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                     September 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 October 31, 1999,  38,597,526 shares of the registrant's common stock, par
value $.01 per share, were outstanding.



<PAGE>


                              METRIS COMPANIES INC.

                                    FORM 10-Q

                                TABLE OF CONTENTS




                               September 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.............23

   Item 3.   Quantitative and Qualitative Disclosures
                    About Market Risk.........................................38


PART II. OTHER INFORMATION

   Item 1. Legal Proceedings..................................................39

   Item 2. Changes in Securities..............................................39

   Item 3. Defaults Upon Senior Securities....................................39

   Item 4. Submission of Matters to a Vote of Security Holders................39

   Item 5. Other Information..................................................39

   Item 6. Exhibits and Reports on Form 8-K...................................39

           Signatures.........................................................40


<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>

                                                               September 30, December 31,
                                                                  1999          1998
                                                               ------------------------
Assets:
<S>                                                           <C>          <C>
Cash and due from banks ...................................   $   32,055   $   22,114
Federal funds sold ........................................       34,800       15,060
Short-term investments ....................................       61,436          173
                                                              ----------   ----------
     Cash and cash equivalents ............................      128,291       37,347
                                                              ----------   ----------
Retained interests in loans securitized ...................    1,516,310      753,469
     Less:  Allowance for loan losses .....................      553,400      393,283
                                                              ----------   ----------
     Net retained interests in loans securitized ..........      962,910      360,186
                                                              ----------   ----------
Loans held for securitization/credit card loans ...........       29,462        3,430
Property and equipment, net ...............................       51,077       21,982
Accrued interest and fees receivable ......................       14,002        6,009
Prepaid expenses and deferred charges .....................       58,874       59,104
Deferred income taxes .....................................      185,221      153,021
Customer base intangible ..................................       89,879       81,892
Other receivables due from credit card
   securitizations, net ...................................      233,856      185,935
Other assets ..............................................       58,900       36,813
                                                              ----------   ----------
     Total assets .........................................   $1,812,472   $  945,719
                                                              ==========   ==========
Liabilities:
Deposits ..................................................   $  588,297   $       --
Debt ......................................................      344,787      310,896
Accounts payable ..........................................       73,886       19,091
Current income taxes payable ..............................       11,411       31,783
Deferred income ...........................................      154,867      124,892
Accrued expenses and other liabilities ....................       49,905       26,075
                                                              ----------   ----------
     Total liabilities ....................................    1,223,153      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, 865,699 shares issued
     and outstanding ......................................      322,473           --
Common stock, par value $.01 per share;
     100,000,000 shares authorized, 38,595,538 and
     38,519,500 shares issued and outstanding, respectively          386          193
Paid-in capital ...........................................      129,767      107,615
Retained earnings .........................................      136,693      124,074
                                                              ----------   ----------
     Total stockholders' equity ...........................      589,319      432,982
                                                              ----------   ----------
     Total liabilities and stockholders' equity ...........   $1,812,472   $  945,719
                                                              ==========   ==========
</TABLE>
          See accompanying Notes to Consolidated Financial Statements.


<PAGE>

<TABLE>

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

                                       Three Months Ended        Nine Months Ended
                                         September 30,             September 30,
                                         --------------            -------------
                                         1999         1998        1999        1998
                                         ----         ----        ----        ----
Interest Income:
<S>                                   <C>          <C>         <C>          <C>
Credit card loans and retained
     interests in loans securitized   $  66,337    $  28,234   $ 148,449    $  80,494
Federal funds sold ................         915          197       3,390          977
Other .............................         683          133       1,495          902
                                      ---------    ---------   ---------    ---------
     Total interest income ........      67,935       28,564     153,334       82,373
Interest expense ..................      15,725        8,902      35,161       21,733
                                      ---------    ---------   ---------    ---------
Net Interest Income ...............      52,210       19,662     118,173       60,640
Provision for loan losses .........      67,052       17,154     122,125       58,586
                                      ---------    ---------   ---------    ---------
Net interest (expense) income
      after provision for loan
      losses .........................  (14,842)       2,508      (3,952)       2,054
                                      ---------    ---------   ---------    ---------
Other Operating Income:
Net securitization and credit card
     servicing income .............      89,077       30,499     240,156       95,454
Credit card fees, interchange
     and other credit card income .      38,368       18,961      83,597       47,707
Fee-based services revenues .......      44,636       27,364     123,481       80,154
                                      ---------    ---------   ---------    ---------
                                        172,081       76,824     447,234      223,315
                                      ---------    ---------   ---------    ---------
Other Operating Expense:
Credit card account and other
      product solicitation and
      marketing expenses ..........      19,103        8,783      70,841       31,898
Employee compensation .............      34,184       12,940      85,101       42,612
Data processing services and
      communications ..............      14,135        8,822      36,746       25,792
Third-party servicing expense .....       3,515        2,895      11,440        7,953
Warranty and debt waiver
      underwriting and claims
      servicing expense ...........       6,515        3,059      14,979        8,479
Credit card fraud losses ..........       1,717        1,034       3,830        3,354
Other .............................      26,358       14,162      85,478       39,231
                                      ---------    ---------   ---------    ---------
                                        105,527       51,695     308,415      159,319
                                      ---------    ---------   ---------    ---------
Income Before Income Taxes and
     Extraordinary Loss ...........      51,712       27,637     134,867       66,050
Income taxes ......................      20,529       10,641      53,542       25,430
                                      ---------    ---------   ---------    ---------
Income Before Extraordinary Loss ..      31,183       16,996      81,325       40,620
Extraordinary loss from early
      extinguishment of debt ......          --           --      50,808           --
                                      ---------    ---------   ---------    ---------
Net Income ........................      31,183       16,996      30,517       40,620
Preferred stock dividends-Series B           --           --       7,506           --
Convertible preferred stock
   dividends-Series C .............       7,182           --       9,649           --
Adjustment for the retirement of
      Series B preferred stock ....          --           --     101,615           --
                                      ---------    ---------   ---------    ---------
Net Income (Loss) Applicable To
   Common Stockholders ............   $  24,001    $  16,996   $ (88,253)   $  40,620
                                      =========    =========   =========    =========
</TABLE>



<PAGE>


<TABLE>

Earnings per share:
<S>                                 <C>          <C>          <C>           <C>
     Basic-income (loss) before
         extraordinary loss .....   $      .62   $      .44   $     (.97)   $     1.06
     Basic-extraordinary loss ...           --           --        (1.32)           --
     Basic-net income (loss) ....          .62          .44        (2.29)         1.06
     Diluted-income (loss) before
         extraordinary loss .....          .54          .42         (.97)         1.02
     Diluted-extraordinary loss .           --           --        (1.32)           --
     Diluted-net income (loss) ..          .54          .42        (2.29)         1.02
Shares used to compute earnings
   per share:
Basic ...........................       38,585       38,461       38,561        38,454
Diluted .........................       58,077       40,126       38,561        39,947
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.


<PAGE>

<TABLE>

METRIS COMPANIES INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
(In thousands) (Unaudited)

                                                                                       Total
                                  Preferred     Common     Paid-in      Retained   Stockholders'
                                    Stock        Stock     Capital      Earnings      Equity
                                  ---------    ---------   ---------   ---------     ---------
<S>                              <C>          <C>         <C>          <C>          <C>
Balance at December 31, 1997 ..   $      --    $     192   $ 107,059    $  68,787    $ 176,038
     Net income ...............          --           --          --       40,620       40,620
     Issuance of common stock
      under employee benefit
      plans ...................          --           --         272           --          272
     Cash dividends ...........          --           --          --         (574)        (574)
                                  ---------    ---------   ---------    ---------    ---------
Balance at September 30, 1998 .  $             $     192   $ 107,331    $ 108,833    $ 216,356
                                  =========    =========   =========    =========    =========


Balance at December 31, 1998 ..   $ 201,100    $     193   $ 107,615    $ 124,074    $ 432,982
     Net income ...............          --           --          --       30,517       30,517
     Issuance of common stock
         under employee benefit
         plans ................          --           --       1,591           --        1,591
     Cash dividends ...........          --           --          --         (829)        (829)
     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 ......       9,563           --          --       (9,563)          --
                                  ---------    ---------   ---------    ---------    ---------
Balance at September 30, 1999 .   $ 322,473    $     386   $ 129,767    $ 136,693    $ 589,319
                                  =========    =========   =========    =========    =========
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.


