CHEVY CHASE
                          PREFERRED CAPITAL CORPORATION
                                    FORM 10-Q
                                 March 31, 1999













<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, 1999

                        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.)

                             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, 1999.




<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, 1999 and
              December 31, 1998                                             2
      (b)  Statements of Operations for the Three Months Ended
              March 31, 1999 and 1998                                       3
      (c)  Statement of Stockholders' Equity for the Three Months Ended
              March 31, 1999                                                4
      (d)  Statements of Cash Flows for the Three Months Ended
              March 31, 1999 and 1998                                       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        11

                           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, 1998, included in the Company's Annual Report on
Form 10-K (File No. 333-10495) filed with the Securities and Exchange Commission
on March 31, 1999 (the "1998 10-K").





















                                      -1-
<PAGE>


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


                                                    March 31,      December 31,
                                                      1999            1998
                                                  --------------  --------------
                                     ASSETS

Cash and interest-bearing deposits                $   2,883,346   $   4,861,984
Residential mortgage loans (net of allowance for
   losses of $27,539 and $40,333, respectively)     293,383,635     292,682,032
Real estate acquired in settlement of loans, net        305,834         272,197
Accounts receivable from parent                       7,037,070       8,004,120
Accrued interest receivable                           1,517,337       1,437,626
Prepaid expenses                                        237,471         335,850
                                                  --------------  --------------
   Total assets                                   $ 305,364,693   $ 307,593,809
                                                  ==============  ==============



                      LIABILITIES AND STOCKHOLDERS' EQUITY


Accounts payable to parent                        $     237,898   $     234,923
Accounts payable to others and accrued expenses          73,447          11,810
Dividends payable to parent                             190,000       3,460,000
Dividends payable to others                           3,890,625       3,890,625
                                                  --------------  --------------
   Total liabilities                                  4,391,970       7,597,358
                                                  --------------  --------------

10 3/8% Noncumulative Exchangeable
  Preferred Stock, $5 par value,
  10,000,000 shares authorized, 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     284,996,351
Retained earnings                                       972,723            -
                                                  --------------  --------------

Total stockholders' equity                          300,972,723     299,996,451
                                                  --------------  --------------

    Total liabilities and stockholders' equity    $ 305,364,693   $ 307,593,809
                                                  ==============  ==============





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

                                        -2-

<PAGE>

                    CHEVY CHASE PREFERRED CAPITAL CORPORATION
                            STATEMENTS OF OPERATIONS
                                   (Unaudited)



                                                     Three Months Ended
                                                          March 31,
                                            ------------------------------------
                                                  1999                1998
                                            ----------------    ----------------
Interest Income
   Residential mortgage loans               $     5,484,652     $     5,701,251
   Other                                             40,904              45,337
                                            ----------------    ----------------

   Total interest income                          5,525,556           5,746,588

Provision for loan losses                            13,520                -
                                            ----------------    ----------------

   Total interest income after
      provision for loan losses                   5,512,036           5,746,588

Gain on sale of real estate acquired in
    settlement of  loans, net                         1,385                 960
                                            ----------------    ----------------

     Total income                                 5,513,421           5,747,548
                                            ----------------    ----------------

Operating Expenses
   Loan servicing fees paid to parent               272,904             272,065
   Advisory fees paid to parent                      50,000              50,000
   Directors fees                                     6,500               7,000
   General and administrative                       130,669              37,087
                                            ----------------    ----------------

     Total operating expenses                       460,073             366,152
                                            ----------------    ----------------

NET INCOME                                  $     5,053,348     $     5,381,396
                                            ================    ================

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

EARNINGS AVAILABLE TO
   COMMON STOCKHOLDER                       $     1,162,723     $     1,490,771
                                            ================    ================

EARNINGS PER COMMON SHARE                   $     11,627.23     $     14,907.71
                                            ================    ================






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


                                        -3-

<PAGE>

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

<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, 1998   $15,000,000   $100   $284,996,351   $    -        $299,996,451

