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                     March 31, 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 April 30, 1999,  19,291,000  shares of the registrant's  common stock, par
value $.01 per share, were outstanding.



<PAGE>

                              METRIS COMPANIES INC.

                                    FORM 10-Q

                                TABLE OF CONTENTS




                                 March 31, 1999

                                                                          Page

PART I.           FINANCIAL INFORMATION


         Item 1.      Consolidated Financial Statements (unaudited):
                             Consolidated Balance Sheets......................3
                             Consolidated Statements of Income................4
                             Consolidated Statements of Cash Flows............5
                             Notes to Consolidated Financial Statements.......6

         Item 2.      Management's Discussion and Analysis of
                             Financial Condition and Results of
                             Operations......................................17

         Item 3.      Quantitative and Qualitative Disclosures
                             About Market Risk...............................29


PART II. OTHER INFORMATION

         Item 1. Legal Proceedings...........................................30

         Item 2. Changes in Securities.......................................31

         Item 3. Defaults Upon Senior Securities.............................31

         Item 4. Submission of Matters to a Vote of Security Holders.........31

         Item 5. Other Information...........................................32

         Item 6.      Exhibits and Reports on Form 8-K.......................32

                      Signatures............................................ 33


<PAGE>



                          Part I. Financial Information

<TABLE>

ITEM 1.           CONSOLIDATED FINANCIAL STATEMENTS

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

                                                                              March 31,     December 31,
                                                                                1999           1998
                                                                          ----------------  -------------
Assets:
<S>                                                                        <C>           <C>
Cash and due from banks ................................................   $    15,844   $    22,114
Federal funds sold .....................................................        90,796        15,060
Short-term investments .................................................         9,957           173
                                                                               -------        ------
     Cash and cash equivalents .........................................       116,597        37,347
                                                                               -------        ------
Retained interests in loans securitized ................................       844,582       753,469
         Less:  Allowance for loan losses ..............................       450,672       393,283
                                                                               -------        ------
     Net retained interests in loans securitized .......................       393,910       360,186
                                                                               -------        ------
Loans held for securitization ..........................................        12,740         3,430
Property and equipment, net ............................................        22,400        21,982
Accrued interest and fees receivable ...................................         8,350         6,009
Prepaid expenses and deferred charges ..................................        67,780        59,104
Deferred income taxes ..................................................       178,815       153,021
Customer base intangible ...............................................        71,678        81,892
Other receivables due from credit card
   securitizations, net ................................................       166,198       185,935
Other assets ...........................................................        38,097        36,813
                                                                               -------        ------
     Total assets ......................................................   $ 1,076,565   $   945,719
                                                                           ===========   ===========
Liabilities:
Debt ...................................................................   $   373,897   $   310,896
Accounts payable .......................................................        53,201        19,091
Current income taxes payable ...........................................        36,520        31,783
Deferred income ........................................................       125,195       124,892
Accrued expenses and other liabilities .................................        33,090        26,075
                                                                               -------        ------
     Total liabilities .................................................       621,903       512,737
                                                                               -------        ------
Stockholders' Equity:
Preferred stock, par value $.01 per share;
     10,000,000 shares authorized, 552,013 and 539,866 shares issued and
     outstanding, respectively .........................................       205,625       201,100
Common  stock,  par  value $.01 per share; 100,000,000 shares authorized,
     19,261,945 and 19,259,750 shares respectively, issued and outstanding,
     respectively ......................................................           193           193
Paid-in capital ........................................................       107,847       107,615
Retained earnings ......................................................       140,997       124,074
                                                                               -------        ------
     Total stockholders' equity ........................................       454,662       432,982
                                                                               -------        ------
     Total liabilities and stockholders' equity ........................   $ 1,076,565   $   945,719
                                                                           ===========   ===========
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.


<PAGE>


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

<TABLE>

                                                                        Three Months Ended
                                                                             March 31,
                                                                         1999         1998
                                                                         ----         ----
Interest Income:
<S>                                                                   <C>         <C>
Credit card loans and retained interests in loans securitized .....   $  41,277   $  25,885
Federal funds sold ................................................         207         481
Other .............................................................         379         421
                                                                        -------      ------
     Total interest income ........................................      41,863      26,787
Interest expense ..................................................       9,375       6,643
                                                                        -------      ------
Net Interest Income ...............................................      32,488      20,144
Provision for loan losses .........................................      39,309      20,042
                                                                        -------      ------
Net interest income (expense) after provision for loan losses            (6,821)        102
                                                                        -------      ------
Other Operating Income:
Net securitization and credit card servicing income ...............      76,998      34,907
Credit card fees, interchange and other credit card income ........      21,309      13,021
Fee-based services revenues .......................................      37,536      24,568
                                                                        -------      ------
                                                                        135,843      72,496
                                                                        -------      ------

Other Operating Expense:
Credit card account and other product
      solicitation and marketing expenses .........................      22,945      10,150
Employee compensation .............................................      23,318      15,088
Data processing services and communications .......................      10,282       8,857
Third-party servicing expenses ....................................       3,646       2,571
Warranty and debt waiver underwriting and claims servicing expenses       3,980       2,875
Credit card fraud losses ..........................................       1,263       1,316
Other .............................................................      28,228      13,491
                                                                        -------      ------
                                                                         93,662      54,348
                                                                        -------      ------
Income Before Income Taxes ........................................      35,360      18,250
Income taxes ......................................................      13,720       7,026
                                                                        -------      ------
Net Income ........................................................      21,640      11,224
Preferred stock dividends .........................................       4,525
                                                                        -------      ------
Net Income Available To Common Stockholders .......................   $  17,115   $  11,224
                                                                      =========   =========

Earnings Per Share:
Basic .............................................................   $     .89    $    .58
Diluted ...........................................................   $     .85    $    .55

Shares used to compute earnings per share:
Basic .............................................................      19,259      19,225
Diluted ...........................................................      20,132      20,296
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.


