`CHEVY CHASE
                          PREFERRED CAPITAL CORPORATION
                                    FORM 10-Q
                               September 30, 2002















______________________________________________________________________________

                       SECURITIES AND EXCHANGE COMMISSION

                              Washington, DC 20549

                                    FORM 10-Q

                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                For the quarterly period ended September 30, 2002

                       Commission File Number: 333-10495

                   CHEVY CHASE PREFERRED CAPITAL CORPORATION

             (Exact name of registrant as specified in its charter)

              Maryland                                      52-1998335
   (State or other jurisdiction of                       (I.R.S. Employer
    incorporation or organization)                       Identification No.)

                             7501 Wisconsin Avenue
                            Bethesda, Maryland 20814

               (Address of principal executive offices) (Zip Code)

                                 (301)986-7000

              (Registrant's telephone number, including area code)


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
    ---   ---

The number of shares  outstanding of the registrant's sole class of common stock
was 100 shares, $1 par value, as of October 31, 2002.

______________________________________________________________________________





                   CHEVY CHASE PREFERRED CAPITAL CORPORATION

                               TABLE OF CONTENTS

                         PART I - FINANCIAL INFORMATION

                                                                          Page
                                                                          ----
Item 1. Financial Statements:..................................................1
 (a) Statements of Financial Condition at September 30, 2002 and
      December 31, 2001........................................................2
 (b) Statements of Operations for the Three Months and Nine Months Ended
      September 30, 2002 and 2001..............................................3
 (c) Statement of Stockholders' Equity for the Nine Months
      Ended September 30, 2002.................................................4
 (d) Statements of Cash Flows for the Nine Months Ended
      September 30, 2002 and 2001..............................................5
 (e) Notes to Financial Statements.............................................6

Item 2.  Management's Discussion and Analysis of Financial
          Condition and Results of Operations..................................8

Item 3.  Quantitative and Qualitative Disclosures about Market Risk...........13

Item 4.  Controls and Procedures..............................................13

                           PART II - OTHER INFORMATION

Item 1.  Legal Proceedings....................................................14

Item 2.  Changes in Securities................................................14

Item 3.  Defaults Upon Senior Securities......................................14

Item 4.  Submission of Matters to a Vote of Security Holders..................14

Item 5.  Other Information....................................................14

Item 6.  Exhibits and Reports on Form 8-K.....................................14







                                     PART I

ITEM 1. FINANCIAL STATEMENTS

The following unaudited financial  statements and notes of Chevy Chase Preferred
Capital  Corporation  (the  "Company")  have been  prepared in  accordance  with
generally accepted accounting principles for interim financial  information.  In
the opinion of management,  all adjustments necessary for a fair presentation of
the  financial  position and the results of  operations  for the interim  period
presented have been  included.  Such  unaudited  financial  statements and notes
should be read in conjunction with the Company's financial  statements and notes
for the year ended December 31, 2001 included in the Company's  Annual Report on
Form 10-K (File No. 333-10495) filed with the Securities and Exchange Commission
on March 29, 2002 (the "2001 10-K").

                                      -1-





                   CHEVY CHASE PREFERRED CAPITAL CORPORATION

                       STATEMENTS OF FINANCIAL CONDITION

                                                 September 30,     December 31,
                                                     2002             2001
                                                ---------------  ---------------
                                                   (Unaudited)
                                     ASSETS
Cash and interest-bearing deposits               $   2,989,282    $   5,764,867
Residential mortgage loans (net of
 allowance for losses of $40,333
 for both periods)                                 284,058,623      287,523,781
Accounts receivable from parent                     16,570,208       11,825,608
Accrued interest receivable                          1,205,233        1,196,337
Prepaid expenses                                         7,533            8,000
                                                ---------------  ---------------
  Total assets                                   $ 304,830,879    $ 306,318,593
                                                ===============  ===============

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses and accounts payable
  to others                                             76,276           69,050
Dividends payable to parent                                -          2,700,000
Dividends payable to others                          3,890,625        3,890,625
                                                ---------------  ---------------
 Total liabilities                                   3,966,901        6,659,675
                                                ---------------  ---------------

Preferred Stock, 10,000,000 shares authorized:
 10 3/8% Noncumulative Exchangeable
 Preferred Stock, $5 par value,
 3,000,000 shares issued and outstanding
 (liquidation value of $150,000,000 plus
 accrued and unpaid dividends)                      15,000,000       15,000,000
Common stock, $1 par value,
 1,000 shares authorized, 100 shares
 issued and outstanding                                    100              100
Capital contributed in excess of par               284,999,900      284,658,818
Retained earnings                                      863,978              -
                                                ---------------  ---------------

 Total stockholders' equity                        300,863,978      299,658,918
                                                ---------------  ---------------

  Total liabilities and stockholders' equity     $ 304,830,879    $ 306,318,593
                                                ===============  ===============


               See the accompanying Notes to Financial Statements.


