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

                                    FORM 10-Q

                                   (Mark One)


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

           For the quarterly period ended                     June 30, 2002

                                       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.)


            10900 Wayzata Boulevard, Minnetonka, Minnesota 55305-1534
                    (Address of principal executive offices)


                                 (952) 525-5020
              (Registrant's telephone number, including area code)



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

                             Yes   X            No _____
                                 -----

As of July 31, 2002, 57,948,559 shares of the registrant's common stock, par
value $.01 per share, were outstanding.



<PAGE>



                              METRIS COMPANIES INC.

                                    FORM 10-Q

                                TABLE OF CONTENTS
                                -----------------


--------------------------------------------------------------------------------

                                  June 30, 2002

                                                                            Page
                                                                            ----

PART I.  FINANCIAL INFORMATION


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

         Item 2.      Management's Discussion and Analysis of
                             Financial Condition and Results of
                             Operations.......................................23

         Item 3.      Quantitative and Qualitative Disclosures
                             About Market Risk................................39


PART II. OTHER INFORMATION


         Item 1. Legal Proceedings............................................40

         Item 2. Changes in Securities........................................40

         Item 3. Defaults Upon Senior Securities..............................40

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

         Item 5. Other Information............................................41

         Item 6. Exhibits and Reports on Form 8-K.............................42

                 Signatures...................................................43



<PAGE>


<TABLE>

                          Part I. Financial Information


ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS

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

                                                                                 June 30,      December 31,
                                                                                   2002            2001
                                                                               -----------    ------------
Assets:
<S>                                                                            <C>            <C>
Cash and due from banks ....................................................   $   100,735    $   109,812
Federal funds sold .........................................................       132,662        243,772
Short-term investments .....................................................       665,224        134,502
                                                                               -----------    -----------
Cash and cash equivalents ..................................................       898,621        488,086
                                                                               -----------    -----------
Retained interests in loans securitized ....................................     1,466,442      1,263,655
Less:  Valuation allowance .................................................       744,205        537,499
                                                                               -----------    -----------
Net retained interests in loans securitized ................................       722,237        726,156
                                                                               -----------    -----------
Credit card loans ..........................................................     1,306,824      2,746,656
Less:  Allowance for loan losses ...........................................       275,279        410,159
                                                                               -----------    -----------
Net credit card loans ......................................................     1,031,545      2,336,497
                                                                               -----------    -----------
Property and equipment, net ................................................       106,410        114,913
Deferred tax asset .........................................................        32,897         32,167
Purchased portfolio premium, net ...........................................        78,595         94,793
Other receivables due from credit card
   securitizations, net ....................................................       118,942        179,868
Other assets ...............................................................       222,462        256,206
                                                                               -----------    -----------
     Total assets ..........................................................   $ 3,211,709    $ 4,228,686
                                                                               ===========    ===========
Liabilities:
Deposits ...................................................................   $ 1,321,861    $ 2,058,008
Debt .......................................................................       356,057        647,904
Accounts payable ...........................................................       108,678         83,475
Deferred income ............................................................       197,986        215,031
Accrued expenses and other liabilities .....................................       100,881         82,313
                                                                               -----------    -----------
     Total liabilities .....................................................     2,085,463      3,086,731
                                                                               -----------    -----------
Stockholders' Equity:
Convertible preferred stock - Series C, par
     value $.01 per share; 10,000,000
     shares authorized, 1,105,767 and 1,057,638
     shares issued and outstanding, respectively ...........................       411,898        393,970
Common stock, par value $.01 per share;
     300,000,000 shares authorized, 64,462,260
     and 64,224,878 shares issued, respectively ............................           645            642
Paid-in capital ............................................................       235,635        232,413
Unearned compensation ......................................................        (5,037)        (4,980)
Treasury stock - 3,526,400 and 806,300 shares,
     respectively...........................................................       (45,965)       (13,014)
Retained earnings ..........................................................       529,070        532,924
                                                                               -----------    -----------
     Total stockholders' equity ............................................     1,126,246      1,141,955
                                                                               -----------    -----------
     Total liabilities and stockholders' equity ............................   $ 3,211,709    $ 4,228,686
                                                                               ===========    ===========

                     See accompanying Notes to Consolidated Financial Statements.

</TABLE>

<PAGE>

<TABLE>

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


                                                                 Three Months Ended          Six Months Ended
                                                                      June 30,                   June 30,
                                                                     ---------                   --------
                                                                 2002         2001          2002         2001
                                                                 ----         ----          ----         ----
<S>                                                            <C>          <C>          <C>          <C>
Interest Income:
Credit card loans and retained
     interests in loans securitized ........................   $ 134,759    $ 168,702    $ 286,973    $ 332,224


Federal funds sold .........................................         110          329          224        2,640
Other ......................................................       2,359        3,176        3,563        7,072
                                                               ---------    ---------    ---------    ---------
Total interest income ......................................     137,228      172,207      290,760      341,936
Deposit interest expense ...................................      18,335       32,936       41,988       69,559
Other interest expense .....................................       8,620       11,377       17,132       22,589
                                                               ---------    ---------    ---------    ---------
Total interest expense .....................................      26,955       44,313       59,120       92,148
                                                               ---------    ---------    ---------    ---------
Net Interest Income ........................................     110,273      127,894      231,640      249,788
Provision for loan losses ..................................      90,705      114,682      280,481      202,411
                                                               ---------    ---------    ---------    ---------
Net Interest Income After Provision for
     Loan Losses ...........................................      19,568       13,212      (48,841)      47,377
                                                               ---------    ---------    ---------    ---------

Other Operating Income:
Net securitization and credit card
     servicing income ......................................     (22,616)     119,712      136,908      206,804
Credit card fees, interchange and
     other credit card income ..............................      58,267       74,837      131,374      137,669
Enhancement services revenues ..............................      95,649       82,900      190,645      161,164
                                                               ---------    ---------    ---------    ---------
                                                                 131,300      277,449      458,927      505,637
                                                               ---------    ---------    ---------    ---------

Other Operating Expense:
Credit card account and other product
     solicitation and marketing expenses....................      56,193       51,481       96,745       92,246
Employee compensation ......................................      54,365       56,115      110,913      110,851
Data processing services and communications ................      20,795       22,141       43,101       44,520
Enhancement services claims expense ........................      15,917        8,250       27,124       14,929
Credit card fraud losses ...................................       2,953        2,200        5,181        4,851
Purchased portfolio premium amortization ...................       7,743        7,418       16,198       15,246
Other ......................................................      51,558       41,325       84,650       77,510
                                                               ---------    ---------    ---------    ---------
                                                                 209,524      188,930      383,912      360,153
                                                               ---------    ---------    ---------    ---------
(Loss) Income Before Income Taxes and
     Cumulative Effect of Accounting Change.................     (58,656)     101,731       26,174      192,861
Income taxes ...............................................     (22,282)      38,963       10,208       74,048
                                                               ---------    ---------    ---------    ---------
(Loss) Income Before Cumulative Effect of
     Accounting Change......................................     (36,374)      62,768       15,966      118,813
Cumulative effect of accounting change
     (net of income taxes of $9,000)........................          --           --           --       14,499
                                                                ---------    ---------    ---------    ---------
Net (Loss) Income ..........................................     (36,374)      62,768       15,966      104,314
Convertible preferred stock
     dividends-Series C ....................................       9,394        8,593       18,582       16,996
                                                                ---------    ---------    ---------    ---------
Net (Loss) Income Applicable to Common
     Stockholders...........................................   $ (45,768)   $  54,175    $  (2,616)   $  87,318
                                                               =========    =========    =========    =========
</TABLE>


<PAGE>


<TABLE>

                                                     Three Months Ended               Six Months Ended
                                                          June 30,                         June 30,
                                                          --------                         --------
                                                  2002                2001           2002              2001
                                                  ----                ----           ----              ----
<S>                                            <C>            <C>               <C>            <C>
(Loss) earnings per share:
     Basic-(loss) income before cumulative
         effect of accounting change .......   $     (0.74)   $      0.64       $     (0.04)   $      1.22
     Basic-cumulative effect of accounting
         change ............................            --             --                --          (0.15)
     Basic-net (loss) income ...............         (0.74)          0.64             (0.04)          1.07
     Diluted-(loss) income before cumulative
         effect of accounting change .......         (0.74)          0.63             (0.04)          1.20
     Diluted-cumulative effect of accounting
         change ............................            --             --                --          (0.15)
     Diluted-net (loss) income .............         (0.74)          0.63             (0.04)          1.05

Shares used to compute earnings per share:
     Basic .................................        61,503         97,633            61,844         97,117
     Diluted ...............................        61,503         99,841            61,844         99,055

Dividends declared per common share ........   $     0.010    $     0.010       $     0.020    $     0.020

                     See accompanying Notes to Consolidated Financial Statements.

</TABLE>

<PAGE>

<TABLE>

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


                                                                                                                          Total
                                Number of Shares    Preferred    Common    Paid-in    Unearned   Treasury    Retained  Stockholders'
                              Preferred   Common      Stock      Stock     Capital Compensation   Stock      Earnings     Equity
                             -------------------------------------------------------------------------------------------------------
<S>                            <C>      <C>      <C>         <C>       <C>         <C>        <C>          <C>         <C>
BALANCE AT DECEMBER 31, 2000     968     62,243    $  360,421  $    622  $  198,077  $     --    $      --  $  324,433   $  883,553
     Net income .............     --         --            --        --          --        --           --     104,314      104,314
     Cash dividends .........     --         --            --        --          --        --           --      (1,847)      (1,847)
     Preferred dividends in
         kind - Series C ....     44         --        16,401        --          --        --           --     (16,401)          --
     Issuance of common stock
         under employee
         benefit plans ......     --      1,129            --        12      20,562        --           --           --      20,574
     Deferred compensation
         obligations ........     --        422            --         4       5,429    (7,127)          --           --      (1,694)
     Amortization of
         restricted stock ...     --         --            --        --          --     2,348           --           --       2,348
                             -------   --------     ---------  --------  ----------  ----------  ---------  -----------  ----------
BALANCE AT JUNE 30, 2001 ....  1,012     63,794    $  376,822  $    638  $  224,068  $ (4,779)   $      --  $   410,499  $1,007,248
                             =======   ========    ==========  ========= ==========  ========    =========  ===========  ==========


BALANCE AT DECEMBER 31, 2001     1,058   63,419    $  393,970  $    642  $  232,413  $ (4,980) $   (13,014) $  532,924   $1,141,955
     Net income .............       --       --           --         --          --        --           --      15,966       15,966
     Cash dividends .........       --       --           --         --          --        --           --      (1,892)      (1,892)
     Common stock repurchased       --   (2,720)          --         --          --        --      (32,951)         --      (32,951)
     Preferred dividends in
         kind - Series C ....       48       --       17,928         --          --        --           --     (17,928)          --
     Issuance of common stock
         under employee
         benefit plans ......       --      161          --          2       2,255        --           --           --       2,257
     Deferred compensation
         obligations ........       --       76          --          1         967      (968)          --           --          --
     Amortization of
         restricted stock ...       --       --          --         --          --       911           --           --         911
                             ---------  -------   ----------  --------  ----------  ---------  -----------  ----------  ----------

BALANCE AT JUNE 30, 2002 ...     1,106   60,936   $  411,898  $    645  $  235,635  $  (5,037) $   (45,965) $  529,070  $1,126,246
                             =========  =======   ==========  ========  ==========  =========  ===========  ==========  ==========

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


<PAGE>

<TABLE>

METRIS COMPANIES INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands) (Unaudited)
                                                              Six Months Ended
                                                                   June 30,
                                                            2002            2001
                                                            ----            ----

<S>                                                      <C>            <C>
Operating Activities:
Net income ...........................................   $    15,966    $   104,314
Adjustments to reconcile net income to net cash
     provided by operating activities:
     Cumulative effect of accounting change ..........            --         14,499
     Depreciation and amortization ...................        52,374         45,075
     Provision for loan losses .......................       280,481        202,411
     Change in retained interest valuation
         allowance, net ..............................       206,706        (72,768)
     Loss (gain) on derivative financial instruments .        13,947         (2,905)
     Changes in operating assets and liabilities, net:
         Deferred income taxes .......................          (730)        39,164
         Other receivables due from credit card
              securitizations ........................        46,979          6,065
         Accounts payable and accrued expenses .......        43,771         51,771
         Deferred income .............................       (17,045)       (24,176)
         Other .......................................        10,520        (37,579)
                                                         -----------    -----------
Net cash provided by operating activities ............       652,969        325,871
                                                         -----------    -----------

Investing Activities:
Net proceeds from sales and repayments of
     securitized loans................................      (202,787)       954,591
Net loans originated or collected ....................     1,024,471     (1,200,926)
Additions to property and equipment ..................        (3,538)        (3,991)
                                                         -----------    -----------
Net cash provided by (used in) investing activities ..       818,146       (250,326)
                                                         -----------    -----------
Financing Activities:
(Decrease) increase in debt ..........................      (291,847)           271
(Decrease) increase in deposits ......................      (736,147)        68,746
Cash dividends paid ..................................        (1,892)        (1,847)
Issuance of common stock .............................         2,257         21,228
Repurchase of common stock ...........................       (32,951)            --
                                                         -----------    -----------
Net cash (used in) provided by financing activities ..    (1,060,580)        88,398
                                                         -----------    -----------
Net increase in cash and cash equivalents ............       410,535        163,943
Cash and cash equivalents at beginning of period .....       488,086        521,440
                                                         -----------    -----------
Cash and cash equivalents at end of period ...........   $   898,621    $   685,383
                                                         ===========    ===========
Supplemental disclosures and cash flow
     information:
Cash paid during the period for:
     Interest ........................................   $    61,345    $    86,731
     Income taxes ....................................       (16,488)        25,366
Tax benefit from employee stock option
     exercises........................................           174          6,651

            See accompanying Notes to Consolidated Financial Statements.

