SECURITIES AND EXCHANGE COMMISSION ~~Washington, DC 20549~~

~~FORM~~Washington, ~~10-Q~~DC 20549

~~QUARTERLY~~FORM ~~REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2005~~10-Q

~~Commission~~QUARTERLY ~~File~~REPORT ~~Number:~~PURSUANT ~~001-12477~~TO SECTION 13 OR 15(d)

~~CHEVY~~OF ~~CHASE~~THE ~~PREFERRED~~SECURITIES ~~CAPITAL~~EXCHANGE ~~CORPORATION~~ACT OF 1934

~~Maryland 52-1998335 (State~~For orthe ~~other~~quarterly ~~jurisdiction~~period ~~of (I.R.S.~~ended ~~Employer incorporation~~June or30, ~~organization) Identification No.)~~ 2007

~~7501~~Commission ~~Wisconsin~~File ~~Avenue~~Number: ~~Bethesda,~~001-12477 ~~Maryland 20814 (Address of principal executive office) (Zip Code)~~

~~(301)~~CHEVY ~~987-2265(Registrant's~~CHASE ~~telephone~~PREFERRED ~~number,~~CAPITAL ~~including area code)~~CORPORATION

~~Indicate by check mark whether the registrant~~ (1)Exact ~~has~~name ~~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~~as ~~required~~specified toin ~~file~~its ~~such reports~~charter)~~, and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ___~~

~~Indicate~~Maryland ~~by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b~~52-~~2). Yes ___ No _X_~~ 1998335

~~The~~(State ~~number~~or ofother ~~shares outstanding~~jurisdiction of ~~the registrant’s sole class of common stock was 100 shares, $1~~(I.~~00 par value per share, as of April 15, 2005~~R. ~~All of such shares were owned by Chevy Chase Bank; therefore, no common stock was held by non-affiliates~~S. Employer

~~CHEVY~~incorporation ~~CHASE~~or ~~PREFERRED~~organization) ~~CAPITAL~~Identification ~~CORPORATION~~No.)

~~TABLE~~7501 OFWisconsin ~~CONTENTS~~Avenue

~~PART~~Bethesda, IMaryland ~~- FINANCIAL INFORMATION~~20814

~~Page Item 1. Financial Statements::...................................................................... 1~~ (~~a) Statements~~Address of ~~Financial~~principal ~~Condition~~executive ~~as of March 31, 2005 and December 31, 2004................................................................2 (b~~offices) ~~Statements~~ ~~of Operations for the Three Months Ended March 31, 2005 and 2004 .........................................................3~~ (~~c) Statement~~Zip ~~of Stockholders' Equity for the Three Months Ended March 31, 2005.............................................................4 (d~~Code) Statements of Cash Flows for the Three Months Ended March 31, 2005 and 2004 .........................................................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.................................10 Item 4. Controls and Procedures....................................................................11

~~PART~~(301) ~~II – OTHER INFORMATION~~987-2265

~~Item~~(Registrant’s ~~1. Legal~~telephone ~~Proceedings..........................................................................12 Item~~number, ~~2. Unregistered~~including ~~Sales~~area of Equity Securities and Use of Proceeds................................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...................................................................................12 code)

~~PART~~Indicate Iby 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.

~~ITEM~~Yes[ 1.X ~~Financial~~] ~~Statements~~No [ ]

~~The~~Indicate ~~following~~by ~~unaudited financial~~check ~~statements~~mark ~~and~~whether ~~notes of Chevy Chase Preferred Capital Corporation (~~the ~~“Company”)~~ ~~have~~registrant ~~been~~is ~~prepared~~a inlarge ~~accordance~~accelerated ~~with~~filer, ~~accounting~~an ~~principles generally~~accelerated ~~accepted in the United States for interim financial information. In the opinion of management~~filer, ~~all~~or ~~adjustments necessary for~~ a ~~fair~~non-accelerated ~~presentation~~filer. See ~~of the~~definition ~~financial position and the results~~ of ~~operations~~“accelerated ~~for~~filer ~~the interim period presented have been included. These unaudited financial statements~~ and ~~notes should~~large beaccelerated ~~read~~filer” in ~~conjunction~~Rule ~~with the Company’s financial statements and notes for the year ended December 31, 2004 included in the Company’s Annual Report on Form 10~~12b-K2 ~~filed~~of ~~with~~ the ~~Securities and~~ Exchange ~~Commission~~Act. (Check onone): Large ~~March 29,~~accelerated ~~2005~~filer[ ] Accelerated ~~(the~~filer[ ]Non-accelerated ~~“2004~~filer ~~10-K”).~~[ X ]

~~CHEVY~~Indicate ~~CHASE~~by ~~PREFERRED~~check ~~CAPITAL~~mark ~~CORPORATION~~whether ~~STATEMENTS~~the OFregistrant ~~FINANCIAL~~is ~~CONDITION~~a shell company (as defined in Exchange Act Rule 12b-2).

~~March~~Yes[ ~~31, December~~] 31, 2005 2004 ---------------------- ---------------------- (Unaudited) ASSETS CashNo ~~and~~[ ~~interest-bearing~~X deposits $ 3,770,426 $ 2,318,102 Residential mortgage loans (net of allowance for losses of $40,333 for both periods) 374,067,391 374,458,643 Accounts receivable from parent 404,297 1,591,546 Accrued interest receivable 1,424,326 1,346,764 Prepaid expenses 44,762 5,000 ---------------------- ---------------------- Total assets $ 379,711,202 $ 379,720,055 ====================== ====================== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Loan payable to parent $ 75,000,000 $ 75,000,000 Accrued interest payable to parent 228,625 81,500 Accounts payable to others and accrued expenses 31,138 41,063 Dividends payable to parent - 700,000 Dividends payable to others 3,890,625 3,890,625 ---------------------- ---------------------- Total liabilities 79,150,388 79,713,188 ---------------------- ---------------------- Stockholders' Equity: Preferred Stock, 10,000,000 shares authorized: 10 3/8% Noncumulative Exchangeable Preferred Stock, Series A, $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 284,999,900 284,999,900 Retained earnings 560,814 6,867 ---------------------- ---------------------- Total stockholders' equity 300,560,814 300,006,867 ---------------------- ---------------------- Total liabilities and stockholders' equity $ 379,711,202 $ 379,720,055 ====================== ====================== ]

~~CHEVY~~The ~~CHASE~~number ~~PREFERRED~~of ~~CAPITAL~~shares ~~CORPORATIONSTATEMENTS~~outstanding OFof ~~OPERATIONS(Unaudited)~~the registrant’s sole class of common stock was 100 shares, $1.00 par value per share, as of July 31, 2007. All of such shares were owned by Chevy Chase Bank, F.S.B.; therefore, no common stock was held by non-affiliates.