                                      -2-



                   CHEVY CHASE PREFERRED CAPITAL CORPORATION

                            STATEMENTS OF OPERATIONS

                                   (Unaudited)


                                Three Months Ended        Nine Months Ended
                                   September 30,            September 30,
                              ----------------------  --------------------------
                                2002       2001          2002          2001
                              ----------  ----------  ------------  ------------
Interest Income
 Residential mortgage loans   $4,369,082  $5,174,390  $13,401,376   $16,125,271
 Other                            19,108      43,850       64,839       128,467
                              ----------  ----------  ------------  ------------
   Total interest income       4,388,190   5,218,240   13,466,215    16,253,738

Gain on sales of real estate
 acquired in settlement of
 loans, net                          -           -            -          21,924
                              ----------  ----------  ------------  ------------
     Total income              4,388,190   5,218,240   13,466,215    16,275,662
                              ----------  ----------  ------------  ------------
Operating Expenses
 Loan servicing fees paid to
  parent                         238,284     252,719      707,601       793,320
 Advisory fees paid to parent     50,000      50,000      150,000       150,000
 Directors fees                    4,000       6,500       24,000        22,500
 General and administrative       10,490      29,146       48,761        49,486
                              ----------  ----------  ------------  ------------
  Total operating expenses       302,774     338,365      930,362     1,015,306
                              ----------  ----------  ------------  ------------
Income before income taxes     4,085,416   4,879,875   12,535,853    15,260,356
Provision for income taxes           -         8,073          -          10,373
                              ----------  ----------  ------------  ------------

NET INCOME                    $4,085,416  $4,871,802  $12,535,853   $15,249,983
                              ==========  ==========  ============  ============

PREFERRED STOCK DIVIDENDS      3,890,625   3,890,625   11,671,875    11,671,875
                              ----------  ----------  ------------  ------------
EARNINGS AVAILABLE TO
 COMMON STOCKHOLDER           $  194,791  $  981,177  $   863,978   $ 3,578,108
                              ==========  ==========  ============  ============

EARNINGS PER COMMON SHARE     $ 1,947.91  $ 9,811.77  $  8,639.78   $ 35,781.08
                              ==========  ==========  ============  ============








               See the accompanying Notes to Financial Statements.
                                      -3-





                   CHEVY CHASE PREFERRED CAPITAL CORPORATION

                     STATEMENT OF STOCKHOLDERS' EQUITY

                                   (Unaudited)


                                                        Capital
                                                      Contributed                     Total
                                Preferred    Common    In Excess      Retained     Stockholders'
                                  Stock      Stock      of Par        Earnings        Equity
                              ------------   ------ --------------  ------------- --------------

Balance, December 31, 2001     $15,000,000    $100   $ 284,658,818  $      -      $ 299,658,918

Net income                             -        -              -      12,535,853     12,535,853

Capital contribution from
 common stockholder                    -        -          341,082         -            341,082

Dividends on 10 3/8 %
 Noncumulative Exchangeable
 Preferred Stock, Series A             -        -              -     (11,671,875)   (11,671,875)
                              ------------   ------ ---------------  ------------ --------------

Balance, September 30, 2002    $15,000,000    $100   $ 284,999,900   $   863,978  $ 300,863,978
                              ============   ====== ===============  ============ ==============





















               See the accompanying Notes to Financial Statements.

