CHEVY CHASE PREFERRED CAPITAL CORPORATION
-----------------------------------------
STATEMENTS OF FINANCIAL CONDITION
---------------------------------
December 31,
-----------------------------------------
2000 1999
------------------ ------------------
ASSETS
------
Cash and interest-bearing deposits $ 5,122,692 $ 7,072,250
Residential mortgage loans (net of allowance
for loan losses of $40,333 for both years) 298,145,029 295,195,830
Real estate acquired in settlement of loans 116,406 -
Accounts receivable from parent 2,519,665 3,599,534
Accrued interest receivable 1,604,979 1,271,362
Prepaid expenses 8,000 8,000
------------------ ------------------
Total assets $307,516,771 $307,146,976
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Accounts payable to parent $ - $ 272,346
Accounts payable to others and accrued expenses 127,401 53,619
Dividends payable to parent 3,500,000 3,100,000
Dividends payable to others 3,890,625 3,890,625
------------------ ------------------
Total liabilities 7,518,026 7,316,590
------------------ ------------------
10 3/8% Noncumulative Exchangeable
Preferred Stock, $5 par value
10,000,000 shares authorized, 3,000,000
shares issued and outstanding
(liquidation value of $150,000,000
plus accrued and unpaid dividends) 15,000,000 15,000,000
Common Stock, $1 par value
1,000 shares authorized, 100 shares
issued and outstanding 100 100
Capital contributed in excess of par 284,998,645 284,830,286
------------------ ------------------
Total stockholders' equity 299,998,745 299,830,386
------------------ ------------------
Total liabilities and stockholders' equity $307,516,771 $307,146,976
================== ==================
The accompanying Notes to Financial Statements are an integral part of these statements.
F-3
CHEVY CHASE PREFERRED CAPITAL CORPORATION
-----------------------------------------
STATEMENTS OF OPERATIONS
------------------------
Year Ended December 31,
------------------------------------------------------------------
2000 1999 1998
-------------------- ------------------- -------------------
Interest income:
Residential mortgage loans $ 22,011,411 $ 21,628,731 $ 22,632,939
Other 178,214 166,626 228,017
-------------------- ------------------- -------------------
Total interest income 22,189,625 21,795,357 22,860,956
Provision for loan losses - 26,554 10,862
-------------------- ------------------- -------------------
Total interest income after
provision for loan losses 22,189,625 21,768,803 22,850,094
Gain on sale of real estate acquired in
settlement of loans, net 20,209 29,909 32,937
-------------------- ------------------- -------------------
Total operating income 22,209,834 21,798,712 22,883,031
-------------------- ------------------- -------------------
Operating expenses:
Loan servicing fees-parent 1,088,694 1,116,911 1,116,729
Advisory fees-parent 200,000 200,000 200,000
Directors' fees 29,000 26,000 28,000
General and administrative 65,727 372,915 169,351
-------------------- ------------------- -------------------
Total operating expenses 1,383,421 1,715,826 1,514,080
-------------------- ------------------- -------------------
Income before income taxes 20,826,413 20,082,886 21,368,951
Provision for income taxes 15,168 - -
-------------------- ------------------- -------------------
NET INCOME $ 20,811,245 $ 20,082,886 $ 21,368,951
==================== =================== ===================
PREFERRED STOCK DIVIDENDS 15,562,500 15,562,500 15,562,500
-------------------- ------------------- -------------------
EARNINGS AVAILABLE TO
COMMON STOCKHOLDER $ 5,248,745 $ 4,520,386 $ 5,806,451
==================== =================== ===================
EARNINGS PER COMMON SHARE $ 52,487.45 $ 45,203.86 $ 58,064.51
==================== =================== ===================
The accompanying Notes to Financial Statements are an integral part of these statements.
