UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                             -----------------------

                                    FORM 10-Q

                                   (Mark One)


[X]        Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
           Exchange Act of 1934

           For the quarterly period ended                     June 30, 1999

                                                                  or

[ ]        Transition Report Pursuant to Section 13 or 15(d) of the Securities
           Exchange Act of 1934

           For the transition period from          __________ to __________

Commission file number:                     001-12351


                              METRIS COMPANIES INC.
             (Exact name of registrant as specified in its charter)


        Delaware                                          41-1849591
(State of Incorporation)                    (I.R.S. Employer Identification No.)


       600 South Highway 169, Suite 1800, St. Louis Park, Minnesota 55426
                    (Address of principal executive offices)


                                 (612) 525-5020
              (Registrant's telephone number, including area code)



Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                Yes   X                                   No _____

As of July 30, 1999,  38,574,272  shares of the  registrant's  common stock, par
value $.01 per share, were outstanding.



<PAGE>


                              METRIS COMPANIES INC.

                                    FORM 10-Q

                                TABLE OF CONTENTS




                                  June 30, 1999

                                                                          Page

PART I.           FINANCIAL INFORMATION


         Item 1.      Consolidated Financial Statements (unaudited):
                             Consolidated Balance Sheets.....................3
                             Consolidated Statements of Income...............4
                             Consolidated Statements of Changes in
                                      Stockholders' Equity...................6
                             Consolidated Statements of Cash Flows...........7
                             Notes to Consolidated Financial Statements......8

         Item 2.      Management's Discussion and Analysis of
                             Financial Condition and Results of
                             Operations.....................................25

         Item 3.      Quantitative and Qualitative Disclosures
                             About Market Risk..............................40


PART II. OTHER INFORMATION

         Item 1. Legal Proceedings..........................................41

         Item 2. Changes in Securities......................................41

         Item 3. Defaults Upon Senior Securities............................41

         Item 4. Submission of Matters to a Vote of Security Holders........41

         Item 5. Other Information..........................................42

         Item 6.      Exhibits and Reports on Form 8-K......................43

                      Signatures......................................      44


<PAGE>



                          Part I. Financial Information


ITEM 1.           CONSOLIDATED FINANCIAL STATEMENTS

METRIS COMPANIES INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands, except per share data) (Unaudited)
<TABLE>

                                                                                June 30,     December 31,
                                                                                  1999           1998
                                                                           ---------------- --------------
Assets:
<S>                                                                           <C>           <C>
Cash and due from banks ...................................................   $    23,035   $    22,114
Federal funds sold ........................................................        50,148        15,060
Short-term investments ....................................................         2,128           173
                                                                               -----------   -----------
     Cash and cash equivalents ............................................        75,311        37,347
                                                                               -----------   -----------
Retained interests in loans securitized ...................................     1,108,562       753,469
         Less:  Allowance for loan losses .................................       475,028       393,283
                                                                              -----------   -----------
     Net retained interests in loans securitized ..........................       633,534       360,186
                                                                              -----------   -----------
Loans held for securitization .............................................        39,757         3,430
Property and equipment, net ...............................................        28,043        21,982
Accrued interest and fees receivable ......................................        10,646         6,009
Prepaid expenses and deferred charges .....................................        37,081        59,104
Deferred income taxes .....................................................       195,160       153,021
Customer base intangible ..................................................        94,075        81,892
Other receivables due from credit card
   securitizations, net ...................................................       175,366       185,935
Other assets ..............................................................        49,727        36,813
                                                                              -----------   -----------
     Total assets .........................................................   $ 1,338,700   $   945,719
                                                                              ===========   ===========
Liabilities:
Deposits ..................................................................   $   315,373   $        --
Debt ......................................................................       239,893       310,896
Accounts payable ..........................................................        52,359        19,091
Current income taxes payable ..............................................         1,007        31,783
Deferred income ...........................................................       139,320       124,892
Accrued expenses and other liabilities ....................................        32,554        26,075
                                                                              -----------   -----------
     Total liabilities ....................................................       780,506       512,737
                                                                              -----------   -----------
Stockholders' Equity:
Preferred Stock - Series B, par value $.01 per
         share; 10,000,000 shares authorized,
         539,866 shares issued and outstanding ............................            --       201,100
Convertible  Preferred  Stock - Series C, par value $.01 per  share; 10,000,000
     shares authorized, 846,650 shares issued
     and outstanding ......................................................       315,377            --
Common stock, par value $.01 per share;
     100,000,000 shares authorized, 38,574,272 and 38,519,500 shares issued
     and outstanding, respectively                                                    386           193

Paid-in capital ...........................................................       129,544       107,615
Retained earnings .........................................................       112,887       124,074
                                                                              -----------   -----------
     Total stockholders' equity ...........................................       558,194       432,982
                                                                              -----------   -----------

     Total liabilities and stockholders' equity ...........................   $ 1,338,700   $   945,719
                                                                              ===========   ===========
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.


<PAGE>


METRIS COMPANIES INC. AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands, except per share data) (Unaudited)
<TABLE>

                                           Three Months Ended        Six Months Ended
                                               June 30,                 June 30,
                                               ---------                --------
                                         1999         1998          1999         1998
                                         ----         ----          ----         ----
Interest Income:
<S> ...............................         <C>          <C>          <C>          <C>
Credit card loans and retained
     interests in loans securitized   $  40,835    $  26,375    $  82,112       52,260
Federal funds sold ................       2,268          299        2,475          780
Other .............................         433          348          812          769
                                      ---------    ---------    ---------    ---------
     Total interest income ........      43,536       27,022       85,399       53,809
Interest expense ..................      10,061        6,188       19,436       12,831
                                      ---------    ---------    ---------    ---------
Net Interest Income ...............      33,475       20,834       65,963       40,978
Provision for loan losses .........      15,764       21,390       55,073       41,432
                                      ---------    ---------    ---------    ---------
Net interest income (expense)
   after provision for loan
   losses .........................      17,711         (556)      10,890         (454)
                                      ---------    ---------    ---------    ---------
Other Operating Income:
Net securitization and credit card
     servicing income .............      74,081       30,048      151,079       64,955
Credit card fees, interchange
     and other credit card income .      23,920       15,725       45,229       28,746
Fee-based services revenues .......      38,882       26,534       76,418       51,102
                                      ---------    ---------    ---------    ---------
                                        136,883       72,307      272,726      144,803
                                      ---------    ---------    ---------    ---------
Other Operating Expense:
Credit card account and other
      product solicitation and
      marketing expenses ..........      26,366       11,277       49,311       21,427
Employee compensation .............      27,599       14,584       50,917       29,672
Data processing services and
      communications ..............      12,329        8,113       22,611       16,970
Third-party servicing expenses ....       4,279        2,487        7,925        5,058
Warranty and debt waiver
      underwriting and claims
      servicing expenses ..........       4,484        2,545        8,464        5,420
Credit card fraud losses ..........         850        1,004        2,113        2,320
Other .............................      30,892       11,578       59,120       25,069
                                      ---------    ---------    ---------    ---------
                                        106,799       51,588      200,461      105,936
                                      ---------    ---------    ---------    ---------
Income Before Income Taxes and
     Extraordinary Loss ...........      47,795       20,163       83,155       38,413
Income taxes ......................      19,293        7,763       33,013       14,789
                                      ---------    ---------    ---------    ---------
Income Before Extraordinary Loss ..      28,502       12,400       50,142       23,624
Extraordinary loss from early
      extinguishment of debt ......      50,808           --       50,808           --
                                      ---------    ---------    ---------    ---------
Net (Loss)/Income .................     (22,306)      12,400         (666)      23,624
Preferred Stock dividends-Series B        2,981           --        7,506           --

Convertible Preferred Stock
   dividends-Series C .............       2,467           --        2,467           --
Adjustment for the retirement of
      Series B Preferred Stock ....     101,615           --      101,615           --
                                      ---------    ---------    ---------    ---------
Net (Loss)/Income Applicable To
   Common Stockholders ............   $(129,369)   $  12,400    $(112,254)   $  23,624
                                      =========    =========    =========    =========
Earnings per share:
     Basic - (loss)/income before
         extraordinary loss .......   $   (2.03)   $     .32    $   (1.59)   $     .61
     Basic - extraordinary loss ...   $   (1.32)          --    $   (1.32)   $      --
     Basic - net (loss)/income ....   $   (3.35)   $     .32    $   (2.91)   $     .61
     Diluted - (loss)/income before
         extraordinary loss .......   $   (2.03)   $     .31    $   (1.59)   $     .59
     Diluted - extraordinary loss .   $   (1.32)          --    $   (1.32)          --
     Diluted - net (loss)/income ..   $   (3.35)   $     .31    $   (2.91)   $     .59
Shares used to compute earnings
   per share:
Basic .............................      38,570       38,450       38,548       38,450
Diluted ...........................      38,570       39,964       38,548       39,876

</TABLE>
          See accompanying Notes to Consolidated Financial Statements.


<PAGE>


METRIS COMPANIES INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
(In thousands, except per share data) (Unaudited)

<TABLE>
                                                                                      Total
                                 Preferred       Common      Paid-in     Retained   Stockholders'
                                   Stock         Stock       Capital     Earnings     Equity
                                 ----------   ----------  ----------    ---------   ----------
<S>             <C> <C>           <C>          <C>         <C>          <C>          <C>
Balance at December 31, 1997 ..   $      --    $     192   $ 107,059    $  68,787    $ 176,038
     Net Income ...............          --           --          --       23,624       23,624
     Dividends and Other ......          --           --          --         (384)        (384)
                                  ---------    ---------   ---------    ---------    ---------
Balance at June 30, 1998 ......   $            $     192   $ 107,059    $  92,027    $ 199,278
                                  =========    =========   =========    =========    =========


Balance at December 31, 1998 ..   $ 201,100    $     193   $ 107,615    $ 124,074    $ 432,982
     Net Loss .................          --           --          --         (666)        (666)
     Issuance of common stock
         under employee benefit
         plans ................          --           --       1,368           --        1,368
     Dividends and other ......          --           --          --         (548)        (548)
     Retirement of preferred
         stock - Series B .....    (208,606)          --          --     (101,615)    (310,221)

     Issuance of preferred
         stock - Series C .....     312,910           --     122,369           --      435,279
     June 1999 two-for-one
         stock split ..........          --          193        (193)          --           --
     Preferred dividends in
        kind - Series B .......       7,506           --          --       (7,506)          --
     Preferred dividends in
         kind - Series C ......       2,467           --          --       (2,467)          --
                                  ---------    ---------   ---------    ---------    ---------
Balance at June 30, 1999 ......   $ 315,377    $     386   $ 129,544    $ 112,887    $ 558,194
                                  =========    =========   =========    =========    =========
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.


<PAGE>

<TABLE>

METRIS COMPANIES INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands) (Unaudited)
                                                             Six Months Ended
                                                                 June 30,
                                                            1999          1998
                                                       -----------    -----------
Operating Activities:
<S>                                                       <C>            <C>
Net (loss)/income ..................................   $      (666)   $    23,624
Adjustments to reconcile net (loss)/income to net
     cash provided by operating activities:
     Extraordinary loss from early extinguishment of
         debt                                               50,808             --
     Depreciation and amortization .................        38,892         19,093
     Change in allowance for loan losses ...........        81,745         80,074
     Changes in operating assets and liabilities:
         Accrued interest and fees receivable ......        (4,637)          (772)
         Prepaid expenses and deferred charges .....       (18,279)       (18,270)
         Deferred income taxes .....................       (42,139)       (47,531)
         Accounts payable and accrued expenses .....        43,997        (13,832)
         Other receivables due from credit card
                  securitizations, net .............         9,780         (7,904)
         Current income taxes payable ..............       (30,776)        33,986
         Deferred income ...........................        14,428         10,541
         Other .....................................       (20,087)           264
                                                       -----------    -----------
Net cash provided by operating activities ..........       123,066         79,273
                                                       -----------    -----------

Investing Activities:
Proceeds from/repayments of securitized loans ......       746,270        239,550
Net loans originated or collected ..................       (11,331)      (237,714)
Credit card portfolio acquisition ..................    (1,156,673)      (108,164)
Additions to premises and equipment ................        (8,558)        (4,078)
                                                       -----------    -----------
Net cash used in investing activities ..............      (430,292)      (110,406)
                                                       -----------    -----------

Financing Activities:
Net increase in debt ...............................        29,000          6,901
Net increase in deposits ...........................       315,373             --
Cash dividends paid ................................          (551)          (384)
Net increase in equity .............................         1,368             --
                                                       -----------    -----------
Net cash provided by financing activities ..........       345,190          6,517
                                                       -----------    -----------
Net increase (decrease) in cash and cash equivalents        37,964        (24,616)
Cash and cash equivalents at beginning of period ...        37,347         48,223
                                                       -----------    -----------
Cash and cash equivalents at end of period .........   $    75,311    $    23,607
                                                       ===========    ===========
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.


<PAGE>


METRIS COMPANIES INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION

         The consolidated  financial  statements  include the accounts of Metris
Companies  Inc.  ("MCI")  and its  subsidiaries  (collectively,  the  "Company")
including Direct Merchants Credit Card Bank, N.A. ("Direct Merchants Bank"). The
Company is an information-based  direct marketer of consumer credit products and
fee-based services, primarily to moderate-income consumers.

         Prior to  September  1998,  the  Company  was 83%  owned  by  Fingerhut
Companies,  Inc.  ("FCI").  On September 25, 1998, FCI distributed the remaining
shares of the Company to  shareholders  of FCI in a tax free  distribution  (the
"Spin Off").

         All  significant  intercompany  balances  and  transactions  have  been
eliminated in  consolidation.  Certain prior year amounts have been reclassified
to conform with the current year's presentation.

Interim Financial Statements

         The unaudited  interim  consolidated  financial  statements and related
unaudited  financial   information  in  the  footnotes  have  been  prepared  in
accordance  with  generally  accepted  accounting  principles  and the rules and
regulations  of the  Securities  and  Exchange  Commission  ("SEC")  for interim
financial statements.  Such interim financial statements reflect all adjustments
consisting of normal recurring accruals which, in the opinion of management, are
necessary to present fairly the consolidated  financial  position of the Company
and the results of its  operations  and its cash flows for the interim  periods.
These consolidated  financial  statements should be read in conjunction with the
financial  statements  and the notes thereto  contained in the Company's  annual
report on Form 10-K for the fiscal year ended  December 31, 1998.  The nature of
the Company's business is such that the results of any interim period may not be
indicative of the results to be expected for the entire year.

