United States
Securities and Exchange CommissionWashington, 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 September 30, 2006   £ 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)Texas75-6030254(State or other jurisdiction of
incorporation or organization)(IRS Employer
Identification No.)5305 W Interstate 40, Amarillo, Texas79106-4759(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, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange ActLarge accelerated filer  £Accelerated filer  £Non-accelerated filer xIndicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes £  No xClassOutstanding at November 13, 2006Common Stock, $0.00 par value per share10,217,094


CHURCH LOANS & INVESTMENTS TRUST
FORM 10-Q
For the Quarter Ended September 30, 2006INDEXPagePart I.Financial InformationItem 1.Financial Statements:a)Condensed Balance Sheets (Unaudited) September 30, 2006 and
March 31, 20061b)Condensed Statements of Income (Unaudited) for the three-month and six-month periods ended September 30, 2006 and 20052c)Condensed Statements of Cash Flows (Unaudited) for the six-month periods ended September 30, 2006 and 20053d)Notes to Condensed Financial Statements (Unaudited)4Item 2.Managements Discussion and Analysis or Plan of Operation6Item 3.Quantitative and Qualitative Disclosures About Market Risk13Item 4.Controls and Procedures13Part II.Other InformationItem 1.Legal Proceedings13Item 1A.Risk Factors13Item 2.Unregistered Sales of Equity Securities and Use of Proceeds14Item 3.Defaults Upon Senior Securities14Item 4.Submission of Matters to a Vote of Security Holders14Item 5.Other Information14Item 6.Exhibits14Index to Exhibits15Signatures16          PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsCHURCH LOANS & INVESTMENTS TRUST(A Real Estate Investment Trust)Condensed Balance Sheets (Unaudited)September 30, 2006 and March 31, 2006ASSETSSeptember 30,
2006March 31,
2006CASH AND CASH EQUIVALENTS$195,723$128,955RECEIVABLESMortgage loans and church bonds  performing44,923,47748,835,293Interim construction loans  performing17,779,15920,268,706Nonperforming mortgage loans, church bonds and interim construction loans7,396,4911,959,450Less: Allowance for credit losses(1,713,249)(1,713,249)68,385,87869,350,200Accrued interest receivable443,671558,217Notes receivable4,0005,902Net receivables68,833,54969,914,319PROPERTY AND EQUIPMENT,net220,092221,124OTHER REAL ESTATE OWNED916,6941,180,618OTHER ASSETS54,01546,050TOTAL ASSETS$70,220,073$71,491,066LIABILITIES AND SHAREHOLDERS EQUITYLIABILITIESNotes payable and line of credit:Related parties$3,292,418$2,845,753Other33,705,34836,044,35736,997,76638,890,110Accrued interest payable111,559130,229Other1,643,5101,503,044Total liabilities38,752,83540,523,383SHAREHOLDERS EQUITYShares of beneficial interest, no par value; authorized shares unlimited, 10,223,690 shares issued29,762,29129,762,291Undistributed net income1,721,4371,221,882Treasury shares, at cost (6,596 shares)(16,490)(16,490)Total shareholders equity31,467,23830,967,683TOTAL LIABILITIES AND SHAREHOLDERS EQUITY$70,220,073$71,491,066These 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 and Six-month periods ended September 30, 2006 and 2005Three-month periods ended
September 30,Six-month periods ended
September 30,2006200520062005INTEREST INCOME AND FEESInterest and fees on mortgage loans, church bonds and interim construction loans$1,544,685$1,731,251$3,067,974$3,021,895Total interest income and fees1,544,6851,731,2513,067,9743,021,895INTEREST EXPENSE684,201424,3191,324,909787,825Net interest income860,4841,306,9321,743,0652,234,070OTHER INCOME23,13925,89043,93555,794OTHER OPERATING EXPENSESGeneral and administrative223,563269,747547,049468,050Board of Trust Managers fees13,30012,30025,20023,700Total other operating expenses236,863282,047572,249491,750NET INCOME$646,760$1,050,775$1,214,751$1,798,114WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING10,217,09410,217,09410,217,09410,217,094NET INCOME PER SHARE$.06$.10$.12$.17DIVIDENDS PER SHARE$-$-$.07$.06These 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)Six-month periods ended September 30, 2006 and 2005Six-month periods ended
September 30,20062005CASH FLOWS FROM OPERATING ACTIVITIESNet income$1,214,751$1,798,114Adjustments to reconcile net income to net cash provided by operating activities:Depreciation1,0321,032Loss on sale of other real estate owned13,317-Amortization of loan discounts(9,809)(450,794)Changes in:Accrued interest receivable114,546(83,687)Accrued interest payable(18,670)18,966Other liabilities140,466355,587Other, net(7,965)94,627Net cash provided by operating activities1,447,6681,733,845CASH FLOWS FROM INVESTING ACTIVITIESInvestment in mortgage and interim construction loans and church bonds(12,186,481)(27,638,137)Payments received on mortgage and interim construction loans and church bonds13,160,61221,473,921Payments received on notes receivable1,90213,896Proceeds from sale of other real estate owned250,607-Net cash provided (used) by investing activities1,226,640(6,150,320)CASH FLOWS FROM FINANCING ACTIVITIESBorrowings on notes payable and line of credit15,621,75128,682,463Principal payments on notes payable and line of credit(17,514,095)(23,214,964)Cash dividends(715,196)(613,024)Net cash provided (used) by financing activities(2,607,540)4,854,475Increase in cash and cash equivalents66,768438,000CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD128,95560,854CASH AND CASH EQUIVALENTS AT END OF PERIOD$195,723$498,854Supplemental disclosure of cash flow informationCash paid during the period for interest$1,343,579$768,859These condensed financial statements should be read only in connection