</TABLE>

<PAGE>


METRIS COMPANIES INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except as noted) (Unaudited)

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION


     The consolidated financial statements include the accounts of Metris
Companies Inc. ("MCI") and its subsidiaries, including Direct Merchants Credit
Card Bank, National Association ("Direct Merchants Bank"), which may be referred
to as "we," "us," "our" and the "Company." We are an information-based direct
marketer of consumer lending products and enhancement services.


     We have eliminated all significant intercompany balances and transactions
in consolidation. We have reclassified certain prior-period amounts to conform
with the current period's presentation.

Interim Financial Statements


     We have prepared the unaudited interim consolidated financial statements
and related unaudited financial information in the footnotes in accordance with
accounting principles generally accepted in the United States of America and the
rules and regulations of the Securities and Exchange Commission ("SEC") for
interim financial statements. These interim financial statements reflect all
adjustments consisting of normal recurring accruals which, in the opinion of
management, are necessary to present fairly our consolidated financial position
and the results of our operations and our cash flows for the interim periods.
You should read these consolidated financial statements in conjunction with the
financial statements and the notes thereto contained in our annual report on
Form 10-K for the fiscal year ended December 31, 2001. The nature of our
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

     We have prepared the consolidated financial statements in accordance with
accounting principles generally accepted in the United States of America, which
require us to make estimates and assumptions that affect the reported amounts in
the consolidated financial statements and accompanying notes. The most
significant and subjective of these estimates is our determination of the
adequacy of the allowance for loan losses and our determination of the fair
value of retained interests from assets securitized. The significant factors
susceptible to future change that have an impact on these estimates include
default rates, net interest spreads, liquidity and overall economic conditions.
As a result, the actual losses in our loan portfolio and the fair value of our
retained interests as of June 30, 2002 and December 31, 2001 could materially
differ from these estimates.




<PAGE>


NOTE 2 - EARNINGS PER SHARE

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

<TABLE>

                                                  Three Months Ended     Six Months Ended
                                                       June 30,              June 30,
                                                       --------              --------
                                                  2002        2001        2002       2001
                                                  ----        ----        ----       ----
<S>                                             <C>         <C>        <C>         <C>
(In thousands)
(Loss) income before cumulative effect
     of accounting change ...................   $(36,374)   $ 62,768   $ 15,966    $118,813
Preferred dividends - Series C ..............      9,394       8,593     18,582      16,996
                                                --------    --------   --------    --------
Net (loss) income applicable to common
     stockholders before cumulative effect of
     accounting change ......................    (45,768)     54,175     (2,616)    101,817
Cumulative effect of accounting change, net .         --          --         --      14,499
                                                --------    --------   --------    --------
Net (loss) income applicable to common
     stockholders ...........................   $(45,768)   $ 54,175   $ (2,616)   $ 87,318
                                                ========    ========   ========    ========

Weighted-average common shares outstanding ..     61,503      62,788     61,844      62,547
Adjustments for dilutive securities:
Assumed conversion of convertible preferred
     stock (1) ..............................         --      34,845         --      34,570
                                                --------    --------   --------    --------
Basic common shares .........................     61,503      97,633     61,844      97,117
Assumed exercise of outstanding stock
     options (1) ............................         --       2,208         --       1,938
                                                --------    --------   --------    --------
Diluted common shares .......................     61,503      99,841     61,844      99,055
                                                ========    ========   ========    ========

(1) In accordance with SFAS 128, the earnings per share calculations for the
three- and six-month periods ended June 30, 2002 exclude the assumed conversion
of the convertible preferred stock and the outstanding stock options as they are
anti-dilutive.

</TABLE>

NOTE 3 - ACCOUNTING CHANGES

     On January 1, 2001, we adopted Statement of Financial Accounting Standards
("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which establishes accounting and reporting standards for derivative
instruments. SFAS 133 requires enterprises to recognize all derivatives as
either assets or liabilities in the statement of financial position and to
measure those instruments at fair market value. As a result of the adoption of
SFAS 133, we marked our derivatives to market value and recognized a one-time,
non-cash, after-tax charge to earnings of $14.5 million. This one-time charge is
reflected as a "Cumulative effect of accounting change" in the consolidated
statements of income for the six months ended June 30, 2001.

     On January 1, 2002, we adopted SFAS No. 142, "Goodwill and Other Intangible
Assets," which establishes accounting and reporting standards for goodwill and
other intangible assets. It requires enterprises to test these assets for
impairment upon adoption of SFAS 142 as well as on an annual basis, and reduce
the carrying amount of these assets if they are found to be impaired. Goodwill
and other intangible assets with an indefinite useful life will no longer be
amortized. Other intangible assets with an estimable useful life will continue
to be amortized over their useful lives. The adoption of the new standard did
not have a material impact on our financial statements.

     On January 1, 2002, we adopted SFAS No. 144, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which
supersedes FASB Statement No. 121, and provides a single accounting model for
long-lived assets to be disposed of. The adoption of the new standard did not
have a material impact on our financial statements. In April 2002, the FASB
issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 62, Amendment
of FASB Statement No. 13, and Technical Corrections." SFAS 145 will require
gains and losses on extinguishments of debt to be classified as income or loss
from continuing operations rather than as extraordinary items as previously
required under SFAS 4. SFAS 145 also amends SFAS 13 to require certain
modifications to capital leases be treated as a sale-leaseback and modifies the
accounting for sub-leases when the original lessee remains a secondary obligor
or guarantor. Accordingly, most gains or losses from extinguishments of debt for
fiscal years beginning after May 15, 2002 shall not be reported as
extraordinary. Upon adoption, any gain or loss on extinguishment of debt
previously classified as an extraordinary item in prior periods presented must
be reclassified to conform with the provisions of SFAS 145. SFAS 145's amendment
and technical correction to SFAS 13 is effective for all transactions occurring
after May 15, 2002. We do not expect a material impact on our financial
statements upon adoption of SFAS 145.


     In July 2002, FASB issued SFAS 146, "Accounting for Costs Associated with
Exit or Disposal Activities." The statement addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring)." SFAS 146 requires that a liability for a cost associated
with an exit or disposal activity be recognized when a liability is incurred.
Under Issue 94-3, a liability for an exit cost as generally defined in Issue
94-3 was recognized at the date of an entity's commitment to an exit plan. The
provisions of this Statement are effective for exit or disposal activities that
are initiated after December 31, 2002. We do not expect a material impact on our
financial statements upon adoption of SFAS 146.


NOTE 4 - ALLOWANCE FOR LOAN LOSSES

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

<TABLE>
                                          Three Months Ended         Six Months Ended
                                               June 30,                  June 30,
                                               --------                 --------
                                            2002        2001         2002         2001
                                            ----        ----         ----         ----

<S>                                      <C>          <C>          <C>          <C>
Balance at beginning of period .......   $ 416,914    $ 143,537    $ 410,159    $ 123,123
Allowance related to assets
  transferred to/from the
  Master Trust, net ..................    (147,241)      59,998     (246,584)      40,792
Provision for loan losses ............      90,705      114,682      280,481      202,411
Loans charged off ....................     (91,595)     (65,013)    (180,486)    (117,629)
Recoveries ...........................       6,496        4,853       11,709        9,360
                                         ---------    ---------    ---------    ---------
Net loans charged off ................     (85,099)     (60,160)    (168,777)    (108,269)
                                         ---------    ---------    ---------    ---------
Balance at end of period .............   $ 275,279    $ 258,057    $ 275,279    $ 258,057
                                         =========    =========    =========    =========




</TABLE>

     As of June 30, 2002 and December 31, 2001, we had $11.6 million and $1.3
million in credit card loans classified as non-accrual, respectively. As of June
30, 2001, we had no credit card loans classified as non-accrual. Credit card
loans contractually 90 or more days past due and still accruing interest
amounted to $60.8 million, $124.7 million and $89.8 million as of June 30, 2002,
December 31, 2001 and June 30, 2001, respectively.

     During the three- and six-month periods ended June 30, 2002, we transferred
$147.2 million and $246.6 million of allowance for loan losses, respectively, to
the valuation allowance for retained interests in loans securitized. This
transfer is primarily due to the sale of approximately $1.6 billion of
receivables from Direct Merchants Bank to the Metris Master Trust ("Master
Trust") during the first six months of 2002. During the three- and six-month
periods ended June 30, 2001, we transferred $60.0 million and $40.8 million,
respectively, of valuation allowance for retained interests in loans securitized
to allowance for loan losses. These transfers were primarily due to the maturity
of a bank conduit that was accounted for as a sale under SFAS 140.





<PAGE>


NOTE 5 - RETAINED INTERESTS IN LOANS SECURITIZED

     The activity in the valuation allowance on retained interests in loans
securitized is as follows:

<TABLE>

                                                                                   June 30,                   December 31,
                                                                                    2002          Change          2001
                                                                                    ----          ------          ----

<S>                                                                             <C>            <C>            <C>
Gross retained interests ....................................................   $ 1,466,442    $   202,787    $ 1,263,655
Valuation allowance .........................................................      (744,205)      (206,706)      (537,499)
                                                                                -----------    -----------    -----------
Net retained interest .......................................................   $   722,237    $    (3,919)   $   726,156
                                                                                ===========    ===========    ===========

</TABLE>

<TABLE>
                                                                                   June 30,                   December 31,
                                                                                    2001          Change          2000
                                                                                    ----          ------          ----

<S>                                                                             <C>            <C>            <C>
Gross retained interests ....................................................   $ 1,069,090    $  (954,591)   $ 2,023,681
Valuation allowance .........................................................      (568,084)        72,768       (640,852)
                                                                                -----------    -----------    -----------
Net retained interest .......................................................   $   501,006    $  (881,823)   $ 1,382,829
                                                                                ===========    ===========    ===========

</TABLE>

     Gross retained interests in loans securitized increased $202.8 million to
$1.5 billion as of June 30, 2002, compared to $1.3 billion as of December 31,
2001. The increase is due to the sale of approximately $1.6 billion of
receivables from Direct Merchants Bank to the Master Trust during the six months
ended June 30, 2002. The $954.6 million decrease in gross retained interests
during the six months ended June 30, 2001 was primarily due to the maturity of a
bank conduit that was accounted for as a sale under SFAS 140. As a result,
approximately $855 million of receivables that were classified as retained
interests in loans securitized as of December 31, 2000 were classified as credit
card loans as of June 30, 2001. During the six months ended June 30, 2002 the
valuation allowance increased by $206.7 million primariy due to the higher gross
retained interests and slightly narrowing excess spreads in the Master Trust due
to increasing default rates. The weighted-average spread less default rate was
1% as of June 30, 2002, compared to 2% as of December 31, 2001. The $72.8
million primarily reflects lower gross retained interests.


NOTE 6 - SEGMENTS


     We operate in two principal areas: consumer lending products and
enhancement services. Our consumer lending products are primarily unsecured
credit cards, including the Direct Merchants Bank MasterCard(R) and Visa(R). Our
credit card accountholders include consumers obtained from third-party lists and
other consumers for whom general credit bureau information is available.

     We market our enhancement services, including (1) debt waiver protection
for unemployment, disability, and death; (2) membership programs such as card
registration, purchase protection and other club memberships; and (3)
third-party insurance, directly to our credit card accountholders and customers
of third parties. We currently administer our extended service plans sold
through a third-party retailer, and the customer pays the retailer directly. In
addition, we develop customized targeted mailing lists from information
contained in our databases for use by unaffiliated companies in their own
product solicitation efforts that do not directly compete with our efforts.

     We have presented the segment information reported below on a managed
basis. We use this basis to review segment performance and to make operating
decisions. In doing 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 accounting principles generally accepted in the United States
of America. The adjustments columns in the segment table include adjustments to
present the information on an owned basis as reported in the financial
statements of this quarterly report.

