Church Loans 10-Q


United States Securities and Exchange Commission

Washington, D.C. 20549
____________

FORM 10-Q

x	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2008

£	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
____________

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 £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

		Large accelerated filer £	Accelerated filer £
		Non-accelerated filer £	Smaller reporting company x

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

Class				Outstanding at August 13, 2008
Shares of beneficial interest, $0.00 par value per share				10,217,094


CHURCH LOANS & INVESTMENTS TRUST FORM 10-Q For the Quarter Ended June 30, 2008

INDEX
Page
*Part I.*	*Financial Information*

	Item 1.			Financial Statements:

		a)			Condensed Balance Sheets (Unaudited) June 30, 2008 and March 31, 2008	1
		b)			Condensed Statements of Income (Unaudited) for the three-month periods ended June 30, 2008 and 2007	2
		c)			Condensed Statements of Cash Flows (Unaudited) for the three-month periods ended June 30, 2008 and 2007	3
		d)			Notes to Condensed Financial Statements (Unaudited)	4

	Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			6

	Item 3.		Quantitative and Qualitative Disclosures About Market Risk			13

	Item 4T.		Controls and Procedures			13

*Part II.*	*Other Information*

	Item 1.		Legal Proceedings			13

	Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			13

	Item 3.		Defaults Upon Senior Securities			13

	Item 4.		Submission of Matters to a Vote of Security Holders			13

	Item 5.		Other Information			13

	Item 6.		Exhibits			13

Index to Exhibits						14

Signatures						15


PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Condensed Balance Sheets (Unaudited)
June 30, 2008 and March 31, 2008

ASSETS
			June 30, 2008		March 31, 2008

CASH AND CASH EQUIVALENTS	$		205,564	$	109,987
RECEIVABLES
Mortgage loans and church bonds – performing			50,113,607		50,389,558
Interim construction loans – performing			11,886,640		11,611,879
Nonperforming mortgage loans, church bonds and interim construction loans			4,936,597		5,930,850
Less: Allowance for credit losses			(1,786,477)		(1,786,477)
			65,150,367		66,145,810
Accrued interest receivable			609,859		608,930
Notes receivable			2,000		2,000
Net receivables			65,762,226		66,756,740
PROPERTY AND EQUIPMENT, net			216,480		216,996
OTHER REAL ESTATE OWNED			1,735,650		1,735,650
OTHER ASSETS			86,066		36,950
TOTAL ASSETS	$		68,005,986	$	68,856,323

LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
Notes payable and line of credit:
Related parties		$	13,774,446	$	13,059,425
Other			22,476,179		24,380,966
			36,250,625		37,440,391
Accrued interest payable			39,788		49,617
Other			221,513		183,011
Total liabilities			36,511,926		37,673,019

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			1,748,259		1,437,503
Treasury shares, at cost (6,596 shares)			(16,490)		(16,490)
Total shareholders’ equity			31,494,060		31,183,304
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	68,005,986	$	68,856,323
These condensed financial statements should be read only in connection with the accompanying notes to condensed financial statements.

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CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Condensed Statements of Income (Unaudited)
Three-month periods ended June 30, 2008 and 2007



		Three-month periods ended June 30,
			2008			2007
INTEREST AND FEE INCOME:
Interest income	$			1,572,430	$		1,574,224

Fee income				112,452			170,156

Interest and fee income				1,684,882			1,744,380

INTEREST EXPENSE				361,860			765,147

Net interest income				1,323,022			979,233

PROVISION FOR CREDIT LOSSES				-			-

Net interest income less provision for possible credit losses				1,323,022			979,233

OTHER INCOME

Gain on sale of other real estate owned				-			508,555

Other				6,886			22,411
Other income				6,886			530,966

OTHER OPERATING EXPENSES

General and administrative				284,955			626,919

Board of Trust Managers’ fees				19,000			11,700

Total other operating expenses				303,955			638,619

NET INCOME	$			1,025,953	$		871,580

NET INCOME PER SHARE	$			.10	$		.09

DIVIDENDS PER SHARE	$			.07	$		.06




These condensed financial statements should be read only in connection with the accompanying notes to condensed financial statements.

