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 QUARTER ENDED SEPTEMBER 30, 1997

                 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 JURISDICT(I.R.S. EMPLOYER
           INCORPORATION OR ORGANIZAIDENTIFICATION NO.)

                      8401 CONNECTICUT AVENUE
                    CHEVY CHASE, MARYLAND 20815
        (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (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
IS 100 SHARES, $1 PAR VALUE, AS OF OCTOBER 31, 1997.



<PAGE>




                CHEVY CHASE PREFERRED CAPITAL CORPORATION

                            TABLE OF CONTENTS


                     PART I - FINANCIAL INFORMATION

      ITEM 1.  FINANCIAL STATEMENTS:                                     PAGE
           (A)STATEMENTS OF FINANCIAL CONDITION AT SEPTEMBER 30, 1997
                AND DECEMBER 31, 1996................................  1
           (B)STATEMENTS OF OPERATIONS FOR THE THREE MONTHS AND
                NINE MONTHS ENDED SEPTEMBER 30, 1997.................  2
           (C)STATEMENT OF STOCKHOLDERS' EQUITY FOR THE NINE MONTHS
                ENDED SEPTEMBER 30, 1997.............................  3
           (D)STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED
                SEPTEMBER 30, 1997...............................      4

           (E)NOTES TO FINANCIAL STATEMENTS......................      5


      ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS................      7

      ITEM 3.  QUANTITATIVE AND QUALITATIVE ANALYSIS ABOUT MARKET 
                 RISK                                                 11


                      PART II - OTHER INFORMATION

      ITEM 1.  LEGAL PROCEEDINGS ................................     11

      ITEM 2.  CHANGES IN SECURITIES.............................     11

      ITEM 3.  DEFAULTS UPON SENIOR SECURITIES...................     11

      ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS    11

      ITEM 5.  OTHER INFORMATION.................................     11

      ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K .................     11




                                   i

<PAGE>




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

                                          SEPTEMBER 30,   DECEMBER 31,
                                              1997             1996
                                              ----             ----
ASSETS

Cash and interest-bearing deposits     $    3,877,149  $      365,175
Residential mortgage loans (net of
  allowance for losses of $29,068
  at september 30, 1997)                  291,331,820     294,504,138
Accounts receivable from parent             9,397,179       5,844,149
Accrued interest receivable                 1,683,399       1,604,826
Prepaid expenses                              463,747           -
                                           
   Total assets                        $  306,753,294   $ 302,318,288
                                        =============   =============


LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable to parent             $      156,656  $      483,080
Accounts payable - others                     -                 3,334
Dividends payable to parent                 1,500,000         584,749
Dividends payable - others                  3,890,625       1,253,640
                                       -------------- ---------------

   Total liabilities                        5,547,281       2,324,803
                                       -------------- ---------------

10 3/8%  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     284,993,385
Retained earnings                           1,206,013          -
                                       --------------  --------------

   Total stockholders' equity          $  301,206,013  $  299,993,485
                                       --------------  --------------
   Total liabilities and 
        stockholders' equity           $  306,753,294  $  302,318,288
                                        =============   =============

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


                                   1

<PAGE>




                    CHEVY CHASE PREFERRED CAPITAL CORPORATION
                            STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

                                      Three Months       Nine Months
                                           Ended             Ended
                                    September 30, 1997 September 30, 1997
Interest income
  Residential mortgage loans            $   5,809,030  $   17,274,381
  Other                                        40,576          82,802
                                       --------------  --------------

     Total interest income                  5,849,606      17,357,183
  Provision for loan losses                    16,033          35,287
                                       --------------  --------------
     Total interest income after 
  Provision for loan losses                 5,833,573      17,321,896
                                        -------------    ------------

Operating expenses
  Lloan servicing fees paid to parent         278,019         852,918
  Advisory fees paid to parent                 50,000         150,000
  Directors fees                                7,500          19,000
  General and administrative                   63,108         122,090
                                        -------------   -------------

     Total operating expenses                 398,627       1,144,008
                                        -------------   -------------

NET INCOME                               $  5,434,946    $ 16,177,888
                                         ============    ============

PREFERRED STOCK DIVIDENDS                   3,890,625      11,671,875
                                        -------------   -------------

EARNINGS AVAILABLE TO
 COMMON STOCKHOLDER                     $   1,544,321   $   4,506,013
                                        =============   =============

