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SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 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 Identification No.)
Incorporation or organization)


8401 Connecticut Avenue
Chevy Chase, Maryland 20815
(Address of principal executive office) (Zip Code)

(301) 986-7000
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of Act:

Title of each class Name of each exchange on which registered
--------------------------------- -----------------------------------------
10d% Noncumulative Exchangeable New York Stock Exchange, Inc.
Preferred Stock, Series A

Securities registered pursuant to Section 12(g) of the Act:
N/A
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(Title of class)

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ___

The number of shares outstanding of the registrant's sole class of common
stock was 100 shares, $1.00 par value per share, as of March 15, 2000. All
of such shares were owned by Chevy Chase Bank, F.S.B.; therefore, no common
stock was held by non-affiliates.

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CHEVY CHASE PREFERRED CAPITAL CORPORATION
TABLE OF CONTENTS


PART I Page

Item 1. BUSINESS.............................................
General..............................................
Mortgage Assets......................................
Loan Portfolio Composition.........................
Investment Policy..................................
Credit Risk Management Policies....................
Delinquencies......................................
Geographic Distribution............................
Servicing............................................
Dividend Policy......................................
The Bank.............................................
The Advisor..........................................
Capital and Leverage Policies........................
Employees............................................
Competition..........................................
Environmental Matters................................
Tax Status of the Company............................
Item 2. PROPERTIES...........................................
Item 3. LEGAL PROCEEDINGS....................................
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..

PART II

Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS..................................
Description of Common Stock..........................
General.........................................
Dividends.......................................
Voting Rights...................................
Rights Upon Liquidation.........................
Description of Series A. Preferred Shares............
Market Information and Dividends................
General.........................................
Automatic Exchange..............................
Voting Rights...................................
Redemption......................................
Rights Upon Liquidation.........................
Independent Director Approval...................
Item 6. SELECTED FINANCIAL DATA..............................
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Financial Condition..................................
Residential Mortgage Loans........................
Allowance for Loan Losses.........................
Interest Rate Risk................................
Significant Concentration of Credit Risk..........
Liquidity and Capital Resources...................
Year 2000 Issues....................................
Results of Operations................................
Fiscal Year 1999 Compared to Fiscal Year 1998......
Fiscal Year 1998 Compared to Fiscal Year 1997......
Item 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISKS...................................
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..........
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE

PART III

Item 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...
Directors and Executive Officers.....................
Audit Committee......................................
Section 16(a) Beneficial Ownership Reporting
Compliance.........................................
Item 11.EXECUTIVE COMPENSATION...............................
Item 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Item 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......

PART IV

Item 14.EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K..................................

PART I


ITEM 1. BUSINESS

GENERAL

Chevy Chase Preferred Capital Corporation (the "Company") is a Maryland
corporation which acquires, holds and manages 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 Bank is in compliance with its regulatory capital requirements. The
Bank services the Company's Residential Mortgage Loans (as defined below) and
administers the day-to-day operations of the Company. The Company also has
outstanding 3,000,000 shares of 10d% Noncumulative Exchangeable Preferred Stock,
Series A, par value $5.00 per share (the "Series A Preferred Shares"). The
Series A Preferred Shares are publicly held.

MORTGAGE ASSETS

Loan Portfolio Composition

The Company's current portfolio of Mortgage Assets consists of whole loans
("Mortgage Loans") secured by first mortgages or deeds of trust on single-family
residential real estate properties ("Residential Mortgage Loans"). The following
table sets forth information concerning the Company's Residential Mortgage
Loans, all of which were acquired from the Bank, as of December 31, 1999 and
December 31, 1998. A description of the types of Residential Mortgage Loans
included in the Company's portfolio follows the table.

Residential Mortgage Loan Portfolio

December 31,
-----------------------------------------------
1999 1998
----------------------- -----------------------
Aggregate Percent Aggregate Percent
Principal to Principal to
Type Balance Total Balance Total
- ------------------- ------------ ---------- ------------ ----------

One-Year ARMs $ 11,854,943 4.0% $ 16,159,185 5.5%
Three-Year ARMs 24,886,732 8.4% 35,684,740 12.2%
5/1 ARMs 93,066,498 31.5% 100,108,907 34.2%
7/1 ARMs 12,243,571 4.2% - -
10/1 ARMs 147,823,258 50.1% 135,436,966 46.3%
30 Year Fixed-Rate 5,361,161 1.8% 5,332,567 1.8%
------------ ---------- ------------ ----------
295,236,163 100.0% 292,722,365 100.0%
========== ==========
Less:
Allowance for
loan losses 40,333 40,333
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Total $295,195,830 $292,682,032
============ ============


Purchases from the Bank of Residential Mortgage Loans during the year ended
December 31, 1999 were $73,323,320, which were offset by principal repayments on
the Company's loans of $70,029,056. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Financial Condition -
Residential Mortgage Loans."

A majority of the Residential Mortgage Loans included in the Company's portfolio
at December 31, 1999 bore interest at adjustable rates. The interest rate on an
"adjustable rate mortgage" or an "ARM" adjusts periodically based on an index
(such as the interest rate on United States Treasury Bills). ARMs are typically
subject to lifetime interest rate caps and periodic interest rate adjustment
caps. As of December 31, 1999, the interest rates on the Residential Mortgage
Loans included in the Company's portfolio ranged from 4.38% per annum to 9.63%
per annum and the weighted average interest rate was approximately 7.31% per
annum.

The interest rate on each type of ARM product included in the Company's
portfolio adjusts at the times (each, a "Rate Adjustment Date") and in the
manner described below, subject to lifetime interest rate caps, to minimum
interest rates and, in the case of most ARMs in the portfolio, to maximum
periodic adjustment increases or decreases, each as specified in the mortgage
note relating to the ARM. Information set forth below regarding interest rate
caps and minimum interest rates applies to the current portfolio only.
Residential Mortgage Loans purchased by the Company after December 31, 1999 may
be subject to different interest rates.

Each ARM bears interest at its initial interest rate until the first Rate
Adjustment Date. Effective with each Rate Adjustment Date, the monthly principal
and interest payment on an adjustable rate Residential Mortgage Loan will be
adjusted to an amount that will fully amortize the then-outstanding principal
balance of such loan over its remaining term to stated maturity and that will be
sufficient to pay interest at the adjusted interest rate. Certain of the types
of loan products that are ARMs contain an option, which may be exercised by the
mortgagor, to convert the ARM into a fixed-rate loan for the remainder of the
mortgage term. If a loan that is an ARM is converted into a fixed-rate loan, the
interest rate on the fixed-rate loan will be determined at the time of
conversion as specified in the mortgage note relating to such loan and will
remain fixed at such rate for the remaining term of such loan. The Company's
current policy is to retain these fixed-rate loans in its portfolio. At December
31, 1999, all of the Company's $5.4 million of fixed-rated loans were the result
of converted ARMs. All the Residential Mortgage Loans included in the portfolio
allow the mortgagor to repay at any time some or all of the outstanding
principal balance of the loan without a fee or penalty.

One-Year ARM. The interest rate with respect to a one-year ARM ("One-Year ARM")
is fixed at an initial rate for the first twelve monthly payments. The loan
adjusts annually thereafter on the date specified in the related mortgage note
to a rate equal to the then-current applicable treasury index plus the gross
margin set forth in such mortgage note, subject to a maximum annual interest
rate increase or decrease of 2.00%, a lifetime interest rate cap as specified in
the related mortgage note and a minimum interest rate no less than the gross
margin.

Three-Year ARM. The interest rate with respect to each three-year ARM
("Three-Year ARM") is fixed at an initial rate for the first 36 monthly
payments. The loan adjusts every three years thereafter in the same manner as
described for the One-Year ARM, except that the treasury index is the weekly
average yield on the United States Treasury securities adjusted to a constant
maturity of three years.

Five-Year Fixed-Rate Loan with Automatic Conversion to One-Year ARM. The
interest rate with respect to each five-year fixed-rate loan with automatic
conversion to a One-Year ARM (a "5/1 ARM") is fixed at an initial rate for the
first 60 monthly payments and adjusts annually thereafter, as if the Residential
Mortgage Loan were a One-Year ARM, with a lifetime interest cap as specified in
the related mortgage note. There is no ability to continue at a fixed rate after
the first Rate Adjustment Date under the terms of this type of Residential
Mortgage Loan.

Seven-Year Fixed-Rate Loan with Automatic Conversion to One-Year ARM. The
interest rate with respect to each seven-year fixed-rate loan with automatic
conversion to a One-Year ARM (a "7/1 ARM") is fixed at an initial rate for the
first 84 monthly payments and adjusts annually thereafter, as if the Residential
Mortgage Loan were a One-Year ARM, with a lifetime interest cap as specified in
the related mortgage note. There is no ability to continue at a fixed rate after
the first Rate Adjustment Date under the terms of this type of Residential
Mortgage Loan.

Ten-Year Fixed-Rate Loan With Automatic Conversion to One-Year ARM. The interest
rate with respect to each ten-year fixed-rate loan with automatic conversion to
a One-Year ARM (a "10/1 ARM") is fixed at an initial rate for the first 120
monthly payments and adjusts annually thereafter, as if the Residential Mortgage
Loan were a One-Year ARM, with a lifetime interest cap as specified in the
related mortgage note. There is no ability to continue at a fixed rate after the
first Rate Adjustment Date under the terms of this type of Residential Mortgage
Loan.

