CHEVY CHASE
                         PREFERRED CAPITAL CORPORATION
                                   FORM 10-Q
                               September 30, 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 September 30, 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 October 31, 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 September 30, 1999
             and December 31, 1998                                          2
        (b) Statements of Operations for the Three and Nine Months
             Ended September 30, 1999 and 1998                              3
        (c) Statement of Stockholders' Equity for the Nine Months
             Ended September 30, 1999                                       4
        (d) Statements of Cash Flows for the Nine Months Ended
             September 30, 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        12

                          PART II - OTHER INFORMATION

Item 1.  Legal Proceedings                                                 13

Item 2.  Changes in Securities                                             13

Item 3.  Defaults Upon Senior Securities                                   13

Item 4.  Submission of Matters to a Vote of Security Holders               13

Item 5.  Other Information                                                 13

Item 6.  Exhibits and Reports on Form 8-K                                  13



                                      -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)

                                                    September 30,   December 31,
                                                        1999           1998
                                                   -------------   -------------
                                     ASSETS

Cash and interest-bearing deposits                 $   3,998,961   $   4,861,984
Residential mortgage loans (net of allowance for
   losses of $40,333 for both periods)               296,562,427     292,682,032
Real estate acquired in settlement of loans, net         220,298         272,197
Accounts receivable from parent                        3,892,811       8,004,120
Accrued interest receivable                            1,422,627       1,437,626
Prepaid expenses                                          58,782         335,850
                                                   -------------   -------------
     Total assets                                  $ 306,155,906   $ 307,593,809
                                                   =============   =============


                      LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable to parent                         $     257,784   $     234,923
Accrued expenses                                          75,636          11,810
Dividends payable to parent                              300,000       3,460,000
Dividends payable to others                            3,890,625       3,890,625
                                                   -------------   -------------
   Total liabilities                                   4,524,045       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                                      1,631,861           -
                                                   -------------   -------------
Total stockholders' equity                           301,631,861     299,996,451
                                                   -------------   -------------

     Total liabilities and stockholders' equity    $ 306,155,906   $ 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         Nine Months Ended
                                    September 30,             September 30,
                              ------------------------  ------------------------
                                   1999          1998         1999         1998
                              -----------  -----------  -----------  -----------
Interest Income
 Residential mortgage loans   $ 5,263,395  $ 5,639,820  $16,172,123  $17,061,147
 Other                             38,207       62,268      120,295      172,478
                              -----------  -----------  -----------  -----------
  Total interest income         5,301,602    5,702,088   16,292,418   17,233,625
                              -----------  -----------  -----------  -----------
Provision for loan losses           -           10,862       26,554       10,862
                              -----------  -----------  -----------  -----------
  Total interest income after
   provision for loan losses    5,301,602    5,691,226   16,265,864   17,222,763

Gain on sale of real estate
 acquired in settlement of
 loans, net                             8       27,544        1,679       32,495
                              -----------  -----------  -----------  -----------
  Total income                  5,301,610    5,718,770   16,267,543   17,255,258
                              -----------  -----------  -----------  -----------
Operating Expenses
 Loan servicing fees paid
  to parent                       278,113      282,667      827,600      830,559
 Advisory fees paid to parent      50,000       50,000      150,000      150,000
 Directors fees                     6,500        8,000       19,500       21,500
 General and administrative       118,647       57,154      376,707      128,786
                              -----------  -----------  -----------  -----------
  Total operating expenses        453,260      397,821    1,373,807    1,130,845
                              -----------  -----------  -----------  -----------
NET INCOME                    $ 4,848,350  $ 5,320,949  $14,893,736  $16,124,413
                              ===========  ===========  ===========  ===========
PREFERRED STOCK DIVIDENDS       3,890,625    3,890,625   11,671,875   11,671,875
                              -----------  -----------  -----------  -----------
EARNINGS AVAILABLE TO
 COMMON STOCKHOLDER           $   957,725  $ 1,430,324  $ 3,221,861  $ 4,452,538
                              ===========  ===========  ===========  ===========
EARNINGS PER COMMON SHARE     $  9,577.25  $ 14,303.24  $ 32,218.61  $ 44,525.38
                              ===========  ===========  ===========  ===========




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                            -          -            -        14,893,736      14,893,736

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

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

Dividends on Common Stock             -          -            -        (1,590,000)     (1,590,000)
                                -----------  ------    ------------  -------------   -------------
Balance, September 30, 1999     $15,000,000   $ 100    $284,999,900  $  1,631,861    $301,631,861
                                ===========  ======    ============  =============   =============
</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)

                                                         Nine Months Ended
                                                            September 30,
                                                     ---------------------------
                                                          1999          1998
                                                     ------------- -------------
Cash flows from operating activities:

Net income                                           $ 14,893,736  $ 16,124,413

Adjustments to reconcile net income to net
 cash provided by operating activities:
   Provision for loan losses                               26,554        10,862
   Gain on sale of real estate acquired in
    settlement of loans, net                               (1,679)      (32,495)
   Decrease in accounts receivable from parent          4,111,309     4,138,917
   (Increase) decrease in accrued interest receivable      14,999       (54,066)
   Decrease in prepaid expenses                           277,068        74,563
   Increase in accrued expenses                            63,826         7,783
   Increase in accounts payable to parent                  22,861        59,976
   Decrease in accounts payable  to others                    -          (3,749)
                                                     ------------- -------------
   Net cash provided by operating activities           19,408,674    20,326,204
                                                     ------------- -------------
Cash flows from investing activities:
   Purchases of residential mortgage loans            (64,109,973) (112,112,436)
   Repayments of residential mortgage loans            59,449,112   107,348,484
   Net proceeds on sale of real estate acquired
    in settlement of loans                                807,490       768,928
                                                     ------------- -------------
   Net cash provided by (used in) investing activities (3,853,371)   (3,995,024)
                                                     ------------- -------------
Cash flows from financing activities:
   Capital contribution from common stockholder             3,549        84,851
   Dividends paid on preferred stock                  (11,671,875)  (11,671,875)
   Dividends paid on common stock                      (4,750,000)   (4,200,000)
                                                     ------------- -------------
   Net cash used in financing activities              (16,418,326)  (15,787,024)
                                                     ------------- -------------
Net increase (decrease) in cash and cash equivalents     (863,023)      544,156

Cash and cash equivalents at beginning of period        4,861,984     3,894,269
                                                     ------------- -------------
Cash and cash equivalents at end of period           $  3,998,961  $  4,438,425
                                                     ============= =============
Supplemental disclosures of non-cash activities:
   Loans receivable transferred to real estate
    acquired in settlement of loans                  $    753,912  $    980,312



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

                                      September 30,       December 31,
                                          1999               1998
                                    ---------------     ---------------
        One-year ARMs                $  12,485,988       $  16,159,185
        Three-year ARMs                 23,838,568          35,684,740
        5/1 ARMs                        92,890,218         100,108,907
        7/1 ARMs                        12,307,244               -
        10/1 ARMs                      149,761,730         135,436,966
        30 year fixed-rate               5,319,012           5,332,567
                                    ---------------     ---------------
             Total                     296,602,760         292,722,365

        Less:
         Allowance for loan losses          40,333              40,333
                                    ---------------     ---------------
             Total                   $ 296,562,427       $ 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  September  30,  1999,  the  Company's  Board of
Directors  declared  $3,890,625 and $300,000 of preferred stock and common stock
dividends,  respectively,  out of the retained  earnings of the  Company.  These
dividends were paid in October, 1999.

During  the nine  months  ended  September  30,  1999,  the  Company's  Board of
Directors  declared  $11,671,875  and  $1,590,000 of preferred  stock and common
stock dividends, respectively, out of the retained earnings of the Company.



                                      -7-

<PAGE>


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

FINANCIAL CONDITION

Residential Mortgage Loans

At September 30, 1999, the Company had $296,562,427 invested in loans secured by
first  mortgages  or deeds of trust on  single-family  residential  real  estate
properties  ("Residential  Mortgage  Loans").  The $3,880,395  increase from the
balance at December 31, 1998, resulted from Residential  Mortgage Loan purchases
of  $64,109,973,  which were offset by principal  collections of $59,449,112 and
provisions for loan losses of $26,554.  The Company  transferred four loans with
an aggregate principal balance of $753,912 to real estate acquired in settlement
of loans ("REO")  during the nine months ended  September 30, 1999. In addition,
the Company  received  proceeds  of $807,490 on the sale of four REO  properties
during the nine months ended September 30, 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 September 30, 1999, the Company had three  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 $530,036.

At September 30, 1999, the Company had 6 loans which were delinquent  30-89 days
with an aggregate principal balance of $1,273,468 (or .43% 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               Nine Months
                                         Ended                       Ended
                                      September 30,              September 30,
                                    ------------------        ------------------
                                     1999      1998            1999       1998
                                    --------  --------        --------  --------
Balance at beginning of period      $40,333   $40,333         $40,333   $39,999
Provision for loan losses               -      10,862          26,554    10,862
Charge-offs                             -     (10,862)        (26,554)  (11,226)
Recoveries                              -         -               -         698
                                    --------  --------        --------  --------
Balance at end of period            $40,333   $40,333         $40,333   $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.  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.

Based on the outstanding balance of the Company's  Residential Mortgage Loans at
September  30, 1999 and the  interest  rates on such loans,  anticipated  annual
interest  income,  net of servicing  fees, on the Company's  loan  portfolio was
approximately  131.6% 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 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  from  principal
repayments  on its current  portfolio of mortgage  assets.  The Company does not
anticipate  that it will  have any  other  material  capital  expenditures.  The
Company  believes that cash generated from the payment of principal and interest
on its  mortgage  asset  portfolio  will  provide  sufficient  funds to meet its
operating  requirements and to pay dividends in accordance with the requirements
to be treated as a REIT for income tax purposes for the foreseeable  future. The
Company may borrow funds as it deems necessary.