Net income                          -        -            -       5,053,348       5,053,348

Capital contribution from
 common stockholder                 -        -           3,549        -               3,549

Dividends on 10 3/8%
 Noncumulative Exchangeable 
 Preferred Stock, Series A          -        -            -      (3,890,625)     (3,890,625)

Dividends on Common Stock           -        -            -        (190,000)       (190,000)
                             ------------  -----  -------------  ------------  -------------

Balance, March 31, 1999      $15,000,000   $100   $284,999,900   $   972,723   $300,972,723
                             ============  =====  =============  ============  =============
</TABLE>























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


                                        -4-

<PAGE>

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

                                                      Three Months Ended
                                                           March 31,
                                                --------------------------------

                                                     1999              1998
                                                --------------    --------------
Cash flows from operating activities:

Net income                                      $   5,053,348     $   5,381,396

Adjustments to reconcile net income to 
 net cash provided by operating activities:
  Provision for loan losses                            13,520              -
  Gain on sale of real estate acquired in
   settlement of loans, net                            (1,385)             (960)
  (Increase) decrease in accounts receivable
   from parent                                        967,050        (4,008,646)
  Increase in accrued interest receivable             (79,711)          (43,126)
  Decrease in prepaid expenses                         98,379            23,433
  Increase in accounts payable to parent                2,975            18,561
  Increase in accounts payable  to others 
   and accrued expenses                                61,637             4,298
                                                --------------    --------------

  Net cash provided by operating activities         6,115,813         1,374,956
                                                --------------    --------------

Cash flows from investing activities:
  Purchases of residential mortgage loans         (23,292,328)      (41,413,498)
  Repayments of residential mortgage loans         22,284,891        45,329,341
  Net proceeds on sale of real estate acquired
   in settlement of loans                             260,062           146,516
                                                --------------    --------------

  Net cash provided by(used in)investing 
   activities                                        (747,375)        4,062,359
                                                --------------    --------------

Cash flows from financing activities:
  Capital contribution from common stockholder          3,549            84,851
  Dividends paid on preferred stock                (3,890,625)       (3,890,625)
  Dividends paid on common stock                   (3,460,000)       (2,850,000)
                                                --------------    --------------

  Net cash used in financing activities            (7,347,076)       (6,655,774)
                                                --------------    --------------

Net decrease in cash and cash equivalents          (1,978,638)       (1,218,459)

Cash and cash equivalents at beginning of period    4,861,984         3,894,269
                                                --------------    --------------

Cash and cash equivalents at end of period      $   2,883,346     $   2,675,810
                                                ==============    ==============

Supplemental disclosures of non-cash activities:
 Loans receivable transferred to real estate
  acquired in settlement of loans               $     292,314     $     342,664
                                                ==============    ==============



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


                                        -5-

<PAGE>




                    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,  seven-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,
                                        1999                       1998
                                --------------------        --------------------
 One-year ARMs                  $        15,615,322         $        16,159,185
 Three-year ARMs                         30,246,643                  35,684,740
 5/1 ARMs                                98,720,374                 100,108,907
 7/1 ARMs                                 1,072,835                        -
 10/1 ARMs                              142,500,203                 135,436,966
 30 year fixed-rate                       5,255,797                   5,332,567
                                --------------------        --------------------
    Total                               293,411,174                 292,722,365

 Less:
  Allowance for loan losses                  27,539                      40,333
                                --------------------        --------------------

    Total                       $       293,383,635         $       292,682,032
                                ====================        ====================



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  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-

<PAGE>




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

NOTE 4 - DIVIDENDS:

During the three months ended March 31, 1999,  the Company's  Board of Directors
declared  $3,890,625 and $190,000 of preferred stock and common stock dividends,
respectively,  out of the retained earnings of the Company. These dividends were
paid in April 1999.