<PAGE>

<TABLE>

METRIS COMPANIES INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands) (Unaudited)
                                                           Nine Months Ended
                                                              September 30,
                                                           1999          1998
<S>                                                    <C>            <C>
Operating Activities:
Net income .........................................   $    30,517    $    40,620
Adjustments to reconcile net income to net
     cash provided by operating activities:
     Extraordinary loss from early extinguishment
         of debt ...................................        50,808             --
     Depreciation and amortization .................        56,566         33,428
     Change in allowance for loan losses ...........       160,117        106,780
     Changes in operating assets and liabilities:
         Accrued interest and fees receivable ......        (7,993)          (987)
         Prepaid expenses and deferred charges .....       (43,148)       (30,216)
         Deferred income taxes .....................       (32,200)       (48,429)
         Accounts payable and accrued expenses .....        82,875         (2,378)
         Other receivables due from credit card
              securitizations, net .................       (49,713)       (75,202)
         Current income taxes payable ..............       (20,372)         7,060
         Deferred income ...........................        29,975         19,909
         Other .....................................       (33,318)       (10,969)
                                                       -----------    -----------
Net cash provided by operating activities ..........       224,114         39,616
                                                       -----------    -----------


Investing Activities:
Proceeds from/repayments of securitized loans ......       581,161        590,928
Net loans originated or collected ..................      (247,027)      (599,322)
Credit card portfolio acquisition ..................    (1,156,673)      (108,164)
Additions to premises and equipment ................       (33,581)        (8,640)
                                                       -----------    -----------
Net cash used in investing activities ..............      (856,120)      (125,198)
                                                       -----------    -----------

Financing Activities:
Net (decrease) increase in debt ....................       133,891         70,896
Net increase in deposits ...........................       588,297             --
Cash dividends paid ................................          (829)          (574)
Net increase in equity .............................         1,591            272
                                                       -----------    -----------
Net cash provided by financing activities ..........       722,950         70,594
                                                       -----------    -----------
Net increase (decrease) in cash and cash equivalents        90,944        (14,988)
Cash and cash equivalents at beginning of period ...        37,347         48,223
                                                       -----------    -----------
Cash and cash equivalents at end of period .........   $   128,291    $    33,235
                                                       ===========    ===========
</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 accounts 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 $146.5 million and $409.4
million  for the  three  and  nine  month  periods  ended  September  30,  1999,
respectively, compared to $117.6 million and $331.6 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 nine month periods  ended  September 30,
1999 and 1998, was $15.9 million and $8.5 million,  respectively.  Cash paid for
income  taxes  for the same  periods  was  $105.7  million  and  $66.8  million,
respectively.

     The  statement of cash flows for the nine month period ended  September 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      Nine Months Ended
                                                   September 30,           September 30,
                                                   -------------           -------------
                                                 1999        1998        1999         1998
                                               ---------   ---------   ---------    ---------
(In thousands, except per share amounts)
<S>                                            <C>         <C>         <C>          <C>
Income before extraordinary items ..........   $  31,183   $  16,996   $  81,325    $  40,620
Preferred dividends - Series B .............          --          --       7,506           --
Preferred dividends - Series C .............       7,182          --       9,649           --
Adjustment for the retirement of Series B
     preferred stock .......................          --          --     101,615           --
                                               ---------   ---------   ---------    ---------
Net income (loss) applicable to common
     stockholders before extraordinary items      24,001      16,996     (37,445)      40,620
Extraordinary loss from the early
     extinguishment of debt ................          --          --      50,808           --
                                               ---------   ---------   ---------    ---------
Net income (loss) applicable to common
     stockholders ..........................   $  24,001   $  16,996   $ (88,253)   $  40,620
                                               =========   =========   =========    =========
Weighted average common shares outstanding .      38,585      38,461      38,561       38,454
Adjustments for dilutive securities:
Assumed exercise of outstanding stock
   options(1) ..............................       2,366       1,665          --        1,493
Assumed conversion of convertible preferred
     stock(1) ..............................      17,126          --          --           --
                                               ---------   ---------   ---------    ---------
Diluted common shares ......................      58,077      40,126      38,561       39,947
                                               =========   =========   =========    =========

(1) For the nine month period ended  September 30, 1999,  there were options and
convertible  preferred stock outstanding to purchase 1.9 million and 7.8 million
common  shares.  These  potential  common  shares  have been  excluded  from the
computation  of diluted  earnings per share because their  inclusion  would have
been anti-dilutive.
</TABLE>

<TABLE>

<S>                                             <C>         <C>         <C>           <C>
Earnings per share:
    Basic - income (loss) before
        extraordinary loss .................    $   .62     $   .44     $   (.97)     $   1.06
    Basic - extraordinary loss .............         --          --        (1.32)           --
    Basic - net income (loss) ..............        .62         .44        (2.29)         1.06
    Diluted - income (loss) before
        extraordinary loss .................        .54         .42         (.97)         1.02
    Diluted - extraordinary loss ...........         --          --        (1.32)           --
    Diluted - net income (loss) ............        .54         .42        (2.29)         1.02
</TABLE>




<PAGE>


NOTE 3 - ALLOWANCE FOR LOAN LOSSES

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

                                            Three Months Ended     Nine Months Ended
                                               September 30,         September 30,
                                               -------------        -------------
                                                1999       1998       1999       1998
                                            --------   --------   --------   --------
(In thousands)
<S>                                         <C>        <C>        <C>        <C>
Balance at beginning of period ..........   $475,028   $324,157   $393,283   $244,084
Allowance related to assets acquired, net     10,250         --     26,293      1,378
Provision for loan losses ...............     67,052     17,154    122,125     58,586
Provision for loan losses (1) ...........    146,491    117,582    409,371    331,554
Loans charged-off .......................    153,672    112,390    422,059    295,480
Recoveries ..............................      8,251      4,361     24,387     10,742
                                            --------   --------   --------   --------
Net loan charge-offs ....................    145,421    108,029    397,672    284,738
                                            --------   --------   --------   --------
Balance at end of period ................   $553,400   $350,864   $553,400   $350,864
                                            ========   ========   ========   ========
</TABLE>

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


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 were converted to the Direct Merchants Bank platform in October
of 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  Conduits  and jumbo  certificates  of
deposit issued by 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.

<TABLE>

                                 Three Months Ended September 30,
                                              1999
                    Consumer
                     Credit        Fee-Based
                    Products       Services    Reconciliation (a)  Consolidated

(In thousands)
<S>                <C>             <C>            <C>              <C>
Interest income    $  318,131      $    1,235    $   (251,431)(b)  $    67,935
Interest expense       93,742              --         (78,017)(c)       15,725
                   ----------      ----------      ----------       ----------
  Net interest
    income .....      224,389           1,235        (173,414)          52,210

Other income ...      100,522          44,636          26,923          172,081
Total income ...      418,653          45,871        (224,508)         240,016
Income before
  income taxes        105,143(d)       24,761(d)      (78,192) (e)      51,712

Total assets ...   $6,672,130      $   97,316     $(4,956,974)      $1,812,472

</TABLE>
<TABLE>

                        Three Months Ended September 30,
                                      1998

                     Consumer
                      Credit      Fee-Based
                     Products      Services      Reconciliation(a)  Consolidated
(In thousands)
<S>                <C>           <C>              <C>               <C>
Interest income    $   187,715   $       143      $  (159,294)(b)   $    28,564
Interest expense        64,516            --          (55,614)(c)         8,902
                   -----------   -----------      -----------       -----------
  Net interest
    income .....       123,199           143         (103,680)           19,662