with the accompanying notes to condensed financial statements.
-3-       CHURCH LOANS & INVESTMENTS TRUST (A Real Estate Investment Trust) Notes to Condensed Financial Statements (Unaudited)   NOTE 1  GENERAL  See Summary of Significant Accounting Policies in the Trusts Annual Report on Form 10-KSB for a summary of the Trusts significant accounting policies.  The unaudited condensed financial statements included herein were prepared from the books of the Trust in accordance with generally accepted accounting principles and reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the results of operations and financial position for the interim periods. Such financial statements generally conform to the presentation reflected in the Trusts Annual Report to Shareholders. The current interim period reported herein is included in the fiscal year subject to independent audit at the end of that year and is not necessarily an indication of the expected results for the fiscal year.  NOTE 2 - WEIGHTED AVERAGE INTEREST RATES  Weighted average interest rates and net interest rate margins at September 30, 2006 and 2005, were as follows:  Mortgage loan andchurch bond portfolioTotalindebtednessNet interest ratemarginSeptember 30, 20068.12%6.96%1.16%September 30, 20058.02%5.65%2.37%  NOTE 3 - CONTRACTUAL MATURITIES Scheduled principal payments on mortgage loans, church bonds and interim construction loans and indebtedness (including notes payable) outstanding at September 30, 2006, for the five twelve-month periods subsequent to September 30, 2006, follow:  Twelve-month period endingSeptember 30,Mortgage loans, church bondsand interim loansTotalIndebtedness2007$ 23,257,608$ 18,292,76620082,627,178-20092,704,95518,705,00020102,795,176-20112,969,335-  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 $7,396,491 and $1,680,204 at September 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 $272,000 and $91,000 for the six-month periods ended September 30, 2006 and 2005, respectively. Interest income actually recognized on such loans during 2006 and 2005 was approximately $208,000 and $74,000, respectively.    -4-     NOTE 5  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.                                               This information is an integral part of the accompanying condensed financial statements.  -5-      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.      -6-     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 are 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 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 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.  Management is aggressively pursuing quality new loans, both interim and permanent.   This is evident by the 6% increase in our loan portfolio as of September 30, 2006 as compared to September 30, 2005.   -7-      Results of OperationsSix-month period ended September 30, 2006 as compared to six-month period ended September 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 six-month period ended September 30, 2006, interest income and fees increased by $46,079 (2%) over the six-month period ended September 30, 2005.  Included in interest income and fees for the six-month period ended September 30, 2005 was $395,961 from the payment of a loan owing by St. Luke Missionary Baptist Church that was acquired by us and was previously in default.  This income was characterized as discount income on mortgage loans since this loan was acquired at a price below the principal balance of the loan.  Had it not been for this item, interest income and fees for the six-month period ended September 30, 2005 would have been $2,625,934.  Interest income and fees for the six-month period ended September 30, 2006 as compared to the six-month period ended September 30, 2005 without inclusion of this item increased by $442,040 or 17%.  Interest income on mortgage loans increased from $1,406,397 during the six-month period ended September 30, 2005 to $1,680,875 during the six-month period ended September 30, 2006, an increase of $274,478 (20%). Interest income on interim loans increased from $848,339 during the six-month period ended September 30, 2005 to $1,000,347 for the six-month period ended September 30, 2006, an increase of $152,008 (18%). Interest income on mortgage loans and interim loans increased by $426,486 for the six-month period ended September 30, 2006 as compared to the six-month period ended September 30, 2005, an increase of 19%.  