                                      -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  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  September 30, 1999 Compared to Three Months Ended  September
30, 1998

During the three months ended September 30, 1999 and 1998, the Company  reported
net income of $4,848,350 and $5,320,949, respectively.

Interest income on Residential  Mortgage Loans totaled $5,263,395 and $5,639,820
for the three  months ended  September  30, 1999 and 1998,  respectively,  which
represents an average yield on such loans of 7.14% and 7.76%, respectively.  The
average loan balance of the Residential Mortgage Loan portfolio was $294,710,389
and  $290,889,994  for the  three  months  ended  September  30,  1999 and 1998,
respectively.  The Company would have recorded an additional $10,317 and $16,290
in  interest  income for the three  months  ended  September  30, 1999 and 1998,
respectively,  had its  non-accrual  loans been current in accordance with their
original terms.

Other  interest  income of $38,207 and $62,268 were  recognized on the Company's
interest  bearing  deposits during the three months ended September 30, 1999 and
1998, respectively.

No provision  for loan losses was recorded for the three months ended  September
30, 1999. A provision  for loan losses of $10,862 was recorded on the  Company's
loan portfolio during the three months ended September 30,1998.

The Company  recognized a gain of $8 on the sale of one REO property  during the
three months ended September 30, 1999. The Company recognized aggregate gains of
$27,544  on the  sales of two REO  properties  during  the  three  months  ended
September 30, 1998.

Operating  expenses  totaling  $453,261  and $397,821 for the three months ended
September 30, 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 $278,113  and
$282,667, for the three months ended September 30, 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  September 30, 1999 and 1998 totaled $50,000 for each period.
Directors  fees totaled  $6,500 and $8,000 for the three months ended  September
30,  1999  and  1998,  respectively,  and  represent  compensation  to  the  two
independent  members  of the  Board of  Directors.  General  and  administrative
expenses  totaled  $118,647 and $57,154 for the three months ended September 30,
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 September 14, 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 October 15,
1999. 1 The Company's  Board of Directors  also declared on September 14 , 1999,
out of the retained earnings of the Company, a cash dividend of $3,000 per share
of common stock. The $300,000 dividend was paid on October 15, 1999.

Nine Months Ended September 30, 1999 Compared to Nine Months Ended September 30,
1998

During the nine months ended  September 30, 1999 and 1998, the Company  reported
net income of $14,893,736 and $16,124,413, respectively.

Interest   income  on  Residential   Mortgage  Loans  totaled   $16,172,123  and
$17,061,147 for the nine months ended September 30, 1999 and 1998, respectively,
which   represents   an  average  yield  on  such  loans  of  7.35%  and  7.88%,
respectively.  The  average  loan  balance  of  the  Residential  Mortgage  Loan
portfolio was  $293,562,725 and $288,857,265 for the nine months ended September
30, 1999 and 1998,  respectively.  The Company would have recorded an additional
$29,534 and $40,711 in interest  income for the nine months ended  September 30,
1999  and  1998,  respectively,  had  its  non-accrual  loans  been  current  in
accordance with their original terms.

Other  interest  income of $120,295 and $172,478 was recognized on the Company's
interest  bearing  deposits  during the nine months ended September 30, 1999 and
1998, respectively.

The Company  recorded  provisions for loan losses of $26,554 and $10,862 for the
nine months ended September 30, 1999 and 1998, respectively.

The Company recognized aggregate gains of $1,679 on the sales of four properties
classified as real estate acquired in settlement of loans during the nine months
ended September 30, 1999. The Company  recognized  aggregate gains of $32,495 on
the sales of five REO  properties  during the nine months  ended  September  30,
1998.


Operating expenses totaling  $1,373,807 and $1,130,845 for the nine months ended
September 30, 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 $827,600  and
$830,559,  for the nine months ended September 30, 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
nine months ended September 30, 1999 and 1998 totaled  $150,000 for each period.
Directors fees totaled  $19,500 and $21,500 for the nine months ended  September
30,  1999  and  1998,  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. 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.

During  the nine  months  ended  September  30,  1999,  the  Company's  Board of
Directors  declared  $11,671,875  and  $1,590,000 of preferred  stock and common
stock dividends, respectively, out of the retained earnings of the Company.


                                      -11-
<PAGE>


YEAR 2000 ISSUES

As the year 2000 approaches,  companies are facing "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. The Bank 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.  The Bank has advised the Company
that as of September 30, 1999,  all such  deadlines have been met and all phases
of the Bank's Year 2000  program  have been  completed  with  respect to mission
critical  systems.  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 September 30,
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.


                                      -12-
<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  September
    30, 1999.


                                      -13-

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



November __, 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.