Other income ...        63,362        27,364          (13,902)           76,824
Total income ...       251,077        27,507         (173,196)          105,388

Income before
  income taxes .    46,456 (d)        20,000(d)       (38,819)(e)        27,637

Total assets ...   $ 4,216,310   $    53,597      $(3,595,440)(f)   $   674,467
</TABLE>



<PAGE>


<TABLE>

                         Nine Months Ended September 30,
                                      1999

                    Consumer
                     Credit        Fee-Based
                    Products       Services    Reconciliation (a) Consolidated


(In thousands)
<S>                  <C>             <C>          <C>              <C>
Interest income ..   $  824,900      $    2,995    $(674,561) (b) $   153,334
Interest expense .      234,847                     (199,686) (c)      35,161
                     ----------      ----------    ----------     -----------
  Net interest
    income .......      590,053           2,995      (474,875)        118,173

Other income .....      258,249         123,481        65,504         447,234
Total income .....    1,083,149         126,476      (609,057)        600,568

Income before
  income taxes
  and extra-
  ordinary loss ..      284,928(d)       68,704(d)   (218,765)(e)     134,867

Total assets .....   $6,672,130      $   97,316   $(4,956,974)(f)  $1,812,472
</TABLE>

<TABLE>

                         Nine Months Ended September 30,
                                      1998

                    Consumer
                     Credit           Fee-Based
                    Products           Services      Reconciliation(a)  Consolidated

(In thousands)
<S>                <C>              <C>               <C>               <C>
Interest income    $   533,721      $     1,573       $  (452,921)(b)   $    82,373
Interest expense       172,385                           (150,652)(c)        21,733
                   -----------      -----------       -----------       -----------
  Net interest
    income .....       361,336            1,573          (302,269)           60,640

Other income ...       172,446           80,154           (29,285)          223,315
Total income ...       706,167           81,727          (482,206)          305,688

Income before
  income taxes .       124,858(d)        56,780(d)       (115,588)(e)        66,050

Total assets ...   $ 4,216,310      $    53,597       $(3,595,440)(f)   $   674,467
</TABLE>



  (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 $1.2 million,  $0.1 million,  $3.0 million and $1.6 million of
  intercompany  interest  received by the  fee-based  services  segment from the
  consumer credit products segment for the three months ended September 30, 1999
  and 1998, and the nine months ended September 30, 1999 and 1998, respectively.

  (c) The  reconciliation  to consolidated  owned interest  expense includes the
  elimination of $1.2 million,  $0.1 million,  $3.0 million, and $1.6 million of
  intercompany  interest  paid by the consumer  credit  products  segment to the
  fee-based  services  segment for the three months ended September 30, 1999 and
  1998 and the nine months ended September 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 $2.5 million,  $0.9 million,  $3.9 million and $1.4 million for
  the three months ended  September  30, 1999 and 1998 and the nine months ended
  September 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 November 3, 1999, the Company  declared a cash dividend in the amount of
$.01 per share, aggregating  approximately $0.6 million, payable on November 22,
1999,  to  shareholders  of record as of the close of business  on November  12,
1999.

NOTE 8 - DEBT

     The Company has a $200 million  revolving credit facility  maturing in June
of 2003 and a $100 million term loan  maturing June of 2001,  collectively  (the
"Credit Facilities") with a syndicate of banks and money market mutual funds. At
September 30, 1999, the Company was in compliance  with all financial  covenants
of these faclities. At September 30, 1999 and December 31, 1998, the Company had
outstanding borrowings of $100 million and $110 million, respectively, under the
Credit  Facilities.  The weighted  average interest rates on the borrowings were
7.9% at September 30, 1999 and December 31, 1998.

     On July 15,  1999,  the Company  privately  issued and sold $150 million of
10.125%  Senior  Notes due 2006 (the  "Senior  Notes due 2006")  pursuant to the
144(a)  exemption of the Securities  Act of 1933, as amended.  The proceeds were
utilized  to repay  borrowings  under the Credit  Facility  and 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 Credit Facilities. The guarantee is an
unsecured obligation of the Guarantor and ranks pari passu with all existing and
future unsubordinated indebtedness.

     Beginning in the first quarter 1999,  Direct  Merchants  Bank began issuing
certificates  of deposit  ("CDs").  These CDs are  issued  through  third  party
registered deposit brokers in increments of $100,000.  As of September 30, 1999,
$584.8 million of CDs were outstanding  with maturities  ranging from six months
to two years with fixed interest rates ranging from 5.0% to 6.35%.

     The  Company  has $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 or bank credit  facility.  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.
<TABLE>

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

                                                 Metris      Guarantor     Non-Guarantor
                                             Companies Inc. Subsidiaries   Subsidiaries   Eliminations   Consolidated
Assets:
<S>                                          <C>            <C>         <C>               <C>            <C>
Cash and cash equivalents ................   $      (430)   $       151   $    128,570    $        --    $   128,291
Net retained interests in loans
   securitized ...........................        (1,435)            --        964,345             --        962,910
Loans held for securitization/credit card
   loans .................................        16,099             --         13,363             --         29,462
Property and equipment, net ..............            --         29,176         21,901             --         51,077
Prepaid expenses and deferred charges ....          (136)        22,135         36,875             --         58,874
Deferred income taxes ....................          (683)        24,975        160,929             --        185,221
Customer base intangible .................            --             --         89,879             --         89,879
Other receivables due from credit card
   securitizations, net ..................             6             --        233,850             --        233,856
Other assets .............................        13,805          7,840         51,257             --         72,902
Investment in subsidiaries ...............     1,148,213      1,058,070             --     (2,206,283)            --
                                             -----------    -----------    -----------    -----------    -----------
Total assets .............................   $ 1,175,439    $ 1,142,347  $   1,700,969    $(2,206,283)   $ 1,812,472
                                             ===========    ===========    ===========    ===========    ===========
Liabilities:
Deposits/Debt ............................   $   534,798    $   (91,336)  $    489,622    $        --    $   933,084
Accounts payable .........................         1,430         13,994         58,462             --         73,886
Current income taxes payable .............        17,254        (16,269)        10,426             --         11,411
Deferred income ..........................        24,775         54,671         75,421             --        154,867
Accrued expenses and other liabilities ...         7,863         33,074          8,968             --         49,905
                                             -----------    -----------    -----------    -----------    -----------
Total liabilities ........................       586,120         (5,866)       642,899             --      1,223,153
Total stockholders' equity ...............       589,319      1,148,213      1,058,070     (2,206,283)       589,319
                                             -----------    -----------    -----------    -----------    -----------
Total liabilities and stockholders' equity   $ 1,175,439    $ 1,142,347 $    1,700,969    $(2,206,283)   $ 1,812,472
                                             ===========    ===========    ===========    ===========    ===========
</TABLE>




<PAGE>


<TABLE>

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

                                         Metris        Guarantor    Non-Guarantor
                                     Companies 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/credit card loans         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 September 30, 1999
                                                        (Dollars in thousands)
                                                               Unaudited