F-4
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, 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 10 3/8%
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 10 3/8%
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
Capital contribution from
common stockholder - - 169,614 - 169,614
Net income - - - 20,811,245 20,811,245
Dividends on 10 3/8%
Noncumulative Exchangeable
Preferred Stock, Series A - - - (15,562,500) (15,562,500)
Dividends on common stock - - (1,255) (5,248,745) (5,250,000)
---------------- -------------- ----------------- -------------- ----------------
Balance, December 31, 2000 $15,000,000 $ 100 $ 284,998,645 $ - $ 299,998,745
================ ============== ================= ============== ================
The accompanying Notes to Financial Statements are an integral part of these statements
F-5
CHEVY CHASE PREFERRED CAPITAL CORPORATION
-----------------------------------------
STATEMENTS OF CASH FLOWS
------------------------
Year Ended December 31,
----------------------------------------------------------
2000 1999 1998
------------------ ------------------ -------------------
Cash flows from operating activities:
Net income $ 20,811,245 $20,082,886 $ 21,368,951
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for loan losses - 26,554 10,862
Gain on sale of real estate acquired in settlement of
loan losses, net (20,209) (29,909) (32,937)
Decrease in accounts receivable from parent 1,079,869 4,404,586 2,370,771
(Increase) decrease in accrued interest receivable (333,617) 166,264 124,852
Decrease in prepaid expenses - 327,850 99,959
Increase (decrease) in accounts payable to parent (272,346) 37,423 71,130
Increase in accounts payable to others and
accrued expenses
73,782 41,809 8,061
------------------ ------------------ -------------------
Net cash provided by operating activities 21,338,724 25,057,463 24,021,649
------------------ ------------------ -------------------
Cash flows from investing activities:
Purchases of residential mortgage loans (45,942,919) (73,323,320) (145,009,967)
Repayments of residential mortgage loans 42,653,845 70,029,056 141,718,892
Net proceeds from sale of real estate acquired in
settlement of loans 243,678 1,056,018 914,790
------------------ ------------------ -------------------
Net cash used in investing activities (3,045,396) (2,238,246) (2,376,285)
------------------ ------------------ -------------------
Cash flows from financing activities:
Capital contribution from common stockholder
169,614 3,549 84,851
Dividends paid on preferred stock (15,562,500) (15,562,500) (15,562,500)
Dividends paid on common stock (4,850,000) (5,050,000) (5,200,000)
------------------ ------------------ -------------------
Net cash used in financing activities (20,242,886) (20,608,951) (20,677,649)
------------------ ------------------ -------------------
Net increase (decrease) in cash and cash equivalents (1,949,558) 2,210,266 967,715
Cash and cash equivalents at beginning of year 7,072,250 4,861,984 3,894,269
------------------ ------------------ -------------------
Cash and cash equivalents at end of year $ 5,122,692 $ 7,072,250 $ 4,861,984
================== ================== ===================
Supplemental disclosures of cash flow information:
Income taxes paid during the year $ 15,168 $ - $ -
================== ================== ===================
Supplemental disclosures of non-cash activities:
Net transfer of loans receivable to real
estate acquired in settlement of loans $ 339,875 $ 753,912 $ 980,312
================== ================== ===================
The accompanying Notes to Financial Statements are an integral part of these statements.
F-6
CHEVY CHASE PREFERRED CAPITAL CORPORATION
-----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 2000, 1999 and 1998
--------------------------------
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 accounting
principles generally accepted in the United States. 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, 2000 and 1999 totaling $547,069 and $423,667, 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.
F-7
CHEVY CHASE PREFERRED CAPITAL CORPORATION
-----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 2000, 1999 and 1998
--------------------------------
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 10 3/8% 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 or
the next business day when the fifteenth falls on a weekend or holiday.
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.
Because there are no dilutive securities, basic earnings per common share is
equal to diluted earnings per common share.
F-8
CHEVY CHASE PREFERRED CAPITAL CORPORATION
-----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 2000, 1999 and 1998
--------------------------------
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 generally not subject to Federal corporate income taxes on its net
income (excluding capital gains) 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.
