CHEVY CHASE PREFERRED CAPITAL CORPORATION FORM 10-Q March 31, 2003______________________________________________________________________________ SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2003 Commission File Number: 333-10495 CHEVY CHASE PREFERRED CAPITAL CORPORATION (Exact name of registrant as specified in its charter) Maryland 52-1998335 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 7501 Wisconsin Avenue Bethesda, Maryland 20814 (Address of principal executive offices) (Zip Code) (301) 986-7000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- The number of shares outstanding of the registrant's sole class of common stock was 100 shares, $1 par value, as of April 30, 2003. ______________________________________________________________________________ CHEVY CHASE PREFERRED CAPITAL CORPORATION TABLE OF CONTENTS PART I - FINANCIAL INFORMATION Page ---- Item 1. Financial Statements:..................................................1 (a)Statements of Financial Condition at March 31, 2003 and December 31, 2002.......................................................2 (b)Statements of Operations for the Three Months Ended March 31, 2003 and 2002 ................................................3 (c)Statement of Stockholders' Equity for the Three Months Ended March 31, 2003....................................................4 (d)Statements of Cash Flows for the Three Months Ended March 31, 2003 and 2002 ................................................5 (e)Notes to Financial Statements............................................6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................8 Item 3. Quantitative and Qualitative Disclosures about Market Risk............11 Item 4. Controls and Procedures...............................................11 PART II - OTHER INFORMATION Item 1. Legal Proceedings.....................................................12 Item 2. Changes in Securities.................................................12 Item 3. Defaults Upon Senior Securities.......................................12 Item 4. Submission of Matters to a Vote of Security Holders...................12 Item 5. Other Information.....................................................12 Item 6. Exhibits and Reports on Form 8-K......................................12 PART I ITEM 1. Financial Statements The following unaudited financial statements and notes of Chevy Chase Preferred Capital Corporation (the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information. In the opinion of management, all adjustments necessary for a fair presentation of the financial position and the results of operations for the interim period presented have been included. Such unaudited financial statements and notes should be read in conjunction with the Company's financial statements and notes for the year ended December 31, 2002 included in the Company's Annual Report on Form 10-K (File No. 333-10495) filed with the Securities and Exchange Commission on March 27, 2003 (the "2002 10-K"). -1- CHEVY CHASE PREFERRED CAPITAL CORPORATION STATEMENTS OF FINANCIAL CONDITION March 31, December 31, 2003 2002 ------------- ------------- (Unaudited) ASSETS Cash and interest-bearing deposits $ 2,205,327 $ 2,986,496 Residential mortgage loans (net of allowance for losses of $40,333 for both periods) 286,631,729 285,395,464 Accounts receivable from parent 14,030,066 15,297,140 Accrued interest receivable 1,097,936 1,138,246 Prepaid expenses 34,250 8,000 ------------- ------------- Total assets $303,999,308 $304,825,346 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable to parent $ 50,000 $ - Accrued expenses and accounts payable to others 11,766 - Dividends payable to parent - 1,100,000 Dividends payable to others 3,890,625 3,890,625 ------------- ------------- Total liabilities 3,952,391 4,990,625 ------------- ------------- Preferred Stock, 10,000,000 shares authorized: 10 3/8% Noncumulative Exchangeable Preferred Stock, $5 par value, 3,000,000 shares issued and outstanding (liquidation value of $150,000,000 plus accrued and unpaid dividends) 15,000,000 15,000,000 Common stock, $1 par value, 1,000 shares authorized, 100 shares issued and outstanding 100 100 Capital contributed in excess of par 284,999,900 284,834,621 Retained earnings 46,917 - ------------- ------------- Total stockholders' equity 300,046,917 299,834,721 ------------- ------------- Total liabilities and stockholders' equity $303,999,308 $304,825,346 ============= ============= See the accompanying Notes to Financial Statements. -2- CHEVY CHASE PREFERRED CAPITAL CORPORATION STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended March 31, -------------------------------------- 2003 2002 ------------------ ------------------ Interest Income Residential mortgage loans $ 4,241,772 $ 4,513,523 Other 9,988 29,955 ------------------ ------------------ Total interest income 4,251,760 4,543,478 Operating Expenses Loan servicing fees paid to parent 226,608 240,684 Advisory fees paid to parent 50,000 50,000 Directors fees 8,000 8,000 General and administrative 29,610 17,272 ------------------ ------------------ Total operating expenses 314,218 315,956 ------------------ ------------------ NET INCOME $ 3,937,542 $ 4,227,522 ================== ================== PREFERRED STOCK DIVIDENDS 3,890,625 3,890,625 ------------------ ------------------ EARNINGS AVAILABLE TO COMMON STOCKHOLDER $ 46,917 $ 336,897 ================== ================== EARNINGS PER COMMON SHARE $ 469.17 $ 3,368.97 ================== ================== See the accompanying Notes to Financial Statements. -3- CHEVY CHASE PREFERRED CAPITAL CORPORATION STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited) Capital Contributed Total Preferred Common In Excess Retained Stockholders' Stock Stock of Par Earnings Equity ----------- ---- ------------ ------------ ------------- Balance, December 31, 2002 $15,000,000 $100 $284,834,621 $ - $299,834,721 Net income - - - 3,937,542 3,937,542 Capital contribution from common stockholder - - 165,279 - 165,279 Dividends on 10 3/8% Noncumulative Exchangeable Preferred Stock, Series A - - - (3,890,625) (3,890,625) ----------- ---- ------------ ------------ ------------- Balance, March 31, 2003 $15,000,000 $100 $284,999,900 $ 46,917 $300,046,917 =========== ==== ============ ============ ============= See the accompanying Notes to Financial Statements. -4- CHEVY CHASE PREFERRED CAPITAL CORPORATION STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31, ---------------------------- 2003 2002 ------------- ------------- Cash flows from operating activities: Net income $ 3,937,542 $ 4,227,522 Adjustments to reconcile net income to net cash provided by operating activities: Decrease in accounts receivable from parent 1,267,074 2,483,042 (Increase) decrease in accrued interest receivable 40,310 (111,726) Increase in prepaid expenses (26,250) (3,097) Increase (decrease) in accrued expenses and ) accounts payable 61,766 (39,950) Increase in accounts payable to parent - 22,825 ------------- ------------- Net cash provided by operating activities 5,280,442 6,578,616 ------------- ------------- Cash flows from investing activities: Purchases of residential mortgage loans (55,709,307) (42,897,263) Repayments of residential mortgage loans 54,473,042 39,290,624 ------------- ------------- Net cash used in investing activities (1,236,265) (3,606,639) ------------- ------------- Cash flows from financing activities: Capital contribution from common stockholder 165,279 341,082 Dividends paid on preferred stock (3,890,625) (3,890,625) Dividends paid on common stock (1,100,000) (2,700,000) ------------- ------------- Net cash used in financing activities (4,825,346) (6,249,543) ------------- ------------- Net decrease in cash and cash equivalents (781,169) (3,277,566) Cash and cash equivalents at beginning of period 2,986,496 5,764,867 ------------- ------------- Cash and cash equivalents at end of period $ 2,205,327 $ 2,487,301 ============= ============= See the accompanying Notes to Financial Statements. -5- CHEVY CHASE PREFERRED CAPITAL CORPORATION NOTES TO FINANCIAL STATEMENTS (Unaudited) NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION: The Company is a Maryland corporation which acquires, holds and manages real estate assets. Chevy Chase Bank, F.S.B. (the "Bank"), a federally insured stock savings bank, owns all of the Company's common stock. The Bank is in compliance with its regulatory capital requirements. NOTE 2 - RESIDENTIAL MORTGAGE LOANS: Residential mortgage loans consist of adjustable-rate mortgages ("ARMs"), and 30 year fixed-rate mortgages. The ARMs have interest rates which are fixed for the indicated period (one month, one year, three years, five years, seven years or ten years) and which adjust thereafter based on the margin, index and frequency, specified in the related mortgage note, subject to periodic and lifetime interest rate caps. Each of the mortgage loans is secured by a mortgage, deed of trust or other security instrument which created a first lien on the residential dwellings located in their respective jurisdictions. The following table shows the residential mortgage loan portfolio by type at the dates indicated: March 31, December 31, 2003 2002 -------------- -------------- Monthly ARMs $ 62,535,604 $ 67,406,366 One-year ARMs 16,514,606 16,966,406 Three-year ARMs 18,644,623 20,126,451 Five-year ARMs 57,289,431 58,544,908 7/1 ARMs 16,421,009 16,056,192 10/1 ARMs 59,466,825 62,040,642 30 year fixed-rate 55,799,964 44,294,832 -------------- -------------- Total 286,672,062 285,435,797 Less: Allowance for loan losses 40,333 40,333 -------------- -------------- Total $286,631,729 $285,395,464 ============== ============== NOTE 3 - PREFERRED STOCK: Cash dividends on the Company's 10 3/8% Noncumulative Exchangeable Preferred Stock, Series A ("the Series A Preferred Shares") are payable quarterly in arrears. The liquidation value of each Series A Preferred Share is $50 plus accrued and unpaid dividends. The Series A Preferred Shares are not redeemable until January 15, 2007 (except upon the occurrence of certain tax events) and are redeemable thereafter at the option of the Company. Except under certain limited -6- CHEVY CHASE PREFERRED CAPITAL CORPORATION NOTES TO FINANCIAL STATEMENTS (Unaudited) NOTE 3 - PREFERRED STOCK (continued): circumstances, the holders of the Series A Preferred Shares have no voting rights. The Series A Preferred Shares are automatically exchangeable for a new series of preferred stock of the Bank upon the occurrence of certain events relating to the Bank. NOTE 4 - DIVIDENDS: During the three months ended March 31, 2003, the Company's Board of Directors declared a cash dividend of $3,890,625 on the Company's preferred stock, out of the retained earnings of the Company. The dividend was paid on April 15, 2003. There were no common dividends declared during the three months ended March 31, 2003. -7- ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations FINANCIAL CONDITION Residential Mortgage Loans At March 31, 2003 and December 31, 2002, the Company had $286,631,729 and $285,395,464, respectively, invested in loans secured by first mortgages or deeds of trust on single-family residential real estate properties ("Residential Mortgage Loans"). During the three months ended March 31, 2003, Residential Mortgage Loan purchases were $55,709,307 and principal collections were $54,473,042. Management intends to continue to reinvest proceeds received from repayments of loans in additional Residential Mortgage Loans to be purchased from either the Bank or its affiliates. At March 31, 2003, the Company had five non-accrual loans (contractually past due 90 days or more or with respect to which other factors indicate that full payment of principal and interest is unlikely) with an aggregate principal balance of $913,440 (or 0.32% of loans). At December 31, 2002, the Company had seven non-accrual loans with an aggregate principal balance of $1,436,859 (or 0.50% of loans). At March 31, 2003, the Company had two loans which were delinquent 30-89 days with an aggregate principal balance of $528,083 (or 0.18% of loans). At December 31, 2002, the Company had five loans which were delinquent 30-89 days with an aggregate principal balance of $1,307,482 (or 0.46% of loans). Allowance for Loan Losses An analysis is performed periodically to determine whether an allowance for loan loss is required. An allowance may be provided after considering such factors as the economy in lending areas, delinquency statistics and past loss experience. The allowance for loan losses is based on estimates, and ultimate losses may vary from current estimates. As adjustments to the allowance become necessary, provisions for loan losses are reported in operations in the periods that are determined to be necessary. There was no activity in the allowance for loan losses during the three months ended March 31, 2003 and 2002. The balance of the allowance for loan losses was $40,333 for each of the quarters ended March 31, 2003 and 2002. Interest Rate Risk The Company's income consists primarily of interest payments on Residential Mortgage Loans. If there is a decline in interest rates, then the Company will experience a decrease in income available to be distributed to its stockholders. Certain Residential Mortgage Loans which the Company holds allow borrowers to convert an ARM to a fixed-rate mortgage, thus "locking in" a fixed interest rate at a time when interest rates have declined. In addition, when interest rates decline, holders of fixed-rate mortgages are more likely to prepay such mortgages. In recent periods, primarily as a result of a decline in interest rates, the Company has experienced an increase in prepayments on its Residential Mortgage Loans. -8- Based on the outstanding balance of the Company's Residential Mortgage Loans at March 31, 2003 and the interest rates on such loans, anticipated annual interest income, net of servicing fees, on the Company's loan portfolio was approximately 102.5% of the projected annual dividend on the Series A Preferred Shares. There can be no assurance that an interest rate environment in which there is a continued decline in interest rates would not adversely affect the Company's ability to pay dividends on the Series A Preferred Shares. The Company, to date, has not used any derivative instruments to manage its interest rate risk. There have been no material changes to the Company's market risk disclosures from the disclosures made in the Form 10-K for 2002. 