Investment Policy

General. The Company currently intends to maintain at least 95% of its portfolio
in Mortgage Assets consisting of either Residential Mortgage Loans or investment
grade mortgage securities representing interests in pools of Mortgage Loans
("Mortgage-Backed Securities") and may invest up to 5% of its portfolio in
Mortgage Loans secured by commercial real estate properties or multi-family
properties ("Commercial Mortgage Loans") or in other assets eligible to be held
by a REIT. The Company's current policy prohibits the acquisition of any
Mortgage Loan or any interest in a Mortgage Loan (other than an interest
resulting from the acquisition of Mortgage-Backed Securities) if the Mortgage
Loan (i) is delinquent in the payment of principal and interest; (ii) is or was
at any time during the preceding 12 months (a) classified, (b) in nonaccrual
status or (c) renegotiated due to the financial deterioration of the borrower;
or (iii) has been, more than once during the preceding 12 months, more than 30
days past due in the payment of principal or interest. Loans that are in
"non-accrual status" are generally loans that are past due 90 days or more in
principal or interest, and "classified" loans are generally troubled loans which
are deemed substandard or doubtful with respect to collectibility.

The Company may from time to time acquire both conforming and nonconforming
Residential Mortgage Loans. Conventional conforming Residential Mortgage Loans
comply with the requirements for inclusion in a loan guarantee program sponsored
by either the Federal Home Loan Mortgage Corporation ("FHLMC") or the Federal
National Mortgage Association ("FNMA"). The nonconforming Residential Mortgage
Loans that the Company purchases will be nonconforming generally because they
have original principal balances which exceed the limits for FHLMC or FNMA
programs.

Mortgage-Backed Securities. While no Mortgage-Backed Securities are included in
the current Mortgage Asset portfolio, the Company may from time to time in the
future acquire fixed-rate or variable-rate Mortgage-Backed Securities. A portion
of any Mortgage-Backed Securities that the Company may purchase may have been
originated by the Bank by exchanging pools of Mortgage Loans for the
Mortgage-Backed Securities. The Mortgage Loans underlying the Mortgage-Backed
Securities will be secured by single-family residential properties located
throughout the United States.

The Company intends to acquire only investment grade Mortgage-Backed Securities
issued by agencies of the Federal government or government sponsored agencies,
such as FHLMC, FNMA and the Government National Mortgage Association ("GNMA").
The Company does not intend to acquire any interest-only or principal-only
Mortgage-Backed Securities.

Commercial Mortgage Loans. While no Commercial Mortgage Loans are included in
the current portfolio, the Company may from time to time in the future acquire
Commercial Mortgage Loans secured by industrial and warehouse properties,
recreational facilities, office buildings, retail space and shopping malls,
hotels and motels, hospitals, nursing homes or senior living centers. Unlike
Residential Mortgage Loans, Commercial Mortgage Loans generally lack
standardized terms. In addition, Commercial Mortgage Loans tend to be fixed-rate
loans having shorter maturities than Residential Mortgage Loans. Commercial
Mortgage Loans may also not be fully amortizing, meaning that they may have a
significant principal balance or "balloon" payment due on maturity. Moreover,
commercial properties, particularly industrial and warehouse properties, are
generally subject to relatively greater environmental risks than non-commercial
properties, generally giving rise to increased costs of compliance with
environmental laws and regulations.

Other Real Estate Assets. The Company may invest up to 5% of the total value of
its portfolio in assets (other than Residential Mortgage Loans and
Mortgage-Backed Securities) eligible to be held by REITs. Such assets could
include Commercial Mortgage Loans, Mortgage Loans secured by multi-family
properties, cash and cash equivalents.

Credit Risk Management Policies

The Company intends that each Mortgage Loan that it acquires in the future will
represent a first lien position and will be originated in the ordinary course of
the originator's real estate lending activities based on the underwriting
standards generally applied (at the time of origination) for the originator's
own account. The Company also intends that all Mortgage Loans held by the
Company will be serviced pursuant to the servicing agreement between the Company
and the Bank dated December 1, 1996 (the "Servicing Agreement"). See
"Servicing."

Delinquencies

When a borrower fails to make a required payment on a Mortgage Loan, the loan is
considered delinquent and, after expiration of the applicable cure period, the
borrower is charged a late fee, which is retained by the Servicer (as defined
below). The Bank and the Company follow practices customary in the banking
industry in attempting to cure delinquencies and in pursuing remedies upon
default.

Geographic Distribution

A majority of the Residential Mortgage Loans included in the current loan
portfolio are located in Washington DC, Maryland, and Virginia. Consequently,
these loans may be subject to a greater risk of default than other comparable
loans in the event of adverse economic, political, or business developments in
Washington DC, Maryland, and Virginia that may affect the ability of residential
property owners in any of these areas to make payments of the principal and
interest on the underlying mortgages. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Significant Concentration of
Credit Risk."

SERVICING

The Residential Mortgage Loans owned by the Company are serviced by the Bank
(the "Servicer") pursuant to the terms of the Servicing Agreement. The Servicer
receives a fee equal to 0.375% per annum on the principal balances of the
Mortgage Loans serviced. See "Certain Relationships and Related Transactions."

The Servicing Agreement requires the Servicer to service the Company's Mortgage
Loans in a manner generally consistent with accepted secondary market practices,
with any servicing guidelines promulgated by the Company and, in the case of
Residential Mortgage Loans, with FNMA and FHLMC guidelines and procedures. The
Servicing Agreement requires the Servicer to service these loans solely with a
view toward the interests of the Company and without regard to the interests of
the Bank or any of the Bank's affiliates. The Servicer collects and remits
principal and interest payments, administers mortgage escrow accounts, submits
and pursues insurance claims and initiates and supervises foreclosure
proceedings on the loans it services. The Servicer also provides accounting and
reporting services required by the Company for such loans. The Servicing
Agreement requires the Servicer to follow such collection procedures as are
customary in the industry, including contacting delinquent borrowers and
supervising foreclosures and property disposition in the event of unremedied
defaults in accordance with servicing guidelines promulgated by the Company. The
Servicer may, in its discretion, arrange with a defaulting borrower a schedule
for the liquidation of delinquencies, provided that, in the case of Residential
Mortgage Loans, no primary mortgage guaranty insurance coverage is adversely
affected.

The Servicer is entitled to retain any ancillary fees, including, but not
limited to, late payment charges, prepayment fees, penalties and assumption fees
collected in connection with the Mortgage Loans serviced by it. In addition, the
Servicer is entitled to receive any benefit derived from interest earned on
collected principal and interest payments between the date of collection and the
date of remittance to the Company and from interest earned on tax and insurance
impound funds with respect to Mortgage Loans serviced by the Servicer.

The Servicer is required to pay all expenses related to the performance of its
duties under the Servicing Agreement. The Servicer is required to make advances
of taxes and required insurance premiums that are not collected from borrowers
with respect to any Mortgage Loan serviced by it, unless it determines that such
advances are nonrecoverable from the mortgagor, insurance proceeds or other
sources with respect to such Mortgage Loan.

The Company can terminate the Servicing Agreement without cause with at least
sixty days notice to the Servicer and payment of a termination fee.

DIVIDEND POLICY

The Company expects to pay an aggregate amount of dividends each year with
respect to its outstanding shares of stock equal to approximately 100% of the
Company's "REIT taxable income" for such year (excluding capital gains). The
Company anticipates that none of the dividends on the Series A Preferred Shares
and no material portion of the dividends on the Common Stock will constitute
non-taxable returns of capital. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Results of Operations."

Dividends are declared at the discretion of the Board of Directors of the
Company after considering the Company's distributable funds, financial
requirements, tax considerations and other factors. The Company's distributable
funds consist primarily of interest payments received in respect of the Mortgage
Assets held by it, and the Company anticipates that most of such assets will
bear interest at adjustable rates. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Financial Condition - Interest
Rate Risk."

Under Office of Thrift Supervision (the "OTS") regulations, the Bank is required
to apply to the OTS for approval to make any capital distribution regardless of
size if the Bank does not qualify for expedited treatment under the amended OTS
regulations. Dividends on the Series A Preferred Shares are not treated as
capital distributions for the purposes of these regulations, provided the Bank
remains "well capitalized" after the payment. At December 31, 1999, the Bank was
in compliance with all of its regulatory capital requirements under Financial
Institutions Reform, Recovery and Enforcement Act, and its capital ratios
exceeded the ratios established for "well capitalized" institutions under prompt
corrective action regulations.

THE BANK

The Bank is a federally chartered and federally insured stock savings bank which
at December 31, 1999 was conducting business from 166 full-service offices,
including 34 grocery store banking centers, and 856 automated teller machines in
Maryland, Virginia, Delaware and the District of Columbia. The Bank's home
office is located in McLean, Virginia and its executive offices are located in
Chevy Chase, Maryland, both suburban communities of Washington, DC. The Bank
also maintains one commercial loan production office located in Baltimore,
Maryland, 11 mortgage loan production offices in the mid-Atlantic region, 10 of
which are operated by a wholly-owned mortgage banking subsidiary and 32 consumer
loan production offices, 25 of which are operated by a wholly-owned finance
subsidiary. At December 31, 1999, the Bank had total assets of $9.8 billion,
total deposits of $6.2 billion and total stockholders' equity of $480.7 million.
Based on total consolidated assets at December 31, 1999, the Bank is the largest
bank headquartered in the Washington, DC metropolitan area.

Because the Company is a subsidiary of the Bank, federal regulatory authorities
have the right to examine the Company and its activities. Payment of dividends
on the Series A Preferred Shares could be subject to regulatory limitations if
after the payment the Bank was not "well capitalized" for purposes of the OTS
prompt corrective action regulations. "Well capitalized" is currently defined as
having a total risk-based capital ratio of at least 10.0%, a tier 1 risk-based
capital ratio of at least 6.0% and a core capital (or leverage) ratio of at
least 5.0%. At December 31, 1999, the Bank's total risk-based capital ratio was
12.48%, its tier 1 risk-based capital ratio was 8.09% and its core capital (or
leverage) ratio was 5.70%.