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CHURCH LOANS & INVESTMENTS TRUST
(A Real Estate Investment Trust)
Condensed Statements of Cash Flows (Unaudited)
Three-month periods ended June 30, 2008 and 2007
		Three-month periods ended June 30,
		2008		2007
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	1,025,953	$	871,580
Adjustments to reconcile net income to net cash provided (used) by operating activities:
Depreciation		516		516
Gain on sale of other real estate owned		-		(508,555)
Amortization of loan discounts		(3,649)		(10,860)
Amortization of commitment fees		(110,194)		(152,974)
Changes in:
Accrued interest receivable		(929)		(47,419)
Accrued interest payable		(9,829)		(1,425)
Federal income tax payable		(22,739)		-
Other liabilities		61,241		196,335
Other, net		(49,116)		(604,923)
Net cash provided (used) by operating activities		891,254		(257,725)

CASH FLOWS FROM INVESTING ACTIVITIES
Investment in mortgage and interim construction loans and church bonds		(1,917,164)		(11,315,994)
Payments received on mortgage and interim construction loans and church bonds		3,026,450		8,911,520
Proceeds from sale of other real estate owned		-		1,025,000
Net cash provided (used) by investing activities		1,109,286		(1,379,474)

CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on notes payable and line of credit		4,699,938		13,758,711
Principal payments on notes payable and line of credit		(5,889,704)		(11,525,415)
Cash dividends		(715,197)		(613,026)
Net cash provided (used) by financing activities		(1,904,963)		1,620,270
Increase (decrease) in cash and cash equivalents		95,577		(16,929)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		109,987		95,412

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	205,564	$	78,483

Supplemental disclosure of cash flow information
Cash paid during the period for interest	$	371,689	$	766,572

These condensed financial statements should be read only in connection with the accompanying notes to condensed financial statements.

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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-K 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, 2008 and 2007, were as follows:


	Mortgage loan and church bond portfolio	Total indebtedness	Net interest rate margin
June 30, 2008	8.40%	3.83%	4.57%
June 30, 2007	8.45%	6.96%	1.49%

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, 2008, for the five twelve-month periods subsequent to June 30, 2008, follow:


Twelve-month period ending June 30,	Mortgage loans, church bonds and interim loans		Total Indebtedness
2009		$ 15,170,830	$ 36,250,625
2010		2,447,199	-
2011		2,607,166	-
2012		2,746,140	-
2013		2,717,816	-

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 $4,936,597 and $5,981,465 at June 30, 2008 and 2007, 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 $36,000 and $114,000 for the three-month periods ended June 30, 2008 and 2007, respectively. Interest income actually recognized on such loans during 2008 and 2007 was approximately $61,000 and $19,000, respectively.

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CHURCH LOANS & INVESTMENTS TRUST

(A Real Estate Investment Trust)

Notes to Condensed Financial Statements (Unaudited)

NOTE 5 – FAIR VALUE MEASUREMENTS

Effective April 1, 2008, the Trust adopted SFAS No. 157, “Fair Value Measurements,” which requires disclosures for those assets and liabilities carried in the balance sheet on a fair value basis. The Financial Accounting Standard Board (FASB) has deferred the effective date of SFAS No. 157 until 2009 for nonfinancial assets and liabilities which are recognized at fair value on a nonrecurring basis. For the Trust, this deferral applies to other real estate owned.

SFAS No. 157 requires that assets and liabilities carried at fair value also be classified and disclosed according to the process for determining fair value. There are three levels of determining fair value.

Level 1 uses quoted market prices in active markets for identical assets or liabilities.

Level 2 uses observable market based inputs or unobservable inputs that are corroborated by market data.

Level 3 uses unobservable inputs that are not corroborated by market data.