EARNINGS PER COMMON SHARE               $   15,443.21   $   45,060.13
                                        =============   =============










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

                                       2

<PAGE>




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

                  For the Nine Months Ended September 30, 1997


<TABLE>
<CAPTION>
                                                          Capital
                                                        Contributed                         Total
                           Preferred        common       in excess       Retained        Stockholders'
                             stock           Stock        of par         Earnings           Equity
<S>                       <C>           <C>           <C>             <C>               <C>   

Balance, December 31, 1996$ 15,000,000  $         100 $ 284,993,385   $            -    $299,993,485

Net income                           -              -             -       16,177,888      16,177,888

Capital contribution from
 common stockholder                  -              -         6,515                -           6,515

Dividends on 103/8%
 Noncumulative Exchangeable
 Preferred Stock, series a           -              -             -      (11,671,875)    (11,671,875)

Dividends on Common Stock            -              -             -       (3,300,000)     (3,300,000)
                           --------------------------------------------------------------------------

Balance, September 30, 1997$ 15,000,000  $        100 $ 284,999,900   $    1,206,013     $301,206,013
                       ================  ============ =============   ==============     ============
                         

</TABLE>











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

                                       3

<PAGE>




                    CHEVY CHASE PREFERRED CAPITAL CORPORATION
                             STATEMENT OF CASH FLOWS
                                   (UNAUDITED)

                  For the Nine Months Ended September 30, 1997

Cash flows from operating activities:
Net income                                                $ 16,177,888
Adjustments to reconcile net income to net cash
   Provided by operating activities:
   Provision for loan losses                                    35,287 
   Increase in accounts receivable from parent              (3,553,030)
   Increase in accrued interest receivable                     (78,573)
   Increase in prepaid expenses                               (463,747)
   Decrease in accounts payable to parent                     (326,424)
   Decrease in accounts payable - others                        (3,334)
                                                           -----------   
   Net cash provided by operating activities                11,788,067
                                                           -----------
Cash flows from investing activities:
Purchases of residential mortgage loans                    (54,740,287)
Repayments of residential mortgage loans                    57,662,596
Net proceeds on sale of real estate acquired
  in settlement of loans                                       214,722
                                                           -----------    
   Net cash used in investing activities                     3,137,031
                                                           -----------
Cash flows from financing activities:
Capital contribution from common stockholder                     6,515
Dividends paid on preferred stock                           (9,034,890)
Dividends paid on common stock                              (2,384,749)
                                                           ----------- 
   Net cash provided by financing activities               (11,413,124)
                                                           -----------

Net increase in cash and cash equivalents                    3,511,974
                                                           
Cash equivalents at beginning of period                        365,175
                                                           -----------
Cash and cash equivalents at september 30, 1997$           $ 3,877,149
                                                           ===========    
Supplemental disclosures of non-cash activities:
  loans receivable transferred to real estate
   acquired in settlement of loans                         $   220,941
                                                           ===========


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

                                 4

<PAGE>




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

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION:

Chevy  Chase  Preferred  Capital  Corporation  (the  "Company")  is  a  Maryland
corporation  which was  incorporated  on August  20,  1996 and  created  for the
purpose of acquiring and holding real estate  mortgage  assets.  The Company was
formed by Chevy Chase Bank,  F.s.B.  (the  "Bank"),  a federally  insured  stock
savings bank.

On November 5, 1996, the Company was initially  capitalized with the issuance to
the Bank of 100 shares of the Company's common stock (the "Common Stock"), $1.00
par value.  On  December 3, 1996,  the Company  commenced  its  operations  upon
consummation of an initial public offering of 3,000,000  shares of the Company's
103/8%  Noncumulative  Exchangeable  Preferred  Stock,  Series A (the  "Series A
Preferred Shares"),  $5.00 par value. These offerings,  together with a separate
capital contribution made by the Bank on December 3, 1996, raised net capital of
$300 million. All Common Stock is held by the Bank.

The Company used the  proceeds  raised from the initial  public  offering of the
Series  A  Preferred  shares,  the  sale of  Common  stock  to the  Bank and the
additional  capital  contribution to the company by the bank to pay the expenses
related to the  offering and the  formation of the Company and to purchase  from
the Bank the Company's initial portfolio of residential  mortgage loans at their
estimated fair value of approximately $300 million.  Such loans were recorded in
the accompanying statement of financial condition at the Bank's historical cost
basis which approximated their estimated fair values.