If the Exchange Event (as defined below under "Market for Registrant's Common
Equity and Related Stockholder Matters") occurs, the Bank would likely be
prohibited from paying dividends on the Bank Preferred Shares (as defined below
under "Market for Registrant's Common Equity and Related Stockholder Matters").
In all circumstances following the Exchange Event, the Bank's ability to pay
dividends would be subject to various restrictions under OTS regulations and
certain contractual provisions.

THE ADVISOR

On December 3, 1996, the Company entered into an advisory agreement (the
"Advisory Agreement") with the Bank (the "Advisor") to administer the day-to-day
operations of the Company. The Advisor principally is responsible for (i)
monitoring the credit quality of the Mortgage Assets held by the Company, (ii)
advising the Company with respect to the acquisition, management and financing
of the Company's Mortgage Assets, and (iii) maintaining the custody of the
documents related to the Company's Mortgage Loans. The Advisor may from time to
time subcontract all or a portion of its obligations under the Advisory
Agreement to one or more of its affiliates involved in the business of managing
Mortgage Assets.

The Advisor and its affiliates have substantial experience in the mortgage
lending industry, both in the origination and in the servicing of mortgage
loans. At December 31, 1999, the Advisor and its affiliates owned approximately
$4.3 billion of residential mortgage loans, including $295.2 million of the
Company's Residential Mortgage Loans. In their residential mortgage loan
business, the Advisor and its affiliates originate and purchase residential
mortgage loans. A portion of such loans are sold to investors, primarily in the
secondary market, generally on a servicing retained basis. The Advisor and its
affiliates also purchase servicing rights on residential mortgage loans. In
addition to loans serviced for its own portfolio, the Advisor and its affiliates
serviced residential mortgage loans having an aggregate principal balance of
approximately $3.5 billion as of December 31, 1999.

The Advisory Agreement had an initial term of three years and is renewed
automatically for additional one-year periods unless notice of nonrenewal is
delivered to the Advisor by the Company. The Advisory Agreement may be
terminated by the Company at any time upon sixty days' prior written notice. As
long as any Series A Preferred Shares remain outstanding, any decision by the
Company either to not renew the Advisory Agreement or to terminate the Advisory
Agreement must be approved by a majority of the Board of Directors, as well as
by a majority of the Independent Directors (as defined below under "Market for
Registrant's Common Equity and Related Stockholder Matters"). The Advisor is
entitled to receive an annual advisory fee equal to $200,000 payable in equal
quarterly installments with respect to the advisory and management services
provided to the Company. See "Certain Relationships and Related Transactions."

CAPITAL AND LEVERAGE POLICIES

To the extent that the Board of Directors determines that additional funding is
required, the Company may raise such funds through additional equity offerings,
debt financing or retention of cash flow (after consideration of provisions of
the Code requiring the distribution by a REIT of a certain percentage of taxable
income and taking into account taxes that would be imposed on undistributed
taxable income, including capital gains), or a combination of these methods.

At December 31, 1999, the Company had no debt outstanding, and the Company does
not currently intend to incur any indebtedness. However, the organizational
documents of the Company do not contain any limitation on the amount or
percentage of debt, funded or otherwise, that the Company might incur. The
Company may not, without the approval of a majority of the Independent
Directors, incur debt for borrowed money in excess of 25% of the Company's total
stockholders' equity, including intercompany advances made by the Bank to the
Company.

The Company may also issue additional series of Preferred Stock (as defined
below under "Market for Registrant's Common Equity and Related Stockholder
Matters"). However, the Company does not currently intend to issue any
additional series of Preferred Stock unless it simultaneously receives
additional capital contributions from the Bank equal to the sum of the aggregate
offering price of such additional Preferred Stock and the Company's expenses in
connection with the issuance of such additional shares of Preferred Stock. Prior
to its issuance of additional shares of Preferred Stock, the Company will take
into consideration the Bank's regulatory capital requirements and the cost of
raising and maintaining that capital at the time.

EMPLOYEES

The Company has nine officers. The executive officers of the Company are
described further below under "Directors and Executive Officers of the
Registrant - Directors and Officers." The Company does not anticipate that it
will require any additional employees because it has retained the Advisor to
administer the day-to-day activities of the Company pursuant to the Advisory
Agreement. Each officer of the Company currently is also an officer and/or
director of the Bank and/or affiliates of the Bank. The Company maintains
corporate records and audited financial statements that are separate from those
of the Bank or any of the Bank's affiliates.

COMPETITION

The Company does not anticipate that it will engage in the business of
originating Residential Mortgage Loans. It does anticipate that it will purchase
Mortgage Assets in addition to those in the current loan portfolio and that all
these Mortgage Assets will be purchased from the Bank or affiliates of the Bank.
Accordingly, the Company does not expect to compete with mortgage conduit
programs, investment banking firms, savings and loan associations, banks, thrift
and loan associations, finance companies, mortgage bankers or insurance
companies in acquiring its Mortgage Assets.

ENVIRONMENTAL MATTERS

In the event that the Company is forced to foreclose on a defaulted Mortgage
Loan to recover its investment in such Mortgage Loan, the Company may be subject
to environmental liabilities in connection with the underlying real property
which could exceed the value of the real property. Although the Company intends
to exercise due diligence to discover potential environmental liabilities prior
to the acquisition of any property through foreclosure, hazardous substances or
waste, contaminants, pollutants or sources thereof (as defined by state and
federal laws and regulations) may be discovered on properties during the
Company's ownership or after a sale thereof to a third party. If such hazardous
substances are discovered on a property which the Company has acquired through
foreclosure or otherwise, the Company may be required to remove those substances
and clean up the property. There can be no assurance that in such a case the
Company would not incur full recourse liability for the entire costs of any
removal and clean-up, that the cost of such removal and clean-up would not
exceed the value of the property or that the Company could recoup any such costs
from any third party. The Company may also be liable to tenants and other users
of neighboring properties. In addition, the Company may find it difficult or
impossible to sell the property prior to or following any such clean-up.

TAX STATUS OF THE COMPANY

The Company has elected to be taxed as a REIT under Sections 856 through 860 of
the Code. 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 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.

The Company recognized capital gains on the sale of five Real Estate Owned
("REO") properties of $29,909 during the year ended December 31, 1999. As a
result, in January 2000, the Company made a tax payment of $10,468.

ITEM 2. PROPERTIES

None.

ITEM 3. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of security holders of the Company during the
fourth quarter of the year ended December 31, 1999. However, on February 24,
2000, the Bank, the sole voting stockholder of the Company, by written consent,
elected the following persons as directors of the Company to serve until their
respective successors shall have been duly elected and qualify: B. Francis Saul
II; Alexander R. M. Boyle; Stephen R. Halpin, Jr.; N. Alexander MacColl, Jr.;
Leslie A. Nicholson; and John J. O'Connor III.

PART II


ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS

DESCRIPTION OF COMMON STOCK

General

In connection with the formation of the Company on November 5, 1996, the Company
issued 100 shares of Common Stock to the Bank for $1,000. These shares of Common
Stock were issued in reliance upon an exemption from registration under Section
4(2) of the Securities Act of 1933, as amended. Thus, there is no established
public trading market for the Common Stock. As of March 15, 2000, there were 100
issued and outstanding shares of Common Stock held by one stockholder, the Bank.

Dividends

The following table reflects the distributions declared by the Company on the
Common Stock for each quarter during the two most recent fiscal years. For a
discussion of the Company's distribution policy with respect to the Common
Stock, see "Business - Dividend Policy."

Period Distributions Payment Date
- ------------------------------------ ------------- -----------------
January 1, 1998 to March 31, 1998 $ 350,000 April 15, 1998
April 1, 1998 to June 30, 1998 1,000,000 July 15, 1998
July 1, 1998 to September 30, 1998 1,000,000 October 15, 1998
October 1, 1998 to December 31, 1998 3,460,000 January 15, 1999
January 1, 1999 to March 31, 1999 190,000 April 15, 1999
April 1, 1999 to June 30, 1999 1,100,000 July 15, 1999
July 1, 1999 to September 30, 1999 300,000 October 15, 1999
October 1, 1999 to December 31, 1999 3,100,000 January 18, 2000


Holders of Common Stock are entitled to receive dividends when, as and if
declared by the Board of Directors out of funds legally available. If the
Company fails to declare and pay full dividends on the Series A Preferred Shares
in any dividend period, the Company may not make any dividends or other
distributions with respect to the Common Stock until such time as dividends on
all outstanding Series A Preferred Shares have been (i) declared and paid for
three consecutive dividend periods and (ii) declared and paid or declared and a
sum sufficient for the payment thereof has been set apart for payment for the
fourth consecutive dividend period. In order to remain qualified as a REIT, the
Company must distribute annually at least 95% of its annual "REIT taxable
income" (not including capital gains) to stockholders. See "Business - Tax
Status of the Company."


Voting Rights

Subject to the rights, if any, of the holders of any class or series of
Preferred Stock (as defined below), all voting rights are vested in the Common
Stock. The holders of Common Stock are entitled to one vote per share.

Rights Upon Liquidation

In the event of the liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, after there have been paid or set aside for
the holders of all series of Preferred Stock the full preferential amounts to
which such holders are entitled, the holders of Common Stock will be entitled to
share equally and ratably in any assets remaining after the payment of all debts
and liabilities.

DESCRIPTION OF SERIES A PREFERRED SHARES

Market Information and Dividends

The Series A Preferred Shares are listed on the New York Stock Exchange under
the trading symbol "CCP-PrA." As of March 9, 2000, there were 3,000,000 issued
and outstanding Series A Preferred Shares held by approximately 203 holders of
record. The following table reflects the respective high and low sales prices
for the Series A Preferred Shares for each quarter during the two most recent
fiscal years. The table also indicates the distributions declared by the Company
during these periods. For a discussion of the Company's distribution policy with
respect to the Series A Preferred Shares, see "Business - Dividend Policy."