Certain assets are measured at fair value on a nonrecurring basis; that is, they are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). The following table presents the assets carried on the balance sheet by caption and by level with the SFAS No. 157 valuation hierarchy as of June 30, 2008:

Description

Total

Quoted Prices in Active Markets for Identical Assets
(Level 1)

Significant Other Observable Inputs
(Level 2)

Significant Unobservable Inputs
(Level 3)

Assets:

Impaired Loans

$ 10,506,312

$ -

$ 10,506,312

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 observable market price, or the fair value of the collateral if the loan is collateral dependent.

On February 15, 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 159, "The Fair Value Opinion for Financial Assets and Financial Liabilities" (FAS 159). FAS 159 permits, but does not require, entities to measure selected financial assets and liabilities at fair value. Changes in fair value are recorded through the income statement in subsequent periods. The statement provides for a one time opportunity to transfer existing assets and liabilities to fair value at the point of adoption with a cumulative effect adjustment recorded against equity. After adoption, the election to report assets and liabilities at fair value must be made at the point of their inception. There was no impact on the financial statements of the Trust as a result of the adoption of FAS 159 during the first quarter of fiscal year 2009 since the Trust has not electe d the fair value option for any eligible items, as defined in FAS 159.

NOTE 6 – LEGAL CONTINGENCIES

Various legal claims arise from time to time in the normal course of business which, in the opinion of management, will have no material effect on the Trust's financial statements.

NOTE 7 – RECLASSIFICATION

Certain amounts in prior quarters have been reclassified to conform with the current year presentation.

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

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

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.

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 Loan Committee. In the past, this has been the responsibility of the management and the Audit Committee. However, effective July 1, 2008, the board of trust managers shifted the Audit Committee’s responsibilities relative to the review of past due loans and the classification of the past due loans to the Loan 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 90 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 Loan 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 interest payments received will be applied to interest income. A loan is typically classified as “capital recovery” if the Loan 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 Loan Committee with input from management.

Non-accrual status loans are returned to an accrual status when in the opinion of the Loan 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 Losses. The Audit Committee reviews the allowance for credit losses at least quarterly. 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 mak es 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 losses 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 less cost to sell 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.

Management has discussed our critical accounting policies and the development, selection and disclosure of the estimates and alternatives with the Audit Committee and the Loan 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 and were organized to assist churches with the financing of purchases and construction of church facilities. We have 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 dete rmined 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 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.

As a real estate investment trust, we are required by Section 857 of the Internal Revenue Code, as amended, to distribute at least 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.

Management is aggressively pursuing quality new loans, both interim and permanent.

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Results of Operations—Three-month period ended June 30, 2008 as compared to the three-month period ended June 30, 2007

Our revenues are derived from interest income and fees 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, 2008, interest income and fees decreased by $59,498 (3%) over the three-month period ended June 30, 2007.

The components of our interest income and fees during the three-month period ended June 30, 2008 as compared to the three-month period ended June 30, 2007 are as follows:

Table 1 – Interest Income and Fees


	For the Three Months Ended 06/30/08		For the Three Months Ended 06/30/07		Increase (Decrease)
Interest income:

Mortgage loans		$1,248,555		$1,047,408		$201,147

Interim loans		289,926		492,132		(202,206)

Commitment fees		112,452		170,156		(57,704)

Other income and fees		33,949		34,684		(735)

Total		$1,684,882		$1,744,380		$(59,498)

The decrease in interest income and fees for the three-month period ended June 30, 2008, as compared to the three-month period ended June 30, 2007 was primarily attributable to a decrease in the loan portfolio during each of the three months during the three-month period ended June 30, 2008 as compared to each of the three months during the three-month period ended June 30, 2007, a decrease in the weighted average interest rate on our portfolio of loans and the decrease in the recognition in income resulting from deferred commitment fees.