     We do not allocate the expenses, assets and liabilities attributable to
corporate functions to the operating segments, such as employee compensation,
data processing services and communications, third-party servicing expenses, and
other expenses including occupancy, depreciation and amortization, professional
fees, and other general and administrative expenses. We do not allocate capital
expenditures for leasehold improvements, capitalized software and furniture and
equipment to operating segments. There were no material operating assets located
outside of the United States for the periods presented.

     Our enhancement services segment pays a fee to our consumer lending
products segment for successful marketing efforts to the consumer lending
products segment's credit card accountholders at a rate similar to those paid to
our other third parties. Our enhancement services segment reports interest
income and our consumer lending products segment reports interest expense at our
weighted-average borrowing rate for the excess cash flow generated by the
enhancement services segment that is used by the consumer lending products
segment to fund the growth of credit card accountholder balances.
<PAGE>

<TABLE>

                                              Three Months Ended June 30,
                                                        2002
                                                        ----

                     Consumer
                      Lending       Enhancement     Securitization     Other
                     Products        Services       Adjustments(a)  Adjustments(b)   Consolidated
                     --------        --------       --------------  --------------   ------------

<S>                <C>              <C>              <C>          <C>                 <C>
Interest income.   $   509,821      $        58      $  (372,593)           (58)      $   137,228
Interest
    expense .....       81,005               --          (53,992)           (58)           26,955
                   -----------      -----------      -----------   ------------       -----------
  Net interest
    income ......      428,816               58         (318,601)            --           110,273


Other revenue ...      119,317           95,649          (83,666)            --           131,300
Total revenue ...      548,133           95,707         (402,267)            --           241,573

Income before
    income taxes.       21,145(c)        54,659(c)            --       (134,460)          (58,656)

Total assets ...   $10,985,709      $   142,705      $(8,924,497) $   1,007,792 (d)   $ 3,211,709


</TABLE>

<TABLE>
                                              Three Months Ended June 30,
                                                        2001
                                                        ----

                     Consumer
                      Lending       Enhancement     Securitization     Other
                     Products        Services       Adjustments(a)  Adjustments(b)   Consolidated
                     --------        --------       --------------  --------------   ------------

<S>                <C>              <C>              <C>          <C>                 <C>
Interest income    $   481,540      $     3,202      $  (309,333)        (3,202)      $   172,207
Interest expense       129,361             --            (81,846)        (3,202)           44,313
                   -----------      -----------      -----------    ------------      -----------
  Net interest
    income .....       352,179            3,202         (227,487)            --           127,894


Other revenue ..       160,240           82,900           34,309             --           277,449
Total revenue ..       512,419           86,102         (193,178)            --           405,343


Income before
    income taxes       173,672(c)        55,058(c)            --       (126,999)          101,731

Total assets ...   $ 9,777,687      $   138,076      $(6,762,272) $     802,841 (d)   $ 3,956,332

</TABLE>

<PAGE>

<TABLE>
                                              Six Months Ended June 30,
                                                      2002
                                                      ----

                     Consumer
                      Lending       Enhancement      Securitization     Other
                     Products        Services        Adjustments(a) Adjustments(b)   Consolidated
                     --------        --------        -------------- --------------   ------------

<S>                <C>              <C>              <C>          <C>                 <C>
Interest income    $ 1,036,499      $     2,386      $  (745,739)        (2,386)      $   290,760
Interest expense       171,737               --         (110,231)        (2,386)           59,120
                   -----------      -----------      -----------    ------------      -----------
  Net interest
    income .....       864,762            2,386         (635,508)            --           231,640


Other revenue ..       250,080          190,645           18,202             --           458,927
Total revenue ..     1,114,842          193,031         (617,306)            --           690,567


Income before
    income taxes       161,469(c)       119,567(c)            --       (254,862)           26,174

Total assets ...   $10,985,709      $   142,705      $(8,924,497) $    1,007,792(d)   $ 3,211,709

</TABLE>

<TABLE>
                                              Six Months Ended June 30,
                                                      2001
                                                      ----

                     Consumer
                      Lending       Enhancement     Securitization     Other
                     Products        Services       Adjustments(a)  Adjustments(b)    Consolidated
                     --------        --------       --------------  --------------    ------------

<S>                <C>              <C>              <C>            <C>                <C>
Interest income .  $   948,360      $     6,822      $  (606,424)         (6,822)      $   341,936
Interest expense.      273,291               --         (174,321)         (6,822)           92,148
                   -----------      -----------       -----------   ------------       -----------
  Net interest
    income ......      675,069            6,822         (432,103)             --           249,788


Other revenue ...      285,611          161,164           58,862              --           505,637
Total revenue ...      960,680          167,986         (373,241)             --           755,425

Income before
    income taxes
    and cumulative
    effect of
    accounting
    change.......      331,251(c)       109,737(c)           --         (248,127)          192,861

Total assets ....  $ 9,777,687      $   138,076      $(6,762,272)   $    802,841 (d)   $ 3,956,332

</TABLE>

     (a) This column reflects adjustments to the Company's internal financial
     statements, which are prepared on a managed basis, to eliminate investors'
     interests in securitized loans.

     (b) The other adjustments column includes: intercompany eliminations and
     amounts not allocated to segments.

     (c) Income before income taxes (and cumulative effect of accounting change)
     includes intercompany commissions paid by the enhancement services segment
     to the consumer lending products segment for successful marketing efforts
     to consumer lending products credit card accountholders of $3.0 million for
     the three months ended June 30, 2002, $3.0 million for the three months
     ended June 30, 2001, $6.3 million for the six months ended June 30, 2002
     and $6.2 million for the six months ended June 30, 2001.

     (d) 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 7 - SHAREHOLDERS' EQUITY


     On February 6, 2001, the Board of Directors authorized a share repurchase
program of up to $200 million of our outstanding common stock over a period
ending December 31, 2002. The amount of common shares we can repurchase in a
calendar year is limited under various debt agreements. For the six months
ended June 30, 2002, 2,720,100 common shares had been repurchased under the
program for $33.0 million. Subsequent to June 30, 2002, we repurchased an
additional 3,026,900 common shares for $10.8 million. In 2002, the Company may
repurchase up to an additional $51 million of common shares.

     The purpose of the Metris Companies Inc. stock repurchase program is to
purchase outstanding stock for later reissuance under its stock option and
employee benefit plans or potential acquisition opportunities. During the first
six months of 2002 and 2001, the Company issued 161,000 and 1,129,000 shares of
common stock, respectively, under its employee benefit plans for net cash
proceeds of $2.3 million and $20.6 million, respectively.



NOTE 8 - SUPPLEMENTAL CONSOLIDATING FINANCIAL STATEMENTS


     We have various indirect subsidiaries which do not guarantee our debt. We
have presented the following condensed consolidating financial statements of the
Company, the guarantor subsidiaries and the non-guarantor subsidiaries to comply
with SEC reporting requirements. We have not presented separate financial
statements of the guarantor and non-guarantor subsidiaries because management
has determined that the subsidiaries' financial statements would not be material
to investors.

<TABLE>


                              METRIS COMPANIES INC.
                    Supplemental Consolidating Balance Sheets
                                  June 30, 2002
                             (Dollars in thousands)
                                    Unaudited

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

<S>                                          <C>            <C>            <C>            <C>            <C>
Assets:
Cash and cash equivalents ................   $   157,238    $     1,978    $   739,405    $        --     $    898,621
Net retained interests in loans
   securitized ...........................            --             --        722,237             --          722,237
Credit card loans, net of allowance ......         2,252             --      1,029,293             --        1,031,545
Property and equipment, net ..............            --         71,913         34,497             --          106,410
Deferred income taxes ....................        (7,645)        12,451         28,091             --           32,897
Purchased portfolio premium ..............           248             --         78,347             --           78,595
Other receivables due from credit card
   securitizations, net...................             5             --        118,937             --          118,942
Other assets .............................         9,741         44,903        174,220         (6,402)         222,462
Investment in subsidiaries ...............     1,924,383      1,784,935             --     (3,709,318)              --
                                             -----------    -----------    -----------    ------------    -----------
Total assets .............................   $ 2,086,222    $ 1,916,180    $ 2,925,027    $(3,715,720)    $ 3,211,709
                                             ===========    ===========    ===========    ===========     ============

Liabilities:
Deposits .................................   $    (1,000)   $        --    $ 1,322,861    $        --     $ 1,321,861
Debt .....................................       346,371             67          9,619             --         356,057
Accounts payable .........................         5,673         17,568         88,638         (3,201)        108,678
Deferred income ..........................            36         23,086        178,065         (3,201)        197,986
Accrued expenses and other liabilities ...       608,896        (48,924)      (459,091)            --         100,881
                                             -----------    -----------    -----------    -----------     -----------
Total liabilities ........................       959,976         (8,203)     1,140,092         (6,402)      2,085,463
                                             -----------    -----------    -----------    -----------     -----------
Total stockholders' equity ...............     1,126,246      1,924,383      1,784,935     (3,709,318)      1,126,246
                                             -----------    -----------    -----------    -----------     -----------
Total liabilities and
    stockholders' equity..................   $ 2,086,222    $ 1,916,180    $ 2,925,027    $(3,715,720)    $ 3,211,709
                                             ===========    ===========    ===========    ===========     ===========

</TABLE>



<PAGE>

<TABLE>


                              METRIS COMPANIES INC.
                    Supplemental Consolidating Balance Sheets
                                December 31, 2001
                             (Dollars in thousands)
                                    Unaudited

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

<S>                                          <C>            <C>            <C>            <C>              <C>
Assets:
Cash and cash equivalents ................   $    17,613    $     1,505    $   468,968    $        --      $   488,086
Net retained interests in loans
   securitized ...........................            --             --        726,156             --          726,156
Credit card loans, net of allowance ......         1,646             --      2,334,851             --        2,336,497
Property and equipment, net ..............            --         78,425         36,488             --          114,913
Deferred income taxes ....................       (31,921)         4,937         59,151             --           32,167
Purchased portfolio premium ..............           248             --         94,545             --           94,793
Other receivables due from credit card
   securitizations, net...................            34            644        179,190             --          179,868
Other assets .............................        10,145         50,794        201,525         (6,258)         256,206
Investment in subsidiaries ...............     1,900,528      1,745,701             --     (3,646,229)              --
                                             -----------    -----------    -----------    -----------      -----------
Total assets .............................   $ 1,898,293    $ 1,882,006    $ 4,100,874    $(3,652,487)     $ 4,228,686
                                             ===========    ===========    ===========    ===========      ===========

Liabilities:
Deposits .................................   $    (1,000)   $        --    $ 2,059,008    $        --      $ 2,058,008

Debt .....................................       345,924            171        301,809             --          647,904
Accounts payable .........................         3,070         15,461         68,073         (3,129)          83,475
Deferred income ..........................         3,270         30,615        184,275         (3,129)         215,031
Accrued expenses and other
    liabilities...........................       405,074        (64,769)      (257,992)            --           82,313

Total liabilities ........................       756,338        (18,522)     2,355,173         (6,258)       3,086,731
                                             -----------    -----------    -----------    -----------      -----------
Total stockholders' equity ...............     1,141,955      1,900,528      1,745,701     (3,646,229)       1,141,955
                                             -----------    -----------    -----------    -----------      -----------
Total liabilities and
    stockholders' equity .................   $ 1,898,293    $ 1,882,006    $ 4,100,874    $(3,652,487)     $ 4,228,686
                                             ===========    ===========    ===========    ===========      ===========
</TABLE>


<PAGE>

<TABLE>


                              METRIS COMPANIES INC.
                 Supplemental Consolidating Statements of Income
                        Three Months Ended June 30, 2002
                             (Dollars in thousands)
                                    Unaudited


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

<S>                                           <C>              <C>         <C>            <C>              <C>
Net Interest (Expense)
    Income ...............................   $  (3,017)     $       157     $ 113,133      $        --      $ 110,273

Provision for loan losses ................        (797)              --        91,502               --         90,705
                                              ---------        ---------    ---------      -----------      ---------

Net Interest (Expense)
    Income After Provision
    for Loan Losses.......................       (2,220)            157        21,631               --         19,568
                                              ---------        ---------    ---------      -----------      ---------

Other Operating Income:
Net securitization and
    credit card servicing
    income................................          793              --       (23,409)              --        (22,616)

Credit card fees,
    interchange and other
    credit card income....................       (2,381)           5,796       (9,882)          64,734         58,267
Enhancement services
    revenues..............................           --            2,663       92,986               --         95,649

Intercompany allocations .................           41           72,194       15,126          (87,361)            --
                                              ---------        ---------    ---------      -----------      ---------
                                                 (1,547)          80,653       74,821          (22,627)       131,300
                                              ---------        ---------    ---------      -----------      ---------