Stock Split

         The Company completed a two-for-one stock split effected in the form of
a 100% stock  dividend  distributed  on June 15,  1999.  All share and per share
information reflects this stock split.

Pervasiveness of Estimates

        The consolidated  financial  statements have been prepared in accordance
with generally accepted accounting principles,  which require management to make
estimates  and  assumptions  that  affect  the  reported  amount of  assets  and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the consolidated financial statements as well as the reported amount of revenues
and expenses  during the  reporting  periods.  Actual  results could differ from
these estimates.




<PAGE>


NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

Securitization,Retained Interests in Loans Securitized and Securitization Income

         The Company  securitizes and sells a significant  portion of its credit
card loans to both public and private  investors through the Metris Master Trust
(the "Trust") and third-party bank sponsored,  multi-seller receivables conduits
(the "Conduits"). The Company retains participating interests in the credit card
loans  under  "Retained  interests  in loans  securitized"  on the  consolidated
balance  sheets.  The  Company's  retained  interests in loans  securitized  are
subordinate  to the interests of investors in the Trust and Conduit  portfolios.
Although the Company  continues to service the securitized  credit card accounts
and  maintains the customer  relationships,  these  transactions  are treated as
sales  for  financial  reporting  purposes  and  the  associated  loans  are not
reflected on the consolidated balance sheets.

         The  sales of  these  loans  have  been  recorded  in  accordance  with
Statement of Financial  Accounting  Standards ("SFAS") No. 125,  "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."
Upon sale, the sold credit card loans are removed from the balance sheet and the
related financial and servicing assets  controlled and liabilities  incurred are
initially  measured at fair value,  if  practicable.  SFAS No. 125 also requires
that servicing assets and other retained  interests in the transferred assets be
measured by allocating the previous  carrying amount between the assets sold, if
any, and retained interests,  if any, based on their relative fair values at the
date of the transfer.

         The  securitization and sale of credit card loans changes the Company's
interest in such loans from lender to servicer,  with a corresponding  change in
how revenue is reported in the statements of income.  For  securitized  and sold
credit card loans,  amounts that otherwise  would have been recorded as interest
income,  interest expense,  fee income and provision for loan losses are instead
reported  in other  operating  income as "Net  securitization  and  credit  card
servicing  income."  The  Company  has  various  receivables  from the  Trust or
Conduits and other  assets as a result of  securitizations,  including:  amounts
deposited  in an investor  reserve  account held by the Trust for the benefit of
the Trust's  security  holders;  amounts due from interest rate caps,  swaps and
floors; accrued interest and fees on the securitized receivables;  servicing fee
receivables; and various other receivables. These amounts are reported as "other
receivables  due from  credit  card  securitizations,  net" on the  consolidated
balance  sheets.  The provision for loan losses  reflected on the  statements of
income in "Net  securitization  and credit  card  servicing  income"  was $123.3
million and $262.9  million for the three and six month  periods  ended June 30,
1999,  respectively,  compared to $108.0 million and $214.0 million for the same
periods of 1998.

         Provisions  for loan losses are made in amounts  necessary  to maintain
the allowance at a level  estimated to be sufficient to absorb  probable  future
losses of principal  and earned  interest,  net of  recoveries,  inherent in the
existing loan portfolio,  effectively  reducing the Company's retained interests
in loans securitized to a fair value presentation.

Statements of Cash Flows

         Cash paid for interest during the six month periods ended June 30, 1999
and 1998, was $10.1 million and $4.8 million, respectively. Cash paid for income
taxes for the same periods was $105.5 million and $20.0 million, respectively.

         The  statement  of cash flows for the six month  period  ended June 30,
1999 reflects the noncash adjustments related to the conversion of the Thomas H.
Lee  investment in Series B Perpetual  Preferred  Stock and Senior Notes and the
cancellation  of  warrants  (see note 5). The  conversion  to Series C Perpetual
Convertible  Preferred Stock resulted in noncash  reductions in debt and accrued
interest of $100 million and $4.3 million,  respectively,  offset by an increase
of  $104.3   million  in  equity.   The   conversion   also   resulted   in  the
reclassification of $30.0 million in unamortized fees related to the structuring
of the initial  investment.  This noncash  reclassification  decreased  both the
amount of prepaid  expenses  and equity  reported  on the  consolidated  balance
sheet.


Earnings Per Share

         The  following  table  presents  the  computation  of basic and diluted
weighted average shares used in the per share calculations:
<TABLE>

                                                   Three Months Ended       Six Months Ended
                                                        June 30,                June 30,
                                                        --------               --------
                                                   1999         1998        1999        1998
                                                   ----         ----        ----        ----
(In thousands, except per share amounts)
<S>                                            <C>          <C>         <C>          <C>
Income before extraordinary items ..........   $  28,502    $  12,400   $  50,142    $  23,624
Preferred dividends - Series B .............       2,981           --       7,506           --
Preferred dividends - Series C .............       2,467           --       2,467           --
Adjustment for the retirement of Series B
     preferred stock .......................     101,615           --     101,615           --
                                               ---------    ---------   ---------    ---------
Net (loss)/income applicable to common
     stockholders before extraordinary items     (78,561)      12,400     (61,446)      23,624
                                               ---------    ---------   ---------    ---------
Extraordinary loss from the early
     extinguishment of debt ................      50,808           --      50,808           --
                                               ---------    ---------   ---------    ---------
Net (loss)/income applicable to common
     stockholders ..........................   $(129,369)   $  12,400   $(112,254)   $  23,624
                                               =========    =========   =========    =========

Weighted average common shares outstanding .      38,570       38,450      38,548       38,450
Adjustments for dilutive securities:
Assumed exercise of outstanding stock
   options(1) ..............................          --        1,514          --        1,426
Assumed conversion of convertible preferred
     stock(1) ..............................          --           --          --           --
                                               ---------    ---------   ---------    ---------
Diluted common shares ......................      38,570       39,964      38,548       39,876
                                               =========    =========   =========    =========
</TABLE>

(1) For the three  month  period  ended June 30,  1999,  there were  options and
convertible  preferred stock outstanding to purchase 2.4 million and 6.2 million
common shares, respectively. For the six month period ended June 30, 1999, there
were options and convertible preferred stock outstanding to purchase 2.0 million
and 3.1 million  common  shares,  respectively.  All of these  potential  common
shares have been excluded  from the  computation  of diluted  earnings per share
because their inclusion would have been anti-dilutive.

Earnings per share:
Basic - (loss)/income before
    extraordinary loss .......   $(2.03)  $ .32  $(1.59)  $ .61
Basic - extraordinary loss ...   $(1.32)     --  $(1.32)  $  --
Basic - net (loss)/income ....   $(3.35)  $ .32  $(2.91)  $ .61
Diluted - (loss)/income before
    extraordinary loss .......   $(2.03)  $ .31  $(1.59)  $ .59
Diluted - extraordinary loss .   $(1.32)     --  $(1.32)     --
Diluted - net (loss)/income ..   $(3.35)  $ .31  $(2.91)  $ .59




<PAGE>


NOTE 3 - ALLOWANCE FOR LOAN LOSSES

         The activity in the allowance for loan losses is as follows:

<TABLE>
                                             Three Months Ended      Six Months Ended
                                                   June 30,              June 30,
                                                   --------              --------
                                               1999      1998       1999       1998
                                               ----      ----       ----       ----
(In thousands)
<S>                                         <C>        <C>        <C>        <C>
Balance at beginning of period ..........   $450,672   $291,102   $393,283   $244,084
Allowance related to assets acquired, net     16,044      1,378     16,044      1,378
Provision for loan losses ...............     15,764     21,390     55,073     41,432
Provision for loan losses (1) ...........    123,347    107,979    262,879    213,972
Loans charged-off .......................    140,225    101,426    268,387    183,090
Recoveries ..............................      9,426      3,734     16,136      6,381
                                            --------   --------   --------   --------
Net loan charge-offs ....................    130,799     97,692    252,251    176,709
                                            --------   --------   --------   --------
Balance at end of period ................   $475,028   $324,157   $475,028   $324,157
                                            ========   ========   ========   ========

(1)Amounts are included in "Net securitization and credit card servicing income."
</TABLE>


NOTE 4 - PORTFOLIO ACQUISITION

              On June 30, 1999, Direct Merchants Bank purchased a portion of the
consumer bank card portfolio of GE Capital  Consumer Card Co., a unit of General
Electric Company.  The acquired credit card portfolio had approximately  485,000
active accounts,  which will convert to the Direct Merchants Bank platform later
in 1999, and  approximately  $1.2 billion in receivables.  Direct Merchants Bank
financed the  acquisition  with a  combination  of proceeds from the sale of the
portfolio's   credit  card  receivables  to  one  or  more  conduits  and  jumbo
certificates of deposit held at Direct Merchants Bank.


NOTE 5 - PRIVATE EQUITY PLACEMENT

On November 13, 1998, the Company entered into agreements with affiliates of the
Thomas H. Lee Company, a private equity firm, (together with its affiliates, the
"Lee Company") to make a total private equity  investment of $300 million in the
Company.  The Lee  Company  agreed to purchase  0.8  million  shares of Series C
Perpetual  Convertible  Preferred  Stock (the "Series C  Preferred"),  which are
convertible  into common shares at a conversion price of $18.63 per common share
subject to adjustment in certain circumstances.  The Series C Preferred has a 9%
dividend  payable  in  additional  shares  of Series C  Preferred  and will also
receive any  dividends  paid on the  Company's  common  stock on an as converted
basis. The cumulative payment-in-kind dividends are effectively guaranteed for a
seven year period.  Assuming  conversion  of the Series C Preferred  into common
stock, the Lee Company would initially own approximately 30% of the Company on a
diluted basis. The Series C Preferred entitles the holders to elect four members
to the Company's  Board of Directors.  The Series C Preferred may be redeemed by
the Company in certain  circumstances  after December 31, 2001 by paying 103% of
the  redemption  price  of  $372.50  and any  accrued  dividends  at the time of
redemption.  The  Company  also has the option to redeem the Series C  Preferred
after December 9, 2008 without  restriction  by paying the  redemption  price of
$372.50  and any  accrued  dividends  at the  time of  redemption.  The  Company
determined  that the  conversion  to the Series C  Preferred  would  result in a
"change in control" in certain of the Company's  agreements with FCI and the New
Credit Facility.  Therefore,  prior to closing the transaction,  the Company was
required to either increase the change in control  ownership  percentage from 30
to 35 or otherwise exempt the Lee Company from the change in control provision.

         In  order  to  provide  the  Company  funding  for  the  PNC  portfolio
acquisition completed in December 1998 as well as for general corporate purposes
prior to  shareholders'  approval  and the  receipt of notice  that there was no
regulatory objection to the transaction, the Lee Company agreed to purchase $200
million in Series B Perpetual  Preferred  Stock (the "Series B  Preferred")  and
$100 million in 12% Senior Notes due 2006 (the "Lee Senior Notes").  The Company
also issued the Lee Company 7.5 million ten-year  warrants to purchase shares of
the   Company's   common  stock  for  $15  subject  to   adjustment  in  certain
circumstances. The Series B Preferred had a 12.5% dividend payable in additional
shares of Series B  Preferred  for ten  years,  then  converting  to a  dividend
payable in cash.

         On March 12, 1999,  shareholders' approved the conversion of the Series
B Preferred and Lee Senior Notes into Series C Preferred. Notice was received on
May 28, 1999,  that there was no regulatory  objection to the  conversion to the
Series C Preferred.  On June 1, 1999,  the Series B Preferred and the Lee Senior
Notes were  extinguished,  and the warrants  were  canceled  causing a one-time,
non-cash  accounting  adjustment.  The  excess of the fair value of the Series C
Preferred  over the carrying  value of the Series B Preferred and the Lee Senior
Notes at the time of the  conversion  was  allocated to the Lee Senior Notes and
the Series B Preferred  based upon their  initial fair values.  To arrive at net
income  applicable to common  stockholders  in the  calculation  of earnings per
share,  the  amount  allocated  to the Lee  Senior  Notes was  recognized  as an
extraordinary loss from the early  extinguishment of debt in the amount of $50.8
million and the amount  allocated to the Series B Preferred was  recognized as a
reduction  of net  income  applicable  to common  stockholders  in the amount of
$101.6 million.  The extraordinary  loss attributable to the Lee Senior Notes is
not recorded  net of taxes.  These  adjustments  did not have an impact on total
stockholders' equity.


NOTE 6 - SEGMENTS

The Company  operates in two  principal  areas:  consumer  credit  products  and
fee-based services. The Company's primary consumer credit products are unsecured
credit cards, including the Direct Merchants Bank MasterCard(R) and Visa(R). The
Company's  credit card accounts  include  customers  obtained from the Fingerhut
Database and other  customers  for whom general  credit  bureau  information  is
available.

         The Company markets its fee-based  services,  including (i) debt waiver
protection for unemployment,  disability,  and death,  (ii) membership  programs
such as card registration,  purchase protection and other club memberships,  and
(iii) third-party insurance, directly to its credit card customers and customers
of third parties.  The Company currently  administers its extended service plans
sold  through  a  third-party  retailer,  and the  customer  pays  the  retailer
directly.  In addition,  the Company develops  customized targeted mailing lists
from  information  contained in the Company's  databases for use by unaffiliated
companies in their own product solicitation efforts that do not directly compete
with those of the Company.

         The segment information reported below is presented on a managed basis.
Management  uses this basis to review segment  performance and to make operating
decisions.  To do so, the income  statement  and balance  sheet are  adjusted to
reverse the effects of  securitizations.  Presentation on a managed basis is not
in conformity with generally  accepted  accounting  principles.  The elimination
column in the segment table includes  adjustments to present the  information on
an owned basis as reported in the financial statements of this quarterly report.

         The  expenses,   assets  and  liabilities   attributable  to  corporate
functions  are  not  allocated  to the  operating  segments,  such  as  employee
compensation, data processing services and communications, third party servicing
expenses, and other expenses including occupancy, depreciation and amortization,
professional fees, and other general and administrative expenses. These expenses
are  included  in the  reconciliation  of the income  before  income  taxes (and
extraordinary  loss) for the reported  segments to the  consolidated  total. The
Company does not  allocate  capital  expenditures  for  leasehold  improvements,
capitalized  software and furniture and equipment to operating  segments.  There
were no operating  assets  located  outside of the United States for the periods
presented.