~~Three Months Ended~~ ~~March~~CHEVY 31, ---------------------------------------------- 2005 2004 -------------------- -------------------- InterestCHASE Income Residential mortgage loans $ 5,383,940 $ 4,353,480 Other 3,832 1,716 -------------------- -------------------- Total interest income 5,387,772 4,355,196 Interest expense 638,542 - -------------------- -------------------- Total operating income 4,749,230 4,355,196 -------------------- -------------------- Operating Expenses Loan servicing fees - parent 232,805 156,244 Advisory fees - parent 50,000 50,000 Directors' fees 8,000 9,500 General and administrative 13,853 35,195 -------------------- -------------------- Total operating expenses 304,658 250,939 -------------------- -------------------- NET INCOME $ 4,444,572 $ 4,104,257 ==================== ==================== PREFERRED ~~STOCK~~CAPITAL DIVIDENDS 3,890,625 3,890,625 -------------------- -------------------- EARNINGS AVAILABLE TO COMMON STOCKHOLDER $ 553,947 $ 213,632 ==================== ==================== AVERAGE COMMON SHARES 100 100 ==================== ==================== EARNINGS PER COMMON SHARE $ 5,539.47 $ 2,136.32 ==================== ==================== CORPORATION

~~CHEVY~~TABLE ~~CHASE PREFERRED CAPITAL CORPORATIONSTATEMENTS~~ OF ~~STOCKHOLDERS' EQUITY(Unaudited)~~CONTENTS

~~Capital Contributed Preferred Common In~~PART ~~Excess Retained Stockholders' Stock Stock of~~I ~~Par Earnings Equity~~ -~~-------------~~ ~~-----------~~FINANCIAL ---------------- ---------------- ---------------- Balance, December 31, 2004 $ 15,000,000 $ 100 $ 284,999,900 $ 6,867 $ 300,006,867 Net income - - - 4,444,572 4,444,572 Dividends on 10 3/8% Noncumulative Exchangeable Preferred Stock, Series A - - - (3,890,625) (3,890,625) -------------- ----------- ---------------- ---------------- ---------------- Balance, March 31, 2005 $ 15,000,000 $ 100 $ 284,999,900 $ 560,814 $ 300,560,814 ============== =========== ================ ================ ================ INFORMATION

~~CHEVY CHASE PREFERRED CAPITAL CORPORATIONSTATEMENTS OF CASH FLOWS(Unaudited)~~Page

~~Three~~Item Months Ended March 31, -------------------------------------------- 2005 2004 ------------------- ------------------- Cash flows from operating activities: Net income $ 4,444,572 $ 4,104,257 Adjustments to reconcile net income to net cash provided by (used in) operating activities: (Increase) decrease in accounts receivable from parent 1~~,187,249 (1,200,270) Increase~~. inFinancial accrued interest receivable (77,562) (72,610) Increase in prepaid expenses (39,762) (22,563) Increase (decrease) in accounts payable to others and accrued expenses (9,925) 10,297 Increase in accrued interest payable to parent 147,125 - ------------------- ------------------- Net cash provided by operating activities 5,651,697 2,819,111 ------------------- ------------------- Cash flows from investing activitiesStatements: ~~Purchases~~ of residential mortgage loans (31,307,714) (31,910,578) Repayments of residential mortgage loans 31,698,966 28,069,289 ------------------- ------------------- Net cash provided by (used in) investing activities 391,252 (3,841,289) ------------------- ------------------- Cash flows from financing activities: Dividends paid on preferred stock (3,890,625) (3,890,625) Dividends paid on common stock (700,000) (350,000) ------------------- ------------------- Net cash used in financing activities (4,590,625) (4,240,625) ------------------- ------------------- Net increase (decrease) in cash and cash equivalents 1,452,324 (5,262,803) Cash and cash equivalents at beginning of period 2,318,102 5,411,004 ------------------- ------------------- Cash and cash equivalents at end of period $ 3,770,426 $ 148,201 =================== ===================

~~CHEVY~~(a) ~~CHASE~~Statements ~~PREFERRED~~of ~~CAPITAL~~Financial ~~CORPORATIONNOTES~~Condition TOas ~~FINANCIAL~~of ~~STATEMENTS(Unaudited)~~June 30, 2007 and

~~NOTE~~December 131, –2006 ~~ORGANIZATION AND BASIS OF PRESENTATION:~~2

~~The Company is a Maryland corporation which acquires, holds and manages real estate assets. Chevy Chase Bank, F.S.B.~~ (~~the “Bank”~~b), aStatements ~~federally~~of ~~insured~~Operations ~~stock~~for ~~savings bank, owns all of~~ the ~~Company’s~~ ~~common~~Three ~~stock.~~and ~~The~~Six ~~Bank~~Months ~~is in compliance with its regulatory capital requirements.~~ Ended

~~NOTE~~June 230, –2007 ~~RESIDENTIAL~~and ~~MORTGAGE~~2006 ~~LOANS:~~3

~~Residential mortgage loans consist of adjustable-rate mortgages~~ (~~“ARMs”~~c) ~~and~~Statement ~~fixed-rate mortgages.~~of ~~The~~Stockholders’ ~~ARMs~~Equity ~~have interest rates which are fixed~~ for the ~~indicated~~Six 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, subject to interest rate adjustment caps, all as specified in the related mortgage notes. Each of the mortgage loans is secured by a mortgage, deed of trust or other security instrument which created a first lien on a residential dwelling. The following table shows the residential mortgage loan portfolio by type at the dates indicated: Months

~~March~~Ended ~~31, December~~June 3130, ~~2005 2004 ------------------ ----------------------- Monthly~~ ~~ARMs $ 115,459,962 $ 107,438,487 One-year~~2007 ARMs 11,546,660 13,985,393 Three-year ARMs 15,534,080 13,040,178 Five-year ARMs 113,322,153 110,068,100 7/1 ARMs 5,377,008 6,229,074 10/1 ARMs 15,386,999 17,658,506 Fixed-rate 97,480,862 106,079,238 ------------------ ----------------------- Total 374,107,724 374,498,976 Less: Allowance for loan losses 40,333 40,333 ------------------ ----------------------- Total $ 374,067,391 $ 374,458,643 ================== ======================= 4

~~NOTE~~(d) 3Statements -of ~~PREFERRED~~Cash ~~STOCK:~~Flows for the Six Months Ended

~~Cash~~June ~~dividends on the Company’s 10 3/8% Noncumulative Exchangeable Preferred Stock~~30, 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~~2006 redeemable thereafter at the option of the Company. Except under certain limited circumstances, the holders of the Series A Preferred Shares have no voting rights. The Series A Preferred Shares are automatically exchangeable for a new series of preferred stock of the Bank upon the occurrence of certain events relating to the Bank. 5

~~NOTE~~(e) 4Notes -to ~~DIVIDENDS:~~Financial Statements 6

~~During~~Item ~~the~~2. ~~three months ended March 31, 2005, the Company~~Management’s ~~Board~~Discussion ofand ~~Directors~~Analysis ~~declared cash dividends~~ of ~~$3,890,625 on the Company’s preferred stock out of the retained earnings of the Company. Dividends were paid on April 15, 2005.~~ Financial

NoCondition ~~cash~~and ~~dividends~~Results onof ~~common stock~~Operations ~~were declared during the three months ended March 31, 2005.~~ 8

~~NOTE~~Item 53. –Quantitative ~~LOAN~~and ~~PAYABLE~~Qualitative TODisclosures ~~PARENT:~~about Market Risk 12