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 (or 54.4%) of the Company's Residential Mortgage Loans are secured by residential real estate 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. Consequently, these loans may be subject to a greater risk of default than other comparable residential mortgage loans in the event of adverse economic, political or business developments and natural hazards in the region that may affect the ability of residential property owners in the region to make payments of principal and interest on the underlying mortgages. Liquidity and Capital Resources The objective of liquidity management is to ensure the availability of sufficient cash flows to meet all of the Company's financial commitments. In managing liquidity, the Company takes into account various legal limitations placed on a real estate investment trust (a "REIT"), as discussed below in "Tax Status of the Company." The Company's principal liquidity needs will be to fund the acquisition of additional mortgage assets as current mortgage assets held by the Company are repaid and to pay dividends on the Series A Preferred Shares. The acquisition of such additional mortgage assets will be funded with the proceeds from principal repayments on its current portfolio of mortgage assets. The Company does not anticipate that it will have any other material capital expenditures. The Company believes that cash generated from the payment of principal and interest on its mortgage asset portfolio will provide sufficient funds to meet its operating requirements and to pay dividends in accordance with the requirements to be treated as a REIT for income tax purposes for the foreseeable future. The Company may borrow funds as it deems necessary. -9- Tax Status of the Company The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. As a REIT, the Company generally will not be subject to federal income tax on its net income (excluding capital gains) provided that it distributes annually 100% of its REIT taxable income to its stockholders, meets certain organizational, stock ownership and operational requirements and meets certain income and asset tests. To remain qualified as a REIT, the Company must distribute each year at least 90% of its "REIT taxable income" (not including capital gains) for that year to stockholders. 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. No income tax was paid during either of the three month periods ended March 31, 2003 and 2002. RESULTS OF OPERATIONS Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002 During the three months ended March 31, 2003 and 2002, the Company reported net income of $3,937,542 and $4,227,522, respectively. Interest income on Residential Mortgage Loans totaled $4,241,772 for the three months ended March 31, 2003 (the "2003 quarter"), compared to $4,513,523 for the three months ended March 31, 2002 (the "2002 quarter"). The decrease in interest income resulted from a decrease in the average yield on such loans to 5.97% in the 2003 quarter from 6.25% in the 2002 quarter. The average balance of the Residential Mortgage Loan portfolio was $284,438,334 in the 2003 quarter compared to $288,776,317 in the 2002 quarter. The Company would have recorded an additional $11,327 and $21,643 in interest income for the three months ended March 31, 2003 and 2002, had its non-accrual loans been current in accordance with their original terms. Other interest income of $9,988 and $29,955 was recognized on the Company's interest bearing deposits during the three months ended March 31, 2003 and 2002, respectively. The decrease was primarily due to a lower average yield on interest bearing deposits which decreased by 216 basis points (from 3.48% to 1.32%) from the average yield in the 2002 quarter. Partially offsetting this decrease was an increase in the average balance on interest bearing deposits of $765,889 in the 2003 quarter. -10- No provision for loan losses was recorded for the three months ended March 31, 2003 and 2002. The Company did not sell any REO properties during the three months ended March 31, 2003 and 2002. Operating expenses totaling $314,218 and $315,956 for the three months ended March 31, 2003 and 2002, 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 $226,608 and $240,684, for the three months ended March 31, 2003 and 2002, respectively, were based on a servicing fee rate of 0.375% per annum of the outstanding principal balances of Residential Mortgage Loans, pursuant to a servicing agreement between the Company and the Bank. Advisory fees paid to parent for the three months ended March 31, 2003 and 2002 totaled $50,000 for each quarter. Directors' fees paid for the three months ended March 31, 2003 and 2002 totaled $8,000 for each period, and represent compensation to the two