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

<S>                                      <C>            <C>            <C>            <C>             <C>
Net Interest Income (Expense)            $  (9,088)     $    (385)     $  61,683      $      --       $  52,210
Provision for loan losses .............        177             --         66,875             --          67,052
                                          ---------      ---------      ---------                     ---------
Net Interest Expense After Provision
   for Loan Losses ....................     (9,265)          (385)        (5,192)            --         (14,842)
                                          ---------      ---------      ---------                     ---------
Other Operating Income:
Net securitization and credit card
   servicing income ...................      1,229             --         87,848             --          89,077
Credit card fees, interchange and other
   income .............................        297            366         37,705             --          38,368
Fee-based services revenues ...........         --         12,297         32,339             --          44,636
                                         ---------      ---------      ---------                      ---------
                                             1,526         12,663        157,892             --         172,081
                                         ---------      ---------      ---------                      ---------
Other Operating Expense:
Credit card account and other product
   solicitation and marketing expenses          --          7,797         11,306             --          19,103
Employee compensation .................         --         30,973          3,211             --          34,184
Data processing services and
   communications .....................         --          2,285         11,850             --          14,135
Third-party servicing expenses ........         --        (18,651)        22,166             --           3,515
Warranty and debt waiver underwriting
   and claims servicing expenses ......         --            225          6,290             --           6,515
Credit card fraud losses ..............          8             --          1,709             --           1,717
Other .................................       (758)         4,251         22,865             --          26,358
                                          ---------      ---------      ---------                     ---------
                                              (750)        26,880         79,397             --         105,527
                                          ---------      ---------      ---------                     ---------
Income (Loss) Before Income Taxes and
   Equity in Income of Subsidiaries         (6,989)       (14,602)        73,303             --          51,712
Income taxes ..........................     (2,774)        (6,529)        29,832             --          20,529
Equity in income of subsidiaries            35,398         43,471             --        (78,869)             --
                                         ---------      ---------      ---------      ---------       ---------
Net Income ............................  $  31,183      $  35,398      $  43,471      $ (78,869)      $  31,183
                                         =========      =========      =========       =========       =========
</TABLE>



<PAGE>

<TABLE>

                                                         METRIS COMPANIES INC.
                                            Supplemental Consolidating Statements of Income
                                                 Three Months Ended September 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)             $ (2,887)     $ (6,516)     $ 29,065      $     --      $ 19,662
Provision for loan losses ............          (4)           --        17,158            --        17,154
                                           --------      --------      --------                   --------
Net Interest Income (Expense) After
   Provision for Loan Losses .........      (2,883)       (6,516)       11,907            --         2,508
                                           --------      --------      --------                   --------
Other Operating Income:
Net securitization and credit card
   servicing income ..................       2,720             5        27,774            --        30,499
Credit card fees, interchange and other
   income ............................           3            (1)       18,959            --        18,961
Fee-based services revenues ..........          --         9,586        17,778            --        27,364
                                          --------      --------      --------                    --------
                                             2,723         9,590        64,511            --        76,824
                                          --------      --------      --------                    --------
Other Operating Expense:
Credit card account and other product
   solicitation and marketing expenses          --         4,713         4,070            --         8,783
Employee compensation .................         --        11,669         1,271            --        12,940
Data processing services and
   communications .....................         --         1,390         7,432            --         8,822
Third-party servicing expenses ........         --       (13,583)       16,478            --         2,895
Warranty and debt waiver underwriting
   and claims servicing expenses ......         --           477         2,582            --         3,059
Credit card fraud losses ..............         --            --         1,034            --         1,034
Other .................................         62         4,667         9,433            --        14,162
                                          --------      --------      --------                    --------
                                                62         9,333        42,300            --        51,695
                                          --------      --------      --------                    --------
Income (Loss) Before Income Taxes and
   Equity in Income of Subsidiaries           (222)       (6,259)       34,118            --        27,637
Income taxes ..........................        (85)       (2,637)       13,363            --        10,641
Equity in income of subsidiaries ......     17,133        20,755            --       (37,888)           --
                                          --------      --------      --------      --------      --------
Net Income ............................   $ 16,996      $ 17,133      $ 20,755      $(37,888)     $ 16,996
                                          ========      ========      ========      ========      ========
</TABLE>


<PAGE>

<TABLE>

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

                                            Metris      Guarantor    Non-Guarantor
                                        Companies Inc. Subsidiaries  Subsidiaries  Eliminations   Consolidated
<S>                                       <C>           <C>           <C>          <C>            <C>
Net Interest Income (Expense)..........   $ (25,256)    $    (897)    $ 144,326    $       --     $  118,173
Provision for loan losses .............         283                     121,842            --        122,125
                                          ---------     ---------     ---------                    ---------
Net Interest Income (Expense) After
   Provision for Loan Losses ..........     (25,539)         (897)       22,484            --         (3,952)
                                          ---------     ---------     ---------                    ---------
Other Operating Income:
Net securitization and credit card
   servicing income ...................       4,644            --       235,512            --        240,156
Credit card fees, interchange and other
   income .............................         838           264        82,495            --         83,597
Fee-based services revenues ...........          --        36,446        87,035            --        123,481
                                          ---------     ---------     ---------                    ---------
                                              5,482        36,710       405,042            --        447,234
                                          ---------     ---------     ---------                    ---------
Other Operating Expense:
Credit card account and other product
   solicitation and marketing expenses           --        26,954        43,887            --         70,841
Employee compensation .................          --        76,887         8,214            --         85,101
Data processing services and
   communications .....................          --         5,459        31,287            --         36,746
Third-party servicing expenses ........          --       (49,180)       60,620            --         11,440
Warranty and debt waiver underwriting
   and claims servicing expenses                 --         2,167        12,812            --         14,979
Credit card fraud losses ..............          16            --         3,814            --          3,830
Other .................................         490        24,014        60,974            --         85,478
                                          ---------     ---------     ---------                    ---------
                                                506        86,301       221,608            --        308,415
                                          ---------     ---------     ---------                    ---------
Income (Loss) Before Income Taxes and
   Equity in Income of Subsidiaries ...     (20,563)      (50,488)      205,918            --        134,867
Income taxes ..........................      (8,163)      (20,243)       81,948            --         53,542
Equity in income of subsidiaries ......      93,725       123,970            --      (217,695)            --
                                          ---------     ---------     ---------     ---------      ---------
Income Before Extraordinary Loss ......      81,325        93,725       123,970      (217,695)        81,325
Extraordinary loss from the early
   extinguishment of debt .............      50,808            --            --            --         50,808
                                          ---------     ---------     ---------     ---------      ---------
Net Income ............................   $  30,517     $  93,725     $ 123,970     $(217,695)     $  30,517
                                          =========     =========     =========     =========      =========
</TABLE>


<PAGE>
<TABLE>

                                                         METRIS COMPANIES INC.
                                            Supplemental Consolidating Statements of Income
                                                 Nine Months Ended September 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) .........    $      (12,512)     $    (10,934)     $        84,086   $           --    $      60,640
Provision for loan losses .............                79                --               58,507               --           58,586
                                           --------------      ------------      ---------------                       -----------
Net Interest Income/(Expense) After
   Provision for Loan Losses ..........           (12,591)          (10,934)              25,579               --            2,054
                                           ---------------     -------------     ---------------                       -----------
Other Operating Income:
Net securitization and credit card
   servicing income ...................             9,115               (19)              86,358               --           95,454
Credit card fees, interchange and other
   income .............................                92                --               47,615               --           47,707
Fee-based services revenues ...........                --            26,683               53,471               --           80,154
                                           --------------      ------------      ---------------                       -----------
                                                    9,207            26,664              187,444               --          223,315
                                           --------------      ------------      ---------------                       -----------
Other Operating Expense:
Credit card account and other product
   solicitation and marketing expenses                 --            14,133               17,765               --           31,898
Employee compensation .................                --            37,860                4,752               --           42,612
Data processing services and
   communications .....................                --             3,877               21,915               --           25,792
Third-party servicing expenses ........              (266)          (37,419)              45,638               --            7,953
Warranty and debt waiver underwriting
   and claims servicing expenses ......                --             1,480                6,999               --            8,479
Credit card fraud losses ..............                18                --                3,336               --            3,354
Other .................................               279            13,310               25,642               --           39,231
                                           --------------      ------------      ---------------                     -------------
                                                       31            33,241              126,047               --          159,319
                                           --------------      ------------      ---------------                     -------------
Income (Loss) Before Income Taxes and
   Equity in Income of Subsidiaries ..             (3,415)           (17,511)             86,976               --           66,050
Income taxes .........................             (1,315)            (7,187)             33,932               --           25,430
Equity in income of subsidiaries .....             42,720             53,044                   --         (95,764)              --
                                           --------------       ------------      ---------------   --------------      ----------
Net Income ...........................     $       40,620       $     42,720      $        53,044   $      (95,764)     $   40,620
                                           ==============       ============      ===============   ==============      ==========
</TABLE>