~~The~~Item ~~Company borrowed $75,000,000 from the Bank on December 20, 2004, and used the proceeds to purchase adjustable-rate Residential Mortgage Loans from the Bank~~4. ~~The~~Controls ~~loan is secured by a portion of the Residential Mortgage Loan portfolio,~~ and ~~the interest~~Procedures ~~rate on the loan adjusts monthly based on changes in one-month LIBOR.~~ 12

~~The~~PART ~~loan~~II ~~requires~~– ~~no payment~~OTHER of principal until it matures on August 31, 2007, but can be prepaid without penalty at any time. Interest is payable monthly at a variable rate equal to the sum of one-month LIBOR plus 0.85%. At March 31, 2005, the interest rate was 3.54%. INFORMATION

~~ITEM~~Item 21. ~~Management’s~~Legal ~~Discussion~~Proceedings ~~and Analysis of Financial Condition and Results of Operations~~13

~~FINANCIAL~~Item ~~CONDITION~~1A. Risk Factors 13

~~Dividend~~Item ~~Coverage~~2. Unregistered Sales of Equity Securities and Use of Proceeds 13

~~Based~~Item on the outstanding balance of the Company’s Residential Mortgage Loans (as defined below) at March 31, 2005 and the interest rates on such loans, anticipated annual income, net of operating expenses, on the Company’s loan portfolio was approximately 1153.2% ofDefaults ~~the~~Upon ~~projected~~Senior ~~annual~~Securities ~~dividend on the Series A Preferred Shares.~~ 13

~~Residential~~Item ~~Mortgage~~4. ~~Loans~~Submission of Matters to a Vote of Security Holders 13

AtItem March 31, 2005 and December 31, 2004, the Company had $374,067,391 and $374,458,643, respectively, invested in loans secured by first mortgages or deeds of trust on single-family residential real estate properties (“Residential Mortgage Loans”)5. ~~During~~ ~~the~~Other ~~three~~Information months ended March 31, 2005, Residential Mortgage Loan purchases were $31,307,714 and principal collections were $31,698,966. 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 subsidiaries. 13

AtItem March 31, 2005, the Company had four 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 $1,112,320 (or 06.~~30%~~ ofExhibits ~~loans). At December 31, 2004, the Company had two non-accrual loans with an aggregate principal balance of $546,701 (or 0.15% of loans).~~ 13

AtPART March 31, 2005, the Company had one loan which was delinquent 30-89 days with a principal balance of $203,033 (or 0.05% of loans). At December 31, 2004, the Company had two loans which were delinquent 30-89 days with an aggregate principal balance of $576,811 (or 0.15% of loans). I

~~Allowance~~ITEM ~~for~~1. ~~Loan~~Financial ~~Losses~~Statements

AnThe ~~analysis~~following isunaudited ~~performed periodically~~financial tostatements ~~determine~~and ~~the~~notes ~~level~~ of ~~allowance~~Chevy ~~for~~Chase ~~loan~~Preferred ~~losses~~Capital ~~required~~Corporation ~~and takes~~(the ~~into~~“Company”) ~~consideration~~have ~~such~~been ~~factors~~prepared asin ~~the~~accordance ~~economy~~with inaccounting ~~lending~~principles ~~areas, delinquency~~generally ~~statistics~~accepted ~~and~~in ~~past~~the ~~loss~~United ~~experience.~~States ~~The~~for ~~allowance~~interim ~~for~~financial ~~loan~~information. In ~~losses is~~the ~~based~~opinion onof ~~estimates~~management, ~~and~~all ~~ultimate~~adjustments ~~losses~~necessary ~~may~~for ~~vary~~a ~~from~~fair ~~current~~presentation ~~estimates.~~of ~~As adjustments~~the tofinancial ~~the~~position ~~allowance~~and ~~become~~the ~~necessary,~~results ~~provisions~~of operations for ~~loan~~the ~~losses~~interim ~~are reported~~period inpresented ~~operations~~have inbeen ~~the~~included. These ~~periods~~unaudited ~~they~~financial ~~are~~statements ~~determined~~and tonotes should be ~~necessary.~~read ~~There was~~in noconjunction ~~activity~~with in the ~~allowance~~Company’s ~~for~~financial ~~loan~~statements ~~losses~~and ~~during~~notes for the ~~three~~year ~~months~~ ended ~~March~~ December 31, ~~2005~~2006 ~~and~~included ~~2004.~~in ~~The~~the ~~balance~~Company’s ofAnnual ~~the~~Report ~~allowance~~on ~~for~~Form ~~loan~~10-K ~~losses~~filed ~~was $40,333~~with atthe Securities and Exchange Commission on March 3121, ~~2005~~2007 ~~and~~(the ~~2004.~~“2006 10-K”).

~~Interest Rate Risk~~-1-

~~The Company’s income consists~~ ~~primarily~~CHEVY ofCHASE ~~interest~~PREFERRED ~~payments~~CAPITAL 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 may have declined. In addition, when interest rates decline, holders of fixed-rate mortgages are more likely to prepay such mortgages. CORPORATION

InSTATEMENTS ~~response~~OF toFINANCIAL reduced market interest rates, the Company has taken steps to increase the funds available to pay dividends on the Series A Preferred Shares. On December 20, 2004, the Company borrowed $75,000,000 from the Bank and used the proceeds to purchase adjustable-rate Residential Mortgage Loans from the Bank. The loan is secured by a portion of the Residential Mortgage Loan portfolio and the interest rate on the loan adjusts monthly based on changes in one-month LIBOR. CONDITION

There can be no assurance that an interest rate environment in which there is a decline in interest rates would not adversely affect the Company’s ability to pay dividends on the Series A Preferred Shares or the Common Stock. See “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition – Dividend Coverage.” The Company, to date, has not used any derivative instruments to manage its interest rate risk.

	June 30,	December 31,
	2007	2006
	(Unaudited)
ASSETS

Cash and interest-bearing deposits	$ 4,176,344	$ 5,753,475
Residential mortgage loans (net of allowance for
losses of $160,000 and $40,333, respectively)	307,456,709	346,330,604
Real estate acquired in settlement of loans, net	116,117	-
Accounts receivable from parent	459,516	983,467
Accrued interest receivable	1,405,213	1,436,651
Prepaid expenses	34,208	39,667
Total assets	$ 313,648,107	$ 354,543,864

~~There~~ LIABILITIES ~~have~~AND ~~been no material changes to the Company~~STOCKHOLDERS’s ~~market risk disclosures from the disclosures made in the 2004 10-K.~~ EQUITY

Significant Concentration of Credit Risk

Liabilities:
Loan payable to parent	$ 8,500,000	$ 47,700,000
Accrued interest payable to parent	43,704	285,390
Accounts payable to others and accrued expenses	45,462	14,212
Dividends payable to parent	-	6,000,000
Dividends payable to others	3,890,625	3,890,625
Total liabilities	12,479,791	57,890,227

Stockholders’ Equity:
Preferred Stock, 10,000,000 shares authorized: 10 3/8% Noncumulative Exchangeable Preferred Stock, Series A, $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	281,653,537
Retained earnings	1,168,316	-
Total stockholders’ equity	301,168,316	296,653,637

Total liabilities and stockholders’ equity	$ 313,648,107	$ 354,543,864

~~Concentration~~See ~~of credit risk exists when a number of customers are engaged in similar business activities, or activities in~~ the ~~same~~accompanying ~~geographical~~Notes ~~region, or have similar economic features that would cause their ability~~ to ~~meet~~Financial ~~contractual obligations to be similarly affected by changes in economic conditions~~Statements. 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.