The increase in interest income and fees during the six-month period ended September 30, 2006 as compared to the six-month period ended September 30, 2005 was primarily attributable to an increase in the balance of performing mortgage loans and interim loans and a slight increase in the weighted average interest rate on our portfolio of loans.  The weighted average interest rate on our loans and church bonds increased from 8.02% as of September 30, 2005 to 8.12% as of September 30, 2006.  Although there was a slight increase in the amount of our interim loans from $20,617,332 as of September 30, 2005, to $20,619,159 as of September 30, 2006, performing interim loans decreased from $19,517,332 as of September 30, 2005 to $17,779,159 as of September 30, 2006, a decrease of $1,738,173 or 9%.  During the same period, there was an increase in mortgage loans and church bonds from $45,393,626 to $49,525,098 and a slight increase in performing mortgage loans and church bonds from $44,736,920 as of September 30, 2005 to $44,923,477 as of September 30, 2006.  The total mortgage loans, church bonds and interim loans, net of mortgage discounts, held by us increased from $65,934,456 as of September 30, 2005 to $70,099,127 as of September 30, 2006 (6%).  However, performing mortgage loans, church bonds, and interim loans decreased from $64,254,252 as of September 30, 2005 to $62,702,636 as of September 30, 2006, a decrease of $1,551,616 or 2%.  Commitment fees earned during the six-month period ended September 30, 2005 as compared to September 30, 2006 decreased from $314,347 to $309,504, a decrease of $4,843 or 2%.  Net income for the six-month period ended September 30, 2006 was $1,214,751 ($.12 per share), a decrease of $583,363 (32%) as compared to the six-month period ended September 30, 2005.  This decrease was primarily attributable to the decrease in net interest income.  Net interest income decreased from $2,234,070 for the six-month period ended September 30, 2005 to $1,743,065 for the six-month period ended September 30, 2006, a decrease of $491,005 (22%). This decrease in our net interest income for the six-month period ended September 30, 2006 as compared to the six-month period ended September 30, 2005 was primarily the result of an increase in our interest expense.  Our interest expense increased from $787,825 for the six-month period ended September 30, 2005 to $1,324,909 for the six-month period ended September 30, 2006, an increase of $537,084 or 68%.  This 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. -8-     The weighted average interest rate on our debt increased from 5.65% for the six-month period ended September 30, 2005 to 6.96% for the six-month period ended September 30, 2006.    Our total liabilities increased from $34,722,299 as of September 30, 2005 to $38,752,835 as of September 30, 2006, an increase of $4,030,536 or 12%.  Non-performing loans, church bonds and interim loans increased from $1,680,204 as of September 30, 2005 to $7,396,491 as of September 30, 2006, an increase of $5,716,287.  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 $272,000 and $91,000 for the six-month periods ended September 30, 2006 and 2005, respectively. Interest income actually recognized on such loans during 2006 and 2005 was approximately $208,000 and $74,000, respectively.  Also contributing slightly to the decrease in net income was a decrease in other income and an increase in general and administrative expenses.  Other income decreased from $55,794 for the six-month period ended September 30, 2005 to $43,935 for the six-month period ended September 30, 2006, a decrease of $11,859 (21%).  General and administrative expenses increased from $468,050 for the six-month period ended September 30, 2005 to $547,049 for the six-month period ended September 30, 2006, an increase of $78,999 or 17%. This increase in general and administrative expenses is primarily attributable to the payment of insurance and property taxes relating to property held as a result of the foreclosure of defaulted loans.  As of September 30, 2006, 10,217,094 shares of certificates of beneficial interest were outstanding. Net income per share decreased from $.17 per share for the six-month period ended September 30, 2005 as compared to $.12 per share for the six-month period ended September 30, 2006.  This decrease was attributable to the decrease in our net income discussed above.  Results of OperationsThree-month period ended September 30, 2006 as compared to three-month period ended September 30, 2005.  During the three-month period ended September 30, 2006, interest income and fees decreased by $186,566 (11%) as compared to the three-month period ended September 30, 2005.  However, included in interest income and fees during the three-month period ended September 30, 2005 was the mortgage discount income attributable to the St. Luke loan payoff.  As previously mentioned, the payment of this loan resulted in a one-time recognition of income in the amount of $395,961.  Without consideration of this item, interest income and fees actually increased by $209,395 or 16%.  This increase was primarily attributable to the increase in our loan portfolio.  