<PAGE>
<TABLE>

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

                                                        Metris      Guarantor       Non-Guarantor
                                                     Companies Inc. Subsidiaries     Subsidiaries  Consolidated
Operating Activities:
<S>                                                  <C>           <C>              <C>            <C>
Net cash (used in) provided by operating
   activities........................................$    (1,432)    $  (17,178)    $   242,724    $   224,114
                                                      ----------    -----------     -----------     ----------
Investing Activities:
Proceeds from/repayments of securitized loans.........        --             --         581,161        581,161
Net loans originated or collected ....................   (14,222)            --        (232,805)      (247,027)
Credit card portfolio acquisition ....................        --             --      (1,156,673)    (1,156,673)
Additions to premises and equipment ..................        --        (15,077)        (18,504)       (33,581)
                                                      -----------    ----------     -----------    -----------
Net cash used in investing activities................    (14,222)       (15,077)       (826,821)      (856,120)
                                                      -----------    ----------     -----------    -----------
Financing Activities:
Net increase (decrease) in deposits/debt .............   317,500       (106,357)        511,045        722,188
Cash dividends paid ..................................      (829)          (804)            804           (829)
Net increase in equity ...............................  (296,440)       139,723         158,308          1,591
                                                       -----------    ---------     -----------    -----------
Net cash provided by financing activities ............     20,231        32,562         670,157        722,950
                                                       -----------    ---------     -----------    -----------
Net increase in cash and cash equivalents ............      4,577           307          86,060         90,944
Cash and cash equivalents at beginning of
   period ............................................     (5,007)         (156)         42,510         37,347
                                                       -----------    ---------     -----------    -----------
Cash and cash equivalents at end of period ...........$      (430)  $       151     $   128,570    $   128,291
                                                       ===========    =========     ===========    ===========
</TABLE>

<TABLE>

                                                         METRIS COMPANIES INC.
                                    Supplemental Condensed Consolidating Statements of Cash Flows
                                                 Nine Months Ended September 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   $ 107,473     $  (8,961)    $ (58,896)   $   39,616
                                                      ---------     ---------     ---------     ---------
Investing Activities:
Proceeds from/repayments of securitized loans .....          --            --       590,928       590,928

Net loans originated or collected .................       8,155            --      (607,477)     (599,322)
Credit card portfolio acquisition .................          --            --      (108,164)     (108,164)
Additions to premises and equipment ...............          --        (6,402)       (2,238)       (8,640)
                                                      ---------     ---------      ---------    ---------
Net cash provided by (used in) investing activities       8,155        (6,402)     (126,951)     (125,198)
                                                      ---------     ---------     ---------     ---------
Financing Activities:
Net increase (decrease) in debt ...................      39,688        (1,454)       32,662        70,896
Cash dividends paid ...............................      12,926            --       (13,500)         (574)
Net increase in equity ............................    (170,783)       16,371       154,684           272
                                                      ---------     ---------     ---------     ---------
Net cash (used in) provided by financing activities    (118,169)       14,917       173,846        70,594
                                                      ---------     ---------     ---------     ---------
Net decrease in cash and cash equivalents                (2,541)         (446)      (12,001)      (14,988)
Cash and cash equivalents at beginning of period            337           390        47,496        48,223
                                                      ---------     ---------     ---------     ---------
Cash and cash equivalents at end of period ........   $  (2,204)    $     (56)    $  35,495     $  33,235
                                                      =========     =========     =========     =========
</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 September 30,
1999,  of  which  this  commentary  is a part,  and the  condensed  consolidated
financial statements and related notes thereto.

Results of Operations

     Net  income  for the three  months  ended  September  30,  1999,  was $31.2
million, or $.54 per share, up 83% from $17.0 million, or $.42 per share for the
third  quarter 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.  Fee-based
services  revenues  continue  to  contribute  to the net  income  growth  due to
continued strong product sales. These increases are largely  attributable to the
growth in average  managed loans to $6.6 billion for the third quarter 1999 from
$4.1 billion for the third quarter 1998, an increase of 61%, and growth in total
credit card accounts to 3.5 million at September  30, 1999,  from 2.5 million at
September 30, 1998.

     Net (loss)  income  applicable to common  stockholders  for the nine months
ended September 30, 1999, was a loss of $88.3 million,  or $2.29 per share, down
from $40.6  million,  or $1.02 per share for the first nine months of 1998.  Net
loss applicable to common  stockholders  for the nine months ended September 30,
1999 included 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 reported
in the second quarter 1999. Without this adjustment  reported earnings per share
would have been $1.53 per share for the nine month  period ended  September  30,
1999.  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
$5.7 billion for the nine months ended September 30, 1999, from $3.8 billion for
the same period in 1998,  an increase  of 50%. In  addition,  credit card charge
volume was $3.8 billion for the first nine months of 1999,  a 39% increase  over
the same period in 1998.


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>

                                                               September 30,   December 31,  September 30,
                                                                   1999          1998           1998
                                                                   ----          ----           ----

(Dollars in thousands)
Period-end balances
Credit card loans:
<S>                                                              <C>           <C>           <C>
   Loans held for securitization/credit card loans ..........    $   29,462    $    3,430    $   38,916
   Retained interests in loans
       securitized ..........................................     1,516,310       753,469       546,419
   Investors' interests in
       securitized loans ....................................     5,139,303     4,558,143     3,657,433
                                                                 ----------    ----------    ----------
Total managed loan portfolio ................................    $6,685,075    $5,315,042    $4,242,768
                                                                 ==========    ==========    ==========
</TABLE>




<PAGE>

<TABLE>

                                                        Three Months Ended            Nine Months Ended
                                                           September 30,                September 30,
                                                           -------------                -------------
                                                         1999          1998           1999          1998
                                                         ----          ----           ----          ----
(Dollars in thousands)
Average balances
Credit card loans:
<S>                                                   <C>           <C>            <C>            <C>
   Loans held for securitization/credit card loans    $   61,588    $   85,737     $   61,216     $   58,636
   Retained interests in loans
       securitized ...............................     1,269,414       530,625        942,775        511,662
   Investors' interests in
       securitized loans .........................     5,257,414     3,466,443      4,679,000      3,228,742
                                                      ----------    -----------    ----------     ----------
 Total managed loan portfolio ....................    $6,588,416    $4,082,805     $5,682,991     $3,799,040
                                                      ==========    ==========     ==========     ==========
</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               Nine Months Ended
                                                                September 30,                    September 30,
                                                                -------------                    -------------
                                                            1999             1998            1999            1998
                                                            ----             ----            ----            ----
(Dollars in thousands)
Statements of Income
 (owned basis):
<S>                                                     <C>              <C>             <C>              <C>
   Net interest income .............................    $    52,210      $    19,662     $   118,173      $    60,640
   Provision for loan losses .......................         67,052           17,154         122,125           58,586
   Other operating income ..........................        172,081           76,824         447,234          223,315
   Other operating expense .........................        105,527           51,695         308,415          159,319
                                                        -----------      -----------     -----------      -----------
   Income before income taxes
         and extraordinary loss ....................    $    51,712      $    27,637     $   134,867      $    66,050
                                                        ===========      ===========     ===========      ===========

Adjustments for Securitizations:
   Net interest income .............................    $   173,414      $   103,680     $   474,875      $   302,269
   Provision for loan losses .......................        146,491          117,582         409,371          331,554
   Other operating income ..........................        (26,923)          13,902         (65,504)          29,285
   Other operating expense
                                                        -----------      -----------     -----------      -----------
   Income before income taxes
         and extraordinary loss ....................    $        --      $        --     $        --      $        --
                                                        ===========      ===========     ===========      ===========