Many (or 39.7%) of the Company’s Residential Mortgage Loans are secured by residential real estate properties located in the Washington, DC metropolitan area. In addition, 11.4% of the Residential Mortgage Loans are secured by residential real estate properties located in California. Consequently, a concentration of risk exists and the Company may be subject to a greater risk of default in the event of adverse economic, political or business developments in Washington, DC, Maryland, Virginia and California that may affect the ability of residential property owners in any of these areas to make payments of principal and interest on the underlying mortgages. -2-

~~Liquidity~~ CHEVY ~~and~~CHASE ~~Capital~~PREFERRED ~~Resources~~CAPITAL CORPORATION

~~The~~STATEMENTS ~~objective~~OF 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.” OPERATIONS

The Company’s principal liquidity needs are primarily the funding of the acquisition of additional mortgage assets as current mortgage assets held by the Company are repaid and the payment of 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 the 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. As discussed earlier under “Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition – Dividend Coverage,” our anticipated annual income, based on our mortgage loan portfolio at March 31, 2005, is 115.2% of the projected annual dividend on the Series A Preferred Shares. (Unaudited)

The Company believes that it will be able to continue to meet the requirements to qualify as a REIT for income tax purposes for the foreseeable future.

	Three Months Ended June 30,		Six Months Ended June 30,
	2007	2006	2007	2006
Net Interest Income
Residential mortgage loans	$ 5,126,731	$ 5,954,881	$ 10,602,935	$ 11,855,436
Other	4,590	7,745	10,450	13,788
Total interest income	5,131,321	5,962,626	10,613,385	11,869,224
Interest expense - parent	291,412	1,106,436	909,132	2,114,613
Net interest income	4,839,909	4,856,190	9,704,253	9,754,611
Provision for Loan Losses	13,960	-	133,696	-
Net interest income after provision for loan losses	4,825,949	4,856,190	9,570,557	9,754,611

Operating Expenses
Loan servicing fees - parent	192,905	225,651	400,024	455,922
Advisory fees - parent	50,000	50,000	100,000	100,000
Directors’ fees	8,000	10,000	16,000	16,000
General and administrative	58,535	41,361	104,967	82,854
Total operating expenses	309,440	327,012	620,991	654,776

NET INCOME	$ 4,516,509	$ 4,529,178	$ 8,949,566	$ 9,099,835

PREFERRED STOCK DIVIDENDS	3,890,625	3,890,625	7,781,250	7,781,250

EARNINGS AVAILABLE TO
COMMON STOCKHOLDER	$ 625,884	$ 638,553	$ 1,168,316	$ 1,318,585

AVERAGE COMMON SHARES	100	100	100	100

EARNINGS PER COMMON SHARE	$ 6,258.84	$ 6,385.53	$ 11,683.16	$ 13,185.85

~~The~~See ~~Company~~the ~~has~~accompanying noNotes ~~off balance~~to ~~sheet~~Financial ~~transactions, contractual obligations, contingent liabilities, or commitments as of March 31, 2005~~Statements.

~~Tax Status of the Company~~-3-

~~The Company has elected to~~ beCHEVY ~~taxed~~CHASE asPREFERRED aCAPITAL 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% 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 (a) distribute to stockholders each year at least 90% of its REIT taxable income (not including capital gains) for that year, (b) meet certain income tests, (c) meet certain asset tests and (d) meet certain ownership 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 be disqualified from treatment as a REIT for the four taxable years following the year during which qualification was lost. As of March 31, 2005, the Company met the requirements of all applicable tests. CORPORATION

NoSTATEMENT ~~income~~OF ~~tax~~STOCKHOLDERS’ ~~was paid during either of the three month periods ended March 31, 2005 and 2004.~~ EQUITY

~~RESULTS OF OPERATIONS~~(Unaudited)

Three Months Ended March 31, 2005 Compared to Three Months Ended March 31, 2004

	Preferred Stock	Common Stock	Capital Contributed In Excess of Par	Retained Earnings	Stockholders’ Equity

Balance, December 31, 2006	$ 15,000,000	$ 100	$ 281,653,537	$ -	$ 296,653,637

Net income	-	-	-	8,949,566	8,949,566
Dividends on Preferred Stock	-	-	-	(7,781,250)	(7,781,250)
Capital Contribution from Parent	-	-	3,346,363	-	3,346,363

Balance, June 30, 2007	$ 15,000,000	$ 100	$ 284,999,900	$ 1,168,316	$ 301,168,316

~~During~~See the ~~three~~accompanying ~~months ended~~Notes ~~March~~to ~~31,~~Financial ~~2005 and 2004, the Company reported net income of $4,444,572 and $4,104,257, respectively~~Statements.

~~Total interest income was $5,387,772 for the three months ended March 31, 2005 (the “2005 quarter”) compared to $~~-4,355,196 for the three months ended March 31, 2004 (the “2004 quarter”). Interest income on Residential Mortgage Loans totaled $5,383,940 for the 2005 quarter compared to $4,353,480 for the 2004 quarter. The increase in interest income resulted from the higher average balance of loans receivable and an increase in the average yield on such loans to 5.79% in the 2005 quarter from 5.75% in the 2004 quarter. The average balance of the Residential Mortgage Loan portfolio was $372,159,896 in the 2005 quarter compared to $299,228,924 in the 2004 quarter. The Company would have recorded an additional $14,649 and $7,787 in interest income for the three months ended March 31, 2005 and 2004, respectively, had its non-~~accrual loans been current in accordance with their original terms.~~

~~Other interest income of~~ ~~$3,832~~CHEVY ~~and~~CHASE ~~$1,716~~PREFERRED ~~was~~CAPITAL recognized on the Company’s interest bearing deposits during the three months ended March 31, 2005 and 2004, respectively. The increase was due to an increase in average balances of interest bearing deposits to $1,002,668 in the 2005 quarter from $972,661 in the 2004 quarter and a higher average yield on interest bearing deposits, which increased by 82 basis points (to 1.53% from 0.71%) from the average yield in the 2004 quarter. CORPORATION

~~During~~STATEMENTS ~~the~~OF ~~2005~~CASH ~~quarter, the Company incurred interest expense totaling $638,542.~~ FLOWS

~~No provision for loan losses was recorded for the three months ended March 31, 2005 and 2004.~~ (Unaudited)

Operating expenses totaling $304,658 and $250,939 for the three months ended March 31, 2005 and 2004, 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 were $232,805 and $156,244, for the three months ended March 31, 2005 and 2004, respectively. The increase in loan servicing fees paid to parent for the quarter ended March 31, 2005 is attributable to an increase in the average balance of Residential Mortgage Loans. Advisory fees paid to parent for the three months ended March 31, 2005 and 2004 totaled $50,000 for each quarter. Directors’ fees paid for the three months ended March 31, 2005 and 2004 were $8,000 and $9,500, respectively, and represent compensation to the two independent members of the Board of Directors. General and administrative expenses totaled $13,853 and $35,195 for the three months ended March 31, 2005 and 2004, respectively.