                                      -4-



                   CHEVY CHASE PREFERRED CAPITAL CORPORATION

                            STATEMENTS OF CASH FLOWS

                                   (Unaudited)

                                                       Nine Months Ended
                                                         September 30,
                                               ---------------------------------
                                                    2002               2001
                                               ---------------   ---------------
Cash flows from operating activities:

Net income                                     $   12,535,853    $   15,249,983
Adjustments to reconcile net income to net
 cash provided by operating activities:
  Gain on sales of real estate acquired in
   settlement of loans, net                               -             (21,924)
  Increase in accounts receivable from parent      (4,744,600)       (3,372,922)
  (Increase) decrease in accrued interest
    receivable                                         (8,896)           75,833
  Decrease in prepaid expenses                            467               467
  Increase (decrease) in accrued expenses
   and accounts payable                                 7,226           (93,380)
                                               ---------------   ---------------
 Net cash provided by operating activities          7,790,050        11,838,057
                                               ---------------   ---------------
Cash flows from investing activities:
 Purchases of residential mortgage loans         (108,359,099)      (69,030,307)
 Repayments of residential mortgage loans         111,824,257        72,134,994
 Net proceeds on sales of real estate
  acquired in settlement of loans                         -             138,330
                                               ---------------   ---------------
 Net cash provided by investing activities          3,465,158         3,243,017
                                               ---------------   ---------------
Cash flows from financing activities:

 Capital contribution from common stockholder         341,082             1,255
 Dividends paid on preferred stock                (11,671,875)      (11,671,875)
 Dividends paid on common stock                    (2,700,000)       (4,275,000)
                                               ---------------   ---------------

 Net cash used in financing activities            (14,030,793)      (15,945,620)
                                               ---------------   ---------------
Net decrease in cash and cash equivalents          (2,775,585)         (864,546)
Cash and cash equivalents at beginning of
 period                                             5,764,867         5,122,692
                                               ---------------   ---------------
Cash and cash equivalents at end of period     $    2,989,282    $    4,258,146
                                               ===============   ===============

Supplemental disclosures of cash flow
 information:

 Income taxes paid during the year             $          -      $       10,373
                                               ===============   ===============


               See the accompanying Notes to Financial Statements.

                                      -5-



                   CHEVY CHASE PREFERRED CAPITAL CORPORATION

                         NOTES TO FINANCIAL STATEMENTS

                                  (Unaudited)

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION:

The Company is a Maryland  corporation  which  acquires,  holds and manages real
estate assets.  Chevy Chase Bank, F.S.B. (the "Bank"), a federally insured stock
savings bank, owns all of the Company's  common stock. The Bank is in compliance
with its regulatory capital requirements.

Certain  reclassifications  of prior  periods'  information  have  been  made to
conform  with the  presentation  for the  three  months  and nine  months  ended
September 30, 2002.

NOTE 2 - RESIDENTIAL MORTGAGE LOANS:

Residential   mortgage  loans  consist  of  monthly  adjustable  rate  mortgages
("ARMs"), one-year ARMs, three-year ARMs and five-year,  seven-year and ten-year
fixed-rate loans with automatic conversion to one-year ARMs after the end of the
respective  fixed rate period,  and 30 year  fixed-rate  mortgages.  Each of the
mortgage  loans is  secured  by a  mortgage,  deed of  trust  or other  security
instrument  which created a first lien on the residential  dwellings  located in
their  respective  jurisdictions.  The  following  table  shows the  residential
mortgage loan portfolio by type at the dates indicated:

                                    September 30,          December 31,
                                       2002                   2001
                               -----------------       ------------------
    Monthly ARMs                $   70,181,721          $    79,541,872
    One-year ARMs                   17,866,978               21,583,666
    Three-year ARMs                 23,775,471               19,462,468
    5/1 ARMs                        52,655,895               49,804,806
    7/1 ARMs                        13,167,619                8,378,308
    10/1 ARMs                       70,001,670               99,255,916
    30 year fixed-rate              36,449,602                9,537,078
                                ----------------       ------------------
         Total                     284,098,956              287,564,114
          Less:
    Allowance for loan losses           40,333                   40,333
                                ----------------       ------------------

               Total             $ 284,058,623           $  287,523,781
                                ================       ==================

NOTE 3 - PREFERRED STOCK:

Cash dividends on the Company's 10 3/8 %  Noncumulative  Exchangeable  Preferred
Stock,  Series A ("the  Series A Preferred  Shares")  are payable  quarterly  in
arrears.  The  liquidation  value of each Series A  Preferred  Share is $50 plus
accrued and unpaid  dividends.  The Series A Preferred Shares are not redeemable
until  January 15, 2007 (except upon the  occurrence  of certain tax events) and
are  redeemable  thereafter  at the option of the Company.  Except under certain
limited

                                      -6-



                   CHEVY CHASE PREFERRED CAPITAL CORPORATION

                         NOTES TO FINANCIAL STATEMENTS

                                  (Unaudited)

NOTE 3 - PREFERRED STOCK (continued):

circumstances,  the  holders of the  Series A  Preferred  Shares  have no voting
rights.  The Series A Preferred Shares are automatically  exchangeable for a new
series of  preferred  stock of the Bank upon the  occurrence  of certain  events
relating to the Bank.