         The  fee-based  services  operating  segment pays a  commission  to the
consumer  credit  products  segment  for  successful  marketing  efforts  to the
consumer credit products  segment's  cardholders at a rate similar to those paid
to the Company's  other third parties.  The fee-based  services  segment reports
interest  income and the  consumer  credit  products  segment  reports  interest
expense at the Company's  weighted  average  borrowing  rate for the excess cash
flow generated by the fee-based services segment and used by the consumer credit
products segment to fund the growth of cardholder balances.



<PAGE>



                                       Three Months Ended June 30,
                                                 1999
                   Consumer Credit  Fee-Based
                     Products       Services   Reconciliation (a)  Consolidated
(In thousands)
Interest income    $   249,740   $       913      $  (207,117)(b)  $    43,536
Interest expense        71,631            --          (61,570)(c)       10,061
                   -----------   -----------      -----------      -----------
  Net interest
    income .....       178,109           913         (145,547)           33,475

Other income ...        75,802        38,882           22,199           136,883
Total income ...       325,542        39,795         (184,918)          180,419

Income before
  income taxes
  and extra-
  ordinary loss         99,864(d)     23,031 (d)      (75,100)(e)        47,795

Total assets ...   $ 6,443,038   $    82,100      $(5,186,438)(f)   $ 1,338,700


                                       Three Months Ended June 30,
                                                 1998

                   Consumer Credit  Fee-Based
                     Products       Services    Reconciliation(a)  Consolidated
(In thousands)
Interest income    $   171,146   $       739      $  (144,863)(b)   $    27,022
Interest expense        53,353            --          (47,165)(c)         6,188
                   -----------   -----------      -----------       -----------
  Net interest
    income .....       117,793           739          (97,698)           20,834

Other income ...        56,054        26,534          (10,281)           72,307
Total income ...       227,200        27,273         (155,144)           99,329

Income before
  income taxes .        36,851 (d)    20,074(d)       (36,762)(e)        20,163

Total assets ...   $ 3,820,573   $    36,155      $(3,257,230)(f)   $   599,498



<PAGE>



                                       Six Months Ended June 30,
                                                 1999
                   Consumer Credit  Fee-Based
                     Products       Services    Reconciliation(a)   Consolidated
(In thousands)
Interest income    $      506,769  $    1,760     $  (423,130)(b)   $    85,399
Interest expense          141,105          --        (121,669)(c)        19,436
                   --------------  ----------     ------------      ------------
  Net interest
    income .....          365,664       1,760        (301,461)           65,963

Other income ...          157,728      76,418          38,580           272,726
Total income ...          664,497      78,178        (384,550)          358,125

Income before
  income and extra- .
  ordinary loss ...       179,785(d)   43,943(d)     (140,573)(e)        83,155

Total assets ...   $    6,443,038  $   82,100     $(5,186,438)(f)   $ 1,338,700


                                       Six Months Ended June 30,
                                                 1998

                   Consumer Credit  Fee-Based
                      Products      Services    Reconciliation(a)   Consolidated
(In thousands)
Interest income    $   346,005     $     1,357    $  (293,553)(b)   $    53,809
Interest expense       107,795              --        (94,964)(c)        12,831
                   -----------     -----------    -----------       -----------
  Net interest
    income .....       238,210           1,357       (198,589)           40,978

Other income ...       109,084          51,102        (15,383)          144,803
Total income ...       455,089          52,459       (308,936)          198,612

Income before
  income taxes .        76,751(d)       38,431(d)     (76,769)(e)        38,413

Total assets ...   $ 3,820,573     $    36,155    $(3,257,230)(f)   $   599,498


  (a) The reconciliation column includes: intercompany eliminations; amounts not
  allocated to segments;  and  adjustments to the amounts  reported on a managed
  basis to reflect the effects of securitization.

  (b) The  reconciliation  to consolidated  owned interest  revenue includes the
  elimination  of $0.9 million,  $0.7 million,  $1.8 million and $1.4 million of
  intercompany  interest  received by the  fee-based  services  segment from the
  consumer credit products  segment for the three months ended June 30, 1999 and
  1998, and the six months ended June 30, 1999 and 1998, respectively.

  (c) The  reconciliation  to consolidated  owned interest  expense includes the
  elimination of $0.9 million,  $0.7 million,  $1.8 million, and $1.4 million of
  intercompany  interest  paid by the consumer  credit  products  segment to the
  fee-based  services  segment for the three months ended June 30, 1999 and 1998
  and the six months ended June 30, 1999 and 1998, respectively.

  (d) Income before income taxes (and extraordinary loss) includes  intercompany
  commissions  paid by the  fee-based  services  segment to the consumer  credit
  products segment for successful  marketing efforts to consumer credit products
  cardholders of $0.8 million,  $0.2 million,  $1.5 million and $1.1 million for
  the three  months  ended June 30, 1999 and 1998 and the six months  ended June
  30, 1999 and 1998, respectively.

  (e)  The   reconciliation  to  the  owned  income  before  income  taxes  (and
  extraordinary   loss)   includes:   unallocated   costs  related  to  employee
  compensation;  data  processing  and  communications;  third  party  servicing
  expenses;  and other expenses.  The majority of these  expenses,  although not
  allocated for the internal segment reporting used by management, relate to the
  consumer credit products segment.

  (f) Total assets include the assets  attributable  to corporate  functions not
  allocated  to operating  segments  and the removal of  investors  interests in
  securitized loans to present total assets on an owned basis.


NOTE 7 - SUBSEQUENT EVENT

              On July 15,  1999,  the  Company  privately  issued  and sold $150
million of 10.125%  Senior  Notes due 2006 (the  "Senior  Notes due 2006") at an
offering price of 95.8%  pursuant to the 144(a)  exemption of the Securities Act
of 1933,  as  amended.  The net  proceeds  of $139.4  million  will be used for:
repayment of borrowings  under the revolving  credit facility which was incurred
in part to augment the capital of Direct  Merchants  Bank.  The Senior Notes due
2006 are unconditionally guaranteed on a senior basis, jointly and severally, by
Metris  Direct,  Inc.  (the  "Guarantor"),  and all future  subsidiaries  of the
Company that  guarantee  any of the  Company's  indebtedness,  including the New
Credit Facility.  The guarantee is an unsecured  obligation of the Guarantor and
ranks pari passu with all existing and future unsubordinated indebtedness.


NOTE 8 - DEBT

         On June 30,  1998,  the  Company  executed a $200  million,  three-year
revolving  credit  facility  and a $100  million  five-year  term loan (the "New
Credit  Facility") with a syndicate of banks and money market mutual funds. This
agreement  became effective upon the Spin Off from FCI on September 25, 1998. At
June 30, 1999, the Company was in compliance with all financial  covenants under
this  agreement.  At June 30,  1999 and  December  31,  1998,  the  Company  had
outstanding borrowings of $139 million and $110 million, respectively, under the
New Credit  Facility.  The weighted  average interest rates on the borrowings at
June 30, 1999 and December 31, 1998, were 8.0% and 7.9%, respectively.

         Beginning  in the first  quarter  1999,  Direct  Merchants  Bank  began
issuing  jumbo  certificates  of  deposit  ("CDs").  These  CDs  are  issued  in
increments  of $100,000  and are sold  through  third party  registered  deposit
brokers.  As of June 30,  1999,  $311.8  million  of CDs were  outstanding  with
maturities ranging from six months to two years and fixed interest rates ranging
from 4.95% to 5.85%.

         In  November  1997,  the  Company  issued and sold $100  million of 10%
Senior Notes due 2004 (the "Senior Notes"). The Senior Notes are unconditionally
guaranteed on a senior basis, jointly and severally, by Metris Direct, Inc. (the
"Guarantor"),  and all future  subsidiaries of the Company that guarantee any of
the Company's indebtedness,  including the New Credit Facility. The guarantee is
an unsecured  obligation of the Guarantor and ranks pari passu with all existing
and future  unsubordinated  indebtedness.  As part of the Thomas H. Lee  Company
investment,  the  Company  issued  $100  million in Lee Senior  Notes  which are
similar  in all  material  respects  to  the  Senior  Notes.  These  notes  were
extinguished  on June 1, 1999 (see Note 5). The Company  also has  approximately
$0.9 million of debt with local governments to support growth in those areas.

              The  Company  has  various  indirect  subsidiaries  which have not
guaranteed the Senior Notes.  The following  condensed  consolidating  financial
statements  of the  Company,  the  Guarantor  subsidiary  and the  non-guarantor
subsidiaries  are  presented  for  purposes  of  complying  with  SEC  reporting
requirements.  Separate  financial  statements  of Metris  Direct,  Inc. and the
non-guaranteeing   subsidiaries  are  not  presented   because   management  has
determined that the subsidiaries'  financial statements would not be material to
investors.


<PAGE>
<TABLE>


                                                         METRIS COMPANIES INC.
                                               Supplemental Consolidating Balance Sheets
                                                             June 30, 1999
                                                        (Dollars in thousands)
                                                               Unaudited

                                           Metris Companies   Guarantor    Non-Guarantor
                                                  Inc.      Subsidiaries   Subsidiaries   Eliminations   Consolidated
Assets:
<S>                                          <C>            <C>            <C>            <C>            <C>
Cash and cash equivalents ................   $    (2,021)   $       818    $    76,514    $        --    $    75,311
Net retained interests in loans
   securitized ...........................           (23)            --        633,557             --        633,534
Loans held for securitization
                                                     533             --         39,224             --         39,757
Property and equipment, net ..............            --         23,098          4,945             --         28,043
Prepaid expenses and deferred charges                 90         12,501         24,490             --         37,081
Deferred income taxes ....................           840         19,204        175,116             --        195,160
Customer base intangible .................            --             --         94,075             --         94,075
Other receivables due from credit card
   securitizations, net                               12             --        175,354             --        175,366
Other assets .............................         9,554          5,977         44,842             --         60,373
Investment in subsidiaries ...............     1,005,471        997,739             --     (2,003,210)            --
                                             -----------    -----------    -----------    -----------    -----------
Total assets .............................   $ 1,014,456    $ 1,059,337    $ 1,268,117    $(2,003,210)   $ 1,338,700
                                             ===========    ===========    ===========    ===========    ===========
Liabilities:
Deposits .................................   $    (1,000)   $       --     $   316,373    $        --    $   315,373
Debt .....................................       423,789        (13,856)      (170,040)            --        239,893
Accounts payable .........................           592         16,129         35,638             --         52,359
Current income taxes payable..............         4,176        (15,511)        12,342             --          1,007
Deferred income ..........................        26,962         42,402         69,956             --        139,320
Accrued expenses and other liabilities....         1,743         24,702          6,109             --         32,554
                                             -----------    -----------    -----------    -----------    -----------
Total liabilities ........................       456,262         53,866        270,378             --        780,506
Total stockholders' equity ...............       558,194      1,005,471        997,739     (2,003,210)       558,194
                                             -----------    -----------    -----------    -----------    -----------
Total liabilities and stockholders' equity   $ 1,014,456    $ 1,059,337    $ 1,268,117    $(2,003,210)   $ 1,338,700
                                             ===========    ===========    ===========    ===========    ===========
</TABLE>




<PAGE>

<TABLE>


                                                         METRIS COMPANIES INC.
                                               Supplemental Consolidating Balance Sheets
                                                           December 31, 1998
                                                        (Dollars in thousands)
                                                               Unaudited

                                           Metris Companies    Guarantor    Non-Guarantor
                                                  Inc.       Subsidiaries   Subsidiaries   Eliminations   Consolidated
Assets:
<S>                                          <C>            <C>            <C>            <C>            <C>
Cash and cash equivalents .......            $    (5,007)   $      (156)   $    42,510    $        --    $    37,347
Net retained interests in loans
   securitized ..................                    (97)            --        360,283             --        360,186
Loans held for securitization
                                                   1,876             --          1,554             --          3,430
Property and equipment, net .....                     --         18,243          3,739             --         21,982
Prepaid expenses and deferred
   charges ......................                 30,487         17,833         10,784             --         59,104
Deferred income taxes ...........                  1,049         19,427        132,545             --        153,021
Customer base intangible ........                     --             --         81,892             --         81,892
Other receivables due from credit
   card securitizations, net                          --             --        185,935             --        185,935
Other assets ....................                  5,989          6,989         29,844             --         42,822
Investment in subsidiaries ......                756,455        774,986             --     (1,531,441)            --
                                             -----------    -----------    -----------    -----------    -----------
Total assets ....................            $   790,752    $   837,322    $   849,086    $(1,531,441)   $   945,719
                                             ===========    ===========    ===========    ===========    ===========
Liabilities:
Debt ............................            $   317,298    $    15,021    $   (21,423)   $        --    $   310,896
Accounts payable ................                  3,140          3,786         12,165             --         19,091
Current income taxes payable ....                  3,722         (5,692)        33,753             --         31,783
Deferred income .................                 31,753         47,515         45,624             --        124,892
Accrued expenses and other
   liabilities ..................                  1,857         20,237          3,981             --         26,075
                                             -----------    -----------    -----------    -----------     ----------
Total liabilities ...............                357,770         80,867         74,100             --        512,737
Total stockholders' equity ......                432,982        756,455        774,986     (1,531,441)       432,982
                                             -----------    -----------    -----------    -----------    -----------
Total liabilities and
   stockholders' equity .........            $   790,752    $   837,322    $   849,086    $(1,531,441)   $   945,719
                                             ===========    ===========    ===========    ===========    ===========
</TABLE>


<PAGE>

<TABLE>

                                                         METRIS COMPANIES INC.
                                            Supplemental Consolidating Statements of Income
                                                    Three Months Ended June 30, 1999
                                                        (Dollars in thousands)
                                                               Unaudited