Also contributing to the increase in interest income and fees during the three-month period ended September 30, 2006 as compared to the three-month period ended September 30, 2005, absent the income from the St. Luke payoff, was the 10 basis point increase in the interest rates on our loan portfolio.  Our net income for the three-month period ended September 30, 2006 was $646,760 ($.06 per share), a decrease of $404,015 (38%) as compared to the three-month period ended September 30, 2005.  This decrease is the result of a decrease in net interest income.  Net interest income decreased from $1,306,932 for the three-month period ended September 30, 2005 to $860,484 for the three-month period ended September 30, 2006, a decrease of $446,448 (34%).  This difference in net interest income for the three-month period ended September 30, 2006 as compared to the three-month period ended September 30, 2005 is caused primarily by the recognition of $395,961 in income from the St. Luke payoff during the three-month period ended September 30, 2005.  The increase in interest expense also contributed to the decrease in net interest income.  Not including the St. Luke payoff discussed above, net interest income for the three-month period ended September 30, 2005 was $910,971 as compared to $860,484 for the three-month period ended September 30, 2006, a decrease of $50,487 (6%).  This decrease was attributable to the increase in interest expense.  Interest expense increased from $424,319 for the three-month period ended September 30, 2005 to $684,201 for the three-month period ended September 30, 2006, an increase of $259,882 or 61%.  The increase in our interest expense is attributable to the increase in the weighted average interest rate on our debt and, the increase in the amount of our debt. -9-      Other income slightly decreased from $25,890 for the three-month period ended September 30, 2005 to $23,139 for the three-month period ended September 30, 2006, a decrease of $2,751 (11%).  Offsetting slightly the decrease in net interest income was a decrease in general and administrative expenses from $269,747 for the three-month period ended September 30, 2005 to $223,563 for the three-month period ended September 30, 2006, a decrease of $46,184 or 17%.  Net income per share decreased from $.10 per share for the three-month period ended September 30, 2005 to $.06 per share for the three-month period ended September 30, 2006.  This decrease was attributable to the decrease in our net income discussed above.  Financial Condition Six-month period ended September 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 $44,923,477 as of September 30, 2006, a decrease of $3,911,816 (8%).  Our portfolio of performing interim loans also decreased during the six-month period ended September 30, 2006 from $20,268,706 to $17,779,159, a decrease of $2,489,547 (12%).  All mortgage loans, interim loans and church bonds, both performing and non-performing, decreased from $71,063,449 as of March 31, 2006 to $70,099,127 as of September 30, 2006, a decrease of $964,322 (1%).  Nonperforming mortgage loans, church bonds and interim loans increased from $1,959,450 as of March 31, 2006 to $7,396,491 as of September 30, 2006.   This was the result of the classification of six loans as non-performing during the six-month period ended September 30, 2006.  Total performing mortgage loans, church bonds and interim loans decreased from $69,103,999 as of March 31, 2006 to $62,702,636 as of September 30, 2006, a decrease of $6,401,363 (9%).  Consistent with the decrease in loans, total assets decreased from $71,491,066 as of March 31, 2006 to $70,220,073 as of September 30, 2006, a decrease of $1,270,993 (2%).  Management believes that there is sufficient collateral securing our non-performing loans such that management does not reasonably expect to realize a loss on such loans that has not been adequately reserved for in our allowance for credit losses.  Management and the audit committee will continue to monitor these loans and, if necessary, will recommend to the Board of Trust Managers that additional allowances be made.  Our liabilities decreased from $40,523,383 as of March 31, 2006 to $38,752,835 as of September 30, 2006.  Shareholders equity increased by $499,555 from March 31, 2006 to September 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.  -10-      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 $66,768 during the six-month period ended September 30, 2006 leaving us with cash and cash equivalents of $195,723 as of September 30, 2006. During this same period, we invested $12,186,481 in mortgage and interim construction loans using available cash of $128,955, net cash provided by operating activities in the amount of $1,447,668, principal payments received on our loan portfolio and other notes receivable in the amount of $13,162,514, and proceeds received from the sale of other real estate of approximately $250,607.  The total liquidity available to invest in mortgage and interim construction loans was reduced by $715,196 paid in cash dividends during the six-month period ended September 30, 2006 and the excess of $1,892,344 in principal payments on our note payable and line of credit over the amount we borrowed on our notes payable and line of credit.  