCOME PER SHARE	$	.06	$	.07
DIVIDENDS PER SHARE	$	.07	$	.06
These condensed financial statements should be read only in connection with the accompanying notes to condensed financial statements. -2-

CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Condensed Statements of Cash Flows (Unaudited)
Three-month periods ended June 30, 2006 and 2005
		Three-month periods ended June 30,
		2006			2005
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	567,991		$	747,339
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		516			516
Amortization of loan discounts		(6,239	)		(5,342	)
Changes in:
Accrued interest receivable		(12,081	)		(56,378	)
Accrued interest payable		(22,410	)		14,423
Other liabilities		132,293			268,425
Other, net		12,237			90,058
Net cash provided by operating activities		672,307			1,059,041
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in mortgage and interim construction loans and church bonds		(4,732,798	)		(11,982,196	)
Payments received on mortgage and interim construction loans and church bonds		5,717,171			8,791,272
Payments received on notes receivable		1,780			10,686
Net cash provided (used) by investing activities		986,153			(3,180,238	)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on notes payable and line of credit		7,412,346			14,454,433
Principal payments on notes payable and line of credit		(8,279,661	)		(11,631,501	)
Cash dividends		(715,196	)		(613,024	)
Net cash provided (used) by financing activities		(1,582,511	)		2,209,908
Increase in cash and cash equivalents		75,949			88,711
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		128,955			60,854
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	204,904		$	149,565
Supplemental disclosure of cash flow information
Cash paid during the period for interest	$	663,119		$	349,083
These condensed financial statements should be read only in connection with the accompanying notes to condensed financial statements. -3-

CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Notes to Condensed Financial Statements (Unaudited)
NOTE 1 - GENERAL
See Summary of Significant Accounting Policies in the Trust’s Annual Report on Form 10-KSB for a summary of the Trust’s significant accounting policies.
The unaudited condensed financial statements included herein were prepared from the books of the Trust in accordance with generally accepted accounting principles and reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the results of operations and financial position for the interim periods. Such financial statements generally conform to the presentation reflected in the Trust’s Annual Report to Shareholders. The current interim period reported herein is included in the fiscal year subject to independent audit at the end of that year and is not necessarily an indication of the expected results for the fiscal year.
NOTE 2 - WEIGHTED AVERAGE INTEREST RATES
Weighted average interest rates and net interest rate margins at June 30, 2006 and 2005, were as follows:
	Mortgage loan and church bond portfolio				Total indebtedness	Net interest rate margin
June 30, 2006	8.01%				6.87%	1.14%
June 30, 2005	7.61%				5.13%	2.48%
NOTE 3 - CONTRACTUAL MATURITIES
Scheduled principal payments on mortgage loans, church bonds and interim construction loans and indebtedness (including notes payable) outstanding at June 30, 2006, for the five twelve-month periods subsequent to June 30, 2006, follow:
Twelve-month period ending June 30,		Mortgage loans, church bonds and interim loans					Total Indebtedness
2007			$	22,853,046			$17,667,795
2008				2,544,870			-
2009				2,639,046			$20,355,000
2010				2,653,308			-
2011				2,781,060			-
NOTE 4 -MORTGAGE LOANS, CHURCH BONDS AND INTERIM CONSTRUCTION LOANS
Mortgage loans, church bonds and interim construction loans on which the accrual of interest had been discontinued amounted to $3,901,127 and $3,161,317 at June 30, 2006 and 2005, respectively. If interest on these mortgage loans, church bonds and interim construction loans had been accrued as earned, interest and fees on loans in the accompanying condensed statements of income would have been increased by approximately $80,000 and $65,000 for the three-month periods ended June 30, 2006 and 2005, respectively. Interest income actually recognized on such loans during 2006 and 2005 was approximately $64,000 and $13,000, respectively. This information is an integral part of the accompanying condensed financial statements. -4-

Item 2. Management’s Discussion and Analysis or Plan of Operation. FORWARD-LOOKING STATEMENTS DISCLOSURE The following 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.

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 collectibility 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.

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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 recommendation 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 the Trust. 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 is expensed.

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

We were founded in May of 1959. We were organized to assist churches with the financing of purchases and construction of church facilities. We were 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 management 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 loan-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 loan-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% loan-to-value ratio.

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Management is aggressively pursuing quality new loans, both interim and permanent. This is evident by the 12% increase in our loan portfolio as of June 30, 2006 as compared to June 30, 2005.