                                        -7-

<PAGE>


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

FINANCIAL CONDITION

Residential Mortgage Loans

At March 31, 1999,  the Company had  $293,383,635  invested in loans  secured by
first  mortgages  or deeds of trust on  single-family  residential  real  estate
properties  ("Residential  Mortgage  Loans").  The  $701,603  increase  from the
balance at December 31, 1998, resulted from Residential  Mortgage Loan purchases
of  $23,292,328,  which were offset by principal  collections of $22,284,891 and
provisions for loan losses of $13,520. The Company transferred two loans with an
aggregate principal balance of $292,314 to real estate acquired in settlement of
loans  ("REO")  during the three months ended March 31, 1999.  In addition,  the
Company received proceeds of $260,062 on the sale of one REO property during the
three months ended March 31,  1999.  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, 1999, the Company had two 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 $399,868.

At March 31, 1999, the Company had three loans which were delinquent  30-89 days
with an aggregate principal balance of $484,012 (or 0.16% of loans).

Allowance for Loan Losses

An analysis is performed periodically to determine whether an allowance for loan
losses 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
they are  determined  to be  necessary.  The activity in the  allowance for loan
losses is as follows:

                                                    Three Months
                                                       Ended
                                                      March 31,
                                      ------------------------------------------
                                           1999                        1998
                                      ---------------            ---------------
Balance at beginning of period        $       40,333             $       39,999
Provision for loan losses                     13,520                       -
Charge-offs                                  (26,314)                      -
Recoveries                                      -                           334
                                      ---------------            ---------------

Balance at end of period              $       27,539             $       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 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. During recent periods, primarily as a result of a decline in interest
rates,  the Company  experienced an increase in  prepayments on its  Residential
Mortgage  Loans.  In response,  the Company altered the mix of the loans that it
purchases.  Specifically,  the Company  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, 1999 and the interest rates on such loans, anticipated annual interest
income, net of servicing fees, on the Company's loan portfolio was approximately
132.9% 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 for
the year ended December 31, 1998 included in the 1998 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.  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."

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  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.


                                       -9-

<PAGE>




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,  meets  certain  organizational,   stock
ownership and operational requirements and meets certain income and asset tests.
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, 1999 Compared to Three Months Ended March 31, 1998

During the three months ended March 31, 1999 and 1998, the Company  reported net
income of $5,053,348 and $5,381,396, respectively.

Interest income on Residential  Mortgage Loans totaled $5,484,652 and $5,701,251
for the  three  months  ended  March  31,  1999 and  1998,  respectively,  which
represents an average yield on such loans of 7.50% and 7.94%, respectively.  The
average loan balance of the Residential Mortgage Loan portfolio was $292,637,062
and   $287,187,664  for  the  three  months  ended  March  31,  1999  and  1998,
respectively.  The Company would have recorded an additional $10,715 and $26,094
in  interest  income  for the  three  months  ended  March  31,  1999 and  1998,
respectively,  had its  non-accrual  loans been current in accordance with their
original terms.

Other  interest  income of $40,904 and $45,337 was  recognized  on the Company's
interest bearing deposits during the three months ended March 31, 1999 and 1998,
respectively.

A  provision  for loan  losses of $13,520 was  recorded  on the  Company's  loan
portfolio  during the three months ended March 31, 1999.  No provision  for loan
losses was recorded during the three months ended March 31, 1998.

The Company  recognized a gain of $1,385 on the sale of one REO property  during
the three months ended March 31, 1999. The Company  recognized a gain of $960 on
the sale of one REO property during the three months ended March 31, 1998.

Operating  expenses  totaling  $460,073  and $366,152 for the three months ended
March 31, 1999 and 1998,  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 $272,904  and
$272,065, for the three months ended March 31 1999 and 1998, 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 March 31, 1999 and 1998 totaled $50,000 for each period.  Directors
fees  totaled  $6,500 and $7,000 for the three  months  ended March 31, 1999 and
1998, respectively, and represent compensation to the two independent members of
the Board of Directors. General and administrative expenses totaled $130,669 and
$37,087 for the three  months ended March 31, 1999 and 1998,  respectively,  and
consist primarily of the amortization of  organizational  costs. The increase in
general and administrative  expenses is due primarily to the acceleration of the
amortization of organizational  costs in accordance with the American  Institute
of   Certified   Public   Accountants'    Statement   of   Position   98-5
"Reporting on the Costs of Start-Up  Activities,"  which the Company
adopted effective January 1, 1999.