The Company recognized capital gains of $20,209 on the sale of two REO
properties during the year ended December 31, 2000. As a result, the Company
incurred an income tax liability for the year ended December 31, 2000 of $7,073
of which $2,373 was paid subsequent to December 31, 2000. The Company also
recognized capital gains of $29,909 on the sale of five REO properties during
the year ended December 31, 1999. As a result the Company made a tax payment of
$10,468 in January 2000.
NOTE 3 - RESIDENTIAL MORTGAGE LOANS:
Residential mortgage loans consist of monthly adjustable-rate mortgages
("ARMs"), one-year 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 30 year fixed-rate mortgages. The following table shows
the residential mortgage loan portfolio by type at the dates indicated:
December 31,
-------------------------------------------------
2000 1999
--------------------- ----------------------
Monthly ARMs $ 15,010,666 $ -
One-Year ARMs 17,405,151 11,854,943
Three-Year ARMs 31,244,189 24,886,732
5/1 ARMs 82,907,320 93,066,498
7/1 ARMs 12,043,834 12,243,571
10/1 ARMs 134,689,699 147,823,258
30 Year Fixed-Rate 4,884,503 5,361,161
---------------------- ----------------------
Total 298,185,362 295,236,163
Less:
Allowance for loan losses 40,333 40,333
---------------------- ----------------------
Total $ 298,145,029 $ 295,195,830
====================== ======================
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.
F-9
CHEVY CHASE PREFERRED CAPITAL CORPORATION
-----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 2000, 1999 and 1998
--------------------------------
NOTE 4 - ALLOWANCE FOR LOAN LOSSES:
Activity in the allowance for loan losses is summarized as follows:
Year Ended December 31,
-------------------------------------------------------------------
2000 1999 1998
-------------------- -------------------- -------------------
Beginning balance $ 40,333 $ 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 $ 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 10 3/8%. 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 $50.519
2012 and thereafter $50.000
F-10
CHEVY CHASE PREFERRED CAPITAL CORPORATION
-----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 2000, 1999 and 1998
--------------------------------
NOTE 6 - DIVIDENDS:
During the year ended December 31, 2000, the Company's Board of Directors
declared $15,562,500 of preferred stock dividends out of retained earnings of
the Company and $5,250,000 of common stock dividends, $5,248,745 of which was
paid out of the retained earnings of the Company and $1,255 of which was treated
as a return of capital. Of these amounts, preferred stock dividends of
$3,890,625 and common stock dividends of $3,500,000 were paid subsequent to
December 31, 2000.
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, 2000, 1999 and 1998 totaled $1,088,694, $1,116,911
and $1,116,729 respectively.
The Company had cash balances of $5,122,692 and $7,072,250 as of December 31,
2000 and 1999, respectively, held in various deposit accounts with the Bank.
Interest earned on these accounts was $178,214, $166,626 and $228,017 for the
years ended December 31, 2000, 1999 and 1998, 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. 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.
F-11
CHEVY CHASE PREFERRED CAPITAL CORPORATION
-----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 2000, 1999 and 1998
--------------------------------
NOTE 8 - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued):
The estimated fair values of the Company's financial instruments at December 31,
2000 and 1999 are as follows:
December 31, 2000
------------------------------------------
Carrying Fair
Amount Value
----------------- ------------------
Financial assets:
Cash and interest-bearing deposits $ 5,122,692 $ 5,122,692
Residential mortgage loans
receivable, net 298,145,029 301,929,000
Other financial assets 4,241,050 4,241,050
Financial liabilities 7,390,625 7,390,625
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
The following methods and assumptions were used to estimate the fair value
amounts at December 31, 2000 and 1999.
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.
F-12
CHEVY CHASE PREFERRED CAPITAL CORPORATION
-----------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 2000, 1999, and 1998
---------------------------------
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.