Results of Operations—Three-month period ended June 30, 2006 as compared to three-month period ended June 30, 2005

Our revenues are derived from interest income earned on loans as well as, to a lesser degree, interest earned on church bonds and short-term investments. During the three-month period ended June 30, 2006, interest income and fees increased by $232,646 (18%) over the three-month period ended June 30, 2005.

The increase in interest income and fees during the three-month period ended June 30, 2006 as compared to the three-month period ended June 30, 2005 was primarily attributable to an increase in the balances of mortgage loans and interim loans.

Interest income on mortgage loans increased from $678,369 during the three-month period ended June 30, 2005 to $852,919 during the three-month period ended June 30, 2006, an increase of $174,550 (26%). Interest income on interim loans increased from $427,916 during the three-month period ended June 30, 2005 to $482,516 for the three-month period ended June 30, 2006, an increase of $54,600 (13%).

Commitment fees earned during the three-month period ended June 30, 2005 as compared to June 30, 2006 decreased from $170,452 to $130,870, a decrease of $39,582 or 23%.

Contributing to the increase in interest income and fees during the three-month period ended June 30, 2006 as compared to the three-month period ended June 30, 2005 was the increase in the interest rates on our loan portfolio. The average interest rate on our loans and church bonds increased from 7.61% as of June 30, 2005 to 8.01% as of June 30, 2006, an increase of .4%.

There was a slight increase in the amount of our interim loans from $19,619,398 as of June 30, 2005, to $20,386,201 as of June 30, 2006. During the same period, there was an increase in mortgage loans and church bonds from $43,418,267 to $49,747,814. The total mortgage loans, church bonds and interim loans, net of mortgage discounts, held by us increased from $62,515,712 as of June 30, 2005 to $70,134,015 as of June 30, 2006 (12%).

Our net income for the three-month period ended June 30, 2006 was $567,991 ($.06 per share), a decrease of $179,348 (24%) as compared to the three-month period ended June 30, 2005. This decrease was primarily attributable to the decrease in net interest income and the increase in general and administrative expenses.

Net interest income decreased from $927,138 for the three-month period ended June 30, 2005 to $882,581 for the three-month period ended June 30, 2006, a decrease of $44,557 (5%). Other income decreased from $29,904 for the three-month period ended June 30, 2005 to $20,795 for the three-month period ended June 30, 2006, a decrease of $9,109 (30%).

The decrease in our net interest income for the three-month period ended June 30, 2006 as compared to the three-month period ended June 30, 2005 was the result of an increase in our interest expense. The weighted average interest rate on our debt increased from 5.13% for the three-month period ended June 30, 2005 to 6.87% for the three-month period ended June 30, 2006. Our interest expense increased from $363,506 for the three-month period ended June 30, 2005 to $640,709 for the three-month period ended June 30, 2006, an increase of $277,203 or 76%.

The increase in our interest expense is attributable to the increase in the weighted average interest rate on our debt and the increase in our debt resulting from the funding of the increase in our portfolio of mortgage and interim loans. Our total liabilities increased from $31,986,027 as of June 30, 2005 to $39,765,951 as of June 30, 2006, an increase of $7,779,924 or 24%.

Non-performing loans, church bonds and interim loans increased from $3,161,317 as of June 30, 2005 to $3,901,127 as of June 30, 2006, an increase of $739,810. The accrual of interest on these loans has been discontinued. If interest on these mortgage loans, church bonds and interim loans had been accrued as earned, interest and fees on loans would have been increased by approximately $80,000 and $65,000 for the three-month periods ended June 30, 2006 and 2005, respectively.

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General and administrative expenses increased from $198,303 for the three-month period ended June 30, 2005 to $323,485 for the three-month period ended June 30, 2006, an increase of $125,182 or 63%. This increase is mostly attributable to the payment of a real property taxes on property located in New York. We acquired the property through foreclosure of a loan in a prior year. The tax bill was paid in June, 2006 and was approximately $90,000.

As of June 30, 2006, 10,217,094 shares of certificates of beneficial interest were outstanding. Net income per share decreased from $.07 per share for the three-month period ended June 30, 2005 to $.06 per share for the three-month period ended June 30, 2006. This decrease was attributable to the decrease in our net income discussed above.