Other Operating Expense:
Credit card account
    and other product
    solicitation and
    marketing expenses....................           --            4,594       51,653              (54)        56,193
Employee compensation ....................       (1,505)          45,753       10,117               --         54,365
Data processing services
    and communications ...................           13          (23,809)      43,019            1,572         20,795
Enhancement services claims
    expense...............................           --              444       15,473               --         15,917
Credit card fraud losses .................          135               --        2,818               --          2,953
Purchased portfolio premium
    amortization .........................           --               --       11,938           (4,195)         7,743
Other ....................................         (153)          48,261        9,680           (6,230)        51,558
Intercompany allocations .................          555           23,510       63,296          (87,361)            --
                                              ---------        ---------    ---------      -----------      ---------
                                                   (955)          98,753      207,994          (96,268)       209,524
                                              ---------        ---------    ---------      -----------      ---------
Loss Before Income Taxes
    and Equity in Income of
    Subsidiaries..........................       (2,812)         (17,943)    (111,542)          73,641        (58,656)
Income taxes .............................       (1,134)          (7,003)     (42,116)          27,971        (22,282)
Equity in income
    of subsidiaries.......................      (34,696)         (69,426)          --          104,122             --
                                              ---------        ---------   ----------      -----------      ---------
Net Loss .................................    $ (36,374)       $ (80,366)  $  (69,426)     $   149,792      $ (36,374)
                                              =========        =========   ==========      ===========      =========

</TABLE>

<PAGE>
<TABLE>



                              METRIS COMPANIES INC.
                 Supplemental Consolidating Statements of Income
                        Three Months Ended June 30, 2001
                             (Dollars in thousands)
                                    Unaudited

                                               Metris         Guarantor     Non-Guarantor
                                           Companies Inc.    Subsidiaries   Subsidiaries   Eliminations   Consolidated
                                           --------------    ------------   ------------   ------------   ------------
<S>                                           <C>             <C>          <C>              <C>            <C>
Net Interest (Expense)
    Income...............................     $ (25,386)       $  (2,162)   $ 155,442      $        --      $ 127,894

Provision for loan losses ...............         1,013               --      113,669               --        114,682
                                              ---------        ---------     ---------     -----------      ---------

Net Interest Expense After
    Provision for Loan Losses............       (26,399)          (2,162)      41,773              --          13,212
                                              ---------        ---------    ---------      ----------       ---------

Other Operating Income:
Net securitization and
    credit card servicing
    income...............................         2,378               --      117,334              --        119,712

Credit card fees,
    interchange and other
    credit card income...................        (1,562)          16,085       60,314              --         74,837
Enhancement services
    revenues.............................            --           14,083       68,817              --         82,900
                                              ---------        ---------    ---------       ---------      ---------
                                                    816           30,168      246,465              --        277,449
                                              ---------        ---------    ---------       ---------      ---------

Other Operating Expense:
Credit card account and
    other product
    solicitation and
    marketing expenses                               --           4,364       47,117               --         51,481
Employee compensation ..................            342          53,815        1,958               --         56,115
Data processing services
    and communications .................              2         (22,399)      44,538               --         22,141
Enhancement services claims
    expense.............................             --             323        7,927               --          8,250
Credit card fraud losses ...............             --              --        2,200               --          2,200
Purchased portfolio premium
    amortization........................             --              --        7,418               --          7,418
Other ..................................             52          25,825       15,448               --         41,325
                                              ---------       ---------    ---------        ---------      ---------
                                                    396          61,928      126,606               --        188,930
                                              ---------       ---------    ---------        ---------      ---------
(Loss) Income Before Income
    Taxes and Equity in
    Income of Subsidiaries..............        (25,979)        (33,922)     161,632               --        101,731
Income taxes ...........................         (9,881)        (13,940)      62,784               --         38,963
Equity in income of
    subsidiaries........................         78,866          98,848           --         (177,714)            --
                                              ---------       ---------    ---------        ---------      ---------
Net Income .............................      $  62,768       $  78,866    $  98,848        $(177,714)     $  62,768
                                              =========       =========    =========        =========      =========


</TABLE>

<PAGE>


<TABLE>

                              METRIS COMPANIES INC.
                 Supplemental Consolidating Statements of Income
                         Six Months Ended June 30, 2002
                             (Dollars in thousands)
                                    Unaudited


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

<S>                                          <C>              <C>          <C>             <C>             <C>
Net Interest (Expense)
   Income ..............................     $  (8,499)       $  (1,016)    $ 241,155       $      --      $ 231,640

Provision for loan losses ..............          (732)              --       231,213          50,000        280,481
                                             ---------        ---------     ---------       ---------      ---------

Net Interest (Expense)
    Income After Provision
    for Loan Losses.....................        (7,767)          (1,016)        9,942         (50,000)       (48,841)
                                             ---------        ---------     ---------       ---------      ---------

Other Operating Income:
Net securitization and
    credit card servicing
    income...............................        3,171               --       133,737              --        136,908

Credit card fees,
    interchange and other
    credit card income...................       (4,460)          13,719       121,827             288        131,374
Enhancement services
    revenues.............................           --           18,826       171,819              --        190,645

Intercompany allocations ................           71          125,267        24,787        (150,125)            --
                                             ---------        ---------     ---------       ---------      ---------
                                                (1,218)         157,812       452,170        (149,837)       458,927
                                             ---------        ---------     ---------       ---------      ---------

Other Operating Expense:
Credit card account and
    other product
    solicitation and
    marketing expenses....................          --            7,823        88,976             (54)        96,745
Employee compensation ....................      (1,101)          94,921        17,093              --        110,913
Data processing services
    and communications ...................          36          (43,371)       88,230          (1,794)        43,101
Enhancement services claims
    expense...............................          --              (69)       27,193              --         27,124
Credit card fraud losses .................         127               --         5,054              --          5,181
Purchased portfolio premium
    amortization .........................          --               --        22,382          (6,184)        16,198
Other ....................................        (110)          74,609        18,341          (8,190)        84,650
Intercompany allocations .................          46           41,588       108,491        (150,125)            --
                                             ---------        ---------     ---------       ---------      ---------
                                                (1,002)         175,501       375,760        (166,347)       383,912
                                             ---------        ---------     ---------       ---------      ---------
(Loss) Income Before Income
    Taxes and Equity in
    Income of Subsidiaries................      (7,983)         (18,705)       86,352         (33,490)        26,174

Income taxes .............................      (3,114)          (7,295)       33,677         (13,060)        10,208
Equity in income of
    subsidiaries..........................      20,835           52,675            --         (73,510)            --
                                             ---------        ---------     ---------       ---------      ---------
Net Income ...............................   $  15,966        $  41,265     $  52,675       $ (93,940)     $  15,966
                                             =========        =========     =========       =========      =========

</TABLE>

<PAGE>

<TABLE>

                              METRIS COMPANIES INC.
                 Supplemental Consolidating Statements of Income
                         Six Months Ended June 30, 2001
                             (Dollars in thousands)
                                    Unaudited


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

<S>                                          <C>              <C>          <C>             <C>             <C>
Net Interest (Expense)
    Income................................   $ (60,937)       $  (3,592)   $   314,317     $       --      $ 249,788

Provision for loan losses ................       1,217               --        201,194             --        202,411
                                             ---------        ---------    -----------     ----------      ---------

Net Interest (Expense)
    Income After
    Provision for Loan Losses.............     (62,154)          (3,592)       113,123             --         47,377
                                             ---------        ---------    -----------     ----------      ---------

Other Operating Income:
Net securitization and
    credit card servicing
    income.................................      4,756               --        202,048             --        206,804

Credit card fees,
    interchange and other
    credit card income.....................     (2,851)           9,297        131,223             --        137,669
Enhancement services
    revenues...............................         --           31,201        129,963             --        161,164
                                             ---------        ---------    -----------     ----------      ---------
                                                 1,905           40,498        463,234             --        505,637
                                             ---------        ---------    -----------     ----------      ---------

Other Operating Expense:
Credit card account and
    other product
    solicitation and
    marketing expenses.....................         --           10,484         81,762             --         92,246
Employee compensation .....................        342           97,226         13,283             --        110,851
Data processing services
    and communications ....................          2          (52,932)        97,450             --         44,520
Enhancement services claims
    expense................................         --              490         14,439             --         14,929
Credit card fraud losses ..................         --               --          4,851             --          4,851
Purchased portfolio premium
 amortization .............................         --               --         15,246             --         15,246
Other .....................................         90           44,287         33,133             --         77,510
                                             ---------        ---------    -----------     ----------      ---------
                                                   434           99,555        260,164             --        360,153
                                             ---------        ---------    -----------     ----------      ---------
(Loss) Income Before Income
    Taxes, Equity in Income
    of Subsidiaries and
    Cumulative Effect of
    Accounting Change......................    (60,683)         (62,649)       316,193             --       192,861

Income taxes ..............................    (23,242)         (25,910)       123,200             --        74,048
Equity in income of
    subsidiaries...........................    141,755          178,494             --       (320,249)           --
                                             ---------        ---------    -----------     ----------      --------
Income Before Cumulative
    Effect of Accounting
    Change.................................    104,314          141,755        192,993       (320,249)      118,813
Cumulative effect of
    accounting change, net ................         --               --         14,499             --        14,499
                                             ---------        ---------    -----------     ----------      --------
Net Income ................................  $ 104,314        $ 141,755    $   178,494     $ (320,249)     $104,314
                                             =========        =========    ===========     ==========      ========


</TABLE>

<PAGE>

<TABLE>


                              METRIS COMPANIES INC.
          Supplemental Condensed Consolidating Statements of Cash Flows
                         Six Months Ended June 30, 2002
                             (Dollars in thousands)
                                    Unaudited

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

<S>                                                 <C>            <C>            <C>              <C>            <C>
Operating Activities:
Net cash provided by operating activities ......... $   195,384    $    62,602    $   488,923      $   (93,940)   $      652,969
                                                    -----------    -----------    -----------      -----------    --------------

Investing Activities:
Net proceeds from sales and repayments of
   securitized loans ..............................          --             --       (202,787)              --          (202,787)
Net loans originated or collected .................         235             --      1,024,236               --         1,024,471
(Additions to) dispositions of property
    and equipment..................................          --         (5,381)         1,843               --            (3,538)
Investment in subsidiaries ........................     (23,855)       (39,234)            --           63,089                --
                                                    -----------    -----------    -----------      -----------    --------------
Net cash (used in) provided by investing
    activities.....................................     (23,620)       (44,615)       823,292           63,089           818,146
                                                    -----------    -----------    -----------      -----------    --------------

Financing Activities:
Net increase (decrease) in debt ...................         447           (104)      (292,190)              --          (291,847)
Net decrease in deposits ..........................          --             --       (736,147)              --          (736,147)
Cash dividends paid ...............................      (1,892)            --             --               --            (1,892)
Issuance of common stock ..........................       2,257             --             --               --             2,257
Repurchase of common stock ........................     (32,951)            --             --               --           (32,951)
Capital contributions .............................          --        (17,410)       (13,441)          30,851                --
                                                    -----------    -----------    -----------      -----------    --------------
Net cash used in financing activities .............     (32,139)       (17,514)    (1,041,778)          30,851        (1,060,580)
                                                    -----------    -----------    -----------      -----------    --------------
Net increase in cash and cash equivalents .........     139,625            473        270,437               --           410,535
Cash and cash equivalents at beginning of
   period .........................................      17,613          1,505        468,968               --           488,086
                                                    -----------    -----------    -----------      -----------    --------------
Cash and cash equivalents at end of
   period.......................................... $   157,238    $     1,978    $   739,405      $        --    $      898,621
                                                    ===========    ===========    ===========      ===========    ==============

</TABLE>

<PAGE>


<TABLE>

                              METRIS COMPANIES INC.
          Supplemental Condensed Consolidating Statements of Cash Flows
                         Six Months Ended June 30, 2001
                             (Dollars in thousands)
                                    Unaudited

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

<S>                                                 <C>            <C>            <C>              <C>             <C>
Operating Activities:
Net cash provided by operating activities ......... $    151,145   $   183,268    $   323,858      $  (332,400)    $     325,871
                                                    ------------   -----------    -----------      -----------     -------------


Investing Activities:
Net proceeds from sales and repayments of
   securitized loans ..............................         545            --        954,046                --           954,591
Net loans originated or collected .................     (57,761)           --     (1,143,165)               --        (1,200,926)
(Additions to) dispositions of
   property and equipment..........................          --       (14,636)        10,645                --            (3,991)
Investment in subsidiaries ........................    (176,900)     (213,497)            --           390,397                --
                                                    ------------   -----------    -----------      -----------     -------------

Net cash used in investing activities .............    (234,116)     (228,133)      (178,474)          390,397          (250,326)
                                                    ------------   -----------    -----------      -----------     -------------
Financing Activities:
Net increase (decrease) in debt ...................         446           (3)           (172)               --               271
Net increase in deposits ..........................        --             --          68,746                --            68,746
Cash dividends paid ...............................      (1,847)          --              --                --            (1,847)
Issuance of common stock ..........................      21,228           --              --                --            21,228
Capital contributions .............................          --       35,145          22,852           (57,997)               --
                                                    ------------   -----------    -----------      -----------     -------------
Net cash provided by financing activities .........      19,827       35,142          91,426           (57,997)           88,398
                                                    ------------   -----------    -----------      -----------     -------------
Net increase (decrease) in cash and cash
    equivalents....................................     (63,144)      (9,723)        236,810                --           163,943
Cash and cash equivalents at beginning of
    period.........................................      64,869       10,658         445,913                --           521,440
                                                    ------------   -----------    -----------      -----------     -------------
Cash and cash equivalents at end of
    period......................................... $     1,725    $     935      $  682,723       $        --     $     685,383
                                                    ============   ===========    ===========      ===========     =============

</TABLE>

<PAGE>


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


     The following discussion and analysis provides information management
believes to be relevant to understanding the financial condition and results of
operations of Metris Companies Inc. ("MCI") and its subsidiaries, including
Direct Merchants Credit Card Bank, National Association ("Direct Merchants
Bank"), which may be referred to as "we," "us," "our" and the "Company." You
should read this discussion along with the following documents for a full
understanding of our financial condition and results of operations: Management's
Discussion and Analysis of Financial Condition and Results of Operations in our
Annual Report on Form 10-K for the fiscal year ended December 31, 2001; and our
Proxy Statement for the 2002 Annual Meeting of Shareholders. In addition, you
should read this discussion along with our quarterly report on Form 10-Q for the
period ended June 30, 2002, of which this commentary is a part, and the
condensed consolidated financial statements and related notes thereto.