Statements of Income (managed basis):
   Net interest income .............................    $   225,624      $   123,342     $   593,048      $   362,909
   Provision for loan losses .......................        213,543          134,736         531,496          390,140
   Other operating income ..........................        145,158           90,726         381,730          252,600
   Other operating expense .........................        105,527           51,695         308,415          159,319
                                                        -----------      -----------     -----------      -----------
   Income before income taxes
         and extraordinary loss ....................    $    51,712      $    27,637     $   134,867      $    66,050
                                                        ===========      ===========     ===========      ===========

Other Data:
Owned Basis:
Average interest-earning assets ....................    $ 1,458,894      $   640,776     $ 1,140,608      $   616,935
Return on average assets* ..........................            7.6%            10.1%            8.4%             8.8%
Return on average total equity*                                21.4%            32.0%           21.0%            27.9%
Net interest margin (1) ............................           14.2%            12.2%           13.9%            13.1%
Managed Basis:
Average interest-earning assets ....................    $ 6,716,308      $ 4,107,219     $ 5,819,608      $ 3,845,677
Return on average assets* ..........................            1.8%             1.6%            1.8%             1.4%
Return on average total equity* ....................           21.4%            32.0%           21.0%            27.9%
Net interest margin (1) ............................           13.3%            11.9%           13.6%            12.6%

(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 nine month  periods  ended  September 30,
1999,  was $225.6  million and $593.0  million  compared  to $123.3  million and
$362.9 million for the same periods in 1998.  These increases were primarily due
to a $2.5 billion and $1.9 billion  increase in average  managed  loans over the
comparable periods in 1998.

     Managed  net  interest  margin  was  13.3% and 13.6% for the three and nine
month periods  ended  September  30, 1999,  respectively,  compared to 11.9% and
12.6% for the same periods in 1998. The third 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 months ended  September  30, 1999 was
negatively  impacted  by the GE  portfolio  having a lower  average  margin  and
increased LIBOR rates. These were slightly offset by the increase in margin from
the Company's  spring  campaign.  Financing costs as a percent of borrowings for
the  third  quarter  and  year-to-date  periods  of 1999  were  6.1%  and  6.0%,
respectively, compared with 6.7% and 6.5% 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 nine month periods ended September 30, 1999 and 1998:

Analysis of Average Balances, Interest and Average Yields and Rates


                                                     Three Months Ended September 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 ..........   $    73,090    $       915    5.0%   $    14,306    $       197    5.5%
Short-term investments ......        54,802            683    4.9%        10,108            133    5.2%
Credit card loans and
 retained interests in loans
 securitized ................     1,331,002         66,337   19.8%       616,362         28,234   18.2%
                                -----------    -----------   ----    -----------    -----------   ----
Total interest-earning assets   $ 1,458,894    $    67,935   18.5%   $   640,776    $    28,564   17.7%

Other assets ................       690,323           --     --          370,612           --     --
Allowances for loan losses ..      (526,156)          --     --         (341,169)          --     --
                                -----------                          -----------
   Total assets .............   $ 1,623,061           --     --      $   670,219           --     --
                                ===========                          ===========
Liabilities and Equity:
Interest-bearing liabilities:
Deposits ....................   $   437,861    $     6,429    5.8%   $      --      $      --      --%
Debt ........................       338,784          9,296   10.9%       345,866          8,902   10.2%
                                -----------    -----------   ----    -----------    -----------   ----
Total interest-bearing
   liabilities ..............   $   776,645    $    15,725    8.0%   $   345,866    $     8,902   10.2%

Other liabilities ...........       267,106           --     --          113,931           --     --
                                -----------                          -----------
Total liabilities ...........     1,043,751           --     --          459,797           --     --
Stockholders' equity ........       579,310           --     --          210,422           --     --
                                -----------                          -----------
Total liabilities and equity    $ 1,623,061           --     --      $   670,219           --     --
                                ===========                          ===========
Net interest income and
   interest margin (1) ......          --      $    52,210   14.2%          --      $    19,662   12.2%
Net interest rate spread (2).          --             --     10.5%          --             --      7.5%

Managed Basis
Credit card loans ...........   $ 6,588,416    $   316,533   19.1%   $ 4,082,805    $   187,385   18.2%
Total interest-earning assets     6,716,308        318,131   18.8%     4,107,219        187,715   18.1%
Total interest-bearing
   liabilities ..............     6,034,060         92,507    6.1%     3,816,056         64,373    6.7%
Net interest income and
   interest margin (1) ......          --      $   225,624   13.3%          --      $   123,342   11.9%
Net interest rate spread (2).          --             --     12.7%          --             --     11.4%

</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>

                                                 Nine Months Ended September 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 ..........   $    94,202    $     3,390    4.8%   $    23,947    $       977    5.5%
Short-term investments ......        42,415          1,495    4.7%        22,690            902    5.3%
Credit card loans and
 retained interests in loans
 securitized ................     1,003,991        148,449   19.8%       570,298         80,494   18.9%
                                -----------    -----------   ----    -----------    -----------   ----
Total interest-earning assets   $ 1,140,608    $   153,334   18.0%   $   616,935    $    82,373   17.9%

Other assets ................       623,956           --     --          313,897           --     --
Allowances for loan losses ..      (476,423)          --     --         (311,914)          --     --
                                -----------                          -----------
   Total assets .............   $ 1,288,141           --     --      $   618,918           --     --
                                ===========                          ===========
Liabilities and Equity:
Interest-bearing liabilities:
Deposits ....................   $   211,113    $     9,013    5.7%   $      --      $      --      --%
Debt ........................       313,202         26,148   11.2%       302,946         21,733    9.6%
                                -----------    -----------   ----    -----------    -----------   ----
Total interest-bearing
   liabilities ..............   $   524,315    $    35,161    9.0%   $   302,946    $    21,733    9.6%

Other liabilities ...........       245,428           --     --          121,067           --     --
                                -----------                          -----------
Total liabilities ...........       769,743           --     --          424,013           --     --
Stockholders' equity ........       518,398           --     --          194,905           --     --
                                -----------                          -----------

Total liabilities and equity    $ 1,288,141           --     --      $   618,918           --     --
                                ===========                          ===========
Net interest income and
   interest margin (1) ......          --      $   118,173   13.9%          --      $    60,640   13.1%
Net interest rate spread (2)           --             --      9.0%          --             --      8.3%

Managed Basis
Credit card loans ...........   $ 5,682,991    $   820,015   19.3%   $ 3,799,040    $   531,841   18.8%
Total interest-earning assets     5,819,608        824,900   19.0%     3,845,677        533,721   18.6%
Total interest-bearing
   liabilities ..............     5,203,314        231,852    6.0%     3,532,950        170,812    6.5%
Net interest income and
   interest margin (1) ......          --      $   593,048   13.6%          --      $   362,909   12.6%
Net interest rate spread (2)           --             --     13.0%          --             --     12.1%
</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 77% and 79% of owned revenues for the three and nine
month periods ended  September 30, 1999.  The  following  table  presents  other
operating income on an owned basis:
<TABLE>

                                      Three Months Ended   Nine Months Ended
                                         September 30,       September 30,
(Dollars in thousands)                1999        1998     1999        1998
                                      ----        ----     ----        ----
Other Operating Income:
<S>                                 <C>        <C>        <C>        <C>
Net securitization and credit
 card servicing income ..........   $ 89,077   $ 30,499   $240,156   $ 95,454
Credit card fees, interchange and
 other income ...................     38,368     18,961     83,597     47,707
Fee-based services revenues .....     44,636     27,364    123,481     80,154
                                    --------   --------   --------   --------
   Total ........................   $172,081   $ 76,824   $447,234   $223,315
                                    ========   ========   ========   ========
</TABLE>

     Other operating  income  increased $95.3 million and $223.9 million for the
three and nine month  periods  ended  September  30, 1999,  over the  comparable
periods in 1998.  These  increases  are  primarily  due to the $58.6 million and
$144.7 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 nine month periods ended September 30, 1999,  credit card fees,  interchange
and other income  increased  $19.4 million and $35.9 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 $17.3 million and
$43.3  million for the three and nine month  periods  ended  September 30, 1999.
These  increases are  attributed to the  Company's  debt waiver  product and the
increases in membership program revenues resulting from increases in debt waiver
and more account penetration for membership programs.