A substantial portion of our debt obligations outstanding as of September 30, 2006, 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 September 30, 2006, our total obligations outstanding were $38,752,835.  The amount owing on the line of credit as of September 30, 2006 was $18,705,000.  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 September 30, 2006, loans to us under Master Note Agreements, which are in effect unsecured demand notes, totaled $18,292,766.  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 September 30, 2006 were only $195,723, the balance which could be borrowed by us upon our bank line of credit was $16,295,000.  The principal payments scheduled to be received on our loan portfolio for the twelve-month period ending September 30, 2007 and 2008 are $23,257,608 and $2,627,178, 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 to meet all of our financial obligations.  At September 30, 2006, the principal balance of our loan and church bond portfolio was $70,099,127, net of unamortized purchase discounts.  The weighted average interest rate on loans and church bonds was 8.12% 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 $47,433,743, $40,657,493, and $35,575,306 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.        -11-      Principal payments scheduled to be received upon our permanent loan portfolio during the twelve-month period ending September 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 September 30, 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.  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 September 30, 2006, the weighted average interest rate on our mortgage loan and church bond portfolio was 8.12% per annum while the weighted average interest rate upon all our borrowings was 6.96% 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.  Due to the gradual re-pricing of our mortgage loans, the spread between the weighted average interest rate on our mortgage loans and church bond portfolio and the weighted average interest rate upon our borrowings has decreased from 2.37% as of September 30, 2005 to 1.16% as of September 30, 2006.  Based upon our present portfolio of performing mortgage loans and church bonds, this shrinkage of the spread between the interest on such loans and the rate of interest on our debt represents a loss of $223,836 in interest income for the six month period ended September 30, 2006.  Further increases in the rate of interest we are paying on our indebtedness before significant re-pricing of our mortgage loans will further shrink such interest rate spread and decrease net interest income.  Our interim loans re-price daily and are not subject to a shrinking interest rate margin.      -12-      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 16.15% per annum, our interest income and interest expense  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, at our option, in accordance with 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.    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 September 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.  -13-       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.  The annual meeting of shareholders of the Trust was held on August 29, 2006.  At such meeting, each of the individuals named below was elected to the Board of Trust Managers of the Trust to serve until the next annual meeting of the shareholders of the Trust:  Number of SharesForAgainstB.R. McMorries5,249,8052,732Larry G. Brown5,249,4773,060Jack R. Vincent5,249,8052,732Steven Rogers5,249,8052,732Michael A. Bahn5,249,8052,732Alfred J. Smith5,249,8052,732Michael W. Borger5,249,8052,732  Additionally, shareholders voted to ratify Clifton Gunderson LLP as auditors for the year ending March 31, 2007 as follows:  For5,202,709Against2,700Abstain47,128   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.                    -14-       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.-15-       SIGNATURESIn 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 TRUSTBy:/s/    B.R. McMorriesB.R. McMorries
Chairman of the Board of
Trust ManagersDATE:  November 13, 2006In 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.SignatureCapacityDate/s/   B.R. McMorriesB.R. McMorriesChairman of the Board
of Trust Managers11-13-06/s/   Larry G. BrownLarry G. BrownVice-Chairman of the Board
of Trust Managers11-13-06/s/   Alfred J. SmithAlfred J. SmithSecretary of the Board of Trust
Managers11-13-06/s/   M. Kelly ArcherM. Kelly ArcherPresident and CEO11-13-06/s/   Robert E. FowlerRobert E. FowlerSenior Vice-President and
Chief Financial Officer11-13-06/s/   Jack R. VincentJack R. VincentTrust Manager11-13-06/s/   Steven RogersSteven RogersTrust Manager11-13-06/s/   Michael A. BahnMichael A. BahnTrust Manager11-13-06/s/   Michael W. BorgerMichael W. BorgerTrust Manager11-13-06  -16-       Service Mark and Copyright Notice

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