Results of Operations


     Net loss for the three months ended June 30, 2002 was $36.4 million,
compared to net income of $62.8 million for the second quarter of 2001. Diluted
loss per share for the three months ended June 30, 2002 was $0.74 compared to
diluted earnings per share of $0.69 for the second quarter of 2001. The decrease
in net income is primarily due to a decrease in net securitization and credit
card servicing income, increased marketing expenses, increased enhancement
services claims expense and a one-time charge of $10 million associated with a
write-down of portfolios of charged-off loans purchased in 2001 and 2000. The
decrease in the net securitization revenue relates to the estimated required
valuation allowance for the retained interests in loans securitized as of June
30, 2002. Increased net charge-offs, increased delinquency rates and the current
economic environment were some of the factors considered by management in
determining the necessary balance in the valuation allowance for the retained
interests. Enhancement services revenue increased 15% to $95.6 million for the
second quarter of 2002 compared to the same period in 2001. This increase was
primarily due to development of new third-party relationships and the creation
of new products.

     Net income for the six months ended June 30, 2002 was $16.0 million, down
from $104.3 million for the first six months of 2001. Net income reported for
the six-month period ended June 30, 2001 includes $14.5 million of a cumulative
effect of accounting change described below. Without this item, reported
earnings would have been $118.8 million for the six-month period ended June 30,
2001. Diluted loss per share for the six months ended June 30, 2002 was $0.04
compared to diluted earnings per share of $1.05 for the same period in 2001.
Without the impact of the cumulative effect of accounting change, diluted
earnings per share would have been $1.20 for the six months ended June 30, 2001.
The $102.8 million decrease in net income before cumulative effect of accounting
change primarily relates to a $69.9 million reduction in net securitization and
credit card servicing income, a $78.1 million increase in provision for loan
losses and a $23.8 million increase in operating expenses. This was partially
offset by enhancement services revenue increasing 18% to $190.6 million for the
six months ended June 30, 2002 compared to the same period in 2001.

     On January 1, 2001, we adopted Statement of Financial Accounting Standards
("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which establishes accounting and reporting standards for derivative
instruments. SFAS 133 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. Prior to SFAS 133, we amortized the
costs of interest rate contracts on a straight-line basis over the expected life
of the contract. The adoption of SFAS 133 resulted in a one-time, non-cash,
after-tax charge to earnings of $14.5 million reflected as a "Cumulative effect
of accounting change" in the consolidated statements of income for the six
months ended June 30, 2001.


Critical Accounting Policies

     The Company's most significant accounting policies are our determination of
the allowance for loan losses, valuation of retained interests and accounting
for deferred origination costs.

Allowance for loan losses

     We maintain an allowance for loan losses sufficient to cover anticipated
probable loan losses inherent in the credit card loan portfolio as of the
balance sheet date. The allowance is based on management's consideration of all
relevant factors including management's own assessment of applicable economic
and seasonal trends. In addition, we have incorporated updated regulatory
guidance regarding analysis and documentation for the allowance for loan losses.

     We segment the loan portfolio into several individual static pools with
similar credit risk and time since solicitation (vintage pools), and estimate
(based on historical experience and existing environmental conditions) the
dollar amount of loans in each 30-day delinquency bucket that will not be
collected and, therefore, will "roll" into the next 30-day bucket, (measured at
month end) and ultimately to charge-off. We then aggregate these pools into
prime and sub-prime portfolios based on the prescribed FICO score cuts and into
several other groups such as credit counseling and payment alternative
receivables. We separately analyze the reserve requirement on each of these
groups or portfolios. We then continually evaluate the homogenous static risk
pools using a roll rate model which uses historical delinquency levels and
pay-down levels (12 months of historical data, with significant influence given
to last six month's performance to capture current economic and seasonal
trends), loan seasoning and other measures of asset quality to estimate
charge-offs for both credit loss and bankruptcy losses.

     Additionally, in evaluating the adequacy of the loan loss reserves, we
consider several subjective factors which may be overlaid into the credit risk
roll-rate model in determining the ultimate loan loss reserve necessary to each
reporting period, including:

o    national and economic trends and business conditions, including the
     condition of various market segments;
o    changes in lending policies and procedures, including those for
     underwriting, collection, charge-off and recovery, as well as in the
     experience, ability and depth of lending management and staff;
o    trends in volume and the product pricing of accounts, including any
     concentrations of credit; and
o    impacts from external factors, such as changes in competition, and legal
     and regulatory requirements, on the level of estimated credit losses in the
     current portfolio.

     We reflect these factors in financial projections that we prepare to
estimate future charge-offs in the portfolio. We use those projections to
support the amount of the allowance for loan losses as of the balance sheet
date. Significant changes in these factors could impact our financial
projections and thereby affect the adequacy of our allowance for loan losses.

Retained interest

     The Company determines the fair value of the net retained interests by
calculating the present value of future expected cash flows using management's
best estimate of key assumptions including credit losses, weighted-average
spreads, payment rates and a discount rate commensurate with the risks involved.

     For purposes of determining the value of the retained interests, we have
included only cash flows associated with the excess spread and principal
receivables included in the retained interests as of the balance sheet date. We
have not included certain expected finance charge receivable cash flows in our
calculation.

     The significant assumptions used for estimating the fair value of the
retained interest in loans securitized are as follows:


                                                         June 30,   December 31,
                                                           2002        2001
                                                           ----        ----


Annual discount rate (1)...........................         15%          15%
Monthly payment rate .............................           6%           7%
Weighted-average spread (2) ......................          21%          20%
Annual principal and finance charge default rate..          20%          18%


(1) If we had included all expected finance charge receivable cash flows, our
effective discount rate would have ranged from 35% to 45%.

(2) Includes finance charges, late fees and overlimit fees, less
weighted-average cost of funds and 2% servicing fee.

Deferred acquisition costs

     We defer direct credit card origination costs associated with successful
credit card solicitations that we incur in transactions with independent third
parties, and certain other costs that we incur in connection with loan
underwriting and the preparation and processing of loan documents. We also defer
qualifying acquisition costs associated with our enhancement services products.
These costs, which relate directly to membership solicitations (direct response
advertising costs), principally include postage, printing, mailings and
telemarketing costs. The total amount of deferred costs as of June 30, 2002 and
December 31, 2001 were $91.8 million and $89.5 million, respectively. The most
significant assumption we used in determining the realizability of these
deferred costs is future revenues from our credit cards and enhancement services
products. A significant reduction in revenues could have a material impact on
the values of these balances.

Deferred revenue on Enhancement Services products


     Direct Merchants Bank offers various debt waiver products to its credit
card accountholders. Revenue for such products is recognized in the month
following completion of the cancellation period, and reserves are provided for
pending claims based on Direct Merchants Bank's historical experience with
settlement of such claims. Unearned revenues and reserves for pending claims are
recorded as "Deferred income" and "Accrued expenses and other liabilities,"
respectively. We record fees on membership programs as deferred income upon
acceptance of membership and amortize them on a straight-line basis over the
membership period beginning after the contractual cancellation period is
complete. We defer and recognize extended service plan revenues and the
incremental direct acquisition costs on a straight-line basis over the life of
the related extended service plan contracts beginning after the expiration of
any manufacturers' warranty coverage.

<PAGE>

<TABLE>


Table 1: Analysis of Average Balances, Interest and Average Yields and Rates

(Dollars in thousands)
                                                       Three Months Ended June 30,
                                                2002                                  2001
                               ------------------------------------------------------------------------
                                  Average                   Yield/        Average                 Yield/
                                  Balance      Interest     Rate          Balance     Interest     Rate
                                  -------      --------     ----          -------     --------     ----

<S>                             <C>           <C>            <C>       <C>           <C>            <C>
Assets:
Interest-earning assets:
Federal funds sold ...........  $    28,222   $       110    1.6%      $    31,013   $       329    4.3%
Short-term investments .......      477,642         2,359    2.0%          256,878         3,176    5.0%
Credit card loans and
 retained interests in loans
 securitized .................    3,303,923       134,759   16.4%        3,477,274       168,702   19.5%
                                -----------   -----------   ----       -----------   -----------   ----
Total interest-earning assets   $ 3,809,787   $   137,228   14.4%      $ 3,765,165   $   172,207   18.3%
Other assets .................      658,441            --     --           831,526            --     --
Allowances for loan
 losses and retained interests
 valuation allowance .........     (997,311)           --     --          (808,087)           --     --
                                -----------                            -----------

Total assets .................  $ 3,470,917            --     --       $ 3,788,604            --     --
                                ===========                            ===========
Liabilities and Equity:
Interest-bearing liabilities:
Deposits .....................  $ 1,518,104   $    18,335    4.8%      $ 2,061,761   $    32,936    6.4%
Debt .........................      356,693         8,620    9.7%          360,910        11,377   12.6%
                                -----------   -----------   ----       -----------   -----------   ----
Total interest-bearing
   liabilities ...............  $ 1,874,797   $    26,955    5.8%      $ 2,422,671   $    44,313    7.3%
Other liabilities ............      437,118            --     --           394,004            --     --
                                -----------                            -----------
Total liabilities ............    2,311,915            --     --         2,816,675            --     --
Stockholders' equity .........    1,159,002            --     --           971,929            --     --
                                -----------                            -----------
Total liabilities and equity..  $ 3,470,917            --     --       $ 3,788,604            --     --
                                ===========                            ===========

Net interest income and
   interest margin (1) .......           --   $   110,273   11.6%               --   $   127,894   13.6%
Net interest rate spread (2)..           --            --    8.6%               --            --   11.0%
Return on average assets .....           --            --   (4.2%)              --            --    6.6%
Return on average total
   equity ....................           --            --  (12.6%)             --            --    25.9%

</TABLE>

(1) We compute net interest margin 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.

     Net increase income decreased from $127.9 million for the three months
ended June 30, 2001 to $110.3 million for the three months ended June 30, 2002.
The decrease primarily relates to a decrease in the yield on credit card loans
and retained interests in loans securitized from 19.5% to 16.4% partially offset
by a rate decrease on interest-bearing liabilities from 7.3% for the three
months ended June 30, 2001 to 5.8% for the three months ended June 30, 2002.

