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.

The number of shares
outstanding of the registrant's  sole class of common stock was 100 shares,
$1 par value, as of July 31, 2001.

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, 2000
included in the Company's Annual Report on Form 10-K (File No.  333-10495) filed
with the Securities and Exchange Commission on March 30, 2001 (the "2000 10-K").

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

Certain  reclassifications
of prior period's  information  have been made to conform with the  presentation
for the six months ended June 30, 2001.

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

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.

During the three months
ended June 30, 2001, the Company's  Board of Directors  declared  $3,890,625 and
$500,000 of preferred stock and common stock dividends, respectively, out of the
retained  earnings of the Company.  These  dividends were paid on July 16, 2001.

During the six months ended
June 30, 2001, the Company's Board of Directors declared $7,781,250 and $775,000
of preferred  stock and common stock  dividends,  respectively,  out of retained
earnings of the Company.

At  June 30, 2001, the
Company had  $294,970,013  invested in loans secured by first mortgages or deeds
of trust on  single-family  residential  real  estate  properties  ("Residential
Mortgage Loans"). The $3,175,016 decrease from the balance at December 31, 2000,
resulted  from  principal  collections  of  $48,389,516  which  were  offset  by
Residential  Mortgage  Loan  purchases  of  $45,214,500.  The  Company  received
proceeds of $138,330 on the sale of one real estate  acquired in  settlement  of
loans ("REO") during the six months ended June 30, 2001.  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  June 30, 2001, the
Company had five 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 $868,848 (or 0.29%
of loans).

At  June 30, 2001, the
Company  had seven  loans  which were  delinquent  30-89 days with an  aggregate
principal balance of $1,366,868 (or 0.46% of loans).

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.

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 market interest rates fall below
existing mortgage rates, holders of both fixed and adjustable rate mortgages are
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 June 30, 2001 and the
interest  rates  on such  loans,  anticipated  annual  interest  income,  net of
servicing fees, on the Company's loan portfolio was approximately  130.0% of the
projected  annual  dividend  on the Series A Preferred  Shares.  There can be no
assurance  that an  interest  rate  environment  in which  there is a decline in
interest rates would not adversely affect the Company's ability to pay dividends
on the  Series A  Preferred  Shares.  The  Company,  to  date,  has not used any
derivative instruments to manage its interest rate risk.

There have been no material
changes to the Company's  market risk  disclosures  from the disclosures made in
the 2000 10-K.

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.   Most  (or  68.0%)  of  the  Company's
Residential  Mortgage  Loans are secured by residential  real estate  properties
located in the Washington,  DC 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.

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

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

The Company has elected to
be taxed as a REIT under  Sections 856 through 860 of the Internal  Revenue Code
of 1986, as amended. In order to continue to qualify as a REIT, the Company must
distribute  to its  shareholders  90 percent of its annual REIT taxable  income,
satisfy certain  organizational,  stock ownership and operational  requirements,
and meet certain income and asset tests. As a REIT, the Company is entitled to a
deduction for amounts  distributed as dividends to shareholders and,  therefore,
provided that it  distributes  100 percent of its annual REIT taxable income and
capital gains, the Company  generally will not be subject to Federal income tax.
If in any  taxable  year the  Company  failed 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, unless certain conditions were met.

During the three months
ended June 30, 2001 and 2000, the Company  reported net income of $5,107,881 and
$5,096,846, respectively.

Interest  income  on
Residential  Mortgage  Loans totaled  $5,394,729  and  $5,415,954  for the three
months ended June 30, 2001 and 2000,  respectively,  which represents an average
annualized  yield on such loans of 7.43% and 7.31%,  respectively.  The  average
balance  of  the  Residential  Mortgage  Loan  portfolio  was  $290,569,569  and
$296,351,889  for the three months  ended June 30, 2001 and 2000,  respectively.
The Company  would have  recorded an  additional  $10,113 and $9,912 in interest
income for the three months ended June 30, 2001 and 2000, respectively,  had its
non-accrual  loans  been  current  in  accordance  with  their  original  terms.

Other  interest income of
$54,701 and $35,382 was recognized on the Company's  interest  bearing  deposits
during the three months ended June 30, 2001 and 2000, respectively.

No  provision for loan
losses  was  recorded  for the  three  months  ended  June 30,  2001  and  2000.

The Company did not sell
any REO  properties  during  the  three  months  ended  June 30,  2001 and 2000.

Operating expenses totaling
$341,549  and  $354,490  for the  three  months  ended  June 30,  2001 and 2000,
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  $269,896  and  $279,510,  for the three
months ended June 30, 2001 and 2000, 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 June 30, 2001 and
2000 totaled $50,000 for each period.  Directors' fees paid for the three months
ended June 30,  2001 and 2000  totaled  $8,000  and  $5,000,  respectively,  and
represent compensation to the two independent members of the Board of Directors.
General and  administrative  expenses  totaled $13,653 and $19,980 for the three
months ended June 30, 2001 and 2000, respectively.

On  June 19,  2001 the
Company's  Board of  Directors  declared,  out of the  retained  earnings of the
Company,  a cash  dividend of $1.296875  per share on the  outstanding  Series A
Preferred Shares. Dividends of $3,890,625 were paid on July 16, 2001.

The  Company's Board of
Directors  also declared on June 19, 2001,  out of the retained  earnings of the
Company,  a cash  dividend  of $5,000 per share of common  stock.  The  $500,000
dividends were paid on July 16, 2001.

During the six months ended
June 30,  2001 and 2000,  the Company  reported  net income of  $10,378,181  and
$10,287,261, respectively.

Interest  income  on
Residential  Mortgage  Loans totaled  $10,950,881  and  $10,930,104  for the six
months ended June 30, 2001 and 2000,  respectively,  which represents an average
annualized  yield on such loans of 7.49% and 7.37%,  respectively.  The  average
balance  of  the  Residential  Mortgage  Loan  portfolio  was  $292,587,171  and
$296,698,481 for the six months ended June 30, 2001 and 2000, respectively.  The
Company would have recorded an additional $12,413 and $17,404 in interest income
for the  six  months  ended  June  30,  2000  and  1999,  respectively,  had its
non-accrual  loans  been  current  in  accordance  with  their  original  terms.

Other  interest income of
$84,617 and $69,543 was recognized on the Company's  interest  bearing  deposits
during the six months ended June 30, 2001 and 2000, respectively.

No  provision for loan
losses was recorded for the six months ended June 30, 2001 and 2000.

The Company recognized a
gain of $21,924  on the sale of one REO  during  the six  months  ended June 30,
2001.

Operating expenses totaling
$682,003  and  $697,809  for the six  months  ended  June  30,  2001  and  2000,
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 $540,601 and $550,877,  for the six months
ended June 30, 2001 and 2000,  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 six months  ended June 30, 2001 and
2000 totaled  $100,000 for each period.  Directors fees totaled  $16,000 for the
six months ended June 30, 2001 and 2000, and represent  compensation  to the two
independent  members  of the  Board of  Directors.  General  and  administrative
expenses  totaled $25,402 and $30,932 for the six months ended June 30, 2001 and
2000, respectively.

During the six months ended
June 30, 2001, the Company's Board of Directors declared $7,781,250 and $750,000
of preferred stock and common stock dividends, respectively, out of the retained
earnings of the Company.

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.

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.

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.