<PAGE>


METRIS COMPANIES INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands) (Unaudited)

                                                        Three Months Ended
                                                              March 31,
                                                          1999        1998
                                                       ---------   -----------
Operating Activities:
Net income ........................................   $  21,640    $  11,224
Adjustments to reconcile net income to net cash
 provided by operating activities:
     Depreciation and amortization ................      20,504        8,917
     Change in allowance for loan losses ..........      57,389       47,018
     Changes in operating assets and liabilities:
         Accrued interest and fees receivable .....      (2,341)      (1,260)
         Prepaid expenses and deferred charges ....     (14,270)      (6,785)
         Deferred income taxes ....................     (25,794)     (24,535)
         Accounts payable and accrued expenses ....      41,125       (3,100)
         Other receivables due from credit card
                  securitizations, net ............      19,737        3,609
         Current income taxes payable .............       4,737       22,825
         Deferred income ..........................         303        8,918
         Other ....................................      (4,946)         685
                                                       ---------     --------
Net cash provided by operating activities .........     118,084       67,516
                                                       ---------     --------

Investing Activities:
Proceeds from/repayments of securitized loans .....    (302,597)      33,549
Net loans originated or collected .................     202,174      (69,747)
Additions to premises and equipment ...............      (1,452)      (1,961)
                                                       ---------     --------
Net cash used in investing activities .............    (101,875)     (38,159)
                                                       ---------     --------

Financing Activities:
Net increase (decrease)in debt ....................      63,001      (14,000)
Cash dividends paid ...............................        (192)        (192)
Net proceeds from issuance of common stock ........         232
                                                       ---------     --------
Net cash provided by (used in) financing activities      63,041      (14,192)
                                                       ---------     --------
Net increase in cash and cash equivalents .........      79,250       15,165
Cash and cash equivalents at beginning of period ..      37,347       48,223
                                                       ---------     --------
Cash and cash equivalents at end of period ........   $ 116,597    $  63,388
                                                      =========    =========


          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.

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.


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 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 Conduit
and other assets as a result of securitizations, including: amounts deposited in
an  investor  reserve  account  held by the Trust for the benefit of the Trust's
security holders; amounts due from interest rate caps, swaps and floors; accrued
interest and fees on the securitized receivables; servicing fee receivables; and
various other receivables.  These amounts are reported as "other receivables due
from credit card  securitizations,  net" on the consolidated balance sheets. The
provision  for  loan  losses  reflected  on the  statements  of  income  in "Net
securitization  and credit card servicing  income" was $139.5 million and $106.0
million for the three month periods ended March 31, 1999 and 1998, respectively.

         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 three month  periods ended March 31,
1999 and 1998,  was $3.5 million and $2.0 million,  respectively.  Cash paid for
income  taxes  for  the  same  periods  was  $34.6  million  and  $8.7  million,
respectively.


<PAGE>



Earnings Per Share

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

                                                Three Months Ended
                                                     March 31,
                                                 1999       1998
                                                 ----       ----
(In thousands, except per share amounts)
Net income ..................................   $21,640   $11,224
Preferred dividends .........................     4,525
                                                -------   -------
Net income available to common stockholders .   $17,115   $11,224
                                                =======   =======

Weighted average common shares outstanding ..    19,259    19,225
Adjustments for dilutive securities:
Assumed exercise of outstanding stock options       873     1,071
                                                -------   -------
Diluted common shares .......................    20,132    20,296
                                                =======   =======
Earnings per share:
     Basic ..................................   $   .89   $   .58
     Diluted ................................   $   .85   $   .55


NOTE 3 - ALLOWANCE FOR LOAN LOSSES

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

                                               Three Months Ended
                                                    March 31,
                                                  1999     1998
                                                  ----     ----
(In thousands)
Balance at beginning of period .............   $393,283  $244,084
Provision for loan losses ..................     39,309    20,042
Provision for loan losses (1) ..............    139,533   105,993
Loans charged-off ..........................    128,163    81,664
Recoveries .................................      6,710     2,647
                                                -------    ------
Net loan charge-offs .......................    121,453    79,017
                                                -------    ------
Balance at end of period ...................   $450,672  $291,102
                                               ========  ========


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

NOTE 4 - SEGMENTS

         The Company is organized  based on the  products  and services  that it
offers.  Under  this  organizational  structure,  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  information  in the  following  tables is  derived  directly  from
internal segment reporting used for management  purposes.  The expenses,  assets
and  liabilities  attributable  to corporate  functions are not allocated to the
operating segments. There were no operating assets located outside of the United
States for the periods presented.

         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.

         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 have not been allocated to the operating segments. These
expenses are included in the  reconciliation  of the income  before income taxes
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.

         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 March 31, 1999

                             Consumer Credit  Fee-Based
                               Products       Services   Reconciliation (a)   Consolidated
(In thousands)
<S>                          <C>             <C>         <C>                  <C>
Interest revenue .........   $  257,029      $      847  $    (216,013) (b)   $   41,863
Interest expense .........       69,474                        (60,099) (c)        9,375
                                 ------         -------        -------             -----
  Net interest income ....      187,555             847       (155,914)           32,488

Other revenue ............       81,926          37,536         16,381           135,843
Total revenue ............      338,955          38,383       (199,632)          177,706

Income before income taxes       79,921(d)       20,913 (d)    (65,474) (e)       35,360
Income taxes .............                                      13,720            13,720

Total assets .............   $5,118,901      $   62,734  $  (4,105,070) (f)   $1,076,565
</TABLE>

<PAGE>

<TABLE>


                                              Three Months Ended March 31, 1998

                            Consumer Credit   Fee-Based
                               Products       Services   Reconciliation(a)    Consolidated
(In thousands)
<S>                          <C>             <C>         <C>                  <C>
Interest revenue .........   $  174,859      $           $    (148,072)       $   26,787
Interest expense .........       53,824                        (47,181)            6,643
                                 ------         -------        -------             -----
  Net interest income ....      121,035                       (100,891)           20,144

Other revenue ............       53,030          24,568         (5,102)           72,496
Total revenue ............      227,889          24,568       (153,174)           99,283

Income before income taxes       40,591 (d)      17,666(d)     (40,007) (e)       18,250
Income taxes .............                                       7,026             7,026

Total assets .............   $3,544,718      $   33,136  $  (3,013,518) (f)   $  564,336
</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 $0.8 million of intercompany interest received by the fee-based
  services  segment  from the  consumer  credit  products  segment for the three
  months ended March 31, 1999.

  (c) The  reconciliation  to consolidated  owned interest  expense includes the
  elimination  of $0.8  million of  intercompany  interest  paid by the consumer
  credit products segment to the fee-based services segment for the three months
  ended March 31, 1999.

  (d) Income before income taxes includes  intercompany  commissions paid by the
  fee-based  services  segment  to the  consumer  credit  products  segment  for
  successful  marketing efforts to consumer credit products  cardholders of $0.7
  million and $0.9  million for the three  months ended March 31, 1999 and 1998,
  respectively.

  (e) The  reconciliation  to the owned income  before  income  taxes  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.


<PAGE>


NOTE 5 - SUBSEQUENT EVENT

              On May 10, 1999, the Company  announced that it had entered into a
definitive  agreement with GE Capital ("GE"), a unit of General Electric Company
to  acquire  a  portfolio  of   approximately   563,000   active   accounts  and
approximately  $1.3 billion of credit card receivables.  The consideration to be
paid by the Company to GE will be based on the par value of the  receivables  in
the GE portfolio at the time of the closing, subject to certain adjustments. The
Company intends to finance the GE portfolio  acquisition  with proceeds from the
sale of the portfolio's credit card receivables to one or more conduits.  The GE
portfolio acquisition is expected to close in the second quarter of 1999.