<PAGE>

<TABLE>


Table 1: Analysis of Average Balances, Interest and Average Yields and Rates (cont'd)

(Dollars in thousands)
                                                       Six Months Ended June 30,
                                                 2002                                  2001
                               ------------------------------------------------------------------------
                                  Average                    Yield/       Average                 Yield/
                                  Balance      Interest      Rate         Balance     Interest     Rate
                                  -------      --------      ----         -------     --------     ----

<S>                             <C>           <C>            <C>       <C>           <C>           <C>
Assets:
Interest-earning assets:
Federal funds sold ...........  $    28,326   $       224    1.6%      $    97,425   $     2,640   5.5%
Short-term investments .......      375,204         3,563    1.9%          268,564         7,072   5.3%
Credit card loans and
 retained interests in loans
 securitized .................    3,594,325       286,973   16.1%        3,410,745       332,224  19.6%
                                -----------   -----------   ----       -----------   -----------  ----
Total interest-earning assets   $ 3,997,855   $   290,760   14.7%      $ 3,776,734   $   341,936  18.3%
Other assets .................      708,540            --     --           818,830            --    --
Allowances for loan
 losses and retained interests
 valuation allowance .........     (992,463)           --     --          (794,649)           --    --
                                -----------                            -----------

Total assets .................  $ 3,713,932            --     --       $ 3,800,915            --    --
                                ===========                            ===========
Liabilities and Equity:
Interest-bearing liabilities:
Deposits .....................  $ 1,722,869   $    41,988    4.9%      $ 2,095,898   $    69,559   6.7%
Debt .........................      403,824        17,132    8.6%          360,954        22,589  12.6%
                                -----------   -----------   ----       -----------   -----------  ----
Total interest-bearing
   liabilities ...............  $ 2,126,693   $    59,120    5.6%      $ 2,456,852   $    92,148   7.6%
Other liabilities ............      430,540            --     --           403,547            --    --
                                -----------                            -----------
Total liabilities ............    2,557,233            --     --         2,860,399            --    --
Stockholders' equity .........    1,156,699            --     --           940,516            --    --
                                -----------                            -----------
Total liabilities and equity..  $ 3,713,932            --     --       $ 3,800,915            --    --
                                ===========                            ===========
Net interest income and
   interest margin (1) .......           --   $   231,640   11.7%               --   $   249,788  13.3%
Net interest rate spread (2)..           --            --    9.1%             --              --  10.7%
Return on average assets (3) .           --            --    0.9%             --              --   6.3%
Return on average total
   equity (3) ................           --            --    2.8%             --              --  25.5%

</TABLE>

(1) We compute net interest margin 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.

(3) Amounts for the six-month period ended June 30, 2001 are shown before the
cumulative effect of accounting change.

     Net increase income decreased from $249.8 million for the six months ended
June 30, 2001 to $231.6 million for the six months ended June 30, 2002. The
decrease primarily relates to a decrease in the yield on credit card loans and
retained interests in loans securitized from 19.6% to 16.1% partially offset by
a rate decrease on interest-bearing liabilities from 7.6% for the six months
ended June 30, 2001 to 5.6% for the six months ended June 30, 2002.

<PAGE>


Other Operating Income


     Other operating income contributes substantially to our results of
operations, representing 54% and 66% of revenues for the three- and six-month
periods ended June 30, 2002, and 68% and 67% for the same periods in 2001,
respectively.

     Other operating income decreased $146.1 million and $46.7 million for the
three- and six-month periods ended June 30, 2002 compared to the same periods in
2001. These decreases are primarily due to the decrease in net securitization
and credit card servicing income. For the three- and six-month periods ended
June 30, 2002, net securitization and credit card servicing income decreased
$142.3 million and $69.9 million, respectively, from the comparable periods in
2001. These decreases reflect increases to the valuation allowance made in the
first six months of 2002 due to higher projected default rates.

     Credit card fees, interchange and other credit card income decreased $16.6
million and $6.3 million for the three- and six- month periods ended June 30,
2002 compared to the same periods in 2001. The decrease in credit card fees,
interchange and other credit card income is due to lower lower sales volume,
lower late fees and lower overlimit fee income. The decrease in late fees
reflects lower delinquencies, while the decrease in overlimit fees reflects
tightened criteria in authorizing customers to exceed credit line limits.

     Enhancement services revenues increased by $12.7 million and $29.5 million
for the three- and six-month periods ended June 30, 2002. These increases
reflect higher credit protection revenue due to increased receivables and higher
sales of our debt waiver products, as well as the increase in membership program
revenues resulting from additional product offers to third-party cardholders.


Other Operating Expense

     Total other operating expenses for the three- and six-month periods ended
June 30, 2002 increased $20.6 million and $23.8 million over the comparable
periods in 2001, largely due to costs associated with the growth of our business
activities. Credit card account and other product solicitation and marketing
expenses increased $4.7 million and $4.5 million over the comparable periods in
2001, largely due to increased costs associated with our credit card marketing
activity which resulted in over 400,000 new credit card accounts and 1.5 million
new enhancement services relationships during the first six months of 2002. The
increase in enhancement services claims expenses primarily reflects higher
claims paid on death benefits as well as an increase in our estimate of
unreported claims as of the balance sheet date. Other expenses increased $10.2
million and $7.1 million for the three- and six-month periods ended June 30,
2002 due to the one-time charge of $10 million associated with a write-down of
portfolios of charged-off loans purchased in 2001 and 2000.

<PAGE>


Asset Quality


     Our 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 our various
credit card account portfolios, the success of our collection and recovery
efforts, and general economic conditions. The average age of our credit card
account portfolio affects the stability of delinquency and loss rates. In order
to minimize losses, we continue to focus our resources on refining our credit
underwriting standards for new accounts, and on collections and post charge-off
recovery efforts. At June 30, 2002, 63% of our outstanding receivables balance
were from credit card accounts that have been with us in excess of two years,
and 38% of outstanding receivables were with us in excess of four years.


     We use credit line analyses, account management and customer transaction
authorization procedures to minimize loan losses. Our risk models determine
initial credit lines at the time of solicitation. We manage credit lines on an
ongoing basis and adjust them based on customer usage and payment patterns. To
maximize profitability, we continually monitor customer accounts and initiate
appropriate collection activities when an account is delinquent or overlimit.

Delinquencies


     Delinquencies not only have the potential to affect earnings in the form of
net loan losses, but they are also costly in terms of the personnel and other
resources dedicated to their resolution. It is our policy to continue to accrue
interest and fee income on all credit card accounts until we charge off the
credit card account, except in limited circumstances. FFIEC (Federal Financial
Institutions Examination Council) guidelines with respect to credit card issuers
permit the re-aging of past due accounts to current status only after receiving
the equivalent of three minimum payments or one lump sum equivalent.
Furthermore, accounts can only be re-aged to current once every twelve months
and two times every 5 years. Table 2 presents the delinquency trends of our
credit card loan portfolio.


<TABLE>

Table 2: Loan Delinquency

<S>                      <C>           <C>     <C>           <C>     <C>            <C>
(Dollars in thousands)
                          June 30,     % of    December 31,  % of     June 30,     % of
                            2002       Total      2001       Total      2001       Total
                            ----       -----      ----       -----      ----       -----

Loans outstanding....    $1,306,824     100%   $2,746,656     100%   $2,312,652     100%
Loans contractually
delinquent:
     30 to 59 days....       41,382     3.2%       87,603     3.2%       60,315     2.6%
     60 to 89 days....       35,161     2.7%       66,647     2.4%       47,167     2.0%
     90 or more days..       72,360     5.5%      125,961     4.6%       89,764     3.9%
                         ----------   -----    ----------   -----    ----------   -----
       Total .......     $  148,903    11.4%   $  280,211    10.2%   $  197,246     8.5%
                         ==========   =====    ==========   =====    ==========   =====

</TABLE>

     The 290 basis point increase in the delinquency rates over June 30, 2001
primarily reflects various factors, including a deterioration in the economy,
seasoning in the loan portfolio and the impact of our 2001 credit line increase
program. The credit line increase program added pressure to some of our
customers due to increased average outstanding balances, which require higher
monthly payments. This, along with a deteriorating economy, has put pressure on
our collections efforts, resulting in higher delinquencies.

<PAGE>


     Net Charge-Offs


     Net charge-offs are the principal amount of losses from credit card
accountholders unwilling or unable to make minimum payments, bankrupt credit
card accountholders and deceased credit card accountholders, less current period
recoveries. Net charge-offs exclude accrued finance charges and fees, which are
charged against the related income at the time of charge-off. The following
table presents our net charge-offs for the periods indicated as reported in the
consolidated financial statements.

<TABLE>

Table 3: Net Charge-offs

(Dollars in thousands)
                                           Three Months Ended             Six Months Ended
                                                June 30,                      June 30,
                                                --------                      --------
                                           2002           2001           2002           2001
                                           ----           ----           ----           ----

<S>                                     <C>            <C>            <C>            <C>
Average credit card loans ..........    $1,478,108     $1,548,810     $1,763,765     $1,424,470
Net charge-offs ....................        85,099         60,160        168,777        108,269
Net charge-off ratio ...............          23.1%          15.6%          19.3%          15.3%
                                        ==========     ==========     ==========     ==========
</TABLE>


     The increase in charge off ratios for the three- and six-month periods
ended June 30, 2002 primarily reflects a slowdown in loan growth, deterioration
in the economy and the 2001 credit line increase program.

Provision and Allowance for Loan Losses


     We make provisions for loan losses in amounts necessary to maintain the
allowance at a level estimated to be sufficient to absorb probable future loan
losses, net of recoveries, inherent in the loan portfolio.

     The economy has slowed down significantly over the last year, exacerbated
by the terrorist attacks on September 11, 2001. Also, our 2001 credit line
increase program added pressure to some of our customers due to increased
average outstanding balances which require higher monthly payments. This, along
with a deteriorating economy, has put pressure on our collection efforts,
resulting in higher delinquincies. This changing environment has caused our
delinquencies and losses to increase from prior years' levels. Some of the
actions we are taking to mitigate this slowdown include expanding our
collections strategies to aggressively address any potential delinquency
increases and using our recovery staff to work on precharge-off receivables. We
also leverage debt forbearance programs and credit counseling services for
qualifying credit card accountholders that are experiencing payment
difficulties. These programs include reduced interest rates, reduced or
suspended fees and other incentives to induce the customer to continue making
payments. The amount of customer receivables in debt forbearance programs was
$71.8 million or 5% of credit card loans as of June 30, 2002, compared with
$129.9 million or 5% of credit card loans as of December 31, 2001. All
delinquent receivables in debt forbearance programs are included in Table 2.

     The provision for loan losses was $90.7 million and $280.5 million for the
three- and six-month periods ended June 30, 2002, compared to $114.7 million and
$202.4 million for the same periods in 2001. The ratio of allowance for loan
losses to period-end loans was 21.1% at June 30, 2002, compared to 14.9% at
December 31, 2001. The allowance for loan losses as a percentage of 30-day plus
receivables was 184.9% at June 30, 2002 and 146.4% at December 31, 2001.

<PAGE>

Retained Interest Valuation

     We record a valuation allowance to reduce the contractual value of the
retained interests in loans securitized to fair value. The following summarizes
our net retained interests as of June 30, 2002, December 31, 2001, June 30, 2001
and December 31, 2000.

<TABLE>

                                                                  June 30,                              December 31,
                                                                    2002               Change                2001
                                                                    ----               ------                ----
<S>                                                          <C>                  <C>              <C>
     Gross retained interests..........................      $      1,466,442     $      202,787   $        1,263,655
     Valuation allowance...............................              (744,205)          (206,706)            (537,499)
                                                             ----------------     --------------   ------------------

     Net retained interest.............................      $        722,237     $       (3,919)  $          726,156
                                                             ================     ===============  ==================
</TABLE>


<TABLE>

                                                                  June 30,                                  December 31,
                                                                    2001              Change                    2000
                                                                    ----              ------                    ----
<S>                                                          <C>                  <C>              <C>
     Gross retained interests..........................      $      1,069,090     $       (954,591)  $        2,023,681
     Valuation allowance...............................              (568,084)              72,768             (640,852)
                                                             ----------------     ----------------   ------------------
     Net retained interest.............................      $        501,006     $       (881,823)  $        1,382,829
                                                             ================     ================   ==================
</TABLE>


     Gross retained interests in loans securitized increased $202.8 million to
$1.5 billion as of June 30, 2002, compared to $1.3 billion as of December 31,
2001. The increase is due to the sale of approximately $1.6 billion of
receivables from Direct Merchants Bank to the Master Trust during the six months
ended June 30, 2002. The $954.6 million decrease in gross retained interests
during the six months ended June 30, 2001 was primarily due to the maturity of a
securitization that was accounted for as a sale under SFAS 140. As a result,
approximately $855 million of receivables that were classified as retained
interests in loans securitized as of December 31, 2000 were classified as credit
card loans as of June 30, 2001. During the six months ended June 30, 2002 the
valuation allowance increased by $206.7 million primariy due to the higher gross
retained interests and slightly narrowing excess spreads in the Master Trust due
to increasing default rates. The weighted-average spread less default rate was
1% as of June 30, 2002, compared to 2% as of December 31, 2001. The $72.8
million primarily reflects lower gross retained interests.

Balance Sheet Analysis

     Cash and Cash Equivalents

     Cash and cash equivalents were $898.6 million as of June 30, 2002,
compared to $488.1 million as of December 31, 2001. The $410.5 million increase
is due to the Company's decision to maintain a high level of liquidity in the
current environment.

     Credit Card Loans

     Credit card loans were $1.3 billion as of June 30, 2002, compared to $2.7
billion as of December 31, 2001. The $1.4 billion decrease is primarily a result
of the transfer of $1.6 billion of receivables from Direct Merchants Bank to the
Master Trust.

     Deferred Tax Asset

     Total deferred tax asset increased to $32.9 million as of June 30, 2002
from $32.2 million as of December 31, 2001. The increase is the result of
various timing differences between accounting principles generally accepted in
the United States of America and tax accounting.