<TABLE>

Other Operating Expense
                                  Three Months Ended   Nine Months Ended
                                     September 30,       September 30,
(Dollars in thousands)            1999      1998       1999       1998
                                  ----      ----       ----       ----
Other Operating Expense:
<S>                             <C>        <C>        <C>        <C>
Credit card account and other
   product solicitation and
   marketing expenses ......... $ 19,103   $  8,783   $ 70,841   $ 31,898
Employee compensation .......     34,184     12,940     85,101     42,612
Data processing services and
   communications ...........     14,135      8,822     36,746     25,792
Third-party servicing expense      3,515      2,895     11,440      7,953
Warranty and debt waiver
   underwriting and claims
   servicing expense               6,515      3,059     14,979      8,479
Credit card fraud losses ....      1,717      1,034      3,830      3,354
Other .......................     26,358     14,162     85,478     39,231
                                --------   --------   --------   --------
   Total ....................   $105,527   $ 51,695   $308,415   $159,319
                                ========   ========   ========   ========
</TABLE>


     Total other  operating  expenses for the three and nine month periods ended
September  30,  1999  increased  $53.8  million  and  $149.1  million  over  the
comparable  periods in 1998,  largely due to costs associated with the growth of
the Company's business activities. Employee compensation increased $21.2 million
and $42.5  million,  respectively,  for the three and nine month  periods  ended
September 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  $12.2  million and $46.2 million for the three and nine month periods
ended September 30, 1999 due to increased customer base intangible  amortization
resulting  from the  addition  of the PNC and GE  portfolios  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 $10.3 million,  and $38.9 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 nine months
of 1999.

Income Taxes

     The Company's  provision  for income taxes  includes both federal and state
income taxes.  Applicable income tax expense was $20.5 million and $53.5 million
for the three and nine month periods ended  September 30, 1999 compared to $10.6
million  and  $25.4  million  for the same  periods  in 1998.  This tax  expense
represents  an effective  tax rate of 39.7% and 38.5% for the nine month periods
ended September 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
September 30, 1999,  60% of managed  accounts and 53% 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  September 30, 1999,  the  Company's  managed net
charge-off  ratio was 8.8% compared to 10.5% for the quarter ended September 30,
1998.  For the nine months ended  September  30,  1999,  the net charge off rate
stood at 9.4%  compared to 10.0% for the nine months ended  September  30, 1998.
Without the impact of purchase  accounting related to acquired  portfolios,  the
charge-off  rate  would  have been  10.3% and 10.6% for the three and nine month
periods ended September 30, 1999,  respectively  compared to 10.7% and 10.7% for
the same periods of 1998.  The  Company's  charge-offs  have been  stable,  with
losses between 10% and 11% for the last eight  quarters.  The Company  believes,
consistent with its statistical models and other credit analysis, that this rate
will continue to fluctuate in this range over the next few quarters.

     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>
                        September 30,   % of   December 31,    % of    September 30,  % of
                             1999       Total     1998        Total       1998        Total
                             ----       -----     ----        -----       ----        -----
(Dollars in thousands)
Managed loan portfolio
<S>                      <C>           <C>      <C>             <C>    <C>             <C>
                         $6,685,075    100.0%   $5,315,042      100%   $4,242,768      100%
Loans contractually
delinquent:
     30 to 59 days ...      166,616      2.5%      113,449      2.1%      101,350      2.4%
     60 to 89 days ...      116,097      1.7%       75,049      1.4%       71,530      1.7%
     90 or more days .      218,034      3.3%      173,812      3.3%      156,377      3.7%
                         ----------    -----    ----------    -----    ----------    -----
       Total .........   $  500,747      7.5%   $  362,310      6.8%   $  329,257      7.8%
                         ==========    =====    ==========    =====    ==========    =====
</TABLE>

     The above numbers reflect the continued  seasoning of the Company's managed
loan portfolio.  Without the impact of purchase  accounting  related to acquired
portfolios, delinquency rates would have been 8.1%, 7.4% and 7.8%, 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          Nine Months Ended
                                                    September 30,               September 30,
                                                    -------------               -------------
                                                  1999          1998         1999          1998
                                                  ----          ----         ----          ----
(Dollars in thousands)
Owned basis:
<S>                                            <C>           <C>           <C>           <C>
     Average loans and retained interests in
        loans securitized outstanding ......   $1,331,002    $  616,362    $1,003,991    $  570,298
     Net charge-offs .......................       25,541        16,564        66,081        42,226
     Net charge-offs as a percentage
        of average loans outstanding (1) ...          7.6%         10.7%          8.8%          9.9%
                                               ==========    ==========    ==========    ==========

Managed basis:
     Average loans outstanding .............   $6,588,416    $4,082,805    $5,682,991    $3,799,040
     Net charge-offs .......................      145,421       108,029       397,672       284,738
     Net charge-offs as a percentage of
        average loans outstanding(1) .......          8.8%         10.5%          9.4%         10.0%
                                               ==========    ==========    ==========    ==========

(1)      Annualized
</TABLE>



<PAGE>


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 nine
month  periods  ended  September  30,  1999  totaled  $213.5  million and $531.5
million,  respectively,  compared  to a provision  of $134.7  million and $390.1
million for the three and nine month  periods  ended  September  30,  1998.  The
increases  for the three and nine month  periods  ended  September  30, 1999, as
compared  to the three and nine month  periods  ended  September  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      Nine Months Ended
                                               September 30,          September 30,
                                               -------------          -------------
                                              1999      1998         1999        1998
                                              ----      ----         ----        ----
(Dollars in thousands)
Managed Basis:
<S>                                         <C>        <C>         <C>         <C>
Balance at beginning of period ..........   $475,028   $324,157    $393,283    $244,084
Allowance related to assets acquired, net     10,250       --        26,293       1,378
Provision for loan losses ...............    213,543    134,736     531,496     390,140
Loans charged-off .......................    153,672    112,390     422,059     295,480
Recoveries ..............................      8,251      4,361      24,387      10,742
                                            --------   --------    --------    --------
Net loan charge-offs ....................    145,421    108,029     397,672     284,738
                                            --------   --------    --------    --------
Balance at end of period ................   $553,400   $350,864    $553,400    $350,864
                                            ========   ========    ========    ========

Ending allowance as a percent of .......         8.3%       8.3%        8.3%        8.3%
                                            ========   ========    ========    ========

</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 senior
management.



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,  subsidiary bank
deposits, long-term debt issuance, and equity issuance.

     Through  September 30, 1999 and 1998,  the Company had received  cumulative
net proceeds of approximately  $5.1 billion and $3.7 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 or  significantly
limit the Company's ability to grow.

     The Company has a $200 million  revolving credit facility  maturing in June
of 2001 and a $100 million term loan maturing in June of 2003, collectively (the
"Credit Facilities") with a syndicate of banks and money market mutual funds. At
September 30, 1999, the Company was in compliance  with all financial  covenants
of these  facilities.  At September 30, 1999 and December 31, 1998,  the Company
had outstanding borrowings of $100 million and $110 million, respectively, under
the Credit  Facilities.  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 Credit  Facilities is higher than the interest rate
under the previous old credit  facility due to the Company's  lower  independent
credit rating.

     On July 15,  1999,  the Company  privately  issued and sold $150 million of
10.125%  Senior  Notes due 2006 (the  "Senior  Notes due 2006")  pursuant to the
144(a)  exemption of the  Securities  Act of 1933, as amended.  The net proceeds
were used for  repayment  of  borrowings  under the bank credit  facility and 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 Credit  Facilities.
The  guarantee is an unsecured  obligation of the Guarantor and ranks pari passu
with all existing and future unsubordinated indebtedness.