Price
------------- Distribu-
Period High Low tions Payment Date
- ------------------------------------- ------ ------ ----------- ----------------
January 1, 1998 to March 31, 1998 $55.00 $50.38 $3,890,625 April 15, 1998
April 1, 1998 to June 30, 1998 56.38 53.13 3,890,625 July 15, 1998
July 1, 1998 to September 30, 1998 55.75 51.50 3,890,625 October 15, 1998
October 1, 1998 to December 31, 1998 53.25 49.88 3,890,625 January 15, 1999
January 1, 1999 to March 31, 1999 55.00 52.69 3,890,625 April 15, 1999
April 1, 1999 to June 30, 1999 54.50 53.50 3,890,625 July 15, 1999
July 1, 1999 to September 30, 1999 54.88 53.50 3,890,625 October 15, 1999
October 1, 1999 to December 31, 1999 53.50 48.88 3,890,625 January 18, 2000


Holders of Series A Preferred Shares are entitled to receive, if, when and as
declared by the Board of Directors of the Company out of assets of the Company
legally available, cash dividends at the rate of 10d% per annum of the
liquidation preference (equivalent to $5.1875 per share per annum).

The right of holders of Series A Preferred Shares to receive dividends is
noncumulative. Accordingly, if the Board of Directors fails to declare a
dividend on the Series A Preferred Shares for a quarterly dividend period, then
holders of the Series A Preferred Shares will have no right to receive a
dividend for that period, and the Company will have no obligation to pay a
dividend for that period, whether or not dividends are declared and paid for any
future period with respect to either the Series A Preferred Shares or the Common
Stock.

General

The Series A Preferred Shares form a series of the preferred stock of the
Company (the "Preferred Stock"), which Preferred Stock may be issued from time
to time in one or more series with such rights, preferences and limitations as
are determined by the Company's Board of Directors.

The holders of the Series A Preferred Shares have no preemptive rights with
respect to any shares of the capital stock of the Company or any other
securities of the Company convertible into or carrying rights or options to
purchase any such shares. The Series A Preferred Shares are not subject to any
sinking fund or other obligation of the Company for their repurchase or
retirement. The Series A Preferred Shares will be exchanged automatically on a
one-for-one basis for Bank Preferred Shares (as defined below) upon the
occurrence of the Exchange Event (as defined below).

Automatic Exchange

Each Series A Preferred Share will be exchanged automatically for one newly
issued Series B preferred share of the Bank ( a "Bank Preferred Share") if the
appropriate federal regulatory agency of the Bank directs in writing (the
"Directive") an exchange of the Series A Preferred Shares for Bank Preferred
Shares because (i) the Bank becomes "undercapitalized" under prompt corrective
action regulations established pursuant to the Federal Deposit Insurance
Corporation Improvement Act of 1991, as amended, (ii) the Bank is placed into
conservatorship or receivership or (iii) the appropriate federal regulatory
agency, in its sole discretion and even if the Bank is not "undercapitalized,"
anticipates the Bank becoming "undercapitalized" in the near term (the "Exchange
Event"). Upon the Exchange Event, each holder of Series A Preferred Shares will
be unconditionally obligated to surrender to the Bank the certificate
representing each Series A Preferred Share of such holder, and the Bank will be
unconditionally obligated to issue to such holder in exchange for each such
Series A Preferred Share a certificate representing one Bank Preferred Share
(the "Automatic Exchange"). Absent the occurrence of the Exchange Event, no
shares of Bank Preferred Shares will be issued.

Holders of Series A Preferred Shares cannot exchange their Series A Preferred
Shares for Bank Preferred Shares voluntarily. In addition, absent the occurrence
of the Automatic Exchange, holders of Series A Preferred Shares will have no
dividend, voting, liquidation preference or other rights with respect to any
security of the Bank; such rights as are conferred by the Series A Preferred
Shares exist solely as to the Company.

Voting Rights

Except as expressly required by applicable law, or except as indicated below,
the holders of the Series A Preferred Shares will not be entitled to vote. In
the event the holders of Series A Preferred Shares are entitled to vote as
indicated below, each Series A Preferred Share will be entitled to one vote on
matters on which holders of the Series A Preferred Shares are entitled to vote.

If at the time of any annual meeting of the Company's stockholders for the
election of directors the Company has failed to pay or declare and set aside for
payment a quarterly dividend during any of the four preceding quarterly dividend
periods on any series of Preferred Stock of the Company, including the Series A
Preferred Shares, the number of directors then constituting the Board of
Directors of the Company will be increased by two (if not already increased by
two due to a default in preference dividends), and the holders of the Series A
Preferred Shares, voting together with the holders of all other series of
Preferred Stock as a single class, will be entitled to elect such two additional
directors to serve on the Company's Board of Directors at each such annual
meeting. Each director elected by the holders of shares of the Preferred Stock
shall continue to serve as such director until the later of (i) the full term
for which he or she shall have been elected or (ii) the payment of four
quarterly dividends on the Preferred Stock, including the Series A Preferred
Shares.


Redemption

The Series A Preferred Shares are not redeemable prior to January 15, 2007
(except upon the occurrence of certain tax events). On or after such date, the
Series A Preferred Shares will be redeemable at the option of the Company, in
whole or in part, at any time. Any such redemption must comply with the prompt
corrective action and capital distribution regulations of the OTS, which may
prohibit a redemption and will require the OTS' prior written approval.

The Company will also have the right at any time, upon the occurrence of certain
tax events and with the prior written approval of the OTS, to redeem the Series
A Preferred Shares, in whole (but not in part) at a redemption price of $50.00
per share, plus the quarterly accrued and unpaid dividend to the date of
redemption, if any, thereon.

Rights Upon Liquidation

In the event of any voluntary or involuntary liquidation, dissolution or winding
up of the Company, the holders of the Series A Preferred Shares at the time
outstanding will be entitled to receive out of assets of the Company available
for distribution to stockholders, before any distribution of assets is made to
holders of Common Stock or any other class of stock ranking junior to the Series
A Preferred Shares upon liquidation, liquidating distributions in the amount of
$50.00 per share, plus the quarterly accrued and unpaid dividend thereon, if
any, to the date of liquidation.

Independent Director Approval

As long as any Series A Preferred Shares are outstanding, certain actions by the
Company must be approved by a majority of the independent directors who are not
officers or employees of the Company and are not directors, officers, or
employees of the Bank or any of its affiliates (the "Independent Directors").
Any members of the Board of Directors of the Company elected by holders of
Preferred Stock, including the Series A Preferred Shares, will be deemed to be
Independent Directors for purposes of approving actions requiring the approval
of a majority of the Independent Directors.

ITEM 6. SELECTED FINANCIAL DATA

The selected financial data of the Company herein has been derived from the
financial statements of the Company, which statements have been audited by
Arthur Andersen LLP, independent public accountants, as indicated by their
report with respect thereto included elsewhere in this Form 10-K. The data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements
included elsewhere herein.



As of or for the year ended As of or for the
December 31, period ended
------------------------------------------------------------- December 31,
1999 1998 1997 1996
-------------------- ------------------- -------------------- ----------------------

OPERATING DATA:

Interest income $ 21,795,357 $ 22,860,956 $ 23,219,408 $ 1,943,288
Provision for loan losses 26,554 10,862 65,195 -
-------------------- ------------------- -------------------- ----------------------
Total interest income after
provision for loan losses 21,768,803 22,850,094 23,154,213 1,943,288
Gain on sale of real estate acquired
in settlement of loans, net 29,909 32,937 - -
Operating expenses (1,715,826) (1,514,080) (1,526,564) (111,414)
-------------------- ------------------- -------------------- ----------------------
Net income $ 20,082,886 $ 21,368,951 $ 21,627,649 $ 1,831,874
==================== =================== ==================== ======================

Earnings available to common
stockholders $ 4,520,386 $ 5,806,451 $ 6,065,149 $ 578,234
Earnings per common share $ 45,203.86 $ 58,064.51 $ 60,651.49 $ 5,782.34

DIVIDENDS DECLARED:

Dividends on common stock $ 4,690,000 $ 5,810,000 $ 6,150,000 $ 584,749
Dividends on preferred stock $ 15,562,500 $ 15,562,500 $ 15,562,500 $ 1,253,640

BALANCE SHEET DATA:

Residential mortgage loans, net $ 295,195,830 $ 292,682,032 $ 290,382,131 $ 294,504,138
Total assets $ 307,146,976 $ 307,593,809 $ 306,823,316 $ 302,318,288
Total stockholders' equity $ 299,830,386 $ 299,996,451 $ 299,915,149 $ 299,993,485
Number of preferred shares
outstanding 3,000,000 3,000,000 3,000,000 3,000,000
Number of common shares
outstanding 100 100 100 100
Average yield on residential
mortgage loans 7.35% 7.82% 7.85% 7.79%


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

FINANCIAL CONDITION

Residential Mortgage Loans

At December 31, 1999, the Company had $295,195,830 invested in Residential
Mortgage Loans compared to $292,682,032 at December 31, 1998. During 1999,
Residential Mortgage Loan purchases were $73,323,320 and principal collections
were $70,029,056. In addition, the Company received proceeds of $1,056,018 on
the sale of five properties classified as real estate acquired in settlement of
loans during the year ended December 31, 1999. Management intends to continue to
reinvest proceeds received from repayments of loans by purchasing additional
Residential Mortgage Loans from either the Bank or its affiliates.

At December 31, 1999, the Company had three non-accrual loans (loans
contractually past due 90 days or more or with respect to which other factors
indicate that full payment of principal and interest is unlikely) with an
aggregate principal balance of $423,667 (or 0.14% of loans). At December 31,
1998, the Company had three non-accrual loans with an aggregate principal
balance of $477,624 (or 0.16% of loans).