NOTE 4 - DIVIDENDS:

During the three  months  ended  September  30,  2002,  the  Company's  Board of
Directors  declared a cash dividend of  $3,890,625  on the  Company's  preferred
stock,  out of the retained  earnings of the  Company.  The dividend was paid on
October 15, 2002.

During  the nine  months  ended  September  30,  2002,  the  Company's  Board of
Directors  declared cash  dividends of  $11,671,875  on the Company's  preferred
stock, out of the retained earnings of the Company.

There were no common  dividends  declared during the nine months ended September
30, 2002.

                                      -7-




ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

FINANCIAL CONDITION

Recent  Developments.  On August 13, 2002 the Company filed a Current  Report on
Form 8-K with the SEC reporting the Company had dismissed Arthur Andersen LLP as
independent public accountants of the Company and engaged Ernst and Young LLP to
serve as independent public accountants to audit the financial statements of the
Company for the year ended December 31, 2002.

Residential Mortgage Loans

At September 30, 2002 and December 31, 2001,  the Company had  $284,058,623  and
$287,523,781,  respectively,  invested in loans  secured by first  mortgages  or
deeds of trust on single-family residential real estate properties ("Residential
Mortgage Loans").  During the nine months ended September 30, 2002,  Residential
Mortgage  Loan  purchases  were  $108,359,099  and  principal  collections  were
$111,824,257.  Management intends to continue to reinvest proceeds received from
repayments of loans in  additional  Residential  Mortgage  Loans to be purchased
from either the Bank or its affiliates.

At September 30, 2002, the Company had six non-accrual loans (contractually past
due 90 days or more or with respect to which other  factors  indicate  that full
payment of  principal  and interest is  unlikely)  with an  aggregate  principal
balance of $1,313,253 (or 0.46% of loans). At December 31, 2001, the Company had
three  non-accrual  loans with an aggregate  principal balance of $1,088,562 (or
0.38% of loans). The increase reflects the general economic downturn.

At September 30, 2002, the Company had three loans,  which were delinquent 30-89
days with an aggregate  principal  balance of $555,954  (or 0.20% of loans).  At
December  31,  2001,  the Company had eight  delinquent  loans with an aggregate
principal balance of $1,320,986 (or 0.46% of loans).

Allowance for Loan Losses

An analysis is performed periodically to determine whether an allowance for loan
loss is required. An allowance may be provided after considering such factors as
the economy in lending areas,  delinquency  statistics and past loss experience.
The  allowance for loan losses is based on  estimates,  and ultimate  losses may
vary from current  estimates.  As adjustments to the allowance become necessary,
provisions  for loan losses are reported in  operations  in the periods that are
determined  to be  necessary.  There was no activity in the  allowance  for loan
losses during the three months ended September 30, 2002 and 2001. The balance of
the  allowance  for loan  losses was $40,333 at each of  September  30, 2002 and
2001.


                                      -8-



Interest Rate Risk

The Company's  income  consists  primarily of interest  payments on  Residential
Mortgage Loans.  If there is a decline in interest rates,  then the Company will
experience a decrease in income available to be distributed to its stockholders.
Certain  Residential  Mortgage Loans which the Company holds allow  borrowers to
convert an ARM to a fixed-rate mortgage, thus "locking in" a fixed interest rate
at a time when interest  rates have declined.  In addition,  when interest rates
decline,  holders  of  fixed-rate  mortgages  are more  likely  to  prepay  such
mortgages.  In recent  periods,  primarily  as a result of a decline in interest
rates, the Company has experienced an increase in prepayments on its Residential
Mortgage Loans.

Based on the outstanding balance of the Company's  Residential Mortgage Loans at
September  30, 2002 and the  interest  rates on such loans,  anticipated  annual
interest  income,  net of servicing  fees, on the Company's  loan  portfolio was
approximately  104.0% of the projected annual dividend on the Series A Preferred
Shares.  There can be no assurance  that an interest rate  environment  in which
there is a continued  decline in interest  rates would not adversely  affect the
Company's  ability  to pay  dividends  on the  Series A  Preferred  Shares.  The
Company, to date, has not used any derivative instruments to manage its interest
rate risk.