NOTE 6 - DEBT

         On June 30,  1998,  the  Company  executed a $200  million,  three-year
revolving  credit  facility  and a $100  million  five-year  term loan (the "New
Credit  Facility") with a syndicate of banks and money market mutual funds. This
agreement became effective upon the Spin Off from FCI on September 25, 1998. The
New Credit  Facility  which is not guaranteed by FCI replaced the Company's $300
million,  five-year  revolving credit facility (the "Old Credit Facility").  The
New Credit  Facility is secured by  receivables  and general  intangibles of the
Company and Metris Direct,  Inc. and all subsidiary  stock other than non-United
States organized  corporations and guaranteed by Metris Direct,  Inc.  Financial
covenants  in  the  New  Credit  Facility  include,  but  are  not  limited  to,
requirements  concerning  minimum net worth,  minimum  tangible net worth to net
managed   receivables  and  tangible  net  worth  plus  reserves  to  delinquent
receivables. At March 31, 1999, the Company was in compliance with all financial
covenants  under this  agreement.  At March 31, 1999 and December 31, 1998,  the
Company  had   outstanding   borrowings   of  $107  million  and  $110  million,
respectively, under the New Credit Facility. The weighted average interest rates
on the  borrowings at March 31, 1999 and December 31, 1998,  were 8.0% and 7.9%,
respectively.

         Beginning  in the first  quarter  1999,  Direct  Merchants  Bank  began
issuing  jumbo  certificates  of  deposit  ("CDs").  These  CDs  are  issued  in
increments of $100,000 and are sold through third party investment  banks. As of
March 31, 1999, $65.7 million of CDs were  outstanding  with maturities  ranging
from six months to two years and fixed interest rates ranging from 4.9% to 5.5%.

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

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


<PAGE>


                              METRIS COMPANIES INC.
                    Supplemental Consolidating Balance Sheets
                                 March 31, 1999
                             (Dollars in thousands)
                                    Unaudited

<TABLE>
                                                 Metris       Guarantor    Non-Guarantor
                                             Companies Inc.  Subsidiaries  Subsidiaries  Eliminations   Consolidated
Assets:
<S>                                          <C>             <C>           <C>           <C>            <C>
Cash and cash equivalents ................   $      (589)    $      632    $  116,554    $              $   116,597
Net retained interests in loans
   securitized ...........................          (134)                     394,044                       393,910
Loans held for securitization ............         2,152                       10,588                        12,740
Property and equipment, net ..............                       18,510         3,890                        22,400
Prepaid expenses and deferred charges             30,105         14,969        22,706                        67,780
Deferred income taxes ....................         1,018         17,407       160,390                       178,815
Customer base intangible .................                                     71,678                        71,678
Other receivables due from credit card
   securitizations, net ..................            33                      166,165                       166,198
Other assets .............................         5,484          7,692        33,271                        46,447
Investment in subsidiaries ...............       753,380        768,710                   (1,522,090)
                                                 -------        -------       -------     ----------        -------
Total assets .............................   $   791,449     $  827,920    $  979,286    $(1,522,090)   $ 1,076,565
                                             ===========     ==========    ==========    ===========    ===========

Liabilities:
Debt .....................................   $   333,562     $   10,513    $   29,822    $              $   373,897
Accounts payable .........................           269         13,478        39,454                        53,201
Current income taxes payable .............       (33,885)       (13,873)       84,278                        36,520
Deferred income ..........................        29,335         43,362        52,498                       125,195
Accrued expenses and other liabilities             7,506         21,060         4,524                        33,090
                                                 -------        -------       -------     ----------        -------
Total liabilities ........................       336,787         74,540       210,576                       621,903
Total stockholders' equity ...............       454,662        753,380       768,710     (1,522,090)       454,662
                                                 -------        -------       -------     ----------        -------
Total liabilities and stockholders' equity   $   791,449     $  827,920    $  979,286    $(1,522,090)   $ 1,076,565
                                             ===========     ==========    ==========    ===========    ===========
</TABLE>




<PAGE>



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

                                                 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 ...                  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>


                              METRIS COMPANIES INC.
                 Supplemental Consolidating Statements of Income
                        Three Months Ended March 31, 1999
                             (Dollars in thousands)
                                    Unaudited
<TABLE>

                                                 Metris       Guarantor    Non-Guarantor
                                             Companies Inc.  Subsidiaries  Subsidiaries  Eliminations   Consolidated
<S>                                          <C>             <C>           <C>           <C>            <C>
Net Interest Income/(Expense) ...............$    (9,367)    $     (108)   $    41,963   $              $    32,488
Provision for loan losses ...................        245                        39,064                       39,309
                                             -----------     ----------    -----------                  -----------
Net Interest Income/(Expense) After
   Provision for Loan Losses ...............      (9,612)          (108)         2,899                       (6,821)
                                             -----------     ----------    -----------                  -----------
Other Operating Income:
Net securitization and credit card
   servicing income ........................       1,792                        75,206                       76,998
Credit card fees, interchange and other income       222           (135)        21,222                       21,309
Fee-based services revenues ..................                   11,094         26,442                       37,536
                                             -----------     ----------    -----------                  -----------
                                                   2,014         10,959        122,870                      135,843
                                             -----------     ----------    -----------                  -----------
Other Operating Expense:
Credit card account and other product
   solicitation and marketing expenses .......                    8,160         14,785                       22,945
Employee compensation ........................                   21,010          2,308                       23,318
Data processing services and communications ..                    1,416          8,866                       10,282
Third-party servicing expenses
                                                                (15,816)        19,462                        3,646
Warranty and debt waiver underwriting
   and claims servicing expenses .............                    1,347          2,633                        3,980
Credit card fraud losses .....................         3                         1,260                        1,263
Other ........................................       400          9,425         18,403                       28,228
                                             -----------     ----------    -----------                  -----------
                                                     403         25,542         67,717                       93,662
                                             -----------     ----------    -----------                  -----------
Income/(Loss) Before Income Taxes and
   Equity in Income of Subsidiaries ..........    (8,001)       (14,691)        58,052                       35,360
Income taxes .................................    (3,105)        (5,913)        22,738                       13,720
Equity in income of subsidiaries .............    26,536         35,314                      (61,850)
                                             -----------     ----------    -----------   -----------    -----------
Net Income/(Loss) ...........................$    21,640     $   26,536    $    35,314   $   (61,850)   $    21,640
                                             ===========     ==========    ===========   ===========    ===========

