CHEVY CHASE
               PREFERRED CAPITAL CORPORATION
                         FORM 10-Q
                      March 31, 1998












<PAGE>



--------------------------------------------------------------------------------

            SECURITIES AND EXCHANGE COMMISSION

                  Washington, D.C.  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 March 31, 1998

             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 jurisdi(I.R.S. Employer
         incorporation or organiIdentification No.)

                  8401 Connecticut Avenue
                Chevy Chase, Maryland 20815
    (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 April 30, 1998.



<PAGE>




           CHEVY CHASE PREFERRED CAPITAL CORPORATION

                       TABLE OF CONTENTS


                PART I - FINANCIAL INFORMATION
                                                                         Page
     Item 1.  Financial Statements:......................                 1
         (a)Statements of Financial Condition at March 31, 1998
            and December 31, 1997........................                 2
         (b)Statements of Operations for the Three Months Ended
              March 31, 1998 and 1997 ...................                 3
         (c)Statement of Stockholders' Equity for the Three Months
              Ended March 31, 1998.......................                 4
         (d)Statements of Cash Flows for the Three Months Ended
              March 31, 1998 and 1997....................                 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 12


                  PART II - OTHER INFORMATION

     Item 1.  Legal Proceedings .........................                12

     Item 2.  Changes in Securities......................                12

     Item 3.  Defaults Upon Senior Securities............                12

     Item 4.  Submission of Matters to a Vote of Security Holders        12

     Item 5.  Other Information..........................                12

     Item 6.  Exhibits and Reports on Form 8-K ..........                12




                               i

<PAGE>






                            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, 1997, included in the Company's Annual Report on
Form  10-K  (File  No.  333-  10495)  filed  with the  Securities  and  Exchange
Commission on March 30, 1998.



                               1

<PAGE>




           CHEVY CHASE PREFERRED CAPITAL CORPORATION
               STATEMENTS OF FINANCIAL CONDITION
                          (Unaudited)

                                                      March 31,    December 31,
                                                        1998           1997
                                                  -------------   ------------- 
                                 ASSETS

Cash and interest-bearing deposits                $   2,675,810   $   3,894,269
Residential mortgage loans (net of allowance for
  losses of $40,333 and $39,999, respectively)      286,123,624     290,382,131
Real estate acquired in settlement of loans, net        370,846         173,738
Accounts receivable from parent                      14,383,537      10,374,891
Accrued interest receivable                           1,605,604       1,562,478
Prepaid expenses                                        412,376         435,809
                                                 -------------   -------------  
 Tottal assets                                   $ 305,571,797   $ 306,823,316
                                                  =============   =============


             LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable to parent                        $     182,354   $     163,793
Accounts payable - others                                 -               3,749
Dividends payable to parent                             350,000       2,850,000
Dividends payable - others                             ,890,625       3,890,625
Accrued expenses                                          8,047             -
                                                  --------------  --------------

   Total liabilities                                  4,431,026       6,908,167
                                                  --------------  --------------

103/8% Noncumulative Exchangeable Preferred Stock, 
Series A, $5 par  value, 10,000,000 shares authorized,
3,000,000 shares issued and outstanding(liquidation
value of $50 per share 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     284,915,049
Retained earnings                                     1,140,771               -
                                                 --------------    ------------

   Total stockholders' equity                       301,140,771     299,915,149
                                                 --------------    ------------
   Total liabilities and stockholders' equity    $  305,571,797    $306,823,316
                                                 ==============    ============
The Notes to Financial Statements are an integral part of these statements.