	Six Months Ended June 30,
	Six Months Ended June 30,
	2007	2006
Cash flows from operating activities:

Net income	$ 8,949,566	$ 9,099,835
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for loan losses	133,696	-
(Increase) decrease in accounts receivable from parent	523,951	(578,771)
(Increase) decrease in accrued interest receivable	31,438	(1,751)
(Increase) decrease in prepaid expenses	5,459	(32,689)
Increase in accounts payable to others and accrued expenses	31,250	10,190
Increase (decrease) in accrued interest payable to parent	(241,686)	62,545
Net cash provided by operating activities	9,433,674	8,559,359

Cash flows from investing activities:
Purchases of residential mortgage loans	-	(53,603,094)
Repayments of residential mortgage loans	38,624,082	53,721,913
Net cash provided by investing activities	38,624,082	118,819

Cash flows from financing activities:
Repayment of loan payable to parent	(39,200,000)	-
Capital contribution from parent	3,346,363	-
Dividends paid on preferred stock	(7,781,250)	(7,781,250)
Dividends paid on common stock	(6,000,000)	(2,530,104)
Net cash used in financing activities	(49,634,887)	(10,311,354)

Net decrease in cash and cash equivalents	(1,577,131)	(1,633,176)
Cash and cash equivalents at beginning of period	5,753,475	1,913,298
Cash and cash equivalents at end of period	$ 4,176,344	$ 280,122

Supplemental disclosures of non-cash activities:
Loans receivable transferred to real estate acquired in settlement of loans	$ 116,117	$ -

OnSee ~~March 15, 2005,~~ the ~~Company’s~~ ~~Board~~accompanying ofNotes ~~Directors~~to ~~declared,~~Financial ~~out of the retained earnings of the Company, a cash dividend of $1~~Statements.~~296875 per share on the outstanding Series A Preferred Shares which was paid on April 15, 2005.~~

~~ITEM 3. Quantitative and Qualitative Disclosures about Market Risk~~-5-

~~Information~~CHEVY ~~required~~CHASE ~~by this~~PREFERRED ~~item~~CAPITAL ~~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.~~ CORPORATION

~~ITEM~~NOTES 4.TO ~~Controls~~FINANCIAL ~~and Procedures~~STATEMENTS

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports filed under SEC regulations is recorded, processed, summarized and reported within the time periods specified in the rules and forms adopted by the SEC, which the Company must comply with under SEC regulations, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and its Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure, based closely on the definition of “disclosure controls and procedures” in Rule 13a-15(eUnaudited) promulgated under the Securities Exchange Act of 1934, as amended. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

~~The~~NOTE ~~Company~~1 ~~carried~~– ~~out~~ORGANIZATION ~~an evaluation,~~AND ~~under~~BASIS ~~the~~OF supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of March 31, 2005. Based upon the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2005. PRESENTATION:

~~During~~The ~~the~~Company ~~three~~is ~~months ended~~a ~~March~~Maryland ~~31,~~corporation ~~2005~~which acquires, ~~there~~holds ~~were~~and nomanages ~~changes~~real inestate ~~the~~assets. Chevy ~~Company’s~~Chase ~~internal control~~Bank, ~~over~~F.S.B. ~~financial~~(the ~~reporting~~“Bank”), ~~that~~a ~~materially~~federally ~~affected~~insured stock savings bank, orowns ~~are~~all ~~reasonably likely~~of tothe ~~materially~~Company’s ~~affect~~common stock. At June 30, 2007 the ~~Company~~Bank’s ~~internal~~capital ~~control~~ratios ~~over~~exceeded ~~financial reporting.~~the ratios established for “well-capitalized” institutions under Office of Thrift Supervision regulations.

~~PART~~The IIaccompanying financial statements of the Company have been prepared in accordance with the instructions for Form 10-Q ~~OTHER~~and, ~~INFORMATION~~therefore, certain information and notes normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. The accompanying financial statements should be read in conjunction with the audited financial statements included in the Form 10-K of the Company for the year ended December 31, 2006.

~~ITEM~~Recently 1.Issued ~~Legal~~Accounting ~~Proceedings~~Standards

In June 2006, the Financial Accounting Standards Board issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 clarifies the requirements of SFAS No. 109, “Accounting for Income Taxes,” relating to the recognition of income tax benefits. FIN 48 provides a two-step approach to recognizing and measuring tax benefits when realization of the benefits is uncertain. The ~~Company~~first step is to determine whether the benefit meets the more-likely-than-not ~~involved~~ condition for recognition and the second step is to determine the amount to be recognized based on the cumulative probability that exceeds 50%. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in ~~any~~interim ~~material~~periods, ~~litigation~~disclosure, and transition. The adoption of FIN 48 on January 1, 2007, had no impact on the Company's financial condition or results of operations.

~~ITEM~~NOTE 2. ~~Unregistered~~– ~~Sales~~RESIDENTIAL ofMORTGAGE ~~Equity Securities and Use of Proceeds~~LOANS:

~~ITEM~~Residential 3mortgage loans consist of adjustable-rate mortgages (“ARMs”) and fixed-rate mortgages. The ~~Defaults~~ARMs ~~Upon~~have ~~Senior~~interest ~~Securities~~rates which are fixed for a 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, subject to interest rate adjustment caps, all as specified in the related mortgage notes. Each of the mortgage loans is secured by a mortgage, deed of trust or other security instrument which created a first lien on a residential dwelling. The following table shows the residential mortgage loan portfolio by type at the dates indicated:

ITEM 4. Submission of Matters to a Vote of Security Holders

	June 30, 2007		December 31, 2006
	Aggregate Principal Balance	Weighted Average Yield	Aggregate Principal Balance	Weighted Average Yield
Payment Option ARMs	$ 25,265,848	8.10%	$ 33,880,718	8.12%
One-year ARMs	4,100,956	7.92%	5,109,950	7.65%
Three-year ARMs	18,536,047	6.88%	21,001,902	6.92%
Five-year ARMs	192,239,353	6.15%	211,433,598	6.15%
7/1 ARMs	2,381,619	7.99%	2,512,271	7.93%
10/1 ARMs	8,972,748	6.73%	9,822,378	6.70%
Fixed-rate	56,120,138	6.41%	62,610,120	6.40%
Total	307,616,709	6.45%	346,370,937	6.48%
Less:
Allowance for loan losses	160,000		40,333

Total	$307,456,709		$ 346,330,604

~~ITEM 5. Other Information~~-6-

~~ITEM~~CHEVY 6.CHASE ~~Exhibits~~PREFERRED ~~and~~CAPITAL ~~Reports on Form 8-K~~CORPORATION

~~(a)~~NOTES ~~Exhibits~~TO ~~required~~FINANCIAL by Item 601 of Regulation S-K are set forth below. Exhibit No. Exhibit ------------------------ 31.1 Rule 13a-14(a) / 15d-14(a) Certification of Chief Executive Officer. 31.2 Rule 13a-14(a) / 15d-14(a) Certification of Chief Financial Officer. 32.1 Section 1350 Certification of Chief Executive Officer. 32.2 Section 1350 Certification of Chief Financial Officer. STATEMENTS

~~SIGNATURES~~(Unaudited)

~~Pursuant to the~~ ~~requirements~~NOTE of3 ~~the~~- ~~Securities~~PREFERRED ~~Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.~~ STOCK:

~~CHEVY~~Cash ~~CHASE~~dividends ~~PREFERRED~~on ~~CAPITAL~~the ~~CORPORATION~~Company’s 10 3/8% Noncumulative Exchangeable Preferred Stock, Series A (~~Registrant~~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 redeemable at the option of the Company. Except under certain limited circumstances, the holders of the Series A Preferred Shares have no voting rights. The Series A Preferred Shares are automatically exchangeable for a new series of preferred stock of the Bank upon the occurrence of certain events relating to the Bank.