     Deposits

     Deposits decreased $736.1 million to $1.3 billion as of June 30, 2002,
compared to $2.1 billion as of December 31, 2001. The decrease relates to a
shift in funding from deposits to off-balance sheet asset-backed
securitizations.

     Debt

     Debt decreased to $356.1 million as of June 30, 2002 from $647.9 million as
of December 31, 2001 due to the paydown of a warehouse financing arrangement
entered into by Direct Merchants Bank in June 2001 that was accounted for as a
collateralized financing.

     Deferred Income

     Deferred income decreased $17.0 million to $198.0 million as of June 30,
2002 compared to $215.0 million as of December 31, 2001. The decrease primarily
relates to our shift from annual-billed to monthly-billed products.

     Stockholders' Equity

     Stockholders' equity was $1.1 billion as of June 30, 2002, a decrease of
$15.7 million from December 31, 2001. The decrease results from $33.0 million of
stock repurchases under our stock repurchase program in 2002 partially offset by
current year earnings.


Liquidity, Funding and Capital Resources


     One of our primary financial goals is to maintain an adequate level of
liquidity through active management of assets and liabilities. Liquidity
management is a dynamic process, affected by changes in the characteristics of
our assets and liabilities and short- and long-term interest rates. We use a
variety of financing sources to manage liquidity, refunding, and interest rate
risks. Table 4 summarizes our funding and liquidity as of June 30, 2002 and
December 31, 2001:

Table 4: Liquidity, Funding and Capital Resources

<TABLE>

(Dollars in thousands)
                                                      June 30, 2002                                      December 31, 2001
                                                      -------------                                      -----------------
                                                                         Unused                                           Unused
On-balance sheet funding                           Outstanding          Capacity                  Outstanding            Capacity
------------------------                           -----------          --------                  -----------            --------

<S>                                            <C>                  <C>                       <C>                   <C>
Bank conduit 2002.....................         $              --    $        100,000          $         292,000     $        108,000
Revolving credit line 2003............                        --             170,000                         --              170,000
Term loan 2003........................                   100,000                 N/A                    100,000                  N/A
Senior notes 10% 2004.................                   100,000                 N/A                    100,000                  N/A
Senior notes 10.125% 2006.............                   146,370                 N/A                    145,924                  N/A
Other.................................                     9,687                 N/A                      9,980                  N/A
Deposits..............................                 1,321,861                 N/A                  2,058,008                  N/A
Equity................................                 1,126,246                 N/A                  1,141,955                  N/A
                                               -----------------    ----------------          -----------------     ----------------
     Subtotal.........................         $       2,804,164    $        270,000          $       3,847,867     $        278,000


Off-balance sheet funding
-------------------------

Metris Master Trust...................         $       8,904,497    $      1,460,003          $       7,880,342     $        328,908
Metris facility.......................                    20,000              55,000                     15,500               59,500
                                               -----------------    ----------------          -----------------     ----------------
     Subtotal.........................         $       8,924,497    $      1,515,003          $       7,895,842     $        388,408
                                               -----------------    ----------------          -----------------     ----------------

     Total............................         $      11,728,661    $      1,785,003          $      11,743,709     $        666,408
                                               =================    ================          =================     ================
</TABLE>


     Under our revolving line of credit agreement, we need to maintain, among
other items, minimum equity plus reserves to managed assets of 10%, minimum
three-month average excess spread (by asset-backed securitization deal) of 1%,
minimum equity of $684 million and a ratio of equity plus reserves to managed
90-day plus delinquencies of 2.25. As of June 30, 2002 and December 31, 2001, we
were in compliance with all financial covenants under our credit agreements.

     The Master Trust and the associated securitized debt provide for early
amortization if certain events occur. These events are described in the
applicable prospectus of each securitization transaction. The most significant
events would be three consecutive months of less than zero percent excess spread
or negative transferor's interest within the Master Trust. In addition, there
are various triggers within our securitizatin agreements that, if met, would
restrict the release of cash to us from the Master Trust. This restricted cash
would provide additional security to the investors of the Master Trust. The
triggers are related to the performance of the Master Trust, specifically the
amount of net excess spread over a one- to three-month period. As of June 30,
2002, we have not met any triggers in our securitization agreements and,
therefore, no cash has been restricted.

     The company's equity as a percent of managed assets was 9.3% as of June 30,
2002 versus 9.4% as of December 31, 2001. The Company has historically retained
cash flow generated from earnings (versus declaring larger dividends) to provide
additional equity and liquidity to fund future receivables growth. In addition,
stock incentive plans provide us with a source of equity and liquidity.



<PAGE>


Capital Adequacy

     In the normal course of business, Direct Merchants Bank enters into
agreements, or is subject to regulatory requirements, that result in cash, debt
and dividend or other capital restrictions.

     The Federal Reserve Act imposes various legal limitations on the extent to
which banks can finance or otherwise supply funds to their affiliates. In
particular, Direct Merchants Bank is subject to certain restrictions on any
extensions of credit to or other covered transactions, such as certain purchases
of assets, with MCI and its affiliates. Such restrictions limit Direct Merchants
Bank's ability to lend to MCI and its affiliates. Additionally, Direct Merchants
Bank is limited in its ability to declare dividends to MCI in accordance with
the national bank dividend provisions.


     Direct Merchants Bank is subject to certain capital adequacy guidelines
adopted by the OCC. At June 30, 2002 and December 31, 2001, Direct Merchants
Bank's Tier 1 risk-based capital ratio, risk-based total capital ratio and Tier
1 leverage ratio exceeded the minimum required capital levels, and Direct
Merchants Bank was considered a "well-capitalized" depository institution under
regulations of the Office of the Comptroller of the Currency ("OCC"), as
illustrated in the following table.


     Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, Direct Merchants Bank must meet specific capital guidelines
that involve quantitative measures of assets, liabilities and certain
off-balance-sheet items as calculated under regulatory accounting practices.
Direct Merchants Bank's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings and
other factors.

     Quantitative measures established by regulation to ensure capital adequacy
require Direct Merchants Bank to maintain minimum amounts and ratios (set forth
in the following table) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier 1 leverage
capital (as defined) to average assets (as defined). Failure to meet minimum
capital requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material adverse effect on our financial statements.

     Additional information about Direct Merchants Bank's actual capital amounts
and ratios are presented in the following table:

<TABLE>
                                                                                    For Capital
                                                                                      Adequacy                  To Be Well
                                                         Actual                       Purposes                 Capitalized
                                                         ------                       --------                 -----------
              As of June 30, 2002             Amount              Ratio         Amount        Ratio        Amount         Ratio
                                              ------              -----         ------        -----        ------         -----



<S>                                           <C>                   <C>     <C>                 <C>         <C>            <C>
   Total Capital..................            $      380,364        27.6%   $      110,901      8.0%        $137,605       10.0%
   (to risk-weighted
          assets)

   Tier 1 Capital.................                   359,981        26.2%           55,042      4.0%          82,563        6.0%
   (to risk-weighted
          assets)

   Tier 1 Capital.................                   359,981        16.7%           86,479      4.0%         108,099        5.0%
   (to average assets)


</TABLE>

<TABLE>
                                                                                    For Capital
                                                                                      Adequacy                  To Be Well
                                                         Actual                       Purposes                 Capitalized
                                                         ------                       --------                 -----------
              As of December 30, 2002         Amount              Ratio         Amount        Ratio        Amount         Ratio
                                              ------              -----         ------        -----        ------         -----

<S>                                           <C>                   <C>     <C>                 <C>    <C>                 <C>
   Total Capital                              $      346,907        13.0%   $      213,733      8.0%   $     267,166       10.0%
   (to risk-weighted
          assets)

   Tier 1 Capital                                    308,186        11.5%          106,867      4.0%         160,300        6.0%
   (to risk-weighted
          assets)

   Tier 1 Capital                                    308,186        11.2%          110,573      4.0%         138,216        5.0%
   (to average assets)
</TABLE>

     FFIEC guidelines indicate that an institution with a concentration in
subprime lending should hold one and one-half to three times the normal minimum
capital required. The OCC has regulatory authority to evaluate the safety and
soundness of Direct Merchants Bank under these more stringent guidelines. The
OCC has required Direct Merchants Bank, under the more stringent guidelines, to
maintain two times the normal minimum capital on those credit card loans that
qualify as subprime loans (FICO score of 660 and below) and maintain a minimum
capital ratio of 10%. Under these more stringent guidelines, Direct Merchants
Bank's total capital ratio as of June 30, 2002 was 18.0%.


Regulatory Matters


     On April 16, 2002, Direct Merchants Bank entered into an agreement with the
OCC to strengthen the safety and soundness of Direct Merchants Bank's
operations. The agreement formalizes recommendations made and requirements
imposed by the OCC following an examination of Direct Merchants Bank that
covered the 15-month period ended December 31, 2001. On April 17, 2002, MCI
filed the agreement with the Securities and Exchange Commission as an exhibit to
and incorporated it by reference in a current report on Form 8-K.

     Direct Merchants Bank intends to comply with all of the terms of the
agreement in a timely manner. Furthermore, we believe that as of the filing date
of this Quarterly Report, Direct Merchants Bank has complied with all of the
terms of the agreement, including with respect to the updating, development,
adoption and delivery in a timely matter of its Strategic Plan, Capital Plan,
Contingency Funding Plan and various other written action plans. Direct
Merchants Bank has implemented the plans for which the OCC has posed no
objection and is revising or planning to implement all others, pending and in
response to comments from the OCC.

     If the OCC were to conclude that Direct Merchants Bank failed to implement
in a timely manner any provision of the agreement or that Direct Merchants Bank
otherwise violated the agreement, the OCC could pursue various enforcement
options. Under applicable provisions of the Federal Deposit Insurance Act, the
OCC may, among other things, pursue an order to cease and desist from any
further violations or take affirmative actions to correct conditions resulting
from violations or practices, place limitations on the activities of a bank that
in its opinion violated a written agreement, remove from office members of
management or the board of directors of a bank or prohibit further participation
by those persons in the bank's affairs, and assess civil money penalties. If any
of these events were to actually occur, we could not assure you that the event
would not have a material adverse affect on Direct Merchants Bank's operations
or capital position.


<PAGE>


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 higher delinquency,
charge-off and bankruptcy rates of our target market of moderate-income
consumers, risks associated with Direct Merchants Bank's ability to comply with
its agreement with the OCC regarding the safety and soundness of its
operations, risks associated with our continuing ability to market our
enhancement services and maintain or expand on current levels in that business,
interest rate risks, risks associated with acquired portfolios, dependence on
the securitization markets and other funding sources, state and federal laws and
regulations that limit our business activities, product offerings and fees,
privacy laws that could result in lower marketing revenue and penalties for
non-compliance, and general economic conditions that can have a major impact on
the performance of loans. 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, 2001. As a result of
these factors, we cannot guarantee any forward-looking statements. 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 our 10-K
for the year ended December 31, 2001 could also adversely affect us.


     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.





<PAGE>



Selected Operating Data - Managed Basis

     We analyze the Company's financial performance on a managed loan portfolio
basis. On a managed basis, the balance sheet and income statement includes other
investor's interest in securitized loans that are not assets of the Company,
thereby reversing the effects of sale accounting under SFAS 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities".
We believe this information is meaningful to the reader of the financial
statements. We service receivables that have been securitized and sold and own
the right to the cash flows from those sold receivables in excess of interest
payments due to security holders.

     The following information is not in conformity with accounting principles
generally accepted in the Unites States of America, however we believe the
information is relevant to understanding the overall financial condition and
results of operations of the Company.