</TABLE>




<PAGE>


                              METRIS COMPANIES INC.
                 Supplemental Consolidating Statements of Income
                        Three Months Ended March 31, 1998
                             (Dollars in thousands)
                                    Unaudited
<TABLE>

                                                 Metris       Guarantor    Non-Guarantor
                                             Companies Inc.  Subsidiaries  Subsidiaries  Eliminations   Consolidated
<S>                                          <C>             <C>           <C>           <C>            <C>
Net Interest Income/(Expense) .........      $    (3,085)    $   (4,374)   $    27,603   $              $    20,144
Provision for loan losses .............               50                        19,992                       20,042
                                             -----------     ----------    -----------                   -----------
Net Interest Income/(Expense) After
   Provision for Loan Losses ..........           (3,135)        (4,374)         7,611                          102
                                             -----------     ----------    -----------                   -----------
Other Operating Income:
Net securitization and credit card
   servicing income ...................            3,660                        31,247                       34,907
Credit card fees, interchange and other
   income .............................               45                        12,976                       13,021
Fee-based services revenues ...........                           6,098         18,470                       24,568
                                             -----------     ----------    -----------                   -----------
                                                   3,705          6,098         62,693                       72,496
                                             -----------     ----------    -----------                   -----------
Other Operating Expense:
Credit card account and other product
   solicitation and marketing expenses                            3,935          6,215                       10,150
Employee compensation .................                          13,576          1,512                       15,088
Data processing services and
   communications .....................                           1,360          7,497                        8,857
Third-party servicing expenses ........             (266)       (11,552)        14,389                        2,571
Warranty and debt waiver underwriting
   and claims servicing expenses ......                             462          2,413                        2,875
Credit card fraud losses ..............               12                         1,304                        1,316
Other .................................              137          5,716          7,638                       13,491
                                             -----------     ----------    -----------                   -----------
                                                    (117)        13,497         40,968                       54,348
                                             -----------     ----------    -----------                   -----------
Income/(Loss) Before Income Taxes and
   Equity in Income of Subsidiaries ...              687        (11,773)        29,336                       18,250
Income taxes ..........................              264         (4,649)        11,411                        7,026
Equity in income of subsidiaries
                                                  10,801         17,925                      (28,726)
                                             -----------     ----------    -----------   -----------    -----------
Net Income/(Loss) .....................      $    11,224     $   10,801    $    17,925   $   (28,726)   $    11,224
                                             ===========     ==========    ===========   ===========    ===========

</TABLE>



<PAGE>


                              METRIS COMPANIES INC.
          Supplemental Condensed Consolidating Statements of Cash Flows
                        Three Months Ended March 31, 1999
                             (Dollars in thousands)
                                    Unaudited
<TABLE>


                                                        Metris          Guarantor     Non-Guarantor
                                                      Companies Inc.   Subsidiaries   Subsidiaries    Consolidated

Operating Activities:
<S>                                                   <C>              <C>            <C>             <C>
Net cash provided by (used in) operating activities   $ (41,223)       $    (5,210)   $   164,517     $   118,084
                                                      ---------        -----------    -----------     -----------
Investing Activities:
Proceeds from/repayments of securitized loans .....                                      (302,597)       (302,597)
Net loans originated or collected .................        (275)                          202,449         202,174
Additions to premises and equipment ...............                         (1,472)            20          (1,452)
                                                      ---------        -----------    -----------     -----------
Net cash used in investing activities .............        (275)            (1,472)      (100,128)       (101,875)
                                                      ---------        -----------    -----------     -----------
Financing Activities:
Net (decrease) increase in debt ...................      16,264             (4,508)        51,245          63,001
Cash dividends paid ...............................        (192)              (804)           804            (192)
Net proceeds from the issuance of common stock           29,846             12,782        (42,396)            232
                                                      ---------        -----------    -----------     -----------
Net cash provided by financing activities .........      45,918              7,470          9,653          63,041
                                                      ---------        -----------    -----------     -----------
Net increase in cash and cash equivalents .........       4,420                788         74,042          79,250
Cash and cash equivalents at beginning of period ..      (5,009)              (156)        42,512          37,347
                                                      ---------        -----------    -----------     -----------
Cash and cash equivalents at end of period ........   $    (589)       $       632    $   116,554     $   116,597
                                                      =========        ===========    ===========     ===========

</TABLE>



                              METRIS COMPANIES INC.
          Supplemental Condensed Consolidating Statements of Cash Flows
                        Three Months Ended March 31, 1998
                             (Dollars in thousands)
                                    Unaudited
<TABLE>


                                                        Metris          Guarantor     Non-Guarantor
                                                      Companies Inc.   Subsidiaries   Subsidiaries    Consolidated
Operating Activities:
<S>                                                   <C>              <C>            <C>             <C>
Net cash provided by (used in) operating activities   $  (4,934)       $   (10,437)   $    82,887     $    67,516
                                                      ---------       ------------    ------------    -----------
Investing Activities:
Proceeds from/repayments of securitized loans ......                                       33,549          33,549
Net loans originated or collected ..................      6,345                           (76,092)        (69,747)
Additions to premises and equipment ................                        (2,306)           345          (1,961)
                                                      ---------       ------------    ------------    -----------
Net cash provided by (used in) investing activities       6,345             (2,306)       (42,198)        (38,159)
                                                      ---------       ------------    ------------    -----------
Financing Activities:
Net (decrease) increase in debt ....................    (47,540)           (10,828)        44,368         (14,000)
Cash dividends paid ................................      6,808                            (7,000)           (192)
Capital contributions ..............................     40,594             22,964        (63,558)
                                                      ---------       ------------    ------------    -----------
Net cash (used in) provided by financing activities        (138)            12,136        (26,190)        (14,192)
                                                      ---------       ------------    ------------    -----------
Net (decrease) increase in cash and cash equivalents      1,273               (607)        14,499          15,165
Cash and cash equivalents at beginning of period ...        337                390         47,496          48,223
                                                      ---------       ------------    ------------    -----------
Cash and cash equivalents at end of period .........  $   1,610       $       (217)   $     61,995    $    63,388
                                                      =========       ============    ============    ===========

</TABLE>




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 March 31, 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  March 31,  1999,  was $21.6
million, or $.85 per share, up 93% from $11.2 million, or $.55 per share for the
first  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.  These increases
are largely  attributable to the growth in average managed loans to $5.2 billion
for the first  quarter 1999 from $3.6  billion for the first  quarter  1998,  an
increase  of 45%,  and growth in total  credit  card  accounts to 2.9 million at
March 31, 1999, from 2.2 million at March 31, 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>