Financial Condition—Three-month period ended June 30, 2006 as compared to year ended
March 31, 2006

Our portfolio of performing mortgage loans and church bonds decreased from $48,835,293 as of March 31, 2006 to $46,897,987 as of June 30, 2006. Our portfolio of performing interim loans also decreased during the three-month period ended June 30, 2006 from $20,268,706 to $19,286,201, a decrease of $982,505. Mortgage loans, interim loans and church bonds held by us decreased from $71,063,449 as of March 31, 2006 to $70,085,315 as of June 30, 2006, a decrease of $978,134 (1%).

Nonperforming mortgage loans, church bonds and interim loans increased from $1,959,450 as of March 31, 2006 to $3,901,127 as of June 30, 2006. This was the result of the classification of four mortgage loans as nonperforming during the three-month period ended June 30, 2006. Total performing mortgage loans, church bonds and interim loans decreased from $69,103,999 as of March 31, 2006 to $66,184,188 as of June 30, 2006, a decrease of $2,919,811 (4%). Consistent with the decrease in loans, total assets decreased from $71,491,066 as of March 31, 2006 to $70,586,429 as of June 30, 2006, a decrease of $904,637 (1%).

Our liabilities decreased from $40,523,383 as of March 31, 2006 to $39,765,951 as of June 30, 2006.

Shareholders’ equity decreased by $147,205 from March 31, 2006 to June 30, 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.

Our assets primarily consist of our loan portfolio, real estate acquired through foreclosure and our office building and facilities. Our operational 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, the payment for legal and accounting services, and expenses incurred relative to real estate securing our loans or acquired through foreclosure. 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.

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 increased by $75,949 during the three-month period ended June 30, 2006 leaving us with cash and cash equivalents of $204,904 as of June 30, 2006. During this same period, we invested $4,732,798 in mortgage and interim construction loans using available cash of $128,955, net cash provided by operating activities in the amount of $672,307, principal payments received on our loan portfolio in the amount of $5,717,171, and other cash provided by investing activities of approximately $1,780. The total liquidity available to invest in mortgage and interim construction loans was reduced by $715,196 paid in cash dividends during the three-month period ended June 30, 2006 and the excess of $867,315 in principal payments on our note payable and line of credit over the amount we borrowed on our notes payable and line of credit.

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A substantial portion of our debt obligations outstanding as of June 30, 2005, will mature in fiscal 2008. These debt obligations primarily consist of our bank line of credit and Master Note Agreements. The line of credit is made pursuant to a Loan Agreement dated January 31, 2006 that provides for a line of credit up to $35,000,000, and is for a term of three years, maturing December 31, 2008.

As of June 30, 2006, our total liabilities outstanding were $39,765,951. The amount owing on the line of credit as of June 30, 2006 was $20,355,000. It is anticipated that the line of credit will be renewed at the expiration of its 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 June 30, 2006, loans to us under Master Note Agreements, which are in effect unsecured demand notes, totaled $17,667,795. 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 June 30, 2006 were only $204,904, the balance which could be borrowed by us upon our bank line of credit was $14,645,000. The principal payments scheduled to be received on our loan portfolio for the twelve-month period ending June 30, 2007 and 2008 are $22,853,046 and $2,544,870, 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, should 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 for it to meet all of our financial obligations. At June 30, 2006, the principal balance of our loan and church bond portfolio was $70,085,315, net of unamortized purchase discounts. The weighted average interest rate on loans and church bonds was 8.01% 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 $46,781,950, $40,098,814, and $35,086,463, respectively. There is no assurance that we would be able to sell all, or a portion of our portfolio 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 the loans in our mortgage loan portfolio and, therefore, we have limited experience in this area.

Principal payments scheduled to be received upon our permanent loan portfolio during the twelve-month period ending June 30, 2007 and 2008, 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 by us upon our outstanding debts is directly, or indirectly, tied to the prime rate of interest charged by major domestic banks.

Pursuant to the new 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, 2006, 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 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.

-9-

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 in obtaining 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 June 30, 2006, the weighted average interest rate on our mortgage loan and church bond portfolio was 8.01% per annum while the weighted average interest rate upon all our borrowings was 6.87% per annum. 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 rate of interest charged by major banking institutions and, therefore, is subject to fluctuation.

