United States
Securities and Exchange CommissionWashington, D.C. 20549____________FORM 10-QxQUARTERLY 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)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, 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 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 August 13, 2008Shares of beneficial interest,
$0.00 par value per share10,217,094    CHURCH LOANS & INVESTMENTS TRUST
FORM 10-Q
For the Quarter Ended June 30, 2008INDEXPagePart I.Financial InformationItem 1.Financial Statements:a)Condensed Balance Sheets (Unaudited) June 30, 2008 and
March 31, 20081b)Condensed Statements of Income (Unaudited) for the three-month periods ended June 30, 2008 and 20072c)Condensed Statements of Cash Flows (Unaudited) for the three-month periods ended June 30, 2008 and 20073d)Notes to Condensed Financial Statements (Unaudited)4Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations6Item 3.Quantitative and Qualitative Disclosures About Market Risk13Item 4T.Controls and Procedures13Part II.Other InformationItem 1.Legal Proceedings13Item 2.Unregistered Sales of Equity Securities and Use of Proceeds13Item 3.Defaults Upon Senior Securities13Item 4.Submission of Matters to a Vote of Security Holders13Item 5.Other Information13Item 6.Exhibits13Index to Exhibits14Signatures15        PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsCHURCH LOANS & INVESTMENTS TRUST(A Real Estate Investment Trust)Condensed Balance Sheets (Unaudited)June 30, 2008 and March 31, 2008ASSETSJune 30,
2008March 31,
2008CASH AND CASH EQUIVALENTS$205,564$109,987RECEIVABLESMortgage loans and church bonds  performing50,113,60750,389,558Interim construction loans  performing11,886,64011,611,879Nonperforming mortgage loans, church bonds and interim construction loans4,936,5975,930,850Less: Allowance for credit losses(1,786,477)(1,786,477)65,150,36766,145,810Accrued interest receivable609,859608,930Notes receivable2,0002,000Net receivables65,762,22666,756,740PROPERTY AND EQUIPMENT,net216,480216,996OTHER REAL ESTATE OWNED1,735,6501,735,650OTHER ASSETS86,06636,950TOTAL ASSETS$68,005,986$68,856,323LIABILITIES AND SHAREHOLDERS EQUITYLIABILITIESNotes payable and line of credit:Related parties$13,774,446$13,059,425Other22,476,17924,380,96636,250,62537,440,391Accrued interest payable39,78849,617Other221,513183,011Total liabilities36,511,92637,673,019SHAREHOLDERS EQUITYShares of beneficial interest, no par value; authorized shares unlimited, 10,223,690 shares issued29,762,29129,762,291Undistributed net income1,748,2591,437,503Treasury shares, at cost (6,596 shares)(16,490)(16,490)Total shareholders equity31,494,06031,183,304TOTAL LIABILITIES AND SHAREHOLDERS EQUITY$68,005,986$68,856,323These condensed financial statements should be read only in connection
with the accompanying notes to condensed financial statements.   -1-    CHURCH LOANS & INVESTMENTS TRUST(A Real Estate Investment Trust)Condensed Statements of Income (Unaudited)Three-month periods ended June 30, 2008 and 2007Three-month periods ended
June 30,20082007INTEREST AND FEE INCOME:Interest income$1,572,430$1,574,224Fee income112,452170,156Interest and fee income1,684,8821,744,380INTEREST EXPENSE361,860765,147Net interest income1,323,022979,233PROVISION FOR CREDIT LOSSES--Net interest income less provision for
possible credit losses1,323,022979,233OTHER INCOMEGain on sale of other real estate owned-508,555Other6,88622,411Other income6,886530,966OTHER OPERATING EXPENSESGeneral and administrative284,955626,919Board of Trust Managers fees19,00011,700Total other operating expenses303,955638,619NET INCOME$1,025,953$871,580NET INCOME PER SHARE$.10$.09DIVIDENDS PER SHARE$.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)Three-month periods ended June 30, 2008 and 2007Three-month periods ended
June 30,20082007CASH FLOWS FROM OPERATING ACTIVITIESNet income$1,025,953$871,580Adjustments to reconcile net income to net cash provided (used) by
operating activities:Depreciation516516Gain 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 liabilities61,241196,335Other, net(49,116)(604,923)Net cash provided (used) by operating activities891,254(257,725)CASH FLOWS FROM INVESTING ACTIVITIESInvestment 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 bonds3,026,4508,911,520Proceeds from sale of other real estate owned-1,025,000Net cash provided (used) by investing activities1,109,286(1,379,474)CASH FLOWS FROM FINANCING ACTIVITIESBorrowings on notes payable and line of credit4,699,93813,758,711Principal 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)1,620,270Increase (decrease) in cash and cash equivalents95,577(16,929)CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD109,98795,412CASH AND CASH EQUIVALENTS AT END OF PERIOD$205,564$78,483Supplemental disclosure of cash flow informationCash paid during the period for interest$371,689$766,572These condensed financial statements should be read only in connection
with the accompanying notes to condensed financial statements.  -3-     CHURCH LOANS & INVESTMENTS TRUST (A Real Estate Investment Trust) Notes to Condensed Financial Statements (Unaudited)   NOTE 1  GENERAL  See Summary of Significant Accounting Policies in the Trusts Annual Report on Form 10-K for a summary of the Trusts significant accounting policies.  The unaudited condensed financial statements included herein were prepared from the books of the Trust in accordance with generally accepted accounting principles and reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the results of operations and financial position for the interim periods. Such financial statements generally conform to the presentation reflected in the Trusts Annual Report to Shareholders. The current interim period reported herein is included in the fiscal year subject to independent audit at the end of that year and is not necessarily an indication of the expected results for the fiscal year.  NOTE 2 - WEIGHTED AVERAGE INTEREST RATES  Weighted average interest rates and net interest rate margins at June 30, 2008 and 2007, were as follows:  Mortgage loan and