At December 31, 1999, the Company had three delinquent loans (loans delinquent
30-89 days) with an aggregate principal balance of $541,336 (or 0.18% of loans).
At December 31, 1998, the Company had four delinquent loans with an aggregate
principal balance of $845,911 (or 0.29% of loans).

Allowance for Loan Losses

Management reviews the loan portfolio to establish an allowance for estimated
losses if deemed necessary. An analysis to determine whether an allowance for
loan losses is required is performed periodically, and an allowance is provided
after considering such factors as the economy in lending areas, delinquency
statistics and past loss experience. The allowance for loan losses is based on
estimates, and ultimate losses may vary from current estimates. As adjustments
to the allowance become necessary, provisions for loan losses are reported in
operations in the periods they are determined to be necessary. The activity in
the allowance for loan losses for the years ended December 31, 1999 and 1998 is
as follows:

Year Ended December 31,
----------------------------
1999 1998
------------ -----------

Beginning balance $ 40,333 $ 39,999
Provision for loan losses 26,554 10,862
Charge-offs (26,554) (11,226)
Recoveries - 698
------------ -----------
Ending Balance $ 40,333 $ 40,333
============ ===========

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

Based on the outstanding balance of the Company's Residential Mortgage Loans at
December 31, 1999 and the interest rates on such loans, anticipated annual
interest income on the Company's loan portfolio was approximately 131.4% of the
projected annual dividend on the Series A Preferred Shares. There can be no
assurance that an interest rate environment in which there is a continued
decline in interest rates would not adversely affect the Company's ability to
pay dividends on the Series A Preferred Shares or the Common Stock. The Company,
to date, has not used any derivative instruments to manage its interest rate
risk.

The following table contains estimated principal cash flows and fair market
values by type for the Company's Residential Mortgage Loans. Prepayment rates
are assumed for the Company's loans based on recent actual and market
experience. Fair value is estimated using discounted cash flow analyses based on
contractual repayment and anticipated prepayment schedules. The discount rates
used in these analyses are based on either the interest rates paid on U.S.
Treasury securities of comparable maturities adjusted for credit risk and
non-interest operating costs, or the interest rates currently offered for loans
with similar terms to borrowers of similar credit quality.



Expected Maturity Date
- -----------------------------------------------------------------------------------------------------------------------------------
December 31,
--------------------------------------------------------------------------------
(Dollars in thousands)

2000 2001 2002 2003 2004 Thereafter Total Fair Value
-------------- ------------ ------------ ------------ ----------- -------------- ------------ -------------

One-Year ARMs $ 11,073 $ 782 $ - $ - $ - $ - $ 11,855 $ 12,199
Average Interest Rate 7.57% 8.24% - - - - 7.61%

Three-Year ARMs 11,842 5,287 7,758 - - - 24,887 25,399
Average Interest Rate 8.22% 7.99% 7.83% - - - 8.05%

5/1 ARMs 51,366 17,527 7,987 8,908 7,278 - 93,066 92,400
Average Interest Rate 7.84% 7.58% 7.25% 6.81% 6.83 - 7.56%

7/1 ARMs 1,967 1,660 1,400 1,180 1,072 4,965 12,244 11,888
Average Interest Rate 6.74% 6.74% 6.74% 6.74% 6.76% 6.74% 6.74%

10/1 ARMs 19,496 17,056 16,878 12,771 11,126 70,496 147,823 143,551
Average Interest Rate 7.04% 7.04% 7.11% 7.03% 7.03% 7.03% 7.04%

30-Year Fixed Rate 505 464 426 392 360 3,214 5,361 5,354
Average Interest Rate 7.74% 7.74% 7.74% 7.74% 7.74% 7.74% 7.74%


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. A majority of the
Company's Residential Mortgage Loans are loans 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.

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 in "Business - 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
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 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.

YEAR 2000 ISSUES

The Company has no equipment or systems of its own because the operations of the
Company are performed in their entirety under contract with the Bank. For the
same reason, the Company was dependent on the Year 2000 program of the Bank, its
sole service provider.

Many activities relating to the Bank's corporate-wide year 2000 program took
place during the weeks before January 1, 2000 and the weeks immediately
thereafter. To manage these efforts, the Bank employed a coordinated management
strategy to facilitate detection and resolution of potential Year 2000
disruptions, and to ensure efficient communications with the Bank's management,
staff, customers, and third parties.

As a result of diligent monitoring, the Bank's internal systems were available
earlier than predicted. As testing proceeded over the transition period, very
few system problems were reported, and all of these problems were resolved with
little or no impact to the Bank and its customers.

The relatively smooth transition into the Year 2000 indicates that remediation
efforts were largely successful. The Bank has nonetheless planned for the
possibility that Year 2000 failures may yet be discovered. Monitoring and
reporting will continue throughout 2000 in compliance with Federal Financial
Institutions Examination Council's guidelines.

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 incur any Year 2000 expenses in
the future.

RESULTS OF OPERATIONS

Fiscal Year 1999 Compared to Fiscal Year 1998

The Company reported net income of $20,082,886 and $21,368,951 for the years
ended December 31, 1999 and 1998, respectively. The reduction in net income is
due primarily to a decrease in the average yield on Residential Mortgage Loans
and an increase in operating expenses.

Interest income on Residential Mortgage Loans totaled $21,628,731 and
$22,632,939 for the years ended December 31, 1999 and 1998, respectively, which
represents an average yield on such loans of 7.35% and 7.82%, respectively. The
average loan balance of the Residential Mortgage Loan portfolio was $294,142,360
and $289,332,464 for the years ended December 31, 1999 and 1998, respectively.
The Company would have recorded an additional $38,434 and $49,641 in interest
income for the years ended December 31, 1999 and 1998, respectively, had its
non-accrual loans been current in accordance with their original terms.

Other interest income of $166,626 and $228,017 was recognized on the Company's
interest bearing deposits during the years ended December 31, 1999 and 1998,
respectively.

Provision for loan losses of $26,554 and $10,862 were recorded on the Company's
loan portfolio during the years ended December 31, 1999 and 1998, respectively.

The Company recognized a gain of $29,909 on the sale of five REO properties
during the year ended December 31, 1999. A gain of $32,937 on the sale of six
REO properties was recognized during the year ended December 31, 1998.

Operating expenses totaling $1,715,826 and $1,514,080 for the years ended
December 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 $1,116,911 and
$1,116,729 for the years ended December 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 the Servicing Agreement.
Advisory fees paid to parent for the years ended December 31, 1999 and 1998
totaled $200,000 for each period. Directors' fees totaled $26,000 and $28,000
for the years ended December 31, 1999 and 1998, respectively, and represent
compensation to the two independent members of the Board of Directors. General
and administrative expenses totaled $372,915 and $169,351 for the years ended
December 31, 1999 and 1998, respectively. General and administrative expenses
consisted 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 year ended December 31, 1999, the Company's Board of Directors
declared cash dividends of $15,562,500, representing $5.1875 per share on the
outstanding shares of Series A Preferred Shares, out of the retained earnings of
the Company.

Also during December 31, 1999, the Company's Board of Directors declared cash
dividends of $46,900 per share of Common Stock, $4,520,386 of which was paid out
of the retained earnings of the Company and $169,614 of which was treated as a
return of capital.

Fiscal Year 1998 Compared to Fiscal Year 1997

The Company reported net income of $21,368,951 and $21,627,649 for the years
ended December 31, 1998 and 1997, respectively.

Interest income on Residential Mortgage Loans totaled $22,632,939 and
$23,079,170 for the years ended December 31, 1998 and 1997, respectively, which
represents an average yield on such loans of 7.82% and 7.85%, respectively. The
average loan balance of the Residential Mortgage Loan portfolio was $289,332,464
and $294,094,062 for the years ended December 31, 1998 and 1997, respectively.
The Company would have recorded an additional $49,641 and $45,402 in interest
income for the years ended December 31, 1998 and 1997, respectively, had its
non-accrual loans been current in accordance with their original terms.

Other interest income of $228,017 and $140,238 was recognized on the Company's
interest bearing deposits during the years ended December 31, 1998 and 1997,
respectively.

Provision for loan losses of $10,862 and $65,195 were recorded on the Company's
loan portfolio during the years ended December 31, 1998 and 1997, respectively.

The Company recognized a gain of $32,937 on the sale of six REO properties
during the year ended December 31, 1998. There was no gain or loss on REO
properties during the year ended December 31, 1997.

Operating expenses totaling $1,514,080 and $1,526,564 for the years ended
December 31, 1998 and 1997, 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 $1,116,729 and
$1,137,487, for the years ended December 31, 1998 and 1997, respectively, were
based on a servicing fee rate of 0.375% per annum of the outstanding principal
balances of Residential Mortgage Loans, pursuant to the Servicing Agreement.
Advisory fees paid to parent for the years ended December 31, 1998 and 1997
totaled $200,000 for each period. Directors' fees totaled $28,000 and $25,500
for the years ended December 31, 1998 and 1997, respectively, and represent
compensation to the two independent members of the Board of Directors. General
and administrative expenses consisted primarily of the amortization of
organizational costs.

During the year ended December 31, 1998, the Company's Board of Directors
declared cash dividends of $15,562,500, representing $5.1875 per share on the
outstanding shares of Series A Preferred Shares, out of the retained earnings of
the Company.

Also during December 31, 1998, the Company's Board of Directors declared cash
dividends of $58,100 per share of Common Stock, $5,806,451 of which was paid out
of the retained earnings of the Company and $3,549 of which was treated as a
return of capital.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Information required by this item is included in Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Interest Rate Risk."


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONTENTS


Page

(a) Report of Independent Public Accountants........................

(b) Statements of Financial Condition at December 31, 1999 and 1998.

(c) Statements of Operations for the Years Ended December 31, 1999,
1998 and 1997...................................................

(d) Statements of Stockholders' Equity for the Years Ended
December 31, 1999, 1998 and 1997.. .............................