~~March~~NOTE ~~13,~~4 ~~2005 By: /s/ STEPHEN R. HALPIN, JR.~~ -~~------------------------------- Stephen~~ R. Halpin, Jr. Executive Vice President and Chief Financial Officer (Principal Financial Officer) March 13, 2005 ByDIVIDENDS: /s/ JOEL A. FRIEDMAN ------------------------------ Joel A. Friedman Senior Vice President and Controller (Principal Accounting Officer)

~~Exhibit~~During 31three and six months ended June 30, 2007, the Company’s Board of Directors declared cash dividends of $3,890,625 and $7,781,250, respectively, on the Company's preferred stock.1 Dividends were paid on April 16, 2007 and July 16, 2007.

~~CERTIFICATION~~NOTE 5 – LOAN PAYABLE TO PARENT:

I,The B.Company ~~Francis~~borrowed ~~Saul II~~$75, ~~certify that: 1. I have reviewed this quarterly report on Form 10-Q for the three months ended March 31~~000,000 ~~2005~~from of Chevy Chase Preferred Capital Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the ~~statements~~Bank ~~made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based~~ on myDecember ~~knowledge~~20, ~~the financial statements~~2004, and ~~other~~used ~~financial information included in this report, fairly present in all material respects~~ the ~~financial~~proceeds ~~condition,~~to ~~results~~purchase ofResidential ~~operations~~Mortgage ~~and~~Loans ~~cash~~from ~~flows of~~ the ~~registrant as of, and for, the periods presented in this report; 4~~Bank. The ~~registrant's~~loan other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is ~~made~~ ~~known~~secured ~~to us~~ by ~~others~~a ~~within~~portion ~~those entities, particularly during the period in which this report is being prepared; (b) evaluated the effectiveness~~ of the ~~registrant's~~Residential ~~disclosure~~Mortgage ~~controls~~Loan ~~and~~portfolio, ~~procedures~~ and ~~presented in this report our conclusions about~~ the ~~effectiveness~~interest ofrate ~~the disclosure controls and procedures as of the end of the period covered by this report based~~ on ~~such evaluation; and (c) disclosed in this report any change in~~ the ~~registrant's~~loan ~~internal~~adjusts ~~control~~monthly over financial reporting that occurred during the registrant's most recent quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on ~~our~~changes most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. March 13, 2005 /s/ B. FRANCIS SAUL II one-~~--------------------------------- B.~~month ~~Francis Saul II Chairman and Chief Executive Officer~~ LIBOR.

~~Exhibit~~The loan requires no payment of principal until it matures on August 31, 2007, but can be prepaid without penalty at any time.2 During the six months ended June 2007, the Company made principal payments totaling $39,200,000, leaving an unpaid principal balance of $8,500,000 at June 30, 2007. Interest is payable monthly at a variable rate equal to the sum of one-month LIBOR plus 0.85%. At June 30, 2007, the interest rate was 6.17%.

~~CERTIFICATION~~-7-

I,ITEM ~~Stephen R. Halpin, Jr., certify that: 1. I have reviewed this quarterly report on Form 10-Q for the three months ended March 31, 2005 of Chevy Chase Preferred Capital Corporation;~~ 2. ~~Based~~ on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The registrant'Management’s ~~other~~Discussion ~~certifying officer~~ and IAnalysis are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; (b) evaluated the effectiveness of ~~the~~Financial ~~registrant's~~Condition ~~disclosure controls~~ and ~~procedures~~Results ~~and presented in this report our conclusions about the effectiveness~~ of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and (c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. March 13, 2005 /s/ STEPHEN R. HALPIN, JR. -------------------------- Stephen R. Halpin, Jr. Executive Vice President, Treasurer and Chief Financial Officer Operations

~~Exhibit~~FINANCIAL ~~32.1~~CONDITION

~~CERTIFICATION~~Dividend ~~OF CHIEF EXECUTIVE OFFICER~~Coverage

~~PURSUANT~~Based TOon 18the Uoutstanding balance of the Company’s Residential Mortgage Loans (as defined below) at June 30, 2007, and the interest rates on those loans, anticipated annual income on the Company’s loan portfolio, net of interest expense and operating expenses, was approximately 116.S9% of the projected annual dividend of $15,562,500 on the Series A Preferred Shares.C. As ~~SECTION~~of ~~1350~~June AS30, ~~ADOPTED~~2007, ~~PURSUANT~~the TOweighted average yield on the Residential Mortgage Loans included in the Company’s portfolio was 6.45%.

~~SECTION~~Residential ~~906~~Mortgage ~~OF THE SARBANES-OXLEY ACT OF 2002~~Loans

~~The~~At ~~undersigned~~June 30, B.2007 ~~Francis Saul~~and IIDecember 31, 2006, the ~~Chairman~~Company had $307,456,709 and ~~Chief~~$346,330,604, ~~Executive~~respectively, ~~Officer~~net of ~~Chevy~~allowance ~~Chase~~for ~~Preferred Capital~~loan ~~Corporation~~losses, ~~(the~~invested in loans secured by first mortgages or deeds of trust on single-family residential real estate properties (“~~Company~~Residential Mortgage Loans”). During the six months ended June 30, ~~has~~2007, ~~executed~~Residential ~~this~~Mortgage ~~certification in~~Loan ~~connection~~principal ~~with~~collections of $38,624,082 were used to repay principal on the ~~filing~~loan ~~with~~from the ~~Securities~~Bank. Management ~~and~~intends ~~Exchange~~to ~~Commission~~continue to reinvest proceeds received from repayments of ~~the Company’s~~loans ~~Quarterly~~by ~~Report~~making payments of principal on ~~Form~~the ~~10-Q~~loan ~~for~~from the ~~three~~Bank ~~months~~or ~~ended September~~by ~~30,~~purchasing ~~2004~~additional ~~(the~~Residential ~~“Report”).~~Mortgage ~~The~~Loans ~~undersigned~~from ~~hereby~~either ~~certifies that:~~the Bank or its subsidiaries.