                                           Metris Companies    Guarantor    Non-Guarantor
                                                  Inc.       Subsidiaries   Subsidiaries   Eliminations   Consolidated
<S>                                          <C>            <C>              <C>          <C>            <C>
Net Interest Income/(Expense) .........      $    (6,801)   $      (404)     $  40,680      $      --    $    33,475
Provision for loan losses .............             (138)            --         15,902             --         15,764
                                             -----------    -----------      ---------    -----------    -----------
Net Interest Income/(Expense) After
   Provision for Loan Losses ..........           (6,663)          (404)        24,778             --         17,711
                                             -----------    -----------      ---------    -----------    -----------
Other Operating Income:
Net securitization and credit card
   servicing income ...................            1,623            --          72,458             --         74,081
Credit card fees, interchange and other
   income .............................              319            34          23,567             --         23,920
Fee-based services revenues ...........               --        10,628          28,254             --         38,882
                                             -----------    -----------      ---------    -----------    -----------
                                                   1,942        10,662         124,279             --        136,883
                                             -----------    -----------      ---------    -----------    -----------
Other Operating Expense:
Credit card account and other product
   solicitation and marketing expenses                --        8,569           17,797              --        26,366
Employee compensation .................               --       24,904            2,695              --        27,599
Data processing services and
   communications .....................               --        1,758           10,571              --        12,329
Third-party servicing expenses ........               --      (14,713)          18,992              --         4,279
Warranty and debt waiver underwriting
   and claims servicing expenses ......               --          595            3,889              --         4,484
Credit card fraud losses ..............                5           --              845              --           850
Other .................................              848       10,340           19,704              --        30,892
                                             -----------    -----------      ---------    -----------    -----------
                                                     853       31,453           74,493              --       106,799
                                             -----------    -----------      ---------    -----------    -----------
Income/(Loss) Before Income Taxes,
   Extraordinary Loss and Equity in
   Income of Subsidiaries .............           (5,574)     (21,195)          74,564              --        47,795
Income taxes ..........................           (2,284)      (7,800)          29,377              --        19,293
Equity in income of subsidiaries ......           31,792       45,187               --        (76,979)            --
                                             -----------    -----------      ---------    -----------    -----------
Income/(Loss) Before Extraordinary Loss           28,502       31,792           45,187        (76,979)        28,502
Extraordinary loss from the early
   extinguishment of debt .............           50,808           --               --             --         50,808
                                             -----------    -----------      ---------    -----------    -----------
Net (Loss)/Income .....................      $   (22,306)   $  31,792        $  45,187    $   (76,979)   $   (22,306)
                                             ===========    =========        =========    ===========    ===========
</TABLE>




<PAGE>
<TABLE>


                                                         METRIS COMPANIES INC.
                                            Supplemental Consolidating Statements of Income
                                                    Three Months Ended June 30, 1998
                                                        (Dollars in thousands)
                                                               Unaudited

                                           Metris Companies    Guarantor    Non-Guarantor
                                                  Inc.       Subsidiaries   Subsidiaries   Eliminations   Consolidated
<S>                                          <C>            <C>              <C>          <C>            <C>
Net Interest Income/(Expense) .........      $    (6,540)   $     (44)       $  27,418    $        --    $    20,834
Provision for loan losses .............               33           --           21,357             --         21,390
                                             -----------    ---------        ---------    -----------    -----------
Net Interest Income/(Expense) After
   Provision for Loan Losses ..........           (6,573)         (44)           6,061             --           (556)
                                             -----------    ---------        ---------    -----------    -----------
Other Operating Income:
Net securitization and credit card
   servicing income ...................            2,735          (24)          27,337             --         30,048
Credit card fees, interchange and other
   income .............................               44            1           15,680             --         15,725
Fee-based services revenues ...........               --        9,311           17,223             --         26,534
                                             -----------    ---------        ---------    -----------    -----------
                                                   2,779        9,288           60,240             --         72,307
                                             -----------    ---------        ---------    -----------    -----------
Other Operating Expense:
Credit card account and other product
   solicitation and marketing expenses                --        3,797            7,480             --         11,277
Employee compensation .................               --       12,615            1,969             --         14,584
Data processing services and
   communications .....................               --        1,127            6,986             --          8,113
Third-party servicing expenses ........               --      (12,284)          14,771             --          2,487
Warranty and debt waiver underwriting
   and claims servicing expenses ......               --          541            2,004             --          2,545
Credit card fraud losses ..............                6           --              998             --          1,004
Other .................................               80        2,927            8,571             --         11,578
                                             -----------    ---------        ---------    -----------    -----------
                                                      86        8,723           42,779             --         51,588
                                             -----------    ---------        ---------    -----------    -----------
Income/(Loss) Before Income Taxes and
   Equity in Income of Subsidiaries ...           (3,880)         521           23,522             --         20,163
Income taxes ..........................           (1,494)          99            9,158             --          7,763
Equity in income of subsidiaries ......           14,786       14,364               --        (29,150)            --
                                             -----------    ---------        ---------    -----------    -----------
Net Income/(Loss) .....................      $    12,400    $  14,786        $  14,364    $   (29,150)   $    12,400
                                             ===========    =========        =========    ===========    ===========

</TABLE>



<PAGE>
<TABLE>


                                                         METRIS COMPANIES INC.
                                            Supplemental Consolidating Statements of Income
                                                     Six Months Ended June 30, 1999
                                                        (Dollars in thousands)
                                                               Unaudited

                                           Metris Companies    Guarantor    Non-Guarantor
                                                  Inc.       Subsidiaries   Subsidiaries   Eliminations  Consolidated

<S>                                         <C>             <C>              <C>          <C>            <C>
Net Interest Income/(Expense) .........      $ (16,168)     $    (512)       $ 82,643     $        --    $    65,963
Provision for loan losses .............            106             --          54,967              --         55,073
                                                ------         ------          ------        --------         ------
Net Interest Income/(Expense) After
   Provision for Loan Losses ..........        (16,274)          (512)         27,676              --         10,890
                                                ------         ------          ------        --------         ------
Other Operating Income:
Net securitization and credit card
   servicing income ...................          3,415             --         147,664              --        151,079
Credit card fees, interchange and other
   income .............................            541           (102)         44,790              --         45,229
Fee-based services revenues ...........             --         21,722          54,696              --         76,418
                                                ------         ------          ------        --------         ------
                                                 3,956         21,620         247,150              --        272,726
                                                ------         ------          ------        --------         ------
Other Operating Expense:
Credit card account and other product
   solicitation and marketing expenses              --         16,730          32,581              --         49,311
Employee compensation .................             --         45,914           5,003              --         50,917
Data processing services and
   communications .....................             --          3,174          19,437              --         22,611
Third-party servicing expenses ........             --        (30,529)         38,454              --          7,925
Warranty and debt waiver underwriting
   and claims servicing expenses ......             --          1,942           6,522              --          8,464
Credit card fraud losses ..............              8             --           2,105              --          2,113
Other .................................          1,248         19,763          38,109              --         59,120
                                                ------         ------          ------        --------         ------
                                                 1,256         56,994         142,211              --        200,461
                                                ------         ------          ------        --------         ------
Income/(Loss) Before Income Taxes and
   Equity in Income of Subsidiaries ...        (13,574)       (35,886)        132,615              --         83,155
Income taxes ..........................         (5,389)       (13,714)         52,116              --         33,013
Equity in income of subsidiaries ......         58,327         80,499              --        (138,826)            --
                                                ------         ------          ------        --------         ------
Income/(Loss) Before Extraordinary Loss         50,142         58,327          80,499        (138,826)        50,142
Extraordinary loss from the early
   extinguishment of debt .............         50,808             --              --              --         50,808
                                                ------         ------          ------        --------         ------
Net (Loss)/Income .....................     $     (666)     $  58,327        $ 80,499     $  (138,826)   $      (666)
                                            ==========      =========        ========     ===========    ===========

</TABLE>


<PAGE>
<TABLE>


                                                         METRIS COMPANIES INC.
                                            Supplemental Consolidating Statements of Income
                                                    Six Months Ended June 30, 1998
                                                        (Dollars in thousands)
                                                               Unaudited


                                            Metris      Guarantor    Non-Guarantor
                                         Companies Inc. Subsidiaries Subsidiaries Eliminations Consolidated

<S>                                       <C>          <C>             <C>         <C>          <C>
Net Interest Income/(Expense) .........   $  (9,625)   $  (4,418)      $  55,021   $      --    $  40,978
Provision for loan losses .............          83           --          41,349          --       41,432
                                          ---------    ---------       ---------   ---------    ---------
Net Interest Income/(Expense) After
   Provision for Loan Losses ..........      (9,708)      (4,418)         13,672          --         (454)
                                          ---------    ---------       ---------   ---------    ---------
Other Operating Income:
Net securitization and credit card
   servicing income ...................       6,395          (24)         58,584          --       64,955
Credit card fees, interchange and other
   income .............................          89            1          28,656          --       28,746
Fee-based services revenues ...........          --       15,409          35,693          --       51,102
                                          ---------    ---------       ---------   ---------    ---------
                                              6,484       15,386         122,933          --      144,803
                                          ---------    ---------       ---------   ---------    ---------
Other Operating Expense:
Credit card account and other product
   solicitation and marketing expenses           --        7,732          13,695          --       21,427
Employee compensation .................          --       26,191           3,481          --       29,672
Data processing services and
   communications .....................          --        2,487          14,483          --       16,970
Third-party servicing expenses ........        (266)     (23,836)         29,160          --        5,058
Warranty and debt waiver underwriting
   and claims servicing expenses ......          --        1,003           4,417          --        5,420
Credit card fraud losses ..............          18           --           2,302          --        2,320
Other .................................         217        8,643          16,209          --       25,069
                                          ---------    ---------       ---------   ---------    ---------
                                                (31)      22,220          83,747          --      105,936
                                          ---------    ---------       ---------   ---------    ---------
Income/(Loss) Before Income Taxes and
   Equity in Income of Subsidiaries ...      (3,193)     (11,252)         52,858          --       38,413
Income taxes ..........................      (1,230)      (4,550)         20,569          --       14,789
Equity in income of subsidiaries ......      25,587       32,289              --     (57,876)          --
                                          ---------    ---------       ---------   ---------    ---------
Net Income/(Loss) .....................   $  23,624    $  25,587       $  32,289   $ (57,876)   $  23,624
                                          =========    =========       =========   =========    =========

</TABLE>



<PAGE>
<TABLE>


                              METRIS COMPANIES INC.
          Supplemental Condensed Consolidating Statements of Cash Flows
                         Six Months Ended June 30, 1999
                             (Dollars in thousands)
                                    Unaudited

                                                         Metris       Guarantor    Non-Guarantor
                                                      Companies Inc.  Subsidiaries  Subsidiaries   Consolidated
Operating Activities:
<S>                                                   <C>            <C>           <C>              <C>
Net cash provided by (used in) operating activities   $   (13,985)   $   (11,240)  $    148,291     $  123,066
                                                      -----------    -----------   ------------     ----------
Investing Activities:
Proceeds from/repayments of securitized loans
                                                               --             --        746,270        746,270
Net loans originated or collected .................         1,344             --        (12,675)       (11,331)
Credit Card Portfolio Acquisition .................            --                    (1,156,673)    (1,156,673)
Additions to premises and equipment ...............            --         (7,343)        (1,215)        (8,558)
                                                      -----------    -----------   ------------     ----------
Net cash provided by (used in) investing activities
                                                            1,344         (7,343)      (424,293)      (430,292)
                                                      -----------    -----------   ------------     ----------
Financing Activities:
Net increase in deposits ..........................            --             --        315,373        315,373
Net increase (decrease)in debt ....................       205,491        (28,877)      (147,614)        29,000
Cash dividends paid ...............................          (551)          (804)           804           (551)
Net increase in equity ............................      (189,313)        49,238        141,443          1,368
                                                      -----------    -----------   ------------     ----------
Net cash provided by financing activities .........        15,627         19,557        310,006        345,190
                                                      -----------    -----------   ------------     ----------
Net increase in cash and cash equivalents .........         2,986            974         34,004         37,964
Cash and cash equivalents at beginning of
   period .........................................        (5,007)          (156)        42,510         37,347
                                                      -----------    -----------   ------------     ----------

Cash and cash equivalents at end of period ........   $    (2,021)   $       818   $     76,514     $   75,311
                                                      ===========    ===========   ============     ==========
</TABLE>


<TABLE>

                              METRIS COMPANIES INC.
          Supplemental Condensed Consolidating Statements of Cash Flows
                         Six Months Ended June 30, 1998
                             (Dollars in thousands)
                                    Unaudited

                                                         Metris       Guarantor    Non-Guarantor
                                                      Companies Inc. Subsidiaries  Subsidiaries  Consolidated
Operating Activities:
<S>                                                     <C>             <C>           <C>            <C>
Net cash provided by (used in) operating activities    $ 124,403    $  (6,595)      $ (38,535)   $  79,273
                                                       ---------    ---------       ---------    ---------
Investing Activities:
Proceeds from/repayments of securitized loans ......          --           --         239,550      239,550

Net loans originated or collected ..................     (21,007)          --        (216,707)    (237,714)
Credit card portfolio acquisition ..................          --           --        (108,164)    (108,164)
Additions to premises and equipment ................          --       (2,887)         (1,191)      (4,078)
                                                       ---------    ---------       ---------    ---------
Net cash provided by (used in) investing activities      (21,007)      (2,887)        (86,512)    (110,406)
                                                       ---------    ---------       ---------    ---------
Financing Activities:
Net (decrease) increase in debt ....................     (23,368)     (11,341)         41,610        6,901
Cash dividends paid ................................       9,616           --         (10,000)        (384)
Issuance of common stock ...........................          --          (50)             50           --
Net increase in equity .............................     (91,754)      20,371          71,383           --
                                                       ---------    ---------       ---------    ---------
Net cash (used in) provided by financing activities     (105,506)       8,980         103,043        6,517
                                                       ---------    ---------       ---------    ---------
Net (decrease) increase in cash and cash equivalents      (2,110)        (502)        (22,004)     (24,616)
Cash and cash equivalents at beginning of period             337          390          47,496       48,223
                                                       ---------    ---------       ---------    ---------
Cash and cash equivalents at end of period .........   $  (1,773)   $    (112)      $  25,492    $  23,607
                                                       =========    =========       =========    =========

</TABLE>






<PAGE>


ITEM 2.
                     METRIS COMPANIES INC. AND SUBSIDIARIES
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

         The following discussion and analysis provides  information  management
believes to be relevant to understanding the financial  condition and results of
operations of Metris  Companies  Inc. and its  subsidiaries  (collectively,  the
"Company").  This  discussion  should be read in conjunction  with the following
documents  for a full  understanding  of the Company's  financial  condition and
results  of  operations:  Management's  Discussion  and  Analysis  of  Financial
Condition  and Results of  Operations  in the  Company's  1998 Annual  Report to
Shareholders; the Company's Annual Report on Form 10-K for the fiscal year ended
December  31,  1998;  and the Proxy  Statement  for the 1999  Annual  Meeting of
Shareholders.  In addition,  this discussion  should be read in conjunction with
the Company's  Quarterly Report on Form 10-Q for the period ended June 30, 1999,
of which this  commentary is a part,  and the condensed  consolidated  financial
statements and related notes thereto.