(e) Statements of Cash Flows for the Years Ended December 31, 1999,
1998 and 1997...................................................

(f) Notes to Financial Statements...................................



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Board of Directors of Chevy Chase Preferred Capital Corporation:

We have audited the accompanying statements of financial condition of Chevy
Chase Preferred Capital Corporation (the "Company," a Maryland corporation) as
of December 31, 1999 and 1998, and the related statements of operations,
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
1999 and 1998, and the results of its operations and its cash flows for the
years then ended in conformity with accounting principles generally accepted in
the United States.


Arthur Andersen LLP

Vienna, Virginia
February 25, 2000



CHEVY CHASE PREFERRED CAPITAL CORPORATION
STATEMENTS OF FINANCIAL CONDITION


December 31,
------------------------------------------------
1999 1998
--------------------- ---------------------

ASSETS

Cash and interest-bearing deposits $ 7,072,250 $ 4,861,984
Residential mortgage loans (net of allowance
for loan losses of $40,333 for both years) 295,195,830 292,682,032
Real estate acquired in settlement of loans - 272,197
Accounts receivable from parent 3,599,534 8,004,120
Accrued interest receivable 1,271,362 1,437,626
Prepaid expenses 8,000 335,850
--------------------- ---------------------

Total assets $307,146,976 $307,593,809
===================== =====================

LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable to parent $ 272,346 $ 234,923
Accounts payable to others and accrued expenses 53,619 11,810
Dividends payable to parent 3,100,000 3,460,000
Dividends payable to others 3,890,625 3,890,625
--------------------- ---------------------

Total liabilities 7,316,590 7,597,358
--------------------- ---------------------

10d% 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 284,830,286 284,996,351
--------------------- ---------------------
Total stockholders' equity 299,830,386 299,996,451
--------------------- ---------------------

Total liabilities and stockholders' equity $307,146,976 $307,593,809
===================== =====================




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



CHEVY CHASE PREFERRED CAPITAL CORPORATION
STATEMENTS OF OPERATIONS


Year Ended December 31,
--------------------------------------------------------------------------------
1999 1998 1997
------------------------ ------------------------ ----------------------

Interest income:
Residential mortgage loans $ 21,628,731 $ 22,632,939 $ 23,079,170
Other 166,626 228,017 140,238
------------------------ ------------------------ ----------------------

Total interest income 21,795,357 22,860,956 23,219,408

Provision for loan losses 26,554 10,862 65,195
------------------------ ------------------------ ----------------------
Total interest income after provision
For loan losses 21,768,803 22,850,094 23,154,213

Gain on sale of real estate acquired in
settlement of loans, net 29,909 32,937 -
------------------------ ------------------------ ----------------------

Total operating income 21,798,712 22,883,031 23,154,213
------------------------ ------------------------ ----------------------

Operating expenses:
Loan servicing fees-parent 1,116,911 1,116,729 1,137,487
Advisory fees-parent 200,000 200,000 200,000
Directors' fees 26,000 28,000 25,500
General and administrative 372,915 169,351 163,577
------------------------ ------------------------ ----------------------
Total operating expenses 1,715,826 1,514,080 1,526,564
------------------------ ------------------------ ----------------------

NET INCOME 20,082,886 21,368,951 21,627,649
======================== ======================== ======================

PREFERRED STOCK DIVIDENDS 15,562,500 15,562,500 15,562,500
------------------------ ------------------------ ----------------------

EARNINGS AVAILABLE TO
COMMON STOCKHOLDER $ 4,520,386 $ 5,806,451 $ 6,065,149
======================== ======================== ======================

EARNINGS PER COMMON SHARE $ 45,203.86 $ 58,064.51 $ 60,651.49
======================== ======================== ======================

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




CHEVY CHASE PREFERRED CAPITAL CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY


Capital
Contributed
Preferred Common in Excess Retained Stockholders'
Stock Stock of Par Earnings Equity
------------------ ----------------- -------------------- ------------------ --------------------

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

Capital contribution from
common - - 6,515 - 6,515
stockholder
Net income - - - 21,627,649 21,627,649
Dividends on 10d%
Noncumulative Exchangeable
Preferred Stock, Series A - - - (15,562,500) (15,562,500)
Dividends on common stock - - (84,851) (6,065,149) (6,150,000)
------------------ ----------------- -------------------- ------------------ --------------------

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

Capital contribution from
common stockholder - - 84,851 - 84,851
Net income - - - 21,368,951 21,368,951
Dividends on 10d%
Noncumulative Exhangeable
Preferred Stock, Series A - - - (15,562,500) (15,562,500)
Dividends on common stock - - (3,549) (5,806,451) (5,810,000)
------------------ ----------------- -------------------- ------------------ --------------------

Balance, December 31, 1998 15,000,000 100 284,996,351 - 299,996,451

Capital contribution from
common stockholder - - 3,549 - 3,549
Net income - - - 20,082,886 20,082,886
Dividends on 10d%
Noncumulative Exchangeable
Preferred Stock, Series A - - - (15,562,500) (15,562,500)
Dividends on common stock - - (169,614) (4,520,386) (4,690,000)
------------------ ----------------- -------------------- ------------------ --------------------

Balance, December 31, 1999 $15,000,000 $ 100 $ 284,830,286 $ - $ 299,830,386
================== ================= ==================== ================== ====================

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



CHEVY CHASE PREFERRED CAPITAL CORPORATION
STATEMENTS OF CASH FLOWS


Year Ended December 31,
-------------------------------------------------------------------
1999 1998 1997
--------------------- --------------------- ---------------------

Cash flows from operating activities:

Net income $20,082,886 $21,368,951 $21,627,649

Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Provision for loan losses 26,554 10,862 65,195
Gain on sale of real estate acquired in settlement of
loan losses, net (29,909) (32,937) -
(Increase) decrease in accounts receivable from parent 4,404,586 2,370,771 (4,530,742)
Decrease in accrued interest receivable 166,264 124,852 42,348
(Increase) decrease in prepaid expenses 327,850 99,959 (435,809)
Increase (decrease) in accounts payable to parent 37,423 71,130 (319,287)
Increase in accounts payable to others and
accrued expenses 41,809 8,061 415
--------------------- --------------------- ---------------------

Net cash provided by operating activities 25,057,463 24,021,649 16,449,769
--------------------- --------------------- ---------------------

Cash flows from investing activities:

Purchases of residential mortgage loans (73,323,320) (145,009,967) (82,980,950)
Repayments of residential mortgage loans 70,029,056 141,718,892 86,649,302
Net proceeds from sale of real estate acquired in
settlement of loans 1,056,018 914,790 214,722
--------------------- --------------------- ---------------------

Net cash provided by (used in) investing activities (2,238,246) (2,376,285) 3,883,074
--------------------- --------------------- ---------------------

Cash flows from financing activities:

Capital contribution from common stockholder 3,549 84,851 6,515
Dividends paid on preferred stock (15,562,500) (15,562,500) (12,925,515)
Dividends paid on common stock (5,050,000) (5,200,000) (3,884,749)
--------------------- --------------------- ---------------------

Net cash used in financing activities (20,608,951) (20,677,649) (16,803,749)
--------------------- --------------------- ---------------------

Net increase in cash and cash equivalents 2,210,266 967,715 3,529,094

Cash and cash equivalents at beginning of year 4,861,984 3,894,269 365,175
--------------------- --------------------- ---------------------

Cash and cash equivalents at end of year $ 7,072,250 $ 4,861,984 $ 3,894,269
===================== ===================== =====================


Supplemental disclosures of non-cash activities:

Net transfer of loans receivable to real
estate acquired in settlement of loans $ 753,912 $ 980,312 $ 388,460
===================== ===================== =====================

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





CHEVY CHASE PREFERRED CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 and 1997

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION:

Chevy Chase Preferred Capital Corporation (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 (as defined below). The Bank is in compliance with
its regulatory capital requirements.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Use of Estimates:

The financial statements have been prepared in conformity with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
liabilities as of the date of the statements of financial condition and income
and expenses for the reporting periods. Actual results could differ from those
estimates.

Cash and Cash Equivalents:

For purposes of reporting cash flows, cash and cash equivalents include cash and
interest-bearing deposits.

Residential Mortgage Loans:

Residential mortgage loans are carried at amortized cost. Interest income is
accrued and recognized using the weighted average coupon interest rate of the
portfolio.

Loans are reviewed on a monthly basis and are placed on non-accrual status when,
in the opinion of management, the full collection of principal and interest has
become unlikely. Uncollectible accrued interest receivable on non-accrual loans
is charged against current period income. The Company had non-accrual loans at
December 31, 1999 and 1998 totaling $423,667 and $477,624, respectively.

Allowance for Loan Losses:

Management periodically reviews the loan portfolio to establish an allowance for
estimated losses if deemed necessary. An allowance is provided after considering
such factors as the economy in lending areas, delinquency statistics and past
loss experience. The allowance for loan losses are based on estimates and
ultimate losses may vary from current estimates. As adjustments to the allowance
become necessary, provisions for losses are reported in operations in the
periods they are determined to be necessary.




CHEVY CHASE PREFERRED CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 and 1997

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):

Concentrations of Credit:

A majority of the Company's loans are secured by properties located in the
Washington, DC metropolitan area. Service industries and Federal, state and
local governments employ a significant portion of the Washington, DC area labor
force. Adverse changes in economic conditions could have a direct impact on the
timing and amounts of payments by borrowers.

Accounts Receivable from Parent:

Accounts receivable from parent represents principal and interest payments
received from borrowers by the Bank as servicer of the mortgage loans which are
being held by the servicer in a custodial account pending remittance to the
Company. The Company receives remittances from the servicer on the 10th day of
each month. See Note 7.