~~(1) the~~At ~~Report~~June ~~fully~~30, ~~complies~~2007, ~~with~~ the ~~requirements~~Company ofhad ~~Section~~six 13non-accrual loans (a)contractually past due 90 days or ~~15(d)~~more ofor ~~the~~with ~~Securities~~respect ~~Exchange~~to ~~Act~~which other factors indicate that full payment of ~~1934;~~principal and ~~(2) the~~ ~~information~~interest ~~contained~~is inunlikely) ~~the~~with ~~Report~~an ~~fairly~~aggregate ~~presents,~~principal inbalance ~~all~~of ~~material respects~~$1,033,914 ~~the~~(or ~~financial~~0.34% ~~condition~~of ~~and~~loans). At ~~results of~~December ~~operations~~31, of2006, the Company~~. March~~ ~~13,~~had ~~2005 /s/~~five B.non-accrual ~~FRANCIS~~loans ~~SAUL~~with ~~II ----------------------------------- B.~~an ~~Francis~~aggregate ~~Saul~~principal ~~II Chairman~~balance ~~and~~of ~~Chief~~$1,119,642 ~~Executive~~(or ~~Officer~~ 0.32% of loans).

~~Exhibit~~At 32June 30, 2007, the Company had eight delinquent loans (delinquent 30-89 days) with an aggregate principal balance of $1,840,122 (or 0.260% of loans). At December 31, 2006, the Company had six delinquent loans with an aggregate principal balance of $1,304,688 (or 0.38% of loans).

~~CERTIFICATION~~Allowance OFfor ~~CHIEF~~Loan ~~FINANCIAL OFFICER~~Losses

~~PURSUANT~~Management TOreviews 18the Uloan portfolio to establish an allowance for estimated losses if deemed necessary.S Management performs a quarterly analysis to determine whether an allowance for loan loss is required, and an allowance is provided after considering such factors as historical loss performance, delinquency status, current economic conditions and geographical concentrations.C The allowance for loan losses is based on estimates, and ultimate losses may vary from current estimates. As ~~SECTION~~adjustments ~~1350~~to ASthe ~~ADOPTED~~allowance ~~PURSUANT~~become TOnecessary, provisions for loan losses are reported in operations. Based on a review of various factors, including estimated exposures in delinquent and non-accrual loans, management increased the allowance for loan losses by $119,667 during the previous quarter. The amount of the allowance in June 30, 2007 was unchanged from the prior quarter. Over the last four quarters, non-accrual loans have increased to $1,033,914 at June 30, 2007, from $405,242 at June 30, 2006, a 155.1% increase. The activity in the allowance for loan losses is shown in the following table.

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2007	2006	2007	2006
Beginning Balance	$ 160,000	$ 40,333	$ 40,333	$ 40,333
Provision for loan losses	13,960	-	133,696	-
Charge-offs	(13,960)	-	(14,029)	-
Ending Balance	$ 160,000	$ 40,333	$ 160,000	$ 40,333

The undersigned, Stephen R. Halpin, Jr., the Executive Vice President, Treasurer 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 three months ended March 31, 2005 (the “Report”). The undersigned hereby certifies that:~~ 8-

~~(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~~Interest ~~information~~Rate contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. March 13, 2005 /s/ STEPHEN R. HALPIN, JR. -------------------------- Stephen R. Halpin, Jr. Executive Vice President, Treasurer and Chief Financial Officer Risk

The Company’s income consists primarily of interest income 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. See “Risk Factors” in the 2006 10-K.

As a result of a decline in market interest rates and in order to increase the funds available to pay dividends on the Series A Preferred Shares, the Company borrowed $75,000,000 from the Bank in December 2004, and used the proceeds to purchase Residential Mortgage Loans from the Bank. The loan is secured by a portion of the Residential Mortgage Loan portfolio and the interest rate on the loan adjusts monthly based on changes in one-month LIBOR. During the six months ended June 30, 2007, the Company made principal payments totaling $39,200,000 leaving an unpaid principal balance of $8,500,000 with an interest rate of 6.17%.

Another decline in market interest rates could 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 and has no current plans to do so.

There have been no material changes to the Company’s market risk disclosures from the disclosures made in the 2006 10-K.

Significant Concentration of Credit Risk

Concentration of credit risk arises when a number of customers engage in similar business activities, or activities in the same geographical region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic conditions. Concentration of credit risk indicates the relative sensitivity of the Company’s performance to both positive and negative developments affecting a particular industry. The Company’s exposure to geographic concentrations directly affects the credit risk of the Residential Mortgage Loans within the portfolio.

Residential Mortgage Loans secured by residential real estate properties located in the Washington, DC metropolitan area comprised 48.5% of the Company’s total loans at June 30, 2007. In addition, 13.2% of the Residential Mortgage Loans are secured by residential real estate properties located in California. Consequently, adverse economic, political or business developments in Washington, DC, Maryland, Virginia or California may affect the Company’s loan portfolio to a greater degree than a more diversified portfolio.

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 are 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 Mortgage Assets will be funded with the proceeds of principal repayments on the Company’s current portfolio of Mortgage Assets. The Company does not anticipate that it will have any material capital expenditures. The Company believes that the cash generated from the payment of principal and interest on its Mortgage Asset portfolio will provide sufficient funds to meet its operating requirements, to continue to make additional payments of principal on the loan from the Bank, and to pay dividends in accordance with the REIT qualification requirements discussed below for the foreseeable future. As discussed earlier under “Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition – Dividend Coverage,” anticipated annual income, based on the mortgage loan portfolio at June 30, 2007, is 116.9% of the projected annual dividend on the Series A Preferred Shares.

The Company believes that it will be able to continue to meet the requirements to qualify as a REIT for income tax purposes for the foreseeable future.

-9-

The Company has no off balance sheet transactions, contractual obligations, contingent liabilities, or commitments as of June 30, 2007.

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% 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 (a) distribute to stockholders each year at least 90% of its REIT taxable income (not including capital gains) for that year, (b) meet certain income tests, (c) meet certain asset tests and (d) meet certain ownership 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 be disqualified from treatment as a REIT for the four taxable years following the year during which qualification was lost. As of June 30, 2007, the Company met the requirements of all applicable tests.

The Company did not pay any income tax during either of the six month periods ended June 30, 2007 or 2006.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2007 Compared to Three Months Ended June 30, 2006

During the three months ended June 30, 2007 (the “2007 quarter”) and 2006 (the “2006 quarter”), the Company reported net income of $4,516,509 and $4,529,178, respectively, a decrease of 0.3%. The slight decrease in net income is primarily attributable to decreased interest income on Residential Mortgage Loans, which was mostly offset by decreased interest expense.

Net interest income decreased $16,281 in the 2007 quarter. The Company would have recorded an additional $20,734 in interest income for the 2007 quarter had its non-accrual loans been current in accordance with their original terms.

Total interest income was $5,131,321 for the 2007 quarter compared to $5,962,626 for the 2006 quarter, or a decrease of 13.9%. Interest income on Residential Mortgage Loans totaled $5,126,731 for the 2007 quarter compared to $5,954,881 for the 2006 quarter, or a decrease of 13.9%. Average balances of the Residential Mortgage Loan portfolio decreased to $317,788,944 in the 2007 quarter from $372,421,256 in the 2006 quarter, but was partially offset by an increase in the average yield on those loans to 6.45% in the 2007 quarter from 6.39% in the 2006 quarter.