Results of Operations

         Income  before  extraordinary  item for the three months ended June 30,
1999, was $28.5 million,  or $.54 per share, up 130% from $12.4 million, or $.31
per share  for the  second  quarter  of 1998.  The  increase  in  income  before
extraordinary item is the result of an increase in net interest income and other
operating  income partially offset by increases in the provision for loan losses
and other operating  expenses.  These increases are largely  attributable to the
growth in average managed loans to $5.2 billion for the second quarter 1999 from
$3.7  billion for the second  quarter  1998,  an increase of 41%,  and growth in
total credit card accounts to 3.4 million at June 30, 1999,  from 2.4 million at
June 30, 1998.

         Income  before  extraordinary  item for the six  months  ended June 30,
1999, was $50.1 million,  or $.98 per share, up 112% from $23.6 million, or $.59
per share for the first six months of 1998.  The  increase  in net income is the
result  of an  increase  in net  interest  income  and  other  operating  income
partially  offset  by  increases  in the  provision  for loan  losses  and other
operating  expenses.  These increases are largely  attributable to the growth in
average  managed  loans to $5.2  billion for the six months ended June 30, 1999,
from $3.7 billion for the same period in 1998,  an increase of 43%. In addition,
credit card  charge  volume was $2.2  billion for the first half of 1999,  a 40%
increase over the same period in 1998.

         Net  income  applicable  to common  stockholders  for the three and six
months ended June 30, 1999 was reduced by the $152.4 million one time, non-cash,
accounting  impact  from the  issuance  of the  Series C  Perpetual  Convertible
Preferred Stock, extinguishing the Series B Preferred, the Lee Senior Notes, and
the ten-year warrants.  This adjustment reduced reported earnings per share to a
loss of $3.35 and a loss of $2.91 for the three and six month periods ended June
30, 1999, respectively.

Managed Loan Portfolio

         The  Company  analyzes  its  financial  performance  on a managed  loan
portfolio  basis. To do so, the income  statement and balance sheet are adjusted
to reverse the effects of securitization.  The Company's discussion of revenues,
where applicable,  and provision for loan losses includes comparisons to amounts
reported in the Company's  consolidated  statements of income ("owned basis") as
well as on a managed basis.

         The Company's  managed loan portfolio is comprised of credit card loans
held  for  securitization,  retained  interests  in  loans  securitized  and the
investors'  share of  securitized  credit card loans.  The  investors'  share of
securitized credit card loans is not an asset of the Company, and therefore,  is
not shown on the Company's  consolidated  balance sheets.  The following  tables
summarize the Company's managed loan portfolio:

<TABLE>

                                                                   June 30,   December 31,   June 30,
                                                                     1999        1998          1998
                                                                     ----        ----          ----
(Dollars in thousands)
Period-end balances
Credit card loans:
<S>                                                             <C>          <C>          <C>
   Loans held for securitization ............................   $   39,757   $    3,430   $   40,539
   Retained interests in loans
       securitized ..........................................    1,108,562      753,469      534,159
   Investors' interests in
       securitized loans ....................................    5,304,338    4,558,143    3,306,267
                                                                ----------   ----------   ----------
Total managed loan portfolio                                    $6,452,657   $5,315,042   $3,880,965
                                                                ==========   ==========   ==========
</TABLE>




<PAGE>
<TABLE>


                                            Three Months Ended        Six Months Ended
                                                 June 30,                 June 30,
                                                 --------                 --------
                                           1999         1998         1999        1998
                                           ----         ----         ----        ----
(Dollars in thousands)
Average balances
Credit card loans:
<S>                                   <C>          <C>          <C>         <C>
   Loans held for securitization ..   $   59,934   $   56,059   $   61,026  $    44,862
   Retained interests in loans
     securitized ....................... 791,704      510,258      776,748      502,097
   Investors' interests in
     securitized loans ............... 4,349,138    3,120,717    4,385,000    3,107,920
                                       ---------    ---------    ---------    ---------

Total managed loan portfolio ......   $5,200,776   $3,687,034   $5,222,774  $ 3,654,879
                                      ==========   ==========   ==========  ===========

</TABLE>




<PAGE>


Impact of Credit Card Securitizations

         The  following  table  provides a summary of the effects of credit card
securitizations on selected line items of the Company's statements of income for
each of the periods presented, as well as selected financial information on both
an owned and managed loan portfolio basis:
<TABLE>

                                              Three Months Ended             Six Months Ended
                                                   June 30,                     June 30,
                                                   --------                     --------
                                             1999            1998            1999           1998
                                             ----            ----            ----           ----
(Dollars in thousands)
Statements of Income
 (owned basis):
<S>                                     <C>             <C>            <C>             <C>
   Net interest income ..............   $    33,475     $    20,834    $    65,963     $    40,978
   Provision for loan losses ........        15,764          21,390         55,073          41,432
   Other operating income ...........       136,883          72,307        272,726         144,803
   Other operating expense ..........       106,799          51,588        200,461         105,936
                                          ---------       ---------      ---------       ---------
   Income before income taxes
         and extraordinary loss .....   $    47,795     $    20,163    $    83,155     $    38,413
                                         ===========     ===========    ===========     ===========
Adjustments for Securitizations:
   Net interest income ..............   $   145,547     $    97,698    $   301,461     $   198,589
   Provision for loan losses ........       123,347         107,979        262,880         213,972
   Other operating income ...........       (22,200)         10,281        (38,581)         15,383
   Other operating expense
                                          ---------       ---------      ---------       ---------
   Income before income taxes
         and extraordinary loss .....   $        --     $        --    $        --     $        --
                                        ===========     ===========    ===========     ===========

Statements of Income (managed basis):
   Net interest income ..............   $   179,022     $   118,532    $   367,424     $   239,567
   Provision for loan losses ........       139,111         129,369        317,953         255,404
   Other operating income ...........       114,683          82,588        234,145         160,186
   Other operating expense ..........       106,799          51,588        200,461         105,936
                                          ---------       ---------      ---------       ---------
   Income before income taxes
         and extraordinary loss .....   $    47,795     $    20,163    $    83,155     $    38,413
                                        ===========     ===========    ===========     ===========

Other Data:
Owned Basis:
Average interest-earning
   assets ...........................   $ 1,067,431     $   614,538    $   978,827     $   604,862
Return on average assets* ...........           9.5%            6.2%           9.0%            6.0%
Return on average totalequity* ......          21.7%           25.9%          20.7%           25.6%
Net interest margin (1) .............          12.6%           13.6%          13.6%           13.7%
Managed Basis:
Average interest-earning
   assets ...........................   $ 5,416,568     $ 3,735,255    $ 5,363,826     $ 3,712,783
Return on average assets* ...........           2.1%            1.3%           1.8%            1.3%
Return on average total equity*......          21.7%           25.9%          20.7%           25.6%
Net interest margin (1) .............          13.3%           12.7%          13.8%           13.0%
</TABLE>

(1) Net interest  margin is equal to annualized  net interest  income divided by
average interest-earning assets

*Before extraordinary item

Risk-Based Pricing

         The  Company  prices  credit  card offers  based on a  prospect's  risk
profile  prior to  solicitation.  The Company  evaluates a prospect to determine
credit needs,  credit risk, and existing credit availability and then develops a
customized offer that includes the most appropriate product,  brand, pricing and
credit line.  After credit card  accounts are opened,  the Company  periodically
monitors  customers'  internal and external credit  performance and periodically
recalculates  behavior,   revenue,   attrition  and  bankruptcy  predictors.  As
customers evolve through the credit life cycle and are regularly  rescored,  the
lending   relationship   can  evolve  to  include  more   competitive  (or  more
restrictive)  pricing and product  configurations.  These analyses  consider the
overall  profitability  of  accounts  using  both  credit  information  and  the
profitability from selling fee-based services to the customers.

Net Interest Income

         Net  interest  income  consists  primarily  of  interest  earned on the
Company's  credit card loans less  interest  expense on  borrowings  to fund the
loans.  Managed net interest  income for the three and six month  periods  ended
June 30, 1999, was $179.0 million and $367.4 million  compared to $118.5 million
and $239.6 million for the same periods in 1998.  These increases were primarily
due to a $1.5 billion and $1.6 billion  increase in average  managed  loans over
the comparable period in 1998.

Managed  net  interest  margin  was  13.3% and 13.8% for the three and six month
periods ended June 30, 1999,  respectively,  compared to 12.7% and 13.0% for the
same periods in 1998.  The second quarter and  year-to-date  periods of 1999 net
interest  margins  were  favorably  impacted by the  targeted  repricing  of the
Company's core portfolio and the repricing of the PNC portfolio. The managed net
interest  margin for the three and six month  periods  ended  June 30,  1999 was
negatively impacted by the flat margin realized on the Company's subsidiary bank
deposit program. In anticipation of the funding  requirements  related to the GE
Capital  portfolio  acquisition,  the  Company  began  issuing  certificates  of
deposits ("CDs") late in the first quarter of 1999. These funds were invested in
federal funds sold until the closing of the GE Capital portfolio  acquisition on
June 30,  1999.  The  interest  rates  earned  on the  federal  funds  sold were
comparable  to the rates paid on the CDs,  reducing the net interest  margin for
the quarter ended June 30, 1999 compared to the previous quarter ended March 31,
1999.  Financing  costs as a percent of  borrowings  for the second  quarter and
year-to-date  periods of 1999 were 5.8% and 5.9%,  respectively,  compared  with
6.2% and 6.3% in the same periods of 1998.



<PAGE>


                  The following  table  provides an analysis of interest  income
and expense,  net interest spread, net interest margin and average balance sheet
data for the three and six month periods ended June 30, 1999 and 1998:

Analysis of Average Balances, Interest and Average Yields and Rates

<TABLE>

                                                          Three Months Ended June 30,
                                                      1999                             1998

                                     Average                  Yield/     Average                    Yield/
                                     Balance      Interest    Rate       Balance        Interest    Rate
(Dollars in thousands)
Owned Basis
Assets:
Interest-earning assets:
<S>                             <C>            <C>            <C>     <C>            <C>            <C>
Federal funds sold ..........   $   177,785    $     2,268     5.1%   $    22,059    $       299     5.4%
Short-term investments ......        38,007            433     4.6%        26,162            348     5.3%
Credit card loans and
 retained interests in loans
 securitized ................       851,639         40,835    19.2%       566,317         26,375    18.7%
                                  ---------        -------    ----      ---------        -------    ----

Total interest-earning assets   $ 1,067,431    $    43,536    16.4%   $   614,538    $    27,022    17.6%

Other assets ................       594,726             --      --        317,483             --      --
Allowances for loan losses ..      (463,476)            --      --       (318,098)            --      --
                                  ---------                              ---------
   Total assets .............   $ 1,198,681             --      --    $   613,924             --      --
                                ===========                           ===========
Liabilities and Equity: .....            --
Interest-bearing liabilities:
Deposits ....................   $   185,447    $     2,562     5.5%   $        --    $        --      --
Debt ........................       316,209          7,499     9.5%       266,396          6,188     9.3%
                                  ---------        -------    ----      ---------        -------    ----
Total interest-bearing
   liabilities ..............   $   501,656    $    10,061     8.0%   $   266,396    $     6,188     9.3%

Other liabilities ...........       169,323             --      --        155,368             --      --
                                  ---------                             ---------
Total liabilities ...........       670,979             --      --        421,764             --      --
Stockholders' equity ........       527,702             --      --        192,160             --      --
                                  ---------                             ---------
Total liabilities and equity    $ 1,198,681             --      --    $   613,924             --      --
                               ===========                           ===========
Net interest income and
   interest margin (1) ......            --    $    33,475    12.6%            --    $    20,834    13.6%
Net interest rate spread (2)             --             --     8.4%            --             --     8.3%

Managed Basis
Credit card loans ...........   $ 5,200,776    $   247,039    19.1%   $ 3,687,034    $   170,499    18.5%
Total interest-earning assets     5,416,568        249,740    18.5%     3,735,255        171,146    18.4%
                                  ---------        -------    ----      ---------        -------    ----
Total interest-bearing
   liabilities ..............     4,850,794         70,718     5.8%     3,387,310         52,614     6.2%
Net interest income and
   interest margin (1) ......            --    $   179,022    13.3%            --    $   118,532    12.7%
Net interest rate spread (2)             --             --    12.7%            --             --    12.2%

</TABLE>

(1) Net interest  margin is computed by dividing  annualized net interest income
by average total  interest-earning  assets.  (2) The net interest rate spread is
the  annualized  yield on average  interest-earning  assets minus the annualized
funding rate on average interest-bearing liabilities.