Accounts Payable to Parent:

Accounts payable to parent represents fees owed to the Bank for managing the
operations of the Company, for servicing the Company's loans and for expenses
paid by the Bank on behalf of the Company. See Note 7.

Dividends:

Preferred Stock. Dividends on the Series A Preferred Shares are payable at a
rate of 10d% per annum of the liquidation preference (an amount equal to $5.1875
per annum per share), if, when and as declared by the Board of Directors of the
Company. Dividends are not cumulative and, if declared, are payable quarterly in
arrears on the fifteenth day of January, April, July and October.

Common Stock. The stockholder is entitled to receive dividends if, when and as
declared by the Board of Directors out of funds legally available after all
preferred dividends have been paid.

Earnings Per Common Share:

Dividends on preferred stock are deducted from earnings in the computation of
earnings per common share when declared by the Company's Board of Directors.
Earnings per common share assuming dilution equals the basic earnings per common
share.


CHEVY CHASE PREFERRED CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 and 1997

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):

Income Taxes:

The Company has elected, for Federal income tax purposes, to be treated as a
Real Estate Investment Trust ("REIT") and intends to comply with the provisions
of the Internal Revenue Code of 1986, as amended (the "IRC"). Accordingly, the
Company is not subject to Federal corporate income taxes to the extent it
distributes at least 100% of its annual REIT taxable income to stockholders and
as long as certain asset, income and stock ownership tests are met in accordance
with the IRC. Because management of the Company believes it qualifies as a REIT
for Federal income tax purposes, no provision for income taxes is included in
the accompanying financial statements.

NOTE 3 - RESIDENTIAL MORTGAGE LOANS:

Residential mortgage loans consist of one-year adjustable-rate mortgages
("ARMs"), three-year ARMs, five-year, seven-year and ten-year fixed-rate loans
with automatic adjustment to one-year ARMs after the respective fixed rate
period and conventional 30 year fixed-rate mortgages. The following table shows
the residential mortgage loan portfolio by type at the dates indicated:

December 31,
-------------------------------------------
1999 1998
------------------- -------------------
One-Year ARMs $ 11,854,943 $ 16,159,185
Three-Year ARMs 24,886,732 35,684,740
5/1 ARMs 93,066,498 100,108,907
7/1 ARMs 12,243,571 -
10/1 ARMs 147,823,258 135,436,966
30 Year Fixed-Rate 5,361,161 5,332,567
------------------- -------------------
Total 295,236,163 292,722,365

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

Total $ 295,195,830 $ 292,682,032
=================== ===================

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.




CHEVY CHASE PREFERRED CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 and 1997

NOTE 4 - ALLOWANCE FOR LOAN LOSSES:

Activity in the allowance for loan losses is summarized as follows:

Year Ended December 31,
-----------------------------------------------
1999 1998
----------------------- -----------------------

Beginning balance $ 40,333 $ 39,999
Provision for losses 26,554 10,862
Charge-offs (26,554) (11,226)
Recoveries - 698
----------------------- -----------------------
Ending balance $ 40,333 $ 40,333
======================= =======================



NOTE 5 - PREFERRED STOCK:

On December 3, 1996, the Company sold $150 million of Series A Preferred Shares,
$5.00 par value and received net cash proceeds of $144 million. Cash dividends
on the Series A Preferred Shares, if, when and as declared by the Board of
Directors, are payable quarterly in arrears at an annual rate of 10d%. The
liquidation value of each Series A Preferred Share is $50 plus accrued and
unpaid dividends. 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.

The Series A Preferred Shares are redeemable at the option of the Company at any
time on or after January 15, 2007, in whole or in part, at the following per
share redemption prices plus accrued and unpaid dividends:

If redeemed during the
12-month period Redemption
beginning January 15, Price
-------------------------------------- -------------------
2007 $52.594
2008 $52.075
2009 $51.556
2010 $51.038
2011 $51.519
2012 and thereafter $50.000



CHEVY CHASE PREFERRED CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 and 1997

NOTE 6 - DIVIDENDS:

During the year ended December 31, 1999, the Company's Board of Directors
declared $15,562,500 of preferred stock dividends out of retained earnings of
the Company and $4,690,000 of common stock dividends, $4,520,386 of which was
paid out of the retained earnings of the Company and $169,614 of which was
treated as a return of capital. Of these amounts, preferred stock dividends of
$3,890,625 and common stock dividends of $3,100,000 were paid subsequent to
December 31, 1999.

NOTE 7 - RELATED PARTY TRANSACTIONS:

The Company has entered into an advisory agreement (the "Advisory Agreement")
with the Bank (the "Advisor"). The Advisor provides advice to the Board of
Directors and manages the operations of the Company as defined in the Advisory
Agreement. The Advisory Agreement has an initial term of three years commencing
on December 3, 1996 and is automatically renewed for additional one-year periods
unless the Company delivers a notice of nonrenewal to the Advisor. The Advisory
Agreement may be terminated by the Company at any time upon sixty days' prior
written notice. The advisory fee is $200,000 per annum payable in equal
quarterly installments.

The Company also entered into a servicing agreement with the Bank for the
servicing of its residential mortgage loans (the "Servicing Agreement").
Pursuant to the Servicing Agreement, the Bank performs the servicing of the
loans owned by the Company, in accordance with normal industry practice. The
Servicing Agreement can be terminated without cause with at least sixty days'
notice to the servicer and payment of a termination fee. The servicing fee rate
is 0.375% of the outstanding principal balance of the loans. Servicing fees for
the years ended December 31, 1999, 1998 and 1997 totaled $1,116,911, $1,116,729
and $1,137,487, respectively.

The Company had cash balances of $7,072,250 and $4,861,984 as of December 31,
1999 and 1998, respectively, held in various deposit accounts with the Bank.
Interest earned on these accounts was $166,626, $228,017 and $140,238 for the
years ended December 31, 1999, 1998 and 1997, respectively.

NOTE 8 - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS:

The majority of the Company's assets and liabilities are financial instruments;
however, certain of these financial instruments lack an available trading
market. Significant estimates, assumptions and present value calculations were
therefore used for the purposes of deriving the fair values of the Company's
financial instruments, resulting in a degree of subjectivity inherent in the
indicated fair value amounts. Because the fair value is estimated as of the
balance sheet date, the amount which will actually be realized or paid upon
settlement or maturity could be significantly different. Comparability among
REITs may be difficult due to the wide range of permitted valuation techniques
and the numerous estimates and assumptions which must be made.



CHEVY CHASE PREFERRED CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 and 1997

NOTE 8 - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued):

The estimated fair values of the Company's financial instruments at December 31,
1999 and 1998 are as follows:

December 31, 1999
------------------------------------
Carrying Fair
Amount Value
------------------ -----------------
Financial assets:
Cash and interest-bearing deposits $ 7,072,250 $ 7,072,250
Residential mortgage loans
receivable, net 295,195,830 291,174,625
Other financial assets 4,870,896 4,870,896

Financial liabilities 7,262,971 7,262,971


December 31, 1998
------------------------------------
Carrying Fair
Amount Value
------------------ -----------------

Financial assets:
Cash and interest-bearing deposits $ 4,861,984 $ 4,861,984
Residential mortgage loans
receivable, net 292,682,032 299,823,000
Other financial assets 9,441,746 9,441,746

Financial liabilities 7,585,548 7,585,548

The following methods and assumptions were used to estimate the fair value
amounts at December 31, 1999 and 1998.

Cash and interest-bearing deposits:

Carrying amount approximates fair value.

Residential mortgage loans:

Fair value is estimated using discounted cash flow analyses based on contractual
repayment and anticipated prepayment schedules. The discount rates used in these
analyses are based on either the interest rates paid on U.S. Treasury securities
of comparable maturities adjusted for credit risk and non-interest operating
costs, or the interest rates currently offered for loans with similar terms to
borrowers of similar credit quality.




CHEVY CHASE PREFERRED CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998, and 1997

NOTE 8 - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued):

Other financial assets:

The carrying amounts of accounts receivable from parent and accrued interest
receivable approximate fair value.

Financial liabilities:

The carrying amounts of accounts payable to parent, accounts payable to others,
dividends payable to parent and dividends payable to others approximate fair
value.



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS AND EXECUTIVE OFFICERS

The Company's Board of Directors currently consists of six members, two of whom
are Independent Directors. Each director was elected to serve for a term of one
year and until his successor shall have been duly elected and qualified. The
Board of Directors met four times during the year ended 1999 and all of its
members attended at least 75% of the meetings. The Company currently has nine
officers. The Company has no other employees and does not anticipate that it
will require additional employees.

The following persons are the Company's current directors and/or executive
officers, each of whom has served since 1996.

Name Age Position and Offices Held
- ----------------------------------------------------------------------------
B. Francis Saul II........67 Chairman of the Board, President and
Chief Executive Officer
Alexander R. M. Boyle.....61 Director
Stephen R. Halpin, Jr.....44 Executive Vice President, Chief Financial
Officer, Treasurer and Director
N. Alexander MacColl, Jr..65 Director
Leslie A. Nicholson.......59 Executive Vice President, General Counsel
and Director
John J. O'Connor III......69 Director

The following is a summary of the experience of the executive officers and/or
directors of the Company:

B. FRANCIS SAUL II serves as Chairman of the Board and Chief Executive Officer
of the Bank. He also has been President and Chief Operating Officer of B. F.
Saul Company since 1969. Mr. Saul has served as the Chairman of B. F. Saul Real
Estate Investment Trust since 1969 and as a trustee since 1964. He is also a
director of Derwood Investment Corporation. At December 31, 1999, B. F. Saul
Real Estate Investment Trust and Derwood Investment Corporation owned of record
80% and 16%, respectively, of the Bank's outstanding common stock. Mr. Saul is
also Chairman of the Board of Directors of Chevy Chase Financial Limited and
Chevy Chase Property Company Limited. He serves as Chairman of the Board and
Chief Executive Officer of Saul Centers, Inc., a public real estate investment
trust. Mr. Saul also serves as a Trustee of the National Geographic Society, a
member of the Trustees Council of the National Gallery of Art and an Honorary
Trustee of the Brookings Institute. In addition, Mr. Saul is Director Emeritus
of Colonial Williamsburg Hotel Properties, Inc., a member of the Folger
Shakespeare Library and the Board of Visitors and Governors of Washington
College.