church bond portfolioTotal
indebtednessNet interest rate
marginJune 30, 20088.40%3.83%4.57%June 30, 20078.45%6.96%1.49%  NOTE 3 - CONTRACTUAL MATURITIES Scheduled principal payments on mortgage loans, church bonds and interim construction loans and indebtedness (including notes payable) outstanding at June 30, 2008, for the five twelve-month periods subsequent to June 30, 2008, follow:  Twelve-month period ending
June 30,Mortgage loans, church bonds
and interim loansTotal
Indebtedness2009$ 15,170,830$ 36,250,62520102,447,199-20112,607,166-20122,746,140-20132,717,816-  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 $19,000, respectively.   -4-    CHURCH LOANS & INVESTMENTS TRUST (A Real Estate Investment Trust) Notes to Condensed Financial Statements (Unaudited)   NOTE 5  FAIR VALUE MEASUREMENTS  Effective April 1, 2008, the Trust adopted SFAS No. 157, Fair Value Measurements, which requires disclosures for those assets and liabilities carried in the balance sheet on a fair value basis.  The Financial Accounting Standard Board (FASB) has deferred the effective date of SFAS No. 157 until 2009 for nonfinancial assets and liabilities which are recognized at fair value on a nonrecurring basis.  For the Trust, this deferral applies to other real estate owned.  SFAS No. 157 requires that assets and liabilities carried at fair value also be classified and disclosed according to the process for determining fair value.  There are three levels of determining fair value.  Level 1 uses quoted market prices in active markets for identical assets or liabilities.  Level 2 uses observable market based inputs or unobservable inputs that are corroborated by market data.  Level 3 uses unobservable inputs that are not corroborated by market data.  Certain assets are measured at fair value on a nonrecurring basis; that is, they are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).  The following table presents the assets carried on the balance sheet by caption and by level with the SFAS No. 157 valuation hierarchy as of June 30, 2008:  DescriptionTotalQuoted Prices in Active Markets for Identical Assets
(Level 1)Significant Other Observable Inputs
(Level 2)Significant Unobservable Inputs
(Level 3)Assets:Impaired Loans$ 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 elected 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.  -5-     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.   -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 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 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 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 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 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.  -7-    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 06/30/08For the Three Months
Ended 06/30/07Increase
(Decrease)Interest income:Mortgage loans$1,248,555$1,047,408$201,147Interim loans289,926492,132(202,206)Commitment fees112,452170,156(57,704)Other income and fees33,94934,684(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 Loan06/30/0806/30/07Increase
(Decrease)Total Mortgage and church bonds$53,950,204$53,375,769$574,435Performing mortgage and church bonds50,113,60748,494,3041,619,303Total Interim loans12,986,64022,458,476(9,471,836)  -8-    Performing interim loans11,886,64021,358,476(9,471,836)Total loan portfolio66,936,84475,834,245(8,897,401)Total performing loan portfolio62,000,24769,852,780(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  Month20082007DifferenceApril$67,469,937$75,224,697$(7,754,760)May67,605,08273,025,212(5,420,130)June66,936,84475,834,245(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:  -9-     Table 4 - Month End Total Liabilities for Each Month in the Three-Month Period Ended June 30, 2008 and June 30, 2007  Month20082007DifferenceApril$37,441,086$45,880,132$(8,439,046)May37,192,61443,493,942(6,301,328)June36,511,92646,224,751(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.   -10-   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 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 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  -11-   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 are not subject to being increased or decreased during the term of the loan.  All of our indebtedness is either directly or indirectly tied to the prime rate of interest charged by major banking institutions and, therefore, is subject to fluctuation.  During periods of inflation, the prime rate of interest charged by major banking institutions, as well as the interest rate or cost of borrowing money from any lender, generally increases.  Consequently, during an inflationary period our interest expense would increase.  Since our interest income would not increase as rapidly, an increase in the interest expense would decrease our net income.  However, interest income should subsequently increase as variable rate loans reprice.  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.   -12-   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.  -13-    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     -14-    SIGNATURESPursuant 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 TRUSTBy:/s/ Kelly ArcherKelly Archer
President and CEODate:August 13, 2008By:/s/ Robert E. FowlerRobert E. Fowler
Chief Financial Officer
(Principal Financial Officer)Date:August 13, 2008  -15-    Trade Mark and Copyright Notice

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