<PAGE>


<TABLE>



                                                            Six Months Ended June 30,
                                                   1999                                  1998

                                    Average                   Yield/     Average                  Yield/
                                    Balance       Interest     Rate      Balance     Interest      Rate
(Dollars in thousands)
Owned Basis
Assets:
Interest-earning assets:
<S>                               <C>              <C>        <C>      <C>              <C>        <C>
Federal funds sold ..........   $   104,933    $     2,475    4.8%   $    28,847    $       780    5.5%
Short-term investments ......        36,119            812    4.5%        29,056            769    5.3%
Credit card loans and
 retained interests in loans
 securitized ................       837,775         82,112   19.8%       546,959         52,260   19.3%
                                    -------         ------   ----        -------         ------   ----

Total interest-earning assets   $   978,827    $    85,399   17.6%   $   604,862    $    53,809   17.9%

Other assets ................       590,772             --     --        307,991             --     --
Allowances for loan losses ..      (451,796)            --     --       (297,287)            --     --
                                   --------                             --------
   Total assets .............   $ 1,117,803             --     --    $   615,566             --     --
                                ===========                          ===========

Liabilities and Equity:
Interest-bearing liabilities:
Deposits ....................   $    95,860    $     2,624    5.5%   $        --    $        --     --
Debt ........................       300,199         16,812   11.3%       280,862         12,831    9.2%
                                    -------         ------   ----        -------         ------   ----
Total interest-bearing
   liabilities ..............   $   396,059    $    19,436    9.9%   $   280,862    $    12,831    9.2%

Other liabilities ...........       233,803             --     --        148,466             --     --
                                   --------                             --------
Total liabilities ...........       629,862             --     --        429,328             --     --
Stockholders' equity ........       487,941             --     --        186,238             --     --
                                   --------                             --------

Total liabilities and equity    $ 1,117,803             --     --    $   615,566             --     --
                                ===========                          ===========
Net interest income and
   interest margin (1) ......            --    $    65,963   13.6%            --    $    40,978   13.7%
Net interest rate spread (2)             --             --    7.7%            --             --    8.7%

Managed Basis
Credit card loans ...........   $ 5,222,774    $   503,482   19.4%   $ 3,654,879    $   344,456   19.0%
Total interest-earning assets     5,363,826        506,769   19.1%     3,712,783        346,005   18.8%
Total interest-bearing
   liabilities ..............     4,781,058        139,345    5.9%     3,389,031        106,438    6.3%

Net interest income and
   interest margin (1) ......            --    $   367,424   13.8%            --    $   239,567   13.0%
Net interest rate spread (2)             --             --   13.2%            --             --   12.5%
</TABLE>

(1) Net interest  margin is computed by dividing  annualized net interest income
by average total  interest-earning  assets.
(2) The net interest rate spread is the  annualized  yield on average  interest-
earning  assets minus the annualized funding rate on average interest-bearing
liabilities.




<PAGE>


Other Operating Income

         Other  operating  income  contributes  substantially  to the  Company's
results of operations,  representing 76% of owned revenues for the three and six
month periods ended June 30, 1999. The following  table presents other operating
income on an owned basis:

                                       Three Months Ended     Six Months Ended
                                            June 30,              June 30,
(Dollars in thousands)                 1999       1998      1999       1998
                                       ----       ----      ----       ----
Other Operating Income:
Net securitization and credit
 card servicing income ..........   $ 74,081   $ 30,048   $151,079   $ 64,955
Credit card fees, interchange and
 other income ...................     23,920     15,725     45,229     28,746
Fee-based services revenues .....     38,882     26,534     76,418     51,102
                                    --------   --------   --------   --------
   Total ........................   $136,883   $ 72,307   $272,726   $144,803
                                    ========   ========   ========   ========

         Other operating  income  increased $64.6 million and $127.9 million for
the three and six month periods ended June 30, 1999, over the comparable periods
in 1998.  These  increases  are  primarily  due to the $44.0  million  and $86.1
million  increases in income generated from net  securitization  and credit card
servicing  income as a result of the increases in average  managed loans and the
repricing of fees in the managed credit card loan  portfolio.  For the three and
six month periods ended June 30, 1999,  credit card fees,  interchange and other
income  increased $8.2 million and $16.5 million over the comparable  periods in
1998.  These  increases  were  primarily due to the growth in total accounts and
loans in the managed credit card  portfolio,  and an increase in the credit card
fee structure which occurred in the fourth quarter of 1998.

         Additionally,  fee-based  services revenues  increased by $12.3 million
and $25.3 million for the three and six month periods ended June 30, 1999. These
increases are  attributed to the Company's debt waiver product and the increases
in membership program revenues  resulting from increases in covered  receivables
on debt waiver and more account penetration for membership programs.


Other Operating Expense
                                        Three Months Ended     Six Months Ended
                                             June 30,              June 30,
(Dollars in thousands)                   1999       1998       1999       1998
                                         ----       ----       ----       ----
Other Operating Expense:
Credit card account and other
 product solicitation and
 marketing expenses ..........        $ 26,366   $ 11,277   $ 49,311   $ 21,427
Employee compensation ........          27,599     14,584     50,917     29,672
Data processing services and
   communications ............          12,329      8,113     22,611     16,970
Third-party servicing expenses           4,279      2,487      7,925      5,058
Warranty and debt waiver underwriting
   and claims servicing expenses         4,484      2,545      8,464      5,420
Credit card fraud losses .....             850      1,004      2,113      2,320
Other ........................          30,892     11,578     59,120     25,069
                                      --------   --------   --------   --------
   Total .....................        $106,799   $ 51,588   $200,461   $105,936
                                      ========   ========   ========   ========


         Total  other  operating  expenses  for the three and six month  periods
ended  June  30,  1999  increased  $55.2  million  and  $94.5  million  over the
comparable  periods in 1998,  largely due to costs associated with the growth of
the Company's business activities. Employee compensation increased $13.0 million
and $21.2 million,  respectively, for the three and six month periods ended June
30, 1999, due to increased staffing needs to support the increase in credit card
accounts and fee-based  services active member growth.  Other expenses increased
$19.3  million and $34.1  million for the three and six month periods ended June
30, 1999 due to increased customer base intangible  amortization  resulting from
the addition of the PNC portfolio  and increases in general  expenses to support
the growth in credit card and fee-based  services  accounts.  Also,  credit card
account and other product  solicitation and marketing  expenses  increased $15.1
million,  and $27.9 million over the comparable  periods in 1998, largely due to
the increase in fee-based  marketing  activity and testing and implementation of
other new marketing programs during the first half of 1999.

Income Taxes

         The  Company's  provision  for income taxes  includes  both federal and
state income  taxes.  Applicable  income tax expense was $19.3 million and $33.0
million for the three and six month periods ended June 30, 1999 compared to $7.8
million  and  $14.8  million  for the same  periods  in 1998.  This tax  expense
represents  an effective  tax rate of 39.7% and 38.5% for the six month  periods
ended June 30, 1999 and 1998, respectively.

Asset Quality

         The Company's delinquency and net loan charge-off rates at any point in
time reflect,  among other factors, the credit risk of loans, the average age of
the  Company's  various  credit  card  account  portfolios,  the  success of the
Company's collection and recovery efforts, and general economic conditions.  The
average age of the  Company's  credit card  portfolio  affects the  stability of
delinquency and loss rates of the portfolio.  The Company continues to focus its
resources on refining its credit underwriting standards for new accounts, and on
collections and post charge-off recovery efforts to minimize net losses. At June
30, 1999,  63% of managed  accounts  and 58% of managed  loans were less than 36
months old.  Accordingly,  the Company  believes  that its loan  portfolio  will
experience  fluctuating levels of delinquency and loan losses as the average age
of the Company's accounts increases.

         This trend is reflected in the change in the Company's  net  charge-off
ratio. For the quarter ended June 30, 1999, the Company's managed net charge-off
ratio was 10.1%  compared to 10.6% for the quarter ended June 30, 1998.  For the
six months ended June 30, 1999,  the net charge off rate stood at 9.7%  compared
to 9.7% for the six months ended June 30,  1998.  Without the impact of purchase
accounting related to acquired  portfolios,  the charge-off rate would have been
10.8%  and  10.8% for the three  and six  month  periods  ended  June 30,  1999,
respectively  compared  to 11.0%  and 10.7% for the same  periods  of 1998.  The
Company  believes,  consistent  with its  statistical  models  and other  credit
analysis, that this rate will continue to fluctuate over the next year.

         The Company's strategy for managing loan losses consists of credit line
management and customer purchase authorizations. Loan losses are further managed
through the offering of credit lines which are generally lower than is currently
standard in the industry. Individual accounts and their related credit lines are
also continually  managed using various  marketing,  credit and other management
processes in order to continue to maximize the profitability of accounts.

Delinquencies

         Delinquencies  not only have the  potential  to affect  earnings in the
form of net loan losses, but are also costly in terms of the personnel and other
resources  dedicated to their resolution.  Delinquency levels are monitored on a
managed  basis,  since  delinquency on either an owned or managed basis subjects
the Company to credit loss  exposure.  A credit  card  account is  contractually
delinquent if the minimum  payment is not received by the specified  date on the
cardholder's  statement.  It is the  Company's  policy  to  continue  to  accrue
interest  and  fee  income  on all  credit  card  accounts,  except  in  limited
circumstances,  until the account and all related loans, interest and other fees
are charged off. The  following  table  presents the  delinquency  trends of the
Company's credit card loan portfolio on a managed portfolio basis:


Managed Loan Delinquency
<TABLE>
                                   June 30,    % of     December 31,   % of     June 30,   % of
                                     1999      Total       1998       Total      1998     Total

(Dollars in thousands)
<S>                               <C>          <C>      <C>            <C>    <C>          <C>
Managed loan portfolio ........   $6,452,657   100.0%   $5,315,042     100%   $3,880,965   100.0%
Loans contractually delinquent:
     30 to 59 days ............      118,760     1.9%      113,449     2.1%       89,583     2.3%
     60 to 89 days ............       85,426     1.3%       75,049     1.4%       64,684     1.7%
     90 or more days ..........      201,168     3.1%      173,812     3.3%      134,346     3.4%
                                  ----------   -----    ----------   -----    ----------   -----
       Total ..................   $  405,354     6.3%   $  362,310     6.8%   $  288,613     7.4%
                                  ==========   =====    ==========   =====    ==========   =====
</TABLE>

         The above  numbers  reflect the  continued  seasoning of the  Company's
managed loan  portfolio.  Without the impact of purchase  accounting  related to
acquired  portfolio's,  delinquency  rates would have been 7.6%,  7.4% and 7.6%,
respectively.  The Company  intends to continue  to focus its  resources  on its
collection  efforts to  minimize  the  negative  impact to net loan  losses that
results from increased delinquency levels.

Net Charge-Offs

         Net charge-offs include the principal amount of losses from cardholders
unwilling or unable to pay their loan balances, as well as bankrupt and deceased
cardholders,  less current period  recoveries.  Net charge-offs  exclude finance
charges and fees,  which are charged  against the related  income at the time of
charge-off.  The following  table presents the Company's net charge-offs for the
periods indicated as reported in the consolidated  financial statements and on a
managed portfolio basis:
<TABLE>

                                                    Three Months Ended          Six Months Ended
                                                         June 30,                  June 30,
                                                         --------                  --------
                                                   1999          1998          1999         1998
                                                   ----          ----          ----         ----
(Dollars in thousands)
Owned basis:
<S>                                            <C>           <C>           <C>           <C>
     Average loans and retained interests in
     loans securitized outstanding .........   $  851,638    $  566,317    $  837,774    $  546,959
     Net charge-offs .......................       21,646        15,047        40,540        25,662
     Net charge-offs as a percentage
        of average loans outstanding (1) ...         10.2%         10.7%          9.8%          9.5%
                                               ==========    ==========    ==========    ==========

Managed basis:
     Average loans outstanding .............   $5,200,776    $3,687,034    $5,222,774    $3,654,879
     Net charge-offs .......................      130,799        97,692       252,251       176,709
     Net charge-offs as a percentage of
        average loans outstanding(1) .......         10.1%         10.6%          9.7%          9.7%
                                               ==========    ==========    ==========    ==========
</TABLE>

(1)      Annualized

Provision and Allowance for Loan Losses

         The allowance for loan losses is maintained for the retained  interests
in loans  securitized.  For securitized  loans,  anticipated  losses and related
provisions   for  loan  losses  are  reflected  in  the   calculations   of  net
securitization and credit card servicing income.  Provisions for loan losses are
made in amounts  necessary to maintain the allowance at a level  estimated to be
sufficient to absorb  probable  future losses of principal and earned  interest,
net of recoveries, inherent in the existing loan portfolio.

         The  provision for loan losses on a managed basis for the three and six
month periods  ended June 30, 1999 totaled  $139.1  million and $318.0  million,
respectively,  compared to a provision of $129.4  million and $255.4 million for
the three and six month periods ended June 30, 1998. The increases for the three
and six month  periods  ended June 30,  1999,  as  compared to the three and six
month  periods  ended June 30,  1998,  is  primarily  reflective  of the overall
maturation of the portfolio and the increase in delinquent  loans. The following
table  presents the change in the Company's  allowance for loan losses and other
ratios for the periods presented:

Analysis of Allowance for Loan Losses
<TABLE>

                                              Three Months Ended         Six Months Ended
                                                   June 30,                   June 30,
                                                   --------                   --------
                                               1999        1998        1999       1998
                                               ----        ----        ----       ----
(Dollars in thousands)
Managed Basis:
<S>                                         <C>         <C>         <C>         <C>
Balance at beginning of period ..........   $450,672    $291,102    $393,283    $244,084
Allowance related to assets acquired, net     16,044       1,378      16,044       1,378
Provision for loan losses ...............    139,111     129,369     317,952     255,404
Loans charged-off .......................    140,225     101,426     268,387     183,090
Recoveries ..............................      9,426       3,734      16,136       6,381
                                            --------    --------    --------    --------
Net loan charge-offs ....................    130,799      97,692     252,251     176,709
                                            --------    --------    --------    --------
Balance at end of period ................   $475,028    $324,157    $475,028    $324,157
                                            ========    ========    ========    ========

Ending allowance as a percent of loans ..        7.4%        8.4%        7.4%        8.4%
                                            ========    ========    ========    ========
</TABLE>


Derivatives Activities

         The Company uses  derivative  financial  instruments for the purpose of
managing its exposure to interest  rate risks and has a number of  procedures in
place to monitor and control both market and credit risk from these  derivatives
activities. All derivatives strategies and transactions are managed by a special
management  committee  which  must  make  quarterly  reports  to  the  Board  of
Directors.