There have been no material  changes to the  Company's  market risk  disclosures
from the disclosures made in the 2001 10-K.

Significant Concentration of Credit Risk

Concentration of credit risk arises when a number of customers engage in similar
business  activities,  or activities in the same  geographical  region,  or have
similar  economic  features that would cause their  ability to meet  contractual
obligations  to  be  similarly  affected  by  changes  in  economic  conditions.
Concentration of credit risk indicates the relative sensitivity of the Company's
performance  to both positive and negative  developments  affecting a particular
industry.

The Company's exposure to geographic  concentrations directly affects the credit
risk of the  Residential  Mortgage  Loans within the  portfolio.  A majority (or
55.2%) of the Company's  Residential  Mortgage  Loans are secured by residential
real estate properties located in the Washington,  DC metropolitan area. Service
industries and Federal, state and local governments employ a significant portion
of the Washington, DC area labor force. Consequently, these loans may be subject
to a greater risk of default than other comparable residential mortgage loans in
the event of adverse  economic,  political or business  developments and natural
hazards in the region that may affect the ability of residential property owners
in the region to make  payments of  principal  and  interest  on the  underlying
mortgages.

                                      -9-



Liquidity  and Capital  Resources

The  objective  of  liquidity  management  is  to  ensure  the  availability  of
sufficient  cash flows to meet all of the Company's  financial  commitments.  In
managing  liquidity,  the Company takes into account  various legal  limitations
placed on a real estate investment trust (a "REIT"),  as discussed below in "Tax
Status of the Company."

The  Company's  principal  liquidity  needs will be to fund the  acquisition  of
additional  mortgage  assets as current  mortgage assets held by the Company are
repaid and to pay dividends on the Series A Preferred Shares. The acquisition of
such additional  mortgage assets will be funded with the proceeds from principal
repayments  on its current  portfolio of mortgage  assets.  The Company does not
anticipate  that it will  have any  other  material  capital  expenditures.  The
Company  believes that cash generated from the payment of principal and interest
on its  mortgage  asset  portfolio  will  provide  sufficient  funds to meet its
operating  requirements and to pay dividends in accordance with the requirements
to be treated as a REIT for income tax purposes for the foreseeable  future. The
Company may borrow funds as it deems necessary.

Tax Status of the Company

The Company has elected to be taxed as a REIT under  Sections 856 through 860 of
the Internal Revenue Code of 1986, as amended.  As a REIT, the Company generally
will not be subject to federal income tax on its net income  (excluding  capital
gains) provided that it distributes  annually 100% of its REIT taxable income to
its stockholders, meets certain organizational,  stock ownership and operational
requirements  and meets certain income and asset tests. To remain qualified as a
REIT,  the Company must  distribute  each year at least 90% of its "REIT taxable
income" (not including capital gains) for that year to stockholders.  If, in any
taxable year,  the Company fails to qualify as a REIT,  the Company would not be
allowed a deduction for  distributions  to stockholders in computing its taxable
income  and would be  subject to federal  and state  income tax  (including  any
applicable  alternative  minimum tax) on its taxable income at regular corporate
rates. In addition,  the Company would also be disqualified  from treatment as a
REIT for the four taxable years  following  the year during which  qualification
was lost.

No income tax was paid during the nine months ended  September 30, 2002.  During
the nine months ended  September  30,  2001,  the Company paid $10,373 in income
taxes  related to capital  gains of $42,833 on the sale of one Real Estate Owned
("REO") property in the year 2001, and two REO properties sold in the year 2000.


                                      -10-




RESULTS OF OPERATIONS

Three Months Ended  September 30, 2002 Compared to Three Months Ended  September
30, 2001

During the three months ended September 30, 2002 and 2001, the Company  reported
net income of $4,085,416 and $4,871,802, respectively.

Interest income on Residential  Mortgage Loans totaled  $4,369,082 for the three
months ended September 30, 2002 (the "2002 quarter"), compared to $5,174,390 for
the three months ended September 30, 2001 (the "2001 quarter").  The decrease in
interest  income  resulted from a decrease in the average yield on such loans to
6.10% in the 2002 quarter from 7.08% in the 2001 quarter. The average balance of
the  Residential  Mortgage Loan portfolio was  $286,465,516  in the 2002 quarter
compared to $292,427,219 in the 2001 quarter. The Company would have recorded an
additional  $29,899 and $5,395 in  interest  income for the three  months  ended
September  30,  2002  and  2001,  had its  non-accrual  loans  been  current  in
accordance with their original terms.