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
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
shows the residential mortgage loan portfolio by type at september 30, 1997:

   One-year ARMs          $   23,362,449
   Three-year ARMs            86,807,221
   5/1 ARMs                  172,433,575
   10/1 ARMs                   7,166,820
   Fixed-rate                  1,590,823
                          --------------
                             291,360,888
   Less:                       
     Allowance for loan
      losses                      29,068
                          --------------
     Total                $  291,331,820
                          ==============

                                 5

<PAGE>




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

NOTE 3 - PREFERRED STOCK

On December 3, 1996, the Company sold $150 million of Series A Preferred Shares,
$5.00 par value per share and received net cash proceeds of $144  million.  Cash
dividends on the series A Preferred  Shares are payable  quarterly in arrears at
an annual rate of 10 3/8%.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, and are redeemable  thereafter at the option
of the company. Except under certain 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.


NOTE 4 - DIVIDENDS:

During the three  months  ended  september  30,  1997,  the  Company's  Board of
Directors declared $3,890,625 and $1,500,000 of preferred stock and common stock
dividends,  respectively,  out of the retained  earnings of the Company.   These
dividends were paid in October 1997.




                                 6

<PAGE>




                              PART I

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

FINANCIAL CONDITION


Organization

Chevy  Chase  Preferred  Capital  Corporation  (the  "Company")  is  a  Maryland
corporation  incorporated  on August 20,  1996,  and  created for the purpose of
acquiring  and holding real estate  mortgage  assets  ("Mortgage  Assets").  The
Company has elected to be treated as a real estate  investment  trust (a "REIT")
under the Internal Revenue Code of 1986, as amended (the "Code"),  and generally
will not be subject to federal income tax to the extent that it distributes  its
earnings to its stockholders  and maintains its  qualification as a REIT. All of
the shares of the Company's common stock, par value $1.00 per share (the "Common
Stock"),  are owned by Chevy  Chase Bank,  F.S.B.,  a  federally  chartered  and
federally insured stock savings bank (the "Bank"). The Company was formed by the
Bank to  acquire  and hold  mortgage  assets  and to  provide  the  Bank  with a
cost-effective means of raising capital.

On November 5, 1996,  the Company was initially  capitalized  by the issuance to
the Bank of 100  shares of Common  Stock.  On  December  3,  1996,  the  Company
commenced its operations  upon the closing of the initial  public  offering (the
"Offering")  of  3,000,000   shares  of  the  Company's  10 3/8%   Noncumulative
Exchangeable Preferred Stock, Series A, par value $5.00 per share (the "Series A
Preferred Shares").  The net proceeds to the Company from the sale of the Series
A Preferred  Shares were $144.0 million.  Simultaneous  with the consummation of
the Offering, the Bank made capital contributions to the Company with respect to
its  Common  Stock in the  amount of $150.0  million,  plus an  additional  $6.0
million  representing  the  underwriting  commissions  and the  expenses  of the
Offering.

The  Company  used the  aggregate  net  proceeds of $300.0  million  received in
connection with both the Offering and the capital  contributions  by the Bank to
purchase  from the Bank the  Company's  initial  portfolio  of Mortgage  Assets,
comprised entirely of residential  mortgage loans, at their estimated fair value
of  approximately  $300.0  million.  Such  loans  were  recorded  at the  Bank's
historical cost basis, which approximated their estimated fair values.

Residential Mortgage Loans

At September 30, 1997, the Company had $291,331,820 invested in loans secured by
first  mortgages  or deeds of trust on  single-family  residential  real  estate
properties  ("Residential  Mortgage  Loans").  The $3,172,318  decrease from the
balance at December 31, 1996, resulted from Residential  Mortgage Loan principal
collections of $57,662,596,  which were offset by purchases of  $54,740,287.  In
addition,  the Company received proceeds of $214,722 on the sale of one property
classified as real estate acquired in settlement of loans during the nine months
ended September 30, 1997.  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.

                                 7

<PAGE>




At  September  30,  1997,  the  Company  had  four   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 $581,360.