F-13
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
-25-
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 2000 and all of its
members attended at least 50% 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.................................68 Chairman of the Board, President and Chief
Executive Officer
Alexander R. M. Boyle..............................63 Director
Stephen R. Halpin, Jr..............................45 Executive Vice President, Chief Financial
Officer, Treasurer and Director
N. Alexander MacColl, Jr...........................66 Director
Leslie A. Nicholson................................60 Executive Vice President, General Counsel and
Director
John J. O'Connor III...............................70 Director
-26-
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, 2000, 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 the American College of Construction Lawyers, where he served as a
National Governor for three years, and a member of the Board of Directors of the
Frederick M. Abramson Foundation.
-27-
JOHN J. O'CONNOR III has been engaged in the practice of law since 1957. He was
a partner in Bryan Cave LLP. He is now of Counsel to Bryan Cave LLP.
-28-
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 twice
during 2000.
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, 2000, 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 2000
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 2000, each of the Independent Directors earned $4,500 for
attending four Board of Directors meetings and two Audit Committee meetings.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 15, 2001, 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, 2001.
-29-
Names and Address of Amount of Beneficial Percent of Class of
Beneficial Owner (1) Ownership Outstanding Shares
- ------------------------------------------ ------------------------------- -------------------------------
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, 2000 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,
2000 totaled $1,088,694. See "Business - Servicing."
The Company had cash balances of $5,122,692 as of December 31, 2000 held in
various deposit accounts with the Bank. Interest earned on these accounts was
$178,214 for the year ended December 31, 2000.
-30-
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, 2000 and 1999
Statements of Operations for the Years Ended December 31, 2000, 1999
and 1998
Statements of Stockholders' Equity for the Years Ended December 31, 2000,
1999 and 1998
Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and
1998
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 10 3/8% 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
(incorporatedherein 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.
(b) No reports on Form 8-K were issued during the three months ended
December 31, 2000.
*Filed herewith.
-31-
EXHIBIT 12.1
CHEVY CHASE PREFERRED CAPITAL CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED STOCK DIVIDEND REQUIREMENTS
- --------------------------------------------------------------------------------
(in thousands, except ratio data)
As of or for
the period
ended
As of or for the year ended December 31, December 31,
--------------------------------------------------------------
2000 1999 1998 1997 1996
--------------- ------------------------------------------------------------
Net income $20,811 $20,083 $21,369 $21,628 $1,832
Fixed charges - - - - -
--------------- ------------------------------------------------------------
Earnings before fixed charges $20,811 $20,083 $21,369 $21,628 $1,832
============================================================================
Fixes charges, as above $ - $ - $ - $ - $ -
Preferred stock dividend requirements 15,563 15,563 15,563 15,563 1,254
--------------- ------------------------------------------------------------
Fixed charges including preferred stock
dividends $15,563 $15,563 $15,563 $15,563 $1,254
=============== ============================================================
Ratio of earnings to fixed charges and
Preferred stock dividend requirements 1.34 1.29 1.37 1.39 1.46
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 30, 2001.
CHEVY CHASE PREFERRED CAPITAL CORPORATION
(Registrant)
By: /s/ 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 30, 2001 By: /s/ Alexander R. M. Boyle
---------------------------------
Alexander R. M. Boyle
Director
March 30, 2001 By: /s/ Joel A. Friedman
-----------------------------
Joel A. Friedman
Senior Vice President and Controller
(Principal Accounting Officer)
March 30, 2001 By: /s/ Stephen R. Halpin, Jr.
-----------------------------
Stephen R. Halpin, Jr.
Director,
Executive Vice President,
Treasurer and Chief Financial Officer
(Principal Financial Officer)
March 30, 2001 By: /s/ N. Alexander MacColl, Jr.
-----------------------------
N. Alexander MacColl, Jr.
Director
March 30, 2001 By: /s/ Leslie A. Nicholson
-----------------------------
Leslie A. NicholsonDirector
Executive Vice President and
General Counsel
March 30, 2001 By: /s/ John J. O'Connor III
-----------------------------
John J. O'Connor II
Director
March 30, 2001 By: /s/ B. Francis Saul II
-----------------------------
B. Francis Saul II
Chairman of the Board,
President and Chief Executive
Officer
(Principal Executive Officer)