                               2

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              CHEVY CHASE PREFERRED CAPITAL CORPORATION
                      STATEMENTS OF OPERATIONS
                             (Unaudited)
                                                    Three Months Ended
                                                         March 31,
                                                 1998                1997
                                            -------------       ------------- 
Interest income
  Residential mortgage loans                $   5,701,251       $   5,651,469
  Other                                            45,337              10,042
                                            -------------       -------------

    Total interest income                       5,746,588           5,661,511

Gain on sale of real estate acquired in
  settlement of loans, net                            960               -
                                            -------------       -------------

    Total income                                5,747,548           5,661,511
                                            -------------        ------------

Operating expenses
  Loan servicing fees paid to parent              272,065             297,305
  Advisory fees paid to parent                     50,000              50,000
  Directors fees                                    7,000               5,000
  General and administrative                       37,087              25,247
                                            -------------       -------------

    Total operating expenses                      366,152             377,552
                                            -------------      --------------

NET INCOME                                  $   5,381,396      $    5,283,959
                                            =============      ==============

PREFERRED STOCK DIVIDENDS                       3,890,625           3,890,625
                                            -------------      --------------

EARNINGS AVAILABLE TO
 COMMON STOCKHOLDER                         $   1,490,771      $    1,393,334
                                            =============      ==============

EARNINGS PER COMMON SHARE                   $   14,907.71      $    13,933.34
                                            =============      ==============










The Notes to Financial Statements are an integral part of these statements.

                                  3

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              CHEVY CHASE PREFERRED CAPITAL CORPORATION
                  STATEMENT OF STOCKHOLDERS' EQUITY
                             (Unaudited)

              For the Three Months Ended March 31, 1998

<TABLE>
                                                            Capital
                                                          Contributed                      Total
                              Preferred       Common       in Excess       Retained     Stockholders'
                                Stock          Stock         of Par        Earnings        Equity
<S>                         <C>           <C>          <C>            <C>           <C>    

Balance, December 31, 1997  $ 15,000,000   $     100    $ 284,915,049  $      -      $  299,915,149

Net income                         -             -             -          5,381,396       5,381,396

Capital contribution from 
 common stockholder                -             -             84,851         -              84,851

Dividends on 103/8%
 Noncumulative Exchangeable
 Preferred Stock, Series A         -             -             -         (3,890,625)     (3,890,625)

Dividends on Common stock          -             -             -           (350,000)       (350,000)
                            ------------------------------------------------------------------------

Balance, March 31, 1998     $ 15,000,000   $     100    $ 284,999,900  $  1,140,771  $  301,140,771
                            ========================================================================


</TABLE>
 










The Notes to Financial Statements are an integral part of this statement.

                                  4

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         CHEVY CHASE PREFERRED CAPITAL CORPORATION
                 STATEMENTS OF CASH FLOWS
                        (Unaudited)


                                                       Three Months Ended   
                                                            March 31,
                                               --------------------------------
                                                   1998                 1997
                                               -------------      -------------
Cash flows from operating activities:

Net income                                     $   5,381,396      $   5,283,959

Adjustments  to  reconcile   net  income 
to  net  cash  provided  by  operating
activities:
   Gain on sale of real estate acquired in
     settlement of loans, net                           (960)              -
   (Increase) decrease in accounts receivable
     from parent                                  (4,008,646)         2,191,197
   Increase in accrued interest  receivable          (43,126)            (8,846)
   (Increase) decrease in  prepaid  expenses          23,433           (500,466)
   Increase  in accrued  expenses                      8,047               -  
   Increase in accounts payable to parent             18,561            122,116
   Decrease in accounts payable - others              (3,749)            (3,334)
                                               --------------     --------------

   Net cash provided by operating activities       1,374,956          7,084,626
                                               --------------     --------------

Cash flows from investing activities:
Purchases of residential  mortgage  loan         (41,413,498)       (17,564,254)
Repayments of residential  mortgage loans         45,329,341         14,745,697
Net proceeds on sale of real estate acquired 
  in settlement of loans                             146,516              -
                                               --------------     --------------

   Net cash provided by (used in) investing 
      activities                                   4,062,359         (2,818,557)
                                               --------------     --------------

Cash flows from financing activities:
Capital contribution from common stockholder          84,851              6,515
Dividends paid on preferred stock                 (3,890,625)        (1,253,640)
Dividends paid on common stock                    (2,850,000)          (584,749)

   Net cash used in financing activities          (6,655,774)        (1,831,874)
                                               --------------     --------------

Net increase (decrease) in cash and cash 
 equivalents                                      (1,218,459)         2,434,195

Cash and cash equivalents at beginning of period   3,894,269            365,175
                                               --------------     --------------

Cash and cash equivalents at end of period     $    2,675,810     $   2,799,370
                                               ===============    ==============

Supplemental disclosures of non-cash activities:
  Loans receivable transferred to real estate
   acquired in settlement of loans             $      342,664     $      -
                                               ===============    ==============

The Notes to Financial Statements are an integral part of this statement.