Other interest income of $4,590 and $7,745 was recognized on the Company’s interest-bearing deposits during the 2007 and 2006 quarters, respectively.

During the 2007 and 2006 quarters, the Company incurred interest expense totaling $291,412 and $1,106,436, respectively, a decrease of 73.7%, related to the Company’s loan from the Bank. The decrease was due to a decrease in the average balance to $14,766,667 in the 2007 quarter from $75,000,000 in the 2006 quarter as a result of the Company’s repayments of a significant portion of the loan. This was partially offset by an increase in the average interest rate to 6.17% in the 2007 quarter from 5.84% in the 2006 quarter.

A provision for loan losses of $13,960, equal to the amount of charge-offs for the quarter, was recorded for the three months ended June 30, 2007. There was no provision for loan losses and no charge-offs during the 2006 quarter.

-10-

Operating expenses totaling $309,440 and $327,012 for the 2007 and 2006 quarters, 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 were $192,905 and $225,651 for the 2007 and 2006 quarters, respectively. Advisory fees paid to parent totaled $50,000 for both the 2007 quarter and 2006 quarter. Directors’ fees paid were $8,000 and $10,000 for the 2007 and 2006 quarters, respectively, and represent compensation to the two independent members of the Board of Directors. General and administrative expenses totaled $58,535 and $41,361 for the 2007 and 2006 quarters, respectively, or an increase of 41.5%, primarily due to increases in rating agency and external auditor fees.

During the 2007 quarter, the Company’s Board of Directors declared cash dividends of $3,890,625 on the Company's preferred stock, which were paid out of the retained earnings of the Company on July 16, 2007.

Six Months Ended June 30, 2007 Compared to Six Months Ended June 30, 2006

During the six months ended June 30, 2007 (the “2007 period”) and 2006 (the “2006 period”), the Company reported net income of $8,949,566 and $9,099,835, respectively, or a decrease of 1.65%. The slight decrease in net income is primarily attributable to decreased interest income on Residential Mortgage Loans, which was mostly offset by decreased interest expense.

Net interest income decreased $50,356 (or 0.5%) in the 2007 period. The Company would have recorded an additional $39,413 in interest income for the 2007 period had its non-accrual loans been current in accordance with their original terms.

Total interest income was $10,613,385 for the 2007 period compared to $11,869,224 for the 2006 period, a decrease of 10.6%. Interest income on Residential Mortgage Loans totaled $10,602,936 for the 2007 period, compared to $11,855,436 for the 2006 period, a decrease of 10.6%. Average balances of the Residential Mortgage loan portfolio decreased to $328,279,419 in the 2007 period from $373,083,949 in the 2006 period, but was partially offset by an increase in the average yield on those loans to 6.45% in the 2007 period from 6.36% in the 2006 period.

Other interest income of $10,450 and $13,788 was recognized on the Company’s interest-bearing deposits during the 2007 and 2006 periods, respectively.

During the 2007 and 2006 periods, the Company incurred interest expense totaling $909,132 and $2,114,613, respectively, related to the Company’s loan from the Bank. The decrease was due to a decrease in the average balance to $25,900,000 in the 2007 period from $75,000,000 in the 2006 period resulting from the Company’s repayments of a significant portion of the loan. This was partially offset by an increase in the average interest rate to 6.17% in the 2007 period from 5.51% in the 2006 period.

A provision for loan losses of $133,696 or $119,667 in excess of charge-offs was recorded for the 2007 period. There was no provision for loan losses and no charge-offs recorded for the 2006 period.

Operating expenses totaling $620,991 and $654,776 for the 2007 and 2006 periods, 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 were $400,024 and $455,922 for the 2007 and 2006 periods, or a decrease of 12.3%. Advisory fees paid to parent for the 2007 and 2006 periods totaled $100,000 for each period. Directors’ fees paid for the 2007 and 2006 periods totaled $16,000 for each period, and represent compensation to the two independent members of the Board of Directors. General and administrative expenses totaled $104,967 and $82,854 for the 2007 and 2006 periods, respectively, or an increase of 26.7%, primarily due to increases in rating agency fees and external auditor fees.

During the 2007 period, the Company's Board of Directors declared cash dividends of $7,781,250 on the Company’s preferred stock out of retained earnings of the Company.

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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

The Company maintains disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the Company's reports filed under SEC regulations is recorded, processed, summarized and reported within the time periods specified in the rules and forms adopted by the SEC, which the Company must comply with under SEC regulations, and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and its Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure, based closely on the definition of "disclosure controls and procedures" in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of June 30, 2007. Based upon the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2007.

During the three months ended June 30, 2007, there were no changes in the Company’s internal control over financial reporting that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1. Legal Proceedings

The Company is not involved in any material litigation.

ITEM 1A. Risk Factors

There are no material changes to the disclosure regarding risk factors set forth in the December 31, 2006 Form 10-K.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

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

31.1

Rule 13a-14(a) / 15d-14(a) Certification of Chief Executive Officer.

31.2

Rule 13a-14(a) / 15d-14(a) Certification of Chief Financial Officer.

32.1

Section 1350 Certification of Chief Executive Officer.

32.2

Section 1350 Certification of Chief Financial Officer.

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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)

August 13, 2007

By:

/s/ STEPHEN R. HALPIN, JR.

Stephen R. Halpin, Jr.

Director, Executive Vice President,

Treasurer and Chief Financial Officer

(Principal Financial Officer)

August 13, 2007

By:

/s/ JOEL A. FRIEDMAN

Joel A. Friedman

Senior Vice President and Controller

(Principal Accounting Officer)

Exhibit 31.1

CERTIFICATION

I, B. Francis Saul II, certify that:

I have reviewed this quarterly report on Form 10-Q for the three months ended June 30, 2007 of Chevy Chase Preferred Capital Corporation;

Based on my knowledge, this 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 report;

Based on my knowledge, the financial statements, and other financial information included in this 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 report;

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

(b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

(c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

August 13, 2007

/s/ B. FRANCIS SAUL II

B. Francis Saul II

Chairman and Chief Executive Officer

Exhibit 31.2

CERTIFICATION

I, Stephen R. Halpin, Jr., certify that:

I have reviewed this quarterly report on Form 10-Q for the three months ended June 30, 2007 of Chevy Chase Preferred Capital Corporation;

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

August 13, 2007

/s/ STEPHEN R. HALPIN, JR.

Stephen R. Halpin, Jr.

Executive Vice President, Treasurer

and Chief Financial Officer

Exhibit 32.1

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 three months ended June 30, 2007 (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.

August 13, 2007

/s/ B. FRANCIS SAUL II

B. Francis Saul II

Chairman and Chief Executive Officer

Exhibit 32.2

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, Treasurer 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 three months ended June 30, 2007 (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.

August 13, 2007

/s/ STEPHEN R. HALPIN, JR.

Stephen R. Halpin, Jr.

Executive Vice President, Treasurer

and Chief Financial Officer

Filing Compare · CHEVY CHASE PREFERRED CAPITAL CORP