Other  interest  income of $19,108 and $43,850 was  recognized  on the Company's
interest  bearing  deposits during the three months ended September 30, 2002 and
2001,  respectively.  The decrease was primarily due to a lower average yield on
interest  bearing  deposits  which  decreased by 216 basis points (from 3.48% to
1.32%) from the average yield in the 2001  quarter.  Partially  offsetting  this
decrease was an increase in the average balance on interest  bearing deposits of
$765,889 in the 2002 quarter.

No provision  for loan losses was recorded for the three months ended  September
30, 2002 and 2001.

The  Company  did not sell any REO  properties  during  the three  months  ended
September 30, 2002 and 2001.

Operating  expenses  totaling  $302,774  and $338,365 for the three months ended
September 30, 2002 and 2001, respectively, were comprised of loan servicing fees
paid to parent,  advisory  fees paid to parent,  directors  fees and general and
administrative  expenses.  Loan  servicing  fees paid to parent of $238,284  and
$252,719, for the three months ended September 30, 2002 and 2001,  respectively,
were  based on a  servicing  fee rate of  0.375%  per  annum of the  outstanding
principal  balances  of  Residential  Mortgage  Loans,  pursuant  to a servicing
agreement between the Company and the Bank. Advisory fees paid to parent for the
three months ended September 30, 2002 and 2001 totaled $50,000 for each quarter.
Directors' fees paid for the three months ended September 30, 2002 and 2001 were
$4,000  and  $6,500,  respectively,   and  represent  compensation  to  the  two
independent  members  of the  Board of  Directors.  General  and  administrative
expenses  totaled  $10,490 and $29,146 for the three months ended  September 30,
2002 and 2001, respectively. The decrease in general and administrative expenses
is  primarily  due to a decrease in  independent  auditor  fees and trustee fees
compared to the 2001 period.


                                      -11-




On September 24, 2002,  the Company's  Board of Directors  declared,  out of the
retained earnings of the Company,  a cash dividend of $1.296875 per share on the
outstanding Series A Preferred Shares. Dividends of $3,890,625 were subsequently
paid on October 15, 2002.

There were no common dividends declared during the 2002 quarter.

Nine Months Ended September 30, 2002 Compared to Nine Months Ended September 30,
2001

During the nine months ended  September 30, 2002 and 2001, the Company  reported
net income of $12,535,853 and $15,249,983, respectively.

Interest income on Residential  Mortgage Loans totaled  $13,401,376 for the nine
months ended September 30, 2002 (the "2002 period"), compared to $16,125,271 for
the nine months ended  September 30, 2001 (the "2001  period").  The decrease in
interest  income  resulted from a decrease in the average yield on such loans to
6.18% in the 2002 period from 7.35% in the 2001 period. Also contributing to the
decrease  in  interest  income  was a  decrease  in the  average  balance of the
Residential  Mortgage  Loan  portfolio to  $289,193,331  in the 2002 period from
$292,533,854  in the 2001 period.  The Company would have recorded an additional
$35,756  and $17,808 in  interest  income for the 2002  period and 2001  period,
respectively,  had its  non-accrual  loans been current in accordance with their
original terms.

Other  interest  income of $64,839 and $128,467 was  recognized on the Company's
interest bearing deposits during the 2002 period and 2001 period,  respectively.
The decrease was  primarily  due to a lower  average  yield on interest  bearing
deposits  which  decreased  by 197 basis  points  (from 3.46% to 1.49%) from the
average yield in the 2001  quarter.  Partially  offsetting  this decrease was an
increase in the average balance on interest  bearing deposits of $868,325 in the
2002 period.

No provision  for loan losses was recorded for the periods  ended  September 30,
2002 and 2001.

The Company did not sell any REO properties during the 2002 period.  The Company
recognized  a gain of  $21,924 on the sale of one REO  property  during the 2001
period.