                             5

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           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.


NOTE 2 - RESIDENTIAL MORTGAGE LOANS:

Residential  mortgage  loans  consist  of  one-year  adjustable  rate  mortgages
("ARMs"),  three-year  ARMs and  five-year  and ten-year  fixed-rate  loans with
automatic  adjustment to one-year ARMs after 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:

                                              March 31,           December 31,
                                                1998                  1997
                                          --------------       ---------------
   One-year ARM                           $   23,594,782        $   27,657,820
   Three-year ARMs                            62,104,016            78,228,562
   5/1 ARMs                                  142,979,901           165,785,490
   10/1 ARMs                                  55,088,509            16,196,915
   30 year fixed-rate                          2,396,749             2,553,343
                                          --------------       ---------------  
     Total                                   286,163,957           290,422,130
                                         
   Less:
     Allowance for loan losses                    40,333                39,999
                                          --------------       ---------------

     Total                                $  286,123,624        $  290,382,131
                                          ==============       ===============


NOTE 3 - PREFERRED STOCK

Cash  dividends on the Company's  103/8%  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  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.



                             6

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         CHEVY CHASE PREFERRED CAPITAL CORPORATION
               NOTES TO FINANCIAL STATEMENTS
                        (Unaudited)

NOTE 4 - DIVIDENDS:

During the three months ended March 31, 1998,  the Company's  Board of Directors
declared  $3,890,625 and $350,000 of preferred stock and common stock dividends,
respectively,  out of the retained earnings of the Company. These dividends were
paid in April 1998.



                             7

<PAGE>




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

FINANCIAL CONDITION

Residential Mortgage Loans

At March 31, 1998,  the Company had  $286,123,624  invested in loans  secured by
first  mortgages  or deeds of trust on  single-family  residential  real  estate
properties  ("Residential  Mortgage  Loans").  The $4,258,507  decrease from the
balance at December 31, 1997, resulted from Residential  Mortgage Loan principal
collections of $45,329,341,  which were offset by purchases of $41,413,498.  The
Company transferred two loans with an aggregate principal balance of $342,664 to
real estate  acquired in  settlement of loans during the quarter ended March 31,
1998. In addition,  the Company received proceeds of $146,516 on the sale of one
property  classified  as real estate  acquired in settlement of loans during the
three months ended March 31,  1998.  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 March 31, 1998, the Company had three non-accrual loans (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 $748,206.

At March 31, 1998, the Company had five delinquent loans (loans delinquent 30-89
days) with an aggregate principal balance of $1,078,817 (or 0.38% of loans).

Allowance for Loan Losses

Management  reviews the loan  portfolio to establish an allowance  for estimated
losses if deemed necessary.  An analysis of whether an allowance for loan losses
is  required is  performed  periodically,  and an  allowance  is 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 they are determined to be necessary.  No allowance was
recorded  for the  three  months  ended  March 31,  1997.  The  activity  in the
allowance  for loan  losses  for the three  months  ended  March 31,  1998 is as
follows:

                                                                 Three Months
                                                                    Ended
                                                                March 31, 1998
                                                                --------------
Balance at beginning of period                                    $     39,999
Net recoveries                                                             334
                                                                  ------------
Balance at end of period                                          $     40,333
                                                                  ============


                             8

<PAGE>




Interest Rate Risk

The Company's  income  consists  primarily of interest  payments on  Residential
Mortgage  Loans.  If there is a decline in  interest  rates (as  measured by the
indices upon which the interest  rates of the ARMs are based),  then the Company
will  experience  a  decrease  in  income  available  to be  distributed  to its
stockholders.  In addition,  certain ARM products  which the Company holds allow
borrowers to convert an adjustable rate mortgage to a fixed rate mortgage,  thus
"locking in" a fixed  interest rate at a time when interest rates have declined.
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. In response,  the Company has begun to alter the mix of the loans that it
purchases. Specifically, the Company has purchased more 10/1 ARMs from the Bank,
which typically have higher yields than other adjustable rate loan types.