                                                 March 31,   December 31,    March 31,
                                                   1999         1998          1998
                                                   ----         ----          ----
(Dollars in thousands)
Period-end balances
Credit card loans:
<S>                                            <C>          <C>          <C>
   Loans held for securitization ...........   $   12,740   $    3,430   $   29,933
   Retained interests in loans securitized .      844,582      753,469      487,506
   Investors' interests in securitized loans    4,255,545    4,558,143    3,099,837
                                                ---------    ---------    ---------
Total managed loan portfolio ...............   $5,112,867   $5,315,042   $3,617,276
                                               ==========   ==========   ==========

</TABLE>



<PAGE>





                                                  Three Months Ended
                                                       March 31,
                                                  1999         1998
                                                  ----         ----
(Dollars in thousands)
Average balances
Credit card loans:
   Loans held for securitization ...........   $   62,130  $   33,540
   Retained interests in loans securitized .      761,627     493,565
   Investors' interests in securitized loans    4,421,260   3,094,982
                                                ---------   ---------
Total managed loan portfolio ...............   $5,245,017  $3,622,087
                                               ==========  ==========

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:

                                                            Three Months Ended
                                                                March 31,
                                                        1999             1998
                                                        ----             ----
(Dollars in thousands)
Statements of Income (owned basis):
   Net interest income ..............            $       32,488   $      20,144
   Provision for loan losses ........                    39,309          20,042
   Other operating income ...........                   135,843          72,496
   Other operating expense ..........                    93,662          54,348
                                                         ------          ------
   Income before income taxes .......            $       35,360   $      18,250
                                                ===============    ============
Adjustments for Securitizations:
   Net interest income ..............            $      155,914   $     100,891
   Provision for loan losses ........                   139,533         105,993
   Other operating income ...........                   (16,381)          5,102
   Other operating expense
                                                         ------          ------
   Income before income taxes .......            $                $
                                                ===============    ============

Statements of Income (managed basis):
   Net interest income ..............           $       188,402   $     121,035
   Provision for loan losses ........                   178,842         126,035
   Other operating income ...........                   119,462          77,598
   Other operating expense ..........                    93,662          54,348
                                                         ------          ------
   Income before income taxes .......           $        35,360   $      18,250
                                                ===============    ============

Other Data:
Owned Basis:
Average interest-earning assets .....           $       889,240   $     594,393
Return on average assets ............                       8.5%            7.4%
Return on average equity ............                      19.6%           25.0%
Net interest margin (1) .............                      14.8%           13.7%
Managed Basis:
Average interest-earning assets .....                 5,310,500   $   3,689,375
Return on average assets ............                       1.6%            1.2%
Return on average equity ............                      19.6%           25.0%
Net interest margin (1) .............                      14.4%           13.3%

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

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 month period ended March 31,
1999, was $188.4 million compared to $121.0 million for the same period in 1998.
This increase was primarily  due to a $1.6 billion  increase in average  managed
loans over the comparable period in 1998.

         Managed net interest  margin was 14.4% for the three month period ended
March 31, 1999, compared to 13.3% for the same period in 1998. The first quarter
1999 net interest margin was favorably impacted by the targeted repricing of the
Company's core portfolio and the repricing of the PNC portfolio. Financing costs
as a percent of  borrowings  for the first  quarter of 1999 were 5.9%,  compared
with 6.4% in the first quarter 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 month periods ended March 31, 1999 and 1998:

Analysis of Average Balances, Interest and Average Yields and Rates

<TABLE>

                                                                                 Three Months Ended March 31,
                                                                          1999                                   1998
                                                 ------------------------------------- ---------------------------------------------
                                                         Average                      Yield/      Average                    Yield/
                                                         Balance          Interest     Rate       Balance       Interest     Rate
(Dollars in thousands)
Owned Basis
Assets:
<S>                                                    <C>             <C>             <C>     <C>            <C>           <C>
Interest-earning assets:
Federal funds sold ................................... $    31,272     $       207      2.7%   $    35,409    $       481    5.5%
Short-term investments ...............................      34,211             379      4.5%        31,879            421    5.4%
Credit card loans and retained interests in loans
   securitized .......................................     823,757          41,277     20.3%       527,105         25,885   19.9%
                                                           -------          ------     ----        -------         ------   ----
Total interest-earning assets ........................ $   889,240     $    41,863     19.1%   $   594,393    $    26,787   18.3%

Other assets .........................................     586,818                                 298,497
Allowances for loan losses ...........................    (440,116)                               (276,475)
                                                          --------                                --------
   Total assets ...................................... $ 1,035,942                             $   616,415
                                                       ===========                             ===========

Liabilities and Equity:
Interest-bearing liabilities ......................... $   389,288     $     9,375      9.8%   $   296,089    $     6,643    9.1%
Other liabilities ....................................     198,472                                 138,194
                                                          --------                                --------
Total liabilities ....................................     587,760                                 434,283
Stockholders' equity .................................     448,182                                 182,132
                                                          --------                                --------
Total liabilities and equity ......................... $ 1,035,942                             $   616,415
                                                       ===========                             ===========
Net interest income and interest margin (1) ..........                 $    32,488     14.8%                  $    20,144   13.7%
Net interest rate spread (2) .........................                                  9.3%                                 9.2%

Managed Basis
Credit card loans .................................... $ 5,245,017     $   256,443     19.8%   $ 3,622,087    $   173,957   19.5%
Total interest-earning assets ........................   5,310,500         257,029     19.6%     3,689,375        174,859   19.2%
Total interest-bearing liabilities ...................   4,710,548          68,627      5.9%     3,391,071         53,824    6.4%
Net interest income and interest margin (1) ..........                 $   188,402     14.4%                      121,035   13.3%
Net interest rate spread (2) .........................                                 13.7%                                12.8%

</TABLE>

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


<PAGE>




Other Operating Income

         Other  operating  income  contributes  substantially  to the  Company's
results of  operations,  representing  76% of owned revenues for the three month
period ended March 31, 1999. The following table presents other operating income
on an owned basis:

                                                       Three Months Ended
                                                            March 31,
(Dollars in thousands)                                  1999        1998
                                                        ----        ----
Other Operating Income:
Net securitization and credit card servicing income   $ 76,998   $ 34,907
Credit card fees, interchange and other income ....     21,309     13,021
Fee-based services revenues .......................     37,536     24,568
                                                        ------     ------
   Total ..........................................   $135,843   $ 72,496
                                                      ========   ========


         Other  operating  income  increased  $63.4  million for the three month
period ended March 31, 1999,  over the comparable  period in 1998. This increase
is primarily  due to the $42.1  million  increase 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 month period  ended March 31, 1999,  credit card fees,
interchange and other income  increased $8.3 million over the comparable  period
in 1998.  This increase was  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,  which has resulted
in a significant increase in credit card fee revenue over the prior year.