Total interest income on mortgage loans and interim loans decreased slightly during the three-month period ended June 30, 2008 as compared to the three-month period ended June 30, 2007. The increase in interest income on mortgage loans of $201,147 was offset by a decrease of $202,206 in interest income on interim loans. The decrease in interest income on interim loans is due to the decrease in the amount of interim loans on June 30, 2008 as compared to June 30, 2007 and the decrease in the rate of interest on such interim loans. Performing interim loans as of June 30, 2008 were $11,886,640 as compared to $21,358,476 as of June 30, 2007, a decrease of $9,471,836 (44%). The rate of interest on our portfolio of interim loans was 8.80% as of June 30, 2008 as compared to 9.75% as of June 30, 2007, a decrease of 95 basis points.

Our portfolio of performing mortgage loans increased from $48,494,304 as of June 30, 2007 to $50,113,607 as of June 30, 2008, an increase of $1,619,303 or 3%. Furthermore, the weighted average rate of interest on our portfolio of performing mortgage loans increased from 7.91% as of June 30, 2007 to 8.30% as of June 30, 2008, an increase in 39 basis points.

Our total loan portfolio decreased during the three-month period ended June 30, 2008 as compared to the three-month period ended June 30, 2007. The following table compares our portfolio of loans, net of mortgage discounts and deferred commitment fees, as of June 30, 2008 to June 30, 2007:

Table 2 – Mortgage Loans, Church Bonds and Interim Loans as of June 30, 2008 and 2007


Type of Loan	06/30/08	06/30/07	Increase (Decrease)

Total Mortgage and church bonds	$53,950,204	$53,375,769	$574,435

Performing mortgage and church bonds	50,113,607	48,494,304	1,619,303

Total Interim loans	12,986,640	22,458,476	(9,471,836)

-8-


Performing interim loans	11,886,640	21,358,476	(9,471,836)

Total loan portfolio	66,936,844	75,834,245	(8,897,401)

Total performing loan portfolio	62,000,247	69,852,780	(7,852,533)

Our loan portfolio decreased in each of the three months during the three-month period ended June 30, 2008 as compared to each of the three months during the three-month period ended June 30, 2007. Table 3 below sets forth the month ending values of our loan portfolio, net of mortgage discounts and deferred commitment fees, for each of the three months during the three-month period ended June 30, 2008 and June 30, 2007, respectively:

Table 3 – Month-End Portfolio Values


Month	2008	2007	Difference

April	$67,469,937	$75,224,697	$(7,754,760)
May	67,605,082	73,025,212	(5,420,130)
June	66,936,844	75,834,245	(8,897,401)

Monthly Average:	$67,337,288	$74,694,718	$(7,357,430)

Non-performing loans, church bonds and interim loans decreased from $5,981,465 as of June 30, 2007 to $4,936,597 as of June 30, 2008, a decrease of $1,044,868. 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 $36,000 and $114,000 for the three-month periods ended June 30, 2008 and 2007, respectively. Interest income actually recognized on such loans during the three-month period ended June 30, 2008 and 2007 was approximately $61,000 and $19,000, respectively.

The weighted average interest rate on our loans and church bonds decreased from 8.45% as of June 30, 2007 to 8.40% as of June 30, 2008. This decrease in the weighted average interest rate on our loans contributed to the decrease in our interest income during the three-month period ended June 30, 2008 as compared to the three-month period ended June 30, 2007.

Commitment fees earned during the three-month period ended June 30, 2008 were $112,452 as compared to $170,156 for the three-month period ended June 30, 2007, a decrease of $57,704 or 34%.

Net income for the three-month period ended June 30, 2008 was $1,025,953 ($.10 per share), an increase of $154,373 (18%) as compared to the three-month period ended June 30, 2007. This increase was primarily attributable to the increase in net interest income and to a decrease in general and administrative expenses.

Net interest income increased from $979,233 for the three-month period ended June 30, 2007 to $1,323,022 for the three-month period ended June 30, 2008, an increase of $343,789 (35%). This increase in our net interest income for the three-month period ended June 30, 2008 as compared to the three-month period ended June 30, 2007 was the result of a significant decrease in our interest expense.