         Prior to the  spin  off  from  Fingerhut  Companies,  Inc.  ("FCI")  on
September 25, 1998 ("Spin Off"),  the Company had entered into interest rate cap
and swap  agreements to hedge the cash flow and earnings  impact of  fluctuating
market interest rates on the spread between the floating rate loans owned by the
Metris  Master Trust (the  "Trust")  and the floating and fixed rate  securities
issued by the Trust to fund the loans.  In connection  with the issuance of term
asset-backed securities by the Trust, the Company has entered into term interest
rate cap agreements with highly-rated  bank  counterparties in the same notional
amount of issuance  effectively  capping the potentially  negative impact to the
Trust  of  increases  in  the  floating  interest  rate  of  the  securities  at
approximately  9.2%. Due to the Spin Off, the Company  terminated  interest rate
swap  agreements  guaranteed  by FCI  related  to two trust  series  fixed  rate
asset-backed  securities issuances.  Proceeds were utilized to purchase interest
rate floor contracts from  highly-rated  counterparties  which did not require a
FCI guaranty.  The floors were in the same notional amounts, fixed interest rate
strike  rates,  and  maturities  as the  previous  swaps in  order to hedge  the
potential  impact  on the  Company's  cash  flow and  earnings  of a low  market
interest rate  environment in which the yield on the Trust's floating rate loans
might decline causing the margin over the fixed rate funding to compress. During
October 1998, the Company  terminated the interest rate floors related to one of
the Trust Series.  The gain on this  termination is being  amortized into income
over the remaining  life of the  securities.  The Company also entered into term
interest  rate  cap  agreements  in  connection  with  portfolio   acquisitions,
effectively  capping the  potentially  negative  impact of  increases  in market
interest rates.


Liquidity, Funding and Capital Resources

         The  Company  finances  the  growth of its credit  card loan  portfolio
through cash flow from operations,  asset securitization,  bank loans, long-term
debt issuance, subsidiary bank deposits, and equity issuance.

         Through June 30, 1999 and 1998, the Company had received cumulative net
proceeds of approximately $5.3 billion and $3.3 billion, respectively from sales
of credit  card  loans to the Trust and  Conduits.  Cash  generated  from  these
transactions  was  used to  reduce  borrowings  and to  fund  credit  card  loan
portfolio growth.  The Company relies upon the securitization of its credit card
loans to fund  portfolio  growth  and,  to date,  has  completed  securitization
transactions on terms that it believes are  satisfactory.  The Company's ability
to securitize  its assets  depends on the favorable  investor  demand and legal,
regulatory  and  tax  conditions  for  securitization  transactions,  as well as
continued  favorable  performance  of the  Company's  securitized  portfolio  of
receivables.  Any  adverse  change  could  force  the  Company  to rely on other
potentially  more  expensive  funding  sources and, in the worst case  scenario,
could create liquidity risks if other funding is unavailable.

         On June 30,  1998,  the  Company  executed a $200  million,  three-year
revolving  credit  facility  and a $100  million  five-year  term loan (the "New
Credit  Facility") with a syndicate of banks and money market mutual funds. This
agreement became effective upon the Spin Off from FCI on September 25, 1998. The
New Credit Facility, which is not guaranteed by FCI, replaced the Company's $300
million,  five-year  revolving credit facility (the "Old Credit Facility").  The
New Credit  Facility is secured by  receivables  and general  intangibles of the
Company and Metris Direct,  Inc. and all subsidiary  stock other than non-United
States  organized  corporations  and  guaranteed by Metris  Direct,  Inc.  Other
subsidiaries  may in the  future  guarantee  this  credit  agreement.  Financial
covenants  in  the  New  Credit  Facility  include,  but  are  not  limited  to,
requirements  concerning  minimum net worth,  minimum  tangible net worth to net
managed   receivables  and  tangible  net  worth  plus  reserves  to  delinquent
receivables.  At June 30, 1999, the Company was in compliance with all financial
covenants  under this  agreement.  At June 30, 1999 and December  31, 1998,  the
Company  had   outstanding   borrowings   of  $139  million  and  $110  million,
respectively, under the New Credit Facility. As a result of the Spin Off and the
removal of the FCI  guarantee,  the  Company  is no longer  able to borrow at an
investment grade rate. The interest rate under the New Credit Facility is higher
than the interest rate under the Old Credit  Facility due to the Company's lower
independent credit rating.

         Beginning in the first  quarter of 1999,  Direct  Merchants  Bank began
issuing  jumbo  certificates  of  deposit  ("CDs").  These  CDs  are  issued  in
increments  of $100,000  and are sold  through  third party  registered  deposit
brokers.  As of June 30,  1999,  $311.8  million  of CDs were  outstanding  with
maturities ranging from six months to two years and fixed interest rates ranging
from 4.95% to 5.85%.

         In addition to asset  securitizations  and bank loans, the Company uses
long term debt and  equity  to fund  continued  credit  card  growth.  While the
Company  planned to issue common  equity shares in a public  offering  after the
Spin Off during the fourth  quarter of 1998,  volatility in the stock market and
in the Company's  stock price caused the Company to seek  alternatives to public
issuance through either private issuance of equity or public or private issuance
of  equity-like  securities.  On November  13,  1998,  after a review of several
alternatives and discussions  with several  advisors and investors,  the Company
entered into agreements with affiliates of the Thomas H. Lee Company,  (the "Lee
Company") to purchase  $200 million in Series B Perpetual  Preferred  Stock (the
"Series B  Preferred")  and $100  million in 12% Senior Notes due 2006 (the "Lee
Senior  Notes").  The Company  also issued the Lee Company 7.5 million  ten-year
warrants to purchase  shares of the Company's  common stock for $15,  subject to
adjustment in certain circumstances. The Series B Preferred had a 12.5% dividend
payable  in  additional  shares  of  Series  B  Preferred  for ten  years,  then
converting  to payable in cash.  The proceeds  from the issuance of the Series B
Preferred  and  the Lee  Senior  Notes  were  used  to  fund  the PNC  portfolio
acquisition and for general corporate purposes.

         On March 12, 1999,  shareholders  approved  conversion  of the Series B
Preferred  and Lee Senior  Notes into Series C Perpetual  Convertible  Preferred
stock (the "Series C Preferred"). On May 28, 1999 notice was received that there
was no regulatory objection to the conversion to the Series C Preferred, and the
Series B  Preferred  and the Lee Senior  Notes were  converted  into 0.8 million
shares of Series C Preferred  at a  conversion  price of $18.63 and the warrants
were  canceled.  The Series C Preferred has a 9% dividend  payable in additional
shares of Series C Preferred  and will also  receive any  dividends  paid on the
Company's common stock on an as converted basis. The cumulative  payment-in-kind
dividends  are  effectively   guaranteed  for  a  seven-year  period.   Assuming
conversion  of the Series C  Preferred  into  common  stock had  occurred in the
second  quarter of 1999, the Lee Company would have owned  approximately  30% of
the Company on a diluted basis.

         Converting  to the  Series  C  Preferred  caused a  one-time,  non-cash
accounting  adjustment for retiring the Series B Preferred and Lee Senior Notes.
The excess of the fair value of the Series C Preferred  over the carrying  value
of the Series B Preferred and the Lee Senior Notes at the time of the conversion
was  allocated  to the Lee Senior  Notes and the Series B Preferred  Stock based
upon their  initial  fair  values.  To arrive at net income  available to common
stockholders  in the  calculation  of  earnings  per  share,  the $50.8  million
allocated to the Lee Senior Notes was recognized as an  extraordinary  loss from
the early  extinguishment of debt and the $101.6 million allocated to the Series
B Preferred  was  recognized  as a reduction of net income  applicable to common
stockholders.  The  extraordinary  loss attributable to the Lee Senior Notes was
not  recorded  net  of  taxes.   These   adjustments  had  no  impact  on  total
stockholders' equity.

              On July 15,  1999,  the  Company  privately  issued  and sold $150
million of 10.125%  Senior  Notes (the  "Senior  Notes") due 2006 at an offering
price of 95.8%  pursuant to the 144(a)  exemption of the Securities Act of 1933,
as amended.  The net proceeds of $139.4 million will be used to repay borrowings
under the revolving credit  facility,  which was incurred in part to augment the
capital of Direct Merchants Bank. The Senior Notes due 2006 are  unconditionally
guaranteed on a senior basis, jointly and severally, by Metris Direct, Inc. (the
"Guarantor"),  and all future  subsidiaries of the Company that guarantee any of
the Company's indebtedness,  including the New Credit Facility. The guarantee is
an unsecured  obligation of the Guarantor and ranks pari passu with all existing
and future unsubordinated indebtedness.

         As the  portfolio  of  credit  card  loans  grows,  or as the Trust and
Conduit certificates amortize or are otherwise paid, the Company's funding needs
will  increase  accordingly.  The  Company  believes  that  its cash  flow  from
operations,   asset  securitization  programs,  together  with  the  New  Credit
Facility,  long term debt issuance,  subsidiary  bank deposit program and equity
issuance, will provide adequate liquidity to the Company for meeting anticipated
cash needs, although no assurance can be given to that effect.




<PAGE>


Newly Issued Pronouncements

         In June 1998, the Financial  Accounting Standards Board ("FASB") issued
Statement of Financial  Accounting  Standards ("SFAS") No. 133,  "Accounting for
Derivative Instruments and Hedging Activities," which establishes accounting and
reporting  standards for  derivative  instruments.  It requires  enterprises  to
recognize all  derivatives  as either assets or  liabilities in the statement of
financial  position  and to  measure  those  instruments  at  fair  value.  This
statement is effective for all fiscal  quarters of fiscal years  beginning after
June 15, 2000.  The Company is evaluating  the financial  impact the adoption of
this statement will have on in its financial statements.

Year 2000

         The "Year 2000  Problem"  is a result of  software  systems or hardware
systems utilizing two digits instead of four digits to define the year. Software
or hardware with only two digit  capacity may interpret the year 00 as 1900 when
calculating age, the length of a phone call, the financing period for a loan, or
the  expiration  of a credit card.  The problem is not limited to computers  and
computer  software.  Anything  that  contains a processor  which  utilizes  date
information  needs to be assessed to insure it will work  correctly  in the Year
2000 (i.e.  heating/cooling systems,  telephones,  elevators, alarm systems, and
vaults with time locks).  Vendors must be evaluated to ensure their  compliance;
otherwise  materials  essential  to business  operation  may not be delivered on
time.

         The  Company,  like  all  database  marketing  and  financial  services
companies,  depends  heavily  upon  computer  systems  for  all  phases  of  its
operations.  The Company processes data through its own systems and obtains data
and  processing  services from various  vendors.  The Company,  therefore,  must
concern  itself not only with its own systems,  but also with the status of Year
2000  compliance of vendors which  provide data and  processing  services to the
Company.

         Most of the Company's existing  information systems are less than three
years  old and were  originally  designed  for Year  2000  compliance,  but as a
cautionary measure,  the Company has been testing such internal systems for Year
2000 compliance. The Company has a Year 2000 project team to identify,  address,
and  monitor  internal   computer   systems;   environmental   systems  such  as
heating/cooling systems, telephones, and elevators; and vendor issues related to
Year 2000 issues. The Company believes that it has adequate resources to achieve
Year 2000 compliance for its systems, which currently may be compliant,  and the
evaluation of vendors.

         The phases  described  below are used in managing the Year 2000 project
for the  Company.  These  phases  are  consistent  with the OCC and the  Federal
Financial  Institutions  Examination  Council (the "FFIEC")  recommendations for
project organization:

         The Awareness Phase was completed in October 1997.  The goal was to
define the Year 2000 problem and gain executive level support.

         The  Assessment  Phase was  completed  in March  1998.  The goal was to
complete  an  inventory  of  possible  Year  2000  exposure  points  to  gain an
understanding of the size and complexity of the issue.

         The  Renovation  Phase was completed in June 1999 for mission  critical
applications; however, this phase of the project cannot be considered successful
and complete  until the systems have been tested and they have  experienced  the
century and the leap year transitions and any problems have been addressed.  The
goal of this phase is code enhancement,  hardware and software upgrades,  system
replacements, vendor certification and other associated changes.

         The  Validation  and  Implementation  Phase  began in April 1998 with a
targeted  completion of mission critical  applications by September 1999. Again,
this phase of the project cannot be considered successful and complete until the
systems  have  experienced  the  century and the leap year  transitions  and any
problems have been addressed.  The goal of this phase is  validation/testing  of
items to ensure Year 2000 compliance,  implementation of renovated systems,  and
certification of Year 2000 compliance by business users.

         The following  milestones  are a part of the Company's  plan to achieve
Year 2000 compliance.

 ------------------------- -----------------------------------------------------
 September 30, 1998        Completed development of a proactive customer
                           awareness program
 ------------------------- -----------------------------------------------------
 ------------------------- -----------------------------------------------------
 September 30, 1998        Completed organization planning guidelines and
                           business impact analysis for Year 2000
                           Business Resumption Contingency Planning
 ------------------------- -----------------------------------------------------
 ------------------------- -----------------------------------------------------
 December 31, 1998         Contingency planning and validation for Year 2000
                           Business Resumption Contingency Planning is underway.
 ------------------------- -----------------------------------------------------
 ------------------------- -----------------------------------------------------
 September 30, 1999        Testing of mission-critical systems and service
                           providers should be complete and implementation
                           should be substantially complete.
 ------------------------- -----------------------------------------------------
 ------------------------- -----------------------------------------------------
 October 31, 1999          Contingency planning and validation for Year 2000
                           Business Resumption Contingency Planning should be
                           complete.
--------------------------------------------------------------------------------

         As of June 1999,  the  project  is on  schedule.  A customer  awareness
program  has  been  implemented;  a  Contingency  Planning  framework  has  been
completed and contingency planning efforts are well underway; testing of mission
critical  systems was underway by December 1998; and testing of Mission Critical
systems is targeted for completion by September 1999.

         The Company is dependent on databases  maintained  by FCI, and card and
statement  generation,  among other  services,  provided by First Data Resources
("FDR"). In addition,  the Company is dependent on MasterCard(R) and Visa(R) for
clearinghouse  activities  associated with credit card use. The project team has
been  working  with  its  identified  material  vendors,   including  FCI,  FDR,
MasterCard, and Visa to determine the status of each vendor's plans for becoming
Year 2000 compliant. The project team is striving to obtain test results showing
Year 2000  compliance  by vendors.  The project  team has  developed  high level
contingency plans to address  non-compliance by its material vendors,  which may
include replacing vendors.

         Although the Company cannot ensure  compliance by all of its vendors on
a timely  basis,  the Company  believes that it is taking  appropriate  steps to
identify exposure to Year 2000 problems and to address them on a timely basis.

         The Company believes that the costs of Year 2000 compliance will not be
material  to  the  Company's   consolidated   financial  position,   results  of
operations, or cash flows.