         Additionally,  fee-based  services revenues  increased by $13.0 million
for the three month period ended March 31, 1999.  This increase is attributed to
the  Company's  debt waiver  product and the  increases  in  membership  program
revenues.



Other Operating Expense
<TABLE>
                                                                           Three Months Ended
                                                                               March 31,
(Dollars in thousands)                                                        1999      1998
                                                                              ----      ----
Other Operating Expense:
<S>                                                                         <C>       <C>
Credit card account and other product solicitation and marketing expenses   $22,945   $10,150
Employee compensation ...................................................    23,318    15,088
Data processing services and communications .............................    10,282     8,857
Third-party servicing expenses ..........................................     3,646     2,571
Warranty and debt waiver underwriting and claims servicing expenses           3,980     2,875
Credit card fraud losses ................................................     1,263     1,316
Other ...................................................................    28,228    13,491
                                                                            -------   -------
   Total ................................................................   $93,662   $54,348
                                                                            =======   =======
</TABLE>


         Total other  operating  expenses for the three month period ended March
31, 1999 increased $39.3 million over the comparable period in 1998, largely due
to costs  associated  with the  growth  of the  Company's  business  activities.
Employee  compensation  and other  expenses  increased  $8.2  million  and $14.7
million,  respectively,  for the three month period ended March 31, 1999, due to
increased  staffing needs and use of outside services to support the increase in
credit card accounts and fee-based  services  active member growth and increased
goodwill amortization.  Also, credit card account and other product solicitation
and marketing expenses  increased $12.8 million,  largely due to the increase in
fee-based  marketing  activity  and  testing  and  implementation  of other  new
marketing programs during the first quarter of 1999.

Income Taxes

         The  Company's  provision  for income taxes  includes  both federal and
state  income  taxes.  Applicable  income tax expense was $13.7  million for the
three month  period  ended March 31, 1999  compared to $7.0 million for the same
period in 1998.  This tax expense  represents an effective tax rate of 38.8% and
38.5% for the periods ended March 31, 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
March 31, 1999, 48% of managed  accounts and 43% of managed loans were less than
24 months old.  Accordingly,  the Company  believes that its loan portfolio will
experience  increasing or 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  March  31,  1999,  the  Company's  managed  net
charge-off ratio was 9.4% compared to 8.8% for the quarter ended March 31, 1998.
Without the impact of purchase  accounting related to acquired  portfolios,  the
charge-off  rate  would have been 10.8% and  10.5%,  respectively.  The  Company
believes, consistent with its statistical models and other credit analysis, that
this rate will continue to fluctuate but generally rise over the next year.

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

Delinquencies

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

<TABLE>

Managed Loan Delinquency
                                    March 31,    % of    December 31,  % of      March 31,   % of
                                      1999       Total      1998       Total       1998      Total
                                      ----       -----      ----       -----       ----      -----
(Dollars in thousands)
<S>                               <C>            <C>    <C>            <C>    <C>            <C>
Managed loan portfolio ........   $5,112,867     100%   $5,315,042     100%   $3,617,276     100%
Loans contractually delinquent:
     30 to 59 days ............      122,360     2.4%      113,449     2.1%       79,902     2.2%
     60 to 89 days ............       98,727     1.9%       75,049     1.4%       59,245     1.7%
     90 or more days ..........      187,195     3.7%      173,812     3.3%      127,606     3.5%
                                  ----------   -----    ----------   -----    ----------   -----
       Total ..................   $  408,282     8.0%   $  362,310     6.8%   $  266,753     7.4%
                                  ==========   =====    ==========   =====    ==========   =====
</TABLE>

         The above  numbers  reflect the  continued  seasoning of the  Company's
managed  loan  portfolio  without the impact of purchase  accounting  related to
acquired  portfolio's,  delinquency  rates would have been 8.3%,  7.4% and 7.5%,
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:

                                                   Three Months Ended
                                                        March 31,
                                                    1999         1998
                                                    ----         ----
(Dollars in thousands)
Owned basis:
     Average loans and retained interests in
     loans securitized outstanding .........   $  823,757    $  527,105
     Net charge-offs .......................       18,894        10,614
     Net charge-offs as a percentage
        of average loans outstanding (1) ...          9.3%          8.2%
                                               ==========    ==========

Managed basis:
     Average loans outstanding .............   $5,245,017    $3,622,087
     Net charge-offs .......................      121,453        79,017
     Net charge-offs as a percentage of
        average loans outstanding(1) .......          9.4%          8.8%
                                               ==========    ==========

(1)      Annualized

Provision and Allowance for Loan Losses

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

         The  provision  for loan losses on a managed  basis for the three month
period ended March 31, 1999 totaled $178.8  million,  compared to a provision of
$126.0 million for the three month period ended March 31, 1998. The increase for
the three  month  period  ended March 31,  1999,  as compared to the three month
period ended March 31, 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

                                             Three Months Ended
                                                 March 31,
                                           1999        1998
                                           ----        ----
(Dollars in thousands)
Managed Basis:
Balance at beginning of period .......   $393,283    $244,084
Provision for loan losses ............    178,842     126,035
Loans charged-off ....................    128,163      81,664
Recoveries ...........................      6,710       2,647
                                         --------    --------
Net loan charge-offs .................    121,453      79,017
                                         --------    --------
Balance at end of period .............   $450,672    $291,102
                                         ========    ========

Ending allowance as a percent of loans        8.8%        8.0%
                                         ========    ========


Derivatives Activities

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

         Prior to the  spin  off  from  Fingerhut  Companies,  Inc.  ("FCI")  on
September 25, 1998 ("Spin Off"),  the Company had entered into interest rate cap
and swap  agreements to hedge the cash flow and earnings  impact of  fluctuating
market interest rates on the spread between the floating rate loans owned by the
Metris  Master Trust (the  "Trust")  and the floating and fixed rate  securities
issued by the Trust to fund the loans.  In connection  with the issuance of term
asset-backed  securities  by the Trust in 1998,  the Company  entered  into term
interest rate cap agreements with  highly-rated  bank  counterparties in a total
notional amount of $1.8 billion  effectively  capping the  potentially  negative
impact to the Trust of increases in the floating interest rate of the securities
at  approximately  9.2%.  The Company also entered into a term interest rate cap
agreement  in  connection  with the PNC Bank  Corp  portfolio  acquisition  with
highly-rated  bank  counterparties  in a total notional  amount of $640 million,
effectively  capping the  potentially  negative  impact of  increases  in market
interest  rates of the  securities  at 7.4%.  Due to the Spin Off,  the  Company
terminated interest rate swap agreements  guaranteed by FCI related to two trust
series fixed rate asset-backed  securities issuances.  Proceeds were utilized to
purchase  interest rate floor contracts from highly-rated  counterparties  which
did not require a FCI guaranty.  The floors were in the same  notional  amounts,
fixed interest rate strike rates,  and maturities as the previous swaps in order
to hedge the potential  impact on the Company's  cash flow and earnings of a low
market interest rate environment in which the yield on the Trust's floating rate
loans might decline  causing the margin over the fixed rate funding to compress.
During October 1998, the Company  terminated the interest rate floors related to
one of the Trust Series.  The gain on this  termination is being  amortized into
income over the remaining life of the securities.