                                      -10-
<PAGE>
                                      
On March 23, 1999,  the Company  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 April 15,
1999.

The Company also declared on March 23, 1999, out of the retained earnings of the
Company,  a cash  dividend  of $1,900 per share of common  stock.  The  $190,000
dividend was paid on April 15, 1999.

YEAR 2000 ISSUES

As the  year  2000  approaches,  companies  are  beginning  to face  "Year  2000
Compliance"  issues  in  at  least  three  critical  areas:   internal  systems,
dependencies  with  suppliers  and  service  providers,  and  dependencies  with
customers (or, in the Company's  case,  payors on the mortgage loans held by the
Company). Year 2000 Compliance means the ability of hardware, software and other
processing  capabilities to interpret and manipulate  correctly all date data up
to and through the year 2000, including the computation of leap years. Year 2000
Compliance issues arise because many commonly used software and hardware systems
were  programmed to use two-digit  year  representations  with the century of 19
implied.  Thus, in the year 2000, those systems will treat 00 as 1900 instead of
2000 and may fail to produce proper results.

Because the Company's  operations are performed in their entirety under contract
with the Bank,  the Company has no equipment  or systems of its own.  Therefore,
the Company  does not believe that it faces any  internal  Year 2000  Compliance
risk.

For the  same  reason,  the  Company  is  heavily  dependent  on the  Year  2000
Compliance of its sole service provider, the Bank. However, the Bank has advised
the Company that it is subject to strict  deadlines for Year 2000 Compliance and
other  detailed Year 2000  Compliance  guidelines  established  by the Office of
Thrift Supervision and the Federal Financial  Institutions  Examination  Council
and that the  Bank  believes  it has  taken  appropriate  steps to meet all such
deadlines.  Accordingly,  the  Company  does not expect to suffer  any  material
adverse impact from the year 2000 on the services provided by the Bank.

With  respect  to the payors of the  mortgage  loans  held by the  Company,  the
Company also does not expect any material  impact from the year 2000.  Potential
Year 2000  Compliance  risk in this area could arise from the  inability of such
payors to timely make their payments because of problems with their own internal
payment systems. This would result in decreased revenues for the Company,  which
could have an adverse  effect on the payment of dividends by the Company and the
market price of the  Company's  stock.  However,  the  investment  policy of the
Company is to have 95% of its portfolio in mortgage assets  consisting of either
Residential Mortgage Loans or mortgage-backed  securities. As of March 31, 1999,
all of the assets of the Company  consisted of Residential  Mortgage Loans.  The
Company believes that Residential Mortgage Loans are not likely to be materially
affected by the year 2000 because the payments  are made by  individuals  rather
than organizations that are more heavily dependent on technology.

To date,  the  Company has made no  expenditures  in  connection  with Year 2000
Compliance  because of its  ability to rely on the Bank's  Year 2000  Compliance
program.  For the same reason, the Company does not expect to face any Year 2000
Compliance expenses in the future.

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.


                                       -11-

<PAGE>

                           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 filed  during the three  months  ended March 31,
     1999.





                                      -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 13, 1999                  By:  /s/ Stephen R. Halpin, Jr.
                                     --------------------------
                                     Stephen R. Halpin, Jr.
                                     Director,
                                     Executive Vice President, Treasurer and
                                      Chief Financial Officer
                                     (Principal Financial Officer)



May 13, 1999                   By:  /s/ Joel A. Friedman
                                     --------------------
                                     Joel A. Friedman
                                     Senior Vice President and Controller
                                     (Principal Accounting Officer)

                                       

<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.