         The most  reasonably  likely  worst case  scenario  that may impact the
Company's  results of  operations,  financial  condition  and  prospects  is the
failure  of FDR,  VISA(R)and  MasterCard(R) to  provide  services.  The
Company's  cardholders  would be unable to use their  credit  cards or otherwise
access their accounts.  Due to several  unknown  contributing  factors,  and the
scope of the Year 2000 issue,  the impact this worst case scenario would have on
the Company's results of operations,  financial  condition and prospects,  is an
uncertainty.  The  scenarios  will be analyzed and  addressed  in the  Company's
contingency plans.

         The Company views contingency  planning from a remediation and business
resumption  perspective.  Remediation  Contingency Planning refers to mitigating
the risks  associated  with the  failure to  successfully  complete  renovation,
validation,  and implementation of mission critical systems and vendor services.
Year 2000 Business Resumption Contingency Planning is the process of identifying
core  business  processes  and critical  information  systems that support those
processes,  and  developing  plans to enable those  processes to be resumed,  or
alternatives instituted, in the event of a disruption.

         The Company has completed high level Year 2000 Remediation  Contingency
plans for mission  critical  applications  and vendors.  The  contingency  plans
include  identification  of the  product/service  provided,  the current vendor,
other vendors that could  provide the  product/service,  estimated  timeline and
cost to convert  services to another  vendor,  and any business  reasons why the
backup  vendors  could not  provide  the  services.  These  plans  are  reviewed
periodically for accuracy.

         The Company has completed a framework  that is used in developing  Year
2000 Business  Resumption  Contingency plans and has begun to document plans for
core business processes. Completion of these plans is targeted for October 1999.

Forward-Looking Statements

         This  quarterly  report  contains  some   forward-looking   statements.
Forward-looking  statements give our current  expectations of future events. You
will  recognize  these  statements  because  they  do  not  strictly  relate  to
historical or current facts. Such statements may use words such as "anticipate,"
"estimate,"  "expect,"  "project," "intend," "think," "believe," and other words
or terms  of  similar  meaning  in  connection  with any  discussion  of  future
performance of the Company.  For example,  these include statements  relating to
future  actions,   future  performance  of  current  or  anticipated   products,
solicitation efforts, expenses, the outcome of contingencies such as litigation,
and the impact of the capital  markets on liquidity.  From time to time, we also
may  provide  oral or  written  forward-looking  statements  in  other  material
released to the public.

         Any or all of our forward-looking  statements in this report and in any
other public  statements we make may turn out to be wrong.  They can be affected
by inaccurate  assumptions or by known or unknown risks and uncertainties.  Many
factors,  which  can not be  predicted  with  certainty,  will be  important  in
determining  future  results.  Among  such  factors  are the  Company's  limited
operating history as a stand alone entity, its limited experience in originating
and  servicing  credit card  accounts,  the lack of seasoning of its credit card
accounts which renders  predictability of delinquencies  more difficult,  higher
default and bankruptcy rates of the Company's  target market of  moderate-income
consumers,  interest rate risks,  risks  associated  with  acquired  portfolios,
dependence  on  the   securitization   markets,   state  and  federal  laws  and
regulations, and general economic conditions that can have a major impact on the
performance of loans.  In addition,  like all  companies,  the Company must deal
with the uncertainty  surrounding  the effect of the Year 2000 problem.  Each of
these   factors  and  others  are  more  fully   discussed   under  the  caption
"Business--Risk  Factors"  contained in the Company's Annual Report on Form 10-K
for the year  ended  December  31,  1998.  As a  result  of  these  factors,  no
forward-looking  statements  can be  guaranteed.  Actual future results may vary
materially.  Also,  please  note that the  factors we provide are those we think
could cause our actual results to differ materially from expected and historical
results.  Other factors  besides those listed here or in the Company's  10-K for
the year ended December 31, 1998, could also adversely affect the Company.

         We  undertake no  obligations  to publicly  update any  forward-looking
statements, whether as a result of new information,  future events or otherwise.
You are advised,  however,  to consult any further disclosure we make on related
subjects in our periodic  filings with the Securities  and Exchange  Commission.
This  discussion  is provided  to you as  permitted  by the  Private  Securities
Litigation Reform Act of 1995.


ITEM 3.           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Market risk is the risk of loss from adverse  changes in market  prices
and rates.  The  Company's  principal  market risk is due to changes in interest
rates.   This  affects  the  Company  directly  in  its  lending  and  borrowing
activities,  as well as  indirectly  as  interest  rates may impact the  payment
performance of the Company's cardholders.

         To  manage  the  Company's   direct  risk  to  market  interest  rates,
management  actively  monitors  the interest  rates and the  interest  sensitive
components  of the  Company's  owned and managed  balance  sheet to minimize the
impact  changes in interest  rates have on the fair value of assets,  net income
and cash flow.  Management  seeks to minimize  the impact of changes in interest
rates on the Company primarily by matching asset and liability repricings.

         The Company's  primary owned and managed  assets are credit card loans,
which are  virtually  all priced at rates  indexed to the  variable  Prime Rate.
Retained  interests in loans securitized and loans held for  securitization  are
funded  through a combination of cash flow from  operations,  the Company's $300
million bank credit  facility,  $100 million in senior  notes,  subsidiary  bank
deposits, and equity issuance. The $300 million bank credit facility has pricing
that is indexed to the variable  London  Interbank  Offered Rate  ("LIBOR") or a
Prime  Rate.  The  Company's  securitized  loans  are  owned  by the  Trust  and
bank-sponsored  multiseller  receivables  conduits (the "Conduits"),  which have
committed  funding indexed to variable  commercial  paper rates, as well as term
funding which is either directly indexed to LIBOR or at fixed rates. At June 30,
1999,  approximately  18.5% of the  Trust and  Conduit  funding  of  securitized
receivables was funded with fixed rate certificates.

         Combining the interest rate floor  transactions  referred to above with
the Trust and Conduit funding, in a low market interest rate environment, 86% of
the funding for the securitized loan portfolio is indexed to floating commercial
paper  and  LIBOR  rates.  In a  high  market  interest  rate  environment,  the
potentially  negative impact on earnings of higher interest expense is mitigated
by the fixed rate funding and the interest rate cap contracts described above.

         The approach  used by  management  to quantify  interest rate risk is a
sensitivity  analysis which management  believes best reflects the risk inherent
in the Company's  business.  This approach  calculates  the impact on net income
from an  instantaneous  and  sustained  change  in  interest  rates by 200 basis
points.  Assuming no  counteractive  measures by  management,  a 200 basis point
increase in interest  rates  affecting  the Company's  floating  rate  financial
instruments,  including  both debt  obligations  and  loans,  will  result in an
increase in net income of  approximately  $20.7 million  relative to a base case
over the next 12 months;  while a decrease of 200 basis  points will result in a
reduction in net income of  approximately  $15.1  million.  The Company's use of
this methodology to quantify the market risk of financial instruments should not
be  construed as an  endorsement  of its accuracy or the accuracy of the related
assumptions.  In  addition,  this  methodology  does not take into  account  the
indirect  impact  interest  rates  may have on the  payment  performance  of the
Company's  cardholders.  The  quantitative  information  about  market  risk  is
necessarily limited because it does not take into account operating transactions
or other costs associated with managing immediate changes in interest rates.




<PAGE>


                           Part II. Other Information

Item 1.         Legal Proceedings

         The Company is a party to various legal proceedings  resulting from the
ordinary business  activities  relating to its operations.  The Company does not
believe that any such legal  proceedings  will have a material adverse effect on
its financial position or its operations.

         Certain existing laws and regulations permit class action lawsuits on
behalf of customers in the event of violations, and such class lawsuits can be
very expensive to defend, even without any violation.  One of these actions, an
Alabama action in the Circuit Court of Greene County (Preston Davis, Sr. et. al.
v. Direct Merchants Credit Card Bank, N.A., et. al. (Civil Action No.CV98-012),
sought damages in an unascertained amount and purported to be a class action,
although no class had been certified. On June 29, 1999, a  Stipulation  and
Order of Dismissal was filed in the Alabama action.

Item 2.         Changes in Securities

         During the period covered by this report, the Company issued securities
that were not registered  under the Securities Act of 1933 (the "1933 Act"),  in
reliance on Section 4(2) of the 1933 Act. The Company  exchanged $200 million of
Series B Perpetual  Preferred  Stock,  $100  million  Senior  Notes and ten year
warrants for $300 million of Series C Perpetual  Convertible  Preferred Stock on
June 1, 1999. The additional  information  required by this item is set forth in
"Note 5 - Private Equity  Placement" on page 11 of this Form 10-Q for the second
quarter ended June 30, 1999 and is incorporated herein by reference.

Item 3.         Defaults Upon Senior Securities
                Not applicable

Item 4.         Submission of Matters to a Vote of Security Holders
                           (a) and (c). The Company  held its annual  meeting of
                stockholders  on May 11, 1999,  and the matters voted on in that
                meeting were the following:

                The  election of the  following  directors  who will serve until
                their  successors  are elected and  qualified,  or their earlier
                death or resignation:


                                                                        Broker
      Director           For       Against   Withheld    Abstentions   Non-Vote
      --------           ---       -------   --------    -----------   --------
Lee R. Anderson, Sr.   16,785,542     None    127,516         None        None
John A. Cleary         16,781,635     None    133,423         None        None

         The  approval of an  increase in the number of shares of the  Company's
         Common Stock  available to be issued  pursuant to the Metris  Companies
         Inc.  Non-Employee  Director Stock Option Plan from 100,000 to 250,0000
         shares.

                                                                 Broker
       For            Against       Withheld     Abstentions    Non-Vote
       ---            -------       --------     -----------    ---------
    9,383,919        5,389,688       None          8,562        2,133,389


<PAGE>



         The  approval of the proposal to establish  the Metris  Companies  Inc.
         Employee  Stock  Purchase  Plan (ESPP)  under which  850,000  shares of
         common stock may be sold.

                                                                       Broker
             For           Against        Withheld     Abstentions    Non-Vote
             ---           -------        --------     -----------    --------

         14,562,837        224,091         None          6,543        2,122,087

         The  approval of the proposal to establish  the Metris  Companies  Inc.
         Management  Stock  Purchase Plan (MSPP) under which  150,000  shares of
         common stock may be sold.

                                                                   Broker
              For       Against     Withheld     Abstentions      Non-Vote
              ---       -------     --------     -----------      --------

          13,810,122    973,318       None         10,031        2,122,087

         The approval of an amended and restated  Metris  Companies Inc.  Annual
         Incentive Plan for Designated  Corporate  Officers.  The Amended Annual
         Incentive  Plan  increases  the maximum plan payout from  $2,000,000 to
         $4,000,000  and  permits  officers  receiving  bonuses  under this plan
         instead  of the  Management  Bonus  Plan will now be allowed to defer a
         portion of their  bonuses and have the deferred  amounts  credited to a
         stock purchase account.

                                                                    Broker
            For           Against    Withheld     Abstentions       Non-Vote
            ---           -------    --------     -----------       --------

         14,000,941       779,991      None         12,538        2,122,088

         The  approval  of  the  Metris  Companies  Inc.  Amended  and  Restated
         Long-Term  Incentive  and Stock  Option  Plan.  The Board of  Directors
         amended the  Incentive  Stock Plan to extend the term to March 19, 2009
         and make technical  changes.  The proposal approved by the shareholders
         disclosed the plan's  performance goals for performance  awards and set
         the limit on cash payment at $6,000,000 for any three year period.

                                                                      Broker
              For         Against       Withheld     Abstentions     Non-Vote
              ---         -------       --------     -----------    ----------
           9,518,062     5,228,650        None         10,352       2,158,494


Item 5.         Other Information

         Shareholders desiring to submit proposals for possible inclusion in the
Company's 2000 Proxy  Statement must do so on or before  December 1, 1999.  Such
proposals should be sent to Z. Jill Barclift, Esquire, Executive Vice President,
General  Counsel and  Secretary,  600 South Highway 169,  Suite 1800,  St. Louis
Park, Minnesota 55426.

         In addition,  the Company's  Amended and Restated By-Laws  establish an
advance  notice  procedure for  stockholder  proposals to be brought  before any
meeting of stockholders,  including proposed nominations of persons for election
to the Board.  The Company  amended  these  provisions at its June 1999 Board of
Directors  meeting.  Stockholders  at  the  2000  annual  meeting  may  consider
stockholder  proposals or nominations brought by a stockholder of record who has
given timely notice  thereof in writing to the  Secretary of the Company.  To be
timely,  a  stockholder's  notice  must  be  delivered  to and  received  at the
principal  executive  offices  of the  Company  not less  than  forty-five  (45)
calendar days in advance of the mailing date  specified in the  Company's  proxy
statement released to stockholders in connection with the previous year's annual
meeting of  stockholders;  provided,  however,  that in the event that no annual
meeting was held in the previous year or the date of the annual meeting has been
changed by more than thirty (30) days from the date  contemplated at the time of
the previous year's proxy statement, notice by the stockholder to be timely must
be received not later than the close of business on the later of forty-five (45)
calendar days in advance of such meeting or ten (10) calendar days following the
date on which public  announcement of the date of the meeting is first made. The
written notice must be given to the Company's Secretary at the address above and
be in proper  form.  The 2000 annual  meeting is expected to be held on Tuesday,
May 11, 2000.


Item 6.  Exhibits and Reports on Form 8-K


         (a) Exhibits:

             3.1    Amended and Restated Bylaws of the Company.

           *10.1    Purchase and Sale Agreement, dated May 10, 1999, between GE
                    Capital Consumer Credit Card Co. and Direct Merchants Credit
                    Card Bank, National Association.

            10.2    Retention Agreement, dated May 17, 1999, between Ronald N.
                    Zebeck and Metris Companies Inc.

            11.     Computation of Earnings Per Share.

            27.     Financial Data Schedule.

             *Portions of the Exhibit have been omitted  pursuant to
             a request for  confidential  treatment,  which has been
             submitted  separately  to the  Securities  and Exchange
             Commission  in  accordance   with  Rule  24b-2  of  the
             Securities Exchange Act of 1934.

         (b) Reports on Form 8-K:

                 Not applicable


<PAGE>


                                   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.

                                    METRIS COMPANIES INC.


Signature                        Title                         Date

Principal financial officer:     Executive Vice President,     August 10, 1999
                                 Chief Financial Officer
/s/ David D. Wesselink
David D. Wesselink


Principal accounting officer:    Sr. Vice President, Finance,  August 10, 1999
                                 Corporate Controller

/s/ Jean C. Benson
Jean C. Benson