ALEXANDER R. M. BOYLE has been Vice Chairman of the Board of Directors of the
Bank since 1985. Prior to beginning service in this position, Mr. Boyle was the
President and a member of the Board of Directors of Government Services Savings
and Loan, Inc. from 1975 until its merger with the Bank in 1985. He is also a
Trustee of the B. F. Saul Employees Profit Sharing Retirement Trust. Mr. Boyle
has served as a director of the U. S. League of Savings Institutions and as
chairman of the Maryland League of Financial Institutions. He currently serves
as a director of the Association of Financial Services Holding Companies and
serves on the Chancellor's Advisory Council of the University of Maryland and is
a member of the Rotary Club of Bethesda-Chevy Chase.

STEPHEN R. HALPIN, JR. serves as Executive Vice President and Chief Financial
Officer of the Bank. Mr. Halpin is also the Chief Financial Officer for the B.
F. Saul Company and B. F. Saul Real Estate Investment Trust. He is a Trustee of
the B. F. Saul Employees Profit Sharing Retirement Trust. In addition, Mr.
Halpin is a Trustee for Hospice Caring, Inc. Before joining the Bank in 1983,
Mr. Halpin was with a public accounting firm.

N. ALEXANDER MACCOLL, JR. was a Senior Vice President of the Union Trust Company
Loan Production Office from 1982 until 1990 when he retired. He served as
Corporate Vice President of Colonial Bancorp. from 1977 until 1981. Prior to his
position at Colonial Bancorp., he served as Second Vice President of the
National Bank of Detroit from 1962 until 1977.

LESLIE A. NICHOLSON joined Chevy Chase as Executive Vice President and General
Counsel in June 1996. Prior to joining the Bank, Mr. Nicholson had been a
partner for 24 years in the law firm of Shaw Pittman in Washington, DC, where he
was a member of its Management Committee and Chairman of its Litigation
Department. Mr. Nicholson is a member of the American College of Real Estate
Lawyers and a member of the Board of Directors of the Frederick M. Abramson
Foundation. He was also a founding member and served as a National Director of
the American College of Construction Lawyers.

JOHN J. O'CONNOR III has been engaged in the practice of law since 1957. He has
been a partner in Bryan Cave LLP since 1988.

AUDIT COMMITTEE

The Company's audit committee reviews the engagement of independent accountants
and reviews their independence. The audit committee also reviews the adequacy of
the Company's internal accounting controls. The audit committee is comprised of
John J. O'Connor III and N. Alexander MacColl, Jr. The audit committee met one
time during 1999.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), requires the Company's officers, directors and persons who own more than
ten percent of either the Common Stock or the Series A Preferred Shares to file
reports of ownership on Form 3 and changes in ownership on Form 4 or 5 with the
Securities and Exchange Commission (the "SEC") and the New York Stock Exchange.
Such officers, directors and ten percent shareholders are also required by SEC
rules to furnish the Company with copies of all Section 16(a) forms that they
file.

Based solely on its review of copies of such reports received or representations
from certain reporting persons, the Company believes that, during the year ended
December 31, 1999, all of its officers, directors and ten percent shareholders
complied with all Section 16(a) filing requirements applicable to them with
respect to transactions during fiscal 1999.

ITEM 11. EXECUTIVE COMPENSATION

Since the Company's inception on November 5, 1996, no compensation has been
awarded to, earned by or paid to any of the Company's directors (other than its
Independent Directors), officers or employees. The Company does not intend to
pay any compensation to any of its directors (other than its Independent
Directors), officers or employees. The Company pays the Independent Directors
annual compensation of $10,000, plus a fee of $750 for attendance (in person or
by telephone) at each meeting of the Board of Directors and each meeting of the
Audit Committee. In 1999, each of the Independent Directors earned $3,000 for
attending four Board of Directors meetings and one Audit Committee meeting.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of March 15, 2000, the number and percentage
of outstanding shares of Common Stock and Series A Preferred Shares beneficially
owned by (i) all persons known by the Company to own more than five percent of
such shares; (ii) each director of the Company; (iii) each executive officer of
the Company; and (iv) all executive officers and directors of the Company as a
group. The persons or entities named in the table have sole voting and sole
investment power with respect to each of the shares beneficially owned by such
person or entity. The calculations were based on a total of 100 shares of Common
Stock and 3,000,000 Series A Preferred Shares outstanding as of March 15, 2000.

Names and Address of Amount of Percent of Class of
Beneficial Owner (1) Beneficial Outstanding Shares
Ownership
- ------------------------- ------------------- ----------------------
Chevy Chase Bank, F.S.B. 100 Common - 100%

B. Francis Saul II(2)(3) 0 0%

Alexander R. M. Boyle(2) 0 0%

Stephen R. Halpin, Jr.(2)(3) 1,000 Preferred - 0.033%

N. Alexander MacColl, Jr.(2) 0 0%

Leslie A. Nicholson (2)(3) 0 0%

John J. O'Connor III (2) 0 0%

All directors and
executive officers
as a group (6 persons) 1,000 Preferred - 0.033%


(1) The address of each beneficial owner is 8401 Connecticut Avenue, Chevy
Chase, Maryland 20815.
(2) Indicates a director of the Company.
(3) Indicates an executive officer of the Company.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Set forth below are certain transactions between the Company and its directors
and affiliates. Management believes that the transactions with related parties
described herein have been conducted on substantially the same terms as similar
transactions with unrelated parties.

The Bank administers the day-to-day operations of the Company and is entitled to
receive fees in connection with the Advisory Agreement. Advisory fees paid to
the Bank for the year ended December 31, 1999 totaled $200,000. See "Business -
The Advisor."

The Bank services the Residential Mortgage Loans included in the Company's
portfolio and is entitled to receive fees in connection with the Servicing
Agreement. Loan servicing fees paid to the Bank for the year ended December 31,
1999 totaled $1,116,911. See "Business - Servicing."

The Company had cash balances of $7,072,250 as of December 31, 1999 held in
various deposit accounts with the Bank. Interest earned on these accounts was
$166,626 for the year ended December 31, 1999.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1) The following financial statements of the Company are included in
Item 8 of this report:

Report of Independent Public Accountants
Statements of Financial Condition at December 31, 1999 and 1998
Statements of Operations for the Years Ended December 31, 1999, 1998
and 1997
Statements of Stockholders' Equity for the Years Ended December 31,
1999, 1998 and 1997
Statements of Cash Flows for the Years Ended December 31, 1999, 1998
and 1997

Notes to Financial Statements

(a)(2) All other schedules for which provision is made in the applicable
accounting of the Securities and Exchange Commission are not
required under the related instruction or are inapplicable and
therefore have been omitted.

(a)(3) Exhibits:

3.1 Articles of Incorporation of the Company, as amended
(incorporated herein by reference to Exhibit 3.1 of the
Company's 1996 Annual Report on Form 10-K).

3.2 Bylaws of the Company (incorporated herein by reference to
Exhibit 3(b) of Form S-11 (file number 333-10495) filed
by the Company).

4.1 Articles Supplementary of 10d% Noncumulative Exchangeable Preferred
Stock, Series A. (incorporated herein by reference to Exhibit 4.1 of
the Company's 1996 Annual Report on Form 10-K).

10.1 Residential Mortgage Loan Purchase Agreement between the Company and
the Bank (incorporated herein by reference to Exhibit 10.1 of the
Company's 1996 Annual Report on Form 10-K).

10.2 Mortgage Loan Servicing Agreement between the Company and the Bank
(incorporated herein by reference to Exhibit 10.2
of the Company's 1996 Annual Report on Form 10-K).

10.3 Advisory Agreement between the Company and the Bank (incorporated
herein by reference to Exhibit 10.3 of the
Company's 1996 Annual Report on Form 10-K).

* 12.1 Computation of ratio of earnings to fixed charges and Preferred
Stock dividend requirements.

* 27 Financial Data Schedule.

(b) No reports on Form 8-K were issued during the three months ended
December 31, 1999.

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

* Filed herewith.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, in Chevy Chase, Maryland on
March 27, 2000.


CHEVY CHASE PREFERRED CAPITAL CORPORATION
(Registrant)


By: B. Francis Saul II
---------------------------------------------
B. Francis Saul II
Chairman of the Board of Directors
and President and Chief Executive Officer
(Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following officers and directors of the Registrant
and in the capacities and on the dates indicated.


March 27, 2000 By: Alexander R. M. Boyle
---------------------------------------------
Alexander R. M. Boyle
Director

March 27, 2000 By: Joel A. Friedman
---------------------------------------------
Joel A. Friedman
Senior Vice President and Controller
(Principal Accounting Officer)

March 27, 2000 By: Stephen R. Halpin, Jr.
---------------------------------------------
Stephen R. Halpin, Jr.
Director,
Executive Vice President, Treasurer and
Chief Financial Officer
(Principal Financial Officer)

March 27, 2000 By: N. Alexander MacColl, Jr.
---------------------------------------------
N. Alexander MacColl, Jr.
Director

March 27, 2000 By: Leslie A. Nicholson
---------------------------------------------
Leslie A. Nicholson
Director,
Executive Vice President and General Counsel

March 27, 2000 By: John J. O'Connor III
---------------------------------------------
John J. O'Connor III
Director

March 27, 2000 By: B. Francis Saul II
---------------------------------------------
B. Francis Saul II
Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)