During periods of inflation, the 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 our interest expense would decrease our net income. However, interest income should subsequently increase as variable rate loans reprice. Should the amount of our loans and the amount of our notes payable and line of credit remain constant, and should the weighted average interest rate upon the indebtedness increase to approximately 14.76% per annum, the interest income and the interest expense of the Trust would be substantially equal.

Under the terms of the new line of credit 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.

Our Master Note Agreements continue to be tied to the Wall Street Journal Prime Rate of Interest.

Off-Balance Sheet Arrangements

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

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 our financial statements.

Item 3. 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 or Plan of Operation – Inflation.”

-10-

Item 4. Controls and Procedures

Our Chief Executive Officer and our Chief Financial Officer are charged with making an evaluation of our disclosure controls and procedures. 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 Chief Financial Officer have concluded, based upon their evaluation of these controls and procedures as of June 30, 2006, 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.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

None

Item 1A. Risk Factors.

There have been no material changes to the risk factors as disclosed in our Annual Report on Form 10-KSB for the year ended March 31, 2006.

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

None

Item 3. Defaults Upon Senior Securities.

None

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

None

Item 5. Other Information.

None

Item 6. Exhibits.

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

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CHURCH LOANS & INVESTMENTS TRUST (A Real Estate Investment Trust) INDEX TO EXHIBITS Item 6
(2)	None
(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.
(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 & 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 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.
(13)	None
(14)	None
(16)	None
(18)	None
(20)	None
(21)	None
(23)	None
(24)	None
(31.1)	Certification of President (Principal Executive Officer and CEO) Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a).
(31.2)	Certification of Senior Vice-President and CFO (Principal Financial Officer) Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a).
(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.

-12-

SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, 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
DATE: August 14, 2006
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				08-14-06
	/s/ Larry G. Brown Larry G. Brown	Vice-Chairman of the Board of Trust Managers				08-14-06
	/s/ Alfred J. Smith Alfred J. Smith	Secretary of the Board of Trust Managers				08-14-06
	/s/ M. Kelly Archer M. Kelly Archer	President and CEO				08-14-06
	/s/ Robert E. Fowler Robert E. Fowler	Senior Vice-President and Chief Financial Officer				08-14-06
	/s/ Jack R. Vincent Jack R. Vincent	Trust Manager				08-14-06
	/s/ Steven Rogers Steven Rogers	Trust Manager				08-14-06
	/s/ Michael A. Bahn Michael A. Bahn	Trust Manager				08-14-06
	/s/ Michael W. Borger Michael W. Borger	Trust Manager				08-14-06

-13-

Service Mark and Copyright Notice

Copyright © 2006 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.

EX-31

EXHIBIT 31.1 CERTIFICATION OF PRESIDENT (PRINCIPAL EXECUTIVE OFFICER AND CEO) PURSUANT TO EXCHANGE ACT RULE 13a-14(a)/15d-14(a)
I, Kelly Archer, President and Chief Executive Officer of Church Loans & Investments Trust, certify that:
1.	I have reviewed this Quarterly Report on Form 10-Q of Church Loans & Investments Trust;
2.	Based on my knowledge, this Quarterly 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 Quarterly Report;
3.	Based on my knowledge, the financial statements, and other financial information included in this Quarterly 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 Quarterly 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 Quarterly 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 Quarterly 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: August 14, 2006		/s/ Kelly Archer Kelly Archer, President & CEO

EX-31

EXHIBIT 31.2 CERTIFICATION OF SENIOR VICE-PRESIDENT AND CFO (PRINCIPAL FINANCIAL OFFICER) PURSUANT TO EXCHANGE ACT RULE 13a-14(a)/15d-14(a)
I, Robert Fowler, Senior Vice-President and CFO of Church Loans & Investments Trust certify that:
1.	I have reviewed this Quarterly Report on Form 10-Q of Church Loans & Investments Trust;
2.	Based on my knowledge, this Quarterly 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 Quarterly Report;
3.	Based on my knowledge, the financial statements, and other financial information included in this Quarterly 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 Quarterly 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 Quarterly 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 Quarterly 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: August 14, 2006		/s/ Robert Fowler Robert 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
August 14, 2006
In connection with the filing of the Quarterly Report on Form 10-Q of Church Loans & Investments Trust, a Texas real estate investment trust, (“the Trust”), for the period ending June 30, 2006, 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/ Kelly Archer Kelly Archer President and CEO (Principal Executive Officer) /s/ Robert Fowler Robert Fowler Senior Vice-President and CFO (Principal Financial)