<TABLE>

Table 5: Managed Loan Portfolio


(Dollars in thousands)            June 30,       % of      December 31,          % of        June 30,         % of
                                    2002         Total         2001             Total          2001           Total
                                    ----         -----         ----             -----          ----           -----
<S>                             <C>                <C>      <C>                   <C>      <C>                 <C>
Period-end balances:
   Credit card loans .........  $ 1,306,824                 $ 2,746,656                    $ 2,312,652
   Retained interests in loans
       securitized ...........    1,466,442                   1,263,655                      1,069,090
   Investors' interests in
       securitized loans
accounted for as sales .......    8,918,201                   7,895,842                      6,762,272
                                -----------                 -----------                    -----------
Total managed loan portfolio .  $11,691,467                 $11,906,153                    $10,144,014
                                ===========                 ===========                    ===========

Loans contractually
   delinquent:
     30 to 59 days ...........      358,567        3.1%         375,887           3.1%         253,328         2.5%
     60 to 89 days ...........      272,599        2.3%         274,278           2.3%         190,381         1.9%
     90 or more days .........      564,973        4.8%         473,003           4.0%         401,162         3.9%
                                -----------        ---      -----------           ---      -----------         ---
       Total .................  $ 1,196,139       10.2%     $ 1,123,168           9.4%     $   844,871         8.3%
                                ===========      =====      ===========         =====      ===========       =====
</TABLE>

<TABLE>

                                                                      Three Months Ended
                                                                           June 30,
                                                                           --------
                                                            2002                              2001
                                                            ----                              ----

<S>                                            <C>                       <C>    <C>                        <C>
Average balances:
Total managed loan portfolio..                 $        11,804,716        100%  $        9,854,072          100%
                                               ===================   =========  ==================     =========

Net charge offs...............                 $           441,787       15.0%  $          268,517         10.9%
                                               ===================   =========  ==================     =========
</TABLE>
<TABLE>

                                                                       Six Months Ended
                                                                           June 30,
                                                                           --------
                                                            2002                              2001
                                                            ----                              ----
<S>                                            <C>                       <C>    <C>                        <C>
Average balances:
Total managed loan portfolio..                 $        11,883,342        100%  $        9,625,357          100%
                                               ===================   =========  ==================     =========

Net charge offs...............                 $           826,464       14.0%  $          513,486         10.8%
                                               ===================   =========  ==================     =========
</TABLE>


     The 190 basis point increase in the managed delinquency rates over June 30,
2001 primarily reflects various factors, including a deterioration in the
economy, seasoning in the loan portfolio and the impact of our 2001 credit line
increase program. The credit line increase program added pressure to some of our
customers due to increased average outstanding balances, which require higher
monthly payments. This, along with a deteriorating economy, has put pressure on
our collection efforts, resulting in higher delinquencies. The increase in
charge off ratios for the three- and six-month periods ended June 30, 2002
primarily reflects a slowdown in loan growth, deterioration in the economy and
the previously discussed credit line increase program.

     The amount of customer receivables in debt forbearance programs was $828.9
million or 7% of total managed loans as of June 30, 2002 compared with $837.2
million or 7% of managed loans as of December 31, 2001. All delinquent
receivables in debt forbearance programs are included in Table 5.


Net Interest Income

<TABLE>
Table 6: Analysis of Average Balances, Interest and Average Yields and Rates

(Dollars in thousands)
                                                          Three Months Ended June 30,
                                                  2002                                    2001
                                --------------------------------------------------------------------------
                                  Average                    Yield/         Average                   Yield/
                                  Balance       Interest      Rate          Balance      Interest      Rate
                                  -------       --------      ----          -------      --------      ----
<S>                             <C>           <C>             <C>        <C>           <C>             <C>
Credit card loans ...........   $11,804,716   $   507,352     17.2%      $ 9,854,072   $   478,034     19.5%
Total interest-earning assets    12,310,580       509,821     16.6%       10,141,963       481,540     19.0%
Total interest-bearing
   liabilities ..............    10,375,477        80,947      3.1%        8,799,469       126,159      5.7%
Net interest income and
   interest margin (1) ......          --     $   428,874     14.0%             --     $   355,381     14.1%
Net interest rate spread (2)           --            --       13.5%             --            --       13.3%
Return on average assets ....          --            --       (1.2%)            --            --        2.5%
Return on average total
   equity ...................          --            --      (12.6%)            --            --       25.9%

</TABLE>

<TABLE>

                                                          Six Months Ended June 30,
                                                  2002                                    2001
                                --------------------------------------------------------------------------

                                  Average                  Yield/          Average                  Yield/
                                  Balance       Interest    Rate           Balance       Interest    Rate
                                  -------       --------    ----           -------       --------    ----
<S>                             <C>           <C>           <C>          <C>           <C>           <C>
Credit card loans ...........   $11,883,342   $ 1,032,712   17.5%        $ 9,625,357   $   938,647   19.7%
Total interest-earning assets    12,286,872     1,036,499   17.0%          9,991,346       948,360   19.1%
Total interest-bearing
   liabilities ..............    10,415,653       169,351    3.3%          8,671,464       266,469    6.2%
Net interest income and
   interest margin (1) ......          --     $   867,148   14.2%               --     $   681,891   13.8%
Net interest rate spread (2)           --            --     13.7%               --            --     12.9%
Return on average assets (3)           --            --      0.3%               --            --      2.4%
Return on average total
   equity (3) ...............          --            --      2.8%               --            --     25.5%
</TABLE>

(1) We compute net interest margin 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.

(3) Amounts for the six-month period ended June 30, 2001 are shown before the
cumulative effect of accounting change.

     Managed net interest income for the three months ended June 30, 2002 was
$428.9 million, compared to $355.4 million for the same period in 2001. For the
six months ended June 30, 2002, managed net interest income was $867.1 million
compared to $681.9 million for the same period in 2001. The increase in net
interest income is primarily due to the $2.2 billion and $2.3 billion increases
in managed average interest-earning assets for the three- and six-month periods
ended June 30, 2002, compared to the same periods in 2001.




<PAGE>


ITEM 3.           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


     Market risk is the risk of loss from adverse changes in market prices and
rates. Our principal market risk is due to changes in interest rates. This
affects us directly in our lending and borrowing activities, as well as
indirectly, as interest rates may impact the payment performance of our credit
card accountholders.

     To manage our direct risk to market interest rates, management actively
monitors the interest rates and the interest sensitive components of our 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. We seek to minimize the
impact of changes in interest rates on us primarily by matching asset and
liability repricings.

     Our primary managed assets are credit card loans, which are virtually all
priced at rates indexed to the variable Prime Rate. We fund credit card loans
through a combination of cash flows from operations, asset securitizations, bank
loans, subsidiary bank deposits, long-term debt and equity issuances. Our
securitized loans are owned by a trust and bank-sponsored single-seller and
multi-seller receivable conduits, which have committed funding primarily indexed
to variable commercial paper rates and LIBOR. The $270 million bank credit
facility has pricing that is also indexed to LIBOR and Prime Rate. The
subsidiary bank deposits and long-term debt are issued at fixed interest rates.
At June 30, 2002 none of the trust and conduit funding of securitized
receivables was funded with fixed rate securities.

     In an interest rate environment with rates at or below current rates, 100%
of the securitization funding for the managed loan portfolio is indexed to
floating commercial paper and LIBOR rates. In an interest rate environment with
rates significantly above current rates, the potentially negative impact on
earnings of higher interest expense is mitigated by fixed rate funding and
interest rate cap contracts.

     The approach we use to quantify interest rate risk is a sensitivity
analysis, which we believe best reflects the risk inherent in our business. This
approach calculates the impact on net income from an instantaneous and sustained
change in interest rates by 200 basis points. Assuming that we take no
counteractive measures, as of June 30, 2002, a 200 basis point increase in
interest rates affecting our floating rate financial instruments, including both
debt obligations and loans, would result in an increase in net income of
approximately $69 million relative to a base case over the next 12 months
compared to an approximately $20 million increase as of December 31, 2001. A
decrease of 200 basis points would result in a reduction in net income of
approximately $41 million as of June 30, 2002, compared to a $2 million
reduction as of December 31, 2001. The increased sensitivity to interest rate
fluctuation as of June 30, 2002 is due to a repricing on our credit card
portfolio implemented in the first quarter of 2002. You should not construe our
use of this methodology to quantify the market risk of financial instruments 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 our credit card
accountholders. The quantitative information about market risk is necessarily
limited because it does not take into account operating transactions or other
costs associated with managing immediate changes in interest rates.



<PAGE>


Part II. Other Information

Item 1. Legal Proceedings


     We are a party to various legal proceedings resulting from the ordinary
business activities relating to our operations. In July 2000 an Amended
Complaint was filed in Hennepin County District Court in Minneapolis, Minnesota
against MCI and our subsidiaries Metris Direct, Inc. and Direct Merchants Bank.
The complaint seeks damages in unascertained amounts and purports to be a class
action complaint on behalf of all credit card accountholders who were issued a
credit card by Direct Merchants Bank and were allegedly assessed fees or charges
that the cardholder did not authorize. Specifically, the complaint alleges
violations of the Minnesota Prevention of Consumer Fraud Act, the Minnesota
Deceptive Trade Practices Act and breach of contract. A final settlement
approval hearing was held on May 30, 2002, and the Court signed the order
granting final approval of the settlement whereby we will pay approximately $5.6
million for attorneys' fees and costs incurred by attorneys for the plaintiffs
in separate lawsuits filed in Arizona, California and Minnesota in 2000 and
2001. Under the terms of the settlement we denied any wrongdoing or liability.
The time for filing an appeal expired on August 5, 2002, and no appeal was
filed. We expect to implement the terms of the settlement on or about September
4, 2002.

     On May 3, 2001, Direct Merchants Bank entered into a consent order with the
OCC. The consent order required Direct Merchants Bank to pay approximately $3.2
million in restitution to approximately 62,000 credit card accountholders who
applied for and received a credit card in connection with a series of limited
test marketing campaigns from March 1999 to June 2000. Under the terms of the
consent order, Direct Merchants Bank made no admission or agreement on the
merits of the OCC's assertions. The restitution as required by the OCC consent
order was paid and is reflected in our December 31, 2001 financial statements.
We believe that Direct Merchants Bank's agreement with the OCC will not have a
material adverse affect on the financial position of MCI or Direct Merchants
Bank.

     In May 2001, the OCC also indicated that it was considering whether to
pursue an assessment of civil money penalties and gave Direct Merchants Bank the
opportunity to provide information to the OCC bearing on whether imposing a
penalty would be appropriate and the severity of any penalty. The statutory
provisions pursuant to which a civil money penalty could be assessed give the
OCC broad discretion in determining whether or not a penalty will be assessed
and, if so, the amount of the penalty. Because we are unable at this time to
determine whether or not any civil money penalty will be assessed, there can be
no assurance that the resolution of this matter will not have a material adverse
affect on our financial position.

     On April 16, 2002, Direct Merchants Bank entered into an agreement with the
OCC to strengthen the safety and soundness of Direct Merchants Bank's
operations. For further information, see "Regulatory Matters" on page 35 of this
Report.



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)  The Company held its annual meeting of shareholders on May 7, 2002 and
          the following matters were voted on at that meeting.

     (b)  The directors listed below were elected at that meeting.

          (1) The holders of our Common Stock elected two directors for a
          three-year term:

               Lee R. Anderson, Sr.                     John A. Cleary

          (2) The holders of our Series C Preferred Stock elected four directors
          for a one-year term:

             C. Hunter Boll     Thomas M. Hagerty       David V. Harkins
             Thomas H. Lee

          (3) The following directors, previously elected by the holders of our
          Common Stock, continued their terms of office after the meeting:

              Derek V. Smith        Edward B. Speno           Walter Hoff
              Frank D. Trestman     Ronald N. Zebeck

     (c)  Matters Voted Upon:

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

                                                                         Broker
          Director            For      Against  Withheld  Abstentions  Non-Vote
          --------            ---      -------  --------  -----------  --------
      Lee R. Anderson, Sr.  53,381,055   None   1,275,327   None         None
      John A. Cleary        53,576,945   None   1,079,437   None         None
      C. Hunter Boll        33,359,129   None    None       None         None
      Thomas M. Hagerty     33,359,129   None    None       None         None
      David V. Harkins      33,359,129   None    None       None         None
      Thomas H. Lee         33,359,129   None    None       None         None

          (2) The approval of an increase in the number of shares reserved for
          issuance pursuant to the Metris Companies Inc. Amended and Restated
          Long-Term Incentive and Stock Option Plan from 17,000,000 to
          19,000,000 shares.

                                                                 Broker
           For      Against      Withheld      Abstentions      Non-Vote
           ---      -------      --------      -----------      --------
       61,857,079  26,124,481       None          33,949           None

          (3) Ratification of the selection of KPMG LLP as independent auditors
          of the Company for 2002.
                                                                Broker
          For        Against     Withheld     Abstentions      Non-Vote
          ---        -------     --------     -----------      --------
       85,758,605   2,239,676      None          17,230           None


Item 5. Other Information Not applicable

Item 6. Exhibits and Reports on Form 8-K

     (a)  Exhibits:

          11   Computation of Earnings Per Share.

          99.1 Certification of Principal Executive Officer Pursuant to Section
               1350 of Chapter 63 of Title 18 of the United States Code.

          99.2 Certification of Principal Financial Officer Pursuant to Section
               1350 of Chapter 63 of Title 18 of the United States Code.

     (b)  Reports on Form 8-K: On April 17, 2002, we filed a Current Report on
          Form 8-K to report that our wholly-owned subsidiary, Direct Merchants
          Credit Card Bank, N.A., had entered into an agreement on April 16,
          2002 with the Office of the Comptroller of the Currency, the agency
          that regulates the Bank, to strengthen certain aspects of the safety
          and soundness of the Bank's operations. See Part 2, Item 1, "Legal
          Proceedings" on page 40.


<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.
                                  (Registrant)


Date:      August 14, 2002             By: /s/ David D. Wesselink
                                          -----------------------

                                          David D. Wesselink
                                          Vice Chairman
                                          Principal Financial Officer



Date:      August 14, 2002             By: /s/ Mark P. Wagener
                                          --------------------

                                          Mark P. Wagener
                                          Senior Vice President, Controller
                                          Principal Accounting Officer