     Beginning in the first quarter of 1999, Direct Merchants Bank began issuing
jumbo certificates of deposit ("CDs").  These CDs are issued through third party
registered deposit brokers in increments of $100,000.  As of September 30, 1999,
$584.8 million of CDs were outstanding  with maturities  ranging from six months
to two years with fixed interest rates ranging from 5.0% to 6.35%.

     In addition to cash flow from operations, asset securitization,  subsidiary
bank CDs and the Credit  Facilities,  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 third
quarter of 1999,  the Lee Company  would have owned over 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.

     As the  portfolio of credit card loans  grows,  or as the trust and conduit
securitization  funding  amortize,  the  Company's  funding  needs will increase
accordingly.  The Company  believes  that its cash flow from  operations,  asset
securitization  programs,  together with the Credit  Facilities,  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.

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.  The
Validatation  Phase  was  completed  in  October  of 1999 for  Mission  Critical
systems,  and the  Implementation  Phase  for  Mission  Critical  systems  has a
targeted  completion date of November 30, 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                 Complete testing of mission-critical
                                          systems and service providers and
                                          substantially complete implementation.
       ---------------------------------- --------------------------------------
       ---------------------------------- --------------------------------------
       October 31, 1999                   Substantially complete Contingency
                                          Planning and validation for Year 2000
                                          Business Resumption Contingency
                                          Planning.
       ---------------------------------- --------------------------------------

     As of October  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 internal Mission
Critical systems has been completed and  implementation  has been  substantially
completed.

     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[R],  and Visa[R] 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  substantially  completed  Year 2000  Business  Resumption
Contingency plans.

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,  subsidiary  bank deposits,
the Company's $300 million bank credit facilities, $250 million in senior notes,
and equity issuance.  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.  The $300
million  bank credit  facilities  have  pricing  that is indexed to the variable
London Interbank  Offered Rate ("LIBOR") or a Prime Rate. At September 30, 1999,
approximately 17.1% of the Trust and Conduit funding of securitized  receivables
was funded with fixed rate certificates.

     Including  the impact of interest  rate  derivative  transactions  with the
Trust  and  Conduit  funding,   in  an  interest  rate  environment  with  rates
significantly  below current rates,  86% of the funding for the securitized loan
portfolio is indexed to floating commercial paper and LIBOR rates. In a interest
rate environment with rates  significantly  above current rates, the potentially
negative impact on earnings of higher interest expense is mitigated by the fixed
rate funding and interest rate cap contracts.

     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  $22.0 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  $18.5  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.


Item 2.         Changes in Securities
                Not applicable

Item 3.         Defaults Upon Senior Securities
                Not applicable

Item 4.         Submission of Matters to a Vote of Security Holders
                Not applicable

Item 5.         Other Information
                Not applicable

Item 6.         Exhibits and Reports on Form 8-K

(a)      Exhibits:

                          4.1       Indenture, dated as of July 13, 1999, by and
                                    among the Company,  Metris Direct,  Inc. and
                                    The Bank of New York,  including  Form of 10
                                    1/8%  Senior  Notes  due  2006  and  Form of
                                    Guarantee   (incorporated  by  reference  to
                                    Exhibit  4.1 to the  Company's  Registration
                                    Statement on Form S-4, filed on September 8,
                                    1999 (File No. 333-86695)).

                          4.2       Exchange and Registration  Rights Agreement,
                                    dated as of July 13, 1999,  by and among the
                                    Company,  Bear,  Stearns & Co.  Inc.,  Chase
                                    Securities  Inc.,  Salomon Smith Barney Inc.
                                    and Barclays  Capital Inc.,  relating to the
                                    new  notes  (incorporated  by  reference  to
                                    Exhibit  4.2 to the  Company's  Registration
                                    Statement on Form S-4, filed on September 8,
                                    1999 (File No. 333-86695)).

                         10.3       Metris Companies Inc. Non-Employee Director
                                    Stock Option Plan (incorporated by reference
                                    to Exhibit 10.3 to the Amendment No. 1 filed
                                    on October 8, 1999, to the Company's
                                    Registration Statement on Form S-4 (File No.
                                    333-86695)).

                         10.4       Metris Companies Inc. Management Stock
                                    Purchase Plan (incorporated by reference to
                                    Exhibit 10.4 to the Amendment No. 1 filed on
                                    October 8, 1999, to the Company's
                                    Registration Statement on Form S-4 (File No.
                                    333-86695)).

                         10.5       Metris Companies Inc. Amended and Restated
                                    Annual Incentive Plan for Designated
                                    Corporate Officers (incorporated by
                                    reference to Exhibit 10.5 to the Amendment
                                    No. 1 filed on October 8, 1999, to the
                                    Company's Registration Statement on Form S-4
                                   (File No. 333-86695)).

                         10.6       Metris Companies Inc. Amended and Restated
                                    Long-Term Incentive and Stock Option Plan
                                   (incorporated by reference to Exhibit 10.6 to
                                    the Amendment No. 1 filed on October 8,
                                    1999, to the Company's Registration
                                    Statement on Form S-4 (File No. 333-86695)).

                         10.10      Amendment  dated as of May 7,  1999,  to (a)
                                    the Amended and Restated  Credit  Agreement,
                                    dated as of June 30, 1998, among the Company
                                    and the lenders named therein,  Nationsbank,
                                    N.A., as syndication  agent,  Deutsche Bank,
                                    as documentation  agent,  U.S. Bank National
                                    Association,    as   documentation    agent,
                                    Barclays  Bank,  PLC, as  co-agent,  and The
                                    Chase  Manhattan  Bank,  as   administrative
                                    agent  and  (b)  the  Amended  and  Restated
                                    Pledge Agreement, dated as of June 30, 1998,
                                    among the Company,  Metris Direct,  Inc. and
                                    The Chase  Manhattan Bank  (incorporated  by
                                    reference to Exhibit to the  Amendment No. 1
                                    filed on October 8, 1999,  to the  Company's
                                    Registration Statement on Form S-4 (File No.
                                    333-86695)).

                        10.11       Amendment  dated as of June 10, 1999, to the
                                    Amended and Restated Credit Agreement, dated
                                    as of June 30,  1998,  among the Company and
                                    the  lenders  named  therein,   Nationsbank,
                                    N.A., as syndication  agent,  Deutsche Bank,
                                    as documentation  agent,  U.S. Bank National
                                    Association,    as   documentation    agent,
                                    Barclays  Bank,  PLC, as  co-agent,  Bank of
                                    America    National    Trust   and   Savings
                                    Association,  as  co-agent,  and  The  Chase
                                    Manhattan  Bank,  as  administrative   agent
                                    (incorporated  by reference to Exhibit 10.11
                                    to the  Amendment  No. 1 filed on October 8,
                                    1999,   to   the   Company's    Registration
                                    Statement on Form S-4 (File No. 333-86695)).

                        10.12       Transfer and Administration Agreement, dated
                                    June 30, 1999, among Direct Merchants Credit
                                    Card Bank, N.A. as Transferor and Collection
                                    Agent,   Enterprise   Funding   Corporation,
                                    Sheffield    Receivables    Corporation   as
                                    Purchasers,  Barclays  Bank PLC as Agent and
                                    NationsBank, N.A. as Bank Investor and Agent
                                    (incorporated  by reference to Exhibit 10.12
                                    to the  Amendment  No. 1 filed on October 8,
                                    1999,   to   the   Company's    Registration
                                    Statement on Form S-4 (File No. 333-86695)).


                        11.*        Computation of Earnings Per Share.

                        27.*        Financial Data Schedule.


                (b)      Reports on Form 8-K:
                         Not applicable


                         *Filed herewith
<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,      November 12, 1999
                                Chief Financial Officer
/s/ David D. Wesselink
----------------------
David D. Wesselink


Principal accounting officer:   Sr. Vice President, Finance,   November 12, 1999
                                Corporate Controller

/s/ Jean C. Benson
----------------------
Jean C. Benson