Based on the outstanding balance of the Company's  Residential Mortgage Loans at
March 31, 1998 and the interest rate on such loans,  anticipated annual interest
income, net of servicing fees, on the Company's loan portfolio was approximately
138.4% 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.

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.  Substantially all
of the Company's  Residential  Mortgage  Loans are secured by  residential  real
estate  properties   located  in  the  Washington,   D.C.   metropolitan   area.
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.

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."

    
                             9

<PAGE>



     The Company's  principal  liquidity need will be to fund the acquisition of
additional mortgage assets as 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 held by the Company will be funded with the proceeds
of 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 percent of its annual REIT
taxable  income to its  stockholders,  and meets certain  organizational,  stock
ownership and operational requirements. 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.

RESULTS OF OPERATIONS

Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997

During the three months ended March 31, 1998 and 1997, the Company  reported net
income of $5,381,396 and $5,283,959, respectively.

Interest income on Residential  Mortgage Loans totaled $5,701,251 and $5,651,469
for the  three  months  ended  March  31,  1998 and  1997,  respectively,  which
represents an average yield on such loans of 7.94% and 7.66%, respectively.  The
average loan balance of the Residential Mortgage Loan portfolio was $287,187,664
and  $295,043,738,  for  the  three  months  ended  March  31,  1998  and  1997,
respectively.  The Company would have recorded an additional  $26,094 and $4,902
in  interest  income  for the  three  months  ended  March  31,  1998 and  1997,
respectively,  had its  non-accrual  loans been current in accordance with their
original terms.

Other  interest  income of $45,337 and $10,042 was  recognized  on the Company's
interest bearing deposits during the three months ended March 31, 1998 and 1997,
respectively.

No  provision  for loan losses was recorded for the three months ended March 31,
1998 and 1997.

The Company recognized a gain of $960 on the sale of one property  classified as
real estate  acquired in settlement of loans during the three months ended March
31, 1998.



                            10

<PAGE>




     Operating  expenses  totaling  $366,152  and  $377,552 for the three months
ended March 31, 1998 and1997,  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 $272,065 and
$297,305, for the three months ended March 31, 1998 and 1997, respectively, were
based on a servicing fee rate of 0.375% 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
March 31, 1998 and 1997 totaled $50,000 for each period.  Directors fees totaled
$7,000  and  $5,000  for the  three  months  ended  March  31,  1998  and  1997,
respectively,  and represen  compensation to the two independent  members of the
Board of Directors. General and administrative expenses consist primarily of the
amortization of organizational costs.

On March 16, 1998,  the Company  declared,  out of the retained  earnings of the
Company,  a cash  dividend of $1.296875 per share on the  outstanding  shares of
Series A Preferred  Stock.  Dividends of $3,890,625  were  subsequently  paid on
April 15, 1998.

The Company also declared,  out of the retained earnings of the Company,  a cash
dividend of $3,500 per share of common stock. The $350,000  dividend was paid on
April 15, 1998.

                            11

<PAGE>




Item 3.  Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

                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
  27    Financial Data Schedule

(b) No reports on Form 8-K were issued  during the three  months ended March 31,
1998.

                            12

<PAGE>




                        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)




May 15, 1998               By:/s/ Stephen R. Halpin, Jr.
                              --------------------------
                              Stephen R. Halpin, Jr.
                              Director,
                              Executive Vice President, Treasurer and
                              Chief Financial Officer
                              (Principal Financial Officer)



May 15, 1998               By:/s/ Joel A. Friedman
                              --------------------
                              Joel A. Friedman
                              Senior Vice President and
                              Controller
                              (Principal Accounting Officer)


                            13


 
<PAGE>



                       Exhibit Index



Exhibit
  No.              Exhibit

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

  27               Financial Data Schedule.


<PAGE>