independent members of the Board of Directors. General and administrative expenses totaled $29,610 and $17,272 for the three months ended March 31, 2003 and 2002, respectively. On March 18, 2003, the Company's Board of Directors declared, out of the retained earnings of the Company, a cash dividend of $1.296875 per share on the outstanding Series A Preferred Shares. There were no common dividends declared during the quarter ended March 21, 2003. ITEM 3. Quantitative and Qualitative Disclosures about Market Risk Information required by this item is included in Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Interest Rate Risk," which is hereby incorporated herein by reference. ITEM 4. Controls and Procedures Within the 90-day period prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company required to be included in the Company's filings under the Securities Exchange Act of 1934, as amended. There have been no significant changes in the Company's internal controls, or in other factors that could significantly affect internal controls, subsequent to the date the Company carried out its evaluations. -11- PART II - OTHER INFORMATION ITEM 1. Legal Proceedings The Company is not the subject of any material litigation. None of the Company, the Bank or any affiliate of the Bank is currently involved in nor, to the Company's knowledge, is currently threatened with any material litigation with respect to the Residential Mortgage Loans included in the portfolio, other than routine litigation arising in the ordinary course of business, most of which is covered by liability insurance. ITEM 2. Changes in Securities None. ITEM 3. Defaults Upon Senior Securities None. ITEM 4. Submission of Matters to a Vote of Security Holders None. ITEM 5. Other Information None. ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits required by Item 601 of Regulation S-K are set forth below. Exhibit No. Exhibit - ------------------------ 11 Computation of Earnings Per Common Share included in Part I, Item 1 of this report 99.1 Certification of Chief Executive Officer, Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.2 Certification of Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 -12- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CHEVY CHASE PREFERRED CAPITAL CORPORATION (Registrant) May 15, 2003 By: /s/ ALEXANDER R. M. BOYLE ------------------------------------ Alexander R. M. Boyle Vice Chairman of the Board May 15, 2003 By: /s/ STEPHEN R. HALPIN, JR. ------------------------------------ Stephen R. Halpin, Jr. Executive Vice President and Chief Financial Officer (Principal Financial Officer) May 15, 2003 By: /s/ JOEL A. FRIEDMAN ------------------------------------ Joel A. Friedman Senior Vice President and Controller (Principal Accounting Officer) CERTIFICATION I, B. Francis Saul, II, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Chevy Chase Preferred Capital Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors: (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 15, 2003 /s/ B. FRANCIS SAUL, II -------------------------- B. Francis Saul, II Chairman and Chief Executive Officer CERTIFICATION I, Stephen R. Halpin, Jr., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Chevy Chase Preferred Capital Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors: (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 15, 2003 /s/ STEPHEN R. HALPIN, JR. -------------------------- Stephen R. Halpin, Jr. Chief Financial Officer and Executive Vice President Exhibit 11 Computation of Earnings Per Common Share included in Part I, Item 1 of this report. Exhibit 99.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 The undersigned, B. Francis Saul, II, the Chairman and Chief Executive Officer of Chevy Chase Preferred Capital Corporation (the "Company"), has executed this certification in connection with the filing with the Securities and Exchange Commission of the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2003 (the "Report"). The undersigned hereby certifies that: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: May 15, 2003 /s/ B. FRANCIS SAUL, II -------------------------- B. Francis Saul, II Chairman and Chief Executive Officer Exhibit 99.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 The undersigned, Stephen R. Halpin, Jr., the Executive Vice President and Chief Financial Officer of Chevy Chase Preferred Capital Corporation (the "Company"), has executed this certification in connection with the filing with the Securities and Exchange Commission of the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2003 (the "Report"). The undersigned hereby certifies that: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: May 15, 2003 /s/ STEPHEN R. HALPIN, JR. -------------------------- Stephen R. Halpin, Jr. Chief Financial Officer and Executive Vice President