Our total liabilities decreased from $46,224,751 as of June 30, 2007 to $36,511,926 as of June 30, 2008. Furthermore, the weighted average interest rate on our debt decreased from 6.96% as of June 30, 2007 to 3.83% as of June 30, 2008. This decrease is directly related to the decrease in the Prime Rate and LIBOR. See Inflation on page 12 for a discussion on how these rates affect our expenses. Our interest expense decreased from $765,147 for the three-month period ended June 30, 2007 to $361,860 for the three-month period ended June 30, 2008, a decrease of $403,287 or 53%.

The following table illustrates the average month end liabilities during the three-month period ended June 30, 2008 as compared to the same period ended June 30, 2007:

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Table 4 - Month End Total Liabilities for Each Month in the Three-Month Period Ended June 30, 2008 and June 30, 2007


Month	2008	2007	Difference

April	$37,441,086	$45,880,132	$(8,439,046)
May	37,192,614	43,493,942	(6,301,328)
June	36,511,926	46,224,751	(9,712,825)

Monthly Average:	$37,048,542	$45,199,608	$(8,151,066)

General and administrative expenses decreased from $626,919 for the three-month period ended June 30, 2007 to $284,955 for the three-month period ended June 30, 2008, a decrease of $341,964 or 55%. This decrease in general and administrative expenses is primarily attributable to decrease in expenses relating to property held as a result of the foreclosure of defaulted loans. This property was sold during the three-month period ending June 30, 2007. At the time of sale, we paid $281,250 in expenses related to the property. These expenses included unpaid water and sewer charges, real estate taxes, as well as transfer taxes associated with the sale of the property.

Other income decreased from $530,966 for the three-month period ended June 30, 2007 to $6,886 for the three-month period ended June 30, 2008, a decrease of $524,080. Contributing to the large amount of other income for the three-month period ended June 30, 2007 was the recognition of gain of $508,555 from the sale of property located in Bronx, NY that was obtained through foreclosure of a defaulted loan.

As of June 30, 2008, there were 10,217,094 shares of certificates of beneficial interest outstanding. Net income per share increased from $.09 per share for the three-month period ended June 30, 2007 as compared to $.10 per share for the three-month period ended June 30, 2008. This increase was attributable to the increase in our net income discussed above.

Financial Condition—June 30, 2008 as compared to March 31, 2008.

Our portfolio of performing mortgage loans and church bonds decreased from $50,389,558 as of March 31, 2008 to $50,113,607 as of June 30, 2008. Our portfolio of performing interim loans increased during the three-month period ended June 30, 2008 from $11,611,879 to $11,886,640. Mortgage loans, interim loans and church bonds, including non-performing mortgage loans, church bonds and interim loans, held by us decreased from $67,932,287 as of March 31, 2008 to $66,936,844 as of June 30, 2008, a decrease of $995,443 (1%). Impaired loans were approximately $10,506,000 at June 30, 2008 as compared to approximately $11,639,000 at March 31, 2008.

Nonperforming mortgage loans, church bonds and interim loans decreased from $5,930,850 as of March 31, 2008 to $4,936,597 as of June 30, 2008. Total performing mortgage loans, church bonds and interim loans decreased slightly from $62,001,437 as of March 31, 2008 to $62,000,247 as of June 30, 2008, a decrease of $1,190. Consistent with the decrease in loans, total assets decreased from $68,856,323 as of March 31, 2008 to $68,005,986 as of June 30, 2008, a decrease of $850,337 (1%).

Our liabilities decreased from $37,673,019 as of March 31, 2008 to $36,511,926 as of June 30, 2008.

Shareholders’ equity increased by $310,756 from March 31, 2008 to June 30, 2008. This is attributable to the increase in undistributed net income from $1,437,503 as of March 31, 2008 to $1,748,259 as of June 30, 2008.