<PAGE>


Liquidity, Funding and Capital Resources

         The  Company  finances  the  growth of its credit  card loan  portfolio
through  cash  flow  from  operations,  asset  securitization,  bank  financing,
long-term debt issuance, a jumbo CD program, and equity issuance.

         At March 31, 1999 and 1998,  the Company had  received  cumulative  net
proceeds of approximately $4.3 billion and $3.1 billion, respectively from sales
of credit  card  loans to the Trust and  Conduits.  Cash  generated  from  these
transactions  was  used to  reduce  borrowings  and to  fund  credit  card  loan
portfolio growth.  The Company relies upon the securitization of its credit card
loans to fund  portfolio  growth  and,  to date,  has  completed  securitization
transactions on terms that it believes are  satisfactory.  The Company's ability
to securitize  its assets  depends on the favorable  investor  demand and legal,
regulatory  and  tax  conditions  for  securitization  transactions,  as well as
continued  favorable  performance  of the  Company's  securitized  portfolio  of
receivables.  Any  adverse  change  could  force  the  Company  to rely on other
potentially  more  expensive  funding  sources and, in the worst case  scenario,
could create liquidity risks if other funding is unavailable.

         On June 30,  1998,  the  Company  executed a $200  million,  three-year
revolving  credit  facility  and a $100  million  five-year  term loan (the "New
Credit  Facility") with a syndicate of banks and money market mutual funds. This
agreement became effective upon the Spin Off from FCI on September 25, 1998. The
New Credit Facility, which is not guaranteed by FCI, replaced the Company's $300
million,  five-year  revolving credit facility (the "Old Credit Facility").  The
New Credit  Facility is secured by  receivables  and general  intangibles of the
Company and Metris Direct,  Inc. and all subsidiary  stock other than non-United
States  organized  corporations  and  guaranteed by Metris  Direct,  Inc.  Other
subsidiaries  may in the  future  guarantee  this  credit  agreement.  Financial
covenants  in  the  New  Credit  Facility  include,  but  are  not  limited  to,
requirements  concerning  minimum net worth,  minimum  tangible net worth to net
managed   receivables  and  tangible  net  worth  plus  reserves  to  delinquent
receivables. At March 31, 1999, the Company was in compliance with all financial
covenants  under this  agreement.  At March 31, 1999 and December 31, 1998,  the
Company  had   outstanding   borrowings   of  $107  million  and  $110  million,
respectively, under the New Credit Facility. As a result of the Spin Off and the
removal of the FCI  guarantee,  the  Company  is no longer  able to borrow at an
investment grade rate. The interest rate under the New Credit Facility is higher
than the interest rate under the Old Credit  Facility due to the Company's lower
independent credit rating.

         Beginning in the first  quarter of 1999,  Direct  Merchants  Bank began
issuing  jumbo  certificates  of  deposit  ("CDs").  These  CDs  are  issued  in
increments of $100,000 and are sold through third party investment  banks. As of
March 31, 1999, $65.7 million of CDs were  outstanding  with maturities  ranging
from six months to two years and fixed interest rates ranging from 4.9% to 5.5%.

         In addition to asset securitizations and bank funding, 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 3.75 million  ten-year
warrants to purchase  shares of the Company's  common stock for $30,  subject to
adjustment in certain circumstances. The Series B Preferred has 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 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").  If notice is  received  that  there is no
regulatory  objection to the conversion to the Series C Preferred,  the Series B
Preferred and the Lee Senior Notes will be converted  into 0.8 million shares of
Series C Preferred  at a  conversion  price of $37.25 and the  warrants  will be
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 first quarter of 1999,
the Lee Company would have owned  approximately  30% of the Company on a diluted
basis.

         Converting  to the Series C Preferred  will cause 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
must be 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 amount  allocated to
the Lee Senior Notes would be recognized as an extraordinary loss from the early
extinguishment  of debt and the amount allocated to the Series B Preferred would
be recognized as a reduction of net income available to common stockholders. The
extraordinary loss attributable to the Lee Senior Notes will not be recorded net
of taxes. These adjustments will have no impact on total  stockholders'  equity.
At the time of the filing of this 10-Q, no regulatory notice had been received.

         As the  portfolio  of  credit  card  loans  grows,  or as the Trust and
Conduit certificates amortize or are otherwise paid, the Company's funding needs
will  increase  accordingly.  The  Company  believes  that  its cash  flow  from
operations,   asset  securitization  programs,  together  with  the  New  Credit
Facility,  long term debt issuance,  jumbo CD 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, 1999.  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,  length  of a phone  call,  financing  period  for a loan,  or
expiration  for a credit  card.  The  problem is not  limited to  computers  and
computer  software.  Anything  that  contains a  processor  that  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, 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  companies  and  financial
services  institutions,  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  with respect to those vendors that 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 begun testing such internal systems for Year
2000  compliance.  The Company has created 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 following phases 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 began March 1998 with a targeted  completion  of
July 1999 for mission critical applications. 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 code enhancement,  hardware and software upgrades,  system
replacements, vendor certification and other associated changes.

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


<PAGE>


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


September 30, 1998 .................  Completed development of a proactive
                                      customer awareness program


September 30, 1998 .................  Completed organization planning guidelines
                                      and business impact analysis for Year 2000
                                      Business Resumption Contingency Planning


December 31, 1998 ..................  Contingency planning and validation for
                                      Year 2000 Business Resumption Contingency
                                      Planning is underway


September 30, 1999 .................  Testing of mission-critical systems and
                                      service providers should be complete and
                                      implementation should be substantially
                                      complete


October 31, 1999 ................... Contingency planning and validation for
                                     Year 2000 Business Resumption Contingency
                                     Planning should be complete


         As of March 31, 1999,  the  project is on  schedule. A customer
awareness program  has  been  implemented;  a  Contingency  Planning  framework
has  been completed and contingency planning efforts are well underway; testing
of mission critical  systems was underway by December 1998; and testing of
Mission Critical systems is targeted for completion by September 1999.