At September 30, 1997, the Company had five delinquent  loans (loans  delinquent
30-89  days) with an  aggregate  principal  balance of  $1,099,981  (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, past loss experience and estimated future loan losses. 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 for the three months
and nine months ended september 30, 1997 is as follows:

                                     Three Months              Nine Months
                                        Ended                     Ended
                                   September 30, 1997      September 30, 1997
                                   ------------------      ------------------

Balance at beginning of period     $           10,659      $                -
Provision for loan losses                      16,033                  35,287
Charge-offs                                         -                  (8,595)
Recoveries                                      2,376                   2,376
                                   ------------------      ------------------

Balance at end of period           $           29,068      $           29,068
                                   ==================      ==================

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 such an interest rate environment,  the Company may experience
an increase in  prepayments  on its  Residential  Mortgage Loans and may find it
difficult to purchase  additional  loans bearing  interest  rates  sufficient to
support  payment of  dividends  on the Series A Preferred  Shares.  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.

Based on the outstanding balance of the Company's  Residential Mortgage Loans at
September  30,  1997 and the  interest  rate on such loans,  anticipated  annual
interest  income net of  servicing  fees on the  Company's  loan  portfolio  was
approximately  141.6% 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 significant  decline in interest rates would not adversely  affect
the Company's ability to pay dividends on the Series A Preferred Shares.


                                 8

<PAGE>




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 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.
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 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 Code beginning with its taxable year ended December 31, 1996. 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 100 percent of its annual
REIT taxable income to its stockholders, and meets certain organizational, stock
ownership,  income, asset 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.

                                9

<PAGE>




RESULTS OF OPERATIONS

During the three months ended September 30, 1997 (the "three-month  period") and
nine months ended  September  30, 1997 (the  "nine-month  period"),  the Company
reported net income of $5,434,946 and $16,177,888, respectively.

Interest income on Residential Mortgage Loans totaled $5,809,030 and $17,274,381
for the three-month and nine-month  periods,  respectively,  which represents an
average  yield on such  loans of 7.90%  and  7.81%,  respectively.  The  average
balance of the Residential  Mortgage Loan portfolio for the  three-month  period
was $293,948,202  and for the nine-month  period was  $294,856,617.  The Company
would have recorded an additional $11,341 and $20,440 in interest income for the
three-month and nine-month periods, respectively, had its non-accrual loans been
current in accordance with their original terms.

Other  interest  income of $40,576 and $82,802 was  recognized  on the Company's
interest  bearing  deposits  during  the  three-month  and  nine-month  periods,
respectively.

Provision  for loan losses of $16,033 and $35,287 was recorded on the  Company's
loan portfolio during the three-month and nine-month periods, respectively.

Operating  expenses  totaling  $398,627 and $1,144,008 for the  three-month  and
nine-month periods, 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 $278,019  and
$852,918, for the three-month and nine-month periods,  respectively,  were based
on a  servicing  fee rate of 0.375% of the  outstanding  principal  balances  of
Residential  Mortgage  Loans,  pursuant to the servicing  agreement  between the
Company  and the Bank.  advisory  fees paid to parent  for the  three-month  and
nine-month  periods totaled $50,000 and $150,000,  respectively.  Directors fees
totaled $7,500 and $19,000,  respectively, and represent compensation to the two
independent  members  of the  Board of  Directors.  General  and  administrative
expenses consist primarily of the amortization of organizational costs.

On September 29, 1997, 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
October 15, 1997.

The Company also declared,  out of the retained earnings of the Company,  a cash
dividend of $15,000.00 per share of common stock.  The  $1,500,000  dividend was
paid on October 15, 1997.

                                10

<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  September
         30, 1997.

                                11

<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)




NOVEMBER 7, 1997               BY:/S/ STEPHEN R. HALPIN, JR.
                                  --------------------------
                                  STEPHEN R. HALPIN, JR.
                                  DIRECTOR,
                                  EXECUTIVE VICE PRESIDENT, TREASURER AND
                                  CHIEF FINANCIAL OFFICER
                                  (PRINCIPAL FINANCIAL OFFICER)



NOVEMBER 7, 1997               BY:/S/ JOEL A. FRIEDMAN
                                  --------------------
                                  JOEL A. FRIEDMAN
                                  SENIOR VICE PRESIDENT AND
                                  CONTROLLER
                                  (PRINCIPAL ACCOUNTING OFFICER)