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.

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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.

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 $95,577 during the three-month period ended June 30, 2008 leaving us with cash and cash equivalents of $205,564 as of June 30, 2008. During this same period, we invested $1,917,164 in mortgage and interim construction loans using net cash provided by operating activities in the amount of $891,254, principal payments received on our loan portfolio in the amount of $3,026,450, and $4,699,938 in borrowing on master notes and our line of credit. The total liquidity available to invest in mortgage and interim construction loans was reduced by $715,197 paid in cash dividends during the three-month period ended June 30, 2008 and the reduction in our borrowings on our bank line of credit and Master Note agreements in the amount of $5,889,704.

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 June 30, 2008, our total liabilities outstanding were $36,511,926. The amount owing on the line of credit as of June 30, 2008 was $12,253,000. 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, 2008, loans to us under Master Note Agreements, which are in effect demand notes, totaled $23,997,625. 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, 2008 were only $205,564 the balance which could be borrowed by us upon our bank line of credit as of June 30, 2008 was $22,747,000. The principal payments scheduled to be received on our loan portfolio for the fiscal year ending June 30, 2009 are $15,170,830. 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 to meet all of our financial obligations. At June 30, 2008, the principal balance of our loan and church bond portfolio was $66,936,844, net of unamortized purchase discounts and deferred commitment fees. The weighted average interest rate on loans and church bonds was 8.40% 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 $46,688,449, $40,018,671, and $35,016,338, respectively. There is no assurance that we wou ld 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 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 15.34%, 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 twelve-month period ending June 30, 2009, 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

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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 June 30, 2008, we can borrow up to the entire $35,000,000 line of credit limit. However, during the term of the 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 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 June 30, 2008, the weighted average interest rate on our mortgage loan and church bond portfolio was 8.40% per annum while the weighted average interest rate upon all our borrowings was 3.83% per annum resulting in a net interest rate margin of 4.57%. By comparison, as of June 30, 2007, the weighted average interest rate on our mortgage loan and church bond portfolio was 8.45% per annum while the weighted average interest rate on our borrowings was 6.96% per annum resulting in a net interest rate margin of 1.49% per annum. Therefore, our net interest rate margin has increased by 308 basis points as of June 30, 2008 as compared to June 30, 2007. Although a majority of the loans constituting our loan portfolio have been made at 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 ar e 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.

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 15.34% 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.

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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.

Not required

Item 4T. Controls and Procedures

We performed an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15 or 15d-15 as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures, as defined by Exchange Act Rules 13a-15(e) or 15d-15(e), were effective.

Changes in Internal Control over Financial Reporting

There has not been any change in our internal control over financial reporting during our fiscal quarter ending June 30, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II. Other Information

Item 1. Legal Proceedings.

None

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
(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.
(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.
(15)	None
(18)	None
(19)	None
(22)	None
(23)	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).
	(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.

(99)	None

(100)	None

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		CHURCH LOANS & INVESTMENTS TRUST

	By:			/s/ Kelly Archer
			Kelly Archer President and CEO
	Date:		August 13, 2008


	By:			/s/ Robert E. Fowler
			Robert E. Fowler Chief Financial Officer (Principal Financial Officer)
	Date:		August 13, 2008

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Trade Mark and Copyright Notice

Copyright © 2008 by Church Loans & Investments Trust
This report is copyrighted material of
Church Loans & Investments Trust.

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

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

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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 Quarterly Report on Form 10-Q of Church Loans & Investments Trust;

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

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

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

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

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

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

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

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

	(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 13, 2008		/s/ M. Kelly Archer . M. Kelly Archer, President & CEO


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 Quarterly Report on Form 10-Q of Church Loans & Investments Trust;

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

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

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

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

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

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

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

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

	(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 13, 2008		/s/ Robert E. Fowler . Robert E. Fowler, Senior Vice President and CFO


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 13, 2008

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 quarterly period ended June 30, 2008, 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)