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

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

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

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

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

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

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

Forward-Looking Statements

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

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

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


ITEM 3.           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

         The Company's  primary owned and managed  assets are credit card loans,
which are  virtually  all priced at rates  indexed to the  variable  Prime Rate.
Retained  interests in loans securitized and loans held for  securitization  are
funded  through a combination of cash flow from  operations,  the Company's $300
million  bank credit  facility,  $200  million in senior  notes,  jumbo CDs, and
equity  issuance.  The $300  million  bank credit  facility  has pricing that is
indexed to the variable London Interbank Offered Rate ("LIBOR") or a Prime Rate.
The  Company's  securitized  loans are  owned by the  Trust  and  bank-sponsored
multiseller receivables conduits (the "Conduits"),  which have committed current
funding  indexed to variable  commercial  paper  rates,  as well as term funding
which is either directly  indexed to LIBOR or at fixed rates. At March 31, 1999,
approximately 25.5% of the Trust and Conduit funding of securitized  receivables
was funded with fixed rate certificates.

         Combining  the interest rate floor  transaction  referred to above with
the Trust and Conduit funding, in a low market interest rate environment,  83.0%
of the  funding  for the  securitized  loan  portfolio  is indexed  to  floating
commercial  paper and LIBOR rates. In a high market  interest rate  environment,
the  potentially  negative  impact on  earnings  of higher  interest  expense is
mitigated  by the  fixed  rate  funding  and the  interest  rate  cap  contracts
described above.

         The approach  used by  management  to quantify  interest rate risk is a
sensitivity  analysis which management  believes best reflects the risk inherent
in the Company's  business.  This approach  calculates  the impact on net income
from an  instantaneous  and  sustained  change  in  interest  rates by 200 basis
points.  Assuming no  counteractive  measures by  management,  a 200 basis point
increase in interest  rates  affecting  the Company's  floating  rate  financial
instruments,  including  both debt  obligations  and  loans,  will  result in an
increase in net income of  approximately  $17.6 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  $12.1  million.  The Company's use of
this methodology to quantify the market risk of financial instruments should not
be  construed as an  endorsement  of its accuracy or the accuracy of the related
assumptions.  In  addition,  this  methodology  does not take into  account  the
indirect  impact  interest  rates  may have on the  payment  performance  of the
Company's  cardholders.  The  quantitative  information  about  market  risk  is
necessarily limited because it does not take into account operating transactions
or other costs associated with managing immediate changes in interest rates.


                           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.  On February 25, 1999,
the Company  announced that the claims against it in the  shareholders  lawsuits
filed in October 1998 in the United States District Court, District of Minnesota
have been dismissed with prejudice.  The Complaints had alleged securities fraud
and other claims related to a decline in the Company's stock price. The lawsuits
were dismissed  through a Stipulation  and Order entered into by counsel for the
plaintiffs  and  defendants,  and ordered by the Federal  District  Court.  This
dismissal was agreed to and ordered prior to the case having been certified as a
class action and without payment to the named plaintiffs or their counsel.

         Certain  existing laws and regulations  permit class action lawsuits on
  behalf of customers in the event of violations, and such class lawsuits can be
  very expensive to defend, even without any violation. One of these actions, an
  Alabama action in the Circuit Court of Greene County (Preston  Davis,  Sr. et.
  al. v. Direct  Merchants  Credit Card Bank,  N.A.,  et. al.  (Civil Action No.
  CV98-012), seeks damages in an unascertained amount and purports to be a class
  action,  although no class has been certified.  During the past several years,
  the press has widely  reported  certain  industry-related  concerns  which may
  impact the Company.  Some of these involve the amount of litigation instituted
  against financial services and insurance  companies  operating in the state of
  Alabama and the large punitive awards obtained from juries in that state.  The
  Alabama case, instituted in April 1998, generally alleges a fraudulent sale of
  credit protection insurance without consent.  Compensatory damages are sought.
  The  judicial  climate  in  Alabama  is such that the  outcome of this case is
  unpredictable.  The Company's  subsidiary  believes it has  substantive  legal
  defenses to this claim and is prepared to defend this case vigorously.  Due to
  the uncertainties in litigation and other factors,  there is no assurance that
  the  Company's  subsidiary  will  ultimately  prevail.  Should  the  Company's
  subsidiary's case settle or otherwise be resolved,  it believes the amount, in
  the aggregate,  will not be material to the Company's  consolidated  financial
  condition.  However,  if this  action,  or any  class  action,  is  determined
  adversely, such decision can have a significant adverse economic impact on the
  Company.


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
                (a) and (c). The Company held a special  meeting of stockholders
                on March 12, 1999, and the matters voted on in that meeting were
                the following:

                The  approval  of the terms and  issuance  of Series C Perpetual
                Convertible Preferred Stock in exchange for outstanding Series B
                Perpetual  Preferred  Stock,  12%  Senior  Notes  due  2006  and
                warrants to purchase 3,750,000 shares of Common Stock at $30 per
                share.

                                                                         Broker
                          For        Against   Withheld   Abstentions   Non-Vote
                      14,650,423     216,062     None        19,012       None

                 The  approval  of an  amendment  to the  Amended  and  Restated
                 Certificate of Incorporation to authorize  10,000,000 shares of
                 non-voting  common stock and to increase the authorized  number
                 of shares of preferred stock from 10,000,000 to 25,000,000.


                                                                         Broker
                          For        Against   Withheld   Abstentions   Non-Vote
                       8,250,311    6,615,579    None       19,607        None



<PAGE>


                 The  approval  of an  amendment  to the  Amended  and  Restated
                 Certificate of Incorporation to remove certain  restrictions on
                 business activities.

                                                                          Broker
                          For        Against    Withheld  Abstentions   Non-Vote
                      14,793,446     28,024       None      64,027        None

                 Approval of the first proposal required the affirmative vote of
                 a majority of the shares  represented  and voted at the special
                 meeting,  in  person  or by proxy,  with  respect  to the first
                 proposal.  Approval of the second and third proposals  required
                 the affirmative vote of a majority of the outstanding shares of
                 Common Stock.  Accordingly,  the first and third proposals were
                 approved and the second proposal was not approved.


Item 5.         Other Information
                Not applicable

Item 6.         Exhibits and Reports on Form 8-K


                (a)      Exhibits:


                         11.  Computation of Earnings Per Share

                         27.  Financial Data Schedule

                (b)      Reports on Form 8-K:

                                    Not applicable


<PAGE>


                                   SIGNATURES


         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
the  Registrant  has duly  caused  this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                              METRIS COMPANIES INC.


Signature                          Title                              Date

Principal financial officer:     Executive Vice President,          May 11, 1999
                                 Chief Financial Officer
/s/ David D. Wesselink
David D. Wesselink


Principal accounting officer:    Sr. Vice President, Finance,       May 11, 1999
                                 and Corporate Controller

/s/ Jean C. Benson
Jean C. Benson