Operating expenses totaling $930,362 and $1,015,306 for the 2002 period and 2001
period,  respectively,  were  comprised of loan  servicing  fees paid to parent,
advisory  fees paid to parent,  directors  fees and general  and  administrative
expenses.  Loan servicing fees paid to parent of $707,601 and $793,320,  for the
2002 period and 2001 period, respectively, were based on a servicing fee rate of
0.375% per annum of the outstanding  principal balances of Residential  Mortgage
Loans,  pursuant  to a  servicing  agreement  between  the Company and the Bank.
Advisory fees paid to parent for the 2002 and 2001 periods totaled  $150,000 for
each period.  Directors' fees paid for the 2002 and 2001 periods totaled $24,000
and $22,500,  respectively,  and represent  compensation  to the two independent
members of the Board of Directors.  General and administrative  expenses totaled
$48,761 and $49,486 for the 2002 and 2001 periods, respectively.

                                      -12-




During  the nine  months  ended  September  30,  2002,  the  Company's  Board of
Directors declared out of the retained earnings of the Company cash dividends of
$11,671,875 on the outstanding Series A Preferred shares.

There were no common dividends declared during the 2002 period.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

Information  required  by  this  item  is  included  in  Item  2,  "Management's
Discussion  and  Analysis of  Financial  Condition  and Results of  Operations -
Interest Rate Risk," which is hereby incorporated herein by reference.

ITEM 4. Controls and Procedures

Within the 90-day period prior to the date of this report,  the Company  carried
out an  evaluation,  under the  supervision  and with the  participation  of the
Company's management,  including the Company's Chief Executive Officer and Chief
Financial  Officer,  of the  effectiveness  of the design and  operation  of the
Company's  disclosure controls and procedures.  Based upon that evaluation,  the
Chief Executive Officer and Chief Financial Officer concluded that the Company's
disclosure  controls and  procedures  are  effective in timely  alerting them to
material  information  relating  to the  Company  required to be included in the
Company's filings under the Securities Exchange Act of 1934, as amended.

There have been no significant changes in the Company's internal controls, or in
other factors that could significantly  affect internal controls,  subsequent to
the date the Company carried out its evaluation.

                                      -13-




                          PART II - OTHER INFORMATION

ITEM 1. Legal Proceedings

The Company is not the subject of any material litigation.  None of the Company,
the Bank or any  affiliate  of the Bank is  currently  involved  in nor,  to the
Company's  knowledge,  is currently threatened with any material litigation with
respect to the Residential Mortgage Loans included in the portfolio,  other than
routine litigation arising in the ordinary course of business,  most of which is
covered by liability insurance.

ITEM 2. Changes in Securities

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 and Reports on Form 8-K

(a) Exhibits required by Item 601 of Regulation S-K are set forth below.

Exhibit
   No.          Exhibit
------------------------
   11       Computation of Earnings Per Common Share included in Part I, Item 1
             of this report
   99.1     Certification of Chief Executive Officer,  Pursuant to 18 U.S.C.
             Section 1350 as Adopted Pursuant to Section 906 of the
             Sarbanes-Oxley Act of 2002
   99.2     Certification of Chief Financial Officer,  Pursuant to 18 U.S.C.
             Section 1350 as Adopted Pursuant to Section 906 of the
             Sarbanes-Oxley Act of 2002

(b) A current  report on Form  8-K,  dated  August  13,  2002,  was filed by the
Company with the SEC reporting the Company had dismissed  Arthur Andersen LLP as
independent public accountants of the Company and engaged Ernst and Young LLP to
serve as independent public accountants to audit the financial statements of the
Company for the year ending December 31, 2002. (Item reported: Item 4)

                                      -14-




                                   SIGNATURES

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

                    CHEVY CHASE PREFERRED CAPITAL CORPORATION
                                  (Registrant)


    November 14, 2002                 By:  /s/ ALEXANDER R. M. BOYLE
                                      Alexander R. M. Boyle
                                      Vice Chairman of the Board


    November 14, 2002                 By:  /s/ STEPHEN R. HALPIN, JR.
                                      Stephen R. Halpin, Jr.
                                      Executive Vice President and
                                      Chief Financial Officer
                                      (Principal Financial Officer)


     November 14, 2002                By:  /s/ JOEL A. FRIEDMAN
                                      Joel A. Friedman
                                      Senior Vice President and Controller
                                      (Principal Accounting Officer)





                                 CERTIFICATION

I, B. Francis Saul, II,  certify that:

1. I have reviewed this quarterly  report on Form 10-Q of Chevy Chase  Preferred
Capital Corporation;

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

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


4.  The  registrant's  other  certifying  officers  and  I are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

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

b) evaluated  the  effectiveness  of the  registrant's  disclosure  controls and
procedures  as of a date  within  90  days  prior  to the  filing  date  of this
quarterly report (the "Evaluation Date"); and

(c) presented in this quarterly report our conclusions  about the  effectiveness
of the  disclosure  controls and  procedures  based on our  evaluation as of the
Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's board of directors:

(a) all significant deficiencies in the design or operation of internal controls
which  could  adversely  affect the  registrant's  ability  to record,  process,
summarize and report  financial data and have  identified  for the  registrant's
auditors any material weaknesses in internal controls; and

(b) any fraud,  whether  or not  material,  that  involves  management  or other
employees who have a significant role in the registrant's internal controls; and





6. The  registrant's  other  certifying  officers  and I have  indicated in this
quarterly  report  whether or not there  were  significant  changes in  internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date:  November 14, 2002          /s/ B. FRANCIS SAUL, II
                                  ------------------------------------------
                                  B. Francis Saul, II
                                  Chairman and Chief Executive Officer




                                 CERTIFICATION

I, Stephen R. Halpin, Jr., certify that:

1. I have reviewed this quarterly  report on Form 10-Q of Chevy Chase  Preferred
Capital Corporation;

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

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

4.  The  registrant's  other  certifying  officers  and  I are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

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

b) evaluated  the  effectiveness  of the  registrant's  disclosure  controls and
procedures  as of a date  within  90  days  prior  to the  filing  date  of this
quarterly report (the "Evaluation Date"); and

(c) presented in this quarterly report our conclusions  about the  effectiveness
of the  disclosure  controls and  procedures  based on our  evaluation as of the
Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's board of directors:

(a) all significant deficiencies in the design or operation of internal controls
which  could  adversely  affect the  registrant's  ability  to record,  process,
summarize and report  financial data and have  identified  for the  registrant's
auditors any material weaknesses in internal controls; and

b) any  fraud,  whether  or not  material,  that  involves  management  or other
employees who have a significant role in the registrant's internal controls; and




6. The  registrant's  other  certifying  officers  and I have  indicated in this
quarterly  report  whether or not there  were  significant  changes in  internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date:  November 14, 2002            /s/ STEPHEN R. HALPIN, Jr.
                                    ------------------------------------------
                                    Stephen R. Halpin, Jr.
                                    Executive Vice President and
                                    Chief Financial Officer





                                                                    Exhibit 11

Computation  of  Earnings  Per Common  Share  included in Part I, Item 1 of this
report.





                                                                  Exhibit 99.1



                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER

           PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO

                 SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned,  B. Francis Saul, II, the Chairman and Chief Executive  Officer
of Chevy Chase Preferred Capital Corporation (the "Company"),  has executed this
certification  in connection  with the filing with the  Securities  and Exchange
Commission of the Company's  Quarterly  Report on Form 10-Q for the period ended
September 30, 2002 (the "Report"). The undersigned hereby certifies that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of
     the Securities Exchange Act of 1934; and

(2) the  information  contained in the Report fairly  presents,  in all material
     respects, the financial condition and results of operations of the Company.


    Date:    November 14, 2002              /s/ B. FRANCIS SAUL, II
                                            ------------------------------------
                                            B. Francis Saul, II
                                            Chairman and Chief Executive Officer







                                                                  Exhibit 99.2



                    CERTIFICATION OF CHIEF FINANCIAL OFFICER

           PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO

                 SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned,  Stephen R. Halpin, Jr., the Executive Vice President and Chief
Financial Officer of Chevy Chase Preferred Capital  Corporation (the "Company"),
has  executed  this  certification  in  connection  with  the  filing  with  the
Securities  and Exchange  Commission of the Company's  Quarterly  Report on Form
10-Q for the period ended  September 30, 2002 (the  "Report").  The  undersigned
hereby certifies that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of
     the Securities Exchange Act of 1934; and

(2) the  information  contained in the Report fairly  presents,  in all material
     respects, the financial condition and results of operations of the Company.


         Date:    November 14, 2002             /s/ STEPHEN R. HALPIN, JR.
                                                ---------------------------
                                                Stephen R. Halpin, Jr.
                                                Executive Vice President and
                                                Chief Financial Officer`